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HMRC internal manual

Offshore Funds Manual

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

Allocating capital payments between offshore income gains and chargeable gains arising in non-resident settlements - 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:

  • 2008-09 OIG amount £30,000
  • 2009-10 Chargeable gains £40,000
  • 2010-11 OIG amount £50,000 and chargeable gains £60,000.

The first capital payment out of the settlement is made in 2010-11. That is a capital payment of £70,000 to a UK resident and domiciled beneficiary.

Regulation 20(4) tells you that you match any capital payments with OIG amounts arising in the non-resident settlement before matching with chargeable gains. This applies 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 2010-11. Then the remaining £20,000 (£70,000 - £50,000) is matched with £20,000 of the £30,000 OIG amount arising in 2008-09.

The beneficiary is treated as receiving £70,000 offshore income gains chargeable to income tax in 2010-11.

There are unmatched OIG amounts and chargeable gains in the settlement to carry forward at 5 April 2011 of:

  • 2008-09 OIG amount £10,000 (£30,000 less £20,000 matched with capital payment)
  • 2009-10 Capital gains £40,000
  • 2010-11 Capital gains £60,000.