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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Attribution of gains to beneficiaries who receive capital payments

TCGA92/Sch4C/para8

TCGA92/Sch4C works in a very similar way to TCGA92/S87, CG38570. Chargeable gains accrue to beneficiaries who receive capital payments from the trustees of a relevant settlement. In the straightforward case a relevant settlement is either the transferor or transferee settlement. See CG39295 for guidance on the wider definition of relevant settlement.

Certain capital payments not matched

Only payments received by a beneficiary who is “chargeable to tax for that year” are matched, TCGA92/Sch4C/para8(3)(b). That term is defined in TCGA92/Sch4C/para1A(3) as a beneficiary who is resident in the UK. A payment to a UK resident charity is matched even though it is not chargeable to UK tax because the charity satisfies the residence condition. The test for residence is applied in the year the payment is matched; in other words, in the year the gain would accrue. So payments received by a non-resident beneficiary are not matched and remain in the Schedule 4C pool.

Payments received in a tax year before the tax year preceding the tax year in which the original transfer of value was made, TCGA92/Sch4C/para9(2) are not matched.

TCGA92/Sch4C/para9 lists other capital payments that are not matched but they are very unlikely to apply in practice.

Matching rules

TCGA92/Sch4C/para8 applies the rules in TCGA92/S87A for the purposes of matching capital payments to the gains in the Schedule 4C pool, TCGA92/Sch4C/para8(3).

If the trustees have a Schedule 4C pool and section 2(2) amounts taxed under TCGA92/S87 payments are matched first to the Schedule 4C pool, TCGA92/Sch4C/para8(4). Any outstanding section 2(2) amounts for the year of transfer will be included in the Schedule 4C pool. Therefore this rule can apply only if the trustees have made gains in later years. It means that payments will be matched against an earlier year before a later year.

Any payments that are disregarded for the purposes of TCGA92/Sch4C can be matched against section 2(2) amounts taxed under TCGA92/S87. If the payments exceed the gains in the Schedule 4C pool these can also be matched against any TCGA92/S87 gains.

An exception to the rule in sub-paragraph 8(4) is if the trustees have a pool of offshore income gains. Payments are matched to those gains before gains in the Schedule 4C pool, TCGA92/Sch4C/para8(5).