Finance Act 1975

Trusts for benefit of employees, etc.

17 (1) Where settled property is held on trusts which, either indefinitely or until the end of a period (whether defined by a date or in some other way) do not permit any of the settled property to be applied otherwise than for the benefit of—

(a) persons of a class defined by reference to employment in a particular trade, profession or undertaking or employment by, or office with, a body carrying on a trade, profession or undertaking; or

(b) persons of a class defined by reference to marriage or relationship to, or dependence on, persons of a class defined as mentioned in paragraph (a) above ; or

(c) charities;

then, subject to sub-paragraph (2) below, this paragraph applies to that settled property or, as the case may be, applies to it during that period.

(2) Where any such class is defined by reference to employment by or office with a particular body this paragraph applies to the settled property only if the class comprises all or most of the persons employed by or holding office with that body.

(3) Where this paragraph applies to any settled property—

(a) the property shall be treated as comprised in one settlement, whether or not it would fall to be so treated apart from this paragraph; and

(b) an interest in possession in any part of the settled property shall be disregarded for the purposes of this Schedule if that part is less than 5 per cent, of the whole ; and

(c) subject to sub-paragraph (4) below, a payment out of the settled property shall not be a capital distribution and shall not be taken into account as a distribution payment; and

(d) paragraph 7 above shall not apply to any capital distribution made out of the settled property ; and

(e) paragraph 12 above shall apply subject to sub-paragraph (5) below, and paragraph 13 above shall not apply.

(4) Sub-paragraph (3)(c) above does not apply in relation to any payment made for the benefit of a person who is, or is connected with.—

(a) a person who has directly or indirectly provided any of the settled property otherwise than by additions not exceeding in value £1,000 in any one year ; or

(b) in a case where the employment m question is employment by a close company, a person who is a participator in relation to that company and would, on a winding-up of the company, be entitled to not less than 5 per cent, of its assets.

(5) Where this paragraph applies to any settled property, tax which would otherwise be chargeable at a relevant anniversary under paragraph 12(1) above shall be deferred until either a capital distribution is made or this paragraph ceases to apply to the settled property; and when any deferred tax becomes chargeable it shall be charged—

(a) at the rate at which it would be chargeable if the relevant anniversary fell on the date on which the tax becomes chargeable ; and

(b) on an amount determined in accordance with the following provisions of this paragraph.

(6) Where any deferred tax becomes chargeable when this paragraph ceases to apply to the settled property it shall be chargeable on an amount equal to the current value of the settled property.

(7) Where any of the deferred tax becomes chargeable when a capital distribution is made—

(a) it shall be chargeable on an amount determined under sub-paragraph (8) below ; and

(b) the amount of the tax shall reduce the amount on which tax is chargeable on that capital distribution (and if it exceeds that amount the excess shall reduce the amount on which tax is chargeable on the next capital distribution, and so on).

(8) So far as any tax which would otherwise be chargeable on a relevant anniversary becomes chargeable when a capital distribution is made it shall be charged on an amount (in this sub-paragraph referred to as the first amount) equal to the proper proportion of the current value of the property out of which the capital distribution is made ; and where the capital distribution is made after the next relevant anniversary and, accordingly, more than one deferred tax becomes chargeable—

(a) the second deferred tax shall be charged on the first amount less the amount of the first deferred tax; and

(b) the third deferred tax (if any) shall be charged on the amount found under paragraph (a) above less the amount of the second deferred tax ;

and so on.

(9) For the purposes of this paragraph—

(a) the current value of any property is its value at the time any tax deferred under this paragraph becomes chargeable ; and

(b) the proper proportion of the current value of any property out of which a capital distribution is made is the proportion which the amount on which tax is chargeable on the capital distribution bears to that current value ;

and in this paragraph " close company " and " participator " have the same meanings as in section 39 of this Act, " relevant anniversary " has the same meaning as in paragraph 12 above and " year " has the same meaning as in paragraph 2 of Schedule 6 to this Act.