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HMRC internal manual

Trusts, Settlements and Estates Manual

Trusts for particular purposes: discretionary payments taxed as employment income - 2010- 2011 onwards - definitions

‘Discretionary employment income payment’ means a payment to a person that

  • is made in the exercise of a discretion
  • is made out of income, and
  • meets conditions A and B

Condition A is that what is paid to the beneficiary is employment income of the beneficiary (but is not exempt income as defined in IETPA/S8).

Condition B is that the payment is made at a time when the settlement is an employee benefit settlement.

An employee benefit settlement is one where the trusts on which the settled property is held do not permit the settled property to be applied otherwise than

  • for the benefit of persons of one or more relevant classes, or
  • for the benefit of such persons and for charitable purposes.

‘Relevant class’ means a class defined by reference to one or more of the following:

  • employment in a particular trade or profession,
  • employment by, or holding office with, a body carrying on a trade, profession or undertaking, or
  • marriage to or civil partnership with, or relationship to, or dependence on, persons of a class mentioned in the two bullets above.