Finance Act 2005

Capital gains tax

30 Qualifying trusts gains: special capital gains tax treatment

(1) This section has effect in relation to a tax year if—

(a) in the tax year chargeable gains accrue to the trustees of a settlement from the disposal of settled property which is held on qualifying trusts for the benefit of a vulnerable person (“the qualifying trusts gains”),

(b) the trustees would (apart from this Chapter) be chargeable to capital gains tax in respect of those gains,

(c) the trustees are either resident in the United Kingdom during any part of the tax year or ordinarily resident in the United Kingdom during the tax year, and

(d) a claim for special tax treatment under this Chapter for the tax year is made by the trustees.

(2) Special capital gains tax treatment applies for the tax year in accordance with—

(a) section 31 (vulnerable person UK resident during the tax year), or

(b) section 32 (vulnerable person non-UK resident during the tax year).

(3) But this section does not have effect in relation to the tax year if the vulnerable person dies during that year.

(4) The reference in subsection (1)(a) to chargeable gains accruing to the trustees from the disposal of settled property includes a reference to chargeable gains treated as accruing to them under section 13 of TCGA 1992 (attribution of gains to members of non-resident companies).

(5) For the purposes of this section and sections 31 and 32 whether a vulnerable person is UK resident or non-UK resident during a tax year is to be determined in accordance with section 41(2).

31 UK resident vulnerable persons: section 77 treatment

(1) Special capital gains tax treatment applies for the tax year in accordance with this section if the vulnerable person is UK resident during the tax year.

(2) Section 77(1) (and section 78 and section 79, apart from subsection (6)) of TCGA 1992 are to be treated as applying in relation to the qualifying trusts gains as if—

(a) the vulnerable person were a settlor in relation to the settlement,

(b) the settled property disposed of, and any other settled property disposed of at any time when it was relevant settled property, originated from him, and

(c) he had an interest in the settlement during the tax year.

(3) For the purposes of subsection (2)(b), property is “relevant settled property” at any time when—

(a) it is property held on the qualifying trusts for the benefit of the vulnerable person, and

(b) the trustees would (apart from this Chapter) be chargeable to capital gains tax in respect of any chargeable gains accruing to them on a disposal of it.

32 Non-UK resident vulnerable persons: amount of relief

(1) Special capital gains tax treatment applies for the tax year in accordance with this section if the vulnerable person is non-UK resident during the tax year.

(2) The trustees' liability to capital gains tax for the tax year is to be reduced by an amount equal to—

TQTG - VQTG

where—

• TQTG is the amount of capital gains tax to which the trustees would (apart from this Chapter) be liable for the tax year in respect of the qualifying trusts gains, and

• VQTG is an amount determined in accordance with section 33 (extra tax to which vulnerable person would be liable for the tax year if chargeable gains were treated as accruing to him under section 77(1) of TCGA 1992 by virtue of section 31 above).

33 Vulnerable person’s liability: VQTG

(1) For the purposes of section 32, VQTG is an amount equal to—

TLVA - TLVB

where—

• TLVB is an amount determined in accordance with subsection (2) (total tax liability of vulnerable person), and

• TLVA is an amount determined in accordance with subsection (3) (what total tax liability of vulnerable person would be if it included tax in respect of notional section 77 gains).

(2) TLVB is the total amount of income tax and capital gains tax to which the vulnerable person would be liable for the tax year—

(a) if his income for the tax year were equal to the sum of his actual income for the tax year (if any) and the amount of the trustees' specially taxed income (if any) for the tax year, and

(b) if his taxable amount for the tax year for the purposes of section 3 of TCGA 1992 were equal to his deemed CGT taxable amount for the tax year (if any).

(3) TLVA is what TLVB would be if the vulnerable person’s taxable amount for the tax year for the purposes of section 3 of TCGA 1992 were equal to the sum of the amount mentioned in subsection (2)(b) and his notional section 77 gains for the tax year.

(4) For the purposes of this section—

(a) the vulnerable person’s actual income for the tax year,

(b) the trustees' specially taxed income for the tax year,

(c) the vulnerable person’s deemed CGT taxable amount for the tax year, and

(d) the vulnerable person’s notional section 77 gains for the tax year,

are to be determined in accordance with Schedule 1.