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INTM603580 | Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017 to 5 April 2025: Benefits charge where settlor liable following onward gift

From HM Revenue & Customs · International Manual

INTM603520 looked at the basic conditions needed for a charge under the onward gift provisions to apply.

This page looks as situations where the settlor is liable to tax following an onward gift as set out in ITA07/S733E.

ITA07/S733E applies to tax the settlor of a trust on the onward gift, if the subsequent recipient of the onward gift is a close member of the settlor’s family (see INTM603500 for the definition) and is either:

  • not UK resident in the charging year

or

  • UK resident, and

  • a remittance basis user for the charging year, and

  • none (or only part) of the onward payment is remitted to the UK in the charging year.

For the settlor to be assessable on the onward gift, they must be UK resident at a time in the charging year, and not be UK domiciled or deemed domiciled by virtue of Condition A of ITA07/S835BA (see INTM603220).

If the above conditions are met, then the effect of ITA07/S733E is to treat the onward gift as arising to the settlor under ITA07/S732. The amount of the deemed income is:

  • the amount of the onward payment attributable to the gift, or

  • if the remittance basis applies, the amount that is not remitted to the UK by the close member of the settlor’s family.

When calculating the amount of income on which the settlor is to be taxed under ITA07/S731, we deduct any part of that amount that is chargeable to income tax under any other provisions of the Taxes Acts.

The settlor has the right to recover the tax paid as a result of ITA07/S733E from the subsequent recipient and may obtain a certificate from HMRC of the deemed income and the income tax paid on it.

From 6 April 2025 the rules around the taxation of non-UK domiciled individuals ended and individuals are taxable based on their residence position only. This section only applies to the treatment of non-domiciled and deemed domiciled individuals for the years from 2017 - 2018 to 2024 - 2025. Detailed guidance on the changes made to the onward gift rules from 6 April 2025 can be found at INTM603725.

Example

Anthony is UK resident and is UK deemed domiciled for the year 2019 - 2020 because he has been UK resident for more than 15 of the last 20 years. During 2015 - 2016 Anthony settled the Anthony Discretionary Settlement in the Isle of Man. He is a beneficiary of the trust.

Richard is Anthony’s civil partner. Richard is UK resident, but is non-UK domiciled and a remittance basis user. He is also a beneficiary of the Anthony Discretionary Settlement.

In 2019 - 2020 Richard would like to receive a distribution from the trust, but rather than receive it directly it is decided it will be routed through Hamid. Hamid is a friend of the couple, and he is not UK resident. For the purposes of this example, it is assumed that all the conditions of ITA07/S733B are met.

In 2019 - 2020 the trustees of the Anthony Discretionary Settlement make a capital distribution of £15,000 to Hamid. There is sufficient protected foreign-source income within the trust to match against the distribution in 2019 - 2020. Hamid makes a gift of the £15,000 to Richard. Richard has not remitted any of the gift to the UK in 2019 - 2020.

As a result of ITA07/S733E we would treat Anthony as having deemed ITA07/S732 income of £15,000 in the year 2019 - 2020 and we would assess Anthony on the income of £15,000 under ITA07/S731.

If Richard were to remit any of the £15,000 to the UK in a subsequent tax year, he would not be chargeable to income tax on it. It should also be noted that Anthony would have the right to recover the tax he paid from Richard.

If during the year 2019 - 2020 Richard had remitted some of the gift of £15,000 to the UK,