453 Tax reduction for qualifying maintenance payments
(1) An individual who makes a claim is entitled to a tax reduction for a tax year in which any qualifying maintenance payments made by the individual fall due.
(2) The amount of the tax reduction is 10% of—
(a) the total amount of qualifying maintenance payments made by the individual which fall due in the tax year, or
(b) if less, the amount specified in section 43 (tax reductions for married couples and civil partners: meaning of “the minimum amount”).
(3) The tax reduction is given effect at Step 6 of the calculation in section 23.
(1) For the purposes of section 453 a payment is a “qualifying maintenance payment” if conditions A to E are met.
(2) Condition A is that the payment is a periodical payment made by—
(a) one of the parties to a marriage or civil partnership (including a marriage or civil partnership which has been dissolved or annulled) to or for the benefit of the other party and for the maintenance of the other party, or
(b) one parent of a child to the child's other parent for the maintenance of the child by the other parent or by one person to another for the maintenance by the other of a relevant child of theirs.
(3) Condition B is that—
(a) in a case falling within subsection (2)(a), either of the parties to the marriage or civil partnership was born before 6 April 1935, and
(b) in a case falling within subsection (2)(b), either the person who made the payment, or the person to whom it is made, was born before that date.
(4) Condition C is that the payment is made—
(a) under an order made by a court in the United Kingdom or a member State, or
(b) under a written agreement the law applicable to which is the law of the United Kingdom or of a part of the United Kingdom or of a member State or of a part of a member State.
(5) Condition D is that the payment is due at a time when—
(a) in a case falling within subsection (2)(a)—
(i) the two parties are not a married couple, or civil partners of each other, living together (see section 1011), and
(ii) the party to whom or for whose benefit the payment is made has not entered into a new marriage or a new civil partnership, and
(b) in a case falling within subsection (2)(b), the person making the payment and the person to whom the payment is made are not living together.
(6) Condition E is that relief from tax in respect of the payment is not available to the person making it under any provision of the Income Tax Acts other than section 453.
(7) In subsection (4) the reference to an order made by a court in the United Kingdom includes a reference to a maintenance calculation.
(8) “Maintenance calculation” means—
(a) a maintenance calculation made under the Child Support Act 1991 (c. 48), or
(b) a maintenance assessment made under the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)).
(9) In this section—
“child” means a person under 21 years of age,
“periodical payment” does not include an instalment of a lump sum, and
“relevant child”, in relation to any two persons, means a child who (not being a child who has been boarded out with them by a public authority or voluntary organisation) has been treated by both of them as a child of their family.
(1) Condition A in section 454(2) is treated as met in relation to a payment if—
(a) it is a periodical payment made under a maintenance calculation by any person,
(b) another person is, for the purposes of the Child Support Act 1991 or (as the case may be) the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)), a parent of the child or children with respect to whom the calculation has effect,
(c) the calculation was not made under section 7 of the Child Support Act 1991 (right of child in Scotland to apply for maintenance calculation), and
(d) any of the conditions mentioned in subsection (2) is met.
(2) The conditions are that—
(a) the payment is made to the Secretary of State in accordance with regulations made under section 29 of the Child Support Act 1991 by virtue of subsection (3)(a)(ii) of that section (collection of child support maintenance: payment to or through Secretary of State),
(b) the payment is retained by the Secretary of State in accordance with regulations made under section 41 of that Act (arrears of child support maintenance),
(c) the payment is made to the Department of Health, Social Services and Public Safety for Northern Ireland in accordance with regulations made under Article 29 of the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I. 23)), by virtue of paragraph (3)(a)(ii) of that Article (collection of child support maintenance: payment to or through Department), or
(d) the payment is retained by the Department of Health, Social Services and Public Safety for Northern Ireland in accordance with regulations made under Article 38 of that Order (arrears of child support maintenance).
(3) “Maintenance calculation” and “periodical payment” have the meanings given in section 454(8) and (9).
456 Payments under orders for recovery of benefit etc
(1) Condition A in section 454(2) is treated as met in relation to a payment made by any person if—
(a) it is a periodical payment made to the Secretary of State or to the Department of Health, Social Services and Public Safety for Northern Ireland, and
(b) it is made under a recovery of benefit order.
(2) A “recovery of benefit order” is—
(a) one made under section 106 of the Social Security Administration Act 1992 (c. 5) or section 101 of the Social Security Administration (Northern Ireland) Act 1992 (c. 8) (recovery of expenditure on benefit from person liable for maintenance) in respect of income support claimed by any other person, or
(b) one made by virtue of section 23 of the Jobseekers Act 1995 (c. 18) or Article 25 of the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15)) (recovery of sums in respect of maintenance), in respect of an income-based jobseeker's allowance claimed by any other person.
(3) In subsection (2) “income-based jobseeker's allowance” has the same meaning as in—
(a) the Jobseekers Act 1995, or
(b) for Northern Ireland, the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15)).
(4) “Periodical payment” has the meaning given in section 454(9).
(1) An individual who makes a payment to a trade union in a tax year is entitled to relief for the tax year if—
(a) part of the payment (the “qualifying amount”) is attributable to the provision of superannuation, life insurance or funeral benefits,
(b) the individual meets the requirements of section 460 (residence etc), and
(c) the individual makes a claim.
(2) The amount of the relief is equal to half the qualifying amount.
(3) But the maximum amount of relief under this section to which an individual is entitled for a tax year is £100.
(4) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year (see Step 2 of the calculation in section 23).
(5) “Trade union” has the meaning given by section 1 of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52).
(1) An individual who makes a payment to a police organisation in a tax year is entitled to relief for the tax year if—
(a) part of the payment (the “qualifying amount”) is attributable to the provision of superannuation, life insurance or funeral benefits,
(b) the sum of the qualifying amounts for all the payments which the individual makes in the tax year is at least £20,
(c) the individual meets the requirements of section 460 (residence etc), and
(d) the individual makes a claim.
(2) The amount of the relief is equal to half the qualifying amount.
(3) But the maximum amount of relief under this section to which an individual is entitled for a tax year is £100.
(4) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year (see Step 2 of the calculation in section 23).
(5) “Police organisation” means an organisation of persons in police service.
(1) This section applies in relation to an individual who claims—
(a) relief under section 457 or 458 (payments to trade unions and police organisations) for a tax year, ...
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) The individual meets the requirements of this section if the individual—
(a) is UK resident for the tax year, or
(b) meets the condition in subsection (3).
(3) An individual meets the condition in this subsection if, at any time in the tax year, the individual—
(a) is resident in the Isle of Man or the Channel Islands,
(b) has previously resided in the United Kingdom and is resident abroad for the sake of the health of—
(i) the individual, or
(ii) a member of the individual's family who is resident with the individual,
(c) is a person who is or has been employed in the service of the Crown,
(d) is employed in the service of any territory under Her Majesty's protection,
(e) is employed in the service of a missionary society, or
(f) is a person whose late spouse or late civil partner was employed in the service of the Crown.
(4) See also—
(a) section 809G, in relation to tax years before 2025-26 where a claim for the remittance basis to apply is made, and
(b) section 845E of ITTOIA 2005, in relation to tax years from 2025-26 where a foreign income claim, a foreign employment election or a foreign gain claim is made.
Those sections provide that where an individual makes such a claim or election for a tax year, the individual is not entitled to any relief under section 457 or 458 for that tax year.
(1) A person who makes a claim is entitled to a tax reduction for a tax year in which the person receives a payment of a royalty or other sum if—
(a) the payment is in respect of the use of a patent,
(b) the use of the patent has extended over a period of two years or more, and
(c) the payment is one from which a sum representing income tax is required to be deducted under section 903.
(2) The amount of the tax reduction is the difference between—
(a) the amount of income tax payable by the person in respect of the payment, and
(b) the total amount of income tax which would have been payable by the person in respect of the payment on the assumptions in subsection (3).
(3) Those assumptions are that—
(a) the payment was made in a number of equal instalments at yearly intervals,
(b) the last instalment was paid on the date on which the payment was in fact made, and
(c) the number of instalments was the same as the number of complete years in the period over which the use of the patent extended, but subject to a maximum of 6.
(4) The tax reduction is given effect at Step 6 of the calculation in section 23.
(1) This Part sets out special rules about settlements and trustees.
(2) Chapter 2 contains general provision about settlements and trustees, for example, definitions of expressions relating to settlements.
(3) Chapter 3 provides for income tax to be charged at the property trust rate, the savings trust rate or the dividend trust rate or at the trust rate on certain amounts included in the net income of the trustees of a settlement.
(4) Chapter 4 provides—
(a) for expenses of the trustees of a settlement to be set against the trustees' trust rate income (see section 463(2)), and
(b) consequentially, for the amount of the trust rate income to be reduced.
(5) Chapter 5 qualifies section 479 (which is in Chapter 3) in the case of the trustees of a Schedule 2 share incentive plan.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Chapter 7 deals with the treatment of payments made by the trustees of a settlement in the exercise of a discretion.
This affects the way the trustees and the recipients of such payments are taxed.
(8) Chapter 8 deals with the treatment of expenses of the trustees of a settlement where income arising to the trustees is, before being distributed, the income of a person other than the trustees themselves.
This affects the way that other person is taxed on that income.
(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10) Chapter 10 deals with heritage maintenance settlements.
(11) See also Part 10 for special rules about charitable trusts and section 838A for special provision about asbestos compensation settlements.
(12) See also Chapter 4 of Part 2 of FA 2005 for provision about trusts with vulnerable beneficiaries.
(1) In this Part—
“other income” means income which is not property income, dividends income or savings income, and
“the trustees of a settlement” does not include personal representatives.
(2) References in this Part to the trust rate income for a tax year of the trustees of a settlement are references to the trustees' net income for the tax year so far as it includes amounts on which income tax is charged at the property trust rate, the savings trust rate or the dividend trust rate or at the trust rate (ignoring Chapters 4 and 6).
(1) This section applies if—
(a) income arises to trustees under a trust having effect under the law of Scotland,
(b) the trustees are UK resident, and
(c) a beneficiary under the trust (“B”) would have an equitable right in possession to the income if the trust had effect under the law of England and Wales.
(2) B is treated for income tax purposes as having an equitable right in possession to the income (even though B has no such right under the law of Scotland).
(1) This Chapter contains general provision about settlements and trustees.
(2) Section 466 explains what is meant by references to settled property.
(3) Sections 467 to 473 explain what is meant by references to a settlor in relation to a settlement.
(4) Sections 474 to 476 treat the trustees of a settlement as a single and distinct person and set out rules in relation to the residence ... of that person.
(5) Section 477 relates to sub-fund elections under paragraph 1 of Schedule 4ZA to TCGA 1992.
(6) Section 478 is about references to settled property etc in regulations.
(7) For the purposes of this Chapter property is derived from other property if—
(a) it derives (directly or indirectly and wholly or partly) from that other property or any part of that other property, and
(b) in particular, if it derives (directly or indirectly and wholly or partly) from income from that other property or any part of that other property.
(8) In this Chapter “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
(1) This section applies for the purposes of the Income Tax Acts, except so far as, in those Acts, the context otherwise requires.
(2) “Settled property” means any property held in trust other than property excluded by subsection (3).
(3) Property is excluded for the purposes of subsection (2) if—
(a) it is held by a person as nominee for another person,
(b) it is held by a person as trustee for another person who is absolutely entitled to the property as against the trustee, or
(c) it is held by a person as trustee for another person who would be absolutely entitled to the property as against the trustee if that other person were not an infant or otherwise lacking legal capacity.
(4) References, however expressed, to property comprised in a settlement are references to settled property.
(5) A person is absolutely entitled to property as against a trustee if the person has the exclusive right to direct how the property is to be dealt with (subject to the trustees' right to use the property for the payment of duty, taxes, costs or other outgoings).
(6) References to a person who is or would be so entitled include references to two or more persons who are or would be jointly absolutely entitled as against the trustee.
(1) In the Income Tax Acts (except where the context otherwise requires) “settlor”, in relation to a settlement, means the person, or any of the persons, who has made the settlement.
(2) In the Income Tax Acts (except where the context otherwise requires) a person is a settlor of property if—
(a) the property is settled property because of—
(i) the person's having made the settlement, or
(ii) an event which leads to the person being treated by this Chapter as having made the settlement, or
(b) the property derives from settled property within paragraph (a).
(3) A person (“S”) is treated for the purposes of the Income Tax Acts as having made a settlement if—
(a) S has made or entered into the settlement (directly or indirectly), or
(b) the settled property, or property from which the settled property derives, is or includes property within subsection (4).
(4) Property is within this subsection if—
(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any other way), and
(b) immediately before S's death, the property was property of S—
(i) which was disposable property (see section 468), or
(ii) which represented S's severable share in any property to which S was beneficially entitled as joint tenant.
(5) In particular, S is treated for the purposes of the Income Tax Acts as having made a settlement if—
(a) S has provided property for the purposes of the settlement (directly or indirectly), or
(b) S has undertaken to do that.
(6) If a person (“A”) makes or enters into a settlement in accordance with reciprocal arrangements with another person (“B”)—
(a) B is treated for the purposes of the Income Tax Acts as having made the settlement, and
(b) A is not to be treated for the purposes of the Income Tax Acts as having made the settlement just because of the reciprocal arrangements.
(7) This section needs to be read with sections 469 to 473.
(8) This section and sections 469 to 473 do not apply for the purposes of Chapter 5 of Part 5 of ITTOIA 2005 (amounts treated as income of settlors).
(1) This section applies for the purposes of section 467(4)(b)(i).
(2) Property is disposable if S could have disposed of it by S's will.
(3) In working out whether any property could have been so disposed of—
(a) make the assumptions mentioned in subsection (4), and
(b) ignore the powers mentioned in subsection (5).
(4) Assume that—
(a) S is of full age and capacity,
(b) the property is situated in England and Wales, and
(c) if S is not domiciled in the United Kingdom, S is domiciled in England and Wales.
(5) The powers to be ignored are—
(a) any power of appointment giving S the right to dispose of the property, and
(b) any testamentary power conferred by statute to dispose of entailed interests.
(1) A person (“S”) who is a settlor in relation to a settlement ceases to be so when the following condition is met.
(2) The condition is that—
(a) no property of which S is the settlor is comprised in the settlement,
(b) S has not undertaken to provide property (directly or indirectly) for the purposes of the settlement in the future, and
(c) S has not made reciprocal arrangements with another person for that other person to enter into the settlement in the future.
(1) Section 471 applies in relation to a transfer of property from the trustees of one settlement (“settlement 1”) to the trustees of another settlement (“settlement 2”) if the transfer—
(a) is not for full consideration,
(b) is not by way of a bargain made at arm's length, and
(c) is not excluded by subsection (2).
(2) A transfer of property is excluded for the purposes of subsection (1) if—
(a) it occurs only because of the assignment by a beneficiary under settlement 1 of an interest in that settlement to the trustees of settlement 2,
(b) it occurs only because of the exercise of a general power of appointment, or
(c) section 473(4) applies in relation to it.
(3) In this section “transfer of property” means—
(a) a disposal of property by the trustees of settlement 1, and
(b) the acquisition by the trustees of settlement 2 of—
(i) property disposed of by the trustees of settlement 1, or
(ii) property created by the disposal.
(4) For the purposes of subsection (3) there is an acquisition or disposal of property if there would be an acquisition or disposal of property for the purposes of TCGA 1992.
471 Identification of settlor following transfer covered by section 470
(1) If there is a transfer of property in relation to which this section applies, then the following subsections apply for the purposes of the Income Tax Acts, except so far as, in those Acts, the context otherwise requires.
(2) The settlor (or each settlor) of the property disposed of by the trustees of settlement 1 (“the disposed property”) is treated from the time of the disposal as having made settlement 2.
(3) If there is more than one settlor of the disposed property, each of them is treated in relation to settlement 2 as the settlor of a proportionate part of the property acquired by the trustees of settlement 2 on the disposal.
(4) So far as the disposed property—
(a) was provided for the purposes of settlement 1, or
(b) was derived from property so provided,
the property acquired by the trustees of settlement 2 on the disposal is treated from the time of the disposal as having been provided for the purposes of settlement 2.
(5) If as a result of subsection (4), property (“the transferred property”) is treated as having been provided for the purposes of settlement 2—
(a) the person who provided the disposed property, or the property from which it was derived, for the purposes of settlement 1 is treated as having provided the transferred property for the purposes of settlement 2, and
(b) if more than one person provided the disposed property, or the property from which it was derived, for the purposes of settlement 1, each of them is treated as having provided a proportionate part of the transferred property for the purposes of settlement 2.
472 Settlor where property becomes settled because of variation of will etc
(1) This section applies if—
(a) a disposition of property following a person's death is varied, and
(b) section 62(6) of TCGA 1992 applies in relation to the variation.
(2) If property becomes settled property because of the variation (and would not, but for the variation, have become settled property), a person within subsection (3) is treated for the purposes of the Income Tax Acts (except where the context otherwise requires)—
(a) as having made the settlement, and
(b) as having provided the property for the purposes of the settlement.
(3) The persons within this subsection are—
(a) a person who immediately before the variation was entitled to the property, or to property from which it derived, absolutely as legatee,
(b) a person who immediately before the variation would have been so entitled if that person had not been an infant or otherwise lacking legal capacity,
(c) a person who, but for the variation, would have become so entitled, and
(d) a person who, but for the variation, would have become so entitled if that person had not been an infant or otherwise lacking legal capacity.
(4) For the purposes of subsection (3)—
(a) “legatee” includes a person taking property—
(i) under a testamentary disposition or on an intestacy or partial intestacy, whether beneficially or as trustee, or
(ii) under a donatio mortis causa, and
(b) a person who is a legatee as a result of paragraph (a)(ii) is treated as acquiring the property when the donor dies.
(5) For the purposes of subsection (4)(a) property taken under a testamentary disposition or on an intestacy or partial intestacy includes any property appropriated by the personal representatives in or towards satisfaction of—
(a) a pecuniary legacy, or
(b) any other interest or share in the property devolving under the disposition or intestacy.
473 Deceased person as settlor where variation of will etc
(1) This section applies if—
(a) a disposition of property following the death of a person (“D”) is varied, and
(b) section 62(6) of TCGA 1992 applies in relation to the variation.
(2) If—
(a) property would have become comprised in a settlement within subsection (3), but
(b) as a result of the variation, the property, or property derived from it, becomes comprised in another settlement,
D is treated for the purposes of the Income Tax Acts (except where the context otherwise requires) as having made the other settlement.
(3) A settlement is within this subsection if—
(a) it arose on D's death (whether by D's will or on D's intestacy or in any other way), or
(b) it was in existence immediately before D's death (whether or not D was a settlor in relation to it).
(4) If—
(a) immediately before the variation property is comprised in a settlement and is property of which D is a settlor, and
(b) immediately after the variation the property, or property derived from it, becomes comprised in another settlement,
D is treated for the purposes of the Income Tax Acts (except where the context otherwise requires) as having made the other settlement.
(5) A settlement treated as made by D as a result of this section is treated for the purposes of the Income Tax Acts as made by D immediately before D's death.
(6) But subsection (5) does not apply in relation to a settlement which arose on D's death.
474 Trustees of settlement to be treated as a single and distinct person
(1) For the purposes of the Income Tax Acts (except where the context otherwise requires), the trustees of a settlement are together treated as if they were a single person (distinct from the persons who are the trustees of the settlement from time to time).
(2) If different parts of the settled property in relation to a settlement are vested in different bodies of trustees, subsection (1) and sections 475 and 476 apply in relation to the different bodies as if they were all one body.
(3) The cases covered by subsection (2) include cases where settled land (within the meaning of the Settled Land Act 1925 (c. 18)) is vested in the tenant for life and investments representing capital money are vested in the trustees of the settlement.
(1) This section applies for income tax purposes and explains how to work out, in relation to the trustees of a settlement, whether or not the single person mentioned in section 474(1) is UK resident.
(2) If at a time either condition A or condition B is met, then at that time the single person is UK resident.
(3) If at a time neither condition A nor condition B is met, then at that time the single person is non-UK resident.
(4) Condition A is met at a time if, at that time, all the persons who are trustees of the settlement are UK resident.
(5) Condition B is met at a time if at that time—
(a) at least one person who is a trustee of the settlement is UK resident and at least one such person is non-UK resident, and
(b) a settlor in relation to the settlement meets condition C (see section 476).
(6) If at a time a person (“T”) who is a trustee of the settlement acts as trustee in the course of a business which T carries on in the United Kingdom through a branch, agency or permanent establishment there, then for the purposes of subsections (4) and (5) assume that T is UK resident at that time.
(7) Subsection (8) applies if—
(a) an individual becomes or ceases to be a trustee of the settlement during a tax year,
(b) that year is a split year as respects the individual, and
(c) the only period in that year when the individual is a trustee of the settlement falls wholly within the overseas part of the year.
(8) The individual is to be treated for the purposes of subsections (4) and (5) as if he or she had been non-UK resident for the year (and hence for the period in that year when he or she was a trustee of the settlement).
(9) But subsection (8) is subject to subsection (6) and, accordingly, an individual who is treated under subsection (8) as having been non-UK resident is, in spite of that, to be treated as UK resident whenever the individual acts as mentioned in subsection (6).
476 How to work out whether settlor meets condition C
(1) This section applies for the purpose of working out whether a settlor (“S”) in relation to a settlement meets condition C at a time.
(2) If—
(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any other way), and
(b) immediately before S's death, S was UK resident ... ...,
then S meets condition C from the time of S's death until S ceases to be a settlor in relation to the settlement.
(3) If—
(a) the settlement is not within subsection (2)(a), and
(b) at a time when S made the settlement (or is treated for the purposes of the Income Tax Acts as making the settlement), S was UK resident ... ...,
then S meets condition C from that time until S ceases to be a settlor in relation to the settlement.
(3ZA) In relation to a settlement—
(a) that arose before 6 April 2025 on S’s death, or
(b) that S made (or is treated for the purposes of the Income Tax Acts as having made) before 6 April 2025,
subsections (2)(b) and (3)(b) have effect as if after “UK resident” there were inserted “or domiciled in the United Kingdom”.
(3A) Section 835BA (deemed domicile) applies for the purposes of subsection (3ZA).
(4) Further, if—
(a) there is a transfer of property in relation to which section 471 applies,
(b) S is a settlor in relation to settlement 2 as a result of that section, and
(c) immediately before the disposal by the trustees of settlement 1, S meets condition C as a settlor in relation to settlement 1 as a result of this section,
then S meets condition C as a settlor in relation to settlement 2 from the time S becomes such a settlor until S ceases to be such a settlor.
(5) “Settlement 1” and “settlement 2” are to be read in accordance with section 470(1).
477 Sub-fund elections under Schedule 4ZA to TCGA 1992
(1) This section applies for the purposes of the Income Tax Acts (except so far as, in those Acts, the context otherwise requires) if the trustees of a settlement have made a sub-fund election under paragraph 1 of Schedule 4ZA to TCGA 1992.
(2) The sub-fund settlement is treated as a settlement that is created at the relevant time.
(3) Each trustee of the trusts on which property comprised in the sub-fund settlement is held is treated as a trustee of the sub-fund settlement.
(4) A person (“T”) who is a trustee of the sub-fund settlement is treated, from the relevant time, as having ceased to be a trustee of the principal settlement unless T is also a trustee of trusts on which property comprised in the principal settlement is held.
(5) A person (“T”) who is a trustee of the principal settlement is not to be treated as a trustee of the sub-fund settlement unless T is also a trustee of trusts on which property comprised in the sub-fund settlement is held.
(6) The trustees of the sub-fund settlement are treated as having become, at the relevant time, absolutely entitled to the property comprised in that settlement as against the trustees of the principal settlement.
(7) In this section—
“principal settlement” has the meaning given by paragraph 1 of Schedule 4ZA to TCGA 1992,
“the relevant time” means the time when the sub-fund election is treated as having taken effect under paragraph 2 of that Schedule,
“sub-fund election” has the meaning given by paragraph 2 of that Schedule, and
“sub-fund settlement” has the meaning given by paragraph 1 of that Schedule.
478 References to settled property etc in regulations
For the purposes of regulations (whenever made) made under a provision of the Income Tax Acts—
(a) references to settled property, a settlor or trustees are to be read in accordance with this Chapter, and
(b) references to the trustees of a trust are to be read as references to the trustees of a settlement.
479 Trustees' accumulated or discretionary income to be charged at special rates
(1) This section applies if—
(a) accumulated or discretionary income arises to the trustees of a settlement, and
(b) the income does not arise under a charitable trust.
(2) Income tax is charged on the income at the rates referred to in this section instead of at the rates which would otherwise apply (for which see Chapter 2 of Part 2 (rates at which income tax is charged)).
(2A) Income tax is charged on the income at the property trust rate so far as the income is property income.
(2B) Income tax is charged on the income at the savings trust rate so far as the income is savings income.
(3) Income tax is charged on the income at the dividend trust rate so far as the income is dividend income.
(4) Otherwise, income tax is charged on the income at the trust rate.
(5) Section 488 disapplies this section in cases relating to Schedule 2 share incentive plans.
480 Meaning of “accumulated or discretionary income”
(1) Income is accumulated or discretionary income so far as—
(a) it must be accumulated, or
(b) it is payable at the discretion of the trustees or any other person,
and it is not excluded by subsection (3).
(2) The cases covered by subsection (1)(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) Income is excluded for the purposes of subsection (1) so far as—
(a) before being distributed, it is the income of any person other than the trustees,
(b) it is income from property within subsection (4), or
(c) it is income from service charges which are paid in respect of dwellings in the United Kingdom and are held on trust.
(4) Property is within this subsection if it—
(a) is held for the purposes of a superannuation fund to which section 615(3) of ICTA (superannuation funds relating to undertakings outside the UK) applies, but
(b) is not held as a member of a property investment LLP.
(5) In subsection (3)(c) “service charges” has the meaning given by section 18 of the Landlord and Tenant Act 1985 (but as if that section also applied in relation to dwellings in Scotland and Northern Ireland).
481 Other amounts to be charged at special rates for trustees
(1) This section applies if—
(a) the trustees of a settlement are liable for income tax on an amount of a type set out in section 482,
(b) the trustees are not trustees of a unit trust scheme, and
(c) the amount is not income arising under a charitable trust.
(2) Income tax is charged on the amount at one of the rates referred to in this section instead of at the rate which would otherwise apply (for which see Chapter 2 of Part 2 (rates at which income tax is charged)).
This is subject to subsection (5).
(3) If the amount is within Type 1 or Type 12 as set out in section 482, income tax is charged on the amount at the dividend trust rate.
(3A) If the amount is within Type 2, 6 or 7 as set out in section 482, income tax is charged on the amount at the savings trust rate.
(3B) If the amount is within Type 5 as set out in section 482, income tax is charged on the amount at the property trust rate.
(4) Otherwise, income tax is charged on the amount at the trust rate.
(5) Income tax is not to be charged as mentioned in subsection (2) so far as the amount—
(a) is accumulated or discretionary income,
(b) would be accumulated or discretionary income apart from section 480(3)(a) or (c), or
(c) is income from property within subsection (6).
(6) Property is within this subsection if it is held for the purposes of a superannuation fund to which section 615(3) of ICTA (superannuation funds relating to undertakings outside the UK) applies.
482 Types of amount to be charged at special rates for trustees
The types of amount referred to in section 481 are as follows. Type 1
A payment—
(a) which is made to the trustees or to which the trustees are entitled, and
(b) which is made by way of ... distribution by a company on the redemption, repayment or purchase of shares in the company or on the purchase of rights to acquire such shares.
Type 2
Accrued income profits treated as made by the trustees under section 628(5) or 630(2).
Type 3
Income treated as arising to the trustees under regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001).
Type 4
Income which the trustees are treated as receiving under section 68(2) or 71(4) of FA 1989 (which relate to employee share ownership trusts).
Type 5
A sum to which Chapter 4 of Part 3 of ITTOIA 2005 (which provides for certain amounts to be treated as receipts of a property business) applies.
Type 6
A profit in relation to which the trustees are liable for income tax under section 429 of ITTOIA 2005 (profits from deeply discounted securities).
Type 7
A gain in relation to which the trustees are liable for income tax under section 467 of ITTOIA 2005 (gains from contracts for life insurance etc), other than a gain to which subsection (7) of that section applies.
Type 8
A profit or gain in relation to which the trustees are liable for income tax under section 554 of ITTOIA 2005 (transactions in deposits).
Type 9
A profit or gain—
(a) in relation to which the trustees are liable for income tax under section 557 of ITTOIA 2005 (disposals of futures and options), and
(b) which does not meet any of conditions A to C in section 568 of ITTOIA 2005.
Type 10
Proceeds in relation to which the trustees are liable for income tax under section 573 of ITTOIA 2005 (sales of foreign dividend coupons).
Type 11
Income treated as arising to the trustees under Part 9A of this Act (transactions in land).
Type 12
Income treated as arising to the trustees under section 396A of ITTOIA 2005 (arrangements offering a choice of income or capital return).
483 Sums paid by personal representatives to trustees
(1) This section applies if, during or at the end of the administration period for an estate—
(a) the personal representatives pay the trustees of a settlement a sum representing income of the personal representatives, and
(b) if this Chapter had applied to personal representatives, income tax would have been charged on that income at the property trust rate, the savings trust rate or the dividend trust rate or at the trust rate.
(2) The sum is treated as—
(a) being paid as income, and
(b) having borne income tax at the applicable rate.
(3) In this section—
“administration period” has the meaning given by section 653 of ITTOIA 2005, and
“the applicable rate” means the rate referred to in section 663(1) of ITTOIA 2005 (the applicable rate for grossing up basic amounts of estate income).
484 Trustees' expenses to be set against trustees' trust rate income
(1) This section applies if the trustees of a settlement incur allowable expenses in a tax year (“the current tax year”).
(2) The allowable expenses are to be set against the trustees' trust rate income for the current tax year in accordance with section 486.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) So far as any of the trustees' trust rate income has an amount set against it in accordance with section 486, income tax is charged on it at the rate or rates which would apply apart from Chapter 3 (see Chapter 2 of Part 2).
(5) Expenses are allowable for the purposes of this Chapter only so far as—
(a) they are expenses of the trustees, and
(b) they are properly chargeable to income, ignoring the express terms of the settlement.
(6) Expenses are not allowable for the purposes of this Chapter if they are expenses which (apart from this section) have fallen, or may fall, to be taken into account for the purpose of calculating the trustees' liability to income tax for any tax year.
(1) This section applies if (apart from this section) the trustees incur an allowable expense in a tax year prior to the current tax year (“the earlier tax year”).
(2) For the purposes of this Chapter the trustees are treated as having incurred the allowable expense in the current tax year so far as conditions A and B are met in relation to the expense.
(3) Condition A is that the allowable expense could not be set against the trustees' trust rate income for the earlier tax year only because the trustees' trust rate income was insufficient or they had no trust rate income.
(4) Condition B is that the allowable expense has not been set against the trustees' trust rate income for a tax year prior to the current tax year as a result of this section.
486 How allowable expenses are to be set against trust rate income
(1) Take the following steps to determine how the allowable expenses are to be set against the trustees' trust rate income for the current tax year.
Step 1
Reduce the allowable expenses by the proportion of those expenses (if any) which is excluded in accordance with section 487.
References at Steps 3 to 6 below to the allowable expenses are references to the expenses as so reduced.
Step 2
Identify the type or types of income which make up the trust rate income.
The possible types are dividend income, savings income , property income and other income.
Step 3
If there is dividend income within subsection (2)—
(a) gross up by reference to the dividend ordinary rate so much of the allowable expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough allowable expenses to give that result, gross them all up by reference to that rate.
The grossed up amount is set against the dividend income within subsection (2).
Step 4
If there are remaining expenses and there is dividend income not within subsection (2)—
(a) gross up by reference to the dividend ordinary rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.
The grossed up amount is set against the dividend income not within subsection (2).
For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3.
Step 5
If there are remaining expenses and there is savings income—
(a) gross up by reference to the savings basic rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.
The grossed up amount is set against the savings income.
For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3 or 4.
Step 5A
If there are remaining expenses and there is property income—
(a) gross up by reference to the property basic rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.
For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3, 4 or 5.
Step 6
If there are remaining expenses and there is other income—
(a) gross up by reference to the basic rate so much of the remaining expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all up by reference to that rate.
The grossed up amount is set against the other income.
For the purposes of this step “the remaining expenses” are the allowable expenses so far as they have not been grossed up at Step 3, 4 , 5 or 5A.
(2) Income is within this subsection so far as it is—
(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies),
(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident companies), or
(c) chargeable under Chapter 6 of that Part (release of loan to participator in close company).
(3) If income tax would, apart from Chapter 3, be charged on any income mentioned at Steps 3 to 6 at a rate different to the rate mentioned at the step in question, for the purpose of setting any expenses against that income, gross up the expenses by reference to the different rate instead of at the rate mentioned.
(1) This section applies if a proportion of the income arising to the trustees in the current tax year is untaxed income.
(2) A proportion of the allowable expenses is excluded for the purposes of section 486.
(3) That proportion is the same as the proportion of the income arising to the trustees which is untaxed income.
(4) For the purposes of this section the income arising to the trustees is untaxed income so far as they are not liable to income tax on it wholly or partly because they—
(a) have been non-UK resident, or
(b) have been treated as resident in a territory outside the United Kingdom under double taxation arrangements.
(5) If the income tax charged on the income arising to the trustees is limited under Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents), the untaxed income includes so much of the income so arising which is disregarded income (within the meaning of that Chapter) except so far as the disregarded income is within subsection (6).
(6) The disregarded income is within this subsection so far as—
(a) sums representing income tax have been deducted from the income, or
(b) sums representing income tax have been treated as deducted from or paid in respect of the income, ...
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
488 Application of section 479 to trustees of Schedule 2 share incentive plans
(1) This section applies if—
(a) income arises to the trustees of a Schedule 2 share incentive plan, and
(b) the income consists of dividends or other distributions in respect of shares held by the trustees in relation to which the requirements of Part 4 of Schedule 2 to ITEPA 2003 (... share incentive plans: types of shares that may be awarded) are met.
(2) Section 479 applies in relation to the income only if and when condition A or condition B has been met.
(3) Condition A is that—
(a) the applicable period in relation to the shares has ended, and
(b) that period came to an end without the shares being awarded to a participant in accordance with the plan.
(4) Condition B is that the trustees disposed of the shares before the end of the applicable period in relation to the shares.
(5) For the purpose of determining whether shares are awarded to a participant within the applicable period in relation to them, shares acquired by the trustees at an earlier time are taken to be awarded to a participant before shares of the same class acquired by the trustees at a later time.
(6) References in this section to shares being awarded to a participant include references to the shares being acquired on behalf of the participant as dividend shares.
(1) This section sets out how the applicable period in relation to any shares (“the relevant shares”) is determined for the purposes of section 488.
(2) The length of the applicable period depends on whether any shares in the relevant company were readily convertible assets at the time the relevant shares were acquired by the trustees.
(3) If any were, the applicable period is the period of two years beginning with the acquisition date.
(4) If none were, the applicable period is—
(a) the period of 5 years beginning with the acquisition date, or
(b) if within that period any shares in the relevant company become readily convertible assets, the period of two years beginning with the date on which they did so,
whichever ends first.
(5) Subsections (2) to (4) are subject to subsection (6).
(6) If the relevant shares were acquired by the trustees by virtue of a payment in respect of which a deduction is allowed under section 989 of CTA 2009 (deduction for contribution to plan trust), the applicable period is the period of 10 years beginning with the acquisition date.
(7) In this section—
“the acquisition date” means the date on which the trustees acquired the relevant shares,
“readily convertible assets” has, subject to subsection (8), the meaning given by sections 701 and 702 of ITEPA 2003, and
“the relevant company” means the company in which the relevant shares are shares.
(8) In determining for the purposes of this section whether shares are readily convertible assets, ignore any market for the shares that—
(a) is created by virtue of the trustees acquiring shares for the purposes of the Schedule 2 share incentive plan, and
(b) exists solely for the purposes of that plan.
(1) This Chapter forms part of the SIP code (see section 488 of ITEPA 2003 (... share incentive plans)).
(2) Therefore expressions used in this Chapter and contained in the index at the end of Schedule 2 to ITEPA 2003 have the meaning indicated by that index.
(3) For the purposes of this Chapter shares which are subject to provision for forfeiture are treated as acquired by the trustees if and when the forfeiture occurs.
(1) Sections 494 and 495 apply for income tax purposes if—
(a) in a tax year the trustees of a settlement make an annual payment to a person (“the beneficiary”) in the exercise of a discretion (whether exercisable by the trustees or any other person),
(b) the trustees are UK resident for the tax year, and
(c) condition A or condition B is met.
(2) Condition A is that what is paid to the beneficiary is, only because of the payment, income of the beneficiary for income tax or corporation tax purposes.
“Income” does not include employment income.
(3) Condition B is that the payment is treated for income tax purposes as the income of a settlor under section 629 of ITTOIA 2005 (income paid to relevant children of settlor).
“Settlor” is to be read in accordance with section 620 of ITTOIA 2005.
(4) The payment is referred to in sections 494 and 495 as “the discretionary payment”.
(5) In this Chapter “payment” includes payment in money's worth.
494 Grossing up of discretionary payment and payment of income tax
(1) The discretionary payment is treated as if it were made after the deduction of a sum representing income tax at the trust rate on the grossed up amount of the discretionary payment.
(2) The grossed up amount of the discretionary payment is the actual amount of the discretionary payment grossed up by reference to the trust rate.
(3) The person mentioned in subsection (4) is treated as having paid income tax of an amount equal to the sum deducted as mentioned in subsection (1).
(4) That person is—
(a) if condition A in section 493 is met, the beneficiary, and
(b) if condition B in section 493 is met, the settlor.