Taxation of Chargeable Gains Act 1992 Schedule 4B paragraph 6

Application of proceeds of borrowing for normal trust purposes

Section 6 of Schedule 4B defines the specific circumstances in which the proceeds of trustee borrowing are treated as having been applied for normal trust purposes.

• Borrowed funds used to pay for an ordinary trust asset qualify as normal trust purposes, provided the transaction is at arm's length (or does not exceed an arm's length price), the asset remains part of the settled property immediately after the material time (or meets an alternative condition under paragraph 8), and the amount paid would be allowable as a deduction in computing a chargeable gain on disposal of that asset.
• Borrowed funds used to repay an existing loan obligation of the trustees also qualify, but only if substantially all the proceeds of the earlier borrowing being repaid were themselves applied for normal trust purposes.
• Borrowed funds used to meet genuine, current administrative expenses of the trust or its property are treated as applied for normal trust purposes.
• These three categories are exhaustive — borrowed funds applied in any other way are not treated as used for normal trust purposes under this Schedule.

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