TSEM4750 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025 : Example – Close family members 

Mr C 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 2013/14, he settled foreign investments into a Jersey resident trust of which he was a beneficiary.  From 6 April 2015 through to 5 April 2025 the trustees received income on their investments of £300,000 per year.  No distributions were made during this period. The income from 6 April 2015 to 5 April 2017 would have been treated as Transitional Trust Income (TTI) under the 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 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 C was not UK domiciled,   

  • there was no time in the relevant tax years that Mr C 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 C, either directly or indirectly at a time when he was domiciled, or deemed domiciled in the UK 

 

Mr C was not taxed on the £300,000 of income in each of the years 2015/16 to 2024/25 because he was taxed on the remittance basis, the income was not remitted to the UK and is TTI/PFSI.  From the tax year 2025/26 onwards Mr C will be taxable on the income of the trust each tax year as it arises per tax year, because from 6 April 2025 the remittance basis of taxation and the concept of PFSI no longer applies.   

Mr C and his wife own properties in several countries and although Mr C is resident in the UK, his wife is resident overseas in 2025/26. In 2025/26, Mrs C receives a distribution from the Jersey Trust of £1 million from pre-2025 income to purchase a property in the UK. Mrs C will not be taxed on the distribution but Mr C will be taxed on it to the extent that it can be matched against TTI/PFSI that has arisen in the trust because: 

  • Mrs C is a close family member of Mr C and 

  • Mrs C is not resident in the UK in 2025/26 and  

  • Mr C is resident in the UK in 2025/26. 

£300,000 of TTI/PFSI has arisen to the trustees each year from 2015/16 through to 2024/25, amounting to £3 million. As there is sufficient TTI/PFSI to match against the distribution to Mrs C, Mr C will be taxable on the benefit of £1 million received by Mrs C in 2025/26. This will leave £2 million of TTI/PFSI available to be matched against any future benefits.