TSEM4710 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025: Removal of Protected Foreign-Source Income (PFSI)
For details of the rules introduced from 6 April 2017 on Protected Foreign-Source Income (PFSI), see TSEM 4610.
From 6 April 2025 the trust protections no longer apply to the settlements legislation and therefore sections 628A through to section 628C and section 630A ITTOIA 2005 have been repealed.
References to PFSI have been removed from various sections, the main ones being sections 624 and 629 ITTOIA 2005.The removal of PFSI means that income arising under the settlement from 6 April 2025 will be treated as income of the UK resident settlor if either of the following charging provisions apply:
S624 ITTOIA 2005 – income where settlor retains an interest;
S629 ITTOIA 2005 - income paid to ‘relevant’ children of settlor
Reference to ‘unprotected’ income has been removed from sections 635 through to 637 ITTOIA 2005. The removal of the concept of PFSI means that ‘protected’ income will no longer arise.
New section 643ZB ITTOIA 2005 will ensure PFSI that has arisen between 6 April 2017 and 5 April 2025 and Transitional Trust Income (TTI) that has arisen between 6 April 2008 and 5 April 2017 cannot be taxed under sections 624 or 629. However, if a benefit or onward gift is provided to the settlor or a close family member, there could be a charge under section 643A ITTOIA 2005 to the extent that it can be matched to PFSI/TTI arising before 6 April 2025.
TTI and PFSI-what are they and when do they accrue?
| Transitional Trust Income (TTI) | S643ZA ITTOIA 2005 | 6 April 2008 to 5 April 2017 |
| Protected Foreign-Source Income (PFSI) | S643ZA ITTOIA 2005 | 6 April 2017 to 5 April 2025 |