Office of Public Sector Information
SCHEDULE 29 continued PART 6 continued
33 Credits and debits to be brought into account in any accounting period in respect of an asset held by the company for the purposes of a concern listed in section 55(2) of the Taxes Act 1988 (mines, transport undertakings, etc) that is carried on by the company in that period are given effect by treating—
(a) credits as receipts of the concern, and
(b) debits as expenses of the concern,
in computing the profits of the concern under Case I of Schedule D.
34 (1) Where, or to the extent that, in an accounting period, there are—
(a) credits in respect of intangible fixed assets that are not within any of paragraphs 31 to 33 (“non-trading credits”), or
(b) debits in respect of intangible fixed assets that are not within any of those paragraphs (“non-trading debits”),
the company’s aggregate non-trading gain or loss on intangible fixed assets must be calculated.
(2) There is a non-trading gain on intangible fixed assets if—
(a) there are only non-trading credits, or
(b) there are both non-trading credits and non-trading debits and the aggregate of the former exceeds the aggregate of the latter.
The amount of the non-trading gain is the aggregate amount of the credits or, as the case may be, the amount of the excess.
(3) There is a non-trading loss on intangible fixed assets if—
(a) there are only non-trading debits, or
(b) there are both non-trading credits and non-trading debits and the aggregate of the latter exceeds the aggregate of the former.
The amount of the non-trading loss is the aggregate amount of the debits or, as the case may be, the amount of the excess.
(4) A non-trading gain on intangible fixed assets is chargeable to tax under Case VI of Schedule D.
(5) A non-trading loss on intangible fixed assets is given effect in accordance with the following paragraph.
35 (1) A company that has a non-trading loss on intangible fixed assets for an accounting period may claim to have the whole or part of the loss set off against the company’s total profits for that period.
(2) Any such claim must be made not later than the end of the period of two years immediately following the end of the accounting period to which it relates, or within such further period as the Inland Revenue may allow.
(3) To the extent that the loss is not—
(a) set off against total profits on a claim under sub-paragraph (1), or
(b) surrendered by way of group relief (see section 403 of the Taxes Act 1988),
it is carried forward to the next accounting period of the company and treated as if it were a non-trading debit of that period.
36 (1) Nothing in this Schedule shall be read as preventing profits and gains arising from intangible fixed assets of an insurance company from being included, where—
(a) the assets are referable to life assurance business carried on by the company, and
(b) the I minus E basis is applied in relation to that business,
in profits and gains on which the company is chargeable to tax in accordance with that basis.
(2) Where for any accounting period the I minus E basis is applied in relation to life assurance business carried on by an insurance company, the effect of applying that basis is that credits or debits falling to be brought into account under this Schedule in respect of intangible fixed assets of the company referable to that business—
(a) are not brought into account as mentioned in paragraph 31 (assets held for purposes of trade), but
(b) subject to the following provisions of this paragraph, are instead brought into account under paragraph 34 as non-trading credits or, as the case may be, non-trading debits.
(3) Where an insurance company carries on basic life assurance and general annuity business—
(a) a separate computation of the credits and debits referable to that business shall be made under paragraph 34 (non-trading credits and debits),
(b) any resulting non-trading gain in respect of intangible assets is chargeable to tax as mentioned in sub-paragraph (4) of that paragraph, and
(c) any resulting non-trading loss in respect of intangible assets is treated as additional expenses of management within section 76 of the Taxes Act 1988.
(4) References in any enactment to the computation of any profits of an insurance company in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D have effect as if those provisions included the provisions of this Schedule, but only to the extent that they relate to the bringing into account of debits in respect of royalties.
(5) Where an insurance company carries on life assurance business or any category of life assurance business—
(a) the credits and debits under this Schedule referable to that business or category of business, other than debits in respect of royalties, shall be disregarded for the purposes of any computations falling to be made in relation to that business or category of business in accordance with the provisions applicable to Case I of Schedule D, and
(b) accordingly, the amounts to be brought into account in any such computations shall be determined under the provisions applicable apart from this Schedule.
(6) In this paragraph “the I minus E basis” means the basis commonly so called under which a company carrying on life assurance business is charged to tax on that business otherwise than under Case I of Schedule D.
37 (1) This Part provides for relief where a company realises an intangible fixed asset (the “old asset”) and incurs expenditure on other intangible fixed assets (“other assets”).
(2) A company is entitled to relief under this Part only if—
(a) the conditions in paragraph 38 are met in relation to the old asset and its realisation,
(b) the conditions in paragraph 39 are met in relation to the expenditure on other assets, and
(c) the company claims the relief in accordance with paragraph 40.
38 (1) The following conditions must be met in relation to the old asset and its realisation—
(a) the asset must have been a chargeable intangible asset of the company throughout the period during which it was held by the company; and
(b) the proceeds of realisation of the asset must exceed—
(i) the cost of the asset, or
(ii) in the case of a part realisation, the appropriate proportion of the cost of the asset, or
(iii) in the case of the realisation of an asset that has been the subject of a part realisation, the adjusted cost of the asset.
(2) If the asset was a chargeable intangible asset of the company—
(a) at the time of its realisation, and
(b) for a substantial part of, but not throughout, the period during which it was held by the company,
a part of the asset representing the time for which it was a chargeable intangible asset shall be treated for the purposes of this Part as if it were a separate asset in relation to which the condition in sub-paragraph (1)(a) was wholly met.
Any apportionment necessary for this purpose shall be made on a just and reasonable basis.
(3) In sub-paragraph (1)(b) “the cost of the asset” means the total of the capitalised expenditure on the asset recognised for tax purposes.
For the calculation of the appropriate proportion or adjusted cost, see paragraph 42.
(4) The condition in sub-paragraph (1)(b) is necessarily met if the asset has no cost as defined above.
39 (1) The following conditions must be met in relation to the expenditure on other assets—
(a) the expenditure must be incurred in the period—
(i) beginning twelve months before the date of realisation of the old asset or at such earlier time as the Inland Revenue may by notice allow, and
(ii) ending three years after the date of realisation of the old asset or at such later time as the Inland Revenue may by notice allow;
(b) the expenditure must be capitalised by the company for accounting purposes; and
(c) the assets on which the expenditure is incurred must be chargeable intangible assets in relation to the company immediately after the expenditure is incurred.
(2) For the purposes of this paragraph expenditure is regarded as incurred when it is recognised for accounting purposes.
40 A claim by a company for relief under this Part must specify—
(a) the old assets to which the claim relates, and
(b) in relation to each old asset—
(i) the expenditure on other assets by reference to which relief is claimed, and
(ii) the amount of the relief claimed.
41 (1) A company that is entitled to, and claims, relief under this Part is treated for the purposes of this Schedule as if—
(a) the proceeds of realisation of the old asset, and
(b) the cost recognised for tax purposes of acquiring the other assets,
were each reduced by the amount available for relief.
(2) If the amount of qualifying expenditure on other assets is equal to or greater than the proceeds of realisation of the old asset, the amount available for relief is the amount by which the proceeds of realisation exceed the cost of the old asset.
(3) If the amount of qualifying expenditure on other assets is less than the proceeds of realisation of the old asset, the amount available for relief is the amount (if any) by which the qualifying expenditure on other assets exceeds the cost of the old asset.
(4) In this paragraph—
(a) “qualifying expenditure” means expenditure in relation to which the conditions in paragraph 39 are met;
(b) “the cost of the old asset” means the total of the capitalised expenditure on the asset recognised for tax purposes;
(c) the references to the cost of the old asset shall be read—
(i) in the case of a part realisation, as references to the appropriate proportion of the cost, and
(ii) in the case of the realisation of an asset that has been the subject of a part realisation, as references to the adjusted cost.
For the calculation of the appropriate proportion and the adjusted cost, see paragraph 42.
(5) The relief does not affect the treatment for any purpose of the Taxes Acts of any other party to any transaction involved in the realisation of the old asset or the expenditure on the other assets.
42 (1) Any reference in paragraph 38 or 41 to the appropriate proportion of the cost of the old asset in the case of a part realisation is to the proportion given by:
where—
Reduction in Accounting Value is the difference between the accounting value immediately before the part realisation compared with that immediately after the part realisation; and
Previous Accounting Value is the accounting value immediately before the part realisation.
(2) In the case of an asset that has previously been the subject of a part realisation the reference in sub-paragraph (1) to the cost of the old asset shall be read as a reference to the adjusted cost.
(3) Any reference in paragraph 38 or 41, or sub-paragraph (2) above, to the adjusted cost in the case where the old asset has previously been the subject of a part realisation is to the amount given by deducting from the cost of the old asset the total of the amounts given by sub-paragraphs (1) and (2) above in relation to earlier part realisations.
43 (1) A company realising an intangible fixed asset may make a declaration of provisional entitlement to relief under this Part.
(2) A declaration of provisional entitlement is a declaration by the company, in its company tax return for the accounting period in which the realisation takes place, that the company—
(a) has realised an intangible fixed asset,
(b) proposes to meet the conditions for relief under this Part, and
(c) is accordingly provisionally entitled to relief of a specified amount.
(3) While the declaration continues in force, this Part applies as if the conditions for relief under this Part were met.
(4) A declaration of provisional entitlement ceases to have effect if, or to the extent that—
(a) it is withdrawn, or
(b) it is superseded by a claim for relief under this Part.
(5) So far as not previously withdrawn or superseded, a declaration of provisional entitlement ceases to have effect four years after the end of the accounting period in which the realisation took place.
(6) On a declaration of provisional entitlement ceasing to have effect, in whole or in part, all necessary adjustments shall be made, by assessment or otherwise.
This applies notwithstanding any limitation on the time within which assessments or amendments may be made.
44 This Part applies where a company realises an asset and subsequently reacquires it as if what is reacquired were a different asset from that previously realised.
45 (1) This Part does not apply in relation to a deemed realisation of an asset except as provided by—
(a) paragraph 65 (application of roll-over relief in relation to deemed realisation as a result of degrouping), or
(b) paragraph 67 (application of roll-over relief in relation to reallocated degrouping charge).
(2) No account shall be taken for the purposes of this Part of any deemed reacquisition.
46 (1) This Part has effect for the purposes of this Schedule to determine whether companies form a group and, where they do, which is the principal company of the group.
(2) In this Part references to a company apply only to—
(a) a company within the meaning of the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/ 1032 (N.I. 6));
(b) a company (other than a limited liability partnership) constituted under any other Act or by a Royal Charter or letters patent;
(c) a company formed under the law of a country or territory outside the United Kingdom;
(d) a registered industrial and provident society within the meaning of section 486 of the Taxes Act 1988;
(e) an incorporated friendly society within the meaning of the Friendly Societies Act 1992 (c. 40); or
(f) a building society.
(3) In this Schedule the expressions “group” and “subsidiary” shall be construed with any necessary modifications where applied to a company formed under the law of a country outside the United Kingdom.
47 (1) A company (“the principal company of the group”) and all its 75% subsidiaries form a group, and if any of those subsidiaries have 75% subsidiaries the group includes them and their 75% subsidiaries, and so on.
(2) Sub-paragraph (1) has effect subject to the following provisions of this Part.
48 A group of companies does not include any company (other than the principal company of the group) that is not an effective 51% subsidiary of the principal company of the group.
49 (1) A company cannot be the principal company of a group if it is itself a 75% subsidiary of another company.
(2) Notwithstanding sub-paragraph (1), where—
(a) a company (“the subsidiary”) is a 75% subsidiary of another company, and
(b) those companies are prevented from being members of the same group by paragraph 48 (the effective 51% subsidiary requirement),
the subsidiary may, if the requirements of paragraphs 47 and 48 are met, itself be the principal company of another group, unless this enables a further company to be the principal company of a group of which the subsidiary would be a member.
50 (1) A company cannot be a member of more than one group.
(2) If a company would otherwise be a member of two or more groups, the group of which it is a member is determined by applying the following rules (applying the rules successively in the order shown until an answer is obtained).
(3) In the following provisions the principal company of each group is referred to as the “head of a group”.
(4) The first rule is that the company is a member of the group of which it would be a member if, in applying paragraph 48 (the effective 51% subsidiary requirement), there were left out of account—
(a) any amount to which a head of a group is beneficially entitled of any profits available for distribution to equity holders of a head of another group, or
(b) any amount to which a head of a group would be beneficially entitled of any assets of a head of another group available for distribution to its equity holders on a winding up.
(5) The second rule is that the company is a member of the group the head of which is beneficially entitled to a percentage of the profits available for distribution to equity holders of the company that is greater than the percentage of those profits to which any other head of a group is so entitled.
(6) The third rule is that the company is a member of the group the head of which would be beneficially entitled to a percentage of any assets of the company available for distribution to its equity holders on a winding up that is greater than the percentage of those assets to which any other head of a group would be so entitled.
(7) The fourth rule is that the company is a member of the group the head of which owns directly or indirectly a percentage of the company’s ordinary share capital that is greater than the percentage of that capital owned directly or indirectly by any other head of a group.
The provisions of section 838(2) to (10) of the Taxes Act 1988 apply for the interpretation of this sub-paragraph as they apply for the interpretation of subsection (1)(a) of that section (definition of “51% subsidiary”).
51 (1) For the purposes of this Schedule—
(a) a group of companies remains the same group of companies so long as the same company is the principal company of the group, and
(b) if the principal company of a group becomes a member of another group, the first group and the other group shall be regarded as the same (and the question whether a company has ceased to be a member of a group shall be determined accordingly).
(2) For the purposes of this Schedule the passing of a resolution or the making of an order, or any other act, for the winding up of a member of a group is not regarded as the occasion of that or any other company ceasing to be a member of the group.
52 For the purposes of this Schedule a company (“the subsidiary”) is an effective 51% subsidiary of another company (“the parent”) if, and only if, the parent—
(a) is beneficially entitled to more than 50% of any profits available for distribution to equity holders of the subsidiary, and
(b) would be beneficially entitled to more than 50% of any assets of the subsidiary available for distribution to its equity holders on a winding up.
53 (1) Schedule 18 to the Taxes Act 1988 (meaning of equity holder and determination of profits or assets available for distribution) applies for the purposes of paragraphs 50 and 52.
(2) In that Schedule as it applies for the purposes of those paragraphs—
(a) for any reference to sections 403C and 413(7) of that Act, or either of those provisions, substitute a reference to those paragraphs;
(b) omit the words in paragraph 1(4) from “but” to the end;
(c) omit paragraph 5(3) and paragraphs 5B to 5F; and
(d) omit paragraph 7(1)(b).
54 (1) In applying for the purposes of this Part the definition of “75% subsidiary” in section 838 of the Taxes Act 1988, any share capital of a registered industrial and provident society shall be treated as ordinary share capital.
(2) The provisions of section 170(12) to (14) of the Taxation of Chargeable Gains Act 1992 (c. 12) (application to certain statutory bodies of provisions relating to groups of companies) apply for the purposes of this Part as they apply for the purposes of sections 171 to 181 of that Act.
55 (1) Where—
(a) an intangible fixed asset is transferred from one company (“the transferor”) to another company (“the transferee”) at a time when both companies are members of the same group, and
(b) the asset is a chargeable intangible asset in relation to the transferor immediately before the transfer and in relation to the transferee immediately after the transfer,
the transfer of the asset is treated for the purposes of this Schedule as tax-neutral (see paragraph 140).
(2) Sub-paragraph (1) does not apply—
(a) if the transferor or transferee is a qualifying society within the meaning of section 461A of the Taxes Act 1988 (incorporated friendly societies entitled to exemption from tax), or
(b) if the transferee is a dual resident investing company within the meaning of section 404 of that Act (limitation of group relief).
56 (1) The following provisions have effect as regards the application of Part 7 (roll-over relief in case of realisation and reinvestment) in relation to a company that is a member of a group.
(2) That Part applies where—
(a) the realisation of the old asset is by a company that, at the time of the realisation, is a member of a group,
(b) the expenditure on other assets is by another company that, at the time the expenditure is incurred—
(i) is a member of the same group as the company mentioned in paragraph (a), and
(ii) is not a dual resident investing company,
(c) the other assets are chargeable intangible assets in relation to the company mentioned in paragraph (b) immediately after the expenditure is incurred, and
(d) the claim is made by both companies,
as if both companies were the same person.
(3) That Part does not apply if the expenditure on other assets is expenditure on the acquisition of assets acquired from another member of the same group by a tax-neutral transfer.
(4) Expressions used in this paragraph that are defined for the purposes of Part 7 have the same meaning in this paragraph.
57 (1) Where a company (“company A”) acquires a controlling interest in another company (“company B”) and intangible fixed assets (“underlying assets”) are held—
(a) by company B, or
(b) by one or more other companies that were not in the same group as company A before its acquisition of a controlling interest in company B but as a result of that acquisition are in the same group as company A immediately after the acquisition,
Part 7 (roll-over relief in case of realisation and reinvestment) has effect in accordance with the following provisions.
(2) The expenditure by company A on the acquisition of a controlling interest in company B is treated as expenditure on acquiring the underlying assets.
(3) The amount of expenditure that is treated as incurred by company A on acquiring the underlying assets is taken to be—
(a) the tax written down value of the underlying assets immediately before the acquisition, or
(b) if less, the amount or value of the consideration for the acquisition by company A of the controlling interest in company B.
(4) The requirement that the assets be chargeable intangible assets in relation to company A immediately after the expenditure is incurred on acquiring them is treated as met in relation to the underlying assets if they are chargeable intangible assets in relation to the company by which they are held immediately after the acquisition by company A of a controlling interest in company B.
(5) The tax written down value of the underlying assets in the hands of the company by which they are held shall be reduced by the amount available for relief, and if—
(a) there is more than one underlying asset, and
(b) the amount of expenditure on other assets that is treated as incurred exceeds the amount available for relief,
the company by which the underlying assets are held may decide how the amount available for relief is to be allocated in reducing the tax written down values of the assets.
If there is more than one such company, they may agree between them how that amount is to be allocated.
(6) A claim for relief under Part 7 made by virtue of this paragraph must be made jointly by company A and the company or companies holding the underlying assets concerned.
(7) For the purposes of this paragraph company A acquires a controlling interest in company B if the two companies are not in the same group and there is an acquisition by company A of shares in company B such that those two companies are in the same group immediately after the acquisition.
(8) Expressions used in this paragraph that are defined for the purposes of Part 7 have the same meaning in this paragraph.
58 (1) This paragraph applies where—
(a) a company (“the transferor”) that is a member of a group (“the group”) transfers an intangible fixed asset (“the relevant asset”) to another company (“the transferee”),
(b) the relevant asset is a chargeable intangible asset in relation to the transferor immediately before the transfer and in relation to the transferee immediately after the transfer, and
(c) the transferee—
(i) having been a member of the group at the time of the transfer, or
(ii) having subsequently become a member of the group,
ceases to be a member of the group after the transfer and before the end of the period of six years after the date of the transfer.
(2) If, when the transferee ceases to be a member of the group, the relevant asset is held by the transferee or an associated company also leaving the group, this Schedule has effect as if the transferee, immediately after the transfer of the relevant asset to it, had realised the asset for its market value at that time and immediately reacquired the asset at that value.
(3) The adjustments required to be made in consequence of sub-paragraph (2), by the transferee or a company to which the relevant asset has been subsequently transferred, in relation to the period between—
(a) the transfer of the relevant asset to the transferee, and
(b) the transferee ceasing to be a member of the group,
shall be made by bringing the aggregate net credit or debit into account as if it had arisen immediately before the transferee ceased to be a member of the group.
(4) For the purposes of Part 6 (how credits and debits are given effect) credits or debits brought into account by virtue of this paragraph take their character from the purposes for which the relevant asset was held by the transferee immediately after the transfer.
Provided that, in a case where—
(a) the asset was then held by the transferee for the purposes of a trade, business or concern within paragraph 31, 32 or 33, and
(b) the transferee ceased to carry on that trade, business or concern before it ceased to be a member of the group,
any credit or debit brought into account by virtue of this paragraph in respect of the asset shall be treated for the purposes of Part 6 as a non-trading credit or debit.
(5) This paragraph has effect subject to—
paragraph 59 (associated companies leaving group at the same time),
paragraph 60 (principal company becoming member of another group),
paragraph 61 (company ceasing to be member of group by reason of exempt distribution), and
paragraph 62 (merger carried out for bona fide commercial reasons).
59 (1) Where two or more associated companies cease to be members of a group at the same time, paragraph 58 does not have effect in relation to a transfer from one to another of those companies.
(2) But where—
(a) a company (“the transferee”) that has ceased to be a member of a group of companies (“the first group”) acquired an asset from another company (“the transferor”) which was a member of that group at the time of the transfer,
(b) sub-paragraph (1) applies in relation to the transferee’s ceasing to be a member of the first group so that paragraph 58 does not have effect,
(c) the transferee subsequently ceases to be a member of another group of companies (“the second group”), and
(d) there is a relevant connection between the two groups (see sub-paragraph (3)),
paragraph 58 has effect in relation to the transferee’s ceasing to be a member of the second group as if it were the second group of which both companies had been members at the time of the transfer.
(3) For the purposes of sub-paragraph (2) there is a relevant connection between the first group and the second group if, at the time when the transferee ceases to be a member of the second group, the company which is the principal company of that group is under the control of—
(a) the company that is the principal company of the first group or, if that group no longer exists, was the principal company of that group when the transferee ceased to be a member of it; or
(b) any person or persons who control the company mentioned in paragraph (a) or who have had it under their control at any time in the period since the transferee ceased to be a member of the first group; or
(c) any person or persons who have, at any time in that period, had under their control either—
(i) a company that would have been a person falling within paragraph (b) if it had continued to exist, or
(ii) a company that would have been a person falling within this paragraph (whether by reference to a company that would have been a person falling within paragraph (b) or by reference to a company or series of companies falling within this provision).
(4) The provisions of section 416(2) to (6) of the Taxes Act 1988 (meaning of control) have effect for the purposes of sub-paragraph (3) as they have effect for the purposes of Part 11 of that Act.
But a person carrying on a business of banking shall not be regarded for those purposes as having control of a company by reason only of having, or of the consequences of having exercised, any rights in respect of loan capital or debt issued or incurred by the company for money lent by that person to the company in the ordinary course of that business.
Finance Act 2002