Section 496A | Discretionary payments by trustees: employment income ^F1

(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.