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Finance Act 2014

Section 63: Avoidance Involving Losses


1.This section clarifies the operation of one of the Chargeable Gains Targeted Anti-Avoidance Rules. In doing so it confirms the rule will apply to arrangements that use statutory provisions outside of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) that specify that a chargeable gain or a capital loss accrues. It also confirms the rule applies to arrangements which generate an income deduction by whatever means. The changes put beyond doubt that the rule acts generally to counter the contrived use of capital losses to reduce income profits.

Details of the Section

2.Subsection (1) amends section 184G of TCGA 1992. References to “receipt” in the current section have been changed to confirm that the term includes any amount taken into account in calculating a chargeable gain. The references to disposal in Conditions A and B have been removed.

3.Subsection (2) amends section 184H of TCGA 1992. The amended section now uses the term “income deduction” instead of “expenditure”. A definition of income deduction is now within sub-section (10) to explain that it includes any form of deduction in the computation of income or profits. The reference to a disposal in Condition A has been removed.

4.Subsection (3) provides that the amendments will apply from the date of announcement where a gain accrues on a disposal on or after that date or, in the case where there is no disposal, to arrangements that are entered into on or after that date.

Background Note

5.The three Targeted Anti-Avoidance Rules within TCGA 1992 have wide application to counter arrangements that seek to misuse capital losses to obtain a tax advantage. The abuses they are intended to counter are:

  • TAAR 1 - the contrived creation of capital losses where there has been either no economic loss or a disposal of any substance.

  • TAAR 2 – the sale of companies between groups to allow losses incurred by one group to be relieved against the gains of another, and

  • TAAR 3 – the use of capital losses to shelter income profits.

6.The section confirms that TAAR 3 applies generally to the contrived use of capital losses to reduce income profits.

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