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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Recovery of tax from trustees - TCGA92/S86

TCGA92/Sch5/para6

The settlor has a statutory right to recover any section 86 tax they pay from the trustees. It is possible the trust deed may also give them rights of reimbursement. These rights are effectively ignored for other tax purposes.

  • Income tax - they are not treated as giving the settlor an income tax liability under ITTOIA05/S624 or ITA07/S720
  • Capital gains tax - they are not treated as capital payments for the purposes of TCGA92/S87
  • Inheritance tax - they are not treated as a reservation of benefit for the purposes of FA86/S102. But if the settlor fails to exercise their rights of reimbursement that may be treated as transfer of value for the purposes of IHTA84/S3(3).

HMRC confirmed this view in SP5/92 paragraphs 8 to 10.

Practical issues

A practical issue is that the settlor may not be able to enforce their indemnity in a foreign jurisdiction. If the settlor knows that they may have difficulty claiming reimbursement they may arrange for the settlement to become UK resident. The trustees would then be liable to pay the tax.

The settlor does not have a statutory right to information about the trustees’ gains. If the settlor is not a beneficiary of the settlement this can cause practical difficulties.

Certificate of tax paid

The settlor can ask HMRC for a certificate of the section 86 gains and the tax paid on those gains. A certificate should be produced on plain paper in the following format.

Certificate of tax paid

Schedule 5 Paragraph 6 TCGA 1992

(name of settlement)

I hereby certify that, by virtue of the provisions of Section 86 Taxation of Chargeable Gains Act 1992, chargeable gains amounting to £ … for the year ended 5 April .. were treated as accruing to (name of settlor) and charged upon him/her accordingly. The Capital Gains Tax paid by him/her for that year in respect of those gains amounted to £….