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Finance Act 1960

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This is the original version (as it was originally enacted).

22Provisions as to certain building companies not carrying on a trade

(1)Where the activities of a company consist of or include the erection or the securing of the erection of a building, and after the erection has begun and not later than six years after its completion shares in the company are sold to a person who has, or in consequence of the sale will have, control of the company, then if at the time of the sale the company has (directly or indirectly) an interest in the building and the value of that interest, or the aggregate value of that interest and any interest which the company so has at that time in any other building (not being a building completed more than six years before that time) the erection of which was carried out or secured by the company, amounts to one-fifth or more of the net assets of the company, it shall be treated for the purposes of the foregoing section as carrying on a trade of which the interest or interests are trading stock, whether or not apart from this subsection it would be so treated, and if apart from this subsection it would not be so treated such proportion of the expenses of the company as may be just shall be treated as expenses of that trade:

Provided that this subsection shall not apply if—

(a)the shares in the company are sold by a person or persons to another company and the shares in each company are held (directly or indirectly) by the same person or by the same persons in the same proportion, or

(b)the shares are sold by one company to another company and the shares in each company are held (directly or indirectly) by the same person or by the same persons in the same proportion,

regard being had in each case to any differences in the nature of the shares or the rights attaching thereto.

(2)Where before the sale of shares mentioned in the foregoing subsection the company—

(a)has sold its interest in the building or any such other building as aforesaid to the person who is the purchaser of the shares or (if that person is a company) to an associated company, or

(b)has created an interest in the building or any such other building as aforesaid in favour of that person or any such associated company, or

(c)has sold or created such an interest to or in favour of any person, and the purchaser of the shares or any such associated company acquires the interest, either before the sale of the shares or after the sale in pursuance of arrangements made not later than the sale,

the foregoing subsection shall apply as if the interest sold were still vested in the first-mentioned company at the time of the sale of the shares, or, as the case may be, as if the interest had not been created as mentioned in paragraph (b) or (c) of this subsection, and as if any assets of the company representing the consideration for the sale or creation of the interest were not assets of the company.

(3)Where a building has been or has begun to be erected by a company on land belonging to an associated company, and after the erection has been begun and not later than six years after its completion a person acquires control of the first company, then as respects sales to that person of shares in the company owning the land (whether effected before or after that person acquires control of the first company) the foregoing subsections shall apply as they apply to such a company as is therein mentioned but with the substitution for references to an interest in the building of references to an interest in the land.

(4)Where a company not carrying on a trade, but of which the activities consist of or include the erection or the securing of the erection of a building, is wound up, and the commencement of the winding up falls at a time after the erection has begun and not later than six years after its completion, then if immediately before that time the company had (directly or indirectly) an interest in the building and the value of the interest or the aggregate value of the interest and any interest which the company so had immediately before that time in any other building (not being a building completed more than six years before that time) the erection of which was carried out or secured by the company, amounted to one-fifth or more of the net assets of the company, the company shall be treated for income tax purposes as having received immediately before that time untaxed profits, chargeable under Case VI of Schedule D, of an amount equal to the amount (if any) of profits or gains of the company chargeable to tax which would have been produced by a sale of the interest or interests in the open market immediately before that time if the company had erected or secured the erection of the building or buildings in the course of a trade carried on by it and if such proportion of the expenses of the company as may be just had been expenses of that trade:

Provided that where all the shares in the company belong to another company, that other company may, by notice in writing given to the surveyor within one year after the commencement of the winding up, elect that if in the winding up the company acquires the interest or interests of the subsidiary company in the building or buildings, the foregoing provisions of this subsection shall not apply and shall be deemed not to have applied, but that if the acquiring company sells the interest or any of the interests, or grants an interest thereout, or sells an interest created thereout, that company shall be chargeable to income tax under Case VI of Schedule D on the amount which would have been its profit if the interest or interests it acquired had been trading stock acquired for the amount which under the foregoing provisions of this subsection (if they had had effect) would have been deductible in ascertaining the amount of profits or gains chargeable to tax referred to in those provisions; and if the company elects as aforesaid it shall be treated for the purpose of subsections (1) and (4) of this section as if its activities had included the erection of the building or buildings, whether or not it would otherwise have been so treated.

(5)For the purposes of this section there shall be disregarded any building provided for use, and brought into use, for the purposes of a bona fide trade carried on by the company, other than a trade of dealing in securities or land or buildings, or of developing land, or of the provision of services for the occupier of land an interest in which is held by the company.

(6)For the purposes of the foregoing subsections an uncompleted building shall be taken to include so much of any materials belonging to the company as are required for erecting the building, and a building (whether complete or not) shall be taken to include its site.

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