The settlement legislation is intended to prevent an individual from gaining a tax advantage by diverting his or her income to another person who is liable at a lower rate of tax or is not liable to Income Tax. 
Where a settlor has retained an interest in a property in a settlement the income arising is treated as the settlor’s income for all tax purposes. A settlor can be said to have retained an interest if the property or income may be applied for the benefit of the settlor, a spouse or civil partner. 
 
In general, the anti-avoidance settlements legislation can apply where an individual enters into an arrangement to divert income to someone else and in the process, tax is saved. 
 
These arrangements must be: 
 
bounteous, or 
not commercial, or 
not at arm’s length, or 
in the case of a gift between spouses or civil partners, wholly or substantially a right to income. 
 
However, there are a number of everyday scenarios where the settlements legislation does not apply. In fact, after much case law in this area, HMRC has confirmed that if there is no 'bounty' or if the gift to a spouse or civil partner is an outright gift which is not wholly, or substantially, a right to income, then the legislation will not apply. 
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