Income and Corporation Taxes Act 1988

660A Income arising under settlement where settlor retains an interest. U.K.

(1) Income arising under a settlement during the life of the settlor shall be treated for all purposes of the Income Tax Acts as the income of the settlor and not as the income of any other person unless the income arises from property in which the settlor has no interest.

(2) Subject to the following provisions of this section, a settlor shall be regarded as having an interest in property if that property or any derived property is, or will or may become, payable to or applicable for the benefit of the settlor or his spouse in any circumstances whatsoever.

(3) The reference in subsection (2) above to the spouse of the settlor does not include—

(a) a person to whom the settlor is not for the time being married but may later marry, or

(b) a spouse from whom the settlor is separated under an order of a court, or under a separation agreement or in such circumstances that the separation is likely to be permanent, or

(c) the widow or widower of the settlor.

(4) A settlor shall not be regarded as having an interest in property by virtue of subsection (2) above if and so long as none of that property, and no derived property, can become payable or applicable as mentioned in that subsection except in the event of—

(a) the bankruptcy of some person who is or may become beneficially entitled to the property or any derived property, or

(b) an assignment of or charge on the property or any derived property being made or given by some such person, or

(c) in the case of a marriage settlement, the death of both parties to the marriage and of all or any of the children of the marriage, or

(d) the death of a child of the settlor who had become beneficially entitled to the property or any derived property at an age not exceeding 25.

(5) A settlor shall not be regarded as having an interest in property by virtue of subsection (2) above if and so long as some person is alive and under the age of 25 during whose life that property, or any derived property, cannot become payable or applicable as mentioned in that subsection except in the event of that person becoming bankrupt or assigning or charging his interest in the property or any derived property.

(6) The reference in subsection (1) above to a settlement does not include an outright gift by one spouse to the other of property from which income arises, unless—

(a) the gift does not carry a right to the whole of that income, or

(b) the property given is wholly or substantially a right to income.

For this purpose a gift is not an outright gift if it is subject to conditions, or if the property given or any derived property is or will or may become, in any circumstances whatsoever, payable to or applicable for the benefit of the donor.

(7) F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) Subsection (1) above does not apply to income arising under a settlement made by one party to a marriage by way of provision for the other—

(a) after the dissolution or annulment of the marriage, or

(b) while they are separated under an order of a court, or under a separation agreement or in such circumstances that the separation is likely to be permanent,

being income payable to or applicable for the benefit of that other party.

(9) Subsection (1) above does not apply to income consisting of—

(a) annual payments made by an individual for bona fide commercial reasons in connection with his trade, profession or vocation; or

[F2 (b) qualifying donations for the purposes of section 25 of the Finance Act 1990][F3 ; or

(c) a benefit under an approved pension arrangement].

(10) In this section “derived property”, in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income therefrom.

[F4 (11) In this section “approved pension arrangement” means—

(a) an approved scheme or exempt approved scheme;

(b) a relevant statutory scheme;

(c) a retirement benefits scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees;

(d) a contract or scheme which is approved under Chapter III of Part XIV (retirement annuities);

(e) a personal pension scheme which is approved under Chapter IV of that Part;

(f) an annuity purchased for the purpose of giving effect to rights under a scheme falling within any of paragraphs (a) to (c) and (e) above;

(g) any pension arrangements of any description which may be prescribed by regulations made by the Secretary of State.

(12) In subsection (11) above “approved scheme”, “exempt approved scheme”, “relevant statutory scheme” and “retirement benefits scheme” have the same meaning as in Chapter I of Part XIV.]

Textual Amendments

F1 S. 660A(7) repealed (with effect in accordance with Sch. 13 para. 26(5), Sch. 40 Pt. 2(4) Note 6 of the repealing Act) by Finance Act 2000 (c. 17), Sch. 13 para. 26(2), Sch. 40 Pt. 2(4) (with Sch. 13 Pt. 2)

F2 S. 660A(9)(b) substituted (with effect in accordance with s. 41(9) of the amending Act) by Finance Act 2000 (c. 17), s. 41(6)

F3 S. 660A(9)(c) and preceding word added (with effect in accordance with Sch. 13 para. 26(5) of the amending Act) by Finance Act 2000 (c. 17), Sch. 13 para. 26(3) (with Sch. 13 Pt. 2)

F4 S. 660A(11)(12) added (with effect in accordance with Sch. 13 para. 26(5) of the amending Act) by Finance Act 2000 (c. 17), Sch. 13 para. 26(4) (with Sch. 13 Pt. 2)