Date posted: 1st Nov 2025
If you want to give assets to a family member, tax rules called settlement legislation might still treat any income as yours when it comes to paying tax.
The idea behind these rules is to stop people from saving tax by moving income to someone else but still benefiting from it themselves.
When does this happen?
It applies if you, the “settlor,” keep an interest or control in the asset—meaning you might still benefit from it.
These rules target arrangements that aren’t straightforward, like gifts that aren’t commercial, not at arm’s length, or are generous (“bounteous”), especially when those gifts are mainly a right to income.
When does it NOT apply?
If the gift is outright to your spouse or partner and isn’t mostly just a right to income—like if you gift assets that have real capital value (not just income rights)—then these rules usually don’t come into play.
Examples to Help Explain
- Example 1: Outright gift of shares to spouse
Mrs. L owns 10,000 shares in a big company, worth £40,000. She gives all those shares to her husband, Mr. L. Now, Mr. L can collect dividends AND sell those shares if he wants. Since these shares have capital value and aren’t just rights to income, the settlement legislation does usually not apply here.
- Example 2: Gift of shares to minor children
Mr. and Mrs. X each own half of their company’s shares and give 10 shares each to their children aged 12 and 15. The children get dividends, but because these are considered to be a way to divert income to avoid taxes and the kids can’t fully control the shares, the dividends are treated as the parents’ income for tax.
There are many other examples and situations to consider.
If unsure whether a proposed transaction may be caught by the settlement legislation, it’s always best to check with us to avoid surprises.
As ever, we are here to help.
