Office of Public Sector Information
PART VII continued I continued
(1) Subject to the following provisions of this section—
(a) section 178 has effect where the chargeable company referred to in section 178(4) ceases to be a member of the group in an accounting period beginning after 5th April 1992, but shall not apply where section 179 has effect, and
(b) section 179 has effect where the accounting period in which the chargeable company referred to in section 179(5) ceases to be a member of the group ends after such day as the Treasury by order appoint,
and in any case where section 178 or section 179 has effect in respect of tax for any accounting period, that section shall also have effect in respect of tax for earlier accounting periods, to the exclusion of the corresponding enactments repealed by this Act.
(2) Subject to subsection (1) above—
(a) section 178(5) to (7) apply where a company which apart from section 278(3C) of the [1970 c. 10.] Income and Corporation Taxes Act 1970 would by virtue of subsection (3) of that section have been treated as selling an asset (unless it has already been treated, by virtue of section 278(3C), as if it had sold the asset in question), and
(b) section 179(6) to (9) apply where a company which, apart from section 278(3C) of the [1970 c. 10.] Income and Corporation Taxes Act 1970 or section 178(4) of this Act, would by virtue of section 278(3) or section 178(3) have been treated as selling an asset (unless it has already been treated, by virtue of section 278(3C) or section 178(4), as if it had sold the asset in question).
(3) Where by virtue of section 138(8) of the [1989 c. 26.] Finance Act 1989 a company which, by virtue of the substitution of the new definition for the old definition, ceased to be a member of a group at the beginning of 14th March 1989 was not treated as selling an asset at any time unless the conditions in section 138(9) became satisfied, then that company shall continue not to be treated as selling the asset at that time unless the conditions in subsection (4) below become satisfied, assuming for that purpose that the old definition applies.
(4) Those conditions are—
(a) that for the purposes of section 178 or 179 the company in question ceases at any time (“the relevant time”) to be a member of the group referred to in subsection (3) above,
(b) that, at the relevant time, the company in question, or an associated company also leaving that group at that time, owns otherwise than as trading stock the asset or property to which a chargeable gain has been carried forward from the asset on a replacement of business assets, and
(c) that the time of acquisition referred to in section 178(1) or 179(1) fell within the period of 6 years ending with the relevant time.
(5) Where, under any compromise or arrangement agreed to on any date before 14th March 1989 in pursuance of section 425 of the [1985 c. 6.] Companies Act 1985 and sanctioned by the court, one company acquires at any time, directly or indirectly, an interest in ordinary share capital of another company and immediately after that time—
(a) under the old definition the 2 companies are, by virtue of that acquisition, 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 the first company,
subsection (6) below applies; and in that subsection those companies and any other members of the group are referred to as “relevant companies”.
(6) In respect of the period beginning with the time of acquisition and ending with—
(a) the expiry of the 6 months beginning with the date of the agreement, or
(b) if earlier, the date when, under the old definition, the other company ceases for the purposes of the group provisions to be a member of the group referred to in subsection (5)(a) above,
the old definition shall apply in relation to the relevant companies for the purposes of the group provisions and, in relation to those companies, the reference in subsection (3) above to 14th March 1989 shall be read as a reference to the day following the end of that period.
(7) In subsections (3) to (6) above—
“arrangement” has the same meaning as in section 425 of the [1985 c. 6.] Companies Act 1985,
“effective 51 per cent. subsidiary” has the meaning given by section 170(7);
“group provisions” means sections 170 to 181 (excluding subsections (3) to (6) above);
“the new definition” means section 170; and
“the old definition” means section 272 of the [1970 c. 10.] Income and Corporation Taxes Act 1970 as it had effect on 13th March 1989,
and section 178(8) or 179(10) shall apply for the purposes of those subsections.
(1) Subject to the following provisions of this section, neither section 178 nor section 179 shall apply in a case where—
(a) as part of a merger, a company (“company A”) ceases to be a member of a group of companies (“the A group”); and
(b) it is shown that the merger was carried out for bona fide commercial reasons and that the avoidance of liability to tax was not the main or one of the main purposes of the merger.
(2) In this section “merger” means an arrangement (which in this section includes a series of arrangements)—
(a) whereby one or more companies (“the acquiring company” or, as the case may be, “the acquiring companies”) none of which is a member of the A group acquires or acquire, otherwise than with a view to their disposal, one or more interests in the whole or part of the business which, before the arrangement took effect, was carried on by company A; and
(b) whereby one or more members of the A group acquires or acquire, otherwise than with a view to their disposal, one or more interests in the whole or part of the business or each of the businesses which, before the arrangement took effect, was carried on either by the acquiring company or acquiring companies or by a company at least 90 per cent. of the ordinary share capital of which was then beneficially owned by 2 or more of the acquiring companies; and
(c) in respect of which the conditions in subsection (4) below are fulfilled.
(3) For the purposes of subsection (2) above, a member of a group of companies shall be treated as carrying on as one business the activities of that group.
(4) The conditions referred to in subsection (2)(c) above are—
(a) that not less than 25 per cent. by value of each of the interests acquired as mentioned in paragraphs (a) and (b) of subsection (2) above consists of a holding of ordinary share capital, and the remainder of the interest, or as the case may be of each of the interests, acquired as mentioned in subsection (2)(b), consists of a holding of share capital (of any description) or debentures or both; and
(b) that the value or, as the case may be, the aggregate value of the interest or interests acquired as mentioned in subsection (2)(a) above is substantially the same as the value or, as the case may be, the aggregate value of the interest or interests acquired as mentioned in subsection (2)(b) above; and
(c) that the consideration for the acquisition of the interest or interests acquired by the acquiring company or acquiring companies as mentioned in subsection (2)(a) above, disregarding any part of that consideration which is small by comparison with the total, either consists of, or is applied in the acquisition of, or consists partly of and as to the balance is applied in the acquisition of, the interest or interests acquired by members of the A group as mentioned in subsection (2)(b) above;
and for the purposes of this subsection the value of an interest shall be determined as at the date of its acquisition.
(5) Notwithstanding the provisions of section 170(2)(a), references in this section to a company includes references to a company resident outside the United Kingdom.
(1) Subject to subsection (3) below, where—
(a) there is a disposal by a company of a linked company debt on a security owed by another company, and
(b) the 2 companies are linked companies immediately before the disposal,
there shall be no indexation allowance on the disposal.
(2) Subject to subsection (3) below, where—
(a) there is a disposal by a company of a debt on a security owed by another company which is not a linked company debt on a security, and
(b) the 2 companies are linked companies immediately before the disposal,
then, in ascertaining any indexation allowance due on the disposal, RD as defined in section 54(1) shall be taken as the retail price index for the first month after the acquisition of the debt in which the 2 companies were linked companies (or, if later, March 1982).
(3) Where—
(a) there is a disposal by a company of a debt on a security owed by another company,
(b) the debt constituted or formed part of the new holding received by the company making the disposal on a reorganisation, and
(c) subsection (1) or (2) above would apply in relation to the disposal but for this subsection,
neither of those subsections shall apply in relation to the disposal, but any indexation allowance which, apart from this subsection, would be due on the disposal shall be reduced by such amount as appears to the inspector, or, on appeal, the Commissioners concerned, to be just and reasonable.
(4) For the purposes of this section a debt on a security owed by a company is a linked company debt on a security where immediately after its acquisition by the company making the disposal the 2 companies were linked companies.
(5) Where—
(a) there is a disposal by a company of a debt on a security owed by any person,
(b) the company and that person are not linked companies immediately before the disposal, and
(c) the debt was incurred by that person as part of arrangements involving another company being put in funds,
subsections (1) to (4) above shall have effect if and to the extent that they would if the debt were owed by that other company.
(1) This section applies—
(a) where there is a disposal by a company of—
(i) a holding of redeemable preference shares of another company, or
(ii) a holding of shares, other than redeemable preference shares, of another company which has at all times consisted entirely of, or has at any time included, linked company shares, or
(b) where—
(i) there is a disposal by a company of a holding of shares of another company which is not a holding falling within paragraph (a) above,
(ii) the holding constituted or formed part of the new holding received by the company making the disposal on a reorganisation, and
(iii) but for section 127 that reorganisation (or in a case where the holding disposed of derives, in whole or in part, from assets which were original shares in relation to an earlier reorganisation, that reorganisation or any such earlier reorganisation) would have involved a disposal in relation to which section 182(1) would have applied or this section would have applied by virtue of paragraph (a) above,
if the 2 companies are linked companies immediately before the disposal.
(2) Where this section applies, any indexation allowance which, apart from this section, would be due on the disposal shall be reduced by such amount as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable.
(3) For the purposes of this section, shares of a company are linked company shares where—
(a) immediately after their acquisition by the company making the disposal the 2 companies were linked companies,
(b) their acquisition by the company making the disposal was wholly or substantially financed by one or more linked company loans or linked company funded subscriptions (or by a combination of such loans and subscriptions), and
(c) the sole or main benefit which might have been expected to accrue from that acquisition was the obtaining of an indexation allowance on a disposal of the shares.
(4) In subsection (3) above—
“linked company loan” means a loan made to the company making the disposal by another company where immediately after the acquisition of the shares by the company making the disposal the 2 companies were linked companies, and
“linked company funded subscription” means a subscription for shares in the company making the disposal by another company where—
immediately after the acquisition of the shares by the company making the disposal those 2 companies were linked companies, and
the subscription was wholly or substantially financed, either directly or indirectly, by one or more linked company subscription-financing loans.
(5) In subsection (4) above “linked company subscription-financing loan” means a loan made by a company to the subscribing company or any other company where immediately after the acquisition of the shares by the company making the disposal—
(a) the company making the loan, and
(b) the subscribing company, and
(c) where the company to which the loan was made was not the subscribing company, that company,
were linked companies.
(1) For the purposes of this section and sections 182 and 183 companies are linked companies if they are members of the same group or are associated with each other; and for the purposes of this section—
(a) “group” means a company which has one or more 51 per cent. subsidiaries together with that subsidiary or those subsidiaries (section 838 (meaning of 51 per cent. subsidiary) of the Taxes Act having effect for the purposes of this paragraph as for those of the Tax Acts), and
(b) 2 companies are associated with each other if one controls the other or both are under the control of the same person or persons (section 416(2) to (6) (meaning of control) of the Taxes Act having effect for the purposes of this paragraph as for those of Part XI of that Act).
(2) Where a disposal of a holding of shares follows one or more disposals of the same holding to which section 171(1) or 172 applied, section 183(3) to (5) shall have effect as if the references to the company making the disposal were references to the company which last acquired the asset otherwise than on a disposal to which either of those sections applied.
(3) In section 183 “redeemable preference shares” means shares in a company which are described as such in the terms of their issue or which fulfil the condition in paragraph (a) below and either or both of the conditions in paragraphs (b) and (c) below—
(a) that, as against other shares in the company, they carry a preferential entitlement to a dividend or to any assets in a winding up or both;
(b) that, by virtue of the terms of their issue, the exercise of a right by any person or the existence of any arrangements, they are liable to be redeemed, cancelled or repaid, in whole or in part;
(c) that, by virtue of any arrangements—
(i) to which the company which issued the shares is a party, or
(ii) where that company and another company are linked companies at the time of the issue, to which that other company is a party,
the holder has a right to require another person to acquire the shares or is obliged in any circumstances to dispose of them or another person has a right or is in any circumstances obliged to acquire them;
and for the purposes of paragraph (a) above shares are to be treated as carrying a preferential entitlement to a dividend as against other shares if, by virtue of any arrangements, there are circumstances in which a minimum dividend will be payable on those shares but not on others.
(4) In sections 182 and 183 the expressions “reorganisation”, “original shares” and “new holding” have the meanings given by section 126 except that, in a case where sections 127 and 128 apply in circumstances other than a reorganisation (within the meaning of section 126) by virtue of any other provision of Chapter II of Part IV those expressions shall be construed as they fall to be construed in sections 127 and 128 as they so apply.
(5) In this section and sections 182 and 183—
“holding”, in relation to shares, means a number of shares which are to be regarded for the purposes of this Act as indistinguishab1e parts of a single asset,
“security” has the same meaning as in section 132.
(1) This section and section 187 apply to a company if, at any time (“the relevant time”), the company ceases to be resident in the United Kingdom.
(2) The company shall be deemed for all purposes of this Act—
(a) to have disposed of all its assets, other than assets excepted from this subsection by subsection (4) below, immediately before the relevant time; and
(b) immediately to have reacquired them,
at their market value at that time.
(3) Section 152 shall not apply where the company—
(a) has disposed of the old assets, or of its interest in those assets, before the relevant time; and
(b) acquires the new assets, or its interest in those assets, after that time,
unless the new assets are excepted from this subsection by subsection (4) below.
(4) If at any time after the relevant time the company carries on a trade in the United Kingdom through a branch or agency—
(a) any assets which, immediately after the relevant time, are situated in the United Kingdom and are used in or for the purposes of the trade, or are used or held for the purposes of the branch or agency, shall be excepted from subsection (2) above; and
(b) any new assets which, after that time, are so situated and are so used or so held shall be excepted from subsection (3) above;
and references in this subsection to assets situated in the United Kingdom include references to exploration or exploitation assets and to exploration or exploitation rights.
(5) In this section—
(a) “designated area”, “exploration or exploitation activities” and “exploration or exploitation rights” have the same meanings as in section 276;
(b) “exploration or exploitation assets” means assets used or intended for use in connection with exploration or exploitation activities carried on in the United Kingdom or a designated area;
(c) “the old assets” and “the new assets” have the same meanings as in section 152;
and a company shall not be regarded for the purposes of this section as ceasing to be resident in the United Kingdom by reason only that it ceases to exist.
(1) This section and section 187 apply to a company if, at any time (“the relevant time”), the company, while continuing to be resident in the United Kingdom, becomes a company which falls to be regarded for the purposes of any double taxation relief arrangements—
(a) as resident in a territory outside the United Kingdom; and
(b) as not liable in the United Kingdom to tax on gains arising on disposals of assets of descriptions specified in the arrangements (“prescribed assets”).
(2) The company shall be deemed for all purposes of this Act—
(a) to have disposed of all its prescribed assets immediately before the relevant time; and
(b) immediately to have reacquired them,
at their market value at that time.
(3) Section 152 shall not apply where the new assets are prescribed assets and the company—
(a) has disposed of the old assets, or of its interest in those assets, before the relevant time; and
(b) acquires the new assets, or its interest in those assets, after that time,
and in this section “the old assets” and “the new assets” have the same meanings as in section 152.
(1) If—
(a) immediately after the relevant time, a company to which this section applies by virtue of section 185 or 186 (“the company”) is a 75 per cent. subsidiary of another company (“the principal company”) which is resident in the United Kingdom; and
(b) the principal company and the company so elect, by notice given to the inspector within 2 years after that time,
this Act shall have effect in accordance with the following provisions.
(2) Any allowable losses accruing to the company on a deemed disposal of foreign assets shall be set off against the chargeable gains so accruing and—
(a) that disposal shall be treated as giving rise to a single chargeable gain equal to the aggregate of those gains after deducting the aggregate of those losses; and
(b) the whole of that gain shall be treated as not accruing to the company on that disposal but an equivalent amount (“the postponed gain”) shall be brought into account in accordance with subsections (3) and (4) below.
(3) If at any time within 6 years after the relevant time the company disposes of any assets (“relevant assets”) the chargeable gains on which were taken into account in arriving at the postponed gain, there shall be deemed to accrue to the principal company as a chargeable gain on that occasion the whole or the appropriate proportion of the postponed gain so far as not already taken into account under this subsection or subsection (4) below.
In this subsection “the appropriate proportion” means the proportion which the chargeable gain taken into account in arriving at the postponed gain in respect of the part of the relevant assets disposed of bears to the aggregate of the chargeable gains so taken into account in respect of the relevant assets held immediately before the time of the disposal.
(4) If at any time after the relevant time—
(a) the company ceases to be a 75 per cent. subsidiary of the principal company on the disposal by the principal company of ordinary shares of the company;
(b) after the company has ceased to be such a subsidiary otherwise than on such a disposal, the principal company disposes of such shares; or
(c) the principal company ceases to be resident in the United Kingdom,
there shall be deemed to accrue to the principal company as a chargeable gain on that occasion the whole of the postponed gain so far as not already taken into account under this subsection or subsection (3) above.
(5) If at any time—
(a) the company has allowable losses which have not been allowed as a deduction from chargeable gains; and
(b) a chargeable gain accrues to the principal company under subsection (3) or (4) above,
then, if and to the extent that the principal company and the company so elect by notice given to the inspector within 2 years after that time, those losses shall be allowed as a deduction from that gain.
(6) In this section—
“deemed disposal” means a disposal which, by virtue of section 185(2) or, as the case may be, section 186(2), is deemed to have been made;
“foreign assets” means any assets of the company which, immediately after the relevant time, are situated outside the United Kingdom and are used in or for the purposes of a trade carried on outside the United Kingdom;
“ordinary share” means a share in the ordinary share capital of the company;
“the relevant time” has the meaning given by section 185(1) or, as the case may be, section 186(1).
(7) For the purposes of this section a company is a 75 per cent. subsidiary of another company if and so long as not less than 75 per cent. of its ordinary share capital is owned directly by that other company.
(1) For the purposes of this section, a company is a dual resident company if it is resident in the United Kingdom and falls to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.
(2) Where an asset of a dual resident company becomes a prescribed asset, the company shall be deemed for all purposes of this Act—
(a) to have disposed of the asset immediately before the time at which it became 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 prescribed asset on the company becoming a company which falls to be regarded as mentioned in subsection (1) above.
(4) In this section “prescribed asset”, in relation to a dual resident company, means an asset in respect of which, by virtue of the asset being of a description specified in any double taxation relief arrangements, the company falls to be regarded for the purposes of the arrangements as not liable in the United Kingdom to tax on gains accruing to it on a disposal.
(1) This section applies where a person who is connected with a company resident in the United Kingdom receives or becomes entitled to receive in respect of shares in the company any capital distribution from the company, other than a capital distribution representing a reduction of capital, and—
(a) the capital so distributed derives from the disposal of assets in respect of which a chargeable gain accrued to the company; or
(b) the distribution constitutes such a disposal of assets;
and that person is referred to below as “the shareholder”.
(2) If the corporation tax assessed on the company for the accounting period in which the chargeable gain accrues included any amount in respect of chargeable gains, and any of the tax assessed on the company for that period is not paid within 6 months from the date determined under subsection (3) below, the shareholder may by an assessment made within 2 years from that date be assessed and charged (in the name of the company) to an amount of that corporation tax—
(a) not exceeding the amount or value of the capital distribution which the shareholder has received or become entitled to receive; and
(b) not exceeding a proportion equal to the shareholder’s share of the capital distribution made by the company of corporation tax on the amount of that gain at the rate in force when the gain accrued.
(3) The date referred to in subsection (2) above is whichever is the later of—
(a) the date when the tax becomes due and payable by the company; and
(b) the date when the assessment was made on the company.
(4) Where the shareholder pays any amount of tax under this section, he shall be entitled to recover from the company a sum equal to that amount together with any interest paid by him under section 87A of the Management Act on that amount.
(5) The provisions of this section are without prejudice to any liability of the shareholder in respect of a chargeable gain accruing to him by reference to the capital distribution as constituting a disposal of an interest in shares in the company.
(6) With respect to chargeable gains accruing in accounting periods ending on or before such day as the Treasury may be order appoint this section shall have effect—
(a) with the substitution for the words in subsection (3) after “above” of the words “is the date when the tax becomes payable by the company”; and
(b) with the omission of the words in subsection (4) from “together” to the end of the subsection.
(7) In this section “capital distribution” has the same meaning as in section 122.
(1) If at any time a chargeable gain accrues to a company which at that time is a member of a group of companies and any of the corporation tax assessed on the company for the accounting period in which the chargeable gain accrues is not paid within 6 months from the date determined under subsection (2) below by the company, then, if the tax so assessed included any amount in respect of chargeable gains—
(a) a company which was at the time when the gain accrued the principal company of the group, and
(b) any other company which in any part of the period of 2 years ending with that time was a member of that group of companies and owned the asset disposed of or any part of it, or where that asset is an interest or right in or over another asset, owned either asset or any part of either asset,
may at any time within 2 years from the date determined under subsection (2) below be assessed and charged (in the name of the company to whom the chargeable gain accrued) to an amount of that corporation tax not exceeding corporation tax on the amount of that gain at the rate in force when the gain accrued.
(2) The date referred to in subsection (1) above is whichever is the later of—
(a) the date when the tax becomes due and payable by the company; and
(b) the date when the assessment is made on the company.
(3) A company paying any amount of tax under subsection (1) above shall be entitled to recover a sum of that amount—
(a) from the company to which the chargeable gain accrued, or
(b) if that company is not the company which was the principal company of the group at the time when the chargeable gain accrued, from that principal company,
and a company paying any amount under paragraph (b) above shall be entitled to recover a sum of that amount from the company to which the chargeable gain accrued, and so far as it is not so recovered, to recover from any company which is for the time being a member of the group and which has while a member of the group owned the asset disposed of or any part of it (or where that asset is an interest or right in or over another asset, owned either asset or any part of it) such proportion of the amount unrecovered as is just having regard to the value of the asset at the time when the asset, or an interest or right in or over it, was disposed of by that company.
(4) Any reference in subsection (3) above to an amount of tax includes a reference to any interest paid under section 87A of the Management Act on that amount.
(5) Section 170 shall apply for the interpretation of this section as it applies for the interpretation of sections 171 to 181.
(6) In relation to any chargeable gains accruing in accounting periods ending on or before such day as the Treasury may by order appoint this section shall have effect—
(a) with the substitution for the words in subsection (2) after “above” of the words “is the date when the tax becomes payable by the company”; and
(b) with the omission of subsection (4).
(1) This section applies where—
(a) a chargeable gain has accrued to a company not resident in the United Kingdom (the tax-payer company) on the disposal of an asset on or after 14th March 1989,
(b) the gain forms part of its chargeable profits for corporation tax purposes by virtue of section 10(3), and
(c) any of the corporation tax assessed on the company for the accounting period in which the gain accrued is not paid within 6 months from the time when it becomes payable.
(2) The Board may, at any time before the end of the period of 3 years beginning with the time when the amount of corporation tax for the accounting period in which the chargeable gain accrued is finally determined, serve on any person to whom subsection (4) below applies a notice—
(a) stating the amount which remains unpaid of the corporation tax assessed on the tax-payer company for the accounting period in which the gain accrued and the date when the tax became payable, and
(b) requiring that person to pay the relevant amount within 30 days of the service of the notice.
(3) For the purposes of subsection (2) above the relevant amount is the lesser of—
(a) the amount which remains unpaid of the corporation tax assessed on the tax-payer company for the accounting period in which the gain accrued, and
(b) an amount equal to corporation tax on the amount of the chargeable gain at the rate in force when the gain accrued.
(4) This subsection applies to the following persons—
(a) any company which is, or during the period of 12 months ending with the time when the gain accrued, was, a member of the same group as the tax-payer company, and
(b) any person who is, or during that period was, a controlling director of the tax-payer company or of a company which has, or within that period had, control over the tax-payer company.
This subsection shall have effect in any case where the gain accrued before 13th March 1990 with the substitution of “beginning with 14th March 1989 and” for “of 12 months”.
(5) Any amount which a person is required to pay by a notice under this section may be recovered from him as if it were tax due and duly demanded of him; and he may recover any such amount paid by him from the tax-payer company.
(6) A payment in pursuance of a notice under this section shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.
(7) In this section—
“director”, in relation to a company, has the meaning given by subsection (8) of section 168 of the Taxes Act (read with subsection (9) of that section) and includes any person falling within subsection (5) of section 417 of that Act (read with subsection (6) of that section);
“controlling director”, in relation to a company, means a director of the company who has control of it (construing control in accordance with section 416 of the Taxes Act);
“group” has the meaning which would be given by section 170 if in that section references to residence in the United Kingdom were omitted and for references to 75 per cent. subsidiaries there were substituted references to 51 per cent. subsidiaries.
Taxation of Chargeable Gains Act 1992