Income Tax (Trading and Other Income) Act 2005 section 641

Capital sums paid to settlor by body connected with settlement

Section 641 prevents settlors from avoiding a tax charge by routing capital payments from a settlement through a connected corporate body, rather than receiving them directly from the trustees.

• Where a corporate body connected with a settlement pays a capital sum to the settlor, and the trustees have made an associated payment to that body, the capital sum is treated as if paid directly by the trustees to the settlor
• The capital sum is treated as the settlor's income in the tax year it is paid, but only up to the amount of associated payments made by the trustees to the corporate body by the end of that year
• Any remaining balance of the capital sum is matched against further associated payments in each subsequent tax year, with amounts already accounted for in earlier years being deducted
• Exceptions exist for certain loans and loan repayments, and further definitions of key terms such as "associated payment" and "connected" are provided in related sections