1. Harriet Brown Barrister
The New Deemed Domicile Rules: the new charges, limitations and reliefs
Harriet Brown
Barrister

2. About me
I am an English barrister and Jersey advocate and represent clients regularly in courts in both jurisdictions.
I advise taxpayers, in relation to UK tax matters, primarily on all direct tax matters for private and corporate clients as well as in the context of trusts and estates. In addition to advising extensively on traditional private client matters, I also advise in relation to international matters such as double tax treaties, TIEAs, FATCA/CRS, disclosure facilities and conflict of laws issues arising in a tax context.
I can be contacted as follows:
Old Square Tax Chambers
15 Old Square
Lincoln’s Inn, London WC2A 3UE
T: (020)

3. Introductory principles
The concept of domicile
Deeming provisions
Common law domicile
Inheritance tax deemed domicile
Income tax/capital gains tax deemed domicile

4. Introductory principles – concept of domicile
Domicile is a common law concept (though somewhat modified by statute, particularly in the field of tax), first and foremost and is important for many non-tax purposes, including aspects of family law, civil jurisdiction and succession law, as well as tax law.
Although we tend to think of it as a tax law concept, law on domicile in other areas is, of course also relevant to the application of the concept in a tax context
An individual can have only one domicile at any time
Similarly they must also always have a domicile
Shorthand “non-domiciled” is technically inaccurate, because everyone is domiciled somewhere
A non-individual legal person will, technically, have a domicile, though in relation to legal persons it is a little used concept

5. Introductory principles – concept of domicile
A person is domiciled in a discreet legal jurisdiction
The expression UK domiciled is technically incorrect because one is accurately domiciled in England, Scotland or Northern Ireland
The expression is, however, apt for a person domiciled in any one of the three, particularly in the tax context where it is irrelevant in which part of the UK an individual is domiciled
HMRC guidance on domicile:
RDR1: Guidance Note: Residence, Domicile and the Remittance Basis (“RDR1”); and
the residence domicile and remittance basis manual (“RDRM”).
In the past HMRC provided rulings on domicile, but stopped this in 2010 (see HMRC Brief 34/10). Domicile rulings are, however, still given on death. This requires completion of form IHT401 (Domicile outside the UK)

6. Introductory principles – deeming provisions
Deeming provisions are provisions that treat a situation as existing when it does not, in fact, exist.
Such provisions are often referred to as creating “legal fictions”.
In modern legislation rather than using the word “deemed” provisions tend to say that something will be “treated as” (see, for example, the provisions dealing with the income of a settlor interested trust – Income Tax (Trading and Other Income) Act 2005, section 624)

7. Introductory principles – deeming provisions
There are certain principles established by case law that must be taken into account when interpreting deeming provisions.
These tend towards a purposive (as opposed to literal) construction of such provisions, which is in line with general principles of interpretation.
One of the earlier cases on deeming provisions, East End Dwellings v Finsbury Borough Council [1952] AC 109, sets out the general rule:
If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.

8. Introductory principles – deeming provisions
Similarly in Marshall v Kerr 67 TC 56 it was held:
… because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so …
Consequently, it can be seen that applying deeming provisions, particularly determining how far such deeming must be taken, is not necessarily straightforward.
It is now usual for courts to apply deeming provisions in a purposive and context- sensitive manner.
This can cause issues in advising, and sometimes recourse to lawyers may be necessary in considering deeming provisions.

9. Introductory principles – common law domicile
Domicile of origin
Dicey, Morris & Collins, Conflict of Laws (15th ed., 2012) (“Dicey”), para 6R-025 sets out the “rule” governing domicile of origin. It states:
(1) Every person receives at birth a domicile of origin:
(a) A legitimate child born during the lifetime of his father has his domicile of origin in the country in which his father was domiciled at the time of his birth;
(b) A legitimate child not born during the lifetime of his father, or an illegitimate child, has his domicile of origin in the country in which his mother was domiciled at the time of his birth; ...
(2) A domicile of origin may be changed as a result of adoption or by issue of a parental order under the Human Fertilisation and Embryology Act 2008, but not otherwise

10. Introductory principles – common law domicile
Dicey, para 6R-033 states:
Every independent person can acquire a domicile of choice by the combination of residence and intention of permanent or indefinite residence, but not otherwise
Thus there are two requirements to acquire a domicile of choice, both of which must be met:
residence in the country in which the domicile of choice is acquired; and
an intention to reside permanently or indefinitely in the country in which the domicile of choice is acquired.
“Residence” in this context is not identical to tax residence under the statutory residence test (“STR”) (though it will largely be the case that where someone is UK-resident under the STR they will likely also be resident in the sense relevant for determining whether or not a domicile of choice has been acquired). In order to meet the first domicile of choice requirement there must be “residence as an inhabitant”, i.e. more than “presence as a traveller

11. Introductory principles – common law domicile
Dicey, Morris & Collins, Conflict of Laws (15th ed., 2012), para 6R-074 says:
(1) A person abandons a domicile of choice in a country by ceasing to reside there and by ceasing to intend to reside there permanently or indefinitely, and not otherwise.
(2) When a domicile of choice is abandoned, either
(i) a new domicile of choice is acquired; or
(ii) the domicile of origin revives

12. Introductory principles – IHT deemed domicile
IHT deemed domicile Development? IHTA s.
3-year rule An “old rule” (1)(a)
Formerly domiciled resident New from (1)(aa)
15/20 rule Amendment to the 17/20 rule 267(1)(b)
Spouse election An old rule ZA

13. Introductory principles – IHT deemed domicile
Thus the new rules are fourfold (the "old rules" were threefold: the 3-year rule, the 17/20 rule and the spouse election).
The 3-year rule and spouse election are dealt with in Chapter 3, and the 17/20 rule is also discussed briefly there, though it is largely redundant since the 15/20 rule’s introduction.
Changes have effect "… in relation to times after 5 April 2017" subject to certain exceptions. The first thing to note is that many of the provisions had effect from a time before royal assent had been given to FA 2017.
While “retrospective” this should not be considered “retroactive”, and its application should not be challengeable through the courts on such a basis.
The IHT deemed-domicile rules are stated to apply “for the purposes of the IHTA” (IHTA, section 267). This means that they apply for all IHT purposes. However, there is a number of specific provisions that disapply them in limited IHT contexts. These are:
FOTRA securities; and
Qualifying certificates of Islanders

14. Introductory principles – IT/CGT deemed domicile
IT/CGT deemed-domicile Comment s.835B ITA
Formerly-domiciled resident New in Condition A
15-year rule New in Condition B

15. Introductory principles – IT/CGT deemed domicile
IT/CGT deemed-domicile applies “for the purposes of the provisions of the Income Tax Acts or TCGA which apply s.835B ITA (deemed-domicile rule)” ie only when the rule expressly applied
Income tax:
ICTA: s.266A
ITEPA: s.355, 373, 374, 376
ITA: s.476, 718, 809B, 809E, 834
CGT:
TCGA: s.69, 86, 275
Sch 5A para 3
Sch 7 FA 2008 transitional reliefs (formerly domiciled residents only):
paras 100(1)(b), 101(1)(c) and 102(1)(e)
para 118(3)(b) so far as having effect for the purposes of para 118(1)(d) pars 124(1)(b), 126(7)(b), 127(1)(e) and 151(1)(b)

16. Introductory principles – IT/CGT deemed domicile
Condition A: Formerly domiciled
the individual was born in the UK,
the individual’s domicile of origin was in the UK, and
the individual is resident in the UK for the tax year referred

17. Introductory principles – IT/CGT deemed domicile
Condition B is that the individual has been UK resident for at least 15 of the 20 tax years immediately preceding the tax year referred to in subsection.

18. Contents – protected trusts
Offshore trust protection
Reliefs generally
Tainting
Problem question

19. Protected trusts – offshore trust protection
The general scheme is that a non-resident trust has a protected status if it is made by a foreign domiciled settlor (that is, one who is not actually domiciled and not deemed UK domiciled)
In short:
(1) Trust income/gains, are not subject to tax on the usual settlor-interested trust rules (s.624, s.720, s.86)
(2) The income/gains are subject to tax on distribution:
(a) on general principles; or
(b) under special provisions which only apply to protected trusts
Protected-trust relief does not apply to formerly-domiciled residents. In this section, therefore, references to deemed domicile are references to deemed domicile under the 15-year rule only

20. Protected trusts – offshore trust protection
“Protected-trust reliefs”, which prevent charges on the settlor under s.86, 624, 720, and associated provisions.
“Close-family/settlor trust charges” which apply on distribution from protected trusts to the settlor/close-family
“Settlor attribution rules” which attribute income/gains of close-family to the settlor
“Onward-gift rules”
The latter three points are dealt with later

21. Protected trusts – offshore trust protection
“Protected-trust reliefs”, which prevent charges on the settlor under s.86, 624, 720, and associated provisions.
“Close-family/settlor trust charges” which apply on distribution from protected trusts to the settlor/close-family
“Settlor attribution rules” which attribute income/gains of close-family to the settlor
“Onward-gift rules”
The latter three points are dealt with later

22. Protected trusts – offshore trust protection
Charge Relief Tax Relevance
s.86 TCGA para 5A sch 5 TCGA CGT settlor-interested trust
s.624 ITTOIA s.628A ITTOIA IT settlor-interested trust
s.629 ITTOIA s.630A ITTOIA IT payment to s’s child
s.720 ITA s.721(3B) rule 2 IT ToA transferor charge
s.727 ITA s.728(1A) rule 2 IT ToA capital sum charge

23. Protected trusts – reliefs generally: section 86 TCGA
The relieved charge is found in TCGA, section 86: Attribution of gains to settlors with interest in non- resident or dual resident settlements
The charge applies where the following conditions are fulfilled as regards a settlement in a particular year of assessment—
(a)     the settlement is a qualifying settlement in the year;
(b)     the trustees of the settlement fulfil the condition as to residence;
(c)     a person who is a settlor in relation to the settlement (“the settlor”) is domiciled in the United Kingdom at some time in the year and is resident in the United Kingdom for the year;
(d)     at any time during the year the settlor has an interest in the settlement;
(e)     by virtue of disposals of any of the settled property originating from the settlor, there is an amount on which the trustees would be chargeable to tax for the year under section 2(2) if the assumption as to residence specified in subsection (3) below were made;
(f)     paragraph 3, 4 or 5 of Schedule 5 does not prevent the charge applying

24. Protected trusts – reliefs generally: section 86 TCGA
Residence requirement
there is no time in the year when the trustees are resident in the United Kingdom, or
there is such a time but, whenever the trustees are resident in the United Kingdom during the year, they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.

25. Protected trusts – reliefs generally: section 86 TCGA
Section 86 does not apply in relation to a year (“the particular year”) if Conditions A to D are met.
Condition A is that the particular year is the tax year , or a later tax year
Condition B is that when the settlement is created the settlor is not domiciled in the UK, and if the settlement is created on or after 6 April 2017, is not deemed domiciled in the UK
Condition C is that there is no time in the particular year when the settlor is domiciled in the UK, or deemed domiciled in the UK by virtue of being a formerly domiciled resident
Condition D

26. Protected trusts – reliefs generally: section 86 TCGA, Condition D
Condition D is further extended
For the purposes of Condition D, the addition of value to property comprised in the settlement is to be treated as the direct provision of property for the purposes of the settlement
Examples when this may be relevant:
Leaving an interest-free loan outstanding (though the official HMRC view is that leaving an interest-free loan outstanding is providing property)
failure to exercise a right to reimbursement.1
Working for a company held by a trust at less than market remuneration
An unintendedly bad bargain

27. Protected trusts – reliefs generally: section 624 ITTOIA
Section 624 ITTOIA income:
qualifies for s.624 protected-trust relief and so is not taxed under s.624 on the arising or the remittance basis.
It is potentially taxable (from 2018/19) under the close-family s.643A income charge.

28. Protected trusts – reliefs generally: section 624 ITTOIA
(1)     Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone if it arises—
(a)     during the life of the settlor, and
(b)     from property in which the settlor has an interest. …
(3)     For exceptions to the rule in subsection (1), see—
section 628A (exception for protected foreign-source income).

29. Protected trusts – reliefs generally: section 624 ITTOIA
Section 624 income is protected where Conditions A-F are met
Condition A is that the income would be relevant foreign income if it were income of a UK resident individual
Condition B is that the income is from property originating from the settlor
Condition C is that when the settlement is created the settlor is not domiciled in the UK, and if the settlement is created on or after 6 April 2017, is not deemed domiciled in the UK
Condition D is that there is no time in the tax year when the settlor is domiciled in the UK, or deemed domiciled in the UK by virtue of being a formerly-domiciled resident
Condition E is that the trustees of the settlement are not UK resident for the tax year

30. Protected trusts – reliefs generally: section 624 ITTOIA, tainting
Condition F
Condition F is that no property or income is provided directly or indirectly for the purposes of the settlement by the settlor, or by the trustees of any other settlement of which the settlor is a beneficiary or settlor, at a time in the relevant period when the settlor is domiciled or deemed domiciled in the UK
“Relevant period” means the period beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and ending with the end of the tax year
Tainting rules similar to those for TCGA, section 86 protection

31. Protected trusts – reliefs generally: section 624 ITTOIA, the relief
624 relief applies only to protected s.624 income (unlike TCGA, section 86 relief which applies to all gains)
Section 624 provides the general rule that income of a settlor-interested trust is treated as income of the settlor.
Section 628A(1) ITTOIA provides the relief: “The rule in section 624(1) does not apply to income which arises under a settlement if it is protected foreign-source income for a tax year.
Section 624 protected-trust relief is better than the s.624 remittance basis, which applies to a remittance basis taxpayer settlor in the absence of protected-trust relief, because it is not necessary to pay the remittance basis charge to obtain the benefit of the relief and s protected income is not subject to income tax even if remitted to the UK.

32. Protected trusts – reliefs generally: section 624 ITTOIA, the relief
There are now two different regimes for income of a settlor-interested trust:
Protected s.624 income: not taxed if remitted to the UK
Unprotected income: taxed if remitted to the UK
It may be advantageous to segregate the two types of income, so trustees can use one or the other as desired.
If the two are mixed, there is a mixed fund and mixed fund rules should apply

33. Protected trusts – reliefs generally: section 629 ITTOIA
The charge
Income is treated as income of the settlor if, in that year and during the life of the settlor, it is paid to, or for the benefit of, a relevant child of the settlor, or would otherwise be treated (apart from this section) as income of a relevant child of the settlor.
Does not apply to income which is treated as income of the settlor under section 624.
“relevant child” means a minor child who is unmarried or not in a civil partnership

34. Protected trusts – reliefs generally: section 629 ITTOIA
The relief
The rule in section 629(1) does not apply to income which arises under a settlement if it is protected foreign-source income for a tax year.
Sections 628A(2) to (12) and 628B (meaning of “protected foreign-source income”) have effect also for this purpose
Consequently, the conditions for protection are the same as for section 624

35. Protected trusts – reliefs generally: section 720 ITA
The charge
  Income tax is charged on income treated as arising to such an individual under section (individuals with power to enjoy income as a result of relevant transactions)
Section 721: applies where conditions A – C are met
Condition A is that the individual has power in the tax year to enjoy income of a person abroad as a result of a relevant transfer, one or more associated operations, or a relevant transfer and one or more associated operations.
Condition B is that the income of the person abroad would be chargeable to income tax if it were the individual's and received by the individual in the United Kingdom.
Condition C is that the individual is UK resident for the tax year.

36. Protected trusts – reliefs generally: section 720 ITA
The relief has effect for the purposes of rule 2 of section 721(3B) (cases where the individual transferor is not UK domiciled and is not deemed domiciled by virtue of being a formerly-domiciled resident
The income of the person abroad is “protected foreign-source income” so far as it is within subsection (3) or (4), i.e. is either foreign source trust income or foreign source company income
Protected trust foreign-source income has to meet 5 conditions
Protected company foreign-source income has to meet 7 conditions

37. Protected trusts – reliefs generally: section 720 ITA
The conditions for trust income
It would be relevant foreign income if it were the individual's,
The person abroad is the trustees of a settlement,
The trustees are non-UK resident for the tax year,
When the settlement is created, the individual is not domiciled in the United Kingdom, and if the settlement is created on or after 6 April 2017, not deemed domiciled in the United Kingdom
No property or income is provided directly or indirectly for the purposes of the settlement by the individual, or by the trustees of any other settlement of which the individual is a beneficiary or settlor, at a time in the period beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and ending with the end of the tax year, when the individual is domiciled or deemed domiciled in the United Kingdom.

38. Protected trusts – reliefs generally: section 720 ITA
The conditions for company income – 7 conditions!
Same as trust income provisions, except:
These are (more or less) the same as the 5 S.720 protected-trust conditions, except that:
the person abroad must be a company (rather than trustees); and
the trustees of a settlement are participators in the person abroad, or are participators in the first in a chain of two or more companies where the last company in the chain is the person abroad and where each company in the chain (except the last) is a participator in the next company in the chain,
the individual’s power to enjoy the income results from the trustees being participators

39. Protected trusts – reliefs generally: section 720 ITA
Protected foreign-source income is not subject to the s.720 charge
Section 720 protected-trust relief is better than the s.720 remittance basis, which applies to remittance basis transferors in the absence of protected-trust relief, because:
it is not necessary to pay the remittance basis charge to obtain the benefit of the relief.
s.720 protected-trust income is not subject to income tax even if remitted to the UK.

40. Protected trusts – reliefs generally: section 727 ITA
Charge applies where:
income has become the income of a person abroad as a result of a relevant transfer, one or more associated operations, or a relevant transfer and one or more associated operations,
the capital receipt conditions are met in respect of the individual in the tax year (see section 729), and
the individual is UK resident for the tax year.

41. Protected trusts – reliefs generally: section 727 ITA
Capital receipt conditions:
in the relevant year the individual receives or is entitled to receive any capital sum, whether before or after the relevant transfer, or
in any earlier tax year the individual has received any capital sum, whether before or after the relevant transfer, and
the payment of that sum is (or, in the case of an entitlement, would be) in any way connected with any relevant transaction

42. Protected trusts – reliefs generally: section 727 ITA
The rules are set out again for the purposes of the s.727 charge (capital sum paid to settlor).
Not repeat that again in full, because closely follow the form of s.720 protected- trust relief.
There is one difference

43. Protected trusts – reliefs generally: section 727 ITA
s.720 protected company income
(c) the trustees of a settlement—
(i) are participators in the person abroad, or
(ii) are participators in the first in a chain of two or more companies where the last company in the chain is the person abroad and where each company in the chain (except the last) is a participator in the next company in the chain,
(d) the individual's power to enjoy the income results from the trustees being participators as mentioned in paragraph (c)(i) or (ii)
(d) the condition in paragraph (c) is met as a result of a relevant transaction (whether or not it is also met otherwise than as a result of a relevant transaction)
The definition of s.727 protected income is slightly wider. It is possible to devise circumstances where this mattered, but in practice it is not likely to arise.

44. Protected trusts – reliefs generally: section 727 ITA
s.727 protected co. income
(c) the trustees of a settlement—
(i) are participators in the person abroad, or
(ii) are participators in the first in a chain of two or more companies where the last company in the chain is the person abroad and where each company in the chain (except the last) is a participator in the next company in the chain,
(d) the condition in paragraph (c) is met as a result of a relevant transaction (whether or not it is also met otherwise than as a result of a relevant transaction)

45. Protected trusts – reliefs generally: section 727 ITA
The definition of s.727 protected income is slightly wider

46. CGT – rebasing CGT rebasing will apply where:
(a) the asset was held by P on 5 April 2017,
(b) the disposal is made on or after 6 April 2017,
(c) the asset was not situated in the United Kingdom at any time in the relevant period, and
(d) P is a qualifying individual.

47. CGT – rebasing (2) The relevant period is the period which—
(a) begins with 16 March 2016 or, if later, the date on which P acquired the asset, and
(b) ends with 5 April 2017

48. CGT – rebasing
(3) P is a qualifying individual if— (a) section 809H of ITA 2007 (claim for remittance basis by long-term UK resident: charge) applied in relation to P for any tax year before the tax year , (b) P is not an individual— (i) who was born in the United Kingdom, and (ii) whose domicile of origin was in the United Kingdom, (c) P was not domiciled in the United Kingdom at any time in a relevant tax year, and (d) P met condition B in section 835BA of ITA 2007 in relation to each relevant tax year.

49. CGT – rebasing
(4) The relevant tax years are— (a) the tax year , and (b) if the disposal was made after that tax year, all subsequent tax years up to and including that in which the disposal was made.

50. CGT – rebasing
(5) In computing, for the purpose of TCGA 1992, the gain or loss accruing on the disposal, it is to be assumed that P acquired the asset on 5 April 2017 for a consideration equal to its market value on that date

51. CGT – rebasing Two sets of conditions:
Conditions in relation to the asset
Conditions in relation to the individual taxpayer
Asset conditions:
Held on 5 April 2017
Disposed of after 6 April 2017
Not situate in the UK in the relevant period (but see below)
Taxpayer conditions (“qualifying individual”):
Section 809H ITA applied in relation to a tax year before 2017/18
P not caught by the “formerly domiciled” rule
Not UK domiciled in a relevant tax year
Met section 835BA Condition B in each relevant tax year

52. CGT rebasing - example
Anna was born in Zimbabwe to parents both domiciled in Zimbabwe in She is UK resident in 2016/17 but is non-UK domiciled. She has been resident in the UK for 16 of the last 20 tax years, and so will become UK deemed domiciled under the new rules in the near future. Anna keeps a valuable tiara that she inherited from her great grandmother in a safety deposit box in Switzerland. She wants to sell it as she does not wear it and would use the proceeds of sale to purchase jewellery that she would wear. She is, however, very concerned because the sale of the tiara will realize a large gain (likely to be into seven figures) and she is concerned as to what will happen if the tiara is sold after she becomes deemed domiciled

53. CGT rebasing - example Asset conditions:
Held on 5 April 2017: she can ensure she does not sell it before then
Disposed of after 6 April 2017: ditto
UK situate between 16 March 2016 and 5 April 2017: no - always in Switzerland
Conditions for Anna:
Claimed the remittance basis prior to 2017/18: if she has not can claim it in 2016/17
Over 18 (section 809H(1)(b)): yes
Meets the 17-, 12- or 7-year residence test: in 2016/17 she has been resident in 16/20 years so should meet the requirement for a year prior to 2017/18
UK born with UK domicile of origin: no – both in Zimbabwe
Not domiciled in UK in 2017/18 and year of disposal: no evidence she has become domiciled under general law
Meets 15/20 year rule for 2017/18 and year of disposal: yes as resident in 16 of the last 20 years in /17

54. FA 2018 Capital payments received by non-resident beneficiaries
Capital payments received by close family members of the settlor
Onward gifts

55. FA 2018 - Introduction The new charges will be in TCGA. They are:
87D Non-resident disregard
87G Close-family charge
87I Onward gifts
87J Payment to migrating beneficiary

56. FA 2018 – section 87 changes
The changes focus on the (previously) acceptable ways to circumvent a charge under TCGA, section 87
TCGA, section 87 applies to a settlement for a tax year (“the relevant tax year”) if there is no time in that year when the trustees are resident in the UK.
Chargeable gains are treated as accruing in the relevant tax year to a beneficiary of the settlement who has received a capital payment from the trustees in the relevant tax year or any earlier tax year if all or part of the capital payment is matched with the section 2(2) amount for the relevant tax year or any earlier tax year.
The amount of chargeable gains treated as accruing is equal to the amount of the capital payment, or if only part of the capital payment is matched, the amount of that part.
The section 2(2) amount for a settlement for a tax year for which this section applies to the settlement is the amount upon which the trustees of the settlement would be chargeable to tax under section 2(2) if they were resident (less any gains treated as accruing to the settlor under TCGA, section 86)

57. FA 2018 – Section 87 “capital payment”
any payment which is not chargeable to income tax on the recipient or, in the case of a recipient who is not resident in the United Kingdom, any payment received otherwise than as income
does not include a payment under a transaction entered into at arm's length
references to a payment include references to the transfer of an asset and the conferring of any other benefit, and to any occasion on which settled property becomes property to which section 60 applies (beneficiary of a trust becomes absolutely entitled to property)
a capital payment is treated as received by a beneficiary from the trustees of a settlement if—
he receives it from them directly or indirectly, or
it is directly or indirectly applied by them in payment of any debt of his or is otherwise paid or applied for his benefit, or
it is received by a third person at the beneficiary's direction.

58. FA 2018 – section 87
There have previously existed a number of ways – some readily accepted by HMRC as acceptable - to prevent charges arising under section 87
The most widely used (probably) was what is referred to as “washing” gains
Where a trust had resident and non-resident beneficiaries it was possible to make capital payments to the non-resident beneficiaries in one year so that any section 2(2) amounts were matched with the payments to the non-resident and not, therefore, subject to charge
Once the section 2(2) amounts had been matched, the remainder could be paid out to resident beneficiaries, but with no section 2(2) amount to match against the capital payment, there would be no section 87 charge

59. FA 2018 – capital payments to non-resident beneficiaries
Also referred to as the “non resident disregard”
Section 87D will provide:
For the purposes of sections 87 and 87A as they apply in relation to a settlement, no account is to be taken of a capital payment (or a part of a capital payment) within subsection (2),
Subject to close-family charge and temporary non residence rules
This is to avoid double taxation: the gain comes into charge under other provisions.
A capital payment is within this subsection if (and to the extent that) it is in a tax year received (or treated as received) from the trustees of the settlement by a beneficiary who at all times in that year is not resident in the UK, but this is subject to section 87F.

60. FA 2018 – capital payments to non-resident beneficiaries
Also referred to as the “non resident disregard”
Section 87D will provide:
For the purposes of sections 87 and 87A as they apply in relation to a settlement, no account is to be taken of a capital payment (or a part of a capital payment) within subsection (2),
Subject to close-family charge and temporary non residence rules
This is to avoid double taxation: the gain comes into charge under other provisions.
A capital payment is within the subsection if (and to the extent that) it is in a tax year received (or treated as received) from the trustees of the settlement by a beneficiary who at all times in that year is not resident in the UK, but this is subject to the provisions in relationt o payments made in the year the settlement ends (section 87F).

61. FA 2018 – capital payments to non-resident beneficiaries
Section 87D will not apply where:
the recipient beneficiary is a close member of the settlor’s family (see section 87H),
the payment (or part) is received on or after 6 April 2017, and the settlor is resident in the UK in the tax year in which the payment (or part) is received.

62. FA 2018 – capital payments to non-resident beneficiaries
Separate settlements (for UK and non-UK beneficiaries) are better than one settlement for both.
Where single settlements currently exist, transfers to separate settlements are likely to be advantageous
The new sections 87D and 87E have effect—
except as provided by the new section 87D(3), in relation to payments received in the tax year or a later tax year, and
in the tax year and later tax years, also in relation to payments received before the tax year that have not been matched under section 87A of TCGA as it applies for tax years before the tax year

63. FA 2018 – capital payments to non-resident beneficiaries
The new rules applies retrospectively to undo the effect of pre-2017 capital payments to non-residents.
That is unfair to those who have made payments will have been made on the basis of the present rules.
Trusts will need to reassess their history of trust gains.

64. FA 2018 – capital payments received by close family members
Rules apply (in short) where benefits within the scope of s.87, s.643A or s.731 are received by close family of the settlor.
The s.87 gain or s.643A/731 income is in some cases attributed to the settlor i.e. treated as arising to the settlor rather than the individual (close-family) receiving the benefit, who would otherwise be taxable under those sections

65. FA 2018 – capital payments received by close family members
Section Name Supplemented by
s.87G TCGA s.87 settlor-attribution rule s.87H
s.643A(3)(4) ITTOIA s.643A settlor-attribution rule s.643E
s.733A(2)(3) ITA s.731 settlor-attribution rule s.733B

66. FA 2018 – capital payments received by close family members
There is a further set of attribution rules
Benefits within the scope of s.87, s.643A or s.731 are received by a recipient who is not close- family of the settlor and the recipient gives the benefits to close family of the settlor.
Again, the s.87 gain or s.643A/731 income is in some cases attributed to the settlor, that is, treated as arising to the settlor rather than the recipient

67. FA 2018 – capital payments received by close family members
Section Name
s.87L TCGA OG s.87 settlor-attribution rule
s.643L ITTOIA OG s.643A settlor-attribution rule
s.733E ITA OG s.731 settlor-attribution rule
Probably helpful to consider these as “onward gain settlor-attribution rules”

68. FA 2018 – onward gifts The rules are set out in 3 places:
Charge Onward gift rule
s TCGA s.87I TCGA
s.643A ITTOIA s.643B ITTOIA
s ITA s.733B ITA

69. FA 2018 – onward gifts
The section 87I charge applies where following conditions are present
Payment to donor: a capital payment (“the original payment”) is received in a tax year by a person (“the original beneficiary”) in a tax year from the trustees of the settlement
Arrangements: at the time of receipt there are arrangements, or there is an intention, as regards the (direct or indirect) passing-on of the whole or part of the original payment, and it is reasonable to expect that, in the event of the whole or part of the original payment being passed on to another person as envisaged by the arrangements or intention, that other person will be resident in the United Kingdom when they receive at least part of what is passed on to them
Onward payment: at the time the original payment is received, or at any later time in the 3 years beginning with the day containing the start time, or at any time before the original payment is received and, it is reasonable to assume, in anticipation of receipt of the original payment

70. FA 2018 – onward gifts
The section 87I charge applies where following conditions are present (Cont’d)
Connection to original payment: the onward payment is or includes the whole or part of the original payment, anything that (wholly or in part, and directly or indirectly) derives from, or represents, the whole or part of the original payment, or any other property, but only if the original payment is made with a view to enabling or facilitating, or otherwise in connection with, the making of the gift of the property to the subsequent recipient
UK resident onward recipient: the subsequent recipient is resident in the United Kingdom in the tax year in which the onward payment is received by the subsequent recipient
Non-UK resident original recipient: in the period beginning with the start of the payment year and ending with the end of the gift year, there is at least one tax year for which the otherwise-liable person is not resident in the United Kingdom, or for which section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the otherwise-liable person

71. FA 2018 – onward gifts
Two consequences of onwards gift provisions applying
Unmatched income will be chargeable on the onward recipient if he is UK resident and not subject to the remittance basis
The onward recipient is put in the shoes of a beneficiary receiving a payment from the trustees (whether or not he is as a matter of general law a beneficiary)
(I think) this is done to avoid taxing both the original recipient and the onward recipient on the same amount

72. FA 2018 – onward gifts
The rules in relation to settlements in ITTOIA and ToAA in ITA are broadly similar