Finance Act 1998

3 (1) This paragraph applies, subject to sub-paragraphs (4) and (6) below, to a chargeable gain or loss accruing on the disposal of any asset by the trustees of a settlement (“the transferor settlement") if— U.K.

(a) that settlement was created before 19th March 1991;

(b) the disposal on which the gain or loss accrues is one made—

(i) on or after 17th March 1998 and before 6th April 1999; and

(ii) in a year of assessment in which the trustees of the transferor settlement fulfil the condition as to residence but the settlement is not a qualifying settlement;

(c) a person who is a settlor in relation to the transferor settlement (“the chargeable settlor")—

(i) is domiciled in the United Kingdom at some time in the year 1999-00 and in the year of assessment in which the disposal is made;

(ii) is either resident in the United Kingdom during any part of each of those years or ordinarily resident in the United Kingdom during each of those years; and

(iii) is alive at the end of the year 1999-00;

(d) the asset disposed of is property originating from the chargeable settlor;

(e) the property comprised in a foreign institution (“the transferee institution") at any time after the disposal and before 6th April 1999 is or includes (whether in consequence of the disposal or otherwise) the asset disposed of or any relevant property;

(f) the transferor settlement has a relevant connection with the transferee institution; and

(g) the gain or loss in question is neither—

(i) a gain or loss treated under paragraph 1 above as accruing on 6th April 1999 to the trustees of any settlement; nor

(ii) a gain or loss to which paragraph 2 above applies.

(2) If, in the case of the chargeable settlor, section 86 of the 1992 Act applies (apart from this paragraph) for the year 1999-00 in relation to the transferor settlement, that section shall apply for that year in relation to that settlement as if any chargeable gain or loss to which this paragraph applies—

(a) were a gain or loss accruing on 6th April 1999 to the trustees of the transferor settlement; and

(b) so accrued on the disposal by them of an asset that was property originating from the chargeable settlor.

(3) Where sub-paragraph (2) above does not apply, section 86 of the 1992 Act shall have effect in relation to the chargeable settlor as if—

(a) (where it is not the case) the transferor settlement existed in the year 1999-00;

(b) that settlement were a settlement in relation to which all the conditions specified in paragraphs (a) to (d) and (f) of subsection (1) of that section were fulfilled in the case of the chargeable settlor in that year;

(c) any gain or loss to which this paragraph applies—

(i) were a gain or loss accruing on 6th April 1999 to the trustees of the transferor settlement; and

(ii) so accrued on the disposal by them of an asset that was property originating from the chargeable settlor;

and

(d) any chargeable gains and losses which are not gains or losses to which this paragraph applies were to be disregarded for the purposes of that section.

(4) This paragraph does not apply to any chargeable gain or loss accruing on any disposal if, for the year of assessment in which that disposal is made, section 86 of the 1992 Act would, on the relevant assumption, have been prevented by virtue of paragraph 3, 4 of 5 of Schedule 5 to that Act from applying in the case of the chargeable settlor in relation to the transferor settlement.

(5) The relevant assumption for the purposes of sub-paragraph (4) above is that section 86 of the 1992 Act would have applied in the case of the chargeable settlor apart from paragraphs 3 to 5 of Schedule 5 to that Act.

(6) This paragraph does not apply to any chargeable gain or loss accruing on any disposal if the chargeable settlor stands in such a relationship to the foreign institution that if—

(a) that institution were a settlement,

(b) property of the institution were property comprised in the settlement, and

(c) income arising to the institution were income arising under the settlement,

paragraph 4 or 5 of Schedule 5 to the 1992 Act would (assuming that nothing else did) prevent section 86 of that Act from applying in the case of the chargeable settlor in relation to that settlement for the year of assessment in which that disposal is made.

(7) In this paragraph “relevant property”, in relation to any disposal made by the trustees of the transferor settlement, means any property which—

(a) is or represents property or income originating from the chargeable settlor;

(b) has been comprised in, or has arisen to, the transferor settlement at any time after the time of that disposal; and

(c) is property or income of the transferee institution acquired or otherwise deriving, directly or indirectly, from the trustees of the transferor settlement.

(8) For the purposes of this paragraph the transferor settlement has, in relation to a disposal by its trustees, a relevant connection with the transferee institution if—

(a) immediately before the time of the disposal, the beneficiaries of the transferor settlement are or include persons who are defined persons in relation to that settlement at that time;

(b) the transferor settlement is not a protected settlement at that time in relation to the chargeable settlor; and

(c) the transferee institution is—

(i) one in which a relevant defined person is a participator at the beginning of 6th April 1999;

(ii) one which is under the control of a company in which, or two or more companies in any of which, a relevant defined person is a participator at that time; or

(iii) one whose relevant property or relevant income includes property or income in which a relevant defined person has an interest at that time.

(9) For the purposes of this paragraph a person is a relevant defined person at any time if he—

(a) has attained the age of eighteen; and

(b) has been, by reference to the chargeable settlor, a defined person in relation to the transferor settlement.

(10) For the purposes of this paragraph a person has an interest in any property or income of a foreign institution at any time if—

(a) there are any circumstances whatever in which that property or income is or will or may become applicable for his benefit or payable to him;

(b) there are any circumstances whatever in which income which is or may arise from that property or income is or will or may become applicable for his benefit or payable to him;

(c) he enjoys a benefit directly or indirectly from that property or income or from any income arising from that property or income.

(11) For the purposes of this paragraph a person is a defined person in relation to a settlement at a time if he would fall at that time to be treated, by reference to the chargeable settlor, as a defined person in relation to that settlement for the purposes of paragraph 2 of Schedule 5 to the 1992 Act.

(12) In this paragraph—

• “foreign institution” means any company or other institution resident outside the United Kingdom;

• “participator” has the meaning given (for the purposes of Part XI of the Taxes Act 1988 (close companies)) by section 417(1) of that Act;

• “relevant income”, in relation to a foreign institution, means any income of that institution which, if that institution were a settlement, would be treated for the purposes of Schedule 5 to the 1992 Act as originating from the chargeable settlor;

• “relevant property”, in relation to a foreign institution, means any property of that institution which, if that institution were a settlement, would be treated for the purposes of Schedule 5 to the 1992 Act as originating from the chargeable settlor.

(13) Sub-paragraph (3)(d) above is without prejudice to any charge imposed otherwise than by virtue of this paragraph.