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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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FA08/Sch7/para126 and transfers between settlements owning non-UK resident companies

FA08/Sch7/para127

A transfer of settled property between settlements may include shares in a non-resident close company subject to TCGA92/S13. If the transfer takes place after 5 April 2008 the underlying company may dispose of assets it acquired before 6 April 2008. FA08/Sch7/para126 would not apply to any gains made by the underlying company as it had not been owned by the trustees since 5 April 2008 - paragraph 126(11)(c). There are special rules in FA08/Sch7/para127 to give FA08/Sch7/para126 relief in such cases.

For relief to be given the trustees of the transferor settlement must have made a paragraph 126 election. How any relief is calculated depends on whether, or not, the trustees of the transferee settlement have also made an election.

If the trustees of the transferee settlement have made a paragraph 126 election assets disposed of by the underlying company are treated in the same way as any assets the transferee settlement has owned from before 6 April 2008 - paragraph 127(2).

If the trustees of the transferee settlement have not made a paragraph 126 a separate calculation is required. A non-UK domiciled beneficiary is not charged to tax on so much of the gains treated as accruing to them that exceeds the ‘relevant proportion’ A/B of those gains - paragraph 127(3) & (4).

(A) is defined as the section 2(2) amount for the transferee settlement for the year a gain is treated as accruing to the non-UK domiciled beneficiary on the assumption the underlying company had sold and immediately re-acquired all its relevant assets at market value immediately before 6 April 2008, divided by

(B) is defined as the actual section 2(2) amount for the transferee settlement for the relevant tax year.