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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Defined persons - settlements for grandchildren


If the only defined persons are grandchildren it is possible TCGA92/S86 will apply only if the settlement was created on or after 17 March 1998. When TCGA92/S86 was introduced in 1991 grandchildren of the settlor were not defined persons so a settlor would not have an interest in a settlement for the benefit of their grandchildren.

This changed in 1998 when grandchildren were added to the list of defined persons for settlements created on or after 17 March 1998. If the settlement was created before that date the settlor will have an interest only if:

  • the grandchildren are already beneficiaries and new property is added to the settlement or if a UK resident settlement becomes non-resident or
  • the grandchildren are added as beneficiaries for the first time or benefits are actually paid to the grandchildren even if they are not beneficiaries.

These conditions are the same as the first four conditions described in CG38520. They are another form of tainting and also one that is unlikely to apply in practice. Extra-Statutory Concession D40, described in CG38515, also applies to companies controlled by the settlor’s grandchildren.

As explained in CG38465 the settlor will not have an interest in the settlement if the defined persons are excluded from benefit in the year before the gains accrue. If the settlement was created before 17 March 1998 there is no need to exclude grandchildren and their remoter issue.


In August 1988 Mr and Mrs A create the A family settlement resident in Guernsey for themselves, their children and remoter issue. The trustees make small gains in the years 1998-99 to 2012-13. Mr and Mrs A are liable to section 86 on these gains but the amounts are at or below their annual exempt amount. The trustees expect to make a significant gain in 2013-14. In 2012-13 Mr and Mrs A and their children are excluded from the settlement. The grandchildren and their issue are not. Section 86 does not apply to Mr and Mrs A when the gains accrue in 2013-14. Section 87 will apply when capital payments are made to the beneficiaries.