For the year 1989-90 section 5 of the M1Capital GainsTax Act 1979 (annual exempt amount) shall have effect as if the amountspecified in subsection (1A) were £5,000; and accordingly subsection(1B) of that section (indexation) shall not apply for that year.
Marginal Citations
(1)In the following enactments, namely—
(a)section 128 of the M2Capital Gains Tax Act 1979 (chattelexemption by reference to consideration of £3,000),
(b)section 12(2)(b) of the M3Taxes Management Act 1970(information about assets acquired), and
(c)section 25(7) of that Act (information about assets disposed of),
for “£3,000”, in each place where it occurs, there shall besubstituted “£6,000”.
(2)This section applies to disposals on or after 6th April 1989 andaccordingly, in relation to subsection (1)(b) above, to assets acquired on orafter that date.
(1)Section 79 of the M4Finance Act 1980 (which givesgeneral relief for gifts and other disposals not at arm’s length) shall ceaseto have effect.
(2)Schedule 14 to this Act (which extends relief for gifts of businessassets, provides relief for gifts on which inheritance tax is chargeable,gifts for political parties, gifts of property of historic interest etc. orworks of art and gifts to certain maintenance funds etc., and makes provisionfor payment of tax by instalments in the case of gifts where relief is notavailable) shall have effect.
(3)This section shall have effect in relation to disposals on or after 14thMarch 1989 (except that it shall not affect the operation of any enactment inrelation to such a disposal in a case where the enactment operates inconsequence of relief having been given under section 79 of the Finance Act1980 in respect of a disposal made before that date).
Marginal Citations
(1)The following section shall be inserted in the Capital Gains Tax Act 1979after section 146—
(1)Subsection (2) below shall apply where—
(a)a disposal of an estate or interest in land in the United Kingdom is madeto a registered housing association otherwise than under a bargain at arm’slength, and
(b)a claim for relief under this section is made by the transferor and theassociation.
(2)Section 29A(1) above (consideration deemed to be equal to market value)shall not apply; but if the disposal is by way of gift or for a considerationnot exceeding the sums allowable as a deduction under section 32 above,then—
(a)the disposal and acquisition shall be treated for the purposes of this Actas being made for such consideration as to secure that neither a gain nor aloss accrues on the disposal, and
(b)where, after the disposal, the estate or interest is disposed of by theassociation, its acquisition by the person making the earlier disposal shallbe treated for the purposes of this Act as the acquisition of the association.
(3)In this section “registered housing association” meansa registered housing association within the meaning of the Housing Associations Act 1985 or Part VII of the Housing (Northern Ireland) Order 1981.”
(2)This section shall apply to disposals made on or after 14th March 1989.
(1)For the year 1988-89, section 12 of the M5Capital GainsTax Act 1979 (non-resident with United Kingdom branch or agency) shall haveeffect with the insertion of the following subsection after subsection(2)—
“(2A)In the case of a disposal made on or after 14th March 1989, this sectionshall apply as if references to a trade included references to a professionor vocation, but not so as to make a person chargeable to capital gains taxby virtue of a profession or vocation which he ceased to carry on in theUnited Kingdom through a branch or agency before 14th March 1989.”
(2)For the year 1989-90 and subsequent years of assessment section 12 of theCapital Gains Tax Act 1979 shall have effect with the insertion of thefollowing subsection after subsection (2)—
“(2A)This section shall apply as if references to a trade included referencesto a profession or vocation.”
(3)Where immediately before 14th March 1989 a person is not resident and notordinarily resident in the United Kingdom but is carrying on a profession orvocation in the United Kingdom through a branch or agency, he shall be deemedfor all purposes of capital gains tax—
(a)to have disposed immediately before 14th March 1989 of every asset towhich subsection (4) below applies, and
(b)immediately to have reacquired every such asset,
at its market value at the time of the deemed disposal.
(4)This subsection applies to any asset which was held by the personimmediately before 14th March 1989 and which at the beginning of 14th March1989 is a chargeable asset in relation to him by virtue of his carrying on theprofession or vocation.
(5)For the purposes of subsection (4) above an asset is at the beginning of14th March 1989 a chargeable asset in relation to the person if, were it tobe disposed of at that time, any chargeable gains accruing to him on thedisposal would be gains in respect of which he would be chargeable to capitalgains tax under section 12(1) of the Capital Gains Tax Act 1979.
(6)In the case of a person carrying on a profession or vocation in the UnitedKingdom through a branch or agency, the charge to capital gains tax undersection 12(1) of the Capital Gains Tax Act 1979 shall not apply in respect ofchargeable gains accruing on the disposal of assets only used in or for thepurposes of the profession or vocation before 14th March 1989 or only used orheld for the purposes of the branch or agency before that date.
Marginal Citations
(1)Where an asset ceases by virtue of becoming situated outside the UnitedKingdom to be a chargeable asset in relation to a person, he shall be deemedfor all purposes of the M6Capital Gains Tax Act 1979—
(a)to have disposed of the asset immediately before the time when it becamesituated outside the United Kingdom, and
(b)immediately to have reacquired it,
at its market value at that time.
(2)Subsection (1) above does not apply—
(a)where the asset becomes situated outside the United Kingdomcontemporaneously with the person there mentioned ceasing to carry on a tradein the United Kingdom through a branch or agency, or
(b)where the asset is an exploration or exploitation asset.
(3)Where an asset ceases to be a chargeable asset in relation to a person byvirtue of his ceasing to carry on a trade in the United Kingdom through abranch or agency, he shall be deemed for all purposes of the Capital Gains TaxAct 1979—
(a)to have disposed of the asset immediately before the time when he ceasedto carry on the trade in the United Kingdom through a branch or agency, and
(b)immediately to have reacquired it,
at its market value at that time.
[F1(3A)Subsection (3) above shall not apply to an asset by reason of a transferof the whole or part of the long term business of an insurance company toanother company if section 267 of the Taxes Act 1970 has effect in relationto the asset by virtue of section 267A of that Act.]
(4)Subsection (3) above does not apply to an asset which is a chargeableasset in relation to the person there mentioned at any time after he ceasesto carry on the trade in the United Kingdom through a branch or agency andbefore the end of the chargeable period in which he does so.
(5)In this section—
“exploration or exploitation asset” means an asset used inconnection with exploration or exploitation activities carried on in theUnited Kingdom or a designated area, and
“designated area” and “exploration or exploitationactivities” have the same meanings as in section 38 of the M7Finance Act 1973.
(6)For the purposes of this section an asset is at any time a chargeableasset in relation to a person if, were it to be disposed of at that time, anychargeable gains accruing to him on the disposal—
(a)would be gains in respect of which he would be chargeable to capital gainstax under section 12(1) of the Capital Gains Tax Act 1979 (non-resident withUnited Kingdom branch or agency), or
(b)would form part of his chargeable profits for corporation tax purposes byvirtue of section 11(2)(b) of the Taxes Act 1988 (non-resident companies).
(7)Subsection (1) above shall apply where an asset ceases to be situated inthe United Kingdom on or after 14th March 1989.
(8)Subsection (3) above shall apply where a person ceases to carry on a tradein the United Kingdom through a branch or agency on or after 14th March 1989.
(9)This section shall apply as if references to a trade included referencesto a profession or vocation.
Textual Amendments
F1S. 127(3A) inserted by Finance Act 1990 (c. 29, SIF 63:1),s. 48, Sch. 9 paras. 2, 7
Modifications etc. (not altering text)
C1S. 127(3) excluded by Taxes Act 1970 (c. 10, SIF 63:1), s.273A(2)(b) (as inserted by Finance Act 1990 (c.29, SIF 63:1), s. 70(1)(9))
s. 127(3) excluded (retrospectively) by Income and Corporation Taxes Act 1970 (c. 10), s. 269A(4)(b) as inserted (16.7.92 but deemed always to have had effect) by (Finance (No. 2) Act 1992 (c. 48), s. 47
Marginal Citations
M71973c. 51.
(1)For the year 1988-89, section 12 of the M8Capital GainsTax Act 1979 (non-resident with United Kingdom branch or agency) shall haveeffect with the insertion of the following subsection after subsection(1)—
“(1A)In the case of a disposal made on or after 14th March 1989, subsection (1)above only applies—
(a)if it is made at a time when the person is carrying on the trade in theUnited Kingdom through a branch or agency, or
(b)if he ceased to carry on the trade in the United Kingdom through a branchor agency before 14th March 1989.”
(2)For the year 1989-90 and subsequent years of assessment, section 12 of theCapital Gains Tax Act 1979 shall have effect with the insertion of thefollowing subsection after subsection (1)—
“(1A)Subsection (1) above does not apply unless the disposal is made at a timewhen the person is carrying on the trade in the United Kingdom through abranch or agency.”
Marginal Citations
(1)Section 115 of the Capital Gains Tax Act 1979 (roll-over relief) shall notapply in the case of a person if the old assets are chargeable assets inrelation to him at the time they are disposed of, unless the new assets arechargeable assets in relation to him immediately after the time they areacquired.
(2)Subsection (1) above shall not apply where—
(a)the person acquires the new assets after he has disposed of the oldassets, and
(b)immediately after the time they are acquired the person is resident orordinarily resident in the United Kingdom.
(3)Subsection (2) above shall not apply where immediately after the time thenew assets are acquired—
(a)the person is a dual resident, and
(b)the new assets are prescribed assets.
(4)This section shall apply where the disposal of the old assets or theacquisition of the new assets (or both) takes place on or after 14th March1989.
(5)But where the acquisition of the new assets takes place before 14th March1989 and the disposal of the old assets takes place on or after that date,this section shall not apply if the disposal of the old assets takes placewithin twelve months of the acquisition of the new assets or such longerperiod as the Board may by notice in writing allow.
(6)For the purposes of this section an asset is at any time a chargeableasset in relation to a person if, were it to be disposed of at that time, anychargeable gains accruing to him on the disposal—
(a)would be gains in respect of which he would be chargeable to capital gainstax under section 12(1) of the Capital Gains Tax Act 1979 (non-resident withUnited Kingdom branch or agency), or
(b)would form part of his chargeable profits for corporation tax purposes byvirtue of section 11(2)(b) of the Taxes Act 1988 (non-resident companies).
(7)In this section—
“dual resident” means a person who is resident or ordinarilyresident in the United Kingdom and falls to be regarded for the purposes ofany double taxation relief arrangements as resident in a territory outside theUnited Kingdom;
“double taxation relief arrangements” means arrangementshaving effect by virtue of section 788 of the Taxes Act 1988 (as extended tocapital gains tax by section 10 of the M9Capital Gains TaxAct 1979);
“prescribed asset”, in relation to a dual resident, means anasset in respect of which, by virtue of the asset being of a descriptionspecified in any double taxation relief arrangements, he falls to be regardedfor the purposes of the arrangements as not liable in the United Kingdom totax on gains accruing to him on a disposal.
(8)In this section—
(a)“the old assets” and “the new assets” havethe same meanings as in section 115 of the Capital Gains Tax Act 1979,
(b)references to disposal of the old assets include references to disposalof an interest in them, and
(c)references to acquisition of the new assets include references toacquisition of an interest in them or to entering into an unconditionalcontract for the acquisition of them.
Marginal Citations
(1)In section 38 of the M10Finance Act 1973 (territorialextension) in subsection (3B) (definition of exploration or exploitation assetfor purposes of that section)—
(a)in paragraph (a) the words “within the period of two years endingat the date of the disposal” shall be omitted, and
(b)in paragraph (b) for the words “, at some time within the period of twoyears ending at the date of the disposal, has” there shall be substitutedthe words “has at some time”.
(2)This section shall apply where assets are disposed of on or after 14thMarch 1989.
Marginal Citations
(1)Where an exploration or exploitation asset which is a mobile asset ceasesto be chargeable in relation to a person by virtue of ceasing to be dedicatedto an oil field in which he, or a person connected with him within the meaningof section 839 of the Taxes Act 1988, is or has been a participator, he shallbe deemed for all purposes of the Capital Gains Tax Act 1979—
(a)to have disposed of the asset immediately before the time when it ceasedto be so dedicated, and
(b)immediately to have reacquired it,
at its market value at that time.
(2)Where a person who is not resident and not ordinarily resident in theUnited Kingdom ceases to carry on a trade in the United Kingdom through abranch or agency, he shall be deemed for all purposes of the M11Capital Gains Tax Act 1979—
(a)to have disposed immediately before the time when he ceased to carry onthe trade in the United Kingdom through a branch or agency of every asset towhich subsection (3) below applies, and
(b)immediately to have reacquired every such asset,
at its market value at that time.
(3)This subsection applies to any exploration or exploitation asset, otherthan a mobile asset, used in or for the purposes of the trade at or before thetime of the deemed disposal.
(4)A person shall not be deemed by subsection (2) above to have disposed ofan asset if, immediately after the time when he ceases to carry on the tradein the United Kingdom through a branch or agency, the asset is used in or forthe purposes of exploration or exploitation activities carried on by him inthe United Kingdom or a designated area.
(5)Where in a case to which subsection (4) above applies the person ceasesto use the asset in or for the purposes of exploration or exploitationactivities carried on by him in the United Kingdom or a designated area, heshall be deemed for all purposes of the Capital Gains Tax Act 1979—
(a)to have disposed of the asset immediately before the time when he ceasedto use it in or for the purposes of such activities, and
(b)immediately to have reacquired it,
at its market value at that time.
(6)For the purposes of this section an asset is at any time a chargeableasset in relation to a person if, were it to be disposed of at that time, anychargeable gains accruing to him on the disposal—
(a)would be gains in respect of which he would be chargeable to capital gainstax under section 12(1) of the Capital Gains Tax Act 1979 (non-resident withUnited Kingdom branch or agency), or
(b)would form part of his chargeable profits for corporation tax purposes byvirtue of section 11(2)(b) of the Taxes Act 1988 (non-resident companies).
(7)In this section—
(a)“exploration or exploitation asset” means an asset used inconnection with exploration or exploitation activities carried on in theUnited Kingdom or a designated area;
(b)“designated area” and “exploration or exploitationactivities” have the same meanings as in section 38 of the M12Finance Act 1973; and
(c)the expressions “dedicated to an oil field” and “participator” shall be construed as if this section wereincluded in Part I of the M13Oil Taxation Act 1975.
(8)Subsection (1) above shall apply where an asset ceases to be dedicated asmentioned in that subsection on or after 14th March 1989.
(9)Subsection (2) above shall apply where a person ceases to carry on a tradein the United Kingdom through a branch or agency on or after 14th March 1989.
(10)Subsection (5) above shall apply where a person ceases to use an asset inor for the purposes of exploration or exploitation activities on or after 14thMarch 1989.
(1)For the purposes of this section, a company is a dual resident company ifit is resident in the United Kingdom and falls to be regarded for the purposesof any double taxation relief arrangements as resident in a territory outsidethe United Kingdom.
(2)Where an asset of a dual resident company becomes a prescribed asset, thecompany shall be deemed for all purposes of the M14CapitalGains Tax Act 1979—
(a)to have disposed of the asset immediately before the time at which itbecame a prescribed asset, and
(b)immediately to have reacquired it,
at its market value at that time.
(3)Subsection (2) above does not apply where the asset becomes a prescribedasset on the company becoming a company which falls to be regarded asmentioned in subsection (1) above.
(4)This section applies where an asset becomes a prescribed asset on or after14th March 1989.
(5)In this section—
“double taxation relief arrangements” means arrangementshaving effect by virtue of section 788 of the Taxes Act 1988 (as extended tocapital gains tax by section 10 of the M15Capital Gains TaxAct 1979);
“prescribed asset”, in relation to a dual resident company,means an asset in respect of which, by virtue of the asset being of adescription specified in any double taxation relief arrangements, the companyfalls to be regarded for the purposes of the arrangements as not liable in theUnited Kingdom to tax on gains accruing to it on a disposal.
(1)Where a company is a dual resident company at the time it disposes of theold assets and at the time it acquires the new assets, and the old assets arenot prescribed assets at the time of disposal, section 115 of the CapitalGains Tax Act 1979 (roll-over relief) shall not apply unless the new assetsare not prescribed assets immediately after the time of acquisition.
(2)This section shall apply where the disposal of the old assets or theacquisition of the new assets (or both) takes place on or after 14th March1989.
(3)But where the acquisition of the new assets takes place before 14th March1989 and the disposal of the old assets takes place on or after that date,this section shall not apply if the disposal takes place within twelve monthsof the acquisition or such longer period as the Board may by notice in writingallow.
(4)In this section—
“dual resident company” means a company which is resident inthe United Kingdom and falls to be regarded for the purposes of any doubletaxation relief arrangements as resident in a territory outside the UnitedKingdom;
“double taxation relief arrangements” means arrangementshaving effect by virtue of section 788 of the Taxes Act 1988 (as extended tocapital gains tax by section 10 of the M16Capital Gains TaxAct 1979);
“prescribed asset”, in relation to a dual resident company,means an asset in respect of which, by virtue of the asset being of adescription specified in any double taxation relief arrangements, the companyfalls to be regarded for the purposes of the arrangements as not liable in theUnited Kingdom to tax on gains accruing to it on a disposal.
(5)In this section—
(a)“the old assets” and “the new assets” havethe same meanings as in section 115 of the Capital Gains Tax Act 1979,
(b)references to disposal of the old assets include references to disposalof an interest in them, and
(c)references to acquisition of the new assets include references toacquisition of an interest in them or to entering into an unconditionalcontract for the acquisition of them.
Marginal Citations
(1)This section applies where—
(a)a chargeable gain has accrued to a company not resident in the UnitedKingdom (the taxpayer company) on the disposal of an asset on or after 14thMarch 1989,
(b)the gain forms part of its chargeable profits for corporation tax purposesby virtue of section 11(2)(b) of the Taxes Act 1988, and
(c)any of the corporation tax assessed on the company for the accountingperiod in which the gain accrued is not paid within six months from the timewhen it becomes payable.
(2)The Board may, at any time before the end of the period of three yearsbeginning with the time when the amount of corporation tax for the accountingperiod in which the chargeable gain accrued is finally determined, serve onany person to whom subsection (4) below applies a notice—
(a)stating the amount which remains unpaid of the corporation tax assessedon the taxpayer company for the accounting period in which the gain accruedand the date when the tax became payable, and
(b)requiring that person to pay the relevant amount within thirty days of theservice of the notice.
(3)For the purposes of subsection (2) above the relevant amount is the lesserof—
(a)the amount which remains unpaid of the corporation tax assessed on thetaxpayer company for the accounting period in which the gain accrued, and
(b)an amount equal to corporation tax on the amount of the chargeable gainat the rate in force when the gain accrued.
(4)This subsection applies to the following persons—
(a)any company which is, or within the relevant period was, a member of thesame group as the taxpayer company, and
(b)any person who is, or within the relevant period was, a controllingdirector of the taxpayer company or of a company which has, or within thatperiod had, control over the taxpayer company.
(5)Any amount which a person is required to pay by a notice under thissection may be recovered from him as if it were tax due and duly demanded ofhim; and he may recover any such amount paid by him from the taxpayer company.
(6)A payment in pursuance of a notice under this section shall not be allowedas a deduction in computing any income, profits or losses for any taxpurposes.
(7)In this section—
“director”, in relation to a company, has the meaning givenby subsection (6) of section 168 of the Taxes Act 1988 (read with subsection(9) of that section) and includes any person falling within subsection (5) ofsection 417 of that Act (read with subsection (6) of that section);
“controlling director”, in relation to a company, means adirector of the company who has control of it (construing control inaccordance with section 416 of the Taxes Act 1988);
“group” has the meaning which would be given by section 272of the Taxes Act 1970 if in that section references to residence in the UnitedKingdom were omitted and for references to 75 per cent. subsidiaries therewere substituted references to 51 per cent. subsidiaries.
(8)In this section “the relevant period” means—
(a)where the time when the chargeable gain accrues is less than twelve monthsafter 14th March 1989, the period beginning with that date and ending withthat time;
(b)in any other case, the period of twelve months ending with that time.
(1)In section 26 of the M17Capital Gains Tax Act 1979 (valueshifting: further provisions) in subsection (1)(a) (schemes whereby value ofthe asset disposed of is materially reduced) after the words “the asset”there shall be inserted the words “or a relevant asset” and at the endof that subsection there shall be inserted—
“(1A)For the purposes of this section, where the asset disposed of by a company(“the disposing company”) consists of shares in, or securities of,another company, another asset is a relevant asset if, at the time of thedisposal, it is owned by a company associated with the disposing company; butno account shall be taken of any reduction in the value of a relevant assetexcept in a case where—
(a)during the period beginning with the reduction in value and endingimmediately before the disposal by the disposing company, there is no disposalof the asset to any person, other than a disposal falling within section273(1) of the Taxes Act 1970 (transfers within a group: no gain/no loss),
(b)no disposal of the asset is treated as having occurred during that periodby virtue of section 278 of the Taxes Act 1970 (company ceasing to be memberof group), and
(c)if the reduction had not taken place but any consideration given for therelevant asset and any other material circumstances (including anyconsideration given before the disposal for the asset disposed of) wereunchanged, the value of the asset disposed of would, at the time of thedisposal, have been materially greater;
and in this subsection “securities” has the same meaningas in section 82 below.”
(2)For subsection (7) of that section there shall be substituted—
“(7)References in this section, in relation to any disposal, to a reductionin the value of an asset, where the asset consists of shares owned by acompany in another company, shall be interpreted in accordance with sections26A to 26C below and, in those sections, the disposal, the asset and thosecompanies are referred to respectively as “the section 26disposal”, “the principal asset”, “the first company” and “the second company”.”
(3)In subsection (8) of that section for the words “reference in subsection(1)(a)” there shall be substituted the words “references in subsections(1)(a) and (1A)”.
(4)This section shall have effect in respect of any disposal of an asset onor after 14th March 1989.
Marginal Citations
(1)After section 26 of the M18Capital Gains Tax Act 1979there shall be inserted—
(1)The references in section 26 above to a reduction in the value of anasset, in the case mentioned in subsection (7) of that section, do not includea reduction attributable to the payment of a dividend by the second companyat a time when it and the first company are associated, except to the extent(if any) that the dividend is attributable to chargeable profits of the secondcompany and, in such a case, the tax-free benefit shall be ascertained withoutregard to any part of the dividend that is not attributable to such profits.
(2)Subsections (3) to (11) below apply for the interpretation of subsection(1) above.
(3)Chargeable profits shall be ascertained as follows—
(a)the distributable profits of any company are chargeable profits of thatcompany to the extent that they are profits arising on a transaction caughtby this section, and
(b)where any company makes a distribution attributable wholly or partly tochargeable profits (including any profits that are chargeable profits byvirtue of this paragraph) to another company, the distributable profits of theother company, so far as they represent that distribution or so much of it aswas attributable to chargeable profits, are chargeable profits of the othercompany,
and for this purpose any loss or other amount to be set against theprofits of a company in determining the distributable profits shall be setfirst against profits other than the profits so arising or, as the case maybe, representing so much of the distribution as was attributable to chargeableprofits.
(4)The distributable profits of a company are such profits computed on acommercial basis as, after allowing for any provision properly made for tax,the company is empowered, assuming sufficient funds, to distribute to personsentitled to participate in the profits of the company.
(5)Profits of a company (“company A”) are profits arising on atransaction caught by this section where each of the following threeconditions is satisfied.
(6)The first condition is that the transaction is—
(a)a disposal of an asset by company A to another company in circumstancessuch that company A and the other company are treated as mentioned in section273(1) of the Taxes Act 1970 (transfers within a group: no gain/no loss), or
(b)an exchange, or a transaction treated for the purposes of section 85(2)and (3) below as an exchange, of shares in or debentures of a company held bycompany A for shares in or debentures of another company, being a companyassociated with company A immediately after the transaction, and is treatedby virtue of section 85(3) below as a reorganisation of share capital, or
(c)a revaluation of an asset in the accounting records of company A.
In the following conditions the “asset with enhancedvalue” means (subject to section 26C below), in the paragraph (a)case, the asset acquired by the person to whom the disposal is made, in theparagraph (b) case, the shares in or debentures of the other company and, inthe paragraph (c) case, the revalued asset.
(7)The second condition is that—
(a)during the period beginning with the transaction referred to in subsection(6) above and ending immediately before the section 26 disposal, there is nodisposal of the asset with enhanced value to any person, other than a disposalfalling within section 273(1) of the Taxes Act 1970, and
(b)no disposal of the asset with enhanced value is treated as having occurredduring that period by virtue of section 278 of the Taxes Act 1970 (companyceasing to be member of group).
(8)The third condition is that, immediately after the section 26 disposal,the asset with enhanced value is owned by a person other than the companymaking that disposal or a company associated with it.
(9)The conditions in subsections (6) to (8) above are not satisfied if—
(a)at the time of the transaction referred to in subsection (6) above,company A carries on a trade and a profit on a disposal of the asset withenhanced value would form part of the trading profits, or
(b)by reason of the nature of the asset with enhanced value, a disposal ofit could give rise neither to a chargeable gain nor to an allowable loss, or
(c)immediately before the section 26 disposal, the company owning the assetwith enhanced value carries on a trade and a profit on a disposal of the assetwould form part of the trading profits.
(10)The amount of chargeable profits of a company to be attributed to anydistribution made by the company at any time in respect of any class ofshares, securities or rights shall be ascertained by—
(a)determining the total of distributable profits, and the total ofchargeable profits, that remains after allowing for earlier distributions madein respect of that or any other class of shares, securities or rights, and fordistributions made at or to be made after that time in respect of otherclasses of shares, securities or rights, and
(b)attributing first to that distribution distributable profits other thanchargeable profits.
(11)The amount of chargeable profits of a company to be attributed to any partof a distribution made at any time to which a person is entitled by virtue ofany part of his holding of any class of shares, securities or rights, shallbe such proportion of the chargeable profits as are attributable undersubsection (10) above to the distributions made at that time in respect ofthat class as corresponds to that part of his holding.
(1)The references in section 26 above to a reduction in the value of anasset, in the case mentioned in subsection (7) of that section, do not includea reduction attributable to the disposal of any asset (“the underlyingasset”) by the second company at a time when it and the first company areassociated, being a disposal falling within section 273(1) of the Taxes Act1970 (transfers within group: no gain/no loss), except in a case withinsubsection (2) below.
(2)A case is within this subsection if the amount or value of the actualconsideration for the disposal of the underlying asset—
(a)is less than the market value of the underlying asset, and
(b)is less than the cost of the underlying asset,
unless the disposal is effected for bona fide commercial reasons and doesnot form part of a scheme or arrangements of which the main purpose, or oneof the main purposes, is avoidance of liability to corporation tax.
(3)For the purposes of subsection (2) above, the cost of an asset owned bya company is the aggregate of—
(a)any capital expenditure incurred by the company in acquiring or providingthe asset, and
(b)any other capital expenditure incurred by the company in respect of theasset while owned by that company.
(4)For the purposes of this section, where the disposal of the underlyingasset is a part disposal, the reference in subsection (2)(a) above to themarket value of the underlying asset is to the market value of the assetacquired by the person to whom the disposal is made and the amounts to beattributed to the underlying asset under paragraphs (a) and (b) of subsection(3) above shall be reduced to the appropriate proportion of those amounts,that is—
(a)the proportion of capital expenditure in respect of the underlying assetproperly attributed in the accounting records of the company to the assetacquired by the person to whom the disposal is made, or
(b)where paragraph (a) above does not apply, such proportion as appears tothe inspector, or on appeal the Commissioners concerned, to be just andreasonable.
(5)Where by virtue of a distribution in the course of dissolving or windingup the second company the first company is treated as disposing of an interestin the principal asset, the exception mentioned in subsection (1) above doesnot apply.
(1)For the purposes of sections 26(1A) and 26A(7) to (9) above, subsections(2) to (6) below apply for the purpose of determining in the case of any asset(“the original asset”) whether it is subsequently disposed of or treatedas disposed of or owned or any other condition is satisfied in respect of it.
(2)References in sections 26(1A)(a) and (b) and 26A(7) to a disposal are toa disposal other than a part disposal.
(3)References to an asset are to the original asset or, where at a later timeone or more assets are treated by virtue of subsections (5) or (6) below asthe same as the original asset—
(a)if no disposal falling within paragraph (a) or (b) of section 26(1A) or,as the case may be, of 26A(7) has occurred, those references are to the assetso treated or, as the case may be, all the assets so treated, and
(b)in any other case, those references are to an asset or, as the case maybe, all the assets representing that part of the value of the original assetthat remains after allowing for earlier disposals falling within theparagraphs concerned,
references in this subsection to a disposal including a disposal whichwould fall within the paragraphs concerned but for subsection (2) above.
(4)Where by virtue of subsection (3) above those references are to two ormore assets—
(a)those assets shall be treated as if they were a single asset,
(b)any disposal of any one of them is to be treated as a part disposal, and
(c)the reference in section 26(1A) to the asset owned at the time of thedisposal by a company associated with the disposing company and the referencein section 26A(8) to the asset with enhanced value is to all or any of thoseassets.
(5)Where there is a part disposal of an asset, that asset and the assetacquired by the person to whom the disposal is made are to be treated as thesame.
(6)Where the value of an asset is derived from any other asset in theownership of the same or an associated company, in a case where assets havebeen merged or divided or have changed their nature or rights or interests inor over assets have been created or extinguished, the first asset is to betreated as the same as the second.
(7)For the purposes of section 26(1A) above, where account is to be takenunder that subsection of a reduction in the value of a relevant asset and atthe time of the disposal by the disposing company referred to in thatsubsection—
(a)references to the relevant asset are by virtue of this section referencesto two or more assets treated as a single asset, and
(b)one or more but not all of those assets are owned by a company associatedwith the disposing company,
the amount of the reduction in the value of the relevant asset to betaken into account by virtue of that subsection shall be reduced to suchamount as appears to the inspector, or on appeal to the Commissionersconcerned, to be just and reasonable.
(8)For the purposes of section 26A above, where—
(a)a dividend paid by the second company is attributable to chargeableprofits of that company, and
(b)the condition in subsection (7), (8) or (9)(c) of that section issatisfied by reference to an asset, or assets treated as a single asset,treated by virtue of subsection (3)(b) above as the same as the asset withenhanced value,
the amount of the reduction in value of the principal asset shall bereduced to such amount as appears to the inspector, or on appeal to theCommissioners concerned, to be just and reasonable.
(9)For the purposes of sections 26 to 26B above and this section, companiesare associated if they are members of the same group.
(10)Section 272(1) to (4) of the Taxes Act 1970 (groups of companies:definitions) applies for the purposes of sections 26 to 26B above and thissection as it applies for the purposes of that section.”
(2)This section shall have effect in respect of any disposal of an asset onor after 14th March 1989, but—
(a)no account shall be taken by virtue of section 26A of the M19Capital Gains Tax Act 1979 of any reduction in the value of an assetattributable to the payment of a dividend unless it is paid on or after thatdate, and
(b)no account shall be taken by virtue of section 26B of that Act of areduction in the value of an asset attributable to the disposal of anotherasset unless the disposal took place on or after that date.
(1)After section 26C of the Capital Gains Tax Act 1979 there shall beinserted—
(1)Where—
(a)but for sections 78 and 85(3) below, section 26 above would have effectas respects the disposal by a company (“the disposing company”) of anasset consisting of shares in or debentures of another company (“theoriginal holding”) in exchange for shares in or debentures of a furthercompany which, immediately after the disposal, is not a member of the samegroup as the disposing company, and
(b)if section 26 above had effect as respects that disposal, any allowableloss or chargeable gain accruing on the disposal would be calculated as if theconsideration for the disposal were increased by an amount,
the disposing company shall be treated for the purposes of section 79(2)below as receiving, on the reorganisation of share capital that is treated asoccurring by virtue of section 85(3) below, that amount for the disposal ofthe original holding.
(2)For the purposes of subsection (1) above it shall be assumed that section86 below has effect generally for the purposes of this Act, and in thatsubsection “group” has the same meaning as in sections 26 to26C above.”
(2)This section shall have effect where the reduction in value, by reason ofwhich the amount referred to in section 26D(1)(b) of the M20Capital Gains Tax Act 1979 falls to be calculated, occurred on orafter 14th March 1989.
(1)In section 272 of the Taxes Act 1970 (groups of companies: definitions)in subsection (1), for paragraphs (b) and (c) there shall besubstituted—
“(b)subsections (1A) to (1D) below apply to determine whether companies forma group and, where they do, which is the principal company of the group;”.
(2)After that subsection there shall be inserted—
“(1A)Subject to subsections (1B) to (1D) below—
(a)a company (referred to below in this Chapter as the “principalcompany of the group”) and all its 75 per cent. subsidiaries form agroup and, if any of those subsidiaries have 75 per cent. subsidiaries, thegroup includes them and their 75 per cent. subsidiaries, and so on, but
(b)a group does not include any company (other than the principal company ofthe group) that is not an effective 51 per cent. subsidiary of the principalcompany of the group.
(1B)A company cannot be the principal company of a group if it is itself a 75per cent. subsidiary of another company.
(1C)Where a company (“the subsidiary”) is a 75 per cent.subsidiary of another company but those companies are prevented from beingmembers of the same group by subsection (1A)(b) above, the subsidiary may,where the requirements of subsection (1A) above are satisfied, itself be theprincipal company of another group notwithstanding subsection (1B) aboveunless this subsection enables a further company to be the principal companyof a group of which the subsidiary would be a member.
(1D)A company cannot be a member of more than one group; but where, apart fromthis subsection, a company would be a member of two or more groups (theprincipal company of each group being referred to below as the “headof a group”), it is a member only of that group, if any, of which itwould be a member under one of the following tests (applying earlier tests inpreference to later tests)—
(a)it is a member of the group it would be a member of if, in applyingsubsection (1A)(b) above, there were left out of account any amount to whicha head of a group is or would be beneficially entitled of any profitsavailable for distribution to equity holders of a head of another group or ofany assets of a head of another group available for distribution to its equityholders on a winding-up,
(b)it is a member of the group the head of which is beneficially entitled toa percentage of profits available for distribution to equity holders of thecompany that is greater than the percentage of those profits to which anyother head of a group is so entitled,
(c)it is a member of the group the head of which would be beneficiallyentitled to a percentage of any assets of the company available fordistribution to its equity holders on a winding-up that is greater than thepercentage of those assets to which any other head of a group would be soentitled,
(d)it is a member of the group the head of which owns directly or indirectlya percentage of the company’s ordinary share capital that is greater than thepercentage of that capital owned directly or indirectly by any other head ofa group (interpreting this paragraph as if it were included in section838(1)(a) of the Taxes Act 1988).
(1E)For the purposes referred to in subsection (1) above, a company(“the subsidiary”) is an effective 51 per cent. subsidiaryof another company (“the parent”) at any time if and only if—
(a)the parent is beneficially entitled to more than 50 per cent. of anyprofits available for distribution to equity holders of the subsidiary; and
(b)the parent would be beneficially entitled to more than 50 per cent. of anyassets of the subsidiary available for distribution to its equity holders ona winding-up.
(1F)Schedule 18 to the Taxes Act 1988 (group relief: equity holders andprofits or assets available for distribution) shall apply for the purposes ofsubsections (1D) and (1E) above as if the references to subsection (7), orsubsections (7) to (9), of section 413 of that Act were references tosubsections (1D) and (1E) above and as if, in paragraph 1(4), the words from “but” to the end and paragraph 7(1)(b) were omitted.”
(3)In subsection (3) of that section for the words from “75 per cent.subsidiary of another company” to “is the principal company” thereshall be substituted the words “member of another group, the first group andthe other group shall be regarded as the same”.
(4)In subsection (4) of that section—
(a)for the words “a company” there shall be substituted the words “amember of a group of companies”, and
(b)for the words from “that company, or” to the end there shall besubstituted the words “that or any other company ceasing to be a member ofthe group”.
(5)In section 278 of that Act (deemed disposal of certain assets held bycompany leaving group) after subsection (3A) there shall be inserted—
“(3B)Where, apart from subsection (3C) below, a company ceasing to be a memberof a group by reason only of the fact that the principal company of the groupbecomes a member of another group would be treated by virtue of subsection (3)above as selling an asset at any time, subsections (3C) to (3E) below shallapply.
(3C)The company in question shall not be treated as selling the asset at thattime; but if—
(a)within six years of that time the company in question ceases at any time(“the relevant time”) to satisfy the following conditions, and
(b)at the relevant time, the company in question, or a company in the samegroup as that company, owns otherwise than as trading stock the asset orproperty to which a chargeable gain has been carried forward from the asseton a replacement of business assets,
the company in question shall be treated for all the purposes of theCapital Gains Tax Act 1979 as if, immediately after itsacquisition of the asset, it had sold and immediately reacquired the asset atthe value that, at the time of acquisition, was its market value.
(3D)Those conditions are—
(a)that the company is a 75 per cent. subsidiary of one or more members ofthe other group referred to in subsection (3B) above, and
(b)that the company is an effective 51 per cent. subsidiary of one or moreof those members.
(3E)Any chargeable gain or allowable loss accruing to the company on that saleshall be treated as accruing at the relevant time.
(3F)Where—
(a)by virtue of this section a company is treated as having sold an asset atany time, and
(b)if at that time the company had in fact sold the asset at market value atthat time, then, by virtue of section 26 of that Act, any allowable loss orchargeable gain accruing on the disposal would have been calculated as if theconsideration for the disposal were increased by an amount,
subsections (3) and (3C) above shall have effect as if the market valueat that time had been that amount greater.”
(6)In section 97 of the M21Inheritance Tax Act 1984(transfers within group etc.)—
(a)for the words “principal member” and “principal member’s”,wherever appearing, there shall be substituted “principal company” and “principal company’s” respectively,
(b)for subsection (2)(a) there shall be substituted—
“(a)section 272 of the Taxes Act 1970 (groups of companies: definitions)applies as for the purposes of sections 273 to 281 of that Act”and
(c)the words from “and in this section” in subsection (2)to the end shall be omitted.
(7)Subject to the following provisions, this section shall be deemed to havecome into force on 14th March 1989; but section 278(3E) of the Taxes Act 1970shall have effect where the accounting period in which the company referredto in subsection (3B) of that section ceases to be a member of a group endsafter the day appointed for the purposes of paragraph 4 of Schedule 6 to the M22Finance (No. 2) Act 1987.
(8)Where—
(a)at the beginning of the commencement day a company ceases for the purposesof the group provisions to be a member of a group by reason only of thesubstitution for the old definition of the new definition, and
(b)in consequence of ceasing to be such a member the company would, apartfrom this subsection, be treated by virtue of section 278(3) of the Taxes Act1970 as selling an asset at any time,
the company in question shall not be treated as selling that asset atthat time unless the conditions in subsection (9) below become satisfied,assuming for that purpose that the old definition applies.
(9)Those conditions are—
(a)that for the purposes of section 278 of that Act the company in questionceases at any time (“the relevant time”) to be a member of the groupreferred to in subsection (8)(a) above,
(b)that, at the relevant time, the company in question, or an associatedcompany also leaving that group at that time, owns otherwise than as tradingstock the asset or property to which a chargeable gain has been carriedforward from the asset on a replacement of business assets, and
(c)that the time of acquisition referred to in section 278(1) of that Actfell within the period of six years ending with the relevant time.
(10)Where, under any compromise or arrangement agreed to on any date before14th March 1989 in pursuance of section 425 of the M23Companies Act 1985 and sanctioned by the court, one company acquiresat any time, directly or indirectly, an interest in ordinary share capital ofanother company and immediately after that time—
(a)under the old definition the two companies are, by virtue of thatacquisition, members of a group for the purposes of the group provisions, but
(b)the second company is not an effective 51 per cent. subsidiary of thefirst company,
subsection (11) below applies; and in that subsection those companies andany other members of the group are referred to as “relevantcompanies”.
(11)In respect of the period beginning with the time of acquisition and endingwith—
(a)the expiry of the six months beginning with the date of the agreement, or
(b)if earlier, the date when, under the old definition, the other companyceases for the purposes of the group provisions to be a member of the groupreferred to in subsection (10)(a) above,
the old definition shall apply in relation to the relevant companies forthe purposes of the group provisions and the commencement day in relation tothose companies is the day following the end of that period.
(12)In subsections (8) to (11) above—
“arrangement” has the same meaning as in section 425 of the M24Companies Act 1985,
“commencement day”, subject to subsection (11) above, is 14thMarch 1989,
“effective 51 per cent. subsidiary” has the meaning given bysection 272(1E) of the Taxes Act 1970,
“group provisions” means sections 273 to 281 of that Act, and
“the new definition” means section 272 of that Act as amendedby this section and “the old definition” means that sectionas it had effect on 13th March 1989,
and section 278(4) of that Act shall apply for the purposes of thosesubsections.
(1)In relation to disposals on or after 14th March 1989 Chapter III of PartII of the M25Finance Act 1984 shall have effect subject tothe following provisions of this section (and, in relation to such disposals,those provisions shall be regarded as always having had effect).
(2)In subsection (2) of section 64 (which defines “corporatebond” for the purposes of that section and accordingly for thepurposes of certain other enactments including, by virtue of section 64(1) ofthe M26Capital Gains Tax Act 1979, that Act) paragraph (a)shall be omitted.
(3)After subsection (3) of section 64 there shall be inserted—
“(3A)For the purposes of this section “corporate bond” alsoincludes a security—
(a)which is not included in the definition in subsection (2) above, and
(b)which is a deep gain security for the purposes of Schedule 11 to theFinance Act 1989.
(3B)For the purposes of this section “corporate bond” alsoincludes a security—
(a)which is not included in the definition in subsection (2) above, and
(b)which, by virtue of paragraph 21(2) of Schedule 11 to the Finance Act1989, falls to be treated as a deep gain security as there mentioned.
(3C)For the purposes of this section “corporate bond” alsoincludes a security—
(a)which is not included in the definition in subsection (2) above, and
(b)which, by virtue of paragraph 22(2) of Schedule 11 to the Finance Act1989, falls to be treated as a deep gain security as there mentioned.”
(4)After subsection (5) of section 64 there shall be inserted—
“(5A)Subject to subsection (6) below, for the purposes of this section andSchedule 13 to this Act a corporate bond which falls within subsection (3A)above is a qualifying corporate bond, whatever the date of its issue; andsubsections (4) and (5) above shall not apply in the case of such a bond.
(5B)Subject to subsection (6) below, for the purposes of this section andSchedule 13 to this Act a corporate bond which falls within subsection (3B)above is a qualifying corporate bond as regards a disposal made after the timementioned in paragraph 21(1)(c) of Schedule 11 to the Finance Act 1989,whatever the date of its issue; and subsections (4) and (5) above shall notapply in the case of such a bond.
(5C)Subject to subsection (6) below, for the purposes of this section andSchedule 13 to this Act a corporate bond which falls within subsection (3C)above is a qualifying corporate bond as regards a disposal made after the timethe agreement mentioned in paragraph 22(1)(b) of Schedule 11 to the FinanceAct 1989 is made, whatever the date of its issue; and subsections (4) and (5)above shall not apply in the case of such a bond.”
(5)In subsection (6) of section 64, after the words “this Act” thereshall be inserted the words “except in relation to a disposal by a personwho (at the time of the disposal) is not a member of the same group as thecompany which issued the security”.
(6)In paragraph 10(2) of Schedule 13—
(a)after paragraph (b) there shall be inserted—
“(bb)section 267 of the Taxes Act (company reconstructions and amalgamations);or”and
(b)the word “not” shall be inserted after the words “previousdisposal”.
(1)In this section—
“collective investment scheme” has the same meaning as in the M27 Financial Services Act 1986, and
“participant” shall be construed with that Act.
(2)Subsection (3) below applies in the case of arrangements which constitutea collective investment scheme and under which—
(a)the contributions of the participants, and the profits or income out ofwhich payments are to be made to them, are pooled in relation to separateparts of the property in question, and
(b)the participants are entitled to exchange rights in one part for rightsin another.
(3)If a participant exchanges rights in one such for rights in anothersection 78 of the M28 Capital Gains Tax Act 1979(reorganisations etc.) shall not prevent the exchange constituting a disposaland acquisition for the purposes of that Act.
(4)The reference in subsection (3) above to section 78 of that Act—
(a)includes a reference to that section as applied by section 82 of that Act(conversion of securities), but
(b)does not include a reference to section 78 as applied by section 85 ofthat Act (exchange of securities for those in another company).
(5)Subsection (3) above shall apply where rights are exchanged on or after14th March 1989.
(6)Section 78 of the M29 Finance (No. 2) Act 1987 shallcease to have effect as regards any case where the question it mentions isdetermined in relation to a disposal made on or after 14th March 1989.
Schedule 15 to this Act (which makes further provision about charges etc.postponed from 31st March 1982 or before, assets held on that date and relatedmatters) shall have effect.