We are in the process of registering a number of our trust clients on TRS, and are looking at the cases where we have bare trusts arrangements that are minor children with share portfolios.
When working through the TRS data entry, one of the questions asked is ‘who is the settlor’?
If the original capital was provided by a grandparent, for example, I could see an argument that they should be the settlor, with say the parents as trustees (they most probably being the party that decided to invest the cash in a portfolio).
However, if the cash has come from multiple places, or is perhaps an income distribution from a discretionary trust that the parents have decided to invest on the minor’s behalf, the answer to the question of ‘who is the settlor’ is less clear.
How are other members dealing with these cases please?
I would have thought that whoever supplied the original gift will always be the Settlor. Additional gifts to the Trust should not have a bearing on this.
This is a question of law and involves the interpretation of the Regs. The term “beneficial owner” is defined (Regs 3(1) and 6) to include “the” settlor but “settlor is not defined”. If it is to be regarded as an ordinary word in context it is given its ordinary meaning. I doubt it is in anyone’s ordinary vocabulary and spell checkers treat it as a mistake and offer “settler” instead. If it is regarded as having a technical meaning it is not clear what that would be. In my opinion it is what it means in the law of trusts.
That would be the person who creates the trust, by declaring it or being a party to a trust document and described as the settlor. It might depend on the context: if the settlor was a mere nominee and funds were added later the Court might not treat the nominee as the settlor if, for example, the equitable interest was not exhaustively disposed of and there was a resulting trust to the settlor.
The Regs now apply to taxable trusts and non-taxable trusts but originally only to the former. While there might be an argument therefore that it includes indirect settlors for tax purposes there are three objections to that:
1 which tax purpose?
2 what about non-taxable trusts?
3 if “Parliament” intended that why didn’t it say so explicitly in the Regs?
In TRSM32040 HMRC say only:
“The settlor is the person who settles property into the trust. This can be during the settlor’s lifetime (an ‘inter-vivos’ trust) or on death (for example, under the terms of the settlor’s will)” and “There is usually only one settlor of a trust, but there can be more than one in certain situations.”
Their later statement there about deeds of variation is controversial:
“Where a trust has been established by a Deed of Variation or family arrangement varying a will, each person who took less under the deed than they would have done under the will is a settlor of the amount given up.
If property which would have been settled in trust on the death of the deceased is now comprised in this settlement, then the deceased is also a settlor of this amount.”
This tracks s68C(3) of TCGA but such a detailed definition is not in the Regs or incorporated by reference. The same goes for s620 ITTOIA 2005 (income tax).
There is no guidance on a distribution from a trust of income or capital into another but to follow the logic of the above presumably HMRC would say the settlor of the distributing trust is at least"a" settlor of the receiving trust.
Not defining settlor was either a glaring oversight or a cynical ploy to be deliberately vague so HMRC could imposes its own definition. I normally abhor slavish adherence to the content of Manuals but it would seem that to do what HMRC say will avoid enquiries and penalties. I have not done this but I am told that HMRC have not made it easy to record the details of multiple settlors.