The Budget announced changes to TCGA 1992 s 137 (and equivalent provisions at s 103K and s 139(5)). They are intended to ‘increase trust in the tax system by making the anti-avoidance rules that apply to the capital gains share exchange and reconstruction rules more effective.’
Such wording is usually bad news for tax planners. But examination of the draft legislation reveals that this cloud may in some cases have a lining of welcome luminosity.
The existing anti-avoidance legislation has a two-part test. First, is the exchange etc. effected for bona fide commercial reasons? Second, does it form part of a scheme or arrangements which has avoidance of CGT or corporation tax as one of its main purposes?
The change strengthens and better targets the second leg. But, perhaps more interestingly, it removes the first leg altogether. It seems that this will facilitate planning which cannot be shown to provide any benefit to the company or its business activities but which is undertaken solely to improve the tax position of one of more of its shareholders. For example, individual shareholders in a trading company may each want to transfer their shareholding to their own personal company to secure tax-efficient receipt, control and investment of their dividends. Historically, HMRC have refused to grant clearance for a share exchange in such circumstances on the grounds that, however bona fide the reasons for it may be, those reasons are demonstrably personal rather than commercial. Now, there would seem to be no grounds for refusing clearance.
An almost identical two-part test appears in the stamp duty rules dealing with reconstructions and share exchanges at FA 1986 s 75 and s 77. But, slightly oddly, the Budget makes no reference to reforming the stamp duty rules to align with the CGT changes.
Home >Articles > The new share for share anti-avoidance
The new share for share anti-avoidance
A silver lining.
The Budget announced changes to TCGA 1992 s 137 (and equivalent provisions at s 103K and s 139(5)). They are intended to ‘increase trust in the tax system by making the anti-avoidance rules that apply to the capital gains share exchange and reconstruction rules more effective.’
Such wording is usually bad news for tax planners. But examination of the draft legislation reveals that this cloud may in some cases have a lining of welcome luminosity.
The existing anti-avoidance legislation has a two-part test. First, is the exchange etc. effected for bona fide commercial reasons? Second, does it form part of a scheme or arrangements which has avoidance of CGT or corporation tax as one of its main purposes?
The change strengthens and better targets the second leg. But, perhaps more interestingly, it removes the first leg altogether. It seems that this will facilitate planning which cannot be shown to provide any benefit to the company or its business activities but which is undertaken solely to improve the tax position of one of more of its shareholders. For example, individual shareholders in a trading company may each want to transfer their shareholding to their own personal company to secure tax-efficient receipt, control and investment of their dividends. Historically, HMRC have refused to grant clearance for a share exchange in such circumstances on the grounds that, however bona fide the reasons for it may be, those reasons are demonstrably personal rather than commercial. Now, there would seem to be no grounds for refusing clearance.
An almost identical two-part test appears in the stamp duty rules dealing with reconstructions and share exchanges at FA 1986 s 75 and s 77. But, slightly oddly, the Budget makes no reference to reforming the stamp duty rules to align with the CGT changes.
