Introduction Details of the Section
2.This section introduces new Chapter 4 (containing sections 169T to 169V) into Part 5 of the Taxation of Chargeable Gains Act (TCGA) 1992 and specifies the date on which they come into effect.
3.Subsection (1) contains the new sections.
4.New section 169T provides an overview of the new Chapter.
5.New section 169U specifies a number of conditions which must be met in order for a gain which has been deferred under EIS or SITR to qualify for ER when it is treated as accruing. Where all these conditions are met, new section 169V applies to govern how ER is allowed.
6.Subsection (2) of new section 169U states the first condition. A gain representing all or part of a gain which has previously been deferred (or ‘held-over’) under either EIS or SITR must be treated as accruing under the provisions for those reliefs. The gain which is treated as accruing is known for the purposes of this section as ‘the first eventual gain’.
7.Subsection (4) of new section 169U states the second condition. This condition specifies the nature of the disposal which originally gave rise to the first eventual gain (before any deferrals). This disposal must be a ‘relevant business disposal’, as defined at subsection (9). Where a gain has been deferred more than once, for instance by being serially reinvested in more than one holding of EIS shares or social investment, it is the ‘underlying disposal’ associated with the first deferral which has to meet this condition.
8.Subsection (5) of new section 169U states the third condition. This is that a claim to ER must be made in respect of the first eventual gain. The time limit for this claim is 31 January in the year immediately following the tax year in which the gain accrues. The person making this claim must be the same person who made the disposal which originally gave rise to the first eventual gain.
9.Subsection (6) of new section 169U states the fourth condition. This is that the first eventual gain is the first gain treated as accruing in respect of a particular deferred gain. This means that where part of a deferred gain has previously accrued without a claim to ER being made in respect of it, it is not possible to claim ER under these new provisions when another part of the same gain subsequently accrues.
10.Subsection (7) of new section 169U explains what is meant by ‘underlying disposal’ in subsection (4).
11.Subsection (8) of new section 169U ensures that when deciding whether the ‘source’ disposal identified in subsection (4) was either a material disposal or an associated disposal for ER purposes (see subsection (9)), the law which was relevant to the disposal is to be applied. The ER rules as they stood at any other time, for instance when the first eventual gain is treated as accruing, are not relevant.
12.Subsection (9) of new section 169U provides definitions of terms used earlier in section 169U, including ‘relevant business disposal’ as used in subsection (4). A disposal of shares in or securities of a company is a relevant business disposal if it is either a ‘material disposal of business assets’ or a ‘disposal associated with a relevant material disposal’ (also known as an ‘associated disposal’) for normal ER purposes. A disposal of another sort of asset is a relevant business disposal if it is a disposal of a ‘relevant business asset’ within section 169L and is also either a ‘material disposal of business assets’ or a ‘disposal associated with a relevant material disposal’.
13.New section 169V contains rules which apply where the conditions in section 169U are all met. The rules explain how ER applies to the deferred gain when it is treated as accruing.
14.Subsection (2) of new section 169V treats the first eventual gain as an amount computed under section 169N(1) and therefore as a gain on which ER is due, subject to the ‘lifetime limit’ applicable to the total amount of relief given. However, the gain is not to be treated as a chargeable gain except for ER purposes. That is to say, to the extent that ER is given in respect of it, the first eventual gain is not treated as a gain for other purposes of TCGA 1992. This avoids taxing the same gain twice.
15.Subsection (3) of new section 169V applies where the first eventual gain does not represent the whole of the deferred gain. In these cases, the rest of the deferred gain (when it is finally treated as accruing) is also treated as an amount computed under section 169N(1) on which ER is due, without the need for further claims to ER on the later accrual or accruals. As before, the gains which are subject to ER under this subsection are not treated as gains for other purposes of TCGA 1992.
16.Subsection (4) of new section 169V is relevant when the disposal which was the source of the first eventual gain (see section 169U, subsection (4) above) was a disposal associated with a relevant material disposal (an ‘associated disposal’). It provides that the qualifying business disposal implied by subsection (2) or (3) at the time the first eventual gain accrues is treated as an associated disposal for the purposes of section 169P(1). It also ensures that when deciding whether section 169P applies, the conditions in section 169P(4) are to be applied to the disposal which was the source of the first eventual gain.
17.Subsection (5) of new section 169V defines the phrase ‘ER purposes’ which is used in subsections (2) and (3).
18.Subsection (2) of section 44 gives the effective date for these changes. They apply to gains which have as their source a qualifying business disposal on or after 3 December 2014.