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HMRC internal manual

Capital Gains Manual

Conventional but bare trusts: transfer by way of security

TCGA92/S26 (1) & (2)

The transfer of an asset by way of security is not to be regarded as involving any disposal or acquisition, TCGA92/S26 (1).

Any dealings with the asset by the person holding it by way of security are to be treated as the acts of a nominee for the person entitled but for the security, TCGA92/S26 (2).

In certain cases, particularly on the breakdown of a marriage or civil partnership, the method of giving security may be to transfer the asset to a trustee. For instance Mr F, may transfer shares or cash to a trustee. The trustee is to pay the income to him and after his death to his heirs, unless there are arrears of alimony or maintenance payments, in which case payment is made to his former spouse Ms G. The trust will terminate on vesting day, which is the earlier of the death or remarriage of Ms G. Purely on the test in TCGA92/S60 this is not a bare trust, because Ms G has a contingent interest in the trust property. She receives payment from the trustees if Mr F defaults on his alimony payments. However the transfer was basically by way of security. Therefore, Section 26 applies. But this would not be the case if the deed provided more than mere security, for example if it gave Mr F a power of appointing the property to his children on vesting day.