796 Irrevocable instruments

Summary

This section provides that income accumulated in any tax year for the benefit of a minor is not to be treated (under section 795) as the settlor’s income if it arises from property vested in or held by the trustees of a settlement made by an irrevocable instrument. However, where any sum whatever is actually paid out by the trustees of an irrevocable settlement for the benefit of a person who, at the time of payment, is a minor, the sum is deemed to be paid as income and, by virtue of section 795, is treated as income of the settlor for the tax year in which it is paid.

Details

(1) For the purposes of the section, “property” does not include any annual or periodical payment secured by the covenant of the settlor or by a charge made by him/her on any part of his/her property or any part of his/her future income.

(2)(a) Section 795 is not to apply for a year of assessment to income arising from property vested in or held by trustees under an irrevocable instrument which in that year is accumulated for the benefit of a person. Neither is that section to apply to income arising from accumulations of such income.

(2)(b) However, subject to the limitation set out in the next paragraph, any sum whatever paid out in a year of assessment under an irrevocable settlement to or for the benefit of a person who at the time of payment is a minor is deemed to be paid out as income (and accordingly chargeable to tax in the hands of the settlor). This rule applies irrespective of whether the payment is out of income or accumulations of income or out of capital of the trust fund.

(2)(c) The foregoing rule is not to apply to any sum to the extent that the aggregate of it and all other sums (if any) paid under the settlement to or for the benefit of the person, or any other person who at the time of payment was a minor, exceeds the aggregate of all income that has accrued to the trustees since the settlement was made.

(2)(d) & (e) In relation to a payment —

• made before 6 April, 1971, or
• in the case of a payment made to or for the benefit of a child born after 6 April, 1971, made in the tax year 1971–72 under a settlement made before 28 April, 1971,

the reference in the previous paragraph to other sums paid to or for the benefit of a person who at the time of the payment was a minor is to be taken as a reference to a sum so paid to or for the benefit of a person who at the start of the tax year in which the payment was made was a minor.

(2)(f) References to a person being a minor at any particular time are, where that time is before 6 April, 1986, to be construed as references to a person who was at that time under 21 years of age and was not or had not been married. [By virtue of section 7 (application to certain taxation statutes of Age of Majority Act, 1985) with effect from 6 April, 1986, a person is a minor if he/she is under 18 years of age and is not or has not been married.]

Relevant Date: Finance Act 2019