What does section 169 of the Taxation of Chargeable Gains Act 1992 do?

Section 169 is an anti-avoidance measure that blocks capital gains tax gift relief under sections 165 and 260 when assets are transferred into dual resident trusts. Where a double taxation agreement treats trustees as not liable to UK tax on gains, the person making the gift must pay capital gains tax on the full gain rather than deferring it.

What is a dual resident trust for the purposes of section 169 TCGA 1992?

A dual resident trust is one where the trustees are resident in the United Kingdom for domestic tax purposes but are also regarded as resident in another country under a double taxation agreement. The treaty may treat the trustees as not liable to UK capital gains tax, creating a potential loophole that section 169 is designed to prevent.

When is gift relief denied under section 169 TCGA 1992?

Gift relief is denied when two conditions are met at the time of disposal. First, the trustees receiving the asset must be UK resident. Second, if the trustees hypothetically disposed of the asset immediately after receiving it, they would be treated under a double taxation agreement as not liable to UK tax on the resulting gain, known as a notional disposal.

What is the practical effect of section 169 on a person gifting assets into a dual resident trust?

The practical effect is that the person making the gift cannot use gift relief to defer their capital gains tax liability. They are treated as having disposed of the asset at market value and must pay capital gains tax on the full chargeable gain, just as if they had sold the asset at its open market value to a third party.

Taxation of Chargeable Gains Act 1992 section 169

Gifts into dual resident trusts

Section 169 prevents capital gains tax gift relief from applying when assets are gifted into trusts that are treated as UK resident but which, under a double taxation agreement, are also regarded as resident in another country and not liable to UK tax on gains.

Gift relief under sections 165 (business assets) and 260 (inheritance tax chargeable transfers) is blocked where assets are transferred into a dual resident trust
A dual resident trust is one where the trustees are UK resident but are also treated under a double taxation agreement as resident in a territory outside the UK
The relief is denied where, immediately after the gift, the trustees would be regarded under a tax treaty as not liable to UK tax on any gain from a hypothetical disposal of the asset
The effect is that the person making the gift must pay capital gains tax on the full gain, rather than being able to defer it through gift relief

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