Circular income

Three appeals heard together concerned whether a settlor who had an interest in a trust could be assessed to income tax under TA 1988 s 660A(1) where the trust income consisted of payments made by the settlor.

In the first case R paid interest to the trustees of the non-UK resident discretionary settlement in respect of a £1 million loan made to him by the trustees. He was one of the beneficiaries.

HMRC assessed income tax on the interest. R appealed on the basis he could not be payer and payee for tax purposes.

In the second and third appeals K and his wife were trustees of a UK resident settlement in which K had an interest in possession.

In 1997 the trustees of which K was one bought K’s house for £265 000 and allowed him...