Annex 1: Minor changes in the law made by the Act: Change 27: Assets of mutual concerns: exclude distributions of capital gains from the charge to tax: section 104
This change defines the profits out of which a chargeable distribution is made so as to exclude distributions of chargeable gains.
Section 491(1) of ICTA excludes distributions of assets representing capital from the charge in subsection (3). Subsection (8) explains what is meant by such assets. It is generally understood that chargeable gains made by the concern do not represent capital as described in subsection (8). So distributions of such gains are within the charge in subsection (3).
Nevertheless, the Inland Revenue does not in practice seek to apply section 491 of ICTA to distributions of chargeable gains. The section adopts a positive approach to defining the distributions to which the section applies. The condition in section 104(1)(d) of this Act refers to profits of the mutual business. Chargeable gains are not profits of the mutual business and so the section reflects the current practice.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.