What is a capital payment?
For each beneficiary (see I5.1240) it is necessary to calculate the capital payments he receives:
• from the trustees in the tax year concerned1
• from the trustees in previous years, so far as not matched with a capital payment2
• from the trustees following a transfer from another settlement that may or may not have involved trustee borrowing3 (see below, I5.1256 and I5.1257)
• from a qualifying company controlled by the trustees4 (see below)
A capital payment is any payment other than a payment that is5:
• chargeable to income tax, where received by a UK resident
• received as income, where received by a person who is not resident (and, before 2013/14, not ordinarily resident) in the UK
• made on a commercial basis, ie made at arm's length
This means that if the payment is within the transfer of assets abroad rules (see I5.1236), or the trust has offshore income gains (which are treated as income rather than capital gains), it is matched with those in priority to using the gain matching rules6 (see I5.1245).
In addition, certain payments received by non-residents are disregarded for matching purposes7 (see I5.1243).
The payment may be in money, property in specie or any other benefit, including a loan on beneficial terms. Where it is in any form other than money it must be valued (see I5.1242).
A beneficiary who becomes absolutely entitled as against the trustees to any settled property is