3U.K.Section 86 does not apply if the settlor dies in the year.
4(1)This paragraph applies where for the purposes of section 86(1)(d) the settlor has no interest in the settlement at any time in the year except for one of the following reasons, namely, that—U.K.
(a)property is, or will or may become, applicable for the benefit of or payable to one of the persons falling within paragraph 2(3)(b) to [F1(db)] above,
(b)income is, or will or may become, applicable for the benefit of or payable to one of those persons, or
(c)one of those persons enjoys a benefit from property or income.
(2)This paragraph also applies where sub-paragraph (1) above is fulfilled by virtue of 2 or all of paragraphs (a) to (c) being satisfied by reference to the same person.
(3)Where this paragraph applies, section 86 does not apply if the person concerned dies in the year.
(4)In a case where—
(a)this paragraph applies, and
(b)the person concerned falls within paragraph 2(3)(b)[F2, (d) or (db)] above,
section 86 does not apply if during the year the person concerned ceases to be married to[F3, or a civil partner of,] the settlor[F4, child or grandchild] concerned (as the case may be).
Textual Amendments
F1Word in Sch. 5 para. 4(1)(a) substituted (with effect in accordance with s. 131(4) of the amending Act) by Finance Act 1998 (c. 36), Sch. 22 para. 3(1)
F2Words in Sch. 5 para. 4(4)(b) substituted (with effect in accordance with s. 131(4) of the amending Act) by Finance Act 1998 (c. 36), Sch. 22 para. 3(2)(a)
F3Words in Sch. 5 para. 4(4) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 126(4)
F4Words in Sch. 5 para. 4(4) substituted (with effect in accordance with s. 131(4) of the amending Act) by Finance Act 1998 (c. 36), Sch. 22 para. 3(2)(b)
5(1)This paragraph applies where for the purposes of section 86(1)(d) the settlor has no interest in the settlement at any time in the year except for the reason that there are 2 or more persons, each of whom—U.K.
(a)falls within paragraph 2(3)(b) to [F5(db)] above, and
(b)stands to gain for the reason stated in sub-paragraph (2) below.
(2)The reason is that—
(a)property is, or will or may become, applicable for his benefit or payable to him,
(b)income is, or will or may become, applicable for his benefit or payable to him,
(c)he enjoys a benefit from property or income, or
(d)2 or all of paragraphs (a) to (c) above apply in his case.
(3)Where this paragraph applies, section 86 does not apply if each of the persons concerned dies in the year.
Textual Amendments
F5Word in Sch. 5 para. 5(1)(a) substituted (with effect in accordance with s. 131(4) of the amending Act) by Finance Act 1998 (c. 36), Sch. 22 para. 3(1)
[F65A(1)Section 86 does not apply in relation to a year (“the particular year”) if Conditions A to D are met.U.K.
(2)Condition A is that the particular year is—
(a)the tax year 2017-18, or
(b)a later tax year.
(3)Condition B is that when the settlement is created the settlor—
(a)is not domiciled in the United Kingdom, and
(b)if the settlement is created on or after 6 April 2017, is not deemed domiciled in the United Kingdom.
(4)Condition C is that there is no time in the particular year when the settlor is—
(a)domiciled in the United Kingdom, or
(b)deemed domiciled in the United Kingdom by virtue of Condition A in section 835BA of ITA 2007.
(5)Condition D is that no property or income is provided directly or indirectly for the purposes of the settlement by the settlor, or by the trustees of another settlement of which the settlor is the settlor or a beneficiary, at a time in the relevant period when the settlor is—
(a)domiciled in the United Kingdom, or
(b)deemed domiciled in the United Kingdom.
(6)In sub-paragraph (5) “relevant period” means the period—
(a)beginning with the start of 6 April 2017 or, if later, the creation of the settlement, and
(b)ending with the end of the particular year.
(7)For the purposes of Condition D, the addition of value to property comprised in the settlement is to be treated as the direct provision of property for the purposes of the settlement.
(8)Paragraph 5B contains further provision for the purposes of Condition D.
(9)In this paragraph “deemed domiciled” means regarded for the purposes of section 86(1)(c) as domiciled in the United Kingdom as a result of section 835BA of ITA 2007 having effect.
Textual Amendments
F6Sch. 5 paras. 5A, 5B inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 8 para. 18
5B(1)This paragraph applies for the purposes of Condition D in paragraph 5A.U.K.
(2)Ignore—
(a)property or income provided under a transaction, other than a loan, where the transaction is entered into on arm's length terms,
(b)property or income provided, otherwise than under a loan, without any intention by the person providing it to confer a gratuitous benefit on any person,
(c)the principal of a loan which is made to the trustees of the settlement on arm's length terms,
(d)the payment of interest to the trustees of the settlement under a loan made by them on arm's length terms,
(e)repayment to the trustees of the settlement of the principal of a loan made by them,
(f)property or income provided in pursuance of a liability incurred by any person before 6 April 2017, and
(g)where the settlement's expenses relating to taxation and administration for a tax year exceed its income for that year, property or income provided towards meeting that excess if the value of any such property and income is not greater than the amount of—
(i)the excess, or
(ii)if greater, the amount by which such expenses exceed the amount of such expenses which may be paid out of the settlement's income.
(3)Where—
(a)a loan is made to the trustees of the settlement by the settlor or the trustees of a settlement connected with the settlor, and
(b)the loan is on arm's length terms, but
(c)a relevant event occurs,
the principal of the loan is to be regarded as having been provided to the trustees at the time of that event (despite sub-paragraph (2)).
(4)In sub-paragraph (3) “relevant event” means—
(a)capitalisation of interest payable under the loan,
(b)any other failure to pay interest in accordance with the terms of the loan, or
(c)variation of the terms of the loan such that they cease to be arm's length terms.
(5)Sub-paragraph (6) applies (subject to sub-paragraph (7)) where—
(a)the settlor becomes deemed domiciled in the United Kingdom on or after 6 April 2017,
(b)before the date on which the settlor becomes deemed domiciled in the United Kingdom ( “ the deemed domicile date ”), a loan has been made to the trustees of the settlement by—
(i)the settlor, or
(ii)the trustees of a settlement connected with the settlor,
(c)the loan is not entered into on arm's length terms, and
(d)any amount that is outstanding under the loan on the deemed domicile date (“the outstanding amount”) is payable or repayable on demand on or after that date.
(6)Where this sub-paragraph applies, the outstanding amount is to be regarded as property directly provided on the deemed domicile date by the lender for the purposes of the settlement (despite sub-paragraph (2)).
(7)But if the deemed domicile date is 6 April 2017, sub-paragraph (6) does not apply if—
(a)the principal of the loan is repaid, and all interest payable under the loan is paid, before 6 April 2018, or
(b)the loan becomes a loan on arm's length terms before 6 April 2018 and—
(i)before that date interest is paid to the lender in respect of the period beginning with 6 April 2017 and ending with 5 April 2018 as if those arm's length terms had been terms of the loan in relation to that period, and
(ii)interest continues to be payable from 6 April 2018 in accordance with those terms.
(8)For the purposes of this paragraph a loan is on “arm's length terms”—
(a)in the case of a loan made to the trustees of a settlement, only if interest at the official rate or more is payable at least annually under the loan;
(b)in the case of a loan made by the trustees of a settlement, only if any interest payable under the loan is payable at no more than the official rate.
(9)For the purposes of this paragraph—
a settlement is “connected” with a person if the person is the settlor or a beneficiary of it;
“deemed domiciled” has the same meaning as in paragraph 5A;
“official rate”, in relation to interest, means the rate of interest applicable from time to time under section 178 of the Finance Act 1989 for the purposes of Chapter 7 of Part 3 of ITEPA 2003.]
Textual Amendments
F6Sch. 5 paras. 5A, 5B inserted (16.11.2017) by Finance (No. 2) Act 2017 (c. 32), Sch. 8 para. 18