Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 2

Settlements on children generally

Overview

This Chapter provides that income settled on a person who is a minor is, during the lifetime of the settlor, to be treated as income of the settlor and not that of the minor. The provisions of the Chapter are not affected by those contained in section 792 concerning dispositions of income for short periods.

794 Interpretation and application (Chapter 2)

Summary

This section provides the interpretation for the Chapter. It also contains provisions regarding the application of the Chapter.

Details

Definitions

(1) “income” is given an extended definition to include any income chargeable to income tax by deduction or otherwise and any income which would have been so chargeable if it had been received in the State by a person resident or ordinarily resident in the State.

“settlement” includes any disposition, trust, covenant, agreement or arrangement and any transfer of money or other property or of any right to money or other property.

Application

(2) The Chapter is to apply to every settlement whenever or wherever made or entered into.

(3) However, the Chapter does not apply to income arising under a settlement in any year of assessment in which the settlor is non-resident in the State.

(4) Neither does the Chapter apply to income paid in any year of assessment to or for the benefit of a minor, not being a child of the settlor, or a child or the settlor’s civil partner, who is permanently incapacitated by mental or physical infirmity.

Irrevocable instruments

(5)(a) An instrument is not to be an irrevocable instrument if the trusts of the instrument provide for one or more of the following —

  • the settlor is to be a beneficiary during the life of any person who is or may be entitled to benefit from any income or accumulations of income from the settlement,
  • the spouse or civil partner of the settlor is to be a beneficiary during the joint lives of the settlor and the person for whom the settlement is made,
  • the trust may be terminated by the act or default of any person, and
  • the settlor can avoid complying with the terms of the instrument by paying a penalty.

(5)(b) An instrument is not, however, to be prevented from being an irrevocable instrument by reason only of provisions that provide for —

  • any capital, income or accumulations of income to be payable to or for the benefit of the settlor or his/her spouse or civil partner if the person for whose benefit income or accumulations of income may become payable under the trusts (the beneficiary) should become bankrupt,
  • any capital, income or accumulations of income to be payable to or for the benefit of the settlor or his/her spouse or civil partner if any beneficiary should make any assignment of or a charge on that capital, income or accumulations of income, or
  • the termination of the trusts in such circumstances that the termination would not, during the life of the beneficiary, benefit any person other than the beneficiary or his/her spouse, civil partner, children or children of his/her civil partner

Relevant Date: Finance Act 2021