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.