(1) This section applies for calculating the amount of income charged under this Chapter.
(2) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.
(3) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.
(4) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.
(5) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.
(6) Any relief given as a result of section 613 is additional to the relief under this section.
613 Application of trading income rules to non-trade businesses
The provisions of Chapter 9 of Part 2 apply in relation to non-trade businesses as they apply in relation to trades but as if—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) references to anything not constituting trading stock of a trade were omitted.
614 Charge to tax on certain telecommunication rights of a non-trader
(1) Income tax is charged on income derived from a relevant telecommunication right that is not used or held for the purposes of a trade, profession or vocation.
(2) “Relevant telecommunication right” has the same meaning as in Chapter 10 of Part 2 (see section 146).
(1) Tax is charged under this Chapter on the full amount of the income arising in the tax year.
(2) See section 617 for provision about the calculation of the amount of certain income charged under this Chapter.
(3) This section is subject to Part 8 (foreign income: special rules).
617 Deductions in calculating certain income charged
(1) This section applies for calculating the amount of income charged under this Chapter other than annual payments.
(2) The following sections apply as they apply for the purpose of calculating the profits of a trade, profession or vocation—
(a) section 147 (expenditure and receipts in respect of relevant telecommunication rights treated as revenue in nature), and
(b) section 148 (credits or debits arising from revaluation in respect of relevant telecommunication rights).
(3) Expenses wholly and exclusively incurred for the purpose of generating the income are deductible.
(4) If an expense is incurred for more than one purpose, a deduction may be made for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of generating the income.
(5) Expenses which would not have been allowable as a deduction in calculating the profits of a trade, if they had been incurred for its purposes, are not deductible under this section.
(6) Expenses for which any kind of relief is given under any other provision of the Income Tax Acts are not deductible under this section.
(7) The frequency with which payments are made is ignored in determining whether they are annual payments for the purposes of this Chapter.
In accordance with section 848 of ITA 2007, a sum representing income tax deducted under Chapter 6 of Part 15 of that Act from an annual payment within this Chapter is treated as income tax paid by the recipient.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Income tax is charged on—
(a) income which is treated as income of a settlor as a result of section 624 (income where settlor retains an interest),
(b) income which is treated as income of a settlor as a result of section 629 (income paid to relevant children of settlor),
(c) capital sums which are treated as income of a settlor as a result of section 633 (capital sums paid to settlor by trustees of settlement), ...
(d) capital sums which are treated as income of a settlor as a result of section 641 (capital sums paid to settlor by body connected with settlement) , and
(e) benefits whose amount or value is treated as income of the settlor or a close family member as a result of section 643A (benefits provided out of protected foreign-source income or transitional trust income), ...
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) For the purposes of Chapter 2 of Part 2 of ITA 2007 (rates at which income tax is charged) , where income of another person is treated as income of the settlor and is charged to tax under subsection (1)(a) or (b) above, it shall be charged in accordance with whichever provisions of the Income Tax Acts would have been applied in charging it if it had arisen directly to the settlor.
619A Income treated as highest part of settlor's total income
(1) This section applies to income which is treated as income of a settlor as a result of section 624 (income where settlor retains an interest) or 629 (income paid to unmarried minor children of settlor).
(2) The income is treated as the highest part of the settlor's total income for the purposes of section 619 (so far as it relates to the income).
(3) See section 1012 of ITA 2007 (relationship between highest part rules) for the relationship between—
(a) the rule in subsection (2), and
(b) other rules requiring particular income to be treated as the highest part of a person's total income.
(1) In this Chapter—
“settlement” includes any disposition, trust, covenant, agreement, arrangement or transfer of assets (except that it does not include a charitable loan arrangement), and
“settlor”, in relation to a settlement, means any person by whom the settlement was made.
(2) A person is treated for the purposes of this Chapter as having made a settlement if the person has made or entered into the settlement directly or indirectly.
(3) A person is, in particular, treated as having made a settlement if the person—
(a) has provided funds directly or indirectly for the purpose of the settlement,
(b) has undertaken to provide funds directly or indirectly for the purpose of the settlement, or
(c) has made a reciprocal arrangement with another person for the other person to make or enter into the settlement.
(4) This Chapter applies to settlements wherever made.
(5) In this section—
“charitable loan arrangement” means any arrangement so far as it consists of a loan of money made by an individual to a charity either—
for no consideration, or
for a consideration which consists only of interest, and
“charity” includes
the Trustees of the National Heritage Memorial Fund, and
the Historic Buildings and Monuments Commission for England...
...
.
The person liable for any tax charged under this Chapter is the settlor , but this is subject to section 643A (under which a close member of the settlor’s family may instead be liable).
(1) This section applies for the purpose of calculating the liability to tax of an individual charged under this Chapter.
(2) The same deductions and reliefs are allowed as would have been allowed if the amount treated as the individual's income as a result of this Chapter had been received by the individual as income.
(1) Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone if it arises—
(a) during the life of the settlor, and
(b) from property in which the settlor has an interest.
(1A) If the settlement is a trust, expenses of the trustees are not to be used to reduce the income of the settlor.
(2) For more on a settlor having an interest in property, see section 625.
(3) For exceptions to the rule in subsection (1), see—
section 626 (exception for outright gifts between spouses or civil partners),
section 627 (exceptions for certain types of income), and ...
section 628 (exception for gifts to charities), ...
...
(1) A settlor is treated for the purposes of section 624 as having an interest in property if there are any circumstances in which the property or any related property—
(a) is payable to the settlor or the settlor's spouse or civil partner ,
(b) is applicable for the benefit of the settlor or the settlor's spouse or civil partner , or
(c) will, or may, become so payable or applicable.
(2) Subsection (1) does not apply if the only circumstances are one or more of—
(a) the bankruptcy of a person who is, or may become, beneficially entitled to the property or any related property,
(b) the assignment of the property or any related property by such a person,
(c) the charging of (or, in Scotland, the granting of a right in security over) the property or any related property by such a person,
(d) in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, and
(e) the death of a child of the settlor who had become beneficially entitled to the property or any related property at not more than 25 years old.
(2A) In subsection (2) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.
(3) Subsection (1) does not apply if—
(a) there are no circumstances in which the property or any related property can become payable or applicable as mentioned in that subsection during the life of a person other than—
(i) the bankruptcy of the person, or
(ii) the assignment or charging of the person's interest in the property or any related property, and
(b) the person is alive and under 25 years old.
(4) In subsection (1) “the settlor's spouse or civil partner” does not include—
(a) a spouse or civil partner from whom the settlor is separated under an order of a court or a separation agreement,
(b) a spouse or civil partner from whom the settlor is separated where the separation is likely to be permanent,
(c) the widow or widower or surviving civil partner of the settlor, or
(d) a person to whom the settlor is not married but may later marry or a person of whom the settlor is not a civil partner but of whom the settlor may later be a civil partner .
(5) In this section “related property”, in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income from it.
626 Exception for outright gifts between spouses or civil partners
(1) The rule in section 624(1) does not apply in respect of an outright gift—
(a) of property from which income arises,
(b) made by one spouse to the other or one civil partner to the other , and
(c) meeting conditions A and B.
(2) Condition A is that the gift carries a right to the whole of the income.
(3) Condition B is that the property is not wholly or substantially a right to income.
(4) A gift is not an outright gift for the purposes of this section if—
(a) it is subject to conditions, or
(b) there are any circumstances in which the property, or any related property—
(i) is payable to the giver,
(ii) is applicable for the benefit of the giver, or
(iii) will, or may become, so payable or applicable.
(5) “Related property” has the same meaning in this section as in section 625.
(1) The rule in section 624(1) does not apply to income which—
(a) arises under a settlement made by one party to a marriage or civil partnership by way of provision for the other—
(i) after the dissolution or annulment of the marriage or civil partnership , or
(ii) 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
(b) is payable to, or applicable for the benefit of, the other party.
(2) The rule in section 624(1) does not apply to income which consists of—
(a) annual payments made by an individual for commercial reasons in connection with the individual's trade, profession or vocation,
(b) qualifying donations for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift aid) , or
(c) a benefit under a relevant pension scheme.
(3) In subsection (2)(c) “relevant pension scheme” means—
(a) a registered pension scheme,
(b) 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
(c) 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)).
(4) The rule in section 624(1) does not apply in relation to income which—
(a) arises under a settlement, and
(b) originates from any settlor who was not an individual.
(1) The rule in section 624(1) does not apply to any qualifying income which arises under a UK settlement if—
(a) it is given by the trustees to a charity in the tax year in which it arises, or
(b) it is income to which a charity is entitled under the terms of the trust.
(2) In this section “qualifying income” means—
(a) income which must be accumulated,
(b) income which is payable at the discretion of the trustees or any other person . . .
(c) income which (before being distributed) is income of any person other than the trustees.
(2A) The cases covered by subsection (2)(b) include cases where the trustees have, or any other person has, any discretion over one or more of the following matters—
(a) whether, or the extent to which, the income is to be accumulated,
(b) the persons to whom the income is to be paid, and
(c) how much of the income is to be paid to any person.
(3) Subsection (4) applies if in any tax year qualifying income which arises under a UK settlement from different sources exceeds the total of—
(a) the amount of that income which falls within subsection (1), and
(b) the amount of that income which falls within section 630(1) (comparable exception for income of relevant children of settlor).
(4) The amount of the qualifying income from different sources which falls within subsection (1) above is rateably apportioned between those sources.
(5) 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.
(6) In this section—
“charity” includes
the Trustees of the National Heritage Memorial Fund, and
the Historic Buildings and Monuments Commission for England...
...
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“UK settlement” means a settlement the trustees of which are resident ... in the United Kingdom.
(1) 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—
(a) is paid to, or for the benefit of, a relevant child of the settlor, or
(b) would otherwise be treated (apart from this section) as income of a relevant child of the settlor.
(2) Subsection (1) does not apply to income which is treated as income of the settlor under section 624.
(3) 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.
(4) In subsection (3) a child's “relevant settlement income” means income—
(a) which is paid to or for the benefit of, or otherwise treated as income of, the child, and
(b) which (apart from subsection (3)) would be treated as income of the settlor under subsection (1).
(5) Subsection (1) does not apply so far as provided by section 630 (exception for gifts to charities) ....
(6) See—
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.
(7) In this section and sections 631 and 632—
(a) “child” includes a stepchild,
(b) “minor” means a person under the age of 18 years, and “minor child” is to be read accordingly, . . .
(c) references to payments include payments in money's worth , and
(d) “relevant child” means a minor child who is unmarried or not in a civil partnership.
(8) Subsection (1) is subject to section 28A of FA 2005.
(1) The rule in section 629(1) does not apply to any qualifying income which arises under a UK trust if—
(a) it is given by the trustees to a charity in the tax year in which it arises, or
(b) it is income to which a charity is entitled under the terms of the trust.
(2) Subsection (3) applies if in any tax year qualifying income which arises under a UK trust from different sources exceeds the total of—
(a) the amount of that income which falls within subsection (1), and
(b) the amount of that income which falls within section 628(1) (comparable exception for income where settlor retains an interest).
(3) The amount of the qualifying income from different sources which falls within subsection (1) above is rateably apportioned between those sources.
(4) 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.
(5) In this section “charity”, “qualifying income” and “UK trust” have the same meaning as in section 628.
(1) This section applies if—
(a) the trustees of a settlement retain or accumulate income arising under the settlement, and
(b) a payment is subsequently made in connection with the settlement to, or for the benefit of, a child of the settlor who is unmarried or not in a civil partnership.
(2) 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.
(3) 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—
(a) the settlement, or
(b) any enactment relating to the settlement.
(4) For the purposes of subsection (2) retained or accumulated income is available at any time when—
A
>
B
where—
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.
(5) In subsection (4) “disregarded income” means any income arising under the settlement since it was made which has been—
(a) treated as income of the settlor,
(b) paid (whether as income or capital) to, or for the benefit of, a beneficiary other than a relevant child of the settlor,
(c) otherwise treated as the income of such a beneficiary,
(d) 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
(e) applied in meeting expenses of the trustees which—
(i) were properly chargeable to income, or
(ii) would have been so chargeable but for any express terms of the settlement.
(6) 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.
(7) In subsection (6) “the taxable amount”, in relation to a tax year, means the amount by which—
TI
>
TAD
where—
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 the child's total income or net income at Step 2 or 3 of the calculation in section 23 of ITA 2007.
(1) This section applies if—
(a) an offshore income gain accrues in respect of a disposal by a trustee of assets held by the trustee for a minor, and
(b) the minor would be absolutely entitled as against the trustee but for being a minor.
(2) The income which, under regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) (charge to tax), is treated as arising by reference to that gain is treated for the purposes of sections 629 and 631 as paid to the minor.
(3) In this section “offshore income gain” has the same meaning as in Chapter 5 of Part 2 of those Regulations.
633 Capital sums paid to settlor by trustees of settlement
(1) Any capital sum paid directly or indirectly in any tax year by the trustees of a settlement to the settlor is treated for income tax purposes as follows.
(2) The sum is treated as the income of the settlor for the tax year so far as the amount of the sum falls within the amount of income available up to the end of the year.
(3) The sum is treated as the income of the settlor for the following year so far as the amount of the sum—
(a) is not treated under subsection (2) as the settlor's income for the tax year in which it is paid, and
(b) falls within the amount of the income available up to the end of the following year.
(4) Subsection (3) also applies for each subsequent year up to a maximum of 10 years subsequent to the tax year in which the sum is paid.
(5) For this purpose the reference in subsection (3)(a) to being treated under subsection (2) as the settlor's income for the tax year in which the capital sum is paid is a reference to being treated under subsection (2) or (3) as the settlor's income for that year and any other year before the subsequent year in question.
(6) For the meaning of certain expressions used in this section, see—
section 634 (meaning of “capital sum” and “sums paid to settlor”),
section 635 (amount of available income),
section 636 (calculation of undistributed income), and
section 637 (qualifications to section 636).
(7) For other provisions, see—
section 638 (capital sums paid by way of loan or repayment of loan),
section 639 (loans to participators in close companies), and
section 640 (grossing-up of deemed income).
634 Meaning of “capital sum” and “sums paid to settlor”
(1) In this Chapter “capital sum” means—
(a) any sum paid by way of loan or repayment of a loan, and
(b) any other sum which—
(i) is paid otherwise than as income, and
(ii) is not paid for full consideration in money or money's worth.
(2) But this is subject to subsections (3) to (6).
(3) It does not include any sum which could not have become payable to the settlor except—
(a) in one of the circumstances mentioned in subsection (2) of section 625, or
(b) on the death under the age of 25 of any person of the kind mentioned in subsection (3) of that section.
(4) It does include a sum treated as a capital sum by subsection (5) below.
(5) Any sum which—
(a) is paid by the trustees of a settlement to a third party—
(i) at the settlor's direction, or
(ii) as a result of the assignment by the settlor of the settlor's right to receive the sum, or
(b) is otherwise paid, or applied by, the trustees for the benefit of the settlor,
is treated as a capital sum paid to the settlor by the trustees.
(6) Subsection (5) does not apply to any sum which would, apart from that subsection, be treated as a capital sum paid to the settlor.
(7) References in sections 633 to 638 to sums paid to the settlor include references to sums paid to—
(a) the spouse or civil partner of the settlor, or
(b) the settlor (or the spouse or civil partner of the settlor) jointly with another person.
(1) For the purposes of section 633 the amount of income available up to the end of any tax year is, in relation to any capital sum paid as mentioned in subsection (1) of that section by the trustees of a settlement, calculated as follows.
(2) Add together the amount of ... income arising under the settlement in that year and any previous year which has not been distributed.
(3) Deduct from that figure—
(a) the amount of that income taken into account under section 633 in relation to that sum in any previous year or years,
(b) the amount of that income taken into account under section 633 in relation to any other capital sums paid to the settlor in any year before that sum was paid,
(c) any income arising under the settlement in that year or any previous year which has been treated as income of the settlor under section 624 or 629, and
(d) an amount equal to the sum of tax at the trust rate on—
(i) the total amount of ... income arising under the settlement in that year and any previous year which has not been distributed, less
(ii) any income of the kind mentioned in paragraph (c).
(4) See sections 636 and 637 for how to calculate amounts of undistributed income.
(5) See also section 643ZB(2) (which provides for certain income not to be counted towards available income for the purposes of this section).
(1) For the purposes of section 635, ... income arising under a settlement in any tax year is treated as ... income which has not been distributed so far as it exceeds the total amount of—
(a) the sums to which subsection (2) applies,
(b) the expenses to which subsection (4) applies, and
(c) if the trustees of the settlement are trustees for charitable purposes, the amount to which subsection (6) applies.
(2) This subsection applies to ... sums paid in the tax year to any persons by the trustees of the settlement that are payments of ... income, or sums treated as representing ... income, and that—
(a) are treated in that year (otherwise than under section 633) as the income of those persons for income tax purposes, or
(b) would be treated as mentioned in paragraph (a) if those persons were ... resident in the United Kingdom and the sums had been paid to them there.
(3) Subsection (2) is subject to section 637(1).
(4) This subsection applies to any expenses of the trustees of the settlement paid in the tax year which, in the absence of any express provision of the settlement, would be properly chargeable to ... income.
(5) Subsection (4)—
(a) does not apply to expenses so far as they are included in the sums mentioned in subsection (2), and
(b) is subject to section 637(2) to (7).
(6) This subsection applies to the amount by which—
A
>
B
where—
A is any ... income arising under the settlement in the tax year in respect of which exemption from tax may be granted under any provision to which subsection (7) applies, and
B is the total amount of any such sums or expenses as are mentioned in subsections (2) and (4) paid in that year which are properly chargeable to the income.
(7) This subsection applies to the following provisions of ITA 2007—
section 521(4) (gifts entitling donor to gift-aid relief),
section 522(5) (gifts of money from companies),
section 523(5) (payments from other charities),
section 523A (legacies)
section 524 (profits etc of charitable trades),
section 529 (profits from fund-raising events),
section 530 (profits from lotteries),
section 531 (property income etc),
section 532 (savings and investment income),
section 533 (public revenue dividends),
section 536 (miscellaneous income), and
section 537 (income from estates in administration).
(1) Section 636(2) does not apply—
(a) to any interest paid by the trustees of the settlement, or
(b) to any sums paid to—
(i) a body corporate connected with the settlement, or
(ii) the trustees of another settlement made by the settlor or by the trustees of the settlement.
(2) Section 636(4) applies to any relevant interest paid by the trustees of the settlement subject to subsections (3) to (7).
(3) The whole of any relevant interest paid by the trustees of the settlement is excluded from subsection (4) of section 636 if no sums within subsection (2) of that section were paid to any person other than the settlor or the spouse or civil partner of the settlor.
(4) If any sum within section 636(2) was so paid, the relevant fraction of any relevant interest paid by the trustees of the settlement is excluded from section 636(4).
(5) The relevant fraction is—
A
-
B
A
where—
A is the whole of the ... income arising under the settlement in the tax year, less the sums referred to in subsection (4) of section 636 apart from subsections (2), (3) and (6) of this section, and
B is so much of the sums within subsection (2) of that section as is paid to persons other than the settlor or the spouse or civil partner of the settlor.
(6) Subsections (2) to (5) do not apply to—
(a) interest in respect of which relief from tax is allowable under any provision of the Income Tax Acts, or
(b) interest payable to the settlor or the spouse or civil partner of the settlor if living with the settlor.
(7) Nothing in subsections (2) to (6) affects the liability to tax of the person receiving or entitled to the interest.
(7A) In this section “relevant interest” means interest which, in the absence of any express provision of the settlement, would be properly chargeable to ...income.
(8) For the purposes of this Chapter, a body corporate is treated as connected with a settlement in any tax year if at any time in that year—
(a) it is a close company (or only is not a close company because it is non-UK resident) and the participators then include the trustees of the settlement, or
(b) it is controlled by a company falling within paragraph (a).
638 Capital sums paid by way of loan or repayment of loan
(1) No part of a capital sum which is paid to a settlor by way of loan is treated under section 633 as the settlor's income for any tax year after the tax year in which the whole of the sum is repaid.
(2) Subsection (3) applies if—
(a) a capital sum is paid to the settlor by way of loan, and
(b) one or more capital sums have previously been paid to the settlor by way of loan and wholly repaid.
(3) The amount of the capital sum mentioned in subsection (2)(a) is treated for the purposes of section 633 as equal to the amount (if any) by which it exceeds so much of the capital sum or sums previously paid as has already been treated as the settlor's income under that section.
(4) Subsection (5) applies if—
(a) a capital sum is paid to the settlor by way of complete repayment of a loan, and
(b) an amount not less than the capital sum is subsequently lent by the settlor to the trustees of the settlement.
(5) No part of the capital sum is treated under section 633 as the settlor's income for any tax year after that in which the further loan is made.
(1) This section applies if any amount has been included in a person's income under Chapter 6 of Part 4 (release of loan to participator in close company) in respect of any loan or advance.
(2) There is a corresponding reduction in the amount (if any) afterwards falling to be so included under section 633 in respect of the loan or advance.
(1) The whole or any part of a capital sum which is treated under section 633 as income of the settlor for any tax year is treated as income of an amount equal to the sum or the part of the sum, grossed up by reference to the trust rate for that year.
(2) The deductible amount is to be set off against the amount of tax charged on any amount treated under section 633 as income of the settlor for any year.
(3) In subsection (2) the “deductible amount” is an amount equal to—
(a) tax at the trust rate for the year on the amount treated under section 633 as the settlor's income,
(b) so much of the amount of tax at that rate as is equal to the tax charged, or
(c) the amount of tax paid by the trustees on the grossed-up amount of so much of the amount of income available up to the end of the year, in relation to the capital sum, as is taken into account under section 633 in relation to that sum in that year (see subsections (4) to (7) below),
whichever is the least.
(4) For the purposes of subsection (3)(c)—
(a) any reduction falling to be made under section 635(3)(d) is treated as made against income arising under the settlement in an earlier tax year before income arising under the settlement in a later tax year, and
(b) income arising under the settlement in an earlier tax year is treated as taken into account under section 633 before income arising under the settlement in a later tax year.
(5) For the purposes of subsection (3)(c)—
(a) the grossed-up amount of any sum is an amount equal to the sum, grossed up by reference to the appropriate rate for each part of the sum, and
(b) the amount of tax paid by the trustees on that grossed-up amount is the difference between the grossed-up amount and the sum in question.
(6) For the purposes of subsection (5)—
(a) the appropriate rate for any part of a sum is 0% if—
(i) the income that falls to be treated in accordance with subsection (4) as representing that part of the sum is income from a source outside the United Kingdom, and
(ii) the trustees were non-UK resident for the relevant tax year, and
(b) the appropriate rate for any part of a sum in relation to which paragraph (a) does not apply is—
(i) 34%, if the relevant tax year is the year 2003-04 or any earlier tax year, ...
(ii) 40%, if the relevant tax year is the year 2004-05 or any subsequent tax year up to and including the year 2009-2010, ...
(iii) 50%, if the relevant tax year is the year 2010-2011 , 2011-12 or 2012-13, and .
(iv) 45%, if the relevant year is the year 2013-14 or any subsequent tax year.
(7) In subsection (6) “the relevant tax year”, in relation to any part of a sum, means the tax year in which the income treated in accordance with subsection (4) as representing that part of the sum arose under the settlement.
641 Capital sums paid to settlor by body connected with settlement
(1) This section applies if—
(a) a capital sum is paid to the settlor in a tax year by any body corporate connected with the settlement in that year, and
(b) an associated payment has been, or is, made directly or indirectly to the body by the trustees of the settlement.
(2) The capital sum is, in accordance with this section, treated for the purposes of section 633 as having been paid to the settlor by the trustees of the settlement.
(3) A capital sum to which subsection (2) applies is treated as having been paid to the settlor in the tax year in which it is paid so far as the amount of the sum falls within the total of the associated payment or payments made up to the end of the year.
(4) A capital sum to which subsection (2) applies is treated as having been paid to the settlor in the following year so far as the amount of the sum—
(a) is not treated as paid to the settlor in the year mentioned in subsection (3), and
(b) falls within the total of the associated payment or payments made up to the end of the following year (less what was taken into account under subsection (3) in relation to the sum in the previous year).
(5) Subsection (4) also applies for each subsequent year.
(6) In its application to a subsequent year—
(a) the references to the following year are to the subsequent year,
(b) the reference to the year mentioned in subsection (3) is to that year and any other year before the subsequent year, and
(c) the reference to what was taken into account under subsection (3) in relation to the sum in the previous year is to what was taken into account under this section in relation to the sum in the previous years.
(7) See also—
section 642 (exception for certain loans or repayments of loans), and
section 643 (interpretation of sections 641 and 642).
642 Exception for certain loans or repayments of loans
(1) Section 641 does not apply to any sum paid to the settlor by way of loan or repayment of a loan if conditions A and B are met.
(2) Condition A is that the whole of the loan is repaid within 12 months of the date on which it was made.
(3) Condition B is that the period for which amounts are outstanding in respect of relevant loans in any period of 5 years is not more than 12 months.
(4) In subsection (3) “relevant loans” means loans made—
(a) to the settlor by the body corporate connected with the settlement or by any other body corporate so connected, or
(b) by the settlor to the body corporate connected with the settlement or to any other body corporate so connected.
(1) Any question in section 641 or 642 whether a capital sum has been paid—
(a) to the settlor by a body corporate, or
(b) to a body corporate by the trustees,
is determined in the same way as any question under section 633 whether a capital sum has been paid to the settlor by the trustees.
(2) For the circumstances in which a body corporate is treated for the purposes of this Chapter as connected with a settlement, see section 637(8).
(3) In section 641 and this section “associated payment”, in relation to any capital sum paid to the settlor by a body corporate, means—
(a) any capital sum paid to the body by the trustees of the settlement, and
(b) any other sum paid, or asset transferred, to the body by the trustees which is not paid or transferred for full consideration in money or money's worth,
being any sum paid, or asset transferred, in the 5 years ending or beginning with the date on which the capital sum is paid to the settlor.
(4) For the purposes of sections 641 and 642 and this section any capital sum paid by a body corporate, and any associated payment made to a body corporate, at a time when it is (within the meaning of section 449 of CTA 2010) associated with another body corporate may be treated as paid by, or made to, the other body corporate.
643ZA “Protected foreign-source income” and “transitional trust income”
(1) In this Chapter—
“protected foreign-source income” means income that—
arose under a settlement in any of the tax years 2017-18 to 2024-25, and
was protected foreign-source income for that tax year within the meaning of section 628A (as that section had effect for that tax year).
“transitional trust income” means income that—
arose under a settlement in any of the tax years 2008-09 to 2016-17, and
was transitional trust income throughout the tax years 2017-18 to 2024-25 within the meaning of section 628C (as that section had effect for those tax years).
(2) For the purposes of subsection (1) ignore section 648(3) to (5) (foreign income treated as arising under settlement only if and when remitted).
643ZB Protected foreign-source income and transitional trust income not to be taxed elsewhere in Chapter
(1) The rules in sections 624(1) and 629(1) do not apply to protected foreign-source income or transitional trust income (which, by virtue of section 648(3) to (5), may be treated as income arising under the settlement in the tax year 2025-26 or a subsequent tax year).
(2) In the following provisions, “income” does not include protected foreign-source income or transitional trust income—
section 635(2) and (3)(d)(i);
section 636(1), (2) (in the words before paragraph (a)), (4) and (6);
section 637(5) and (7A).
643A Benefits paid out of protected foreign-source income or transitional trust income
(1) If—
(a) an individual to whom this section applies has an untaxed benefits total for a settlement for a tax year (see section 643B),
(b) there is available protected income in relation to the individual, the settlement and the tax year (see section 643C), and
(c) the individual is UK resident for the tax year,
an amount equal to so much of the untaxed benefits total as does not exceed the available protected income is treated for income tax purposes as income of the individual for the tax year.
(2) This section applies to—
(a) the settlor, and
(b) anyone who has at any time been a close member of the settlor’s family.
(3) If there is a choice about the individuals in whose case income is to be treated as arising under subsection (1), income is to be treated as arising—
(a) to such one or more of them as appears to an officer of Revenue and Customs to be just and reasonable, and
(b) if more than one, in such respective proportions as appear to the officer to be just and reasonable.
643B Meaning of “untaxed benefits total” in section 643A
(1) For the purposes of section 643A, whether an individual has an untaxed benefits total for a settlement for a tax year (“the current year”), and (if so) its amount, are determined as follows—
Step 1
Identify each benefit provided by the trustees to the individual—
in the current tax year, or an earlier tax year for which the individual was UK resident, and
if the individual is not the settlor, at a time when the individual was a close member of the settlor’s family.
Step 2 Identify the amount or value of each benefit identified in the individual's case at Step 1, and calculate the total of those amounts and values.
Step 3 Take the total calculated at Step 2 and deduct from it the following—
any part of it on which the individual is liable to income tax otherwise than under section 643A,
any income treated by section 643A, 643J or 643L as arising, to a person for a tax year earlier than the current year, by reference to any of the benefits identified in the individual's case at Step 1,
where the whole or part of a benefit identified in the individual's case at Step 1 is taken into account in charging income tax under Chapter 2 of Part 13 of ITA 2007, the amount or value of so much of the benefit as is taken into account in doing that, and
any amount required to be deducted by section 643D(2) (gains treated as accruing in a year before the current year).
Step 4 If the result of the calculation at Step 3 is an amount greater than nil, that amount is the individual's untaxed benefits total for the settlement for the current year.
(2) For the purposes of Step 1 in subsection (1), if—
(a) the trustees provide a benefit to an individual in a given tax year,
(b) the individual is a close member of the settlor’s family when the benefit is provided,
(c) the individual is non-UK resident, or is a qualifying new resident, for the tax year, and
(d) the settlor is UK resident for the tax year,
the benefit is instead treated as provided to the settlor.
(3) Sections 742C to 742E of ITA 2007 (value of certain benefits) apply for the purpose of calculating the value of a benefit for the purposes of this section as they apply for the purpose of calculating an income tax charge under Chapter 2 of Part 13 of ITA 2007.
(4) In this section and sections 643C to 643EA, a reference to a benefit provided by trustees of a settlement is to—
(a) a benefit treated by subsection (6) as provided by the trustees, or
(b) any other benefit if it is provided by the trustees directly, or indirectly, out of—
(i) property comprised in the settlement, or
(ii) income arising under the settlement.
(5) In this section and sections 643C to 643EA, a reference to a benefit provided by trustees of a settlement to an individual is to—
(a) a benefit treated by subsection (6) as provided by the trustees to the individual, or
(b) any other benefit if it is provided by the trustees to the individual directly, or indirectly, out of—
(i) property comprised in the settlement, or
(ii) income arising under the settlement.
(6) Where—
(a) income arises under a settlement, and
(b) the income, before being distributed, is the income of a person other than the trustees,
a benefit is for the purposes of subsection (4)(a) treated as provided by the trustees and is for the purposes of subsection (5)(a) treated as provided by the trustees to the person.
(7) A benefit treated as provided by subsection (6) is treated—
(a) as consisting of the income mentioned in that subsection, but after any reduction in accordance with Chapter 8 of Part 9 of ITA 2007 for trustees' expenses, and
(b) as provided at the time that income arises.
643C Meaning of “available protected income” in section 643A
(1) For the purposes of section 643A, take the following steps to determine the amount of available protected income in relation to an individual (“P”), a settlement and a tax year (“the current tax year”)—
Step 1
Identify the total amount of protected foreign-source income and transitional trust income that arose (at any time) under the settlement (“the total protected income”).
Step 2
Deduct any amount of the total protected income that is matched under the transfer of assets abroad code in the current tax year or an earlier tax year.
Step 3
Deduct any amount of the total protected income on which P or any other individual is liable to income tax in the current tax year or an earlier tax year.
Step 4
Deduct any amount that, in relation to the settlement, is treated under section 643A as P’s income in an earlier tax year or as another individual’s income in any tax year.
Step 5
Add back the amount of any income falling within Step 2 or Step 4 that is identified as qualifying foreign income on a foreign income claim made by P or any other individual for any tax year.
(2) For the purposes of Step 1 in subsection (1), ignore section 648(3) to (5) (foreign income treated as “arising” under settlement only if and when remitted).
(3) For the purposes of Step 2 in subsection (1), an amount of the total protected income is “matched under the transfer of assets abroad code” if it is matched under section 735A of ITA 2007 with—
(a) benefits provided by the trustees to P or any other individual in the current tax year or in an earlier tax year, and
(b) an amount of income treated as arising to P or any other individual under section 732 of ITA 2007 and not exempt from income tax by virtue of any of sections 737 to 742A of that Act
(or if it would be so matched if section 735A applied for those purposes).
(4) For the purposes of Step 3 in subsection (1), ignore any liability to income tax arising under section 643A above or under section 731 of ITA 2007 (transfer of assets abroad: benefits charge).
(5) In Step 4 in subsection (1) and in subsection (4), a reference to section 643A includes, in relation to any of the tax years 2018-19 to 2024-25, section 643J and 643L (old onward gifting rules).