Office of Public Sector Information
SCHEDULE 8 continued PART 1 continued
(5) If the disposal is by virtue of section 28(1) or (2) (asset disposed of under contract) treated as made at a time before the asset is conveyed or transferred, the requirements in sub-paragraph (1)(a) and (b) must also be complied with as they would have effect if the references in those provisions and sub-paragraph (4) to the time of the disposal were to the time of the conveyance or transfer.
(6) In this paragraph a “sole trading company” means a trading company that is not a member of a group.
19 (1) The company invested in must—
(a) have been a qualifying company throughout the period—
(i) beginning with the start of the latest twelve-month period by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) is met, and
(ii) ending with the time of the disposal, and
(b) be a qualifying company immediately after the time of the disposal.
(2) For this purpose a “qualifying company” means a trading company or the holding company of a trading group or a trading subgroup.
(3) If the disposal is by virtue of section 28(1) or (2) (asset disposed of under contract) treated as made at a time before the asset is conveyed or transferred, the requirements in sub-paragraph (1)(a) and (b) must also be complied with as they would have effect if the references there to the time of the disposal were to the time of the conveyance or transfer.
20 (1) In this Schedule “trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by the company—
(a) in the course of, or for the purposes of, a trade being carried on by it,
(b) for the purposes of a trade that it is preparing to carry on,
(c) with a view to its acquiring or starting to carry on a trade, or
(d) with a view to its acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) if the acquiring company is a member of a group, is not a member of that group.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a 51% subsidiary of the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group.
21 (1) In this Schedule “trading group” means a group—
(a) one or more of whose members carry on trading activities, and
(b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the group—
(a) in the course of, or for the purposes of, a trade being carried on by any member of the group,
(b) for the purposes of a trade that any member of the group is preparing to carry on,
(c) with a view to any member of the group acquiring or starting to carry on a trade, or
(d) with a view to any member of the group acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) is not a member of the same group as the acquiring company.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the group member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a member of the same group as the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the joint venture company a member of the same group as the acquiring company.
(5) For the purposes of this paragraph the activities of the members of the group shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities).
22 (1) In this Schedule “trading subgroup” means a subgroup—
(a) one or more of whose members carry on trading activities, and
(b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities.
(2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the subgroup—
(a) in the course of, or for the purposes of, a trade being carried on by any member of the subgroup,
(b) for the purposes of a trade that any member of the subgroup is preparing to carry on,
(c) with a view to any member of the subgroup acquiring or starting to carry on a trade, or
(d) with a view to any member of the subgroup acquiring a significant interest in the share capital of another company that—
(i) is a trading company or the holding company of a trading group or trading subgroup, and
(ii) is not a member of the same group as the acquiring company.
(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the subgroup member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.
(4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company—
(a) such as would make that company a member of the same subgroup as the acquiring company, or
(b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group.
(5) For the purposes of this paragraph the activities of the members of the subgroup shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-subgroup activities).
23 (1) This paragraph applies where a company (“the company”) has a qualifying shareholding in a joint venture company.
(2) In determining whether the company is a trading company—
(a) its holding of shares in the joint venture company shall be disregarded, and
(b) it shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the company is a member of a group and the joint venture company is a member of the same group.
(3) In determining whether the company is a member of a trading group or the holding company of a trading group—
(a) every holding of shares in the joint venture company by a member of the group having a qualifying shareholding in that company shall be disregarded, and
(b) each member of the group having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the joint venture company is a member of the group.
(4) In determining whether the company is the holding company of a trading subgroup—
(a) every holding of shares in the joint venture company by the company and any of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be disregarded, and
(b) the company and each of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion—
(i) of the activities of the joint venture company, or
(ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries.
This sub-paragraph does not apply if the joint venture company is a member of the same group as the company.
(5) In sub-paragraphs (2)(b), (3)(b) and (4)(b) “an appropriate proportion” means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the company concerned.
(6) In this paragraph “shares”, in relation to a joint venture company, includes securities of that company or an interest in shares in or securities of that company.
(7) For the purposes of this paragraph the activities of a joint venture company that is a holding company and its 51% subsidiaries shall be treated as a single business (so that activities are disregarded to the extent that they are intra-group activities or, as the case may be, intra-subgroup activities).
24 (1) For the purposes of this Schedule a company is a “joint venture company” if, and only if—
(a) it is a trading company or the holding company of a trading group or trading subgroup, and
(b) there are five or fewer persons who between them hold 75% or more of its ordinary share capital.
In determining whether there are five or fewer such persons as are mentioned in paragraph (b), the members of a group are treated as if they were a single company.
(2) For the purposes of this Schedule—
(a) a company that is not a member of a group has a “qualifying shareholding” in a joint venture company if, and only if, it holds shares or an interest in shares in the joint venture company by virtue of which it holds 10% or more of that company’s ordinary share capital;
(b) a company that is a member of a group has a “qualifying shareholding” in a joint venture company if, and only if—
(i) it holds ordinary share capital of the joint venture company, and
(ii) the members of the group between them hold 10% or more of the ordinary share capital of that company.
25 The provisions of—
(a) paragraph 14 (effect of earlier company reconstruction etc), and
(b) paragraph 15 (effect of earlier demerger),
have effect in relation to the requirements of paragraph 19 (requirements in relation to company invested in) as they have effect in relation to the requirement of paragraph 7 (the substantial shareholding requirement).
26 (1) In this Schedule—
(a) “company” has the meaning given by section 170(9); and
(b) references to a group, or to membership of a group, shall be construed in accordance with the provisions of section 170 read as if “51 per cent” were substituted for “75 per cent”.
(2) References in this Schedule to a “subgroup” are to companies that would form a group but for the fact that one of them is a 51% subsidiary of another company.
(3) In this Schedule “holding company”—
(a) in relation to a group, means the company described in section 170 as the principal company of the group;
(b) in relation to a subgroup, means a company that would be the holding company of a group but for being a 51% subsidiary of another company.
(4) In this Schedule “51% subsidiary” has the meaning given by section 838 of the Taxes Act.
In applying that section for the purposes of this Schedule, any share capital of a registered industrial and provident society shall be treated as ordinary share capital.
(5) References in this Schedule to a “group” or “subsidiary” shall be construed with any necessary modifications where applied to a company incorporated under the law of a country or territory outside the United Kingdom.
27 In this Schedule “trade” means anything that—
(a) is a trade, profession or vocation, within the meaning of the Income Tax Acts, and
(b) is conducted on a commercial basis with a view to the realisation of profits.
28 For the purposes of this Schedule a “twelve-month period” means a period ending with the day before the first anniversary of the day with which, or in the course of which, the period began.
29 (1) References in this Schedule to an interest in shares are to an interest as a co-owner of shares.
(2) It does not matter whether the shares are owned jointly or in common, or whether the interests of the co-owners are equal.
30 (1) This paragraph explains what is meant by an asset related to shares in a company.
(2) An asset is related to shares in a company if it is—
(a) an option to acquire or dispose of shares or an interest in shares in that company, or
(b) a security to which are attached rights by virtue of which the holder is or may become entitled to acquire or dispose of (whether by conversion or exchange or otherwise)—
(i) shares or an interest in shares in that company, or
(ii) an option to acquire or dispose of shares or an interest in shares in that company, or
(iii) another security falling within this paragraph, or
(c) an option to acquire or dispose of any security within paragraph (b) or an interest in any such security, or
(d) an interest in, or option over, any such option or security as is mentioned in paragraph (a), (b) or (c), or
(e) any interest in, or option over, any such interest or option as is mentioned in paragraph (d) or this paragraph.
(3) In determining whether a security is within sub-paragraph (2)(b), no account shall be taken—
(a) of any rights attached to the security other than rights relating, directly or indirectly, to shares of the company in question, or
(b) of rights as regards which, at the time the security came into existence, there was no more than a negligible likelihood that they would in due course be exercised to a significant extent.
(4) The references in this paragraph to an interest in a security or option have a meaning corresponding to that given by paragraph 29 in relation to an interest in shares.
31 In this Schedule the expressions listed below are defined or otherwise explained by the provisions indicated:
| asset related to shares | paragraph 30 |
| company | paragraph 26(1)(a) |
| company invested in | paragraph 1 |
| 51% subsidiary | paragraph 26(4) and (5) |
| group (and member of group) | paragraph 26(1)(b) and (5) |
| holding company | paragraph 26(3) |
| interest in shares | paragraph 29 |
| investing company | paragraph 1 |
| joint venture company | paragraph 24(1) |
| qualifying shareholding (in joint venture company) | paragraph 24(2) |
| subgroup | paragraph 26(2) |
| trade | paragraph 27 |
| trading company | paragraph 20 |
| trading group | paragraph 21 |
| trading subgroup | paragraph 22 |
| twelve-month period | paragraph 28 |
32 Any exemption conferred by this Schedule shall be disregarded in determining whether shares are “chargeable shares”, or an asset is a “chargeable asset”, for the purposes of any enactment relating to corporation tax or capital gains tax.
33 (1) This paragraph applies where—
(a) a company makes a claim under section 24(2) (assets of negligible value) in relation to shares held by it, and
(b) by virtue of this Schedule any loss accruing to the company on a disposal of the shares at the time of the claim would not be an allowable loss.
(2) Where this paragraph applies the company may not exercise the option under section 24(2) to specify a time earlier than the time of the claim as the time when the shares are treated as sold and reacquired by virtue of that subsection.
(3) This paragraph applies to—
(a) an interest in shares in a company, or
(b) an asset related to shares in a company,
as it applies to shares in that company.
34 (1) The exemptions conferred by this Schedule do not apply to or affect a chargeable gain or allowable loss deemed to accrue on a disposal by virtue of section 116(10)(b) (reorganisations, conversions and reconstructions: deemed accrual of gain or loss held over on earlier transaction).
(2) Sub-paragraph (1) does not apply where the relevant earlier transaction was a deemed disposal and reacquisition under section 92(7) of the Finance Act 1996 (convertible securities etc).
35 (1) This paragraph applies where—
(a) a company disposes of an asset in circumstances falling within section 140(4) (recovery of charge postponed on transfer of assets to non-resident company), and
(b) by virtue of this Schedule any gain accruing to the company on the disposal would not be a chargeable gain.
(2) Where this paragraph applies the amount by which the consideration received on the disposal would be treated as increased by virtue of section 140(4) shall instead be treated as accruing to the company, at the time of the disposal, as a chargeable gain to which this Schedule does not apply.
(3) Any reference in section 140 to an amount being brought or taken into account under or in accordance with subsection (4) of that section includes a reference to an amount being treated, by virtue of sub-paragraph (2) above, as accruing as a chargeable gain.
36 (1) Where—
(a) an asset acquired by a company otherwise than as trading stock of a trade carried on by it is appropriated by the company for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise), and
(b) if the company had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to the company but for an exemption conferred by this Schedule,
the company is treated for the purposes of the enactments relating to chargeable gains as if it had thereby disposed of the asset for its market value.
(2) Section 173 (transfers within a group: trading stock) applies in relation to this paragraph as it applies in relation to section 161 (appropriations to and from stock).
37 (1) This paragraph applies where—
(a) a company disposes of an asset,
(b) the expenditure allowable in computing a gain or loss on that disposal falls to be reduced because of a claim for relief under section 165 (gifts relief) in relation to an earlier disposal, and
(c) by virtue of this Schedule any gain accruing to the company on the disposal mentioned in paragraph (a) would not be a chargeable gain.
(2) Where this paragraph applies the amount of the held-over gain, or an appropriate proportion of it, shall be treated as accruing to the company, at the time of the disposal mentioned in sub-paragraph (1)(a), as a chargeable gain to which this Schedule does not apply.
(3) An “appropriate proportion” means a proportion determined on a just and reasonable basis having regard to the subject matter of the disposal mentioned in sub-paragraph (1)(a) and the subject matter of the earlier disposal that was the subject of the claim for relief under section 165.
(4) In this paragraph “held-over gain” has the same meaning as in section 165.
38 (1) Where—
(a) a company, as a result of ceasing at any time (“the time of degrouping”) to be a member of a group, is treated by section 179(3) as having sold and immediately reacquired an asset, and
(b) if the company owning the asset at the time of degrouping had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain,
section 179(3) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the time of degrouping.
(2) Where—
(a) a company, as a result of ceasing at any time (“the relevant time”) to satisfy the conditions in section 179(7), is treated by section 179(6) as having sold and immediately reacquired an asset, and
(b) if the company owning the asset at the relevant time had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain,
section 179(6) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the relevant time.
(3) Any reference in this paragraph to a disposal or other event taking place immediately before the time of degrouping or the relevant time is to its taking place immediately before that time but on the same day.
39 (1) No gain or loss shall be treated as arising under the FOREX matching regulations on a disposal on which by virtue of this Schedule any gain would not be a chargeable gain.
(2) The “FOREX matching regulations” means any regulations made under Schedule 15 to the Finance Act 1993 (exchange gains and losses: alternative method of calculation).”.
2 In section 179(4) of the Taxation of Chargeable Gains Act 1992 (c. 12) (deemed sale and reacquisition on company ceasing to be member of group: time when chargeable gain or allowable loss treated as accruing), for “which, apart from this subsection, would accrue” substitute “accruing”.
3 (1) Section 241 of the Taxation of Chargeable Gains Act 1992 (furnished holiday lettings) is amended as follows.
(2) In subsection (3) (commercial letting of furnished holiday accommodation to be treated as trade for certain purposes), for the opening words substitute—
“Subject to subsections (4) to (8) below, for the purposes of the provisions mentioned in subsection (3A) below—”.
(3) After that subsection insert—
“(3A) The provisions referred to in subsection (3) above are—
sections 152 to 157 (roll-over relief on replacement of business asset),
section 165 (gifts relief),
Section 253 (relief for loans to traders),
Schedule A1 (taper relief),
Schedule 6 (retirement relief etc), and
Schedule 7AC (exemptions for disposals by companies with substantial shareholding).”.
(4) In subsection (4) for “sections mentioned in subsection (3)” substitute “provisions mentioned in subsection (3A)”.
4 In Schedule 7B of the Taxation of Chargeable Gains Act 1992 (c. 12) (modification of Act in relation to overseas life insurance companies), after paragraph 15 add—
“16 In Schedule 7AC, in paragraph 3(2)(c)(ii), the words “section 11(2)(b), (c) or (d) of the Taxes Act” shall be treated as substituted for the words “section 10(3)”.”.
5 In Schedule 15 to the Finance Act 2000 (c. 17) (the corporate venturing scheme), in paragraphs 84(1) and 85(1) after “(see paragraph 83” insert “and paragraph 4 of Schedule 7AC to the Taxation of Chargeable Gains Act 1992”.
Finance Act 2002