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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Overview of TCGA92/S86

Section 86 was introduced by Schedule 16 FA 1991. Before then gains accruing to non-resident trustees were charged only under TCGA92/S87 when the trustees made capital payments. This could mean a long delay between the gain accruing and any UK tax charge.

Basic conditions

The basic conditions for section 86 to apply are:

  • the settlor is UK resident and domiciled, CG38440
  • the trustees are not resident in the UK throughout the tax year or are UK resident only under the terms of a DTA, CG38450
  • the settlement is a qualifying settlement, CG38455
  • the settlor has an interest in the settlement, CG38465.

If these conditions are met chargeable gains of an amount equal to the gains accruing to the trustees are treated as accruing to the settlor in the tax year the gains accrue to the trustees, section 86(4).

The definitions needed to support section 86 are in Schedule 5 TCGA.

Qualifying settlements

Nearly all non-resident settlements are qualifying settlements.

When section 86 was introduced the only qualifying settlements were:

  • settlements created on or after 19 March 1991
  • earlier settlements which were affected in certain ways, a process commonly called tainting.

A major change in 1998 was to extend section 86 so that it applied to all settlements whenever they were created unless the settlement was a protected settlement. A protected settlement is a settlement in which the only members of the settlor’s immediate family who can benefit are their minor and unborn children and future spouses. Pre-19 March 1991 settlements were given a year to make themselves protected settlements otherwise they became qualifying settlements.