Finance Act 1989

3(1)Schedule 4 to the M1 Capital Gains Tax Act 1979 shallbe amended as follows.

(2)In paragraph 1—

(a)in sub-paragraph (1)(b), for the words “section 126(1)(a)” thereshall be substituted the words “section 126(1)” and for the words “thatparagraph” there shall be substituted the words “section 126(1A)(a)”;and

(b)in sub-paragraph (2), the words “at the rate of 50 per cent.” shallbe omitted, and at the end of paragraph (b) there shall be added the words “, or

(c)would be so made but for section 124A of that Act (assuming, where thereis no chargeable transfer on that occasion, that there were).”

(3)For paragraph 2 there shall be substituted—

“2(1)If—

(a)the trustees of a settlement make a disposal otherwise than under abargain at arm’s length of an asset within sub-paragraph (2) below, and

(b)a claim for relief under section 126 of this Act is made by the trusteesand the person who acquires the asset (in this Schedule referred to as “thetransferee”) or, where the trustees of a settlement are also thetransferee, by the trustees making the disposal alone,

then, subject to subsection (2) of section 126 and to sections 126A and126B, subsection (3) of section 126 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 propertyimmediately before the disposal, or

(b)it consists of shares or securities of a trading company, or of theholding company of a trading group, where—

(i)the shares or securities are neither quoted on a recognised stock exchangenor dealt in on the Unlisted Securities Market, or

(ii)not less than 25 per cent. of the voting rights exercisable byshareholders of the company in general meeting are exercisable by the trusteesat the time of the disposal.

(3)Where section 126(3) applies by virtue of this paragraph, references tothe trustees shall be substituted for the references in sections 126(3)(a) and126C to the transferor; and where it applies in relation to a disposal whichis deemed to occur by virtue of section 54(1) or 55(1) of this Act, section126(6) shall not apply.”

(4)In paragraph 3—

(a)in sub-paragraph (1)—

(i)the words from “by virtue” to “(settled property)” shall beomitted,

(ii)for the words “(a) of paragraph 2(1)” there shall be substituted “2(1)(a)”, and

(iii)for the words “the said paragraph (a)” there shall be substituted thewords “paragraph 2(2)(a) above”, and

(b)in sub-paragraph (2), the words “at the rate of 50 per cent.” shallbe omitted, and at the end of paragraph (b) there shall be added the words “, or

(c)would be so made but for section 124A of that Act (assuming, where thereis no chargeable transfer on that occasion, that there were).”

(5)In paragraph 4—

(a)in sub-paragraph (2)(a), for the words “section 126(1)” there shallbe substituted the words “section 126(1A)”, and for the words “subparagraph (1)” there shall be substituted the words “sub-paragraph(2)”;

(b)for sub-paragraph (2)(c) there shall be substituted—

“(c)“the transferor” has the same meaning as in section 126 of this Actexcept that, in a case where paragraph 2 above applies, it refers to thetrustees mentioned in that paragraph,”;

(c)for sub-paragraph (3) there shall be substituted—

“(3)In this Part of this Schedule—

(a)any reference to a disposal of an asset is a reference to a disposal whichfalls within subsection (1) of section 126 of this Act by virtue of subsection(1A)(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 whichfalls within subsection (1) of section 126 of this Act by virtue of subsection(1A)(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.” and

(d)in sub-paragraph (4), for the words “as the case may be” there shallbe substituted the words “where it applies”, and the words “(takingaccount” onwards shall be omitted.

(6)At the end of each of paragraph 5 and paragraph 6 there shall beadded—

“(2)This paragraph shall not apply where the circumstances are such that areduction in respect of the asset—

(a)is made under Chapter II of Part V of the InheritanceTax Act 1984 in relation to a chargeable transfer taking place on the occasionof 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 thereis no chargeable transfer on that occasion, that there were).”

(7)For paragraph 7 there shall be substituted—

“7(1)If in the case of a disposal of shares assets which are not businessassets are included in the chargeable assets of the company whose shares aredisposed 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 twelve months before the disposal notless than 25 per cent. of the voting rights exercisable by shareholders of thecompany in genreal meeting are exercisable by the transferor, or

(b)the transferor is an individual and, at any time within that period, thecompany is his family company,

the amount of the held-over gain shall be reduced by multiplying it bythe fraction defined in sub-paragraph (2) below.

(2)The fraction referred to in sub-paragraph (1) above is that ofwhich—

(a)the denominator is the market value on the date of the disposal of all thechargeable assets of the company, or as the case may be of the group, and

(b)an asset is a chargeable asset in relation to a company or a group at anytime if, on a disposal at that time, a gain accruing to the company, or as thecase may be to a member of the group, would be a chargeable gain.

(4)Where the shares disposed of are shares of the holding company of atrading group, then for the purposes of this paragraph—

(a)the holding by one member of the group of the ordinary share capital ofanother member shall not count as a chargeable asset, and

(b)if the whole of the ordinary share capital of a 51 per cent. subsidiaryof 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 bereduced by multiplying it by the fraction of which the denominator is thewhole of the ordinary share capital of the subsidiary and the numerator is theamount of that share capital owned directly or indirectly by the holdingcompany.

(5)Expressions used in sub-paragraph (4) above have the same meanings as insection 838 of the Taxes Act 1988.”