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Tax basics: The settlement provisions and children. By NIchola Ross Martin

13th Jul 2007
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Nichola Ross Martin looks some of the traps in the settlement provisions for parents.

What are referred to as the settlement provisions for tax are now found in Chapter 5, Part 5 of ITTOIA 2005. The rules span s 619 to s 648 and they impose a tax charge on a settlor of a settlement where he or she:

  1. retains an interest in the property that is settled and any resulting income is or may become payable to or applicable for the benefit of him or his spouse, or if,

  2. makes a settlement in favour of his unmarried minor children, or if,

  3. receives a capital sum from a settlement he has created

A settlement is a wide term which includes any disposition, trust, covenant, agreement, arrangement of assets (excluding charitable loan arrangements and wills).

A settlor is a person (male...

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By Anonymous
18th Jul 2007 12:10

S 629 does not apply to adult or married children
so father can gift shares at an undervalue, but bear in mind there is a CGT offshoot to this - gifts at an undervalue, and so he needs to make an election under s 165 CGT.

The only other way that your father would be caught is if the daughter paid this income into a joint account with her dad, and he pocketed it (then you have a settlor with a retained interest) and dad is then taxed under s 624. Highly unlikely, in practice

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By pauljohnston
17th Jul 2007 10:43

Thank you
I found this very helpful. It would be great ifI could retain all this info and know where to look at it ...

Does the settlement provisions apply to Adult Children. Man sets up a business (Making losses). Offeres daughter the chance to buy 50% of shares at par £1. Total investment by her £1000 (from a gift from Man).

Now making profits man takes no salary and waivers right to divs. Is there a selltement?

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By MW-BM
31st Aug 2018 15:44

Is there an update to this? for the period 2017/18.

Thank you.

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