TSEM4750 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025 : Example 鈥� Close family members鈥�

Mr C is resident in the UK听but has never been classed as UK domiciled or deemed听domiciled in the UK under condition A.鈥�听He was taxed on the remittance basis each year up to and including 2024/25. In 2013/14, he settled foreign investments into a Jersey resident trust of which he was a beneficiary.鈥� From 6 April 2015 through to 5 April 2025 the trustees received income on their听investments of 拢300,000 per year.听听No distributions were made during this period.鈥疶he income from 6 April 2015 to 5 April 2017 would have been treated as Transitional Trust Income (TTI) under the old section 628C ITTOIA 2005 and the income from 6 April 2017 to 5 April 2025 would have been treated as Protected Foreign-Source Income (PFSI) under the听old section 628A ITTOIA 2005 because:鈥€�听

  • the income would have been relevant foreign income if it were income of a UK resident individual,鈥赌€�听

  • the income was from property that originated听from the settlor,鈥赌�听

  • when the settlement was created Mr C was not UK domiciled,鈥赌�听

  • there was no time in the relevant tax years听that Mr C was UK domiciled, or deemed听domiciled in the UK under Condition A,鈥赌�听

  • the trustees were not UK resident for the relevant tax years,鈥赌�听

  • no further property听or income was provided for the purpose of the settlement by Mr C, either directly or indirectly听at a time when he was domiciled, or deemed听domiciled in the UK听

听

Mr C was not taxed听on the 拢300,000 of income in each of the years 2015/16 to 2024/25 because he was taxed on the remittance basis,听the income was not remitted to the UK听and is 罢罢滨/笔贵厂滨.鈥� From听the tax year 2025/26 onwards Mr C will be taxable on the income of the trust听each tax year听as it arises听per tax year, because from 6 April 2025 the remittance basis of taxation听and the concept of PFSI听no longer applies.听听听

Mr C and his wife own properties in several countries and although Mr C is resident in the UK, his wife is resident overseas in 2025/26. In 2025/26, Mrs C receives a distribution from the Jersey Trust of 拢1 million from pre-2025 income to purchase听a property in the UK. Mrs C will not be taxed on the distribution听but Mr C will be taxed on it to the extent that it can be matched against TTI/PFSI that has arisen in the trust听because:听

  • Mrs C is a close family member of Mr C and听

  • Mrs C is not resident in the UK in 2025/26 and听听

  • Mr C is resident in the UK in 2025/26.听

拢300,000 of TTI/PFSI has arisen to the trustees each year from 2015/16 through to 2024/25, amounting to 拢3 million. As there is sufficient TTI/PFSI to match against the distribution to Mrs C, Mr C will be taxable on the benefit of 拢1 million received by Mrs C in 2025/26. This will leave 拢2 million of TTI/PFSI听available to be matched against any future benefits.鈥�听