Taxation of Chargeable Gains Act 1992

Gilt-edged securities and qualifying corporate bondsU.K.

115 Exemptions for gilt-edged securities and qualifying corporate bonds etc.U.K.

(1)A gain which accrues on the disposal by any person of—

(a)gilt-edged securities or qualifying corporate bonds, or

(b)any option or contract to acquire or dispose of gilt-edged securities or qualifying corporate bonds,

shall not be a chargeable gain.

(2)In subsection (1) above the reference to the disposal of a contract to acquire or dispose of gilt-edged securities or qualifying corporate bonds is a reference to the disposal of the outstanding obligations under such a contract.

(3)Without prejudice to section 143(5), where a person who has entered into any such contract as is referred to in subsection (1)(b) above closes out that contract by entering into another contract with obligations which are reciprocal to those of the first-mentioned contract, that transaction shall for the purposes of this section constitute the disposal of an asset, namely, his outstanding obligations under the first-mentioned contract.

116 Reorganisations, conversions and reconstructions.U.K.

(1)This section shall have effect in any case where a transaction occurs of such a description that, apart from the provisions of this section—

(a)sections 127 to 130 would apply by virtue of any provision of Chapter II of this Part; and

(b)either the original shares would consist of or include a qualifying corporate bond and the new holding would not, or the original shares would not and the new holding would consist of or include such a bond;

and in paragraph (b) above “the original shares” and “the new holding” have the same meaning as they have for the purposes of sections 127 to 130.

(2)In this section [F1references to a transaction include references to any conversion of securities (whether or not effected by a transaction) within the meaning of section 132 and] “relevant transaction” means a reorganisation, conversion of securities or other transaction such as is mentioned in subsection (1) above, and, in addition to its application where the transaction takes place after the coming into force of this section, subsection (10) below applies where the relevant transaction took place before the coming into force of this section so far as may be necessary to enable any gain or loss deferred under paragraph 10 of Schedule 13 to the M1Finance Act 1984 to be taken into account on a subsequent disposal.

(3)Where the qualifying corporate bond referred to in subsection (1)(b) above would constitute the original shares for the purposes of sections 127 to 130, it is in this section referred to as “the old asset” and the shares or securities which would constitute the new holding for those purposes are referred to as “the new asset”.

(4)Where the qualifying corporate bond referred to in subsection (1)(b) above would constitute the new holding for the purposes of sections 127 to 130, it is in this section referred to as “the new asset” and the shares or securities which would constitute the original shares for those purposes are referred to as “the old asset”.

[F2(4A)In determining for the purposes of subsections (1) to (4) above, as they apply for the purposes of corporation tax—

(a)whether sections 127 to 130 would apply in any case, and

(b)what, in a case where they would apply, would constitute the original shares and the new holding,

it shall be assumed that every asset representing a loan relationship of a company is a security within the meaning of section 132.]

(5)So far as the relevant transaction relates to the old asset and the new asset, sections 127 to 130 shall not apply in relation to it.

(6)In accordance with subsection (5) above, the new asset shall not be treated as having been acquired on any date other than the date of the relevant transaction or, subject to subsections (7) and (8) below, for any consideration other than the market value of the old asset as determined immediately before that transaction.

(7)If, on the relevant transaction, the person concerned receives, or becomes entitled to receive, any sum of money which, in addition to the new asset, is by way of consideration for the old asset, that sum shall be deducted from the consideration referred to in subsection (6) above.

(8)If, on the relevant transaction, the person concerned gives any sum of money which, in addition to the old asset, is by way of consideration for the new asset, that sum shall be added to the consideration referred to in subsection (6) above.

F3[F4(8A)Where subsection (6) above applies for the purposes of corporation tax in a case where the old asset consists of a qualifying corporate bond, [F5Part 5 of CTA 2009] (loan relationships) shall have effect[F6, subject to subsection (8B) below,] so as to require such debits and credits to be brought into account for the purposes of [F5that Part] in relation to the relevant transaction as would have been brought into account if the transaction had been a disposal of the old asset at the market value mentioned in [F7subsection (6) above].

[F8This subsection does not apply in relation to a [F9relevant loan relationship transaction].]]

[F10(8AA)In subsection (8A) “relevant loan relationship transaction” means a transaction to which any of the following provisions applies—

• section 342 of CTA 2009 (continuity of treatment on transfers within groups or reorganisations: issues of new securities on reorganisations: disposal at notional carrying value),

• section 343 of that Act (continuity of treatment on transfers within groups or reorganisations: receiving company using fair value accounting),

• section 424 of that Act (European cross-border transfers of business: reorganisations involving loan relationships),

• section 425 of that Act (European cross-border transfers of business: original holder using fair value accounting),

• section 435 of that Act (European cross-border mergers: reorganisations involving loan relationships),

• section 436 of that Act (European cross-border mergers: original holder using fair value accounting).]

F3[F11(8B)Subsection (8A) above does not apply where the relevant transaction is a conversion of securities occurring in consequence of the operation of the terms of any security or of any debenture which is not a security.

Expressions used in this subsection have the same meaning as they have for the purposes of section 132.]

(9)In any case where the old asset consists of a qualifying corporate bond, then, so far as it relates to the old asset and the new asset, the relevant transaction shall be treated for the purposes of this Act as a disposal of the old asset and an acquisition of the new asset.

(10)Except in a case falling within subsection (9) above, so far as it relates to the old asset and the new asset, the relevant transaction shall be treated for the purposes of this Act as not involving any disposal of the old asset but—

(a)there shall be calculated the chargeable gain or allowable loss that would have accrued if, at the time of the relevant transaction, the old asset had been disposed of for a consideration equal to its market value immediately before that transaction; and

(b)subject to subsections (12) to (14) below, the whole or a corresponding part of the chargeable gain or allowable loss mentioned in paragraph (a) above shall be deemed to accrue on a subsequent disposal of the whole or part of the new asset (in addition to any gain or loss that actually accrues on that disposal); and

(c)on that subsequent disposal, section 115 shall have effect only in relation to any gain or loss that actually accrues and not in relation to any gain or loss which is deemed to accrue by virtue of paragraph (b) above.

(11)Subsection (10)(b) and (c) above shall not apply to any disposal falling within section 58(1), 62(4), 139, [F12140A,] [F13140E,] [F14or 171(1)], but a person who has acquired the new asset on a disposal falling within any of those sections (and without there having been a previous disposal not falling within any of those sections or a devolution on death) shall be treated for the purposes of subsection (10)(b) and (c) above as if the new asset had been acquired by him at the same time and for the same consideration as, having regard to subsections (5) to (8) above, it was acquired by the person making the disposal.

(12)In any case where—

(a)on the calculation under subsection (10)(a) above, a chargeable gain would have accrued, and

(b)the consideration for the old asset includes such a sum of money as is referred to in subsection (7) above,

then, subject to subsection (13) below, the proportion of that chargeable gain which that sum of money bears to the market value of the old asset immediately before the relevant transaction shall be deemed to accrue at the time of that transaction.

(13)If F15... the sum of money referred to in subsection (12)(b) above is small, as compared with the market value of the old asset immediately before the relevant transaction, F15... subsection (12) above shall not apply.

(14)In a case where subsection (12) above applies, the chargeable gain which, apart from that subsection, would by virtue of subsection (10)(b) above be deemed to accrue on a subsequent disposal of the whole or part of the new asset shall be reduced or, as the case may be, extinguished by deducting therefrom the amount of the chargeable gain which, by virtue of subsection (12) above, is deemed to accrue at the time of the relevant transaction.

(15)In any case where—

(a)the new asset mentioned in subsections (10) and (11) above is a qualifying corporate bond in respect of which an allowable loss is treated as accruing under section 254(2), and

(b)the loss is treated as accruing at a time falling after the relevant transaction but before any actual disposal of the new asset subsequent to the relevant transaction,

then for the purposes of subsections (10) and (11) above a subsequent disposal of the new asset shall be treated as occurring at (and only at) the time the loss is treated as accruing.

[F16(16)This section has effect for the purposes of corporation tax notwithstanding anything in [F17section 464(1) of CTA 2009] (matters to be brought into account in the case of loan relationships only under [F17Part 5] of that Act).]

[F18116AHolding beginning or ceasing to fall within section 490 of CTA 2009U.K.

(1)Section 116 applies in accordance with the following assumptions if—

(a)a holding that is a relevant holding for the purposes of section 490 of CTA 2009 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights) is held by a company both at the end of one accounting period and at the beginning of the next, and

(b)that section applies to the holding for one of those periods but not for the other.

(2)The assumptions in subsections (3) and (4) apply for the purposes of this Act if the accounting period for which section 490 of CTA 2009 applies to the relevant holding is the first of those periods.

(3)The relevant holding is assumed to have ceased to be a relevant holding for the second of those periods as a result of a transaction such as is mentioned in section 116(1) (“the reorganisation transaction”) occurring at the beginning of that period.

(4)In relation to the reorganisation transaction within subsection (3), for the purposes of section 116—

(a)the relevant holding immediately before the beginning of the second of those periods is assumed to be the old asset, and

(b)the relevant holding immediately after the beginning of that period is assumed to be the new asset.

(5)The assumptions in subsections (6) and (8) apply for the purposes of this Act if the accounting period for which section 490 of CTA 2009 applies to the relevant holding is the second of those periods.

(6)The holding is assumed to have become a relevant holding for the second of those periods as a result of the occurrence at the end of first period of a transaction such as is mentioned in section 116(1).

(7)But subsection (6) does not apply if the first of those periods is a period at the end of which a disposal of the relevant holding is treated as having occurred under section 212 (annual deemed disposal of holdings of unit trusts etc by insurance companies).

(8)In relation to the reorganisation transaction within subsection (6), for the purposes of section 116—

(a)the relevant holding immediately before the beginning of the second of those periods is assumed to be the old asset, and

(b)the relevant holding immediately after the beginning of that period is assumed to be the new asset.

116BShares beginning or ceasing to be shares to which section [F19521B] of CTA 2009 appliesU.K.

(1)If at any time section [F20521B] of CTA 2009 (application of Part 5 of that Act to certain shares as rights under a creditor relationship) begins or ceases to apply in the case of a share held by the investing company it is treated for the purposes of this Act—

(a)as having disposed of the share immediately before that time for consideration of an amount equal to [F21the notional carrying value of the share] at that time, and

(b)as having immediately reacquired it for consideration of the same amount.

(2)In this section—

• [F22“notional carrying value” has the same meaning as in subsection (2) of section 521F of CTA 2009 (see subsection (3) of that section),]

• “investing company” has the same meaning as it has for the purposes of Chapter [F236A] of Part 6 of that Act (shares [F24accounted for as liabilities) (see section 521A(3)] of that Act).]

117 Meaning of “qualifying corporate bond".U.K.

[F25(A1)For the purposes of corporation tax “qualifying corporate bond” means F26... any asset representing a loan relationship of a company; and for purposes other than those of corporation tax references to a qualifying corporate bond shall be construed in accordance with the following provisions of this section.]

(1)For the purposes of this section, a “corporate bond” is a security, as defined in section 132(3)(b)—

(a)the debt on which represents and has at all times represented a normal commercial loan; and

(b)which is expressed in sterling and in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling,

and in paragraph (a) above “normal commercial loan” has the meaning which would be given by [F27section 162 of CTA 2010 if for paragraphs (a) to (c) of subsection (2) of that section there were substituted the words “corporate bonds (within the meaning of section 117 of TCGA 1992)”].

(2)For the purposes of subsection (1)(b) above—

(a)a security shall not be regarded as expressed in sterling if the amount of sterling falls to be determined by reference to the value at any time of any other currency or asset; and

(b)a provision for redemption in a currency other than sterling but at the rate of exchange prevailing at redemption shall be disregarded.

[F28(2AA)For the purposes of this section “corporate bond” also includes any asset which is not included in the definition in subsection (1) above and which is a [F29deeply discounted security for the purposes of Chapter 8 of Part 4 of ITTOIA 2005 (see section 430)].]

F30(2A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F31(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)For the purposes of this section “corporate bond” also includes a share in a building society—

(a)which is a qualifying share,

(b)which is expressed in sterling, and

(c)in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling.

(5)For the purposes of subsection (4) above, a share in a building society is a qualifying share if—

(a)it is a permanent interest bearing share, or

(b)it is of a description specified in regulations made by the Treasury for the purposes of this paragraph.

(6)Subsection (2) above applies for the purposes of subsection (4) above as it applies for the purposes of subsection (1)(b) above, treating the reference to a security as a reference to a share.

F32[(6A)For the purposes of this section “corporate bond” also includes, except in relation to a person who acquires it on or after a disposal in relation to which section 115 has or has had effect in accordance with section 116(10)(c), any debenture issued on or after 16th March 1993 which is not a security (as defined in section 132) but—

(a)is issued in circumstances such that it would fall by virtue of section 251(6) to be treated for the purposes of section 251 as such a security; and

(b)would be a corporate bond if it were a security as so defined.]

[F33(6B)An excluded indexed security issued on or after 6th April 1996 is not a corporate bond for the purposes of this section; and an excluded indexed security issued before that date shall be taken to be such a bond for the purposes of this section only if—

(a)it would be so taken apart from this subsection; and

(b)the question whether it should be so taken arises for the purposes of section 116(10).

(6C)In subsection (6B) above “excluded indexed security” has the same meaning as in [F34Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 433)].]

[F35(6D)Section 151T provides for arrangements to which section 151N (alternative finance arrangements: investment bond arrangements) applies also to be a corporate bond for the purposes of this section.]

(7)Subject to subsections (9) and (10) below, for the purposes of this Act, a corporate bond—

(a)is a “qualifying” corporate bond if it is issued after 13th March 1984; and

(b)becomes a “qualifying” corporate bond if, having been issued on or before that date, it is acquired by any person after that date and that acquisition is not as a result of a disposal which is excluded for the purposes of this subsection, or which was excluded for the purposes of section 64(4) of the M2Finance Act 1984.

(8)Where a person disposes of a corporate bond which was issued on or before 13th March 1984 and, before the disposal, the bond had not become a qualifying corporate bond, the disposal is excluded for the purposes of subsection (7) above if, by virtue of any enactment—

(a)the disposal is treated for the purposes of this Act as one on which neither a gain nor a loss accrues to the person making the disposal; or

(b)the consideration for the disposal is treated for the purposes of this Act as reduced by an amount equal to the held-over gain on that disposal, as defined for the purposes of section 165 or 260.

[F36(8A)A corporate bond falling within subsection (2AA) above is a qualifying corporate bond whatever its date of issue.]

F37(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F37(10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11)For the purposes of this section—

(a)where a security is comprised in a letter of allotment or similar instrument and the right to the security thereby conferred remains provisional until accepted, the security shall not be treated as issued until there has been acceptance; and

[F38(b)“permanent interest bearing share” means a share which is a permanent interest bearing share [F39for the purposes of] the [F40[F41PRA Handbook made by the Prudential Regulation Authority] under the Financial Services and Markets Act 2000] as [F42that Handbook] applies in relation to shares issued on the date that the share is issued,

F43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ].

(12)The Treasury may by regulations provide that for the definition of the expression “permanent interest bearing share” in subsection (11) above (as it has effect for the time being) there shall be substituted a different definition of that expression, and regulations under this subsection or subsection (5)(b) above may contain such supplementary, incidental, consequential or transitional provision as the Treasury thinks fit.

(13)This section shall have effect for the purposes of section 254 with the omission of subsections (4) to (6), (11) and (12).

F44117A Assets that are not qualifying corporate bonds for corporation tax purposes.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F44117B Holdings in unit trusts and offshore funds excluded from treatment as qualifying corporate bonds.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .