Commentary

I5.1229 Tainting of a protected settlement

IHT, trusts and estates

I5.1229 Tainting of a protected settlement

I5.1229 Tainting of a protected settlement

For the latest New Development, see ND.1710.

Tainting–overview

Where a settlement is a protected settlement (see I5.1228) it loses its protection and becomes a qualifying settlement, and subject to the settlor charge, for the year in which any one of the following 'tainting' events take place and for subsequent years1:

  1.  

    (1)     New property or income is provided directly or indirectly to the settlement2

  2.  

    (2)     The trustees become non-resident or treaty non-resident3

  3.  

    (3)     The terms of the settlement are varied so that a defined person can benefit4

  4.  

    (4)     Even though the terms of the settlement do not allow a defined person5 to benefit, in practice they do receive a benefit6

  5.  

    (5)     The settlement ceases to be a protected settlement at any time on or after 6 April 19997

Trusts with deemed domiciled settlors that satisfy the conditions for exemption from the settlor charge (see I5.1228) must also ensure that they do not fall foul of the tainting provisions specified for those particular trusts8.

Events (1) to (4) above have applied from 19 March 1991, since the introduction of the original settlor charge legislation; event (5) was added with effect from 6 April 1999. HMRC previously published extensive guidance on the interpretation of these events9. However HMRC stopped reproducing its guidance in this area in its Capital Gains Tax Manual, based on its view is that, if the beneficiaries took the trouble to make a pre–19 March 1991 settlement a protected settlement it would be unusual for it to

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