CG38712 | Charge on beneficiary of non-resident settlement – TCGA92/S87: Capital Payments and onward gifts rules for 2018-19 and later years

S87I to S87M\TCGA1992

Say Mr A, a UK resident wants to receive a capital payment from trustees or the trustees want Mr A to receive the benefit of a capital payment. If the capital payment is made direct to him a charge may arise if it can be matched to section 2(2)* amounts of trustees. If the capital payment was made to a non-resident beneficiary the disregard in s87D(2) – see CG38703 – would normally apply. So routing a capital payment to a non-resident or in some circumstances to a remittance basis user might create avoidance opportunities.

Specific rules have been introduced to prevent avoidance by routing capital payments through one or more persons.

In broad terms the rules apply where a capital payment (or part of a capital payment) is received by a person (the original beneficiary) and at the time of receipt:

• There are arrangements or there is an intention as regards the direct or indirect passing on of the capital payment, and

• It is reasonable to expect that the other person will be resident in the UK when they receive the capital payment

An onward gift is made either directly or indirectly to a subsequent recipient in the period:

• Starting at any time before the capital payment was received by the original beneficiary where the onward is made in anticipation of the receipt of the capital payment or

• within 3 years

The general rule is to move the all or part of the capital payment so that it is treated as if it was received by the subsequent recipient.

The rules also apply where a capital payment has been treated as made to settlor under the close family member rule (see CG38711) and an onward gift has been made.

The guidance at CG38714 looks at how to identify the part of a capital payment that may be subject to the rules.

The guidance at CG38716 looks at some of the practical considerations.

*This section was re-written for disposals from 6 April 2019 to section 1(3) see CG10150.