Guidance

HS262 Income and benefits from transfers of assets abroad and income from Non-Resident Trusts (2023)

Updated 6 April 2024

This helpsheet gives you information to decide whether:

• you should report income of a person abroad as your income
• you should report benefits received out of income, or assets of a person abroad, as your income
• any of the amounts you report above are exempt from tax
• you should report income payments from a foreign trust

Transfers of assets — power to enjoy income

If you’ve transferred or taken any part in the transfer of assets, or there’s been an operation associated with a transfer and as a result of any of these relevant transactions, income has become payable to a person abroad, you should report the income if the following conditions are met:

• you’re resident in the UK for the tax year in which income becomes payable to the person abroad
• you have power (in whatever form) in the tax year to enjoy that income now or at any other time
• if that income were yours and received by you it would be chargeable to Income Tax
• the income received by the person abroad is not protected foreign income (see the sections on trusts protections and protected foreign Income)

Transfers of assets — entitlement to capital sums

If you’ve transferred or taken any part in the transfer of assets, or there’s been an operation associated with a transfer and as a result of any of these transactions income has become payable to a person abroad, you should report the income if the following conditions are met:

• you’re resident in the UK for the tax year in which income becomes payable to the person abroad
• you (or another person at your direction or on your assignment) have received this year or in the past, or are entitled to receive, a capital sum (including, for example, a loan) connected in any way with a relevant transaction
• the income received by the person abroad is not protected foreign income (see the sections on trusts protections and protected foreign Income).

Income

The income is the amount of income of the person abroad for the tax year that has become income of that person as a result of relevant transactions. All forms of income are included as well as certain items treated as income, like offshore income gains (for more information see the Offshore Funds Manual and the Savings and Investment Manual and chargeable event gains on certain insurance policies see, for example, Helpsheet 321 Gains on foreign life insurance policies.

Reporting income

Unless you’re completing box 46 on page F6 of the ‘Foreign’ pages’ report the amount of income as follows:

• enter in box 11 on page F3 of the ‘Foreign’ pages details of all dividends received on which you are chargeable including any allowable foreign tax credit
• enter in box 13 on page F3 of the ‘Foreign’ pages all other income including any tax paid on that income

You should enter details of the relevant transactions that have given rise to the income, and the offshore structures involved, in the ‘Any other information’ box, box 19 on page TR 7 of your tax return.

You should enter all income that’s chargeable to tax under the transfer of assets provisions at boxes 11 and 13 of the ‘Foreign’ pages not in the corresponding boxes elsewhere in the return for the type of income involved. For example, if interest income arose to a foreign company and that income is treated as yours under the transfer of assets provisions, then you should enter the income at box 13 not in the relevant boxes for interest.

If you are non-UK domiciled and the income arising to the person abroad is not ‘protected foreign income’ (see the section on trusts protections and protected foreign income) you have to report the income arising to the person abroad exactly as described above. There is, however, an exception for this if the remittance basis applies or has applied to you.

If the remittance basis applies to you this year then, to the extent that the amount you are due to otherwise report represents foreign deemed income, you only have to report that amount if, and to the extent that, it is remitted to the UK.

You will need to keep track of any amounts not reported this year under the previous paragraph as those amounts are ‘ring-fenced’ until they are remitted to the UK. To help you keep track of any amounts that you have ring-fenced this year, you may wish to enter details in the ‘Any other information’ box, box 19, of your tax return.

If the remittance basis applied to you in an earlier year, in addition to any amounts arising to you this year, then you have to report any of the ring-fenced amounts of those earlier years remitted to the UK this year.

If you’re reporting ring-fenced amounts that have been remitted to the UK this year, whether income or benefits, you should enter the amount in box 13 (along with any amounts to be included as income arising this year). You should complete Columns B and C as appropriate. You should not enter amounts in box 11 for remittances of ring-fenced income. You may also wish to draw attention to the fact that the return includes remittances of previously ring-fenced amounts in the ‘Any other information’ box, box 19, of your tax return.

These provisions only apply to amounts that are treated as foreign income arising on or after 6 April 2008.

If you’re unsure about what amount to report, you should ask your tax adviser or report the full details including amounts and your doubts in the ‘Any other information’ box, box 19, of your tax return.

If you’re the settlor of a non-resident trust that is covered by the trust protection measures, see the section on trusts protections and protected foreign income.

Transfers of assets — benefits received as a result of a relevant transaction

An individual may be chargeable on a benefit received as a result of relevant transactions if the individual:

• receives a benefit as a result of a relevant transaction made by another individual
• is a settlor of a non-resident trust covered by the trust protections and the individual, or in certain circumstances a close family member, receives a benefit from the trust or its underlying entities (see trusts protections and protected foreign income).

Benefits received as a result of relevant transactions made by another individual

If you’ve been provided with a benefit as a result of a relevant transaction made by another individual, then if the following conditions are met the value of any benefit (including payment) you receive may be treated as your income for tax purposes.

The conditions are:

• you’re resident in the UK for the tax year in which the benefit is received
• you’re not liable to Income Tax for the relevant transaction under either of the provisions mentioned previously
• you’re not otherwise liable to Income Tax on the benefit apart from this provision
• the person abroad has ‘available relevant income’ up to the amount of the ‘total untaxed benefits’

Relevant income if you have received benefits

To calculate the amount that you should report in the tax return you will need to follow these steps.

Step 1 — Identify the amount or value of benefits received in the tax year and in any earlier tax year in which there were taxable benefits (the total benefits).

Step 2 — Deduct from the total benefits the total amount treated as your income under these provisions for earlier tax years as a result of the relevant transactions. This is ‘the total untaxed benefits’.

Step 3 — Identify the amount of any income arising to the person abroad in the tax year which can, as a result of relevant transactions, be used directly or indirectly for providing a benefit. This is ‘the relevant income of the tax year’.

Step 4 — Add together the relevant income of the tax year and the relevant income of earlier tax years (identified on the same basis as Step 3). The sum of these amounts is the ‘total relevant income’. Ignore any income that arose before 10 March 1981.

Step 5 — Deduct from the total relevant income the amount deducted at Step 2 and any other amount not to be taken into account (for example, because of provisions for no duplication of charges). The result is ‘the available relevant income’.

Step 6 — Compare the total untaxed benefits and the available relevant income. Enter on your return the total untaxed benefits unless the available relevant income is lower. If the available relevant income is lower, then enter that amount.

If you received your payment or other ‘benefit’ from a UK resident trust which either has been a non-resident trust, or which has received assets from a trust which either is or has been a non-resident trust, only count income that arose while the relevant trust was abroad. If you’re unsure whether the trust is or has been a non-resident trust you should ask the trustees or your tax adviser.

Benefits include, for example, loans at less than a commercial rate of interest and the occupation or use of property at less than a commercial rental. The value of the benefit will be determined from the circumstances of the case, but may be the difference between the amount payable at the commercial rate of interest or rental and any amount actually paid by you.

You must also include indirect receipt of benefits, for example, if the benefit came from a company controlled by trustees, or from a UK resident trust that has been, or has received funds from, a non-resident trust.

You may need to ask the person abroad for information to complete your return.

If you are non-UK domiciled then you may not have to report benefits if the available relevant income — referred to at Step 6 — includes foreign income.

If the value of what you have received or benefited from exceeds the available relevant income, you may be liable to Capital Gains Tax on the excess. You may need Helpsheet 301 Beneficiaries receiving capital payments from non-resident trusts: calculation of the increase in tax charge as well as the ‘Capital gains summary’ pages.

Reporting benefits as a result of a relevant transaction made by another individual

Unless you’re completing box 46 of the ‘Foreign’ pages you should enter the amount from Step 6, in box 42 of the ‘Foreign’ pages.

Enter in the ‘Any other information’ box, box 19 on page TR 7 of your tax return:

• the full name and address of the person abroad receiving the available relevant income
• the details of the relevant transactions that have given rise to the income
• how you’ve calculated the benefits included on the return

Where the benefit has come from a UK resident trust in the circumstances described in the previous section, also give details of those circumstances including the full name of any other trust involved.

If you’re non-UK domiciled you may not have to report benefits if the relevant income includes foreign income see Step 6.

For benefits chargeable on a settlor of a non-resident trust covered by the trust protections see the section on trust protections and protected foreign income.

Trust protections and protected foreign income

From 6 April 2017, non- resident trusts settled by non-UK domiciled individuals, or by individuals who are treated as deemed domiciled in the UK because they’ve been resident in the UK for at least 15 of the previous 20 tax years before they became deemed domiciled, are subject to special rules. The rules also apply to the underlying companies of these trusts.

Under these rules, the settlor of such a trust will only be subject to a charge on the income arising to the person abroad if it is UK source income. The remainder of the income arising to the trust or its underlying entity will be protected foreign income and the settlor will be chargeable on benefits they receive from the trust or its underlying entities to the extent it is matched to the protected foreign income.

Such treatment will not apply to a non-resident trust and its underlying entities if, after the settlor becomes deemed domiciled in the UK, they provide additional property to the settlement. Or alternatively, a settlement of which they are the settlor or beneficiary provides such property. In such a situation overseas income will cease to be treated as protected foreign income and all of the income of the trust and its underlying entities will be subject to the transfer of asset abroad income charge.

It is important to note that the trust protections do not apply to non-resident trusts created by an individual born in the UK with a UK domicile of origin, or to trusts created when the settlor is deemed domiciled.

Benefits received by close family members

The changes from 6 April 2017 expand the transfer of assets benefits charge on non-domiciled settlors and certain deemed domiciled settlors to include benefits provided to a person who is a close family member of the settlor. This applies where the close family member was either:

• not resident in the UK in the tax year the benefit was received
• a UK resident remittance basis user and the benefit was not remitted to the UK

A close family member is:

• a spouse or civil partner of the settlor (if 2 people are living together as if they were spouses or civil partners of each other they will be treated as if they are spouses or civil partners)
• a child of the settlor or a child of the spouse or civil partner if the child has not reached 18

A settlor will be chargeable on a benefit provided to a close family member where the following conditions are met:

• the settlor must be resident in the UK at some time in the tax year
• the settlor is not domiciled in the UK at any time in the tax year
• the settlor is not regarded as deemed domicile in the UK at any time in the tax year because they were born in the UK and had a domicile of origin in the UK
• at no time in the tax year were the trustees of the settlement resident in the UK
• a benefit is received by a close family member of the settlor and the benefit can be matched with an amount of protected foreign income

The effect of the charge is to assess the settlor to the proportion of the benefit received by the beneficiary that is not taxed on the beneficiary in the UK.

Recipients of onward gifts

From 6 April 2018, the transfer of assets benefits charge provisions have been extended to include recipients of onward gifts. The changes will only apply to onwards gifts made from this date, but will affect gifts even where the distribution was made before 6 April 2018.

Under the new rules, distributions that are received from an offshore trust by an individual who is not taxable in the UK, are accredited to a UK resident who receives an onward gift from them. This provision only applies if there is an arrangement in place, or it is intended when the distribution was made to pass it in whole or part to another person. The effect of the charge is to assess the UK resident as though they have directly received the benefit from the offshore trust. If only a part gift is made, the total that can be taxed is restricted to the amount received.

The original beneficiary must:

• not be resident in the UK in the tax year
• be a remittance basis user who has not remitted the payment to the UK
• make the gift to the recipient within 3 years of the distribution

The recipient must be UK resident:

• in the tax year they receive the gift
• for the matching year (if later than the year they receive the gift)
• if the matched year is later than the gift year, the recipient can be UK resident for the gift year but non-UK resident for the matching year

A settlor may also be chargeable if either they or a close family member are gift recipients. In these circumstances, if the settlor is liable to tax, they are able to recover the amount from the recipient by getting a certificate from HMRC.

Protected foreign income chargeable

Where an individual is chargeable on a benefit they or a close family member have received, the amount of income to be subject to tax is calculated using the following steps:

Step 1 — the total benefits: identify the amount or value of such benefits received by the individual in the tax year and in any earlier tax year in which the benefits charge could or has applied. The benefits of an earlier year to be taken into account are those of a tax year in which there has previously been a benefits charge or in which there would have been a benefits charge, but for an insufficiency of relevant income to match against the benefits received. It should be noted that benefits provided to a transferor before 6 April 2017 will not be included in the calculating the transferors benefits for earlier years.

Step 2 — the total untaxed benefits: deduct from the total benefits the total amount of income treated as arising to the individual under the benefits charge in any earlier tax years, as a result of the relevant transfer or associated operations.

Step 3 — the relevant income of the tax year: identify the amount of income which arises in the tax year to a person abroad, and as a result of the relevant transfer or associated operations can be used directly or indirectly for providing a benefit for the individual.

Step 4 — total relevant income: add together the relevant income of the tax year and the relevant income of earlier tax years in relation to the individual.

Step 5 — the available relevant income: from the total relevant income deduct the amount deducted at Step 2 and any other amount which may not be taken into account because of the no duplication of charges provisions.

Step 6 — the income treated as arising: compare the total untaxed benefits (Step 2) and the available relevant income (Step 5). The amount of income treated as arising for the purpose of the benefits charge for any tax year is the total untaxed benefits or the available relevant income whichever is the lower.

Reporting protected foreign income

Unless you are completing SA106 box 46, details of protected foreign income chargeable on a settlor should be entered in SA106 box 42.

If you’re the settlor of a trust covered by the trust protections and you’re not deemed domiciled in the UK you’re only required to enter in box 42 details of benefits you or a close family member received where the benefit has been received or remitted to the UK.

For more information on the trust protections read the trust protections and Capital Gains Tax changes.

Relevant transaction

A relevant transaction is a relevant transfer or an associated operation. A transfer is a relevant transfer if it’s a transfer of assets and as a result of the transfer, or as a result of an operation associated with such a transfer, income becomes payable to a person abroad.

In this connection:

• ‘assets’ means tangible assets (for example, cash, property or shares) or intangible assets (for example, rights, such as rights to your services and so on)
• ‘associated operation’ means an operation of any kind, effected by any person, in relation to:
  (i) any of the assets transferred
  (ii) any assets directly or indirectly representing any of the assets transferred
  (iii) the income arising from any assets within (i) or (ii)
  (iv) any assets directly or indirectly representing the accumulations of income arising from any assets within (i) or (ii)

Person abroad

For the purpose of these provisions, a ‘person abroad’ means a person who is resident or domiciled outside the UK. That person could, for example, be an individual, a body of trustees, or a company. Certain persons are treated as resident outside the UK, including:

• trustees of certain settlements regarded as not UK resident
• certain personal representatives of a deceased person who are treated as non-UK resident

Spouse or civil partner involvement

You may still have to report income under this section even if you did not, yourself, make the relevant transactions or if you did, you cannot enjoy the income of the person abroad, or are not entitled to receive any capital sum connected in any way with the transfer. This may be the case where your spouse or civil partner made the relevant transactions or they can enjoy such income or receive, or be entitled to receive, such a capital sum.

Tax paid on the income

The following paragraph only applies if you’re reporting income.

If the amounts included in boxes 11 and 13 of the ‘Foreign’ pages include tax credits or other tax paid on the income of the person abroad, then you may be able to claim a deduction against your liability for that tax. You will only be entitled to relief for the tax paid by the person abroad if it is in effect tax on ‘the same’ income, and only to the extent that the tax has actually been paid by, and not refunded to, the person abroad.

You should include the amount of tax for which you can claim relief in Column C and you should also include it in box 2 of the ‘Foreign’ pages. You should note Column E of your claim. In addition, you should send a schedule with the ‘Foreign’ pages, showing the amount of each item of income, and tax credit or tax paid on that income, which has been included in either boxes 11 or 13, or both, and Column C.

If the tax for which you’re claiming relief is foreign tax, for which you wish to claim Foreign Tax Credit Relief (FTCR) (see page FN 3 of the ‘Foreign notes’), the details you enter on the schedule should include:

Column A — Country or territory code.
Column B — Amount of income arising or received before any tax taken off.
Column C — Foreign tax taken off or paid.
Column E — That you wish to claim FTCR and the rate of tax allowed (see page FN 3 of the ‘Foreign notes’).
Column F — Amount included in either box 11 or box 13, or both, which should be the amount arising before any tax is taken off.

In the event that you do not wish to claim FTCR for foreign tax, you should not make an entry in Column E and the amount you include in either box 11 or box 13,or both, should be the income after foreign tax.

If the tax for which you’re claiming a deduction is UK Corporation Tax then, in addition to entering the above details on the schedule, you should enter the full details of how you’ve calculated the amount of credit claimed, and particulars (name, address and, where appropriate, tax reference number) of the person or company which paid the tax in the ‘Any other information’ box, box 19, of your tax return.

If you do not yet know the final amount of tax paid by the person abroad, you should estimate the amount of credit available and amend your tax return when the final details are known. You must draw attention to the estimate and explain the circumstances in the ‘Any other information’ box, box 19, of your tax return. If any additional tax becomes payable as a result of using an estimate the usual provisions for charging interest on tax paid late will apply.

Income from a trust

If, as a result of your transfer of assets, income has become payable to a trust situated abroad, and you have received or are deemed to have received income from the trust, then you should ask for or download the ‘Trusts etc’ pages and trusts and settlements - income treated as the settlor’s (Self Assessment helpsheet HS270). This will allow you to consider whether you should report income of the trust under this heading or elsewhere on the tax return.

Qualifying for an exemption from charge on income or benefits

Income or benefits may be excluded from charge under these provisions if you can show from all the circumstances of the case that the purpose of avoiding liability to taxation was not the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.

Alternatively, if you can show that the transactions were genuine transactions and would otherwise be caught by the transfer of assets charge, such that a charge would breach EU Treaty Freedoms without justification, then the income or benefits may be excluded from charge. If you leave out income for either of these reasons from box 11, 13 or 42 of the ‘Foreign’ pages, you must enter the amount left out in box 46 and give relevant details and an explanation in the ‘Any other information’ box, box 19, of your tax return. Include details of the assets transferred and any associated operations, the persons abroad concerned, the circumstances of the relevant transactions and the basis for your claim to exclusion.

Income from non-resident trusts

If you have an absolute entitlement to the income from a non-UK resident trust, enter the foreign source income in boxes 4 to 9 on page F3 of the ‘Foreign’ pages according to the nature of the income. You should enter UK source income in boxes 3 to 5 on page T 1 of the ‘Trusts etc’ pages’(or as directed in the notes for those boxes on page TN 2 of the ‘Trusts etc notes’).

If you’ve received a discretionary payment from the non-UK resident trust, enter all of the income in box 41 on page F6 of the ‘Foreign’ pages unless the situation mentioned in the next paragraph applies.

If you wish to make a claim under Extra Statutory Concession B18, you should contact HMRC Trusts. In addition, you should advise your tax office that you are making a claim under Extra Statutory Concession B18 and, in the ‘Any other information’ box, box 19, of your tax return, enter details of the name of the trust from which the income payment was received and the tax reference of the trust.

If part or all of the income distribution has already been charged to tax in the UK on the settlor of the trust, see page TN 1 of the ‘Trusts etc. notes’. Instead of entering the amount so charged in box 41 of the ‘Foreign’ pages, include it in box 2 of the ‘Trusts etc’ pages. If you are the settlor and already chargeable on the income arising to the trustees, there is no need to include in box 41 or box 2 in the ‘Trusts etc’ pages any discretionary payments made to you by the trustees.

The amount you enter either in box 41 of the ‘Foreign’ pages or in box 2 of the ‘Trusts etc’ pages should take account of the effects of your residence or domicile status.

If you’re the settlor of a trust covered by the trust protection see trust protections and protected foreign income.

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