Income Tax (Trading and Other Income) Act 2005 section 631

Retained and accumulated income

Section 631 deals with how payments made from retained or accumulated settlement income to or for the benefit of a settlor's unmarried child (or one not in a civil partnership) are treated as income of the settlor.

• Where trustees retain or accumulate settlement income and later make payments to a settlor's unmarried child (or one not in a civil partnership), those payments are treated as income for the purposes of the parental settlement rules, but only up to the amount of available retained or accumulated income.
• Available retained or accumulated income exists when the total income that has arisen under the settlement since it was created exceeds the total of "disregarded income" — broadly, amounts already taxed on the settlor, paid to other beneficiaries, used for trustee expenses, or otherwise accounted for.
• Disregarded income includes amounts treated as the settlor's income, amounts paid to beneficiaries other than a relevant child of the settlor, trustee expenses properly chargeable to income, and certain amounts taxed on an unmarried minor child in the tax years 1995–96 to 1997–98.
• For the transitional 1995–98 rule, income treated as a child's is only regarded as having been subject to income tax to the extent the child's total income exceeded their available allowances and deductions — in other words, to the extent it actually gave rise to a tax liability.