CheckLists.Tax (beta)
C3. Gift to an individual
INCOME TAX
Annual payment and miscellaneous income charges
- Purely voluntary payments (recipient had no enforceable right to be considered) not income
- If a payment is purely voluntary, such as a gift, it will not be income for the recipient.
- "As [Counsel for HMRC] rightly observed, the question whether a payment constitutes income (which requires that it should not be purely voluntary) and the question whether it has a source are closely bound up together." (HFFX, §97)
- A legally enforceable right to be considered as a discretionary beneficiary of a trust means that the payment is not purely voluntary.
- "As Falk LJ pointed out (para 52) this is to be contrasted with the right of a discretionary beneficiary under a trust to be properly considered as a potential recipient and to have their interest protected by a court by compelling due administration of the trust: see Snell's Equity, 34th ed (2019) at 22–005; Gartside v Inland Revenue Commissioners [1968] AC 553, 617–618; and Cunard's Trustees." (HFFX, §107)
- But if the recipient has no right at all to seek to control the exercise of the relevant discretion, it is purely voluntary:
- "Unlike in the present case, where the Braganza principles apply to give the individual members certain rights in relation to the exercise of discretion by GSAM and Mr Gerko, and hence a sufficient interest as to prevent the payments made from being a "mere voluntary gift", in Stedeford v Beloe the taxpayer had no right at all to seek to control the exercise of the relevant discretion. Under the school's charter, the relevant beneficiary was to be the school rather than anyone else, including retired staff." (HFFX §107)
- For example, in Stedeford v. Beloe, a series of payments to a former headmaster were not income of the headmaster because they were made under a discretion to apply income for the benefit of the college:
"[106] By contrast, in Stedeford (Inspector of Taxes) v Beloe [1932] AC 388, the Reverend Beloe was held not to be taxable on a series of payments made to him following his retirement as headmaster of a school under a power conferred on the school's governing body under its charter. The important point was that the payments were "a mere voluntary gift" which depended on "somebody else's goodwill" (per Viscount Dunedin at p 390). While the charter permitted pension payments to be made, that was pursuant to a power conferred on the governing body to apply income for "such purposes as in their absolute discretion they may deem to be for the benefit of the college". Again, the close association of the question whether a payment is purely voluntary and whether there is a relevant source for the sum received to qualify as taxable "income" of the recipient is evident." (HFFX)
- Most charitable trusts are purpose trusts without beneficiaries.
- On that basis, no recipient will have an enforceable right to exercise any control over the exercise of the trustee discretion as to who to benefit and the sum should be purely voluntary.
- Same will apply where the payer is a charitable company (the payer in Stedeford was a corporation founded by Royal Charter).
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HFFX LLP v. HMRC [2026] UKSC 17;
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Settlements code
- Gift as a settlement
- Jones v. Garnett.
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CAPITAL GAINS TAX
Matching gains to benefits
- Onward gift from non-resident/qualifying new resident recipient to UK resident recipient: deemed receipt by UK resident
General rule
- If:
(1) The original recipient of a capital payment is a non-UK resident/qualifying new resident; and
- Does not matter if qualifying new resident claims FIG relief on the benefit.
(2) The close family member attribution rule does not apply; and
(3) At the time of the original receipt there was an arrangement/intention to pass on all/part of the benefit to another person.
- It must also be reasonable to expect that the other person will be UK resident when they receive at least part of what is passed on.
- Condition 3 is presumed to be met if conditions (4) - (6) are met unless the contrary is shown (s.87HA(6)).
(4) The original recipient provides a benefit to another person either:
- within 3 years of receipt of the original benefit; or
- prior to the receipt of the original benefit but it is reasonable to assume in anticipation of it.
(5) The onward gift is of or includes:
- all or part of the original benefit.
- anything deriving from or representing the original benefit.
- any other property if the original benefit is made with a view to enabling/otherwise in connection with providing the onward gift.
(6) The onward gift recipient is resident in the UK when they receive the onward gift.
Then: the onward gift is treated as a capital payment received from the trustees by the onward gift recipient as a beneficiary (s.87HA).
- May have been a case of indirect receipt, in any event.
- Query how the onward gift recipient is supposed to know whether the above test is met?
Time of deemed receipt of capital payment
- Is the time of receipt of the onward gift, unless the onward gift is received before the original recipient actually receives the capital payment (s.87HA(5)).
Indirect provision of onward gift
- An original recipient provides a benefit to another even where there is a series of two or more benefits between the original recipient and the final recipient (s.87HA(4)).
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- Gift to non-resident individual: query whether the rules matching gains to benefits can apply
- The gift may be a settlement under the extended meaning (TCGA s.97(7)).
- The 'trustee' is any person in whom the settled property is for the time being vested (s.97(7A)).
- A person who receives a capital payment from the trustees is treated as a beneficiary from that point onward (s.97(8)).
- The rules matching gains to benefits apply where the trustees are non-resident (s.87(1)).
- The s.1(3) amount for the settlement is the amount upon which the trustees would be chargeable if UK resident (s.87(4)).
- It seems possible, therefore, that the matching rules could apply.
- Identification of gains and benefits should logically be limited to those arising to/provided by the non-resident person in their capacity as the 'deemed' trustee.
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