Commentary

D6.651 The settlements legislation

Corporate tax
Corporate tax | Commentary

D6.651 The settlements legislation

Corporate tax | Commentary

D6.651 The settlements legislation

Until comparatively recently, many practitioners would not have considered the settlements legislation1 in relation to family companies. However the test case of Jones v Garnett2 (see below) highlighted this issue in relation to family run businesses.

The definition3 of a settlement is broad and includes any disposition, trust, covenant, agreement, arrangement or transfer of assets where there is an element of bounty (see Division I5.11). In other words, a bona fide commercial transaction is not caught.

Where a settlement is created any income arising under it is treated as belonging to the settlor4. (The settlor is treated as having an interest if the settled property will or may become, payable to or applicable for the benefit of him or his spouse or civil partner). Specifically excluded from the charge are outright gifts by one spouse or civil partner to the other of property from which income arises, unless the gift does not carry a right to the whole of that income, or the property given is wholly or substantially a right to income (see I5.1125)5. In addition income arising from a settlement on or after 21 March 2012 will not be caught if the settlor is not an individual6. This amendment counteracts avoidance schemes which seek to exploit these settlement provisions by using corporate settlors to try to avoid income tax at higher rates which would otherwise be due on dividends paid by a subsidiary of the corporate settlor. The income will not now be treated as that

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