Part 1 – Transfers to the NDA or a subsidiary of the NDA
501.Part 1 sets out the tax effects of transfers to the NDA or subsidiaries of the NDA under nuclear transfer schemes, under section 39. Such nuclear transfer schemes may be effected to bring companies involved in or assets used for decommissioning and other activities under the NDA’s control, or to transfer a site licensee company to the NDA at the end of a management contract.
502.Paragraph 1 extinguishes certain trading losses brought forward when companies become NDA companies in consequence of a section 39 scheme. This paragraph only extinguishes losses if they have arisen from trading activities that would have been exempt if carried on by the NDA. This ensures that no brought forward trading losses relating to exempt activities may subsequently be used by private companies. The purpose of this section is similar to that of section 27(1) which prevents current tax trading losses from arising from exempt activities.
503.Paragraph 1(2) extinguishes such losses at the time a company becomes an NDA company in accordance with such a nuclear transfer scheme. Paragraph 1(3) allows any reasonable apportionment method to be used to allocate income and expenditure and hence to allocate tax trading losses to exempt and non-exempt activities.
504.Paragraph 2 has the same intention as paragraph 1 but applies where a trade is transferred to the NDA or an NDA company, as a consequence of a section 39 scheme, to extinguish brought forward trading losses associated with the activities transferred, if such activities would have been exempt if they had been carried on by the NDA.
505.Paragraph 2(2) extinguishes the losses at the time when a trade or part of a trade is transferred to the NDA or an NDA company in accordance with such a nuclear transfer scheme.
506.Paragraph 2(3) allows the NDA or an NDA company which begins to carry on a trade under such a nuclear transfer scheme access to brought forward trading losses arising from non-exempt trading activities which are transferred.
507.Paragraph 3 explains that transfers of chargeable assets to the NDA or an NDA subsidiary under a nuclear transfer scheme under section 39 are to be tax neutral by treating the disposal such that neither a gain nor a loss arises for tax purposes. For the transferee, chargeable assets are deemed to be acquired at values that give neither a gain nor a loss to the transferor.
508.Paragraph 4 excludes acquisition and enhancement costs from the calculation of the chargeable gain or capital loss arising on the disposal of certain chargeable assets by the NDA or an NDA subsidiary, such that the asset has a nil base cost for disposal purposes. This computational provision is to reduce the disproportionate effort and cost that the NDA would otherwise incur. Without this provision it would be necessary to maintain registers and associated base costs of publicly owned assets through potentially numerous nuclear transfer schemes and over lengthy periods of time.
509.Paragraph 4(1) limits the assets to which this restriction applies to those acquired under nuclear transfer schemes in accordance with section 39 or 40, which were not part of the Nuclear Liabilities Investment Portfolio. Paragraph 4(2) specifically denies relief for these acquisition and enhancement costs.
510.Paragraph 4(3) deals with subsequent transfers where neither a gain nor loss accrues to the NDA or its subsidiary. Paragraph 4(4) provides that paragraph 29 takes precedence so that in relation to the transfer of shares in relevant site licensee companies, the shares are treated as having been disposed of at a value that gives neither gain nor loss to the transferor.
511.The aim of paragraph 5 is to prevent tax liabilities arising in companies as a result of historic fixed asset transfers, where such liabilities arise only as a result of the implementation of nuclear transfer schemes under section 39.
512.Paragraph 5 prevents a degrouping charge (as defined by the Taxation of Chargeable Gains Act 1992 (c.12) (the “1992 Act”)) from arising in a company transferred to the NDA or an NDA company under such a nuclear transfer scheme. Paragraph 5(2) prevents the 1992 Act from deeming the transferred company to have made a chargeable disposal of certain assets on leaving the old group. Paragraph 5(3) ensures that the deemed disposal and reacquisition is reinstated when the transferred company leaves the new group, as defined in the subparagraph.
513.Paragraph 6 provides that a transfer of debts to the NDA or a subsidiary of the NDA under a section 39 nuclear transfer scheme will not give rise to a tax charge in the transferor, to the extent that the debts transferred are treated as chargeable assets. This is consistent with the general aim of ensuring tax neutrality for transfer schemes.
514.Paragraph 6(2) deems the NDA to have always been the creditor in respect of the debt and therefore the effect is that no disposal takes place for the purposes of the 1992 Act.
515.Paragraph 7 sets out the capital allowances position of both transferor and transferee where, in consequence of a section 39 scheme, assets are transferred to the NDA or subsidiary of the NDA with a whole trade. The aim of the paragraph is to ensure continuity of treatment such that no allowances or charges arise in the transferor and the transferee is treated as having always owned the relevant assets.
516.Paragraph 7(1) restricts the application of paragraph 7 to transfers of trades from companies which are not subsidiaries of the NDA to the NDA or its subsidiaries, such transfers taking place under such a nuclear transfer scheme.
517.Paragraph 7(2) ensures that allowances are available to the NDA or its subsidiary as if the transferor company had continued to carry on that trade. Paragraph 7(3) confirms that no balancing adjustments or recognition of disposal proceeds arise to a company that transfers its trade to the NDA. Paragraph 7(4) calculates the amount of allowances available to the NDA or its subsidiary on the basis that the NDA or its subsidiary had been carrying on the trade for the same time and on the same basis as the transferor. The transferor is deemed to have transferred its assets associated with the trade at the value which ensures no balancing allowance or charge arises in that company.
518.The intention behind paragraph 8 is similar to that behind paragraph 7 in that it provides clarity as to the capital allowances position of both transferor and transferee where assets are transferred with a trade by a company which is not a subsidiary of the NDA to the NDA or one of its subsidiaries. The difference between paragraphs 7 and 8 is that paragraph 8 applies where either the transferee already carries on a trade (paragraph 8(1)) or only part of a trade is transferred (paragraph 8(2)) or both.
519.Each of paragraphs 8(1) and 8(2) provide that the provisions of paragraph 7 should apply to the trade transferred and that the trade transferred should be treated as a separate trade from that previously engaged in by the transferee and transferor respectively.
520.Paragraph 8(3) allows a reasonable apportionment of income, expenditure, assets and liabilities to the separate trades as necessary for the purposes of calculating the capital allowances position of the assets associated with the trade transferred.
521.Paragraph 9 details the capital allowances position where assets are transferred other than as part of a trade.
522.Where plant and machinery is transferred in accordance with a nuclear transfer scheme but the transfer does not form part of a trade, such that paragraph 7 does not apply, the assets are transferred to the NDA or a subsidiary of the NDA at their book value for accounts purposes.
523.Paragraph 10 provides that the legislation detailing the capital allowances position in respect of transfers between connected persons is not to apply to transfers made in accordance with nuclear transfer schemes within section 39 to the NDA or a subsidiary of the NDA.
524.Paragraph 11 explains how transfers of loan relationships should be treated in the event that the NDA or a subsidiary of the NDA replaces a person as party to a loan relationship in accordance with a nuclear transfer scheme under section 39. The aim is that such transfers should be treated as tax neutral such that no tax benefit is obtained by either the transferor or the transferee as a result of the transfer.
525.Accordingly, paragraph 11(2) applies the loan relationship rules of Finance Act 1996 to the loan relationship, and treats the transferee as if it had been a party to the loan relationship since the time the transferor had been party to it.
526.Paragraph 12 explains how transfers of derivative contracts should be treated in the event that the NDA or a subsidiary of the NDA replaces a person as party to a derivative contract in accordance with a nuclear transfer scheme under section 39. As with paragraph 11, the aim is that such transfers should be treated as tax neutral such that no undue tax benefit is obtained by either the transferor or the transferee as a result of the transfer.
527.Accordingly, paragraph 12(2) applies the derivative contract rules of Schedule 26 to the Finance Act 2002 to the derivative contract, and treats the transferee as if it had been a party to the derivative contract since the time the transferor had been party to it.
528.Paragraph 13 explains how the transfers of intangible assets are to be treated where transfers are made to the NDA or a subsidiary of the NDA under a section 39 nuclear transfer scheme. As with paragraphs 11 and 12 the aim is that such transfers should be treated as tax neutral with no undue tax benefit being obtained by the transferor or transferee.
529.Paragraph 13(1) explains that the transfer of a ‘chargeable intangible asset’ should be treated as a tax neutral transfer for the purposes of Schedule 29 to the Finance Act 2002. Paragraph 13(2) explains that where an intangible asset is transferred that was not a chargeable intangible asset in the hands of the transferor but falls to be treated as such by the NDA or its subsidiary after the transfer, then the acquisition value for tax purposes for the NDA is the same amount as the disposal consideration of the transferor under paragraph 3(2) of the Schedule, that is an amount causing neither a gain nor a loss to arise on the transferor.
530.Paragraph 14 defers a degrouping charge that would otherwise arise as a result of the implementation of a transfer to the NDA or a subsidiary of the NDA under a section 39 nuclear transfer scheme causing a company to leave its group. The degrouping charge deferred is one which would have arisen in respect of intangible fixed assets that have previously been transferred between group companies. The aim of this paragraph is to prevent tax liabilities arising in companies due to historic transactions where such liabilities arise only as a result of the implementation of transfer schemes.
531.Paragraph 14(1) describes which degrouping charges are covered by the paragraph. Paragraph 14(2) defers the application of the degrouping legislation of paragraph 58 of Schedule 29 to the Finance Act 2002 and paragraph 14(3) applies this degrouping legislation on the first subsequent occasion that the degrouped company ceased to be a member of its new group of companies, ‘new group’ being defined in the subparagraph.
532.Paragraph 15 ensures that where a trade or part of a trade is transferred from a BNFL company (or subsidiary of BNFL) to the NDA (or a subsidiary of the NDA) under section 39 there is tax neutrality and the transferee effectively stands in the shoes of the transferor for tax purposes. This will ensure that there will be no tax consequences where the transferor writes off sums in its books as part of the detailed transfer arrangements. The rule will apply to trading items, such as trade debtors or sums received in advance for the supply of goods or services by the transferor, or trade creditors and sums paid in advance for the provision of services to the company.