CG38490 - Defined persons - events beyond the settlor’s control

TCGA92/Sch5/para2(4)

The settlor is not treated as having an interest in the settlement if they can benefit only as a result of events beyond their control. So a settlor will not be treated as having an interest in the settlement if a defined person, including the settlor him or herself, can benefit only as a result of:

• the bankruptcy of another beneficiary
• another beneficiary assigning or charging their interest in the settlement
• in the case of a marriage or civil partnership settlement, the death of both spouses and all children of the marriage or civil partnership
• the death under age 25 or some lower age of a person who would be beneficially entitled to the property or income on attaining that age.

Beneficiary under 25

TCGA92/Sch5/para2(5)

Neither will the settlor be treated as having an interest if:

• there is no possibility that a defined person including the settlor can benefit during the life time of another beneficiary unless
• that beneficiary becomes bankrupt or assigns their interest and
• that beneficiary is alive and under 25.

Example

A settlor creates a settlement giving her niece a life interest with the remainder to such of her niece’s children as are alive at their mother’s death in equal shares. If the niece were to die without children or if any children pre-decease their mother the remainder would revert to the settlor or her estate. Under the ordinary rule in paragraph 2(1) the possibility that the settlor could benefit would give her an interest in the settlement. But paragraph 2(5) prevents this for as long as the niece is under 25. Once the niece reaches 25 section 86 will apply until either the settlor dies or the niece dies with children who take the remainder.