TSEM4735 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025 : Example -the benefits charge and choice of who is chargeable
Mr P has been resident in the UK since 2012/13 but has never been classed as UK domiciled or deemed domiciled in the UK under condition A. In 2018 he established the P family Trust for the benefit of him and his family at the trustees’ discretion. From 2018/2019 through to 2024/25 income arose to the trustees of £150,000 per year. No distributions were made and the income was all retained in the structure as PFSI amounting to a total of £1,050,000.
In 2025/2026 the trustees purchased a home in Spain for the equivalent of £500,000 for Mr & Mrs P equally, who were resident in the UK at the time. Following this, the total ‘untaxed benefit total’ is £500,000 after carrying out the steps at section 643B ITTOIA 2005, and there is sufficient ‘available protected income’ to match against this amount in full. The full amount of £500,000 is chargeable under section 643A ITTOIA 2005.
Because the benefit has been provided for both Mr P, who is the settlor, and Mrs P who is a close member of the settlor’s family, there is a choice about who the income should be treated as arising to. The rule at section 643A (3) ITTOIA 2005 allows for an officer of HMRC to apportion the treatment between Mr P and Mrs P in a way that is just and reasonable. In this instance it is likely that it would be just and reasonable for them to each have £250,000 treated as their income as this corresponds to the share of the £500,000 property that they each received the benefit of.