Statement of Practice 1 (1982)
Published 6 April 1982
© Crown copyright 1982
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This publication is available at https://www.gov.uk/government/publications/statement-of-practice-1-1982/statement-of-practice-1-1982--5
1. For many years the tax code has contained legislation to prevent a person avoiding higher rate Income Tax by making a settlement, while still retaining some rights to enjoy the income or capital of the settlement. This legislation, which is embodied in Income and Corporation Taxes Act (ICTA) 1988 Part XV (from 6 April 2005, Income Tax (Trading and Other Income) Act (ITTOIA) 2005 Part 5 Chapter 5), provides in general terms that the income of a settlement shall, for Income Tax purposes, be treated as that of the settlor in all circumstances where the settlor might benefit directly or indirectly from the settlement.
2. If the trustees have power to pay or do in fact pay Inheritance Tax due on assets which the settlor puts into the settlement HM Revenue and Customs (HMRC) have taken the view that the settlor has thereby an interest in the income or property of the settlement, and that the income of the settlement should be treated as his for Income Tax purposes under ICTA 1988 Part XV (from 6 April 2005, ITTOIA 2005 Part 5 Chapter 5).
3. The Inheritance Tax legislation (Section 199 Inheritance Tax Act 1984) however, provides that both the settlor and the trustees are liable for any Inheritance Tax payable when a settlor puts assets into a settlement. The Commissioners for HMRC have therefore decided that they will no longer, in these circumstances, treat the income of the settlement as that of the settlor for Income Tax purposes solely because the trustees have power to pay or do in fact pay Inheritance Tax on assets put into settlements.
4. This change of practice applies to settlement income for 1981 to 82 and later years.
Note: the text of SP 1/82 above is at it appears in HMRC’s Statements of Practice as published on 30 January 2012.