Revenue Note for Guidance

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Revenue Note for Guidance

436A Certain settlements made by close companies


The purpose of this section is to counter attempts to transfer funds from close companies on a tax-free basis to shareholders or family members using trusts and other such settlements. The section deters such attempts by providing that where a close company transfers money or money’s worth under a settlement set up by the company for the benefit, or potentially for the benefit, of a shareholder or family member the transfer is deemed to be a distribution by the company to the trustees of the settlement. This means that the company is required to deduct dividend withholding tax of 20 per cent of the amount settled under the trust. Furthermore, where funds settled by a close company on a trust are subsequently distributed from the trust, the section provides that the shareholders or family members to whom such funds are transferred will be chargeable to income tax at the marginal rate on amounts received. The provisions apply to funds transferred on or after 21 January 2011.


(1) Subsection (1) provides definitions for ‘member’, ‘relative’, ‘relevant settlement’ and ‘settlement’. A ‘relevant settlement’, in relation to a close company, is any settlement (within the meaning of section 10) made by or on behalf of the close company other than a settlement made for the exclusive benefit of a person(s) who is not a member of the company or a relative of such member and which does not allow for the provision of any benefit to such member or relative. The subsection also provides that any participator, being a member of a company which controls another company shall be treated as being also a participator in and member of that other company.

(2) Subsection (2) provides that any amount in money or money’s worth settled by a close company on or after 21 January 2011 in connection with a relevant settlement shall be treated as a distribution by the company to the trustees of the settlement.

(3) Subsection (3) provides that where an individual who is or was a member of a close company, or a relative, receives directly or indirectly an amount in money or money’s worth from assets comprised in a relevant settlement in relation to the close company, so much of the amount as exceeds any consideration given by the individual, or relative, will be chargeable to income tax under Case IV of Schedule D.

(4) Subsection (4) makes provision for the section not to apply where it is demonstrated that the settlement was not made for tax avoidance purposes.

Relevant Date: Finance Act 2021