Taxation of Chargeable Gains Act 1992 Schedule 5 paragraph 2

Test whether settlor has interest

Schedule 5 paragraph 2 sets out the test for determining whether a settlor has an "interest" in a non-resident or dual-resident settlement, which is one of the conditions that must be met before capital gains of the settlement can be attributed to the settlor under section 86.

• A settlor has an interest in a settlement if property or income originating from the settlor is or may become applicable for the benefit of, or payable to, a "defined person" — broadly the settlor, their spouse or civil partner, children, grandchildren, their spouses or civil partners, or companies controlled by any of them
• The interest test is also met if any defined person enjoys a benefit, whether directly or indirectly, from settlement property or income originating from the settlor
• Exceptions exist where property or income can only revert to a defined person in limited circumstances — such as the bankruptcy of a beneficiary, assignments or charges over interests, deaths of both parties to a marriage or civil partnership settlement and their children, or the death of a young person under 25 before reaching a vesting age
• Companies controlled by defined persons, and companies associated with such controlled companies, are themselves treated as defined persons — with "control" and "associated company" determined under Corporation Tax Act 2010 rules, subject to a restriction that prevents rights of associates being attributed to a non-participator