TSEM4605 | Settlements legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2017-5 April 2025: Background

The guidance on this page relates to the period 6 April 2017 - 5 April 2025. 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. Detailed guidance on the changes from 6 April 2025 can be found at TSEM4700 onwards.

Background

In his 2015 budget statement the Chancellor announced changes to the taxation of non-domiciled individuals. One of these was the expansion of the concept of being ‘deemed domiciled’ in the UK for income tax purposes. A deemed domiciled individual would not be able to claim the remittance basis of taxation. Individuals affected were split into two groups, the first being long-term resident non-domiciles (condition B) and the second known as ‘returners’ (condition A) who were individuals who were non-domiciled, bur resident in the UK in the relevant year and were born in and have a domicile of origin in the UK. For further details of when an individual will be considered deemed domiciled see INTM603200

The government announced that non-domiciliaries who set up non-resident trust structures before becoming deemed domiciled in the UK under the long-term resident rules would not be taxed on the foreign source income of such trusts and their underlying companies provided that such income was retained within the structure and no further property was settled.

From the 6 April 2017 deemed-domiciled long-term resident settlors would be liable to pay income tax on the UK source income arising within a trust structure in which they had retained an interest.

From 2018/19 a benefits charge was introduced to tax any benefit received from the trust to the extent that such benefits could be matched with this protected foreign source income within the trust.

Similar amendments have also been made in respect of the Transfer of Assets Abroad (ToAA) legislation and for capital gains arising in these structures. Neither of these areas are covered by this manual.

The guidance in this manual will assume that the settlements legislation is in point, and no consideration will be given to ToAA or CGT legislation. Please see the relevant guidance for these areas.