Finance Act 2002 (c. 23)

(The document as of February, 2008)

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(ii) under any corresponding provision of the law of a country or territory outside the United Kingdom, and

(b) no part of the business of the original company, or of any of the original companies, is transferred under the scheme to any other person.

Preliminary reorganisation of share capital to be disregarded

6 Where a reorganisation of the share capital of the original company, or of any of the original companies, is carried out for the purposes of the scheme of reconstruction, the provisions of the first and second conditions apply in relation to the position after the reorganisation.

Subsequent issue of shares or debentures to be disregarded

7 An issue of shares in or debentures of the successor company, or any of the successor companies, after the latest date on which any ordinary share capital of the successor company, or any of them, is issued--

(a) in consideration of the transfer of any business, or part of a business, under the scheme, or

(b) in pursuance of the compromise or arrangement mentioned in paragraph 5(a),

shall be disregarded for the purposes of the first and second conditions.

Interpretation

8 (1) In this Schedule "ordinary share capital" has the meaning given by section 832(1) of the Taxes Act and also includes--

(a) in relation to a unit trust scheme, any rights that are treated by section 99(1)(b) of this Act (application of Act to unit trust schemes) as shares in a company, and

(b) in relation to a company that has no share capital, any interests in the company possessed by members of the company.

(2) Any reference in this Schedule to a reorganisation of a company's share capital is to a reorganisation within the meaning of section 126. " .

Part 2 Consequential amendments

Taxes Act 1988

4 (1) The Taxes Act 1988 is amended as follows.

(2) In section 299 (disposal of shares)--

(a) in subsection (6D), as that section applies to shares issued after 31st December 1993 (enterprise investment scheme), and

(b) in subsection (4C), as that section applies to shares issued before 1st January 1994 (business expansion scheme),

for "(whether or not by virtue of section 135(3) of that Act)" substitute "(including a case where that section applies by virtue of any enactment relating to chargeable gains)", and for the words from "shall be construed" to the end substitute "have the same meaning as in section 127 of the 1992 Act (or, as the case may be, that section as applied by virtue of the enactment concerned)".

(3) In section 312(3) (interpretation of Chapter 3 of Part 7: references to disposal of shares), for "136(1)" substitute "136".

(4) In section 473(6) (conversion etc of securities held as circulating capital), for "136(3)" substitute "135(5), 136(5)".

(5) In section 757 (disposal of material interests in non-qualifying offshore funds), for subsections (5) and (6) substitute--

" (5) Section 135 of the 1992 Act (exchange of securities for those in another company treated as not involving a disposal) does not apply for the purposes of this Chapter if the company that is company A for the purposes of that section is or was at a material time a non-qualifying offshore fund and the company that is company B for those purposes is not such a fund.

In a case where that section would apply apart from this subsection, the exchange in question (of shares, debentures or other interests in or of an entity that is or was at a material time a non-qualifying offshore fund) shall for the purposes of this Chapter constitute a disposal of interests in the offshore fund for a consideration equal to their market value at the time of the exchange.

(6) Section 136 of the 1992 Act (scheme of reconstruction involving issue of securities treated as exchange not involving disposal) does not apply for the purposes of this Chapter so as to require persons to be treated as exchanging shares, debentures or other interests in or of an entity that is or was at a material time a non-qualifying offshore fund for assets that do not constitute interests in such a fund.

In a case where that section would apply apart from this subsection, the deemed exchange in question (of shares, debentures or other interests in or of an entity that is or was at a material time a non-qualifying offshore fund) shall for the purposes of this Chapter constitute a disposal of interests in the offshore fund for a consideration equal to their market value at the time of the deemed exchange. " .

(6) In section 758(6) (offshore funds operating equalisation arrangements: events treated as disposal), for the words from "section 135" to the end substitute "any provision of Chapter 2 of Part 4 of that Act".

(7) In section 842 (investment trusts), at the end of subsection (4) add "and "scheme of reconstruction" has the same meaning as in section 136 of that Act".

Taxation of Chargeable Gains Act 1992

5 (1) The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

(2) In section 31 (distributions within a group followed by a disposal of shares), for subsection (6)(b) substitute--

" (b) an exchange, or deemed exchange, of shares in or debentures of a company held by company A for shares in or debentures of another company, being a company associated with company A immediately after the transaction, that is treated by virtue of section 135 or 136 as a reorganisation of share capital within the meaning of section 126 to which sections 127 to 131 apply with the necessary adaptations, or " .

(3) In section 34 (transactions treated as a reorganisation of capital)--

(a) in subsections (1)(a), (1A), (1B) and (1C)(a) for "sections 127 and 135(3)" substitute "section 135 or 136";

(b) in the closing words of subsection (1) for "section 135(3)" substitute "section 135 or 136"; and

(c) in subsection (2) for the words from the beginning to "and in those subsections" substitute "In subsections (1) to (1C)" (the words omitted being unnecessary).

(4) In section 102 (collective investment schemes with property divided into separate parts), in subsection (3)(b) after "135" insert "or 136".

(5) In section 137 (restriction on application of sections 135 and 136)--

(a) in subsection (1), for ", reconstruction or amalgamation" substitute "or scheme of reconstruction"; and

(b) in subsection (6), for "section 136(3)" substitute "section 135(5), 136(5)".

(6) In section 138(1) (procedure for clearance in advance), for ", reconstruction or amalgamation" substitute "or scheme of reconstruction".

(7) In section 139 (reconstruction involving transfer of business), for subsection (9) substitute--

" (9) In this section "scheme of reconstruction" has the same meaning as in section 136. " .

(8) In section 147 (quoted options treated as part of new holdings)--

(a) in subsection (1) for "or amalgamation" substitute ", exchange or scheme of reconstruction"; and

(b) in subsection (2) at the end insert "and "scheme of reconstruction" has the same meaning as in section 136".

(9) In section 151B (venture capital trusts: supplementary), in subsection (8) for paragraph (c) substitute--

" (c) a reference to the exchanged holding is, in relation to section 135 or 136, to the shares in the company referred to in that section as company A. " .

(10) In section 171(3) (transfers within a group) for "by virtue of sections 127 and 135" substitute "by section 127 as it applies by virtue of section 135".

(11) In section 211(2)(a) (transfer of long-term business of insurance company), after "scheme of reconstruction" insert "within the meaning of that section".

(12) In section 251 (debts: general provisions)--

(a) in subsection (2) for "132 and 135" substitute "132, 135 and 136";

(b) in subsection (3)--

(i) for "132 and 135" substitute "132, 135 and 136", and

(ii) for "either section 132 or 135" substitute "section 132, 135 or 136";

(c) in subsection (6)(b) for the words from "unaffected" to the end substitute "to which section 135 applies and which is unaffected by section 137(1)".

(13) In Schedule A1 (taper relief), in paragraph 18(1)(b) (special rules for assets acquired in the reconstruction of mutual businesses etc) for "subsection (3)" substitute "subsection (2)(a)".

(14) In Schedule 6 (retirement relief: supplementary provisions), in paragraph 2(2) for "section 135(3)" substitute "section 135 or 136".

Finance Act 2000

6 (1) Schedule 15 to the Finance Act 2000 (c. 17) (corporate venturing scheme) is amended as follows.

(2) In paragraph 71 (tax avoidance), in sub-paragraph (1)(b)(ii) for "reconstructions and amalgamations" substitute "schemes of reconstruction".

(3) In paragraph 82(1) (company reconstructions and amalgamations), in the closing words for "company reconstructions and amalgamations" substitute "share exchanges and company reconstructions".

(4) In paragraph 93(7) (identification of shares on a disposal: cases to which section 127 applies)--

(a) for "(whether or not by virtue of section 135(3) of that Act)" substitute "(including a case where that section applies by virtue of any enactment relating to chargeable gains)"; and

(b) for the words from "shall be construed" to the end substitute "have the same meaning as in section 127 of the 1992 Act (or, as the case may be, that section as applied by virtue of the enactment concerned)".

(5) In paragraph 96 (meaning of "disposal")--

(a) in sub-paragraph (2)(a) for "section 136(1)" substitute "section 136";

(b) in sub-paragraph (2)(b) for "sections 135 and 136 of that Act to bona fide reconstructions and amalgamations" substitute "section 136 of that Act to bona fide schemes of reconstruction".

Part 3 Commencement

General commencement date

7 (1) Subject to paragraph 8, the provisions of this Schedule have effect in relation to shares or debentures issued on or after 17th April 2002 ("the commencement date").

(2) The reference in sub-paragraph (1) to shares or debentures includes any interests falling to be treated as shares or debentures for the purposes of section 135 or 136 of the Taxation of Chargeable Gains Act 1992 (c. 12) as substituted by this Schedule.

Commencement provision for certain consequential amendments

8 (1) Paragraph 4(2), (3) and (5) and paragraph 6(2), (4) and (5) have effect in relation to disposals on or after the commencement date.

(2) Paragraph 4(4) has effect in relation to transactions to which section 473 of the Taxes Act 1988 applies occurring on or after the commencement date.

(3) Paragraph 4(6) has effect in relation to events occurring on or after the commencement date.

(4) Paragraph 4(7) has effect in relation to shares and securities (within the meaning of section 842 of the Taxes Act 1988) issued on or after the commencement date.

Section 47

SCHEDULE 10 Chargeable gains: taper relief: minor amendments

Introduction

1 Schedule A1 to the Taxation of Chargeable Gains Act 1992 (c. 12) (taper relief) is amended as follows.

Periods of share ownership that do not count because of change of activity by company

2 Paragraph 11 (periods of share ownership not to count where there is a change of activity by the company) shall cease to have effect in relation to disposals on or after 17th April 2002.

Periods of share ownership not to count where company is not active

3 (1) After that paragraph insert--

" Periods of share ownership not to count if company is not active

11A (1) Where there is a disposal of an asset consisting of shares in a company, any period after 5th April 1998 during which the asset consisted of shares in a company that--

(a) was a close company, and

(b) was not active,

shall not count for the purposes of taper relief.

(2) Subject to the following provisions of this paragraph, a company is regarded as active at any time when--

(a) it is carrying on a business of any description,

(b) it is preparing to carry on a business of any description, or

(3) In sub-paragraph (2) above--

(a) references to a business include a business that is not conducted on a commercial basis or with a view to the realisation of a profit, and

(b) references to carrying on a business include holding assets and managing them.

(4) For the purposes of this paragraph a company is not regarded as active by reason only of its doing all or any of the following--

(a) holding money (in any currency) in cash or on deposit;

(b) holding other assets whose total value is insignificant;

(d) making loans to an associated company or to a participator or an associate of a participator;

(e) carrying out administrative functions in order to comply with requirements of the Companies Act 1985 or the Companies (Northern Ireland) Order 1986 or other regulatory requirements.

(5) Notwithstanding anything in sub-paragraphs (2) to (4) above a company shall be treated as active for the purposes of this paragraph if--

(a) it is the holding company of a group of companies that contains at least one active company, or

(b) it has a qualifying shareholding in a joint venture company or is the holding company of a group of companies any member of which has a qualifying shareholding in a joint venture company.

(6) In this paragraph "associated company" has the meaning given by section 416 of the Taxes Act and "participator" and "associate" have the meaning given by section 417 of that Act.

(7) Any reference in this paragraph to shares in or debentures of a company includes an interest in, or option in respect of, shares in or debentures of a company. " .

(2) The amendment made by sub-paragraph (1) has effect in relation to disposals on or after 17th April 2002.

Meaning of "holding company"

4 (1) In paragraph 22(1) (interpretation) for the definition of "holding company" substitute--

" "holding company" means a company that has one or more 51% subsidiaries; " .

(2) In paragraph 23 (provisions as to holdings in joint venture companies), omit the following provisions--

(a) the final sentence of sub-paragraph (4);

(b) sub-paragraph (5);

(3) The amendments in this paragraph apply to disposals on or after 17th April 2002 and as they so apply have effect in relation to periods of ownership on or after that date.

Meaning of "interest in shares"

5 (1) In paragraph 22(1) (interpretation), at the appropriate place insert--

" "interest in shares" means an interest as a co-owner (whether the shares are owned jointly or in common, and whether or not the interests of the co-owners are equal), and "interest in debentures", in relation to any debentures, has a corresponding meaning; " .

(2) The amendment in sub-paragraph (1) applies to disposals on or after 17th April 2002 and as it so applies has effect in relation to periods of ownership on or after that date.

Meaning of "joint venture company" and "qualifying shareholding"

6 (1) In paragraph 22(1) (interpretation), at the appropriate places insert--

" "joint venture company" has the meaning given by paragraph 23(2) below; " ;

" "qualifying shareholding", in relation to a joint venture company, has the meaning given by paragraph 23(3) below; " .

(2) In paragraph 23(2) and (3) for "this paragraph" substitute "this Schedule".

(3) The amendments in this paragraph have effect in relation to disposals on or after 17th April 2002.

Meaning of "ordinary share capital"

7 (1) In paragraph 22(1) (interpretation) at the appropriate place insert--

" "ordinary share capital" has the meaning given by section 832(1) of the Taxes Act; " .

(2) Omit paragraphs 23(10) and 24(6).

(3) The amendments in this paragraph apply to disposals on or after 17th April 2002.

Debentures to be treated as shares

8 (1) In paragraph 22(1) (interpretation), in the definition of "shares" for "includes any securities of that company" substitute-- " includes--

(a) any securities of that company, and

(b) any debentures of that company that are deemed, by virtue of section 251(6), to be securities for the purposes of that section " .

(2) The amendment made by sub-paragraph (1) applies in relation to disposals on or after 6th April 2001 (so that assets disposed of on or after that date that are treated as shares by virtue of that sub-paragraph shall be treated as having been shares in relation to all times relevant for the purposes of Schedule A1).

This is subject to the following provisions.

(3) In relation to any time before 17th April 2002, the amendment made by sub-paragraph (1) does not apply to the references to shares in the following provisions of that Schedule--

(a) paragraph 5 (conditions for assets other than shares to qualify as business assets);

(b) paragraph 6A (meaning of "material interest" for purposes of paragraph 6);

(c) paragraph 11 (periods of share ownership not to count where there is a change of activity by the company), except sub-paragraph (6);

(d) paragraph 11A (periods of share ownership not to count if company is not active);

(e) paragraph 12 (periods of share ownership not to count in a case of value-shifting);

(f) the definition of "unlisted company" in paragraph 22(1).

(4) The amendment made by sub-paragraph (1) does not apply to the references to shares in paragraph 18(1) of that Schedule (special rules for assets acquired in the reconstruction of mutual businesses etc) in so far as they relate to shares issued before 17th April 2002.

Meaning of "trading company"

9 (1) In paragraph 22(1) (interpretation), for the definition of "trading company" substitute--

" "trading company" has the meaning given by paragraph 22A below; " .

(2) After that paragraph insert--

" Meaning of "trading company"

22A (1) In this Schedule "trading company" means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.

(2) For the purposes of sub-paragraph (1) above "trading activities" means activities carried on by the company--

(a) in the course of, or for the purposes of, a trade being carried on by it,

(b) for the purposes of a trade that it is preparing to carry on,

(d) with a view to its acquiring a 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) if the acquiring company is a member of a group of companies, is not a member of that group.

(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) above unless the acquisition is made, or (as the case may be) the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances.

(4) The reference in sub-paragraph (2)(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 51% subsidiary of the acquiring company, or

(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. " .

(3) The amendments in this paragraph apply to disposals on or after 17th April 2002 and as they so apply have effect in relation to periods of ownership on or after that date.

Meaning of "trading group"

10 (1) In paragraph 22(1) (interpretation), for the definition of "trading group" substitute--

" "trading group" has the meaning given by paragraph 22B below; " .

(2) After paragraph 22A (inserted by paragraph 9 above) insert--

" Meaning of "trading group"

22B (1) In this Schedule "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 activities.

(2) For the purposes of sub-paragraph (1) 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,

(b) for the purposes of a trade that any member of the group is preparing to carry on,

(d) with a view to any member of the group acquiring a 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 the acquiring company.

(3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) above unless the acquisition is made, or (as the case may be) the group member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.

(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 joint venture companies a member of the same group of companies as the acquiring company.

(5) For the purposes of this paragraph the activities of the members of the group shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities). " .

(3) The amendments in this paragraph apply to disposals on or after 17th April 2002 and as they so apply have effect in relation to periods of ownership on or after that date.

Joint venture companies

11 (1) Paragraph 23 (qualifying shareholding in joint venture companies) is amended as follows.

(2) In sub-paragraph (2)(b) (meaning of "joint venture company": requirement that 75% of ordinary share capital held by not more than five companies), for "companies" substitute "persons".

(3) In sub-paragraph (3)(a) and (b) (meaning of "qualifying shareholding": holding of more than 30% of ordinary share capital), for "more than 30%" substitute "10% or more".

(4) After sub-paragraph (7) insert--

" (7A) For the purposes of this paragraph the activities of a joint venture company that is a holding company and its 51% subsidiaries shall be treated as a single business (so that activities are disregarded to the extent that they are intra-group activities). " .

(5) The amendments in this paragraph apply to disposals on or after 17th April 2002 and as they so apply have effect in relation to periods of ownership on or after that date.

Joint enterprise companies

12 (1) Paragraph 24 (joint enterprise companies: relevant connection) is amended as follows.

(2) In sub-paragraph (2) (meaning of "joint enterprise company": requirement that 75% of ordinary share capital held by not more than five companies), for "companies" substitute "persons".

(3) In sub-paragraph (4)(a) and (b) (meaning of "qualifying shareholding": holding of more than 30% of ordinary share capital), for "more than 30%" substitute "10% or more".

(4) The amendments in this paragraph apply to disposals on or after 17th April 2002 and as they so apply have effect in relation to periods of ownership on or after that date.

Section 51

SCHEDULE 11 Chargeable gains: deduction of personal losses from gains treated as accruing to settlors

Introduction

1 The Taxation of Chargeable Gains Act 1992 (c. 12) is amended in accordance with paragraphs 2 to 6.

Section 2

2 (1) Section 2 (persons and gains chargeable to capital gains tax, and allowable losses) is amended as follows.

(2) In subsection (5) (computation of tax in cases where gains treated as accruing to settlor etc in respect of trust gains), for the word "and" at the end of paragraph (a) substitute--

" (aa) every amount which is treated by virtue of sections 77 and 86 as an amount of chargeable gains accruing to the person in question for that year, reduced as follows--

(i) first, by making the deductions for which subsection (2) provides in respect of any allowable losses accruing to that person;

(ii) then, where taper relief would be deductible by the trustees of the settlement in question but for section 77(1)(b)(i) or 86(1)(e)(ii), by applying reductions in respect of taper relief under section 2A at the rates that would be applicable in the case of the trustees;

and " .

(3) In paragraph (b) of that subsection, omit "77, 86,".

(4) After that subsection insert--

" (6) Allowable losses must (notwithstanding section 2A(6)) be deducted under paragraph (a)(i) of subsection (5) above before any may be deducted under paragraph (aa)(i) of that subsection.

(7) Where in any year of assessment--

(a) there are amounts treated as accruing to a person by virtue of section 77 or 86,

(b) two or more of those amounts, or elements of them--

(i) relate to different settlements, and

(ii) attract taper relief (by virtue of subsection (5)(aa)(ii) above) at the same rate, or are not eligible for taper relief, and

(c) losses are deductible from the amounts or elements mentioned in paragraph (b) above ("the equal-tapered amounts") but are not enough to exhaust them all,

the deduction applicable to each of the equal-tapered amounts shall be the appropriate proportion of the aggregate of those losses.

The "appropriate proportion" is that given by dividing the equal-tapered amount in question by the total of the equal-tapered amounts.

(8) The references to section 86 in subsection (5)(aa) above (in the opening words) and subsection (7)(a) above include references to that section read with section 10A. " .

Section 77

3 In section 77 (charge on settlor with interest in settlement), in subsection (1)(b) (amount by reference to which settlor is charged), for the words from "would" to the end substitute-- " would be chargeable to tax for the year in respect of those gains if--

(i) the gains were not eligible for taper relief, but section 2(2) applied as if they were (so that the order of deducting losses provided for by section 2A(6) applied), and

(ii) section 3 were disregarded,

and " .

Section 86

4 In section 86 (attribution of gains to settlors with interest in non-resident or dual resident settlements), in subsection (1)(e) (amount by reference to which settlor is charged), for the words from "if" to the end substitute " if--

(i) the assumption as to residence specified in subsection (3) below were made, and

(ii) any chargeable gains on the disposals were not eligible for taper relief, but section 2(2) applied as if they were (so that the order of deducting losses provided for by section 2A(6) applied); " .

Section 86A

5 (1) Section 86A (attribution of gains to settlor in section 10A cases) is amended as follows.

(2) In subsection (2) (reduction in amounts attributed to settlor in accordance with section 10A by reference to chargeable amounts paid to beneficiaries during his period of non-residence)--

(a) in paragraph (a), for "the amount falling within section 86(1)(e)" substitute "the tapered section 86(1)(e) amount";

(b) in paragraph (b), for "the amounts falling within section 86(1)(e)" substitute "the tapered section 86(1)(e) amounts".

(3) After that subsection insert--

" (2A) In subsection (2) above "tapered section 86(1)(e) amount" means an amount falling within section 86(1)(e) as it would apply with the omission of sub-paragraph (ii).

(2B) Where subsection (2) above has effect to reduce an amount that is treated by virtue of section 86 as accruing to the settlor for a year of assessment--

(a) the reduced amount shall be treated as falling within paragraph (b) of section 2(5) and not paragraph (aa);

(b) section 86(1)(e) shall have effect in relation to that amount with the omission of sub-paragraph (ii). " .

(4) In subsection (7) (reduction in gains available for attribution to beneficiaries by amounts attributed to settlor in accordance with section 10A), for the words from "the amount or" to "so attributed" substitute "the tapered section 10A amount".

(5) After that subsection insert--

" (7A) In subsection (7) above "the tapered section 10A amount" means the amount, or aggregate of the amounts, falling to be attributed as mentioned in that subsection, minus the total amount of any taper relief that would be deductible from that amount or aggregate by the trustees of the settlement but for section 86(1)(e)(ii).

Where section 86A(2) has effect to reduce that amount or aggregate, the words from "minus" to "section 86(1)(e)(ii)" above do not apply. " .

Section 87

6 (1) Section 87 of that Act (attribution of gains to beneficiaries) is amended as follows.

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