Commentary

I5.1220 Settlor's income tax liability under the settlements code

IHT, trusts and estates

I5.1220 Settlor's income tax liability under the settlements code

Liability of settlors—income tax

I5.1220 Settlor's income tax liability under the settlements code

The settlements code and non-resident trusts—overview

The provisions in the settlements code impose a UK income tax charge on a settlor who is resident (before 6 April 2013, ordinarily resident) in the UK if income arises in a 'settlor-interested' trust1.

The rules prevent a UK resident settlor from avoiding a personal UK tax liability by creating an offshore settlement in which he retains an interest. The rules also apply to UK resident trusts (see I5.11).

These anti-avoidance provisions attribute the trust's income to the settlor when:

  1.  

    •     income arises in a settlement in which the settlor has retained an interest2

  2.  

    •     income of a settlement is paid to or for the benefit of the settlor's minor child(ren)3

  3.  

    •     the settlor receives certain capital sums (including loans) from the settlement4

  4.  

    •     untaxed benefits or 'onward gifts' are provided out of the trust's protected foreign-source income (PFSI)5

Settlements code—Settlor retains an interest

Settlor charge—overview

The settlements code applies where a settlor who is an individual6 has an interest in a settlement. He has an interest if he, or his spouse or civil partner, can receive or in any way benefit from the income arising from trust property or any related property.

All UK resident settlors who have an interest in the property of a non-resident settlement are chargeable to UK tax on all UK source income arising to the

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