Section 78.
SCHEDULE 26Capital gains tax: taper relief: business assets
Introductory
1Schedule A1 to the Taxation of Chargeable Gains Act 1992 (c. 12) (application of taper relief) is amended as follows.
Conditions for assets other than shares to qualify as business assets
2(1)Paragraph 5 is amended as follows.
(2)In sub-paragraph (3)(a) (asset used for purposes of trade carried on by trustees of settlement) after “settlement” insert— “or by a partnership whose members at that time included—
(i)the trustees of the settlement; or
(ii)any one or more of the persons who at that time were the trustees of the settlement (so far as acting in their capacity as such trustees)”.
Companies which are qualifying companies
3(1)Paragraph 6 is amended as follows.
(2)After sub-paragraph (1) (qualifying company by reference to an individual) insert—
“(1A)A company shall also be taken to have been a qualifying company by reference to an individual at any time when—
(a)the company was a non-trading company or the holding company of a non-trading group,
(b)the individual was an officer or employee of the company, or of a company having a relevant connection with it, and
(c)the individual did not have a material interest in the company or in any company which at that time had control of the company.”.
(3)After sub-paragraph (2) (qualifying company by reference to the trustees of a settlement) insert—
“(2A)A company shall also be taken to have been a qualifying company by reference to the trustees of a settlement at any time when—
(a)the company was a non-trading company or the holding company of a non-trading group,
(b)an eligible beneficiary was an officer or employee of the company, or of a company having a relevant connection with it, and
(c)the trustees of the settlement did not have a material interest in the company or in any company which at that time had control of the company.”.
(4)At the end of the paragraph add—
“(4)For the purposes of this paragraph an individual shall be regarded as having a material interest in a company if—
(a)the individual,
(b)the individual together with one or more persons connected with him, or
(c)any person connected with the individual, with or without any other such persons,
has a material interest in the company.
(5)For the purposes of this paragraph the trustees of a settlement shall be regarded as having a material interest in a company if—
(a)the trustees of the settlement,
(b)the trustees of the settlement together with one or more persons connected with them, or
(c)any person connected with the trustees of the settlement, with or without any other such persons,
has a material interest in the company.
(6)In this paragraph “company” does not include a unit trust scheme, notwithstanding anything in section 99.
(7)This paragraph is supplemented by paragraph 6A below (meaning of “material interest”).”.
Meaning of “material interest”
4After paragraph 6 insert—
“Meaning of “material interest”
6A(1)For the purposes of paragraph 6 above, a material interest in a company means possession of, or the ability to control (directly or through the medium of other companies or by any other indirect means),—
(a)more than 10% of the issued shares in the company of any particular class,
(b)more than 10% of the voting rights in the company,
(c)such rights as would, if the whole of the income of the company were distributed among the participators (without regard to any rights of any person as a loan creditor) give an entitlement to receive more than 10% of the amount distributed, or
(d)such rights as would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive more than 10% of the assets of the company which would then be available for distribution among the participators.
(2)For the purposes of sub-paragraph (1) above a right to acquire shares or rights (however arising) shall be treated as a right to control them.
(3)A person shall be treated for the purposes of this paragraph as having a right to acquire any shares or rights—
(a)which he is entitled to acquire at a future date, or
(b)which he will at a future date be entitled to acquire.
(4)Where—
(a)in the case of any shares or rights, an entitlement falling within sub-paragraph (3)(a) or (b) above is conferred on a person by a contract, but
(b)the contract is conditional,
the person shall be treated for the purposes of this paragraph as having a right to acquire the shares or rights as from the time at which the contract is made.
(5)In any case where—
(a)the shares of any particular class attributed to a person consist of or include shares which he or another person has a right to acquire, and
(b)the circumstances are such that if that right were to be exercised the shares acquired would be shares which were previously unissued and which the company is contractually bound to issue in the event of the exercise of the right,
then in determining at any time prior to the exercise of the right whether the number of shares of that class attributed to the person exceeds a particular percentage of the issued shares of that class, the number of issued shares of that class shall be taken to be increased by the number of unissued shares referred to in paragraph (b) above.
(6)The references in sub-paragraph (5) above to the shares of any particular class attributed to a person are to the shares which in accordance with sub-paragraph (1)(a) above fall to be brought into account in his case to determine whether their number exceeds a particular percentage of the issued shares of the company of that class.
(7)Sub-paragraphs (5) and (6) above shall apply, with the necessary modifications, in relation to—
(a)voting rights in the company (and attribution of such rights to a person in accordance with sub-paragraph (1)(b) above),
(b)rights which would, if the whole of the income of the company were distributed among the participators (without regard to any rights of any person as a loan creditor) give an entitlement to receive any of the amount distributed (and attribution of such rights to a person in accordance with sub-paragraph (1)(c) above), and
(c)rights which would, in the event of the winding up of the company or in any other circumstances, give an entitlement to receive any of the assets of the company which would then be available for distribution among the participators (and attribution of such rights to a person in accordance with sub-paragraph (1)(d) above),
as they apply in relation to shares of any particular class (and their attribution to a person in accordance with sub-paragraph (1)(a) above).
(8)For the purposes of this paragraph “participator” and “loan creditor” have the meaning given by section 417 of the Taxes Act.”.
Interpretation of Schedule A1
5(1)Paragraph 22 is amended as follows.
(2)In sub-paragraph (1) (definitions) insert each of the following definitions at the appropriate place—
““non-trading company” means a company which is not a trading company;”;
““non-trading group” means a group of companies which is not a trading group;”.
Qualifying shareholdings in joint venture companies
6(1)Paragraph 23 is amended as follows.
(2)Sub-paragraph (8) (which concerns the meaning of “relevant connection” and is subsumed by the paragraph 24 inserted by this Schedule) shall cease to have effect.
Joint enterprise companies: relevant connection
7After paragraph 23 (qualifying shareholdings in joint venture companies) add—
“Joint enterprise companies: relevant connection
24(1)This Schedule has effect subject to sub-paragraph (5) below in any case where a company (“the investing company”) has a qualifying shareholding in a joint enterprise company.
(2)For the purposes of this paragraph, a company is a “joint enterprise company” if, and only if, 75% or more of its ordinary share capital (in aggregate) is held by not more than five companies.
(3)For the purposes of sub-paragraph (2) above the shareholdings of members of a group of companies shall be treated as held by a single company.
(4)For the purposes of this paragraph a company has a “qualifying shareholding” in a joint enterprise company if—
(a)it holds more than 30% of the ordinary share capital of the joint enterprise company, or
(b)it is a member of a group of companies, it holds ordinary share capital of the joint enterprise company and the members of the group between them hold more than 30% of that share capital.
(5)The following shall be treated as having a relevant connection with each other—
(a)the investing company;
(b)the joint enterprise company;
(c)any company having a relevant connection with the investing company;
(d)any company having a relevant connection with the joint enterprise company by virtue of being—
(i)a 51 per cent subsidiary of that company, or
(ii)a member of the same commercial association of companies.
(6)For the purposes of this paragraph “ordinary share capital” has the meaning given by section 832(1) of the Taxes Act.”.