Alex Spencer discusses the ‘settlements’ legislation and considers some common traps and pitfalls.
The purpose of the settlements legislation (in ITTOIA 2005, Pt 5, Ch 5) is explained in HMRC’s Trusts, Settlements and Estates Manual at TSEM4015 as being ‘to prevent an individual from gaining a tax advantage by making arrangements which divert their income to another person who is liable at a lower rate of tax or is not liable to tax.’
It is fair to say that this is perhaps the most important function of the legislation, but it is not the only way in which the legislation operates. Some parts of the settlements legislation (albeit discussion of which is beyond the scope of this article) operate rather differently. For example, ITTOIA 2005, s 633 operates so as to treat capital
