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What 'settlor' means

A settlor is someone who 'makes a settlement'. They do this by placing assets such as money, land or buildings in a trust. This is known as 'settling property'. Settlors can do this directly or indirectly, by giving the funds to someone else to set up a trust. They normally place assets in a trust when the trust is created, but can also do so later on.

Parental trusts for minors and Income Tax

A parental trust for minors is one where a 'relevant child' (a child under 18 who has never been married or in a civil partnership) of the settlor can benefit from a trust. In this case, the settlor must be one of the child's parents.

Parental trusts for minors aren't a type of trust in their own right - they will be one of the following types of trust:

• bare trusts - where the child is absolutely entitled to the income and the capital of the trust
• interest in possession trusts - where the child may be entitled to all the income after expenses
• accumulation trusts - where trustees can retain and add income to capital on behalf of the child
• discretionary trusts - where trustees can make payments at their discretion to the child

With parental trusts for minors, the child's income from the trust is deemed to be the income of the settlor for Income Tax purposes. This rule only applies to trusts where a relevant child can benefit and the settlor and any spouse or civil partner are excluded. If the settlor (and spouse or civil partner) aren't excluded then the rules for settlor interested trusts apply instead. The rate of Income Tax that applies will depend on what type of trust it is.

• Settlor-interested trusts

• Find out more about the Income Tax rates for discretionary or accumulation trusts

• Get more information about the Income Tax rates for interest in possession trusts

Income payments below £100

If the income arising from all parental gifts made by a parent to a child is less than £100, the child's trust income is not counted as the settlor's for Income Tax purposes.

Reporting the tax paid on the settlor's return

Where the rules apply so that the income of the child is treated as the income of the settlor, the settlor is responsible for all Income Tax due. Because the trustees are required to pay tax on the income, the settlor can offset Income Tax paid by the trustee against the amount of tax they are due to pay. In some cases there may be more tax to pay and in others a refund may be due. The tax paid by trustees is only available to the settlor and not the child.

Details of the Income Tax paid by the trustees must be included on the personal tax return of the settlor. Each year, the settlor may need to complete form SA107 Trusts etc. - the trusts supplementary pages of the main SA100 Tax Return. This form tells HM Revenue & Customs about the Income Tax the trustees have paid on the settlor’s behalf.

• Types of trust and tax implications

• Form SA107 Trusts etc and guidance notes Opens new window

• Completing a personal tax return - advice Opens new window

Parental trusts for minors and Capital Gains Tax

Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into trust. The trust will only have to pay the tax if the assets have increased in value above a certain allowance known as the 'annual exempt amount'.

Trustees are responsible for paying any Capital Gains Tax due.

For the tax year 2008-09 onwards, the trustees pay any Capital Gains Tax due on gains they make above the trustees' annual exempt amount.

• Trusts and Capital Gains Tax

Parental trusts for minors and Inheritance Tax

Inheritance Tax may be due when:

• assets are put into a trust
• a trust reaches a ten-year anniversary
• assets are taken out of a trust or the trust ceases
  

Sometimes Inheritance Tax uses different terminology for trusts. Parental trusts for minors may fall within what are known as ‘relevant property’ trusts.

• Trusts and Inheritance Tax

Useful contacts

• Contact HMRC Trusts & Estates