Section 641: Capital sum paid to settlor by body connected with settlement
2457.This section provides a variation on the preceding rule. It ensures that capital sums paid by a corporate body connected with the settlement are treated as income of the settlor where the payment of that capital sum can be identified with a payment made to the corporate body by the settlement. Thus payments of capital from the settlement to the settlor but dog-legged through a connected third party will not avoid a tax charge on the settlor. The section is based on section 678 of ICTA.
2458.Under subsections (1) and (2) where a capital sum is paid to the settlor by a body corporate connected with the settlement and an associated payment is made directly or indirectly to that body corporate by the trustees, the capital sum paid by the body corporate is treated, to the extent that it falls within the associated payment, as if it were paid directly by the trustees to the settlor and section 633 applies accordingly.
2459.Where an associated payment is made in the year following the year in which the payment is made by the corporate body to the settlor, the capital sum is treated as the settlor’s income for that tax year and so on, up to the amount covered by the associated payment, for each subsequent year (subsections (4) to (6)).
2460.See the entry in paragraph 135 of Schedule 2 to this Act for the application of this section in respect of payments to the settlor made before 1995-96 by a body corporate connected with the settlement.
