Finance (No. 2) Bill

Finance (No. 2) Bill - continued	House of Commons
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Pooling and identification of shares etc. - continued

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New identification rules for CGT.

122. - (1) After section 106 of the Taxation of Chargeable Gains Act 1992 there shall be inserted the following section-

"Identification of securities: general rules for capital gains tax.	106A. - (1) This section has effect for the purposes of capital gains tax (but not corporation tax) where any securities are disposed of by any person.
	(2) The securities disposed of shall be identified in accordance with the following provisions of this section with securities of the same class that have been acquired by the person making the disposal.
	(3) The provisions of this section have effect in the case of any disposal notwithstanding that some or all of the securities disposed of are otherwise identified-
	(a) by the disposal, or
	(b) by a transfer or delivery giving effect to it;
	but where a person disposes of securities in one capacity, they shall not be identified under those provisions with any securities which he holds, or can dispose of, only in some other capacity.
	(4) Securities disposed of on an earlier date shall be identified before securities disposed of on a later date; and, accordingly, securities disposed of by a later disposal shall not be identified with securities already identified as disposed of by an earlier disposal.
	(5) Subject to subsection (4) above, if within the period of thirty days after the disposal the person making it acquires securities of the same class, the securities disposed of shall be identified-
	(a) with securities acquired by him within that period, rather than with other securities; and
	(b) with securities acquired at an earlier time within that period, rather than with securities acquired at a later time within that period.
	(6) Subject to subsections (4) and (5) above, securities disposed of shall be identified with securities acquired at a later time, rather than with securities acquired at an earlier time.
	(7) Subsection (6) above shall not require securities to be identified with particular securities comprised in a section 104 holding or a 1982 holding.
	(8) Accordingly, that subsection shall have effect for determining whether, and to what extent, any securities should be identified with the whole or any part of a section 104 holding or a 1982 holding-
	(a) as if the time of the acquisition of a section 104 holding were the time when it first came into being; and
	(b) as if 31st March 1982 were the time of the acquisition of a 1982 holding.
	(9) The identification rules set out in the preceding provisions of this section have effect subject to subsection (1) of section 105, and securities disposed of shall not be identified with securities acquired after the disposal except in accordance with that section or subsection (5) above.
	(10) In this section-
	"1982 holding" has the same meaning as in section 109;
	"securities" means any securities within the meaning of section 104 or any relevant securities within the meaning of section 108.
	(11) For the purposes of this section securities of a company shall not be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange, or would be so treated if dealt with on that recognised stock exchange."

(2) In subsection (1) of section 105 of that Act (disposal and acquisition on the same day), for "The following provisions" there shall be substituted "Paragraphs (a) and (b) below"; and for subsection (2) of that section there shall be substituted the following subsection-

	"(2) Where the quantity of securities disposed of by any person exceeds the aggregate quantity of-
	(a) the securities (if any) which are required by subsection (1) above to be identified with securities acquired on the day of the disposal,
	(b) the securities (if any) which are required by any of the provisions of section 106 or 106A(5) to be identified with securities acquired after the day of the disposal, and
	(c) the securities (if any) which are required by any of the provisions of sections 104, 106, 106A or 107, or of Schedule 2, to be identified with securities acquired before the day of the disposal,
	the disposal shall be treated as diminishing a quantity of securities subsequently acquired, and as so diminishing any quantity so acquired at an earlier date, rather than one so acquired at a later date."

(3) In section 107 of that Act (general identification rules) for subsections (1) and (2) there shall be substituted the following subsections-

	"(1) This section has effect for the purposes of corporation tax where any securities are disposed of by a company.
	(1A) The securities disposed of shall be identified in accordance with the following provisions of this section with securities of the same class that have been acquired by the company making the disposal and could be comprised in that disposal.
	(2) The provisions of this section have effect in the case of any disposal notwithstanding that some or all of the securities disposed of are otherwise identified-
	(a) by the disposal, or
	(b) by a transfer or delivery giving effect to it;
	but where a company disposes of securities in one capacity, they shall not be identified with securities which it holds, or can dispose of, only in some other capacity."

(4) In section 108 of that Act (relevant securities), at the beginning there shall be inserted the following subsection-

"(A1) This section has effect for the purposes of corporation tax where any relevant securities are disposed of by a company."

(5) In that section-

(a) in subsections (2) and (7), for "person", in each place where it occurs, there shall be substituted "company"; and

(b) in subsection (2), for "him" and "he" there shall be substituted, respectively, "the company" and "it".

(6) In each of section 151B(1) and (7) of that Act and paragraph 4(2) of Schedule 5C to that Act (disapplication of share pooling and identification rules in relation to shares in a VCT), for "107" there shall be substituted "106A".

(7) Subject to subsection (8) below, the preceding provisions of this section have effect in relation to any disposal on or after 6th April 1998.

(8) For the purposes of capital gains tax for the year 1997-98 (but not for the purposes of corporation tax), the following provisions have effect in relation to any disposal of securities made on or after 17th March 1998 and before 6th April 1998, that is to say-

(a) the identification rule in subsection (5) of the section 106A of the Taxation of Chargeable Gains Act 1992 set out in subsection (1) above shall apply in accordance with subsections (3) and (4) of that section;

(b) that rule shall have priority over any other rule, except the one in section 105(1) of that Act; and

(c) section 104(1) of that Act shall not apply to any securities identified by virtue of this subsection with the securities disposed of.

(9) In subsection (8) above "securities" means any securities within the meaning of section 104 of the Taxation of Chargeable Gains Act 1992 or any relevant securities within the meaning of section 108 of that Act.

Indexation and share pooling etc.

123. - (1) In subsection (1) of section 110 of the Taxation of Chargeable Gains Act 1992 (indexation allowance for section 104 holdings), for "This" there shall be substituted "For the purposes of corporation tax this".

(2) After that section there shall be inserted the following section-

"Indexation for section 104 holdings: capital gains tax.	110A. - (1) For the purposes of capital gains tax (but not corporation tax) where-
	(a) there is a disposal on or after 6th April 1998 of a section 104 holding, and
	(b) any of the relevant allowable expenditure was incurred before 6th April 1998,
	this section applies, in place of section 54 and subject to section 105, for computing the indexation allowance.
	(2) There shall be an indexed pool of expenditure and subsection (2) or, as the case may be, subsection (3) of section 110 shall apply by reference to that pool in relation to the disposal as it would apply (by reference to the pool for which that section provides) for the purposes of corporation tax.
	(3) The amount at any time of the indexed pool of expenditure shall be determined by-
	(a) taking the amount which would, under section 110 and section 114, have been the amount of the indexed pool of expenditure for the purposes of a disposal of the whole of the holding at the end of 5th April 1998; and
	(b) making any adjustments by way of increase or reduction that would be required to be made by virtue of subsection (8) of section 110 on the assumptions set out in subsection (4) below.
	(4) Those assumptions are-
	(a) that the indexed pool of expenditure is an indexed pool of expenditure for the purposes of section 110;
	(b) that no increase or reduction is to be made except for an operative event on or after 6th April 1998; and
	(c) that paragraph (a) of section 110(8) and section 114 are to be disregarded.
	(5) For the purposes of making any adjustment in accordance with subsection (3)(b) above, subsection (9) of section 110 shall be assumed to provide only that, where the operative event is a disposal, the calculation of the indexation allowance under subsection (2) of that section, as applied by subsection (2) above, is to be made before the reduction under subsection (8)(c) of that section."

(3) In each of sections 53(4) and 104(3) and (5) (which refer to section 110), after "110" there shall be inserted ", 110A".

(4) Subject to subsection (5) below, the preceding provisions of this section have effect in relation to disposals on or after 6th April 1998.

(5) This section does not affect the computation of the amount of so much of any gain as-

(a) is treated for the purposes of the taxation of chargeable gains as having accrued on a disposal on or after 6th April 1998; but

(b) is taken for those purposes to be equal to the whole or any part of a gain that-

(i) would (but for any enactment relating to the taxation of chargeable gains) have accrued on an actual disposal made before that date, or

(ii) would have accrued on a disposal assumed under any such enactment to have been made before that date.

Stock dividends

Capital gains on stock dividends.

124. - (1) For sections 141 and 142 of the Taxation of Chargeable Gains Act 1992 (stock dividends) there shall be substituted the following section-

"Capital gains on stock dividends.	142. - (1) This section applies where any share capital to which section 249 of the Taxes Act applies is issued as mentioned in subsection (4), (5) or (6) of that section in respect of shares in the company held by any person.
	(2) The case shall not constitute a reorganisation of the company's share capital for the purposes of sections 126 to 128.
	(3) The person who acquires the share capital by means of its issue shall (notwithstanding section 17(1)) be treated for the purposes of section 38(1)(a) as having acquired that asset for a consideration equal to the appropriate amount in cash (within the meaning of section 251(2) to (4) of the Taxes Act)."

(2) This section applies to any share capital issued on or after 6th April 1998.

Non-residents etc.

Charge to CGT on temporary non-residents.

125. - (1) After section 10 of the Taxation of Chargeable Gains Act 1992 there shall be inserted the following section-

"Temporary non-residents.	10A. - (1) This section applies in the case of any individual ("the taxpayer") if-
	(a) he satisfies the residence requirements for any year of assessment ("the year of return");
	(b) he did not satisfy those requirements for one or more years of assessment immediately preceding the year of return but there are years of assessment before that year for which he did satisfy those requirements;
	(c) there are fewer than five years of assessment falling between the year of departure and the year of return; and
	(d) four out of the seven years of assessment immediately preceding the year of departure are also years of assessment for each of which he satisfied those requirements.
	(2) Subject to the following provisions of this section and section 86A, the taxpayer shall be chargeable to capital gains tax as if-
	(a) all the chargeable gains and losses which (apart from this subsection) would have accrued to him in an intervening year,
	(b) all the chargeable gains which under section 13 or 86 would be treated as having accrued to him in an intervening year if he had been resident in the United Kingdom throughout that intervening year, and
	(c) any losses which by virtue of section 13(8) would have been allowable in his case in any intervening year if he had been resident in the United Kingdom throughout that intervening year,
	were gains or, as the case may be, losses accruing to the taxpayer in the year of return.
	(3) Subject to subsection (4) below, the gains and losses which by virtue of subsection (2) above are to be treated as accruing to the taxpayer in the year of return shall not include any gain or loss accruing on the disposal by the taxpayer of any asset if-
	(a) that asset was acquired by the taxpayer at a time in the year of departure or any intervening year when he was neither resident nor ordinarily resident in the United Kingdom;
	(b) that asset was so acquired otherwise than by means of a relevant disposal which by virtue of section 58, 73 or 258(4) is treated as having been a disposal on which neither a gain nor a loss accrued;
	(c) that asset is not an interest created by or arising under a settlement; and
	(d) the amount or value of the consideration for the acquisition of that asset by the taxpayer does not fall, by reference to any relevant disposal, to be treated as reduced under section 23(4)(b) or (5)(b), 152(1)(b), 162(3)(b) or 247(2)(b) or (3)(b).
	(4) Where-
	(a) any chargeable gain that has accrued or would have accrued on the disposal of any asset ("the first asset") is a gain falling (apart from this section) to be treated by virtue of section 116(10) or (11), 134 or 154(2) or (4) as accruing on the disposal of the whole or any part of another asset, and
	(b) the other asset is an asset falling within paragraphs (a) to (d) of subsection (3) above but the first asset is not,
	subsection (3) above shall not exclude that gain from the gains which by virtue of subsection (2) above are to be treated as accruing to the taxpayer in the year of return.
	(5) The gains and losses which by virtue of subsection (2) above are to be treated as accruing to the taxpayer in the year of return shall not include any chargeable gain or allowable loss accruing to the taxpayer in an intervening year which, in the taxpayer's case, has fallen to be brought into account for that year by virtue of section 10 or 16(3).
	(6) The reference in subsection (2)(c) above to losses allowable in an individual's case in an intervening year is a reference to only so much of the aggregate of the losses that would have been available in accordance with subsection (8) of section 13 for reducing gains accruing by virtue of that section to that individual in that year as does not exceed the amount of the gains that would have accrued to him in that year if it had been a year throughout which he was resident in the United Kingdom.
	(7) Where this section applies in the case of any individual, nothing in any enactment imposing any limit on the time within which an assessment to capital gains tax may be made shall prevent any such assessment for the year of departure from being made in the taxpayer's case at any time before the end of two years after the 31st January next following the year of return.
	(8) In this section-
	"intervening year" means any year of assessment which, in a case where the conditions in paragraphs (a) to (d) of subsection (1) above are satisfied, falls between the year of departure and the year of return;
	"relevant disposal", means a disposal of an asset acquired by the person making the disposal at a time when that person was resident or ordinarily resident in the United Kingdom; and
	"the year of departure" means the last year of assessment before the year of return for which the taxpayer satisfied the residence requirements.
	(9) For the purposes of this section an individual satisfies the residence requirements for a year of assessment if that year of assessment is one during any part of which he is resident in the United Kingdom or during which he is ordinarily resident in the United Kingdom.
	(10) This section is without prejudice to any right to claim relief in accordance with any double taxation relief arrangements."

(2) In section 9(3) of that Act (exclusion from charge of persons temporarily resident), for "section 10(1)" there shall be substituted "sections 10(1) and 10A".

(3) In section 96 of that Act (payments by and to companies), after subsection (9) there shall be inserted the following subsections-

	"(9A) For the purposes of this section an individual shall be deemed to have been resident in the United Kingdom at any time in any year of assessment which in his case is an intervening year for the purposes of section 10A.
	(9B) If-
	(a) it appears after the end of any year of assessment that any individual is to be treated by virtue of subsection (9A) above as having been resident in the United Kingdom at any time in that year, and
	(b) as a consequence, any adjustments fall to be made to the amounts of tax taken to have been chargeable by virtue of this section on any person,
	nothing in any enactment limiting the time for the making of any claim or assessment shall prevent the making of those adjustments (whether by means of an assessment, an amendment of an assessment, a repayment of tax or otherwise)."

(4) This section has effect-

(a) in any case in which the year of departure is the year 1998-99 or a subsequent year of assessment; and

(b) in any case in which the year of departure is the year 1997-98 and the taxpayer was resident or ordinarily resident in the United Kingdom at a time in that year on or after 17th March 1998.

Prepared 6 April 1998