TSEM4730 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025: Example – PFSI, TTI and the benefits charge 

Ms B is resident in the UK but has never been classed as UK domiciled or deemed domiciled in the UK under condition A. She was taxed on the remittance basis each year up to and including 2024/25.  In 2012/13 she settled foreign investments into a Jersey resident trust of which she was a beneficiary.  From 6 April 2013 to 5 April 2025 the trustees received income on their investments of £400,000 per year.  No distributions were made during this period. The income from 6 April 2013 to 5 April 2017 would have been treated as Transitional Trust Income (TTI) under 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 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 Ms B was not UK domiciled,   

  • there is no time in the relevant tax years that Ms B 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 Ms B, either directly or indirectly.    

Ms B will not have been taxable on the £400,000 of income in each of the years 2013/14 to 2024/25 because the income is PFSI or TTI and was not matched with a benefit taxable on her or remitted tot the UK.  From the year 2025/26 Ms B will be taxable on the income of the trust as it arises each tax year, because from 6 April 2025 the remittance basis of taxation and the concept of PFSI no longer applies. From this date, all UK residents are taxed on the arising basis. 

In 2025/26 Ms B is taxable on the income received by the trustees in that tax year as it arises under section 624 ITTOIA 2005.  She also receives a distribution from the Jersey Trust of £5 million, paid from the pre-2025 income, to purchase a property.   £400,000 of TTI has arisen to the trustees each year from 2013/14 through to 2016/17, amounting to £3.2 million and £400,000 of PFSI has arisen to the trustees each year from 2017/18 through to 2024-25, amounting to £3.2 million. There is a total of £6.4 million TTI/PFSI available to match against this distribution.  As there is sufficient TTI/PFSI to match against this distribution Ms B will be taxable under section 643A ITTOIA 2005 on the benefit of £5 million she receives in 2025/26. This will leave £1.4 million of TTI/PFSI available to be matched against any future benefits.  Income received by the trustees after 2025/26 will not be PFSI and so will not add to this PFSI pool. 

In 2026/27 Ms B is taxable on the income received by the trustees in that tax year as it arises under section 624 ITTOIA 2005.  She also receives a further distribution of £1 million from the trust (also paid to her from the pre-6 April 2025 income) to assist in renovating the property.  As sufficient TTI/PFSI remains to match against this distribution Ms B will be taxable under section 643A ITTOIA 2005 on the benefit of £1 million she receives in 2026/27. This will leave £400,000 of TTI/PFSI available to be matched against any future benefits.  

In 2027/28 Ms B receives a further distribution of £600,000 from the trust (also paid to her from the pre-2025 income) to assist in additional renovations to the property. Ms B will be taxable under section 643A ITTOIA 2005 on £400,000 of this capital distribution as there is only £400,000 of TTI/PFSI remaining in the trust to be matched against the £600,000 she received. 

Ms B can designate the amounts taxable on her 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 taxed on her in relation to the income received by the trustees in the tax years 2025/26 onwards cannot be designated under the TRF.