Income Tax (Trading and Other Income) Act 2005 section 643M

Onward gift to settlor or close family member by other recipient

Section 643M addresses the tax treatment of benefits from a settlement that are initially provided to an unconnected individual but are then passed on, directly or through a chain of recipients, to the settlor or a close family member of the settlor.

• Where trustees provide a benefit to someone who is not the settlor or a close family member, and there is an arrangement or intention for it to be passed on to the settlor or a close family member within 3 years, the onward payment is treated as a benefit provided directly to that final recipient
• The original recipient must not be taxable on the benefit, and it must be reasonable to expect that the subsequent recipient will be UK resident when they receive the onward payment
• The onward gift may consist of the original benefit itself, something derived from or representing it, or entirely separate property, and it encompasses any kind of benefit, not just cash payments
• Where a chain of two or more gifts passes through intermediaries who are neither the settlor nor close family members, the intermediate steps are disregarded and the final gift to the settlor or close family member is treated as if made directly by the original recipient