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HMRC internal manual

Capital Gains Manual

Non-resident beneficiaries: tax years 2004-05 to 2007-08

For the income tax treatment see TSEM3425 onwards.

In the case of a non-resident beneficiary for CGT the following calculation is carried out. (See FA2005/S33 and FA2005/Schedule 1. References to paragraphs are to Schedule 1.) (See CG35542 for a practical example)

  1. Calculate what the beneficiary’s “actual income” for the year would be on the assumption that he is resident and domiciled in the UK throughout the tax year (paragraph 1). Call this AI.
  2. Calculate the “trustees’ specially taxed income” for the tax year. This is the income in respect of which the special treatment applies (paragraph 2). Call this STI.
  3. Calculate the beneficiary’s “deemed CGT taxable amount” for the tax year as provided by paragraph 3. Call this DCTA.

DCTA is the sum of the taxable amount for the year computed only by reference to actual gains and actual losses and the taxable amount computed only by reference to assumed gains and assumed losses. If there is a deficit in either category it is not to be set against any surplus in the other.

Actual gains are those gains in respect of which the vulnerable person is already chargeable to CGT (charged under TCGA92/S10 on gains of a UK branch or agency) and actual losses are losses which are allowable for the current tax year, plus unused losses brought forward.

Assumed gains and losses are those gains and losses, other than actual gains and losses, of the current tax year which would be taken into account for CGT purposes if the vulnerable person were resident and domiciled in the UK throughout the year. In computing these amounts losses brought forward are disregarded, the vulnerable person is deemed to have given valid notice in respect of losses which are not allowable because they accrued while he was non-resident, and claims or elections in respect of any assumed gains are disregarded.

  1. Now calculate what the beneficiary’s liability to income tax and CGT would be if his income consisted of AI plus STI and his taxable amount for the purposes of TCGA92/S3 equalled DCTA. In other words one applies taper and the annual exempt amount to this figure. This calculation gives TLVB.
  2. Now calculate TLVA which is what the liability would be if the calculation in (d) also included his “notional section 77 gains” for the year, which under paragraph 4 are the amounts that would be included in his taxable amount if he were resident in the UK, by reason of the special treatment.
  3. Calculate TLVA - TLVB. This gives VQTG.
  4. Now calculate the amount of CGT to which the trustees would be liable in respect of the qualifying trust gains. This is TQTG.
  5. The trustees’ CGT liability for the year is reduced by (TQTG - VQTG).