Details of the Section
2.This section amends Chapter 3 of Part 5 of the Taxation of Chargeable Gains Act (TCGA) 1992. Subsections (1) to (3) are introductory and make minor amendments.
3.Subsection (4) inserts new section 169LA into TCGA 1992.
4.Subsection (1) of new section 169LA sets out the three conditions for subsection (3) to apply. These are that a person (P) disposes of goodwill as part of a qualifying business disposal directly or indirectly to a close company (C), that P is a related party in relation to C at the time of the disposal, and that P is not a ‘retiring partner’.
5.Subsection (2) of new section 169LA explains what is meant by 'a related party'. The definitions in Part 8 of the Corporation Tax Act (CTA) 2009, specifically at section 835 of that Act, apply for the purposes of this measure. This provides that, for the purposes of this section, P will be a related party in relation to company C if for instance P is a participator (or an associate of a participator) in C, or if P is a participator (or an associate of a participator) in a company that controls or holds a majority interest in C.
6.Subsection (3) of new section 169LA provides a definition of a ‘retiring partner’ as that term is used in subsection (1). There are three conditions all of which must be met. Firstly, the individual (P) must not be a participator in the transferee company (C), nor can there be arrangements under which he could become one. This is to prevent him from being able to share in the profits of the business or in any increase in value of the business in future. Secondly, although P will by definition be a related party in relation to C (see subsection (1)(b)), this will only be the case because he is an associate of other people who are actually participators in C, and (thirdly) he is only associated with them because they too are partners in the business which is transferred to C. These conditions do not prevent a retiring partner from continuing to perform services for the business, for instance as a consultant.
7.Subsection (4) of new section 169LA provides that, where the conditions in subsection (1) are met, the goodwill is not a relevant business asset for the purposes of section 169L TCGA. This means that a gain or loss accruing on the disposal of the goodwill will not enter into the computation of the amount under section 169N subsection (1).
8.Subsection (5) of new section 169LA provides that the reference to a close company in subsection (1) includes non-UK companies which would be close if they were in fact UK resident. A close company is essentially one which is controlled by five or fewer participators, or by participators who are also directors. This extended meaning of ‘close company’ also applied for the purposes of deciding whether parties are related (see subsection (2) of new section 169LA).
9.Subsection (6) of new section 169LA is an anti-avoidance provision. It ensures that subsection (3) will apply where a person disposes of goodwill and is at the time of the disposal party to 'relevant avoidance arrangements' if, in the absence of this provision, it would not otherwise apply.
10.Subsection (7) of new section 169LA explains what is meant by 'relevant avoidance arrangements'. They are arrangements which have a main purpose of ensuring either
11.that gains on goodwill will contribute to the gain which is subject to the special ER rate of tax; or
12.that the person making the disposal is not (for any purpose) a related party in relation to a company to which the disposal of goodwill is directly or indirectly made.
13.Subsection (8) of new section 169LA ensures that 'arrangements' has a very broad meaning for the purposes of subsection (5), and adopts the definitions in the CTA 2009 for certain words used elsewhere in the section.
14.Subsection (5) provides that the new section 169LA has effect in relation to disposals of goodwill made on or after 3 December 2014.
