Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 12 — Reallocation of chargeable gain or loss within a group
127

      (2)
If the person makes an election under this paragraph, none of the
amendments made by this Part of this Schedule has effect in relation to any
deduction for expenses incurred by the person on the hiring of the car or
motor cycle under the agreement.
      (3)
The election must be made by notice given to an officer of Revenue and
5
Customs—
(a)
for income tax purposes, on or before the normal time limit for
amending a tax return for the tax year in which the relevant
chargeable period ends, and
(b)
for corporation tax purposes, no later than 2 years after the end of the
10
relevant chargeable period.
      (4)
“The relevant chargeable period” means the first chargeable period (as
defined in section 6 of CAA 2001) in which any expenditure by the person
on the provision of the car or motor cycle under the agreement was incurred.
      (5)
The election is irrevocable.
15
      (6)
All such assessments and adjustments of assessments are to be made as are
necessary to give effect to the election.
      (7)
For the purpose of this paragraph, an agreement is entered into on the first
date on which the following conditions are met—
(a)
there is a contract in writing for the use of the car or motor cycle by
20
the person,
(b)
the contract is unconditional or, if it is conditional, the conditions
have been met, and
(c)
no terms remain to be agreed.
Saving
25
68
The repeal of section 82 of CAA 2001 (meaning of “qualifying hire car”) by
Part 1 of this Schedule does not affect the continued operation of the
following provisions until they are repealed by this Part of this Schedule—
(a)
section 578B(2)(b) of ICTA,
(b)
section 49(2)(c) of ITTOIA 2005, and
30
(c)
section 57(2)(c) of CTA 2009.
Schedule 12
Section 31

Reallocation of chargeable gain or loss within a group
Main provisions
1
In TCGA 1992, for section 171A substitute—
35
“171A
Election to reallocate gain or loss to another member of the group
(1)
This section applies where—
(a)
a chargeable gain or an allowable loss accrues to a company
(“company A”) in respect of an asset (or would so accrue but
for an election under this section),
40

Finance Bill
Schedule 12 — Reallocation of chargeable gain or loss within a group
128

(b)
at the time of accrual, company A and another company
(“company B”) are members of the same group, and
(c)
had company A disposed of the asset to company B
immediately before the time of accrual, section 171(1) would
have applied.
5
(2)
In this section “the time of accrual” means the time the chargeable
gain or allowable loss accrues to company A (or would so accrue but
for an election under this section).
(3)
Companies A and B may make a joint election to transfer the
chargeable gain or allowable loss, or such part of it as is specified in
10
the election, from company A to company B.
(4)
An election under this section must be made—
(a)
by notice to an officer of Revenue and Customs, and
(b)
no later than two years after the end of the accounting period
of company A in which the time of accrual falls.
15
(5)
An election, or two or more elections made simultaneously, is or are
of no effect if, taken together with each earlier election (if any) made
in respect of the same gain or loss, it or they would (apart from this
subsection) have effect in relation to an amount exceeding the gain
or loss.
20
(6)
This section does not apply in relation to a chargeable gain or
allowable loss that accrues by virtue of section 179.

For provision as to the reallocation within a group of gains and losses
arising on such a disposal, see section 179A.
(7)
For the effect of an election under this section, see section 171B.
25
171B
Election under section 171A: effect
(1)
This section applies where an election is made under section 171A.
(2)
The effect of the election is that the chargeable gain or allowable loss,
or such amount of it as is specified in the election, is treated as
accruing not to company A but to company B.
30
(3)
The gain or loss treated as accruing to company B is to be taken to
accrue at the time that, had the election not been made, it would have
accrued to company A.
(4)
Where company B is not resident in the United Kingdom, the gain or
loss treated as accruing to it is to be taken to accrue in respect of a
35
chargeable asset held by it.
(5)
For this purpose an asset is a “chargeable asset” in relation to a
company at any time if any gain accruing to the company on a
disposal of the asset by the company at that time would be a
chargeable gain and would by virtue of section 10B form part of its
40
chargeable profits for corporation tax purposes.
(6)
Any payment made by company A to company B or by company B
to company A, in pursuance of an agreement between them in
connection with the election—
(a)
is not to be taken into account in computing profits or losses
45
of either company for corporation tax purposes, and

Finance Bill
Schedule 12 — Reallocation of chargeable gain or loss within a group
129

(b)
is not for any purposes of the Corporation Tax Acts to be
regarded as a distribution,

provided it does not exceed the amount of the chargeable gain or
allowable loss that is treated, as a result of the election, as accruing to
company B.
5
171C
Elections under section 171A: insurance companies
(1)
This section applies where —
(a)
an election is made under section 171A in relation to a gain or
loss, and
(b)
company B is an insurance company.
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(2)
For the purposes of section 171A(1)(c), section 440(3) of the Taxes Act
(disposals of certain assets by and to insurance companies to fall
outside the rule in section 171) is to be disregarded.
(3)
Subsection (2) does not apply if—
(a)
company A is an insurance company, and
15
(b)
the gain or loss arose in respect of the disposal of an asset
that, immediately before the disposal, was part of that
company’s long-term insurance fund.
(4)
The chargeable gain or allowable loss treated as accruing to company
B as a result of the election is to be treated as arising in respect of an
20
asset that is not part of company B’s long-term insurance fund.
(5)
In this section “insurance company” and “long-term insurance fund”
have the same meaning as in Chapter 1 of Part 12 of the Taxes Act
(see section 431(2) of that Act).”
Consequential amendments
25
2
For subsection (5) of section 179A of TCGA 1992 (reallocation within group
of gain or loss accruing under section 179) substitute—
“(5)
An election, or two or more elections made simultaneously, is or are
of no effect if, taken together with each earlier election (if any) made
in respect of the same gain or loss, it or they would (apart from this
30
subsection) have effect in relation to an amount exceeding the gain
or loss.”
3     (1)
Section 136(2) of FA 2006 (Real Estate Investment Trusts: availability of
group reliefs) is amended as follows.
      (2)
For paragraph (a) substitute—
35
“(a)
section 171 (transfer of assets within group),
(aa)
sections 171A to 171C (reallocation of gain or loss within a
group),”.
      (3)
In paragraph (b), for “reallocation or rollover of gain” substitute
“degrouping: reallocation of gain or loss, or rollover of gain,”.
40
4
In consequence of the amendment made by paragraph 1, omit—
(a)
in FA 2000, section 101,
(b)
in FA 2001, section 77,
(c)
in FA 2003, in Schedule 33, paragraph 17, and

Finance Bill
Schedule 13 — Chargeable gains in stock lending: insolvency etc of borrower
130

(d)
in F(No.2)A 2005, section 36.
Commencement
5
The amendments made by this Schedule have effect in relation to chargeable
gains and allowable losses accruing on or after the day on which this Act is
passed.
5
Schedule 13
Section 32

Chargeable gains in stock lending: insolvency etc of borrower
1
TCGA 1992 is amended as follows.
2     (1)
Section 263B (stock lending arrangements) is amended as follows.
      (2)
In subsection (2), for “section 263C(2)” substitute “sections 263C(2) and
10
263CA(3) and (5)”.
      (3)
In subsection (4)—
(a)
in paragraph (a), insert at the end “for a consideration equal to their
market value at that time”,
(b)
in paragraph (b), after “at that time” insert “for that consideration”,
15
and
(c)
insert at the end (not as part of paragraph (c))—

“This subsection does not apply where section 263CA
(insolvency of borrower) applies.”
      (4)
In subsection (7), omit the definition of “interest”.
20
3
After section 263C (stock lending involving redemption) insert—
“263CA
Stock lending: insolvency etc of borrower
(1)
This section applies where, in the case of any stock lending
arrangement—
(a)
the borrower (B) becomes insolvent after the lender (L) has
25
transferred the securities,
(b)
as a result of the insolvency, the requirement for B to make a
transfer back to L will not be complied with as regards some
or all of the securities,
(c)
collateral is used (whether directly or indirectly) to enable L
30
to acquire securities (“replacement securities”) of the same
description as the securities which will not be transferred
back, and
(d)
the replacement securities are acquired before the end of the
period of 30 days beginning with the day on which B
35
becomes insolvent (“the insolvency date”).
(2)
In accordance with section 263B(2), the transfer of the securities
under the arrangement is not to be regarded as a disposal by L for the
purposes of this Act (but this is subject to subsection (5)).

Finance Bill
Schedule 13 — Chargeable gains in stock lending: insolvency etc of borrower
131

(3)
B is to be treated for the purposes of this Act as having acquired the
securities which will not be transferred back to L; and that
acquisition is to be treated—
(a)
as being made on the insolvency date, and
(b)
as being for a consideration equal to their market value on
5
that date.
(4)
The acquisition of the replacement securities is to be treated, as
regards L, as if it were a transfer back of securities in accordance with
the arrangement (so that, in accordance with section 263B(2), that
acquisition is not regarded as an acquisition by L for the purposes of
10
this Act).
(5)
If the number of replacement securities is less than the number of
securities which B is treated as having acquired, L is to be treated for
the purposes of this Act as having made a disposal, at the insolvency
date, of the difference (“the deemed disposal”).
15
(6)
The consideration for the deemed disposal is—
(a)
where all the collateral is used to enable L to acquire
replacement securities, nil, and
(b)
where not all the collateral is so used, the difference
between—
20
(i)
the market value (at the insolvency date) of the
number of securities which could have been acquired
using the collateral, and
(ii)
the market value (at that date) of the number of
securities which were in fact so acquired.
25
(7)
But if L at any time receives any amount (whether arising out of B’s
insolvency or otherwise) in respect of B’s liability to L in respect of
the securities which are treated as having been disposed of by L, that
amount is to be treated as a chargeable gain accruing at that time to L.
(8)
Where this section applies, the difference between—
30
(a)
the value of the securities which B is treated (by virtue of
subsection (5)) as having acquired from L, and
(b)
the amount (if any) which L receives in respect of B’s liability
to L in respect of those securities,

is not be treated as giving rise to a relevant non-lending relationship
35
for the purposes of Part 6 of CTA 2009 (relationships treated as loan
relationships etc).
(9)
For the purposes of this section, B becomes insolvent—
(a)
if a company voluntary arrangement takes effect under Part
1 of the Insolvency Act 1986,
40
(b)
if an administration application (within the meaning of
Schedule B1 to that Act) is made or a receiver or manager, or
an administrative receiver, is appointed,
(c)
on the commencement of a creditor’s voluntary winding up
(within the meaning of Part 4 of that Act) or a winding up by
45
the court under Chapter 6 of that Part,
(d)
if an individual voluntary arrangement takes effect under
Part 8 of that Act,

Finance Bill
Schedule 13 — Chargeable gains in stock lending: insolvency etc of borrower
132

(e)
on the presentation of a bankruptcy petition (within the
meaning of Part 9 of that Act),
(f)
if a compromise or arrangement takes effect under Part 26 of
the Companies Act 2006,
(g)
if a bank insolvency order takes effect under Part 2 of the
5
Banking Act 2009,
(h)
if a bank administration order takes effect under Part 3 of that
Act, or
(i)
on the occurrence of any corresponding event which has
effect under or as a result of the law of Scotland or Northern
10
Ireland or a country or territory outside the United Kingdom.
(10)
In this section—
(a)
“collateral” means an amount of money or other property
which—
(i)
is provided under the arrangement (or under
15
arrangements of which the arrangement forms part),
and
(ii)
is payable to or made available for the benefit of L for
the purpose of securing the discharge of the
requirement to transfer any or all of the securities
20
back to L, and
(b)
any expression used in this section and in section 263B has
the same meaning as in that section.”
4     (1)
The amendments made by paragraphs 2(2) and (3)(c) and 3 apply—
(a)
in any case where B becomes insolvent on or after 24 November 2008,
25
and
(b)
where L makes an election under this paragraph, in any case where
B becomes insolvent in the period beginning on 1 September 2008
and ending on 23 November 2008.
      (2)
An election under sub-paragraph (1)(b) must relate to all stock lending
30
arrangements in which L is the lender and B is the borrower and must be
made—
(a)
where L is a company (within the meaning given by section 288(1) of
TCGA 1992), no later than the second anniversary of the end of the
accounting period of L in which 23 November 2008 falls, and
35
(b)
otherwise, no later than 31 January 2011.
      (3)
Where section 263CA (inserted by paragraph 3) applies to any case which
occurs before a period for which CTA 2009 has effect, the reference in
subsection (8) of that section to a relevant non-lending relationship for the
purposes of Part 6 of that Act is to be read as a reference to a relationship to
40
which section 100 of FA 1996 applies.