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HMRC internal manual

Capital Gains Manual

Non-resident beneficiary: CGT example: tax year 2008-09 onwards

Example 2010-11

The trustees’ qualifying trust gains for 2010-11 are £37,100. £17,000 of these accrued before 23 June 2010 and £20,100 after that date.

The trustees’ non-qualifying gains are £6,000 all of which accrued before 23 June 2010.

The annual exempt amount for the trustees is £5,050 and £10,100 for the beneficiary.

The beneficiary is resident, ordinarily resident and domiciled in Jersey throughout the year. The beneficiary has not disposed of any assets during the year.

First, calculate TLVB.

This is the beneficiary’s DCTA calculated in accordance with FA05/SCH1/PARA3. It is the liability on the total of their actual gains and losses and their assumed gains and losses. Because the beneficiary is not resident and not ordinarily resident in the UK the only actual gains that they can have will accrue under section 10 TCGA. There are no such gains. The assumed gains are calculated in accordance with paragraph 6 of Schedule 1. These are the gains and losses, other than the actual gains and losses, which the beneficiary would make on the assumption that they were resident and domiciled in the UK throughout the tax year. There are no such gains.

TLVB is nil.

Second, calculate TLVA.

This is the CGT due if the trustees’ qualifying trust gains were added to the beneficiary’s actual and assumed gains and taxed on the beneficiary. The beneficiary has no income liable to the higher rate of income tax so all the gains are taxed at 18 per cent. There are no actual or assumed gains so TLVA is £37,100 - £10,100 @ 18% = £4,860.

Third, calculate VQTG.

This is TLVA - TLVB. £4,680 - 0 = £4,680.

Fourth, calculate TQTG.

TQTG is the trustees’ liability on the qualifying gains. The qualifying trust gains are £37,100. £20,100 of these accrued after 22 June 2010 and are taxed at 28 per cent but it is to the trustees’ advantage to set their annual exempt amount first against the non-qualifying gains. This will maximise the amount of TQTG and the trustees’ reduction. TQTG is £20,100 @ 28 per cent = £5,628 and £17,000 @ 18 per cent = £3,060 total £8,688.

Finally calculate the trustees’ reduction.

This is TQTG - VQTG = £8,688 - £4,680 = £4008.

The trustees total liability is £20,100 @ 28 per cent = £5,628, £17,000 @ 18 per cent = £3,060 and the balance of the non-qualifying gains £950 @ 18 per cent = £171 total £8,859. This is reduced by £4,008 to give a liability of £4,851. This can be analysed into two components £4,680 which is the tax due if the qualifying gains were made by the beneficiary and £171 which is the tax due on the non-qualifying gains not covered by the trustees’ annual exempt amount.