Income Tax (Trading and Other Income) Act 2005 section 646

Adjustments between settlor and trustees etc.

Section 646 deals with the financial adjustments between a settlor and trustees (or other recipients of settlement income) where the settlor has been taxed on settlement income under the settlements legislation, including the settlor's right to recover tax paid and obligation to pass on any tax repayments received.

• A settlor can recover from trustees or other recipients of settlement income any tax the settlor has paid under sections 624 or 629, since the settlor has not actually received the income but bears the tax charge
• The settlor can request an HMRC certificate confirming the tax year, the amount of income taxed, and the tax paid, and this certificate is conclusive proof of those facts
• If the settlor obtains a tax repayment as a result of tax paid by a trustee or other settlement recipient (for example, where source-deducted tax exceeds the settlor's liability after allowances), the settlor must pass an equivalent amount back to that trustee or recipient, apportioned where necessary among multiple persons
• Any dispute about the amount to be repaid or how it should be apportioned is decided by the tax tribunal, whose decision is final; separately, nothing in the settlements legislation removes the possibility of a direct tax charge on the trustees as the persons who actually received the income