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Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

108

 

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.

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

109

 

      (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—equation: plus[times[char[T],char[Q],char[T],char[G]],minus[times[char[V],char[Q],char[T],

char[G]]]]

   

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—equation: plus[times[char[T],char[L],char[V],char[A]],minus[times[char[T],char[L],char[V],

char[B]]]]

   

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—equation: plus[times[char[T],char[L],char[V],char[A]],minus[times[char[T],char[L],char[V],

char[B]]]]

   

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

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

110

 

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.

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

111

 

(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)”.

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

112

 

      (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

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

113

 

(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)   

For the purpose of determining whether a company which has a

qualifying shareholding in a joint venture company is a trading

5

company—

(a)   

any holding by it of shares in the joint venture company is to

be disregarded, and

(b)   

it is to be treated as carrying on an appropriate proportion of

the activities of the joint venture company or, where the joint

10

venture company is the holding company of a trading group,

of the activities of that group;

   

and in paragraph (b) above “appropriate proportion” means a

proportion corresponding to the percentage of the ordinary share

capital of the joint venture company held by the company.

15

(8)   

“Trading group” means a group of companies—

(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

20

activities.

(9)   

For the purposes of subsection (8) above “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,

25

(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

30

significant interest in the share capital of another company

that—

(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

35

the acquiring company.

(10)   

Activities do not qualify as trading activities under subsection (9)(c)

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.

40

(11)   

The reference in subsection (9)(d) above 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 of companies as the acquiring company, or

45

(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 of

companies as the acquiring company.

 
 

Finance Bill (Volume I)
Schedule 2 — Capital gains tax reform

114

 

(12)   

For the purpose of determining whether a group of companies is a

trading group in a case where any one or more members of the group

has a qualifying shareholding in a joint venture company which is

not a member of the group—

(a)   

every holding of shares in the joint venture company by a

5

member of the group having a qualifying shareholding in it

is to be disregarded, and

(b)   

each member of the group having such a qualifying

shareholding is to be treated as carrying on an appropriate

proportion of the activities of the joint venture company or,

10

where the joint venture company is a holding company of a

trading group, of the activities of that group;

   

and in paragraph (b) above “appropriate proportion” means a

proportion corresponding to the percentage of the ordinary share

capital of the joint venture company held by the member of the

15

group.

(13)   

For the purposes of this section the activities of the members of a

group of companies are to be treated as one business (with the result

that activities are disregarded to the extent that they are intra-group

activities).

20

(14)   

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

51% subsidiaries together with those subsidiaries,

25

“joint venture company” means a company—

(a)   

which is a trading company or the holding company

of a trading group, and

(b)   

75% or more of the ordinary share capital of which (in

aggregate) is held by not more than 5 persons (the

30

shareholdings of members of a group of companies

being regarded for the purposes of this paragraph as

held by a single company),

“ordinary share capital” has the meaning given by section 989 of

ITA 2007,

35

“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

ordinary share capital of the joint venture company,

or

40

(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

of that ordinary share capital, and

“trade” means (subject to section 241(3)) anything which—

45

(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

to the realisation of profits.”

35         

Omit section 214C (re-organisations of mutual business: gains not eligible

50

for taper relief) and the heading before it.

 
 

 
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