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HMRC internal manual

Capital Gains Manual

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Gifts: Inheritance Tax: Finance Act 2004 changes: gifts to settlor-interested settlements and settlements that become settlor-interested: outline

Finance Act 2004 inserted some new provisions in six new sections: TCGA92/S169B to TCGA92/S169G. These changes take effect for disposals made on or after 10 December 2003.

Gifts hold-over relief under TCGA92/S165 or TCGA92/S260 is not available for disposals on or after that date to the trustees of certain settlements (these are referred to below as “relevant disposals”), except in some cases where the settlement is for a disabled person or is a heritage maintenance fund. Subject to those exceptions -

  • if the settlement is a settlor-interested settlement immediately after the relevant disposal, gifts hold-over relief is not available (see CG67065).
  • if the settlement is not a settlor-interested settlement but gifts hold-over relief was obtained in relation to an earlier disposal (whenever made) by an individual who, immediately after the relevant disposal, has an interest in the settlement, gifts hold-over relief is not available in respect of the relevant disposal (see CG67065A).
  • if gifts hold over relief was available in relation to the relevant disposal, but the settlement becomes a settlor-interested settlement before the relief is claimed, the relief may cease to be available (see CG67066).
  • if gifts hold over relief was available in relation to the relevant disposal, the settlement is not a settlor-interested settlement, and gifts hold-over relief was obtained in relation to an earlier disposal (whenever made) by an individual who acquires an interest in the settlement after the relevant disposal was made (but before gifts hold-over relief is claimed in respect of the relevant disposal), relief in respect of the relevant disposal may cease to be available (see CG67066A).
  • if gifts hold over relief was obtained in relation to the relevant disposal, and the settlement becomes a settlor-interested settlement after the relief was claimed, it may be possible to claw back the held-over gain (see CG67067).
  • if the settlement is not a settlor-interested settlement but gifts hold-over relief was obtained in relation to an earlier disposal (whenever made) by an individual who acquires an interest in the settlement after gifts hold-over relief was claimed in respect of the relevant disposal, the relief obtained in respect of the later disposal may be clawed back (see CG67067A).

The paragraphs cited here explain that the same outcomes follow if any “arrangement” (see CG67068A) exists under which the settlement will or may become a settlor-interested settlement.

“Settlor-interested settlements” are not limited to those where the person who makes the relevant disposal is a settlor. They include trusts under which any settlor, settlor’s spouse, civil partner or dependent child can benefit (see CG67068A). Certain situations where a settlor, settlor’s spouse or civil partner can benefit are disregarded (see CG67071).

Officers of the Board are given powers to obtain information for the purposes of TCGA92/S169B to TCGA92/S169F. Penalty proceedings under TMA70/S98 can be taken against someone who fails to produce this information (see CG67075). With effect from 13 August 2009 these specific information powers have been replaced by the general information powers in Schedule 36 FA 2008.