Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
274

Capital sums treated as income of settlor: trustees’ payments
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
5
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
10
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.
15
(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—
20
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—
25
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—
30
(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).
35
(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
40
in subsection (3) of that section.
(4)
It does include a sum treated as a capital sum by subsection (5) below.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
275

(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
5
(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.
10
(7)
References in sections 633 to 638 to sums paid to the settlor include references
to sums paid to—
(a)
the spouse of the settlor, or
(b)
the settlor (or the spouse of the settlor) jointly with another person.
635
Amount of available income
15
(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
20
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
25
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
30
(d)
an amount equal to the sum of tax at the rate applicable to trusts 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.
35
636
Calculation of undistributed income
(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,
40
(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.

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
276

(2)
This subsection applies to such sums paid in the tax year to any persons by the
trustees of the settlement as—
(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 so treated if those persons were domiciled, resident and
5
ordinarily 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,
10
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).
15
(6)
This subsection applies to the amount by which—

where—
A is any income arising under the settlement in the tax year in respect of
which exemption from tax may be granted under section 505 of ICTA
(charities: general), and
20
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.
637
Qualifications to section 636
(1)
Section 636(2) does not apply—
25
(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.
30
(2)
Section 636(4) applies to any interest paid by the trustees of the settlement
subject to subsections (3) to (7).
(3)
The whole of any 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 of the
35
settlor.
(4)
If any sum within section 636(2) was so paid, the relevant fraction of any
interest paid by the trustees of the settlement is excluded from section 636(4).

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 5 — Settlements: amounts treated as income of settlor
277

(5)
The relevant fraction is—

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
5
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 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
10
(b)
interest payable to the settlor or the spouse 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.
(8)
For the purposes of this Chapter, a body corporate is treated as connected with
15
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).
20
Trustees’ payments: further provisions
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.
25
(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
30
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
35
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.
40