Taxation of Chargeable Gains Act 1992, section 86

Attribution of gains to settlors with interest in non-resident or dual resident settlements

Part III Individuals, partnerships, trusts and collective investment schemes etc

(1)This section applies where the following conditions are fulfilled as regards a settlement in a particular year of assessment—

(a)the settlement is a qualifying settlement in the year;

(b)the trustees of the settlement fulfil the condition as to residence specified in subsection (2) below;

(c) F331 a person who is a settlor in relation to the settlement (“the settlor”) ... is [F332 resident in the United Kingdom for the year F332] ;

(d)at any time during the year the settlor has an interest in the settlement;

(e)by virtue of disposals of any of the settled property originating from the settlor, there is an amount on which the trustees would be chargeable to tax for the year under [F333section 1(3)F333][F334 if the assumption as to residence specified in subsection (3) below were made;F334]

(f)paragraph 3, 4 or 5 of Schedule 5 does not prevent this section applying.

[F335 (2)The condition as to residence is that—

(a)there is no time in the year when the trustees are resident in the United Kingdom, or

(b)there is such a time but, whenever the trustees are resident in the United Kingdom during the year, they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.F335]

(3)Where subsection (2)(a) above applies, the assumption as to residence is that the trustees are [F336resident F337... in the United KingdomF336] throughout the year; and where subsection (2)(b) above applies, the assumption as to residence is that the double taxation relief arrangements do not apply.

F338 (3A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)Where this section applies—

(a)F340chargeable gains of an amount equal to that referred to in subsection (1)(e) above shall be treated as accruing to the settlor in the year [F339or if, as respects the settlor, the year is a split year, in the UK part of that yearF339] , ...

F340 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F341 (4ZA)Where (apart from this subsection) the amount mentioned in subsection (1)(e) would include a chargeable gain or allowable loss to which section 1A(3)(b) or (c) applies (disposals by non-UK residents within the charge to capital gains tax), so much of the gain or loss as would be so included is to be disregarded for the purposes of subsection (1)(e).F341]

[F342 (4ZB)Where (apart from this subsection) the amount mentioned in subsection (1)(e) would include an amount of chargeable gains accruing by virtue of the trustee’s entitlement to a sum of carried interest, the amount of the gains is to be disregarded for the purposes of subsection (1)(e).

(4ZC)In subsection (4ZB)—

(a) “carried interest” has the same meaning as in section 23I of ITTOIA 2005 (see Part 1 of Schedule A1 to that Act), and

(b)that definition has effect as if references to a sum arising to an individual included a reference to a sum arising to the trustees.F342]

F343 (4A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)Schedule 5 (which contains provisions supplementary to this section) shall have effect.

[F344 (6)See also paragraph 3 of Schedule D1 (foreign gain claims: foreign gains and losses of the trustees ignored for the purposes of subsection (1)(e)).F344]

Definitions used in section 86 17

settlement

(a) “settlement” has the same meaning as in section 620 of ITTOIA 2005, and

Defined in s.286(3ZA) · see it in the full Act

“settlement” has the meaning given by section 620 of ITTOIA 2005, and

Defined in s.97(7) · see it in the full Act
year of assessment

“year of assessment” means tax year;

Defined in s.288(1) · see it in the full Act
qualifying

(a) is a “qualifying” corporate bond if it is issued after 13th March 1984; and

Defined in s.117(7) · see it in the full Act
trustee

(7A) In this section, sections 86A to 96 and Schedule 4C “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this subsection, means any person in whom the settled property or its management is for the time being vested (and a person who is treated as a trustee of the settlement by virtue of this subsection shall be treated as a trustee of the settlement for the purposes of section 69).

Defined in s.97(7A) · see it in the full Act

(b) “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.

Defined in s.286(3ZA) · see it in the full Act
settlor

12 The provisions of paragraphs 7 and 8(1), (3), (6) and (7) of Schedule 5 (meaning of “settlor”) apply for the purposes of this Schedule as they apply for the purposes of section 86 .

Defined in Sch.4A para.12 · see it in the full Act
the residents

(b) if 2 or more of them are then resident ... in the United Kingdom (“the residents”) it shall be treated as being as many equal capital payments as there are residents and each of them shall be treated as receiving one of the payments.

Defined in s.96(4) · see it in the full Act
resident

“resident” means resident in accordance with the statutory residence test in Part 1 of Schedule 45 to the Finance Act 2013 ;

Defined in s.288(1) · see it in the full Act
settled property

“settled property” and references (however expressed) to property comprised in a settlement shall be construed accordingly .

Defined in s.97(7) · see it in the full Act

In this Act, unless the context otherwise requires, “settled property” means any property held in trust other than property to which section 60 applies (and references, however expressed, to property comprised in a settlement are references to settled property) .

Defined in s.68 · see it in the full Act
chargeable to tax

(3) For the purposes of this Schedule an individual is “chargeable to tax” for a tax year if , as respects that year, the individual is UK resident for the tax year (as determined in accordance with Chapter 1 of Part 1 of this Act ) .

Defined in Sch.4C para.1A(3) · see it in the full Act
double taxation relief arrangements

“double taxation relief arrangements”—

(a)

in relation to a company means arrangements that have effect under section 2(1) of TIOPA 2010 except so far as they have effect in relation to petroleum revenue tax, and

(b)

in relation to any other person means arrangements that have effect under section 2(1) of TIOPA 2010 but only so far as they have effect in relation to capital gains tax;

Defined in s.288(1) · see it in the full Act
split year

“split year”, as respects an individual, means a tax year that, as respects that individual, is a split year within the meaning of Part 3 of Schedule 45 to the Finance Act 2013 (statutory residence test: split year treatment);

Defined in s.288(1) · see it in the full Act
the UK part

(1ZB) A reference in this Act to “the overseas part” or “the UK part” of a split year is to be read in accordance with Part 3 of Schedule 45 to the Finance Act 2013 (statutory residence test: split year treatment).

Defined in s.288(1ZB) · see it in the full Act
allowable loss

“allowable loss” shall be construed in accordance with sections 8(2) , 16 , 16A , 261B, 261D and 263ZA ;

Defined in s.288(1) · see it in the full Act

(1) For the purposes of this Act, “allowable loss” does not include a loss accruing to a person if—

(a)it accrues to the person directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b)the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.

Defined in s.16A(1) · see it in the full Act
tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · see it in the full Act
carried interest

(a) “carried interest” has the same meaning as in section 23I of ITTOIA 2005 (see Part 1 of Schedule A1 to that Act), and

Defined in s.87(5C) · see it in the full Act
ITTOIA 2005

“ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 ;

Defined in s.288(1) · see it in the full Act
the individual

13C (1) The receipt of the replacement value by the original supplier shall be disregarded for the purposes of paragraph 13B above, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 13 above as that paragraph applies in relation to those shares or any other shares subscribed for by the individual in question (“the individual”).

Defined in Sch.5B para.13C(1) · see it in the full Act

Cases considering section 86 8

Mackay v Wesley

[2020] EWHC 1215 (Ch) · 18 May 2020

Applies the statutory residence condition to the Round the World scheme: if the provision operated, the gains would be attributed to the UK settlor and the scheme would fail. (see paras [21]-[22], [94], [157], [177]) Applies the requirement that trustees remain non-resident throughout the relevant year for the scheme to avoid attribution of gains to the UK settlor. (see para [21])

Coombes v Revenue & Customs

[2007] EWHC 3160 (Ch) · 20 November 2007Interprets

Section 86 did not attribute Rose Lodge’s gain to the taxpayer because the relevant land was not settled property originating from him. The statutory conditions therefore failed. (see paras [12]–[13], [18]–[20], [29], [31]) Section 86(1)(c) was identified as the provision under which HMRC treated the taxpayer as a settlor. The court resolved the issue by applying the supplementary definition of settlor and property originating from a person. (see paras [18]–[20]) Section 86(1)(e) required a disposal of settled property originating from the settlor. Because the land was never held on the settlement trusts, no disposal within that provision occurred and the assessment was made on a false basis. (see paras [18], [29]–[31]) Section 86(5) directed attention to Schedule 5. The court used Schedule 5 paragraphs 7 and 8 to determine whether the taxpayer was a settlor and whether the land was property originating from him. (see paras [18], [20]–[21])

Revenue and Customs, R (on the application of) v The General Commissioners of Income Tax for the Division of Berkshire

[2007] EWHC 871 (Admin) · 27 April 2007Defines

Identifies the chargeable-gains liability included in the schedules. For 2002–03, it formed part of the limited description of liabilities arising from Bala Limited or the Maclennan Trust. (see paras [38], [43])

What each judgment says about section 86 is in the case-law panel in the full Act.

Amendments and notes

17 notes from legislation.gov.uk

Amendments

  1. F331Words in s. 86(1)(c) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(2), 70(1)
  2. F332Words in s. 86(1)(c) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 91(2)
  3. F333Words in s. 86(1)(e) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 33(2)
  4. F334Words in s. 86(1)(e) substituted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 2 para. 30
  5. F335S. 86(2) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 91(3)
  6. F336Words in s. 86(3) substituted (with effect in accordance with Sch. 12 para. 34(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 34(1)(2)(c)
  7. F337Words in s. 86(3) omitted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 46 para. 91(4)
  8. F338S. 86(3A) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(3), 70(1)
  9. F340S. 86(4)(b) and word omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(4), 70(1)
  10. F339Words in s. 86(4)(a) inserted (with effect in accordance with Sch. 45 para. 153(2) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 100
  11. F341S. 86(4ZA) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 33(3)
  12. F342S. 86(4ZB)(4ZC) substituted for s. 86(4ZB) (for the tax year 2026-27 and subsequent tax years (but in relation to investment management services whenever performed)) by Finance Act 2026 (c. 11), s. 58(6), Sch. 11 para. 2(5)
  13. F343S. 86(4A) repealed (with effect in accordance with Sch. 11 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(4)
  14. F344S. 86(6) inserted (for the tax year 2025-26 and subsequent tax years) by Finance Act 2025 (c. 8), Sch. 12 paras. 55(5), 70(1)

Modifications

  1. C147S. 86 modified (with effect in accordance with Sch. 23 paras. 1(1), 2(1)(5)(6), 3(1)(4)(6) of the amending Act) by Finance Act 1998 (c. 36), Sch. 23 paras. 1(2)(3), 2(2)-(4), 3(2)(3)
  2. C148S. 86(1)(e) modified (31.7.1998) by Finance Act 1998 (c. 36), s. 132(5)
  3. C149S. 86(1)(e) modified (31.7.1998) by Finance Act 1998 (c. 36), Sch. 23 para. 4(1)