Section 496A — Income Tax Act 2007: Discretionary payments by trustees: employment income

Discretionary payments by trustees: employment income 496A 1 Section 496B applies if—

a in a tax year the trustees of a settlement make a discretionary employment income payment, and b the trustees are UK resident for the tax year.

2 In this section and section 496B, “discretionary employment income payment” means a payment to a person (“the beneficiary”) that—

a is made in the exercise of a discretion (whether exercisable by the trustees or any other person),

b is made out of income, and c meets conditions A and B.

3 Condition A is that what is paid to the beneficiary—

a is, only because of the payment, employment income of the beneficiary, but b is not exempt income (as defined in section 8 of ITEPA 2003 ).

4 Condition B is that the payment is made at a time when the settlement is an employee benefit settlement.

5 A settlement is an employee benefit settlement if the trusts on which the settled property is held do not permit the settled property to be applied otherwise than—

a for the benefit of persons of one or more relevant classes, or b for the benefit of such persons and for charitable purposes. 6 “Relevant class” means a class defined by reference to one or more of the following—

a employment in a particular trade or profession, b employment by, or holding office with, a body carrying on a trade, profession or undertaking, or c marriage to or civil partnership with, or relationship to, or dependence on, persons of a class mentioned in paragraph (a) or (b).

7 Where the trusts on which the settled property is held do not permit the settled property to be applied otherwise than as described in subsection (5) during a period (however defined), the settlement is an employee benefit settlement during (and only during) that period.