CGT – Capital payments from non-resident settlements

From the inception of Capital Gains Tax, non-residents, (including non-resident trustees) have been exempt from the tax. This was so even where the settlor was resident in the U.K. Clearly, this opened the way for tax avoidance. The initial legislation provided for apportionment of gains between beneficiaries, as they were realised. Most recently, since 1991, U.K. settlors have been liable for tax on gains realised by their overseas settlements. However, since 1982 there have been provisions (now contained in Section 87 TCGA 1992) under which U.K. domiciled beneficiaries receiving Capital Payments from the trustees of non-resident settlement, made by a U.K. resident settlor, will have the trustees capital gains attributed to them as chargeable gains. “Capital Payment” is defined in Section 97 TCGA 1992 as any payment not subject to income tax. The questions that have come before the Courts, and have now been decided by the Court of Appeal, are whether an interest-free loan, made by the trustees to a beneficiary, repayable on demand, are capital payments and, if so, how they may be quantified (Billingham v Cooper 2001 STC 1177).