Interaction between s87 and s260

A client has an offshore trust that holds share in a UK company. The trust is settlor interested.

The trust is making a distribution of the shares to the beneficiary/settlor that will be taxable on him under s87.

Initial thoughts would be to claim s260 holdover but on further review I do not see how this is possible as the gain is not chargeable on the trust in the first place and therefore does not fall within (3)(a).

Does anyone have any guidance on this point?

Without wishing to be obtuse, s87 applies to beneficiaries, s86 applies to settlors. Under s86 any UK CGT is recoverable from the trustees and they can offset personal losses against the attributed gains, unlike beneficiaries.
TC Citroen Wells

Like Maxine, I would have thought that TCGA 1992 s 86 applies (assuming settlor is not dead). Where ss 86 and 87 apply, s 86 takes priority [TCGA 1992 s 87)4)(b)].

However, where s 87applies, hold-over relief under TCGA 1992 s 260 is possible ie gain on trustees deemed sale is deducted from base cost of property acquired by UK resident. I think in this regard you may not be reading s260(3)(a) correctly if I may say so . Subsection (3)(A) does not preclude s 260 from applying. All that is required is for subsection (3) to apply is satisfaction of subsection(1).

Malcolm Finney

In this case s86 does not apply as the client is deemed UK domicile.

Do you have any sources that specifically state s260 does interact with s87? All I can find is a very vague line in HMRC manuals.

The issue is more finding something that states that s260 does apply rather than finding something that says it does not. Under s87 the gain is chargeable on the beneficiary not the trustee so I would like to find something concrete that states that the trustees can holdover a gain that was never chargeable on them in the first place.

My point re (3)(a) was more that it explains how s260 works and states that the amount of any chargeable gain which apart from this section would accrue to the transferor on the disposal

Then if we look at s87(4) it states that the trust gains shall be treated as chargeable gains accruing in that year to the beneficiaries of the settlement

So if we were to apply s260 to s87 then (3a) would be nil as they are accruing to the beneficiaries (i.e. the transferees) and not the trustees (i.e. the transferors).

If we look at s260 (4) it states that the held over gain is the chargeable gain which would have accrued on that disposal. It doesn’t specify that the chargeable gain has to be chargeable on the transferor or the transferee so we could assume that s260 is available on holding over a gain which was always chargeable on the transferee but I was hoping there would be something a bit clearer that states this is available.

If we think about it in laymans terms HR is to defer the gain from the transferor to the transferee but if the gain was never chargeable on the transferor in the first place then how can they elect to defer it - this was why i was hoping to find something more clear cut.

s86 wouldn’t apply in this case as our client is only deemed domicile in the UK (under condition B). He is however caught by s87 as the sole beneficiary

Where the offshore trust makes a capital payment to a (UK resident) beneficiary that beneficiary under TCGA 1992 s 71 becomes absolutely entitled to that trust property. The trustees make a disposal and re-acquisition at market values with any resultant gain (on the part of the trustees) falling within TCGA 1992 s1(3).

However, where TCGA 1992 s 260(2)(a) is satisfied (ie hold-over relief), the gain made by the trustees does not form part of the s1(3) gains.

S260(3) merely sets out the mechanics of how hold-over relief works.

TCGA 1992 s87(4)(a) defines s1(3).

Malcolm Finney

Thank you, Malcolm. That point re s71 was where I was missing a trick!