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Finance (No.2) Bill


Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

56

 

184C    

Sections 184A and 184B: meaning of “qualifying change of

ownership”

(1)   

For the purposes of sections 184A and 184B, there is a qualifying change

of ownership in relation to a company at any time if any one or more of

the following occur at that time—

5

(a)   

the company joins a group of companies (see subsections (2) to

(5)),

(b)   

the company ceases to be a member of a group of companies,

(c)   

the company becomes subject to different control (see

subsections (6) to (9)).

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(2)   

Whether a company is a member of a group of companies at any time

is determined in accordance with section 170.

(3)   

But, apart from in the excepted case, nothing in section 170(10) or (10A)

is to prevent all the companies of one group from being regarded as

joining another group when the principal company of the first group

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becomes a member of the other group at any time.

(4)   

The excepted case is the case where—

(a)   

the persons owning the shares of the principal company of the

first group immediately before that time are the same as the

persons owning the shares of the principal company of the

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other group immediately after that time,

(b)   

the principal company of the other group was not the principal

company of any group immediately before that time, and

(c)   

immediately after that time the principal company of the other

group had assets consisting entirely (or almost entirely) of

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shares of the principal company of the first group.

(5)   

For this purpose, references to shares of a company are to the shares

comprised in the issued share capital of the company.

(6)   

The general rule is that a company becomes subject to different control

at any time if any one or more of the following occur—

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(a)   

a person has control of the company at that time (whether alone

or together with one or more others) and the person did not

previously have control of the company,

(b)   

a person has control of the company at that time together with

one or more others and the person previously had control of the

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company alone,

(c)   

a person ceases to have control of the company at that time

(whether the person had control alone or together with one or

more others).

(7)   

The general rule is subject to the following exceptions.

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(8)   

A company does not become subject to different control in any case

where it joins a group of companies and the case is the excepted case

mentioned above.

(9)   

A company (“the subsidiary”) does not become subject to different

control at any time in any case where—

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(a)   

immediately before that time the subsidiary is the 75 per cent.

subsidiary of another company, and

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

57

 

(b)   

(although there is a change in the direct ownership of the

subsidiary) that other company continues immediately after

that time to own it as a 75 per cent. subsidiary.

184D    

Sections 184A and 184B: meaning of “tax advantage”

For the purposes of sections 184A and 184B, “tax advantage” means—

5

(a)   

relief or increased relief from corporation tax,

(b)   

repayment or increased repayment of corporation tax,

(c)   

the avoidance or reduction of a charge to corporation tax or an

assessment to corporation tax, or

(d)   

the avoidance of a possible assessment to corporation tax.

10

184E    

Sections 184A and 184B: “pre-change assets”: basic rules

(1)   

If—

(a)   

a company other than the relevant company makes a disposal

of an asset, and

(b)   

the asset has been disposed of at any time after the relevant time

15

by a disposal to which section 171(1) does not apply (a “non-

section 171(1) transfer”),

   

the asset ceases to be regarded as a pre-change asset for the purposes of

sections 184A and 184B (but see also subsections (10) and (11)).

(2)   

But (without affecting the generality of the provision made by the

20

following subsection) if, on a non-section 171(1) transfer,—

(a)   

an asset would cease to be regarded as a pre-change asset as a

result of subsection (1), and

(b)   

the company making the non-section 171(1) transfer retains any

interest in or over the asset,

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that interest is to be regarded as a pre-change asset for the purposes of

sections 184A and 184B.

(3)   

If—

(a)   

the relevant company or any other company holds an asset

(“the new asset”) at or after the relevant time,

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(b)   

the value of the new asset derives in whole or in part from a pre-

change asset, and

(c)   

the new asset is not acquired by the company concerned as a

result of a non-section 171(1) transfer,

   

the new asset is also to be regarded as a pre-change asset for the

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purposes of sections 184A and 184B.

(4)   

For this purpose the cases in which the value of an asset may be derived

from any other asset include any case where—

(a)   

assets have been merged or divided,

(b)   

assets have changed their nature, or

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(c)   

rights or interests in or over assets have been created or

extinguished.

(5)   

If a pre-change asset is “the old asset” for the purposes of section 116

(reorganisations, conversions and reconstructions), “the new asset” for

the purposes of that section is also to be regarded as a pre-change asset

45

for the purposes of sections 184A and 184B.

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

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(6)   

If a pre-change asset is the “original shares” for the purposes of sections

127 to 131 (reorganisation or reduction of share capital), the “new

holding” for the purposes of those sections is also to be regarded as a

pre-change asset for the purposes of sections 184A and 184B.

(7)   

The following subsection applies if, as a result of the application of a

5

relevant deferral provision in the case of a disposal of a pre-change

asset (“the original disposal”),—

(a)   

a gain or loss that would otherwise accrue to a company does

not so accrue, or

(b)   

any part of any such gain is treated as forming part of a single

10

chargeable gain which does not accrue to the company on the

original disposal,

   

and a gain or loss does, wholly or partly in consequence of the

application of that provision in the case of the original disposal, accrue

to the company or any other company on a subsequent occasion.

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(8)   

So much of the gain or loss accruing on the subsequent occasion as

accrues in consequence of the application of the relevant deferral

provision in the case of the original disposal is to be regarded for the

purposes of sections 184A and 184B as accruing on a disposal of a pre-

change asset (so far as it would not otherwise be so regarded).

20

(9)   

A “relevant deferral provision” means any of the following—

(a)   

section 139 (reconstruction involving transfer of business),

(b)   

section 140 (postponement of charge on transfer of assets to

non-resident company),

(c)   

section 140A (transfer of a UK trade),

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(d)   

section 140E (merger leaving assets within UK tax charge),

(e)   

sections 152 and 153 (replacement of business assets),

(f)   

section 187 (postponement of charge on deemed disposal under

section 185).

(10)   

If—

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(a)   

a pre-change asset of the relevant company is transferred to

another company (“the transferee company”),

(b)   

any of sections 139, 140A and 140E apply to the companies in

the case of the asset, and

(c)   

the transfer of the asset is made directly or indirectly in

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consequence of, or otherwise in connection with, the

arrangements mentioned in section 184A or 184B,

   

the asset is to be regarded as a “pre-change asset” in the hands of the

transferee company for the purposes of sections 184A and 184B.

(11)   

In such a case, subsection (1) applies as if the reference in paragraph (a)

40

of that subsection to the relevant company were to the transferee

company.

184F    

Sections 184A and 184B: “pre-change assets”: pooling rules

(1)   

This section applies, in the case of any pre-change asset of the relevant

company or any pre-change asset of any company which is acquired on

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a disposal to which section 171(1) applies, if—

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

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(a)   

the pre-change asset consists of a holding of securities which

falls as a result of any provision of Chapter 1 of Part 4 to be

regarded as a single asset (“the pre-change pooled asset”), and

(b)   

as a result of any disposal or acquisition at any time after the

relevant time, any securities (“the other securities”) would (but

5

for this section) be regarded as forming part of the pre-change

pooled asset.

(2)   

None of the other securities are to be regarded for the purposes of this

Act as forming part of the pre-change pooled asset.

(3)   

But this does not prevent the other securities from being regarded, as a

10

result of any provision of that Chapter, as forming part of or

constituting a different, single asset (“the other pooled asset”).

(4)   

Securities of the same class as the other securities which are disposed of

at or after the relevant time—

(a)   

are to be identified first with the other securities or securities

15

forming part of the other pooled asset,

(b)   

are to be identified next with securities forming part of the pre-

change pooled asset (if the number of securities disposed of

exceeds the number identified in accordance with paragraph

(a)), and

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(c)   

subject to paragraphs (a) and (b), are to be identified in

accordance with the provisions applicable apart from those

paragraphs.

(5)   

The above identification rules apply even if some or all of the securities

disposed of are otherwise identified—

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(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 are not

to be identified with securities which it holds, or can dispose of, only in

some other capacity.

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(6)   

Chapter 1 of Part 4 has effect subject to this section.

(7)   

In this section—

“pre-change asset” means an asset which is pre-change asset for

the purposes of section 184A or 184B,

“securities” does not include relevant securities as defined in

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section 108 but, subject to that, means—

(a)   

shares or securities of a company, and

(b)   

any other assets where they are of a nature to be dealt in

without identifying the particular assets disposed of or

acquired.

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(8)   

For the purposes of this section, shares or securities of a company are

not to be treated as being of the same class unless—

(a)   

they are so treated by the practice of a recognised stock

exchange, or

(b)   

they would be so treated if dealt with on a recognised stock

45

exchange.”.

(3)   

In Schedule 7A (restriction on set-off of pre-entry losses), in paragraph 1(1)

(application of Schedule), at the end insert “, but this Schedule shall have no

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

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effect in any case where section 184A (restrictions on buying losses: tax

avoidance schemes) has effect in relation to those losses”.

(4)   

Section 177B and Schedule 7AA (restrictions on setting losses against pre-entry

gains) shall cease to have effect.

(5)   

In section 213 (insurance companies: spreading of gains and losses under

5

section 212)—

(a)   

in subsection (8H) for “that the net amount is” to the end substitute

“that the net amount would still arise even if losses accruing after the

date on which the company or transferee joined the group of

companies were disregarded”, and

10

(b)   

in subsection (8I) for “paragraph 1” to the end substitute “section 184C

as if those references were contained in that section; and in subsection

(8A)(b) above “group” has the same meaning as in that section”.

   

The amendments made by this subsection have effect where the accounting

period for which the net amount represents an excess of losses over gains is an

15

accounting period ending on or after 5th December 2005.

(6)   

The amendments made by this section, other than subsection (5), have effect

for calculating the amount to be included in respect of chargeable gains in a

company’s total profits for any accounting period ending on or after 5th

December 2005.

20

(7)   

But, in respect of any such accounting period, those amendments do not have

effect in relation to the deduction of any loss from chargeable gains that accrue

on any disposal made before 5th December 2005 unless that loss accrues on a

disposal made on or after that date.

(8)   

For the purposes of those amendments, it does not matter whether a qualifying

25

change of ownership in relation to a company occurs—

(a)   

before 5th December 2005, or

(b)   

on or after that date.

(9)   

The following subsection applies so long as each of the following conditions is

met—

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(a)   

at any time (“the relevant time”) before 5th December 2005 there is a

qualifying change of ownership in relation to a company (“the relevant

company”) for the purposes of section 184A or 184B of TCGA 1992,

(b)   

the change of ownership occurs because the relevant company ceases

to be a member of a group of companies at the relevant time (whether

35

or not it also occurs for any other reason),

(c)   

the principal company of that group has control of the relevant

company at the relevant time and at all subsequent times,

(d)   

the principal company of that group does not, at or after the relevant

time, join another group otherwise than in the excepted case, and

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(e)   

a qualifying loss for the purposes of section 184A of TCGA 1992, or a

qualifying gain for the purposes of section 184B of that Act, accrues to

the relevant company or any other company on a disposal made before

5th December 2005.

(10)   

Section 184A or 184B of TCGA 1992 applies in relation to that qualifying loss

45

or gain as if, for the purposes of that section, a “pre-change asset” included an

asset held before the relevant time by any company which, immediately before

the relevant time, was a member of the same group of companies as the

relevant company.

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

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(11)   

Subsections (9) and (10) are to be read as if contained in section 184C of TCGA

1992.

71      

Other avoidance involving losses accruing to companies

(1)   

After section 184F of TCGA 1992 (as inserted by section 70 above) insert—

“184G   

  Avoidance involving losses: schemes converting income to capital

5

(1)   

This section applies for the purposes of corporation tax in respect of

chargeable gains if conditions A to D are satisfied.

(2)   

Condition A is that—

(a)   

any receipt arises to a company (“the relevant company”) on a

disposal of an asset, and

10

(b)   

the receipt arises directly or indirectly in consequence of, or

otherwise in connection with, any arrangements.

(3)   

Condition B is that—

(a)   

a chargeable gain (the “relevant gain”) accrues to the relevant

company on the disposal, and

15

(b)   

losses accrue (or have accrued) to the relevant company on any

other disposal of any asset (whether before or after or as part of

the arrangements).

(4)   

Condition C is that, but for the arrangements, an amount would have

fallen to be taken into account wholly or partly instead of the receipt in

20

calculating the income chargeable to corporation tax—

(a)   

of the relevant company, or

(b)   

of a company which, at any qualifying time, is a member of the

same group as the relevant company.

(5)   

Condition D is that—

25

(a)   

the main purpose of the arrangements, or

(b)   

one of the main purposes of the arrangements,

   

is to secure a tax advantage that involves the deduction of any of the

losses from the relevant gain (whether or not it also involves anything

else).

30

(6)   

If the Board consider, on reasonable grounds, that conditions A to D are

or may be satisfied, they may give the relevant company a notice in

respect of the arrangements (but see also section 184I).

(7)   

If, when the notice is given, conditions A to D are satisfied, no loss

accruing to the relevant company at any time is to be deductible from

35

the relevant gain.

(8)   

A notice under this section must—

(a)   

specify the arrangements,

(b)   

specify the accounting period in which the relevant gain

accrues, and

40

(c)   

inform the relevant company of the effect of this section.

(9)   

If relevant gains accrue in more than one accounting period, a single

notice under this section may specify all the accounting periods

concerned.

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains

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(10)   

In this section—

“arrangements” includes any agreement, understanding, scheme,

transaction or series of transactions (whether or not legally

enforceable),

“group”, in relation to companies, means a group determined in

5

accordance with section 170,

“qualifying time”, in relation to any arrangements, means any

time which falls in the period—

(a)   

beginning with the time at which the arrangements are

made, and

10

(b)   

ending with the time at which the matters (other than

any tax advantage) intended to be secured by the

arrangements are secured,

“tax advantage” has the meaning given by section 184D.

184H    

Avoidance involving losses: schemes securing deductions

15

(1)   

This section applies for the purposes of corporation tax in respect of

chargeable gains if conditions A to D are satisfied.

(2)   

Condition A is that—

(a)   

a chargeable gain (the “relevant gain”) accrues to a company

(“the relevant company”) directly or indirectly in consequence

20

of, or otherwise in connection with, any arrangements, and

(b)   

losses accrue (or have accrued) to the relevant company on any

disposal of any asset (whether before or after or as part of the

arrangements).

(3)   

Condition B is that the relevant company, or a company connected with

25

the relevant company, incurs any expenditure—

(a)   

which is allowable as a deduction in calculating its total profits

chargeable to corporation tax but which is not allowable as a

deduction in computing its gains under section 38, and

(b)   

which is incurred directly or indirectly in consequence of, or

30

otherwise in connection with, the arrangements.

(4)   

Condition C is that the main purpose, or one of the main purposes, of

the arrangements is to secure a tax advantage that involves both—

(a)   

the deduction of the expenditure in calculating total profits, and

(b)   

the deduction of any of the losses from the relevant gain,

35

   

whether or not it also involves anything else.

(5)   

Condition D is that the arrangements are not excluded arrangements.

   

For this purpose arrangements are excluded arrangements if—

(a)   

the arrangements are made in respect of land or any estate or

interest in land,

40

(b)   

the arrangements fall within section 779(1) or (2) of the Taxes

Act (sale and lease-back: limitation on tax reliefs),

(c)   

the person to whom the payment mentioned in that subsection

is payable is not a company connected with the relevant

company, and

45

(d)   

the arrangements are made between persons dealing at arm’s

length.

 
 

 
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