I5.1242 Attribution of settlement gains—valuation of capital payments

IHT, trusts and estates

I5.1242 Attribution of settlement gains—valuation of capital payments

I5.1242 Attribution of settlement gains—valuation of capital payments

Valuing capital payments from 2017/18

Valuing capital payments from 2017/18—overview

Where a capital payment is made by way of loan or anything other than an outright payment of money, its value is equal to the value of the benefit conferred1.

The most common benefits that give rise to capital payments, according to HMRC2, are:


    •     interest free or low interest loans


    •     rent free or low rent occupation of property

From 2017/18 onwards, statutory valuation rules apply to determine the value of these benefits, as well as the benefit of making a chattel available for a beneficiary's use3.

These are the same rules that apply for valuation purposes for the transfer of assets abroad provisions4 (see I5.1221).

Valuing capital payments from 2017/18—beneficial loans

The benefit each tax year for someone receiving a loan from a settlement is the amount of loan outstanding at the official rate of interest5, less any interest actually paid by the beneficiary to the trustees in that year6. Consequently, if the interest paid by the beneficiary equals or exceeds the official rate there is no benefit or capital payment.

If the interest is deferred or added to the capital of the loan it is treated as not having been paid, so no deduction is available when calculating the value of the loan at the official rate.

HMRC provides the following illustration7:

Rachael is the beneficiary of a non-resident discretionary trust. She receives an interest free loan from the trustees on 6 April 2018 of £100,000. The loan

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