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The settlements code and non-resident trusts—overview

The provisions in the settlements code impose a UK income tax charge on a settlor who is resident (before 6 April 2013, ordinarily resident) in the UK if income arises in a 'settlor-interested' trust¹.

The rules prevent a UK resident settlor from avoiding a personal UK tax liability by creating an offshore settlement in which he retains an interest. The rules also apply to UK resident trusts (see I5.11).

These anti-avoidance provisions attribute the trust's income to the settlor when:

1. Ìý

   •ÌýÌýÌýÌý income arises in a settlement in which the settlor has retained an interest²

2. Ìý

   •ÌýÌýÌýÌý income of a settlement is paid to or for the benefit of the settlor's minor child(ren)³

3. Ìý

   •ÌýÌýÌýÌý the settlor receives certain capital sums (including loans) from the settlement⁴

4. Ìý

   •ÌýÌýÌýÌý untaxed benefits or 'onward gifts' are provided out of the trust's protected foreign-source income (PFSI)⁵

Settlements code—settlor retains an interest

Settlor