CheckLists.Tax (beta)
i11. Loan to settlor
Settlements legislation: attribution of income to settlor
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INCOME TAX
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- Query whether settlor can be taxed on income he/she paid to the trust (e.g. interest on loan by trust)
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- Held settlor can be taxable on income originating from himself in Rogge.
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Legislation:
Cases: Rogge v. HMRC [2012] UKFTT 49 (TC);
HMRC manuals:
Commentary:
See also:
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- Loan to settlor/spouse is capital sum triggering s.633 income matching charge
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General rule
- Capital sum includes any sum paid by way of loan (s.634).
- Reference to settlor includes reference to spouse/civil partner (s.634(7)).
- Capital sum is then matched to historic income.
- And future income for up to 10 future tax years.
- See i8. Distribution by trust for further notes.
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Repayment
- After the loan is repaid, matching stops in the following tax year (s.638).
- See L10. Repayment of loan.
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Repayment followed by further loan (capped capital payment)
- Where:
(1) a loan is made to the settlor and wholly repaid
(2) subsequently, another loan is made to the settlor
Then, the amount of the new loan available for matching is reduced by the amount of the previous loan that was treated as the settlor's income (s.638(3)).
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Release of loan
- See L3. Release of loan.
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Legislation: ITTOIA s.634;
Cases:
HMRC manuals:
Commentary:
See also:
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- Power to make loans to settlor does not mean settlor has retained an interest
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- Loan is not money payable to the settlor or property applied for the benefit of the settlor (Vestey at 114, 121).
- But actually making a loan will trigger s.633 (see below).
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Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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INHERITANCE TAX
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Gift with reservation
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- Receiving a loan of gifted money is a gift with a reservation of benefit
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- Loan of gifted money or an equivalent amount is a reservation of benefit (IHTM14336).
- Applies even if commercial rate of interest is paid.
Legislation:
Cases:
HMRC manuals: IHTM14336;
Commentary:
See also:
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