Income Tax (Earnings and Pensions) Act 2003 Schedule 4 paragraph 14

Meaning of "associate": trustees of discretionary trust

Schedule 4 paragraph 14 provides relief from the "associate" rules for beneficiaries of discretionary trusts who have permanently given up their interest in the trust, ensuring they are not treated as connected to company shares held in the trust.

• A beneficiary of a discretionary trust whose property includes shares or obligations of the relevant company may be treated as an associate of the trustees under the normal rules.
• However, if the beneficiary has permanently ceased to be eligible to benefit — either through their own irrevocable disclaimer or through the trustees irrevocably exercising a power to exclude them — this association can be broken.
• The relief applies provided that, immediately after the beneficiary ceased to be eligible, no associate of the beneficiary had an interest in the company shares or obligations held in the trust, and neither the beneficiary nor any associate received any benefit from the trust during the 12 months ending on the date eligibility ceased.
• Where all conditions are met, the beneficiary is not treated as having been interested in the company's shares or obligations at any time during that 12-month period, solely because they were an object of the trust which held those shares.