Finance (No. 2) Act 2023

Chargeable gains U.K.

39 Payments to farmers under the lump sum exit scheme etc U.K.

(1) An amount paid to a person (“P”) under the lump sum exit scheme is—

(a) in a case where P satisfied the eligibility conditions when the payment was made, to be treated as an amount of capital nature that is treated as a chargeable gain accruing to P on the disposal of an asset for the purposes of TCGA 1992;

(b) in a case where P did not satisfy the eligibility conditions when the payment was made, to be treated as an amount of a revenue nature.

(2) Where—

(a) a person (“P”) makes an application for a lump sum under the lump sum exit scheme,

(b) P satisfies the eligibility conditions at any time during the interim period, and

(c) during the interim period, an amount is paid to P under the basic payment scheme,

the amount is to be treated as an amount of capital nature that is treated as a chargeable gain accruing to P on the disposal of an asset for the purposes of TCGA 1992.

(3) Where—

(a) a person (“P”) makes an application for a lump sum under the lump sum exit scheme,

(b) P does not satisfy the eligibility conditions at any time during the interim period, and

(c) during the interim period, an amount is paid to P under the basic payment scheme,

the amount is to be treated as an amount of a revenue nature.

(4) For the purposes of this section—

• the “lump sum exit scheme” means the Agriculture (Lump Sum Payment) (England) Regulations 2022 (S.I. 2022/390);

• the “basic payment scheme” means Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013 establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy and repealing Council Regulation (EC) No 637/2008 and Council Regulation (EC) No 73/2009;

• “eligibility conditions” means the conditions in regulation 5 of the lump sum exit scheme;

• the “interim period”, in relation to P, means the period—

  (a)

  beginning with the day on which the lump sum exit scheme came into force (see regulation 1(1) of that scheme), and

  (b)

  ending with the scheme end date;

• the “scheme end date” has the same meaning as in the lump sum exit scheme (see regulation 2(1) of that scheme).

(5) This section has effect in relation to amounts whether paid before or after the coming into force of this Act.

40 Contracts completed after ordinary notification period U.K.

(1) In TCGA 1992, after section 28 (time of disposal and acquisition where asset disposed of under contract) insert—

“28A Contracts completed after ordinary notification period

(1) This section applies in relation to chargeable gains or allowable losses accruing on the disposal and acquisition of an asset under a contract where the asset is conveyed or transferred after the ordinary notification period relating to the chargeable period in which the asset was disposed of and acquired in accordance with section 28.

(2) The following references are to be read as references to the chargeable period in which the conveyance or transfer takes place—

(a) the references in section 7(1C) of the Management Act (income tax and capital gains tax: period for giving notice of chargeability) to the year of assessment;

(b) the references in sections 34(1) and 36(1) and (1A) of the Management Act (income tax and capital gains tax: time limits for assessments) to the year of assessment to which an assessment relates;

(c) the reference in section 43(1) of the Management Act (income tax and capital gains tax: time limit for making claims) to the year of assessment to which a claim relates;

(d) the reference in paragraph 2(2) of Schedule 18 to the Finance Act 1998 (corporation tax: period for giving notice of chargeability) to the accounting period;

(e) the references in paragraph 46(1), (2) and (2A) of Schedule 18 to the Finance Act 1998 (corporation tax: time limits for assessments) to the accounting period to which an assessment relates;

(f) the reference in paragraph 55 of Schedule 18 to the Finance Act 1998 (general time limit for making claims) to the accounting period to which a claim for relief relates.

(3) For the purposes of subsection (1), the “ordinary notification period” relating to a chargeable period is—

(a) in the case of capital gains tax, the period of 6 months from the end of the chargeable period, and

(b) in the case of corporation tax, the period of 12 months from the end of the chargeable period.

(4) Where a claim, election, application or notice is made, given, revoked or varied by virtue of this section, all such adjustments shall be made, whether by way of discharge or repayment of tax or the making of amendments, assessments or otherwise, as are required to take account of the effect of the taking of that action on any person’s liability to tax for any chargeable period.”

(2) The amendment made by subsection (1) has effect—

(a) for the purposes of corporation tax, in relation to any disposal and acquisition of an asset under a contract that is entered into on or after 1 April 2023, and

(b) for all other purposes, in relation to any disposal and acquisition of an asset under a contract that is entered into on or after 6 April 2023.

41 Separated spouses and civil partners U.K.

(1) TCGA 1992 is amended in accordance with subsections (2) to (5).

(2) In Part 3 (individuals, partnerships, trusts and collective investment schemes), in Chapter 1 (miscellaneous provisions), in section 58 (spouses and civil partnerships), for subsection (1) substitute—

“(1A) If an individual (“A”) disposes of an asset to another individual (“B”) in circumstances where any of subsections (1B) to (1D) applies, A and B are to be treated as if B acquired the asset from A for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to A.

(1B) This subsection applies where the disposal is made while A and B—

(a) are married to, or are civil partners of, each other, and

(b) are living together.

(1C) This subsection applies where the disposal is made—

(a) while A and B are married to, or are civil partners of, each other,

(b) at a time when A and B have ceased to live together, and

(c) on or before the earlier of—

(i) the last day of the third tax year after the tax year in which A and B ceased to live together, or

(ii) the day on which a court grants an order or decree for A and B’s divorce, the annulment of their marriage, the dissolution or annulment of their civil partnership, their judicial separation or, as the case may be, their separation in accordance with a separation order.

(1D) This subsection applies where—

(a) A and B have ceased to be, or are in the process of ceasing to be, married to, or civil partners of, each other, and

(b) the disposal of the asset is in accordance with an agreement or order within subsection (2)(a) or (b) of section 225B (disposals in connection with divorce etc), but as if, in subsection (2)(a), after “partner” there were inserted “, or former spouse or civil partner,”.”

(3) In section 225B (disposals in connection with divorce etc)—

(a) in subsection (1)(b), after “to” insert “someone other than”;

(b) in subsection (3), after “disposal to” insert “someone other than”.

(4) After section 225B insert—

“225BA Deferred payments on disposals in connection with divorce etc

(1) This section applies where—

(a) an individual (“A”) ceases to live with A’s spouse or civil partner (“B”) in a dwelling-house or part of a dwelling-house,

(b) immediately before A ceases to live with B, the dwelling-house or part is A’s only or main residence,

(c) A disposes of, or of an interest in, that dwelling-house or part to B (“the initial disposal”), and

(d) the initial disposal is in accordance with a deferred sale agreement or order.

(2) If—

(a) in accordance with the deferred sale agreement or order A receives a sum in respect of a share of any profit made by B upon B’s disposal of, or of an interest in, the dwelling-house or part, and

(b) the receipt of that sum would be treated (apart from this section) as a disposal falling with section 22 (disposal where capital sums derived from assets),

that receipt is to be treated for the purposes of this Act as a gain attributable to the initial disposal but accruing to A at the time the sum is received.

(3) In this section, a “deferred sale agreement or order” is an agreement or order of a court which—

(a) is within paragraph (a) or (b), as the case may be, of section 225B(2) (agreements and orders of the court in relation to divorce etc), and

(b) includes a term entitling A to receive a share of any profit made by B as mentioned in subsection (2)(a).”

(5) In Part 8 (supplemental), in section 288 (interpretation), in subsection (3), after “partner” insert “(however expressed)”.

(6) The amendments made by this section apply in relation to disposals made on or after 6 April 2023.

42 Carried interest: election to pay tax as scheme profits arise U.K.

(1) TCGA 1992 is amended as follows.

(2) After section 103KF insert—

“103KFA Election for carried interest gains to be chargeable as scheme profits arise

(1) An individual (“A”) may make an election under this section in respect of an investment scheme (“the relevant scheme”) if—

(a) section 103KA applies in relation to A and the relevant scheme, or

(b) it is reasonable to expect that it will apply in relation to A and the relevant scheme.

(2) Subsection (3) applies for a tax year (“the relevant tax year”) where an election made under this section has effect for that tax year.

(3) A chargeable gain is deemed to arise to A in the relevant tax year and is to be treated as accruing to A immediately before the end of the relevant tax year.

(4) The amount of the gain is the amount given by reducing—

(a) the amount of carried interest that would arise to A in the relevant tax year in the circumstances mentioned in subsection (5), by

(b) the sum of chargeable gains deemed to arise to A under this section in respect of the relevant scheme in previous tax years.

(5) Those circumstances are that—

(a) all of the investments held by the relevant scheme in the relevant tax year, and previously held by the scheme, whose disposal would be relevant to A’s entitlement to carried interest, were disposed of in the relevant tax year,

(b) the amount realised on the disposal of each investment that was not actually disposed of in, or before, the relevant tax year were the amount of the costs to the relevant scheme in acquiring that investment,

(c) all income that was received by the scheme (whether before or during the relevant tax year) and that would be relevant to A’s entitlement to carried interest, were received in the relevant tax year, and

(d) all profits realised by the scheme as a result of those disposals and the receipt of that income were distributed to its investors in the relevant tax year.

(6) Where—

(a) distributions were made by the scheme to external investors before the relevant tax year, and

(b) the timing of those distributions affects the amount of carried interest that actually arises to A,

the amount of carried interest to be presumed to arise in the circumstances mentioned in subsection (5) is to reflect the fact those distributions were made before the relevant tax year.

(7) But if reflecting that fact would lead to a presumption that an amount of carried interest had arisen before the relevant tax year, any such amount is to be presumed to arise in the relevant tax year.

(8) A chargeable gain treated as accruing to an individual under subsection (3) is a chargeable gain accruing on the disposal of an asset situated outside the United Kingdom only to the extent that the individual performs investment management services in respect of the relevant scheme outside the United Kingdom.

(9) An election under this section—

(a) must be made by notice given to an officer of Revenue and Customs, and

(b) may not be revoked.

(10) A notice making an election—

(a) must state the first tax year for which it is to have effect, and

(b) may not be given after 31 January following the end of that tax year.

103KFB Election in relation to scheme to apply to associated schemes

(1) Where an election has been made under section 103KFA in relation to an investment scheme (“S”) that is associated with another investment scheme, the election applies in respect of the other scheme (whether or not the conditions for an election to be made in respect of the other scheme were met at that time).

(2) “Associated”, in relation to two or more investments schemes, is to be construed in accordance with section 809FZZ of ITA 2007.

103KFC Interaction with other charges

(1) The accrual of a chargeable gain treated as accruing to an individual under section 103KFA(3) does not prevent the individual or any other person being charged to tax (whether income tax, capital gains tax or any other tax, and including as a result of section 103KA) in relation to carried interest that arises to the individual under arrangements with the relevant scheme.

(2) But subsection (3) applies where an individual—

(a) has made an election under section 103KFA,

(b) has accrued a chargeable gain treated as accruing under section 103KFA(3),

(c) has paid (and has not been repaid) an amount of capital gains tax that is attributable to that chargeable gain, and

(d) is charged to tax (whether income tax, capital gains tax or another tax) in relation to carried interest that—

(i) arises to the individual under arrangements with the relevant scheme, and

(ii) arises in or after the tax year in which a gain first accrued under that section.

(3) The individual may make a claim for one or more consequential adjustments to be made reducing the tax mentioned in subsection (2)(d).

(4) On a claim under subsection (3) an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.

(5) The value of any consequential adjustments made must not exceed the lesser of—

(a) the amount of capital gains tax paid as mentioned in subsection (2)(c), and

(b) the tax charged as mentioned in subsection (2)(d).

(6) Consequential adjustments may be made—

(a) in respect of any period, and

(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise.

(7) No claim may be made under section 103KE (carried interest: avoidance of double taxation) in respect of tax charged as a result of the accrual of a chargeable gain treated as accruing to an individual under section 103KFA(3).

103KFD Deemed accrual of loss where carried interest never arises

(1) Subsection (3) applies where—

(a) an individual has made an election under section 103KFA,

(b) the individual has accrued a chargeable gain treated as accruing under section 103KFA(3), and

(c) the conditions in subsection (2) are met.

(2) Those conditions are that—

(a) all, or substantially all, of the investments of the relevant scheme have been disposed of,

(b) the amount of carried interest that has arisen to the individual in respect of the relevant scheme since the beginning of the first tax year in which a gain is treated as accruing under section 103KFA(3) is less than the sum of chargeable gains treated as accruing to the individual under that section, and

(c) no further amount of carried interest can reasonably be expected to arise to the individual under arrangements with the relevant scheme.

(3) The individual is to be treated as accruing a loss immediately before the end of the tax year in which the conditions in subsection (2) are first met.

(4) The amount of that loss is the amount given by subtracting—

(a) the amount of carried interest that arose to the individual in respect of the relevant scheme since the beginning of the first tax year in which a gain is treated as accruing under section 103KFA(3), from

(b) the sum of the chargeable gains that have accrued under section 103KFA(3) (including any gain that accrues in respect of the tax year in which the loss accrues).

(5) Where a loss has accrued to an individual as a result of subsection (3)—

(a) section 103KFA(3) does not apply (in relation to the individual and the relevant scheme) for any tax year after the tax year in which the loss accrued, and

(b) if carried interest arises to the individual in respect of the relevant scheme after the loss accrued, the individual may not make a claim under section 103KFC(3) in respect of tax charged in relation to it.

103KFE Anti-avoidance

(1) This section applies where an election was made by an individual under section 103KFA and the main purpose, or one of the main purposes, of making the election is to cause a loss to be treated as accruing to the individual under subsection (3) of section 103KFD.

(2) Any such loss that would (in the absence of this section) accrue to the individual under that subsection is to be counteracted by the making of such adjustments as are just and reasonable.

(3) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of—

(a) an assessment,

(b) the modification of an assessment, or

(c) amendment or disallowance of a claim, or otherwise.”

(3) In section 1H (the main rates of CGT), in subsection (9)—

(a) omit the “or” at the end of paragraph (a), and

(b) after that paragraph insert—

“(aa) under section 103KFA(3) (gains on deemed carried interest where election made), or”.

(4) The amendments made by this section have effect for the tax year 2022-23 and subsequent tax years.

43 Relief on disposal of joint interests in land U.K.

(1) In section 248A of TCGA 1992 (roll-over relief on disposal of joint interests in land: conditions), at end insert—

“(8) Section 248B applies in relation to cases where, immediately before the disposal, the land is held by a partnership comprising the landowner and the co-owner or co-owners (whether the partnership is formed in Scotland or elsewhere) as it applies in relation to other cases (and the partners are regarded as the landowner and the co-owner or co-owners for the purposes of this section and section 248B).”

(2) In section 248E of TCGA 1992 (relief on disposal of joint interests in private residence), at end insert—

“(9) This section applies in relation to cases where, immediately before the disposal, the land is held by a partnership comprising the landowner and the co-owner or co-owners (whether the partnership is formed in Scotland or elsewhere) as it applies in relation to other cases (and the partners are regarded as the landowner and the co-owner or co-owners for the purposes of this section).”

(3) The amendments made by this section have effect in relation to disposals made on or after 6 April 2023.