Commentary

I5.1019 Trustees' CGT—separate settlements

IHT, trusts and estates

I5.1019 Trustees' CGT—separate settlements

I5.1019 Trustees' CGT—separate settlements

Separate settlements—introduction

Where, from 5 April 2006, trustees make a sub-fund election1 (see I5.1020), each sub-fund is regarded as a separate settlement (although special treatment applies for the annual exempt amount — see I5.1018).

In other cases, it may be difficult to determine if a trust instrument, whether a deed or a Will, creates a single settlement or more than one separate settlement for CGT purposes2. Generally, HMRC accepts the assumption that a single deed or Will gives rise to a single settlement3, except in the case of a marriage settlement4, based on the principles derived from Roome v Edwards5 where Lord Wilberforce stated:

'the mere existence of separate trusts applying to parts of settled property does not in itself give rise to a separate settlement.'

Confusion often arises where the trustees exercise a power of appointment or advancement which results in property still being held in trust (and where the beneficiary does not become absolutely entitled to the trust assets), regarding whether the property has remained in the original settlement or if it now being held in trust in a separate new settlement6.

This is important to know for the following reasons7:

  1.  

    •     If separate settlements exist, each has its own annual exempt amount8

  2.  

    •     Capital losses of one settlement cannot be set against the gains of another

  3.  

    •     The CGT assessment is made on the trustees of the settlement, not on the trustees of separate funds within a settlement9

  4.  

    •     For the purpose of valuing unquoted

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