Basic terms of trust law as applied to CGT: settlor: from 6 April 2006: basic principles
In most cases establishing the identity of the settlor is a simple matter. A deed of settlement is drawn up by A appointing X and Y as trustees and reciting that property has been transferred to the trustees. The property may be anything from a nominal cash sum to a substantial block of land or investments. Later on further assets may be added by A (this is particularly likely if the original settlement was of a nominal sum). In the normal course of events the trustees may sell some assets and purchase replacements. In this situation A and no one else is regarded as settlor. The property consists of assets put into the settlement by A or assets derived from assets put in by A.
Assets are derived from other assets if for example they are bought with the proceeds of the sale of other assets, or out of accumulated income, or are bonus issues of shares. See further West v Trennery 76TC713.
Sometimes a further person B may add property to the settlement in which case B is also a settlor of the settlement.
Basically under S68A(1) to (3) a person is a settlor if:
- he made or entered into the settlement. This describes the person who has had the deed drawn up on his behalf. The property may come from elsewhere; or the transfer of property to the settlement may be without ‘bounty’ (see next bullet),
- he has provided property for the purposes of the settlement. On the basis of CIR v Leiner 41TC589 these words are regarded as applying only where there is ‘bounty’. See CG35021 on ‘bounty’,
- the property is settled as a result of his will or intestacy.
A deceased settlor continues to be regarded as a settlor. So if for example C made a settlement during his lifetime for his children (after 6 June 1978), and set up a settlement for his grandchildren in his will, these two settlements form a group for the purposes of the annual exempt amount see CG18090+.
A person ceases to be a settlor if there is no settled property left of which he could be said to be settlor, unless he has undertaken to provide further property or has made reciprocal arrangements for someone else to provide property for the settlement. For example A and B execute a deed of variation under which property left to them by their father’s will is resettled on behalf of their children. Broadly speaking half the income and capital is held for the children of A and the other half for the children of B. From the time the variation is made, A and B are settlors of the settlement (see CG 33248). In due course the share relating to A’s children has been wholly distributed. In this case we should say that A was no longer a settlor.