Q&As

What is the income tax treatment of a discretionary trust in which the settlor has an interest where a revocable life interest is granted from the discretionary trust in favour of a third party? What is the position where the revocable life interest is granted in favour of the settlor’s spouse?

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Published on LexisPSL on 07/11/2017

The following Private Client Q&A provides comprehensive and up to date legal information covering:

  • What is the income tax treatment of a discretionary trust in which the settlor has an interest where a revocable life interest is granted from the discretionary trust in favour of a third party? What is the position where the revocable life interest is granted in favour of the settlor’s spouse?

What is the income tax treatment of a discretionary trust in which the settlor has an interest where a revocable life interest is granted from the discretionary trust in favour of a third party? What is the position where the revocable life interest is granted in favour of the settlor’s spouse?

The position will depend on the precise terms of the discretionary trust, the deed of appointment of revocable life interest and other trust documents. The explanation below is a general overview of the income tax position of settlor interested trusts.

The starting point is to consider the so-called settlements legislation (or settlor code) in sections 624–628 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).

The general rule relating to income that may be treated as the settlor’s own income is contained in ITTOIA 2005, s 624. This states that the income arising under a settlement is treated for income tax purposes as the

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