Settlements income tax and Jones v Garnett

It is well known that the Income Tax Acts define a ‘settlement’ in terms which a trust lawyer would find very strange. Indeed, the income tax definition is quite different to those used for capital gains tax (CGT) or inheritance tax (IHT) which would seem more familiar to the trust lawyer. Section 660G Taxes Act 1988 (now s620 Income Tax (Trading and Other Income) Act 2005) defines a settlement for income tax purposes as ‘any disposition trust covenant agreement arrangement or transfer of assets’ . The purpose of this legislation is to enable the settlor, who has created the arrangements and not some other person, to be taxed on the income thereby produced if he, his spouse or civil partner, or minor children, may benefit. The definition is, on the face of it, very wide and the courts have interpreted it accordingly.