CG38010 - Disposal of interests in settlements

TCGA92/S76 (1)

In general the disposal of an interest in a settlement does not give rise to a chargeable gain or allowable loss. For this purpose `an interest' includes an annuity, life interest or reversionary interest.

An interest under a bare trust, for instance that of a tenant in common, see CG70500+, is not an interest in a settlement, see Harthan v Mason, 53TC272. This is because the property is not settled property and therefore the trustees are not chargeable in respect of it, see CG34300. Instead a disposal by the beneficiary is treated as a disposal of the underlying asset.

Exceptions to the general rule

The general rule above does not apply where

the person disposing of the interest acquired it by purchase, and is not the person for whose benefit the interest was created, see Example below, or

the interest being disposed of was acquired by purchase by a previous holder, see Example below, or

the trustees of the settlement concerned are neither resident nor ordinarily resident in the UK, see CG38040,

The acquisition of an interest in exchange for another interest in the same settlement is not to be regarded as by way of purchase.

Example

X settles property on trust on terms which confer a life interest on Y. Y later sells his interest under the settlement to Z. Any gain on sale by Y will be exempt, but the gain accruing on a subsequent disposal by Z will be chargeable because he acquired that interest by purchase and is not the original beneficiary under the settlement.

If, exceptionally, Y had paid cash to X as consideration for entering into the settlement and later gifted the property to Z, again no chargeable gain would accrue on that gift because Y was the person for whose benefit the interest was created. But a gain accruing on a subsequent disposal of that interest by Z will be chargeable.