TSEM4325 - Settlements legislation: summary - factors to look for

The lists below are by no means definitive of situations to which the settlements legislation can be applied. For further guidance internal users should contact Trusts Technical. (see TSEM11100)

• Disproportionately large returns on capital investments.
• Differing classes of shares enabling dividends to be paid only to shareholders paying lower rates of tax.
• Dividends being waived so that higher dividends can be paid to shareholders paying lower rates of tax.
• Income being transferred from the person making most of the profits of a business to a friend or family member who pays tax at a lower rate.

There are a wide range of arrangements that can potentially be caught by the settlements legislation which do not involve a trust. Each case will depend on the facts but some of the most common situations which we see are:

• Shares subscribed at par that carry only restricted rights.
• Shares given away that carry only restricted rights.
• A limited share in a partnership gifted or transferred below value.
• Dividend waivers.
• Situations where dividends are paid only on certain classes of shares.
• Dividends paid to the minor children or stepchildren of the settlor.