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House of Commons Session 2004 - 05
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Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
Exception for outright gifts between spouses
The rule in section 624(1) does not apply in respect of an outright gift—
of property from which income arises,
made by one spouse to the other, and
meeting conditions A and B.
Condition A is that the gift carries a right to the whole of the income.
Condition B is that the property is not wholly or substantially a right to income.
A gift is not an outright gift for the purposes of this section if—
it is subject to conditions, or
there are any circumstances in which the property, or any related
is payable to the giver,
is applicable for the benefit of the giver, or
will, or may become, so payable or applicable.
"Related property" has the same meaning in this section as in section 625.
Exceptions for certain types of income
The rule in section 624(1) does not apply to income which—
arises under a settlement made by one party to a marriage by way of
provision for the other—
after the dissolution or annulment of the marriage, or
while they are separated under an order of a court, or under a
separation agreement, or where the separation is likely to be
permanent, and
is payable to, or applicable for the benefit of, the other party.
The rule in section 624(1) does not apply to income which consists of—
annual payments made by an individual for commercial reasons in
connection with the individual's trade, profession or vocation,
qualifying donations for the purposes of section 25 of FA 1990
(donations to charity by individuals), or
a benefit under a relevant pension scheme.
In subsection (2)(c) "relevant pension scheme" means—
a registered pension scheme,
a pension scheme established by a government outside the United
Kingdom for the benefit, or primarily for the benefit, of its employees
(or an annuity acquired using funds held for the purposes of such a
pension scheme), or
any pension arrangements of any description prescribed by regulations
made under section 11(2)(h) of the Welfare Reform and Pensions Act
1999 (c. 30) or Article 12(2)(h) of the Welfare Reform and Pensions
(Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)).
Exception for gifts to charities
The rule in section 624(1) does not apply to any qualifying income which arises
under a UK trust if—
it is given by the trustees to a charity in the tax year in which it arises, or
it is income to which a charity is entitled under the terms of the trust.
In this section "qualifying income" means—
income which is to be accumulated,
income which is payable at the discretion of the trustees or any other
person (whether or not the trustees have power to accumulate it), or
income which (before being distributed) is income of any person other
than the trustees.
Subsection (4) applies if in any tax year qualifying income which arises under
a UK trust from different sources exceeds the total of—
the amount of that income which falls within subsection (1), and
the amount of that income which falls within section 630(1)
(comparable exception for income of unmarried minor children of
settlor).
The amount of the qualifying income from different sources which falls within
subsection (1) above is rateably apportioned between those sources.
This does not affect the operation of any requirement that the whole, or any
specified part, of the income from a particular source is to be given to a charity.
"charity" includes each of the bodies mentioned in section 507 of ICTA
(the National Heritage Memorial Fund, the British Museum etc.),
"resident", in relation to the trustees of a trust, is to be read in accordance
with section 110 of FA 1989 (residence of trustees), and
"UK trust" means a trust whose trustees are UK resident.
Income treated as income of settlor: unmarried children
Income paid to unmarried minor children of settlor
Income which arises under a settlement is treated for income tax purposes as
the income of the settlor and of the settlor alone for a tax year if, in that year
and during the life of the settlor, it—
is paid to, or for the benefit of, an unmarried minor child of the settlor,
would otherwise be treated (apart from this section) as income of an
unmarried minor child of the settlor.
Subsection (1) does not apply to income which is treated as income of the
settlor under section 624.
Subsection (1) does not apply in relation to a child's relevant settlement income
in any tax year if, in that year, the total amount of that income does not exceed
£100.
In subsection (3) a child's "relevant settlement income" means income—
which is paid to or for the benefit of, or otherwise treated as income of,
the child, and
which (apart from subsection (3)) would be treated as income of the
settlor under subsection (1).
Subsection (1) does not apply so far as provided by section 630 (exception for
gifts to charities).
section 631 for the treatment for the purposes of subsection (1) of retained
or accumulated income, and
section 632 for the treatment for the purposes of this section and section
631 of certain deemed income connected to offshore income gains.
In this section and sections 631 and 632—
"child" includes a stepchild,
"minor" means a person under the age of 18 years, and "minor child" is
to be read accordingly, and
references to payments include payments in money's worth.
(comparable exception for income where settlor retains an interest).
In this section "charity", "qualifying income" and "UK trust" have the same
meaning as in section 628.
Retained and accumulated income
This section applies if—
the trustees of a settlement retain or accumulate income arising under
the settlement, and
a payment is subsequently made in connection with the settlement to,
or for the benefit of, an unmarried child of the settlor.
The payment is treated for the purposes of section 629(1) as a payment of
income, but only so far as there is retained or accumulated income available.
For the purposes of subsection (1) a payment is made in connection with a
settlement if it is made by virtue of or in consequence of—
the settlement, or
any enactment relating to the settlement.
For the purposes of subsection (2) retained or accumulated income is available
at any time when—
A is the total amount of the income which has arisen under the settlement
since it was made, and
B is the total amount of disregarded income.
In subsection (4) "disregarded income" means any income arising under the
settlement since it was made which has been—
treated as income of the settlor,
paid (whether as income or capital) to, or for the benefit of, a beneficiary
other than an unmarried minor child of the settlor,
otherwise treated as the income of such a beneficiary,
treated as income of an unmarried minor child of the settlor, and
subject to income tax, in any of the tax years 1995-96, 1996-97 and 1997-
98, or
applied in meeting expenses of the trustees which—
were properly chargeable to income, or
would have been so chargeable but for any express provisions
of the trust.
For the purposes of subsection (5)(d), income arising under the settlement that
is treated as income of the child is subject to income tax so far as it does not
exceed the taxable amount.
In subsection (6) "the taxable amount", in relation to a tax year, means the
amount by which—
TI is the child's total income for income tax purposes, and
TAD is the total amount of allowances and deductions that may be set
against the total income.
Offshore income gains
an offshore income gain accrues in respect of a disposal by a trustee of
assets held by the trustee for a minor, and
the minor would be absolutely entitled as against the trustee but for
being a minor.
The income which, under section 761(1) of ICTA (charge to income tax of
offshore income gain), is treated as arising by reference to that gain is treated
for the purposes of sections 629 and 631 as paid to the minor.
In this section "offshore income gain" has the same meaning as in Chapter 5 of
Part 17 of ICTA (charge to tax of offshore income gains).
Revised 1 December 2004