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HMRC internal manual

Trusts, Settlements and Estates Manual

Settlements legislation: scope of statutory definition of settlement

The potential scope of the ‘settlement’ is extremely wide. Given the breadth of the unrestricted term the Courts have concluded that it is appropriate to impose some limitation on its scope. A purely commercial transaction at arms length is outside the meaning of ‘settlement’.

Settlement must include an element of bounty, as decided in the tax case of CIR v Plummer (54 TC 1). Bounty is the provision of value without any corresponding quid pro quo, usually a gift or a transfer at less than full value.

Where a settlor enters into an arrangement that he or she would not have entered into with someone with whom the individual was acting at arm’s length, the arrangement is susceptible to the legislation. This conclusion is based on the decision in Jones v Garnett (78 TC 597).

For the purposes of the settlements legislation, ‘trust’ does not include a trust set up under a Will or intestacy.

The settlements legislation can apply to deeds of variation or family arrangement (TSEM1815).

Situations in which there is a settlement but income arising under it is not treated as that of a settlor who retains an interest (TSEM4200) are dealt with in TSEM4205+.

Tax case

CIR v Plummer 54 TC 1

Jones v Garnet 78 TC 597