Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 2 — Capital gains tax reform
104

Schedule 2
Section 6

Capital gains tax reform
Rate: consequentials
1
TCGA 1992 is amended as follows.
2
In section 2(7)(a) (chargeable gains and allowable losses), omit “77 or”.
5
3
Omit section 6 (rates: special cases).
4
In section 13(7A) (attribution of gains to members of non-resident
companies: ordering rules), omit paragraphs (b) to (d).
5
Omit sections 77 to 79 (charge on settlor with interest in settlement).
6
Omit section 88(6) (gains of dual resident settlements: sections 77 to 79 to be
10
ignored).
7     (1)
Schedule 4A (disposal of interest in settled property: deemed disposal of
underlying assets) is amended as follows.
      (2)
In paragraph 7—
(a)
in sub-paragraph (4), for “77(2) to (5) and (8)” substitute “169F(2) to
15
(6)”, and
(b)
in sub-paragraph (5)(c), for “77(2A)(a) or (b)” substitute “169F(3A)(a)
or (b)”.
      (3)
In paragraph 12—
(a)
for “section 79(1) and (3) to (5A)” substitute “paragraphs 7 and 8(1),
20
(3), (6) and (7) of Schedule 5”, and
(b)
for “sections 77 and 78” substitute “section 86”.
8     (1)
Schedule 4B (transfers of value by trustees linked with trustee borrowing) is
amended as follows.
      (2)
In paragraph 1(1), omit “77,”.
25
      (3)
In paragraph 3, omit—
(a)
in sub-paragraph (1), “77,”, and
(b)
sub-paragraph (2),

and in the heading before it omit “77,”.
9
Omit paragraph 6(3) of Schedule 4C (attribution of gains to beneficiaries:
30
sections 77 to 79 to be ignored).
10
In paragraph 1(1) of Schedule 5 (construction of section 86(1)(e)), for
“sections 3 and 77 to 79” substitute “section 3”.
11
Chapter 4 of Part 2 of FA 2005 (trusts with vulnerable beneficiary) is
amended as follows.
35
12
In section 23(4) (introduction), for “33” substitute “32”.
13
In section 26(1) (income tax: amount of relief), in the definition of VQTI, after
“extra” insert “income”.
14    (1)
Section 28 (vulnerable person’s liability: VQTI) is amended as follows.

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Schedule 2 — Capital gains tax reform
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      (2)
In subsection (1), after “total” (in both cases) insert “income”.
      (3)
In subsection (2), omit “and capital gains tax”.
      (4)
In subsection (4), omit paragraph (b) and the “and” before it.
      (5)
In subsection (7), omit paragraph (b) and the “and” before it.
15
In section 30 (qualifying trust gains: special capital gains tax treatment), omit
5
subsections (1A) and (3A).
16    (1)
Section 31 (UK resident vulnerable persons: section 77 treatment) is
amended as follows.
      (2)
For subsections (2) and (3) substitute—
“(2)
The trustees’ liability to capital gains tax for the tax year is to be
10
reduced by an amount equal to—

where—
TQTG is the amount of capital gains tax to which the trustees
would (apart from this Chapter) be liable for the tax year in
respect of the qualifying trust gains, and
15
VQTG is the amount arrived at under subsection (3).
(3)
That amount is—

where—
TLVB is the total amount of capital gains tax to which the
vulnerable person is liable for the tax year, and
20
TLVA is what TLVB would be if the qualifying trust gains
accrued to the vulnerable person (instead of to the trustees)
and no allowable losses were deducted from the qualifying
trust gains.”
      (3)
In the heading, for “section 77 treatment” substitute “amount of relief”.
25
17    (1)
Section 32 (non-UK resident vulnerable persons: amount of relief) is
amended as follows
      (2)
In subsection (2), for the definition of VQTG substitute—
“VQTG is the amount arrived at under subsection (3).”
      (3)
After that subsection insert—
30
“(3)
That amount is—

where—
TLVB is the total amount of capital gains tax to which the
vulnerable person would be liable for the tax year if the
vulnerable person’s taxable amount for the tax year for the
35
purposes of section 3 of TCGA 1992 were equal to the
vulnerable person’s deemed CGT taxable amount for the tax
year (if any), and
TLVA is what TLVB would be if the vulnerable person’s taxable
amount for the tax year for the purposes of section 3 of TCGA
40
1992 were equal to the aggregate of the vulnerable person’s

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Schedule 2 — Capital gains tax reform
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deemed CGT taxable amount for the tax year (if any) and the
amount of the qualifying trust gains.
(4)
For the purposes of this section the vulnerable person’s deemed CGT
taxable amount for the tax year is to be determined in accordance
with Schedule 1.”
5
18
Omit section 33 (non-UK resident vulnerable person’s liability: VQTG).
19
In section 41(3) (interpretation), for “33” substitute “32”.
20    (1)
Schedule 1 (non-UK resident vulnerable persons: interpretation) is amended
as follows.
      (2)
Omit paragraphs 1 and 2.
10
      (3)
Omit paragraph 4.
      (4)
In paragraph 7(1), for “paragraphs 4 and 6” substitute “paragraph 6”.
21
In consequence of section 6 and paragraphs 1 to 20, omit—
(a)
paragraphs 27 to 29 of Schedule 17 to FA 1995,
(b)
paragraphs 24 and 25 of Schedule 4 to F(No.2)A 1997,
15
(c)
in FA 1998—
(i)
section 120, and
(ii)
paragraph 6(1) of Schedule 21,
(d)
section 26 of FA 1999,
(e)
section 37 of FA 2000,
20
(f)
paragraph 3 of Schedule 11 to FA 2002,
(g)
paragraph 2 of Schedule 21 to FA 2004,
(h)
paragraphs 427 and 428 of Schedule 1 to ITTOIA 2005,
(i)
section 44(2) of FA 2005,
(j)
paragraphs 3, 13, 29, 31 and 48(1) of Schedule 12 to FA 2006, and
25
(k)
paragraphs 295, 296 and 301 of Schedule 1 to ITA 2007.
22
The amendments made by paragraphs 1 to 21 have effect for the tax year
2008-09 and subsequent tax years.
Abolition of taper relief
23
TCGA 1992 is amended as follows.
30
24    (1)
Section 2 (chargeable gains and allowable losses) is amended as follows.
      (2)
For subsections (4) to (6) substitute—
“(4)
If chargeable gains are treated by virtue of section 87 or 89(2) as
accruing to a person in a tax year (“the relevant deemed gains”)—
(a)
subsection (2) has effect as if the relevant deemed gains had
35
not accrued, and
(b)
the amount on which the person is charged to capital gains
tax for that year is the sum of—
(i)
the amount given by subsection (2) as it has effect by
virtue of paragraph (a), and
40
(ii)
the amount of the relevant deemed gains.

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Schedule 2 — Capital gains tax reform
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(5)
In subsection (4) the reference to section 87 or 89(2) is to that section
read, where appropriate, with section 10A.”
      (3)
In subsection (7), omit—
(a)
in paragraph (b) of the first sentence, sub-paragraph (ii) and the
“and” before it,
5
(b)
in paragraph (c) of the first sentence, “(“the equal tapered
amounts”)”, and
(c)
in the words following paragraph (c) in the first sentence, and in the
second sentence (in both places), “equal-tapered”.
      (4)
Omit subsection (8).
10
25
Omit section 2A (taper relief).
26    (1)
Section 3 (annual exempt amount) is amended as follows.
      (2)
In subsection (5), for the words from “which, after” to the end of paragraph
(c) substitute “which”.
      (3)
In subsection (5C)(c)—
15
(a)
for “in a year in which any amount falls to be brought into account
by virtue of section 2(5)(b)” substitute “if section 2(4) applies for that
year,”, and
(b)
for “falling to be so brought into account” substitute “mentioned in
section 2(4)(b)(ii)”.
20
27
In section 3A(2) (reporting limits)—
(a)
omit paragraph (a), and
(b)
in paragraph (b), for “such a deduction does fall to be made is the
amount before deduction of losses or any reduction for taper relief”
substitute “a deduction falls to be made in respect of allowable losses
25
is the amount before the deduction”.
28
Omit section 13(10A) (attribution of gains to members of non-resident
companies).
29    (1)
Section 62 (death) is amended as follows
      (2)
In subsection (2A), for “brought into account for that year by virtue of
30
section 2(5)(b)” substitute “treated as accruing by virtue of section 87 or 89(2)
(read, where appropriate, with section 10A)”.
      (3)
Omit subsection (2B).
30
In section 86(1)(e) (attribution of gains to settlors with interest in non-
resident or dual resident settlements), for the words after “under section
35
2(2)” substitute “if the assumption as to residence specified in subsection (3)
below were made;”.
31    (1)
Section 86A (attribution of gains to settlor in section 10A cases) is amended
as follows.
      (2)
In subsection (2)—
40
(a)
for “the tapered section 86(1)(e) amount” substitute “the amount
falling within section 86(1)(e)”, and
(b)
for “the tapered section 86(1)(e) amounts” substitute “the amounts
falling within section 86(1)(e)”.

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Schedule 2 — Capital gains tax reform
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      (3)
Omit subsection (2A).
      (4)
Omit subsection (2B).
      (5)
In subsection (7), for “the tapered section 10A amount” substitute “the
amount (or aggregate amount) falling in accordance with that section to be
so attributed”.
5
      (6)
Omit subsection (7A).
32
Omit section 150D (enterprise investment scheme: application of taper
relief).
33
In subsection (8) of section 165 (relief for gifts of business assets), for
paragraph (aa) substitute—
10
“(aa)
“holding company”, “trading company” and “trading group”
have the meaning given by section 165A; and”.
34
After that section insert—
“165A
Meaning of “holding company”, “trading company” and “trading
group”
15
(1)
This section has effect for the interpretation of section 165 (and this
section).
(2)
“Holding company” means a company that has one or more 51%
subsidiaries.
(3)
“Trading company” means a company carrying on trading activities
20
whose activities do not include to a substantial extent activities other
than trading activities.
(4)
For the purposes of subsection (3) above “trading activities” means
activities carried on by the company—
(a)
in the course of, or for the purposes of, a trade being carried
25
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—
30
(i)
is a trading company or the holding company of a
trading group, and
(ii)
if the acquiring company is a member of a group of
companies, is not a member of that group.
(5)
Activities do not qualify as trading activities under subsection (4)(c)
35
or (d) above unless the acquisition is made, or the company starts to
carry on the trade, as soon as is reasonably practicable in the
circumstances.
(6)
The reference in subsection (4)(d) above to the acquisition of a
significant interest in the share capital of another company is to an
40
acquisition of ordinary share capital in the other company—
(a)
such as would make that company a 51% subsidiary of the
acquiring company, or

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Schedule 2 — Capital gains tax reform
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(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 of companies.
(7)
“Trading group” means a group of companies—
(a)
one or more of whose members carry on trading activities,
5
and
(b)
the activities of whose members, taken together, do not
include to a substantial extent activities other than trading
activities.
(8)
For the purposes of subsection (7) above “trading activities” means
10
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,
15
(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—
20
(i)
is a trading company or the holding company of a
trading group, and
(ii)
is not a member of the same group of companies as
the acquiring company.
(9)
Activities do not qualify as trading activities under subsection (8)(c)
25
or (d) above unless the acquisition is made, or the group member in
question starts to carry on the trade, as soon as is reasonably
practicable in the circumstances.
(10)
The reference in subsection (8)(d) above to the acquisition of a
significant interest in the share capital of another company is to an
30
acquisition of ordinary share capital in the other company—
(a)
such as would make that company a member of the same
group of companies as the acquiring company, or
(b)
such as would give the acquiring company a qualifying
shareholding in a joint venture company without making the
35
joint venture company a member of the same group of
companies as the acquiring company.
(11)
For the purposes of subsections (7) to (10) above the activities of the
members of the group are to be treated as one business (with the
result that activities are disregarded to the extent that they are intra-
40
group activities).
(12)
In this section—
“51% subsidiary” has the meaning given by section 838 of the
Taxes Act,
“group of companies” means a company which has one or more
45
51% subsidiaries together with those subsidiaries,
“joint venture company” means a company—
(a)
which is a trading company or the holding company
of a trading group, and

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Schedule 2 — Capital gains tax reform
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(b)
75% or more of the ordinary share capital of which (in
aggregate) is held by not more than 5 persons (the
shareholdings of members of a group of companies
being regarded for the purposes of this paragraph as
held by a single company),
5
“ordinary share capital” has the meaning given by section 989 of
ITA 2007,
“qualifying shareholding”, in relation to a company and a joint
venture company, means—
(a)
the holding by the company of 10% or more of the
10
ordinary share capital of the joint venture company,
or
(b)
(where the company is a member of a group of
companies) the holding by the company and the other
members of the group (between them) of 10% or more
15
of that ordinary share capital, and
“trade” means (subject to section 241(3)) anything which—
(a)
is a trade, profession or vocation, within the meaning
of the Income Tax Acts, and
(b)
is conducted on a commercial basis and with a view
20
to the realisation of profits.”
35
Omit section 214C (re-organisations of mutual business: gains not eligible
for taper relief) and the heading before it.
36
In section 228(8) (relief for employee share ownership trusts), for “meanings
given by paragraph 22 of Schedule A1” substitute “same meaning as in
25
section 165 (see section 165A)”.
37
In section 241(3A) (furnished holiday lettings), omit “Schedule A1 (taper
relief),”.
38
In section 253(14)(b) (relief for loans to traders), for “meaning given by
paragraph 22 of Schedule A1” substitute “same meaning as in section 165
30
(see section 165A)”.
39
Omit section 261C(2)(a) (treating trading loss etc as CGT loss: meaning of
“the maximum amount”).
40
In section 279(2)(a) (foreign assets: delayed remittances), omit “(before the
application of any taper relief)”.
35
41
In section 279A(7)(b) (deferred unascertainable consideration: election for
treatment of loss), for “any amounts that fall to be brought into account for
that year under section 2(4)(b) by virtue of section 2(5)(b),” substitute “the
total amount of chargeable gains treated as accruing in that year by virtue of
section 87 or 89(2) (read, where appropriate, with section 10A),”.
40
42
In section 279B(1) (provisions supplementary to section 279A), for
paragraph (b) substitute—
“(b)
the person would be so chargeable if—
(i)
chargeable gains accrued to the person in the year,
and
45
(ii)
the amount calculated under section 2(2) for the year
in relation to the person exceeded the exempt amount
for the year (within the meaning of section 3).”