Taxation of Chargeable Gains Act 1992 Schedule 5 paragraph 2A

Settlements created before 17th March 1998

Section 2A provides transitional protection for settlements created before 17 March 1998, so that the settlor interest rules relating to grandchildren and their spouses or civil partners do not apply unless one of four specified trigger events occurs.

• Settlements created before 17 March 1998 are generally exempt from the extended settlor interest rules that cover grandchildren, their spouses or civil partners, and companies they control — unless a trigger event occurs.
• The four trigger events are: new property or income is added to the settlement on non-arm's length terms; the trustees become non-UK resident or treaty resident overseas; the settlement terms are varied so that a grandchild (or related person) can benefit for the first time; or such a person actually receives a benefit for the first time where the original terms would not have allowed it.
• Once any trigger event occurs in a tax year ending on or after 5 April 1998, the extended settlor interest rules apply for that year and all subsequent years — the protection is lost permanently.
• There is a limited exception for contributions towards the settlement's administration and tax costs: if those costs exceed the settlement's income for the year, property or income provided to cover the shortfall is ignored when testing the first trigger event.