Finance Act 1974

Section 44.

SCHEDULE 8 Adaptations and Amendments of Provisions Relating to the Taxation of Capital Gains

Persons chargeable to tax in respect of development gains

1 Subsections (1) and (2) of section 20 of the [1965 c. 25.] Finance Act 1965 (persons chargeable to capital gains tax or corporation tax in respect of chargeable gains) shall have effect in relation to income tax or corporation tax in respect of development gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains.

Development gains accruing to non-resident companies and trusts

2 Section 41 of the Finance Act 1965 (chargeable gains accruing to certain non-resident companies) shall have effect in relation to development gains as it has effect in relation to chargeable gains, subject to the modification that for the reference in subsection (7) to capital gains tax there shall be substituted a reference to income tax or corporation tax.

3 Section 42 of the Finance Act 1965 (chargeable gains accruing to non-resident trusts) shall have effect in relation to development gains as it has effect in relation to chargeable gains, subject to the following modifications, that is to say—

(a) in subsection (2), for the words "capital gains tax under section 20(4) of this Act" there shall be substituted the words " income tax by virtue of section 38(2) of the Finance Act 1974 "; and

(b) for the references to capital gains tax in subsections (4)(b) and (5) there shall be substituted references to income tax or corporation tax.

Development gains accruing in connection with replacement of business assets

4 Where a development gain accrues to a person in respect of a disposal of an interest in land to which section 38 of this Act applies, being a disposal in relation to which section 33 of the Finance Act 1965 (replacement of business assets) applies, then, if a claim under that section is made as respects the whole or any part of the consideration for the disposal, the consideration obtained by him for the disposal shall be treated for the purposes of the said section 33 in its application in relation to the disposal as if it were equal to the amount by which the actual consideration obtained by him exceeds the amount of the said development gain.

Development gains accruing in connection with company amalgamations

5 Where a company has issued shares or debentures to a person in exchange for shares or debentures in another company in a case falling within paragaph 20 of Schedule 3 to this Act, the amount of any development gain which accrued to him in respect of the disposal by him to the issuing company of the shares or debentures in the other company shall, in computing under Schedule 6 to the [1965 c. 25.] Finance Act 1965 the gain accruing on a disposal of the shares or debentures so issued to him, be treated as an amount allowable under paragraph 4(1)(b) of the said Schedule 6.

Transfer of business to a company

6 In paragraph 15 of Schedule 19 to the [1969 c. 32.] Finance Act 1969 (capital gains; transfer of business to a company), after sub-paragraph (4) there shall be inserted as sub-paragraph (4A)—

“(4A) If any development gains accrue to the transferor in respect of his disposal of the assets included in the business, then for the purposes of sub-paragraph (4) above B (that is, the value of the whole of the consideration received by the transferor in exchange for the business) shall be taken to be what it would be if the value of the consideration other than shares so received by him were less by an amount equal to those gains.”

7 (1) If, in a case where paragraph 15 of Schedule 19 to the Finance Act 1969 applies, any development gains accrue to the transferor in respect of his disposal (referred to below as "the original disposal") of the assets included in the business, then, if the transferor makes a claim under this paragraph as respects the transfer, the following provisions of this paragraph shall apply.

This paragraph shall be construed as one with the said paragraph 15.

(2) For the purposes of this paragraph—

(a) " the net development gains " means the development gains accruing to the transferor in respect of the original disposal, as reduced by any development losses deducted from or set off against those gains under section 176 or 179 of the Taxes Act in accordance with paragraph 4 of Schedule 6 to this Act;

(b) " the qualifying amount "—

(i) if the business is transferred wholly in exchange for shares issued by the company to the transferor, means the amount of the net development gains ;

(ii) in any other case, means the amount by which what would have been the amount determined under sub-paragraph (4) of the said paragraph 15 if this Chapter had not been enacted exceeds the amount actually determined under that sub-paragraph, or the amount of the net development gains, whichever is the smaller ;

(c) the qualifying amount shall be apportioned between the new assets (that is to say, the shares received by the transferor in exchange for the business) as a whole, and, if those shares are not all of the same class, the apportionment between them shall be in accordance with their market values at the time they were acquired by the transferor.

(3) The profits or gains chargeable to tax under Case VI of Schedule D on the transferor for the year of assessment in which the original disposal is made shall be reduced by the qualifying amount.

(4) If the transferor disposes of shares comprised in the new assets, being all the shares of a particular class which are so comprised, then the amount apportioned to those shares under sub-paragraph (2)(c) above shall be treated as a development gain accruing to him in the year of assessment in which that disposal is made and as constituting profits or gains chargeable to tax under Case VI of Schedule D for that year.

(5) If the transferor disposes of shares comprised in the new assets, being some but not all of the shares of a particular class which are so comprised (so that the disposal constitutes a part disposal), then a fraction only of the amount apportioned to all the shares of that class under sub-paragraph (2)(c) above shall be treated as mentioned in the preceding paragraph, and that fraction shall be the fraction of the sums mentioned in the following sub-paragraph which is allowable as a deduction in computing under Schedule 6 to the [1965 c. 25.] Finance Act 1965 the amount of the gain accruing on that part disposal.

(6) The sums referred to in the preceding sub-paragraph are the sums which, if all the shares of the class in question comprised in the new assets and remaining undisposed of immediately before the time of the part disposal in question had been disposed of at that time, would be allowable by virtue of paragraph 4(1)(a) and (b) of the said Schedule 6 as a deduction in computing under that Schedule the gain accruing on the disposal of all those shares.

(7) Where an individual to whom a development gain is treated as accruing by virtue of this paragraph makes a claim under paragraph 2 of Schedule 7 to this Act as respects that gain, sub-paragraphs (2) to (4) of that paragraph shall have effect in relation to that claim subject to the following modifications, that is to say—

(a) the references to the interval between the claimant's acquisition and disposal of the asset on the disposal of which the development gain accrued to him shall be read as references to the interval between the date when he acquired any of those assets of the business which caused development gains to accrue to him in respect of the original disposal and the date of the original disposal; and

(b) the references to " the date of the disposal" shall be read as references to the date of the disposal of shares comprised in the new assets which is mentioned in sub-paragraph (4) or (5) above, as the case may be.