Schedule 10: Tax
Part 1 – General
604.Sections 75 and 77 of the Taxes Management Act 1970 have the effect that, where the receiver is appointed by the court, certain taxes payable by the person whose property is under receivership may be recovered instead from the receiver. Whilst both the tax and the confiscation legislation is silent on the subject, there is an argument that these sections apply to receivers and administrators appointed under the confiscation and civil recovery legislation. Schedule 10 provides expressly that these sections do not so apply.
Part 2 – Provisions relating to Part 5
605.This part applies where property vests in the trustee for civil recovery or other person under a recovery order or cash is forfeited under section 298.
606.Without special provision, such vesting or forfeiture might count for capital gains purposes as a disposal at market value, and any resulting gains would be chargeable. A charge to income tax or corporation tax might also arise instead.
607.Paragraph 2 is introductory. It explains terms used in the context of this Part of the Schedule, notably, Part 5 transfer, transferor, transferee and compensating payment both where there is a single interest and multiple interests in the property concerned.
608.Paragraph 3 of Schedule 10 provides as a general rule that transfers by way of vesting or forfeiture should not be treated as giving rise to chargeable gains. This does not apply to the extent that a compensatory payment is made, for example under section 272: in that case tax may be charged by reference to the payment actually made.
609.A similar issue potentially arises where a transfer is made under Part 5 with the benefit of interest accrued but not yet paid. Without special provision, a charge on the transferor would then arise under the Accrued Income Scheme, on top of the amounts recovered or forfeited. Paragraph 4 provides in effect that a transfer in civil recovery or cash forfeiture proceedings will be disregarded for purposes of the Accrued Income Scheme.
610.Paragraphs 5 to 8 cover other assets where comparable income tax or corporation tax issues arise. In each case, transfers will not be treated as giving rise to an income tax charge, except to the extent that a compensatory payment is made to the transferor for what is acquired. The assets concerned are:
relevant discounted securities;
certificates of deposit;
material interests in offshore funds; and
futures and options.
611.Paragraph 9 applies the same general rule to transfers that would otherwise give rise to debits or credits taken into account under the loan relationship rules for computing a corporation tax charge.
612.Paragraph 10 makes it clear the paragraphs 4 to 9 do not apply where a compensating payment is made to the transferor.
613.Paragraph 11 covers analogous issues where the property transferred is trading stock of a business. The normal rule is that stock disposed of not by way of trade, or valued on the discontinuance of the trade, is taken into account for tax purposes at market value. These rules are disapplied so that transfers of stock give rise to no profit or loss.
614.Paragraphs 12 to 29 contain provisions that apply where the assets have qualified for capital allowances. The rules bring into account any compensating payments made, otherwise ensuring the vesting will be tax neutral.
615.Paragraphs 12 to 17 set out the rules for plant and machinery. Paragraph 12 provides that, where there is a Part 5 transfer of plant or machinery the disposal value, in the context of this part of the Schedule, to be brought into account is determined by reference to these provisions.
616.Paragraph 13 provides that, if a compensatory payment is made to the transferor, the disposal value is the amount of that payment. Otherwise it is the amount that will give rise to neither a balancing allowance nor a balancing charge.
617.Paragraph 14 disapplies the rules in paragraph 13(2) if the plant or machinery is in the main pool, or class pool. Instead, the disposal value is that amount which would have given rise to neither a balancing allowance nor a balancing charge had the asset been in a single asset pool, assuming all allowances had been claimed.
618.Paragraphs 15 and 16 cover the special rules for partnerships. Paragraph 15 disapplies the rules in paragraph 13 if the business is carried on in partnership, and a compensating payment is made to at least one, but not all of the partners. In these cases, the disposal value is the sum of any compensating payments plus, for each partner who does not receive a compensating payment, an amount that would give rise to neither balancing allowance nor balancing charge in relation to their share in the asset (the “tax neutral amount”).
619.Paragraph 16 disapplies the rules in paragraph 13 if the business is carried on in partnership, and the asset is the property of two or more partners (but not the partnership) and compensating payments are made to at least one, but not all of the owners. In these cases, the disposal value is the sum of any compensating payments plus, for owners to whom no compensating payments are made, the “tax neutral amount”.
620.Paragraph 17 ensures the general rules for capital allowances will apply as necessary to these provisions, and defines the “tax neutral amount”.
621.Paragraphs 18 to 21 set out the rules for industrial buildings. Paragraph 18 provides that a Part 5 transfer of the relevant interest in an industrial building is treated as a balancing event for industrial buildings allowances (IBA) only through these provisions.
622.Paragraph 19 provides that, if a compensating payment is made to the transferor, that payment is treated as the proceeds from the balancing event. Otherwise the proceeds are deemed to be equal to the residue of qualifying expenditure immediately before the event. Further rules ensure a balancing allowance or balancing charge will not arise even if there were periods of non-qualifying use.
623.Paragraph 20 disapplies paragraph 19 if the relevant interest in the industrial building belongs to a partnership and a compensating payment is made to one or more, but not all of the partners. In these cases, the proceeds from the balancing event are the sum of any compensating payments plus, in respect of each partner to whom no such payment is made, his or her share of the residue of qualifying expenditure immediately before the transfer.
624.Paragraph 21 ensures the general rules for IBA will apply as necessary to these provisions.
625.Paragraphs 22 to 25 cover the rules for flat conversion. Paragraph 22 provides that a Part 5 transfer of the relevant interest in a flat is treated as a balancing event for flat conversion allowances (FCA) only through these provisions.
626.Paragraph 23 provides that, if a compensating payment is made to the transferor, that payment is treated as the proceeds from the balancing event. Otherwise the proceeds are taken to be equal to the residue of qualifying expenditure immediately before the event, so no balancing allowance or balancing charge will arise.
627.Paragraph 24 disapplies paragraph 23 if the relevant interest in the flat is held by a partnership and a compensating payment is made to one or more, but not all of the partners. In these cases the proceeds from the balancing event is the sum of any compensating payments plus, in respect of each partner to whom no such payment is made, his or her share of the residue of qualifying expenditure immediately before the transfer.
628.Paragraph 25 ensures the general rules for FCA will apply as necessary to these provisions.
629.Paragraphs 26 to 29 cover the rules for research and development. Paragraph 26 provides that, where there is a Part 5 transfer of an asset representing qualifying research and development expenditure, the disposal value for research and development allowances (RDA) is determined by these provisions.
630.Paragraph 27 provides that, if a compensating payment is made to the transferor, the disposal value is deemed to be that amount. If there is no compensating payment, the disposal value is nil.
631.Paragraph 28 disapplies paragraph 27 if the asset is partnership property and a compensating payment is made to one or more, but not all of the partners. In these cases, the proceeds from the balancing event are the sum of any compensating payments made to the partners.
632.Paragraph 29 ensures the general rules for RDA will apply as necessary to the provisions in this Schedule.
633.Paragraphs 30 to 33 apply to employee share schemes. They cover the situations where an employee has acquired shares, or options over shares and that interest is recovered as representing the proceeds of crime. In each case, without special provisions, there would be a charge to income tax at the time of the disposal.
634.Paragraph 30 deals with share options acquired by an employee that are transferred to the trustee for civil recovery. Where the trustee then exercises the option and acquires the shares, the gain is not to be charged to tax under this provision.
635.Paragraph 31 relates to shares which are acquired subject to conditions where the charge to tax is deferred from the time of acquisition of the shares to the time the restriction is lifted, or the shares disposed of. The tax charge on the transferor on the market value of the shares at the time of the disposal is removed under this provision.
636.Paragraph 32 deals with shares that are acquired at an undervalue, so effectively a taxable benefit arises. When the shares are transferred there would normally be a tax charge on the transferor on the amount of the undervalue. This charge is removed under this provision.
637.Paragraph 33 covers shares that are acquired in a subsidiary company, where there would normally be a tax charge on the transferor on the increase in the value of those shares from the time of acquisition until the time of disposal. This charge is removed under this provision.
