Finance Act 2009

Section 86

SCHEDULE 40 Oil: chargeable gains

Part 1 Licence swaps

1 TCGA 1992 is amended as follows.

2 In section 35(3) (assets held on 31 March 1982, including assets held on 6 April 1965)—

(a) in paragraph (c), omit the “or” at the end, and

(b) after that paragraph insert—

“(ca) where, by virtue of section 195B, 195C or 195E, neither a gain nor a loss accrues to the person making the disposal, or”.

3 In section 55 (assets owned on 31 March 1982 or acquired on a no gain/no loss disposal), after subsection (5) insert—

“(5A) For the purposes of subsection (5), a disposal is also a no gain/no loss disposal if it is one on which, by virtue of section 195B, 195C or 195E, neither a gain nor a loss accrues to the person making the disposal; but, in such a case, subsection (6)(b) below does not apply.”

4 In section 175(2C)(b) (replacement of business assets by members of a group), after “applies” insert “or is one where, by virtue of section 195B, 195C or 195E, neither a gain nor a loss accrues to the person making the disposal”.

5 After section 195 insert—

“195A Oil licence swaps

(1) Sections 195B to 195E apply for the purposes of corporation tax on chargeable gains.

(2) In those sections—

• “licence-consideration swap” means a case where conditions A, B, C and D are met;

• “mixed-consideration swap” means a case where conditions A, B, C and E are met.

(3) Condition A is that a company (“company A”) disposes of one or more UK licences to another company (“company B”), by way of a bargain at arm’s length (“disposal A”).

(4) Condition B is that company B disposes of one or more UK licences to company A, by way of a bargain at arm’s length (“disposal B”).

(5) Condition C is that either or both of the following paragraphs applies—

(a) the licence, or at least one of the licences, comprised in disposal A relates to a developed area;

(b) the licence, or at least one of the licences, comprised in disposal B relates to a developed area.

(6) Condition D is that both—

(a) disposal A is the only consideration given for disposal B, and

(b) disposal B is the only consideration given for disposal A.

(7) Condition E is that either—

(a) disposal A is the only consideration given for disposal B, or

(b) disposal B is the only consideration given for disposal A,

(and accordingly one of the disposals is part of the consideration given for the other disposal).

(8) In this section and sections 195B to 196 a reference to disposal of a UK licence includes—

(a) a disposal of an interest in a UK licence, and

(b) a disposal of a UK licence, or an interest in a UK licence, only so far as the licence relates to part of the licensed area.

195B Licence-consideration swap

(1) This section applies to a licence-consideration swap.

(2) Each company participating in the swap is to be treated as follows.

(3) As regards the licence, or each licence, which the company disposes of, the company is to be treated as if it had disposed of that licence for a consideration of such amount as to secure that on the disposal neither a gain nor a loss accrues to the company.

(4) In a case where the company acquires only one licence, the company is to be treated as if it had acquired the licence for a consideration of the same amount as the deemed disposal consideration.

(5) In a case where the company acquires two or more licences, as regards each licence acquired, the company is to be treated as if it had acquired that licence for a consideration of—

where—

• DDC is the deemed disposal consideration,

• A is the value of the licence acquired, and

• TA is total value of all the licences acquired.

(6) In this section “deemed disposal consideration”, in relation to a company participating in the swap, means—

(a) the amount of the consideration for which the company is, under subsection (3), treated as having disposed of its licence (if the company disposes of only one licence), or

(b) the aggregate of all such amounts (if the company disposes of two or more licences).

195C Company that receives mixed consideration: N exceeds C

(1) This section applies to a mixed-consideration swap if—

(a) the no gain/no loss loss amount (“N”) of the company that receives the mixed consideration (“company R”), exceeds

(b) the amount of non-licence consideration (“C”) which company R receives.

(2) In a case where company R acquires only one licence, company R is to be treated as if it had acquired the licence for a consideration of—

N - C

(3) In a case where company R acquires two or more licences, as regards each licence acquired, company R is to be treated as if it had acquired the licence for a consideration of—

where—

• A is the value of the licence acquired, and

• TA is total value of all the licences acquired.

(4) The disposal by company R of a licence under the swap is to be taken to be one on which neither a gain nor a loss accrues.

(5) But (despite subsection (4)), the disposal by company R is not a no gain/no loss disposal for the purposes of section 56.

(6) For the purposes of the application of sections 53 and 54, any enactment is to be disregarded insofar as it provides that, if the other company which acquires a licence under the swap (“company G”) subsequently disposes of the licence, company R’s acquisition of the licence is to be treated as company G’s acquisition of it.

(7) In this section the reference to the no gain/no loss amount of company R is a reference to—

(a) in a case where company R disposes of only one licence, company R’s no gain/no loss amount in relation to that disposal, or

(b) in a case where company R disposes of two or more licences, the aggregate of company R’s no gain/no loss amounts in relation to all of those disposals.

195D Company that receives mixed consideration: N does not exceed C

(1) This section applies to a mixed-consideration swap if—

(a) the no gain/no loss amount (“N”) of the company that receives the mixed consideration (“company R”) does not exceed

(b) the amount of non-licence consideration (“C”) which company R receives.

(2) As regards the licence, or each licence, which company R acquires, company R is to be treated as if it had acquired the licence for nil consideration.

(3) In a case where company R disposes of only one licence, company R is to be treated as if, on the disposal of the licence, there had arisen a gain of—

C - N

(4) In a case where company R disposes of two or more licences, as regards each licence disposed of, company R is to be treated as if, on the disposal of the licence, there had arisen a gain of—

where—

• D is the value of the licence disposed of, and

• TD is total value of all the licences disposed of.

195E Company that gives mixed consideration

(1) This section applies to a mixed-consideration swap—

(a) whatever the no gain/no loss amount (“N”) of the company that gives the mixed consideration (“company G”), and

(b) whatever the amount of the non-licence consideration (“C”) which company G gives.

(2) In a case where company G acquires only one licence, company G is to be treated as if it had acquired the licence for a consideration of—

N + C

(3) In a case where company G acquires two or more licences, as regards each licence acquired, company G is to be treated as if it had acquired the licence for a consideration of—

where—

• A is the value of the licence acquired, and

• TA is total value of all the licences acquired.

(4) The disposal by company G of a licence under the swap is to be taken to be one on which neither a gain nor a loss accrues.

(5) But (despite subsection (4)), the disposal by company G is not a no gain/no loss disposal for the purposes of section 56.

(6) For the purposes of the application of sections 53 and 54, any enactment is to be disregarded insofar as it provides that, if the other company which acquires a licence under the swap (“company R”) subsequently disposes of the licence, company G’s acquisition of the licence is to be treated as company R’s acquisition of it.

(7) In this section the reference to the no gain/no loss amount of company G is a reference to—

(a) in a case where company G disposes of only one licence, company G’s no gain/no loss amount in relation to that disposal, or

(b) in a case where company G disposes of two or more licences, the aggregate of company G’s no gain/no loss amounts in relation to all of those disposals.”

6 (1) Section 196 (interpretation of sections 194 and 195) is amended as follows.

(2) In the heading, for “and 195” substitute “to 195E”.

(3) In subsection (1), after “section 194” insert “and this section”.

(4) After subsection (1A) insert—

“(1B) In sections 195A to 195E, a reference to a UK licence that relates to a developed area is a reference to any UK licence apart from one that relates to an undeveloped area.”

(5) In subsection (2), for “and (1A)” substitute “to (1B)”.

(6) In subsection (3), after “(1)” insert “or (1B)”.

(7) In subsection (5)—

(a) for “and 195” substitute “to 195E”,

(b) after the definition of “licence” insert—

““licence-consideration swap” has the meaning given in section 195A(2);”, and

(c) after the definition of “licensee” insert—

““mixed consideration” means consideration that consists partly of disposal of a UK licence;

“mixed-consideration swap” has the meaning given in section 195A(2);

“no gain/no loss amount”, in relation to a company that disposes of a UK licence, means the amount that would be taken to be the consideration for the disposal if section 56(2) applied to the disposal;

“non-licence consideration” means consideration that does not consist of disposal of a UK licence, as determined at the time the swap arrangements are entered into;

“swap arrangements”, in relation to a licence-consideration swap or a mixed-consideration swap, means the arrangements under which the swap takes place;”.

(8) After subsection (5A) insert—

“(5B) In any of sections 195B to 195E, a reference to the value of a licence comprised in disposal A or disposal B (see section 195A) is a reference to the value of the licence as determined under the swap arrangements at the time the swap arrangements are entered into.”

7 In Schedule 3 (assets held on 31 March 1982), in paragraph 1(2) (meaning of no gain/no loss disposal), after “provisions” insert “or any of sections 195B, 195C or 195E”.

8 The amendments made by this Part have effect in relation to disposals made on or after 22 April 2009.

Part 2 Reinvestment of ring fence assets

Amendment of TCGA 1992

9 TCGA 1992 is amended as follows.

Roll-over relief

10 In section 198 (replacement of business assets used in connection with oil fields), for subsection (3) substitute—

“(3) Where—

(a) section 152 or 153 applies in relation to any of the consideration on a material disposal, and

(b) the asset which constitutes the new assets for the purposes of that section is a depreciating asset,

section 154(2)(b) is to have effect as if the reference to a trade carried on by the claimant were a reference solely to the claimant’s ring fence trade.”

Alternative to roll-over relief

11 In section 198 (replacement of business assets used in connection with oil fields), after subsection (2) insert—

“(2A) But subsection (1) is subject to section 198A(3)(a).”

12 After that section insert—

“198A Ring fence reinvestment: whole consideration reinvested

(1) This section applies if a person (“P”) makes a disposal and acquisition which—

(a) is a ring fence reinvestment, and

(b) qualifies for roll-over relief.

(2) P may make a claim under this section in relation to the disposal and acquisition.

(3) If P makes a claim under this section—

(a) section 152 does not apply to any of the disposal consideration, and

(b) any gain accruing to P on the disposal is not a chargeable gain.

(4) In this section “disposal consideration” means the whole of the consideration obtained on the disposal made by P.

198B Ring fence reinvestment: part of consideration reinvested

(1) This section applies if a person (“P”) makes a disposal and acquisition which—

(a) is a ring fence reinvestment, and

(b) qualifies for section 153 relief.

(2) P may make a claim under this section in relation to the disposal and acquisition.

(3) If P makes a claim under this section—

(a) section 153(1)(a) applies in relation to P and the disposal, but

(b) section 153(1)(b) does not apply to P and the acquisition.

198C Provisional application of sections 198A and 198B

(1) This section applies where a person (“P”) carrying on a ring fence trade who for a consideration disposes of, or of an interest in, any assets (“the old assets”) declares, in P’s return for the chargeable period in which the disposal takes place—

(a) that the whole or any specified part of the consideration will be applied in the acquisition of, or of an interest in, other assets (“the new assets”),

(b) that the acquisition will take place as mentioned in section 152(3),

(c) that the disposal and acquisition will be a ring fence reinvestment,

(d) that P intends to make a claim under section 198A or 198B in relation to the disposal and acquisition, and

(e) that P has not made, and will not make, a declaration under section 153A in relation to the disposal and acquisition.

(2) Until the declaration ceases to have effect, section 198A or 198B applies as if the acquisition had taken place and the person had made a claim under that section.

(3) The declaration ceases to have effect as follows—

(a) if and to the extent that it is withdrawn before the relevant day, or is superseded before that day by a valid claim made under section 198A or 198B, on the day on which it is so withdrawn or superseded, and

(b) if and to the extent that it is not so withdrawn or superseded, on the relevant day.

(4) On the declaration ceasing to have effect in whole or in part, all necessary adjustments—

(a) are to be made by making or amending assessments or by repayment or discharge of tax, and

(b) are to be so made despite any limitation on the time within which assessments or amendments may be made.

(5) If—

(a) P makes a declaration under this section, and

(b) the disposal and acquisition is not a ring fence reinvestment, but qualifies for roll-over relief or section 153 relief,

on P making a claim, the declaration is to have effect as also a declaration under section 153A.

(6) In this section “the relevant day” means—

(a) in relation to capital gains tax, the third anniversary of the 31st January next following the year of assessment in which the disposal of, or of the interest in, the old assets took place, and

(b) in relation to corporation tax, the fourth anniversary of the last day of the accounting period in which that disposal took place.

(7) Section 152(6), (10) and (11) apply for the purposes of this section as they apply for the purposes of section 152.

198D No double claims

(1) If P makes a claim under section 198A or 198B, no other relevant claim may be made in respect of the relevant acquisition.

(2) P may make a claim under section 198A or 198B (“the new claim”), if P has previously made a claim under section 152 or 153 (“the previous claim”) in respect of the relevant acquisition.

(3) But P may make the new claim only if the previous claim is withdrawn at or before the time the new claim is made.

(4) If the new claim is made in accordance with subsections (2) and (3), all necessary adjustments—

(a) are to be made by making or amending assessments or by repayment or discharge of tax, and

(b) are to be so made despite any limitation on the time within which assessments or amendments may be made.

(5) In this section—

• “relevant acquisition” means the acquisition of the new assets that is comprised in the disposal and acquisition to which a claim under section 198A or 198B or declaration under section 198C relates;

• “relevant claim” means a claim under section 152, 153, 198A or 198B.

198E Ring fence reinvestments and disposal consideration

(1) This section applies for the purposes of sections 198A to 198G.

(2) A disposal and acquisition is a ring fence reinvestment if—

(a) the disposal was—

(i) a material disposal, or

(ii) a disposal of a UK licence which relates to an undeveloped area,

(b) the old assets were used only for the purposes of P’s ring fence trade,

(c) the new assets are taken into use, and used only, for the purposes of one or more of the following trades—

(i) P’s ring fence trade;

(ii) if P is a member of a group of companies (within the meaning given in section 170), a ring fence trade of another member of that group, and

(d) the new assets are oil assets.

(3) If the disposal consists of—

(a) disposal of a licence to which section 195D(3) applies, or

(b) disposal of two or more licences to which section 195D(4) applies,

the consideration for the disposal is to be taken to be the whole of the non-licence consideration obtained on the disposal (which is referred to as “C” in section 195D).

(4) Accordingly, in sections 198A to 198G (including section 198A(4)), any reference to the consideration obtained on the disposal has effect subject to subsection (3).

(5) Each of the following is an “oil asset” for the purposes of this section—

(a) an interest in oil to be won from an oil field,

(b) an asset used in connection with an oil field,

(c) a structure which is to be placed on the seabed of the United Kingdom continental shelf,

(d) an asset used wholly in the winning of oil, or in the measuring of oil won, in the United Kingdom otherwise than from an oil field,

(e) an asset used for the initial treatment or storage of oil in the United Kingdom,

(f) an asset used for the transportation of oil from an oil field to the United Kingdom, and

(g) a UK licence which relates to an undeveloped area.

(6) Section 12 of the Oil Taxation Act 1975 (interpretation of Part 1 of that Act) applies for the interpretation of subsection (5)(a) to (f).

(7) Expressions used in this section and in section 152 have the same meanings in this section as in section 152.

(8) In this section a reference to a UK licence which relates to an undeveloped area has the same meaning as in section 194 (see section 196).

(9) In this section—

• “material disposal” has the meaning given in section 197;

• “ring fence trade” has the meaning given in section 198.

198F Qualification for roll-over relief

(1) This section applies for the purposes of sections 198A and 198B and section 198G.

(2) A disposal and acquisition qualifies for roll-over relief if—

(a) the consideration for the disposal is applied in an acquisition as mentioned in section 152(1), and

(b) section 152(1)(a) and (b) would apply to the disposal and acquisition if the appropriate claim were made.

(3) Subsections (4) to (6) apply in deciding whether a disposal and acquisition is one that qualifies for roll-over relief.

(4) Section 152(8) is to be disregarded.

(5) Section 198A is to be disregarded.

(6) Subject to subsections (4) to (5), all the circumstances are to be taken into account, including section 153(1) and section 198(1) and (2).

198G Qualification for section 153 relief

(1) This section applies for the purposes of sections 198B and 198C.

(2) A disposal and acquisition qualifies for section 153 relief if—

(a) section 153(1) applies to part of the amount or value of the consideration for the disposal,

(b) section 153(1)(a) and (b) would apply to the disposal and acquisition if the appropriate claim were made, and

(c) the disposal and acquisition would qualify for roll-over relief but for the disapplication of section 152(1) by section 153(1).

(3) Subsections (4) to (6) apply in deciding whether a disposal and acquisition is one that qualifies for section 153 relief.

(4) Section 153(2) has effect subject to section 198F(4) and (5).

(5) Section 198B is to be disregarded.

(6) Subject to subsections (4) and (5), all the circumstances are to be taken into account, including section 198(1).”

13 The amendments made by this Part have effect in relation to disposals made on or after 22 April 2009 (whether the acquisition in which the consideration is reinvested takes place before, on or after that date).