Commentary

I5.1020 Trustees' CGT—sub-fund settlements

IHT, trusts and estates

I5.1020 Trustees' CGT—sub-fund settlements

I5.1020 Trustees' CGT—sub-fund settlements

Sub-fund settlements—introduction

From 6 April 2006, trustees of a settlement (the 'principal settlement') can make an election (a sub-fund election) to treat a separate fund or other specified portion of settled property as a separate settlement (a sub-fund settlement) where certain conditions are satisfied1.

The election also applies for income tax purposes2.

Where trustees make a sub-fund election there is a deemed disposal3 by the trustees of the principal settlement and a deemed acquisition by the trustees of the sub-fund4. These provisions also apply where the deemed disposal arises due to the trustees becoming non-resident5.

Holdover relief is only available if it is available under the normal CGT rules6.

The sub-fund is treated as a separate settlement for all tax purposes, although special treatment applies for the annual exempt amount7.

A principal settlement may have more than one sub-fund settlement but sub-fund settlements cannot themselves split into further sub-fund settlements8.

Sub-fund election—conditions

A sub-fund election can only be made if9:

  1.  

    •     conditions (1)–(4) below are satisfied at the time the election is made, and

  2.  

    •     conditions (2)–(4) are satisfied throughout the period beginning on the date the election takes effect and ending immediately before the election is made

The conditions are as follows10:

  1.  

    (1)     the principal settlement must not itself be a sub-fund11

  2.  

    (2)     some property of the principal settlement is not in the sub-fund settlement12

  3.  

    (3)     the sub-fund and the principal settlement cannot co-own property13 ignoring (for disposals after 5 April 2008) any fungible assets (eg shares) that are pooled14

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