Income Tax (Trading and Other Income) Act 2005

Income treated as income of settlor: retained interests U.K.

624 Income where settlor retains an interest U.K.

(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.

[F1 (1A) If the settlement is a trust, expenses of the trustees are not to be used to reduce the income of the settlor.]

(2) For more on a settlor having an interest in property, see section 625.

(3) For exceptions to the rule in subsection (1), see—

• section 626 (exception for outright gifts between spouses [F2 or civil partners]),

• section 627 (exceptions for certain types of income), and

• section 628 (exception for gifts to charities).

Textual Amendments

F1 S. 624(1A) inserted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 553 (with transitional provisions and savings in Sch. 2)

F2 Words in s. 624(3) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), reg. 187

625 Settlor's retained interest U.K.

(1) A settlor is treated for the purposes of section 624 as having an interest in property if there are any circumstances in which the property or any related property—

(a) is payable to the settlor or the settlor's spouse [F3 or civil partner] ,

(b) is applicable for the benefit of the settlor or the settlor's spouse [F3 or civil partner] , or

(c) will, or may, become so payable or applicable.

(2) Subsection (1) does not apply if the only circumstances are one or more of—

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

(b) the assignment of the property or any related property by such a person,

(c) the charging of (or, in Scotland, the granting of a right in security over) the property or any related property by such a person,

[F4 (d) in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, and]

(e) the death of a child of the settlor who had become beneficially entitled to the property or any related property at not more than 25 years old.

[F5 (2A) In subsection (2) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.]

(3) Subsection (1) does not apply if—

(a) there are no circumstances in which the property or any related property can become payable or applicable as mentioned in that subsection during the life of a person other than—

(i) the bankruptcy of the person, or

(ii) the assignment or charging of the person's interest in the property or any related property, and

(b) the person is alive and under 25 years old.

(4) In subsection (1) “the settlor's spouse [F6 or civil partner]” does not include—

(a) a spouse [F6 or civil partner] from whom the settlor is separated under an order of a court or a separation agreement,

(b) a spouse [F6 or civil partner] from whom the settlor is separated where the separation is likely to be permanent,

(c) the widow or widower [F7 or surviving civil partner] of the settlor, or

(d) a person to whom the settlor is not married but may later marry [F8 or a person of whom the settlor is not a civil partner but of whom the settlor may later be a civil partner] .

(5) In this section “related 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 from it.

Textual Amendments

F3 Words in s. 625(1) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(2)

F4 S. 625(2)(d) substituted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(3)

F5 S. 625(2A) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(4)

F6 Words in s. 625(4) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(5)(a)

F7 Words in s. 625(4)(c) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(5)(b)

F8 Words in s. 625(4)(d) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 188(5)(c)

626 Exception for outright gifts between spouses [F9 or civil partners] U.K.

(1) The rule in section 624(1) does not apply in respect of an outright gift—

(a) of property from which income arises,

(b) made by one spouse to the other [F10 or one civil partner to the other] , and

(c) meeting conditions A and B.

(2) Condition A is that the gift carries a right to the whole of the income.

(3) Condition B is that the property is not wholly or substantially a right to income.

(4) A gift is not an outright gift for the purposes of this section if—

(a) it is subject to conditions, or

(b) there are any circumstances in which the property, or any related property—

(i) is payable to the giver,

(ii) is applicable for the benefit of the giver, or

(iii) will, or may become, so payable or applicable.

(5) “Related property” has the same meaning in this section as in section 625.

Textual Amendments

F9 Words in s. 626 heading inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 189(3)

F10 Words in s. 626(1)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 189(2)

627 Exceptions for certain types of income U.K.

(1) The rule in section 624(1) does not apply to income which—

(a) arises under a settlement made by one party to a marriage [F11 or civil partnership] by way of provision for the other—

(i) after the dissolution or annulment of the marriage [F11 or civil partnership] , or

(ii) while they are separated under an order of a court, or under a separation agreement, or where the separation is likely to be permanent, and

(b) is payable to, or applicable for the benefit of, the other party.

(2) The rule in section 624(1) does not apply to income which consists of—

(a) annual payments made by an individual for commercial reasons in connection with the individual's trade, profession or vocation,

(b) qualifying donations for the purposes of [F12 Chapter 2 of Part 8 of ITA 2007 (gift aid)] , or

(c) a benefit under a relevant pension scheme.

(3) In subsection (2)(c) “relevant pension scheme” means—

(a) a registered pension scheme,

(b) a pension scheme established by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees (or an annuity acquired using funds held for the purposes of such a pension scheme), or

(c) any pension arrangements of any description prescribed by regulations made under section 11(2)(h) of the Welfare Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)).

[F13 (4) The rule in section 624(1) does not apply in relation to income which—

(a) arises under a settlement, and

(b) originates from any settlor who was not an individual.]

Textual Amendments

F11 Words in s. 627(1)(a) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 190

F12 Words in s. 627(2)(b) substituted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 554 (with transitional provisions and savings in Sch. 2)

F13 S. 627(4) inserted (with effect in accordance with s. 12(4) of the amending Act) by Finance Act 2012 (c. 14), s. 12(2)

628 Exception for gifts to charities U.K.

(1) The rule in section 624(1) does not apply to any qualifying income which arises under a [F14 UK settlement] if—

(a) it is given by the trustees to a charity in the tax year in which it arises, or

(b) it is income to which a charity is entitled under the terms of the trust.

(2) In this section “qualifying income” means—

(a) income which [F15 must] be accumulated,

(b) income which is payable at the discretion of the trustees or any other person F16 . . .

(c) income which (before being distributed) is income of any person other than the trustees.

[F17 (2A) The cases covered by subsection (2)(b) include cases where the trustees have, or any other person has, any discretion over one or more of the following matters—

(a) whether, or the extent to which, the income is to be accumulated,

(b) the persons to whom the income is to be paid, and

(c) how much of the income is to be paid to any person.]

(3) Subsection (4) applies if in any tax year qualifying income which arises under a [F14 UK settlement] from different sources exceeds the total of—

(a) the amount of that income which falls within subsection (1), and

(b) the amount of that income which falls within section 630(1) (comparable exception for income of [F18 relevant] children of settlor).

(4) The amount of the qualifying income from different sources which falls within subsection (1) above is rateably apportioned between those sources.

(5) This does not affect the operation of any requirement that the whole, or any specified part, of the income from a particular source is to be given to a charity.

(6) In this section—

• “charity” includes

  (a)

  [F19 the Trustees of the National Heritage Memorial Fund, [F20 and]

  (b)

  the Historic Buildings and Monuments Commission for EnglandF21 ...

  (c)

  F21 ...]

• F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• [F23 “UK settlement” means a settlement the trustees of which are resident and ordinarily resident in the United Kingdom.]

Textual Amendments

F14 Words in s. 628 substituted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), Sch. 13 para. 33(1)(5)

F15 Words in s. 628(2)(a) substituted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 555(2)(a) (with transitional provisions and savings in Sch. 2)

F16 Words in s. 628(2)(b) repealed (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1031, 1034, Sch. 1 para. 555(2)(b), Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

F17 S. 628(2A) inserted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034, Sch. 1 para. 555(3) (with transitional provisions and savings in Sch. 2)

F18 Word in s. 628(3)(b) substituted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1, 191

F19 S. 628(6): words in definition of 'charity' substituted (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1034 {Sch. 1 para. 555(4)(a)} (with transitional provisions and savings in Sch. 2)

F20 Word in s. 628(6) inserted (1.4.2012) by The Public Bodies (Abolition of the National Endowment for Science, Technology and the Arts) Order 2012 (S.I. 2012/964), arts. 1(2), 3(1), Sch.

F21 Words in s. 628(6) omitted (1.4.2012) by virtue of The Public Bodies (Abolition of the National Endowment for Science, Technology and the Arts) Order 2012 (S.I. 2012/964), arts. 1(2), 3(1), Sch.

F22 S. 628(6): definition of 'resident' and subsequent word repealed (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1031, 1034, Sch. 1 para. 555(4)(b), Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

F23 Words in s. 628(6) substituted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), Sch. 13 para. 33(2)(5)