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HMRC internal manual

Capital Gains Manual

UK resident beneficiary: tax year 2008-09 onwards


Section 77 TCGA 1992 was repealed by FA08. That Act also introduced a single rate of capital gains tax of 18% for all taxpayers. This made it possible to simplify the special treatment if it is claimed for the years 2008-09 onwards. The treatment is very similar to that which has always applied for income tax and to the capital gains of non-UK resident beneficiaries. Gains on the disposal of relevant settled property are taxed on the trustees. The tax is reduced to the amount that would be payable if the gains had accrued to the beneficiary.

The introduction of a 28 per cent rate of Capital Gains Tax for trustees by F(No2)A 2010 for gains that accrue on or after 23 June 2010 did not require any change in this approach. You still compare the tax that would have been paid if the gains had accrued to the beneficiary with the tax payable by the trustees. The 28 per cent rate for trustees does mean that there may be more cases in which a claim is beneficial. For the years 2008-09 and 2009-2010 a claim will only be beneficial if the beneficiary’s has unused personal losses or if their annual exempt amount is greater than that of the trustees. If the gain accrues on or after 23 June 2010 it will be taxed at 28 per cent on the trustees. See CG33135. Depending on the amount of their income the gain may be taxed at 18 per cent on the beneficiary. The example in CG35526 illustrates this.

There are further Capital Gains Tax rate changes for 2016-17 onwards see CG10246 but these do not affect the basis of the computation of relief that may be due.

FA2005/S31, after its amendment by FA08, gives a formula for calculating the relief due to the trustees. The CGT payable by the trustees is reduced by the amount TQTG-VQTG.

TQTG is the amount of CGT the trustees would have to pay in accordance with the usual rules. VQTG is the amount of capital tax that would be paid if the gains accrued to the beneficiary.

You get the value of VQTG by deducting the capital gains tax due on the beneficiary’s personal gains, TLVB, from the amount of capital gains tax due if the trust gains had also accrued to the beneficiary, TLVA. In calculating TLVB you deduct the beneficiary’s annual exempt amount and personal losses. You make the same deductions in calculating TLVA but if the beneficiary has a net personal loss for the year you do not deduct this when calculating the tax due on the trustees’ gains. This is to avoid giving the beneficiary the benefit of the losses twice when those losses are carried forward and set against their gains in a later year.

The initials used in section 31 are not a precise acronym.

TQTG means Trustees’ liability on Qualifying Trust Gains.

VQTG means Vulnerable beneficiary’s liability on Qualifying Trust Gains.

TLVA means Tax Liability of Vulnerable Beneficiary (A) on their personal gains and the trust gains.

TLVB means Tax Liability of Vulnerable Beneficiary (B) on their personal gains.