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HMRC internal manual

Capital Gains Manual

Introduction and computation: annual exempt amount: exploitation of annual exempt amount: Annual exempt amount: exploitation: asset splitting

A simple example here is the transfer by a parent of part of his shareholding in a company to his minor child followed by the making of a claim under TCGA92/S165 in respect of the gift. All the shares, including the child’s holding, are then disposed of and in this way the child’s annual exempt amount is utilised.

We are likely to be able to challenge such an arrangement on two grounds only.

  • The donor may already have entered into an unconditional contract for the sale of the asset before the gift. In such circumstances the donor would no longer be the beneficial owner of the asset at the time he purported to make the gift. The donor will have disposed of the entire asset directly to the purchaser and the date of the disposal will be the date of the unconditional contract.
  • The gift was a sham: that is, there was truly no gift at all. If this were so, the entire sale would be effected by the donor, and the gain would accrue to him. This argument will be possible only in very exceptional cases. It may be appropriate to consider it where the donor has received the entire sale proceeds and has used them for his or her own purposes (though this fact alone will not be conclusive). If the sale proceeds are retained by the donee, the gift is less likely to be a sham. However, you may be able to show that the subject of the gift was not the shares but the sale proceeds. If that were so, there would be no disposal by the donee. The longer the interval between the gift and the subsequent disposal, the less likely it becomes that the intended subject of the gift is the sale proceeds and not the asset.

You should not accept a claim under TCGA92/S165 if you have information which casts doubt on the authenticity of the gift. An accepted claim makes it much harder to challenge the case later. Nor should you challenge any case in which HMRC Trusts - Bootle have accepted that the gift is genuine; they are aware of this device and they already refer doubtful cases to Capital Gains Technical Group. If you learn of anything which casts doubt on the taxpayer’s intentions as regards the gift before HMRC Trusts - Bootle have accepted the point, you should let them know.