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HMRC internal manual

Capital Gains Manual

UK resident beneficiary: tax years 2004-05 to 2007-08: calculation

The consequences of the basic rules described in CG35515 are the following.

Where a claim has been made for the special treatment to apply, the chargeable gains accruing on the disposal of settled property held on qualifying trusts are not charged on the trustees, but an equal amount is added to the chargeable gains of the beneficiary.

Allowable losses from the property held on qualifying trusts, including losses from earlier years provided that they have not been used by the trustees already, and personal losses of the beneficiary, can be set against these chargeable gains. On personal losses and how to set them off see CG34866. In particular the losses are first set against personal gains and then against gains within section 77.

Where trustees have chargeable gains which did not accrue on the disposal or deemed disposal of settled property, for example a clawback of EIS relief, the special treatment does not apply. The deferred charge on the occasion of the disposal of a qualifying corporate bond (“QCB”) following a company reconstruction is a disposal of property for these purposes; on the wording of TCGA92/S110(10) the gain accrues on the disposal of the QCB although it is calculated by reference to the gain on the disposal of the shares or other securities. Gains apportioned to trustees under section 13 are, under FA2005/S30(4), specifically included as gains from the disposal of settled property.

TSEM3475 has an example showing how the special treatment applies if a UK resident beneficiary has chargeable gains in any of the years 2004-05 to 2007-08. In the example the gains are described as personal gains. The same treatment applies if the gains accrue to the trustees and are taxed on the vulnerable beneficiary because section 77 applies.

Because TCGA92/S78 applies the beneficiary can recover the extra CGT from the trustees on the basis that these chargeable gains are the top slice of his liability to CGT apart from any gains falling within TCGA92/86 (Gains attributed to non-resident settlor). He can also ask an officer of Revenue and Customs to supply a certificate accordingly, see CG34970+.

The guidance in CG34850 onwards should be followed so far as computations, returns and assessments are concerned. In particular the chargeable gains should be shown on the return of the trustees (with a deduction for the amount attributed to the beneficiary) and that of the beneficiary. If necessary the office of the beneficiary will be notified by the office dealing with the trustees.