Taxation of Chargeable Gains Act 1992

Chapter II U.K. Gifts of business assets

165 Relief for gifts of business assets. U.K.

(1) If—

(a) an individual (“the transferor”) makes a disposal otherwise than under a bargain at arm’s length of an asset within subsection (2) below, and

(b) a claim for relief under this section is made by the transferor and the person who acquires the asset (“the transferee”) or, where the trustees of a settlement are the transferee, by the transferor alone,

then, subject to subsection (3) and [F1 sections 166, 167[F2 , [F3 167A,] 169, 169B and 169C]], subsection (4) below shall apply in relation to the disposal.

(2) An asset is within this subsection 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 transferor, or

(ii) his [F4 personal company], or

(iii) a member of a trading group of which the holding company is his [F4 personal company], 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 [F5 not listed on a recognised stock exchange], or

(ii) the trading company or holding company is the transferor’s [F4 personal company].

(3) Subsection (4) below does not apply in relation to a disposal if—

F6 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F7 (ba) in the case of a disposal of shares or securities, the transferee is a company,]

(c) in the case of a disposal of qualifying corporate bonds, a gain is deemed to accrue by virtue of section 116(10)(b), or

(d) subsection (3) of section 260 applies in relation to the disposal (or would apply if a claim for relief were duly made under that section).

(4) Where a claim for relief is made under this section in respect of a disposal—

(a) the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, and

(b) the amount of the consideration for which, apart from this section, the transferee would be regarded for the purposes of capital gains tax as having acquired the asset or, as the case may be, the shares or securities,

shall each be reduced by an amount equal to the held-over gain on the disposal.

(5) Part I of Schedule 7 shall have effect for extending the relief provided for by virtue of subsections (1) to (4) above in the case of agricultural property and for applying it in relation to settled property.

(6) Subject to Part II of Schedule 7 and subsection (7) below, the reference in subsection (4) above to the held-over gain on a disposal is a reference to the chargeable gain which would have accrued on that disposal apart from subsection (4) above F8 ..., and in subsection (7) below that chargeable gain is referred to as the unrelieved gain on the disposal.

(7) In any case where—

(a) there is actual consideration (as opposed to the consideration equal to the market value which is deemed to be given by virtue of section 17(1)) for a disposal in respect of which a claim for relief is made under this section, and

(b) that actual consideration exceeds the sums allowable as a deduction under section 38,

the held-over gain on the disposal shall be the amount by which the unrelieved gain on the disposal exceeds the excess referred to in paragraph (b) above.

[F9 (7A) Subsections (7B) and (7C) apply in any case where—

(a) the disposal is a [F10 direct or indirect disposal of UK land which meets the non-residence condition], and

(b) the transferee is resident in the United Kingdom.

(7B) Subsections (4) and (6) have effect in relation to the disposal as if the references to “chargeable gain” were [F11 references to “so much of any gain accruing on the disposal as falls to be dealt with as mentioned in subsection (7D)(a) or (b)”].

(7C) Subsection (7) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to [F12 “so much of the gain mentioned in subsection (7B)] which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”.]

[F13 (7D) For the purposes of subsections (7A) to (7C) a disposal is a “direct or indirect disposal of UK land which meets the non-residence condition” if it is—

(a) a disposal on which a gain accrues that falls to be dealt with by section 1A(3) because the asset disposed of is within paragraph (b) or (c) of that subsection, or

(b) a disposal on which a gain accrues that falls to be dealt with by section 1A(1) in accordance with section 1G(2) because the asset disposed of is within section 1A(3)(b) or (c).]

(8) Subject to subsection (9) below, in this section and Schedule 7—

[F14 (a) “personal company”, in relation to an individual, means a company the voting rights in which are exercisable, as to not less than 5 per cent., by that individual;

[F15 (aa) “holding company”, “trading company” and “trading group” have the meaning given by section 165A; and]]

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

(9) In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.

(10) Where a disposal [F16 in relation to which subsection (4) above applies] is (or proves to be) a chargeable transfer for inheritance tax purposes, there shall be allowed as a deduction in computing (for capital gains tax purposes) the chargeable gain accruing to the transferee on the disposal of the asset in question an amount equal to whichever is the lesser of—

(a) the inheritance tax attributable to the value of the asset, and

(b) the amount of the chargeable gain as computed apart from this subsection,

and, in the case of a disposal which, being a potentially exempt transfer, proves to be a chargeable transfer, all necessary adjustments shall be made, whether by the discharge or repayment of capital gains tax or otherwise.

(11) Where an amount of inheritance tax—

(a) falls to be redetermined in consequence of the transferor’s death within 7 years of making the chargeable transfer in question, or

(b) is otherwise varied,

after it has been taken into account under subsection (10) above, all necessary adjustments shall be made, whether by the making of an assessment to capital gains tax or by the discharge or repayment of such tax.

Textual Amendments

F1 Words in s. 165(1) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2000 (c. 17), s. 90(1)

F2 Words in s. 165(1) substituted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(2)

F3 Word in s. 165(1) inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 23(2)

F4 Words in s. 165 substituted (27.7.1993 with effect in relation to any disposal made on or after 16.3.1993 as mentioned in s. 87(2)) by 1993 c. 34, s. 87, Sch. 7 Pt. I para. 1(1)

F5 Words in s. 165(2)(b)(i) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2000 (c. 17), s. 90(3)

F6 S. 165(3)(a)(b) repealed (with effect in relation to disposals in the year 2003-04 and subsequent years of assessment in accordance with Sch. 27 Pt. III(31) of the amending Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. III(31)

F7 S. 165(3)(ba) inserted (with effect in accordance with Sch. 21 para. 10(5) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(3)

F8 Words in s. 165(6) repealed (with effect in relation to disposals in the year 2003-04 and subsequent years of assessment in accordance with Sch. 27 Pt. III(31) of the amending Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. III(31)

F9 S. 165(7A)-(7C) inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 23(3)

F10 Words in s. 165(7A)(a) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(2)

F11 Words in s. 165(7B) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(3)

F12 Words in s. 165(7C) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(4)

F13 S. 165(7D) inserted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(5)

F14 S. 165(8)(a)(aa) substituted for s. 165(8)(a) (with effect in relation to the year 2003-04 and subsequent years of assessment in accordance with s. 140(6) of the amending Act) by Finance Act 1998 (c. 36), s. 140(4)

F15 S. 165(8)(aa) substituted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 2 para. 33

F16 Words in s. 165(10) substituted (with effect in accordance with Sch. 21 para. 10(7) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(5)

Modifications etc. (not altering text)

C1 S. 165 modified by S.I. 2006/964, reg. 85Z3 (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2010 (S.I. 2010/294), regs. 1(1), 21)

[F17 165A Meaning of “holding company”, “trading company” and “trading group” U.K.

(1) This section has effect for the interpretation of section 165 (and this section).

(2) “Holding company” means a company that has one or more 51% subsidiaries.

(3) “Trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.

(4) For the purposes of subsection (3) 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,

(c) with a view to its acquiring or starting to carry on a trade, or

(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.

(5) Activities do not qualify as trading activities under subsection (4)(c) or (d) above unless the acquisition is made, or the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances.

(6) The reference in subsection (4)(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.

(7) For the purpose of determining whether a company which has a qualifying shareholding in a joint venture company is a trading company—

(a) any holding by it of shares in the joint venture company is to be disregarded, and

(b) it is to be treated as carrying on an appropriate proportion of the activities of the joint venture company or, where the joint venture company is the holding company of a trading group, of the activities of that group;

and in paragraph (b) above “appropriate proportion” means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the company.

(8) “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.

(9) For the purposes of subsection (8) 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,

(c) with a view to any member of the group acquiring or starting to carry on a trade, or

(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.

(10) Activities do not qualify as trading activities under subsection (9)(c) or (d) above unless the acquisition is made, or the group member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances.

(11) The reference in subsection (9)(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 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 company a member of the same group of companies as the acquiring company.

(12) For the purpose of determining whether a group of companies is a trading group in a case where any one or more members of the group has a qualifying shareholding in a joint venture company which is not a member of the group—

(a) every holding of shares in the joint venture company by a member of the group having a qualifying shareholding in it is to be disregarded, and

(b) each member of the group having such a qualifying shareholding is to be treated as carrying on an appropriate proportion of the activities of the joint venture company or, where the joint venture company is a holding company of a trading group, of the activities of that group;

and in paragraph (b) above “appropriate proportion” means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the member of the group.

(13) For the purposes of this section the activities of the members of a group of companies are to be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities).

(14) In this section—

• “51% subsidiary” has the meaning given by [F18 Chapter 3 of Part 24 of CTA 2010],

• “group of companies” means a company which has one or more 51% subsidiaries together with those subsidiaries,

• “joint venture company” means a company—

  (a)

  which is a trading company or the holding company of a trading group, and

  (b)

  75% or more of the ordinary share capital of which (in aggregate) is held by not more than 5 persons (the shareholdings of members of a group of companies being regarded for the purposes of this paragraph as held by a single company),

• “ordinary share capital” has the meaning given by section 989 of ITA 2007,

• “qualifying shareholding”, in relation to a company and a joint venture company, means—

  (a)

  the holding by the company of 10% or more of the ordinary share capital of the joint venture company, or

  (b)

  (where the company is a member of a group of companies) the holding by the company and the other members of the group (between them) of 10% or more of that ordinary share capital, and

• “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.]

Textual Amendments

F17 S. 165A inserted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 2 para. 34

F18 Words in s. 165A(14) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 241 (with Sch. 2)

166 Gifts to non-residents. U.K.

(1) [F19 Subject to section 167A, section 165(4)] shall not apply where the transferee is [F20 not resident] in the United Kingdom.

(2) Section 165(4) shall not apply where the transferee is an individual F21 ... if that individual F21 ... —

(a) though resident F22 ... in the United Kingdom, is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom, and

(b) by virtue of the arrangements would not be liable in the United Kingdom to tax on a gain arising on a disposal of the asset occurring immediately after its acquisition.

Textual Amendments

F19 Words in s. 166(1) substituted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 24

F20 Words in s. 166(1) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 99(2)

F21 Words in s. 166(2) repealed (with effect in accordance with s. 251(1)(a)(7) of the amending Act) by Finance Act 1994 (c. 9), s. 251(7)(a), Sch. 26 Pt. VIII(1)

F22 Words in s. 166(2)(a) omitted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 46 para. 99(3)

167 Gifts to foreign-controlled companies. U.K.

(1) [F23 Subject to section 167A, section 165(4)] shall not apply where the transferee is a company which is within subsection (2) below.

(2) A company is within this subsection if it is controlled by a person who, or by persons each of whom—

(a) is [F24 not resident] in the United Kingdom, and

(b) [F25 is or] is connected with the person making the disposal.

(3) For the purposes of subsection (2) above, a person who (either alone or with others) controls a company by virtue of holding assets relating to that or any other company and who is resident [F26 in the United Kingdom is to be regarded as not resident] there if—

(a) he is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom, and

(b) by virtue of the arrangements he would not be liable in the United Kingdom to tax on a gain arising on a disposal of the assets.

Textual Amendments

F23 Words in s. 167(1) substituted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 25

F24 Words in s. 167(2)(a) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 100(2)

F25 Words in s. 167(2)(b) inserted (with effect in accordance with s. 41(2) of the amending Act) by Finance Act 2021 (c. 26), s. 41(1)

F26 Words in s. 167(3) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 100(3)

[F27 167A Gifts of [F28 direct or indirect interests in UK land] to non-residents U.K.

(1) This section applies where the disposal in relation to which a claim could be made under section 165 is a disposal [F29 of an asset within section 1A(3)(b) or (c)] to a transferee who is not resident in the United Kingdom and, ignoring section 165—

(a) a gain would accrue to the transferor on the disposal, and

[F30 (b) on the assumption that the disposal is a direct or indirect disposal of UK land which meets the non-residence condition (whether or not that is the case), that gain would be a relevant gain (see subsections (6) and (7)).]

(2) Section 165(4) has effect in relation to the disposal as if it read—

“(4) Where a claim for relief is made under this section in respect of the disposal, the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, shall be reduced by an amount equal to the held-over gain on the disposal.”

(3) Where the disposal is a [F31 direct or indirect disposal of UK land which meets the non-residence condition]—

(a) section 165(4), as modified by subsection (2) of this section, has effect in relation to the disposal as if the reference to “chargeable gain” were a reference to [F32 “relevant gain”],

(b) section 165(6) has effect in relation to the disposal as if the references to “chargeable gain” were references to [F33 “relevant gain”], and

(c) section 165(7) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to [F34 “the relevant gain] which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”.

(4) Where a claim for relief is made under section 165 in relation to the disposal mentioned in subsection (1), on a subsequent disposal by the transferee of the whole or part of [F35 the asset within section 1A(3)(b) or (c)] which is the subject of the disposal mentioned in subsection (1), the whole or a corresponding part of the held-over gain (see section 165(6))—

(a) is deemed to accrue to the transferee (in addition to any gain or loss that actually accrues on that subsequent disposal), and

[F36 (b) (if that would not otherwise be the case) is to be treated as a relevant gain.]

(5) Where the subsequent disposal mentioned in subsection (4) is (or proves to be) a chargeable transfer for inheritance tax purposes, section 165(10) has effect in relation to the disposal as if—

(a) the reference to “the chargeable gain accruing to the transferee on the disposal of the asset” were a reference to the chargeable gain accruing on the disposal as computed apart from subsection (4), and

(b) the reference in section 165(10)(b) to “the chargeable gain” were a reference to—

(i) the chargeable gain chargeable to capital gains tax by virtue of any provision of this Act accruing on the disposal, and

(ii) the held-over gain deemed to accrue under subsection (4).

[F37 (6) For the purposes of this section, a disposal is a “direct or indirect disposal of UK land which meets the non-residence condition” if it is—

(a) a disposal on which a gain accrues that falls to be dealt with by section 1A(3) because the asset disposed of is within paragraph (b) or (c) of that subsection, or

(b) a disposal on which a gain accrues that falls to be dealt with by section 1A(1) in accordance with section 1G(2) because the asset disposed of is within section 1A(3)(b) or (c).

(7) For the purposes of this section, a “relevant gain” means so much of any chargeable gain accruing on a disposal as falls to be dealt with as mentioned in subsection (6)(a) or (b).]]

Textual Amendments

F27 S. 167A inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 26

F28 Words in s. 167A heading substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(6)

F29 Words in s. 167A(1) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(2)(a)

F30 S. 167A(1)(b) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(2)(b)

F31 Words in s. 167A(3) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(3)(a)

F32 Words in s. 167A(3)(a) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(3)(b)

F33 Words in s. 167A(3)(b) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(3)(c)

F34 Words in s. 167A(3)(c) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(3)(d)

F35 Words in s. 167A(4) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(4)(a)

F36 S. 167A(4)(b) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(4)(b)

F37 S. 167A(6)(7) substituted for s. 167A(6) (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 56(5)

168 Emigration of donee. U.K.

(1) If—

(a) relief is given under section 165 in respect of a disposal to an individual or under section 260 in respect of a disposal to an individual (“the relevant disposal”); and

[F38 (aa) the transferee is resident in the United Kingdom at the time of that disposal; and]

(b) at a time when he has not disposed of the asset in question, the transferee [F39 ceases to be resident] in the United Kingdom,

then, subject to the following provisions of this section, a chargeable gain shall be deemed to have accrued to the transferee immediately before that time, and its amount shall be equal to the held-over gain (within the meaning of section 165 or 260) on the relevant disposal.

(2) For the purposes of subsection (1) above the transferee shall be taken to have disposed of an asset before the time there referred to only if he has made a disposal or disposals in connection with which the whole of the held-over gain on the relevant disposal was represented by reductions made in accordance with section 165(4)(b) or 260(3)(b) and where he has made a disposal in connection with which part of that gain was so represented, the amount of the chargeable gain deemed by virtue of this section to accrue to him shall be correspondingly reduced.

(3) The disposals by the transferee that are to be taken into account under subsection (2) above shall not include any disposal to which section 58 applies; but where any such disposal is made by the transferee, disposals by his spouse [F40 or civil partner] shall be taken into account under subsection (2) above as if they had been made by him.

(4) Subsection (1) above shall not apply by reason of a person [F41 ceasing to be resident] more than 6 years after the end of the year of assessment in which the relevant disposal was made.

(5) Subsection (1) above shall not apply in relation to a disposal made to an individual if—

(a) the reason for his [F42 ceasing to be resident] in the United Kingdom is that he works in an employment or office all the duties of which are performed outside the United Kingdom, and

(b) he again becomes resident F43 ... in the United Kingdom within the period of 3 years from the time when he ceases to be so, without having meanwhile disposed of the asset in question;

and accordingly no assessment shall be made by virtue of subsection (1) above before the end of that period in any case where the condition in paragraph (a) above is, and the condition in paragraph (b) above may be, satisfied.

(6) For the purposes of subsection (5) above a person shall be taken to have disposed of an asset if he has made a disposal in connection with which the whole or part of the held-over gain on the relevant disposal would, had he been resident in the United Kingdom, have been represented by a reduction made in accordance with section 165(4)(b) or 260(3)(b) and subsection (3) above shall have effect for the purposes of this subsection as it has effect for the purposes of subsection (2) above.

(7) Where an amount of tax assessed on a transferee by virtue of subsection (1) above is not paid within the period of 12 months beginning with the date when the tax becomes payable then, subject to subsection (8) below, the transferor may be assessed and charged (in the name of the transferee) to all or any part of that tax.

(8) No assessment shall be made under subsection (7) above more than 6 years after the end of the year of assessment in which the relevant disposal was made.

(9) Where the transferor pays an amount of tax in pursuance of subsection (7) above, he shall be entitled to recover a corresponding sum from the transferee.

(10) Gains on disposals made after a chargeable gain has under this section been deemed to accrue by reference to a held-over gain shall be computed without any reduction under section 165(4)(b) or 260(3)(b) in respect of that held-over gain.

Textual Amendments

F38 S. 168(1)(aa) inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 27

F39 Words in s. 168(1)(b) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 101(2)

F40 Words in s. 168(3) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 112

F41 Words in s. 168(4) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 101(3)

F42 Words in s. 168(5)(a) substituted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by Finance Act 2013 (c. 29), Sch. 46 para. 101(4)(a)

F43 Words in s. 168(5)(b) omitted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 46 para. 101(4)(b)

[F44 168A Postponing held-over gain: interests in UK land U.K.

(1) This section applies if—

(a) an interest in UK land is deemed to have been disposed of under section 168(1) by a transferee at any time, and

(b) the transferee makes an election under this subsection.

(2) The held-over gain (within the meaning of section 165 or 260) that, but for this subsection, would have accrued to the transferee at that time is not to accrue at that time.

(3) But, on a subsequent disposal by the transferee of the whole or part of the interest in UK land, the whole or a corresponding part of the held-over gain is treated as accruing on the subsequent disposal.

(4) This gain is in addition to any gain or loss that actually accrues on the subsequent disposal.

(5) In this section “interest in UK land” has the meaning given by section 1C.]

Textual Amendments

F44 S. 168A substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 57

169 Gifts into dual resident trusts. U.K.

(1) This section applies where there is or has been a disposal of an asset to the trustees of a settlement in such circumstances that, on a claim for relief, section 165 or 260 applies, or would but for this section apply, so as to reduce the amounts of the chargeable gain and the consideration referred to in section 165(4) or 260(3).

(2) In this section “a relevant disposal” means such a disposal as is referred to in subsection (1) above.

(3) Relief under section 165 or 260 shall not be available on a relevant disposal if—

(a) at the material time the trustees to whom the disposal is made [F45 are] resident F46 ... in the United Kingdom F47 ... ; and

(b) on a notional disposal of the asset concerned occurring immediately after the material time, the trustees would be regarded for the purposes of any double taxation relief arrangements—

(i) as resident in a territory outside the United Kingdom; and

(ii) as not liable in the United Kingdom to tax on a gain [F48 accruing] on that disposal.

(4) In subsection (3) above—

(a) “the material time” means the time of the relevant disposal; and

(b) a “notional disposal” means a disposal by the trustees of the asset which was the subject of the relevant disposal.

Textual Amendments

F45 Word in s. 169(3)(a) substituted (with effect in accordance with Sch. 12 para. 37(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 paras. 37(1)(a), 41

F46 Words in s. 169(3)(a) omitted (with effect in accordance with Sch. 46 para. 112 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 46 para. 102

F47 Words in s. 169(3)(a) repealed (with effect in accordance with Sch. 12 para. 37(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 paras. 37(1)(b), 41, Sch. 26 Pt. 3(15)

F48 Word in s. 169(3)(b)(ii) substituted (with effect in accordance with Sch. 12 para. 37(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 paras. 37(2), 41

[F49 169A Cessation of trade by limited liability partnership U.K.

(1) This section applies where section 59A(1) ceases to apply to a limited liability partnership.

(2) A member of the partnership who immediately before the time at which section 59A(1) ceases to apply holds an asset, or an interest in an asset, acquired by him—

(a) on a disposal to members of a partnership, and

(b) for a consideration which is treated as reduced under section 165(4)(b) or 260(3)(b),

shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time.]

Textual Amendments

F49 S. 169A inserted (with effect in accordance with s. 75(5) of the amending Act) by Finance Act 2001 (c. 9), s. 75(3)(5) (with Sch. 3)

[F50 169B Gifts to settlor-interested settlements etc U.K.

(1) Neither section 165(4) nor section 260(3) shall apply in relation to a disposal (“the relevant disposal”)—

(a) made by a person (“the transferor”) to the trustees of a settlement, and

(b) in respect of which Condition 1 or Condition 2 below is satisfied.

(2) Condition 1 is that, immediately after the making of the relevant disposal,—

(a) there is a settlor (see section 169E) who has an interest in the settlement (see section 169F), or

(b) an arrangement (see section 169G) subsists under which such an interest will or may be acquired by a settlor.

(3) Condition 2 is that—

(a) a chargeable gain would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal,

(b) in computing the gain, the allowable expenditure would to any extent fall to be reduced in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and

(c) immediately after the making of the relevant disposal,—

(i) that individual has an interest in the settlement, or

(ii) an arrangement subsists under which such an interest will or may be acquired by him.

(4) This section is subject to section 169D (exception for maintenance funds for historic buildings and certain settlements for disabled persons).

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

169C Clawback of relief if settlement becomes settlor-interested etc U.K.

(1) This section applies in relation to a disposal (“the relevant disposal”)—

(a) made by a person (“the transferor”) to the trustees of a settlement,

(b) in relation to which section 165(4) or 260(3) applies, or would apart from this section apply, and

(c) in respect of which Condition 1 or Condition 2 below is satisfied.

(2) Condition 1 is that, at any time during the clawback period,—

(a) there is a settlor who has an interest in the settlement, or

(b) an arrangement subsists under which such an interest will or may be acquired by a settlor.

(3) Condition 2 is that—

(a) in computing the chargeable gain which would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal, the allowable expenditure would fall to be reduced,

(b) that reduction would to any extent fall to be made in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and

(c) at any time during the clawback period,—

(i) that individual has an interest in the settlement, or

(ii) an arrangement subsists under which such an interest will or may be acquired by him.

(4) If no claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time, neither section 165(4) nor section 260(3) shall apply in relation to that disposal.

(5) Subsections (7) to (9) below apply if a claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time.

(6) But those subsections do not apply if—

(a) the transferor is an individual, and

(b) he dies before the material time.

(7) A chargeable gain, of an amount equal to the amount of the held-over gain (within the meaning of section 165 or 260) on the relevant disposal, shall be treated for the purposes of tax in respect of chargeable gains as accruing to the transferor at the material time.

(8) For any chargeable period ending after the making of the relevant disposal, the chargeable gains and allowable losses of—

(a) the trustees of the settlement, or

(b) any person whose title to any property to any extent derives, directly or indirectly, from them,

shall be determined on the assumption that neither section 165(4)(b) nor section 260(3)(b) ever applied in relation to that disposal.

(9) All such adjustments shall be made, whether by discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to subsection (8) above (notwithstanding any limitation on the time within which any adjustment may be made).

(10) If a claim for relief under section 165 or 260 in respect of the relevant disposal is revoked, this section shall apply as if the claim had never been made.

(11) In this section “the clawback period” means the period—

(a) beginning immediately after the making of the relevant disposal, and

(b) ending six years after the end of the year of assessment in which that disposal was made.

(12) In this section “the material time” means the time at which subsection (1)(c) above first becomes satisfied.

(13) This section is subject to section 169D.

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

169D Exceptions to sections 169B and 169C U.K.

(1) Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement in a year of assessment if the trustees have elected[F51 , or could have elected,] that section [F52 508 of ITA 2007 (trustees’ election in respect of income arising from heritage maintenance property)] shall have effect in the case of—

(a) the settlement, or

(b) any part of the settlement,

in relation to that year of assessment.

(2) Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement if the following conditions are satisfied.

[F53 (3) The first condition is that, immediately after the making of the disposal, the settled property is held on trusts which secure that, during the lifetime of a disabled person—

(a) if any of the property is applied for the benefit of a beneficiary, it is applied for the disabled person's benefit, and

(b) either—

(i) the disabled person is entitled to all of the income (if there is any) arising from any of the property, or

(ii) if any such income is applied for the benefit of a beneficiary, it is applied for the disabled person's benefit.]

(4) The second condition is that if, immediately after the making of the disposal, one or more settlors is an interested settlor, each such settlor must at that time be a disabled beneficiary.

[F54 (4A) Where the income arising from the settled property is held on trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts), subsection (3) has effect as if the reference to the lifetime of a disabled person were a reference to the period during which the income is held on trust for the disabled person.

(4B) The trusts on which the settled property is held are not to be treated as falling outside subsection (3) by reason only of—

(a) the trustees' having powers that enable them to apply in any tax year otherwise than for the benefit of the disabled person amounts (whether consisting of income or capital, or both) not exceeding the annual limit,

(b) the trustees' having the powers conferred by section 32 of the Trustee Act 1925 (powers of advancement),

(c) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by proviso (a) of subsection (1) of that section,

(d) the trustees' having the powers conferred by section 33 of the Trustee Act (Northern Ireland) 1958 (corresponding provision for Northern Ireland),

(e) the trustees' having those powers but free from, or subject to a less restrictive limitation than, the limitation imposed by subsection (1)(a) of that section, or

(f) the trustees' having powers to the like effect as the powers mentioned in any of paragraphs (b) to (e).

(4C) For the purposes of this section, the “annual limit” for a tax year is whichever is the lower of the following amounts—

(a) £3,000, and

(b) 3% of the amount that is the maximum value of the settled property during the tax year in question.

(4D) The Treasury may by order—

(a) specify circumstances in which subsection (4B)(a) is, or is not, to apply in relation to a trust, and

(b) amend the definition of “the annual limit” in subsection (4C).

(4E) An order under subsection (4D) may—

(a) make different provision for different cases, and

(b) contain transitional and saving provision.

(4F) A statutory instrument containing an order under subsection (4D) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.]

(5) For the purposes of subsection (4) above a settlor is an “interested settlor” in relation to a settlement if—

(a) he has an interest in the settlement, or

(b) an arrangement subsists under which such an interest will or may be acquired by him;

and for this purpose, the references to an individual’s spouse [F55 or civil partner] in section 169F(2) and (3) [F56 and to an individual's dependent child in section 169F(2A)] shall be disregarded.

(6) In subsection (4) above “disabled beneficiary”, in relation to a settlement, means a disabled person who—

(a) is a beneficiary under the settlement, or

(b) would be such a beneficiary if he had the interest in the settlement by virtue of which subsection (5)(b) above applies in relation to him.

[F57 (7) In this section “disabled person” has the meaning given by Schedule 1A to the Finance Act 2005.]

F58 (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11) The references in subsection (3) above to the lifetime of a person shall, where the income from the settled property is held for his benefit on trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts), be construed as references to the period during which the income is held on trust for him.

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

F51 Words in s. 169D(1) inserted (with effect in accordance with s. 63(2) of the amending Act) by Finance Act 2013 (c. 29), s. 63(1)

F52 Words in s. 169D(1) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 322 (with Sch. 2)

F53 S. 169D(3) substituted (with effect in accordance with Sch. 44 para. 12(6)(7) of the amending Act) by Finance Act 2013 (c. 29), Sch. 44 para. 12(2)

F54 S. 169D(4A)-(4F) inserted (with effect in accordance with Sch. 44 para. 12(6)(7) of the amending Act) by Finance Act 2013 (c. 29), Sch. 44 para. 12(3)

F55 Words in s. 169D(5) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 113

F56 Words in s. 169D(5) inserted (retrospective to 6.4.2006) by Finance Act 2006 (c. 25), Sch. 12 para. 19(1)(2)

F57 S. 169D(7) substituted for s. 169D(7)-(9) (with effect in accordance with Sch. 44 para. 12(6)(7) of the amending Act) by Finance Act 2013 (c. 29), Sch. 44 para. 12(4)

F58 S. 169D(10) omitted (with effect in accordance with Sch. 44 para. 12(6)(7) of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 44 para. 12(5)

169E Meaning of “settlor” in sections 169B to 169D and 169G U.K.

(1) For the purposes of this section [F59 and], sections 169B to 169D F60 ... , a person is a settlor in relation to a settlement if—

(a) he is an individual, and

(b) the settled property consists of, or includes, property originating from him.

(2) In subsection (1) above, the reference to property originating from a settlor is a reference to—

(a) property which that settlor has provided directly or indirectly for the purposes of the settlement, and

(b) property which wholly or partly represents that property or any part of it.

(3) In subsection (2) above, the references to property which a settlor has provided directly or indirectly—

(a) include references to property which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor, but

(b) do not include references to property which that settlor has provided directly or indirectly in pursuance of reciprocal arrangements with another person.

(4) In subsection (2) above, the reference to property which represents other property includes a reference to property which represents accumulated income from that other property.

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

F59 Word in s. 169E(1) inserted (13.8.2009) by The Finance Act 2009, Schedule 47 (Consequential Amendments) Order 2009 (S.I. 2009/2035), art. 1, Sch. para. 30(a)

F60 Words in s. 169E(1) omitted (13.8.2009) by virtue of The Finance Act 2009, Schedule 47 (Consequential Amendments) Order 2009 (S.I. 2009/2035), art. 1, Sch. para. 30(b)

169F Meaning of “interest in a settlement” in sections 169B to 169D U.K.

(1) For the purposes of this section and sections 169B to 169D, an individual is to be regarded as having an interest in a settlement if subsection (2)[F61 , (3) or (3A)] below applies.

(2) This subsection applies if—

(a) any property which [F62 is or] may at any time be comprised in the settlement, or

(b) any derived property,

is, or will or may become, payable to or applicable for the benefit of the individual or his spouse [F63 or civil partner] in any circumstances whatsoever.

(3) This subsection applies if the individual or his spouse [F64 or civil partner] enjoys a benefit deriving directly or indirectly from—

(a) any property which is comprised in the settlement, or

(b) any derived property.

[F65 (3A) This subsection applies if—

(a) any property which is or 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 a child of the individual, at a time when that child is a dependent child of his, in any circumstances whatsoever, or

(b) a dependent child of the individual enjoys a benefit deriving directly or indirectly from any property which is comprised in the settlement or any derived property.]

(4) The references in subsections (2) and (3) above to the spouse [F66 or civil partner] of the individual do not include—

(a) a spouse [F67 or civil partner] from whom the individual is separated—

(i) under an order of a court,

(ii) under a separation agreement, or

(iii) in such circumstances that the separation is likely to be permanent, or

(b) the widow or widower [F68 or surviving civil partner] of the individual.

[F69 (4A) In this section—

(a) “dependent child” means a child who—

(i) is under the age of 18 years,

(ii) is unmarried, and

(iii) does not have a civil partner, and

(b) “child” includes a stepchild.

(4B) For the purposes of subsection (3A) above no account shall be taken of a term of a settlement relating to dependent children of an individual in respect of any time at which he has no dependent child.]

(5) An individual is not to be regarded as having an interest in a settlement by virtue of subsection (2) above if and so long as none of the property which may at any time be comprised in the settlement, and no derived property, can become payable or applicable as mentioned in that provision except in the event of—

[F70 (a) in the case of a marriage settlement or civil partnership settlement, the death of both parties to the marriage or civil partnership and of all or any of the children of the family of the parties to the marriage or civil partnership, or]

(b) the death of a child of the individual where the child had become beneficially entitled to the property or any derived property at an age not exceeding 25.

[F71 (5A) In subsection (5) “child of the family”, in relation to parties to a marriage or civil partnership, means a child of one or both of them.]

(6) In this section “derived property”, in relation to any property, means—

(a) income from that property,

(b) property directly or indirectly representing—

(i) proceeds of that property, or

(ii) proceeds of income from that property, or

(c) income from property which is derived property by virtue of paragraph (b) above.

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

F61 Words in s. 169F(1) substituted (with effect in accordance with Sch. 12 para. 4(2)(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 4(1)(a)

F62 Words in s. 169F(2)(a) inserted (with effect in accordance with Sch. 12 para. 4(2)(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 4(1)(b)

F63 Words in s. 169F(2) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(2)

F64 Words in s. 169F(3) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(3)

F65 S. 169F(3A) inserted (with effect in accordance with Sch. 12 para. 4(2)(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 4(1)(c)

F66 Words in s. 169F(4) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(4)(a)

F67 Words in s. 169F(4)(a) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(4)(b)

F68 Words in s. 169F(4)(b) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(4)(c)

F69 S. 169F(4A)(4B) inserted (with effect in accordance with Sch. 12 para. 4(2)(3) of the amending Act) by Finance Act 2006 (c. 25), Sch. 12 para. 4(1)(d)

F70 S. 169F(5)(a) substituted (with effect in accordance with reg. 1(6) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(5)

F71 S. 169F(5A) inserted (with effect in accordance with reg. 1(6) of the amending S.I.) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 114(6)

169G Meaning of “arrangement” in sections 169B to 169E and information power U.K.

(1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

F72 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F72 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F72 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F72 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ]

Textual Amendments

F50 Ss. 169B-169G inserted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 4

F72 S. 169G(2)-(5) omitted (13.8.2009) by virtue of The Finance Act 2009, Schedule 47 (Consequential Amendments) Order 2009 (S.I. 2009/2035), art. 1, Sch. para. 31