CG38960 - TCGA92/S90 - order of matching if capital payments made out of transferor settlement in year of transfer - example
This example illustrates the principle that you match the capital payments made in the year of transfer before calculating the section 2(2)* amounts to be transferred. This applies whether the capital payment is made before or after the transfer.
The transferor settlement’s assets consist of shares with a market value of £400,000 and cash of £100,000. The shares are transferred to the transferee settlement for nil consideration in 2012-13. The cash remains in the transferor settlement.
The transferor settlement has the following gains made by the trustees:
| Year | - | Amount |
|---|---|---|
| 2005-06 | Trustees’ gains (section 2(2) amount) | £20,000 |
| 2012-13 | Section 2(2) amount on transfer of shares | £75,000 |
The transferor settlement makes a capital payment of £50,000 in 2012-13. It does not matter if this made before or after the transfer of the shares. This payment is matched with £50,000 of the 2012-13 section 2(2) amount and a section 87 gain of £50,000 accrues to the beneficiary in 2012-13. The unmatched section 2(2) amount for 2012-13 is reduced to £25,000 (£75,000 - £50,000).
It is only the ‘relevant proportion’ of this £25,000 that is transferred to the transferee settlement. The relevant proportion is 4/5 (£400,000 / [£400,000 + £100,000]).
Transferee settlement
The transferee settlement acquires the following unmatched section 2(2)* amounts:
| Year | Amount | - |
|---|---|---|
| 2005-06 | £16,000 | (£20,000 x 4/5) |
| 2012-13 | £20,000 | (£25,000 x 4/5) |
They are added to any unmatched section 2(2)* amounts it already has and can be matched with capital payments made from the transferee settlement in 2012-13 or a later year.
This applies whatever the residence status of the transferee settlement.
Transferor settlement
The unmatched section 2(2)* amounts of the transferor settlement are reduced by the section 2(2)* amounts transferred to the transferee settlement. The unmatched section 2(2)* amounts become:
| Year | Amount | - |
|---|---|---|
| 2005-06 | £4,000 | (£20,000 - £16,000) |
| 2012-13 | £5,000 | (£25,000 - £20,000) |
This reduction has effect for matching in the year after the year of transfer (2013-14) and subsequent years.
*This section was re-written for disposals from 6 April 2019 to section 1(3) see CG10150.