http://www.legislation.gov.uk/ukpga/2005/5/section/685AIncome Tax (Trading and Other Income) Act 2005An Act to restate, with minor changes, certain enactments relating to income tax on trading income, property income, savings and investment income and certain other income; and for connected purposes.texttext/xmlenStatute Law Database2026-07-30Expert Participation2026-07-15 Part 5Miscellaneous incomeChapter 7Annual payments not otherwise charged<Addition ChangeId="d29p45465" CommentaryRef="c19753751">Settlor-interested settlements</Addition>685A1This section applies if—aa person receives an annual payment in respect of income from the trustees of a settlement,bthe payment is made in the exercise of a discretion (whether of the trustees of the settlement or any other person), andca settlor is charged to tax under section 619(1) on the income arising to the trustees of the settlement (whether in the current year of assessment or in a previous year of assessment) out of which the annual payment is made.2This section applies only in respect of that proportion of the annual payment which corresponds to the proportion of the total income arising to the trustees of the settlement in respect of which a settlor is chargeable to tax under section 619(1).3If and in so far as this section applies, the recipient of the annual payment shall be treated for the purposes of this Chapter as having paid income tax at the applicable rate in respect of the annual payment.3AFor the purposes of subsection (3), the “applicable rate” means—ain the case of a Scottish taxpayer, the highest Scottish rate,bin the case of a Welsh taxpayer, the Welsh additional rate, orcin any other case, the additional rate.4But—atax which the recipient is treated by virtue of this section as having paid is not repayable,btax which the recipient is treated by virtue of this section as having paid may not be taken into account in relation to a tax liability of the recipient in respect of any other income of his, . . . c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5If the recipient of the annual payment is a settlor in relation to the settlement, if and in so far as this section applies the annual payment shall not be treated as his income for the purposes of the Income Tax Acts (and subsection (3) does not apply).5AIf the recipient of the annual payment is treated by subsection (3) as having paid income tax in respect of the annual payment, the amount of the payment is treated as the highest part of the recipient's total income for all income tax purposes except the purposes of sections 535 to 537 (gains from contracts for life insurance etc: top slicing relief).5BSee section 1012 of ITA 2007 (relationship between highest part rules) for the relationship between—athe rule in subsection (5A), andbother rules requiring particular income to be treated as the highest part of a person's income.6Sections 494 and 495 of ITA 2007 shall not apply in relation to an annual payment if and in so far as this section applies.S. 685A inserted (19.7.2006 with effect as mentioned in Sch. 13 para. 6(2) of the amending Act) by Finance Act 2006 (c. 25), s. 89, Sch. 13 para. 6(1)S. 685A(4)(c) and preceding 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. 569(2), Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)Words in s. 685A(6) 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. 569(3) (with transitional provisions and savings in Sch. 2)S. 685A(3A) inserted (with effect in accordance with art. 1(2) of the amending S.I.) by The Devolved Income Tax Rates (Consequential Amendments) Order 2019 (S.I. 2019/201), arts. 1(1), 10(4)(b)S. 685A(5A)(5B) inserted (with effect in accordance with s. 67(3) of the amending Act) by Finance Act 2008 (c. 9), s. 67(1)Words in s. 685A(3) substituted (with effect in accordance with art. 1(2) of the amending S.I.) by The Devolved Income Tax Rates (Consequential Amendments) Order 2019 (S.I. 2019/201), arts. 1(1), 10(4)(a)