INTM603655 - Transfer of assets abroad: 6 April 2025 non-UK domicile reforms: Changes to ITA07/S727 income charge
Before 6 April 2025, a UK resident individual who was non-UK domiciled could use the remittance basis of taxation. So, if they had made a relevant transfer which resulted in income becoming payable to a person abroad to which ITA07/S727 applied, they would only be assessable on an amount equivalent to the UK source income of the person abroad and any foreign source income that was remitted to the UK. INTM601960 onwards provides guidance on the application of the remittance basis to the income charge.
From 6 April 2025 the remittance basis of taxation has been removed and so a UK resident individual who is taxable under ITA07/S727 will be assessable on all the income arising to the person abroad, both UK source and foreign source, in the tax year in which the income arises.
Example 1
Mr C, a non-UK domiciled individual, became UK resident in 2013 - 2014. Shortly after arriving in the UK, he subscribed for shares a Jersey company C Ltd. Mr C then gave the shares in C Ltd to his son who is not UK resident. Mr C then made a loan of £1,000,000 to C Ltd on which no interest was charged. C Ltd used the loan to invest in overseas investments which generated income of £90,000 per year. Mr C meets the conditions for a charge under ITA07/S727 to apply, however as he is a remittance basis user - and as C Ltd has retained all the income overseas - no liability will arise on Mr C for the years 2013 - 2014 to 2024 - 2025. However, from 2025 - 2026 Mr C will be assessable on the £90,000 of income arising to C Ltd under ITA07/S727. Under ITA07/S729A Mr C will have the right to recover the income tax he has paid from C Ltd. See INTM601070 for more information on this right of recovery. The foreign income that arose to C Ltd during the years 2013 - 2014 to 2024 - 2025 may still be subject to an income tax charge on Mr C if this income is subsequently remitted to the UK (see INTM603665).
From 6 April 2025 the rules relating to the trust protections have been removed which means that the settlor of a non-resident trust - if they are UK resident and meet the capital receipt conditions - will be taxable on the income of the trust and its underlying entities as it arises. Guidance on how the trust protections applied for the years 2017- 2018 to 2024 - 2025 are at INTM603180 onwards.
Amendments to ITA07/S728 from 6 April 2025 remove previous rules effective from 6 April 2017. Those previous rules calculated the income of the person abroad on which the individual was taxable by reference to the individual’s domicile. Where the individual was non-domiciled or deemed domiciled, those previous rules removed any protected foreign-source income from charge. These amendments mean that from 6 April 2025 the amount treated as arising to the individual under ITA07/S727 is the amount of income arising to the person abroad. This will apply unless the individual comes within the 4-year FIG regime and makes a claim for the relevant tax year (see RFIG42100). For guidance on how to calculate the income of the person abroad see INTM601100 onwards.
Example 2
Mr D is not UK domiciled but is UK resident. In 2017, while still non-UK domiciled, he settled a Guernsey resident trust with £100 for the benefit of his two children. Mr D was excluded from being a beneficiary. The trustees in turn incorporated a Jersey company D Ltd and Mr D made a loan of £1,500,000 to D Ltd which was interest free. D Ltd invested £500,000 of the funds in UK investments and the remaining £1,000,000 into overseas investments. From 6 April 2017 to 5 April 2025 D Ltd received income on its UK investments of £50,000 per year and income on its overseas investments of £100,000 per year.
For the years 2017 - 2018 to 2024 - 2025 the income from the overseas investments of £100,000 per year has been treated as PFSI under ITA07/S721A. Consequently, Mr D will have only been taxable on the £50,000 of income in each of the years 2017 - 2018 to 2024 - 2025 under ITA07/S727 as this was UK source income. For the years 2025 - 2026 onwards Mr D will be taxable on all the income of D Ltd (£150,000) because from 6 April 2025 the income on the overseas investments will no longer be PFSI. From 6 April 2025 Mr D will have the right to recover the income tax he has paid from D Ltd under ITA07/S729A. See INTM601070 for more guidance on this right to recovery.
It should also be noted that the PFSI that has been accumulated within the trust structure during the years 2017 - 2018 to 2024 - 2025 will be available to match against any benefits that Mr D receives after 6 April 2025.