Section 62: Attribution of Gains to Members of Non-Resident Companies
Summary
1.Section 62 modifies section 13 of the Taxation of Chargeable Gains Act (TCGA) 1992, an anti-avoidance provision dealing with assets held through non UK-resident closely controlled companies. It aims to secure compatibility with European Union law. It does this by introducing an exclusion from the scope of charge gains arising from assets used in genuine business activities, clarifying the treatment of furnished holiday accommodation for the purposes of the provision, and raises the threshold at which the charge applies to unconnected minority participators.
Details of the Section
2.Subsection (2) amends section 13(4) of TCGA 1992 to increase from one tenth to one quarter the threshold at which a UK participator (and persons connected with him) can have gains made by an overseas company apportioned to them.
3.Subsection (3) inserts two new paragraphs (ca) and (cb) into section 13(5) of the TCGA 1992. New paragraph (ca) excludes from the charge gains on assets used for the purposes of “economically significant activities” carried on wholly or mainly outside the UK. New paragraph (cb) introduces an exemption for gains where neither the acquisition, nor the disposal of the asset formed part of arrangements put in place for the purpose of avoiding tax.
4.Subsection (4) introduces a new section 13A into TCGA 1992. New section 13A clarifies the meaning of assets wholly outside the United Kingdom used; defines the meaning of “relevant period”; modifies the rules in Corporation Tax Act 2009; and defines the term “economically significant activities” for the purposes of furnished letting in relation to section 13(5)(b)
5.New section 13A(2) defines the meaning of “relevant period” for the purposes of assets used for the purposes of furnished lettings.
6.New section 13A(3) applies the rules governing furnished holiday lettings set out in Chapter 6 of Part 4 of the Corporation Tax Act 2009 with certain modifications.
7.New section 13A(4) defines the term “economically significant activities” for the purposes of section 13(5)(ca) and (cb).
8.New section 13A(5) defines “staff” for the purposes of the economically significant activities test.
9.Subsection (5) provides that the amendments made by the section have effect for disposals made on or after 6 April 2012.
10.Subsections (6) and (7) permit an election to be made to disapply the amendments for disposals made between 6 April 2012 and 5 April 2013.
Background
11.Section 13 TCGA 1992 is designed to prevent avoidance of tax on capital gains by sheltering them in an overseas closely controlled company. These are gains on which UK resident individuals or companies would otherwise be taxed had they disposed of the asset and realised the gain directly.
12.An infraction notice (Reasoned Opinion) was issued to the United Kingdom by the European Commission on 16 February 2011. The Commission argued that section 13 breaches the freedoms of establishment and movement of capital established by Articles 49 and 63 of the Treaty on the Functioning of the European Union.
13.These changes aim to ensure that the legislation is compatible with the Treaty while maintaining effective protection against tax avoidance.
