Taxation of Chargeable Gains Act 1992 Schedule 4ZA paragraphs 17–22

Consequences of a sub-fund election

Paragraphs 17 to 22 of Schedule 4ZA set out the capital gains tax consequences that follow when a sub-fund election takes effect, covering the creation of the sub-fund settlement, the status of trustees, deemed disposals and acquisitions of assets, and the treatment of transfers between the principal and sub-fund settlements.

• A sub-fund election creates a new, separate settlement for capital gains tax purposes, with the sub-fund trustees treated as becoming absolutely entitled to the sub-fund property as against the principal settlement trustees.
• Each trustee is treated as a trustee only of the settlement whose property they actually hold on trust, unless they genuinely serve as trustee of both the principal settlement and the sub-fund settlement.
• Any deemed disposal of assets by the principal settlement trustees is treated as occurring at the beginning of the day the sub-fund election takes effect, while the sub-fund trustees are treated as acquiring those assets at the same point in time.
• Where the principal settlement trustees are deemed to have disposed of an asset because the sub-fund trustees became absolutely entitled to it, the transaction is also treated as a transfer between settlements for the purposes of the rules on non-resident settlement gains and unmatched qualifying amounts.