TSEM4725 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025: Example – PFSI and the benefits charge   

Mr A is resident in the UK but has never been classed as UK domiciled or deemed domiciled in the UK under condition A. He was taxed on the remittance basis each year up to and including 2024/25. In 2015/16, he settled foreign investments into a Jersey resident trust of which he was a beneficiary.  From 6 April 2017 to 5 April 2025 the trustees received income on its investments of £500,000 per year. No distributions were made during this period. This income would have been treated as Protected Foreign-Source Income (PFSI) under the old section 628A ITTOIA 2005 because:   

  • the income would have been relevant foreign income if it were income of a UK resident individual,    

  • the income was from property that originated from the settlor,   

  • when the settlement was created Mr A was not UK domiciled 

  • there was no time in the relevant tax years that Mr A was UK domiciled, or deemed domiciled in the UK under Condition A,   

  • the trustees were not UK resident for the relevant tax years,   

  • no further property or income was provided for the purpose of the settlement by Mr A, either directly or indirectly.    

Mr A will not have been taxable on the £500,000 of income in each of the years 2017/18 to 2024/25 because this income is PFSI and has not been matched to a benefit chargeable on him.  From the tax year 2025/26 the remittance basis of taxation and the concept of PFSI will no longer apply so Mr A will be taxable on his worldwide income on the arising basis.  He will pay tax on the income of the trust as it arises per tax year.


Tax year Foreign income received by trustees Total PFSI accumulated
2017/18 £500,000 £500,000
2018/19 £500,000 £1,000,000
2019/20 £500,000 £1,500,000
2020/21 £500,000 £2,000,000
2021/22 £500,000 £2,500,000
2022/23 £500,000 £3,000,000
2023/24 £500,000 £3,500,000
2024/25 £500,000 £4,000,000

In 2025/26 Mr A is taxable on the £500,000 of income received by the trustees in that tax year as it arises under section 624 ITTOIA 2005.  He also receives a distribution from the Jersey Trust of £3 million to purchase a property which is paid from the pre-6 April 2025 income.  £500,000 of PFSI has arisen to the trustees each year from 2017/18 through to 2024/25, amounting to £4 million.  As there is sufficient PFSI to match against this distribution Mr A will be taxable on the benefit of £3 million he receives in 2025/26 under section 643A ITTOIA 2005. This will leave £1 million of PFSI available to be matched against any future distributions.  Income received by the trustees after 2025/26 will not be PFSI and so will not add to this PFSI pool. 

In 2026/27 the trustees’ income has reduced to £200,000.  Mr A is taxable on this as it arises under section 624 ITTOIA 2005.  He also receives a further distribution of £1.5 million (also paid from the pre-6 April 2025 income) from the trust to assist in renovating the property.  Mr A will be taxable on £1 million of this capital distribution under section 643A ITTOIA 2005 as there is only £1 million of PFSI remaining in the trust to be matched against the £1.5 million he received.  

Mr A can designate the amounts taxable on him under section 643A ITTOIA 2005 under the Temporary Repatriation Facility (TRF), which is available from tax years 2025/26 through to 2027/28.  The amounts received by the trustees in tax years 2025/26 onwards, but taxed on him, cannot be designated under the TRF.