285A UK Economic Interest Groupings European Economic Interest Groupings
(1) The following rules about UK Economic Interest Groupings and European Economic Interest Groupings apply for the purposes of charging tax in respect of chargeable gains—
Rule 1
A grouping is treated as acting as the agent of its members.
Rule 2
The activities of a grouping are treated as those of its members acting jointly.
Rule 3
Each member of a grouping is treated as having a share of the grouping's property, rights and liabilities.
Rule 4
Any trade or profession carried on by the grouping is treated as carried on in partnership by members of the grouping.
Rule 5
A person is to be regarded as acquiring or disposing of a share of the assets of the grouping not only where there is an acquisition or disposal of assets by the grouping while he is a member of it, but also where he becomes or ceases to be a member of a grouping or there is a change in his share of the property of the grouping.
(2) For the purposes of Rule 3, a member's share of any property, rights or liabilities of a grouping is determined according to the contract under which the grouping is established.
(3) If the contract does not provide for this, the member's share is determined by reference to the share of the profits of the grouping to which the member is entitled under the contract.
(4) If the contract does not provide for this either, the members are treated as having equal shares of the property, rights and liabilities of the grouping.
(5) “European Economic Interest Grouping” means a grouping registered in a member State and formed in pursuance of Council Regulation (EEC) No. 2137/85 of 25 July 1985 on the European Economic Interest Grouping as it has effect in EU law.
(1) Any question whether a person is connected with another shall for the purposes of this Act be determined in accordance with the following subsections of this section (any provision that one person is connected with another being taken to mean that they are connected with one another).
(2) A person is connected with an individual if that person is the individual’s spouse or civil partner, or is a relative, or the spouse or civil partner of a relative, of the individual or of the individual’s spouse or civil partner.
(3) A person, in his capacity as trustee of a settlement, is connected with—
(a) any individual who in relation to the settlement is a settlor,
(b) any person who is connected with such an individual, ...
(c) any body corporate which is connected with that settlement,
(d) if the settlement is the principal settlement in relation to one or more sub-fund settlements, the trustees of the sub-fund settlements, and
(e) if the settlement is a sub-fund settlement in relation to a principal settlement, the trustees of any other sub-fund settlements in relation to the principal settlement.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3ZA) For the purpose of subsection (3) above—
(a) “settlement” has the same meaning as in section 620 of ITTOIA 2005, and
(b) “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.
(3A) For the purpose of subsection (3) above a body corporate is connected with a settlement if—
(a) it is a close company (or only not a close company because it is not resident in the United Kingdom) and the participators include the trustees of the settlement; or
(b) it is controlled (within the meaning of section 1124 of CTA 2010) by a company falling within paragraph (a) above.
(4) Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the spouse or civil partner or a relative of any individual with whom he is in partnership.
(5) A company is connected with another company—
(a) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other, or
(b) if a group of 2 or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected.
(6) A company is connected with another person, if that person has control of it or if that person and persons connected with him together have control of it.
(7) Any 2 or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure or exercise control of the company.
(8) In this section “relative” means brother, sister, ancestor or lineal descendant.
Chapter 3 of Part 2 of CTA 2009 (rules for determining residence of companies) applies for the purposes of—
(a) this Act (so far as relating to capital gains tax), and
(b) any other enactment relating to capital gains tax,
as it applies for the purposes of the Corporation Tax Acts.
287 Orders and regulations made by the Treasury or the Board.
(1) Subject to subsections (2) and (2A) below, any power of the Treasury or the Board to make any order or regulations under this Act or any other enactment relating to the taxation of chargeable gains passed after this Act shall be exercisable by statutory instrument.
(2) Subsection (1) above shall not apply in relation to any power conferred by section 288(6).
(2A) Subsection (1) above shall not apply in relation to any power conferred by TIOPA 2010 (see instead section 499 of that Act).
(3) Subject to subsection (4) below and to any other provision to the contrary, any statutory instrument to which subsection (1) above applies shall be subject to annulment in pursuance of a resolution of the House of Commons.
(4) Subsection (3) above shall not apply in relation to an order or regulations made under section ... 265 or paragraph 1 of Schedule 9, or—
(a) if any other Parliamentary procedure is expressly provided; or
(b) if the order or regulations provide for any provision of an enactment relating to the taxation of chargeable gains to come into force or have effect in accordance with the order or regulations.
(1) In this Act, unless the context otherwise requires—
“the 1979 Act” means the Capital Gains Tax Act 1979;
...
“allowable loss” shall be construed in accordance with sections 8(2) , 16 , 16A , 261B, 261D and 263ZA;
...
“the Board” means the Commissioners of Inland Revenue;
“building society” has the same meaning as in the Building Societies Act 1986;
“the Capital Allowances Act” means the Capital Allowances Act 2001;
“chargeable period” means a year of assessment or an accounting period of a company for purposes of corporation tax;
“class”, in relation to shares or securities, means a class of shares or securities of any one company;
“close company” shall be construed in accordance with Chapter 2 of Part 10 of CTA 2010 (see in particular section 439) (subject to section 138ZA(6));
“collective investment scheme” has the meaning given by section 235 of the Financial Services and Markets Act 2000 (subject to section 99A);
“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99;
“control” shall be construed in accordance with sections 450 and 451 of CTA 2010;
“CTA 2009” means the Corporation Tax Act 2009;
“CTA 2010” means the Corporation Tax Act 2010;
“disposal of a UK residential property interest” has the meaning given by Schedule B1;
“double taxation relief arrangements”—
in relation to a company means arrangements that have effect under section 2(1) of TIOPA 2010 except so far as they have effect in relation to petroleum revenue tax, and
in relation to any other person means arrangements that have effect under section 2(1) of TIOPA 2010 but only so far as they have effect in relation to capital gains tax;
“dual resident investing company” has the meaning given by section 404 of the Taxes Act;
“foreign employment election” means a claim under section 41M of ITEPA 2003;
“foreign gain claim” means a claim under paragraph 1 of Schedule D1;
“foreign income claim” means a claim under section 845A of ITTOIA 2005;
“inspector” means any inspector of taxes;
“investment trust” has the meaning given by section 1158 of CTA 2010;
“ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003;
“ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005;
“ITA 2007” means the Income Tax Act 2007;
“land” includes messuages, tenements, and hereditaments, houses and buildings of any tenure;
“local authority” has the meaning given by section 999 of ITA 2007;
“the Management Act” means the Taxes Management Act 1970;
“net income” has the same meaning as in the Income Tax Acts (see section 989 of ITA 2007);
...
“notice” means notice in writing;
...
...
...
“NRCGT return” has the meaning given by section 12ZB(2) of the Management Act;
“offshore fund” has the meaning given in section 355 of TIOPA 2010 (but where two or more offshore funds make up a collective investment scheme they are to be treated as a single offshore fund subject to section 99A of this Act));
“participant”, in relation to a collective investment scheme, has the meaning given by section 103C(10);
“period of account” has the meaning given by section 989 of ITA 2007;
“permanent establishment”, in relation to a company, is to be read in accordance with Chapter 2 of Part 24 of CTA 2010;
“personal representatives” has the same meaning as in the Corporation Tax Acts (see section 1119 of CTA 2010);
“property investment LLP” has the meaning given by section 1004 of ITA 2007;
“qualifying new resident” has the meaning given by section 845B of ITTOIA 2005 (which sets out the circumstances in which an individual will be a qualifying new resident following a period of 10 years of non-residence);
“recognised stock exchange” has the meaning given by section 1005 of ITA 2007;
“registered pension scheme” has the meaning given by section 150(2) of the Finance Act 2004;
“Registrar of Government Stock” means the person or persons appointed in accordance with regulations under section 47(1)(b) of the Finance Act 1942 (see regulation 3 of the Government Stock Regulations 2004);
...
“resident” means resident in accordance with the statutory residence test in Part 1 of Schedule 45 to the Finance Act 2013;
“shares” includes stock;
“split year”, as respects an individual, means a tax year that, as respects that individual, is a split year within the meaning of Part 3 of Schedule 45 to the Finance Act 2013 (statutory residence test: split year treatment);
“stepchild”, in relation to a civil partner, shall be construed in accordance with section 246 of the Civil Partnership Act 2004;
“the Taxes Act” means the Income and Corporation Taxes Act 1988;
“TIOPA 2010” means the Taxation (International and Other Provisions) Act 2010;
“trade” has the same meaning as in the Income Tax Acts;
“trading stock” has the meaning given by section 163 of CTA 2009;
“the tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal;
“UK property business” means—
a UK property business within the meaning of the Income Tax Acts (see section 989 of ITA 2007), or
a UK property business within the meaning of the Corporation Tax Acts (see section 1119 of CTA 2010);
“venture capital trust” has the same meaning as in Part 6 of ITA 2007;
“wasting asset” has the meaning given by section 44 and paragraph 1 of Schedule 8;
“year of assessment” means tax year;
and any reference to a particular section, Part or Schedule is a reference to that section or Part of, or that Schedule to, this Act.
(1ZA) In this Act and other enactments relating to capital gains tax “tax year” means a year beginning on 6 April and ending on the following 5 April; and “the tax year 2008-09” means the tax year beginning on 6 April 2008 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).
(1ZB) A reference in this Act to “the overseas part” or “the UK part” of a split year is to be read in accordance with Part 3 of Schedule 45 to the Finance Act 2013 (statutory residence test: split year treatment).
(1A) If any employment-related securities option would not otherwise be regarded as an option for the purposes of this Act, it shall be so regarded; and the acquisition of securities by an associated person pursuant to an employment-related securities option is to be treated for the purposes of this Act as the exercise of the option.
In this subsection “employment-related securities option” means a securities option within the meaning of Chapter 5 of Part 7 of ITEPA 2003 (see section 420(8) of that Act) to which that Chapter applies ... (see section 471 of that Act); and other expressions used in this subsection and that Chapter have the same meaning in this subsection as in that Chapter.
(2) In this Act “retail prices index” has the same meaning as in the Income Tax Acts and, accordingly, any reference in this Act to the retail prices index shall be construed in accordance with section 989 of ITA 2007.
(2A) In this Act “consumer prices index” means the all items consumer prices index published by the Statistics Board.
(3) References in this Act to an individual living with his spouse or civil partner (however expressed) shall be construed in accordance with section 1011 of ITA 2007.
(3A) For the purposes of this Act, the following are “the no gain/no loss provisions”—
(a) sections 58, 73, 139, 140A, 140E, 171, 211, 211B, 215, 216, 217A, 217D, 218 to 220, 257(3), 258(4), 264 and 267(2) of this Act;
(b) section 148 of the 1979 Act;
(c) section 148 of the Finance Act 1982;
(d) section 130(3) of the Transport Act 1985;
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) paragraph 2(1) of Schedule 7 to the Broadcasting Act 1996;
(g) paragraphs 3 and 9 of Schedule 26 to the Transport Act 2000;
(h) paragraphs 3, 18, 29 and 32 of Schedule 9 to the Energy Act 2004;
(i) paragraph 9 of Schedule 4 to the Consumers, Estate Agents and Redress Act 2007;
(j) Schedule 7 to the Housing and Regeneration Act 2008;
(k) paragraph 4 of Schedule 4 to the Budget Responsibility and National Audit Act 2011;
(l) paragraph 1(2) or 4 of Schedule 2 to the Postal Services Act 2011;
(m) paragraph 6(1) of Schedule 24 to the Localism Act 2011.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) For the purposes of this Act, shares or debentures comprised in any letter of allotment or similar instrument shall be treated as issued unless the right to the shares or debentures thereby conferred remains provisional until accepted and there has been no acceptance.
(5A) References in this Act to shares or securities which are listed on a recognised stock exchange shall be construed in accordance with subsections (3) and (4) of section 1005 of ITA 2007.
(5B) References in this Act to shares or securities which are included in the official UK list shall be construed in accordance with subsection (5) of that section.
(6) In this Act “recognised futures exchange” means the London International Financial Futures Exchange and any other futures exchange which is for the time being designated for the purposes of this Act by order made by the Board.
(7) An order made by the Board under subsection (6) above—
(a) may designate a futures exchange by name or by reference to any class or description of futures exchanges, including, in the case of futures exchanges in a country outside the United Kingdom, a class or description framed by reference to any authority or approval given in that country; and
(b) may contain such transitional and other supplemental provisions as appear to the Board to be necessary or expedient.
(7A) In the application of this Act to Scotland “surrender” includes renunciation.
(7B) For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief arrangements having effect at that time.
(8) The Table below indexes other general definitions in this Act.
Expression defined | Reference
“Absolutely entitled as against the trustee" | S.60(2)
Authorised contractual scheme | s 103D(2)
“Authorised unit trust" | S.99
“Branch or agency" | s 1B(5)
“Chargeable gain" | S.15(2)
“Connected", in references to persons being connected with one another | S.286
Co-ownership scheme | s 103D(2)
“Court investment fund" | S.100
“Gilt-edged securities" | Sch.9
“Indexation allowance" | S.53
“Lease" and cognate expressions | Sch.8 para.10(1)
“Legatee" | S.64(2),(3)
“Market value" | S.272 to 274 and Sch.11
“Part disposal" | S.21(2)
“Principal settlement” | Sch.4ZA para. 1
“Qualifying corporate bond" | S.117
“Relevant allowable expenditure" | S.53
“Reserved Investor Fund (Contractual Scheme)” | s 103D(2)
. . . | . . .
“Settled property" | S.68
“Settlor” | S.68A
“Settlor of property” | S.68A
“Sub-fund” | Sch.4ZA para. 1
“Sub-fund election” | Sch.4ZA para. 2
“Sub-fund settlement” | Sch.4ZA para. 1
“Unit trust scheme" and “unit holder” | Ss. 99 , 99A and 151W(a)
(1) Except where the context otherwise requires, this Act has effect in relation to tax for the year 1992-93 and subsequent years of assessment, and tax for other chargeable periods beginning on or after 6th April 1992, and references to the coming into force of this Act or any provision in this Act shall be construed accordingly.
(2) The following provisions of this Act, that is—
(a) so much of any provision of this Act as authorises the making of any order or other instrument, and
(b) except where the tax concerned is all tax for chargeable periods to which this Act does not apply, so much of any provision of this Act as confers any power or imposes any duty the exercise or performance of which operates or may operate in relation to tax for more than one chargeable period,
shall come into force for all purposes on 6th April 1992 to the exclusion of the corresponding enactments repealed by this Act.
290 Savings, transitionals, consequential amendments and repeals.
(1) Schedules 10 (consequential amendments) and 11 (transitory provisions and savings) shall have effect.
(2) No letters patent granted or to be granted by the Crown to any person, city, borough or town corporate of any liberty, privilege, or exemption from subsidies, tolls, taxes, assessments or aids, and no statute which grants any salary, annuity or pension to any person free of any taxes, deductions or assessments, shall be construed or taken to exempt any person, city, borough or town corporate, or any inhabitant of the same, from tax chargeable in pursuance of this Act.
(3) Subject to Schedule 11, the enactments and instruments mentioned in Schedule 12 to this Act are hereby repealed to the extent specified in the third column of that Schedule (but Schedule 12 shall not have effect in relation to any enactment in so far as it has previously been repealed subject to a saving which still has effect on the coming into force of this section).
(4) The provisions of this Part of this Act are without prejudice to the provisions of the Interpretation Act 1978 as respects the effect of repeals.
Schedule D1 Relief for new residents on foreign gains
Section 1A(2)(za)
Claim for relief for qualifying new residents
1 (1) An individual may make a claim for relief for a tax year under this paragraph (a “foreign gain claim”) if the individual is a qualifying new resident for that tax year.
(2) Paragraphs 2, 3 and 4 set out the reliefs that may be obtained by making a foreign gain claim.
(3) A foreign gain claim must be made in a return.
(4) A foreign gain claim in relation to a tax year must be made before the end of the period of 12 months beginning with 31 January after the end of that tax year.
(5) A foreign gain claim may not be made as a consequential claim (within the meaning of section 43C(5) of the Management Act) if the circumstances which give rise to the consequential claim result from a loss of tax brought about carelessly or deliberately by the individual or a person acting on the individual’s behalf.
(6) For the purposes of this paragraph—
(a) “return” means a return under section 8 of the Management Act (personal return),
(b) references to a claim being included in a return include a claim being so included as a result of an amendment of the return, and
(c) subsections (5) to (7) of section 118 of the Management Act (loss of tax brought about carelessly or deliberately) apply as they apply for the purposes of that Act.
Relief for qualifying foreign gains
2 (1) Where an individual makes a foreign gain claim for a tax year, the individual is entitled to relief for each qualifying foreign gain accruing to the individual in that year that is identified in the claim.
(2) The relief is given by deducting an amount equal to the sum of those gains from the total amount of qualifying foreign gains accruing to the individual in that tax year.
Relief in respect of deemed gains under section 86
3 (1) This paragraph applies if—
(a) an amount of chargeable gains would (but for this paragraph) be treated as accruing to an individual in a tax year under section 86(4) (attribution of gains to settlors of non-resident settlements),
(b) a qualifying foreign gain accrued in that tax year to the trustees of the settlement concerned (or would have done on the assumption in section 86(3)), and
(c) the individual identifies the gain mentioned in paragraph (b) in a foreign gain claim for that tax year.
(2) For the purposes of section 86(1)(e) as it applies to the individual, the following are to be disregarded (in that tax year and in later tax years)—
(a) the gain mentioned in sub-paragraph (1)(b);
(b) any qualifying foreign loss that accrued to the trustees in that tax year (or that would have so accrued on the assumption in section 86(3)).
Relief in respect of deemed gains under sections 87 and 89(2) and Schedule 4C
4 (1) This paragraph applies if—
(a) a settlement is for a tax year—
(i) one to which section 87 or 89(2) applies (attribution of gains to beneficiaries of settlements), or
(ii) a relevant settlement in relation to a Schedule 4C pool, within the meaning of paragraph 8A of Schedule 4C (transfers of value: attribution of gains etc),
(b) a beneficiary of the settlement receives a capital payment from the trustees in that tax year, and
(c) the individual identifies the capital payment in a foreign gain claim for that tax year.
(2) The capital payment is to be disregarded (in that tax year and in later tax years) for the purposes of sections 87, 87A and 89(2) and paragraph 8 of Schedule 4C.
(3) The following apply for the purposes of this paragraph as they apply for the purposes of section 87—
(a) section 87G (which provides for capital payments made to a close member of the settlor’s family to be treated in certain cases as received by the settlor);
(b) section 97 (which makes provision about the construction of “capital payment”, “settlement”, “trustees” and “beneficiary”).
Other effects of claim
5 For other effects of making a foreign gain claim, see—
(a) section 1K(6)(b) (annual exempt amount), which provides that where a foreign gain claim has effect in relation to an individual for a tax year, the individual has no entitlement to an annual exempt amount for that year,
(b) section 16(4) (computation of losses), which provides that where a foreign gain claim has effect in relation to an individual for a tax year, qualifying foreign losses accruing to the individual in that year are not allowable losses, and
(c) sections 845C to 845E of ITTOIA 2005, which set out some income tax consequences of making a foreign gain claim.
Interpretation of Schedule
6 In this Schedule—
“qualifying foreign asset” means an asset that—
is situated outside the United Kingdom, and
does not derive at least 75% of its value from UK land (see Schedule 1A);
“qualifying foreign gain” means—
a chargeable gain accruing on the disposal of a qualifying foreign asset,
a chargeable gain treated as accruing as a result of section 3 (gains of non-UK resident close companies attributed to UK residents) where the gain accruing to the non-UK resident close company to which the deemed gain relates accrued on the disposal of a qualifying foreign asset, or
a qualifying QAHC gain,
but a chargeable gain falling within paragraph (a) or (b) is not a qualifying foreign gain if it is a gain to which paragraph 1(2) of Schedule 1 applies (pre-2025-26 gains subject to the remittance basis);
“qualifying foreign loss” means a loss accruing on the disposal of an asset that is a qualifying foreign asset;
“qualifying QAHC gain” means the foreign proportion (see paragraph 46(4) to (6) of Schedule 2 to FA 2022) of a chargeable gain accruing to an individual who provided investment management services in connection with investment arrangements to which a QAHC is party on the disposal of shares in the QAHC that were acquired during the course of the provision of those services;
“QAHC” and “investment management services” have the meanings they have in that Schedule.
SCHEDULE 1 UK resident individuals to whom the remittance basis applied
Section 3.
Foreign gains treated as accruing when remitted to UK
1 (1) This paragraph applies in the case of an individual to whom the remittance basis applied for a tax year if—
(a) in that year the individual disposes of foreign assets,
(b) chargeable gains accrue to the individual on the disposal of those assets, and
(c) the gains are not taken outside the charge to capital gains tax as a result of section 1G (cases where tax year is a split year).
(2) The gains are treated as accruing to the individual only so far as, and at the time when, they are remitted to the United Kingdom.
(3) The amount treated as accruing is equal to the full amount remitted to the United Kingdom at that time.
Use of allowable losses against foreign gains remitted in later year
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Matching rules for relieving allowable losses
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rules for matching losses to chargeable gains
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitions
5 (1) For the purposes of this Schedule “foreign asset” means an asset situated outside the United Kingdom.
(2) For the purposes of this Schedule any reference to “the remittance basis” applying to an individual for a tax year is to section 809B, 809D or 809E of ITA 2007 applying to the individual for the year.
(3) For the purposes of this Schedule any question as to whether, and when, amounts are “remitted to the United Kingdom” is determined in accordance with the rules in Chapter A1 of Part 14 of ITA 2007.
SCHEDULE 1A Assets deriving 75% of value from UK land etc
PART 1 Introduction
1 This Schedule makes provision, for the purposes of section 1A(3)(c) or 2B(4)(b) or paragraph 6 of Schedule D1, for determining in the case of any disposal of any asset—
(a) whether the asset derives at least 75% of its value from UK land (see Part 2 of this Schedule), and
(b) whether the person making the disposal has a substantial indirect interest in the UK land (see Part 3 of this Schedule).
2 The provision made by this Schedule needs to be read together with—
(a) paragraph 5 of Schedule 5AAA (which treats units in a CoACS as shares for the purposes of this Schedule), and
(b) paragraph 6 of that Schedule (which treats certain disposals of interests in collective investment vehicles as meeting the conditions in Part 3 of this Schedule).
PART 2 Whether asset derives at least 75% of its value from UK land
The basic rule
3 (1) An asset derives at least 75% of its value from UK land if—
(a) the asset consists of a right or an interest in a company, and
(b) at the time of the disposal, at least 75% of the total market value of the company's qualifying assets derives (directly or indirectly) from interests in UK land.
(2) Market value may be traced through any number of companies, partnerships, trusts and other entities or arrangements but may not be traced through a normal commercial loan.
(3) It is irrelevant whether the law under which a company, partnership, trust or other entity or an arrangement is established or has effect is—
(a) the law of any part of the United Kingdom, or
(b) the law of any territory outside the United Kingdom.
(4) The assets held by a company, partnership or trust or other entity or arrangement must be attributed to the shareholders, partners, beneficiaries or other participants at each stage in whatever way is appropriate in the circumstances.
(5) For the purposes of this paragraph—
“normal commercial loan” means a loan which is a normal commercial loan for the purposes of section 158(1)(b) or 159(4)(b) of CTA 2010, and
“qualifying assets” has the meaning given by paragraph 4.
(6) The provision made by this paragraph is subject to exceptions provided by—
(a) paragraph 5 (interests in UK land used for trading purposes), and
(b) paragraph 6 (certain disposals of rights or interests in connected companies).
Meaning of “qualifying assets”
4 (1) Subject as follows, all of the assets of the company are qualifying assets.
(2) An asset of the company is not a qualifying asset so far as it is matched to a related party liability.
(3) But an interest in UK land is a qualifying asset of the company even if it is matched to any extent to a related party liability.
(4) An asset of the company is matched to a related party liability if—
(a) the asset consists of a right under a transaction (for example, a right under a loan relationship or derivative contract),
(b) the right entitles the company to require another person to meet a liability arising under the transaction, and
(c) the other person is relevant to the paragraph 3 tracing exercise or is a related party of the company on the day of the disposal.
(5) For the purposes of this paragraph a person is relevant to the paragraph 3 tracing exercise if—
(a) the person has assets that fall to be taken into account in the tracing exercise mentioned in paragraph 3, or
(b) the person has obligations (whether as a trustee or otherwise) in relation to the holding of assets comprised in any trust or other arrangement that fall to be taken into account in that exercise.
(6) Whether, for the purposes of this paragraph, a person is a related party of the company on any day is determined in accordance with the rules in Part 8ZB of CTA 2010 but as if, in section 356OT(4) of that Act, the words “, within the period of 6 months beginning with that day” were omitted.
(7) In this paragraph a liability includes a contingent liability (such as one arising as a result of the giving of a guarantee, indemnity or other form of financial assistance).
Exception in relation to interests in UK land used for trading purposes
5 (1) A disposal of a right or interest in a company is not to be regarded as a disposal of an asset deriving at least 75% of its value from UK land if it is reasonable to conclude that, so far as the market value of the company's qualifying assets derives (directly or indirectly) from interests in UK land—
(a) all of the interests in UK land are used for trading purposes, or
(b) all of the interests in UK land would be used for those purposes if low-value non-trade interests in UK land were left out of account.
(2) An interest in UK land is “used for trading purposes” for the purposes of this paragraph if (and only if), at the time of the disposal—
(a) it is being used in, or for the purposes of, a qualifying trade, or
(b) it has been acquired for use in, or for the purposes of, a qualifying trade.
(3) A trade is a “qualifying” trade for the purposes of this paragraph if—
(a) it has been carried on by the company, or by a person connected with the company, throughout the period of one year ending with the time of the disposal on a commercial basis with a view to the realisation of profits, and
(b) it is reasonable to conclude that the trade will continue to be carried on (for more than an insignificant period of time) on a commercial basis with a view to the realisation of profits.
(4) For the purposes of this paragraph, “low-value non-trade interests in UK land” means interests in UK land—
(a) which are not used for trading purposes, and
(b) the total market value of which is, at the time of the disposal, no more than 10% of the total market value at that time of the interests in UK land that are used for trading purposes.
Exception for certain disposals of rights or interests under same arrangements etc
6 (1) This paragraph applies if—
(a) there are two or more disposals of rights or interests in companies,
(b) the disposals are linked with each other,
(c) some but not all of the disposals would, apart from this paragraph, be disposals of assets deriving at least 75% of their value from UK land, and
(d) if one of the companies included all of the assets of the others, a disposal of a right or interest in it would not be a disposal of an asset deriving at least 75% of its value from UK land.
(2) None of the disposals are to be regarded as disposals of assets deriving at least 75% of their value from UK land.
(3) In determining whether the condition in sub-paragraph (1)(d) is met in the case of a disposal of a right or interest in a company, it is to be assumed that, for the purposes of paragraph 4, each of the other companies in which rights or interest are disposed of is (so far as this would not otherwise be the case) a related party of the company on the day of the disposal.
(4) For the purposes of this paragraph a disposal of a right or interest in a company is linked with a disposal of a right or interest in another company if—
(a) the disposals are made under the same arrangements,
(b) the disposals are made by the same person or by persons connected with each other,
(c) the disposals are made to the same person or to persons connected with each other, and
(d) in the case of each disposal, the person making the disposal is connected with the company in which the right or interest is disposed of.
(5) For the purposes of this paragraph, the question whether or not a person is connected with another is to be determined immediately before the arrangements are entered into.
(6) Section 286 (connected persons: interpretation) has effect for the purposes of this paragraph as if, in subsection (4), the words “Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements,” were omitted.
Meaning of “interest in UK land”
7 For the purposes of this Part of this Schedule “interest in UK land” has the meaning given by section 1C.
PART 3 Whether person has substantial indirect interest in UK land
Basic rule
8 (1) If—
(a) a person disposes of an asset consisting of a right or an interest in a company, and
(b) the asset derives at least 75% of its value from UK land,
the person has a substantial indirect interest in UK land if, at any time in the period of 2 years ending with the time of the disposal, the person has a 25% investment in the company.
(2) But a person is not to be regarded as having a 25% investment in the company at times falling in the person's qualifying ownership period if, having regard to the length of that period, the times (taken as whole) constitute an insignificant proportion of that period.
(3) The “person's qualifying ownership period” means the period throughout which the person has held an asset consisting of a right or an interest in the company, but excluding times that fall before the beginning of the 2 year period mentioned in sub-paragraph (1).
Meaning of “25% investment”
9 (1) A person (“P”) has a 25% investment in a company (“C”) if—
(a) P possesses or is entitled to acquire 25% or more of the voting power in C,
(b) in the event of a disposal of the whole of the equity in C, P would receive 25% or more of the proceeds,
(c) in the event that the income in respect of the equity in C were distributed among the equity holders in C, P would receive 25% or more of the amount so distributed, or
(d) in the event of a winding-up of C or in any other circumstances, P would receive 25% or more of C's assets which would then be available for distribution among the equity holders in C in respect of the equity in C.
(2) In this paragraph references to the equity in C are to—
(a) the shares in C other than restricted preference shares, or
(b) loans to C other than normal commercial loans.
(3) For this purpose “shares in C” includes—
(a) stock, and
(b) any other interests of members in C.
(4) For the purposes of this paragraph a person is an equity holder in C if the person possesses any of the equity in C.
(5) For the purposes of this paragraph—
“normal commercial loan” means a loan which is a normal commercial loan for the purposes of section 158(1)(b) or 159(4)(b) of CTA 2010, and
“restricted preference shares” means shares which are restricted preference shares for the purposes of section 160 of CTA 2010.
(6) In a case where C is a company which does not have share capital, in applying for the purposes of this paragraph the definitions of “normal commercial loan” and “restricted preference shares”—
(a) sections 160(2) to (7) and 161 to 164 of CTA 2010, and
(b) any other relevant provisions of that Act,
have effect with the necessary modifications.
(7) In this paragraph references to a person receiving any proceeds, amount or assets include—
(a) the direct or indirect receipt of the proceeds, amount or assets, and
(b) the direct or indirect application of the proceeds, amount or assets for the person's benefit,
and it does not matter whether the receipt or application is at the time of the disposal, distribution, winding-up or other circumstances or at a later time.
(8) If—
(a) there is a direct receipt or direct application of any proceeds, amount or assets by or for the benefit of a person (“A”), and
(b) another person (“B”) directly or indirectly owns a percentage of the equity in A,
there is, for the purposes of sub-paragraph (7), an indirect receipt or indirect application of that percentage of the proceeds, amount or assets by or for the benefit of B.
(9) For this purpose the percentage of the equity in A directly or indirectly owned by B is to be determined by applying the rules in sections 1155 to 1157 of CTA 2010 with such modifications (if any) as may be necessary.
(10) Sub-paragraph (7) is not to result in a person being regarded as having a 25% investment in another person merely as a result of their being parties to a normal commercial loan.
(11) Any reference in this paragraph, in the case of a person who is a member of a partnership, to the proceeds, amount or assets of the person includes the person's share of the proceeds, amount or assets of the partnership (apportioning those things between the partners on a just and reasonable basis).
Attribution of rights and interests
10 (1) In determining for the purposes of paragraph 9 the investment that a person (“P”) has in a company, P is to be taken to have all of the rights and interests of any person connected with P.
(2) A person is not to be regarded as connected with another person for the purposes of this paragraph merely as a result of their being parties to a loan that is a normal commercial loan for the purposes of paragraph 9.
(3) Section 286 (connected persons: interpretation) has effect for the purposes of this paragraph—
(a) as if, in subsection (2), for the words from “, or is a relative” to the end there were substituted “ or is a lineal ancestor or lineal descendant of the individual or of the individual's spouse or civil partner ”, and
(b) as if subsections (4) and (8) were omitted.
PART 4 Cell companies and anti-avoidance
Cell companies
10A (1) In the application of this Schedule in relation to the disposal of an asset consisting of a right or an interest in a cell company, each cell of the company is to be treated as if it were an individual company.
(2) For the purposes of this paragraph—
(a) a company is a “cell company” if under the law under which the company is formed, under the company’s articles of association or other document regulating the company or under arrangements entered into by or in relation to the company—
(i) some or all of the assets of the company are available primarily, or only, to meet particular liabilities of the company, and
(ii) some or all of the members of the company, and some or all of its creditors, have rights primarily, or only, in relation to particular assets of the company;
(b) “cell”, in relation a cell company, means an identifiable part of the company that carries on distinct business activities and to which particular assets and liabilities of the company are primarily or wholly attributable.
Anti-avoidance
11 (1) This paragraph applies if a person has entered into any arrangements the main purpose, or one of the main purposes, of which is to obtain a tax advantage for the person as a result (wholly or partly) of—
(a) a provision of this Schedule applying or not applying, or
(b) double taxation arrangements having effect despite a provision of this Schedule in a case where the advantage is contrary to the object and purpose of the double taxation arrangements.
(2) The tax advantage is to be counteracted by the making of such adjustments as are just and reasonable.
(3) The adjustments may be made (whether by an officer of Revenue and Customs or the person) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.
(4) The counteraction has effect in a treaty shopping case regardless of section 6(1) of TIOPA 2010.
(5) This paragraph applies by reference to—
(a) arrangements entered into on or after 22 November 2017 in a treaty shopping case, and
(b) arrangements entered into on or after 6 July 2018 in any other case.
(6) In this paragraph—
“arrangements” (except in the expression “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
“double taxation arrangements” means arrangements that have effect under section 2(1) of TIOPA 2010,
“tax” means capital gains tax or corporation tax,
“tax advantage” includes—
relief or increased relief from tax,
repayment or increased repayment of tax,
avoidance or reduction of a charge to tax or an assessment to tax,
avoidance of a possible assessment to tax,
deferral of a payment of tax or advancement of a repayment of tax, and
avoidance of an obligation to deduct or account for tax, and
“treaty shopping case” means a case where this paragraph applies as a result of sub-paragraph (1)(b).
SCHEDULE 1C Annual exempt amount in cases involving settled property
Introductory
1 (1) This Schedule provides for the application of section 1K (in some cases with modifications) in relation to the trustees of a settlement for a tax year.
(2) The application of this Schedule depends on (among other things) whether or not—
(a) a settlement is for the benefit of a disabled person, and
(b) a settlement is a qualifying UK settlement.
(3) For the definitions of those expressions, see paragraphs 3 and 7 respectively.
(4) In this Schedule any reference to the application of section 1K in relation to an individual for a tax year is to its application in relation to an individual to whom subsection (6) of that section does not apply.
Settlements for the benefit of disabled persons
2 (1) In the case of a settlement for the benefit of a disabled person for a tax year, section 1K applies in relation to the trustees of the settlement for the year as it applies in relation to an individual for the year.
(2) This paragraph needs to be read with—
(a) paragraph 6 (cases where settlement is a qualifying UK settlement comprised in a group), and
(b) paragraph 8 (sub-fund settlements).
3 (1) A settlement is a “settlement for the benefit of a disabled person” for a tax year if, for the whole or part of that year, settled property is held on trusts which secure that, during the lifetime of a disabled person, the property and income tests are met.
(2) The property test is met if any of the property which is applied for the benefit of a beneficiary is applied for the disabled person's benefit.
(3) The income test is met if either—
(a) the disabled person is entitled to all of the income (if any) arising from any of the property, or
(b) if any income arising from any of the property is applied for the benefit of a beneficiary, it is applied for the disabled person's benefit.
(4) A settlement is not prevented from being a settlement for the benefit of a disabled person for a tax year just because—
(a) the trustees have power to apply amounts (of any nature) not exceeding the de minimis threshold for that year,
(b) the trustees have the powers of advancement conferred by section 32 of the Trustee Act 1925 or section 33 of the Trustee Act (Northern Ireland) 1958,
(c) the trustees have those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by—
(i) proviso (a) of section 32(1) of the Trustee Act 1925, or
(ii) section 33(1)(a) of the Trustee Act (Northern Ireland) 1958, or
(d) the trustees have powers to the same effect as the powers mentioned in paragraph (b) or (c).
(5) For the purposes of sub-paragraph (4)(a) “the de minimis threshold” means—
(a) £3,000, or
(b) 3% of the maximum value of the settled property during the tax year,
whichever is the lower.
(6) In this paragraph “disabled person” has the meaning given by Schedule 1A to the Finance Act 2005.
(7) If the income from settled property is held for the benefit of a disabled person (“D”) on trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts), the reference in this paragraph to D's lifetime is to be read as a reference to the period during which the income is held on trust for D.
(8) This paragraph applies for the purposes of this Schedule.
4 (1) The Treasury may by order—
(a) specify circumstances in which paragraph 3(4)(a) is, or is not, to apply, and
(b) amend the definition of “the de minimis threshold” in paragraph 3(5).
(2) The order may—
(a) make different provision for different purposes, and
(b) contain transitional and saving provision.
(3) A statutory instrument containing an order under this paragraph which reduces the annual exempt amount in any case may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.
Other settlements
5 (1) This paragraph applies if settlement is not a settlement for the benefit of a disabled person for a tax year.
(2) Section 1K applies in relation to the trustees of the settlement for the year as it applies in relation to an individual for the year but as if the annual exempt amount for the year were one-half of the amount available for the individual for the year.
(3) This paragraph needs to be read be with—
(a) paragraph 6 (cases where settlement is qualifying UK settlement comprised in a group), and
(b) paragraph 8 (sub-fund settlements).
Special rules for qualifying UK settlements comprised in groups
6 (1) This paragraph reduces the annual exempt amount for trustees of a settlement for a tax year if the settlement is one of two or more qualifying UK settlements comprised in a group.
(2) In the case of a settlement for the benefit of a disabled person for the year, the annual exempt amount for the year is to be reduced so that it is equal to—
(a) one-tenth of an individual's amount for that year, or
(b) the amount resulting from dividing the individual's amount for that year by the number of settlements in the group,
whichever is the greater.
(3) In the case of any other settlement, the annual exempt amount for the year is to be reduced so that it is equal to—
(a) one-tenth of an individual's amount for that year, or
(b) the amount resulting from dividing half of an individual's amount for that year by the number of settlements in the group,
whichever is the greater.
(4) In this paragraph “an individual's amount”, in relation to a tax year, means the annual exempt amount applying to an individual for the year under section 1K.
(5) For the purposes of this paragraph all qualifying UK settlements in relation to which the same person is the settlor constitute a group.
(6) If—
(a) two or more persons are settlors in relation to a settlement, and
(b) a settlement is consequently comprised in two or more groups comprising different numbers of settlement,
sub-paragraphs (2)(b) and (3)(b) have effect by reference to the largest group.
7 (1) In this Schedule “qualifying UK settlement”, in relation to a tax year, means any settlement in relation to which both of the following conditions are met—
(a) the trustees of the settlement are resident in the United Kingdom during any part of the tax year, and
(b) the property comprised in the settlement is not held for a charitable or pensions purpose.
(2) Property comprised in a settlement is held for a charitable purpose if (and only if)—
(a) it is held for charitable purposes only, and
(b) it cannot become applicable for other purposes.
(3) Property comprised in a settlement is held for a pensions purpose if (and only if) it is held for the purposes of—
(a) a registered pension scheme,
(b) a superannuation fund to which section 615(3) of the Taxes Act applies, or
(c) an occupational pension scheme (within the meaning of section 150(5) of the Finance Act 2004) that is not a registered pension scheme.
(4) For this purposes of any provision of this Schedule other than paragraph 8 a settlement is not a qualifying UK settlement if—
(a) in the case of one for the benefit of a disabled person, it was made before 10 March 1981, or
(b) in any other case, it was made before 6 June 1978.
Special rules for principal settlements and sub-funds
8 (1) This paragraph—
(a) applies if the trustees of a settlement (“the principal settlement”) have made an election under paragraph 1 of Schedule 4ZA the effect of which is that one or more other settlements (“sub-fund settlements”) are treated as created, and
(b) provides for the annual exempt for the trustees of each of the affected settlements to be determined by reference to the assumed annual amount.
(2) For this purposes of this paragraph—
(a) the principal settlement and each of the sub-fund settlements is an “affected settlement”, and
(b) the “assumed annual amount” means the amount which would be the annual exempt for the trustees of the principal settlement on the assumption that no election had been made under paragraph 1 of Schedule 4ZA.
(3) The annual exempt amount for the trustees of each of the affected settlements is the assumed annual amount unless there are two or more qualifying UK settlements in the affected settlements.
(4) In that case, the annual exempt amount for the trustees of each of the affected settlements is the assumed annual amount divided by the number of qualifying UK settlements in the affected settlements.
Section 35.
Part I Quoted securities
Deemed acquisition at 6th April 1965 value
1 (1) This paragraph applies—
(a) to shares and securities which on 6th April 1965 had quoted market values on a recognised stock exchange, or which had such quoted market values at any time in the period of 6 years ending on 6th April 1965, and
(b) to rights of unit holders in any unit trust scheme the prices of which are published regularly by the managers of the scheme.
(2) For the purposes of this Act it shall be assumed, wherever relevant, that any assets to which this paragraph applies were sold by the owner, and immediately reacquired by him, at their market value on 6th April 1965.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restriction of gain or loss by reference to actual cost
2 (1) Subject to paragraph 4 below and section 109(4), paragraph 1(2) above shall not apply in relation to a disposal of assets—
(a) if on the assumption in paragraph 1(2) a gain would accrue on that disposal to the person making the disposal and either a smaller gain or a loss would so accrue if paragraph 1(2) did not apply, or
(b) if on the assumption in paragraph 1(2) a loss would so accrue and either a smaller loss or a gain would accrue if paragraph 1(2) did not apply,
and accordingly the amount of the gain or loss accruing on the disposal shall be computed without regard to the preceding provisions of this Schedule except that in a case where this sub-paragraph would otherwise substitute a loss for a gain or a gain for a loss it shall be assumed, in relation to the disposal, that the relevant assets were sold by the owner, and immediately reacquired by him, for a consideration such that, on the disposal, neither a gain nor a loss accrued to the person making the disposal.
(2) For the purpose of—
(a) identifying shares or securities held on 6th April 1965 with shares or securities previously acquired, and
(b) identifying the shares or securities held on that date with shares or securities subsequently disposed of, and distinguishing them from shares or securities acquired subsequently,
so far as that identification is needed for the purposes of sub-paragraph (1) above, and so far as the shares or securities are of the same class, shares or securities acquired at a later time shall be deemed to be disposed of before shares or securities acquired at an earlier time.
(3) Sub-paragraph (2) above has effect subject to section 105.
3 (1) Where—
(a) a disposal was made out of quoted securities before 20th March 1968, and
(b) by virtue of paragraph 2 of Schedule 7 to the Finance Act 1965 some of the quoted securities out of which the disposal was made were acquired before 6th April 1965 and some later,
then in computing the gain accruing on any disposal of quoted securities the question of what remained undisposed of on the earlier disposal shall be decided on the footing that paragraph 2 of that Schedule did not apply as respects that earlier disposal.
(2) The rules of identification in paragraph 2(2) above shall apply for the purposes of this paragraph as they apply for the purposes of that paragraph.
Election for pooling
4 (1) This paragraph applies in relation to quoted securities as respects which an election under paragraphs 4 to 7 of Schedule 5 to the 1979 Act had not been made before the operative date, within the meaning of Part II of Schedule 13 to the Finance Act 1982, (so that they do not constitute a 1982 holding within the meaning of section 109), but does not apply in relation to relevant securities within the meaning of section 108.
(2) If a person so elects, quoted securities covered by the election shall be excluded from paragraph 2 above, so that paragraph 1(2) above is not excluded by that paragraph as respects those securities, and sub-paragraphs (3) to (7) (which re-enact section 65 of the 1979 Act) apply.
(3) Subject to section 105, any number of quoted securities of the same class held by one person in one capacity shall for the purposes of this Act be regarded as indistinguishable parts of a single asset (in this paragraph referred to as a holding) growing or diminishing on the occasions on which additional securities of the class in question are acquired, or some of the securities of the class in question are disposed of.
(4) Without prejudice to the generality of sub-paragraph (3) above, a disposal of quoted securities in a holding, other than the disposal outright of the entire holding, is a disposal of part of an asset and the provisions of this Act relating to the computation of a gain accruing on a disposal of part of an asset shall apply accordingly.
(5) Securities shall not be treated for the purposes of this paragraph as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on such a stock exchange, but shall be treated in accordance with this paragraph notwithstanding that they are identified in some other way by the disposal or by the transfer or delivery giving effect to it.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Nothing in this paragraph shall be taken as affecting the manner in which the market value of any asset is to be ascertained.
(8) An election made by any person under this paragraph shall be as respects all disposals made by the person at any time, including disposals made before the election but after 19th March 1968—
(a) of quoted securities of kinds other than fixed-interest securities and preference shares, or
(b) of fixed-interest securities and preference shares,
and references to the quoted securities covered by an election shall be construed accordingly.
Any person may make both of the elections.
(9) An election under this paragraph shall not cover quoted securities which the holder acquired on a disposal after 19th March 1968 in relation to which section 171(1) applies, but this paragraph shall apply to the quoted securities so held if the person who made the original disposal (that is to say ... the other member of the group of companies) makes an election covering quoted securities of the kind in question.
For the purpose of identifying quoted securities disposed of by the holder with quoted securities acquired by the holder on a disposal in relation to which section 171(1) applies, so far as they are of the same class, quoted securities acquired at an earlier time shall be deemed to be disposed of before quoted securities acquired at a later time.
(10) For the avoidance of doubt it is hereby declared—
(a) that where a person makes an election under this paragraph as respects quoted securities which the person holds in one capacity, that election does not cover quoted securities which the person holds in another capacity, and
(b) that an election under this paragraph is irrevocable.
(11) An election under this paragraph shall be made by notice to an officer of the Board given—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) ... not later than the expiration of 2 years from the end of the accounting period in which the first relevant disposal is made; or
(c) ... within such further time as the Board may allow.
(12) Subject to paragraph 5 below, in this paragraph the “first relevant disposal”, in relation to each of the elections referred to in sub-paragraph (8) of this paragraph, means the first disposal after 19th March 1968 by the person making the election of quoted securities of the kind covered by that election.
(13) All such adjustments shall be made, whether by way of discharge or repayment of tax, or the making of assessments or otherwise, as are required to give effect to an election under this paragraph.
Election by principal company of group
5 (1) In the case of companies which at the relevant time are members of a group of companies—
(a) an election under paragraph 4 above by the company which at that time is the principal company of the group shall have effect also as an election by any other company which at that time is a member of the group, and
(b) no election under that paragraph may be made by any other company which at that time is a member of the group.
(2) In this paragraph “the relevant time”, in relation to a group of companies, and in relation to each of the elections referred to in paragraph 4(8) above, is the first occasion after 19th March 1968 when any company which is then a member of a group disposes of quoted securities of a kind covered by that election, and for the purposes of paragraph 4(11) above that occasion is, in relation to the group, “the first relevant disposal".
(3) This paragraph shall not apply in relation to quoted securities of either kind referred to in paragraph 4(8) above which are owned by a company which, in some period after 19th March 1968 and before the relevant time, was not a member of the group if in that period it had made an election under paragraph 4 above in relation to securities of that kind (or was treated by virtue of this paragraph, in relation to another group, as having done so), or had made a disposal of quoted securities of that kind and did not make an election within the time limited by paragraph 4(11) above.
(4) This paragraph shall apply notwithstanding that a company ceases to be a member of the group at any time after the relevant time.
(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).
Pooling at value on 6th April 1965: exchange of securities etc.
6 (1) Where a person who has made only one of the elections under paragraph 4 above disposes of quoted securities which, in accordance with Chapter II of Part IV, are to be regarded as being or forming part of a new holding, the election shall apply according to the nature of the quoted securities disposed of, notwithstanding that under that Chapter the new holding is to be regarded as the same asset as the original holding and that the election would apply differently to the original holding.
(2) Where the election does not cover the disposal out of the new holding but does cover quoted securities of the kind comprised in the original holding, then in computing the gain accruing on the disposal out of the new holding (in accordance with paragraph 3 above) the question of what remained undisposed of on any disposal out of the original holding shall be decided on the footing that paragraph 3 above applied to that earlier disposal.
(3) In the converse case (that is to say, where the election covers the disposal out of the new holding, but does not cover quoted securities of the kind comprised in the original holding) the question of how much of the new holding derives from quoted securities held on 6th April 1965 and how much derives from other quoted securities, shall be decided as it is decided for the purposes of paragraph 3 above.
Underwriters
7 No election under paragraph 4 above shall cover quoted securities comprised in any underwriter’s premiums trust fund, or premiums trust fund deposits, or personal reserves, being securities comprised in funds to which section 206 applies.
Interpretation of paragraphs 3 to 7
8 (1) In paragraphs 3 to 7 above—
“quoted securities” means assets to which paragraph 1 above applies,
“fixed interest security” means any security as defined by section 132,
“preference share” means any share the holder whereof has a right to a dividend at a fixed rate, but has no other right to share in the profits of the company.
(2) If and so far as the question whether at any particular time a share was a preference share depends on the rate of dividends payable on or before 5th April 1973, the reference in the definition of “preference share” in sub-paragraph (1) above to a dividend at a fixed rate includes a dividend at a rate fluctuating in accordance with the standard rate of income tax.
Part II Land reflecting development value
9 (1) Subject to paragraph 17(2) of Schedule 11, this Part of this Schedule shall apply in relation to a disposal of an asset which is an interest in land situated in the United Kingdom—
(a) if, but for this paragraph, the expenditure allowable as a deduction in computing the gain accruing on the disposal would include any expenditure incurred before 6th April 1965, and
(b) if the consideration for the asset acquired on the disposal exceeds the current use value of the asset at the time of the disposal, or if any material development of the land has been carried out after 17th December 1973 since the person making the disposal acquired the asset.
(2) For the purposes of this Act, it shall be assumed that, in relation to the disposal and, if it is a part disposal, in relation to any subsequent disposal of the asset which is an interest in land situated in the United Kingdom, that asset was sold by the person making the disposal, and immediately reacquired by him, at its market value on 6th April 1965.
(3) Sub-paragraph (2) above shall apply also in relation to any prior part disposal of the asset and, if tax has been charged, or relief allowed, by reference to that part disposal on a different footing, all such adjustments shall be made, whether by way of assessment or discharge or repayment of tax, as are required to give effect to the provisions of this sub-paragraph.
(4) Sub-paragraph (2) above shall not apply in relation to a disposal of assets—
(a) on the assumption in that sub-paragraph a gain would accrue on that disposal to the person making the disposal and either a smaller gain or a loss would so accrue (computed in accordance with the provisions of this Act) if it did not apply, or
(b) if on the assumption in sub-paragraph (2) a loss would so accrue and either a smaller loss or a gain would accrue if that sub-paragraph did not apply,
and accordingly the amount of the gain or loss accruing on the disposal shall be computed without regard to the provisions of this Schedule except that in a case where this sub-paragraph would otherwise substitute a loss for a gain or a gain for a loss it shall be assumed, in relation to the disposal, that the relevant assets were sold by the owner, and immediately reacquired by him, for a consideration such that, on the disposal, neither a gain nor a loss accrued to the person making the disposal.
(5) For the purposes of this Part of this Schedule—
(a) “interest in land” means any estate or interest in land, any right in or over land or affecting the use or disposition of land, and any right to obtain such an estate, interest or right from another which is conditional on that other’s ability to grant the estate, interest or right in question, except that it does not include the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of a mortgage, an agreement for a mortgage or a charge of any kind over land, or, in Scotland, the interest of a creditor in a charge or security of any kind over land; and
(b) “land” includes buildings.
10 (1) For the purposes of this Part of this Schedule, the current use value of an interest in land shall be ascertained in accordance with the following provisions of this Part, and in this Part the time as at which current use value is to be ascertained is referred to as “the relevant time”.
(2) Subject to the following provisions of this Part of this Schedule, the current use value of an interest in land at the relevant time is the market value of that interest at that time calculated on the assumption that it was at that time, and would continue to be, unlawful to carry out any material development of the land other than any material development thereof which, being authorised by planning permission in force at that time, was begun before that time.
In relation to any material development which was begun before 18th December 1973 this sub-paragraph shall have effect with the omission of the words from “other than" to “before that time".
(3) In this paragraph “planning permission” has the same meaning as in the Town and Country Planning Act 1990, or, in Scotland, the Town and Country Planning (Scotland) Act 1972, or, in Northern Ireland, the Planning Act (Northern Ireland) 2011, and in determining for the purposes of this paragraph what material development of any land was authorised by planning permission at a time when there was in force in respect of the land planning permission granted on an outline application (that is to say, an application for planning permission subject to subsequent approval on any matters), any such development of the land which at that time—
(a) was authorised by that permission without any requirement as to subsequent approval; or
(b) not being so authorised, had been approved in the manner applicable to that planning permission,
but no other material development, shall for those purposes be taken to have been authorised by that permission at that time.
(4) Where the value to be ascertained is the current use value of an interest in land which has been disposed of by way of a part disposal of an asset (“the relevant asset”) consisting of an interest in land, the current use value at the relevant time of the interest disposed of shall be the relevant fraction of the current use value of the relevant asset at that time, calculated on the same assumptions as to the lawfulness or otherwise of any material development as fall to be made under this Part in calculating the current use value at that time of the interest disposed of.
(5) For the purposes of sub-paragraph (4) above “the relevant fraction” means that fraction of the sums mentioned in paragraph (6) below which under subsection (2) of section 42 is, or would but for subsection (4) of that section be, allowable as a deduction in computing the amount of the gain accruing on the part disposal.
(6) The sums referred to in sub-paragraph (5) above are the sums which, if the entire relevant asset had been disposed of at the time of the part disposal, would be allowable by virtue of section 38(1)(a) and (b) as a deduction in computing the gain accruing on that disposal of the relevant asset.
(7) Sub-paragraphs (4) to (6) above shall not apply—
(a) in the case of a disposal of an interest in land by way of a part disposal if, on making the disposal, the person doing so no longer has any interest in the land which is subject to that interest; or
(b) in a case to which the following provisions of this paragraph apply.
(8) In computing any gain accruing to a person on a part disposal of an interest in land resulting under subsection (1) of section 22 from the receipt as mentioned in paragraph (a), (c) or (d) of that subsection of a capital sum, the current use value at the relevant time of the interest out of which the part disposal was made shall be taken to be what it would have been at that time if the circumstances which caused the capital sum to be received had not arisen.
11 (1) The current use value of an interest in land which is either—
(a) a freehold interest which is subject to a lease or an agreement for a lease, or
(b) an interest under a lease or agreement for a lease,
shall be ascertained without regard to any premium required under the lease or agreement for a lease or any sublease, or otherwise under the terms subject to which the lease or sublease was or is to be granted, but with regard to all other rights under the lease or prospective lease (and, for the current use value of an interest under a lease subject to a sublease, under the sublease).
(2) If under sub-paragraph (1) above an interest under a lease or agreement for a lease would have a negative value, the current use value of the interest shall be nil.
(3) If a lease is granted out of any interest in land after 17th December 1973, then, in computing any gain accruing on any disposal of the reversion on the lease made while the lease subsists, the current use value of the reversion at any time after the grant of the lease shall not exceed what would have been at that time the current use value of the interest in the land of the person then owning the reversion if that interest had not been subject to the lease.
(4) In the application of this paragraph to Scotland, “freehold” means the estate or interest of the proprietor of the dominium utile or, in the case of property other than feudal property, of the owner, and “reversion” means the interest of the landlord in property subject to a lease.
12 In computing any gain accruing to a person on a disposal of a lease which is a wasting asset, the current use value of the lease at the time of its acquisition by the person making the disposal shall be the fraction—
A
B
of what its current use value at that time would be apart from this paragraph,
where—
A is equal to so much of the expenditure attributable to the lease under section 38(1)(a) and (b) as is not under paragraph 1 of Schedule 8 excluded therefrom for the purposes of the computation of the gain accruing on the disposal, and
B is equal to the whole of the expenditure which would be so attributable to the lease for those purposes apart from the said paragraph 1.
13 (1) In this Part of this Schedule, “material development”, in relation to any land, means the making of any change in the state, nature or use of the land, but the doing of any of the following things in the case of any land shall not be taken to involve material development of the land, that is to say—
(a) the carrying out of works for the maintenance, improvement, enlargement or other alteration of any building, so long as the cubic content of the original building is not exceeded by more than one-tenth;
(b) the carrying out of works for the rebuilding, as often as occasion may require, of any building which was in existence at the relevant time, or of any building which was in existence in the period of 10 years immediately preceding the day on which that time falls but was destroyed or demolished before the relevant time, so long as (in either case) the cubic content of the original building is not exceeded by more than one-tenth;
(c) the use of any land for the purposes of agriculture or forestry, the use for any of those purposes of any building occupied together with land so used, and the carrying out on any land so used of any building or other operations required for the purposes of that use;
(d) the carrying out of operations on land for, or the use of land for, the display of an advertisement, announcement or direction of any kind;
(e) the carrying out of operations for, or the use of the land for, car parking, provided that such use shall not exceed 3 years;
(f) in the case of a building or other land which at the relevant time was used for a purpose falling within any class specified in sub-paragraph (4) below or which, being unoccupied at that time, was last used for any such purpose, the use of that building or land for any other purpose falling within the same class;
(g) in the case of a building or other land which at the relevant time was in the occupation of a person by whom it was used as to part only for a particular purpose, the use for that purpose of any additional part of the building or land not exceeding one-tenth of the cubic content of the part of the building used for that purpose at the relevant time or, as the case may be, one-tenth of the area of the land so used at that time;
(h) in the case of land which at the relevant time was being temporarily used for a purpose other than the purpose for which it was normally used, the resumption of the use of the land for the last-mentioned purpose;
(i) in the case of land which was unoccupied at the relevant time, the use of the land for the purpose for which it was last used before that time.
References in this paragraph to the cubic content of a building are references to that content as ascertained by external measurement.
(2) For the purposes of sub-paragraph (1)(a) and (b)—
(a) where 2 or more buildings are included in a single development the whole of that development may be regarded as a single building, and where 2 or more buildings result from the redevelopment of a single building the new buildings may together be regarded as a single building, but 2 or more buildings shall not be treated as included in a single development unless they are or were comprised in the same curtilage; and
(b) in determining whether or not the cubic content of the original building has been exceeded by more than one-tenth, the cubic content of the building after the carrying out of the works in question shall be treated as reduced by the amount (if any) by which so much of that cubic content as is attributable to one or more of the matters mentioned in sub-paragraph (3) below exceeds so much of the cubic content of the original building as was attributable to one or more of the matters so mentioned.
(3) The matters referred to in sub-paragraph (2)(b) are the following, that is to say—
(a) means of escape in case of fire;
(b) car-parking or garage space;
(c) accommodation for plant providing heating, air-conditioning or similar facilities.
(4) The classes of purposes mentioned in sub-paragraph (1)(f) are the following—
Class A—Use as a dwelling-house or for the purpose of any activities which are wholly or mainly carried on otherwise than for profit, except use for a purpose falling within Class B, C or E.
Class B—Use as an office or retail shop.
Class C—Use as a hotel, boarding-house or guest-house, or as premises licensed for the sale of intoxicating liquors for consumption on the premises.
Class D—Use for the purpose of any activities wholly or mainly carried on for profit, except—
(a) use as a dwelling-house or for the purposes of agriculture or forestry; and
(b) use for a purpose falling within Class B, C or E.
Class E—Use for any of the following purposes, namely—
(a) the carrying on of any process for or incidental to any of the following purposes, namely—
(i) the making of any article or of any part of any article, or the production of any substance;
(ii) the altering, repairing, ornamenting, finishing, cleaning, washing, packing or canning, or adapting for sale, or breaking up or demolishing of any article; or
(iii) without prejudice to (i) or (ii) above, the getting, dressing or treatment of minerals,
being a process carried on in the course of a trade or business other than agriculture or forestry, but excluding any process carried on at a dwelling-house or retail shop;
(b) storage purposes (whether or not involving use as a warehouse or repository) other than storage purposes ancillary to a purpose falling within Class B or C.
14 (1) For the purposes of this Part, material development shall be taken to be begun on the earliest date on which any specified operation comprised in the material development is begun.
(2) In this paragraph “specified operation” means any of the following, that is to say—
(a) any work of construction in the course of the erection of a building;
(b) the digging of a trench which is to contain the foundations, or part of the foundations, of a building;
(c) the laying of any underground main or pipe to the foundations, or part of the foundations, of a building or to any such trench as is mentioned in (b) above;
(d) any operation in the course of laying out or constructing a road or part of a road;
(e) any change in the use of any land.
(3) Subject to sub-paragraph (4) below, material development shall for the purposes of this Part of this Schedule not be treated as carried out after a particular date if it was begun on or before that date.
(4) If, in the case of any land—
(a) material development thereof was begun on or before 17th December 1973 but was not completed on or before that date, and
(b) the development was on that date to any extent not authorised by planning permission (within the meaning of paragraph 10(3) above) then in force,
then, for the purposes of this Part of this Schedule, so much of the development carried out after that date as was not so authorised on that date shall be treated as begun on the earliest date after 17th December 1973 on which any specified operation comprised therein is begun, and shall accordingly be treated as material development of the land carried out after 17th December 1973.
15 In this Part of this Schedule, unless the context otherwise requires—
“agriculture” includes horticulture, fruit growing, seed growing, dairy farming, the keeping and breeding of livestock (including any creature kept for the production of food, wool, skins or fur, or for the purpose of its use in the farming of land), the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes, and “agricultural” shall be construed accordingly;
“article” means an article of any description;
“building” includes part of a building and references to a building may include references to land occupied therewith and used for the same purposes;
“forestry” includes afforestation;
“minerals” includes all minerals and substances in or under land of a kind ordinarily worked for removal by underground or surface working;
“retail shop” includes any premises of a similar character where retail trade or business (including repair work) is carried on;
“substance” means any natural or artificial substance or material, whether in solid or liquid form or in the form of a gas or vapour.
Part III Other assets
Apportionment by reference to straightline growth of gain or loss over period of ownership
16 (1) This paragraph applies subject to Parts I and II of this Schedule.
(2) On the disposal of assets by a person whose period of ownership began before 6th April 1965 only so much of any gain accruing on the disposal as is under this paragraph to be apportioned to the period beginning with 6th April 1965 shall be a chargeable gain.
(3) Subject to the following provisions of this Schedule, the gain shall be assumed to have grown at a uniform rate from nothing at the beginning of the period of ownership to its full amount at the time of the disposal so that, calling the part of that period before 6th April 1965, P, and the time beginning with 6th April 1965 and ending with the time of the disposal T, the fraction of the gain which is a chargeable gain is—
T
P
+
T.
(4) If any of the expenditure which is allowable as a deduction in the computation of the gain is within section 38(1)(b)—
(a) the gain shall be attributed to the expenditure, if any, allowable under section 38(1)(a) as one item of expenditure, and to the respective items of expenditure under section 38(1)(b) in proportion to the respective amounts of those items of expenditure,
(b) sub-paragraph (3) of this paragraph shall apply to the part of the gain attributed to the expenditure under section 38(1)(a),
(c) each part of the gain attributed to the items of expenditure under section 38(1)(b) shall be assumed to have grown at a uniform rate from nothing at the time when the relevant item of expenditure was first reflected in the value of the asset to the full amount of that part of the gain at the time of the disposal,
so that, calling the respective proportions of the gain E(0), E(1), E(2) and so on (so that they add up to unity) and calling the respective periods from the times when the items under section 38(1)(b) were reflected in the value of the asset to 5th April 1965 P(1), P(2) and so on, and employing also the abbreviations in sub-paragraph (3) above, the fraction of the gain which is a chargeable gain is—
E
(
0
)
T
P
+
T
+
E
(
1
)
T
P
(
1
)
+
T
+
E
(
2
)
T
P
(
2
)
+
T
and
so
on.
(5) In a case within sub-paragraph (4) above where there is no initial expenditure (that is no expenditure under section 38(1)(a)) or that initial expenditure is, compared with any item of expenditure under section 38(1)(b), disproportionately small having regard to the value of the asset immediately before the subsequent item of expenditure was incurred, the part of the gain which is not attributable to the enhancement of the value of the asset due to any item of expenditure under section 38(1)(b) shall be deemed to be attributed to expenditure incurred at the beginning of the period of ownership and allowable under section 38(1)(a), and the part or parts of the gain attributable to expenditure under section 38(1)(b) shall be reduced accordingly.
(6) The beginning of the period over which a gain, or part of a gain, is under sub-paragraphs (3) and (4) above to be treated as growing shall not be earlier than 6th April 1945, and this sub-paragraph shall have effect notwithstanding any provision in this Schedule or elsewhere in this Act.
(7) If in pursuance of section 42 an asset’s market value at a date before 6th April 1965 is to be ascertained, sub-paragraphs (3) to (5) above shall have effect as if that asset had been on that date sold by the owner, and immediately reacquired by him, at that market value.
(8) If in pursuance of section 42 an asset’s market value at a date on or after 6th April 1965 is to be ascertained sub-paragraphs (3) to (5) above shall have effect as if—
(a) the asset on that date had been sold by the owner, and immediately reacquired by him, at that market value, and
(b) accordingly, the computation of any gain on a subsequent disposal of that asset shall be computed—
(i) by apportioning in accordance with this paragraph the gain or loss over a period ending on that date (the date of the part disposal), and
(ii) by bringing into account the entire gain or loss over the period from the date of the part disposal to the date of subsequent disposal.
(9) For the purposes of this paragraph the period of ownership of an asset shall, where under section 43 account is to be taken of expenditure in respect of an asset from which the asset disposed of was derived, or where it would so apply if there were any relevant expenditure in respect of that other asset, include the period of ownership of that other asset.
(10) If under this paragraph part only of a gain is a chargeable gain, the fraction in section 223(2) shall be applied to that part instead of to the whole of the gain.
Election for valuation at 6th April 1965
17 (1) If the person making a disposal so elects, paragraph 16 above shall not apply in relation to that disposal and it shall be assumed, both for the purposes of computing the gain accruing to that person on the disposal, and for all other purposes both in relation to that person and other persons, that the assets disposed of, and any assets of which account is to be taken in relation to the disposal under section 43, being assets which were in the ownership of that person on 6th April 1965, were on that date sold, and immediately reacquired, by him at their market value on 6th April 1965.
(2) Sub-paragraph (1) above shall not apply in relation to a disposal of assets if on the assumption in that sub-paragraph a loss would accrue on that disposal to the person making the disposal and either a smaller loss or a gain would accrue if sub-paragraph (1) did not apply, but in a case where this sub-paragraph would otherwise substitute a gain for a loss it shall be assumed, in relation to the disposal, that the relevant assets were sold by the owner, and immediately reacquired by him, for a consideration such that, on the disposal, neither a gain nor a loss accrued to the person making the disposal.
The displacement of sub-paragraph (1) above by this sub-paragraph shall not be taken as bringing paragraph 16 above into operation.
(3) An election under this paragraph shall be made by notice to an officer of the Board given—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) ... within 2 years from the end of the accounting period in which the disposal is made; or
(c) ... within such further time as the Board may by notice allow.
(4) For the avoidance of doubt it is hereby declared that an election under this paragraph is irrevocable.
(5) An election may not be made under this paragraph as respects, or in relation to, an asset the market value of which at a date on or after 6th April 1965, and before the date of the disposal to which the election relates, is to be ascertained in pursuance of section 42.
Unquoted shares, commodities etc.
18 (1) This paragraph has effect as respects shares held by any person on 6th April 1965 other than quoted securities within the meaning of paragraph 8 above and shares as respects which an election is made under paragraph 17 above.
(2) For the purpose of—
(a) identifying the shares so held on 6th April 1965 with shares previously acquired, and
(b) identifying the shares so held on that date with shares subsequently disposed of, and distinguishing them from shares acquired subsequently,
so far as the shares are of the same class, shares bought at a later time shall be deemed to have been disposed of before shares bought at an earlier time.
(3) Sub-paragraph (2) above has effect subject to section 105.
(4) Shares shall not be treated for the purposes of this paragraph as being of the same class unless if dealt with on a recognised stock exchange they would be so treated, but shall be treated in accordance with this paragraph notwithstanding that they are identified in a different way by a disposal or by the transfer or delivery giving effect to it.
(5) This paragraph, without sub-paragraph (4), shall apply in relation to any assets, other than shares, which are of a nature to be dealt with without identifying the particular assets disposed of or acquired.
Reorganisation of share capital, conversion of securities etc.
19 (1) For the purposes of this Act, it shall be assumed that any shares or securities held by a person on 6th April l965 (identified in accordance with paragraph 18 above) which, in accordance with Chapter II of Part IV, are to be regarded as being or forming part of a new holding were sold and immediately reacquired by him on 6th April 1965 at their market value on that date.
(2) If, at any time after 5th April 1965, a person comes to have, in accordance with Chapter II of Part IV, a new holding, paragraph 16(3) to (5) above shall have effect as if—
(a) the new holding had at that time been sold by the owner, and immediately reacquired by him, at its market value at that time, and
(b) accordingly, the amount of any gain on a disposal of the new holding or any part of it shall be computed—
(i) by apportioning in accordance with paragraph 16 above the gain or loss over a period ending at that time, and
(ii) by bringing into account the entire gain or loss over the period from that time to the date of the disposal.
(3) This paragraph shall not apply in relation to a reorganisation of a company’s share capital if the new holding differs only from the original shares in being a different number, whether greater or less, of shares of the same class as the original shares.
Part IV Miscellaneous
Capital allowances
20 If under any provision in this Schedule it is to be assumed that any asset was on 6th April 1965 sold by the owner, and immediately reacquired by him, sections 41 and 47 shall apply in relation to any capital allowance or renewals allowance made in respect of the expenditure actually incurred by the owner in providing the asset, and so made for the year 1965-66 or for any subsequent year of assessment, as if it were made in respect of the expenditure which, on that assumption, was incurred by him in reacquiring the asset on 7th April 1965.
Assets transferred to close companies
21 (1) This paragraph has effect where—
(a) at any time, including a time before 7th April 1965, any of the persons having control of a close company, or any person who is connected with a person having control of a close company, has transferred assets to the company, and
(b) paragraph 16 above applies in relation to a disposal by one of the persons having control of the company of shares or securities in the company, or in relation to a disposal by a person having, up to the time of disposal, a substantial holding of shares or securities in the company, being in either case a disposal after the transfer of the assets.
(2) So far as the gain accruing to the said person on the disposal of the shares is attributable to a profit on the assets so transferred, the period over which the gain is to be treated under paragraph 16 above as growing at a uniform rate shall begin with the time when the assets were transferred to the company, and accordingly a part of a gain attributable to a profit on assets transferred on or after 6th April 1965 shall all be a chargeable gain.
(3) This paragraph shall not apply where a loss, and not a gain, accrues on the disposal.
Spouses and civil partners
22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and insurance money
23 Where section 23(4)(a) applies to exclude a gain which, in consequence of this Schedule, is not all chargeable gain, the amount of the reduction to be made under section 23(4)(b) shall be the amount of the chargeable gain and not the whole amount of the gain; and in section 23(5)(b) for the reference to the amount by which the gain is reduced under section 23(5)(a) there shall be substituted a reference to the amount by which the chargeable gain is proportionately reduced under section 23(5)(a).
Section 35.
Previous no gain/no loss disposals
1 (1) For the purposes of corporation tax, where—
(a) a person makes a disposal, not being a no gain/no loss disposal, of an asset which the person acquired after 31st March 1982, and
(b) the disposal by which the person acquired the asset and any previous disposal of the asset after 31st March 1982 was a no gain/no loss disposal,
the person shall be treated for the purposes of section 35 as having held the asset on 31st March 1982.
(2) For the purposes of this paragraph a no gain/no loss disposal is one on which by virtue of any of the no gain/no loss provisions or any of sections 195B, 195C or 195E neither a gain nor a loss accrues to the person making the disposal.
1A. (1) This paragraph applies where—
(a) paragraph 1(1) applies to a disposal of shares in or securities of a company that are of a class,
(b) accordingly, the shares or securities constitute or form part of a holding which the person making the disposal (“P”) is treated as having held on 31st March 1982 (“the deemed 1982 holding”),
(c) the disposal by which P acquired the shares or securities, and any previous disposal of them after 31st March 1982, was a disposal to which section 171(1) (transfers within a group) applied,
(d) some or all of the shares or securities constituting the deemed 1982 holding were in fact held on 31st March 1982 by a person other than P, and
(e) in the hands of that person on that date they formed part of a holding which—
(i) consisted of shares or securities of the same class as the shares or securities disposed of, and
(ii) was larger than the deemed 1982 holding.
(2) If P makes a claim, then for the purposes of section 35(2) the market value on 31st March 1982 of the shares or securities disposed of is to be treated as being—
VLH×NDONLH
where—
VLH is the market value on 31st March 1982 of the larger holding mentioned in sub-paragraph (1)(e) (in the hands of the person who in fact held it on that date),
NDO is the number of shares or securities disposed of, and
NLH is the number of shares or securities comprised in the larger holding on that date.
(3) Sub-paragraph (4) applies where sub-paragraph (1)(d) and (e) are met by two or more persons holding the shares or securities as two or more holdings or parts of holdings (“the original holdings”).
(4) Sub-paragraph (2) applies for the purpose of calculating the market value on 31st March 1982 of the shares or securities disposed of, except that—
(a) VLH is the market value on 31st March 1982 of the largest of the original holdings, and
(b) NLH is the number of shares or securities comprised in that holding.
(5) A claim under sub-paragraph (2) must be made on or before the second anniversary of the end of the accounting period of P in which the disposal takes place.
(6) Shares in or securities of a company shall not be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt with on a recognised stock exchange.
2 (1) Sub-paragraph (2) below applies where a person makes a disposal of an asset acquired by him on or after 6th April 1988 in circumstances in which section ... 171 applied.
(2) Where this sub-paragraph applies—
(a) an election under section 35(5) by the person making the disposal shall not cover the disposal, but
(b) the making of such an election by the person from whom the asset was acquired shall cause the disposal to fall outside subsection (3) of that section (so that subsection (2) of that section is not excluded by it) whether or not the person making the disposal makes such an election.
(3) Where the person from whom the asset was acquired by the person making the disposal himself acquired it on or after 6th April 1988 in circumstances in which section ... 171 applied, an election made by him shall not have the effect described in sub-paragraph (2)(b) above but an election made by—
(a) the last person by whom the asset was acquired after 5th April 1988 otherwise than in such circumstances, or
(b) if there is no such person, the person who held the asset on 5th April 1988,
shall have that effect.
Capital allowances
3 If under section 35 it is to be assumed that any asset was on 31st March 1982 sold by the person making the disposal and immediately reacquired by him, sections 41 and 47 shall apply in relation to any capital allowance or renewals allowance made in respect of the expenditure actually incurred by him in providing the asset as if it were made in respect of expenditure which, on that assumption, was incurred by him in reacquiring the asset on 31st March 1982.
Part disposals etc.
4 (1) Where, in relation to a disposal to which section 35(2) applies, section 42 has effect by reason of an earlier disposal made after 31st March 1982 and before 6th April 1988, the sums to be apportioned under section 42 shall for the purposes of the later disposal be ascertained on the assumption stated in section 35(2).
(2) In any case where—
(a) subsection (2) of section 35 applies in relation to the disposal of an asset,
(b) if that subsection did not apply, section 23(2), 122(4), 133(4) or 244 would operate to disallow expenditure as a deduction in computing a gain accruing on the disposal, and
(c) the disallowance would be attributable to the reduction of the amount of the consideration for a disposal made after 31st March 1982 but before 6th April 1988,
the amount allowable as a deduction on the disposal shall be reduced by the amount which would be disallowed if section 35(2) did not apply.
Assets derived from other assets
5 Section 35 shall have effect with the necessary modifications in relation to a disposal of an asset which on 31st March 1982 was not itself held by the person making the disposal, if its value is derived from another asset of which account is to be taken in relation to the disposal under section 43.
Apportionment of pre-1965 gains and losses
6 In a case where because of paragraph 16 of Schedule 2 only part of a gain or loss is a chargeable gain or allowable loss, section 35(3)(a) and (b) shall have effect as if the amount of the gain or loss that would accrue if subsection (2) did not apply were equal to that part.
Elections under section section 35(5): excluded disposals
7 (1) An election under section 35(5) shall not cover disposals such as are specified in sub-paragraph (2) below.
(2) The disposals mentioned in sub-paragraph (1) above are disposals of, or of an interest in—
(a) plant or machinery,
(b) an asset which the person making the disposal has at any time held for the purposes of or in connection with—
(i) a trade consisting of the working of a source of mineral deposits, or
(ii) where a trade involves (but does not consist of) such working, the part of the trade which involves such working, or
(c) a licence under Part I of the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964; or
(d) shares which, on 31st March 1982, were unquoted and derived their value, or the greater part of their value, directly or indirectly from oil exploration or exploitation assets situated in the United Kingdom or a designated area or from such assets and oil exploration or exploitation rights taken together;
but a disposal does not fall within paragraph (a) or (b) above unless a capital allowance in respect of any expenditure attributable to the asset has been made to the person making the disposal or would have been made to him had he made a claim.
(3) For the purposes of sub-paragraph (2)(d) above,—
(a) “shares” includes stock and any security, as defined in section 1117(1) of CTA 2010; and
(b) shares (as so defined) were unquoted on 31st March 1982 if, on that date, they were neither quoted on a recognised stock exchange nor dealt in on the Unlisted Securities Market;
but nothing in this paragraph affects the operation, in relation to such unquoted shares, of sections 126 to 130.
(4) In sub-paragraph (2)(d) above—
“designated area” means an area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964;
“oil exploration or exploitation assets” shall be construed in accordance with sub-paragraphs (5) and (6) below; and
“oil exploration or exploitation rights” means rights to assets to be produced by oil exploration or exploitation activities (as defined in sub-paragraph (6) below) or to interests in or to the benefit of such assets.
(5) For the purposes of sub-paragraph (2)(d) above an asset is an oil exploration or exploitation asset if either—
(a) it is not a mobile asset and is being or has at some time been used in connection with oil exploration or exploitation activities carried on in the United Kingdom or a designated area; or
(b) it is a mobile asset which has at some time been used in connection with oil exploration or exploitation activities so carried on and is dedicated to an oil field in which the company whose shares are disposed of by the disposal, or a person connected with that company, is or has been a participator;
and, subject to sub-paragraph (6) below, expressions used in paragraphs (a) and (b) above have the same meaning as if those paragraphs were included in Part I of the Oil Taxation Act 1975.
(6) In the preceding provisions of this paragraph “oil exploration or exploitation activities” means activities carried on in connection with—
(a) the exploration of land (including the seabed and subsoil) in the United Kingdom or a designated area, as defined in sub-paragraph (4) above, with a view to searching for or winning oil; or
(b) the exploitation of oil found in any such land;
and in this sub-paragraph “oil” has the same meaning as in Part I of the Oil Taxation Act 1975.
(7) Where the person making the disposal acquired the asset on a no gain/no loss disposal, the references in sub-paragraph (2) above to that person are references to the person making the disposal, the person who last acquired the asset otherwise than on a no gain/no loss disposal or any person who subsequently acquired the asset on such a disposal.
(8) In this paragraph—
(a) “source of mineral deposits” shall be construed in accordance with section 394 of the Capital Allowances Act, and
(b) references to a no gain/no loss disposal shall be construed in accordance with paragraph 1 above.
Elections under section 35(5): groups of companies
8 (1) A company may not make an election under section 35(5) at a time when it is a member but not the principal company of a group unless the company did not become a member of the group until after the relevant time.
(2) Subject to sub-paragraph (3) below, an election under section 35(5) by a company which is the principal company of a group shall have effect also as an election by any other company which at the relevant time is a member of the group.
(3) Sub-paragraph (2) above shall not apply in relation to a company which, in some period after 5th April 1988 and before the relevant time, is not a member of the group if—
(a) during that period the company makes a disposal to which section 35 applies, and
(b) the period during which an election under subsection (5) of that section could be made expires without such an election having been made.
(4) Sub-paragraph (2) above shall apply in relation to a company notwithstanding that the company ceases to be a member of the group at any time after the relevant time except where—
(a) the company is an outgoing company in relation to the group, and
(b) the election relating to the group is made after the company ceases to be a member of the group.
(5) In relation to a company which is the principal company of a group the reference in section 35(6) to the first relevant disposal is a reference to the first disposal to which that section applies by a company which is—
(a) a member of the group but not an outgoing company in relation to the group, or
(b) an incoming company in relation to the group.
9 (1) In paragraph 8 above “the relevant time”, in relation to a group of companies, is—
(a) the first time when any company which is then a member of the group, and is not an outgoing company in relation to the group, makes a disposal to which section 35 applies,
(b) the time immediately following the first occasion when a company which is an incoming company in relation to the group becomes a member of the group,
(c) the time when an election is made by the principal company,
whichever is earliest.
(2) In paragraph 8 above and this paragraph—
“incoming company”, in relation to a group of companies, means a company which—
makes its first disposal to which section 35 applies at a time when it is not a member of the group, and
becomes a member of the group before the end of the period during which an election under section 35(5) could be made in relation to it and at a time when no such election has been made, and
“outgoing company”, in relation to a group of companies, means a company which ceases to be a member of the group before the end of the period during which an election under section 35(5) could be made in relation to it and at a time when no such election has been made.
(3) Section 170 shall have effect for the purposes of paragraph 8 above and this paragraph as for those of sections 170 to 181.
SCHEDULE 4 Deferred charges on gains before 31st March 1982
Section 36.
Application of Schedule
A1 This Schedule applies only for the purposes of corporation tax.
Reduction of deduction or gain
1 Where this Schedule applies—
(a) in a case within paragraph 2 below, the amount of the deduction referred to in that paragraph, and
(b) in a case within paragraph 3 or 4 below, the amount of the gain referred to in that paragraph,
shall be one half of what it would be apart from this Schedule.
Charges rolled-over or held-over
2 (1) Subject to sub-paragraphs (2) to (4) below, this Schedule applies on a disposal, not being a no gain/no loss disposal, of an asset if—
(a) the person making the disposal acquired the asset after 31st March 1982,
(b) a deduction falls to be made by virtue of any of the enactments specified in sub-paragraph (5) below from the expenditure which is allowable in computing the amount of any gain accruing on the disposal, and
(c) the deduction is attributable (whether directly or indirectly and whether in whole or in part) to a chargeable gain accruing on the disposal before 6th April 1988 of an asset acquired before 31st March 1982 by the person making that disposal.
(2) This Schedule does not apply where, by reason of the previous operation of this Schedule, the amount of the deduction is less than it otherwise would be.
(3) This Schedule does not apply if the amount of the deduction would have been less had relief by virtue of a previous application of this Schedule been duly claimed.
(4) Where—
(a) the asset was acquired on or after 19th March 1991,
(b) the deduction is partly attributable to a claim by virtue of section 154(4), and
(c) the claim applies to the asset,
this Schedule does not apply by virtue of this paragraph.
(5) The enactments referred to in sub-paragraph (1) above are sections 23(4) and (5), 152 ... and 247 ... .
3 (1) This paragraph applies where this Schedule would have applied on a disposal but for paragraph 2(4) above.
(2) This Schedule applies on the disposal if paragraph 4 below would have applied had—
(a) section 154(2) continued to apply to the gain carried forward as a result of the claim by virtue of section 154(4), and
(b) the time of the disposal been the time when that gain was treated as accruing by virtue of section 154(2).
Postponed charges
4 (1) Subject to sub-paragraphs (3) to (5) below, this Schedule applies where—
(a) a gain is treated as accruing by virtue of any of the enactments specified in sub-paragraph (2) below, and
(b) that gain is attributable (whether directly or indirectly and whether in whole or in part) to the disposal before 6th April 1988 of an asset acquired before 31st March 1982 by the person making that disposal.
(2) The enactments referred to in sub-paragraph (1) above are sections 116(10) and (11), 134, 140, 154(2), ... ... and 248(3).
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Where a gain is treated as accruing in consequence of an event, this Schedule does not apply if—
(a) the gain is attributable (whether directly or indirectly and whether in whole or part) to the disposal of an asset on or after 6th April 1988, or
(b) the amount of the gain would have been less had relief by virtue of a previous application of this Schedule been duly claimed.
(5) None of sections 134, 140(4), 154(2) and 248(3) shall apply in consequence of an event occurring on or after 6th April 1988 if its application would be directly attributable to the disposal of an asset on or before 31st March 1982.
Previous no gain/no loss disposals
5 Where—
(a) a person makes a disposal of an asset which he acquired on or after 31st March 1982, and
(b) the disposa1 by which he acquired the asset and any previous disposal of the asset on or after 31st March 1982 was a no gain/no loss disposal,
he shall be treated for the purposes of paragraphs 2(1)(c) and 4(1)(b) above as having acquired the asset before 31st March 1982.
6 (1) Sub-paragraph (2) below applies where—
(a) a person makes a disposal of an asset which he acquired on or after 31st March 1982,
(b) the disposal by which he acquired the asset was a no gain/no loss disposal, and
(c) a deduction falling to be made as mentioned in paragraph (b) of sub-paragraph (1) of paragraph 2 above which was attributable as mentioned in paragraph (c) of that sub-paragraph was made—
(i) on that disposal, or
(ii) where one or more earlier no gain/no loss disposals of the asset have been made on or after 31st March 1982 and since the last disposal of the asset which was not a no gain/no loss disposal, on any such earlier disposal.
(2) Where this sub-paragraph applies the deduction shall be treated for the purposes of paragraph 2 above as falling to be made on the disposal mentioned in sub-paragraph (1)(a) above and not on the no gain/no loss disposal.
7 For the purposes of this Schedule a no gain/no loss disposal is one on which by virtue of any of the no gain/no loss provisions neither a gain nor a loss accrues to the person making the disposal.
Assets derived from other assets
8 The references in paragraphs 2(1)(c) and 4(1)(b) above to the disposal of an asset acquired by a person before 31st March 1982 include references to the disposal of an asset which was not acquired by the person before that date if its value is derived from another asset which was so acquired and of which account is to be taken in relation to the disposal under section 43.
Claims
9 (1) No relief shall be given under this Schedule unless a claim is made—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) ... within the period of 2 years beginning at the end of the ... accounting period in which the disposal in question is made, or the gain in question is treated as accruing,
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
or within such longer period ... as the Board may by notice allow.
(2) A claim under sub-paragraph (1) above shall be supported by such particulars as the inspector may require for the purpose of establishing entitlement to relief under this Schedule and the amount of relief due.
Making a sub-fund election
1 The trustees of a settlement (the “principal settlement”) may elect that a fund or other specified portion of the settled property (the “sub-fund”) be treated, unless the context otherwise requires, as a separate settlement (the “sub-fund settlement”) for the purposes of this Act, and the election shall have effect.
2 (1) An election under paragraph 1 (a “sub-fund election”) must specify the date on which it is to be treated as having taken effect, which must not be later than the date on which it is made.
(2) The election shall be treated as having taken effect—
(a) at the beginning of the specified date, or
(b) if there is a deemed disposal of an asset by the trustees of the principal settlement under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)), on the specified date immediately after the deemed disposal.
3 Trustees may make a sub-fund election only if—
(a) Conditions 1 to 4 are satisfied when the election is made, and
(b) Conditions 2 to 4 were satisfied throughout the period beginning with the time when the election is to be treated as having taken effect and ending immediately before the election is made.
4 Condition 1 is that the principal settlement is not itself a sub-fund settlement.
5 Condition 2 is that the sub-fund is not the whole of the property comprised in the principal settlement.
6 Condition 3 is that, if the sub-fund election had taken effect, the sub-fund settlement would not consist of or include an interest in an asset any other interest in which would be comprised in the principal settlement.
7 For the purpose of Condition 3—
(a) section 104(1) shall not have effect, and
(b) “interest”, in relation to any asset, means an interest as a co-owner of the asset (whether the asset is owned jointly or in common and whether or not the interests of the co-owners are equal).
8 Condition 4 is that, if the sub-fund election had taken effect, no person would be a beneficiary under both the sub-fund settlement and the principal settlement.
9 (1) For the purpose of Condition 4 a person is a beneficiary under a settlement—
(a) if—
(i) any property which is or may at any time be comprised in the settlement, or
(ii) any derived property,
is, or will or may become, payable to him or applicable for his benefit in any circumstances whatsoever, or
(b) if he enjoys a benefit deriving directly or indirectly from—
(i) any property which is comprised in the settlement, or
(ii) any derived property.
(2) But for the purpose of Condition 4 a person is not to be regarded as a beneficiary under a settlement if property comprised in the settlement, or any derived property, will or may become payable to him or applicable for his benefit by reason only of—
(a) his marrying, or entering into a civil partnership with, a beneficiary under the settlement,
(b) the death of a beneficiary under the settlement,
(c) the exercise by the trustees of the settlement of—
(i) a power conferred by section 32 of the Trustee Act 1925 (c. 19) or section 33 of the Trustee Act (Northern Ireland) 1958 (c. 23 (N.I.)) (powers of advancement),
(ii) a power conferred by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in sub-paragraph (i), or
(iii) a power of advancement which is conferred by the instrument creating the principal settlement, or by another instrument made in accordance with the terms of the principal settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925, or
(d) the failure or determination of trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts).
(3) In this paragraph “derived property”, in relation to any property, means—
(a) income from that property,
(b) property directly or indirectly representing—
(i) proceeds of that property, or
(ii) proceeds of income from that property, or
(c) income from property which is derived property by virtue of paragraph (b).
Sub-fund elections: procedure
10 A sub-fund election must be made—
(a) by notice to an officer of Revenue and Customs, and
(b) in such form as the Commissioners for Her Majesty's Revenue and Customs may require.
11 A sub-fund election may not be made after the second 31st January after the year of assessment in which the date on which the election is to be treated as having taken effect falls.
12 A sub-fund election must contain—
(a) a declaration by each trustee of the principal settlement that he consents to the election,
(b) a statement by the trustees of the principal settlement that the requirement in paragraph 3 is satisfied,
(c) such information as the Commissioners for Her Majesty's Revenue and Customs may require in relation to the principal settlement (which may, in particular, include information relating to the trustees, the trusts, property which is or has been comprised in the settlement, the settlors or the beneficiaries),
(d) a declaration by the trustees of the principal settlement that the information given in the election is correct, to the best of their knowledge and belief, and
(e) such other declarations as the Commissioners for Her Majesty's Revenue and Customs may require.
13 A sub-fund election may not be revoked.
Power to make enquiries
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consequences of a sub-fund election
17 The sub-fund settlement shall be treated, for the purposes of this Act, as having been created at the time when the sub-fund election is treated as having taken effect.
18 (1) Each trustee of the trusts on which the property comprised in the sub-fund settlement is held shall be treated as a trustee of the sub-fund settlement for the purposes of this Act.
(2) A person who is a trustee of the sub-fund settlement shall be treated for the purposes of this Act, from the time when the election is treated as having taken effect, as having ceased to be a trustee of the principal settlement unless he is also a trustee of trusts on which property comprised in the principal settlement is held.
(3) A person who is a trustee of the principal settlement shall not be treated for the purposes of this Act as a trustee of the sub-fund settlement unless he is also a trustee of trusts on which property comprised in the sub-fund settlement is held.
19 The trustees of the sub-fund settlement shall be treated for the purposes of this Act as having become absolutely entitled, at the time when the sub-fund election is treated as having taken effect, to the property comprised in that settlement as against the trustees of the principal settlement.
20 (1) A deemed disposal by the trustees of the principal settlement of an asset under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)) shall be treated as having been made at the beginning of the date on which the sub-fund election is treated as having taken effect.
(2) If the trustees of the sub-fund settlement have acquired an asset of which the trustees of the principal settlement are deemed to have disposed under section 71(1) (by virtue of paragraph 19), they shall be deemed to have acquired it at the time when the election is treated as having taken effect.
(3) The trustees of the principal settlement shall not be treated as having disposed of an asset under section 80(2) by virtue of paragraph 18(2) if they are treated as having disposed of the same asset under section 71(1) by virtue of paragraph 19.
21 If the trustees of the sub-fund settlement are treated by virtue of paragraph 19 as having become absolutely entitled to money expressed in sterling, for the purposes of this Act—
(a) the trustees of the principal settlement shall be treated as having disposed of the money at the beginning of the day on which the sub-fund election is treated as having taken effect, and
(b) the trustees of the sub-fund settlement shall be treated as having acquired the money at the time when the election is treated as having taken effect.
22 (1) If the trustees of the principal settlement are deemed to have disposed of an asset under section 71(1) (by virtue of paragraph 19), the trustees of the principal settlement shall be treated for the purposes of sections 90 and 94 as having transferred the asset to the trustees of the sub-fund settlement.
(2) Sub-paragraph (1) also applies where the trustees of the principal settlement would be deemed to have disposed of money expressed in sterling under subsection (1) of section 71 if in that subsection—
(a) the reference to “assets” were a reference to “property”, and
(b) for “their” there were substituted “ its ”.
SCHEDULE 4A Disposal of interest in settled property: deemed disposal of underlying assets
Circumstances in which this Schedule applies
1 This Schedule applies where there is a disposal of an interest in settled property for consideration.
Meaning of “interest in settled property”
2 (1) For the purposes of this Schedule an “interest in settled property” means any interest created by or arising under a settlement.
(2) This includes any right to, or in connection with, the enjoyment of a benefit—
(a) created by or arising directly under a settlement, or
(b) arising as a result of the exercise of a discretion or power—
(i) by the trustees of a settlement, or
(ii) by any person in relation to settled property.
Meaning of “for consideration”
3 (1) For the purposes of this Schedule a disposal is “for consideration” if consideration is given or received by any person for, or otherwise in connection with, any transaction by virtue of which the disposal is effected.
(2) In determining for the purposes of this Schedule whether a disposal is for consideration there shall be disregarded any consideration consisting of another interest under the same settlement that has not previously been disposed of by any person for consideration.
(3) In this Schedule “consideration” means actual consideration, as opposed to consideration deemed to be given by any provision of this Act.
Deemed disposal of underlying assets
4 (1) Where this Schedule applies and the following conditions are met—
(a) the condition as to UK residence of the trustees (see paragraph 5),
(b) the condition as to UK residence of the settlor (see paragraph 6), and
(c) the condition as to settlor interest in the settlement (see paragraph 7),
the trustees of the settlement are treated for all purposes of this Act as disposing of and immediately reacquiring the relevant underlying assets.
This is referred to below in this Schedule as the “deemed disposal”.
(2) In paragraphs 5, 6 and 7 “the relevant year of assessment” means the year of assessment in which the disposal of the interest in settled property is made.
(3) The deemed disposal is treated as taking place when the disposal of the interest in settled property is made.
This is subject to paragraph 13(3)(a) where the beginning of the disposal and its effective completion fall in different years of assessment.
Condition as to UK residence of trustees
5 (1) The condition as to UK residence of the trustees is that the trustees of the settlement were resident ... in the United Kingdom during any part of the year.
(2) For this purpose the trustees shall not be regarded as resident ... in the United Kingdom at any time when they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(3) This paragraph has effect subject to paragraph 13(3)(b) where the beginning of the disposal and its effective completion fall in different years of assessment.
Condition as to UK residence of settlor
6 (1) The condition as to UK residence of the settlor is that as respects the relevant year of assessment, or any of the previous five years of assessment, a person who is a settlor in relation to the settlement was UK resident for the tax year (as determined in accordance with Chapter 1 of Part 1 of this Act).
(2) Sub-paragraph (1) has effect subject to paragraph 13(3)(c) where the beginning of the disposal and its effective completion fall in different years of assessment.
(3) No account shall be taken for the purposes of this paragraph of any year of assessment before the year 1999-00.
Condition as to settlor interest in the settlement
7 (1) The condition as to settlor interest in the settlement is that at any time in the relevant period the settlement—
(a) was a settlor-interested settlement, or
(b) comprised property derived, directly or indirectly, from a settlement that at any time in that period was a settlor-interested settlement.
(2) The relevant period for this purpose is the period—
(a) beginning two years before the beginning of the relevant year of assessment, and
(b) ending with the date of the disposal of the interest in settled property.
This is subject to paragraph 13(3)(d) where the beginning of the disposal and its effective completion fall in different years of assessment.
(3) The relevant period shall not be treated as beginning before 6th April 1999.
If the rule in sub-paragraph (2) (or, where relevant, that in paragraph 13(3)(d)) would produce that result, the relevant period shall be treated as beginning on that date.
(4) For the purposes of this paragraph a “settlor-interested settlement” means a settlement in which a person who is a settlor in relation to the settlement has an interest or had an interest at any time in the relevant period.
The provisions of section 169F(2) to (6) apply to determine for the purposes of this paragraph whether a settlor has (or had) an interest in the settlement.
(5) The condition as to settlor interest in the settlement is treated as not met in a year of assessment—
(a) where the settlor dies during the year, ...
(b) in a case where the settlor is regarded as having an interest in the settlement by reason only of—
(i) the fact that property is, or will or may become, payable to or applicable for the benefit of his spouse or civil partner, or
(ii) the fact that a benefit is enjoyed by his spouse or civil partner,
where the spouse or civil partner dies, or the settlor and the spouse or civil partner cease to be married or to be civil partners of each other, during the year, or
(c) in a case where the settlor is regarded as having an interest in a settlement by reason only of—
(i) the fact that property is, or will or may become, payable to or applicable for the benefit of a dependent child of his, or
(ii) the fact that a benefit is enjoyed by such a child,
where the settlor ceases during the year to have (and does not in that year subsequently come to have) any dependent child in relation to whom section 169F(3A)(a) or (b) applies.
The relevant underlying assets
8 (1) Where the interest disposed of is a right in relation to a specific fund or other defined part of the settled property, the deemed disposal is of the whole or part of each of the assets comprised in that fund or part.
In any other case the deemed disposal is of the whole or part of each of the assets comprised in the settled property.
(2) Where the interest disposed of is an interest in a specific fraction or amount of the income or capital of—
(a) the settled property, or
(b) a specific fund or other defined part of the settled property,
the deemed disposal is of a corresponding part of each of the assets comprised in the settled property or, as the case may be, each of the assets comprised in that fund or part.
In any other case the deemed disposal is of the whole of each of the assets so comprised.
(3) Sub-paragraphs (1) and (2) have effect subject to paragraph 13(4)(a) where the identity of the underlying assets changes during the period between the beginning of the disposal and its effective completion.
(4) Where part only of an asset is comprised in a specific fund or other defined part of the settled property, that part of the asset shall be treated for the purposes of this Schedule as if it were a separate asset.
Character of deemed disposal
9 (1) The deemed disposal shall be taken—
(a) to be for a consideration equal to the whole or, as the case may be, a corresponding part of the market value of each of the assets concerned, and
(b) to be a disposal under a bargain at arm’s length.
(2) Sub-paragraph (1)(a) shall be read with paragraph 13(4)(b) where the value of the assets changes during the period between the beginning of the disposal and its effective completion.
Avoidance of double-counting
10 (1) The provisions of this paragraph have effect to prevent there being both a deemed disposal under this Schedule in relation to the disposal of an interest in settled property and a chargeable disposal of the interest itself.
A “chargeable disposal” means one in relation to which section 76(1) does not apply.
(2) If there would be a chargeable gain on the disposal of the interest in the settlement, then—
(a) if—
(i) the chargeable gain on the disposal of the interest would be greater than the net chargeable gain on the deemed disposal, or
(ii) there would be no net chargeable gain on the deemed disposal,
the provisions of this Schedule as to a deemed disposal do not apply; and
(b) in any other case, the provisions of this Schedule as to a deemed disposal apply and no chargeable gain is treated as accruing on the disposal of the interest in the settlement.
(3) If there would be an allowable loss on the disposal of the interest in the settlement, then—
(a) if there would be a greater net allowable loss on the deemed disposal, the provisions of this Schedule as to a deemed disposal do not apply; and
(b) in any other case, the provisions of this Schedule as to a deemed disposal apply and no allowable loss is treated as accruing on the disposal of the interest in the settlement.
(4) If there would be neither a chargeable gain nor an allowable loss on the disposal of the interest in the settlement, then—
(a) if there would be a net allowable loss on the deemed disposal, the provisions of this Schedule as to a deemed disposal do not apply; and
(b) in any other case, the provisions of this Schedule as to a deemed disposal apply.
(5) For the purposes of this paragraph—
(a) there is a net chargeable gain on a deemed disposal if the aggregate of the chargeable gains accruing to the trustees in respect of the assets involved exceeds the aggregate of the allowable losses so accruing; and
(b) there is a net allowable loss on a deemed disposal if the aggregate of the allowable losses accruing to the trustees in respect of the assets involved exceeds the aggregate of the chargeable gains so accruing.
Recovery of tax from person disposing of interest
11 (1) This paragraph applies where chargeable gains accrue to the trustees on the deemed disposal and—
(a) tax becomes chargeable on and is paid by the trustees in respect of those gains, or
(b) a person who is a settlor in relation to the settlement recovers from the trustees under section 78 an amount of tax in respect of those gains.
(2) The trustees are entitled to recover the amount of the tax referred to in sub-paragraph (1)(a) or (b) from the person who disposed of the interest in the settlement.
(3) For this purpose the trustees may require an inspector to give that person a certificate specifying—
(a) the amount of the gains in question, and
(b) the amount of tax that has been paid.
Any such certificate shall be conclusive evidence of the facts stated in it.
Meaning of “settlor”
12 The provisions of paragraphs 7 and 8(1), (3), (6) and (7) of Schedule 5 (meaning of “settlor”) apply for the purposes of this Schedule as they apply for the purposes of section 86.
Cases where there is a period between the beginning of the disposal and its effective completion
13 (1) This paragraph applies in a case where there is a period between the beginning of the disposal of an interest in settled property and the effective completion of the disposal.
(2) For the purposes of this Schedule—
(a) the beginning of the disposal is—
(i) in the case of a disposal involving the exercise of an option, when the option is granted, and
(ii) in any other case of a disposal under a contract, when the contract is entered into; and
(b) the effective completion of the disposal means the point at which the person acquiring the interest becomes for practical purposes unconditionally entitled to the whole of the intended subject matter of the disposal.
(3) Where this paragraph applies and the beginning of the disposal and its effective completion fall in different years of assessment—
(a) the deemed disposal is treated as taking place in the year of assessment in which the disposal is effectively completed;
(b) the condition in paragraph 5 (condition as to residence of trustees) is treated as met if it is met in relation to either of those years of assessment or any intervening year;
(c) the condition in paragraph 6 (condition as to residence of settlor) is treated as met if it is met in relation to either or both of those years of assessment or any intervening year; and
(d) the relevant period for the purposes of paragraph 7 (condition as to settlor interest) is the period—
(i) beginning two years before the beginning of the first of those years of assessment, and
(ii) ending with the effective completion of the disposal.
(4) If the identity or value of the underlying assets changes during the period between the beginning of the disposal and its effective completion, the following provisions apply—
(a) an asset is treated as comprised in the settled property and, where relevant, in any specific fund or other defined part of the settled property to which the deemed disposal relates if it is so comprised at any time in that period;
(b) the market value of any asset for the purposes of the deemed disposal is taken to be its highest market value at any time during that period.
(5) The provisions in sub-paragraph (4) do not apply to an asset if during that period it is disposed of by the trustees under a bargain at arm’s length and is not reacquired.
Exception: maintenance funds for historic buildings
14 If the trustees of a settlement have elected that 508 of ITA 2007 (trustees' election in respect of income arising from heritage maintenance property) shall have effect in the case of a settlement or part of a settlement in relation to a year of assessment, this Schedule does not apply in relation to the settlement or part for that year.
SCHEDULE 4AA Re-basing for non-residents in respect of UK land etc held on 5 April 2019
PART 1 Introduction
1 (1) Part 2, 3 or 4 of this Schedule applies on the first occasion on which a person disposes of an asset that the person held on 5 April 2019 where—
(a) the disposal is either a direct or indirect disposal of UK land, and
(b) the disposal is made by a non-resident or a UK resident in the overseas part of a tax year.
(2) See also paragraph 16 (non-UK resident company holding UK land becoming resident in UK after 5 April 2019).
(3) For the purposes of this Schedule—
(a) a disposal is a “direct disposal of UK land” if it is a disposal of an interest in UK land, and
(b) a disposal by a person is an “indirect disposal of UK land” if it is a disposal of an asset (other than an interest in UK land) deriving at least 75% of its value from UK land where the person has a substantial indirect interest in that land.
(4) For the purposes of this paragraph, the disposal is made by a non-resident or a UK resident in the overseas part of a tax year if it is—
(a) a disposal on which a gain accrues that falls to be dealt with by section 1A(3) because the asset disposed of is within paragraph (b) or (c) of that subsection,
(b) a disposal on which a gain accrues that falls to be dealt with by section 1A(1) in accordance with section 1G(2) because the asset disposed of is within section 1A(3)(b) or (c),
(c) a disposal on which a gain accrues that falls to be dealt with by section 2B(4), or
(d) a disposal of an asset on which a gain does not accrue but which, had a gain accrued, would fall to be dealt with as mentioned in any of the preceding paragraphs of this sub-paragraph.
PART 2 Indirect disposals and direct disposals not chargeable before 6 April 2019
Introduction
2 (1) This Part of this Schedule applies to—
(a) all indirect disposals of UK land,
(b) direct disposals of UK land that were not fully residential before 6 April 2019, and
(c) direct disposals of UK land by persons who were not chargeable before 6 April 2019.
(2) For the purposes of this paragraph a direct disposal of UK land made by a person was “not fully residential before 6 April 2019” if in the period—
(a) beginning with the day on which the person acquired the interest in land being disposed of or, if later, 6 April 2015, and
(b) ending with 5 April 2019,
there was no day on which the land to which the disposal relates consisted of or included a dwelling.
(3) If the disposal is of an interest in land subsisting under a contract for the acquisition of land that, at any time before 6 April 2019, consisted of or included a building to be constructed or adapted for use as a dwelling, the disposal is taken to be fully residential before that date.
(4) For the purposes of this paragraph, a disposal is made by a person who was not chargeable before 6 April 2019 if, immediately before that date, the person was—
(a) a company which was not a closely-held company (see sub-paragraph (5)),
(b) a widely-marketed scheme (see sub-paragraph (6)), or
(c) a company carrying on life assurance business (as defined in section 56 of the Finance Act 2012) where the interest in UK land was, immediately before that date, held for the purpose of providing benefits to policyholders in the course of that business.
(5) The question as to whether a company is “a closely-held company” is determined in accordance with Part 1 of Schedule C1; but if—
(a) the company is a divided company within the meaning of section 14G, and
(b) the company would not otherwise be regarded as a closely-held company,
the company is to be so regarded if the conditions in subsection (3) of that section are met.
(6) A person is a “widely-marketed scheme” if—
(a) the person is a scheme within the meaning of section 14F, and
(b) condition A or B in that section is met,
reading the reference in subsection (8)(a) of that section to the non-resident CGT disposal as a reference to the disposal mentioned in paragraph 1(1).
(7) In determining for the purposes of this paragraph whether or not—
(a) a person is a closely-held company, or
(b) a person is a widely-marketed scheme,
arrangements are to be ignored if the main purpose of, or one of the main purposes of, them is to secure a tax advantage as a result of the person not being a closely-held company or the person being a widely-marketed scheme.
(8) In this paragraph—
(a) “arrangements” and “tax advantage” have the same meaning as in section 16A, and
(b) any reference to section 14F, 14G or Schedule C1 are to those provisions as they had effect on 5 April 2019 (before their repeal by Schedule 1 to the Finance Act 2019).
Re-basing to 5 April 2019
3 (1) In calculating the gain or loss accruing on the disposal it is be assumed that the asset was on 5 April 2019 sold by the person, and immediately reacquired by the person, at its market value on that date.
(2) This paragraph has effect subject to any election made by the person under paragraph 4 (retrospective basis of calculation).
Election for retrospective basis of calculation
4 (1) The person may make an election under this paragraph for the assumption that the asset is sold and reacquired as mentioned in paragraph 3 not to apply.
(2) If, in the case of an indirect disposal of UK land—
(a) a person makes an election under this paragraph, and
(b) a loss accrues on the disposal,
the loss is not an allowable loss.
Calculation of residential property gain if election made under paragraph 4
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PART 3 Direct disposals of Pre-April 2015 assets fully chargeable before 6 April 2019
Introduction
6 (1) This Part of this Schedule applies to any direct disposal of UK land if—
(a) the person held the interest in UK land being disposed of throughout the period beginning with 6 April 2015 and ending with the disposal, and
(b) the disposal was fully residential before 6 April 2019.
(2) For this purpose a direct disposal of UK land made by a person is “fully residential before 6 April 2019” if in the period—
(a) beginning with 6 April 2015, and
(b) ending with 5 April 2019,
every day on which the land to which the disposal relates consisted of a dwelling.
(3) If the disposal is of an interest in land subsisting under a contract for the acquisition of land that, at any time in that period, did not consist of a building to be constructed or adapted for use as a dwelling, the disposal is taken to be not fully residential before 6 April 2019.
(4) This Part of this Schedule does not apply to a direct disposal of UK land made by a person who was not chargeable before 6 April 2019, as determined for the purposes of paragraph 2.
Re-basing to 5 April 2015
7 (1) In calculating the gain or loss accruing on the disposal it is be assumed that the asset was on 5 April 2015 sold by the person, and immediately reacquired by the person, at its market value on that date.
(2) This paragraph has effect subject to any election made by the person under either—
(a) paragraph 8 (retrospective basis of calculation), or
(b) paragraph 9 (straight-line time apportionment),
(and an election may be made under only one of those paragraphs).
Election for retrospective basis of calculation
8 The person may make an election under this paragraph for the assumption that the asset is sold and reacquired as mentioned in paragraph 7 not to apply.
Election for straight-line time apportionment
9 (1) The person may make an election under this paragraph—
(a) for the assumption that the asset is sold and reacquired as mentioned in paragraph 7 not to apply, and
(b) for the gain or loss accruing on the disposal to be apportioned so that only the post-5 April 2015 proportion of it is treated as accruing on the disposal.
(2) The “post-5 April 2015 proportion” is the proportion that the days in the post-5 April 2015 period bear to the days in the ownership period.
(3) For this purpose—
“the post-5 April 2015 period” means the day beginning with 6 April 2015 and ending with the day on which the disposal is made, and
“the ownership period” means the period beginning with the day on which the person acquired the interest disposed of or, if later, 31 March 1982 and ending with the day on which the disposal is made.
Calculation of residential property gain if election made under paragraph 8 or 9
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PART 4 Direct disposals of assets partly chargeable before 6 April 2019
Introduction
12 (1) This Part of this Schedule applies to any direct disposal of UK land if—
(a) neither Part 2 nor Part 3 of this Schedule applies to the disposal, and
(b) the interest in UK land being disposed of was not a post-April 2015 asset that was fully residential before 6 April 2019.
(2) For this purpose—
(a) the interest in UK land being disposed of is a “post-April 2015 asset” if it was acquired by the person after 5 April 2015, and
(b) the asset “was fully residential before 6 April 2019” if, in the period beginning with the day on which it was acquired and ending with 5 April 2019, every day on which the land to which the disposal relates consisted of a dwelling.
(3) If the disposal is of an interest in land subsisting under a contract for the acquisition of land that, at any time in that period, did not consist of a building to be constructed or adapted for use as a dwelling, the disposal is taken to be not fully residential before 6 April 2019.
Re-basing to 5 April 2015 and 5 April 2019
13 (1) In calculating the gain or loss accruing on the disposal (“the actual disposal”) it is be assumed that—
(a) the asset was on 5 April 2015 sold by the person, and immediately reacquired by the person, at its market value on that date (but see sub-paragraph (3)), and
(b) in addition, the asset was on 5 April 2019 sold by the person, and immediately reacquired by the person, at its market value on that date.
(2) In the case of the assumed sale on 5 April 2019, the gain or loss accruing on that sale is treated as accruing on the actual disposal (in addition to the gain or loss that actually accrues on the actual disposal).
(3) If the asset was acquired by the person after 5 April 2015, the assumption that it is sold, and immediately reacquired, on 5 April 2015 is not to apply.
(4) This paragraph has effect subject to any election made by the person under paragraph 14 (retrospective basis of calculation).
Election for retrospective basis of calculation
14 The person may make an election under this paragraph for the assumptions that the asset is sold and reacquired as mentioned in paragraph 13 not to apply.
Calculation of residential property gain if election made under paragraph 14
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PART 5 Miscellaneous
Companies with UK land becoming UK resident after 5 April 2019
16 (1) This paragraph applies in any case where—
(a) a company becomes resident in the United Kingdom after 5 April 2019,
(b) the company makes a direct or indirect disposal of UK land after that date, and
(c) (ignoring this paragraph) Part 2, 3 or 4 of this Schedule would have applied to the disposal but for the fact that it is made at a time when the company is resident in the United Kingdom.
(2) In that case, Part 2, 3 or 4 of this Schedule applies in relation to the disposal (regardless of paragraph 1(1)(b)).
Persons with UK land ceasing to be UK resident after 5 April 2019
17 (1) This paragraph applies in any case where—
(a) the trustees of a settlement cease to be resident in the United Kingdom after 5 April 2019,
(b) after that date the trustees dispose of an asset held by them on that date, and
(c) the disposal is a direct or indirect disposal of UK land.
(2) Nothing in Part 2, 3 or 4 of this Schedule applies to the disposal.
(3) The asset that is disposed of is excepted from the application of section 80(2) (deemed disposal of assets on trustees ceasing to be resident in UK).
18 (1) This paragraph applies in any case where—
(a) a company ceases to be resident in the United Kingdom after 5 April 2019,
(b) after that date the company disposes of an asset held by it on that date, and
(c) the disposal is a direct or indirect disposal of UK land.
(2) Nothing in Part 2, 3 or 4 of this Schedule applies to the disposal.
(3) The asset that is disposed of is excepted from the application of section 185(2) and (3) (deemed disposal of assets on company ceasing to be resident in UK).
Wasting assets
19 (1) This paragraph applies if, in calculating a gain or loss accruing to a person in a case where paragraph 3, 7 or 13 is applicable, it is necessary to make a wasting asset determination in relation to the asset disposed of.
(2) The assumption that the asset was acquired on a date mentioned in paragraph 3, 7 or 13 (as the case may be) is to be ignored in making that determination.
(3) In this paragraph “a wasting asset determination” means a determination whether or not an asset is a wasting asset, as defined for the purposes of Chapter 2 of Part 2 of this Act.
Capital allowances
20 (1) This paragraph applies if, in calculating a gain or loss accruing to a person in a case where paragraph 3, 7 or 13 is applicable, it is to be assumed that the asset disposed of was acquired on a particular date for a consideration equal to its market value on that date.
(2) For the purposes of that calculation—
(a) section 41 (restriction of losses by reference to capital allowances and renewals allowances), and
(b) section 47 (wasting assets qualifying for capital allowances),
are to apply in relation to any allowance made in respect of the expenditure actually incurred in acquiring or providing the asset as if it were made in respect of the expenditure assumed to have been incurred.
(3) In this paragraph “allowance” means any capital allowance or renewals allowance.
Making of elections
21 (1) An election under any provision of this Schedule must (regardless of section 42(2) of the Management Act) be made by being included in a relevant return relating to the disposal.
(2) For the purposes of this paragraph a “relevant return” means—
(a) an ordinary tax return, or
(b) a return under Schedule 2 to the Finance Act 2019.
(3) An election under any provision of this Schedule which is made by being included in a return under Schedule 2 to the Finance Act 2019 may be subsequently revoked by provision included in an ordinary tax return which is delivered on or before the filing date for the ordinary tax return.
(4) Subject to that, an election under any provision of this Schedule is irrevocable.
(5) All such adjustments are to be made, whether by way of discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to an election under any provision of this Schedule.
(6) For the purposes of this paragraph, in the case of a person other than a company—
“ordinary tax return” means a return under section 8 or 8A of the Management Act, and
“the filing date”, in relation to that return, has the meaning given by section 9A(6) of that Act.
(7) For the purposes of this paragraph, in the case of a company—
“ordinary tax return” means a company tax return under Schedule 18 to the Finance Act 1998, and
“the filing date”, in relation to that return, has the meaning given by paragraph 14 of that Schedule.
(8) For the purposes of this paragraph—
(a) the reference to an election being included in a relevant return includes its being included as a result of an amendment of the return, and
(b) the reference to the revocation of an election being included in an ordinary tax return includes its being included as a result of an amendment of the return.
Interpretation
22 (1) In this Schedule—
(a) any reference to an interest in UK land is to be read in accordance with section 1C (and any reference to land is to be read in accordance with that section), and
(b) any reference to an asset (other than an interest in UK land) deriving at least 75% of its value from UK land where a person has a substantial indirect interest in that land is to be read in accordance with Schedule 1A.
(2) If an interest in UK land disposed of by a person results from interests in UK land acquired by the person at different times, the person is regarded for the purposes of this Schedule as having acquired the interest disposed of at the time of the first acquisition.
(3) For the purposes of this Schedule, whether a building is a dwelling is determined in accordance with paragraphs 16E to 16H of Schedule 2 to the Finance Act 2019.
SCHEDULE 4B Transfers of value by trustees linked with trustee borrowing
General scheme of this Schedule
1 (1) This Schedule applies where trustees of a settlement—
(a) make a transfer of value (see paragraph 2) in a year of assessment in which the settlement is within section ... 86 or 87 (see paragraph 3), and
(b) in accordance with this Schedule the transfer of value is treated as linked with trustee borrowing (see paragraphs 4 to 9).
(2) Where this Schedule applies the trustees are treated as disposing of and immediately reacquiring the whole or a proportion of each of the chargeable assets that continue to form part of the settled property (see paragraphs 10 to 13).
Transfers of value
2 (1) For the purposes of this Schedule trustees of a settlement make a transfer of value if they—
(a) lend money or any other asset to any person,
(b) transfer an asset to any person and receive either no consideration or a consideration whose amount or value is less than the market value of the asset transferred, or
(c) issue a security of any description to any person and receive either no consideration or a consideration whose amount or value is less than the value of the security.
(2) References in this Schedule to “the material time”, in relation to a transfer of value, are to the time when the loan is made, the transfer is effectively completed or the security is issued.
The effective completion of a transfer means the point at which the person acquiring the asset becomes for practical purposes unconditionally entitled to the whole of the intended subject matter of the transfer.
(3) In the case of a loan, the amount of value transferred is taken to be the market value of the asset.
(4) In the case of a transfer, the amount of value transferred is taken to be—
(a) if any part of the value of the asset is attributable to trustee borrowing, the market value of the asset;
(b) if no part of the value of the asset is attributable to trustee borrowing, the market value of the asset reduced by the amount or value of any consideration received for it.
Paragraph 12 below explains what is meant by the value of an asset being attributable to trustee borrowing.
(5) In the case of the issue of a security, the amount of value transferred shall be taken to be the value of the security reduced by the amount or value of any consideration received by the trustees for it.
(6) References in this paragraph to the value of an asset are to its value immediately before the material time, unless the asset does not exist before that time in which case its value immediately after that time shall be taken.
Settlements within section ... 86 or 87
3 (1) This paragraph explains what is meant in this Schedule by a settlement being “within section ... 86 or 87” in a year of assessment.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) A settlement is “within section 86” in a year of assessment if, assuming—
(a) that there were chargeable gains accruing to the trustees by virtue of disposals of any of the settled property originating from the settlor, and
(b) that the other elements of the condition in subsection (1)(e) of that section were met,
chargeable gains would, under that section, be treated as accruing to the settlor in that year.
Expressions used in this sub-paragraph have the same meaning as in section 86.
(4) A settlement is “within section 87” for a tax year if—
(a) section 87 applies to the settlement for that year, or
(b) chargeable gains would be treated under section 89(2) as accruing in that year to a beneficiary who received a capital payment from the trustees of the settlement in that year.
(5) The reference in subsection (4)(b) to chargeable gains treated as accruing includes offshore income gains treated as arising.
Trustee borrowing
4 (1) For the purposes of this Schedule trustees of a settlement are treated as borrowing if—
(a) money or any other asset is lent to them, or
(b) an asset is transferred to them and in connection with the transfer the trustees assume a contractual obligation (whether absolute or conditional) to restore or transfer to any person that or any other asset.
In the following provisions of this Schedule “loan obligation” includes any such obligation as is mentioned in paragraph (b).
(2) The amount borrowed (the “proceeds” of the borrowing) is taken to be—
(a) in the case of a loan, the market value of the asset;
(b) in the case of a transfer, the market value of the asset reduced by the amount or value of any consideration received for it.
(3) References in this paragraph to the market value of an asset are to its market value immediately before the loan is made, or the transfer is effectively completed, unless the asset does not exist before that time in which case its market value immediately after that time shall be taken.
The effective completion of a transfer means the point at which the person acquiring the asset becomes for practical purposes unconditionally entitled to the whole of the intended subject matter of the transfer.
Transfer of value linked with trustee borrowing
5 (1) For the purposes of this Schedule a transfer of value by trustees is treated as linked with trustee borrowing if at the material time there is outstanding trustee borrowing.
(2) For the purposes of this Schedule there is outstanding trustee borrowing at any time to the extent that—
(a) any loan obligation is outstanding, and
(b) there are proceeds of trustee borrowing that have not been either—
(i) applied for normal trust purposes, or
(ii) taken into account under this Schedule in relation to an earlier transfer of value.
(3) An amount of trustee borrowing is “taken into account” under this Schedule in relation to a transfer of value if the transfer of value is in accordance with this Schedule treated as linked with trustee borrowing.
The amount so taken into account is—
(a) the amount of the value transferred by that transfer of value, or
(b) if less, the amount of outstanding trustee borrowing at the material time in relation to that transfer of value.
Application of proceeds of borrowing for normal trust purposes
6 (1) For the purposes of this Schedule the proceeds of trustee borrowing are applied for normal trust purposes in the following circumstances, and not otherwise.
(2) They are applied for normal trust purposes if they are applied by the trustees in making a payment in respect of an ordinary trust asset and the following conditions are met—
(a) the payment is made under a transaction at arm’s length or is not more than the payment that would be made if the transaction were at arm’s length;
(b) the asset forms part of the settled property immediately after the material time or, if it does not do so, the alternative condition in paragraph 8 below is met; and
(c) the sum paid is (or but for section 17 or 39 would be) allowable under section 38 as a deduction in computing a gain accruing to the trustees on a disposal of the asset.
(3) They are applied for normal trust purposes if—
(a) they are applied by the trustees in wholly or partly discharging a loan obligation of the trustees, and
(b) the whole of the proceeds of the borrowing connected with that obligation (or all but an insignificant amount) have been applied by the trustees for normal trust purposes.
(4) They are applied for normal trust purposes if they are applied by the trustees in making payments to meet bona fide current expenses incurred by them in administering the settlement or any of the settled property.
Ordinary trust assets
7 (1) The following are “ordinary trust assets” for the purposes of this Schedule—
(a) shares or securities;
(b) tangible property, whether movable or immovable, or a lease of such property;
(c) property not within paragraph (a) or (b) which is used for the purposes of a trade, profession or vocation carried on—
(i) by the trustees, or
(ii) by a beneficiary who has an interest in possession in the settled property;
(d) any right in or over, or any interest in, property of a description within paragraph (b) or (c).
(2) In sub-paragraph (1)(a) “securities” has the same meaning as in section 132.
The alternative condition for assets no longer part of the settled property
8 (1) The alternative condition referred to in paragraph 6(2)(b) in relation to an asset which no longer forms part of the settled property is that—
(a) the asset is treated as having been disposed of by virtue of section 24(1), or
(b) one or more ordinary trust assets which taken together directly or indirectly represent the asset—
(i) form part of the settled property immediately after the material time, or
(ii) are treated as having been disposed of by virtue of section 24(1).
(2) Where there has been a part disposal of the asset, the condition in paragraph 6(2)(b) and the provisions of sub-paragraph (1) above may be applied in any combination in relation to the subject matter of the part disposal and what remains.
(3) References in this paragraph to an asset include part of an asset.
Normal trust purposes: power to make provision by regulations
9 (1) The Treasury may make provision by regulations as to the circumstances in which the proceeds of trustee borrowing are to be treated for the purposes of this Schedule as applied for normal trust purposes.
(2) The regulations may—
(a) add to, amend or repeal any of the provisions of paragraphs 6 to 8 above,
(b) make different provision for different cases, and
(c) contain such supplementary, incidental, consequential and transitional provision as the Treasury may think fit.
Deemed disposal of remaining chargeable assets
10 (1) Where in accordance with this Schedule a transfer of value by trustees is treated as linked with trustee borrowing, the trustees are treated for all purposes of this Act—
(a) as having at the material time disposed of, and
(b) as having immediately reacquired,
the whole or a proportion (see paragraph 11) of each of the chargeable assets that form part of the settled property immediately after the material time (“the remaining chargeable assets”).
(2) The deemed disposal and reacquisition shall be taken—
(a) to be for a consideration equal to the whole or, as the case may be, a proportion of the market value of each of those assets, and
(b) to be under a bargain at arm’s length.
(3) For the purposes of sub-paragraph (1) an asset is a chargeable asset if a gain on a disposal of the asset by the trustees at the material time would be a chargeable gain.
Whether deemed disposal is of whole or a proportion of the assets
11 (1) This paragraph provides for determining whether the deemed disposal and reacquisition is of the whole or a proportion of each of the remaining chargeable assets.
(2) If the amount of value transferred—
(a) is less than the amount of outstanding trustee borrowing, and
(b) is also less than the effective value of the remaining chargeable assets,
the deemed disposal and reacquisition is of the proportion of each of the remaining chargeable assets given by:
VTEV
where—
VT is the amount of value transferred, and
EV is the effective value of the remaining chargeable assets.
(3) If the amount of value transferred—
(a) is not less than the amount of outstanding trustee borrowing, but
(b) is less than the effective value of the remaining chargeable assets,
the deemed disposal and reacquisition is of the proportion of each of the remaining chargeable assets given by:
TBEV
where—
TB is the amount of outstanding trustee borrowing, and
EV is the effective value of the remaining chargeable assets.
(4) In any other case the deemed disposal and reacquisition is of the whole of each of the remaining chargeable assets.
(5) For the purposes of this paragraph the effective value of the remaining chargeable assets means the aggregate market value of those assets reduced by so much of that value as is attributable to trustee borrowing.
(6) References in this paragraph to amounts or values, except in relation to the amount of value transferred, are to amounts or values immediately after the material time.
Value attributable to trustee borrowing
12 (1) For the purposes of this Schedule the value of an asset is attributable to trustee borrowing to the extent determined in accordance with the following rules.
(2) Where the asset itself has been borrowed by trustees, the value of the asset is attributable to trustee borrowing to the extent that the proceeds of that borrowing have not been applied for normal trust purposes.
This is in addition to any extent to which the value of the asset may be attributable to trustee borrowing by virtue of sub-paragraph (3).
(3) The value of any asset is attributable to trustee borrowing to the extent that—
(a) the trustees have applied the proceeds of trustee borrowing in acquiring or enhancing the value of the asset, or
(b) the asset represents directly or indirectly an asset whose value was attributable to the trustees having so applied the proceeds of trustee borrowing.
(4) For the purposes of this paragraph an amount is applied by the trustees in acquiring or enhancing the value of an asset if it is applied wholly and exclusively by them—
(a) as consideration in money or money’s worth for the acquisition of the asset,
(b) for the purpose of enhancing the value of the asset in a way that is reflected in the state or nature of the asset,
(c) in establishing, preserving or defending their title to, or to a right over, the asset, or
(d) where the asset is a holding of shares or securities that is treated as a single asset, by way of consideration in money or money’s worth for additional shares or securities forming part of the same holding.
(5) Trustees are treated as applying the proceeds of borrowing as mentioned in sub-paragraph (4) if and to the extent that at the time the expenditure is incurred there is outstanding trustee borrowing.
(6) In sub-paragraph (4)(d) “securities” has the same meaning as in section 132.
Assets and transfers
13 (1) In this Schedule any reference to an asset includes money expressed in sterling.
References to the value or market value of such an asset are to its amount.
(2) Subject to sub-paragraph (3), references in this Schedule to the transfer of an asset include anything that is or is treated as a disposal of the asset for the purposes of this Act, or would be if sub-paragraph (1) above applied generally for the purposes of this Act.
(3) References in this Schedule to a transfer of an asset do not include a transfer of an asset that is created by the part disposal of another asset.
SCHEDULE 4C Transfers of value: attribution of gains to beneficiaries
Introduction
1 (1) This Schedule applies where the trustees of a settlement (“the transferor settlement”) make a transfer of value to which Schedule 4B applies (“the original transfer”).
(2) The transferor settlement is regarded for the purposes of this Schedule as having a “Schedule 4C pool”.
(3) The Schedule 4C pool contains the section 1(3) amounts for the settlement that are outstanding at the end of the tax year in which the original transfer is made (see paragraph 1A).
(3A) The section 1(3) amount for that tax year is increased by—
(a) the amount of Schedule 4B trust gains accruing by virtue of the original transfer (see paragraphs 3 to 7), and
(b) the total amount of any further Schedule 4B trust gains accruing by virtue of any further transfers of value to which that Schedule applies that are made by the trustees in that tax year.
(4) Paragraphs 8 to 9 provide for the attribution of gains in a settlement’s Schedule 4C pool.
(5) References in this Schedule to a transfer to which Schedule 4B applies include any such transfer, whether or not any chargeable gain or allowable loss accrues under that Schedule by virtue of the transfer.
Outstanding section 1(3) amounts
1A (1) The following steps are to be taken for the purpose of calculating the section 1(3) amounts for a settlement that are outstanding at the end of a tax year (“the relevant tax year”).
Step 1
Find the section 1(3) amount for the settlement for the relevant tax year and earlier tax years, as reduced under section 87A as it applies for the relevant tax year and earlier tax years.
Step 2
This Step applies if, directly or indirectly by virtue of the matching of the section 1(3) amount for the settlement for a tax year (“the applicable year”) with a capital payment, chargeable gains are treated under section 87, 87K, 87L or 89(2) as accruing in the relevant tax year to an individual who is not chargeable to tax for that year.
Increase the section 1(3) amount for the applicable year (found under Step 1) by the amount of the chargeable gains.
(2) For the purposes of Step 1 of sub-paragraph (1) take into account the effect of section 90 in relation to any transfer of settled property from or to the trustees of the settlement made in or before the relevant tax year.
(3) For the purposes of this Schedule an individual is “chargeable to tax” for a tax year if, as respects that year, the individual is UK resident for the tax year (as determined in accordance with Chapter 1 of Part 1 of this Act).
Computation of Schedule 4B trust gains
3 (1) This paragraph explains what is meant for the purposes of this Schedule by “Schedule 4B trust gains”.
(2) The Schedule 4B trust gains are computed in relation to each transfer of value to which that Schedule applies.
(3) In relation to a transfer of value the amount of the Schedule 4B trust gains for the purposes of this Schedule is given by—
CA-SG-AL
where—
CA is the chargeable amount computed under paragraph 4 or 5 below,
SG is the amount of any gains attributed to the settlor that fall to be deducted under paragraph 6 below, and
AL is the amount of any allowable losses that may be deducted under paragraph 7 below.
Chargeable amount: non-resident settlement
4 (1) If the transfer of value is made in a year of assessment during which the trustees of the transferor settlement are at no time resident ... in the United Kingdom the chargeable amount is computed under this paragraph.
(2) Where this paragraph applies the chargeable amount is the amount on which the trustees would have been chargeable to tax under section 1(3) by virtue of Schedule 4B if they had been resident ... in the United Kingdom in the year (and had made the disposals which Schedule 4B treats them as having made).
(3) Where (apart from this sub-paragraph) the chargeable amount mentioned in sub-paragraph (2) would include a chargeable gain or allowable loss to which section 1A(3)(b) or (c) applies (disposals by non-UK residents within the charge to capital gains tax), so much of the gain or loss as would be so included is to be disregarded for the purposes of determining the chargeable amount.
Chargeable amount: dual resident settlement
5 (1) If the transfer of value is made in a year of assessment where—
(a) the trustees of the transferor settlement are resident ... in the United Kingdom during any part of the year, and
(b) at any time of such residence ... they fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom,
the chargeable amount is computed under this paragraph.
(2) Where this paragraph applies the chargeable amount is the lesser of—
(a) the amount on which the trustees would be chargeable to tax under section 2(2) by virtue of Schedule 4B on the assumption that the double taxation relief arrangements did not apply (and the disposals which Schedule 4B treats them as having made were made), and
(b) the amount on which the trustees would be so chargeable to tax by virtue of disposals of protected assets.
(3) For this purpose “protected assets” has the meaning given by section 88(4).
Gains attributed to settlor
6 (1) For the purposes of this Schedule the chargeable amount in relation to a transfer of value shall be reduced by the amount of any chargeable gains arising by virtue of that transfer of value that—
(a) are by virtue of section 86(4) treated as accruing to the settlor, or
(b) where section 1M applies, are treated by virtue of that section (as it has effect subject to paragraph 12 below) as accruing to the settlor in the period of return.
(1A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) In determining for the purposes of sub-paragraph (1)(a) the amount of chargeable gains arising by virtue of a transfer of value that are treated as accruing to the settlor, there shall be disregarded any losses which arise otherwise than by virtue of Schedule 4B.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction for allowable losses
7 (1) An allowable loss arising under Schedule 4B in relation to a transfer of value by the trustees of a settlement may be taken into account in accordance with this paragraph to reduce for the purposes of this Schedule the chargeable amount in relation to another transfer of value by those trustees.
(2) Any such allowable loss goes first to reduce chargeable amounts arising from other transfers of value made in the same year of assessment.
If there is more than one chargeable amount and the aggregate amount of the allowable losses is less than the aggregate of the chargeable amounts, each of the chargeable amounts is reduced proportionately.
(3) If in any year of assessment the aggregate amount of the allowable losses exceeds the aggregate of the chargeable amounts, the excess shall be carried forward to the next year of assessment and treated for the purposes of this paragraph as if it were an allowable loss arising in relation to a transfer of value made in that year.
(4) Any reduction of a chargeable amount under this paragraph is made after any deduction under paragraph 6.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains to be brought into pool on subsequent transfer of value
7B (1) This paragraph applies if the trustees of the transferor settlement make a further transfer of value to which Schedule 4B applies in a tax year (“the year of the transfer”) after the tax year mentioned in paragraph 1(3).
(2) If the settlement has a Schedule 4C pool at the beginning of the year of the transfer—
(a) the section 2(2) amounts in the Schedule 4C pool are increased by the section 2(2) amounts for the settlement that are outstanding at the end of the year of the transfer, and
(b) the section 2(2) amount in the pool for the year of transfer is increased (or further increased) by the amount of Schedule 4B trust gains accruing by virtue of the further transfer.
(3) If the settlement does not have a Schedule 4C pool at the beginning of the year of the transfer, this Schedule applies in relation to the further transfer as it applied in relation to the original transfer.
(4) For the purposes of this paragraph a settlement has a Schedule 4C pool until the end of the tax year in which all section 2(2) amounts in the pool have been reduced to nil.
Attribution of Schedule 4C gains to beneficiaries
8 (1) Chargeable gains are treated as accruing in a tax year (“the relevant tax year”) to a beneficiary who has received a capital payment from the trustees of a relevant settlement in the relevant tax year or any earlier tax year if all or part of the capital payment is matched (under section 87A as it applies for the relevant tax year) with the section 2(2) amount in the Schedule 4C pool for the relevant tax year or any earlier tax year.
(2) The amount of chargeable gains treated as accruing is equal to—
(a) the amount of the capital payment, or
(b) if only part of the capital payment is matched, the amount of that part.
(3) Section 87A applies for a tax year for the purposes of matching capital payments received from the trustees of a relevant settlement with section 2(2) amounts in the Schedule 4C pool as if—
(a) references to section 2(2) amounts were to section 2(2) amounts in the Schedule 4C pool,
(b) references to a capital payment received from the trustees by a beneficiary were to a capital payment received from the trustees of a relevant settlement by a beneficiary who is chargeable to tax for that year, and
(c) for section 87A(3)(b) there were substituted—
(b) all section 2(2) amounts in the Schedule 4C pool have been reduced to nil.
(4) Section 87A applies for a tax year by virtue of this paragraph before it applies for that year otherwise than by virtue of this paragraph; but this is subject to sub-paragraph (5).
(5) If section 87A applies for a tax year by virtue of section 762(3) of the Taxes Act (offshore income gains), it applies for that year by virtue of that provision before it applies for that year by virtue of this paragraph.
(6) Sections 87G(2), 87HA(2), 87K(2) and 87L(2) (capital payment treated for purposes of sections 87 and 87A as received by someone other than actual recipient) apply also for the purposes of this paragraph, but this is subject to paragraph 9.
Relevant settlements
8A (1) This paragraph specifies what settlements are relevant settlements in relation to a Schedule 4C pool.
(2) The transferor and transferee settlements in relation to the original transfer of value are relevant settlements.
(3) If the trustees of any settlement that is a relevant settlement in relation to a Schedule 4C pool—
(a) make a transfer of value to which Schedule 4B applies, or
(b) make a transfer of settled property to which section 90 applies,
any settlement that is a transferee settlement in relation to that transfer is also a relevant settlement in relation to that pool.
(4) If the trustees of a settlement that is a relevant settlement in relation to a Schedule 4C pool make a transfer of value to which Schedule 4B applies, any other settlement that is a relevant settlement in relation to that pool is also a relevant settlement in relation to the Schedule 4C pool arising from the further transfer.
Attribution of gains: remittance basis
8AA Section 87B (remittance basis) applies in relation to chargeable gains treated under paragraph 8 as accruing as it applies in relation to chargeable gains treated under section 87 as accruing.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attribution of gains: Schedule 4C pool gains and other gains
8C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attribution of gains: disregard of certain capital payments
9 (1) For the purposes of paragraph 8 (and section 87A as it applies for the purposes of that paragraph), no account is to be taken of a capital payment to which any of sub-paragraphs (2) to (4) applies (or a part of a capital payment to which sub-paragraph (4) applies).
(2) This sub-paragraph applies to a capital payment received before the tax year preceding the tax year in which the original transfer is made.
(3) This sub-paragraph applies to a capital payment that—
(a) is received by a beneficiary of a settlement from the trustees in a tax year during the whole of which the trustees—
(i) are resident ... in the United Kingdom, and
(ii) are not Treaty non-resident,
(b) was made before any transfer of value to which Schedule 4B applies was made, and
(c) was not made in anticipation of the making of any such transfer of value or of chargeable gains accruing under that Schedule.
(4) This sub-paragraph applies to a capital payment if (and to the extent that) it is received (or treated as received) in a tax year from the trustees by a company that—
(a) is not resident in the United Kingdom in that year, and
(b) would be a close company if it were resident in the United Kingdom,
(and is not treated under any of subsections (3) to (5) of section 96 as received by another person).
Residence of trustees from whom capital payment received
10 (1) Subject to paragraph 9(3), it is immaterial for the purposes of paragraph 8 that the trustees of any relevant settlement are or have at any time been resident ... in the United Kingdom.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taper relief
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attribution of gains to settlor in section 1M cases
12 (1) This paragraph applies if—
(a) by virtue of section 1M, an amount of chargeable gains within section 86(1)(e) that accrued in a tax year (“year A”) to the trustees of a settlement would be treated as accruing to a person (“the settlor”) in the period of return, and
(b) after paragraph 8 has applied for the year of return, the section 1(3) amount for year A that is in the Schedule 4C pool for the settlement is less than the amount mentioned in paragraph (a).
(2) The amount of chargeable gains treated as mentioned in sub-paragraph (1)(a) as accruing to the settlor in the period of return is limited to the section 1(3) amount referred to in sub-paragraph (1)(b).
(4) Where the property comprised in the transferor settlement has at any time included property not originating from the settlor, only so much (if any) of any capital payment taken into account for the purposes of paragraph 8 above as, on a just and reasonable apportionment, is properly referable to property originating from the settlor shall be taken into account in computing the amount charged to beneficiaries.
(5) Expressions used in this paragraph and section 1M have the same meanings in this paragraph as in that section; and paragraph 8 of Schedule 5 shall apply for the construction of the references in sub-paragraph (4) above to property originating from the settlor as it applies for the purposes of that Schedule.
Attribution of gains to beneficiaries in section 1M cases
12A (1) This paragraph applies where by virtue of section 1M an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the period of return by virtue of a capital payment made to him in the temporary period of non-residence.
(2) Where this paragraph applies, a capital payment equal to so much of that capital payment as exceeds the amount otherwise charged shall be deemed for the purposes of this Schedule to be made to the beneficiary in the year of return.
(3) The “amount otherwise charged” means the total of any chargeable gains attributed to the beneficiary under section 87(2) or 89(2) by virtue of the capital payment.
(4) For the purposes of paragraph 13(5)(b) a deemed capital payment under this paragraph shall be treated as made when the actual capital payment mentioned in sub-paragraph (1) above was made.
(5) Expressions used in this paragraph and section 1M have the same meanings in this paragraph as in that section.
Increase in tax payable under this Schedule
13 (1) This paragraph applies if—
(a) chargeable gains are treated under paragraph 8 as accruing to a beneficiary by virtue of the matching (under section 87A) of all or part of a capital payment with the section 2(2) amount for a tax year (“the relevant tax year”), and
(b) the beneficiary is charged to tax by virtue of the matching.
(1A) Where part of a capital payment is matched, references in sub-paragraphs (2) and (3) to the capital payment are to the part matched.
(2) The tax payable by the beneficiary in respect of the payment shall be increased by the amount found under sub-paragraph (3) below, except that it shall not be increased beyond the amount of the payment; and an assessment may charge tax accordingly.
(3) The amount is one equal to the interest that would be yielded if an amount equal to the tax which would be payable by the beneficiary in respect of the payment (apart from this paragraph) carried interest for the chargeable period at the specified rate.
The “specified rate” means the rate for the time being specified in section 91(3).
(4) The chargeable period is the period which—
(a) begins with the later of the 2 days specified in sub-paragraph (5) below, and
(b) ends with 30th November in the year of assessment following that in which the capital payment is made.
(5) The 2 days are—
(a) 1st December in the tax year immediately after the relevant tax year, and
(b) 1st December falling 6 years before 1st December in the year of assessment following that in which the capital payment is made.
Effect of settlement ceasing to exist after transfer of value
13A Where a settlement ceases to exist after the trustees have made a transfer of value to which Schedule 4B applies, this Schedule has effect as if a year of assessment had ended immediately before the settlement ceased to exist.
Interpretation
14 (1) In this Schedule—
(a) “transfer of value” has the same meaning as in Schedule 4B; and
(b) references to the time at which a transfer of value was made are to the time which is the material time for the purposes of that Schedule.
(2) In this Schedule, in relation to a transfer of value—
(a) references to the transferor settlement are to the settlement the trustees of which made the transfer of value; and
(b) references to a transferee settlement are to any settlement of which the settled property includes property representing, directly or indirectly, the proceeds of the transfer of value.
(3) References in this Schedule to beneficiaries of a settlement include—
(a) persons who have ceased to be beneficiaries by the time the chargeable gains accrue, and
(b) persons who were beneficiaries of the settlement before it ceased to exist,
but who were beneficiaries of the settlement at a time in a previous year of assessment when a capital payment was made to them.
SCHEDULE 5 Attribution of gains to settlors with interest in non-resident or dual resident settlement
Section 86.
Construction of section 86(1)(e)
1 (1) In construing section 86(1)(e) as regards a particular year of assessment, the effect of section 1K shall be ignored.
(2) In construing section 86(1)(e) as regards a particular year of assessment—
(a) any deductions provided for by section 1(3) shall be made in respect of disposals of any of the settled property originating from the settlor, and
(b) section 16(3) shall be assumed not to prevent losses accruing to trustees in one year of assessment from being allowed as a deduction from chargeable gains accruing in a later year of assessment (so far as not previously set against gains).
(3) In a case where—
(a) the trustees are participators in a company in respect of property which originates from the settlor, and
(b) under section 3 gains or losses would be treated as accruing to the trustees in a particular year of assessment by virtue of so much of their interest as participators as arises from that property if the assumption as to residence specified in section 86(3) were made,
the gains or losses shall be taken into account in construing section 86(1)(e) as regards that year as if they had accrued by virtue of disposals of settled property originating from the settlor.
Section 3B(1) to (3) shall apply for the purposes of this sub-paragraph as they apply for the purposes of section 3.
(4) Where, as regards a particular year of assessment, there would be an amount under section 86(1)(e) (apart from this sub-paragraph) and the trustees fall within section 86(2)(b), the following rules shall apply—
(a) assume that the references in section 86(1)(e) and sub-paragraphs (2)(a) and (3) above to settled property originating from the settlor were to such of it as constitutes protected assets;
(b) assume that the reference in sub-paragraph (3)(a) above to shares originating from the settlor were to such of them as constitute protected assets;
(c) find the amount (if any) which would be arrived at under section 86(1)(e) on those assumptions;
(d) if no amount is so found there shall be deemed to be no amount for the purposes of section 86(1)(e);
(e) if an amount is found under paragraph (c) above it must be compared with the amount arrived at under section 86(1)(e) apart from this sub-paragraph. and the smaller of the 2 shall be taken to be the amount arrived at under section 86(1)(e).
(5) Sub-paragraphs (2) to (4) above shall have effect subject to sub-paragraphs (6) and (7) below.
(6) The following rules shall apply in construing section 86(1)(e) as regards a particular year of assessment (“the year concerned”) in a case where the trustees fall within section 86(2)(a)—
(a) if the conditions mentioned in section 86(1) are not fulfilled as regards the settlement in any year of assessment falling before the year concerned, no deductions shall be made in respect of losses accruing before the year concerned;
(b) if the conditions mentioned in section 86(1) are fulfilled as regards the settlement in any year or years of assessment falling before the year concerned, no deductions shall be made in respect of losses accruing before that year (or the first of those years) so falling,
but nothing in the preceding provisions of this sub-paragraph shall prevent deductions being made in respect of losses accruing in a year of assessment in which the conditions mentioned in section 86(1)(a) to (d) and (f) are fulfilled as regards the settlement.
(6A) In construing section 86(1)(e) as regards a particular year of assessment, if—
(a) section 86 did not apply to the settlement in a year of assessment ending before 6 April 2025 (“the earlier year”), but
(b) that section would have applied to the settlement in the earlier year if the condition in section 86(1)(e) (settlor domiciled in the United Kingdom) had been met in the earlier year,
deductions shall be made in respect of losses accruing in the earlier year, but only so far as those losses have not been taken into account for the purposes of section 87 in determining the section 1(3) amount for the settlement for the earlier year.
(7) In construing section 86(1)(e) as regards a particular year of assessment and in relation to a settlement created before 19th March 1991, no account shall be taken of disposals made before 19th March 1991 (whether for the purpose of arriving at gains or for the purpose of arriving at losses).
(8) For the purposes of sub-paragraph (4) above assets are protected assets if—
(a) they are of a description specified in the arrangements mentioned in section 86(2)(b), and
(b) were the trustees to dispose of them at any relevant time, the trustees would fall to be regarded for the purposes of the arrangements as not liable in the United Kingdom to tax on gains accruing to them on the disposal.
(9) For the purposes of sub-paragraph (8) above—
(a) the assumption as to residence specified in section 86(3) shall be ignored;
(b) a relevant time is any time, in the year of assessment concerned, when the trustees fall to be regarded for the purposes of the arrangements as resident in a territory outside the United Kingdom;
(c) if different assets are identified by reference to different relevant times, all of them are protected assets.
Test whether settlor has interest
2 (1) For the purposes of section 86(1)(d) a settlor has an interest in a settlement if—
(a) any relevant property which is or may at any time be comprised in the settlement is, or will or may become, applicable for the benefit of or payable to a defined person in any circumstances whatever,
(b) any relevant income which arises or may arise under the settlement is, or will or may become, applicable for the benefit of or payable to a defined person in any circumstances whatever, or
(c) any defined person enjoys a benefit directly or indirectly from any relevant property which is comprised in the settlement or any relevant income arising under the settlement;
but this sub-paragraph is subject to sub-paragraphs (4) to (6) and paragraph 2A below.
(2) For the purposes of sub-paragraph (1) above—
(a) relevant property is property originating from the settlor,
(b) relevant income is income originating from the settlor.
(3) For the purposes of sub-paragraph (1) above each of the following is a defined person—
(a) the settlor,
(b) the settlor’s spouse or civil partner;
(c) any child of the settlor or of the settlor’s spouse or civil partner;
(d) the spouse or civil partner of any such child;
(da) any grandchild of the settlor or of the settlor’s spouse or civil partner;
(db) the spouse or civil partner of any such grandchild;
(e) a company controlled by a person or persons falling within paragraphs (a) to (db) above;
(f) a company associated with a company falling within paragraph (e) above.
(4) A settlor does not have an interest in a settlement by virtue of paragraph (a) of sub-paragraph (1) above at any time when none of the property concerned can become applicable or payable as mentioned in that paragraph except in the event of—
(a) the bankruptcy of some person who is or may become beneficially entitled to the property,
(b) any assignment of or charge on the property being made or given by some such person,
(c) in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, or
(d) the death under the age of 25 or some lower age of some person who would be beneficially entitled to the property on attaining that age.
(4A) In sub-paragraph (4) “child of the family”, in relation to parties to a marriage or civil partner, means a child of one or both of them.
(5) A settlor does not have an interest in a settlement by virtue of paragraph (a) of sub-paragraph (1) above at any time when some person is alive and under the age of 25 if during that person’s life none of the property concerned can become applicable or payable as mentioned in that paragraph except in the event of that person becoming bankrupt or assigning or charging his interest in the property concerned.
(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “ income ” for “property".
(7) In this paragraph—
“child” includes a stepchild; and
“grandchild” means a child of a child.
(8) For the purposes of sub-paragraph (3) above the question whether a company is controlled by a person or persons shall be construed in accordance with sections 450 and 451 of CTA 2010; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(9) For the purposes of sub-paragraph (3) above the question whether a company is associated with another shall be construed in accordance with section 449 of CTA 2010; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(10) In sub-paragraphs (8) and (9) “participator” has the meaning given by section 454 of CTA 2010.
Settlements created before 17th March 1998
2A (1) In determining for the purposes of section 86(1)(d) whether the settlor has an interest at any time during any year of assessment in a settlement created before 17th March 1998, paragraphs (da) and (db) of paragraph 2(3) above, and the reference to those paragraphs in paragraph 2(3)(e), shall be disregarded unless—
(a) that year is a year in which one of the four conditions set out in the following provisions of this paragraph becomes fulfilled as regards the settlement; or
(b) one of those conditions became fulfilled as regards that settlement in any previous year of assessment ending on or after 5th April 1998.
(2) The first condition is (subject to sub-paragraph (3) below) that on or after 17th March 1998 property or income is provided directly or indirectly for the purposes of the settlement—
(a) otherwise than under a transaction entered into at arm’s length, and
(b) otherwise than in pursuance of a liability incurred by any person before that date.
(3) For the purposes of the first condition, where the settlement’s expenses relating to administration and taxation for a year of assessment exceed its income for the year, property or income provided towards meeting those expenses shall be ignored if the value of the property or income so provided does not exceed the difference between the amount of those expenses and the amount of the settlement’s income for the year.
(4) The second condition is that—
(a) the trustees cease on or after 17 March 1998 to be resident in the United Kingdom, or
(b) the trustees, while continuing to be resident ... in the United Kingdom, become on or after 17th March 1998 trustees who fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(5) The third condition is that on or after 17th March 1998 the terms of the settlement are varied so that any person falling within sub-paragraph (7) below becomes for the first time a person who will or might benefit from the settlement.
(6) The fourth condition is that—
(a) on or after 17th March 1998 a person falling within sub-paragraph (7) below enjoys a benefit from the settlement for the first time, and
(b) the person concerned is not one who (looking only at the terms of the settlement immediately before 17th March 1998) would be capable of enjoying a benefit from the settlement on or after that date.
(7) Each of the following persons falls within this sub-paragraph—
(a) any grandchild of the settlor or of the settlor’s spouse or civil partner;
(b) the spouse or civil partner of any such grandchild;
(c) a company controlled by a person or persons falling within paragraph (a) or (b) above;
(d) a company controlled by any such person or persons together with any person or persons (not so falling) each of whom is for the purposes of paragraph 2(1) above a defined person in relation to the settlement;
(e) a company associated with a company falling within paragraph (c) or (d) above.
(8) For the purposes of sub-paragraph (7) above the question whether a company is controlled by a person or persons shall be construed in accordance with sections 450 and 451 of CTA 2010; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(9) For the purposes of sub-paragraph (7) above the question whether one company is associated with another shall be construed in accordance with section 449 of CTA 2010; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(9A) For the purposes of sub-paragraphs (8) and (9) above a person is not to be regarded as a participator in a company controlled by the trustees of a settlement where the person has a share or interest in the capital or income of the company solely by virtue of an interest which the person has under the settlement.
(10) In this paragraph—
“child” includes a step-child;
“grandchild” means a child of a child;
“participator” has the meaning given by section 454 of CTA 2010.
Exceptions from section 86
3 Section 86 does not apply if the settlor dies in the year.
4 (1) This paragraph applies where for the purposes of section 86(1)(d) the settlor has no interest in the settlement at any time in the year except for one of the following reasons, namely, that—
(a) property is, or will or may become, applicable for the benefit of or payable to one of the persons falling within paragraph 2(3)(b) to (db) above,
(b) income is, or will or may become, applicable for the benefit of or payable to one of those persons, or
(c) one of those persons enjoys a benefit from property or income.
(2) This paragraph also applies where sub-paragraph (1) above is fulfilled by virtue of 2 or all of paragraphs (a) to (c) being satisfied by reference to the same person.
(3) Where this paragraph applies, section 86 does not apply if the person concerned dies in the year.
(4) In a case where—
(a) this paragraph applies, and
(b) the person concerned falls within paragraph 2(3)(b), (d) or (db) above,
section 86 does not apply if during the year the person concerned ceases to be married to, or a civil partner of, the settlor, child or grandchild concerned (as the case may be).
5 (1) This paragraph applies where for the purposes of section 86(1)(d) the settlor has no interest in the settlement at any time in the year except for the reason that there are 2 or more persons, each of whom—
(a) falls within paragraph 2(3)(b) to (db) above, and
(b) stands to gain for the reason stated in sub-paragraph (2) below.
(2) The reason is that—
(a) property is, or will or may become, applicable for his benefit or payable to him,
(b) income is, or will or may become, applicable for his benefit or payable to him,
(c) he enjoys a benefit from property or income, or
(d) 2 or all of paragraphs (a) to (c) above apply in his case.
(3) Where this paragraph applies, section 86 does not apply if each of the persons concerned dies in the year.
5A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Old section 87 rebasing elections to apply in relation to section 86
5C (1) This paragraph applies if—
(a) the trustees of the settlement made (at any time) an election under paragraph 126(1) of Schedule 7 to the Finance Act 2008 (remittance basis: capital gains rebasing), and
(b) an amount of chargeable gains would (apart from this paragraph) be treated as accruing to the settlor under section 86(4) in a tax year (“the relevant tax year”).
(2) The settlor is not charged to capital gains tax on so much of the chargeable gains as exceeds the relevant proportion of those gains.
(3) For that purpose “the relevant proportion” is—
AB
where—
A is the amount that would be treated under section 86(4) as accruing to the settlor in the relevant tax year if immediately before 6 April 2008 every relevant asset had been sold by the trustees and immediately re-acquired by them at its market value at that time, and
B is the amount mentioned in sub-paragraph (1)(b).
(4) In sub-paragraph (3), “relevant asset” means an asset—
(a) that was disposed of in the relevant tax year, and
(b) that was comprised in the settlement from the beginning of 6 April 2008 until its disposal.
Right of recovery
6 (1) This paragraph applies where any tax becomes chargeable on, and is paid by, a person in respect of gains treated as accruing to him in a year under section 86(4).
(2) The person shall be entitled to recover the amount of the tax from any person who is a trustee of the settlement.
(3) For the purposes of recovering that amount, the person shall also be entitled to require an inspector to give him a certificate specifying—
(a) the amount of the gains concerned, ...
(b) the amount of tax paid , and
(c) the tax year in which gains were treated as accruing under section 86(4),
and any such certificate shall be conclusive evidence of the facts stated in it.
Meaning of “settlor"
7 For the purposes of section 86 and this Schedule, a person is a settlor in relation to a settlement if the settled property consists of or includes property originating from him.
Meaning of “originating"
8 (1) References in section 86 and this Schedule to property originating from a person are references to—
(a) property provided by that person;
(b) property representing property falling within paragraph (a) above;
(c) so much of any property representing both property falling within paragraph (a) above and other property as, on a just apportionment, can be taken to represent property so falling.
(2) References in this Schedule to income originating from a person are references to—
(a) income from property originating from that person;
(b) income provided by that person.
(3) Where a person who is a settlor in relation to a settlement makes reciprocal arrangements with another person for the provision of property or income, for the purposes of this paragraph—
(a) property or income provided by the other person in pursuance of the arrangements shall be treated as provided by the settlor, but
(b) property or income provided by the settlor in pursuance of the arrangements shall be treated as provided by the other person (and not by the settlor).
(4) For the purposes of this paragraph—
(a) where property is provided by a qualifying company controlled by one person alone at the time it is provided, that person shall be taken to provide it;
(b) where property is provided by a qualifying company controlled by 2 or more persons (taking each one separately) at the time it is provided, those persons shall be taken to provide the property and each one shall be taken to provide an equal share of it;
(c) where property is provided by a qualifying company controlled by 2 or more persons (taking them together) at the time it is provided, the persons who are participators in the company at the time it is provided shall be taken to provide it and each one shall be taken to provide so much of it as is attributed to him on the basis of a just apportionment;
but where a person would be taken to provide less than one-twentieth of any property by virtue of paragraph (c) above and apart from this provision, he shall not be taken to provide any of it by virtue of that paragraph.
(5) For the purposes of sub-paragraph (4) above a qualifying company is a close company or a company which would be a close company if it were resident in the United Kingdom.
(6) For the purposes of this paragraph references to property representing other property include references to property representing accumulated income from that other property.
(7) For the purposes of this paragraph property or income is provided by a person if it is provided directly or indirectly by the person.
(8) For the purposes of this paragraph the question whether a company is controlled by a person or persons shall be construed in accordance with sections 450 and 451 of CTA 2010; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(8A) But a person is not to be regarded as a participator in a company controlled by the trustees of a settlement where the person has a share or interest in the capital or income of the company solely because of an interest which the person has under the settlement.
(9) In this paragraph “participator” has the meaning given by section 454 of CTA 2010.
(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying settlements, and commencement
9 (1) A settlement created on or after 19th March 1991 is a qualifying settlement for the purposes of section 86 and this Schedule in—
(a) the year of assessment in which it is created, and
(b) subsequent years of assessment.
(1A) Subject to sub-paragraph (1B) below, a settlement created before 19th March 1991 is a qualifying settlement for the purposes of section 86 and this Schedule in—
(a) the year 1999-00, and
(b) subsequent years of assessment.
(1B) Where a settlement created before 19th March 1991 is a protected settlement immediately after the beginning of 6th April 1999, that settlement shall be treated as a qualifying settlement for the purposes of section 86 and this Schedule in a year of assessment mentioned in sub-paragraph (1A)(a) or (b) above only if—
(a) any of the five conditions set out in subsections (3) to (6A) below becomes fulfilled as regards the settlement in that year; or
(b) any of those five conditions became so fulfilled in any previous year of assessment ending after 19th March 1991.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The first condition is that on or after 19th March 1991 property or income is provided directly or indirectly for the purposes of the settlement—
(a) otherwise than under a transaction entered into at arm’s length, and
(b) otherwise than in pursuance of a liability incurred by any person before that date;
but if the settlement’s expenses relating to administration and taxation for a year of assessment exceed its income for the year, property or income provided towards meeting those expenses shall be ignored for the purposes of this condition if the value of the property or income so provided does not exceed the difference between the amount of those expenses and the amount of the settlement’s income for the year.
(4) The second condition is that—
(a) the trustees cease on or after 19 March 1991 to be resident in the United Kingdom, or
(b) the trustees, while continuing to be resident ... in the United Kingdom, become on or after 19th March 1991 trustees who fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(5) The third condition is that on or after 19th March 1991 the terms of the settlement are varied so that any person falling within sub-paragraph (7) below becomes for the first time a person who will or might benefit from the settlement.
(6) The fourth condition is that—
(a) on or after 19th March 1991 a person falling within sub-paragraph (7) below enjoys a benefit from the settlement for the first time, and
(b) the person concerned is not one who (looking only at the terms of the settlement immediately before 19th March 1991) would be capable of enjoying a benefit from the settlement on or after that date.
(6A) The fifth condition is that the settlement ceases to be a protected settlement at any time on or after 6th April 1999.
(7) Each of the following persons falls within this sub-paragraph—
(a) a settlor;
(b) the spouse or civil partner of a settlor;
(c) any child of a settlor or of a settlor’s spouse or civil partner;
(d) the spouse or civil partner of any such child;
(da) any grandchild of a settlor or of a settlor’s spouse or civil partner;
(db) the spouse or civil partner of any such grandchild;
(e) a company controlled by a person or persons falling within paragraphs (a) to (db) above;
(f) a company associated with a company falling within paragraph (e) above.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) For the purposes of sub-paragraph (7) above the question whether a company is controlled by a person or persons shall be construed in accordance with sections 450 and 451 of CTA 2010; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(10) For the purposes of sub-paragraph (7) above the question whether one company is associated with another shall be construed in accordance with section 449 of CTA 2010; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 451(4) to (6) of CTA 2010 if he is not a participator in the company.
(10ZA) For the purposes of sub-paragraphs (9) and (10) above a person is not to be regarded as a participator in a company controlled by the trustees of a settlement where the person has a share or interest in the capital or income of the company solely by virtue of an interest which the person has under the settlement.
(10A) Subject to sub-paragraph (10B) below, a settlement is a protected settlement at any time in a year of assessment if at that time the beneficiaries of that settlement are confined to persons falling within some or all of the following descriptions, that is to say—
(a) children of a settlor or of a spouse or civil partner of a settlor who are under the age of eighteen at that time or who were under that age at the end of the immediately preceding year of assessment;
(b) unborn children of a settlor, of a spouse or civil partner of a settlor, or of a future spouse or civil partner of a settlor;
(c) future spouses or civil partners of any children or future children of a settlor, a spouse or civil partner of a settlor or any future spouse or civil partner of a settlor;
(d) a future spouse or civil partner of a settlor;
(e) persons outside the defined categories.
(10B) For the purposes of sub-paragraph (10A) above a person is outside the defined categories at any time if, and only if, there is no settlor by reference to whom he is at that time a defined person in relation to the settlement for the purposes of paragraph 2(1) above.
(10C) For the purposes of sub-paragraph (10A) above a person is a beneficiary of a settlement if—
(a) there are any circumstances whatever in which relevant property which is or may become comprised in the settlement is or will or may become applicable for his benefit or payable to him;
(b) there are any circumstances whatever in which relevant income which arises or may arise under the settlement is or will or may become applicable for his benefit or payable to him;
(c) he enjoys a benefit directly or indirectly from any relevant property comprised in the settlement or any relevant income arising under the settlement.
(10D) In sub-paragraph (10C) above—
“relevant property” means property originating from a settlor; and
“relevant income” means income originating from a settlor.
(11) In this paragraph—
“child” includes a step-child;
“grandchild” means a child of a child;
“participator” has the meaning given by section 454 of CTA 2010.
Information
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 5A Settlements with foreign element: information
Section 98A.
1 In this Schedule “the commencement day” means the day on which the Finance Act 1994 was passed.
2 (1) This paragraph applies if—
(a) a settlement was created before 17th March 1998,
(b) on or after the commencement day a person transfers property to the trustees otherwise than under a transaction entered into at arm’s length and otherwise than in pursuance of a liability incurred by any person before that day,
(c) the trustees are not resident in the United Kingdom at the time the property is transferred, and
(d) the transferor knows, or has reason to believe, that the trustees are not so resident ... .
(2) Before the expiry of the period of twelve months beginning with the relevant day, the transferor shall deliver to the Board a return which—
(a) identifies the settlement, and
(b) specifies the property transferred, the day on which the transfer was made, and the consideration (if any) for the transfer.
(3) For the purposes of sub-paragraph (2) above the relevant day is the day on which the transfer is made.
3 (1) This paragraph applies if a settlement is created on or after the commencement day, and at the time it is created—
(a) the trustees are not resident in the United Kingdom, or
(b) the trustees are resident ... in the United Kingdom but fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(2) Any person who—
(a) is a settlor in relation to the settlement at the time it is created, and
(b) at that time fulfils the condition mentioned in sub-paragraph (3) below,
shall, before the expiry of the period of three months beginning with the relevant day, deliver to the Board a return specifying the particulars mentioned in sub-paragraph (4) below.
(3) The condition is that the person concerned... is resident in the United Kingdom and is not a qualifying new resident within the meaning of Schedule D1.
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The particulars are—
(a) the day on which the settlement was created;
(b) the name and address of the person delivering the return;
(c) the names and addresses of the persons who are the trustees immediately before the delivery of the return.
(5) For the purposes of sub-paragraph (2) above the relevant day is the day on which the settlement is created.
4 (1) This paragraph applies if a settlement is created on or after 19th March 1991, and at the time it is created—
(a) the trustees are not resident in the United Kingdom, or
(b) the trustees are resident ... in the United Kingdom but fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(2) Any person who—
(a) is a settlor in relation to the settlement at the time it is created,
(b) where that time was before 6 April 2025, did not fulfil the condition mentioned in sub-paragraph (3) below at that time or at any time before 6 April 2025,
(ba) where that time was on or after 6 April 2025, does not fulfil the condition mentioned in sub-paragraph (3A) below at that time,
(c) first fulfils the condition mentioned in sub-paragraph (3A) below at a time falling on or after 6 April 2025,
shall, before the expiry of the period of twelve months beginning with 31 January after the end of the tax year in which the relevant day falls, deliver to the Board a return specifying the particulars mentioned in sub-paragraph (4) below.
(3) The condition is that the person concerned is domiciled in the United Kingdom and is resident in the United Kingdom.
(3A) The condition is that the person concerned is resident in the United Kingdom and is not a qualifying new resident within the meaning of Schedule D1.
(4) The particulars are—
(a) the day on which the settlement was created;
(b) the name and address of the person delivering the return;
(c) the names and addresses of the persons who are the trustees immediately before the delivery of the return.
(5) For the purposes of sub-paragraph (2) above the relevant day is the day on which the person first fulfils the condition as mentioned in paragraph (c) of that sub-paragraph.
5 (1) This paragraph applies if—
(a) the trustees of a settlement cease at any time (the relevant time) on or after the commencement day to be resident in the United Kingdom, or
(b) the trustees of a settlement, while continuing to be resident ... in the United Kingdom, become at any time (the relevant time) on or after the commencement day trustees who fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(2) Any person who was a trustee of the settlement immediately before the relevant time shall, before the expiry of the period of twelve months beginning with the relevant day, deliver to the Board a return specifying—
(a) the day on which the settlement was created,
(b) the name and address of each person who is a settlor in relation to the settlement immediately before the delivery of the return, and
(c) the names and addresses of the persons who are the trustees immediately before the delivery of the return.
(3) For the purposes of sub-paragraph (2) above the relevant day is the day when the relevant time falls.
6 (1) Nothing in paragraph 2, 3, 4 or 5 above shall require information to be contained in the return concerned to the extent that—
(a) before the expiry of the period concerned the information has been provided to the Board by any person in pursuance of the paragraph concerned or of any other provision, or
(b) after the expiry of the period concerned the information falls to be provided to the Board by any person in pursuance of any provision other than the paragraph concerned.
(2) Nothing in paragraph 2, 3, 4 or 5 above shall require a return to be delivered if—
(a) before the expiry of the period concerned all the information concerned has been provided to the Board by any person in pursuance of the paragraph concerned or of any other provision, or
(b) after the expiry of the period concerned all the information concerned falls to be provided to the Board by any person in pursuance of any provision other than the paragraph concerned.
SCHEDULE 5AZA Meaning of “scheme of reconstruction”
Introductory
1. In sections 103H and 103I, “scheme of reconstruction” means a scheme within paragraph 2 which meets the conditions in paragraphs 3 and 4.
Form of scheme
2. (1) A scheme (“the relevant scheme”) is within this paragraph if under the relevant scheme some or all of the property subject to one or more collective investment schemes becomes subject to one or more other collective investment schemes.
(2) In this Schedule “original collective investment scheme” means a collective investment scheme property subject to which becomes subject to another collective investment scheme; and “successor collective investment scheme” is to be read accordingly.
First condition: issue of units
3. (1) The first condition is that the relevant scheme involves the issue of units in a successor collective investment scheme or schemes or a feeder fund—
(a) where there is one original collective investment scheme, to holders of units in that scheme or, if there are different classes of units in that scheme, to holders of one or more classes of units in that scheme (the classes “involved in the scheme of reconstruction”), or
(b) where there is more than one original collective investment scheme, to holders of units in any of those schemes or, if there are different classes of units in one or more of those schemes, to holders of units in any of those schemes or of one or more classes of units in any of those schemes (the classes “involved in the scheme of reconstruction”),
and does not involve the issue of units in any successor collective investment scheme or feeder fund to anyone else.
(2) In this Schedule, “feeder fund” means a collective investment scheme, 85% or more of the property subject to which is constituted by units in a successor collective investment scheme or schemes.
Second condition: equal entitlement to new units
4. (1) The second condition is that under the relevant scheme the entitlement of any participant to acquire units in a successor collective investment scheme or schemes or a feeder fund by virtue of holding relevant units, or relevant units of any class, is the same as that of any other participant holding such units or units of that class.
(2) For this purpose “relevant units” means units comprised—
(a) where there is one original collective investment scheme, in the units of that scheme or, as the case may be, in the units of that scheme of a class involved in the scheme of reconstruction;
(b) where there is more than one original collective investment scheme, in the units of any of those schemes or, as the case may be, in the units of any of those schemes of a class involved in the scheme of reconstruction.
Preliminary reorganisation of units to be disregarded
5. Where a reorganisation of the units in an original collective investment scheme or schemes within case 2 of section 103F(1) is carried out for the purposes of the relevant scheme, the provisions of the first and second conditions apply in relation to the position after the reorganisation.
Subsequent issue of units to be disregarded
6. An issue of units in any successor collective investment scheme or schemes or feeder fund after the latest date on which any units in any successor collective investment scheme or schemes or feeder fund are issued in consideration of property becoming subject to any successor collective investment scheme or schemes under the relevant scheme shall be disregarded for the purposes of the first and second conditions.
SCHEDULE 5AA Meaning of “scheme of reconstruction”
Introductory
1 In section 136 “scheme of reconstruction” means a scheme of merger, division or other restructuring that meets the first and second, and either the third or the fourth, of the following conditions.
First condition: issue of ordinary share capital
2 The first condition is that the scheme involves the issue of ordinary share capital of a company (“the successor company”) or of more than one company (“the successor companies”)—
(a) to holders of ordinary share capital of another company (“the original company”) or, where there are different classes of ordinary share capital of that company, to holders of one or more classes of ordinary share capital of that company (the classes “involved in the scheme of reconstruction”), or
(b) to holders of ordinary share capital of more than one other company (“the original companies”) or, where there are different classes of ordinary share capital of one or more of the original company or companies, to holders of ordinary share capital of any of those companies or of one or more classes of ordinary share capital of any of those companies (the classes “involved in the scheme of reconstruction”),
and does not involve the issue of ordinary share capital of the successor company, or (as the case may be) any of the successor companies, to anyone else.
Second condition: equal entitlement to new shares
3 (1) The second condition is that under the scheme the entitlement of any person to acquire ordinary share capital of the successor company or companies by virtue of holding relevant shares, or relevant shares of any class, is the same as that of any other person holding such shares or shares of that class.
(2) For this purpose “relevant shares” means shares comprised—
(a) where there is one original company, in the ordinary share capital of that company or, as the case may be, in the ordinary share capital of that company of a class involved in the scheme of reconstruction;
(b) where there is more than one original company, in the ordinary share capital of any of those companies or, as the case may be, in the ordinary share capital of any of those companies of a class involved in the scheme of reconstruction.
Third condition: continuity of business
4 (1) The third condition is that the effect of the restructuring is—
(a) where there is one original company, that the business or substantially the whole of the business carried on by the company is carried on—
(i) by a successor company which is not the original company, or
(ii) by two or more successor companies (which may include the original company);
(b) where there is more than one original company, that all or part of the business or businesses carried on by one or more of the original companies is carried on by a different company, and the whole or substantially the whole of the businesses carried on by the original companies are carried on—
(i) where there is one successor company, by that company (which may be one of the original companies), or
(ii) where there are two or more successor companies, by those companies (which may be the same as the original companies or include any of those companies).
(2) The reference in sub-paragraph (1)(a)(ii) or (b)(ii) to the whole or substantially the whole of a business, or businesses, being carried on by two or more companies includes the case where the activities of those companies taken together embrace the whole or substantially the whole of the business, or businesses, in question.
(3) For the purposes of this paragraph a business carried on by a company that is under the control of another company is treated as carried on by the controlling company as well as by the controlled company.
Section 1124 of CTA 2010 (meaning of “control") applies for the purposes of this sub-paragraph.
(4) For the purposes of this paragraph the holding and management of assets that are retained by the original company, or any of the original companies, for the purpose of making a capital distribution in respect of shares in the company shall be disregarded.
In this sub-paragraph “capital distribution” has the same meaning as in section 122.
Fourth condition: compromise or arrangement with members
5 The fourth condition is that—
(a) the scheme is carried out in pursuance of a compromise or arrangement—
(i) to which Part 26 or 26A of the Companies Act 2006 (arrangements and reconstructions) applies,
(ii) under any corresponding provision of the law of a country or territory outside the United Kingdom, and
(b) no part of the business of the original company, or of any of the original companies, is transferred under the scheme to any other person.
Preliminary reorganisation of share capital to be disregarded
6 Where a reorganisation of the share capital of the original company, or of any of the original companies, is carried out for the purposes of the scheme of reconstruction, the provisions of the first and second conditions apply in relation to the position after the reorganisation.
Subsequent issue of shares or debentures to be disregarded
7 An issue of shares in or debentures of the successor company, or any of the successor companies, after the latest date on which any ordinary share capital of the successor company, or any of them, is issued—
(a) in consideration of the transfer of any business, or part of a business, under the scheme, or
(b) in pursuance of the compromise or arrangement mentioned in paragraph 5(a),
shall be disregarded for the purposes of the first and second conditions.
Interpretation
8 (1) In this Schedule “ordinary share capital” has the meaning given by section 1119 of CTA 2010 and also includes—
(a) in relation to a unit trust scheme, any rights that are treated by section 99(1)(b) of this Act (application of Act to unit trust schemes) as shares in a company, and
(b) in relation to a company that has no share capital, any interests in the company possessed by members of the company.
(2) Any reference in this Schedule to a reorganisation of a company’s share capital is to a reorganisation within the meaning of section 126.
SCHEDULE 5AAA UK property rich collective investment vehicles etc
PART 1 Introduction: key expressions
Meaning of “collective investment vehicle”, “participant” and “unit”
1 (1) In this Schedule “collective investment vehicle” means—
(a) a collective investment scheme,
(b) an AIF,
(c) a company which is a company UK REIT or is the principal company of a group UK REIT,
(d) a company which—
(i) is resident outside the United Kingdom,
(ii) is not a member of a group, and
(iii) meets the property income condition,
(e) a company which—
(i) is resident outside the United Kingdom,
(ii) is the principal company of a group,
(iii) is not a close company or is a close company but only because it has a qualifying investor as a direct or indirect participator, and
(iv) meets the property income condition, or
(f) a company which—
(i) is resident outside the United Kingdom,
(ii) is a member of a group but is not the principal company of the group,
(iii) is a close company but only because it has a qualifying investor, or a company wholly (or almost wholly) owned by qualifying investors, as a direct participator, and
(iv) meets the property income condition.
(2) A company meets the property income condition for the purposes of sub-paragraph (1)(d) if—
(a) it is not a close company or is a close company but only because it has a qualifying investor as a direct or indirect participator,
(b) at least half of its income derives directly or indirectly from long-term property investments,
(c) it distributes all, or substantially all, of its profits from long-term property investments on an annual basis, and
(d) it is not liable to tax on its profits under the law of any territory in which it is resident so far as the profits derive directly or indirectly from long-term property investments.
(2A) A company meets the property income condition for the purposes of sub-paragraph (1)(e) or (f) if—
(a) at least half of the income of the group derives directly or indirectly from long-term property investments,
(b) all, or substantially all, of the group’s profits from long-term property investments are distributed on an annual basis, and
(c) the company is not liable to tax on its profits under the law of any territory in which it is resident so far as the profits derive directly or indirectly from long-term property investments.
(2B) References to the group in sub-paragraph (2A) are to be read, in a case where that sub-paragraph applies for the purposes of sub-paragraph (1)(f), as references to—
(a) the group that, if section 170(4) is ignored, would be the group of which the company is the principal company, or
(b) the company (if there would be no group under paragraph (a)).
(3) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of this paragraph but, for the purposes of sub-paragraph (1)(f)(iii), paragraph 46 has effect as if sub-paragraph (3)(c) were omitted.
(4) For the purposes of this paragraph “long-term property investments” means direct or indirect investments in—
(a) land, or
(b) estates, interests or rights in or over land,
which are made on a long-term basis.
(5) In this Schedule “participant” means—
(a) in relation to a collective investment scheme or an AIF, a person who takes part in the arrangements or undertaking constituting the scheme or AIF, whether by becoming the owner of, or of any part of, the property that is the subject of or held by the arrangements or undertaking or otherwise, or
(b) in relation to a company within (1)(c) or (d), a shareholder in the company.
(6) In this Schedule “unit” means—
(a) in the case of a collective investment scheme or an AIF, the rights or interests (however described) of the participant in the scheme or AIF, or
(b) in the case of a company within (1)(c) or (d), a share in the company.
(7) In this paragraph—
“AIF” has the meaning given by regulation 3 of the Alternative Investment Fund Managers Regulations 2013, and
“profits” does not include profits of a capital nature.
...
(8) For the purposes of this paragraph whether a company is a member of a group, or is the principal company of a group, is determined in accordance with section 170.
Meaning of “offshore collective investment vehicle”
2 (1) In this Schedule “offshore collective investment vehicle” means—
(a) a collective investment vehicle constituted as a body corporate resident outside the United Kingdom,
(b) a collective investment vehicle under which property is held on trust for the participants where the trustees of the property are not resident in the United Kingdom, or
(c) a collective investment vehicle constituted by other arrangements that create rights in the nature of co-ownership where the arrangements take effect as a result of the law of a territory outside the United Kingdom.
(2) In this paragraph—
“body corporate” does not include a limited liability partnership, and
“co-ownership” is not restricted to the meaning of that term in the law of any part of the United Kingdom.
Meaning of a collective investment vehicle being “UK property rich” etc
3 (1) For the purposes of this Schedule the question whether a collective investment vehicle is “UK property rich” at any time is determined by applying the rules in Part 2 of Schedule 1A (but without regard to paragraphs 5 and 6 of that Schedule) on the following assumptions.
(2) The assumptions are—
(a) that (so far as this would not otherwise be the case) the vehicle were a company, and
(b) that a disposal were made at that time of a right or interest in that company.
(3) If that disposal would be regarded for the purposes of Schedule 1A as a disposal of an asset deriving at least 75% of its value from UK land, the vehicle is regarded for the purposes of this Schedule as being UK property rich at that time.
(4) For the purposes of this Schedule the question whether a company is “UK property rich” at any time is determined by applying the rules in Part 2 of Schedule 1A (but without regard to paragraphs 5 and 6 of that Schedule) on the assumption that a disposal were made at that time of a right or interest in the company.
(5) If that disposal would be regarded for the purposes of Schedule 1A as a disposal of an asset deriving at least 75% of its value from UK land, the company is regarded for the purposes of this Schedule as being UK property rich at that time.
PART 2 Basic rules
Application of Act to offshore CIV
4 (1) This paragraph applies to an offshore collective investment vehicle—
(a) which is not a company, and
(b) which is not constituted by two or more persons carrying on a trade or business in partnership.
(2) It is to be assumed that, for relevant purposes—
(a) the vehicle is a company, and
(b) the rights of the participants are shares in that company.
(3) The reference here to “relevant purposes” means—
(a) the purposes of this Schedule, and
(b) the purpose of applying section 1A(3)(b) or (c) or 2B(4) (and the other provisions of this or any other Act so far as relevant to their application) in relation to the vehicle.
(4) This paragraph does not apply to a collective investment vehicle in relation to which an election has effect under Part 3 of this Schedule (election for transparency).
(5) This paragraph applies in relation to a collective investment vehicle to which section 103D applies (tax transparent funds) but does not affect the operation of the rules set out in—
(a) section 103D(4) to (9) (calculation of gains on disposal of units etc), or
(b) section 103DA (share pooling etc).
(6) If this paragraph applies in relation to a collective investment vehicle, section 99 (application of Act to unit trust schemes) does not apply in relation to the scheme.
Units in certain co-ownership schemes treated as shares in a company
5 (1) This paragraph applies to a unit in an authorised contractual scheme which is a co-ownership scheme , or a Reserved Investor Fund (Contractual Scheme), where, as a result of the application of section 103D (application of Act to tax transparent funds), the unit is treated as an asset for the purposes of this Act.
(2) The asset is treated for the purposes of Schedule 1A as if it were a share in a company.
Disposals by non-UK residents
6 (1) This paragraph applies if—
(a) a person disposes of an asset that derives at least 75% of its value from UK land (as determined in accordance with Part 2 of Schedule 1A), and
(b) the disposal has an appropriate connection to a collective investment vehicle (see sub-paragraphs (3) to (6) for the cases in which this test is met).
(2) For the purposes of section 1A(3)(c) or 2B(4)(b) (disposals by non-UK residents of assets deriving 75% of value from UK land etc), the person is treated as having a substantial indirect interest in the UK land at the time of the disposal.
(3) A disposal has an appropriate connection to a collective investment vehicle if the asset disposed of consists of a right or interest in—
(a) a collective investment vehicle, or
(b) a company at least half of whose market value derives from its being a direct or indirect participant in one or more collective investment vehicles.
(4) A disposal has an appropriate connection to a collective investment vehicle if—
(a) the vehicle is constituted by two or more persons carrying on a trade or business in partnership, and
(b) the disposal is made by a person as a participant in the vehicle.
(5) A disposal has an appropriate connection to a collective investment vehicle if the vehicle is a company and the disposal is made by it.
(6) A disposal has an appropriate connection to a collective investment vehicle if—
(a) a company (which is not the vehicle) makes the disposal,
(b) the vehicle is UK property rich,
(c) the vehicle together with one or more other collective investment vehicles have a 50% investment in the company, and
(d) each of those other collective investment vehicles is also UK property rich.
(7) Collective investment vehicles have a 50% investment in a company if, applying the rule in paragraph 9 (but without regard to paragraph 10) of Schedule 1A as if references to 25% were references to 50%, the vehicles would be regarded as having a 50% investment in the company at the time of the disposal.
(8) For this purpose the collective investment vehicles are to be regarded as if they were a single person.
(9) This paragraph is subject to paragraph 7 (collective investment vehicles expected to have no more than 40% investments in UK land) , paragraph 7A (overseas life insurance companies) and paragraph 7B (offshore collective investment vehicles (other than UK feeder vehicles) that meet the conditions in paragraph 7(2)(a) and (b)).
7 (1) This paragraph applies to a disposal which would otherwise have an appropriate connection to a collective investment vehicle as a result of paragraph 6(3), (5) or (6).
(2) A disposal does not have an appropriate connection to a collective investment vehicle if, at the time of the disposal, the vehicle mentioned in paragraph 6(3)(a) or (5), or each of the vehicles mentioned in paragraph 6(3)(b) or (6), meets—
(a) the non-UK real estate condition, and
(b) the genuine diversity of ownership condition or, if the vehicle is a company, the non-close condition.
(3) If—
(a) a disposal is made as mentioned in paragraph 6(6), and
(b) the vehicle mentioned there is constituted by two or more persons carrying on a trade or business in partnership,
the condition in sub-paragraph (2)(b) is taken to be met if the company mentioned in paragraph 6(6) meets the non-close condition.
(4) A vehicle meets the non-UK real estate condition at any time if, by reference to the prospectus for the vehicle as the prospectus has effect at that time, no more than 40% of the expected market value of the vehicle's investments is intended to derive from investments consisting of—
(a) interests in UK land, or
(b) rights or interests in companies which are UK property rich.
(5) A vehicle meets the genuine diversity of ownership condition at any time if, at that time—
(a) the vehicle meets or, if the vehicle is part of multi-vehicle arrangements, the arrangements meet the conditions in regulation 75(2), (3) and (4)(a) of the Offshore Funds (Tax) Regulations 2009, or
(b) the vehicle meets, or those multi-vehicle arrangements meet, the condition in regulation 75(5) of those Regulations (assuming for this purpose that regulation 75(4)(b) is omitted),
...
(5A) For the purposes of sub-paragraph (5), those Regulations have effect as if references to a fund included—
(a) multi-vehicle arrangements, and
(b) a collective investment vehicle which is not an offshore fund.
(6) A company meets the non-close condition at any time if, at that time, it—
(a) is not a close company, or
(b) is a close company but only because it has a qualifying investor as a direct or indirect participator.
(7) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of sub-paragraph (6).
(8) In this Schedule “multi-vehicle arrangements” means arrangements comprising two or more vehicles under which an investor in one of those vehicles would reasonably regard that investment as an investment in the arrangements as a whole rather than exclusively in any particular vehicle.
Overseas life insurance companies
7A. (1) Paragraph 6 does not apply if—
(a) the person making the disposal (“D”) is an overseas life insurance company or would be such a company if it were carrying on its life assurance business in the United Kingdom through a permanent establishment there,
(b) immediately before the disposal, no more than 40% of the market value of D’s assets derives from investments consisting of—
(i) interests in UK land, or
(ii) rights or interests in companies which are UK property rich,
(c) the asset disposed of is a right or interest in a collective investment vehicle that is a company (whether as a result of paragraph 4 or otherwise) and is UK property rich, and
(d) immediately before the disposal, D does not have a 10% investment in that vehicle.
(2) D has a 10% investment in a collective investment vehicle if, applying the rule in paragraph 9 (but without regard to paragraph 10) of Schedule 1A as if references to 25% were references to 10%, D would be regarded as having a 10% investment in the vehicle.
Offshore collective investment vehicles (other than UK feeder vehicles) that meet the conditions in paragraph 7(2)(a) and (b)
7B. (1) Paragraph 6 does not apply if—
(a) the person making the disposal is an offshore collective investment vehicle which meets the conditions in paragraph 7(2)(a) and (b),
(b) immediately before the disposal, the offshore collective investment vehicle is not a UK feeder vehicle,
(c) the asset disposed of is a right or interest in a collective investment vehicle that is a company (whether as a result of paragraph 4 or otherwise) and is UK property rich (a “UK property rich vehicle”), and
(d) immediately before the disposal, the offshore collective investment vehicle does not have a 10% investment in the UK property rich vehicle.
(2) An offshore collective investment vehicle is a “UK feeder vehicle” at any time if at least 85% of the market value of the assets of the vehicle at that time derives from units in a single collective investment vehicle that is UK property rich.
(3) An offshore collective investment vehicle has a 10% investment in a UK property rich vehicle if, applying the rule in paragraph 9 (but without regard to paragraph 10) of Schedule 1A as if references to 25% were references to 10%, the offshore collective investment vehicle would be regarded as having a 10% investment in the UK property rich vehicle.
PART 3 Election for transparency
Election for collective investment vehicle to be treated as partnership
8 (1) This paragraph applies to an offshore collective investment vehicle—
(a) which is UK property rich, and
(b) which is transparent for income tax purposes otherwise than as a result of being constituted by two or more persons carrying on a trade or business in partnership.
(2) The manager of the vehicle may make an election for the vehicle to be treated for the purposes of—
(a) this Act, and
(b) the Management Act, and any other provision of the Corporation Tax Acts, so far as relating to the taxation of chargeable gains,
as if, in relation to all times on and after its constitution, it were to be regarded as a partnership.
(3) Accordingly, as a result of sub-paragraph (2)(b), it follows that, in applying rules such as section 1154 of CTA 2010 (meaning of “75% subsidiary” etc) for the purposes of Part 12 of that Act (Real Estate Investment Trusts) so far as relating to the taxation of chargeable gains, the vehicle is to be regarded as a partnership.
(4) Section 12AA of the Management Act applies as a result of sub-paragraph (2) but as if —
(a) subsection (1) of that section authorised the giving of a notice under subsection (2) or (3) for the purpose of facilitating the amount in which each partner is chargeable to tax on chargeable gains,
(b) that section authorised the giving of the notice to the manager of the vehicle, and
(c) that section authorised a single notice under subsection (2) or (3) of that section requiring the making and delivery, in accordance with the notice, of a return every year (whether or not any partnership property has been disposed of in the period to which the return relates).
(5) The election has effect whether or not the vehicle would, but for the making of the election, be regarded as a person chargeable to capital gains tax or corporation tax on chargeable gains.
(6) For the purposes of this paragraph whether or not an offshore collective investment vehicle is regarded as being UK property rich may be determined by reference to the prospectus for the vehicle on the assumption that investments are made by the vehicle in accordance with the prospectus.
(7) For the purposes of this paragraph a collective investment vehicle is “transparent for income tax purposes” if, on the assumption that there are participants who are individuals resident in the United Kingdom, any sums which form part of the income of the vehicle—
(a) would be chargeable to income tax on those assumed participants under a provision specified in section 830(2) of ITTOIA 2005 in respect of such of those sums as would be referable to their interests, or
(b) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom.
(8) If an election is made under this paragraph in relation to a collective investment vehicle—
(a) section 99 (application of Act to unit trust schemes) does not apply in relation to the vehicle, and
(b) section 103D (tax transparent funds) does not apply in relation to the vehicle.
Further provision about election
9 (1) An election under paragraph 8 in relation to an offshore collective investment vehicle—
(a) has effect only if the participants in the vehicle at the time at which it is made have consented to the making of the election,
(b) must be made by notice given to an officer of Revenue and Customs, and
(c) must be made before the end of the period of 12 months beginning with the relevant acquisition date.
(2) For this purpose “the relevant acquisition date” means the earliest date on which—
(a) an interest in UK land, or
(b) a right or interest in a company that is UK property rich,
forms part of the property that is the subject of or held by the vehicle.
(3) An election under paragraph 8 is irrevocable.
(4) An election under paragraph 8 must include the following information in the case of each participant in the vehicle—
(a) the participant’s name and, if the participant has one, the participant’s unique taxpayer reference,
(b) the participant’s usual or last known place of residence or the participant’s place of business, and
(c) in the case of a participant who is an individual, the participant’s date of birth.
Units in CIVs held by life insurance companies
10 (1) This paragraph applies if an election under paragraph 8 has effect in relation to an offshore collective investment vehicle.
(2) The election is treated as having no effect for the purposes of this Act in relation to any units in the vehicle which are held by an insurance company for the purposes of its long-term business.
Relationship to re-basing rules under Schedule 4AA for non-UK residents
11 (1) This paragraph applies if—
(a) an election under paragraph 8 has effect in relation to an offshore collective investment vehicle, and
(b) as a result of the election, Part 3 or 4 of Schedule 4AA would (but for this paragraph) apply in relation to a disposal made by a participant in the vehicle.
(2) The disposal is to be regarded for the purposes of Schedule 4AA as if it were one to which Part 2 of that Schedule applies.
PART 4 Exemption
Exemption for qualifying offshore CIV that is UK property rich etc
12 (1) An election may be made for a collective investment vehicle, or a company which is not a collective investment vehicle, to be exempt from corporation tax on chargeable gains accruing to it on—
(a) all direct disposals of UK land, and
(b) all indirect disposals of UK land.
(2) An election may be made in respect of a collective investment vehicle if each of the following entitlement conditions is met—
(a) the vehicle is offshore,
(b) the vehicle is a company (whether as a result of paragraph 4 or otherwise),
(c) the vehicle is UK property rich,
(d) the vehicle meets all of the qualifying conditions set out in paragraph 13, and
(e) if the vehicle is an AIF, it would also meet the definition of a collective investment vehicle for another reason.
(3) An election may be made in respect of a company which is not a collective investment vehicle if each of the following entitlement conditions is met—
(a) the company is wholly (or almost wholly) and directly owned by a collective investment scheme which is constituted by two or more persons carrying on a trade or business in partnership or is constituted by a CoACS or a RIF,
(b) the appropriate entity is UK property rich, and
(c) the company meets all of the qualifying conditions set out in paragraph 13,
and it does not matter where the company is resident.
(3A) In sub-paragraph (3)(a) the reference to direct ownership by a collective investment scheme is to ownership otherwise than through—
(a) a company, or
(b) a partnership, trust or other entity or arrangements.
(4) In sub-paragraph (3)(b) the “appropriate entity” means—
(a) in a case where the collective investment scheme is constituted by two or more persons carrying on a trade or business in partnership, the company, and
(b) in a case where the collective investment scheme is constituted by a CoACS or RIF, the CoACS or RIF.
(5) If an election is made under this paragraph in respect of a collective investment vehicle—
(a) the vehicle is referred to in this Part of this Schedule as “a qualifying fund”, and
(b) any reference in this Part of this Schedule to a qualifying fund, in relation to any time after the election is made (including any time after the election ceases to have effect), is to be read as a reference to the arrangements, undertaking or company which met the definition of collective investment vehicle when the election was made.
(6) If an election is made under this paragraph in respect of a company which is not a collective investment vehicle—
(a) the company is referred to in this Part of this Schedule as “a qualifying company”, and
(b) any reference in this Part of this Schedule to a qualifying company, in relation to any time after the election is made (including any time after the election ceases to have effect), is to be read as a reference to the company.
(7) Section 103D (application of Act to tax transparent funds) does not apply for the purpose of determining whether sub-paragraph (3)(a) or (c) applies.
(8) In this paragraph—
“AIF” has the meaning given by regulation 3 of the Alternative Investment Fund Managers Regulations 2013, and
“CoACS” means an authorised contractual scheme which is a co-ownership scheme;
“RIF” means a Reserved Investor Fund (Contractual Scheme).
Qualifying conditions and information provided to HMRC
13 (1) For the purposes of paragraph 12(2), a collective investment vehicle meets the qualifying conditions in this paragraph at any time if, at that time—
(a) it is a collective investment scheme and it meets the genuine diversity of ownership condition,
(ab) it is a collective investment scheme, it meets the UK tax condition and it is wholly (or almost wholly) owned by one or more other collective investment schemes each of which meets the genuine diversity of ownership condition,
(b) it is a company (otherwise than as a result of paragraph 4) and it meets the recognised stock exchange condition and the non-close condition, or
(c) it is a collective investment vehicle (of any kind) and it meets the UK tax condition and the non-close condition.
(2) For the purposes of paragraph 12(3), a company which is not a collective investment vehicle meets the qualifying conditions in this paragraph at any time if, at that time, either—
(a) the company meets the UK tax condition and the non-close condition, or
(b) the collective investment scheme directly owning the company—
(i) meets the genuine diversity of ownership condition, or
(ii) is wholly (or almost wholly) and directly owned by one or more qualifying partnerships each of which meets the genuine diversity of ownership condition,
(2A) In sub-paragraph (2)(b)—
(a) references to direct ownership are to ownership otherwise than through—
(i) a company, or
(ii) a partnership, trust or other entity or arrangements, and
(b) “qualifying partnership” means a collective investment scheme which is constituted by two or more persons carrying on a trade or business in partnership.
(3) For the purposes of this paragraph a collective investment scheme meets the genuine diversity of ownership condition at any time if, at that time—
(a) the scheme meets or, if the scheme is part of multi-vehicle arrangements, the arrangements meet the conditions in regulation 75(2), (3), and (4)(a) of the Offshore Funds (Tax) Regulations 2009, or
(b) the scheme meets, or those multi-vehicle arrangements meet, the condition in regulation 75(5) of those Regulations (assuming for this purpose that regulation 75(4)(b) is omitted),
...
(3A) For the purposes of sub-paragraph (3), those Regulations have effect as if references to a fund included—
(a) multi-vehicle arrangements, and
(b) a collective investment scheme which is not an offshore fund.
(4) For the purposes of this paragraph a company meets the recognised stock exchange condition at any time if, at that time—
(a) it has ordinary share capital, and
(b) the shares forming part of its ordinary share capital are regularly traded on a recognised stock exchange.
(5) For the purposes of this paragraph a company meets the non-close condition at any time if, at that time, it—
(a) is not a close company, or
(b) is a close company but only because it has a qualifying investor as a direct or indirect participator.
(6) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of sub-paragraph (5).
(7) For the purposes of this paragraph a company meets the UK tax condition at any time if, on the assumption that all of the shares in it were disposed of for their market value at that time, the person making the election reasonably considers at that time that, as a result solely of double taxation arrangements, no more than 25% of the total proceeds would fall to be left out of account for the purposes of this Act.
(8) If any of the proceeds arise to a company which is wholly (or almost wholly) owned by one or more investors to which paragraph 33 applies, the company is to be treated for the purposes of sub-paragraph (7) as if it were exempt from corporation tax in respect of chargeable gains accruing to it otherwise than as a result of double taxation arrangements.
14 (1) An election under paragraph 12 has effect only if it is accompanied by information of such description as may be specified by an officer of Revenue and Customs about disposals made by participants in the relevant fund at any time in—
(a) the period of two years ending with the day before the day on which the election is made, or
(b) if shorter, the period beginning with the constitution of the relevant fund and ending with the day before the day on which the election is made.
(2) Information is not required by sub-paragraph (1) to accompany the election so far as—
(a) it has already been provided to an officer of Revenue and Customs in a form and manner, and at times, specified by an officer of Revenue and Customs, and
(b) the election sets out those occasions on which the information has been so provided.
15 (1) An election under paragraph 12 has effect subject to such conditions as to the provision of information or documents to an officer of Revenue and Customs as may be specified by an officer of Revenue and Customs.
(2) The information or documents must be provided to an officer of Revenue and Customs in respect of every period of account of the relevant fund which ends at a time when the election has effect.
(3) The information or documents must be provided to an officer of Revenue and Customs within the period of 12 months from the end of the period of account.
(4) The conditions as to the provision of information or documents may include—
(a) conditions relating to the participants in the relevant fund, and
(b) conditions requiring information or documents in respect of the operation of any provision of this Schedule (or any provision of this Act relevant to this Schedule).
(5) In the case of an election under paragraph 12—
(a) a designated HMRC officer may revoke the election if, in the officer's opinion, there has been, without reasonable excuse, a breach of any provision made by or under this paragraph, but
(b) an officer of Revenue and Customs (whether or not designated) may waive a breach of any provision made by or under this paragraph if, in the officer's opinion, there is no reasonable excuse for the breach but, having regard to all the circumstances, the breach is nonetheless insignificant.
(6) The circumstances to which the officer may have regard in determining whether a breach is insignificant include the number and seriousness of previous breaches.
(7) In this paragraph “period of account”, in relation to the relevant fund, means any period for which accounts of the relevant fund are drawn up.
(8) If the period of account would otherwise be longer than 12 months, the period of account is to be treated for the purposes of this paragraph as split into more than one period of account, and—
(a) the first deemed period of account is to be 12 months long, and
(b) any subsequent deemed period of account is to start when the previous deemed period of account ends and is to end 12 months later or, if earlier, when the actual period of account ends.
Exemption for direct or indirect disposals of UK land by persons in which fund invests
16 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company (“Q”),
(b) Q is UK property rich by reference (wholly or partly) to particular interests in UK land (“the relevant UK property”), and
(c) a person other than Q makes a disposal at a time when the election has effect.
(2) If—
(a) the disposal is a direct disposal of any of the relevant UK property by a person, and
(b) immediately before the disposal, Q has a 40% investment in the person,
the appropriate proportion of any gain accruing to the person on the disposal is not a chargeable gain.
(3) If the disposal is an indirect disposal of UK land in a case where—
(a) the interests in UK land in question consist of or include any of the relevant UK property, and
(b) immediately before the disposal, Q has a 40% investment in the company in question,
the appropriate proportion of any gain accruing to the person on the disposal is not a chargeable gain.
(4) For the purposes of this paragraph the “appropriate proportion” means the proportion that so much of the consideration for the disposal as forms part (directly or indirectly) of the assets of Q bears to the total consideration for the disposal.
(5) For the purposes of this paragraph a person has a 40% investment in a company if, applying the rule in paragraph 9 (but without regard to paragraph 10) of Schedule 1A as if references to 25% were references to 40%, the person would be regarded as having a 40% investment in the company immediately before the disposal.
(6) In this paragraph—
“the interests in UK land in question” means the interests in UK land taken into account in determining whether the disposal is an indirect disposal of UK land, and
“the company in question”, in relation to a disposal of a right or interest in a company by the person, means that company.
(7) If an officer of Revenue and Customs considers that the operation of this paragraph would otherwise result in the total proportion of a gain that is not a chargeable gain exceeding the whole of the gain, the officer may make such adjustments to the appropriate proportion of a gain accruing to any person as the officer considers just and reasonable to prevent that result.
Making of election and period for which it has effect
17 (1) An election under paragraph 12—
(a) must be made by the relevant fund manager, and
(b) must be made by notice given to an officer of Revenue and Customs.
(2) An election under paragraph 12 must specify the day from which it is to have effect.
(3) The election has effect in relation to disposals on or after the day specified in the election.
(4) A day may be specified in the election even if it falls before the day on which the election is made.
(5) But a day that falls more than 12 months before the day on which the election is made may be specified only if an officer of Revenue and Customs consents.
(6) For this purpose—
(a) consent may be given generally (for example, by describing, in a notice published by an officer of Revenue and Customs, cases in which consent is deemed to be given), or
(b) consent may be given in relation to particular cases.
Revocation of election
18 (1) In addition to the case set out in paragraph 15(5)(a), a designated HMRC officer may revoke an election under paragraph 12 if, in order to safeguard the public revenue, the officer considers it is appropriate to revoke the election.
(2) In the case of an election under paragraph 12 which is revoked by a designated HMRC officer (whether under this paragraph or paragraph 15), the revocation must be made by notice given by a designated HMRC officer to the relevant fund manager.
(3) The relevant fund manager may revoke an election under paragraph 12 by giving notice of the revocation to an officer of Revenue and Customs.
(4) A notice of revocation of an election under paragraph 12 must specify the day from which the election is to cease to have effect.
(5) The election ceases to have effect in relation to disposals made on or after the day specified in the notice of revocation.
(6) The relevant fund manager may specify a day in a notice of revocation even if the day falls before the day on which the notice is given but only if an officer of Revenue and Customs consent.
(7) For this purpose—
(a) consent may be given generally (for example, by describing, in a notice published by an officer of Revenue and Customs, cases in which consent is deemed to be given), or
(b) consent may be given in relation to particular cases.
19 (1) A notice of revocation given by a designated HMRC officer under paragraph 15 or 18 must state the grounds for revoking the election under paragraph 12.
(2) The relevant fund manager may bring an appeal against the revocation of the election.
(3) The appeal must be made by notice given to the designated HMRC officer during the period of 30 days beginning with the day on which the notice of revocation is given.
(4) In the case of an appeal which is notified to the tribunal (see Part 5 of the Management Act), the tribunal must not allow the appeal unless it considers that a designated HMRC officer could not reasonably have been satisfied that there were grounds for revoking the election.
Qualifying fund or company ceasing to meet applicable exemption conditions
20 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made at any time in respect of a qualifying fund or qualifying company, and
(b) at any subsequent time, the qualifying fund or qualifying company ceases to meet the applicable exemption conditions.
(2) The election ceases to have effect from that subsequent time in relation to disposals made at or after that time.
(3) This paragraph needs to be read with—
(a) paragraph 27 (temporary period of no more than 30 days during which certain of applicable exemption conditions not met),
(b) paragraph 28 (temporary period of no more than 9 months during which applicable exemption conditions not met), and
(c) paragraph 30 (steps taken by relevant fund manager to wind up relevant fund).
Deemed disposal: payments not otherwise taxable where value derived from direct or indirect disposals of UK land
21 (1) This paragraph applies if—
(a) an election under paragraph 12 that has been made in respect of a qualifying fund or qualifying company has effect at any time,
(b) a participant in the relevant fund is entitled to receive an amount at that time (“the relevant time”) which represents, in substance, value derived (directly or indirectly) from a direct disposal of UK land or from the UK land component of an indirect disposal of UK land, ...
(c) the amount is regarded as being of a revenue nature and does not fall to be taken into account for the purposes of income tax or corporation tax on income ..., and
(d) some or all of the value which is represented by the amount does not fall to be taken into account for the purposes of income tax or corporation tax on income.
(2) In the case of an election made in respect of a qualifying fund, the participant in the relevant fund is deemed for the purposes of this Act—
(a) to have sold its units in the relevant fund immediately before the relevant time at their market value immediately before that time (as adjusted, if applicable, in accordance with sub-paragraph (3A)), and
(b) to have reacquired those units immediately after the relevant time at their market value immediately after that time.
(3) In the case of an election made in respect of a qualifying company, the participant in the relevant fund is deemed for the purposes of this Act—
(a) to have sold its rights and interests in the relevant entity immediately before the relevant time at their market value immediately before that time (as adjusted, if applicable, in accordance with sub-paragraph (3A)), and
(b) to have reacquired those rights and interests immediately after the relevant time at their market value immediately after that time.
(3A) If some of the value (“the taxed value”) which is represented by the amount falls to be taken into account for the purposes of income tax or corporation tax on income, the market value mentioned in sub-paragraph (2)(a) or (3)(a) is to be reduced by so much of that market value as, on a just and reasonable basis, can be attributable to the taxed value.
(4) In this paragraph “the UK land component” of an indirect disposal of UK land means the interests in UK land taken into account in determining whether the disposal is an indirect disposal of UK land.
(5) In this paragraph “the relevant entity” means—
(a) in a case where the relevant fund is constituted by a CoACS or RIF (within the meaning of paragraph 12), the CoACs or RIF, and
(b) in any other case, the qualifying company.
Deemed disposal if election ceases to have effect
22 (1) This paragraph applies if at any time an election which has been made under paragraph 12 in respect of a qualifying fund or qualifying company ceases to have effect.
(2) In the case of an election made in respect of a qualifying fund, each participant in the relevant fund is deemed for the purposes of this Act—
(a) to have sold its units in the relevant fund immediately before that time, and
(b) to have immediately reacquired those rights and interests,
at their market value immediately before that time.
(3) In the case of an election made in respect of a qualifying company, each participant in the relevant fund is deemed for the purposes of this Act—
(a) to have sold its rights and interests in the relevant entity immediately before that time, and
(b) to have immediately reacquired those rights and interests,
at their market value immediately before that time.
(4) In this paragraph “the relevant entity” has the same meaning as in paragraph 21.
Gains accruing on disposals under paragraph 21 or 22
23 (1) This paragraph applies if a disposal of an asset is deemed to have been made by a person at any time under—
(a) paragraph 21, or
(b) paragraph 22 but only as a result of paragraph 20 (qualifying fund or qualifying company ceasing to meet the applicable exemption conditions).
(2) Any gain (“the deemed gain”) accruing to the person on the disposal is treated as accruing to the person in accordance with the rules set out in the remainder of this paragraph.
(3) If, at the time of the deemed disposal or a subsequent time—
(a) the person actually disposes of a unit in the relevant fund, or
(b) the person receives an amount of a kind mentioned in paragraph 21(1),
the appropriate portion of the deemed gain is treated as accruing to the person at the time of the actual disposal or the time of the receipt.
(4) For this purpose “the appropriate portion” means the proportion which—
(a) the consideration for the actual disposal, or
(b) the amount of the receipt,
bears to the amount of the deemed gain.
(5) If some of the deemed gain has accrued on one or more previous occasions, the appropriate portion is restricted so that, when added to the appropriate portion or portions on the previous occasion or occasions, it does not exceed 100%.
(6) In determining the appropriate proportion, so much (if any) of the consideration for the actual disposal or the amount of the receipt as exceeds the amount of the deemed gain is to be ignored.
(7) In the case of a disposal under paragraph 21, the remainder of the deemed gain is treated as accruing to the person (unless the whole amount has already accrued) when the relevant fund is wound up.
(8) In the case of a disposal under paragraph 22, the remainder of the deemed gain is treated as accruing to the person (unless the whole amount has already accrued) at—
(a) the end of the period of three years beginning with the time of the deemed disposal, or
(b) if earlier, when the relevant fund is wound up.
(9) In the case of a disposal under paragraph 21 where there is a reduction in market value under sub-paragraph (3A) of that paragraph, a reduction is also to be made for the purposes of this paragraph to the amount of the receipt mentioned in paragraph 21(1) on a just and reasonable basis.
Relief for expenses in the case of deemed disposals under paragraph 21 or 22
24 (1) This paragraph applies if a disposal is deemed to have been made by a person as a result of paragraph 21 or 22.
(2) The person is treated for the purposes of section 38(1)(c) as having incurred incidental costs of making the deemed disposal equal to the notional costs.
(3) The reference here to the notional costs is to the incidental costs —
(a) which the person would reasonably have expected to have incurred if the deemed sale under paragraph 21 or 22 had been an actual sale, and
(b) which would have been allowable under section 38(1)(c) if there had been an actual sale.
Notification to participants in relation to deemed disposals under paragraph 21 or 22
25 (1) This paragraph applies if—
(a) a disposal is deemed to have been made by a person under paragraph 21,
(b) a disposal is deemed to have been made by a person under paragraph 22 as a result of the revocation of an election, or
(c) an amount is treated as accruing to a person under paragraph 23(7) or (8).
(2) The relevant fund manager must notify the person of the matters mentioned in sub-paragraph (1)(a), (b) or (c).
(3) The notification—
(a) must be in writing, and
(b) must be given within the period of 30 days beginning with the relevant time.
(4) If this paragraph applies as result of sub-paragraph (1)(a) or (b), “the relevant time” means the time at which the deemed disposal is made.
(5) If this paragraph applies as result of sub-paragraph (1)(c), “the relevant time” is the time at which the amount is treated as accruing.
26 (1) A person who fails to comply with paragraph 25 is liable to a penalty not exceeding £3,000.
(2) If—
(a) there is a failure to comply with that paragraph, and
(b) there are two or more persons who are the relevant fund managers each of whom is subject to the duty to notify under that paragraph,
the total amount of the penalties to which those managers (taken together) are liable is not to exceed £3,000.
(3) If a person becomes liable to a penalty under this paragraph, an officer of Revenue and Customs must—
(a) assess the penalty, and
(b) notify the person.
(4) The assessment must be made within the period of 12 months beginning with the day on which an officer of Revenue and Customs first becomes aware that the person has failed to comply with paragraph 25.
(5) A person may, by notice, appeal against a decision of an officer of Revenue and Customs that a penalty is payable under this paragraph.
(6) Notice of appeal under this paragraph must specify the grounds of appeal.
(7) Notice of appeal under this paragraph must be given—
(a) within 30 days after the penalty was notified to the person,
(b) to the officer of Revenue and Customs who notified the person.
(8) A penalty under this paragraph must be paid before the end of the period of 30 days beginning with—
(a) the day on which the person was notified of the penalty, or
(b) if notice of appeal against the penalty is given, the day on which the appeal is finally determined or withdrawn.
Temporary period during which applicable exemption conditions not met
27 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company (“Q”),
(b) Q ceases at any time (“the relevant time”) to meet the applicable exemption conditions otherwise than as a result of the vehicle or appropriate entity ceasing to be UK property rich (see paragraph 12(2)(c) or (3)(b)),
(c) the election would (but for this paragraph) have, accordingly, ceased to have had effect under paragraph 20 from the relevant time,
(d) the relevant fund manager expects Q to meet the applicable exemption conditions within 30 days, and
(e) Q does meets those conditions within 30 days.
(2) The failure by Q to meet the applicable exemption conditions is to be ignored for the purposes of this Part of this Schedule.
(3) In this paragraph any reference to Q meeting the applicable exemption conditions within 30 days is to Q meeting those conditions before the end of the period of 30 days beginning with the day on which the relevant time falls.
(4) This paragraph does not apply on more than four occasions in any period of 12 months.
28 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company,
(b) but for this paragraph, the election would, as a result of paragraph 20, have ceased to have effect from a particular time for all purposes of this Part of this Schedule (“the relevant time”),
(c) the relevant fund manager expects the failure to meet the applicable exemption conditions to last for a temporary period, and
(d) at the end of the temporary period, the qualifying fund or qualifying company does meet those conditions.
(2) It is to be assumed that, for the purposes of any provision of this Part of this Schedule other than paragraph 22, the qualifying fund or qualifying company continues to meet the applicable exemption conditions during the temporary period.
(3) Accordingly—
(a) a deemed disposal occurs under paragraph 22 by reference to the failure to meet the applicable exemption conditions, but
(b) subject to that, the election continues to have effect during the temporary period.
(4) A period is not to be regarded as a temporary period for the purposes of this paragraph if it is longer than a period of 9 months beginning with the relevant time.
(5) This paragraph does not apply if paragraph 27 applies.
29 (1) This paragraph applies if paragraph 28 has applied in relation to a qualifying fund or qualifying company on one or more occasions.
(2) Paragraph 23(8) has effect as if, for the words from “at—” to the end, there were substituted “ when the relevant fund is wound up. ”
Steps taken by relevant fund manager to wind up relevant fund
30 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company,
(b) but for this paragraph, the election would, as a result of paragraph 20, have ceased to have effect from a particular time (“the relevant time”) for all purposes of this Part of this Schedule, and
(c) the relevant time occurs at a time when the relevant fund manager is taking steps with a view to the disposal of all of the assets of the relevant fund so that it can be wound up.
(2) It is to be assumed that, for the purposes of any provision of this Part of this Schedule other than paragraph 22, the qualifying fund or qualifying company continues to meet the applicable exemption conditions until the relevant fund is wound up.
(3) Accordingly—
(a) a deemed disposal occurs under paragraph 22 by reference to the failure to meet the applicable exemption conditions, but
(b) subject to that, the election continues to have effect until the relevant fund is wound up.
Deemed disposals of UK land by companies previously owned by fund
31 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company (“Q”),
(b) Q, or a company covered by the election, disposes of all of its rights and interests in another company (“C”) which is UK property rich, and
(c) C is covered by the election.
(2) C is deemed for the purposes of this Act—
(a) to have sold, at the relevant time, the appropriate proportion of every qualifying asset the actual disposal of which by C would be a direct or indirect disposal of UK land, and
(b) to have reacquired the appropriate proportion of the asset immediately after the relevant time,
at its market value at the relevant time.
(3) In the case of a disposal, a company is “covered by the election” for the purposes of this paragraph if the disposal is one to which paragraph 16 applies where the election concerned is the one referred to in this paragraph.
(4) For the purposes of this paragraph “the appropriate proportion” of an asset is equal to whatever would be, for the purposes of paragraph 16, the appropriate portion of any gain if it is assumed—
(a) that C had sold the asset at the relevant time, and
(b) that the total consideration for that sale was such that it results in a gain of £100 accruing to C.
(5) For the purposes of this paragraph, an asset is a “qualifying asset” if, throughout the period of one year ending with the day on which the disposal of the asset is made, the asset has been held by C or any other company covered by the election or by Q.
(6) In this paragraph “the relevant time” means the time immediately before the disposal of all the rights and interests in C.
Deemed disposals of UK land by company or fund ceasing to be qualifying etc
32 (1) This paragraph applies if—
(a) an election under paragraph 12 has been made in respect of a qualifying fund or qualifying company (“Q”),
(b) the election has had effect for a continuous period of at least five years, and
(c) either the election ceases to have effect (otherwise than in disqualifying circumstances) or the relevant fund manager starts to take steps with a view to the disposal of all of the assets of the relevant fund so that it can be wound up.
(2) Q is deemed for the purposes of this Act—
(a) to have sold, at the relevant time, every asset the actual disposal of which by Q would be a direct or indirect disposal of UK land, and
(b) to have reacquired the asset immediately after the relevant time,
at its market value at the relevant time.
(3) In the case of any asset covered by the election for 12 months and held by a company at the relevant time, the company is deemed for the purposes of this Act—
(a) to have sold, at the relevant time, the appropriate proportion of the asset, and
(b) to have reacquired the appropriate proportion of the asset immediately after the relevant time,
at its market value at the relevant time.
(4) For the purposes of sub-paragraph (3) an asset held by a company at the relevant time has been “covered by the election for 12 months” if, assuming the asset were disposed of at the relevant time, the disposal would have been one to which paragraph 16 applied by reference to the election.
(5) For the purposes of sub-paragraph (3) “the appropriate proportion” of an asset is equal to whatever would be, for the purposes of paragraph 16, the appropriate portion of any gain if it is assumed—
(a) that the company had sold the asset at the relevant time, and
(b) that the total consideration for that sale was such that it results in a gain of £100 accruing to it.
(6) For the purposes of this paragraph the election ceases to have effect in “disqualifying circumstances” if—
(a) it ceases to have effect as a result of a notice of revocation under paragraph 15(5)(a) in a case where a designated officer of Revenue and Customs is of the opinion that there have been at least three serious breaches of provision made by or under paragraph 15 during the period for which the election has had effect, or
(b) it ceases to have effect as a result of a notice of revocation under paragraph 18(1).
(7) In this paragraph “the relevant time” means the time immediately before—
(a) the election ceases to have effect, or
(b) the relevant fund manager starts to take steps with a view to the disposal of all or the assets of the relevant fund so that it can be wound up.
(8) For the purposes of this paragraph an election made under paragraph 12 in respect of Q is taken to be the same election as one made at a subsequent time in respect of another qualifying fund or qualifying company (“A”) if, at the subsequent time, Q is wholly owned by A.
Exemption for disposals by companies wholly owned by certain investors
33 (1) This paragraph applies in the case of—
(a) a collective investment vehicle in respect of which an election under paragraph 8 has been made (a “transparent fund”) ,
(aa) a RIF (within the meaning of paragraph 12) that meets the UK property rich condition in regulation 12 of the Co-ownership Contractual Schemes (Tax) Regulations 2025,
(b) a qualifying fund or qualifying company in respect of which an election under paragraph 12 has been made,
(c) a company which is a company UK REIT or is the principal company of a group UK REIT, or
(d) an open-ended investment company to which Part 4A of the Authorised Investment Funds (Tax) Regulations 2006 applies and which is UK property rich (a “PAIF”);
and a reference in the remainder of this paragraph to the fund concerned is to the transparent fund, the RIF, the relevant fund, the company UK REIT or principal company, or the PAIF (as the case may be).
(2) If—
(a) a participant in the fund concerned disposes of a unit in the fund concerned, and
(b) the participant is a company which is wholly (or almost wholly) owned by one or more investors to which this paragraph applies,
any gain accruing on the disposal is not a chargeable gain.
(2A) If a company which is wholly (or almost wholly) owned by one or more investors to which this paragraph applies disposes of a right or interest in a company whose assets consist wholly of units in the fund concerned, any gain accruing on the disposal is not a chargeable gain.
(3) Nothing in paragraph 21 is to result in a deemed disposal of an asset held by—
(a) an investor to which this paragraph applies who is not an insurance company, or
(b) a company which is wholly (or almost wholly) owned by one or more investors to which this paragraph applies each of whom is not an insurance company.
(4) Each of the following is an investor to which this paragraph applies—
(a) any person who is a qualifying institutional investor within the meaning of Schedule 7AC (substantial shareholding exemption),
(b) a company carrying on life assurance business where, immediately before the disposal, its right or interest in the participant is an asset which, applying the rules in section 138 of the Finance Act 2012, is wholly matched to a liability of its life assurance business that is not BLAGAB,
(c) a company carrying on long-term business none of which is BLAGAB where, immediately before the disposal, its right or interest in the participant is an asset held for the purposes of its long-term business, and
(d) a qualifying fund or qualifying company in respect of which an election under paragraph 12 has effect.
(5) In this paragraph “BLAGAB” means basic life assurance and general annuity business.
Disapplication of paragraphs 5 and 6 of Schedule 1A
33A. (1) If—
(a) an election under paragraph 12 has been made in respect of a collective investment vehicle, and
(b) there is a disposal of a unit in the vehicle,
nothing in paragraph 5 or 6 of Schedule 1A (exceptions) applies to the disposal.
(2) If—
(a) an election under paragraph 12 has been made in respect of a qualifying company, and
(b) there is a disposal of a unit in the relevant fund,
nothing in paragraph 5 or 6 of that Schedule applies to the disposal so far as it constitutes a disposal of a right or interest in the qualifying company.
Disapplication of paragraph 3A of Schedule 7AC: qualifying institutional investors
34 (1) This paragraph applies if—
(a) a gain or loss accrues to a company (“the investing company”) which has ordinary share capital owned by one or more qualifying institutional investors,
(b) some of the gain or loss is not chargeable or allowable as a result of paragraph 16(3), and
(c) some or all of the ownership of the qualifying institutional investors in the investing company is through the company which is Q for the purposes of paragraph 16(3).
(2) The ownership of the qualifying institutional investors in the investing company is to be ignored for the purpose of applying the exemption conferred by paragraph 3A of Schedule 7AC so far as the ownership is through Q.
(3) In this paragraph “qualifying institutional investors” has the same meaning as in Schedule 7AC.
(4) Paragraph 3B of Schedule 7AC (meaning of “ownership”) applies for the purposes of this paragraph as it applies for the purposes of paragraph 3A of that Schedule.
Relationship between rules in this Part and REIT rules in Part 12 of CTA 2010
35 (1) Nothing in this Part of this Schedule is to exempt so much of any qualifying REIT gain as accrues on a disposal made by a company which is, or is a member of, a UK REIT.
(2) A chargeable gain is a “qualifying REIT gain” so far as—
(a) the gain is not a chargeable gain as a result of section 535 or 535A of CTA 2010, and
(b) the gain is not one falling to be exempted as a result of the application of either of those sections following a notice given under section 586(1) or 587(1) of that Act (venturing group).
(3) In this paragraph “UK REIT” has the same meaning as in Part 12 of CTA 2010.
36 (1) This paragraph applies if—
(a) a gain accrues on a disposal made by a company (“the JV company”) which is a member of a group UK REIT,
(b) the gain is one falling to be exempted as a result of the application of section 535 or 535A of CTA 2010 following a notice given under section 586(1) or 587(1) of that Act (venturing group),
(c) the principal company of the group UK REIT that gave the notice is covered by an election made under paragraph 12 in respect of a qualifying fund, and
(d) the JV company is also covered by the election.
(2) The amount of the gain accruing to the JV company which is not a chargeable gain as a result of the operation, by reference to the election, of the rules in this Part of this Schedule—
(a) is found by first taking the two steps mentioned below (which require the application of each of the exemption rules without regard to the other), and
(b) once those two steps are taken, is so much of the amount found by the first step as exceeds the amount found by the second step.
(3) The first step is, ignoring the effect of Part 12 of CTA 2010, to apply the rules in this Part of this Schedule that operate by reference to the election to identify the amount of the gain which (but for this paragraph) would not be chargeable.
(4) The second step is, ignoring the effect of this Part of this Schedule, to apply the rules in Part 12 of CTA 2010 that operate in relation to the group UK REIT to identify the amount of the gain accruing to the JV company which falls to be exempted as mentioned in sub-paragraph (1)(b).
(5) In the case of a disposal, a company is “covered by an election made under paragraph 12” for the purposes of this paragraph if the disposal is one to which paragraph 16 applies where the election concerned is the one referred to in this paragraph.
(6) In this paragraph “group UK REIT” has the same meaning as in Part 12 of CTA 2010.
Separate application of exemptions under this Schedule and elsewhere
37 (1) If—
(a) a person disposes of a right or interest in a company on which a gain or loss accrues, and
(b) proportions of the gain or loss are not chargeable or allowable as a result of the operation of any relevant exemption provision,
each relevant exemption provision is to work separately (without regard to the other) in relation to each proportion of the gain or loss to which the relevant exemption provision applies.
(2) Accordingly—
(a) each relevant exemption provision is to operate by reference to the whole of the gain or loss (ignoring the effect of the other relevant exemption provision), and
(b) the total proportion of the gain or loss which is not chargeable or allowable is the total of the proportions separately found (but not so as to exceed the whole amount of the gain or loss).
(3) Each of the following is a “relevant exemption provision” for the purposes of this paragraph—
(a) any provision made by this Part of this Schedule,
(b) any provision made by paragraph 3A of Schedule 7AC, and
(c) any provision made by Part 12 of CTA 2010.
(4) This paragraph is subject to paragraphs 34 to 36.
Meaning of meeting “the applicable exemption conditions”
38 (1) For the purposes of Part of this Schedule a qualifying fund “meets the applicable exemption conditions” at any time if, at that time—
(a) it is a collective investment vehicle, and
(b) it meets the entitlement conditions set out in paragraph 12(2).
(2) For the purposes of Part of this Schedule a qualifying company “meets the applicable exemption conditions” at any time if, at that time, it meets the entitlement conditions set out in paragraph 12(3).
Meaning of “the relevant fund” and “the relevant fund manager”
39 (1) In this Part of this Schedule “the relevant fund”—
(a) in the case of an election in respect of a qualifying fund under paragraph 12, means the collective investment vehicle concerned, and
(b) in the case of an election in respect of a qualifying company under paragraph 12, means the collective investment scheme which wholly (or almost wholly) owns that company.
(2) In this Part of this Schedule “the relevant fund manager”, in the case of an election in respect of a qualifying fund or qualifying company under paragraph 12, means the manager of the relevant fund.
Meaning of “wholly owned” or “wholly (or almost wholly) owned”
40 (1) For the purposes of this Part of this Schedule a collective investment scheme, or a person or persons together, wholly owns or own a company at any time if the scheme, or person or persons together, has or have a 100% investment in the company at that time.
(2) Whether a scheme, or person or persons together, have a 100% investment in a company at any time is determined—
(a) by applying a modified version of the rule in paragraph 9 of Schedule 1A, and,
(b) in the case of a collective investment scheme, on the assumption that it is a person.
(3) The reference here to a modified version of the rule in paragraph 9 of Schedule 1A is to the rule in that paragraph as it has effect without regard to paragraph 10 and as if in sub-paragraph (1) of paragraph 9 the following modifications were made—
(a) for the opening words substitute “A person or persons together ( “ P ”) has or have a 100% investment in a company ( “C”) if all of the following conditions are met—”,
(b) omit paragraph (a),
(c) in each of paragraphs (b), (c) and (d), for “25% or more” substitute “ 100% ”, and
(d) for the “or” at the end of paragraph (c) substitute “ and ”.
41 (1) For the purposes of this Part of this Schedule a collective investment scheme or person wholly (or almost wholly) owns a company at any time if—
(a) the scheme or person wholly owns the company at that time, or
(b) the scheme or person has a 99% investment in the company at that time.
(2) Whether a scheme or person has a 99% investment in a company at any time is determined—
(a) by applying a modified version of the rule in paragraph 9 of Schedule 1A, and,
(b) in the case of a collective investment scheme, on the assumption that it is a person.
(3) The reference here to a modified version of the rule in paragraph 9 of Schedule 1A is to the rule in that paragraph as it has effect without regard to paragraph 10 and as if in sub-paragraph (1) of paragraph 9 the following modifications were made—
(a) omit paragraph (a),
(b) for “25%”, in each place, substitute “ 99% ”, and
(c) for the “or” at the end of paragraph (c) substitute “ and ”.
Meaning of “designated HMRC officer”
42 In this Part of this Schedule “designated HMRC officer” means an officer of Revenue and Customs who has been designated by the Commissioners for Her Majesty's Revenue and Customs for the purpose of revoking elections under paragraph 12.
PART 5 Reporting and payment
Reporting by collective investment vehicles
43 (1) The Treasury may by regulations make provision for managers of collective investment vehicles to elect to provide information to an officer of Revenue and Customs in respect of any participant in the vehicle who holds units the disposal of which would constitute an indirect disposal of UK land.
(2) The regulations may specify circumstances in which the provision of information or documents in accordance with the regulations is taken to satisfy obligations of the participant (or anyone else) to provide information or documents to an officer of Revenue and Customs.
(3) The regulations may be framed so as to apply to obligations of a description specified in the regulations.
Withholding of amounts on account of capital gains tax
44 (1) The Treasury may by regulations make provision for managers of collective investment vehicles to elect to meet the liability to capital gains tax or corporation tax in respect of indirect disposals of UK land made by any participant in the vehicle.
(2) The regulations may make provision for a simplified calculation of the tax liability of the participant in respect of those disposals.
(3) The regulations may make provision authorising the manager of a collective investment vehicle (or anyone else of a description specified in the regulations) to deduct an amount on account of capital gains tax from amounts that would otherwise be receivable by the participant.
(4) The regulations—
(a) may provide for the times at which amounts deducted on account of capital gains tax are to be paid to Her Majesty's Revenue and Customs, and
(b) may set out the extent to which those payments meet the liability of the participant to capital gains tax or corporation tax in respect of any indirect disposal of UK land.
General
45 (1) Regulations under this Part of this Schedule—
(a) may make different provision for different purposes, and
(b) may make supplementary, incidental, consequential or transitional or saving provision.
(2) Regulations under this Part of this Schedule may make provision having effect in relation to times before the regulations are made.
PART 6 General
Meaning of “close company”, “qualifying investor” and “direct or indirect participator”
46 (1) This paragraph has effect for the purposes of the provisions of this Schedule which apply this paragraph (or to which this paragraph is applied).
(2) Whether a company is “a close company” is determined in accordance with the rules in Chapter 2 of Part 10 of CTA 2010 but subject to the following modifications—
(a) section 442(a) (non-UK resident companies) is to be treated as omitted,
(b) section 444 (companies involved with non-close companies) is to be treated as omitted,
(c) section 447(1)(a) (shares in quoted companies beneficially held by non-close companies) is to be treated as omitted, ...
(d) for the purposes of any attribution under section 451(4) (rights of a person's associates to be attributed to the person etc in determining “control”) the rights and powers of a person (“A”) are not to be attributed to another person (“P”) merely because A is a partner of P, and
(e) a company (“C”) is not to be regarded as a close company only because a person possesses or is entitled to acquire the greater part of the voting power in C as a result of being—
(i) a manager of a collective investment vehicle, or
(ii) a general partner in a limited partnership which is a collective investment scheme.
(3) A “qualifying investor” means—
(a) a person who is within any of section 528(4A)(i) or (j) of CTA 2010 where, if the collective investment vehicle mentioned in the provision concerned is a company, it meets the non-close condition or, if not, the vehicle meets the genuine diversity of ownership condition,
(b) a person who is within any other provision of section 528(4A) of that Act, or
(c) a qualifying fund or qualifying company in respect of which an election under paragraph 12 has effect.
(4) For the purposes of sub-paragraph (3)(a) a collective investment vehicle meets the genuine diversity of ownership condition at any time if, at that time—
(a) the vehicle meets or, if the vehicle is part of multi-vehicle arrangements, the arrangements meet the conditions in regulation 75(2), (3) and (4)(a) of the Offshore Funds (Tax) Regulations 2009, or
(b) the vehicle meets, or those multi-vehicle arrangements meet, the condition in regulation 75(5) of those Regulations, (assuming for this purpose that regulation 75(4)(b) is omitted).
...
(4A) For the purposes of sub-paragraph (4), those Regulations have effect as if references to a fund included—
(a) multi-vehicle arrangements, and
(b) a collective investment vehicle which is not an offshore fund.
(5) For the purposes of sub-paragraph (3)(a) a company meets the non-close condition at any time if, at that time, it—
(a) is not a close company, or
(b) is a close company but only because it has a qualifying investor as a direct or indirect participator,
applying the provisions of this paragraph for the purposes of this sub-paragraph.
(6) A person is a “direct participator” if the person is a participator for the purposes of Part 10 of CTA 2010 (see section 454).
(7) A person is an “indirect” participator in a company if the person has a share or interest in the capital or income of the company through another body corporate or other bodies corporate.
(8) The reference here to having a share or interest in the capital or income of a company through a body corporate is to be read as follows.
(9) Suppose that 3 or more bodies corporate are ordered in a series such that each body in the series (other than the last) has a share or interest in the capital or income of the body immediately below it in the series.
(10) If B is a body that is below, but not immediately below, A in the series, A is said to own a share or interest in the capital or income of B through each body corporate that is between A and B in the series.
(11) A person is regarded for the purposes of sub-paragraphs (7) to (10) as having a share or interest in the capital or income of a company if the person would be a participator in the company as a result of section 454(2) of CTA 2010.
(12) For the purposes of this paragraph any reference to a body corporate includes—
(a) an offshore collective investment vehicle which is, as a result of paragraph 4, assumed to be a company for the purposes of this Schedule, and
(b) anything else which is, as a result of provision made elsewhere by this Act, assumed to be a company for the purposes of this Act.
References to regulation 75(3) of the Offshore Funds (Tax) Regulations 2009
46A. (1) This paragraph applies, in the case of a collective investment vehicle, for the purpose of determining whether the vehicle meets the genuine diversity of ownership condition referred to in any provision of this Schedule.
(2) The fact that (for any reason) the capacity of the vehicle to receive investments is limited does not prevent regulation 75(3) of the Offshore Funds (Tax) Regulations 2009 (including as it applies for the purposes of regulation 75(5) of those Regulations) from being met.
(3) Sub-paragraph (2) does not apply if—
(a) the limited capacity of the vehicle to receive investments is fixed by the documents of the vehicle (or otherwise), and
(b) a pre-determined number of specific persons, or specific groups of connected persons, make investments in the vehicle that collectively exhausts all, or substantially all, of that capacity.
(4) Where the collective investment vehicle is part of multi-vehicle arrangements, sub-paragraphs (2) and (3) apply as if references to the vehicle included the multi-vehicle arrangements.
Other definitions
47 (1) In this Schedule—
“company UK REIT” has the same meaning as in Part 12 of CTA 2010,
“double taxation arrangements” means arrangements having effect under section 2(1) of TIOPA 2010,
“interest in UK land” is to be read in accordance with section 1C,
“the manager”, in relation to a collective investment vehicle, means—
any person who is the manager of the property that is the subject of or held by the vehicle, or
any other person who has, or is expected to have, day-to-day control of that property,
“multi-vehicle arrangements” has the meaning given by paragraph 7(8);
“the principal company of a group UK REIT” has the same meaning as in Part 12 of CTA 2010, and
“prospectus”, in relation to a collective investment vehicle, means any document (however described) which is made available to investors and which sets out descriptions of the investments to be made, or intended to be made, by the vehicle.
(2) For the purposes of this Schedule—
(a) a reference to a direct disposal of UK land is to a disposal of an interest in UK land, and
(b) a reference to an indirect disposal of UK land is to a disposal of an asset deriving at least 75% of its value from UK land.
(3) For this purpose the reference to a disposal of an asset deriving at least 75% of its value from UK land is to be read in accordance with Part 2 of Schedule 1A.
Power to make provision in relation to UK property rich collective investment vehicles etc
48 (1) The Treasury may by regulations make provision for the purposes of any provision of this Act in relation to—
(a) collective investment vehicles that are UK property rich, or
(b) investments made (directly or indirectly) by collective investment vehicles in companies that are UK property rich.
(2) Among other things, the regulations—
(a) may amend any provision made by this Schedule, or
(b) may disapply any provision made by or under this Act or provide for any provision made by or under this Act to have effect with modifications specified in the regulations.
(3) The regulations may make provision having effect in relation to times before the regulations are made.
(4) The regulations—
(a) may make different provision for different purposes, and
(b) may make supplementary, incidental, consequential or transitional or saving provision.
PART 7 Transitional provision
Elections for transparency under paragraph 8
49 (1) This paragraph applies in the case of an offshore collective investment vehicle to which paragraph 8 applies which was constituted before 6 April 2019.
(2) Paragraph 9(1)(c) has effect as if it permitted the election under paragraph 8 to be made before 1 October 2020.
(3) The election is to have effect in relation to disposals made on or after 6 April 2019 (so that paragraph 8(2) has effect subject to this sub-paragraph).
(4) If a person is a participant in the vehicle on 6 April 2019—
(a) the making of an election under paragraph 8 is not to be regarded as being a disposal of the person's units in the vehicle, and
(b) any question arising for the purposes of this Act, in relation to a disposal on or after 6 April 2019 of the person's units in the vehicle, is to be determined as if the election under paragraph 8 had had effect in relation to all times on or after the vehicle's constitution.
49A. (1) This paragraph applies in the case of an offshore collective investment vehicle to which paragraph 8 applies which was constituted on or after 6 April 2019.
(2) Paragraph 9(1)(c) has effect as if it permitted the election under paragraph 8 to be made before whichever is the later of—
(a) the end of the period mentioned in paragraph 9(1)(c), or
(b) 1 October 2020.
Elections under paragraph 12 and information about disposals by participants
50 Nothing in paragraph 14 requires information about disposals made before 6 April 2019.
Genuine diversity of ownership condition in case of existing funds
51. (1) This paragraph applies, in the case of a collective investment vehicle constituted before 6 April 2020, for the purpose of determining whether the vehicle meets the genuine diversity of ownership condition referred to in any provision of this Schedule.
(2) It is to be assumed that regulation 75(2) of the Offshore Funds (Tax) Regulations 2009 (including as it applies for the purposes of regulation 75(5) of those Regulations) has effect as if it referred to a statement prepared by the manager of the vehicle, available to HMRC, which—
(a) specifies the intended categories of investor when the vehicle was marketed,
(b) confirms that the interests in the vehicle were made widely available, and
(c) confirms that interests in the vehicle were marketed and made available in accordance with the requirements of regulation 75(4)(a) of those Regulations (and that provision is to be read accordingly).
(3) Where the collective investment vehicle is part of multi-vehicle arrangements, sub-paragraph (2) applies as if references to the vehicle included the multi-vehicle arrangements.
Application of Schedule
1 (1) This Schedule applies where—
(a) there would (apart from paragraph 2(2)(a) below) be a chargeable gain (“the original gain”) accruing to an individual (“the investor”) at any time (“the accrual time”) on or after 29th November 1994;
(b) the gain is one accruing either on the disposal by the investor of any asset or in accordance with section 164F or 164FA, section 169N, paragraphs 4 and 5 below or paragraphs 4 and 5 of Schedule 5C;
(c) the investor makes a qualifying investment; and
(d) the investor is resident ... in the United Kingdom at the accrual time and the time when he makes the qualifying investment and is not, in relation to the qualifying investment, a person to whom sub-paragraph (4) below applies.
(2) The investor makes a qualifying investment for the purposes of this Schedule if—
(a) eligible shares in a company for which he has subscribed ... are issued to him at a qualifying time and, where that time is before the accrual time, the shares are still held by the investor at the accrual time,
(aza) he subscribed for the shares (other than any of them which are bonus shares) wholly in cash,
(b) the company is a qualifying company in relation to the shares,
(c) at the time when they are issued the shares (other than any of them which are bonus shares) are fully paid up,
(d) the shares are subscribed for, and issued, for bona fide commercial purposes and not as part of arrangements the main purpose or one of the main purposes of which is the avoidance of tax,
(da) the total amount of relevant investments made in the company in the year ending with the date the shares are issued does not exceed £5 million,
(e) the requirements of section 289(1A) of the Taxes Act (read with section 289(1B) to (1E) of that Act), or the requirements of section 183 of ITA 2007, are satisfied in relation to the company,
(f) the shares (other than any of them which are bonus shares) are issued in order to raise money for the purpose of a qualifying business activity, and
(g) all of the money raised by the issue of the shares (other than any of them which are bonus shares) is, no later than the time mentioned in section 175(3) of ITA 2007, employed wholly for the purpose of that activity,
and for the purposes of this Schedule, the condition in paragraph (g) above does not fail to be satisfied by reason only of the fact that an amount of money which is not significant is employed for another purpose.
(3) In sub-paragraph (2) above “a qualifying time”, in relation to any shares subscribed for by the investor, means—
(a) any time in the period beginning one year before and ending three years after the accrual time, or
(b) any such time before the beginning of that period or after it ends as the Board may by notice allow.
(4) This sub-paragraph applies to the investor in relation to a qualifying investment if—
(a) though resident ... in the United Kingdom at the time when he makes the investment, he is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom, and
(b) were section 150A to be disregarded, the arrangements would have the effect that he would not be liable in the United Kingdom to tax on a gain arising on a disposal, immediately after their acquisition, of the shares acquired in making that investment.
(5) Shares are not fully paid up for the purposes of sub-paragraph (2)(c) above if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.
(5A) The reference in sub-paragraph (1)(b) to a gain accruing in accordance with section 169N does not include such a gain so far as it is chargeable to capital gains tax at the rate in section 169N(3).
(6) Section 173A(3) and (4) of ITA 2007 (meaning of “relevant investment”) apply for the purposes of sub-paragraph (2)(da).
(7) In sub-paragraph (2)(da), the reference to relevant investments made in the company includes relevant investments made in a company that is, or has at any time in the year mentioned there been, a subsidiary of the company (whether or not it was such a subsidiary when the investment was made).
Failure of conditions of application
1A (1) If the condition in sub-paragraph (2)(b) or (2)(da) of paragraph 1 above is not satisfied in consequence of an event occurring after the issue of eligible shares, the shares mentioned in sub-paragraph (2)(a) of that paragraph shall be treated for the purposes of this Schedule as ceasing to be eligible shares on the date of the event.
(2) If the condition in sub-paragraph (2)(e) of that paragraph is not satisfied in consequence of an event occurring after the issue of eligible shares, the shares mentioned in sub-paragraph (2)(a) of that paragraph shall be treated for the purposes of this Schedule as ceasing to be eligible shares on the date of the event.
(3) If the condition in sub-paragraph (2)(f) of that paragraph is not satisfied in relation to the shares mentioned in sub-paragraph (2)(a) of that paragraph, the shares shall be treated for the purposes of this Schedule as never having been eligible shares.
(4) If the condition in sub-paragraph (2)(g) ... of that paragraph is not satisfied in relation to the issue of eligible shares, the shares mentioned in sub-paragraph (2)(a) of that paragraph shall be treated for the purposes of this Schedule—
(a) if the claim under this Schedule is made after the time mentioned in section 175(3) of ITA 2007, as never having been eligible shares; and
(b) if that claim is made before that time, as ceasing to be eligible shares at that time.
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) None of the preceding sub-paragraphs applies unless—
(a) the company has given notice under paragraph 16(2) or (4) below, section 310(2) of the Taxes Act or section 241(3) of ITA 2007; or
(b) an inspector has given notice to the company stating that, by reason of the matter mentioned in that sub-paragraph, the shares mentioned in paragraph 1(2)(a) above should, in his opinion, be treated for the purposes of this Schedule as never having been or, as the case may be, as ceasing to be eligible shares.
(6) The giving of notice by an inspector under sub-paragraph (5) above shall be taken, for the purposes of the provisions of the Management Act relating to appeals against decisions on claims, to be a decision refusing a claim made by the company.
(7) Where any issue has been determined on an appeal brought by virtue of section 307(1B) of the Taxes Act or section 236(1) of ITA 2007 (appeal against notice that relief was not due), the determination shall be conclusive for the purposes of any appeal brought by virtue of sub-paragraph (6) above on which that issue arises.
Postponement of original gain
2 (1) On the making of a claim by the investor for the purposes of this Schedule, so much of the investor’s unused qualifying expenditure on the relevant shares as—
(a) is specified in the claim, and
(b) does not exceed so much of the original gain as is unmatched,
shall be set against a corresponding amount of the original gain.
(2) Where an amount of qualifying expenditure on the relevant shares is set under this Schedule against the whole or part of the original gain—
(a) so much of that gain as is equal to that amount shall be treated as not having accrued at the accrual time; but
(b) paragraphs 4 and 5 below shall apply for determining the gain that is to be treated as accruing on the occurrence of any chargeable event in relation to any of the relevant shares.
(3) For the purposes of this Schedule—
(a) the investor’s qualifying expenditure on the relevant shares is the amount subscribed by him for the shares; and
(b) that expenditure is unused to the extent that it has not already been set under this Schedule or paragraph 1(5) of Schedule 5BB against the whole or any part of a chargeable gain.
(4) For the purposes of this paragraph the original gain is unmatched, in relation to any qualifying expenditure on the relevant shares, to the extent that it has not had any other expenditure set against it under this Schedule or paragraph 1(5) of Schedule 5BB ... .
Chargeable events
3 (1) Subject to the following provisions of this paragraph, there is for the purposes of this Schedule a chargeable event in relation to any of the relevant shares if, after the making of the qualifying investment—
(a) the investor disposes of those shares otherwise than by way of a disposal within marriage or civil partnership;
(b) those shares are disposed of, otherwise than by way of a disposal to the investor, by a person who acquired them on a disposal made by the investor within marriage or civil partnership;
(c) the investor becomes a non-resident while holding those shares and before the termination date relating to those shares;
(d) a person who acquired those shares on a disposal within marriage or civil partnership becomes a non-resident while holding those shares and before the termination date relating to those shares; or
(e) those shares cease (or are treated for the purposes of this Schedule as ceasing) to be eligible shares.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of this Schedule there shall not be a chargeable event by virtue of sub-paragraph (1)(c) or (d) above in relation to any shares if—
(a) the reason why the person in question becomes a non-resident is that he works in an employment or office all the duties of which are performed outside the United Kingdom, and
(b) he again becomes resident ... in the United Kingdom within the period of three years from the time when he became a non-resident, without having meanwhile disposed of any of those shares;
and accordingly no assessment shall be made by virtue of sub-paragraph (1)(c) or (d) above before the end of that period in a case where the condition in paragraph (a) above is satisfied and the condition in paragraph (b) above may be satisfied.
(4) For the purposes of sub-paragraph (3) above a person shall be taken to have disposed of any shares if and only if there has been such a disposal as would have been a chargeable event in relation to those shares if the person making the disposal had been resident in the United Kingdom.
(5) Where in any case—
(a) the investor or a person who has acquired any of the relevant shares on a disposal within marriage or civil partnership dies, and
(b) an event occurs at or after the time of the death which (apart from this sub-paragraph) would be a chargeable event in relation to any of the relevant shares held by the deceased immediately before his death,
that event shall not be a chargeable event in relation to the shares so held.
(6) Any reference in the following provisions of this Schedule to a chargeable event falling within a particular paragraph of sub-paragraph (1) above is a reference to a chargeable event arising for the purposes of this Schedule by virtue of that paragraph.
Gain accruing on chargeable event
4 (1) On the occurrence of a chargeable event in relation to any of the relevant shares in relation to which there has not been a previous chargeable event—
(a) a chargeable gain shall be treated as accruing at the time of the event; and
(b) the amount of the gain shall be equal to so much of the deferred gain as is attributable to the shares in relation to which the chargeable event occurs.
(2) Any question for the purposes of capital gains tax as to whether any shares to which a disposal (including a disposal within marriage or civil partnership) relates are shares to which deferral relief is attributable shall be determined in accordance with sub-paragraphs (3) and (4) below.
(3) Where shares of any class in a company have been acquired by an individual on different days, any disposal by him of shares of that class shall be treated as relating to those acquired on an earlier day rather than to those acquired on a later day.
(4) Where shares of any class in a company have been acquired by an individual on the same day, any of those shares disposed of by him shall be treated as disposed of in the following order, namely—
(a) first any to which neither deferral relief nor relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 is attributable;
(b) next any to which deferral relief, but not relief under that Chapter or that Part, is attributable;
(c) next any to which relief under that Chapter or that Part, but not deferral relief, is attributable; and
(d) finally any to which both deferral relief and relief under that Chapter or that Part are attributable.
(4A) The following, namely—
(a) any shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007, is attributable and which were disposed of to an individual by a disposal within marriage or civil partnership, and
(b) any shares to which relief under that Chapter or that Part is attributable and which were transferred to an individual as mentioned in section 304 of the Taxes Act or section 245 of ITA 2007,
shall be treated for the purposes of sub-paragraphs (3) and (4) above as acquired by him on the day on which they were issued.
(4B) Chapter I of Part IV of this Act has effect subject to sub-paragraphs (2) to (4A) above.
(4C) Sections 104, 105 and 106A shall not apply to shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007, is attributable.
(5) Where at the time of a chargeable event any of the relevant shares are treated for the purposes of this Act as represented by assets which consist of or include assets other than those shares—
(a) so much of the deferred gain as is attributable to those shares shall be treated, in determining for the purposes of this paragraph the amount of the deferred gain to be treated as attributable to each of those assets, as apportioned in such manner as may be just and reasonable between those assets; and
(b) as between different assets treated as representing the same shares, sub-paragraphs (3) to (4A) above shall apply with the necessary modifications in relation to those assets as they would apply in relation to the shares.
(6) In order to determine, for the purposes of this paragraph, the amount of the deferred gain attributable to any shares, a proportionate part of the amount of the gain shall be attributed to each of the relevant shares held, immediately before the occurrence of the chargeable event in question, by the investor or a person who has acquired any of the relevant shares from the investor on a disposal within marriage or civil partnership.
(7) In this paragraph “the deferred gain” means—
(a) the amount of the original gain against which expenditure has been set under this Schedule, less
(b) the amount of any gain treated as accruing under this paragraph previously as a result of a disposal of any of the relevant shares.
Person to whom gain accrues
5 (1) The chargeable gain which accrues, in accordance with paragraph 4 above, on the occurrence in relation to any of the relevant shares of a chargeable event shall be treated as accruing, as the case may be—
(a) to the person who makes the disposal,
(b) to the person who becomes a non-resident, or
(c) to the person who holds the shares in question when they cease (or are treated for the purposes of this Schedule as ceasing) to be eligible shares.
(2) Where—
(a) sub-paragraph (1) above provides for the holding of shares at a particular time to be what identifies the person to whom any chargeable gain accrues, and
(b) at that time, some of those shares are held by the investor and others are held by a person to whom the investor has transferred them by a disposal within marriage or civil partnership,
the amount of the chargeable gain accruing by virtue of paragraph 4 above shall be computed separately in relation to the investor and that person without reference to the shares held by the other.
Claims
6 (1) Subject to sub-paragraph (2) below, section 306 of the Taxes Act or sections 202(1), 203(1) and 204 to 207 of ITA 2007 shall apply in relation to a claim under this Schedule in respect of the relevant shares as it applies in relation to a claim for relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 in respect of eligible or relevant shares.
(2) Section 306, as it so applies, shall have effect as if—
(a) any reference to the conditions for the relief were a reference to the conditions for the application of this Schedule;
(b) in subsection (1), the words “(or treated by section 289B(5) as so issued)" were omitted; and
(c) subsections (7) to (9) were omitted.
(3) Sections 202(1), 203(1) and 204 to 207 of ITA 2007, as they so apply, shall have effect as if any reference to the requirements for the relief were a reference to the conditions for the application of this Schedule.
Reorganisations
7 (1) Where an individual holds shares which form part of the ordinary share capital of a company and include shares of more than one of the following kinds, namely—
(a) shares to which deferral relief and relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 are attributable,
(b) shares to which deferral relief but not relief under that Chapter or that Part is attributable, and
(c) shares to which deferral relief is not attributable,
then, if there is within the meaning of section 126 a reorganisation affecting those shares, section 127 shall apply (subject to the following provisions of this paragraph) separately to shares falling within paragraph (a), (b) or (c) above (so that shares of each kind are treated as a separate holding of original shares and identified with a separate new holding).
(2) Where—
(a) an individual holds shares (“the existing holding") which form part of the ordinary share capital of a company,
(b) there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a), a reorganisation affecting the existing holding, and
(c) immediately following the reorganisation, the existing holding or the allotted shares are shares to which deferral relief is attributable,
sections 127 to 130 shall not apply in relation to the existing holding.
Acquisition of share capital by new company
8 (1) This paragraph applies where—
(a) a company (“the new company") in which the only issued shares are subscriber shares acquires all the shares (“old shares") in another company (“the old company");
(b) the consideration for the old shares consists wholly of the issue of shares (“new shares") in the new company;
(c) the consideration for new shares of each description consists wholly of old shares of the corresponding description;
(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings;
(e) at some time before the issue of the new shares—
(i) the old company issued eligible shares; and
(ii) a certificate in relation to those eligible shares was issued by that company for the purposes of section 306(2) of the Taxes Act or section 203(1) of ITA 2007 (as applied by paragraph 6 above) and in accordance with section 306 of the Taxes Act or sections 204 and 205 of ITA 2007 (as so applied); and
(f) by virtue of section 127 as applied by section 135(3), the exchange of shares is not treated as involving a disposal of the old shares or an acquisition of the new shares.
(2) For the purposes of this Schedule, deferral relief attributable to any old shares shall be attributable instead to the new shares for which they are exchanged.
(3) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they are exchanged were subscribed for by and issued to the individual, this Schedule shall have effect as if—
(a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him;
(b) the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company; and
(c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares.
(4) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they are exchanged were acquired by the individual on a disposal within marriage or civil partnership, this Schedule shall have effect as if—
(a) the new shares had been subscribed for at the time when, and for the amount for which, the old shares were subscribed for;
(b) the new shares had been issued by the new company at the time when the old shares were issued by the old company; and
(c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares.
(5) Where deferral relief becomes so attributable to any new shares—
(a) this Schedule shall have effect as if anything which, under paragraph 1A(5) above, paragraph 16 below or section 306(2) of the Taxes Act or section 203(1) of ITA 2007 as applied by paragraph 6 above has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company; and
(b) any appeal brought by the old company against a notice under paragraph 1A(5)(b) may be prosecuted by the new company as if it had been brought by that company.
(6) For the purposes of this paragraph old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights; and in sub-paragraph (1) above references to shares, except in the expressions “eligible shares” and “subscriber shares”, include references to securities.
(7) Nothing in section 293(8) of the Taxes Act or section 185 of ITA 2007, as applied by the definition of “qualifying company" in paragraph 19(1) below, shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in sub-paragraph (1) above or arrangements with a view to such an exchange.
Other reconstructions and amalgamations
9 (1) This paragraph applies if section 135 or 136 (company reconstructions) applies in relation to shares to which deferral relief, but not relief under Part 5 of ITA 2007 (or Chapter 3 of Part 7 of the Taxes Act), is attributable.
(1A) Paragraphs 3 and 4 of this Schedule have effect as if section 135 or 136 did not apply in relation to the shares.
(2) Sub-paragraph (1A) does not apply if—
(a) the new holding consists of new ordinary shares (“the new shares") carrying no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future right to be redeemed,
(b) the new shares are issued after the end of the relevant period, and
(c) the condition in sub-paragraph (4) below is satisfied.
(3) Sub-paragraph (1A) does not apply if paragraph 8 applies in relation to the shares.
(4) The condition is that at some time before the issue of the new shares—
(a) the company issuing them issued eligible shares, and
(b) a certificate in relation to those eligible shares was issued by the company for the purposes of section 306(2) of the Taxes Act or section 203(1) of ITA 2007 (as applied by paragraph 6 above) and in accordance with section 306 of the Taxes Act or sections 204 and 205 of ITA 2007 (as so applied).
(5) In sub-paragraph (2) above “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.
Re-investment in same company etc.
10 (1) An individual to whom any eligible shares in a qualifying company are issued shall not be regarded for the purposes of this Schedule as making a qualifying investment if, where the asset disposed of consisted of shares in or securities of any company (“the initial holding"), the qualifying company—
(a) is the company in which the initial holding subsisted; or
(b) is a company that was, at the time of the disposal of the initial holding, or is, at the time of the issue of the eligible shares, a member of the same group of companies as the company in which the initial holding subsisted.
(2) Where—
(a) any eligible shares in a qualifying company (“the acquired holding") are issued to an individual,
(b) an amount of qualifying expenditure on those shares has been set under this Schedule against the whole or part of any chargeable gain (the “postponed gain"), and
(c) after the issue of those shares, eligible shares in a relevant company are issued to him,
he shall not be regarded in relation to the issue to him of the shares in the relevant company as making a qualifying investment for the purposes of this Schedule.
(3) For the purposes of sub-paragraph (2) above a company is a relevant company if—
(a) where that individual has disposed of any of the acquired holding, it is the company in which the acquired holding has subsisted or a company which was a member of the same group of companies as that company at any time since the acquisition of the acquired holding;
(b) it is a company in relation to the disposal of any shares in which there has been a claim under this Schedule such that, without that claim, there would have been no postponed gain in relation to the acquired holding; or
(c) it is a company which, at the time of the disposal or acquisition to which the claim relates, was a member of the same group of companies as a company falling within paragraph (b) above.
(4) In this paragraph “group of companies” means a company which has one or more 51 per cent. subsidiaries, together with those subsidiaries.
Pre-arranged exits
11 (1) Where an individual subscribes for eligible shares (“the shares") in a company, the shares shall be treated as not being eligible shares for the purposes of this Schedule if the relevant arrangements include—
(a) arrangements with a view to the subsequent repurchase, exchange or other disposal of the shares or of other shares in or securities of the same company;
(b) arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the company or a person connected with the company;
(c) arrangements for the disposal of, or of a substantial amount of, the assets of the company or of a person connected with the company;
(d) arrangements the main purpose of which, or one of the main purposes of which, is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in that company against what would otherwise be the risks attached to making the investment.
(2) The arrangements referred to in sub-paragraph (1)(a) above do not include any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in paragraph 8(1) above.
(3) The arrangements referred to in sub-paragraph (1)(b) and (c) above do not include any arrangements applicable only on the winding up of a company except in a case where—
(a) the relevant arrangements include arrangements for the company to be wound up; or
(b) the company is wound up otherwise than for bona fide commercial reasons.
(4) The arrangements referred to in sub-paragraph (1)(d) above do not include any arrangements which are confined to the provision—
(a) for the company itself, or
(b) in the case of a company which is a parent company of a trading group, for the company itself, for the company itself and one or more of its subsidiaries or for one or more of its subsidiaries,
of any such protection against the risks arising in the course of carrying on its business as it might reasonably be expected so to provide in normal commercial circumstances.
(5) The reference in sub-paragraph (4) above to the parent company of a trading group
(a) shall be construed in accordance with the provision contained for the purposes of section 293 of the Taxes Act in that section, or
(b) is a reference to a company that meets the trading requirement in section 181(2)(b) of ITA 2007.
(6) In this paragraph “the relevant arrangements” means—
(a) the arrangements under which the shares are issued to the individual; and
(b) any arrangements made before the issue of the shares to him in relation to or in connection with that issue.
Disqualifying arrangements
11A (1) Where an individual subscribes for eligible shares (“the shares”) in a company (“the company”), the shares are to be treated as not being eligible shares for the purposes of this Schedule if the shares are issued, nor any money raised by the issue employed, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.
(2) Arrangements are “disqualifying arrangements” if—
(a) the main purpose, or one of the main purposes, of the arrangements is to secure—
(i) that a qualifying business activity is or will be carried on by the company or a qualifying 90% subsidiary of the company, and
(ii) that one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of shares issued by the company which raise money for the purposes of that activity or that such shares may comprise part of the qualifying holdings of a venture capital trust,
(aa) that activity is the relevant qualifying business activity, and
(b) one or both of conditions A and B are met.
(3) Condition A is that, as a (direct or indirect) result of the money raised by the issue of the shares being employed as required by paragraph 1(2)(g), an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.
(4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.
(5) For the purposes of this paragraph, it is immaterial whether the company is a party to the arrangements.
(6) In this paragraph—
“component activities” means—
if the relevant qualifying business activity is activity A (see section 179(2) of ITA 2007), the carrying on of a qualifying trade, or preparing to carry on such a trade, which constitutes that activity, and
if the relevant qualifying business activity is activity B (see section 179(4) of that Act), the carrying on of research and development which constitutes that activity;
“qualifying holdings”, in relation to the issuing company, is to be construed in accordance with section 286 of ITA 2007 (VCTs: qualifying holdings);
“qualifying 90% subsidiary” has the meaning given by section 190 of ITA 2007;
“relevant person” means a person who is a party to the arrangements or a person connected with such a party;
“relevant qualifying business activity” means the activity for the purposes of which the issue of the shares raised money;
“relevant tax relief”, in respect of shares, means one or more of the following—
relief under this Schedule in consequence of which deferral relief is attributable to the shares;
relief under section 150A or 150E (enterprise investment scheme or seed enterprise investment scheme) in respect of the shares;
relief under Schedule 5BB (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule);
relief under Chapter 6 of Part 4 of ITA 2007 (losses on disposal of shares) in respect of the shares;
EIS relief (within the meaning of Part 5 of that Act) in respect of the shares;
SEIS relief (within the meaning of Part 5A of that Act) in respect of the shares.
Put options and call options
12 (1) Sub-paragraph (2) below applies where an individual subscribes for eligible shares (“the shares") in a company and—
(a) an option, the exercise of which would bind the grantor to purchase such shares, is granted to the individual during the relevant period; or
(b) an option, the exercise of which would bind the individual to sell such shares, is granted by the individual during the relevant period.
(2) The shares to which the option relates shall be treated for the purposes of this Schedule—
(a) if the option is granted on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if the option is granted after that date, as ceasing to be eligible shares on the date when the option is granted.
(3) The shares to which the option relates shall be taken to be those which, if—
(a) the option were exercised immediately after the grant, and
(b) any shares in the company acquired by the individual after the grant were disposed of immediately after being acquired,
would be treated for the purposes of this Schedule as disposed of in pursuance of the option.
(4) Nothing in this paragraph shall prejudice the operation of paragraph 11 above.
(5) An individual who acquires any eligible shares on a disposal within marriage or civil partnership shall be treated for the purposes of this paragraph and paragraphs 13 to 15 below as if he subscribed for those shares.
Value received by investor
13 (1) Where an individual who subscribes for eligible shares (“the shares") in a company receives any value (other than insignificant value) from the company at any time in the period of restriction, the shares shall be treated as follows for the purposes of this Schedule—
(a) if the individual receives the value on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if the individual receives the value after that date, as ceasing to be eligible shares on the date when the value is received.
(1A) This paragraph is subject to paragraph 13B below.
(1B) Where—
(a) the individual who subscribes for the shares receives value (“the relevant receipt”) from the company during the period of restriction,
(b) the individual has received from the company one or more receipts of insignificant value at a time or times—
(i) during that period, but
(ii) not later than the time of the relevant receipt, and
(c) the aggregate amount of the value of the receipts within paragraphs (a) and (b) above is not an amount of insignificant value,
the individual shall be treated for the purposes of this Schedule as if the relevant receipt had been a receipt of an amount of value equal to the aggregate amount.
For this purpose a receipt does not fall within paragraph (b) above if it has previously been aggregated under this sub-paragraph.
(2) For the purposes of this paragraph an individual receives value from the company if the company—
(a) repays, redeems or repurchases any of its share capital or securities which belong to the individual or makes any payment to him for giving up his right to any of the company’s share capital or any security on its cancellation or extinguishment;
(b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the individual other than a debt which was incurred by the company—
(i) on or after the date of issue of the shares; and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date;
(c) makes to the individual any payment for giving up his right to any debt on its extinguishment;
(d) releases or waives any liability of the individual to the company or discharges, or undertakes to discharge, any liability of his to a third person;
(e) makes a loan or advance to the individual which has not been repaid in full before the issue of the shares;
(f) provides a benefit or facility for the individual;
(g) disposes of an asset to the individual for no consideration or for a consideration which is or the value of which is less than the market value of the asset;
(h) acquires an asset from the individual for a consideration which is or the value of which is more than the market value of the asset; or
(i) makes any payment to the individual other than a qualifying payment.
(3) For the purposes of sub-paragraph (2)(e) above there shall be treated as if it were a loan made by the company to the individual—
(a) the amount of any debt (other than an ordinary trade debt) incurred by the individual to the company; and
(b) the amount of any debt due from the individual to a third person which has been assigned to the company.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) For the purposes of this paragraph an individual also receives value from the company if any person who would, for the purposes of section 291 of the Taxes Act or Chapter 2 of Part 5 of ITA 2007, be treated as connected with the company—
(a) purchases any of its share capital or securities which belong to the individual; or
(b) makes any payment to him for giving up any right in relation to any of the company’s share capital or securities.
(6) Where an individual’s disposal of shares in a company gives rise to a chargeable event falling within paragraph 3(1)(a) or (b) above, the individual shall not be treated for the purposes of this paragraph as receiving value from the company in respect of the disposal.
(7) In this paragraph “qualifying payment” means—
(a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment;
(b) any payment or reimbursement by any company of travelling or other expenses wholly, exclusively and necessarily incurred by the individual to whom the payment is made in the performance of duties as an officer or emplyee of that company;
(c) the payment by any company of any interest which represents no more than a reasonable commercial return on money lent to that company;
(d) the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company;
(e) any payment for the supply of goods which does not exceed their market value;
(f) any payment for the acquisition of an asset which does not exceed its market value;
(g) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property;
(h) any reasonable and necessary remuneration which—
(i) is paid by any company for services rendered to that company in the course of a trade or profession carried on wholly or partly in the United Kingdom; and
(ii) is taken into account in calculating for tax purposes the profits of that trade or profession;
(i) a payment in discharge of an ordinary trade debt.
(8) For the purposes of this paragraph a company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(9) In this paragraph—
(a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment; and
(b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment.
(10) In this paragraph and paragraph 13A(1) below—
(a) any reference to a payment or disposal to an individual includes a reference to a payment or disposal made to him indirectly or to his order or for his benefit;
(b) any reference to an individual includes a reference to an associate of his; and
(c) any reference to a company includes a reference to a person who at any time in the relevant period is connected with the company, whether or not he is so connected at the material time.
(11) In this paragraph “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given—
(a) does not exceed six months; and
(b) is not longer than that normally given to customers of the person carrying on the trade or business.
(12) In paragraphs 13A to 13C below (except paragraph 13C(4))—
(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and
(b) references to “the period of restriction” shall be construed as references to the period of restriction relating to the shares.
Provision supplemental to paragraph 13
13A (1) For the purposes of paragraph 13 above, the value received by the individual in question is—
(a) in a case within sub-paragraph (2)(a), (b) or (c) of that paragraph, the amount received by the individual or, if greater, the market value of the share capital, securities or debt in question;
(b) in a case within sub-paragraph (2)(d) of that paragraph, the amount of the liability;
(c) in a case within sub-paragraph (2)(e) of that paragraph, the amount of the loan or advance reduced by the amount of any repayment made before the issue of the shares;
(d) in a case within sub-paragraph (2)(f) of that paragraph, the cost to the company of providing the benefit or facility less any consideration given for it by the individual;
(e) in a case within sub-paragraph (2)(g) or (h) of that paragraph, the difference between the market value of the asset and the consideration (if any) given for it;
(f) in a case within sub-paragraph (2)(i) of that paragraph, the amount of the payment;
(g) in a case within sub-paragraph (5) of that paragraph, the amount received by the individual or, if greater, the market value of the share capital or securities in question.
(2) In this paragraph and paragraph 13 above references to a receipt of insignificant value (however expressed) are references to a receipt of an amount of insignificant value.
This is subject to sub-paragraph (4) below.
(3) For the purposes of this paragraph and paragraph 13 above “an amount of insignificant value” means an amount of value which—
(a) does not exceed £1,000, or
(b) if it exceeds that amount, is insignificant in relation to the total amount of expenditure on the shares which is set under this Schedule against a corresponding total amount of the whole or any part of any chargeable gains.
(4) For the purposes of paragraph 13 above, if, at any time in the period—
(a) beginning one year before the shares are issued, and
(b) expiring at the end of the issue date,
arrangements are in existence which provide for the individual who subscribes for the shares to receive or to be entitled to receive, at any time in the period of restriction, any value from the company that issued the shares, no amount of value received by the individual shall be treated as a receipt of insignificant value.
(5) In sub-paragraph (4) above—
(a) any reference to the individual includes a reference to any person who, at any time in the period of restriction, is an associate of his (whether or not he is such an associate at the material time), and
(b) the reference to the company includes a reference to any person who, at any time in the period of restriction, is connected with the company (whether or not that person is so connected at the material time).
Receipt of replacement value
13B (1) Where—
(a) by reason of a receipt of value within sub-paragraph (2) (other than paragraph (b)) or sub-paragraph (5) of paragraph 13 above (“the original value”), the shares would, in the absence of this paragraph, be treated as never having been eligible shares or as ceasing to be eligible shares on the date when the value is received,
(b) the original supplier receives value (“the replacement value”) from the original recipient by reason of a qualifying receipt, and
(c) the amount of the replacement value is not less than the amount of the original value,
the receipt of the original value shall be disregarded for the purposes of paragraph 13 above.
(2) This paragraph is subject to paragraph 13C below.
(3) For the purposes of this paragraph and paragraph 13C below—
“the original recipient” means the person who receives the original value, and
“the original supplier” means the person from whom that value was received.
(4) A receipt of the replacement value is a qualifying receipt for the purposes of sub-paragraph (1) above if it arises—
(a) by reason of the original recipient doing one or more of the following—
(i) making a payment to the original supplier, other than a payment which falls within paragraph (c) below or to which sub-paragraph (5) below applies;
(ii) acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset;
(iii) disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset;
(b) where the receipt of the original value was within paragraph 13(2)(d) above, by reason of an event the effect of which is to reverse the event which constituted the receipt of the original value; or
(c) where the receipt of the original value was within paragraph 13(5) above, by reason of the original recipient repurchasing the share capital or securities in question, or (as the case may be) reacquiring the right in question, for a consideration the amount or value of which is not less than the amount of the original value.
(5) This sub-paragraph applies to—
(a) any payment for any goods, services or facilities, provided (whether in the course of a trade or otherwise) by—
(i) the original supplier, or
(ii) any other person who, at any time in the period of restriction, is an associate of, or connected with, that supplier (whether or not that person is such an associate, or so connected, at the material time),
which is reasonable in relation to the market value of those goods, services or facilities;
(b) any payment of any interest which represents no more than a reasonable commercial return on money lent to—
(i) the original recipient, or
(ii) any person who, at any time in the period of restriction, is an associate of his (whether or not he is such an associate at the material time);
(c) any payment for the acquisition of an asset which does not exceed its market value;
(d) any payment, as rent for any property occupied by—
(i) the original recipient, or
(ii) any person who, at any time in the period of restriction, is an associate of his (whether or not he is such an associate at the material time),
of an amount not exceeding a reasonable and commercial rent for the property;
(e) any payment in discharge of an ordinary trade debt (within the meaning of paragraph 13(11) above); and
(f) any payment for shares in or securities of any company in circumstances that do not fall within sub-paragraph (4)(a)(ii) above.
(6) For the purposes of this paragraph, the amount of the replacement value is—
(a) in a case within paragraph (a) of sub-paragraph (4) above, the aggregate of—
(i) the amount of any payment within sub-paragraph (i) of that paragraph, and
(ii) the difference between the market value of any asset within sub-paragraph (ii) or (iii) of that paragraph and the amount or value of the consideration (if any) received for it,
(b) in a case within sub-paragraph (4)(b) above, the same as the amount of the original value, and
(c) in a case within sub-paragraph (4)(c) above, the amount or value of the consideration received by the original supplier,
and paragraph 13A(1) above applies for the purposes of determining the amount of the original value.
(7) In this paragraph any reference to a payment to a person (however expressed) includes a reference to a payment made to him indirectly or to his order or for his benefit.
Provision supplemental to paragraph 13B
13C (1) The receipt of the replacement value by the original supplier shall be disregarded for the purposes of paragraph 13B above, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 13 above as that paragraph applies in relation to those shares or any other shares subscribed for by the individual in question (“the individual”).
(2) The receipt of the replacement value by the original supplier (“the event”) shall also be disregarded for the purposes of paragraph 13B above if—
(a) the event occurs before the start of the period of restriction, or
(b) in a case where the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances, or
(c) where an appeal has been brought by the individual against an assessment made by virtue of paragraph 3(1)(e) above by reason of that receipt, the event occurs more than 60 days after the appeal has been finally determined.
But nothing in paragraph 13B above or this paragraph requires the replacement value to be received after the original value.
(3) This sub-paragraph applies where—
(a) the receipt of the replacement value by the original supplier is a qualifying receipt for the purposes of paragraph 13B(1) above, and
(b) the event which gives rise to the receipt is (or includes) a subscription for shares by—
(i) the individual, or
(ii) any person who, at any time in the period of restriction, is an associate of the individual, whether or not he is such an associate at the material time.
(4) Where this sub-paragraph applies, the person who subscribes for the shares shall not—
(a) be eligible for any relief under Chapter 3 of Part 7 of the Taxes Act (enterprise investment scheme: income tax relief) in relation to those shares or any other shares in the same issue, or
(b) by virtue of his subscription for those shares or any other shares in the same issue, be treated as making a qualifying investment for the purposes of this Schedule.
(4) Where either of the following applies—
(a) sub-paragraph (3) above, and
(b) section 223(3) of ITA 2007 (which makes corresponding provision in relation to EIS relief under Part 5 of that Act),
the person who subscribes for the shares shall not by virtue of his subscription for those shares or any other shares in the same issue be treated as making a qualifying investment for the purposes of this Schedule.
(5) In this paragraph “the original value” and “the replacement value” shall be construed in accordance with paragraph 13B above.
Value received by other persons
14 (1) Sub-paragraph (2) below applies where an individual subscribes for eligible shares (“the shares") in a company and at any time in the period of restriction the company or any subsidiary—
(a) repays, redeems or repurchases any of its share capital which belongs to any member other than the individual or a person falling within sub-paragraph (3) below, or
(b) makes any payment (directly or indirectly) to any such member, or to his order or for his benefit, for the giving up of his right to any of the share capital of the company or subsidiary on its cancellation or extinguishment.
This is subject to paragraphs 14AA and 14A below.
(2) The shares shall be treated for the purposes of this Schedule—
(a) if the repayment, redemption, repurchase or payment in question is made or effected on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if it is made or effected after that date, as ceasing to be eligible shares on the date when it is made or effected.
(3) A person falls within this sub-paragraph if the repayment, redemption, repurchase or payment in question—
(a) gives rise to a qualifying chargeable event in respect of him, or
(b) causes any relief under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 attributable to his shares in the company to be withdrawn or reduced by virtue of section 299 or 300(2)(a) of the Taxes Act or section 209 or 216(2)(a) of ITA 2007, or
(c) causes any investment relief attributable to shares held by that person (within the meaning of Schedule 15 to the Finance Act 2000) to be withdrawn or reduced by virtue of paragraph 46 (disposal of shares) or 49(1)(a) (repayment etc. of share capital or securities) of that Schedule
or it would have the effect mentioned in paragraph (a), (b) or (c) above were it not a receipt of insignificant value for the purposes of paragraph 13 above, section 300 of the Taxes Act or 214 of ITA 2007 or paragraph 47 of Schedule 15 to the Finance Act 2000, as the case may be.
(4) In sub-paragraph (3) above “qualifying chargeable event” means—
(a) a chargeable event falling within paragraph 3(1)(a) or (b) above; or
(b) a chargeable event falling within paragraph 3(1)(e) above by virtue of sub-paragraph (1)(b) of paragraph 13 above (as it applies by virtue of sub-paragraph (2)(a) of that paragraph).
(5) Where—
(a) a company issues share capital (“the original shares") of nominal value equal to the authorised minimum (within the meaning of the Companies Act 2006) for the purposes of complying with the requirements of section 761 of that Act (public company: requirement as to minimum share capital); and
(b) after the registrar of companies has issued the company with a certificate under section 761, it issues eligible shares,
the preceding provisions of this paragraph shall not apply in relation to any redemption of any of the original shares within 12 months of the date on which those shares were issued.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) References in this paragraph and paragraphs 14AA and 14A below to a subsidiary of a company are references to a company which at any time in the relevant period is a 51 per cent. subsidiary of the first mentioned company, whether or not it is such a subsidiary at the time of the repayment, redemption, repurchase or payment in question.
Insignificant repayments disregarded for purposes of paragraph 14
14AA (1) Any repayment shall be disregarded for the purposes of paragraph 14 above if whichever is the greater of—
(a) the market value of the shares to which it relates (“the target shares”) immediately before the event occurs, and
(b) the amount received by the member in question,
is insignificant in relation to the market value of the remaining issued share capital of the company in question (or, as the case may be, subsidiary in question) immediately after the event occurs.
This is subject to sub-paragraph (4) below.
(2) For the purposes of this paragraph “repayment” means a repayment, redemption, repurchase or payment mentioned in paragraph 14(1) above.
(3) For the purposes of sub-paragraph (1) above it shall be assumed that the target shares are cancelled at the time the repayment is made.
(4) Where an individual subscribes for eligible shares in a company, sub-paragraph (1) above does not apply to prevent paragraph 14(2) above having effect in relation to the shares if, at a relevant time, arrangements are in existence that provide—
(a) for a repayment by the company or any subsidiary of the company (whether or not it is such a subsidiary at the time the arrangements are made), or
(b) for anyone to be entitled to such a repayment,
at any time in the period of restriction.
(5) For the purposes of sub-paragraph (4) above “a relevant time” means any time in the period—
(a) beginning one year before the eligible shares were issued, and
(b) expiring at the end of the issue date.
Certain receipts to be disregarded for purposes of paragraph 14
14A (1) Sub-paragraph (4) below applies where, by reason of a repayment, any investment relief which is attributable under Schedule 15 to the Finance Act 2000 to any shares is withdrawn under paragraph 56(2) of that Schedule.
(2) For the purposes of this paragraph “repayment” has the meaning given in paragraph 14AA(2) above.
(3) For the purposes of sub-paragraph (4) below “the relevant amount” is the amount determined by the formula—
X-5Y
Where—
X is the amount of the repayment, and
Y is the aggregate amount of the investment relief withdrawn by reason of the repayment.
(4) Where the relevant amount does not exceed £1,000, the repayment shall be disregarded for the purposes of paragraph 14 above, unless repayment arrangements are in existence at any time in the period—
(a) beginning one year before the shares mentioned in sub-paragraph (1) above are issued, and
(b) expiring at the end of the issue date of those shares.
(5) For this purpose “repayment arrangements” means arrangements which provide—
(a) for a repayment by the company that issued the shares (“the issuing company”) or any subsidiary of that company, or
(b) for anyone to be entitled to such a repayment,
at any time.
(6) Sub-paragraph (5)(a) above applies in relation to a subsidiary of the issuing company whether or not it was such a subsidiary—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) when the arrangements were made.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) In this paragraph—
(a) “investment relief” has the same meaning as in Schedule 15 to the Finance Act 2000 (corporate venturing scheme); and
(b) references to the withdrawal of investment relief include its reduction.
Investment-linked loans
15 (1) Where at any time in the relevant period an investment-linked loan is made by any person to an individual who subscribes for eligible shares (“the shares") in a company, the shares shall be treated for the purposes of this Schedule—
(a) if the loan is made on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if the loan is made after that date, as ceasing to be eligible shares on the date when the loan is made.
(2) A loan made by any person to an individual is an investment-linked loan for the purposes of this paragraph if the loan is one which would not have been made, or would not have been made on the same terms, if the individual had not subscribed for the shares or had not been proposing to do so.
(3) References in this paragraph to the making by any person of a loan to an individual include references—
(a) to the giving by that person of any credit to that individual; and
(b) to the assignment or assignation to that person of any debt due from that individual.
(4) In this paragraph any reference to an individual includes a reference to an associate of his.
Information
16 (1) Where, in relation to any of the relevant shares held by an individual—
(a) a chargeable event falling within paragraph 3(1)(a) or (b) above occurs at any time before the termination date relating to those shares,
(b) a chargeable event falling within paragraph 3(1)(c) or (d) above occurs, or
(c) a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 12(2)(b), 13(1)(b) or 15(1)(b) above,
the individual shall within 60 days of his coming to know of the event give a notice to the inspector containing particulars of the circumstances giving rise to the event.
(2) Where, in relation to any of the relevant shares in a company, a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 1A(1) or (2), 13(1)(b) or 14(2)(b) above—
(a) the company, and
(b) any person connected with the company who has knowledge of that matter,
shall within 60 days of the event or, in the case of a person within paragraph (b) above, of his coming to know of it, give a notice to the inspector containing particulars of the circumstances giving rise to the event.
(2A) In determining, for the purposes of sub-paragraph (1) or (2) above, whether a chargeable event falling within paragraph 3(1)(e) above has occurred by virtue of paragraph 13(1)(b) above, the effect of paragraph 13B above shall be disregarded.
(3) A chargeable event falling within paragraph 3(1)(e) above which, but for paragraph 1A(5) above, would occur at any time by virtue of paragraph 1A(1) or (2) above shall be treated for the purposes of sub-paragraph (2) above as occurring at that time.
(3A) Where—
(a) a person is required to give a notice under sub-paragraph (1) or (2) above in respect of a chargeable event which occurs by virtue of paragraph 13(1)(b) above or would occur by virtue of that paragraph but for the operation of paragraph 13B above, and
(b) that person has knowledge of the replacement value received (or expected to be received) from the original recipient by the original supplier by reason of a qualifying receipt,
the notice shall include particulars of that receipt of the replacement value (or expected receipt).
In this sub-paragraph “the replacement value”, “the original recipient”, “the original supplier” and “qualifying receipt” shall be construed in accordance with paragraph 13B above.
(4) Where a company has issued a certificate under section 306(2) of the Taxes Act or section 203(1) of ITA 2007 (as applied by paragraph 6 above) in respect of any eligible shares in the company, and the condition in paragraph 1(2)(g) above is not satisfied in relation to the shares—
(a) the company, and
(b) any person connected with the company who has knowledge of that matter,
shall within 60 days of the time mentioned in section 289(3) of the Taxes Act or section 175(3) of ITA 2007 or, in the case of a person within paragraph (b) above, of his coming to know that the condition is not satisfied, give notice to the inspector setting out the particulars of the case.
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) If the inspector has reason to believe—
(a) that a person has not given a notice which he is required to give—
(i) under sub-paragraph (1) or (2) above in respect of any chargeable event, or
(ii) under sub-paragraph (4) above in respect of any particular case, or
(b) that a person has given or received value (within the meaning of paragraph 13(2) or (5) above) which, but for the fact that the amount given or received was an amount of insignificant value (within the meaning of paragraph 13A(3) above), would have triggered a requirement to give a notice under sub-paragraph (1) or (2) above, or
(c) that a person has made or received any repayment (within the meaning of paragraph 14AA(2) above) which, but for the fact that it falls to be disregarded for the purposes of paragraph 14 above by virtue of paragraph 14AA(1) above, would have triggered a requirement to give a notice under sub-paragraph (2) above,
the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event or case as the inspector may reasonably require for the purposes of this Schedule.
(6) Where a claim is made under this Schedule in respect of shares in a company and the inspector has reason to believe that it may not be well founded by reason of any such arrangements as are mentioned in paragraphs 1(2)(d), 11(1) or 11A above, or section 289(1D) or (9)(e), 289A(8)(b) or (8A), 293(4B), (6) or (8) or 308(2)(e), (3), (3A) or (4) of the Taxes Act or section 176(4)(b) or (5)(b), 182(2) or (4), 183(6), 185(1), 190(1)(e) or 191(2)(c), (3), (4) or (5) of ITA 2007, he may by notice require any person concerned to furnish him within such time (not being less than 60 days) as may be specified in the notice with—
(a) a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangements exist or have existed;
(b) such other information as the inspector may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.
(7) For the purposes of sub-paragraph (6) above, the persons who are persons concerned are—
(a) in relation to paragraph 1(2)(d) above or section 293(4B) or (6) of the Taxes Act or section 182(2) or (4) of ITA 2007, the claimant, the company and any person controlling the company;
(aa) in relation to section 289(1D), 289A(8)(b) or (8A) or 308(3), (3A) or (4) of the Taxes Act or section 176(4)(b) or (5)(b), 183(6) or 191(3), (4) or (5) of ITA 2007, the claimant, the company, any other company in question and any person controlling the company or any other company in question;
(b) in relation to paragraph 11(1) above, the claimant, the company and any person connected with the company; ...
(ba) in relation to paragraph 11A, the claimant, the company, any person controlling the company and any person whom an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question; and
(c) in relation to section 289(9)(e), 293(8) or 308(2)(e) of the Taxes Act or section 185(1), 190(1)(e) or 191(2)(c) of ITA 2007, the company and any person controlling the company;
and for those purposes the references in paragraphs (a), (aa), (b) and (ba) above to the claimant include references to any person to whom the claimant appears to have made a disposal within marriage or civil partnership of any of the shares in question.
(7A) The references in sub-paragraphs (6) and (7) above to subsections (3), (3A) and (4) of section 308 of the Taxes Act and subsections (3), (4) and (5) of section 191 of ITA 2007 are to be read as including those provisions as applied by section 289(10) and (11) of the Taxes Act or section 190(2) of ITA 2007.
(8) Where deferral relief is attributable to shares in a company—
(a) any person who receives from the company any payment or asset which may constitute value received (by him or another) for the purposes of paragraph 13 above, and
(b) any person on whose behalf such a payment or asset is received,
shall, if so required by the inspector, state whether the payment or asset received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person.
(9) Where a claim has been made under this Schedule in relation to shares in a company, any person who holds or has held shares in the company and any person on whose behalf any such shares are or were held shall, if so required by the inspector, state—
(a) whether the shares which are or were held by him or on his behalf are or were held on behalf of any person other than himself; and
(b) if so, the name and address of that person.
(10) No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a company that relief has been given or claimed in respect of a particular number or proportion of its shares.
Trustees: general
17 (1) Subject to the following provisions of this paragraph, this Schedule shall apply as if—
(a) any reference to an individual included a reference to the trustees of a settlement, and
(b) in relation to any such trustees, the reference in paragraph 1(1) above to any asset were a reference to any asset comprised in any settled property to which this paragraph applies (a “trust asset").
(2) This paragraph applies—
(a) to any settled property in which the interests of the beneficiaries are not interests in possession, if all the beneficiaries are individuals, and
(b) to any settled property in which the interests of the beneficiaries are interests in possession, if any of the beneficiaries are individuals.
(3) If, at the time of the disposal of the trust asset in a case where this Schedule applies by virtue of this paragraph—
(a) the settled property comprising that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, but
(b) not all the beneficiaries are individuals,
only the relevant proportion of the gain which would accrue to the trustees on the disposal shall be taken into account for the purposes of this Schedule as it so applies.
(4) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(a) above unless, immediately after the acquisition of the relevant shares, the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(a) above.
(5) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above unless, immediately after the acquisition of the relevant shares—
(a) the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, and
(b) if not all the beneficiaries are individuals, the relevant proportion is not less than the proportion which was the relevant proportion at the time of the disposal of the trust asset.
(6) If, at any time, in the case of settled property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, both individuals and others have interests in possession, “the relevant proportion" at that time is the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is—
(a) the total amount of the income of the settled property, being income the interests in which are held by beneficiaries who are individuals, and
(b) the total amount of all the income of the settled property.
(7) Where, in the case of any settled property in which any beneficiary holds an interest in possession, one or more beneficiaries (“the relevant beneficiaries") hold interests not in possession, this paragraph shall apply as if—
(a) the interests of the relevant beneficiaries were a single interest in possession, and
(b) that interest were held, where all the relevant beneficiaries are individuals, by an individual and, in any other case, by a person who is not an individual.
(8) In this paragraph references to interests in possession do not include interests for a fixed term and, except in sub-paragraph (1), references to individuals include any charity.
Trustees: anti-avoidance
18 (1) Paragraphs 13 to 13C and 15 above shall have effect in relation to the subscription for shares by the trustees of a settlement as if references to the individual subscribing for the shares were references to—
(a) those trustees;
(b) any individual or charity by virtue of whose interest, at a relevant time, paragraph 17 above applies to the settled property; or
(c) any associate of such an individual, or any person connected with such a charity.
(2) The relevant times for the purposes of sub-paragraph (1)(b) above are the time when the shares are issued and—
(a) in a case where sub-paragraph (1) of paragraph 13 above applies, or that sub-paragraph would apply were it not for the fact that the amount of value is an amount of insignificant value for the purposes of that sub-paragraph, the time when the value is received;
(ab) in a case where paragraph 13(1) above would apply were it not for the operation of paragraph 13B above, the time when the original value (within the meaning of paragraph 13B above) in question is received;
(b) in a case where paragraph 15 above applies, the time when the loan is made.
Interpretation
19 (1) For the purposes of this Schedule—
“51 per cent. subsidiary” has the meaning given by Chapter 3 of Part 24 of CTA 2010;
“arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);
“associate” has the meaning that would be given by section 448 of CTA 2010 if in that section “relative” did not include a brother or sister;
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“eligible shares” has the meaning given by section 289(7) of the Taxes Act or means shares that meet the requirement in section 173 (2) of ITA 2007;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“non-resident” means a person who is not resident in the United Kingdom;
“ordinary share capital” has the meaning given by section 989 of ITA 2007;
“ordinary shares”, in relation to a company, means shares forming part of its ordinary share capital;
“the period of restriction”, in relation to any shares, means the period—
beginning one year before the shares are issued, and
ending immediately before the termination date relating to the shares;
“qualifying business activity” has the meaning given by section 289(2) of the Taxes Act or section 179 of ITA 2007;
“qualifying company”, in relation to any eligible shares, means a company which, in relation to those shares, is—
a qualifying company for the purposes of Chapter 3 of Part 7 of the Taxes Act (except that for the purposes of this Schedule the reference in section 293(1B)(b)(i) of that Act to section 304A of that Act shall be read as a reference to paragraph 8 above), or
a qualifying company for the purposes of Part 5 of ITA 2007 (except that for the purposes of this Schedule the reference in section 184(1)(c)(i) of that Act to section 247 of that Act shall be read as a reference to paragraph 8 above).
“the relevant period”, in the case of any shares, means the period found by applying section 312(1A)(a) of the Taxes Act or section 159(2) of ITA 2007 by reference to the company that issued the shares and by reference to the shares;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“termination date”, in relation to any shares, means the date found by applying the definition of “termination date” in section 312(1) of the Taxes Act or section 256 of ITA 2007 by reference to the company that issued the shares and by reference to the shares.
(1A) For the purposes of this Schedule, “the relevant shares”, in relation to a case to which this Schedule applies, means the shares which—
(a) are acquired by the investor in making the qualifying investment, and
(b) where the qualifying investment is made before the time at which the original gain accrues, are still held by the investor at that time.
This is subject to sub-paragraphs (1B) and (1D) below.
(1B) If any corresponding bonus shares in the same company are issued to the investor or any person who has acquired any of the relevant shares from the investor on a disposal within marriage or civil partnership, this Schedule shall apply as if references to the relevant shares were to all the shares comprising the relevant shares and the bonus shares so issued.
(1C) In sub-paragraph (1B) above “corresponding bonus shares” means bonus shares which—
(a) are issued in respect of the relevant shares; and
(b) are of the same class, and carry the same rights, as those shares.
(1D) If, in circumstances in which paragraph 8 above applies, new shares are issued in exchange for old shares, references in this Schedule to the relevant shares, so far as they relate to the old shares, shall be construed as references to the new shares and not to the old shares.
(1E) In sub-paragraph (1D) above “new shares” and “old shares” have the same meaning as in paragraph 8 above.
(2) For the purposes of this Schedule, “deferral relief” is attributable to any shares if—
(a) expenditure on the shares has been set under this Schedule against the whole or part of any gain; and
(b) in relation to the shares there has been no chargeable event for the purposes of this Schedule.
(3) In this Schedule—
(a) references (however expressed) to an issue of eligible shares in any company are to any eligible shares in the company that are of the same class and are issued on the same day;
(b) references to a disposal within marriage or civil partnership are references to any disposal to which section 58 applies; ...
(c) references to Chapter III of Part VII of the Taxes Act or any provision of that Chapter are to that Chapter or provision as it applies in relation to shares issued on or after 1st January 1994; and
(d) references to Part 5 of ITA 2007 or any provision of that Part are to a Part or provision that applies only in relation to shares issued on or after 6th April 2007.
(4) For the purposes of this Schedule shares in a company shall not be treated as being of the same class unless they would be so treated if dealt with on the Stock Exchange.
(5) Notwithstanding anything in section 288(5), shares shall not for the purposes of this Schedule be treated as issued by reason only of being comprised in a letter of allotment or similar instrument.
SEIS re-investment relief
1 (1) Sub-paragraph (5) applies where conditions A to C are met in relation to an individual (“the investor”).
(2) Condition A is that—
(a) there would (ignoring sub-paragraphs (5) and (6)) be a chargeable gain (“the original gain”) accruing to the investor at any time in the tax year 2012-13 or any subsequent tax year (the year in question being referred to in this Schedule as “the relevant year”), and
(b) the original gain is one accruing on the disposal of an asset by the investor at any time (“the disposal time”) in the relevant year.
(3) Condition B is that—
(a) the investor is eligible for SEIS relief for the relevant year in respect of an amount subscribed for an issue of shares in a company made to the investor in that year,
(b) the investor makes a claim for and obtains SEIS relief for that year in respect of all or some of those shares (“the relevant SEIS shares”), and
(c) if the relevant SEIS shares, or any corresponding bonus shares in relation to those shares, were issued before the disposal time, they are still held by the investor at the disposal time.
(4) Condition C is that—
(a) the investor has made a claim under this paragraph for relief in relation to the original gain, and
(b) the claim is in respect of the amount on which SEIS relief is claimed by the investor in respect of the relevant SEIS shares (“the SEIS expenditure”) or part of that amount.
(5) The relevant percentage of the available SEIS expenditure is to be set against a corresponding amount of the original gain.
(5A) In sub-paragraph (5)—
“the available SEIS expenditure” means so much of the SEIS expenditure as—
is specified in the claim,
is unused, and
does not exceed so much of the original gain as is unmatched;
“the relevant percentage” means—
if the relevant year is the tax year 2012-13, 100%, and
if the relevant year is any subsequent tax year, 50%.
(6) Where an amount of the SEIS expenditure is set against the whole or part of the original gain under sub-paragraph (5), so much of that gain as is equal to that amount is to be treated as not being a chargeable gain.
(7) For the purposes of this paragraph—
(a) the SEIS expenditure is unused to the extent that it has not already been set under sub-paragraph (5) or paragraph 2(1) of Schedule 5B against the whole or any part of a chargeable gain, and
(b) the original gain is unmatched, in relation to the SEIS expenditure, to the extent that it has not had any other expenditure set against it under sub-paragraph (5) or paragraph 2(1) of Schedule 5B.
Restrictions on relief under paragraph 1
2 (1) Sub-paragraph (2) applies if the investor's tax reduction under section 257AB of ITA 2007 for the relevant year is limited by subsection (2)(b) of that section (calculation of tax reduction where claim made for amounts subscribed for shares which exceed £200,000).
(2) Paragraph 1(5) to (7) has effect as if references to the SEIS expenditure were references to so much of that expenditure as is given by the formula—
SA TSA × £ 200,000
where—
SA means the SEIS expenditure (ignoring this paragraph);
TSA means the total of the amounts subscribed for shares issued in the relevant year in respect of which the investor is eligible for and claims SEIS relief for that year.
(3) Sub-paragraph (4) applies if the amount of SEIS relief attributable to any of the relevant SEIS shares has been reduced under Chapter 6 of Part 5A of ITA 2007 before the SEIS relief was obtained (otherwise than by virtue of corresponding bonus shares being issued in respect of those shares).
(4) Paragraph 1(5) to (7) has effect as if the SEIS expenditure were the amount found by multiplying that expenditure by the fraction—
R 1 R 2
where—
“R1” means the amount of SEIS relief attributable to the relevant SEIS shares when the relief is obtained;
“R2” means the amount of SEIS relief which would have been so attributable in the absence of the reduction.
(5) In a case where sub-paragraphs (2) and (4) both apply, sub-paragraph (2) is to be applied before sub-paragraph (4).
Claims
3 (1) Section 257EA of ITA 2007 (time for making claims for SEIS relief) applies in relation to a claim made by the investor for the purposes of paragraph 1 in relation to the SEIS expenditure as it applies in relation to a claim for SEIS relief in respect of that expenditure.
(2) Nothing in paragraph 1(3) prevents a claim being made by the investor under paragraph 1 before SEIS relief has actually been obtained by the investor in relation to the SEIS relief.
Attribution of SEIS re-investment relief to relevant SEIS shares
4 (1) References in this Schedule to the SEIS re-investment relief attributable to any shares are to be read as references to the total amount attributed to those shares in accordance with this paragraph.
(2) Sub-paragraph (3) applies where the whole or part of the SEIS expenditure is set off against a chargeable gain under paragraph 1(5).
(3) A proportionate part of the expenditure which is so set off is attributed to each of the relevant SEIS shares.
(4) Sub-paragraph (5) applies if corresponding bonus shares are issued in respect of all or some of the relevant SEIS shares (“the original shares”) to which relief is attributed under this paragraph.
(5) A proportionate part of the total amount attributed to the original shares immediately before those bonus shares are issued is attributed to each of the shares in the holding comprising the original shares and those bonus shares.
Removal or reduction of the relief
5 (1) This paragraph applies where in respect of shares issued to an individual—
(a) SEIS relief is attributable to the shares,
(b) SEIS re-investment relief is also attributable to the shares, and
(c) the SEIS relief which is attributable to the shares is withdrawn or reduced under Chapters 6 and 7 of Part 5A of ITA 2007.
(2) A chargeable gain accrues to the individual in the tax year in which the shares were issued on a disposal made in that tax year.
(3) The amount of that gain is—
(a) in a case where the SEIS relief is withdrawn, the amount of SEIS re-investment relief which is attributable to the shares immediately before the withdrawal, and
(b) in a case where the SEIS relief is reduced, the appropriate fraction of that amount.
(4) In a case where the SEIS re-investment relief is withdrawn, the SEIS re-investment relief ceases to be attributable to the shares.
(5) In a case where the SEIS relief is reduced, the appropriate fraction of the SEIS re-investment relief ceases to be attributable to the shares.
(6) “The appropriate fraction” is—
R 1 − R 2 R 1
where—
“R1” is the total amount of the SEIS relief attributable to those shares immediately before the reduction, and
“R2” is the total amount of the SEIS relief attributable to those shares immediately after the reduction.
Transfers of shares to spouses and civil partners
6 (1) This paragraph applies if—
(a) shares to which an amount of SEIS relief is attributable were issued to an individual (“A”),
(b) A transferred the shares to another individual (“B”) during their lives,
(c) A was married to, or was the civil partner of, B at the time of the transfer, and
(d) subsection (4) of section 257FA of ITA 2007 (provision about disposals of shares disapplied where disposal between spouses or civil partners) prevented that section applying to the transfer.
(2) Any chargeable gain which accrues by virtue of paragraph 5(2), as a result of SEIS relief attributable to the shares being withdrawn or reduced after the shares are transferred, is to accrue to B (instead of to A).
Adjustment of capital gains tax liability
7 (1) All such adjustments of capital gains tax are to be made, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of relief being obtained, or a gain accruing, under this Schedule.
(2) In its application to an assessment made by virtue of this paragraph, section 86 of TMA 1970 (interest on overdue capital gains tax) has effect as if the relevant date were 31 January next following the tax year in which the assessment is made.
Interpretation etc
8 (1) In this Schedule—
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);
“corresponding bonus shares”, in relation to any shares (“the original shares”), means bonus shares which are in the same company, of the same class, and carry the same rights as the original shares;
“SEIS relief” has the same meaning as in Part 5A of ITA 2007.
(2) In this Schedule, references (however expressed) to an issue of shares in any company to an individual are to such of the shares in the company as are of the same class and are issued to the individual in one capacity and on the same day.
This is subject to sub-paragraph (3).
(3) If section 257AB(1) and (2) of ITA 2007 applies, in the case of any issue of shares made to an individual, as if part of the issue had been issued in a previous tax year, this Schedule has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).
(4) Part 5A of ITA 2007 applies, for the purposes of this Schedule, to determine whether SEIS relief is attributable to any shares and, if so, the amount of relief so attributable.
Section 165.
Part I Agricultural property and settled property
Agricultural property
1 (1) This paragraph applies where—
(a) there is a disposal of an asset which is, or is an interest in, agricultural property within the meaning of Chapter II of Part V of the Inheritance Tax Act 1984 (inheritance tax relief for agricultural property), and
(b) apart from this paragraph, the disposal would not fall within section 165(1) by reason only that the agricultural property is not used for the purposes of a trade carried on as mentioned in section 165(2)(a).
(2) Where this paragraph applies, section 165(1) shall apply in relation to the disposal if the circumstances are such that a reduction in respect of the asset—
(a) is made under Chapter II of Part V of the Inheritance Tax Act 1984 in relation to a chargeable transfer taking place on the occasion of the disposal, or
(b) would be so made if there were a chargeable transfer on that occasion, or
(c) would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).
Settled property
2 (1) If—
(a) the trustees of a settlement make a disposal otherwise than under a bargain at arm’s length of an asset within sub-paragraph (2) below, and
(b) a claim for relief under section 165 is made by the trustees and the person who acquires the asset (“the transferee”) or, where the trustees of a settlement are also the transferee, by the trustees making the disposal alone,
then, subject to sections 165(3), 166, 167, 169, 169B and 169C, section 165(4) shall apply in relation to the disposal.
(2) An asset is within this sub-paragraph if—
(a) it is, or is an interest in, an asset used for the purposes of a trade, profession or vocation carried on by—
(i) the trustees making the disposal, or
(ii) a beneficiary who had an interest in possession in the settled property immediately before the disposal, or
(b) it consists of shares or securities of a trading company, or of the holding company of a trading group, where—
(i) the shares or securities are not listed on a recognised stock exchange, or
(ii) not less than 25 per cent. of the voting rights exercisable by shareholders of the company in general meeting are exercisable by the trustees at the time of the disposal.
(3) Where section 165(4) applies by virtue of this paragraph, references to the trustees shall be substituted for the references in section 165(4)(a) to the transferor; and where it applies in relation to a disposal which is deemed to occur by virtue of section 71(1) or 72(1) section 165(7) shall not apply.
3 (1) This paragraph applies where—
(a) there is a disposal of an asset which is, or is an interest in, agricultural property within the meaning of Chapter II of Part V of the Inheritance Tax Act 1984, and
(b) apart from this paragraph, the disposal would not fall within paragraph 2(1)(a) above by reason only that the agricultural property is not used for the purposes of a trade as mentioned in paragraph 2(2)(a) above.
(2) Where this paragraph applies paragraph 2(1) above shall apply in relation to the disposal if the circumstances are such that a reduction in respect of the asset—
(a) is made under Chapter II of Part V of the Inheritance Tax Act 1984 in relation to a chargeable transfer taking place on the occasion of the disposal, or
(b) would be so made if there were a chargeable transfer on that occasion, or
(c) would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).
Part II Reductions in held-over gain
Application and interpretation
4 (1) The provisions of this Part of this Schedule apply in cases where a claim for relief is made under section 165.
(2) In this Part of this Schedule—
(a) “the principal provision” means section 165(2), or, as the case may require, sub-paragraph (2) of paragraph 2 above,
(b) “shares” includes securities,
(c) “the transferor” has the same meaning as in section 165 except that, in a case where paragraph 2 above applies, it refers to the trustees mentioned in that paragraph, and
(d) “unrelieved gain”, in relation to a disposal, has the same meaning as in section 165(7).
(3) In this Part of this Schedule—
(a) any reference to a disposal of an asset is a reference to a disposal which falls within subsection (1) of section 165 by virtue of subsection (2)(a) of that section or, as the case may be, falls within sub-paragraph (1) of paragraph 2 above by virtue of sub-paragraph (2)(a) of that paragraph, and
(b) any reference to a disposal of shares is a reference to a disposal which falls within subsection (1) of section 165 by virtue of subsection (2)(b) of that section or, as the case may be, falls within sub-paragraph (1) of paragraph 2 above by virtue of sub-paragraph (2)(b) of that paragraph.
(4) In relation to a disposal of an asset or of shares, any reference in the following provisions of this Part of this Schedule to the held-over gain is a reference to the held-over gain on that disposal as determined under subsection (6) or, where it applies, subsection (7) of section 165.
Reductions peculiar to disposals of assets
5 (1) If, in the case of a disposal of an asset, the asset was not used for the purposes of the trade, profession or vocation referred to in paragraph (a) of the principal provision throughout the period of its ownership by the transferor, the amount of the held-over gain shall be reduced by multiplying it by the fraction—
A
B
where—
A is the number of days in that period of ownership during which the asset was so used, and
B is the number of days in that period.
(2) This paragraph shall not apply where the circumstances are such that a reduction in respect of the asset—
(a) is made under Chapter II of Part V of the Inheritance Tax Act 1984 in relation to a chargeable transfer taking place on the occasion of the disposal, or
(b) would be so made if there were a chargeable transfer on that occasion, or
(c) would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).
6 (1) If, in the case of a disposal of an asset, the asset is a building or structure and, over the period of its ownership by the transferor or any substantial part of that period, part of the building or structure was, and part was not, used for the purposes of the trade, profession or vocation referred to in paragraph (a) of the principal provision, there shall be determined the fraction of the unrelieved gain on the disposal which it is just and reasonable to apportion to the part of the asset which was so used, and the amount of the held-over gain (as reduced, if appropriate, under paragraph 5 above) shall be reduced by multiplying it by that fraction.
(2) This paragraph shall not apply where the circumstances are such that a reduction in respect of the asset—
(a) is made under Chapter II of Part V of the Inheritance Tax Act 1984 in relation to a chargeable transfer taking place on the occasion of the disposal, or
(b) would be so made if there were a chargeable transfer on that occasion, or
(c) would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).
Reduction peculiar to disposal of shares
7 (1) If in the case of a disposal of shares assets which are not business assets are included in the chargeable assets of the company whose shares are disposed of, or, where that company is the holding company of a trading group, in the group’s chargeable assets, and either—
(a) at any time within the period of 12 months before the disposal not less than 25 per cent. of the voting rights exercisable by shareholders of the company in general meeting are exercisable by the transferor, or
(b) the transferor is an individual and, at any time within that period, the company is his personal company,
the amount of the held-over gain shall be reduced by multiplying it by the fraction—
A
B
where—
A is the market value on the date of the disposal of those chargeable assets of the company or of the group which are business assets, and
B is the market value on that date of all the chargeable assets of the company, or as the case may be of the group.
(2) For the purposes of this paragraph—
(a) an asset is a business asset in relation to a company or a group if it is or is an interest in an asset used for the purposes of a trade, profession or vocation carried on by the company, or as the case may be by a member of the group; and
(b) an asset is a chargeable asset in relation to a company or a group at any time if, on a disposal at that time, a gain accruing to the company, or as the case may be to a member of the group, would be a chargeable gain.
(3) Where the shares disposed of are shares of the holding company of a trading group, then for the purposes of this paragraph—
(a) the holding by one member of the group of the ordinary share capital of another member shall not count as a chargeable asset, and
(b) if the whole of the ordinary share capital of a 51 per cent. subsidiary of the holding company is not owned directly or indirectly by that company, the value of the chargeable assets of the subsidiary shall be taken to be reduced by multiplying it by the fraction—
A
B
where—
A is the amount of the ordinary share capital of the subsidiary owned directly or indirectly by the holding company, and
B is the whole of that share capital.
(4) Expressions used in sub-paragraph (3) above have the same meanings as in section 838 of the Taxes Act.
Reduction where gain partly relieved by retirement relief
8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 7ZA Business asset disposal relief: “trading company” and “trading group”
Section 169SA
PART 1 Meaning of “trading company” and “trading group”
1 (1) This paragraph gives the meaning of “trading company” and “trading group” where used in the following provisions of Chapter 3 of Part 5 (business asset disposal relief)—
(a) in section 169I (material disposal of business assets)—
(i) paragraphs (a) and (b) of subsection (6) (which apply for the purposes of conditions A and B in that section), and
(ii) sub-paragraphs (i) and (ii) of subsection (7A)(c) (which apply for the purposes of conditions C and D in that section), and
(b) section 169J(4) (disposal of trust business assets).
(2) “Trading company” and “trading group” have the same meaning as in section 165 (see section 165A), but as modified by Part 2 of this Schedule.
(3) “Trading activities” (see section 165A(4) and (9)) is to be read in accordance with Part 3 of this Schedule.
2 In provisions of Chapter 3 of Part 5 not mentioned in paragraph 1(1), “trading company” and “trading group” have the same meaning as in section 165 (see section 165A), except that subsections (7) and (12) of section 165A are to be disregarded.
PART 2 Joint venture companies
Attribution of activities of a joint venture company
3 In relation to a disposal of assets consisting of (or of interests in) shares in or securities of a company (“company A”), activities of a joint venture company are to be attributed to a company under subsections (7) and (12) of section 165A only if P—
(a) passes the shareholding test in relation to the joint venture company (see paragraphs 5 to 8), and
(b) passes the voting rights test in relation to the joint venture company (see paragraphs 9 to 12).
Meaning of “investing company”
4 (1) For the purposes of this Part, a company is an “investing company” in relation to P and a joint venture company if it meets conditions 1 and 2.
(2) Condition 1 is that—
(a) the company is company A (see paragraph 3), or
(b) P directly owns some portion of the ordinary share capital of the company.
(3) Condition 2 is that the company owns some portion of the ordinary share capital of the joint venture company (whether it is owned directly, indirectly, or partly directly and partly indirectly).
(4) In sub-paragraph (3) the reference to a company owning share capital indirectly is to be read in accordance with section 1155 of CTA 2010.
Shareholding test
5 P passes the shareholding test in relation to a joint venture company if, throughout the relevant period, the sum of the percentages given by paragraphs (a) and (b) is at least 5%—
(a) the percentage of the ordinary share capital of the joint venture company that is owned directly by P, and
(b) P's indirect shareholding percentage (see paragraph 6).
6 P's “indirect shareholding percentage” is found by—
(a) calculating the percentage of the ordinary share capital of the joint venture company that is owned indirectly by P through a particular investing company (see paragraph 7), and
(b) where there are two or more investing companies, adding those percentages together.
7 The percentage of the ordinary share capital of a joint venture company that is owned indirectly by P through a particular investing company (“company IC”) at a particular time is given by—
R × S × 100
where—
R is the fraction of company IC's ordinary share capital that is owned by P at that time, and
S is the fraction of the joint venture company's ordinary share capital that is owned by company IC at that time (whether it is owned directly, indirectly, or partly directly and partly indirectly) (see paragraph 8).
8 (1) The fraction of the joint venture company's ordinary share capital that is owned indirectly by company IC is calculated—
(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, and
(b) on the assumptions specified in sub-paragraph (2).
(2) The assumptions are—
(a) where company IC directly owns more than 50% of the ordinary share capital of a company, company IC is taken to own the whole of the ordinary share capital of that company;
(b) where a company other than company IC (“company B”) directly owns more than 50% of the ordinary share capital of another company (“company C”) which is a member of a group of companies of which company IC is a member, company B is taken to own the whole of the ordinary share capital of company C.
Voting rights test
9 P passes the voting rights test in relation to a joint venture company if, throughout the relevant period, the sum of the percentages given by paragraphs (a) and (b) is at least 5%—
(a) the percentage of the voting rights that P holds directly in the joint venture company, and
(b) P's indirect voting rights percentage (see paragraph 10).
10 P's “indirect voting rights percentage” is found by—
(a) calculating the percentage of the voting rights in the joint venture company that P holds indirectly through a particular investing company (see paragraph 11), and
(b) where there are two or more investing companies, adding those percentages together.
11 The percentage of the voting rights in a joint venture company that P holds indirectly through a particular investing company (“company IC”) at a particular time is given by—
T × U × 100
where—
T is the fraction of the voting rights in company IC that is held by P at that time, and
U is the fraction of the voting rights in the joint venture company that is held by company IC at that time (whether the voting rights are held directly, indirectly, or partly directly and partly indirectly) (see paragraph 12).
12 (1) The fraction of the voting rights in the joint venture company that is held indirectly by company IC is calculated—
(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, as if references in those sections to owning the ordinary share capital of a company were references to holding voting rights in a company, and
(b) on the assumptions specified in sub-paragraph (2).
(2) The assumptions are—
(a) where company IC directly holds more than 50% of the voting rights in a company, company IC is taken to hold all the voting rights in that company;
(b) where a company other than company IC (“company B”) directly holds more than 50% of the voting rights in another company (“company C”) which is a member of a group of companies of which company IC is a member, company B is taken to hold all the voting rights in company C.
PART 3 Partnerships
Activities of a company as a member of a partnership
13 (1) In relation to a disposal of assets consisting of (or of interests in) shares in or securities of a company (“company A”), activities carried on by a company as a member of a partnership are to be treated as not being trading activities of the company (see section 165A(4) and (9)) if P fails either or both of the following—
(a) the profits and assets test in relation to the partnership (see paragraphs 15 to 20);
(b) the voting rights test in relation to the partnership (see paragraphs 21 to 23).
(2) In relation to such a disposal, activities carried on by a company as a member of a partnership are also to be treated as not being trading activities of the company if the company is not a member of the partnership throughout the relevant period.
Meaning of “direct interest company” and “relevant corporate partner”
14 (1) This paragraph applies for the purposes of this Part.
(2) A company is a “direct interest company” in relation to P if—
(a) it is company A (see paragraph 13(1)), or
(b) P directly owns some portion of the ordinary share capital of the company.
(3) A company is a “relevant corporate partner” in relation to P and a partnership if—
(a) a direct interest company in relation to P (“company DIC”) owns some portion of the ordinary share capital of the company (whether it is owned directly, indirectly or partly directly and partly indirectly),
(b) the company is a member of a group of companies of which company DIC is a member, and
(c) the company is a member of the partnership.
(4) In sub-paragraph (3) the reference to a company owning share capital indirectly is to be read in accordance with section 1155 of CTA 2010.
Profits and assets test
15 P passes the profits and assets test in relation to a partnership if, throughout the relevant period, the sum of the percentages given by paragraphs (a), (b) and (c) is at least 5%—
(a) the percentage which is P's direct interest in the assets of the partnership,
(b) the percentage which is P's share of the partnership through direct interest companies that are members of the partnership (see paragraph 16), and
(c) the percentage which is P's share of the partnership through direct interest companies and relevant corporate partners in the partnership (see paragraph 18).
16 P's “share of the partnership through direct interest companies that are members of the partnership” is found by—
(a) calculating the percentage which is P's indirect share of the partnership through each direct interest company that is a member of the partnership (see paragraph 17), and
(b) where there are two or more direct interest companies that are members of the partnership, adding those percentages together.
17 The percentage which is P's indirect share of the partnership through a particular direct interest company that is a member of the partnership (“company DICP”) at a particular time is given by—
R × V × 100
where—
R is the fraction of company DICP's ordinary share capital that is owned by P at that time, and
V is the lower of—
the fraction of the profits of the partnership in which company DICP has an interest at that time, and
the fraction of the assets of the partnership in which company DICP has an interest at that time.
18 P's “share of the partnership through direct interest companies and relevant corporate partners in the partnership” is found by—
(a) calculating the percentage which is P's indirect share of the partnership through each direct interest company and each relevant corporate partner in the partnership (see paragraph 19), and
(b) where there are two or more direct interest companies or two or more relevant corporate partners, or both, adding those percentages together.
19 The percentage which is P's indirect share of the partnership through a particular direct interest company (“company DIC”) and a particular relevant corporate partner in the partnership (“company CP”) at a particular time is given by—
R × V × W × 100
where—
R is the fraction of company DIC's ordinary share capital that is owned by P at that time,
V is the lower of—
the fraction of the profits of the partnership in which company CP has an interest at that time, and
the fraction of the assets of the partnership in which company CP has an interest at that time, and
W is the fraction of company CP's ordinary share capital that is owned by company DIC at that time (whether it is owned directly, indirectly, or partly directly and partly indirectly) (see paragraph 20).
20 (1) The fraction of a company's ordinary share capital that is owned indirectly by company DIC is calculated—
(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, and
(b) on the assumptions specified in sub-paragraph (2).
(2) The assumptions are—
(a) where company DIC directly owns more than 50% of the ordinary share capital of a company, company DIC is taken to own the whole of the ordinary share capital of that company;
(b) where a company other than company DIC (“company B”) directly owns more than 50% of the ordinary share capital of another company (“company C”) which is a member of a group of companies of which company DIC is a member, company B is taken to own the whole of the ordinary share capital of company C.
Voting rights test
21 (1) P passes the voting rights test in relation to a partnership if, throughout the relevant period, the sum of P's direct voting rights percentage and P's indirect voting rights percentage is at least 5%.
(2) P's “direct voting rights percentage” is found by—
(a) taking the percentage of the voting rights that P holds directly in each direct interest company that is a member of the partnership, and
(b) where P directly holds voting rights in two or more direct interest companies that are members of the partnership, adding those percentages together.
(3) P's “indirect voting rights percentage” is found by—
(a) calculating the percentage which is P's indirect holding of voting rights in each relevant corporate partner in the partnership through each direct interest company (see paragraph 22), and
(b) where there are two or more relevant corporate partners or two or more direct interest companies, or both, adding those percentages together.
22 The percentage which is P's indirect holding of voting rights in a particular relevant corporate partner in the partnership (“company CP”) through a particular direct interest company (“company DIC”) at a particular time is given by—
T × X × 100
where—
T is the fraction of the voting rights in company DIC that is held by P at that time, and
X is the fraction of the voting rights in company CP that is held by company DIC at that time (whether the voting rights are held directly, indirectly, or partly directly and partly indirectly) (see paragraph 23).
23 (1) The fraction of the voting rights in a company that is held indirectly by company DIC is calculated—
(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, as if references in those sections to owning the ordinary share capital of a company were references to holding voting rights in a company, and
(b) on the assumptions specified in sub-paragraph (2).
(2) The assumptions are—
(a) where company DIC directly holds more than 50% of the voting rights in a company, company DIC is taken to hold all the voting rights in that company;
(b) where a company other than company DIC (“company B”) directly holds more than 50% of the voting rights in another company (“company C”) which is a member of a group of companies of which company DIC is a member, company B is taken to hold all the voting rights in company C.
PART 4 Interpretation of this schedule
Meaning of “P”
24 (1) In the case of a material disposal of business assets, “P” means the individual making the disposal.
(2) In the case of a disposal of trust business assets—
(a) “P” means any relevant beneficiary, but
(b) in any reference to P passing or failing the tests mentioned in paragraphs 3 and 13(1), P is to be read as being a single body consisting of all the relevant beneficiaries (so that, for the purposes of determining if those tests are met, percentages are to be calculated in respect of each relevant beneficiary and then aggregated).
(3) The following are “relevant beneficiaries”—
(a) the qualifying beneficiary in relation to the disposal (see section 169J(3)), and
(b) any other beneficiary who is, in relation to the disposal, a beneficiary mentioned in section 169O(1).
Meaning of “relevant period”
25 “The relevant period” means—
(a) for the purposes of conditions A and C in section 169I, the period of 2 years ending with the date of the disposal,
(b) for the purposes of conditions B and D in section 169I, the period of 2 years ending with the date mentioned in subsection (7)(a) or (b) or (7O)(a) or (b) of that section, and
(c) for the purposes of section 169J(4), a period of 2 years ending not earlier than 3 years before the date of the disposal.
Other interpretation provisions
26 (1) Terms used in this Schedule which are defined in subsection (14) of section 165A have the same meaning as they have in that subsection.
(2) References to a person holding voting rights include references to a person who has the ability to control the exercise of voting rights by another person.
(3) For the purposes of Part 3 of this Schedule, the assets of—
(a) a Scottish partnership, or
(b) a partnership under the law of any other country or territory under which assets of a partnership are regarded as held by or on behalf of the partnership as such,
are to be treated as held by the members of the partnership in the proportions in which they are entitled to share in the capital profits of the partnership.
References in Part 3 to a person's interest in the assets of a partnership are to be construed accordingly.
SCHEDULE 7ZB Investors' relief: disqualification of shares
Section 169VB
Disqualification of shares where value received in period of restriction
1 (1) Sub-paragraph (2) applies where—
(a) shares in a company are issued to a qualifying person (“the investor”) on a particular date,
(b) any of those shares would, apart from this Schedule, be or be treated as being qualifying shares or potentially qualifying shares at a particular time (“the relevant time”), and
(c) the investor receives any value, other than insignificant value, from the company at any time in the period of restriction.
(2) The shares in question are to be treated for the purposes of this Chapter as being excluded shares at the relevant time.
(3) Where—
(a) the investor receives value (“the relevant receipt”) from the company during the period of restriction,
(b) the investor has received from the company one or more receipts of insignificant value at a time or times—
(i) during that period, but
(ii) not later than the time of the relevant receipt, and
(c) the aggregate amount of the value of the receipts within paragraphs (a) and (b) is not an amount of insignificant value,
the investor is to be treated for the purposes of this Schedule as if the relevant receipt had been a receipt of an amount equal to that aggregate amount.
For this purpose a receipt does not fall within paragraph (b) in relation to the shares if it has previously been aggregated under this sub-paragraph in relation to them.
(4) In this Schedule “the period of restriction” means the period—
(a) beginning one year before the date the shares are issued, and
(b) ending immediately before the third anniversary of the date the shares are issued.
(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).
(6) This paragraph is subject to paragraph 4.
“Receives value”
2 (1) For the purposes of this Schedule the investor receives value from the company if the company—
(a) repays, redeems or repurchases any of its share capital or securities which belong to the investor or makes any payment to the investor for giving up a right to any of the company's share capital or any security on its cancellation or extinguishment,
(b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the investor other than a debt which was incurred by the company—
(i) on or after the date of issue of the shares, and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date,
(c) makes to the investor any payment for giving up the investor's right to any debt on its extinguishment,
(d) releases or waives any liability of the investor to the company or discharges, or undertakes to discharge, any liability of the investor to a third person,
(e) makes a loan or advance to the investor which has not been repaid in full before the issue of the shares,
(f) provides a benefit or facility for the investor,
(g) disposes of an asset to the investor for no consideration or for a consideration which is or the value of which is less than the market value of the asset,
(h) acquires an asset from the investor for a consideration which is or the value of which is more than the market value of the asset, or
(i) makes any payment to the investor other than a qualifying payment.
(2) For the purposes of sub-paragraph (1)(e) there is to be treated as if it were a loan made by the company to the investor—
(a) the amount of any debt (other than an ordinary trade debt) incurred by the investor to the company, and
(b) the amount of any debt due from the investor to a third person which has been assigned to the company.
(3) For the purposes of this paragraph the investor also receives value from the company if any person connected with the company—
(a) purchases any of its share capital or securities which belong to the investor, or
(b) makes any payment to the investor for giving up any right in relation to any of the company's share capital or securities.
(4) In this paragraph “qualifying payment” means—
(a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment,
(b) any payment or reimbursement by any company of travelling or other expenses wholly, exclusively and necessarily incurred by the investor to whom the payment is made in the performance of duties as an officer or employee of that company,
(c) the payment by any company of any interest which represents no more than a reasonable commercial return on money lent to that company,
(d) the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company,
(e) any payment for the supply of goods which does not exceed their market value,
(f) any payment for the acquisition of an asset which does not exceed its market value,
(g) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property,
(h) any reasonable and necessary remuneration which—
(i) is paid by any company for services rendered to that company in the course of a trade or profession carried on wholly or partly in the United Kingdom; and
(ii) is taken into account in calculating for tax purposes the profits of that trade or profession, or
(i) a payment in discharge of an ordinary trade debt.
(5) For the purposes of this paragraph a company is to be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(6) In this paragraph—
(a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment, and
(b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment.
(7) In this paragraph and paragraph 3—
(a) any reference to a payment or disposal to the investor includes a reference to a payment or disposal made to the investor indirectly or to the investor's order or for the investor's benefit;
(b) any reference to the investor includes an associate of the investor;
(c) any reference to a company includes a person who at any time in the period of restriction is connected with the company, whether or not that person is connected at the material time.
(8) In this paragraph “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given—
(a) does not exceed six months, and
(b) is not longer than that normally given to customers of the person carrying on the trade or business.
Amount of value
3 (1) For the purposes of paragraph 1, the value received by the investor is—
(a) in a case within paragraph 2(1)(a), (b) or (c), the amount received by the investor or, if greater, the market value of the share capital, securities or debt in question;
(b) in a case within paragraph 2(1)(d), the amount of the liability;
(c) in a case within paragraph 2(1)(e), the amount of the loan or advance reduced by the amount of any repayment made before the issue of the shares;
(d) in a case within paragraph 2(1)(f), the cost to the company of providing the benefit or facility less any consideration given for it by the investor;
(e) in a case within paragraph 2(1)(g) or (h), the difference between the market value of the asset and the consideration (if any) given for it;
(f) in a case within paragraph 2(1)(i), the amount of the payment;
(g) in a case within paragraph 2(3), the amount received by the investor or, if greater, the market value of the share capital or securities in question.
(2) In this Schedule references to a receipt of insignificant value (however expressed) are references to a receipt of an amount of insignificant value.
This is subject to sub-paragraph (4).
(3) For the purposes of this Schedule “an amount of insignificant value” means an amount of value which does not exceed £1,000.
(4) For the purposes of this Schedule, if at any time in the period—
(a) beginning one year before the shares are issued, and
(b) expiring at the end of the issue date,
arrangements are in existence which provide for the investor to receive or to be entitled to receive, at any time in the period of restriction, any value from the company that issued the shares, no amount of value received by the investor is to be treated as a receipt of insignificant value.
(5) In sub-paragraph (4)—
(a) any reference to the investor includes a reference to any person who, at any time in the period of restriction, is an associate of the investor (whether or not that person is such an associate at the material time), and
(b) the reference to the company includes a reference to any person who, at any time in the period of restriction, is connected with the company (whether or not that person is so connected at the material time).
Receipt of replacement value
4 (1) Where—
(a) by reason of a receipt of value within sub-paragraph (1) (other than paragraph (b)) or sub-paragraph (3) of paragraph 2 (“the original value”), any shares would, in the absence of this paragraph, be treated under this Schedule as excluded shares at a particular time,
(b) at or before that time the original supplier receives value (“the replacement value”) from the original recipient by reason of a qualifying receipt, and
(c) the amount of the replacement value is not less than the amount of the original value,
the receipt of the original value is to be disregarded for the purposes of this Schedule.
(2) This paragraph is subject to paragraph 5.
(3) For the purposes of this paragraph and paragraph 5—
(a) “the original recipient” means the person who receives the original value, and
(b) “the original supplier” means the person from whom that value was received.
(4) A receipt of the replacement value is a qualifying receipt for the purposes of sub-paragraph (1) if it arises—
(a) by reason of the original recipient doing one or more of the following—
(i) making a payment to the original supplier, other than a payment which falls within paragraph (c) or to which sub-paragraph (5) applies,
(ii) acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset,
(iii) disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset,
(b) where the receipt of the original value was within paragraph 2(1)(d), by reason of an event the effect of which is to reverse the event which constituted the receipt of the original value, or
(c) where the receipt of the original value was within paragraph 2(3), by reason of the original recipient repurchasing the share capital or securities in question, or (as the case may be) reacquiring the right in question, for a consideration the amount or value of which is not less than the amount of the original value.
(5) This sub-paragraph applies to—
(a) any payment for any goods, services or facilities, provided (whether in the course of a trade or otherwise) by—
(i) the original supplier, or
(ii) any other person who, at any time in the period of restriction, is an associate of, or connected with, that supplier (whether or not that person is such an associate, or so connected, at the material time),
which is reasonable in relation to the market value of those goods, services or facilities,
(b) any payment of any interest which represents no more than a reasonable commercial return on money lent to—
(i) the original recipient, or
(ii) any person who, at any time in the period of restriction, is an associate of the original recipient (whether or not such an associate at the material time),
(c) any payment for the acquisition of an asset which does not exceed its market value,
(d) any payment, as rent for any property occupied by—
(i) the original recipient, or
(ii) any person who, at any time in the period of restriction, is an associate of the original recipient (whether or not such an associate at the material time),
of an amount not exceeding a reasonable and commercial rent for the property,
(e) any payment in discharge of an ordinary trade debt (within the meaning of paragraph 2(8)), and
(f) any payment for shares in or securities of any company in circumstances that do not fall within sub-paragraph (4)(a)(ii).
(6) For the purposes of this paragraph, the amount of the replacement value is—
(a) in a case within paragraph (a) of sub-paragraph (4), the aggregate of—
(i) the amount of any payment within sub-paragraph (i) of that paragraph, and
(ii) the difference between the market value of any asset within sub-paragraph (ii) or (iii) of that paragraph and the amount or value of the consideration (if any) received for it,
(b) in a case within sub-paragraph (4)(b), the same as the amount of the original value, and
(c) in a case within sub-paragraph (4)(c), the amount or value of the consideration received by the original supplier,
and paragraph 3(1) applies for the purposes of determining the amount of the original value.
(7) In this paragraph any reference to a payment to a person (however expressed) includes a reference to a payment made to the person indirectly or to the person's order or for the person's benefit.
5 (1) The receipt of the replacement value by the original supplier is to be disregarded for the purposes of paragraph 4, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 4 as that paragraph applies in relation to those shares or any other shares subscribed for by the investor.
(2) The receipt of the replacement value by the original supplier (“the event”) is also be disregarded for the purposes of paragraph 4 if—
(a) the event occurs before the start of the period of restriction, or
(b) in a case where the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances.
But nothing in paragraph 4 or this paragraph requires the replacement value to be received after the original value.
(3) In this paragraph “the original value” and “the replacement value” are to be construed in accordance with paragraph 4.
Interpretation
6 In this Schedule—
“arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);
“associate” has the meaning that would be given by section 448 of CTA 2010 if in that section “relative” did not include a brother or sister;
“period of restriction” has the meaning given by paragraph 1(4);
“the shares” has the meaning given by paragraph 1(5).
SCHEDULE 7A Restriction on set-off of pre-entry losses
Section 177A.
Application and construction of Schedule
1 (1) This Schedule shall have effect, in the case of a company which becomes a member of a group of companies (“the relevant group”), in relation to any pre-entry losses of that company, but this Schedule shall have no effect in any case where section 184A (restrictions on buying losses: tax avoidance schemes) has effect in relation to those losses.
(2) In this Schedule “pre-entry loss”, in relation to any company, means any allowable loss that accrued to that company at a time before it became a member of the relevant group.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) If—
(a) the principal company of a group of companies (“the first group”) has at any time become a member of another group (“the second group”) so that the two groups are treated as the same by virtue of subsection (10) or (10A) of section 170, and
(b) the second group, together in pursuance of that subsection with the first group, is the relevant group,
then, except where sub-paragraph (7) below applies, the members of the first group shall be treated for the purposes of this Schedule as having become members of the relevant group at that time, and not by virtue of that subsection at the times when they became members of the first group.
(7) This sub-paragraph applies where—
(a) the persons who immediately before the time when the principal company of the first group became a member of the second group owned the shares comprised in the issued share capital of the principal company of the first group are the same as the persons who, immediately after that time, owned the shares comprised in the issued share capital of the principal company of the relevant group; and
(b) the company which is the principal company of the relevant group immediately after that time—
(i) was not the principal company of any group immediately before that time; and
(ii) immediately after that time had assets consisting entirely, or almost entirely, of shares comprised in the issued share capital of the principal company of the first group.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) In determining for the purposes of this Schedule whether any allowable loss accruing to a company under section 116(10)(b) is a loss that accrued before the company became a member of the relevant group, any loss so accruing shall be deemed to have accrued at the time of the relevant transaction within the meaning of section 116(2).
(10) In determining for the purposes of this Schedule whether any allowable loss accruing to a company on a disposal under section 212 is a loss that accrued before the company became a member of the relevant group, the provisions of section 213 shall be disregarded.
Pre-entry proportion of losses on pre-entry assets
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals of pooled assets
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rule to prevent pre-entry losses on pooled assets being treated as post-entry losses
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative calculation by reference to market value
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restrictions on the deduction of pre-entry losses
6 (1) In the calculation of the amount to be included in respect of chargeable gains in any company’s total profits for any accounting period—
(a) if in that period there is any chargeable gain from which the whole or any part of any pre-entry loss accruing in that period is deductible in accordance with paragraph 7 below, the loss or, as the case may be, that part of it shall be deducted from that gain;
(b) if, after all such deductions as may be made under paragraph (a) above have been made, there is in that period any chargeable gain from which the whole or any part of any pre-entry loss carried forward from a previous accounting period is deductible in accordance with paragraph 7 below, the loss or, as the case may be, that part of it shall be deducted from that gain (subject to sub-paragraphs (1A) to (1C);
(c) the total chargeable gains (if any) remaining after the making of all such deductions as may be made under paragraph (a) or (b) above shall be subject to deductions in accordance with section 2A(1) (subject to sub-paragraphs (1A) to (1C)) in respect of any allowable losses that are not pre-entry losses; and
(d) any pre-entry loss which has not been the subject of a deduction under paragraph (a) or (b) above (as well as any other losses falling to be carried forward under section 2A(1)) shall be carried forward to the following accounting period of that company.
(1A) Sub-paragraph (1B) applies, in respect of an accounting period, if the amount of chargeable gains accruing to the company in the period exceeds the total of—
(a) the amount of pre-entry losses accruing to the company in the period that are deductible under sub-paragraph (1)(a), and
(b) the amount of allowable losses, other than pre-entry losses, accruing to the company in the period.
(1B) Where this sub-paragraph applies in respect of an accounting period—
(a) the sum of any deductions under sub-paragraph (1)(b) may not exceed the total of—
(i) the amount of pre-entry losses that, on the assumption in sub-paragraph (1C), would be deductible under sub-paragraph (1)(b), and
(ii) the amount of allowable losses (other than pre-entry losses) that, on the assumption in sub-paragraph (1C), would be deductible under section 2A(1), and
(b) for the purposes of sub-paragraph (1)(c), the deductions made under section 2A(1) may not exceed the difference between—
(i) the total of the amounts mentioned in paragraph (a)(i) and (ii), and
(ii) the amount of pre-entry losses deducted under sub-paragraph (1)(b).
(1C) The assumption is that deductions under sub-paragraph (1)(b) are treated for the purposes of Part 7ZA of CTA 2010 (restrictions on obtaining certain deductions) as if they were made under section 2A(1)(b) of this Act.
(2) Subject to sub-paragraph (1) above, any question as to which or what part of any pre-entry loss has been deducted from any particular chargeable gain shall be decided—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) ... , in accordance with such elections as may be made by the company to which the loss accrued;
and any question as to which or what part of any pre-entry loss has been carried forward from one accounting period to another shall be decided accordingly.
(3) An election by any company under this paragraph shall be made by notice to the inspector given—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) ... , before the end of the period of two years beginning with the end of the accounting period of that company in which the gain in question accrued.
(4) For the purposes of this Schedule where any matter falls to be determined under this paragraph by reference to an election but no election is made, it shall be assumed, so far as consistent with any elections that have been made—
(a) that losses are set against gains in the order in which the losses accrued; and
(b) that the gains against which they are set are also determined according to the order in which they accrued with losses being set against earlier gains before they are set against later ones.
Gains from which pre-entry losses are to be deductible
7 (1) A pre-entry loss that accrued to a company before it became a member of the relevant group shall be deductible from a chargeable gain accruing to that company if the gain is one accruing—
(a) on a disposal made by that company before the date on which it became a member of the relevant group (“the entry date”);
(b) on the disposal of an asset which was held by that company immediately before the entry date; or
(c) on the disposal of any asset in respect of which the conditions in sub-paragraph (1A) are met.
(1A) The conditions referred to in sub-paragraph (1)(c) are—
(a) that the asset was acquired, on or after the entry date, by—
(i) the company to which the pre-entry loss accrued (“company A”), or
(ii) a company which, at the time of the acquisition, was a group company of company A,
from a person who at the time of the acquisition was not a group company of company A, and
(b) that the asset has not, since its acquisition from that person, been used or held for any purposes other than those of a trade or business which—
(i) was being carried on by company A immediately before the entry date, and
(ii) continued until the disposal to be carried on by company A or a company which, when it carried on the trade or business, was a group company of company A.
(1B) For the purposes of sub-paragraph (1A), a company is a “group company of company A” at any time when it is a member of a group of companies of which company A is also a member.
(1C) Where a company, having become a member of the relevant group, subsequently becomes a member of another group (“the new group”)—
(a) sub-paragraph (1) continues to have effect, in relation to any loss which accrued to the company before it became a member of the relevant group, by reference to the date on which it became such a member, and
(b) accordingly, that sub-paragraph does not apply separately in relation to the loss by reason of it also having accrued to the company before it became a member of the new group.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Where two or more companies become members of the relevant group at the same time and those companies were all members of the same group of companies immediately before they became members of the relevant group, then ... —
(a) an asset shall be treated for the purposes of sub-paragraph (1)(b) above as held, immediately before it became a member of the relevant group, by the company to which the pre-entry loss in question accrued if that company is one of those companies and the asset was in fact so held by another of those companies;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ; and
(c) the acquisition of an asset shall be treated for the purposes of sub-paragraph (1A) above as an acquisition by the company to which the pre-entry loss in question accrued if that company is one of those companies and the asset was in fact acquired (whether before or after they became members of the relevant group) by another of those companies.
(4) Sub-paragraphs (4A) and (4B) apply for determining for the purposes of this paragraph whether an asset on the disposal of which a chargeable gain accrues was an asset held by a company immediately before the entry date (a “pre-entry asset”).
(4A) Except as provided by sub-paragraph (4B), an asset is not a pre-entry asset if—
(a) the company which held the asset at the entry date is not the company which makes the disposal, and
(b) since the entry date that asset has been disposed of otherwise than by a disposal to which section 171 applies.
(4B) Without prejudice to sub-paragraph (4C), where, on a disposal to which section 171 does not apply—
(a) an asset would cease to be a pre-entry asset by virtue of sub-paragraph (4A), but
(b) the company making the disposal retains an interest in or over the asset in question,
that interest is a pre-entry asset.
(4C) For the purposes of this paragraph—
(a) an asset acquired or held by a company at any time and an asset held at a later time by that company, or by any company which is or has been a member of the same group of companies as that company, is to be treated as the same asset if the value of the second asset is derived in whole or in part from the first asset, and
(b) if—
(i) any asset is treated (whether by virtue of paragraph (a) or otherwise) as the same as an asset held by a company at a later time, and
(ii) the first asset would have been a pre-entry asset in relation to that company,
the second asset is also to be treated as a pre-entry asset in relation to that company;
and paragraph (a) applies, in particular, where the second asset is a freehold and the first asset is a leasehold the lessee of which acquires the reversion.
(5) Subject to sub-paragraph (6) below, where a gain accrues on the disposal of the whole or any part of—
(a) any asset treated as a single asset but comprising assets only some of which were held at the time mentioned in paragraph (b) of sub-paragraph (1) ... above, or
(b) an asset which is treated as held at that time by virtue of a provision requiring an asset which was not held at that time to be treated as the same as an asset which was so held,
a pre-entry loss shall be deductible by virtue of paragraph (b) of sub-paragraph (1) ... above from the amount of that gain to the extent only of such proportion of that gain as is attributable to assets held at that time or, as the case may be, represents the gain that would have accrued on the asset so held.
(6) Where—
(a) a chargeable gain accrues by virtue of subsection (10) of section 116 on the disposal of a qualifying corporate bond,
(b) that bond was not held as required by paragraph (b) of sub-paragraph (1) ... above at the time mentioned in that paragraph, and
(c) the whole or any part of the asset which is the old asset for the purposes of that section was so held,
the question whether that gain is one accruing on the disposal of an asset the whole or any part of which was held by a particular company at that time shall be determined for the purposes of this paragraph as if the bond were deemed to have been so held to the same extent as the old asset.
Change of a company’s nature
8 (1) If—
(a) within any period of three years, a company becomes a member of a group of companies and there is (either earlier or later in that period, or at the same time) a major change in the nature or conduct of a trade or business which was carried on by that company immediately before it became a member of that group, or
(b) at any time after the scale of the activities in a trade or business carried on by a company has become small or negligible, and before any considerable revival of the trade or business, that company becomes a member of a group of companies,
the trade or business carried on before that change, or which has become small or negligible, shall be disregarded for the purposes of paragraph 7(1A) above in relation to any time before the company became a member of the group in question.
(2) In sub-paragraph (1) “a major change in the nature or conduct of a trade or business” includes—
(a) a major change in the type of property dealt in, or services or facilities provided, in the trade or business,
(b) a major change in customers, markets or outlets of the trade or business, or
(c) in the case of a company with investment business (within the meaning of section 1218B of CTA 2009), a major change in the nature of the investments held;
and this paragraph applies even if the change is the result of a gradual process which began outside the period of three years mentioned in sub-paragraph (1)(a).
(3) Where the operation of this paragraph depends on circumstances or events at a time after the company becomes a member of any group of companies (but not more than three years after), an assessment to give effect to this paragraph shall not be out of time if made within six years from that time or the latest such time.
Identification of “the relevant group" and application of Schedule to every connected group
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appropriations to stock in trade
10 Where, but for an election under subsection (3) of section 161, there would be deemed to have been a disposal at any time by any company of any asset—
(a) the amount by which the market value of the asset may be treated as increased in pursuance of that election shall not include the amount of any pre-entry loss that would have accrued on that disposal; and
(b) this Schedule shall have effect as if the pre-entry loss of the last mentioned amount had accrued to that company at that time.
10A Section 161(3ZB)(a) and (b) does not apply to a loss if, in the absence of an election under section 161(3ZA), the loss would have been a pre-entry loss.
Continuity provisions
11 (1) This paragraph applies where provision has been made by or under any enactment (“the transfer legislation”) for the transfer of property, rights and liabilities to any person from—
(a) a body established by or under any enactment for the purpose, in the exercise of statutory functions, of carrying on any undertaking or industrial or other activity in the public sector or of exercising any other statutory functions;
(b) a subsidiary of such a body; or
(c) a company wholly owned by the Crown.
(2) A loss shall not be a pre-entry loss for the purposes of this Schedule in relation to any company to whom a transfer has been made by or under the transfer legislation if that loss—
(a) accrued to the person from whom the transfer has been made; and
(b) falls to be treated, in accordance with any enactment made in relation to transfers by or under that legislation, as a loss accruing to that company.
(3) For the purposes of this Schedule where a company became a member of the relevant group by virtue of the transfer by or under the transfer legislation of any shares in or other securities of that company or any other company—
(a) a loss that accrued to that company before it so became a member of that group shall not be a pre-entry loss in relation to that group; ...
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) For the purposes of this paragraph a company shall be regarded as wholly owned by the Crown if it is—
(a) a company limited by shares in which there are no issued shares held otherwise than by, or by a nominee of, the Treasury, a Minister of the Crown, a Northern Ireland department or another company wholly owned by the Crown; or
(b) a company limited by guarantee of which no person other than the Treasury, a Minister of the Crown or a Northern Ireland department, or a nominee of the Treasury, a Minister of the Crown or a Northern Ireland department, is a member.
(5) In this paragraph—
“enactment” includes any provision of any Northern Ireland legislation, within the meaning of section 24 of the Interpretation Act 1978; and
“statutory functions” means functions under any enactment, under any subordinate legislation, within the meaning of the Interpretation Act 1978, or under any statutory rules, within the meaning of the Statutory Rules (Northern Ireland) Order 1979.
Companies changing groups on certain transfers of shares etc.
12 For the purposes of this Schedule, and without prejudice to paragraph 11 above, where—
(a) a company which is a member of a group of companies becomes at any time a member of another group of companies as the result of a disposal of shares in or other securities of that company or any other company; and
(b) that disposal is one on which, by virtue of any of the no gain/no loss provisions, neither a gain nor a loss would accrue,
this Schedule shall have effect in relation to the losses that accrued to that company before that time and the assets held by that company at that time as if any time when it was a member of the first group were included in the period during which it is treated as having been a member of the second group.
SCHEDULE 7AC Exemptions for disposals by companies with substantial shareholding
Part 1 The exemptions
The main exemption
1 (1) A gain accruing to a company (“the investing company”) on a disposal of shares or an interest in shares in another company (“the company invested in”) is not a chargeable gain if the requirements of this Schedule are met.
(2) The requirements are set out in—
Part 2 (the substantial shareholding requirement), and
Part 3 (requirements to be met in relation to ... the company invested in).
(3) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.
Subsidiary exemption: disposal of asset related to shares where main exemption conditions met
2 (1) A gain accruing to a company (“company A”) on a disposal of an asset related to shares in another company (“company B”) is not a chargeable gain if either of the following conditions is met.
(2) The first condition is that—
(a) immediately before the disposal company A holds shares or an interest in shares in company B, and
(b) any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain.
(3) The second condition is that—
(a) immediately before the disposal company A does not hold shares or an interest in shares in company B but is a member of a group and another member of that group does hold shares or an interest in shares in company B, and
(b) if company A, rather than that other company, held the shares or interest, any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain.
(4) Where assets of a company are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, this paragraph applies as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly).
(5) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.
Subsidiary exemption: disposal of shares or related asset where main exemption conditions previously met
3 (1) A gain accruing to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”) is not a chargeable gain if the following conditions are met.
(2) The conditions are—
(a) that at the time of the disposal company A meets the requirement in paragraph 7 (the substantial shareholding requirement) in relation to company B;
(b) that a chargeable gain or allowable loss would, apart from this paragraph, accrue to company A on the disposal ... ;
(c) that at the time of the disposal—
(i) company A is resident in the United Kingdom, or
(ii) any chargeable gain accruing to company A on the disposal would be chargeable to corporation tax as a result of section 2B(3) or (4);
(d) that there was a time within the period of two years ending with the disposal (“the relevant period”) when, if—
(i) company A, or
(ii) a company that at any time in the relevant period was a member of the same group as company A,
had disposed of shares or an interest in shares in company B that it then held, a gain accruing would, by virtue of paragraph 1, not have been a chargeable gain; and
(e) that, if at the time of the disposal the requirements of paragraph 19 (requirements relating to company invested in) are not met in relation to company B, there was a time within the relevant period when company B was controlled by—
(i) company A, or
(ii) company A together with any persons connected with it, or
(iii) a company that at any time in the relevant period was a member of the same group as company A, or
(iv) any such company together with any persons connected with it.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In determining for the purpose of sub-paragraph (2)(d) whether a gain accruing on the hypothetical disposal referred to would have been a chargeable gain, the requirements ... of paragraph 19(1)(b) (requirement as to company invested in to be met immediately after the disposal) shall be assumed to be met.
(5) Where—
(a) immediately before the disposal company B holds an asset,
(b) the expenditure allowable in computing any gain or loss on that asset, were it to be disposed of by company B immediately before that disposal, would fall to be reduced because of a claim to relief under section 165 (gifts relief) in relation to an earlier disposal, and
(c) that earlier disposal took place within the relevant period,
sub-paragraph (1) does not prevent a gain accruing to company A on the disposal from being a chargeable gain but any loss so accruing is not an allowable loss.
(6) Where assets of company B are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, sub-paragraph (5)(a) applies as if the assets were vested in the company.
(7) In determining “the relevant period” for the purposes of sub-paragraph (2)(d) or (e) or sub-paragraph (5)(c), section 28 (time of disposal under contract) applies with the omission of subsection (2) (postponement of time of disposal in case of conditional contract).
(8) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.
Subsidiary exemption: qualifying institutional investors
3A (1) This paragraph applies in relation to a gain or loss accruing to a company (“the investing company”) on a disposal of shares or an interest in shares in another company (“the company invested in”).
(2) This paragraph applies if—
(a) the requirement in paragraph 7 is met (substantial shareholder requirement),
(b) the requirement in paragraph 19 is not met (requirement relating to company invested in), and
(c) the investing company is not a disqualified listed company.
(3) If, immediately before the disposal, 80% or more of the ordinary share capital of the investing company is owned by qualifying institutional investors, no chargeable gain or loss accrues on the disposal.
(4) If, immediately before the disposal, at least 25% but less than 80% of the ordinary share capital of the investing company is owned by qualifying institutional investors, the amount of the chargeable gain or loss accruing on the disposal is reduced by the percentage of the ordinary share capital of the investing company which is owned by the qualifying institutional investors.
(5) A company is a “disqualified listed company” for the purposes of this Part of this Schedule if—
(a) any of the shares forming part of the ordinary share capital of the company are listed on a recognised stock exchange,
(b) the company is not a qualifying institutional investor, and
(c) the company is not a qualifying UK REIT
(6) In sub-paragraph (5)(c) “qualifying UK REIT” means a UK REIT within the meaning of Part 12 of CTA 2010 which—
(a) meets the condition in section 528(4)(b) of that Act (company not a close company by virtue of having an institutional investor as a participant), or
(b) by virtue of section 443 of that Act (companies controlled by or on behalf of Crown) is not treated as a close company.
3B (1) This paragraph applies for the purposes of paragraph 3A.
(2) A person “owns” ordinary share capital if the person owns it—
(a) directly,
(b) indirectly, or
(c) partly directly and partly indirectly.
(3) Sections 1155 to 1157 of CTA 2010 (meaning of “indirect ownership” and calculation of amounts owned indirectly) apply for the purposes of sub-paragraph (2).
(4) For the purposes of sections 1155 to 1157 of CTA 2010 as applied by sub-paragraph (3)—
(a) ordinary share capital may not be owned through a disqualified listed company;
(b) treat references to a body corporate
(i) as including an exempt unauthorised unit trust (and references to ordinary share capital, in the case of such a trust, as references to units in the trust)
(ii) as including an exempt Reserved Investor Fund (Contractual Scheme) (and references to ordinary share capital, in the case of such a scheme, as references to units in the scheme).
(5) A person is also to be regarded as owning ordinary share capital in a company in circumstances where a person would, under paragraphs 12 and 13 of this Schedule, be regarded as holding shares in a company.
(6) Where the assets of a partnership include ordinary share capital of a company, each partner is to be regarded as owning a proportion of that share capital equal to the partner's proportionate interest in that ordinary share capital.
(6A) Sub-paragraph (6) does not apply in relation to a co-ownership scheme which is treated as a partnership under section 103DC (co-ownership schemes which are to be treated as partnerships).
(7) In this Schedule—
“exempt Reserved Investor Fund (Contractual Scheme)” means a Reserved Investor Fund (Contractual Scheme) which meets the exempt investor condition in regulation 14 of the Co-ownership Contractual Schemes (Tax) Regulations 2025;
“exempt unauthorised unit trust” has the same meaning as in regulation 3 of the Unauthorised Unit Trusts (Tax) Regulations 2013.
Application of exemptions in priority to provisions deeming there to be no disposal etc
4 (1) For the purposes of determining whether an exemption conferred by this Schedule applies, the question whether there is a disposal shall be determined without regard to—
(a) section 116(10) (reorganisation, conversion of securities, etc treated as not involving disposal),
(b) section 127 (share reorganisations etc treated as not involving disposal), or
(c) section 192(2)(a) (distribution not treated as capital distribution).
(2) Sub-paragraph (1) does not apply to a disposal of shares if the effect of its applying would be that relief attributable to the shares under Schedule 15 to the Finance Act 2000 (corporate venturing scheme) would be withdrawn or reduced under paragraph 46 of that Schedule (withdrawal or reduction of investment relief on disposal of shares).
(3) Where or to the extent that an exemption conferred by this Schedule does apply—
(a) the provisions mentioned in sub-paragraph (1)(a) and (b) do not apply in relation to the disposal, and
(b) the provision mentioned in sub-paragraph (1)(c) does not apply in relation to the subject matter of the disposal.
(4) Where section 127 is disapplied by sub-paragraph (3)(a) in a case in which that section would otherwise have applied in relation to the disposal by virtue of paragraph 84 of Schedule 15 to the Finance Act 2000 (corporate venturing scheme: share exchanges), paragraph 85 of that Schedule (attribution of relief to new shares) does not apply.
(5) In this paragraph any reference to section 127 includes a reference to that provision as applied by any enactment relating to corporation tax.
Circumstances in which exemptions do not apply
5 (1) Where in pursuance of arrangements to which this paragraph applies—
(a) an untaxed gain accrues to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”), and
(b) before the accrual of that gain—
(i) company A acquired control of company B, or the same person or persons acquired control of both companies, or
(ii) there was a significant change of trading activities affecting company B at a time when it was controlled by company A, or when both companies were controlled by the same person or persons,
none of the exemptions in this Schedule applies to the disposal.
(2) This paragraph applies to arrangements from which the sole or main benefit that (but for this paragraph) could be expected to arise is that the gain on the disposal would, by virtue of this Schedule, not be a chargeable gain.
(3) For the purposes of sub-paragraph (1)(a) a gain is “untaxed” if the gain, or all of it but a part that is not substantial, represents profits that have not been brought into account (in the United Kingdom or elsewhere) for the purposes of tax on profits for a period ending on or before the date of the disposal.
(4) The reference in sub-paragraph (3) to profits being brought into account for the purposes of tax on profits includes a reference to the case where—
(a) an amount in respect of those profits is apportioned to a company resident in the United Kingdom by virtue of subsection (3) of section 747 of the Taxes Act 1988 (imputation of chargeable profits etc of controlled foreign companies), and
(b) a sum is chargeable on that company in respect of that amount by virtue of subsection (4) of that section for an accounting period of that company ending on or before the date of the disposal.
(5) For the purposes of sub-paragraph (1)(b)(ii) there is a “significant change of trading activities affecting company B” if—
(a) there is a major change in the nature or conduct of a trade carried on by company B or a 51% subsidiary of company B, or
(b) there is a major change in the scale of the activities of a trade carried on by company B or a 51% subsidiary of company B, or
(c) company B or a 51% subsidiary of company B begins to carry on a trade.
(6) In this paragraph—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;
“major change in the nature or conduct of a trade” has the same meaning as in section 673 of CTA 2010 (change of ownership of company: disallowance of trading losses);
“profits” means income or gains (including unrealised income or gains).
Other cases excluded from exemptions
6 (1) The exemptions conferred by this Schedule do not apply—
(a) to a disposal that by virtue of any enactment relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal,
(b) to a disposal a gain on which would, by virtue of any enactment not contained in this Schedule, not be a chargeable gain, or
(c) to a deemed disposal under any of sections 116 to 118 of the Finance Act 2012 (deemed disposal on transfer of asset of insurance company from one category to another).
(2) The hypothetical disposal referred to in paragraph 2(2)(b) or (3)(b) or paragraph 3(2)(d) shall be assumed not to be a disposal within sub-paragraph (1)(a), (b) or (c) above.
Part 2 The substantial shareholding requirement
The requirement
7 The investing company must have held a substantial shareholding in the company invested in throughout a twelve-month period beginning not more than six years before the day on which the disposal takes place.
Meaning of “substantial shareholding"
8 (1) For the purposes of this Schedule a company holds a “substantial shareholding” in another company if it holds shares or interests in shares in that company by virtue of which—
(a) it holds not less than 10% of the company’s ordinary share capital,
(b) it is beneficially entitled to not less than 10% of the profits available for distribution to equity holders of the company, and
(c) it would be beneficially entitled on a winding up to not less than 10% of the assets of the company available for distribution to equity holders.
This is without prejudice to what is meant by “substantial” where the word appears in other contexts.
(2) Chapter 6 of Part 5 of CTA 2010 (group relief: equity holders and profits or assets available for distribution) applies for the purposes of sub-paragraph (1) as it applies for the purposes of the provisions mentioned in section 157(1) of that Act, but as if—
(a) in section 158 of that Act after subsection (2) there were inserted—
(2A) But for those purposes a person carrying on a business of banking is not treated as a loan creditor of a company in respect of any loan capital or debt issued or incurred by the company for money lent by the person to the company in the ordinary course of that business.
, and
(b) sections 171(1)(b) and (3), 173, 174 and 176 to 181 of that Act were omitted.
8A (1) This paragraph applies in a case where at least 25% of the ordinary share capital of the investing company is owned by qualifying institutional investors.
(2) The investing company also holds a “substantial shareholding” in the company invested in for the purposes of this Schedule if—
(a) the investing company holds ordinary shares, or interests in ordinary shares, in the company invested in the cost of which on acquisition was at least £20,000,000, and
(b) by virtue of those shares or interests or any other shares or interests in shares in the company invested in, the investing company—
(i) is beneficially entitled to not less than a proportionate percentage of the profits available for distribution to equity holders of the company invested in, and
(ii) would be beneficially entitled on a winding up to not less than a proportionate percentage of the assets of the company invested in available for distribution to equity holders.
(3) In sub-paragraph (2)—
“cost” means the amount or value of the consideration, in money or money's worth, given by the investing company or on its behalf wholly and exclusively for the acquisition of the ordinary shares or interests in ordinary shares, together with the incidental costs to it of the acquisition;
“proportionate percentage” means a percentage equal to the percentage of the ordinary share capital held by the investing company by virtue of the ordinary shares and interests in ordinary shares referred to in sub-paragraph (2)(a).
(4) For the purposes of sub-paragraph (2)(a) it does not matter whether there was a single acquisition or a series of acquisitions.
(5) If—
(a) the percentage (“the actual percentage”) of the profits or assets to which the investing company is, or would be, beneficially entitled as mentioned in sub-paragraph (2)(b)(i) or (ii) is less than the proportionate percentage, but
(b) having regard to the proportion that the actual percentage bears to the proportionate percentage, the difference can reasonably be regarded as insignificant,
the investing company is treated as meeting the condition in sub-paragraph (2)(b)(i) or (ii) (as the case may be).
(6) Paragraph 3B (owning ordinary share capital) applies for the purposes of sub-paragraph (1).
(7) Paragraph 8(2) applies for the purposes of sub-paragraph (2).
(8) In this paragraph “ordinary shares” means shares in the ordinary share capital of the company invested in.
Aggregation of holdings of group companies
9 (1) For the purposes of paragraphs 7 and 8A(2) (the substantial shareholding requirement) a company that is a member of a group is treated—
(a) as holding any shares or interest in shares held by any other company in the group, and
(b) as having the same entitlement as any such company to any rights enjoyed by virtue of holding shares or an interest in shares.
(2) Sub-paragraph (1) is subject to paragraph 17(4) (exclusion of aggregation in case of assets of long-term insurance fund of insurance company).
Effect of earlier no-gain/no-loss transfer
10 (1) For the purposes of this Part the period for which a company has held shares is treated as extended by any earlier period during which the shares concerned, or shares from which they are derived, were held—
(a) by a company from which the shares concerned were transferred to the first-mentioned company on a no-gain/ no-loss transfer, or
(b) by a company from which the shares concerned, or shares from which they are derived, were transferred on a previous no-gain/no-loss transfer—
(i) to a company within paragraph (a), or
(ii) to another company within this paragraph.
(2) For the purposes of sub-paragraph (1)—
(a) a “no-gain/no-loss transfer” means a disposal and corresponding acquisition that by virtue of any enactment relating to chargeable gains are deemed to be for a consideration such that no gain or loss accrues to the person making the disposal;
(b) a transfer shall be treated as if it had been a no-gain/no- loss transfer if it is a transfer to which subsection (1) of section 171 (transfers within a group) would apply but for subsection (1A) or subsection (3) of that section.
(3) Where sub-paragraph (1) applies to extend the period for which a company (“company A”) is treated as having held any shares, that company shall be treated for the purposes of this Part as having had at any time the same entitlement—
(a) to shares, and
(b) to any rights enjoyed by virtue of holding shares,
as the company (“company B”) that at that time held the shares concerned or, as the case may be, the shares from which they are derived.
(4) The shares and rights to be so attributed to company A include any holding or entitlement attributed at that time to company B under paragraph 9 (aggregation of holdings of group companies).
(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.
(6) For the purposes of this paragraph shares are “derived” from other shares only where—
(a) a company becomes a co-owner of shares previously owned by it alone, or vice versa,
(b) a company’s interest in shares as co-owner changes (without the company ceasing to be a co-owner),
(c) one holding of shares is treated by virtue of section 127 as the same asset as another, or
(d) there is a sequence of two or more of the occurrences mentioned in paragraphs (a) to (c).
The reference in paragraph (c) to section 127 includes a reference to that provision as applied by any enactment relating to corporation tax.
Effect of deemed disposal and reacquisition
11 (1) For the purposes of this Part a company is not regarded as having held shares throughout a period if, at any time during that period, there is a deemed disposal and reacquisition of—
(a) the shares concerned, or
(b) shares, or an interest in shares, from which those shares are derived.
(2) For the purposes of this Part a company is not regarded as having held an interest in shares throughout a period if, at any time during that period, there is a deemed disposal and reacquisition of—
(a) the interest concerned, or
(b) shares, or an interest in shares, from which that interest is derived.
(3) In this paragraph—
“deemed disposal and reacquisition” means a disposal and immediate reacquisition treated as taking place under any enactment relating to corporation tax;
“derived” has the same meaning as in paragraph 10.
Effect of repurchase agreement
12 (1) This paragraph applies where—
(a) a company (“the borrower”) which holds shares in another company sells the shares under an arrangement by reference to which the borrower has a debtor repo, and
(b) by virtue of paragraph 6 of Schedule 13 to the Finance Act 2007 (sale and repurchase of securities) the sale is ignored for the purposes of corporation tax in respect of chargeable gains.
(2) For the period for which the arrangement is in force—
(a) the borrower shall be treated for the purposes of this Part as continuing to hold the shares and accordingly as retaining its entitlement to any rights attaching to them, and
(b) the lender shall be treated for those purposes as not holding the shares and as not becoming entitled to any such rights.
This is subject to the following qualification.
(3) If at any time before the end of that period the borrower, or another member of the same group as the borrower, becomes the holder—
(a) of any of the shares, or
(b) of any shares directly or indirectly representing any of them,
sub-paragraph (2) does not apply after that time in relation to those shares or, as the case may be, the shares represented by them.
(4) Expressions used in this paragraph and in Schedule 13 to the Finance Act 2007 have the same meaning in this paragraph as in that Schedule.
Effect of stock lending arrangements
13 (1) This paragraph applies where—
(a) a company that holds shares in another company transfers the shares under a stock lending arrangement, and
(b) by virtue of section 263B(2) (stock lending arrangements) the disposal is disregarded for the purposes of the enactments relating to chargeable gains.
(2) During the period of the stock lending arrangement—
(a) the lender shall be treated for the purposes of this Part as continuing to hold the shares transferred and accordingly as retaining his entitlement to any rights attached to them, and
(b) the borrower shall be treated for those purposes as not holding the shares transferred and as not becoming entitled to any such rights.
This is subject to the following qualification.
(3) If at any time before the end of the period of the stock lending arrangement the lender, or another member of the same group as the lender, becomes the holder—
(a) of any of the shares transferred, or
(b) of any shares directly or indirectly representing any of the shares transferred,
sub-paragraph (2) does not apply after that time in relation to those shares or, as the case may be, in relation to the shares represented by those shares.
(4) In this paragraph a “stock lending arrangement” means arrangements between two persons (“the borrower” and “the lender”) under which—
(a) the lender transfers shares to the borrower otherwise than by way of sale, and
(b) a requirement is imposed on the borrower to transfer those shares back to the lender otherwise than by way of sale.
(5) Any reference in this paragraph to the period of a stock lending arrangement is to the period beginning with the transfer of the shares by the lender to the borrower and ending—
(a) with the transfer of the shares back to the lender in pursuance of the arrangement, or
(b) when it becomes apparent that the requirement for the borrower to make a transfer back to the lender will not be complied with.
(6) The following provisions apply for the purposes of this paragraph as they apply for the purposes of section 263B—
(a) subsections (5) and (6) of that section (references to transfer back of securities to include transfer of other securities of the same description);
(b) section 263C (references to transfer back of securities to include payment in respect of redemption).
Effect in relation to company invested in of earlier company reconstruction etc
14 (1) This paragraph applies where shares in one company (“company X”)—
(a) are exchanged (or deemed to be exchanged) for shares in another company (“company Y”), or
(b) are deemed to be exchanged by virtue of section 136 for shares in company X and shares in another company (“company Y”),
in circumstances such that, under section 127 as that section applies by virtue of section 135 or 136, the original shares and the new holding are treated as the same asset.
(2) Where company Y—
(a) is the company invested in, and is accordingly the company by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) falls to be met, or
(b) is a company by reference to which, by virtue of this paragraph, that requirement may be met, or
(c) is a company by reference to which, by virtue of paragraph 15 (effect of earlier demerger) that requirement may be met,
that requirement may instead be met, in relation to times before the exchange (or deemed exchange), by reference to company X.
(3) If in any case that requirement can be met by virtue of this paragraph (or by virtue of this paragraph together with paragraph 15), it shall be treated as met.
(4) In sub-paragraph (1) “original shares” and “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.
Effect in relation to company invested in of earlier demerger
15 (1) This paragraph applies where shares in one company (“the subsidiary”) are transferred by another company (“the parent company”) on a demerger.
(2) Where the subsidiary—
(a) is the company invested in, and is accordingly the company by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) falls to be met, or
(b) is a company by reference to which, by virtue of this paragraph, that requirement may be met, or
(c) is a company by reference to which, by virtue of paragraph 14 (effect of earlier company reconstruction etc), that requirement may be met,
that requirement may instead be met, in relation to times before the transfer, by reference to the parent company.
(3) If in any case that requirement can be met by virtue of this paragraph (or by virtue of this paragraph together with paragraph 14), it shall be treated as met.
(4) In this paragraph a “transfer of shares on a demerger” means a transfer such that, by virtue of section 192(2)(b), sections 126 to 130 apply as if the parent company and the subsidiary were the same company and the transfer were a reorganisation of that company’s share capital not involving a disposal or acquisition.
Effect of transfer of trading assets within a group
15A (1) For the purposes of this Part, the period for which the investing company is treated as holding a substantial shareholding in the company invested in is extended in accordance with sub-paragraph (3) if the following conditions are met.
(2) The conditions are—
(a) that, immediately before the disposal, the investing company holds a substantial shareholding in the company invested in,
(b) that an asset which, at the time of the disposal, is being used for the purposes of a trade carried on by the company invested in was transferred to it by the investing company or another company,
(c) that, at the time of the transfer of the asset, the company invested in, the investing company and, if different, the company which transferred the asset were all members of the same group, and
(d) that the asset was previously used by a member of the group (other than the company invested in) for the purposes of a trade carried on by that member at a time when it was such a member.
(2A) For the purposes of sub-paragraph (2)(b) and (d), “trade” includes oil and gas exploration and appraisal.
(3) The investing company is to be treated as having held the substantial shareholding at any time during the final 12 month period when the asset was used as mentioned in sub-paragraph (2)(d) (if it did not hold a substantial shareholding at that time).
(4) “The final 12 month period” means the period of 12 months ending with the time of the disposal.
Effect of investing company’s liquidation
16 Where assets of the investing company, or of a company that is a member of the same group as the investing company, are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, this Part applies as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly).
Special rules for assets of insurance company held for the purposes of its long-term business
17 (1) In the following two cases paragraph 8(1) (meaning of substantial shareholding) has effect as if, in paragraphs (a), (b) and (c), “30%" were substituted for “10%".
(2) The first case is where the investing company is an insurance company and the disposal is of an asset held by it for the purposes of its long-term business.
(3) The second case is where—
(a) the investing company is a 51% subsidiary of an insurance company, and
(b) the insurance company holds as an asset for the purposes of its long-term business shares or an interest in shares—
(i) in the investing company, or
(ii) in another company through which it owns shares in the investing company.
The reference in paragraph (b)(ii) to owning shares through another company has the same meaning as in Chapter 3 of Part 24 of CTA 2010 (subsidiaries).
(4) Where the investing company is a member of a group that includes an insurance company, paragraph 9 (aggregation of holdings of group companies) does not apply in relation to shares or an interest in shares held by the insurance company for the purposes of its long-term business.
(4A) The reference in sub-paragraph (2) to an asset held by the investing company for the purposes of its long-term business, and the references in sub-paragraphs (3) and (4) to shares or an interest in shares held for the purposes of its long-term business, do not include an asset or assets which formed part of the long-term business fixed capital of the company in question.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part 3 Requirements to be met in relation to ... company invested in
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Requirements relating to the company invested in
19 (1) The company invested in must—
(a) have been a qualifying company throughout the period—
(i) beginning with the start of the latest twelve-month period by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) is met, and
(ii) ending with the time of the disposal, and
(b) in a case where sub-paragraph 1A) applies, be a qualifying company immediately after the time of the disposal.
(1A) This sub-paragraph applies where—
(a) the disposal is a disposal to a person connected with the investing company, or
(b) the requirement in paragraph 7 is met by virtue of paragraph 15A.
(2) For this purpose a “qualifying company” means a trading company or the holding company of a trading group or a trading subgroup.
(2A) If the conditions in paragraph 15A(2)(b) to (d) are met, sub-paragraph (2B) applies for the purpose of determining whether the requirement of sub-paragraph (1)(a) is satisfied.
(2B) The company invested in is to be treated as having been a trading company at any time during the final 12 month period when the asset was used as mentioned in paragraph 15A(2)(d) (if it was not a trading company at that time).
(2C) “The final 12 month period” has the meaning given in paragraph 15A(4).
(3) If the disposal is by virtue of section 28(1) or (2) (asset disposed of under contract) treated as made at a time before the asset is conveyed or transferred, the requirements in sub-paragraph (1)(a) and (b) must also be complied with as they would have effect if the references there to the time of the disposal were to the time of the conveyance or transfer.
(4) Section 1122 of CTA 2010 (meaning of “connected” persons) applies for the purposes of sub-paragraph (1A)(a).
Meaning of “trading company"
20 (1) In this Schedule “trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by the company—
(a) in the course of, or for the purposes of, a trade being carried on by it,
(b) for the purposes of a trade that it is preparing to carry on,
(c) with a view to its acquiring or starting to carry on a trade, or
(d) with a view to its acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) if the acquiring company is a member of a group, is not a member of that group.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a 51% subsidiary of the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group.
Meaning of “trading group"
21 (1) In this Schedule “trading group” means a group—
(a) one or more of whose members carry on trading activities, and
(b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the group—
(a) in the course of, or for the purposes of, a trade being carried on by any member of the group,
(b) for the purposes of a trade that any member of the group is preparing to carry on,
(c) with a view to any member of the group acquiring or starting to carry on a trade, or
(d) with a view to any member of the group acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) is not a member of the same group as the acquiring company.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the group member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a member of the same group as the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the joint venture company a member of the same group as the acquiring company.
(5) For the purposes of this paragraph the activities of the members of the group shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities).
Meaning of “trading subgroup"
22 (1) In this Schedule “trading subgroup” means a subgroup—
(a) one or more of whose members carry on trading activities, and
(b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the subgroup—
(a) in the course of, or for the purposes of, a trade being carried on by any member of the subgroup,
(b) for the purposes of a trade that any member of the subgroup is preparing to carry on,
(c) with a view to any member of the subgroup acquiring or starting to carry on a trade, or
(d) with a view to any member of the subgroup acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) is not a member of the same group as the acquiring company.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the subgroup member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a member of the same subgroup as the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group.
(5) For the purposes of this paragraph the activities of the members of the subgroup shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-subgroup activities).
Treatment of holdings in joint venture companies
23 (1) This paragraph applies where a company (“the company”) has a qualifying shareholding in a joint venture company.
(2) In determining whether the company is a trading company—
(a) its holding of shares in the joint venture company shall be disregarded, and
(b) it shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the company is a member of a group and the joint venture company is a member of the same group.
(3) In determining whether the company is ... the holding company of a trading group—
(a) every holding of shares in the joint venture company by a member of the group having a qualifying shareholding in that company shall be disregarded, and
(b) each member of the group having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the joint venture company is a member of the group.
(4) In determining whether the company is the holding company of a trading subgroup—
(a) every holding of shares in the joint venture company by the company and any of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be disregarded, and
(b) the company and each of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the joint venture company is a member of the same group as the company.
(5) In sub-paragraphs (2)(b), (3)(b) and (4)(b) “an appropriate proportion” means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the company concerned.
(6) In this paragraph “shares”, in relation to a joint venture company, includes securities of that company or an interest in shares in or securities of that company.
(7) For the purposes of this paragraph the activities of a joint venture company that is a holding company and its 51% subsidiaries shall be treated as a single business (so that activities are disregarded to the extent that they are intra-group activities or, as the case may be, intra-subgroup activities).
Meaning of “joint venture company" and “qualifying shareholding"
24 (1) For the purposes of this Schedule a company is a “joint venture company” if, and only if—
(a) it is a trading company or the holding company of a trading group or trading subgroup, and
(b) there are five or fewer persons who between them hold 75% or more of its ordinary share capital.
In determining whether there are five or fewer such persons as are mentioned in paragraph (b), the members of a group are treated as if they were a single company.
(2) For the purposes of this Schedule—
(a) a company that is not a member of a group has a “qualifying shareholding” in a joint venture company if, and only if, it holds shares or an interest in shares in the joint venture company by virtue of which it holds 10% or more of that company’s ordinary share capital;
(b) a company that is a member of a group has a “qualifying shareholding” in a joint venture company if, and only if—
(i) it holds ordinary share capital of the joint venture company, and
(ii) the members of the group between them hold 10% or more of the ordinary share capital of that company.
Effect in relation to company invested in of earlier company reconstruction, demerger etc
25 The provisions of—
(a) paragraph 14 (effect of earlier company reconstruction etc), and
(b) paragraph 15 (effect of earlier demerger),
have effect in relation to the requirements of paragraph 19 (requirements in relation to company invested in) as they have effect in relation to the requirement of paragraph 7 (the substantial shareholding requirement).
Part 4 Interpretation
Meaning of “company", “group" and related expressions
26 (1) In this Schedule—
(a) “company” has the meaning given by section 170(9); and
(b) references to a group, or to membership of a group, shall be construed in accordance with the provisions of section 170 read as if “51 per cent" were substituted for “75 per cent".
(2) References in this Schedule to a “subgroup” are to companies that would form a group but for the fact that one of them is a 51% subsidiary of another company.
(3) In this Schedule “holding company”—
(a) in relation to a group, means the company described in section 170 as the principal company of the group;
(b) in relation to a subgroup, means a company that would be the holding company of a group but for being a 51% subsidiary of another company.
(4) In this Schedule “51% subsidiary” has the meaning given by Chapter 3 of Part 24 of CTA 2010.
In applying that Chapter for the purposes of this Schedule, any share capital of a registered society (see section 1119 of that Act) shall be treated as ordinary share capital.
(5) References in this Schedule to a “group” or “subsidiary” shall be construed with any necessary modifications where applied to a company incorporated under the law of a country or territory outside the United Kingdom.
Meaning of “trade"
27 In this Schedule “trade” means anything that—
(a) is a trade, profession or vocation, within the meaning of the Income Tax Acts, and
(b) is conducted on a commercial basis with a view to the realisation of profits.
Meaning of “twelve-month period"
28 For the purposes of this Schedule a “twelve-month period” means a period ending with the day before the first anniversary of the day with which, or in the course of which, the period began.
Meaning of “interest in shares"
29 (1) References in this Schedule to an interest in shares are to an interest as a co-owner of shares.
(2) It does not matter whether the shares are owned jointly or in common, or whether the interests of the co-owners are equal.
Meaning of “asset related to shares"
30 (1) This paragraph explains what is meant by an asset related to shares in a company.
(2) An asset is related to shares in a company if it is—
(a) an option to acquire or dispose of shares or an interest in shares in that company, or
(b) a security to which are attached rights by virtue of which the holder is or may become entitled to acquire or dispose of (whether by conversion or exchange or otherwise)—
(i) shares or an interest in shares in that company, or
(ii) an option to acquire or dispose of shares or an interest in shares in that company, or
(iii) another security falling within this paragraph, or
(c) an option to acquire or dispose of any security within paragraph (b) or an interest in any such security, or
(d) an interest in, or option over, any such option or security as is mentioned in paragraph (a), (b) or (c), or
(e) any interest in, or option over, any such interest or option as is mentioned in paragraph (d) or this paragraph.
(3) In determining whether a security is within sub-paragraph (2)(b), no account shall be taken—
(a) of any rights attached to the security other than rights relating, directly or indirectly, to shares of the company in question, or
(b) of rights as regards which, at the time the security came into existence, there was no more than a negligible likelihood that they would in due course be exercised to a significant extent.
(4) The references in this paragraph to an interest in a security or option have a meaning corresponding to that given by paragraph 29 in relation to an interest in shares.
Meaning of “qualifying institutional investor”
30A (1) In this Schedule “qualifying institutional investor” means a person falling within any of A to G below.
Pension schemes
The trustee or manager of—
a registered pension scheme, other than an investment-regulated pension scheme, or
an overseas pension scheme, other than one which would be an investment-regulated pension scheme if it were a registered pension scheme.
“Investment-regulated pension scheme” has the same meaning as in Part 1 of Schedule 29A to the Finance Act 2004.
“Overseas pension scheme” has the same meaning as in Part 4 of that Act.
Life assurance businesses
A company carrying on life assurance business, if immediately before the disposal its interest in the investing company is held as part of its long-term business fixed capital.
“Life assurance business” has the meaning given in section 56 of the Finance Act 2012.
Section 137 of that Act applies for the purposes of determining whether an interest forms part of the long-term business fixed capital of a company.
Sovereign wealth funds etc
A person who cannot be liable for corporation tax or income tax (as relevant) on the ground of sovereign immunity.
Charities
A charity.
Investment trusts
An investment trust.
Authorised investment funds
An authorised investment fund which meets the genuine diversity of ownership condition throughout the accounting period of the fund in which the disposal is made.
“Authorised investment fund” has the same meaning as in the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964).
Regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (genuine diversity of ownership) applies for this purpose.
Exempt unauthorised unit trusts
The trustees of an exempt unauthorised unit trust, where the trust meets the genuine diversity of ownership condition throughout the accounting period of the trust in which the disposal is made.
Regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (genuine diversity of ownership) applies for this purpose (treating references to an authorised investment fund as including an exempt unauthorised unit trust).
Exempt Reserved Investor Fund (Contractual Scheme)
Exempt Reserved Investor Fund (Contractual Scheme) (within the meaning given by paragraph 3B(7)).
(2) The Treasury may by regulations amend this Schedule so as to add or remove a person as a “qualifying institutional investor” (and may in particular do so by changing the conditions subject to which a person is a qualifying institutional investor).
Index of defined expressions
31 In this Schedule the expressions listed below are defined or otherwise explained by the provisions indicated:
asset related to shares | paragraph 30
company | paragraph 26(1)(a)
company invested in | paragraph 1
Exempt unauthorised unit trust | paragraph 3B(7)
51% subsidiary | paragraph 26(4) and (5)
group (and member of group) | paragraph 26(1)(b) and (5)
holding company | paragraph 26(3)
interest in shares | paragraph 29
investing company | paragraph 1
joint venture company | paragraph 24(1)
Qualifying institutional investor | paragraph 30A
qualifying shareholding (in joint venture company) | paragraph 24(2)
subgroup | paragraph 26(2)
trade | paragraph 27
trading company | paragraph 20
trading group | paragraph 21
trading subgroup | paragraph 22
twelve-month period | paragraph 28
Part 5 Consequential provisions
Meaning of “chargeable shares" or “chargeable asset"
32 Any exemption conferred by this Schedule shall be disregarded in determining whether shares are “chargeable shares”, or an asset is a “chargeable asset”, for the purposes of any enactment relating to corporation tax or capital gains tax.
Negligible value claims
33 (1) This paragraph applies where—
(a) a company makes a claim under section 24(2) (assets of negligible value) in relation to shares held by it, and
(b) by virtue of this Schedule any loss accruing to the company on a disposal of the shares at the time of the claim would not be an allowable loss.
(2) Where this paragraph applies the company may not exercise the option under section 24(2) to specify a time earlier than the time of the claim as the time when the shares are treated as sold and reacquired by virtue of that subsection.
(3) This paragraph applies to—
(a) an interest in shares in a company, or
(b) an asset related to shares in a company,
as it applies to shares in that company.
Reorganisations etc: deemed accrual of chargeable gain or allowable loss held over on earlier transaction
34 (1) The exemptions conferred by this Schedule do not apply to or affect a chargeable gain or allowable loss deemed to accrue on a disposal by virtue of section 116(10)(b) (reorganisations, conversions and reconstructions: deemed accrual of gain or loss held over on earlier transaction).
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Sub-paragraph (1) does not apply where the relevant earlier transaction is a disposal and reacquisition deemed to have occurred (in a period of account beginning before 1 January 2005) under section 92(7) of the Finance Act 1996 (convertible securities etc: creditor relationships).
Recovery of charge postponed on transfer of assets to non-resident company
35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appropriation of asset to trading stock
36 (1) Where—
(a) an asset acquired by a company otherwise than as trading stock of a trade carried on by it is appropriated by the company for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise), and
(b) if the company had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to the company but for an exemption conferred by this Schedule,
the company is treated for the purposes of the enactments relating to chargeable gains as if it had thereby disposed of the asset for its market value.
(2) Section 173 (transfers within a group: trading stock) applies in relation to this paragraph as it applies in relation to section 161 (appropriations to and from stock).
Recovery of held-over gain on claim for gifts relief
37 (1) This paragraph applies where—
(a) a company disposes of an asset,
(b) the expenditure allowable in computing a gain or loss on that disposal falls to be reduced because of a claim for relief under section 165 (gifts relief) in relation to an earlier disposal, and
(c) by virtue of this Schedule any gain accruing to the company on the disposal mentioned in paragraph (a) would not be a chargeable gain.
(2) Where this paragraph applies the amount of the held-over gain, or an appropriate proportion of it, shall be treated as accruing to the company, at the time of the disposal mentioned in sub-paragraph (1)(a), as a chargeable gain to which this Schedule does not apply.
(3) An “appropriate proportion” means a proportion determined on a just and reasonable basis having regard to the subject matter of the disposal mentioned in sub-paragraph (1)(a) and the subject matter of the earlier disposal that was the subject of the claim for relief under section 165.
(4) In this paragraph “held-over gain” has the same meaning as in section 165.
Degrouping: time when deemed sale and reacquisition treated as taking place
38 (1) Where—
(a) a company, as a result of ceasing at any time (“the time of degrouping”) to be a member of a group, is treated by section 179(3) as having sold and immediately reacquired an asset, and
(b) if the company owning the asset at the time of degrouping had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain,
section 179(3) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the time of degrouping.
(2) Where—
(a) a company, as a result of ceasing at any time (“the relevant time”) to satisfy the conditions in section 179(7), is treated by section 179(6) as having sold and immediately reacquired an asset, and
(b) if the company owning the asset at the relevant time had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain,
section 179(6) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the relevant time.
(3) Any reference in this paragraph to a disposal or other event taking place immediately before the time of degrouping or the relevant time is to its taking place immediately before that time but on the same day.
Effect of FOREX matching regulations
39 (1) No gain or loss shall be treated as arising under the FOREX matching regulations on a disposal on which by virtue of this Schedule any gain would not be a chargeable gain.
(2) The “FOREX matching regulations” means any regulations made under Schedule 15 to the Finance Act 1993 (exchange gains and losses: alternative method of calculation).
SCHEDULE 7AD Gains of insurance company from venture capital investment partnership
Introduction
1 This Schedule applies where the assets held by an insurance company (“the company”) for the purposes of its long-term business include assets held by the company as a limited partner in a venture capital investment partnership (“the partnership”).
Meaning of “venture capital investment partnership”
2 (1) A “venture capital investment partnership” means a partnership in relation to which the following conditions are met.
(2) The first condition is that the sole or main purpose of the partnership is to invest in unquoted shares or securities.
This condition shall not be regarded as met unless it appears from—
(a) the agreement constituting the partnership, or
(b) any prospectus issued to prospective partners,
that that is the sole or main purpose of the partnership.
(3) The second condition is that the partnership does not carry on a trade.
(4) The third condition is that not less than 90% of the book value of the partnership’s investments is attributable to investments that are either—
(a) shares or securities that were unquoted at the time of their acquisition by the partnership, or
(b) shares that were quoted at the time of their acquisition by the partnership but which it was reasonable to believe would cease to be quoted within the next twelve months.
(5) For the purposes of the third condition—
(a) the following shall be disregarded—
(i) any holding of cash, including cash deposited in a bank account or similar account but not cash acquired wholly or partly for the purpose of realising a gain on its disposal;
(ii) any holding of quoted shares or securities acquired by the partnership in exchange for unquoted shares or securities;
(b) whether the 90% test is met shall be determined by reference to the values shown in the partnership’s accounts at the end of a period of account of the partnership.
(6) Where a partnership ceases to meet the above conditions, the company shall be treated as if the partnership had continued to be a venture capital investment partnership until the end of the period of account of the partnership during which it ceased to meet the conditions.
(7) A partnership that ceases to meet those conditions cannot qualify again as a venture capital investment partnership.
For this purpose a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member.
Interest in relevant assets of partnership treated as single asset
3 (1) Where this Schedule applies section 59 (partnerships) does not have effect to make the company chargeable on its share of gains accruing on each disposal of relevant assets of the partnership.
(2) Instead—
(a) the company’s interest in relevant assets of the partnership is treated as a single asset (“the single asset”) acquired by the company when it became a member of the partnership, and
(b) the following provisions of this Schedule have effect.
(3) For the purposes of this Schedule the “relevant assets” of the partnership are the shares and securities held by the partnership, other than qualifying corporate bonds.
(4) Nothing in this Schedule shall be read—
(a) as affecting the operation of section 59 in relation to partners who are not insurance companies carrying on long-term business or are not limited partners, or
(b) as imposing any liability on the partnership as such.
The cost of the single asset
4 (1) The company is treated as having given, wholly and exclusively for the acquisition of the single asset, consideration equal to the amount of capital contributed by it on becoming a member of the partnership.
(2) Any further amounts of capital contributed by it to the partnership are treated on a disposal of the single asset as expenditure incurred wholly and exclusively on the asset for the purpose of enhancing its value and reflected in its state or nature at the time of the disposal.
(3) Where the investments of the partnership include qualifying corporate bonds, the amount to be taken into account under sub-paragraph (1) or (2) is proportionately reduced.
(4) The reduction is made by applying to that amount the fraction:
A-BA
where—
A is the book value of all shares and securities held by the partnership at the end of the period of account of the partnership in which the amount of capital in question is fully invested by the partnership, and
B is the book value of all qualifying corporate bonds held by the partnership at the end of that period of account.
(5) For the purposes of sub-paragraph (4) the “book value” means the value shown in the partnership’s accounts at the end of the period of account.
Deemed disposal of single asset in case of distribution
5 (1) There is a disposal of the single asset on each occasion on which the company receives a distribution from the partnership that does not consist entirely of income or the proceeds of sale or redemption of assets that are not relevant assets.
(2) The disposal is taken to be for a consideration equal to the amount of the distribution or of so much of it as does not consist of income or the proceeds of sale or redemption of assets that are not relevant assets.
(3) Where—
(a) the partnership disposes of relevant assets on which a chargeable gain or allowable loss would accrue if they were held by the company alone, and
(b) no distribution of the proceeds of the disposal is made within twelve months of the disposal,
the company is treated as having received its share of the proceeds as a distribution at the end of the period of account of the partnership following that in which the disposal took place, or at the end of the period of six months after the date of the disposal, whichever is the later.
(4) The operation of sub-paragraph (3) is not affected by the partnership having ceased to be a venture capital investment partnership before the time at which the distribution is treated as received by the company.
(5) Where sub-paragraph (3) applies, any subsequent actual distribution of the proceeds is disregarded.
Apportionment in case of part disposal
6 (1) For the purposes of section 42 (apportionment of cost etc in case of part disposal) the market value of the property remaining undisposed of on a part disposal of the single asset shall be determined as follows.
(2) If there is no further disposal of that asset in the period of account in which the part disposal in question takes place, the market value of the property remaining undisposed of shall be taken to be equal to the company’s share of the book value of the relevant assets of the partnership as shown in the partnership’s accounts at the end of that period of account.
(3) If there is a further disposal of that asset in the period of account in which the part disposal in question takes place, or more than one, the market value of the property remaining undisposed of shall be taken to be equal to the sum of—
(a) the amount or value of the consideration on the further disposal or, as the case may be, the total amount or value of the consideration on the further disposals, and
(b) the amount (if any) of the company’s share of the book value of the relevant assets of the partnership as shown in the partnership’s accounts at the end of that period of account.
Disposal of partnership asset giving rise to offshore income gain
7 (1) Nothing in this Schedule shall be read as affecting the operation of regulations under section 354(1) of TIOPA 2010 (see the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001)).
(2) Where an offshore income gain accrues to the company under such regulations from the disposal of any relevant asset of the partnership, the amount of any distribution received or treated as received by the company from the partnership that represents the whole or part of the proceeds of disposal of that asset is treated for the purposes of this Schedule as reduced by the amount of the whole or a corresponding part of the offshore income gain.
Exclusion of negligible value claim
8 No claim may be made in respect of the single asset under section 24(2) (assets that have become of negligible value).
Investment in other venture capital investment partnerships
9 (1) For the purposes of paragraph 2 (meaning of “venture capital investment partnership”) an investment by way of capital contribution to another venture capital investment partnership shall be treated as an investment in unquoted shares or securities.
(2) The Treasury may by regulations make provision, in place of but corresponding to that made by paragraphs 3 to 8, in relation to gains accruing on a disposal of relevant assets by such a partnership.
(3) The regulations may make provision for any period of account to which, in accordance with paragraphs 11 to 13, this Schedule applies.
Interpretation
10 (1) In this Schedule—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“limited partner” means—
a person carrying on a business as a limited partner in a partnership registered under the Limited Partnership Act 1907, or
a person carrying on a business jointly with others who, under the law of a country or territory outside the United Kingdom, is not entitled to take part in the management of the business and is not liable beyond a certain limit for debts or obligations incurred for the purposes of the business;
“relevant assets” has the meaning given by paragraph 3(3);
“securities” has the same meaning as in section 132 and also includes any debentures;
“unquoted” and “quoted”, in relation to shares or securities, refer to listing on a recognised stock exchange.
(2) References in this Schedule to the partnership’s accounts are to accounts drawn up in accordance with generally accepted accounting practice.
If no such accounts are drawn up, the references to the treatment of any matter, or the amounts shown, in the accounts of the partnership are to what would have appeared if accounts had been drawn up in accordance with generally accepted accounting practice.
(3) References in this Schedule to capital contributed to a limited partnership include amounts purporting to be provided by way of loan if—
(a) the loan carries no interest,
(b) all the limited partners are required to make such loans, and
(c) the loans are accounted for as partners' capital, or partners' equity, in the accounts of the partnership.
(4) For the purposes of this Schedule the assets of—
(a) a Scottish partnership, or
(b) a partnership under the law of any other country or territory under which assets of a partnership are regarded as held by or on behalf of the partnership as such,
shall be treated as held by the members of the partnership in the proportions in which they are entitled to share in the profits of the partnership.
References in this Schedule to the company’s interest in, or share of, the partnership’s assets shall be construed accordingly.
General commencement and transitional provisions
11 (1) Subject to paragraph 12 (election to remain outside Schedule), this Schedule applies—
(a) to periods of account of the partnership beginning on or after 1st January 2002, and
(b) to a period of account of the partnership beginning before that date and ending on or after it, unless the company elects that it shall not do so.
(2) Where the company became a member of the partnership before the beginning of the first period of account of the partnership to which this Schedule applies, the cost of the single asset at the beginning of that period of account shall be taken to be equal to the total of the relevant indexed base costs.
(3) For the purposes of sub-paragraph (2)—
(a) the “indexed base cost” means—
(i) in relation to a holding that by virtue of section 104 is to be treated as a single asset, what would be the indexed pool of expenditure within the meaning of section 110 if the holding were disposed of, and
(ii) in relation to any other asset, the amount of expenditure together with the indexation allowance that would be fall to be deducted if the asset were disposed of; and
(b) the “relevant indexed base costs” means the indexed base costs that would be taken into account in computing in accordance with section 59 the gain or loss of the company if all the shares and securities (other than qualifying corporate bonds) held by the partnership were disposed of on the last day of the company’s accounting period immediately preceding its first accounting period beginning on or after 1st January 2002.
(4) No account shall be taken under this Schedule of a distribution by the partnership in a period of account to which this Schedule applies to the extent that it represents a chargeable gain accruing in an earlier period to which this Schedule does not apply.
Election to remain outside Schedule
12 If the company—
(a) became a member of the partnership before the beginning of the first period of account of the partnership to which this Schedule would otherwise apply, or
(b) made its first contribution of capital to the partnership before 17th April 2002,
it may elect that the provisions of this Schedule shall not apply to it in relation to that partnership.
How and when election to be made
13 Any election under paragraph 11 or 12 must be made—
(a) by notice to an officer of the Board,
(b) not later than the end of the period of two years after the end of the company’s first accounting period beginning on or after 1st January 2002.
SCHEDULE 7C Relief for transfers to Schedule 2 share plans
Introductory
1 (1) A person (“the claimant”) who makes a disposal of shares (“the disposal”) to the trustees of the plan trust of a share incentive plan (“the plan”) is entitled to claim relief under paragraph 5 if—
(a) the conditions in paragraph 2 are fulfilled, and
(b) paragraph 3(1) or (2) applies.
(2) Sub-paragraph (1) does not apply to a company that makes a disposal of shares.
(3) In this paragraph the references to a disposal of shares include a disposal of an interest in shares.
Conditions relating to the disposal
2 (1) The first condition is that, at the time of the disposal, the plan is a Schedule 2 SIP under Schedule 2 to ITEPA 2003.
(2) The second condition is that the relevant shares meet the requirements in Part 4 of that Schedule (types of shares that may be awarded) in relation to the plan.
For this purpose that Part applies as if paragraph 27(1)(a) and (c) and (2) (listed shares and shares in a company under the control of a company whose shares are listed) were omitted.
(3) The third condition is that, at any time in the entitlement period, the trustees hold, for the beneficiaries of the plan trust, shares in the relevant company that—
(a) constitute not less than 10% of the ordinary share capital of the company, and
(b) carry rights to not less than 10% of—
(i) any profits available for distribution to shareholders of the company, and
(ii) any assets of that company available for distribution to its shareholders in the event of a winding up.
(4) For the purposes of sub-paragraph (3), shares that have been appropriated to, or acquired on behalf of, an individual under the plan shall continue to be treated as held by the trustees of the plan trust for the beneficiaries of that trust until such time as they cease to be subject to the plan (within the meaning given by paragraph 97 of Schedule 2 to ITEPA 2003).
(5) The fourth condition is that, at all times in the proscribed period, there are no unauthorised arrangements under which the claimant or a person connected with him may be entitled to acquire (directly or indirectly) from the trustees of the plan trust any shares, or an interest in or right deriving from any shares.
(6) For the purposes of this paragraph—
“ordinary share capital” has the meaning given in section 989 of ITA 2007;
“the relevant company” means the company of whose share capital the relevant shares form part; and
“the relevant shares” means the shares that are, or an interest in which is, the subject of the disposal.
Reinvestment of disposal proceeds
3 (1) This sub-paragraph applies if the claimant obtains consideration for the disposal and, at any time in the acquisition period, all of the amount or value of the consideration is applied by him in making an acquisition of assets or an interest in assets (“replacement assets”) which—
(a) are, immediately after the time of the acquisition, chargeable assets in relation to the claimant, and
(b) are not shares in, or debentures issued by, the relevant company or a company which is (at the time of the acquisition) in the same group as the relevant company;
but the preceding provisions of this sub-paragraph shall have effect without the words “, at any time in the acquisition period,” if the acquisition is made pursuant to an unconditional contract entered into in the acquisition period.
(2) This sub-paragraph applies if—
(a) sub-paragraph (1) would have applied but for the fact that part only of the amount or value mentioned in that sub-paragraph is applied as there mentioned, and
(b) all the amount or value so mentioned except for a part which is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal is so applied.
(3) In sub-paragraph (1)(b)—
“the relevant company” has the meaning given in paragraph 2(6); and
“group” shall be construed in accordance with section 170.
Provision supplementary to paragraphs 2 and 3
4 (1) This paragraph applies for the purposes of paragraphs 2 and 3.
(2) The entitlement period is the period beginning with the disposal and ending on the expiry of 12 months beginning with the date of the disposal.
(3) The acquisition period is the period beginning with the disposal and ending on the expiry of six months beginning with—
(a) the date of the disposal, or
(b) if later, the date on which the third condition (set out in paragraph 2(3)) is first fulfilled.
(4) The proscribed period is the period beginning with the disposal and ending on—
(a) the date of the acquisition, or
(b) if later, the date on which the third condition (set out in paragraph 2(3)) is first fulfilled.
(5) All arrangements are unauthorised unless they only allow shares to be appropriated to or acquired on behalf of an individual under the plan.
The relief
5 (1) Where the claimant is entitled to claim relief under this paragraph and paragraph 3(1) applies, he shall, on making a claim in the period of 2 years beginning with the acquisition, be treated for the purposes of this Act—
(a) as if the consideration for the disposal were (if otherwise of a greater amount or value) of such amount as would secure that on the disposal neither a gain nor a loss accrues to him, and
(b) as if the amount or value of the consideration for the acquisition were reduced by the excess of the amount or value of the actual consideration for the disposal over the amount of the consideration which the claimant is treated as receiving under paragraph (a).
(2) Where the claimant is entitled to claim relief under this paragraph and paragraph 3(2) applies, he shall, on making a claim in the period of 2 years beginning with the acquisition, be treated for the purposes of this Act—
(a) as if the amount of the gain accruing on the disposal were reduced to the amount of the part mentioned in paragraph 3(2)(b), and
(b) as if the amount or value of the consideration for the acquisition were reduced by the amount by which the gain is reduced under paragraph (a) above.
(3) Nothing in sub-paragraph (1) or (2) shall affect the treatment for the purposes of this Act of the other party to the disposal or of the other party to the acquisition.
(4) The provisions of this Act fixing the amount of the consideration deemed to be given for a disposal or acquisition shall be applied before the preceding provisions of this paragraph are applied.
Dwelling-houses: special provision
6 (1) Sub-paragraph (2) applies where—
(a) a claim is made under paragraph 5,
(b) immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, any replacement asset was a chargeable asset in relation to the claimant,
(c) the asset is a dwelling-house or part of a dwelling-house or land, and
(d) there was a time in the period beginning with the acquisition and ending with the time when paragraph 5(1) or (2) falls to be applied such that, if the asset (or an interest in it) were disposed of at that time, it would be within section 222(1) and the individual there mentioned would be the claimant or the claimant’s spouse or civil partner.
(2) In such a case the asset shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant.
(3) Sub-paragraph (4) applies where—
(a) the provisions of paragraph 5(1) or (2) have been applied,
(b) any replacement asset which, immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, was a chargeable asset in relation to the claimant consists of a dwelling-house or part of a dwelling-house or land, and
(c) there is a time after paragraph 5(1) or (2) has been applied such that, if the asset (or an interest in it) were disposed of at that time, it would be within section 222(1) and the individual there mentioned would be the claimant or the claimant’s spouse or civil partner.
(4) In such a case—
(a) the asset shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant and adjustments shall be made accordingly, but
(b) any gain treated as accruing in consequence of the application of paragraph (a) shall be treated as accruing at the time mentioned in sub-paragraph (3)(c) or, if there is more than one such time, at the earliest of them.
(5) Sub-paragraph (6) applies where—
(a) a claim is made under paragraph 5,
(b) immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, any replacement asset was a chargeable asset in relation to the claimant,
(c) the asset was an option to acquire (or to acquire an interest in) a dwelling-house or part of a dwelling-house or land,
(d) the option has been exercised, and
(e) there was a time in the period beginning with the exercise of the option and ending with the time when paragraph 5(1) or (2) falls to be applied such that, if the asset acquired on exercise of the option were disposed of at that time, it would be within section 222(1) and the individual there mentioned would be the claimant or the claimant’s spouse or civil partner.
(6) In such a case the option shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant.
(7) Sub-paragraph (8) applies where—
(a) the provisions of paragraph 5(1) or (2) have been applied,
(b) any replacement asset which, immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, was a chargeable asset in relation to the claimant consisted of an option to acquire (or to acquire an interest in) a dwelling-house or part of a dwelling-house or land,
(c) the option has been exercised, and
(d) there is a time after paragraph 5(1) or (2) has been applied such that, if the asset acquired on exercise of the option were disposed of at that time, it would be within section 222(1) and the individual there mentioned would be the claimant or the claimant’s spouse or civil partner.
(8) In such a case—
(a) the option shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant and adjustments shall be made accordingly, but
(b) any gain treated as accruing in consequence of the application of paragraph (a) shall be treated as accruing at the time mentioned in sub-paragraph (7)(d) or, if there is more than one such time, at the earliest of them.
(9) References in this paragraph to an individual include a person entitled to occupy under the terms of a settlement.
Shares: special provision
7 (1) Sub-paragraph (2) applies where—
(a) a claim is made under paragraph 5,
(b) immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, any replacement asset was a chargeable asset in relation to the claimant,
(c) the asset consists of shares, and
(d) relief is claimed under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 (enterprise investment scheme) at any time in the period beginning with the acquisition and ending when paragraph 5(1) or (2) falls to be applied.
(2) In such a case the asset shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant.
(3) Sub-paragraph (4) applies where—
(a) the provisions of paragraph 5(1) or (2) have been applied,
(b) any replacement asset which, immediately after the time of the acquisition mentioned in paragraph 3 and apart from this paragraph, was a chargeable asset in relation to the claimant consists of shares, and
(c) at any time after paragraph 5(1) or (2) has been applied relief is claimed in respect of the asset under Chapter III of Part VII of the Taxes Act or Part 5 of ITA 2007 (enterprise investment scheme).
(4) In such a case the asset shall be treated as if, immediately after the time of the acquisition mentioned in paragraph 3, it was not a chargeable asset in relation to the claimant and adjustments shall be made accordingly.
Meaning of “chargeable asset”
8 For the purposes of this Schedule an asset is a chargeable asset in relation to the claimant at a particular time if, were the asset to be disposed of at that time, any gain accruing to him on the disposal would be a chargeable gain, and either—
(a) the claimant would be chargeable to capital gains tax as a result of section 1A(1) (persons and gains chargeable to capital gains tax) in respect of the gain, or
(b) he would be chargeable to capital gains tax as a result of section 1A(3)(a) (non-resident with United Kingdom branch or agency) in respect of the gain,
unless (were he to dispose of the asset at that time) the claimant would fall to be regarded for the purposes of any double taxation relief arrangements as not liable in the United Kingdom to tax on any gains accruing to him on the disposal.
SCHEDULE 7D ... Share schemes and share incentives
Section 238A
Part 1 Schedule 2 share incentive plans
Introductory
1 (1) The provisions of this Part of this Schedule apply for capital gains tax purposes in relation to a Schedule 2 share incentive plan (“the plan”).
(2) This Part of this Schedule forms part of the SIP code (see section 488 of ITEPA 2003 ( ... share incentive plans)).
(3) Accordingly, expressions used in this Part of this Schedule and contained in the index at the end of Schedule 2 to that Act ( ... share incentive plans) have the meaning indicated by the index.
(4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.
Gains accruing to trustees
2 (1) Any gain accruing to the trustees is not a chargeable gain if the shares—
(a) are shares in relation to which the requirements of Part 4 of Schedule 2 to ITEPA 2003 ( ... share incentive plans: types of shares that may be awarded) are met, and
(b) are awarded to employees, or acquired on their behalf as dividend shares, in accordance with the plan within the relevant period.
(2) If any of the shares in the company in question are readily convertible assets at the time the shares are acquired by the trustees, the relevant period is the period of two years beginning with the date on which the shares were acquired by the trustees.
This is subject to sub-paragraph (4).
(3) If at the time of the acquisition of the shares by the trustees none of the shares in the company in question are readily convertible assets, the relevant period is—
(a) the period of five years beginning with the date on which the shares were acquired by the trustees, or
(b) if within that period any of the shares in that company become readily convertible assets, the period of two years beginning with the date on which they did so,
whichever ends first.
This is subject to sub-paragraph (4).
(4) If the shares are acquired by the trustees by virtue of a payment in respect of which a deduction is allowed under section 989 of CTA 2009 (deduction for contribution to plan trust), the relevant period is the period of ten years beginning with the date of acquisition.
(5) For the purposes of determining whether shares are awarded to a participant within the relevant period, shares acquired by the trustees at an earlier time are taken to be awarded to a participant before shares of the same class acquired by the trustees at a later time.
(6) Sub-paragraph (5) is subject to paragraph 78(1) of Schedule 2 to ITEPA 2003 (acquisition by trustees of shares from employee share ownership trust).
(7) For the purposes of this paragraph “readily convertible assets” has the meaning given by sections 701 and 702 of that Act (readily convertible assets).
This is subject to sub-paragraph (8).
(8) In determining for the purposes of this paragraph whether shares are readily convertible assets any market for the shares that—
(a) is created by virtue of the trustees acquiring shares for the purposes of the plan, and
(b) exists solely for the purposes of the plan,
shall be disregarded.
(9) In relation to shares acquired by the trustees before 11th May 2001 this paragraph has effect with the substitution—
(a) in sub-paragraph (2), of “If the shares are readily convertible assets at the time they” for the words before “are acquired”, and
(b) in sub-paragraph (3)—
(i) of “If at the time of their acquisition by the trustees the shares are not readily convertible assets” for the words before “the relevant period”, and
(ii) in paragraph (b), of “the shares in question” for “any of the shares in that company”.
Participant absolutely entitled as against trustees
3 (1) Sub-paragraph (2) applies to any shares awarded to a participant under the plan.
(2) The participant is treated for capital gains tax purposes as absolutely entitled to those shares as against the trustees.
(3) Sub-paragraph (2) applies notwithstanding anything in the plan or the trust instrument.
Different classes of shares
4 (1) For the purposes of Chapter 1 of Part 4 of this Act (shares, securities, options etc: general) a participant’s plan shares are treated, so long as they are subject to the plan, as of a different class from any shares (which would otherwise be treated as of the same class) that are not plan shares.
(2) For the purposes of that Chapter, any shares to which sub-paragraph (3) applies shall be treated as of a different class from any shares to which sub-paragraph (4) applies, even if they would otherwise fall to be treated as of the same class.
(3) This sub-paragraph applies to any shares transferred to the trustees of the plan trust by a qualifying transfer that have not been awarded to participants under the plan.
(4) This sub-paragraph applies to any shares held by the trustees that were not transferred to them by a qualifying transfer.
(5) In this paragraph “qualifying transfer” has the meaning given in paragraph 78(2) of Schedule 2 to ITEPA 2003 (acquisition by trustees of shares from employee share ownership trust).
(6) For the purposes of Chapter 1 of Part 4 of this Act any shares which—
(a) were acquired by the trustees by virtue of a payment in respect of which a deduction is allowed under paragraph 9 of Schedule 4AA to the Taxes Act (deduction for contribution to plan trust), and
(b) have not been awarded under the plan,
shall be treated as of a different class from any shares held by the trustees that were not so acquired by them, even if they would otherwise fall to be treated as of the same class.
No chargeable gain on shares ceasing to be subject to the plan
5 (1) Shares which cease to be subject to the plan are treated as having been disposed of and immediately reacquired by the participant at market value.
(2) Any gain accruing on that disposal is not a chargeable gain.
Deemed disposal by trustees on disposal of beneficial interest
6 (1) If at any time the participant’s beneficial interest in any of his shares is disposed of, the shares in question shall be treated for the purposes of the SIP code as having been disposed of at that time by the trustees for the like consideration as was obtained for the disposal of the beneficial interest.
(2) For this purpose there is no disposal of the participant’s beneficial interest if and at the time when—
(a) in England and Wales or Northern Ireland, that interest becomes vested in any person on the insolvency of the participant or otherwise by operation of law, or
(b) in Scotland, that interest becomes vested in a judicial factor, in a trustee of the participant’s sequestrated estate or in a trustee for the benefit of the participant’s creditors.
(3) If a disposal of shares falling within this paragraph is not at arm’s length, the proceeds of the disposal shall be taken for the purposes of the SIP code to be equal to the market value of the shares at the time of the disposal.
Treatment of forfeited shares
7 (1) If any of the participant’s plan shares are forfeited, they are treated as having been disposed of by the participant and acquired by the trustees at market value at the date of forfeiture.
(2) Any gain accruing on that disposal is not a chargeable gain.
Disposal of rights under rights issue
8 (1) Any gain accruing on the disposal of rights under paragraph 77 of Schedule 2 to ITEPA 2003 (power of trustees to raise funds to subscribe for rights issue) is not a chargeable gain.
(2) Sub-paragraph (1) does not apply to a disposal of rights unless similar rights are conferred in respect of all ordinary shares in the company.
Part 2 Schedule 3 SAYE option schemes
Introductory
9 (1) This Part of this Schedule forms part of the SAYE code (see section 516 of ITEPA 2003 ( ... SAYE option schemes)).
(2) Accordingly, expressions used in this Part of this Schedule and contained in the index at the end of Schedule 3 to that Act ( ... SAYE option schemes) have the meaning indicated by the index.
Market value rule not to apply
10 (1) This paragraph applies where—
(a) a share option (“the option”) has been granted to an individual—
(i) in accordance with the provisions of a Schedule 3 SAYE option scheme, and
(ii) by reason of the individual’s office or employment as a director or employee of a company,
(b) the individual exercises the option in accordance with the provisions of the SAYE option scheme at a time when the scheme is a Schedule 3 SAYE option scheme, and
(c) condition A or condition B in section 519(2) or (3) of ITEPA 2003 (no charge in respect of exercise of option) is met.
(2) The company mentioned in sub-paragraph (1)(a)(ii) may be—
(a) the company whose shares are the subject of the option, or
(b) some other company.
(3) Sub-paragraph (3A) applies for the purposes of sub-paragraph (1)(b) if—
(a) the SAYE option scheme is not to be a Schedule 3 SAYE option scheme by virtue of paragraph 40H or 40I of Schedule 3 to ITEPA 2003, and
(b) the option was granted before, but exercised at or after, the time mentioned in paragraph 40H(2)(a)(i) or (ii) or 40I(7)(a)(i) or (ii) of that Schedule (as the case may be).
(3A) The scheme is to be taken still to be a Schedule 3 SAYE option scheme when the option is exercised.
(4) Section 17(1) (disposals and acquisitions treated as made at market value) shall not apply in calculating the consideration for—
(a) the individual’s acquisition of shares by the exercise of the option, or
(b) any corresponding disposal of those shares to the individual.
(5) References in sub-paragraphs (1)(b) and (4) above to the individual include references to a person exercising the option in accordance with provision included in the scheme by virtue of paragraph 32 of Schedule 3 to ITEPA 2003 (exercise of options: death); and sub-paragraph (1)(c) above does not apply in relation to a person so exercising the option.
Part 3 Schedule 4 CSOP schemes
Introductory
11 (1) This Part of this Schedule forms part of the CSOP code (see section 521 of ITEPA 2003 ( ... CSOP schemes)).
(2) Accordingly, expressions used in this Part of this Schedule and contained in the index at the end of Schedule 4 to that Act ( ... CSOP schemes) have the meaning indicated by the index.
(3) This Part of this Schedule applies where—
(a) a share option (“the option”) has been granted to an individual—
(i) in accordance with the provisions of a Schedule 4 CSOP scheme, and
(ii) by reason of the individual’s office or employment as a director or employee of a company, and
(b) shares (“the relevant shares”) are acquired by the exercise of the option.
(4) The company mentioned in sub-paragraph (3)(a)(ii) may be—
(a) the company whose shares are the subject of the option, or
(b) some other company.
Relief where income tax charged in respect of grant of option
12 (1) This paragraph applies where an amount (the “employment income amount”) counted as employment income of the individual under section 526 of ITEPA 2003 (charge where option granted at a discount) in respect of the option.
(2) For the purposes of section 38(1)(a) (acquisition and disposal costs etc.), that part of the employment income amount which is attributable to the relevant shares shall be treated as consideration given for the acquisition of the relevant shares.
(3) This paragraph also applies where the individual was chargeable to income tax on an amount in respect of the option under—
(a) subsection (6) of section 185 of ICTA (as it had effect before 1st January 1992),
(b) subsection (6A) of that section (as it had effect in relation to options obtained on or after 1st January 1992 but before 29th April 1996), or
(c) subsection (6) of that section (as it had effect in relation to options obtained on or after 29th April 1996);
and in such a case the “employment income amount” means the amount on which the individual was so chargeable.
(4) This paragraph applies whether or not—
(a) the exercise of the option is in accordance with the provisions of the CSOP scheme, or
(b) the CSOP scheme is a Schedule 4 CSOP scheme at the time of the exercise.
Market value rule not to apply
13 (1) This paragraph applies where—
(a) the individual exercises the option in accordance with the provisions of the CSOP scheme at a time when the scheme is a Schedule 4 CSOP scheme, and
(b) the condition in section 524(2) of ITEPA 2003 (no charge in respect of exercise of option) is met.
(2) Section 17(1) (disposals and acquisitions treated as made at market value) shall not apply in calculating the consideration for—
(a) the individual’s acquisition of the relevant shares by the exercise of the option, or
(b) any corresponding disposal of the relevant shares to the individual.
(3) Sub-paragraph (2) also applies where the option is exercised at a time when the scheme is a Schedule 4 CSOP scheme in accordance with provision included in the scheme by virtue of paragraph 25 of Schedule 4 to ITEPA 2003 (exercise of options: death); and references in that sub-paragraph to the individual are to be read accordingly.
Part 4 Enterprise management incentives
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 240.
Leases of land as wasting assets: curved line restriction of allowable expenditure
1 (1) A lease of land shall not be a wasting asset until the time when its duration does not exceed 50 years.
(2) If at the beginning of the period of ownership of a lease of land it is subject to a sublease not at a rackrent and the value of the lease at the end of the duration of the sublease, estimated as at the beginning of the period of ownership, exceeds the expenditure allowable under section 38(1)(a) in computing the gain accruing on a disposal of the lease, the lease shall not be a wasting asset until the end of the duration of the sublease.
(3) In the case of a wasting asset which is a lease of land the rate at which expenditure is assumed to be written off shall, instead of being a uniform rate as provided by section 46, be a rate fixed in accordance with the Table below.
(4) Accordingly, for the purposes of the computation of the gain accruing on a disposal of a lease, and given that —
(a) the percentage derived from the Table for the duration of the lease at the beginning of the period of ownership is P(1),
(b) the percentage so derived for the duration of the lease at the time when any item of expenditure attributable to the lease under section 38(1)(b) is first reflected in the nature of the lease is P(2), and
(c) the percentage so derived for the duration of the lease at the time of the disposal is P(3), then—
(i) there shall be excluded from the expenditure attributable to the lease under section 38(1)(a) a fraction equal to —
P (1) - P (3 ) ,
P (1)
and
(ii) there shall be excluded from any item of expenditure attributable to the lease under section 38(1)(b) a fraction equal to—
P (2) - P (3 ) .
P (2)
(5) This paragraph applies notwithstanding that the period of ownership of the lease is a period exceeding 50 years and, accordingly, no expenditure shall be written off under this paragraph in respect of any period earlier than the time when the lease becomes a wasting asset.
(6) Section 47 shall apply in relation to this paragraph as it applies in relation to section 46.
Table
Years | Percentage
50 (or more) | 100
49 | 99.657
48 | 99.289
47 | 98.902
46 | 98.490
45 | 98.059
44 | 97.595
43 | 97.107
42 | 96.593
41 | 96.041
40 | 95.457
39 | 94.842
38 | 94.189
37 | 93.497
36 | 92.761
35 | 91.981
34 | 91.156
33 | 90.280
32 | 89.354
31 | 88.371
30 | 87.330
29 | 86.226
28 | 85.053
27 | 83.816
26 | 82.496
25 | 81.100
24 | 79.622
23 | 78.055
22 | 76.399
21 | 74.635
20 | 72.770
19 | 70.791
18 | 68.697
17 | 66.470
16 | 64.116
15 | 61.617
14 | 58.971
13 | 56.167
12 | 53.191
11 | 50.038
10 | 46.695
9 | 43.154
8 | 39.399
7 | 35.414
6 | 31.195
5 | 26.722
4 | 21.983
3 | 16.959
2 | 11.629
1 | 5.983
0 | 0
If the duration of the lease is not an exact number of years the percentage to be derived from the Table above shall be the percentage for the whole number of years plus one-twelfth of the difference between that and the percentage for the next higher number of years for each odd month counting an odd 14 days or more as one month.
Premiums for leases
2 (1) Subject to this Schedule where the payment of a premium is required under a lease of land, or otherwise under the terms subject to which a lease of land is granted, there is a part disposal of the freehold or other asset out of which the lease is granted.
(2) In applying section 42 to such a part disposal, the property which remains undisposed of includes a right to any rent or other payments, other than a premium, payable under the lease, and that right shall be valued as at the time of the part disposal.
3 (1) This paragraph applies in relation to a lease of land.
(2) Where under the terms subject to which a lease is granted, a sum becomes payable by the tenant in lieu of the whole or part of the rent for any period, or as consideration for the surrender of the lease, the lease shall be deemed for the purposes of this Schedule to have required the payment of a premium to the landlord (in addition to any other premium) of the amount of that sum, being a premium which—
(a) is due when the sum is payable by the tenant; and
(b) where the sum is payable in lieu of rent, is in respect of the period in relation to which the sum is payable.
(3) Where, as consideration for the variation or waiver of any of the terms of a lease, a sum becomes payable by the tenant otherwise than by way of rent, the lease shall be deemed for the purposes of this Schedule to have required the payment of a premium to the landlord (in addition to any other premium) of the amount of that sum, being a premium which—
(a) is due when the sum is payable by the tenant; and
(b) is in respect of the period from the time when the variation or waiver takes effect to the time when it ceases to have effect.
(4) Where under sub-paragraph (2) or (3) above a premium is deemed to have been received by the landlord, that shall not be the occasion of any recomputation of the gain accruing on the receipt of any other premium, and the premium shall be regarded—
(a) in the case of a premium deemed to have been received for the surrender of a lease, as consideration for a separate transaction which is effected when the premium is deemed to be due and consists of the disposal by the landlord of his interest in the lease; and
(b) in any other case, as consideration for a separate transaction which is effected when the premium is deemed to be due and consists of a further part disposal of the freehold or other asset out of which the lease is granted.
(5) If under sub-paragraph (2) or (3) above a premium is deemed to have been received by the landlord, otherwise than as consideration for the surrender of the lease, and the landlord is a tenant under a lease the duration of which does not exceed 50 years, this Schedule shall apply—
(a) as if an amount equal to the amount of that premium deemed to have been received had been given by way of consideration for the grant of the part of the sublease covered by the period in respect of which the premium is deemed to have been paid; and
(b) as if that consideration were expenditure incurred by the sublessee and attributable to that part of the sublease under section 38(1)(b).
(7) Sub-paragraph (3) above shall apply in relation to a transaction not at arm's length, and in particular in relation to a transaction entered into gratuitously, as if such sum had become payable by the tenant otherwise than by way of rent as might have been required of him if the transaction had been at arm's length.
Subleases out of short leases
4 (1) In the computation of the gain accruing on the part disposal of a lease which is a wasting asset by way of the grant of a sublease for a premium the expenditure attributable to the lease under paragraphs (a) and (b) of section 38(1) shall be apportioned in accordance with this paragraph, and section 42 shall not apply.
(2) Out of each item of the expenditure attributable to the lease under paragraphs (a) and (b) of section 38(1) there shall be apportioned to what is disposed of —
(a) if the amount of the premium is not less than what would be obtainable by way of premium for the said sublease if the rent payable under that sublease were the same as the rent payable under the lease, the fraction which, under paragraph 1(3) of this Schedule, is to be written off over the period which is the duration of the sublease, and
(b) if the amount of the premium is less than the said amount so obtainable, the said fraction multiplied by a fraction equal to the amount of the said premium divided by the said amount so obtainable.
(3) If the sublease is a sublease of part only of the land comprised in the lease this paragraph shall apply only in relation to a proportion of the expenditure attributable to the lease under paragraphs (a) and (b) of section 38(1) which is the same as the proportion which the value of the land comprised in the sublease bears to the value of that and the other land comprised in the lease; and the remainder of that expenditure shall be apportioned to what remains undisposed of.
Exclusion of premiums taxed as receipts of a property business etc.
5 (1) Where by reference to any premium any amount is brought into account by virtue of any of sections 277 to 281 of ITTOIA 2005 or sections 217 to 221 of CTA 2009 as a receipt of a UK property business, that amount out of the premium shall be excluded from the consideration brought into account in the computation of the gain accruing on the disposal for which the premium is consideration except where the consideration is taken into account in the denominator of the fraction by reference to which an apportionment is made under section 42.
(2) Where by reference to any premium in respect of a sublease granted out of a lease the duration of which (that is of the lease) does not, at the time of granting the lease, exceed 50 years, any amount is brought into account by virtue of any of sections 277 to 281 of ITTOIA 2005 or sections 217 to 221 of CTA 2009 as a receipt of a UK property business that amount shall be deducted from any gain accruing on the disposal for which the premium is consideration as computed in accordance with the provisions of this Act apart from this sub-paragraph, but not so as to convert the gain into a loss, or to increase any loss.
(3) Subject to subsection (4) below, where any amount is brought into account by virtue of section 284 or 285 of ITTOIA 2005 or section 224 or 225 of CTA 2009 (sale of land with right to reconveyance or leaseback) as a receipt of a UK property business, a sum of that amount shall be excluded from the consideration brought into account in the computation of the gain accruing on the disposal of the estate or interest in respect of which income tax becomes so chargeable, except where the consideration is taken into account in the denominator of the fraction by reference to which an apportionment is made under section 42.
(4) If what is disposed of is the remainder of a lease or a sublease out of a lease the duration of which does not exceed 50 years, sub-paragraph (3) shall not apply but the amount there referred to shall be deducted from any gain accruing on the disposal as computed in accordance with the provisions of this Act apart from this sub-paragraph and sub-paragraph (3), but not so as to convert the gain into a loss, or to increase any loss.
(5) References in sub-paragraphs (1) and (2) above to a premium include references to—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) a sum that becomes payable by the tenant under the terms subject to which a lease is granted in lieu of the whole or a part of the rent for any period,
(c) a sum that becomes payable by the tenant under the terms subject to which a lease is granted as consideration for the surrender of the lease, and
(d) a sum that becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of any of the terms of a lease.
(6) Section 37 shall not be taken as authorising the exclusion of any amount from the consideration for a disposal of assets taken into account in the computation of the gain by reference to any amount from which a sum representing income tax is required to be deducted under Part 15 of ITA 2007.
6 (1) If under section 292 of ITTOIA 2005 or section 232 of CTA 2009 (allowance where, by the grant of a sublease, a lessee has converted a capital amount into a right to income) a person is to be treated as incurring expenses in consequence of having granted a sublease, the amount of any loss accruing to the person on the disposal by way of the grant of the sublease shall be reduced by the total amount of rent which the person is thereby treated as paying, or the total amount of expenses which the person is thereby treated as incurring, over the term of the sublease (and without regard to whether relief is thereby effectively given over the term of the sublease), but not so as to convert the loss into a gain, or to increase any gain.
(2) Nothing in section 37 of this Act shall be taken as applying in relation to any amount brought into account by virtue of section 282 of ITTOIA 2005 or section 222 of CTA 2009 (assignments for profit of lease granted at undervalue) as a receipt of a UK property business..
(3) If any adjustment is made—
(a) under section 301 or 302 of ITTOIA 2005, or
(b) under section 238 or 239 of CTA 2009,
on a claim made under that section, any necessary adjustment shall be made to give effect to the consequences of the claim on the operation of this paragraph or paragraph 5 above.
7 If—
(a) under section 277 of ITTOIA 2005 any amount is brought into account by virtue of section 278 of that Act as a receipt of a UK property business which is carried on by any person, or
(b) under section 217 of CTA 2009 any amount is brought into account by virtue of section 218 of that Act as a receipt of a UK property business which is carried on by any company,
that person shall be treated for the purposes of the computation of any gain accruing to him as having incurred at the time the lease was granted expenditure of that amount (in addition to any other expenditure) attributable to the asset under section 38(1)(b).
7A References in paragraphs 5 to 7 above to an amount brought into account as a receipt of a ... UK property business include references to an amount brought into account as a receipt of an overseas property business.
Duration of leases
8 (1) In ascertaining for the purposes of this Act the duration of a lease of land the following provisions shall have effect.
(2) Where the terms of the lease include provision for the determination of the lease by notice given by the landlord, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice given by the landlord.
(3) Where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease, the lease shall not be treated as having been granted for a term longer than one ending on that date.
(4) Sub-paragraph (3) applies in particular where the lease provides for the rent to go up after a given date, or for the tenant⿿s obligations to become in any other respect more onerous after a given date, but includes provision for the determination of the lease on that date, by notice given by the tenant, and those provisions render it unlikely that the lease will continue beyond that date.
(5) Where the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the tenant this paragraph shall apply as if the term of the lease extended for as long as it could be extended by the tenant, but subject to any right of the landlord by notice to determine the lease.
(6) It is hereby declared that the question what is the duration of a lease is to be decided, in relation to the grant or any disposal of the lease, by reference to the facts which were known or ascertainable at the time when the lease was acquired or created.
Leases of property other than land
9 (1) Paragraphs 2, 3, 4 and 8 of this Schedule shall apply in relation to leases of property other than land as they apply to leases of land, but subject to any necessary modifications.
(2) Where by reference to any capital sum within the meaning of section 681DM of ITA 2007 (leases of assets other than land) any person has been charged to income tax on any amount, that amount out of the capital sum shall be deducted from any gain accruing on the disposal for which that capital sum is consideration, as computed in accordance with the provisions of this Act apart from this sub-paragraph, but not so as to convert the gain into a loss, or increase any loss.
(3) In the case of a lease of a wasting asset which is movable property the lease shall be assumed to terminate not later than the end of the life of the wasting asset.
Interpretation
10 (1) In this Act, unless the context otherwise requires “lease” —
(a) in relation to land, includes an underlease, sublease or any tenancy or licence, and any agreement for a lease, underlease, sublease or tenancy or licence and, in the case of land outside the United Kingdom, any interest corresponding to a lease as so defined,
(b) in relation to any description of property other than land, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, property,
and “lessor”, “lessee” and “rent” shall be construed accordingly.
(2) In this Schedule “premium” includes any like sum, whether payable to the intermediate or a superior landlord, and for the purposes of this Schedule any sum (other than rent) paid on or in connection with the granting of a tenancy shall be presumed to have been paid by way of premium except in so far as other sufficient consideration for the payment can be shown to have been given.
(3) In the application of this Schedule to Scotland “premium” includes in particular a grassum payable to any landlord or intermediate landlord on the creation of a sublease.
SCHEDULE 8B Hold-over relief for gains re-invested in social enterprises
Section 255A
When does the Schedule apply?
1 (1) This Schedule applies if—
(a) a chargeable gain accrues to an individual (“the investor”),
(b) the investor acquires one or more assets (“the social holding”),
(c) the investor is eligible for SI relief under Part 5B of ITA 2007 in respect of the consideration given for the social holding, and
(d) conditions A, B, C, D and E are met.
(2) Condition A is that the gain is one that accrues—
(a) on the disposal by the investor of an asset,
(b) in accordance with section 169N (but see sub-paragraph (7)), or
(c) as a result of the operation of paragraph 5 in connection with a chargeable event within paragraph 6(1)(c) or (d).
(3) Condition B is that the gain is one that accrues—
(a) on or after 6 April 2014, and
(b) before 6 April 2023 (but see sub-paragraph (8)).
(4) Condition C is that the investor is resident in the United Kingdom—
(a) when the gain accrues, and
(b) when the social holding is acquired.
(5) Condition D is that the social holding is acquired by the investor on the investor's own behalf.
(6) Condition E is that the social holding is acquired—
(a) in the 3 years beginning with the day when the gain accrues, or
(b) in the year that ends at the beginning of that day.
(7) The reference in sub-paragraph (2)(b) to a gain accruing in accordance with section 169N does not include such a gain so far as it is chargeable to capital gains tax at the rate in section 169N(3) (rate where business asset disposal relief is available).
(8) The Treasury may by order substitute a later date for the date for the time being specified in sub-paragraph (3)(b).
2 (1) This Schedule also applies if—
(a) a chargeable gain accrues to an individual (“the investor”),
(b) the gain accrues as a result of the operation of paragraph 5 in connection with a chargeable event within paragraph 6(1)(a), (b) or (c),
(c) the chargeable event is either—
(i) a disposal to a social enterprise of shares in or debentures of the social enterprise, or
(ii) the cancellation, extinguishment, redemption or repayment by a social enterprise of shares in or debentures of the social enterprise,
(d) as part of the chargeable event or in connection with it, and in place of the shares or debentures, the investor acquires one or more assets (“the social holding”) from the social enterprise,
(e) other than the investor's ceasing to hold the shares or debentures, no detriment is suffered in return for the acquisition of the social holding,
(f) the asset acquired, or each of the assets acquired, is a share in or debenture of the social enterprise,
(g) but for section 257LA of ITA 2007 (consideration for acquisition must be wholly in cash and fully paid) the investor would be eligible for SI relief under Part 5B of ITA 2007 in respect of the consideration given for the social holding, and
(h) conditions F, G, H and J are met.
(2) Condition F is that the gain is one that accrues—
(a) on or after 6 April 2014, and
(b) before 6 April 2023 (but see sub-paragraph (6)).
(3) Condition G is that the investor is resident in the United Kingdom—
(a) when the gain accrues, and
(b) when the social holding is acquired.
(4) Condition H is that the social holding is acquired by the investor on the investor's own behalf.
(5) Condition J is that the social holding is acquired—
(a) in the 3 years beginning with the day when the gain accrues, or
(b) in the year that ends at the beginning of that day.
(6) The Treasury may by order substitute a later date for the date for the time being specified in sub-paragraph (2)(b).
(7) In this paragraph “debenture” includes any instrument creating or acknowledging indebtedness.
(8) A reference in this paragraph to a social enterprise is a reference to a body that is a social enterprise for the purposes of Part 5B of ITA 2007 (see section 257J of that Act).
Interpretation of Schedule
3 (1) In the following provisions of this Schedule—
“the amount invested” means, in a case where this Schedule applies because of paragraph 1, the consideration mentioned in paragraph 1(1)(c),
“the investor” means the individual mentioned in paragraph 1(1)(a) or, as the case may be, paragraph 2(1)(a),
“the original gain” means the chargeable gain mentioned in paragraph 1(1)(a) or, as the case may be, paragraph 2(1)(a), and
“the social holding” means the asset or assets mentioned in paragraph 1(1)(b) or, as the case may be, paragraph 2(1)(d).
(2) In this Schedule, a “disposal within marriage or civil partnership” is a disposal to which section 58 (certain disposals between spouses or civil partners) applies.
Claim to hold gain over while invested in a social enterprise
4 (1) The investor may make a claim for the original gain to be reduced—
(a) in a case within paragraph 1, by the amount invested, or by a part of that amount specified in the claim, or
(b) in a case within paragraph 2, to the extent specified in the claim,
but, in either case, subject as follows.
(2) The reduction may not be more than the original gain or, if the original gain has already been reduced under one or more of the listed provisions, the reduction may not be more than the reduced gain.
(3) In a case within paragraph 1, the claim may not relate to any part of the amount invested that under any of the listed provisions has already been set against a chargeable gain.
(4) The “listed provisions” are—
(a) sub-paragraph (1),
(b) Schedule 5B, and
(c) paragraph 1(5) of Schedule 5BB.
(5) The total of all reductions claimed by the investor under sub-paragraph (1) in any tax year must not be more than £1,000,000.
(6) If there is relief by way of a reduction under sub-paragraph (1) then, for the purposes of this Schedule, that relief—
(a) is attributable to the asset or assets that form the social holding, but
(b) ceases to be attributable to any particular asset, or to any particular part of a particular asset, when—
(i) a chargeable event occurs in relation to that asset or part, or
(ii) the person holding the asset or part dies.
Held-over gain treated as accruing on disposal etc of the qualifying investment
5 (1) This paragraph applies if there has been a reduction under paragraph 4(1).
(2) A chargeable gain equal to the amount of the reduction is treated as accruing when a chargeable event occurs in relation to the social holding without any chargeable event having previously occurred in relation to any of the holding.
(3) When a chargeable event occurs in relation to part only of the social holding without any chargeable event having previously occurred in relation to any of that part, a chargeable gain calculated in accordance with sub-paragraph (4) is treated as accruing.
(4) The calculation is—
Step 1 Subtract from the amount of the reduction any chargeable gains previously treated as accruing as a result of the operation of sub-paragraph (3).
Step 2 Attribute a proportionate part of the amount calculated at Step 1 to each part of the social holding held, immediately before the occurrence of the chargeable event in question, by the investor or a person who has acquired any part of the holding from the investor on a disposal within marriage or civil partnership.
Step 3 The amount attributed at Step 2 to the part of the social holding in relation to which that chargeable event occurs is the chargeable gain treated as accruing as a result of the operation of subparagraph (3) on the occurrence of that event.
Chargeable events
6 (1) A chargeable event occurs in relation to an asset that forms the whole or any part of the social holding if (after the acquisition of the holding)—
(a) the investor disposes of the asset otherwise than by way of a disposal within marriage or civil partnership,
(b) the asset is disposed of, otherwise than by way of a disposal to the investor, by a person who acquired the asset on a disposal made within marriage or civil partnership,
(c) the asset is cancelled, extinguished, redeemed or repaid, or
(d) any of the conditions in Chapters 3 and 4 of Part 5B of ITA 2007 for the investor's eligibility for SI relief under that Part in respect of the amount invested fails to be met.
In this sub-paragraph “asset” includes part of an asset.
(2) In the event of the death of—
(a) the investor, or
(b) a person who, on a disposal within marriage or civil partnership, has acquired the whole or any part of the social holding,
nothing which occurs at or after the time of death is a chargeable event in relation to any part of the holding held by the deceased person immediately before the time of death.
(3) If a person makes a disposal of assets of a particular class while retaining other assets of that class—
(a) assets of that class acquired by the person on an earlier day are treated for the purposes of this Schedule as disposed of before assets of that class acquired by the person on a later day, and
(b) assets of that class acquired by the person on the same day are treated for the purposes of this Schedule as disposed of in the following order—
(i) first, any to which neither relief under this Schedule, nor SI relief under Part 5B of ITA 2007, is attributable,
(ii) next, any to which relief under this Schedule, but not SI relief under that Part, is attributable,
(iii) next, any to which SI relief under that Part, but not relief under this Schedule, is attributable, and
(iv) finally, any to which both SI relief under that Part, and relief under this Schedule, are attributable.
(4) For the purposes of sub-paragraph (3), assets—
(a) to which relief under this Schedule is attributable, and
(b) which have not been held continuously by the investor since the social holding was acquired,
are treated as having been acquired when the social holding was acquired if SI relief under Part 5B of ITA 2007 is not also attributable to them.
(5) For the purposes of sub-paragraph (3), assets—
(a) to which SI relief under Part 5B of ITA 2007 is attributable, and
(b) which were transferred to an individual as mentioned in section 257T of ITA 2007 (transfers between spouses or civil partners),
are treated as having been acquired when the social holding was acquired.
(6) Chapter 1 of Part 4 of this Act has effect subject to sub-paragraphs (3) to (5).
(7) Sections 104, 105 and 106A do not apply to assets to which relief under this Schedule is attributable if SI relief under Part 5B of ITA 2007 is not also attributable to them.
(8) Where, at the time of a chargeable event, an asset that formed the whole or any part of the social holding is treated for the purposes of this Act as represented by assets which consist of or include assets other than that asset—
(a) so much of the original gain as is attributable to the asset is treated, in determining for the purposes of this paragraph the amount of the original gain to be treated as attributable to each of those assets, as apportioned in such manner as may be just and reasonable between those assets, and
(b) as between different assets treated as representing the same asset, sub-paragraphs (3) to (5) apply with the necessary modifications in relation to those assets as they would apply in relation to the asset.
(9) In order to determine, for the purposes of sub-paragraph (8), the amount of the original gain attributable to any asset, a proportionate part of the amount of the original gain is to be attributed to each asset that forms the whole or any part of so much of the social holding as is held, immediately before the occurrence of the chargeable event in question, by the investor or a person who has acquired any part of the social holding from the investor on a disposal within marriage or civil partnership.
(10) In subsections (8) and (9) references to the original gain are to so much of the original gain as remains after deduction from it of the amount of any chargeable gain treated as accruing as a result of the previous operation of paragraph 5.
Person to whom held-over gain is treated as accruing
7 (1) This paragraph applies where a chargeable gain is treated as accruing as a result of the operation of paragraph 5.
(2) If the chargeable event is a disposal, that chargeable gain is treated as accruing to the person who makes the disposal.
(3) If the chargeable event occurs—
(a) when an asset, or part of an asset, is cancelled, extinguished, redeemed or repaid, or
(b) when a condition, for eligibility for relief in respect of the consideration given for the acquisition of an asset, fails to be met,
that chargeable gain is treated as accruing to the person who holds the asset, or part, when the chargeable event occurs.
Claims: procedure
8 (1) Sections 257P(1), 257PA(1) and 257PB to 257PD of ITA 2007—
(a) apply in relation to a claim under this Schedule in respect of the social holding as they apply in relation to a claim under Part 5B to ITA 2007 in respect of an investment, and
(b) as they so apply, have effect as if any reference to the requirements for relief under that Part were a reference to the conditions for the application of this Schedule.
(2) In section 257PE(2) of ITA 2007 (power to make consequential amendments etc when amending provision about claims for SI relief) “enactment” includes (in particular) sub-paragraph (1).