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HMRC internal manual

Company Taxation Manual

Close companies: capital payments to settlors: associated payments

That there must be an ‘associated payment’ by the trustees to a close company connected with the settlement before loan or capital payments made by the company to a settlor or his wife can be caught is noted at CTM61060.

An associated payment is defined in ITTOIA/S643 (3). That definition has three parts, the:

  • capital sum: a loan, payment or asset transferred other than for full consideration,
  • transaction: from the trustees to a close company connected with the settlement, or to a company which is associated within the meaning of CTA2010/S454 (formerly ICTA88/S416) with a company connected with the settlement,
  • timing: the payment is made in the five years beginning or ending on the date on which the capital sum is paid by a close company to the settlor or his or her spouse.

In many cases, without an ‘associated payment’ ITTOIA/S633 will not operate. On the other hand, the receipt by a close company of a capital sum from trustees will considerably increase the likelihood of Section 633 applying.

So, if you find such a receipt, you should submit your papers (including, if available, the accounts for at least the preceding five years), the trust folder and the settlor’s personal file to HMRC Trusts Bootle.