From 6 April 2025 a UK resident settlor of a non resident trust is taxed on the trust’s income and gains as they arise wherever the settlor or their spouse can benefit, whatever the settlor’s domicile and whenever the trust was made. The 2017 protections for non domiciled and deemed domiciled settlors were repealed, leaving only the four year foreign income and gains regime for genuinely new arrivals and special matching rules for income and gains built up before the change.

What was a protected settlement?

Between 6 April 2017 and 5 April 2025, a non domiciled settlor who had become deemed domiciled under the 15 out of 20 year rule (Condition B) could keep foreign income and gains inside a trust they had set up before becoming deemed domiciled without being taxed on them as they arose. HMRC’s Trusts, Settlements and Estates Manual at TSEM4610 lists the conditions for income to be protected foreign source income under section 628A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005): broadly, it had to be foreign income from property the settlor provided, the settlor had to be non UK domiciled when the trust was created (and, for trusts made from 6 April 2017, not deemed domiciled either), the trustees had to be non resident, and nothing could be added to the trust while the settlor was domiciled or deemed domiciled.

Breaking that last condition was called tainting, and once a trust was tainted all of its income became taxable on the settlor as it arose. Parallel protections existed for capital gains in paragraph 5A of Schedule 5 to the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and for the transfer of assets abroad rules (CG38435). The settlor was then taxed only when they or close family received a benefit.

What changed on 6 April 2025?

HMRC states at TSEM4705 that the protection from tax on foreign income and gains arising within offshore settlor interested structures is no longer available, even if the income and gains remain offshore. The legislation was changed in several places with effect from 2025 to 2026:

  • sections 628A to 628C and 630A ITTOIA 2005 were repealed, so protected income no longer arises (TSEM4710);
  • paragraph 5A of Schedule 5 TCGA 1992 was omitted for 2025 to 2026 onwards;
  • the requirement in section 86(1)(c) TCGA 1992 that the settlor be UK domiciled was removed, so the gains charge now looks only at whether the settlor is UK resident;
  • section 721 of the Income Tax Act 2007 (ITA 2007) no longer removes protected foreign source income from the transfer of assets abroad charge (INTM603635).

The result is that settlors who used to be non domiciled are now taxed in the same way as settlors who were always UK domiciled. The age of the trust makes no difference.

How is the trust’s income taxed on the settlor now?

Several overlapping charges can apply, and they are covered in more depth on our page on settlor interested trusts. TSEM4705 summarises how they now apply to offshore trusts:

  • Section 624 ITTOIA 2005. If the settlor or their spouse or civil partner can or may benefit, all income arising under the settlement, UK and foreign, is taxed on a UK resident settlor as it arises.
  • Section 629. Income paid to or for the settlor’s minor unmarried child is taxed on the settlor even if it stays offshore, unless already taxed under section 624 or it does not exceed £100.
  • Section 633. A capital sum paid to the settlor from a foreign source can be treated as the settlor’s income when matched, even if it stays offshore.
  • Section 720 ITA 2007. Where the trust holds an offshore company, the transfer of assets abroad income charge treats the company’s income as the settlor’s if they have power to enjoy it.

The settlor pays the tax personally but can recover it. Section 646 ITTOIA 2005 entitles the settlor to recover tax charged under sections 624 or 629 from the trustees, and HMRC will certify the amount on request. Section 725A ITA 2007 gives a similar right against the person abroad for the transfer of assets abroad charge (INTM603635).

How are the trust’s gains taxed on the settlor now?

Section 86 TCGA 1992 treats the trustees’ gains as accruing to the settlor in the same year where the settlement is a qualifying settlement, the trustees are non resident (or treaty resident elsewhere), the settlor is UK resident and the settlor has an interest in the settlement. The gains are computed as if the trustees were UK resident. Gains on UK property that non resident trustees already pay tax on directly are left out under section 86(4ZA).

The class of people whose ability to benefit gives the settlor an interest is wide. HMRC’s helpsheet HS299 lists the settlor, their spouse or civil partner, children of the settlor or of their spouse or civil partner, the spouses or civil partners of those children, and companies controlled by any of them, with grandchildren also counting where the trust was made, added to or otherwise affected after 16 March 1998. The 2025 to 2026 helpsheet directs the gains to box 17 of the Capital Gains Tax summary pages. Under paragraph 6 of Schedule 5 the settlor can recover the tax from the trustees and can ask HMRC for a certificate of the gains, the tax paid and the year concerned.

What about income and gains built up before April 2025?

New section 643ZB ITTOIA 2005 stops protected foreign source income that arose from 6 April 2017 to 5 April 2025, and transitional trust income from 6 April 2008 to 5 April 2017, being taxed under sections 624 or 629 (TSEM4710). It is not tax free, though. If a benefit or onward gift goes to the settlor or a close family member, section 643A can tax it to the extent it is matched with that old income. Income that arose on or before 5 April 2008 can become taxable on the settlor if it is remitted to the UK (TSEM4705).

Trust gains that have not been attributed to a settlor under section 86 sit in the trust’s section 87 pool and are taxed on UK resident beneficiaries, including the settlor, when matched with capital payments; see offshore trusts with UK resident beneficiaries. Former remittance basis users can designate qualifying amounts, including income taxable under the settlements legislation, under the temporary repatriation facility (TSEM4705), at 12% for 2025 to 2026 and 2026 to 2027 and 15% for 2027 to 2028 (RDRM73400).

Can a new arrival still shelter trust income?

Only for four years. A settlor who is a qualifying new resident under the foreign income and gains regime can claim relief on foreign income taxed under sections 624, 629, 633 and 643A (RFIG45300), on foreign income taxed under the transfer of assets abroad charges (RFIG45400), and on section 86 gains where the trustees’ gain is on a foreign asset (RFIG45500). UK source income of the trust stays taxable. HMRC’s example of Jacques, who set up a Jersey trust before moving to the UK in 2027 to 2028, shows relief for four years and full taxation of the trust’s £200,000 of foreign income from 2031 to 2032 onwards.

A section 86 claim must state the amount of the trustees’ qualifying foreign gain being relieved. The relieved gain is then ignored for section 86 and moves into the trust’s section 87 pool, so it can still be taxed later on a beneficiary who receives a capital payment (RFIG45500).

How does this look in practice?

HMRC’s own example at INTM603635 is a useful benchmark. Mr B, non domiciled, became UK resident in 2017 to 2018 and settled £1 million into a Jersey trust, which subscribed for shares in a Jersey company. The company earns £50,000 a year of overseas income and £40,000 of UK income.

  • From 2017 to 2018 to 2024 to 2025 the trust was protected, so Mr B was assessed under section 720 only on the £40,000 of UK income.
  • For 2025 to 2026 he is assessed on £90,000, because the overseas income is no longer protected. He can recover the tax from the company under section 725A.
  • The protected income from earlier years is not taxed under section 720 but can be taxed if Mr B receives benefits matched with it.

He arrived in 2017, so he is long past any four year window and cannot claim FIG relief.

What mistakes come up?

  • Assuming an old protected trust is still protected because nothing has been added to it. Tainting is no longer the question; the protection itself has gone.
  • Reporting only distributions. The settlor is taxed on income and gains as they arise, so the trustees’ accounts and computations are needed every year.
  • Forgetting to claim recovery of the tax from the trustees, which leaves the settlor funding tax on income they never received.
  • Treating benefits from pre 2025 income as safe. They are matched under section 643A.
  • Overlooking inheritance tax, where the test is now long term residence; see excluded property trusts after April 2025.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.