Chapter 2: General provision about settlements and trustees
Overview
1348.This Chapter provides definitions for income tax purposes that are, as far as possible, aligned with those which apply for the purposes of capital gains tax (see sections 68A to 69 of TCGA). It is based on provisions inserted into ICTA by Schedule 13 to FA 2006.
1349.The definitions in the ICTA provisions apply for the purpose of the Tax Acts and thus extend beyond income tax to provisions of the Corporation Tax Acts. But the extent of their application for the purposes of the Corporation Tax Acts is in fact fairly limited. Accordingly, the ICTA provisions are repealed in favour of a new section 832(2A) in ICTA applying this Chapter for those purposes (see Schedule 1).
Section 465: Overview of Chapter and interpretation
1350.This section introduces the Chapter.Subsections (1) to (6) are new. Subsections (7) and (8) are based on section 685B(7) and (8) of ICTA.
Section 466: Meaning of “settled property” etc
1351.This section defines “settled property”. It is based on section 685A of ICTA.
1352.The definition corresponds to that in section 68 of TCGA. It also mirrors the effect of section 60 of TCGA in relation to bare trustees and nominees.
1353.In subsection (3), the expression “under a disability” in section 685A(1) of ICTA has been rewritten as “lacking legal capacity”. This does not change the substance.
Section 467: Meaning of “settlor” etc
1354.This section defines “settlor”. It is based on section 685B of ICTA.
1355.The definition corresponds to that in section 68A of TCGA.
1356.The section introduces a new term “disposable property”, defined in section 468.
1357.Subsection (6) is concerned with the case where one person makes or enters into a settlement in accordance with reciprocal arrangements with another person.
1358.As subsection (8) makes clear, a wider definition of “settlor” applies to the anti-avoidance provisions in Chapter 5 of Part 5 of ITTOIA.
Section 468: Meaning of “disposable property”
1359.This section defines the new term “disposable property”. It is based on section 685B(5) of ICTA.
1360.The definition covers the same ground as section 62(10) of TCGA.
Section 469: Person ceasing to be a settlor
1361.This section explains when a person ceases to be a settlor for income tax purposes. It is based on section 685B(6) of ICTA.
Section 470: Transfers between settlements
1362.This section and section 471 provide rules for identifying the settlor(s) of property in a settlement where property is transferred from one settlement to another for less than full consideration. The rules are the same as those that apply in section 68B of TCGA.
1363.This section explains when a relevant transfer occurs. It is based on section 685C of ICTA.
Section 471: Identification of settlor following transfer covered by section 470
1364.This section identifies the settlor(s) in circumstances where a transfer of property within section 470 takes place. It is based on section 685C of ICTA.
Section 472: Settlor where property becomes settled because of variation of will etc
1365.This section identifies the settlor in certain cases where a will is varied after a person dies. It is based on section 685D of ICTA.
1366.The rules are the same as those that apply in section 68C of TCGA.
1367.Subsection (2) applies when property becomes settled property in consequence of the variation, but would not otherwise have become settled property. In that case a person specified in subsection (3) is treated as the settlor.
1368.In subsection (3), the expression “under a disability” in section 685D(3) of ICTA has been rewritten as “lacking legal capacity”. This does not change the substance.
1369.In subsection (4), the expression “donatio mortis causa” has been retained, in the absence of any simple English expression that adequately summarises its meaning.
Section 473: Deceased person as settlor where variation of will etc
1370.This section deems the deceased person to be the settlor in certain cases where a will is varied after a person dies or that person dies intestate. It is based on section 685D of ICTA.
1371.The rules are the same as those that apply in section 68C of TCGA.
Section 474: Trustees of settlement to be treated as a single and distinct person
1372.This section provides that the trustees of a settlement are collectively regarded as a single person distinct from the persons who are the trustees from time to time. It is based on section 685E(1) and (8) of ICTA.
1373.The rule is the same rule as in section 69 of TCGA.
1374.This rule is of particular significance in relation to the determination of the trustees’ residence for income tax purposes.
Section 475: Residence of trustees
1375.This section sets out rules for determining whether trustees (treated as a single person under section 474) are resident and ordinarily resident in the United Kingdom. It is based on section 685E(2), (3), (4), (6) and (7) of ICTA.
1376.If all the persons who are trustees are UK resident then the single person is UK resident and ordinarily UK resident. If all those persons are non-UK resident then the single person is non-UK resident and not ordinarily UK resident. If the trustees have mixed residence then a tie-breaker applies and the residence of the single person is determined by reference to whether there is a settlor who meets condition C (see subsection (5)(b) and section 476).
Section 476: How to work out whether settlor meets condition C
1377.This section applies for the purposes of working out whether a settlor in relation to the settlement meets condition C. It is based on section 685E(4) and (5) of ICTA.
1378.Subsections (2) and (3) each provide that a person who is a settlor in relation to a settlement meets condition C if the person was UK resident, ordinarily UK resident or domiciled in the United Kingdom at the time specified in the subsection.
1379.Subsection (2) applies if the settlement arose on the death of the settlor and requires the settlor’s residence and domicile to be determined immediately before the settlor’s death.
1380.Subsection (3) applies in all other cases and requires the settlor’s residence and domicile to be determined at every time when a settlor makes, or is treated as making, the settlement (see, in particular, section 467(3)).
1381.Subsections (2) and (3) also each provide that a person who meets condition C in relation to a settlement at the time specified in the subsection continues to meet condition C at all subsequent times until the person ceases to be a settlor in relation to the settlement.
1382.Accordingly, the single person mentioned in section 474(1) will be treated as UK resident and ordinarily UK resident for as long as the settlement has mixed residence trustees and there continues to be a settlor who meets condition C in relation to the settlement.
Section 477: Sub-fund elections under Schedule 4ZA to TCGA 1992
1383.This section sets out the income tax position where the trustees of a settlement have made a sub-fund election under Schedule 4ZA to TCGA. It is based on section 685G of ICTA.
1384.The broad effect is that each sub-fund is treated as a separate settlement distinct from the principal settlement and with its own deemed single person trustees.
Section 478: References to settled property etc in regulations
1385.This section provides rules for interpreting terms in regulations. It is based on paragraph 37(1) of Schedule 13 to FA 2006.
