Annex 1: Minor changes in the law Change 52: Transactions in land: company chargeable: provider of opportunity to realise a gain: section 821
This change omits words from section 776(8) of ICTA indicating that where a gain on a transaction of land that is charged under that section is derived from an opportunity of realising a gain provided by another person and as a result that person is liable for the tax, it does not matter whether or not the opportunity was put at the disposal of the person to whom the gain actually accrues.
Section 776 of ICTA charges gains of a capital nature relating to the land to corporation tax where the gains are made by persons connected with land or the development of land and the statutory conditions are met.
In certain circumstances, companies which are liable to pay corporation tax in the United Kingdom may enter into transactions in land as a result of which value, or an opportunity of realising a gain, is provided to another person (who may not be so liable). In such cases, section 776(8) of ICTA lays down that the provider of the value or, as the case may be, the opportunity is the company chargeable to corporation tax under section 776.
Section 776(8), so far as relevant, reads: “If all or any part of the gain accruing to any person is derived from value, or an opportunity of realising a gain, provided directly or indirectly by some other person..., whether or not put at the disposal of the first–mentioned person …”.
In Yuill v Wilson (1980), 52 TC 674(11) on page 706, Goff LJ criticised the drafting of what is now section 776(8):
“I find it very difficult to appreciate what [the words “whether or not put at the disposal of the first-mentioned person” in what is now section 776(8)] were intended to cover. In the case of value I can well see that a gain may be derived by one person from value provided by another, whether directly or indirectly, without that value being put at the disposal of the first-mentioned person; for example, if A pays money to B as consideration for the grant of an option to C. As at present advised, however, I find it very difficult to see how one can gain from an opportunity provided by another without that opportunity being put at the disposal of the first-mentioned person. (emphasis added)”
As it is considered that no sensible meaning can be given to the words “whether or not put at the disposal of the first-mentioned person” so far as they relate to the earlier words “an opportunity of realising a gain”, in rewriting the passage under review section 821 (transactions in land: company chargeable) refers only to the value provided by another person and not the opportunity of realising a gain.
If this view were incorrect, then the restriction of the scope of section 821 might in some circumstances exclude taxpayers from liability under the “transactions in land” Part.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.