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HMRC internal manual

Offshore Funds Manual

Non-reporting funds: charge to tax on disposal of an interest: non-resident settlements: section 87 (and 87A) TCGA attribution rules - regulation 20

Effect of section 87 (and 87A) attribution rules on offshore income gains arising in non-resident settlement structures

If offshore income gains arise to the trustees of a non-resident settlement then, for the tax year in which the gains arise, you consider first if they can be attributed to a beneficiary using attribution rules from section 87 (and 87A) TCGA (regulation 20(2)). These rules are applied with necessary modifications to the capital gains legislation to make it work with offshore income gains (regulation 20(3)).

These attribution rules also apply where the offshore income gains arise to a non-resident company underlying the non-resident settlement. Section 13 TCGA applies, with necessary modifications, to attribute offshore income gains arising in a non-resident company (regulation 24). Where the offshore income gain arises to a non-resident company underlying a non-resident settlement section 13(10) TCGA allows the offshore income gain to be attributed to the trustees of the non-resident settlement. The attribution rules from section 87 (and 87A) TCGA can then apply to attribute it to a beneficiary of the settlement.

Similarly attributions can be made via section 89 or Schedule 4C TCGA where those rules apply instead of section 87 TCGA.

Where there are both offshore income gains and capital gains in a non-resident settlement structure then any capital payments are matched first with offshore income gains (regulation 20(4)) - see Example at OFM15630.

General guidance on how section 87 TCGA and related provisions work in relation to capital gains is available on the HMRC website in the document “New guidance on Capital Gains Tax changes affecting beneficiaries of Non Resident Settlements” in the material on Non-resident trusts.