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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance Basis: Identifying Remittances: Specific Topics: Settlements: Chapter 5 Part 5 ITTOIA 2005

When applying the remittance basis rules to trust income you need to consider the terms of the trust under general law and the tax treatment flowing from these terms to determine who is potentially chargeable in the first place and whether it is the settlor or the beneficiary who needs to consider the remittance basis rules.

This page provides an overview of the position for beneficiaries or settlors only. It does not cover the taxation position of trustees.

Refer to the Trusts, Settlements and Estates Manual (TSEM) for further details about taxation of trusts.

A beneficiary or beneficiaries of the trust may receive or be entitled to receive income under the terms of the trust but the tax position will not always follow this. This is because there are special taxation rules that treat the income to be that of the settlor and not of the beneficiary in certain circumstances. ITTOIA05/s624 and ITTOIA05/s629.


Heike is a 25 year old UK resident. Heike (the beneficiary) has a life interest in a Jersey trust created (settled) by her father Dieter (the settlor). Dieter cannot benefit from the trust. Heike is therefore entitled to and chargeable on each source of trust income arising to the trust less any allowable trust management expenses. However any foreign source income [in the trust] is subject to the remittance basis if it applies. Heike will therefore need to take this [trust] income into account in managing her tax affairs and deciding whether she wishes to claim the remittance basis.

In the example above the special rules at ITTOIA/624 and s629 that treat the income as the settlor’s do not apply because Dieter cannot benefit from the trust at all, and Heike is not a minor.

Settlor retains an interest - ITTOIA05/s624

Where a settlor creates a settlement and retains an interest in the property in that settlement the income arising to the trust is treated, for income tax purposes, as the income of the settlor alone. This is the case even where the trust income is paid to someone else.

A settlor has ‘retained an interest’ if the property or income may be applied for the benefit of the settlor, or if the property or income may be applied for the benefit of a spouse or civil partner - refer to TSEM 4200.

However where the settlor uses the remittance basis any relevant foreign income that arises under the trust is not chargeable on the settlor until it is remitted. Where such income is not remitted in the year that it arises then it may be chargeable on a person other than the settlor, if that person is actually entitled to it under the terms of the trust, and if that person would have been chargeable on it if the special rules at ITTOIA05/s624 did not apply. If the trust income is remitted in a later tax year it will be treated as income of the settlor for the year in which it is remitted (ITTOIA05/s648(3)).


Fernanda who is not domiciled in the UK creates a discretionary trust for her grandchildren. Under the terms of the trust it is possible for the trustees to make a payment to Fernanda if they wish to do so, so this is a trust in which the settlor maintains an interest. The monies settled are invested by the trustees into an offshore bank account on which interest (relevant foreign income) is paid.

The trustees decide not to make any payments to any beneficiary in tax year 2009-10.

Fernanda chooses to be taxed on the arising basis for that year. As Fernanda (the settlor) retains an interest in the property or income of the trust, the income arising under the settlement (that is, the interest) is treated as hers for income tax purposes irrespective of whether she receives it or not.

If Fernanda chooses to be taxed on the remittance basis she is not taxed on any relevant foreign income arising to the trust in the year because nothing has been remitted to the UK. If the trust received any UK income it would be chargeable on Fernanda as the charging of UK income is unaffected by her domicile position.

Note: Some transitional provisions apply for income arising under a settlement prior to 5 April 2008, but remitted and chargeable on the settlor after 6 April 2008. RDRM31480 - Transitional provisions - relevant persons and foreign income and gains arising to a settlement before 6 April 2008.