Trusts and pension schemes: settlors
The person creating the settlement/trust is the settlor. He may also be a beneficiary. When making the trust, he may retain the legal interest in the trust property. Or he may pass the legal interest to trustees, to hold the property in trust for the beneficiaries. He may name himself as a trustee.
A person is a settlor in relation to a settlement if the settlement was made by that person. A person is regarded as having made a settlement in any of the following situations:
- he or she has made or entered into it (either directly or indirectly)
- he or she has provided property or undertaken to provide property for a settlement (either directly or indirectly),
- the settlement arose on his or her death and, immediately before the death, that person was competent to dispose of the property which has been settled,
- he or she has made a reciprocal arrangement with any other person for that other person to make or enter into a settlement.
This means that a person creating a settlement or adding to an existing settlement is a settlor in relation to the property so settled. Where the settlement arises on someone’s death, for example a will trust, then the deceased person is the settlor of the property as long as it is property that the person was able to dispose of immediately before he or she died. This does not have to be exactly the same property as long as it is derived from such property. The reciprocal arrangement covers the situation where, for example, a person (X) settles property for the benefit of his sister’s children and the sister settles property for the benefit of X’s children. In this case X is treated as the settlor in relation to the settlement for his own children and the sister is treated as the settlor in relation to the settlement for her children.
A person ceases to be a settlor if all of the following circumstances apply:
- there is no longer any property, of which he or she is the settlor, in the settlement and
- he or she has not undertaken to provide any property in the future, and
- he or she has not made reciprocal arrangements with another person to provide property
ITA/S466 provides a definition of settled property for income tax purposes which mirrors the CGT definition in TCGA92/S68. Settled property is any property held in trust by a person unless that person holds it:
- as nominee for another, or
- as bare trustee for another
Please refer to the Trusts, Settlements and Estates Manual (TSEM) for further information.