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TAXguide 03/19: Finance Act 2018 section 35 and schedule 10 – settlements anti-avoidance

This TAXguide has been prepared by committee members of STEP, ICAEW, the CIOT and the Law Society to highlight practical issues and uncertainties raised by Finance Act 2018 Schedule 10 (Settlements: Anti-avoidance etc.).

Overview

TAXguide 03/19

This guidance can be downloaded in full.

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In broad terms the effect of the legislation introduced by Schedule 10, Finance Act 2018 is as follows:

  • A UK resident settlor is taxed on gains which might otherwise be attributed to a close family member under the capital gains tax beneficiary charges (FA 2018 schedule 10 inserting TCGA 1992 sections 87G/H).
  • Income tax or CGT is imposed in certain cases on UK residents who receive a gift within three years of the donor receiving a capital distribution or benefit from a non-UK resident trust. This is the so-called ‘onward gift’ rule.
  • The income tax settlements code is extended to tax benefits received by certain settlors and close family members. Benefits are matched with untaxed protected foreign source income (PFSI) in the trust. (FA 2018 Schedule 10 inserting ITTOIA 2005 sections 643A-H).
  • The matching of trust gains with capital payments received by a non-UK resident beneficiary is ended. (FA 2018 Schedule 10 inserting new TCGA 1992 section 87D et seq.)