978 Gifts: recovery of capital gains tax from donee

Summary

This section is designed to deal with the situation where a person who has given away assets in gifts or given away in gifts the proceeds from the sale of an asset and has left capital gains tax unpaid. The manner in which the tax is to be recouped is by charging the amount of capital gains tax left unpaid on the donee in the name of the donor. The charge is, therefore, separate and distinct from any charge on the donee in respect of his/her own capital gains and the donee is given the right to recover from the donor any amount of capital gains tax which he/she has to pay on behalf of the donor. Where the gift is subject to the payment of the tax, the donee is debarred from recovering the tax from the donor.

Details

Definitions

(1) “Old assets/new assets” have the meanings set out in section 597.

“donor” is the person transferring the gift and, in the case of an individual who has died, includes his/her personal representatives.

“donee” is the person(s) in receipt of the gift.

“gift” refers to any transaction, other than a bargain at arm’s length, whereby an asset is transferred (from a donor to a donee(s)) for less than full consideration (that is, less than its full value).

Charge arising on the donee

(2) Where a person —

• who is chargeable to capital gains tax on chargeable gains accruing on the disposal of an asset by gift, and
• leaves any amount of capital gains tax unpaid 12 months after the tax is due,

then, the donee may be assessed (not later than 2 years after the tax charged on the donor becomes due and payable) and charged for the tax in the name of the donor. The donee cannot be charged any more than the lesser of —

• the tax on the amount of the gain on the disposal by gift, and
• the amount of tax remaining unpaid.

Gift of an asset “rolled-over”

(3) Where a gift consists of an asset which replaces another asset and which was purchased out of the proceeds of the asset replaced, then the donee may be charged to capital gains tax in respect of the gain “rolled-over” under section 597 (that is, the deferred charged on the “old asset”), as well as the gain on the asset given by gift (that is, the charge on the new asset).

Amount of tax to be charged

(4)(a) Where the gift in question relates to the whole of the proceeds of the disposal of an asset or, in the case of a replacement asset, the whole of the disposal of the sale of the “new asset”, then the amount of capital gains tax assessed and charged is to be the amount assessed and charged on the donor but left unpaid by him/her.

(4)(b) If, however, only part of the proceeds are transferred by way of gift then the amount of capital gains tax assessed and charged on the donee is to be the appropriate proportion of the total charge on the donor.

Recovery of tax paid by donee

(5) Where a donee has paid capital gains tax under this section, the donee has the right to recover that tax from the donor in a court of competent jurisdiction. Where a condition of the transfer of an asset (or proceeds from the sale of an asset) by gift is that the donee pay the appropriate capital gains tax, then the donee cannot recover the tax.

Where two or more donees are involved

(6) Where gifts are made to 2 or more donees separate charges may be made on each donee in respect of the tax left unpaid by the donor. For this purpose the tax attaching to the asset is to be apportioned between the donees on the basis of his/her proportion of the gift.

Relevant Date: Finance Act 2021