Taxation of Chargeable Gains Act 1992

[F1 SCHEDULE 4C U.K. Transfers of value: attribution of gains to beneficiaries

Textual Amendments

F1 Sch. 4C inserted (with effect in accordance with s. 92(5) of the amending Act) by Finance Act 2000 (c. 17), s. 92(4), Sch. 26 Pt. I

[F2 Introduction U.K.

Textual Amendments

F2 Sch. 4C para. 1 and cross-heading substituted for Sch. 4C paras. 1, 2 (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 2 (with s. 163(4)-(6))

1 (1) This Schedule applies where the trustees of a settlement (“the transferor settlement”) make a transfer of value to which Schedule 4B applies (“the original transfer”). U.K.

(2) Where this Schedule applies, the following gains—

(a) any Schedule 4B trust gains accruing by virtue of the transfer (see paragraphs 3 to 7), and

(b) any outstanding section 87/89 gains of the transferor settlement at the end of the year of assessment in which the transfer is made (see paragraph 7A),

are pooled for the purpose of attributing them, in accordance with this Schedule, to beneficiaries who receive capital payments. Paragraph 7B provides for further gains to be brought into the pool in the case of a further transfer of value.

(3) The gains mentioned in sub-paragraph (2) are referred to in this Schedule as “Schedule 4C gains” and the pool is referred to as the transferor settlement’s “Schedule 4C pool”.

(4) Paragraphs 8 to 9 provide for the attribution of gains in a settlement’s Schedule 4C pool.

(5) References in this Schedule to a transfer to which Schedule 4B applies include any such transfer, whether or not any chargeable gain or allowable loss accrues under that Schedule by virtue of the transfer.]

Computation of Schedule 4B trust gains U.K.

3 (1) This paragraph explains what is meant for the purposes of this Schedule by “Schedule 4B trust gains”. U.K.

(2) The Schedule 4B trust gains are computed in relation to each transfer of value to which that Schedule applies.

(3) In relation to a transfer of value the amount of the Schedule 4B trust gains for the purposes of this Schedule is given by—

where—

• CA is the chargeable amount computed under paragraph 4 or 5 below,

• SG is the amount of any gains attributed to the settlor that fall to be deducted under paragraph 6 below, and

• AL is the amount of any allowable losses that may be deducted under paragraph 7 below.

Chargeable amount: non-resident settlement U.K.

4 (1) If the transfer of value is made in a year of assessment during which the trustees of the transferor settlement are at no time resident or ordinarily resident in the United Kingdom the chargeable amount is computed under this paragraph. U.K.

(2) Where this paragraph applies the chargeable amount is the amount on which the trustees would have been chargeable to tax under section 2(2) by virtue of Schedule 4B if they had been resident or ordinarily resident in the United Kingdom in the year.

Chargeable amount: dual resident settlement U.K.

5 (1) If the transfer of value is made in a year of assessment where— U.K.

(a) the trustees of the transferor settlement are resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year, and

(b) at any time of such residence or ordinary residence they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom,

the chargeable amount is computed under this paragraph.

(2) Where this paragraph applies the chargeable amount is the lesser of—

(a) the amount on which the trustees would be chargeable to tax under section 2(2) by virtue of Schedule 4B on the assumption that the double taxation relief arrangements did not apply, and

(b) the amount on which the trustees would be so chargeable to tax by virtue of disposals of protected assets.

(3) For this purpose “protected assets” has the meaning given by section 88(4).

Gains attributed to settlor U.K.

6 (1) For the purposes of this Schedule the chargeable amount in relation to a transfer of value shall be reduced by [F3 the tapered amount of any chargeable gains] arising by virtue of that transfer of value that— U.K.

(a) are by virtue of section 86(4) treated as accruing to the settlor, or

(b) where section 10A applies, are treated by virtue of that section (as it has effect subject to paragraph 12 below) as accruing to the settlor in the year of return.

[F4 (1A) The reference in sub-paragraph (1) to the tapered amount of any chargeable gains is a reference—

(a) where section 86(4) applies, to the tapered section 86(4) amount as defined in section 87(3A);

(b) where section 10A applies, to the tapered section 86(1)(e) amount as defined in section 86A(7A).]

(2) In determining for the purposes of sub-paragraph (1)(a) the amount of chargeable gains arising by virtue of a transfer of value that are treated as accruing to the settlor, there shall be disregarded any losses which arise otherwise than by virtue of Schedule 4B.

(3) In computing the chargeable amount in relation to a transfer of value the effect of sections 77 to 79 shall be ignored.

Textual Amendments

F3 Words in Sch. 4C para. 6(1) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 5(2) (with s. 163(4)-(6))

F4 Sch. 4C para. 6(1A) inserted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 5(3) (with s. 163(4)-(6))

Reduction for allowable losses U.K.

7 (1) An allowable loss arising under Schedule 4B in relation to a transfer of value by the trustees of a settlement may be taken into account in accordance with this paragraph to reduce for the purposes of this Schedule the chargeable amount in relation to another transfer of value by those trustees. U.K.

(2) Any such allowable loss goes first to reduce chargeable amounts arising from other transfers of value made in the same year of assessment.

If there is more than one chargeable amount and the aggregate amount of the allowable losses is less than the aggregate of the chargeable amounts, each of the chargeable amounts is reduced proportionately.

(3) If in any year of assessment the aggregate amount of the allowable losses exceeds the aggregate of the chargeable amounts, the excess shall be carried forward to the next year of assessment and treated for the purposes of this paragraph as if it were an allowable loss arising in relation to a transfer of value made in that year.

(4) Any reduction of a chargeable amount under this paragraph is made after any deduction under paragraph 6.

[F5 Outstanding section 87/89 gains U.K.

Textual Amendments

F5 Sch. 4C paras. 7A, 7B and cross-headings inserted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 3 (with s. 163(4)-(6))

7A (1) The amount of outstanding section 87/89 gains of a settlement at the end of a year of assessment is given by— U.K.

where—

G is the amount of the settlement’s section 87/89 gains for the year (see sub-paragraph (2)),

B is the amount of the gains treated in accordance with section 87(4) or 89(2) as accruing in that year to beneficiaries, and

NC is the amount of gains so treated as accruing in that year to beneficiaries who were not chargeable to tax for that year.

(2) The amount of a settlement’s section 87/89 gains for a year of assessment is—

(a) if section 87 applies to the settlement for the year—

(i) the amount of the settlement’s trust gains within the meaning of section 87(2), together with

(ii) any amount by which that amount falls to be increased under section 90(1)(a), or would fall to be increased but for section 90(2) or (3);

(b) if section 89(2) applies to the settlement for the year (otherwise than by virtue of section 90(1)(c))—

(i) the amount of the trust gains referred to in section 89(2), together with

(ii) any amount by which that amount falls to be increased under section 90(1)(b), or would fall to be increased but for section 90(2) or (3);

(c) if section 90(1)(c) applies to the settlement for the year, the amount that falls to be treated as trust gains in accordance with that provision, or would fall to be so treated but for section 90(2) or (3).

Gains to be brought into pool on subsequent transfer of value U.K.

7B (1) Where the trustees of a settlement who have made a transfer of value to which Schedule 4B applies make a further transfer of value to which that Schedule applies, the following provisions apply. U.K.

(2) If the further transfer is made in the same year of assessment as the original transfer, any Schedule 4B trust gains accruing by virtue of the further transfer are brought into the settlement’s Schedule 4C pool at the end of the year.

(3) If the further transfer is made in a later year of assessment at the beginning of which there are outstanding gains in the settlement’s Schedule 4C pool—

(a) any Schedule 4B trust gains accruing by virtue of the further transfer, and

(b) any outstanding section 87/89 gains of the settlement at the end of the later year of assessment,

are brought into the settlement’s Schedule 4C pool at the end of the later year.

• “Outstanding gains in the settlement’s Schedule 4C pool” means gains in that pool that have not been attributed to beneficiaries in accordance with this Schedule.

(4) If the further transfer is made in a later year of assessment at the beginning of which the settlement no longer has a Schedule 4C pool, the provisions of this Schedule apply in relation to the further transfer as they applied in relation to the original transfer.

(5) For the purposes of this paragraph a settlement is treated as continuing to have a Schedule 4C pool until the end of the last year of assessment in which there are any gains in the pool.]

[F6 Attribution of Schedule 4C gains to beneficiaries U.K.

Textual Amendments

F6 Sch. 4C paras. 8, 8A-8C, 9 and cross-headings substituted for Sch. 4C paras. 8, 9 (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 4(1) (with s. 163(4)-(6))

8 (1) The gains in a settlement’s Schedule 4C pool at the end of any year of assessment are treated as chargeable gains accruing in that year to beneficiaries who receive in that year, or have received in an earlier year, capital payments from the trustees of any settlement that is a relevant settlement in relation to the pool. U.K.

Paragraph 8A defines “relevant settlement” for this purpose.

(2) The attribution of chargeable gains to beneficiaries under this paragraph shall be made in proportion to, but shall not exceed, the amounts of the capital payments made to them.

Paragraphs 8B and 8C provide for the matching of gains with available capital payments.

(3) A chargeable gain shall not be treated as accruing to a beneficiary under this Schedule unless he is chargeable to tax for that year of assessment.

(4) For the purposes of this Schedule a beneficiary is “chargeable to tax” for a year of assessment if, and only if—

(a) he is resident in the United Kingdom for any part of that year or is ordinarily resident in the United Kingdom for that year, and

(b) he is domiciled in the United Kingdom for any part of that year.

(5) Any gains in a settlement’s Schedule 4C pool that are not attributed to beneficiaries in a year of assessment are carried forward to the following year of assessment, when this paragraph applies again.

Relevant settlements U.K.

8A (1) This paragraph specifies what settlements are relevant settlements in relation to a Schedule 4C pool. U.K.

(2) The transferor and transferee settlements in relation to the original transfer of value are relevant settlements.

(3) If the trustees of any settlement that is a relevant settlement in relation to a Schedule 4C pool—

(a) make a transfer of value to which Schedule 4B applies, or

(b) make a transfer of settled property to which section 90 applies,

any settlement that is a transferee settlement in relation to that transfer is also a relevant settlement in relation to that pool.

(4) If the trustees of a settlement that is a relevant settlement in relation to a Schedule 4C pool make a transfer of value to which Schedule 4B applies, any other settlement that is a relevant settlement in relation to that pool is also a relevant settlement in relation to the Schedule 4C pool arising from the further transfer.

Attribution of gains in Schedule 4C pool U.K.

8B (1) The following rules apply as regards the attribution of the gains in a settlement’s Schedule 4C pool to beneficiaries of relevant settlements. U.K.

This paragraph has effect subject to paragraph 8C (order of attribution as between gains in Schedule 4C pool and other trust gains).

(2) Gains of earlier years are attributed to beneficiaries before gains of later years.

(3) For the purposes of this Schedule the year of a gain is determined as follows—

(a) a Schedule 4B trust gain is a gain of the year of assessment in which the transfer of value in question takes place;

(b) a section 87/89 gain is a gain of the year of assessment in which it first forms part of a settlement’s trust gains in accordance with section 87(2).

(4) Gains of the same year are matched with available capital payments made at any time by trustees of any relevant settlement.

(5) If gains of one year are wholly matched, gains of the next year are then matched, and so on.

(6) The gains are attributed to beneficiaries in proportion to, but not so as to exceed, the amount of available capital payments received by them.

Attribution of gains: Schedule 4C pool gains and other gains U.K.

8C (1) Where in a year of assessment— U.K.

(a) gains in a settlement’s Schedule 4C pool fall to be attributed to beneficiaries of relevant settlements, and

(b) one or more of those settlements also have gains that fall to be attributed to beneficiaries under section 87(4) or 89(2),

the provisions of paragraph 8B have effect as follows.

(2) The rules in that paragraph apply in relation to all the gains falling to be so attributed.

(3) As between gains of the same year, Schedule 4C gains are attributed to beneficiaries before other gains.

Attribution of gains: available capital payments U.K.

9 (1) In any year of assessment capital payments made to a beneficiary by the trustees of a relevant settlement, in that year or any earlier year, are available for the purposes of paragraphs 8 to 8C subject to the following provisions. U.K.

(2) A capital payment is no longer available to the extent that chargeable gains have, by reason of it, been treated as accruing to the recipient in an earlier year of assessment—

(a) under this Schedule, or

(b) under section 87(4) or 89(2).

(3) Capital payments received—

(a) before 21st March 2000, or

(b) before the year of assessment preceding the year of assessment in which the original transfer of value was made,

shall be disregarded.]

Residence of trustees from whom capital payment received U.K.

10 (1) Subject to sub-paragraph (2) below, it is immaterial for the purposes of paragraph 8 that the trustees [F7 of any relevant settlement] are or have at any time been resident or ordinarily resident in the United Kingdom. U.K.

(2) A capital payment received by a beneficiary of a settlement from the trustees in a year of assessment—

(a) during the whole of which the trustees are resident in the United Kingdom, or

(b) in which the trustees are ordinarily resident in the United Kingdom,

shall be disregarded for the purposes of paragraph 8 if it was made before, but was not made in anticipation of, chargeable gains accruing under Schedule 4B or of a transfer of value being made to which that Schedule applies.

(3) For the purposes of sub-paragraph (2) the trustees of a settlement shall not be regarded as resident or ordinarily resident in the United Kingdom at any time when they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.

Textual Amendments

F7 Words in Sch. 4C para. 10(1) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(1) (with s. 163(4)-(6))

Taper relief U.K.

11 U.K. Without prejudice to so much of this Schedule as requires section 2A to be applied in the computation of the amount of Schedule 4B trust gains, chargeable gains that are treated as accruing to beneficiaries under this Schedule shall not be eligible for taper relief.

Attribution of gains to settlor in section 10A cases U.K.

12 (1) This paragraph applies where by virtue of section 10A an amount of gains— U.K.

(a) [F8 included in a settlement’s Schedule 4C pool] in an intervening year, and

(b) falling within section 86(1)(e),

would (apart from this Schedule) be treated as accruing to a person (“the settlor”) in the year of return.

(2) Where this paragraph applies, only so much (if any) of [F9 the settlement’s Schedule 4C gains] falling within section 86(1)(e) as exceeds the amount charged to beneficiaries shall fall in accordance with section 10A to be attributed to the settlor for the year of return.

(3) The “amount charged to beneficiaries” means, subject to sub-paragraph (4) below, the total of the amounts on which beneficiaries of [F10 any relevant settlement] are charged to tax under this Schedule by reference to those gains for all the intervening years.

(4) Where the property comprised in the transferor settlement has at any time included property not originating from the settlor, only so much (if any) of any capital payment taken into account for the purposes of paragraph 8 above as, on a just and reasonable apportionment, is properly referable to property originating from the settlor shall be taken into account in computing the amount charged to beneficiaries.

(5) Expressions used in this paragraph and section 10A have the same meanings in this paragraph as in that section; and paragraph 8 of Schedule 5 shall apply for the construction of the references in sub-paragraph (4) above to property originating from the settlor as it applies for the purposes of that Schedule.

Textual Amendments

F8 Words in Sch. 4C para. 12(1)(a) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(2)(a) (with s. 163(4)-(6))

F9 Words in Sch. 4C para. 12(2) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(2)(b) (with s. 163(4)-(6))

F10 Words in Sch. 4C para. 12(3) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(2)(c) (with s. 163(4)-(6))

[F11 Attribution of gains to beneficiaries in section 10A cases U.K.

Textual Amendments

F11 Sch. 4C para. 12A and cross-heading inserted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 4(2) (with s. 163(4)-(6))

12A (1) This paragraph applies where by virtue of section 10A an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the year of return by virtue of a capital payment made to him in an intervening year. U.K.

(2) Where this paragraph applies, a capital payment equal to so much of that capital payment as exceeds the amount otherwise charged shall be deemed for the purposes of this Schedule to be made to the beneficiary in the year of return.

(3) The “amount otherwise charged” means the total of any chargeable gains attributed to the beneficiary under section 87(4) or 89(2) by virtue of the capital payment.

(4) For the purposes of paragraph 13(5)(b) a deemed capital payment under this paragraph shall be treated as made when the actual capital payment mentioned in sub-paragraph (1) above was made.

(5) Expressions used in this paragraph and section 10A have the same meanings in this paragraph as in that section.]

Increase in tax payable under this Schedule U.K.

13 (1) This paragraph applies where— U.K.

(a) a capital payment is made by the trustees of a settlement,

(b) the payment is made in circumstances where paragraph 8 above treats chargeable gains as accruing in respect of the payment, and

(c) a beneficiary is charged to tax in respect of the payment by virtue of that paragraph.

(2) The tax payable by the beneficiary in respect of the payment shall be increased by the amount found under sub-paragraph (3) below, except that it shall not be increased beyond the amount of the payment; and an assessment may charge tax accordingly.

(3) The amount is one equal to the interest that would be yielded if an amount equal to the tax which would be payable by the beneficiary in respect of the payment (apart from this paragraph) carried interest for the chargeable period at the specified rate.

The “specified rate” means the rate for the time being specified in section 91(3).

(4) The chargeable period is the period which—

(a) begins with the later of the 2 days specified in sub-paragraph (5) below, and

(b) ends with 30th November in the year of assessment following that in which the capital payment is made.

(5) The 2 days are—

(a) 1st December in the year of assessment following [F12 the year of the gain (determined in accordance with paragraph 8B(3))], and

(b) 1st December falling 6 years before 1st December in the year of assessment following that in which the capital payment is made.

Textual Amendments

F12 Words in Sch. 4C para. 13(5)(a) substituted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(3) (with s. 163(4)-(6))

[F13 Effect of settlement ceasing to exist after transfer of value U.K.

Textual Amendments

F13 Sch. 4C para. 13A and cross-heading inserted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 29 para. 6(4) (with s. 163(4)-(6))

13A U.K. Where a settlement ceases to exist after the trustees have made a transfer of value to which Schedule 4B applies, this Schedule has effect as if a year of assessment had ended immediately before the settlement ceased to exist.]

Interpretation U.K.

14 (1) In this Schedule— U.K.

(a) “transfer of value” has the same meaning as in Schedule 4B; and

(b) references to the time at which a transfer of value was made are to the time which is the material time for the purposes of that Schedule.

(2) In this Schedule, in relation to a transfer of value—

(a) references to the transferor settlement are to the settlement the trustees of which made the transfer of value; and

(b) references to a transferee settlement are to any settlement of which the settled property includes property representing, directly or indirectly, the proceeds of the transfer of value.

(3) References in this Schedule to beneficiaries of a settlement include—

(a) persons who have ceased to be beneficiaries by the time the chargeable gains accrue, and

(b) persons who were beneficiaries of the settlement before it ceased to exist,

but who were beneficiaries of the settlement at a time in a previous year of assessment when a capital payment was made to them.]