[F177 Charge on settlor with interest in settlement.U.K.
(1)Where in a year of assessment—
(a)chargeable gains accrue to the trustees of a settlement from the disposal of any or all of the settled property,
(b)after making any deduction provided for by section 2(2) in respect of disposals of the settled property there remains an amount on which the trustees [F2would be chargeable to tax for the year in respect of those gains if—
(i)the gains were not eligible for taper relief, but section 2(2) applied as if they were (so that the order of deducting losses provided for by section 2A(6) applied), and
(ii)section 3 were disregarded,
and]
(c)at any time during the year the settlor has an interest in the settlement,
the trustees shall not be chargeable to tax in respect of those [F3gains] but instead chargeable gains of an amount equal to that referred to in paragraph (b) shall be treated as accruing to the settlor in that year.
(2)Subject to the following provisions of this section, a settlor shall be regarded as having an interest in a settlement if—
(a)any property which may at any time be comprised in the settlement, or any derived property is, or will or may become, payable to or applicable for the benefit of the settlor or his spouse [F4or civil partner] in any circumstances whatsoever, or
(b)the settlor or his spouse [F5or civil partner] enjoys a benefit deriving directly or indirectly from any property which is comprised in the settlement or any derived property.
(3)The references in subsection (2)(a) and (b) above to the spouse [F6or civil partner] of the settlor do not include—
(a)a person to whom the settlor is not for the time being married but may later marry, or
[F7(ab)a person of whom the settlor is not for the time being a civil partner but of whom he may later be a civil partner, or]
(b)a spouse [F8or civil partner] from whom the settlor is separated under an order of a court, or under a separation agreement or in such circumstances that the separation is likely to be permanent, or
(c)the widow or widower [F9or surviving civil partner] of the settlor.
(4)A settlor shall not be regarded as having an interest in a settlement by virtue of subsection (2)(a) above if and so long as none of the property which may at any time be comprised in the settlement, and no derived property, can become payable or applicable as mentioned in that provision except in the event of—
(a)the bankruptcy of some person who is or may become beneficially entitled to the property or any derived property, or
(b)an assignment of or charge on the property or any derived property being made or given by some such person, or
[F10(c)in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, or]
(d)the death of a child of the settlor who had become beneficially entitled to the property or any derived property at an age not exceeding 25.
[F11(4A)In subsection (4) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.]
(5)A settlor shall not be regarded as having an interest in a settlement by virtue of subsection (2)(a) above if and so long as some person is alive and under the age of 25 during whose life the property or any derived property cannot become payable or applicable as mentioned in that provision except in the event of that person becoming bankrupt or assigning or charging his interest in that property.
(6)This section does not apply—
(a)where the settlor dies during the year; or
(b)in a case where the settlor is regarded as having an interest in the settlement by reason only of—
(i)the fact that property is, or will or may become, payable to or applicable for the benefit of his spouse [F12or civil partner], or
(ii)the fact that a benefit is enjoyed by his spouse [F12or civil partner],
where the spouse [F12or civil partner] dies, or the settlor and the spouse [F12or civil partner] cease to be married [F13or to be civil partners of each other], during the year.
F14(6A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7)This section does not apply unless the settlor is, and the trustees are, either resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year.
[F15(8)In this section “derived property”, in relation to any property, means—
(a)income from that property,
(b)property directly or indirectly representing—
(i)proceeds of that property, or
(ii)proceeds of income from that property, or
(c)income from property which is derived property by virtue of paragraph (b) above.]]
Textual Amendments
F1S. 77 substituted (with effect in accordance with s. 74(2) of the amending Act) by Finance Act 1995 (c. 4), Sch. 17 para. 27
F2Words in s. 77(1)(b) substituted (with effect in accordance with Sch. 11 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 11 para. 3
F3Word in s. 77(1) inserted (retrospective to 1.5.1995) by Finance Act 2006 (c. 25), Sch. 12 para. 13(1)(3)
F4Words in s. 77(2)(a) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(2)(a)
F5Words in s. 77(2)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(2)(b)
F6Words in s. 77(3) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(3)(a)
F7S. 77(3)(ab) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(3)(b)
F8Words in s. 77(3)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(3)(c)
F9Words in s. 77(3)(c) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(3)(d)
F10S. 77(4)(c) substituted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(4)
F11S. 77(4A) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(5)
F12Words in s. 77(6)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(6)(a)
F13Words in s. 77(6)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 108(6)(b)
F14S. 77(6A) repealed (with effect in accordance with Sch. 11 paras. 7, 8, Sch. 40 Pt. 3(4) Note of the amending Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(4)
F15S. 77(8) substituted (retrospective to 1.5.1995) by Finance Act 2006 (c. 25), Sch. 12 para. 13(2)(3)
Modifications etc. (not altering text)
C1S. 77(1) excluded (22.7.2004) by Finance Act 2004 (c. 12), s. 109(2)(c)
C2S. 77(1) applied (with effect in accordance with s. 45 of the amending Act) by Finance Act 2005 (c. 7), s. 31(2)