IFM37430 - Prevention of double taxation: Double taxation relief and trusts

Double taxation relief and trusts

TCGA92/S103KE

A claim for relief can be made under TCGA92/S103KE where;

  • a distribution is made from an offshore trust, which holds the right to receive the carried interest arising from performance of investment management services by the investment manager, with the express intention of defraying the tax liabilities charged upon the investment manager under TCGA92/S103KE for those services, and
  • that distribution is made by way of a payment made directly from the trust to the investment manager after the trust has received the payment of carried interest.

After the sum of carried interest has been received by the trustees, it would be expected that distributions would be made to the investment fund manager by the trust without delay.

TCGA92/S86(4ZB) and TCGA92/S87(5B) exclude carried interest gains from the rules within S86 and S87 of TCGA92. Where the payment from the trust to the fund manager comprises wholly of carried interest gains from capital proceeds from that transaction, no further tax charge should arise. If there is a tax charge resulting from the payment due to income or non-carried income gains being distributed then that should be relieved under TCGA92/S103KE.

Where the fund manager has taken out a loan either from the trust itself or from a third party and it can be demonstrated that the payment from the trust is for the express purpose of settling a debt that was taken out to settle a tax charge arising under TCGA92/S103KA, then any associated tax charge on that individual can be relieved under TCGA92/S103KE.

Where this payment is made to another individual because the investment manager is expressly excluded from being a beneficiary of the trust TCGA92/S103KE will not apply.

Where the payment is going to another person, it is not considered that the link between the distribution from the trust and the carried interest can be sufficiently strong enough to demonstrate that a charge arising to that individual is in relation to carried interest.