Section 685A Settlor-interested settlements
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Amendments
Section 685A inserted by Finance Act 2006 section 89 and Schedule 13 para 6 for payments in respect of income made on or after 6 April 2006.
(1) This section applies if–
(a) a person receives an annual payment in respect of income from the trustees of a settlement,
(b) the payment is made in the exercise of a discretion (whether of the trustees of the settlement or any other person), and
(c) a settlor is charged to tax under section 619(1) on the income arising to the trustees of the settlement (whether in the current year of assessment or in a previous year of assessment) out of which the annual payment is made.
(2) This section applies only in respect of that proportion of the annual payment which corresponds to the proportion of the total income arising to the trustees of the settlement in respect of which a settlor is chargeable to tax under section 619(1).
(3) If and in so far as this section applies, the recipient of the annual payment shall be treated for the purposes of this Chapter as having paid income tax at the higher rate in respect of the annual payment.
(4) But–
(a) tax which the recipient is treated by virtue of this section as having paid is not repayable,
(b) tax which the recipient is treated by virtue of this section as having paid may not be taken into account in relation to a tax liability of the recipient in respect of any other income of his, ...1
(c) ...1
Amendments
1 Para (c) and the word “and” preceding it omitted by Income Tax Act 2007 section 1027 and Schedule 1 para 569(2) and repealed by section 1031 and Schedule 3 Part 1 from 6 April 2007.
(5) If the recipient of the annual payment is a settlor in relation to the settlement, if and in so far as this section applies the annual payment shall not be treated as his income for the purposes of the Income Tax Acts (and subsection (3) does not apply).
(5A) If the recipient of the annual payment is treated by subsection (3) as having paid income tax in respect of the annual payment, the amount of the payment is treated as the highest part of the recipient's total income for all income tax purposes except the purposes of sections 535 to 537 (gains from contracts for life insurance etc: top slicing relief).
Amendments
Subs (5A) inserted by Finance Act 2008 section 67(1) for 2006-07 and later tax years.
(5B) See section 1012 of ITA 2007 (relationship between highest part rules) for the relationship between–
(a) the rule in subsection (5A), and
(b) other rules requiring particular income to be treated as the highest part of a person's income.
Amendments
Subs (5B) inserted by Finance Act 2008 section 67(1) for 2006-07 and later tax years.
(6) [Sections 494 and 495 of ITA 2007]1 shall not apply in relation to an annual payment if and in so far as this section applies.
Amendments
1 Substituted for the words “Section 687 of ICTA” by Income Tax Act 2007 section 1027 and Schedule 1 para 569(3) from 6 April 2007.
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