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HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
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Settlements legislation: summary - factors to look for

The lists below are by no means definitive of situations to which the settlements legislation can be applied. For further guidance contact HMRC Trusts & Esates Technical Edinburgh.

  • Disproportionately large returns on capital investments.
  • Differing classes of shares enabling dividends to be paid only to shareholders paying lower rates of tax.
  • Dividends being waived so that higher dividends can be paid to shareholders paying lower rates of tax.
  • Income being transferred from the person making most of the profits of a business to a friend or family member who pays tax at a lower rate.

There are a wide range of arrangements that can potentially be caught by the settlements legislation which do not involve a trust. Each case will depend on the facts but some of the most common situations which we see are:

  • Shares subscribed at par that carry only restricted rights.
  • Shares given away that carry only restricted rights.
  • A limited share in a partnership gifted or transferred below value.
  • Dividend waivers.
  • Situations where dividends are paid only on certain classes of shares.
  • Dividends paid to the minor children or stepchildren of the settlor.