Taxation of Chargeable Gains Act 1992, section 87

Non-UK resident settlements: attribution of gains to beneficiaries

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

(1) This section applies to a settlement for a tax year (“the relevant tax year”) if [F358 there is no time in that year when the trustees are resident in the United Kingdom F358] .

(2)Chargeable gains are treated as accruing in the relevant tax year to a beneficiary of the settlement who has received a capital payment from the trustees in the relevant tax year or any earlier tax year if all or part of the capital payment is matched (under section 87A as it applies for the relevant tax year) with [F359 the section 1(3) amountF359] for the relevant tax year or any earlier tax year.

[F360 (2A)If the relevant tax year is a split year as respects the beneficiary, the gains are treated as accruing in the UK part of that year.F360]

(3)The amount of chargeable gains treated as accruing is equal to—

(a)the amount of the capital payment, or

(b)if only part of the capital payment is matched, the amount of that part.

(4)[F361 The section 1(3) amountF361] for a settlement for a tax year for which this section applies to the settlement is—

(a)the amount upon which the trustees of the settlement would be chargeable to tax under [F362 section 1(3)F362] for that year if they were resident F363... in the United Kingdom in that year, or

(b)if section 86 applies to the settlement for that year, the amount mentioned in paragraph (a) minus the total amount of chargeable gains treated under that section as accruing in that year.

(5)[F364 The section 1(3) amountF364] for a settlement for a tax year for which this section does not apply to the settlement is nil.

[F365 (5A)Where (apart from this subsection) the amount mentioned in subsection (4)(a) 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 determining the section 1(3) amount.F365]

[F366 (5B)Where (apart from this subsection)—

(a)the amount mentioned in subsection (4)(a) would include an amount of chargeable gains accruing by virtue of the trustee’s entitlement to a sum of carried interest, and

(b)at the time when those chargeable gains accrue, income tax is chargeable by virtue of section 23I of ITTOIA 2005 in respect of the sum of carried interest,

the amount of the gains is to be disregarded for the purposes of determining the section 1(3) amount.

(5C)In subsection (5B) and section 87BA—

(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.F366]

(6)For the purposes of this section a settlement arising under a will or intestacy is treated as made by the testator or intestate at the time of death.

F367 (7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F368 (8)See also paragraph 4 of Schedule D1 (foreign gain claims: capital payments ignored for the purposes of this section and Schedule 4C).F368,F357]]

Definitions used in section 87 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
tax year

(1ZA) In this Act and other enactments relating to capital gains tax “tax year” means a year beginning on 6 April and ending on the following 5 April; and “the tax year 2008-09” means the tax year beginning on 6 April 2008 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).

Defined in s.288(1ZA) · 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
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
the relevant tax year

(a) chargeable gains are treated under paragraph 8 as accruing to a beneficiary by virtue of the matching (under section 87A) of all or part of a capital payment with the section 2(2) amount for a tax year (“the relevant tax year”), and

Defined in Sch.4C para.13(1) · see it in the full Act

(b) an amount of chargeable gains would (apart from this paragraph) be treated as accruing to the settlor under section 86(4) in a tax year (“the relevant tax year”).

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

8 (1) Chargeable gains are treated as accruing in a tax year (“the relevant tax year”) to a beneficiary who has received a capital payment from the trustees of a relevant settlement in the relevant tax year or any earlier tax year if all or part of the capital payment is matched (under section 87A as it applies for the relevant tax year) with the section 2(2) amount in the Schedule 4C pool for the relevant tax year or any earlier tax year.

Defined in Sch.4C para.8(1) · see it in the full Act
the beneficiary

12A (1) This paragraph applies where by virtue of section 1M an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the period of return by virtue of a capital payment made to him in the temporary period of non-residence .

Defined in Sch.4C para.12A(1) · see it in the full Act
capital payment

(1) In sections 86A to 96 and Schedule 4C and this section “capital payment”—

(a)means any payment which is neither—

(i)chargeable to income tax on the recipient, nor

(ii)chargeable to income tax on another person under Chapter 5 of Part 5 of ITTOIA 2005 (settlements) or Chapter 2 of Part 13 of ITA 2007 (transfer of assets abroad) ,

or, in the case of a recipient who is not resident in the United Kingdom, any payment received otherwise than as income, but

(b)does not include a payment under a transaction entered into at arm’s length if it is received on or after 19th March 1991.

Defined in s.97(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
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
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.86(4ZC) · see it in the full Act
income

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · 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 87 3

Futter and another v The Commissioners for Her Majesty's Revenue and Customs

[2013] UKSC 26 · 9 May 2013

The provision attributed stockpiled gains realised by non-resident trustees to beneficiaries receiving capital distributions. The trustees considered that effect but incorrectly believed the attributed gains could be absorbed by personal allowable losses (see paras [47]–[48]; [95]–[96]).

Judge v Judge & Ors

[2008] EWCA Civ 1458 · 19 December 2008

The court treated remittance of offshore trust funds to meet the liability as potentially triggering United Kingdom tax, requiring the estimated liability to be grossed up (see para [12] following the duplicated paragraph numbering).

Walbrook Trustees (Jersey) Ltd & Ors v Fattal & Ors

[2007] EWHC 2808 (Ch) · 29 November 2007Interprets

The provision was considered in explaining the tax consequences of an overseas settlement for beneficiaries resident and domiciled in the United Kingdom. The court recorded that amendments removed the former limitation based on the settlor’s residence and domicile, bringing the Sharet Trust within its scope. (see paras [67], [84])

What each judgment says about section 87 is in the case-law panel in the full Act.

Amendments and notes

15 notes from legislation.gov.uk

Amendments

  1. F357Ss. 87-87C substituted for s. 87 (with effect in accordance with Sch. 7 para. 115 of the amending Act) by Finance Act 2008 (c. 9), Sch. 7 para. 108 (with Sch. 7 paras. 116-119)
  2. F358Words in s. 87(1) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 92(2)
  3. F359Words in s. 87(2) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 35(2)
  4. F360S. 87(2A) inserted (with effect in accordance with Sch. 10 para. 1(13) of the amending Act) by Finance Act 2018 (c. 3), Sch. 10 para. 1(4)(a)
  5. F361Words in s. 87(4) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 35(3)(a)
  6. F362Words in s. 87(4)(a) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 35(3)(b)
  7. F363Words in s. 87(4)(a) 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. 92(3)
  8. F364Words in s. 87(5) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 35(4)
  9. F365S. 87(5A) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 35(5)
  10. F366S. 87(5B)(5C) substituted for s. 87(5B) (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(6)
  11. F367S. 87(7) omitted (with effect in accordance with Sch. 10 para. 1(13) of the amending Act) by virtue of Finance Act 2018 (c. 3), Sch. 10 para. 1(4)(b)
  12. F368S. 87(8) inserted (for the tax year 2025-26 and subsequent tax years) by Finance Act 2025 (c. 8), Sch. 12 paras. 57, 70(1)

Modifications

  1. C150Ss. 87, 87A, 87C-90 applied (with modifications) by Income and Corporation Taxes Act 1988 (c. 1), s. 762(3) (as substituted (with effect in accordance with Sch. 7 para. 98 of the amending Act) by Finance Act 2008 (c. 9), Sch. 7 para. 93(3))
  2. C151Ss. 87-89 modified (21.7.2008) by Finance Act 2008 (c. 9), Sch. 7 para. 125(2)
  3. C152Ss. 87-90A applied (with modifications) (with effect in accordance with art. 1(2)(3), Sch. 1 of the amending S.I.) by The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), regs. 1(1), 20(3)(4)