The Exchange Gains and Losses (Transitional Provisions) Regulations 1994

Further provisions relating to regulation 6(3) assets

14.—(1) Where the asset in question is a regulation 6(3) asset then—

(a) regulation 13 does not apply if, immediately before the relevant transaction, it was held by the company in exempt circumstances, and

(b) the following provisions of this regulation shall not apply if section 127 has applied in relation to the asset for any accrual period;

and in this regulation any reference to the relevant transaction is a reference to the transaction by virtue of which the company ceased to be entitled to the asset.

(2) If there was an attributed gain as respects a regulation 6(3) asset and the basic valuation of the asset exceeds its market value at the time of the relevant transaction, then, subject to paragraph (4) below, an amount equal to the amount of the excess shall be set against the amount of the chargeable gain, if any, which (disregarding this paragraph) is deemed to accrue by virtue of regulation 13 and—

(a) if the two amounts are equal, the chargeable gain shall not be deemed to accrue;

(b) if the excess is the greater, an allowable loss shall be deemed to accrue to the company at the time of the relevant transaction of an amount equal to the difference between the excess and the amount of that chargeable gain, and that gain shall not be deemed to accrue;

(c) if the chargeable gain is the greater, it shall be reduced by an amount equal to the amount of the excess.

(3) If there was an attributed loss as respects a regulation 6(3) asset and the market value of the asset at the time of the relevant transaction exceeds the basic valuation of the asset, then, subject to paragraph (4) below, an amount equal to the amount of the excess shall be set against the amount of the allowable loss, if any, which (disregarding this paragraph) is deemed to accrue by virtue of regulation 13 and—

(a) if the two amounts are equal, the allowable loss shall not be deemed to accrue;

(b) if the excess is the greater, that loss shall not be deemed to accrue but a chargeable gain shall be deemed to accrue to the company at the time of the disposal of an amount equal to the difference between the excess and the amount of that loss, and

(c) if the allowable loss is the greater, it shall be reduced by an amount equal to the amount of the excess.

(4) The amount of the excess for the purposes of paragraph (2) or (3) above shall not exceed an amount equal to the aggregate of—

(a) the cumulative taxed gain or loss, and

(b) the initial exchange gain or loss (if any) accruing as respects the asset for its last accrual period, and

(c) any chargeable gain or allowable loss which (disregarding paragraphs (2) and (3)) accrues by virtue of regulation 13;

and for the purposes of paragraph (2) section 176 of the 1992 Act shall apply in relation to that excess as if it were an allowable loss accruing on the relevant transaction (and if apart from this paragraph that section would not apply in relation to that transaction, it shall so apply for this purpose).

(5) In any case where apart from this paragraph an allowable loss would accrue to a company as respects a regulation 6(3) asset by virtue of paragraph (2) above or, if that paragraph does not apply, by virtue of regulation 13 or the amount of the allowable loss is reduced by virtue of paragraph (3) above, then, subject to paragraph (7) below—

(a) the company may elect, by notice to the inspector within two years of the end of the accounting period in which the disposal in question occurs, that this paragraph shall apply as respects the asset, and

(b) where such an election is made, an amount equal to the amount of that loss (or that reduced loss) shall be set against the amount of any exchange gains accruing to the company in the accounting period which is or includes the last accrual period or in subsequent accounting periods, and

(c) if a reduction is made under paragraph (7)(b) below in the amount available under sub-paragraph (b) above to be set against any gains, the allowable loss or the reduced loss shall be deemed to be equal to the amount of that reduction, and

(d) if such a reduction is not made, the allowable loss, or reduced loss, shall not be deemed to accrue.

An election under this paragraph shall be irrevocable.

(6) Paragraph (7) below applies in any case where a reorganisation within the meaning of section 127 of the 1992 Act, or any other transaction to which that section applied, took place before the company’s commencement day in relation to which—

(a) the original shares (within the meaning of that section) were or included one or more shares which would not have been qualifying assets had the company been entitled to them on its commencement day or, if the company was still entitled to them on that day, are not qualifying assets; and

(b) the new holding (within the meaning of that section) was or included an asset—

(i) which is a regulation 6(3) asset held by the company (whether or not the company held it in pursuance of the reorganisation or other transaction in question or in pursuance of a subsequent no gain/no loss disposal), or

(ii) which would have been a regulation 6(3) asset had the company held it on its commencement day and which has been exchanged for, or converted into, the regulation 6(3) asset which the company held on its commence— ment day in pursuance of one or more transactions to which section 127 of the 1992 Act applied or one or more no gain/no loss disposals (or both).

In relation to any transaction within section 136 of the 1992 Act, the reference in sub— paragraph (b) to an exchange shall be construed in accordance with that section.

(7) Where this paragraph applies in relation to a reorganisation within the meaning of section 127 of the 1992 Act, or any other transaction to which that section applied—

(a) any election under paragraph (5)(a) above must be made in relation to all regulation 6(3) assets derived from shares which—

(i) in relation to that reorganisation or transaction are the original shares (within the meaning of that section), and

(ii) are held by the company on its commencement day, and

(b) the amount available to be set against any exchange gains in accordance with paragraph (5)(b) above shall be reduced by an amount equal to the excess (if any) of A over B where—

• A is the aggregate of the attributable losses referable to those regulation 6(3) assets which have been found under regulation 9, and

• B is the aggregate of those losses which would have been found under regulation 9 if section 127 of the 1992 Act had not applied in relation to the reorganisation or other transaction,

and where the excess is greater than the amount available, that amount shall be taken to be zero, and

(c) where the company ceases to be entitled to all those regulation 6(3) assets in pursuance of more than one transaction—

(i) the election must be made in relation to the first of those transactions, and

(ii) shall have effect in relation to subsequent relevant transactions relating to any of those assets (notwithstanding paragraph (5)(a) above), and

(iii) sub-paragraph (b) above shall apply in relation to each relevant transaction as respects those regulation 6(3) assets which are the subject of that transaction.

(8) Paragraph (6)(b) does not apply if the company acquired the asset in pursuance of a transaction to which section 127 of the 1992 Act did not apply and which is not a no gain/no loss disposal.

(9) For the purposes of this regulation, a transaction is a no gain/no loss disposal if, by virtue of any enactment specified in section 35(3)(d) of the 1992 Act, neither a gain nor a loss accrues to the person transferring the asset in question.

(10) For the purposes of paragraphs (2) to (4) above, the amount of any excess shall be expressed in the nominal currency and shall be translated into sterling using the London closing exchange rate for the day immediately preceding the company’s commencement day.

(11) Any expression used in this regulation which is not defined in Chapter II shall be construed as if this regulation were included in the 1992 Act.