IFM13434 - Example showing how a UK resident but non-UK domiciled beneficiary may not be chargeable to tax on an offshore income gain arising in a non-resident settlement prior to 6 April 2008 - paragraph 100 Schedule 7 FA 2008

Example of effect of paragraph 100 Schedule 7 FA 2008

A settlement with non-UK resident trustees has never been settlor interested. The trustees own all the share capital of a non-UK resident company. Neither the trustees nor the company has received any income nor made any chargeable gains.

The non-resident company held a material interest in an offshore fund. When that was disposed of in 2005-06 an OIG amount of £60,000 arose.

The first capital payments to beneficiaries were made in 2010-11 which were:  

  • £40,000 to a UK resident and domiciled beneficiary
  • £40,000 to a UK resident but non-UK domiciled beneficiary
  • £40,000 to a non-UK resident beneficiary.

There is a matching of £20,000 of each of these capital payments with the 2005-06 OIG amount. Each beneficiary has £20,000 of offshore income gain attributed to them via section 87 TCGA rules. There are no unmatched OIG amounts to carry forward within the non-resident settlement structure.

The UK resident and domiciled beneficiary is chargeable to income tax in 2010-11 on the £20,000 offshore income gain attributed to them.

The UK resident but non-UK domiciled beneficiary is not chargeable to income tax on any of the £20,000 offshore income gain attributed to them. This is because the OIG amount used in the section 87 matching process arose before 6 April 2008 - paragraph 100(2)(b) Schedule 7 FA 2008.

The non-UK resident beneficiary is not chargeable to income tax on any of the £20,000 offshore income gain attributed to them.

There are unmatched capital payments of £20,000 to each beneficiary to carry forward at 5 April 2011.

The effect of this relief was preserved, from April 2025, by s53(3) and (4) of the Finance Act 2026. This was achieved by deeming the income that is treated as arising to an individual by matching the offshore income gains with benefits received by an individual under the Transfer of Assets Abroad provisions to constitute ‘non-chargeable income’ to the extent the conditions in this relief would have applied to limit the individual’s charge to income tax on the offshore income gain that would have been treated as arising to them to if the provisions had not been repealed. For more details on the Transfer of Assets Abroad provisions, see INTM600000.