Income Tax (Trading and Other Income) Act 2005 section 628B

Section 628A: tainting

Section 628B sets out what property or income provided by a settlor to a settlement should be disregarded when applying the tainting rule in Condition F of section 628A, and defines when a loan on arm's length terms can nevertheless be treated as property provided to the settlement.

• Property or income provided on arm's length terms, or otherwise than as a loan where no free benefit is intended, is disregarded, as are arm's length loan repayments and interest, and amounts provided to cover a shortfall between the settlement's administrative or tax expenses and its available income.
• A loan made to the trustees on arm's length terms is treated as provided to them at the time of a "relevant event" — meaning capitalisation of interest, failure to pay interest when due, or a change to the loan terms that makes them no longer arm's length.
• Where a settlor becomes deemed domiciled in the UK on or after 6 April 2017, any outstanding amount under a non-arm's length loan made before that date and repayable on demand is treated as property provided on the deemed domicile date, unless the loan was fully repaid or converted to arm's length terms before 6 April 2018.
• A loan qualifies as being on "arm's length terms" only if interest at the official rate or more is payable at least annually (for loans to the trustees), or if interest payable is at no more than the official rate (for loans from the settlement); the official rate is that set under section 178 of FA 1989 for employment income purposes.