Offshore trusts—attribution of income to settlors
Offshore trusts—attribution of income to settlors

The following Private Client practice note provides comprehensive and up to date legal information covering:

  • Offshore trusts—attribution of income to settlors
  • What are the elements of the settlements code?
  • Who is a settlor?
  • What is a settlement?
  • What does ‘element of bounty’ mean?
  • Settlements code—charge to tax
  • Retained interest
  • Corporate settlors
  • Meaning of spouse
  • Exceptions under ITTOIA 2005, s 624
  • More...

This Practice Note considers the provisions of part 5, sections 619–648 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) (Ch 5) (referred to here as the ‘settlements code’) which deems the income arising under the settlement to be that of the settlor. It can apply to both onshore and offshore settlements. The Offshore trust avoidance—attribution of gains to settlors Practice Note discusses the capital gains tax (CGT) provisions which seek to attribute gains arising under a settlement to the settlor.

The settlements code charges income tax to the settlor on:

  1. income arising under a settlement where the settlor retains an interest in the settlement

  2. income of a settlement paid to the settlor's minor child, or

  3. certain capital payments (including loans) made to the settlor

However where there is no element of bounty, ie no gratuitous transfer, and the arrangements are made for bona fide commercial reasons, a settlement may fall outside the settlements code (eg an employee benefit trust). See the outcome of the case Chinn v Collins below.

The provisions apply irrespective of whether the settlement is UK resident.

The predecessor legislation of the settlements code is found in Part XV of the Income and Corporation Taxes Act 1988.

What are the elements of the settlements code?

Who is a settlor?

'Settlor', in relation to a settlement, means any person by whom the settlement was made.

Popular documents