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Finance Act 1989

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This is the original version (as it was originally enacted).

3(1)Schedule 4 to the [1979 c. 14.] Capital Gains Tax Act 1979 shall be amended as follows.

(2)In paragraph 1—

(a)in sub-paragraph (1)(b), for the words “section 126(1)(a)” there shall be substituted the words “section 126(1)” and for the words “that paragraph” there shall be substituted the words “section 126(1A)(a)”; and

(b)in sub-paragraph (2), the words “at the rate of 50 per cent.” shall be omitted, and at the end of paragraph (b) there shall be added the words ; or

(c)would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).

(3)For paragraph 2 there shall be substituted—

2(1) If—

(a)the trustees of a settlement make a disposal otherwise than under a bargain at arm’s length of an asset within sub-paragraph (2) below, and

(b)a claim for relief under section 126 of this Act is made by the trustees and the person who acquires the asset (in this Schedule referred to as “the transferee”) or, where the trustees of a settlement are also the transferee, by the trustees making the disposal alone,

then, subject to subsection (2) of section 126 and to sections 126A and 126B, subsection (3) of section 126 shall apply in relation to the disposal.

(2)An asset is within this sub-paragraph if—

(a)it is, or is an interest in, an asset used for the purposes of a trade, profession or vocation carried on by—

(i)the trustees making the disposal, or

(ii)a beneficiary who had an interest in possession in the settled property immediately before the disposal, or

(b)it consists of shares or securities of a trading company, or of the holding company of a trading group, where—

(i)the shares or securities are neither quoted on a recognised stock exchange nor dealt in on the Unlisted Securities Market, or

(ii)not less than 25 per cent. of the voting rights exercisable by shareholders of the company in general meeting are exercisable by the trustees at the time of the disposal.

(3)Where section 126(3) applies by virtue of this paragraph, references to the trustees shall be substituted for the references in sections 126(3)(a) and 126C to the transferor; and where it applies in relation to a disposal which is deemed to occur by virtue of section 54(1) or 55(1) of this Act, section 126(6) shall not apply.

(4)In paragraph 3—

(a)in sub-paragraph (1)—

(i)the words from “by virtue” to “(settled property)” shall be omitted,

(ii)for the words “(a) of paragraph 2(1)” there shall be substituted “2(1)(a)”, and

(iii)for the words “the said paragraph (a)” there shall be substituted the words “paragraph 2(2)(a) above”, and

(b)in sub-paragraph (2), the words “at the rate of 50 per cent.” shall be omitted, and at the end of paragraph (b) there shall be added the words , or

(c)would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).

(5)In paragraph 4—

(a)in sub-paragraph (2)(a), for the words “section 126(1)” there shall be substituted the words “section 126(1A)”, and for the words “sub-paragraph (1)” there shall be substituted the words “sub-paragraph (2)”;

(b)for sub-paragraph (2)(c) there shall be substituted—

(c)“the transferor” has the same meaning as in section 126 of this Act except that, in a case where paragraph 2 above applies, it refers to the trustees mentioned in that paragraph,;

(c)for sub-paragraph (3) there shall be substituted—

(3)In this Part of this Schedule—

(a)any reference to a disposal of an asset is a reference to a disposal which falls within subsection (1) of section 126 of this Act by virtue of subsection (1A)(a) of that section or, as the case may be, falls within sub-paragraph (1) of paragraph 2 above by virtue of sub-paragraph (2)(a) of that paragraph, and

(b)any reference to a disposal of shares is a reference to a disposal which falls within subsection (1) of section 126 of this Act by virtue of subsection (1A)(b) of that section or, as the case may be, falls within sub-paragraph (1) of paragraph 2 above by virtue of sub-paragraph (2)(b) of that paragraph.; and

(d)in sub-paragraph (4), for the words “as the case may be” there shall be substituted the words “where it applies”, and the words “(taking account” onwards shall be omitted.

(6)At the end of each of paragraph 5 and paragraph 6 there shall be added—

(2)This paragraph shall not apply where the circumstances are such that a reduction in respect of the asset—

(a)is made under Chapter II of Part V of the [1984 c. 51.] Inheritance Tax Act 1984 in relation to a chargeable transfer taking place on the occasion of the disposal, or

(b)would be so made if there were a chargeable transfer on that occasion, or

(c)would be so made but for section 124A of that Act (assuming, where there is no chargeable transfer on that occasion, that there were).

(7)For paragraph 7 there shall be substituted—

7(1) If in the case of a disposal of shares assets which are not business assets are included in the chargeable assets of the company whose shares are disposed of, or, where that company is the holding company of a trading group, in the group’s chargeable assets, and either—

(a)at any time within the period of twelve months before the disposal not less than 25 per cent. of the voting rights exercisable by shareholders of the company in general meeting are exercisable by the transferor, or

(b)the transferor is an individual and, at any time within that period, the company is his family company,

the amount of the held-over gain shall be reduced by multiplying it by the fraction defined in sub-paragraph (2) below.

(2)The fraction referred to in sub-paragraph (1) above is that of which—

(a)the denominator is the market value on the date of the disposal of all the chargeable assets of the company, or as the case may be of the group, and

(b)the numerator is the market value on that date of those chargeable assets of the company or of the group which are business assets.

(3)For the purposes of this paragraph—

(a)an asset is a business asset in relation to a company or a group if it is or is an interest in an asset used for the purposes of a trade, profession or vocation carried on by the company, or as the case may be by a member of the group; and

(b)an asset is a chargeable asset in relation to a company or a group at any time if, on a disposal at that time, a gain accruing to the company, or as the case may be to a member of the group, would be a chargeable gain.

(4)Where the shares disposed of are shares of the holding company of a trading group, then for the purposes of this paragraph—

(a)the holding by one member of the group of the ordinary share capital of another member shall not count as a chargeable asset, and

(b)if the whole of the ordinary share capital of a 51 per cent. subsidiary of the holding company is not owned directly or indirectly by that company, the value of the chargeable assets of the subsidiary shall be taken to be reduced by multiplying it by the fraction of which the denominator is the whole of the ordinary share capital of the subsidiary and the numerator is the amount of that share capital owned directly or indirectly by the holding company.

(5)Expressions used in sub-paragraph (4) above have the same meanings as in section 838 of the Taxes Act 1988.

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