Taxation of Chargeable Gains Act 1992

[F1 PART 3 U.K. Partnerships

Textual Amendments

F1 Sch. 7ZA inserted (with effect in accordance with Sch. 13 para. 6(1) of the amending Act) by Finance Act 2016 (c. 24), Sch. 13 para. 5

Activities of a company as a member of a partnership U.K.

13 (1) In relation to a disposal of assets consisting of (or of interests in) shares in or securities of a company (“company A”), activities carried on by a company as a member of a partnership are to be treated as not being trading activities of the company (see section 165A(4) and (9)) if P fails either or both of the following— U.K.

(a) the profits and assets test in relation to the partnership (see paragraphs 15 to 20);

(b) the voting rights test in relation to the partnership (see paragraphs 21 to 23).

(2) In relation to such a disposal, activities carried on by a company as a member of a partnership are also to be treated as not being trading activities of the company if the company is not a member of the partnership throughout the relevant period.

Meaning of “direct interest company” and “relevant corporate partner” U.K.

14 (1) This paragraph applies for the purposes of this Part. U.K.

(2) A company is a “direct interest company” in relation to P if—

(a) it is company A (see paragraph 13(1)), or

(b) P directly owns some portion of the ordinary share capital of the company.

(3) A company is a “relevant corporate partner” in relation to P and a partnership if—

(a) a direct interest company in relation to P (“company DIC”) owns some portion of the ordinary share capital of the company (whether it is owned directly, indirectly or partly directly and partly indirectly),

(b) the company is a member of a group of companies of which company DIC is a member, and

(c) the company is a member of the partnership.

(4) In sub-paragraph (3) the reference to a company owning share capital indirectly is to be read in accordance with section 1155 of CTA 2010.

Profits and assets test U.K.

15 U.K. P passes the profits and assets test in relation to a partnership if, throughout the relevant period, the sum of the percentages given by paragraphs (a), (b) and (c) is at least 5%—

(a) the percentage which is P's direct interest in the assets of the partnership,

(b) the percentage which is P's share of the partnership through direct interest companies that are members of the partnership (see paragraph 16), and

(c) the percentage which is P's share of the partnership through direct interest companies and relevant corporate partners in the partnership (see paragraph 18).

16 U.K. P's “share of the partnership through direct interest companies that are members of the partnership” is found by—

(a) calculating the percentage which is P's indirect share of the partnership through each direct interest company that is a member of the partnership (see paragraph 17), and

(b) where there are two or more direct interest companies that are members of the partnership, adding those percentages together.

17 U.K. The percentage which is P's indirect share of the partnership through a particular direct interest company that is a member of the partnership (“company DICP”) at a particular time is given by—

where—

R is the fraction of company DICP's ordinary share capital that is owned by P at that time, and

V is the lower of—

(a)

the fraction of the profits of the partnership in which company DICP has an interest at that time, and

(b)

the fraction of the assets of the partnership in which company DICP has an interest at that time.

18 U.K. P's “share of the partnership through direct interest companies and relevant corporate partners in the partnership” is found by—

(a) calculating the percentage which is P's indirect share of the partnership through each direct interest company and each relevant corporate partner in the partnership (see paragraph 19), and

(b) where there are two or more direct interest companies or two or more relevant corporate partners, or both, adding those percentages together.

19 U.K. The percentage which is P's indirect share of the partnership through a particular direct interest company (“company DIC”) and a particular relevant corporate partner in the partnership (“company CP”) at a particular time is given by—

where—

R is the fraction of company DIC's ordinary share capital that is owned by P at that time,

V is the lower of—

(a)

the fraction of the profits of the partnership in which company CP has an interest at that time, and

(b)

the fraction of the assets of the partnership in which company CP has an interest at that time, and

W is the fraction of company CP's ordinary share capital that is owned by company DIC at that time (whether it is owned directly, indirectly, or partly directly and partly indirectly) (see paragraph 20).

20 (1) The fraction of a company's ordinary share capital that is owned indirectly by company DIC is calculated— U.K.

(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, and

(b) on the assumptions specified in sub-paragraph (2).

(2) The assumptions are—

(a) where company DIC directly owns more than 50% of the ordinary share capital of a company, company DIC is taken to own the whole of the ordinary share capital of that company;

(b) where a company other than company DIC (“company B”) directly owns more than 50% of the ordinary share capital of another company (“company C”) which is a member of a group of companies of which company DIC is a member, company B is taken to own the whole of the ordinary share capital of company C.

Voting rights test U.K.

21 (1) P passes the voting rights test in relation to a partnership if, throughout the relevant period, the sum of P's direct voting rights percentage and P's indirect voting rights percentage is at least 5%. U.K.

(2) P's “direct voting rights percentage” is found by—

(a) taking the percentage of the voting rights that P holds directly in each direct interest company that is a member of the partnership, and

(b) where P directly holds voting rights in two or more direct interest companies that are members of the partnership, adding those percentages together.

(3) P's “indirect voting rights percentage” is found by—

(a) calculating the percentage which is P's indirect holding of voting rights in each relevant corporate partner in the partnership through each direct interest company (see paragraph 22), and

(b) where there are two or more relevant corporate partners or two or more direct interest companies, or both, adding those percentages together.

22 U.K. The percentage which is P's indirect holding of voting rights in a particular relevant corporate partner in the partnership (“company CP”) through a particular direct interest company (“company DIC”) at a particular time is given by—

where—

T is the fraction of the voting rights in company DIC that is held by P at that time, and

X is the fraction of the voting rights in company CP that is held by company DIC at that time (whether the voting rights are held directly, indirectly, or partly directly and partly indirectly) (see paragraph 23).

23 (1) The fraction of the voting rights in a company that is held indirectly by company DIC is calculated— U.K.

(a) by applying sections 1156 and 1157 of CTA 2010, as read with section 1155 of that Act, as if references in those sections to owning the ordinary share capital of a company were references to holding voting rights in a company, and

(b) on the assumptions specified in sub-paragraph (2).

(2) The assumptions are—

(a) where company DIC directly holds more than 50% of the voting rights in a company, company DIC is taken to hold all the voting rights in that company;

(b) where a company other than company DIC (“company B”) directly holds more than 50% of the voting rights in another company (“company C”) which is a member of a group of companies of which company DIC is a member, company B is taken to hold all the voting rights in company C.]