Finance Act 1998 (c. 36) (c. 36)

(The document as of February, 2008)

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(2) Paragraph 2 above shall have effect in relation to any subsequent disposal of the asset as if the time when the transferee spouse acquired the asset were the time when the transferring spouse acquired it.

(3) Where for the purposes of paragraph 2 above the transferring spouse would be treated--

(a) in a case where there has been one or more previous disposals falling within section 58(1), by virtue of sub-paragraph (2) above, or by virtue of that sub-paragraph together with any other provision of this Schedule, or

(b) in a case where there has not been such a previous disposal, by virtue of such another provision,

as having acquired the asset at a time other than the time when the transferring spouse did acquire it, the reference in that sub-paragraph to the time when the transferring spouse acquired it shall be read as a reference to the time when for the purposes of that paragraph the transferring spouse is treated as having acquired it.

(4) Where there is a disposal by the transferee spouse, any question whether the asset was a business asset at a time before that disposal shall be determined as if--

(a) in relation to times when the asset was held by the transferring spouse, references in paragraph 5(2) above to the individual by whom the disposal is made included references to the transferring spouse; and

(b) the reference in paragraph 5(5) above to the acquisition of the asset as a legatee by the individual by whom the disposal is made included a reference to its acquisition as a legatee by the transferring spouse.

(5) Where, in the case of any asset, there has been more than one transfer falling within section 58(1) during the period after 5th April 1998 for which the transferee spouse has held it at the time of that spouse's disposal of that asset, sub-paragraph (4) above shall have effect as if a reference, in relation to any time, to the transferring spouse were a reference to the individual who was the transferring spouse in relation to the next disposal falling within section 58(1) to have been made after that time.

Special rules for postponed gains

16 (1) Sub-paragraph (3) below applies where the whole or any part of any gain which--

(a) would (but for any provision of this Act) have accrued on the disposal of any asset, or

(b) would have accrued on any disposal assumed under any enactment to have been made at any time,

falls by virtue of an enactment mentioned in sub-paragraph (2) below to be treated as accruing on or after 6th April 1998 at a time (whether or not the time of a subsequent disposal) which falls after the time of the actual or assumed disposal mentioned in paragraph (a) or (b) above ("the charged disposal").

(2) Those enactments are--

(a) section 10A,

(b) section 116(10),

(d) section 154(2) or (4),

(e) Schedule 5B or 5C, or

(f) paragraph 27 of Schedule 15 to the [1996 c. 8.] Finance Act 1996 (qualifying indexed securities).

(3) In relation to the gain or part of a gain that is treated as accruing after the time of the charged disposal--

(a) references in this Schedule (except this sub-paragraph) to the disposal on which the gain or part accrues are references to the charged disposal; and

(b) references in this Schedule to the asset disposed of by that disposal are references to the asset that was or would have been disposed of by the charged disposal;

and, accordingly, the end of the period after 5th April 1998 for which that asset had been held at the time of the disposal on which that gain or part accrues shall be deemed to have been the time of the charged disposal.

(4) In relation to any gain that is treated by virtue of--

(a) subsection (1) of section 12, or

(b) subsection (2) of section 279,

as accruing after the time of the disposal from which it accrues, references in this Schedule to the disposal on which the gain accrues, to the asset disposed of on that disposal and to the time of that disposal shall be construed disregarding that subsection.

(5) It shall be immaterial for the purposes of this paragraph--

(a) that the time of the charged disposal or, as the case may be, the time of the actual disposal from which the gain accrues was before 6th April 1998; and

(b) that the time at which the charged disposal is treated as accruing is postponed on more than one occasion under an enactment specified in sub-paragraph (2) above.

Special rule for property settled by a company

17 (1) No part of any chargeable gain accruing to the trustees of a settlement on the disposal of any asset shall be treated as a gain on the disposal of a business asset if--

(a) the settlor is a company, and

(b) that company has an interest in the settlement at the time of the disposal.

(2) Subject to the following provisions of this paragraph, a company which is a settlor in relation to any settlement shall be regarded as having an interest in a settlement if--

(a) any property which may at any time be comprised in the settlement, or any derived property is, or will or may become, payable to or applicable for the benefit of that company or an associated company; or

(b) that company or an associated company enjoys a benefit deriving directly or indirectly from any property which is comprised in the settlement or any derived property.

(3) This paragraph does not apply unless the settlor or an associated company is within the charge to corporation tax in respect of chargeable gains for the accounting period in which the chargeable gain accrues.

(4) In this paragraph "derived property", in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income therefrom.

(5) For the purposes of this paragraph a company is to be treated as another's associated company at any time if at that time, or at another time within one year previously--

(a) one of them has had control of the other; or

(b) both have been under the control of the same person or persons.

(6) In this paragraph "settlor" has the meaning given by section 660G(1) and (2) of the Taxes Act.

(7) This paragraph has effect subject to paragraph 20 below.

Special rules for assets acquired in the reconstruction of mutual businesses etc.

18 (1) Where--

(a) shares in a company have been issued under any arrangements for the issue of shares in that company in respect of the interests of the members of a mutual company; and

(b) a person to whom shares were issued under those arrangements falls by virtue of subsection (3) of section 136 to be treated as having exchanged interests of his as a member of the mutual company for shares issued under those arrangements,

paragraph 2 above shall have effect (notwithstanding that section) as if the time of that person's acquisition of the shares were the time when they were issued to him.

(2) Where--

(a) a registered friendly society has been incorporated under the [1992 c. 40.] Friendly Societies Act 1992, and

(b) there has been a change under Schedule 4 to that Act as a result of which a member of the registered society, or of a branch of the registered society, has become a member of the incorporated society or of a branch of the incorporated society,

paragraph 2 above shall have effect (notwithstanding anything in section 217B) in relation to the interests and rights in the incorporated society, or the branch of the incorporated society, which that person had immediately after the change, as if the time of their acquisition by him were the time of the change.

(3) In this paragraph--

"the incorporated society", in relation to the incorporation of a registered friendly society, means the society after incorporation;
"insurance company" has the meaning given by section 96(1) of the [1982 c. 50.] Insurance Companies Act 1982;
"mutual company" means--
(a)
a mutual insurance company; or
(b)
a company of another description carrying on a business on a mutual basis;
"mutual insurance company" means any insurance company carrying on a business without having a share capital;
"the registered society", in relation to the incorporation of a registered friendly society, means the society before incorporation.

Special rule for ancillary trust funds

19 (1) Use of an asset as part of an ancillary trust fund of a member of Lloyd's--

(a) shall not be regarded as a use in respect of which the asset is to be treated as a business asset at any time; but

(b) shall be disregarded in any determination for the purposes of paragraph 9 above of whether it was being put to a non-qualifying use at the same time as it was being used for purposes mentioned in paragraph 5(2) to (5) above.

(2) In this section "ancillary trust fund" has the same meaning as in Chapter III of Part II of the [1993 c. 34.] Finance Act 1993.

General rules for settlements

20 (1) Where, in the case of any settlement, the settled property originates from more than one settlor, this Schedule shall have effect as if there were a separate and distinct settlement for the property originating from each settlor, and references in this Schedule to an eligible beneficiary shall be construed accordingly.

(2) Subsections (1) to (5) of section 79 apply for the purposes of this paragraph as they apply for the purposes of that section.

General rule for apportionments under this Schedule

21 Where any apportionment falls to be made for the purposes of this Schedule it shall be made--

(a) on a just and reasonable basis; and

(b) on the assumption that an amount falling to be apportioned by reference to any period arose or accrued at the same rate throughout the period over which it falls to be treated as having arisen or accrued.

Interpretation of Schedule

22 (1) In this Schedule--

"51 per cent. subsidiary" (except in paragraph 11 above) has the meaning given by section 838 of the Taxes Act;
"commercial association of companies" means a company together with such of its associated companies (within the meaning of section 416 of the Taxes Act) as carry on businesses which are of such a nature that the businesses of the company and the associated companies, taken together, may be reasonably considered to make up a single composite undertaking;
"eligible beneficiary" shall be construed in accordance with paragraphs 7 and 20 above;
"full-time working officer or employee", in relation to any company, means an individual who--
(a)
is an officer or employee of that company or of that company and one or more other companies with which that company has a relevant connection; and
(b)
is required in that capacity to devote substantially the whole of his time to the service of that company, or to the service of those companies taken together;
"group of companies" means a company which has one or more 51 per cent. subsidiaries, together with those subsidiaries;
"holding company" means a company whose business (disregarding any trade carried on by it) consists wholly or mainly of the holding of shares in one or more companies which are its 51 per cent. subsidiaries;
"office" and "employment" have the same meanings as in the Income Tax Acts;
"qualifying office or employment", in relation to any time, means an office or employment with a person who was at that time carrying on a trade;
"qualifying company" shall be construed in accordance with paragraph 6 above;
"relevant period of ownership" shall be construed in accordance with paragraph 2 above;
"shares", in relation to a company, includes any securities of that company;
"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 to the realisation of profits;
"trading company" means a company which is either--
(a)
a company existing wholly for the purpose of carrying on one or more trades; or
(b)
a company that would fall within paragraph (a) above apart from any purposes capable of having no substantial effect on the extent of the company's activities;
"trading group" means a group of companies the activities of which (if all the activities of the companies in the group are taken together) do not, or not to any substantial extent, include activities carried on otherwise than in the course of, or for the purposes of, a trade; and
"transaction" includes any agreement, arrangement or understanding, whether or not legally enforceable, and a series of transactions.

(2) For the purposes of this Schedule one company has a relevant connection with another company at any time when they are both members of the same group of companies or of the same commercial association of companies.

(3) References in this Schedule to the acquisition of an asset that was provided, rather than acquired, by the person disposing of it are references to its provision.

(4) References in this Schedule, in relation to a part disposal, to the asset disposed of are references to the asset of which there is a part disposal. "

Section 121.

SCHEDULE 21 Amendments in connection with taper relief

Introductory

1 The [1992 c. 12.] Taxation of Chargeable Gains Act 1992 shall be amended in accordance with the following provisions of this Schedule.

Gains of trustees attributed to settlor

2 In section 2 (persons and gains chargeable to capital gains tax), after subsection (3) there shall be inserted the following subsections--

" (4) Where any amount is treated by virtue of any of sections 77, 86, 87 and 89(2) (read, where applicable, with section 10A) as an amount of chargeable gains accruing to any person in any year of assessment--

(a) that amount shall be disregarded for the purposes of subsection (2) above; and

(b) the amount on which that person shall be charged to capital gains tax for that year (instead of being the amount given by that subsection) shall be the sum of the amounts specified in subsection (5) below.

(5) Those amounts are--

(a) the amount which after--

(i) making any deductions for which subsection (2) provides, and

(ii) applying any reduction in respect of taper relief under section 2A,

is the amount given for the year of assessment by the application of that subsection in accordance with subsection (4)(a) above; and

(b) every amount which is treated by virtue of sections 77, 86, 87 and 89(2) (read, where applicable, with section 10A) as an amount of chargeable gains accruing to the person in question in that year. "

Annual exempt amount

3 For subsection (5) of section 3 (definition of taxable amount) there shall be substituted the following subsections--

" (5) For the purposes of this section an individual's taxable amount for any year of assessment is the amount which, after--

(a) making every deduction for which section 2(2) provides,

(b) applying any reduction in respect of taper relief under section 2A, and

is (apart from this section) the amount for that year on which that individual is chargeable to capital gains tax in accordance with section 2.

(5A) Where, in the case of any individual, the amount of the adjusted net gains for any year of assessment is equal to or less than the exempt amount for that year, no deduction shall be made for that year in respect of--

(a) any allowable losses carried forward from a previous year; or

(b) any allowable losses carried back from a subsequent year in which the individual dies.

(5B) Where, in the case of any individual, the amount of the adjusted net gains for any year of assessment exceeds the exempt amount for the year, the deductions made for that year in respect of allowable losses falling within subsection (5A)(a) or (b) above shall not be greater than the excess.

(5C) In subsections (5A) and (5B) above the references, in relation to any individual's case, to the adjusted net gains for any year are references to the amount given in his case by--

(a) taking the amount for that year from which the deductions for which section 2(2)(a) and (b) provides are to be made;

(b) deducting only the amounts falling to be deducted in accordance with section 2(2)(a); and

(c) in a year in which any amount falls to be brought into account by virtue of section 2(5)(b), adding whichever is the smaller of the exempt amount for that year and the amount falling to be so brought into account. "

Gains attributed to members of non-resident companies

4 In section 13 (gains attributed to members of non-resident companies), after subsection (10) there shall be inserted the following subsection--

" (10A) A gain which is treated as accruing to any person by virtue of this section shall not be eligible for taper relief. "

Carry back of losses on death

5 In section 62 (general provisions about death), the following subsections shall be inserted after subsection (2)--

" (2A) Amounts deductible from chargeable gains for any year in accordance with subsection (2) above shall not be so deductible from any such gains so far as they are gains that are brought into account for that year by virtue of section 2(5)(b).

(2B) Where deductions under subsection (2) above fall to be made from the chargeable gains for any year, the provisions of this Act relating to taper relief shall have effect as if those deductions were deductions under section 2(2)(a) and (b) and, accordingly, as if--

(a) those deductions were to be made (before the application of the relief) in computing for that year the excess (if any) mentioned in section 2A(1); and

(b) for the purpose of determining the gains represented in that excess, the gains for that year from which those deductions are treated as made were to be ascertained in accordance with section 2A(6). "

Gains attributed to settlors and beneficiaries

6 (1) In section 77 (attribution of gains to settlor with an interest in the settlement), after subsection (6) there shall be inserted the following subsection--

" (6A) Without prejudice to so much of this section as requires section 2A to be applied in the computation of any amount that is treated under this section as an amount of chargeable gains accruing to the settlor, chargeable gains that are treated as accruing to the settlor under this section shall not be eligible for taper relief. "

(2) In section 86 (attribution of gains to settlor with interest in non-resident or dual resident settlement), after subsection (4) there shall be inserted the following subsection--

" (4A) Without prejudice to so much of this section as requires section 2A to be applied in the computation of any amount that is treated under this section as an amount of chargeable gains accruing to the settlor, chargeable gains that are treated as accruing to the settlor under this section shall not be eligible for taper relief. "

(3) In section 87 (attribution of gains to beneficiaries), after subsection (6) there shall be inserted the following subsection--

" (6A) Without prejudice to so much of this section as requires section 2A to be applied in the computation of the amount of the trust gains for any year of assessment, chargeable gains that are treated as accruing to beneficiaries under this section shall not be eligible for taper relief. "

(4) In section 89(3) (application of provisions of section 87 in the cases of gains treated as accruing under section 89(2)), after "Subsections (5)" there shall be inserted ", (6A)".

Gains on assets deriving from reorganisation of body carrying on a mutual business etc.

7 In Chapter IV of Part VI (special cases), before section 215 there shall be inserted the following section--

" Re-organisations of mutual businesses

214C Gains not eligible for taper relief.

(1) A gain shall not be eligible for taper relief if--

(a) it is a gain accruing on a disposal in connection with any relevant re-organisation; or

(b) it is a gain accruing on anything which, in a case in which capital sums are received under or in connection with a relevant re-organisation, falls under section 22 to be treated as a disposal.

(2) In this section "a relevant re-organisation" means--

(a) any scheme of reconstruction or amalgamation applying to a mutual company;

(b) the transfer of the whole of a building society's business to a company in accordance with section 97 and the other applicable provisions of the [1986 c. 53.] Building Societies Act 1986; or

(3) In this section--

"insurance company" has the meaning given by section 96(1) of the [1982 c. 50.] Insurance Companies Act 1982;
"mutual company" means--
(a)
a mutual insurance company; or
(b)
a company of another description carrying on a business on a mutual basis;
"mutual insurance company" means an insurance company carrying on a business without having a share capital; and
"scheme of reconstruction or amalgamation" has the same meaning as in section 136. "

Commercial letting of furnished holiday dwellings

8 In section 241(3) (provisions for the purposes of which letting of furnished holiday dwellings is to be treated as a trade), for "Schedule 6" there shall be substituted "Schedule A1 and Schedule 6".

Delayed remittances in respect of foreign assets

9 In section 279(2)(a) (deductions in respect of unremitted gains), after "deducted" there shall be inserted "(before the application of any taper relief)".

Section 131.

SCHEDULE 22 Transitional provision and consequential amendments for section 131

Introductory

1 The [1992 c. 12.] Taxation of Chargeable Gains Act 1992 shall be amended as follows.

Transitional for settlements created before 17th March 1998

2 (1) In the words at the end of sub-paragraph (1) of paragraph 2 of Schedule 5 (which specifies the provisions to which that sub-paragraph is subject), after "(4) to (6)" there shall be inserted "and paragraph 2A".

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

" Settlements created before 17th March 1998

2A (1) In determining for the purposes of section 86(1)(d) whether the settlor has an interest at any time during any year of assessment in a settlement created before 17th March 1998, paragraphs (da) and (db) of paragraph 2(3) above, and the reference to those paragraphs in paragraph 2(3)(e), shall be disregarded unless--

(a) that year is a year in which one of the four conditions set out in the following provisions of this paragraph becomes fulfilled as regards the settlement; or

(b) one of those conditions became fulfilled as regards that settlement in any previous year of assessment ending on or after 5th April 1998.

(2) The first condition is (subject to sub-paragraph (3) below) that on or after 17th March 1998 property or income is provided directly or indirectly for the purposes of the settlement--

(a) otherwise than under a transaction entered into at arm's length, and

(b) otherwise than in pursuance of a liability incurred by any person before that date.

(3) For the purposes of the first condition, where the settlement's expenses relating to administration and taxation for a year of assessment exceed its income for the year, property or income provided towards meeting those expenses shall be ignored if the value of the property or income so provided does not exceed the difference between the amount of those expenses and the amount of the settlement's income for the year.

(4) The second condition is that--

(a) the trustees become on or after 17th March 1998 neither resident nor ordinarily resident in the United Kingdom, or

(b) the trustees, while continuing to be resident and ordinarily resident in the United Kingdom, become on or after 17th March 1998 trustees who fall to be regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom.

(5) The third condition is that on or after 17th March 1998 the terms of the settlement are varied so that any person falling within sub-paragraph (7) below becomes for the first time a person who will or might benefit from the settlement.

(6) The fourth condition is that--

(a) on or after 17th March 1998 a person falling within sub-paragraph (7) below enjoys a benefit from the settlement for the first time, and

(b) the person concerned is not one who (looking only at the terms of the settlement immediately before 17th March 1998) would be capable of enjoying a benefit from the settlement on or after that date.

(7) Each of the following persons falls within this sub-paragraph--

(a) any grandchild of the settlor or of the settlor's spouse;

(b) the spouse of any such grandchild;

(d) a company controlled by any such person or persons together with any person or persons (not so falling) each of whom is for the purposes of paragraph 2(1) above a defined person in relation to the settlement;

(e) a company associated with a company falling within paragraph (c) or (d) above.

(8) For the purposes of sub-paragraph (7) above the question whether a company is controlled by a person or persons shall be construed in accordance with section 416 of the Taxes Act; but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.

(9) For the purposes of sub-paragraph (7) above the question whether one company is associated with another shall be construed in accordance with section 416 of the Taxes Act; but where in deciding that question for those purposes it falls to be decided whether a company is controlled by a person or persons, no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under section 416(6) if he is not a participator in the company.

(10) In this paragraph--

"child" includes a step-child;
"grandchild" means a child of a child;
"participator" has the meaning given by section 417(1) of the Taxes Act. "

(3) In construing section 86(1)(e) as regards any year of assessment and in relation to a settlement which--

(a) was created before 17th March 1998, and

(b) is a settlement in which the settlor has an interest during that year by virtue only of the fulfilment for the purposes of the paragraph inserted by sub-paragraph (2) above of one of the conditions set out in that paragraph,

no account shall be taken of disposals made before the relevant day (whether for the purpose of arriving at gains or for the purpose of arriving at losses).

(4) In sub-paragraph (3) above "the relevant day" means--

(a) for the year 1997-98, 17th March 1998; and

(b) for any other year of assessment, the 6th April which is the first day of that year.

Consequential amendments of paragraphs 4 and 5 of Schedule 5 to the 1992 Act

3 (1) In paragraphs 4(1)(a) and 5(1)(a) of Schedule 5 (disapplication of section 86 in certain cases where beneficiaries die), for "(d)" there shall be substituted "(db)".

(2) In paragraph 4(4) of that Schedule (disapplication of section 86 in certain cases where a beneficiary ceases to be married)--

(a) in paragraph (b), for "or (d)" there shall be substituted ", (d) or (db)"; and

(b) for "or child" there shall be substituted ", child or grandchild".

Consequential amendment of paragraph 9 of Schedule 5 to the 1992 Act

4 (1) In sub-paragraph (7) of paragraph 9 of Schedule 5 (persons listed for the purpose of the conditions the fulfilment of which makes a pre-19th March 1991 settlement a qualifying settlement)--

(a) after paragraph (d) there shall be inserted the following paragraphs--

" (da) any grandchild of a settlor or of a settlor's spouse;

(db) the spouse of any such grandchild; " and

(b) in paragraph (e), for "(d)" there shall be substituted "(db)".

(2) For sub-paragraph (11) of that paragraph there shall be substituted the following sub-paragraph--

" (11) In this paragraph--

"child" includes a step-child;
"grandchild" means a child of a child;
"participator" has the meaning given by section 417(1) of the Taxes Act. "

(3) Sub-paragraph (1) above shall be disregarded for the purpose of determining whether either of the conditions set out in sub-paragraphs (5) and (6) of that paragraph became fulfilled at any time before 17th March 1998.

Consequential amendment of Schedule 5A

5 (1) In paragraph 2(1) of Schedule 5A (returns in relation to dealings involving settlements created before 19th March 1991), in paragraph (a) for "19th March 1991" there shall be substituted "17th March 1998".

(2) This paragraph has effect in relation to transfers on or after 17th March 1998.

Section 132.

SCHEDULE 23 Transitional provision in connection with section 132

Pre-6th April 1999 gains and losses of settlements that become qualifying

1 (1) This paragraph applies to a settlement in the case of any person who is a settlor in relation to that settlement if that settlement--

(a) is one created before 19th March 1991;

(b) is not a qualifying settlement in the year 1998-99; and

(c) is a qualifying settlement in the year 1999-00 without having been a protected settlement in relation to that settlor immediately after the beginning of 6th April 1999.

(2) Subject to sub-paragraph (3) below, section 86 of the 1992 Act (attribution of gains to settlor of non-resident or dual resident trusts) shall have effect in relation to any settlement to which this paragraph applies--

(a) as if any relevant gains or relevant losses accruing to the trustees of the settlement on or after 17th March 1998 and before 6th April 1999 were gains or losses accruing to those trustees on 6th April 1999; and

(b) where it is not the case, as if the trustees fulfilled the condition as to residence in the year 1999-00.

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