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HMRC internal manual

Capital Gains Manual

Basic terms of trust law as applied to CGT: settlor: up to 5 April 2006


Under TCGA92/SCH1/PARA2 (7) for the purposes of the annual exempt amount, see CG33140, the word `settlor’ was defined in accordance with ICTA88/S660G (1) (from 6 April 2005 ITTOIA2005/S620) as any person by whom the settlement was made. This definition is extended to include any person who has made or entered into the settlement directly or indirectly and in particular anyone who has provided or undertaken to provide funds directly or indirectly for the purposes of the settlement. It also covers the situation where two persons make reciprocal arrangements with one another. Slightly different considerations apply for the purposes of TCGA92/S77, see CG34800 - CG34801.

There is no judicial guidance on the precise meaning of “made” and “entered into” although they have been present in the Income Tax legislation for many years. They would appear to be descriptive of anyone who can reasonably be described as settlor in accordance with the relevant legislation but also anyone who has created a settlement as a formality or put property into a settlement other than for full consideration.

TCGA92/SCH1/PARA2 (7) also extends the definition to include a testator or intestate where there is a settlement arising under a will or intestacy. There can be several settlors of one settlement. It is possible for a company to be a settlor for these purposes.

The significance of the extension to persons who have undertaken to provide funds, but have not yet done so, is first that the person is a settlor for the annual exempt amount, see CG18110, and second that such a person is connected to the trustees.

Because a person who has ‘made’ or ‘entered into’ a settlement is within the definition of settlor it is not considered necessary for ‘bounty’ to have been provided. Therefore commercial settlements such as employee trusts have a settlor. See CG33580 and CG35020+.