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HMRC internal manual

Capital Gains Manual

Basic terms of trust law as applied to CGT: settlor: from 6 April 2006: transfer between settlements


This section is concerned with the situation where the trustees of Settlement 1 [“S1”] transfer property to the trustees of Settlement 2 [“S2”], including cases where property is created by S1 on behalf of S2, such as the grant of a lease by the trustees of S1 to the trustees of S2.

Unless the transfer is for full consideration, or by way of a bargain at arm’s length section 68B applies. The reason for having these two alternatives is to allow for the possibility that S1 and S2 are connected persons (so that any transaction between them is not at arm’s length by virtue of TCGA92/S18), and S1 sells an asset to S2 for its full market value. In such a case we do not want section 18 to cause section 68B to apply.

It is not unusual for trustees to appoint or advance assets to a newly created trust. See for example Hart v Briscoe 52TC53. Courts have said, see for example Chinn v Collins 54TC311, that the trustees in such a situation are perfecting the settlor’s original gift in settlement. Therefore in such a case section 68B has the effect that it is the original settlor of S1 who is the settlor of S2. The property is treated as having been provided for the purposes of S2.

However there are three specific cases which are excluded.

  • A beneficiary, B, of S1 may transfer to S2 his interest in S1. In this case it is B who is the settlor (or an additional settlor) of S2.
  • Under the terms of S1 D may have a general power of appointment. If so D is the settlor (or additional settlor) of S2.
  • If section 68C(6) applies (see CG 33248).

It is not considered that s68B effected any change in the law.