Effect of FA08/Sch7/para126 on transfers between settlements - example
All the settled property of the transferor settlement is transferred to the transferee settlement for nil consideration in 2009-10. No capital payments have been made out of the transferor settlement. The transferor settlement made no gains before the transfer.
Gains of £100,000 accrue on the transfer. These are on the disposal of an asset held by the trustees since 2001. The post 5 April 2008 element of the gain is £15,000 based on the difference between the value at 6 April 2008 and the value at the time it is transferred.
The transferee settlement has no unmatched section 2(2) amounts of its own. Its only unmatched section 2(2) amount is the £100,000 for 2009-10 it is treated as receiving on the transfer.
In 2014-15 the transferee settlement makes a capital payment of £300,000 to a UK resident but non-UK domiciled beneficiary. Under section 87 £100,000 of the capital payment is matched with the section 2(2) amount and a £100,000 chargeable gain is treated as accruing to the beneficiary.
If a valid election under paragraph 126 Schedule 7 has been made by the trustees of the transferor settlement then only the post 5 April 2008 element of the gain (£15,000) is chargeable to tax on the beneficiary. That is subject to the remittance basis if the beneficiary is a remittance basis user.
If no valid election has been made by the trustees of the transferor settlement then the full £100,000 is chargeable to tax on the beneficiary. Again this is subject to the remittance basis if the beneficiary is a remittance basis user.
An election made by the trustees of the transferee settlement has no effect on this gain.