INTM603480 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017: Benefits charge arising on other individuals

With the introduction of the deemed domiciled rules and the changes to the operation of the transfer of assets abroad provisions for non-domiciled and deemed domiciled settlors, there was a concern that those affected would look to benefit indirectly from their settlor interested trusts by way of distributions made to non-resident and non-domiciled individuals. In doing this, they may have been able to avoid a benefit charge. To counter this, the benefit charge arising on such settlors and their close family members was expanded so that, in certain situations, a benefit received by a close member of the settlor’s family will be treated as arising to the settlor, and the settlor will be liable to tax on such benefits.

From 6 April 2017, the close family member rule was introduced. If certain members of the settlor’s family receive a benefit on which they are not taxable because of their UK residence or UK domicile status, the settlor will be liable for the tax under ITA07/S731 on the amount of the benefit, as if that amount were income arising to the settlor in the tax year (see INTM603500).

From 6 April 2018, a further charge was introduced in respect of onward gifts made by non-resident or non-domiciled beneficiaries of the trust as part of an arrangement to benefit a UK resident. In this situation, the onward gift recipient is treated as having received an amount of ITA07/S732 income equivalent to the income that arose to the original recipient of the distribution from the trust. The rules relating to onward gifts are considered in INTM603520 onwards.