Income Tax Act 2007 section 721B

Section 721A: tainting

Section 721B sets out which types of property, income and loans provided by a settlor to a settlement should be disregarded when determining whether a settlement has been "tainted" for the purposes of section 721A, and when certain loans will nevertheless be treated as property provided for the purposes of the settlement.

• Arm's length transactions, non-loan transfers without gratuitous intent, arm's length loans and their interest, loan repayments, and contributions to cover a settlement's excess administration or tax costs are all disregarded when assessing tainting
• If a loan originally made on arm's length terms to the settlement trustees is subject to a "relevant event" — such as capitalising interest, failing to pay interest on time, or varying terms so they are no longer arm's length — the outstanding loan amount is then treated as property provided to the settlement
• Where a settlor becomes deemed domiciled in the UK on or after 6 April 2017 and a pre-existing loan to the trustees was not on arm's length terms and is repayable on demand, the outstanding balance is treated as property provided on the deemed domicile date
• A loan is regarded as being on "arm's length terms" if interest is payable annually at least at the official rate (for loans to trustees) or at no more than the official rate (for loans by trustees)