Revenue Note for Guidance
This section deals with the transfer of assets to the State or to a charity or certain bodies. Where an asset is so transferred for no consideration (that is, as a gift) or for a consideration not exceeding the cost of the asset, the normal rule substituting market value for the disposal (section 547) does not apply. Instead, the disposal by the transferor and the acquisition by the State, charity or other body is treated as having been made for such a consideration as will result in neither a gain nor a loss. Where the consideration for the transfer is greater than the cost of the asset, the market value rule (section 547) does not apply and any gain on the transfer is calculated by reference to the actual consideration received.
Where an asset is transferred to a charity or any of the bodies referred to in the section for no consideration or for a consideration which does not exceed the cost of the asset, and there is a subsequent disposal of the asset by the charity or other body, an occasion of charge will arise if the disposal is not exempt, that is, if the charity or other body has not retained its exempt status. [As most of the bodies listed, for example, local authorities, will be exempt from capital gains tax, this provision is aimed mainly against charities set up for a limited period only with a view to obtaining the benefits of the section but intent on disposing of the transferred assets at a later date.] In this event the body concerned will become liable to the capital gains tax which (were it not for the relief under section 611) would have been chargeable on the original owner when the transfer was made to the body, in addition to any liability on gains which may have accrued during its own period of ownership of the asset. Where a donation of quoted securities is made to a charity and relief under section 848A is claimed, the relief under this section is not available.
(1)(a) Where a disposal of an asset is made to the State, a charity or to any of the bodies referred to in subparagraph (iii), and the disposal is not made by way of a bargain at arm’s length, the normal rule in section 547 (consideration deemed to be equal to market value) does not apply. If consideration is received for the disposal which results in a gain, that gain is charged without increasing the consideration to market value as would normally be required under section 547, and the base cost of the asset for any subsequent disposal by the recipient is set at the actual consideration paid to the transferor.
However, if there is no consideration for the disposal, that is, if it is a pure gift, or if the consideration is less than the amount allowable under sections 552 and 828(4) (that is, broadly, the cost of the assets and enhancement expenditure adjusted in accordance with the indexation provisions of section 556), then —
However, these charges only arise if a gain on the later disposal would be a chargeable gain. This would arise only where the body was no longer within subparagraph (iii) or had ceased to be a charity. Thus, for example, if a charity remains a genuine charity, there is no question of a charge on the later disposal or an additional charge by reference to the earlier disposal.
(1)(b) Provision is made to ensure that where relief was given under the section on a disposal to a charity or other body made before 20 Decenber1978 and there is a disposal by the recipient on or after that date in such circumstances as are mentioned in paragraph (a)(II) (that is, if a gain on the disposal by the charity or other body would be a chargeable gain) the charging provisions in paragraph (a)(II) will apply to withdraw the relief granted. Any relief given may be adjusted by means of assessment or amended assessment in accordance with self assessment principles. Any taxpayer affected is required to make a full and true return of the disposal – including details of the disposal and the necessary self-assessment to withdraw any relief previously claimed.
(1)(d) The amount of the tax to be recovered under paragraph (a)(II) is the additional amount of tax that the transferor would have paid if the market value rule in section 547 had applied to the earlier disposal.
(2) There are certain occasions where assets held under trust are deemed to have been disposed of at market value thus triggering a possible charge to capital gains tax. These are —
Where, however, the person becoming absolutely entitled to the settled property is the State, a charity or a body within subsection (1)(a)(iii), or where the settled property is henceforward held exclusively for the benefit of the State, a charity or one of those bodies, the deemed disposal under section 576(1) or 577(3) will not be at market value but instead at a consideration which will result in neither a gain nor a loss. This provision is conditional on no consideration being received by any person in connection with any transaction by which the State, charity or other body acquires its interest in the assets. Thus, the provision would not apply if a person were to surrender his life interest in settled property to a charity in return for benefits for himself or others. In such cases there would be a charge to tax on the trustees of the settlement based on market value at the time when the charity acquired its interest.
* In relation to assessments made on or after 1 January 2005 – 10 years for assessments made before that date.
Relevant Date: Finance Act 2021