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HMRC internal manual

Capital Gains Manual

Charge on beneficiary of a non-resident settlement - outline

Trustees’ gains

The trustees’ gains are calculated on the same basis they would be if the trustees were UK resident. The gains for any tax year are called the trustees’ section 2(2) amount.


Section 87 has rules that match the payments received by the beneficiary to the trustees’ section 2(2) amounts. A chargeable gain equal to the matched payment accrues to the beneficiary in the year they receive the matched payment.

If the beneficiary is an individual the gains accrue whether or not the beneficiary is UK resident but the gains are charged to Capital Gains Tax only if they are UK resident. If the beneficiary is not resident the trustees’ section 2(2) amount is still reduced but there is no charge to Capital Gains Tax. Different rules apply if the beneficiary is a close company.

There could be a delay of many years between the gain accruing to the trustees and the payment being received. If there is a delay of more than one year the rate of tax is increased. It is also possible for the capital payment to be received in a year before the gain accrues to the trustees. In that case the section 87 gain is attributed to the beneficiary in the later year that the gain accrued to the trustees.


Section 87 uses the ITTOIA definition of settlement so it will not apply to commercial settlements. Apart from that it will apply to all non-resident settlements. There are no conditions relating to the domicile or residence of the settlor.

Capital payments

The definition of capital payment is wide and includes the value of benefits received.


A beneficiary for the purposes of section 87 includes any person who receives a payment from the trustees whether or not they are a named beneficiary of the trust. There are rules that look-through payments that the trustees make through a company they control. There are also rules that treat payments received by non-resident companies controlled by UK residents as received by those residents.

Non-domiciled beneficiaries

For years before 2008-09 section 87 gains were charged to Capital Gains Tax only if the beneficiary was both UK resident and domiciled. This changed in 2008-09 so the only requirement is that the beneficiary is UK resident. But if the beneficiary is non-UK domiciled only that part of the trustees’ gains that relate to the period after 6 April 2008 are charged. The trustees’ section 2(2) amount is still reduced but there is no charge on the beneficiary.

A non-domiciled beneficiary can claim the remittance basis on section 87 gains for the years 2008-09 onwards.