# Finance Act 2025, Paragraph 44

Extent: E+W+S+N.I.

After section 735A insert—
“Transitional provision about protected foreign-source income and transitionally protected income
Settlements to which following sections apply
735AA (1) Sections 735AB to 735C apply if—
(a) a relevant transfer occurred before 6 April 2025,
(b) the person abroad was—
(i) the trustees of a settlement, or
(ii) a company in which the trustees of a settlement were participators or indirect participators, and
(c) protected foreign-source income or transitionally protected income arose in relation to the transfer.
(2) In sections 735AB to 735C—
“the relevant transfer” means the transfer referred to in subsection (1)(a);
“the settlement” means the settlement referred to in subsection (1)(b)(i) or (ii) (as the case may be);
“the settlor” means the settlor of that settlement.
(3) For the purposes of subsection (1)(b)(ii), the trustees of a settlement are “indirect participators” in a company if they 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.
“Protected foreign-source income” and “transitionally protected income”
735AB (1) For the purposes of sections 735AA to 735AF—
“protected foreign-source income”, in relation to the relevant transfer, means income of the person abroad that by reference to the transfer—
(a) would have been treated as arising to the settlor under section 721 in any of the tax years 2017-18 to 2024-25 had it not been protected foreign-source income within the meaning of section 721A (as that section had effect for that tax year), or
(b) would have been treated as arising to the settlor under section 728 in any of the tax years 2017-18 to 2024-25 had it not been protected foreign-source income within the meaning of section 729A (as that section had effect for that tax year);
“transitionally protected income”, in relation to the relevant transfer, means income of the person abroad that by reference to the transfer—
(a) was treated as arising to the settlor under section 721 or 728 in a tax year earlier than the tax year 2017-18,
(b) was not remitted to the United Kingdom in a tax year earlier than the tax year 2017-18, and
(c) was transitionally protected income within the meaning of section 726(7) or 730(7) throughout the tax years 2017-18 to 2024-25 (as that section had effect for those tax years).
(2) In subsection (1), in paragraph (b) of the definition of “transitionally protected income”, “remitted to the United Kingdom” is to be read in accordance with Chapter A1 of Part 14 (read with section 726 or 730 as the case may be).
Transitionally protected income not to be taxed on remittance
735AC Section 832 of ITTOIA 2005 (relevant foreign income charged on remittance basis) does not apply to transitionally protected income.
Settlor liable for benefits charge despite being transferor
735AD (1) For the purposes of section 732 (benefits charge: deemed income), subsection (1)(d) of that section (benefits charge confined to individuals not liable under section 720 or 727) is to be disregarded where the individual who receives the benefit is the settlor.
(2) But any income treated as arising to the settlor under section 732(2) is not taxed under section 731 unless the income would, assuming that section 735A applied for this purpose by reference to the settlor, be matched under that section with an amount of relevant income that is protected foreign-source income or transitionally protected income in relation to the relevant transfer.
Settlor liable in place of close family member
735AE (1) If—
(a) a benefit is provided to an individual in a given tax year out of assets which are available for the purpose as a result of—
(i) the relevant transfer, or
(ii) one or more associated operations,
(b) the individual is a close member of the settlor’s family at the time when the benefit is provided,
(c) the individual is non-UK resident, or is a qualifying new resident, for the tax year in which the benefit is provided, and
(d) the settlor is UK resident for that tax year,
the benefit is instead treated for the purposes of section 732 and section 735AD(1) as provided to the settlor.
(2) For the purposes of this section, a person is a “close member of the settlor’s family” at any time if the settlor is living at that time and—
(a) the person is the settlor’s spouse or civil partner at that time, or
(b) the person—
(i) is a child of the settlor, or of a person who at that time is the settlor’s spouse or civil partner, and
(ii) at that time has not reached the age of 18.
(3) For the purposes of subsection (2), two people living together as if they were a married couple or civil partners are treated as if they were spouses or civil partners of each other.
(4) Where any tax for which the settlor is liable as a result of this section is paid, the settlor is entitled to recover the amount of the tax from the individual concerned.
(5) For the purpose of recovering that amount, the settlor is entitled to require an officer of Revenue and Customs to provide the settlor with a certificate specifying—
(a) the tax year in which income was treated as arising to the settlor,
(b) the amount of income treated as arising, and
(c) the amount of tax paid,
and any such certificate is conclusive evidence of the facts stated in it.
Onward gifts from non-residents or qualifying new residents
735AF (1) Subsection (2) applies if—
(a) a benefit (“the original benefit”) is provided to an individual (“the original recipient”) out of assets which are available for the purpose as a result of—
(i) the relevant transfer, or
(ii) one or more associated operations,
(b) the original recipient is non-UK resident, or is a qualifying new resident, for the tax year in which they receive the original benefit,
(c) section 735AE(1) (close family member’s benefits attributed to settlor) does not apply to the provision of the original benefit to the original recipient,
(d) at the time when the original benefit is provided—
(i) there are arrangements, or there is an intention, as regards the (direct or indirect) passing on of the whole or part of the original benefit to another person, and
(ii) it is reasonable to expect that, if the whole or part of the original benefit is passed on to another person in accordance with the arrangements or intention, that other person will be UK resident when they receive at least part of what is passed on to them,
(e) the original recipient provides a benefit (“the onward gift”) to another person (“the subsequent recipient”)—
(i) at the time when the original benefit is received by the original recipient, or at any later time in the 3 years beginning with the day containing that time, or
(ii) at any time before the original benefit is received by the original recipient and, it is reasonable to assume, in anticipation of the original benefit’s being provided, and
(f) the onward gift is of or includes—
(i) the whole or part of the original benefit,
(ii) anything that (wholly or in part, and directly or indirectly) derives from, or represents, the whole or part of the original benefit, or
(iii) any other property, but only if the original benefit is provided with a view to enabling or facilitating, or otherwise in connection with, the property’s being provided to the subsequent recipient.
(2) For the purposes of sections 732, 735AD(1) and 735AE(1), so much of the onward gift as falls within subsection (1)(f) is (so far as would not otherwise be the case) treated as a benefit provided to the subsequent recipient out of assets which are available for the purpose as a result of an associated operation in relation to the relevant transfer.
(3) For the purposes of subsection (1)(e), the circumstances in which the original recipient provides a benefit to the subsequent recipient include circumstances where there is a series of two or more benefits starting with a benefit provided by the original recipient and ending with a benefit provided to the subsequent recipient; and in such a case—
(a) the onward gift is treated for the purposes of subsection (1)(e) as provided when the final benefit in the series is provided, and
(b) the reference to the onward gift in subsection (1)(f) is to be read as a reference to each benefit in the series.
(4) Where the conditions in subsection (1)(e) and (f) are met, it is to be presumed, unless the contrary is shown, that the condition in subsection (1)(d) is also met.
(5) In subsection (1)(d), “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
Deduction allowed for previous settlements charge
735AG (1) This section applies if—
(a) benefits provided as mentioned in section 732(1)(c) are received in a tax year, and
(b) income is treated under section 643A of ITTOIA 2005 as arising to a person in that or a subsequent tax year by reference (direct or indirect) to the whole or part of any benefits so provided.
(2) For any tax year after one in which such income is so treated, the amount of income treated as arising to the individual under section 732(2) in respect of benefits provided as mentioned in section 732(1)(c) as a result of the transfer or operations in question is calculated as follows.
(3) The amount is calculated under section 733(1) as if the total untaxed benefits were reduced by the amount of that income.
(4) The reference in subsection (1)(b) to income treated as arising under section 643A of ITTOIA 2005 includes, in relation to any of the tax years 2018-19 to 2024-25, a reference to income treated as arising under section 643J or 643L of ITTOIA 2005 (settlements code: old onward gift provisions).
(5) In this section “the total untaxed benefits” has the same meaning as in section 733(1) (see Step 2).”

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Source: https://www.legislation.gov.uk/ukpga/2025/8/schedule/12/paragraph/44 (the official version)
Page: https://openlegislation.uk/finance-act-2025/schedule-12/paragraph-44
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.