PART XV SETTLEMENTS

CHAPTER IV LIABILITY TO HIGHER RATE AND ADDITIONAL RATE TAX

Liability of settlors

683 Settlements made after 6th April 1965.
(1) Where, during the life of the settlor, income arising under a settlement made after 6th April 1965 is, under the settlement and in the events that occur, payable to or applicable for the benefit of any person other than the settlor, then, unless, under the settlement and in those events, the income either—
(a) consists of annual payments made under a partnership agreement to or for the benefit of a former member, or the widow , widower or dependants of a deceased former member, of the partnership, being payments made under a liability incurred for full consideration; or
See s.628—certain partnership retirement annuities not to reduce investment income.
1988(F) s.35and Sch.3 para.20(2)for 1990-91and subsequent years.
(b) is excluded by subsection (3), (6) or (9) below; or
(c) is income arising under a settlement made by one party to a marriage by way of provision for the other after the dissolution or annulment of the marriage, or while they are separated under an order of a court or under a separation agreement or in such circumstances that the separation is likely to be permanent, being income payable to or applicable for the benefit of that other party; or
(d) is income from property of which the settlor has divested himself absolutely by the settlement; or
(e) is income which, by virtue of some provision of the Income Tax Acts not contained in this Chapter, is to be treated for the purposes of those Acts as income of the settlor;
the income shall, for the purposes of excess liability, be treated as the income of the settlor and not as the income of any other person.
See s.125(3)—annual payments for non taxable consideration.
Source-1970 s.457(1); 1971 Sch.6 67; 1978 Sch.2 12; 1980 s.56(1); 1986 s.32(1)
(2) In subsection (1) above “excess liability” means the excess of liability to income tax over what it would be if all income tax were charged at the basic rate to the exclusion of any higher rate.
(3) Subject to subsection (4) below, subsection (1) above shall not apply to so much of an individual’s income as consists of covenanted payments to charity.
Source-1970 s.457(1A); 1980 s.56(2); 1985 s.49(1); 1986 s.32(1)
(4) If at least £1,000 of an individual’s income for any year of assessment consists of covenanted payments to charity which, in the hands of the charities receiving them, constitute income for which, by virtue of subsection (3) of section 505, relief is not available under subsection (1) of that section, so much of the individual’s income as consists of those payments shall not be excluded from the operation of subsection (1) above by virtue of subsection (3) above.
Source-1970 s.457(1B), (1C); 1986 s.32(2)
(5) If, for any chargeable period of a charity—
(a) the income of the charity includes two or more covenanted payments to charity; and
(b) only a part of the aggregate of those payments constitutes income for which, by virtue of subsection (3) of section 505 relief is not available under subsection (1) of that section,
each of the payments which make up the aggregate shall be treated for the purposes of subsection (4) above as apportioned rateably between the part of the aggregate referred to in paragraph (b) above and the remainder.
(6) Subsection (1) above shall not apply to income consisting of annual payments made by an individual, in connection with the acquisition by him of the whole or part of a business—
(a) to or for the benefit of the individual from whom it is acquired or, if that individual is dead, to or for the benefit of that individual’s widow, widower or dependants, or
1988(F) s.35and Sch.3 para.20(3), (4)for 1990-91and subsequent years. Previously
“he is dead, to or for the benefit of his widow”
in subs.6(a).
(b) if the acquisition was from a partnership, to or for the benefit of a former member, or the widow , widower or dependants of a deceased former member, of that or any preceding partnership, or to or for the benefit of an individual from whom the business or part was acquired by that or any preceding partnership or, if such an individual is dead, to or for the benefit of that individual’s widow, widower or dependants;
1988(F) s.35and Sch.3 para.20(4), (5)for 1990-91and subsequent years. Previously
“he is dead, to or for the benefit of the widow or dependants of such an individual”
in subs.(6).
being payments made under a liability incurred for full consideration.
See s.125(3)—annual payments for non taxable consideration.
Source-1970 s.457(2)-(4)
(7) Payments made in respect of any individual under a liability incurred in connection with an acquisition from a partnership shall only be excluded from the operation of subsection (1) above by virtue of subsection (6)(b) above if, and to the extent that, they are made in substitution for, or matched by reductions in, other payments which would themselves be excluded from its operation.
(8) Where the right of a former member of a partnership to payments falling due not more than ten years after he ceased to be a member of that partnership has devolved on his death, subsections (1)(a) and (6) above shall apply to the payments as they would apply if he had not died.
(9) Where for any year of assessment there is made to or for the benefit of a former member, or the widow , widower or a dependant of a deceased former member, of a partnership an annual payment which—
(a) is excluded from the operation of subsection (1) above by virtue of paragraph (a) of that subsection or by virtue of subsection (6) above; and
(b) falls short of the limit applying for that year under section 628;
any additional annual payment made to or for the benefit of that person shall, notwithstanding that it is not made under a liability incurred for full consideration, be excluded from the operation of subsection (1) above to the extent to which it makes good that shortfall.
Source-1970 s.457(4A); 1980 s.34(4)
(10) For the purposes of this section—
(a) “former member”, in relation to a partnership, means an individual who has ceased to be a member of that partnership on retirement or death;
(b) a partnership becomes a “preceding partnership” of another if it transfers its business or part of its business to another and one or more individuals are members of both, and any preceding partnership of the transferor by reference to any part of the business transferred shall also become a preceding partnership of the transferee;
(c) “covenanted payments to charity” has the meaning given by section 660(3).
Source-1970 s.457(5); 1980 s.56(3)
See also—1970(M) s.31(3)—appeals on application of ss.660to 685to go to Special Commissioners.1974 s.43—development gains accruing to trustees to be charged at basic plus additional rates.1988 s.339(6), (7)—treatment for corporation tax of covenanted donation to charity.1988 s.762—offshore income gains.1989 s.110—residence of trustees.