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HMRC internal manual

Capital Gains Manual

Disposals by trustees: reliefs: gifts hold-over relief: restriction of set off of trust losses

This paragraph describes the provisions in TCGA92/S79A. It applies only where a chargeable gain accrues to trustees on or after 21 March 2000, and all the following conditions are met:

  • The expenditure allowable in computing the gain has been reduced directly or indirectly as a consequence of a previous transfer to the trustees which attracted gifts hold-over relief,


  • The person who transferred the asset to the trustees on that occasion, or any person connected with them, has acquired or entered into arrangements to acquire an interest in the settlement, and


  • In connection with the acquisition of that interest any person has received or become entitled to receive any consideration.

If all the conditions are met, then the trustees cannot set any losses, whenever incurred, against the gain on the disposal of the asset.

The purpose of this legislation, which was introduced in Finance Act 2000, was to prevent arrangements whereby a taxpayer who had the intention of selling a valuable business asset (including unlisted shares) would carry out transactions on the following lines.

  • Find a trust which had genuine substantial losses, surplus to the trustees own requirements. These losses could be realised or unrealised. Possibly a negligible value claim under TCGA92/S24 (2), see CG13120+, could be made.
  • Enter into transactions with the trustees and beneficiaries whereby all the interests in the trust belonged to the taxpayer and his immediate family. In order to achieve this a substantial payment would be made to the beneficiaries as the price for access to the benefit of the actual or potential losses of the trustees.
  • Transfer the valuable asset into the trust with a claim being made to hold-over relief under Section 165.
  • Arrange for the trustees to make all necessary disposals and negligible value claims to crystallise any unrealised losses.
  • Arrange for the disposal of the valuable asset, with the gain being covered by the trust losses.

The legislation prevents any trust losses from being set against the gain on this asset, but not any other gains of the trust.