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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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TCGA92/Sch4B - payment in respect of ordinary trust assets

TCGA92/Sch4B/para6(2)

Borrowing is applied for normal trust purposes if it is applied in making a payment in respect of an ordinary trust asset, CG39155, and the following conditions are met:

  • the payment is under a transaction at arm’s length or is not more than the payment would be if the transaction were at arm’s length
  • the asset forms part of the settled property immediately after the material time or the condition described in CG39160 is met
  • the sum paid for the asset is allowable as a deduction in calculating the gain on a disposal of the asset, TCGA92/S38
  • the sum would be allowable as a deduction but for the restriction on amounts allowed in calculating income tax, TCGA92/S39, or the market value rule in TCGA92/S17.

The reason for requiring the assets to be settled property after the material time, ie after the transfer of value, is to exclude purchased assets that are themselves transferred as part of the trustee lending.

TCGA92/S38(1)(b) requires that enhancement expenditure is reflected in the state or nature of the asset at the time of the disposal. The disposal envisaged by TCGA92/Sch4B/para6(2)(c) is a notional disposal at the time the expenditure was incurred. So the test is:

  • was the expenditure reflected in the state or nature of the asset when it was incurred?

not

  • was the expenditure reflected in the state or nature of the asset at the later material time?