IFM13432 - Allocating capital payments between offshore income gains and chargeable gains that arose in non-resident settlements until 5 April 2025- regulation 20(4)

Example where both offshore income gains and capital gains received

A settlement with non-UK resident trustees has never been settlor interested and has never received any income. The following OIG amounts and capital gains have been received by the settlement:

  • 2017-18 OIG amount £30,000
  • 2018-19 Chargeable gains £40,000
  • 2019-20 OIG amount £50,000 and chargeable gains £60,000.

The first capital payment out of the settlement was made in 2019-20. That was a capital payment of £70,000 to a UK resident and domiciled beneficiary.

Regulation 20(4) stipulated that you match any capital payments with OIG amounts arising in the non-resident settlement before matching with chargeable gains. This applied even if the OIG amount arose in an earlier year than the capital gain.

Using the section 87A TCGA attribution rules the capital payment is matched first with the entire £50,000 OIG amount arising in 2019-20. Then the remaining £20,000 (£70,000 - £50,000) is matched with £20,000 of the £30,000 OIG amount arising in 2017-18.

The beneficiary is treated as receiving £70,000 offshore income gains chargeable to income tax in 2019-20.

There were unmatched OIG amounts and chargeable gains in the settlement to carry forward at 5 April 2020 of:

  • 2017-18 OIG amount £10,000 (£30,000 less £20,000 matched with capital payment)
  • 2018-19 Capital gains £40,000
  • 2019-20 Capital gains £60,000.

If the OIG amount is not matched with a capital payment before 5 April 2025, the offshore income gain can no longer be matched from 6 April 2025 under the s87A TCGA 1992 matching rules following the repeal of Regulation 20 (2) to (5) and Regulation 21 (4) to (6) OFTR 2009 – see IFM13420. The offshore income gains will instead be income of the non-resident trust (Regulation 21 (1)) that can be matched with benefits received by the beneficiaries of the trust to treat income as arising to those beneficiaries under the Transfer of Assets Abroad provisions – see INTM600000 for more details.