Section 86 Attribution of gains to settlors with interest in non-resident or dual resident settlements.C1

United Kingdom

(1)

This section applies where the following conditions are fulfilled as regards a settlement in a particular year of assessment—

(a)

the settlement is a qualifying settlement in the year;

(b)

the trustees of the settlement fulfil the condition as to residence specified in subsection (2) below;

(c)

a person who is a settlor in relation to the settlement (“the settlor”) F1... is F2resident in the United Kingdom for the year;

(d)

at any time during the year the settlor has an interest in the settlement;

C2 C3(e)

by virtue of disposals of any of the settled property originating from the settlor, there is an amount on which the trustees would be chargeable to tax for the year under F3section 1(3) F4if the assumption as to residence specified in subsection (3) below were made;

(f)

paragraph 3, 4 or 5 of Schedule 5 does not prevent this section applying.

F5(2)

The condition as to residence is that—

(a)

there is no time in the year when the trustees are resident in the United Kingdom, or

(b)

there is such a time but, whenever the trustees are resident in the United Kingdom during the year, they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.

(3)

Where subsection (2)(a) above applies, the assumption as to residence is that the trustees are F6resident F7... in the United Kingdom throughout the year; and where subsection (2)(b) above applies, the assumption as to residence is that the double taxation relief arrangements do not apply.

F8(3A)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)

Where this section applies—

(a)

chargeable gains of an amount equal to that referred to in subsection (1)(e) above shall be treated as accruing to the settlor in the year F9or if, as respects the settlor, the year is a split year, in the UK part of that year, F10...

(b)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F11(4ZA)

Where (apart from this subsection) the amount mentioned in subsection (1)(e) would include a chargeable gain or allowable loss to which section 1A(3)(b) or (c) applies (disposals by non-UK residents within the charge to capital gains tax), so much of the gain or loss as would be so included is to be disregarded for the purposes of subsection (1)(e).

F12(4ZB)

Where (apart from this subsection) the amount mentioned in subsection (1)(e) would include an amount of chargeable gains accruing by virtue of the trustee’s entitlement to a sum of carried interest, the amount of the gains is to be disregarded for the purposes of subsection (1)(e).

(4ZC)

In subsection (4ZB)—

(a)

“carried interest” has the same meaning as in section 23I of ITTOIA 2005 (see Part 1 of Schedule A1 to that Act), and

(b)

that definition has effect as if references to a sum arising to an individual included a reference to a sum arising to the trustees.

F13(4A)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)

Schedule 5 (which contains provisions supplementary to this section) shall have effect.

F14(6)

See also paragraph 3 of Schedule D1 (foreign gain claims: foreign gains and losses of the trustees ignored for the purposes of subsection (1)(e)).

Annotations

Textual amendments

F1: Words in s. 86(1)(c) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(2), 70(1)
F2: Words in s. 86(1)(c) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 91(2)
F3: Words in s. 86(1)(e) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 33(2)
F4: Words in s. 86(1)(e) substituted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 2 para. 30
F5: S. 86(2) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 91(3)
F6: Words in s. 86(3) substituted (with effect in accordance with Sch. 12 para. 34(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 34(1)(2)(c)
F7: Words in s. 86(3) omitted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 46 para. 91(4)
F8: S. 86(3A) omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(3), 70(1)
F9: Words in s. 86(4)(a) inserted (with effect in accordance with Sch. 45 para. 153(2) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 100
F10: S. 86(4)(b) and word omitted (for the tax year 2025-26 and subsequent tax years) by virtue of Finance Act 2025 (c. 8), Sch. 12 paras. 55(4), 70(1)
F11: S. 86(4ZA) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 33(3)
F12: S. 86(4ZB)(4ZC) substituted for s. 86(4ZB) (for the tax year 2026-27 and subsequent tax years (but in relation to investment management services whenever performed)) by Finance Act 2026 (c. 11), s. 58(6), Sch. 11 para. 2(5)
F13: S. 86(4A) repealed (with effect in accordance with Sch. 11 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(4)
F14: S. 86(6) inserted (for the tax year 2025-26 and subsequent tax years) by Finance Act 2025 (c. 8), Sch. 12 paras. 55(5), 70(1)

Modifications

C1: S. 86 modified (with effect in accordance with Sch. 23 paras. 1(1), 2(1)(5)(6), 3(1)(4)(6) of the amending Act) by Finance Act 1998 (c. 36), Sch. 23 paras. 1(2)(3), 2(2)-(4), 3(2)(3)
C2: S. 86(1)(e) modified (31.7.1998) by Finance Act 1998 (c. 36), s. 132(5)
C3: S. 86(1)(e) modified (31.7.1998) by Finance Act 1998 (c. 36), Sch. 23 para. 4(1)

Notes on Part III

Textual amendments

F1: Word in Pt. 3 heading inserted (with effect in accordance with Sch. 22 para. 12 of the amending Act) by Finance Act 2009 (c. 10), Sch. 22 para. 9; S.I. 2010/670, art. 2