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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Meaning of capital payment - "received from trustees"

TCGA92/S97(5)

The test in TCGA/S87(2) is that chargeable gains accrue to “a beneficiary … who has received a capital payment from the trustees”. TCGA92/S97(5) identifies when this test is satisfied. A beneficiary is regarded as receiving a capital payment from the trustees if:

  • the beneficiary receives it from them directly or indirectly, TCGA92/S97(5)(a)
  • the payment is directly or indirectly applied in paying off a beneficiary’s debt or is otherwise paid or applied for the beneficiary’s benefit, TCGA92/S97(5)(b)
  • it is received by a third party at the beneficiary’s direction, TCGA92/S97(5)(c).

TCGA92/S97(5)(a) applies to the simplest case which is a direct payment from the trustees. The question whether a capital payment has been received from the trustees indirectly has been considered in a number of avoidance cases especially in the context of transfers to another settlement. See CG38670.

TCGA92/S97(5)(b) applies if the trustees make a payment either to discharge a debt owing by the beneficiary or to a third party in consideration for the provision of some service or benefit to the beneficiary. This is also considered in CG38670. See the comment on Burton v HMRC.

TCGA92/S97(5)(c) applies if the beneficiary directs the trustees to make the payment to a third party. There is no express requirement that the third party applies the payment for the beneficiary’s benefit. But it is very likely that the trustees will be satisfied this will happen in order to meet the requirements of trust law.