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EXPLANATORY NOTE
CLAUSE 94: DISPOSAL OF INTEREST IN NON-RESIDENT SETTLEMENT
SUMMARY
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This clause provides an exception to the special
rules giving an uplift in the acquisition cost for capital gains
tax purposes of the value of a beneficiary’s interest in
a trust where a resident trust becomes non-resident. On or after
21 March 2000, there will be no uplift if, at the time of emigration,
the trust had any stockpile of gains which has not been attributed
to beneficiaries of the trust. Similarly, there will be no uplift
where there is an amount of gains in relation to which, under
Schedule 26, the trust is either a transferor or transferee settlement
and those gains have not been attributed to beneficiaries.
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DETAILS OF THE CLAUSE
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Subsections (1)-(3) provide for amendments
to be made to section 85 of the Taxation of Chargeable Gains Act
1992 (TCGA), and detail some minor changes to be made. Section
85, in broad terms, provides that a gain realised when a beneficiary
disposes of an interest in a non-resident trust is not exempt
from capital gains tax. Further, section 85 provides for an uplift
in the value of a beneficiary’s interest to market value
at the time when a resident trust becomes non-resident and the
conditions in the "exit charge" provisions (in section
80, TCGA) apply. This uplift applies for the purposes of calculating
a gain where the beneficiary disposes of his interest after the
trust becomes non-resident.
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Subsection (4) inserts new subsections
(10) and (11) into section 85, which will have the effect of preventing
an uplift in the value of a beneficiary’s interest in a settlement
where, at the time the trust becomes non-resident, there are amounts
of gains which could, under special rules, be attributed to beneficiaries.
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Subsection (5) applies these new rules where the
trust becomes non-resident on or after 21 March 2000.
BACKGROUND
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Special capital gains tax rules apply to resident
trusts which become non-resident. At the time of emigration there
is, broadly:
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The purpose of the uplift is to prevent a potential
double charge — on any increase in value prior to the trustees’
migration of both the trust property (which is charged on exit)
and of a beneficiary’s interest in that property (which is
charged if the beneficiary later sells the interest when the trust
is non-resident).
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These rules are being exploited by non-resident
trusts (i.e. those where the trustees are neither resident nor
ordinarily resident in the UK). Having realised gains which have
not been charged to tax on either the settlor or beneficiaries
of the trust ("stockpiled gains"), the trusts are brought
onshore and then taken offshore again. The gains on the trust
property escape a tax charge because they were realised while
the trust was offshore. The beneficiary pays little or no tax
on the sale of an interest in the trust because of the rule providing
for its value to be uplifted on the trust’s exit from the
UK.
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This clause counters such schemes by providing
that there will be no uplift in the value of any beneficial interest
in a trust where, on or after 21 March 2000, the trustees become
non-resident at a time when there are "stockpiled gains"
in the trust, or the trust is a "transferor or transferee
trust" which, under the rules introduced by clause 91 and
Schedules 25 and 26, is required to draw on an amount of Schedule
4B trust gains.
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The clause does not affect the position of emigrating
trusts which do not have "stockpiled gains" and which
are not "transferor or transferee trusts".
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