John,
In the current circumstances, there seems little doubt (to me) that the original transaction was either an agency/trustee deal or an interest free loan between two brothers. The OP has stated that his brother "... doesn't expect to keep the money. I suppose he is a trustee." But does that apply to the interest received of "approx £4200"?
The "loan" seems to be a sizeable one - depending on its length and rate of interest earned (say 4% pa) - it could be ~ £100,000 over 1 year, ~ £50,000 over 2 years etc.
IMHO, this arrangement is for one brother to benefit from the unused Personal Allowances of the other brother.
However, your analysis that such an interest free loan (if it is one)is caught by the Settlements legislation is not correct, IMHO.
You are hoping to use the interest free element as the required " bounty" element, but I don't consider that valid.
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