TSEM4760 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025: Example – Onward gifts 

Mrs D is resident in the UK but has never been classed as UK domiciled or deemed domiciled in the UK under condition A (returners).  She was taxed on the remittance basis each year up to and including 2024/25. In 2012/2013, 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 its investments of £250,000 per year. No distributions were made during this period. The income received from 6 April 2013 to 5 April 2017 is Transitional Trust Income (TTI) under the old section 628C ITTOIA 2005 and the income received from 6 April 2017 to 5 April 2025 is Protected Foreign-Source income (PFSI) under 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 Mrs D was not UK domiciled,   

  • there was no time in the relevant tax years that Mrs D 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 Mrs D, either directly or indirectly.    

Mrs D will not have been taxable on the £250,000 of income in each of the years 2013/14 to 2024/25 because she was taxed on the remittance basis, this income was not remitted to the UK and is TTI/PFSI.From the year 2025/26 Mrs D will be taxable on the income of the trust as it arises per tax year on the arising basis, because from 6 April 2025 the income is no longer treated as PFSI.   

In 2025/26 Mrs D’s adult son, who is non-UK resident, receives a distribution from the Jersey Trust of £20,000.  He is not taxable on this amount because he is not UK resident, and his mother is not taxable as he is no longer a close family member due to his age. 

He gifts this to his uncle (Mrs D’s brother), who is also non-UK resident but uses it to pay rent for Mrs D for the temporary use of a property.  

Neither the original recipient of the distribution (Mrs D’s adult son) nor the first subsequent recipient (Mrs D’s brother) will be taxable on the distribution. The final recipient of the distribution is Mrs D and it will form part of her untaxed benefits total.  She will be taxable on it to the extent that it can be matched against TTI/PFSI that has arisen in the trust.  

£250,000 of TTI/PFSI has arisen to the trustees each year from 2013-14 through to 2024/25, amounting to £3 million. As there is sufficient TTI/PFSI to match against the distribution to Mrs D’s son, Mrs D will be taxable on the benefit of £20,000 received by her son in 2025/26. This will leave £2,980,000 of TTI/PFSI available to be matched against any future benefits.