Finance Act 1974

42 Disposals of interests in settled property. U.K.

(1) Where after 17th December 1973 a person disposes of an interest under a settlement which immediately before the disposal is a land settlement, the disposal shall be deemed to be a disposal of an interest in land to which section 38 of this Act applies.

(2) Where a chargeable gain accrues to a person on a disposal of an interest under a settlement to which the preceding subsection applies, then, subject to the provisions of section 39 of this Act and this section, the development gain accruing to him in respect of the disposal shall be equal to that chargeable gain.

(3) Where, apart from this subsection, a development gain would by virtue of the preceding provisions of this section accrue to a person in respect of a disposal of an interest under a settlement then—

(a) a development gain shall not accrue to him in respect of the disposal unless an excess of development gains over development losses would have accrued to the trustees of the settlement on their disposing of the relevant land comprised in the settled property at market value at the time of his disposal; and

(b) the development gain accruing to him in respect of the disposal shall not exceed the amount (if any) by which the market value of the interest at that time exceeds what its market value would then have been if the value of the relevant land then comprised in the settled property had been equal to the actual value of that relevant land at that time reduced by one-half of the excess of development gains over development losses that would have accrued as mentioned in paragraph (a) above.

If a claim under section 40(2) of this Act could have been made in respect of any disposal which is to be assumed for the purposes of this subsection, that claim shall for those purposes be assumed to have been made.

(4) Where a gain accrues to a person on a disposal of an interest under a settlement which immediately before the disposal is a land settlement and—

(a) [F1 section 58(1)of the Capital Gains Tax Act 1979 F1 ] (exemption for gains accruing on disposals of interests under settlements) would, apart from this subsection, apply to that gain; and

(b) immediately before the disposal it was the case that under the terms of the settlement the person making the disposal would or might become absolutely entitled to all or any part of the settled property as against the trustee,

then the development gain accruing to him in respect of that disposal shall first be computed as if the [said section 58(1) F2 ] did not so apply, and the[F2 said section 58(1) F2 ] shall then apply to so much, if any, of the gain as is not by virtue of this Chapter a development gain.

(5) Where by virtue of [F2 section 58(2) of the Capital Gains Tax Act 1979 F2 ] a person who has acquired an interest in settled property is treated as disposing of the interest on the occasion of his becoming, as the holder of that interest, absolutely entitled to any settled property as against the trustee, then—

(a) subsection (4) above shall not apply in the case of that disposal if the trustee is chargeable to tax on that occasion by virtue of[F2 section 54(1)of the Capital Gains Tax Act 1979 F2 ](settled property); and

(b) where the preceding paragraph would apply if the trustee were resident and ordinarily resident in the United Kingdom, then, if any beneficiary under the settlement is by virtue of [F2 section 17 of the Capital Gains Tax Act 1979 F2 ] (non-resident trusts) treated as if the whole or part of the relevant amount had been development gains accruing to that beneficiary, the development gain accruing to the first-mentioned person in respect of the said disposal shall not exceed the difference between what that development gain would be apart from this paragraph and the relevant fraction of what that development gain would be apart from this paragraph.

(6) For the purposes of this and the preceding subsection—

(a) “the relevant amount” means the amount on which the trustee of the settlement mentioned in that subsection would have been chargeable to income tax in respect of development gains by virtue of section 38(2) of this Act as mentioned in subsection (2) of the said [section 17 F2 ];

(b) “the relevant fraction” means the fraction of which the numerator is equal to so much of the relevant amount as is by virtue of subsection (2) of the said[F2 section 17 F2 ] treated as development gains accruing to beneficiaries under the said settlement, and the denominator is the relevant amount; and

(c) references to the said [section 17 F3 ]are references to that section as it has effect in relation to development gains by virtue of paragraph 3of Schedule 8to this Act.

(7) Where, in a case to which subsection (4) above applies, a person having an interest in settled property is charged to tax in respect of a development gain accruing to him by virtue of this section, then, for the purposes of the computation under[F3 Chapter II of Part II of the Capital Gains Tax Act 1979 F3 ] of the gain accruing to the trustees of the settlement on a disposal of all or any part of the relevant land which was comprised in the settled property immediately before the disposal in respect of which that development gain accrued to him,[F3 section 32(1)(a) of the Capital Gains Tax Act 1979 F3 ] (computation of chargeable gains: allowable expenditure) shall apply—

(a) as if a sum equal to the amount of that development gain formed part of the consideration given by the trustees for the acquisition of the relevant land which was so comprised in the settled property; and

(b) if the relevant land which was so comprised in the settled property consisted of more than one interest in land, as if such proportion of that sum as is just and reasonable formed part of the consideration given by the trustees for the acquisition of each of those interests.

(8) For the purposes of this section—

(a) a settlement is a “land settlement” if the settled property comprises relevant land to a value exceeding three-quarters of the net value of all the settled property (that is to say, its value less the value of any debts or liabilities of the trustees in their capacity as such); and

(b) “value”, in relation to any settled property, means market value.

(9) For the purposes of this and the preceding subsection—

(a) “relevant land” (subject to subsection (10) below) means any interest in land situated in the United Kingdom, other than an interest held as trading stock;

(b) the value of the relevant land comprised in settled property shall be taken to be its value free of any liability charged or secured thereon;

(c) the net value of the assets of any business comprised in settled property shall be taken to be the net value they would have on a sale in the open market of the business as a going concern;

(d) the settled property comprised in a settlement shall be treated as including any interest in land which the trustees in their capacity as such have unconditionally contracted to acquire, but not as including any interest in land which the trustees in that capacity have unconditionally contracted to dispose of; and

(e) shares in a company shall be treated as an interest in land situated in the United Kingdom if a disposal thereof would fall within section 41(1) of this Act.

(10) Subsections (8) to (10) of section 41 of this Act, except paragraph (b) of subsection (8) and so much of subsection (9) as refers to, or relates to the case mentioned in, that paragraph, shall apply for the purposes of subsections (8) and (9) above as they apply for the purposes of subsections (6) and (7) of that section, subject to the modification that for references to a company there shall be substituted references to the trustees of settled property in their capacity as such.

Textual Amendments

F1 Capital Gains Tax Act 1979 (c. 14, SIF 63:1), s. 157(2)and Sch. 7 para. 9for 1979-80et seq.

F2 Capital Gains Tax Act 1979 (c. 14, SIF 63:1), s. 157(2)and Sch. 7 para. 9for 1979-80et seq.

F3 Capital Gains Tax Act 1979 (c. 14, SIF 63:1), s. 157(2)and Sch. 7 para. 9for 1979-80et seq.