Finance Act 1988

Section 114.

SCHEDULE 11 Capital Gains Indexation: Groups and Associated Companies

Debts

1 (1) Subject to sub-paragraph (3) below, where—

(a) there is a disposal by a company of a linked company debt on a security owed by another company, and

(b) the two companies are linked companies immediately before the disposal,

there shall be no indexation allowance on the disposal.

(2) Subject to sub-paragraph (3) below, where—

(a) there is a disposal by a company of a debt on a security owed by another company which is not a linked company debt on a security, and

(b) the two companies are linked companies immediately before the disposal,

then, in ascertaining any indexation allowance due on the disposal, RD as defined in section 87(2) of the [1982 c. 39.] Finance Act 1982 shall be taken as the retail prices index for the first month after the acquisition of the debt in which the two companies were linked companies (or, if later, March 1982).

(3) Where—

(a) there is a disposal by a company of a debt on a security owed by another company,

(b) the debt constituted or formed part of the new holding received by the company making the disposal on a reorganisation, and

(c) sub-paragraph (1) or (2) above would apply in relation to the disposal but for this sub-paragraph,

neither of those sub-paragraphs shall apply in relation to the disposal, but any indexation allowance which, apart from this sub-paragraph, would be due on the disposal shall be reduced by such amount as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable.

(4) For the purposes of this paragraph a debt on a security owed by a company is a linked company debt on a security where immediately after its acquisition by the company making the disposal the two companies were linked companies.

2 Where—

(a) there is a disposal by a company of a debt on a security owed by any person,

(b) the company and that person are not linked companies immediately before the disposal, and

(c) the debt was incurred by that person as part of arrangements involving another company being put in funds,

paragraph 1 above shall have effect if and to the extent that it would if the debt were owed by that other company.

Shares

3 (1) This paragraph applies—

(a) where there is a disposal by a company of—

(i) a holding of redeemable preference shares of another company, or

(ii) a holding of shares, other than redeemable preference shares, of another company which has at all times consisted entirely of, or has at any time included, linked company shares, or

(b) where—

(i) there is a disposal by a company of a holding of shares of another company which is not a holding falling within paragraph (a) above,

(ii) the holding constituted or formed part of the new holding received by the company making the disposal on a reorganisation, and

(iii) but for section 78 of the [1979 c. 14.] Capital Gains Tax Act 1979 that reorganisation (or in a case where the holding disposed of derives, in whole or in part, from assets which were original shares in relation to an earlier reorganisation, that reorganisation or any such earlier reorganisation) would have involved a disposal in relation to which paragraph 1 above would have applied or this paragraph would have applied by virtue of paragraph (a) above,

if the two companies are linked companies immediately before the disposal.

(2) Where this paragraph applies, any indexation allowance which, apart from this paragraph, would be due on the disposal shall be reduced by such amount as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable.

(3) For the purposes of this paragraph shares of a company are linked company shares where—

(a) immediately after their acquisition by the company making the disposal the two companies were linked companies,

(b) their acquisition by the company making the disposal was wholly or substantially financed by one or more linked company loans or linked company funded subscriptions (or by a combination of such loans and subscriptions), and

(c) the sole or main benefit which might have been expected to accrue from that acquisition was the obtaining of an indexation allowance on a disposal of the shares.

(4) In sub-paragraph (3) above—

• “linked company loan” means a loan made to the company making the disposal by another company where immediately after the acquisition of the shares by the company making the disposal the two companies were linked companies, and

• “linked company funded subscription” means a subscription for shares in the company making the disposal by another company where—

  (a)

  immediately after the acquisition of the shares by the company making the disposal those two companies were linked companies, and

  (b)

  the subscription was wholly or substantially financed, either directly or indirectly, by one or more linked company subscription-financing loans.

(5) In sub-paragraph (4) above “linked company subscription-financing loan” means a loan made by a company to the subscribing company or any other company where immediately after the acquisition of the shares by the company making the disposal—

(a) the company making the loan, and

(b) the subscribing company, and

(c) where the company to which the loan was made was not the subscribing company, that company,

were linked companies.

Linked companies

4 For the purposes of this Schedule companies are linked companies if they are members of the same group or are associated with each other; and for the purposes of this paragraph—

(a) “group” means a company which has one or more 51 per cent. subsidiaries together with that subsidiary or those subsidiaries (section 838 (meaning of 51 per cent. subsidiary) of the Taxes Act 1988 having effect for the purposes of this paragraph as for those of the Tax Acts), and

(b) two companies are associated with each other if one controls the other or both are under the control of the same person or persons (section 416(2) to (6) (meaning of control) of the Taxes Act 1988 having effect for the purposes of this paragraph as for those of Part XI of that Act).

Supplementary

5 Where a disposal of a holding of shares follows one or more disposals of the same holding to which section 273(1) of the Taxes Act 1970 (which treats certain intra-group transactions as producing neither a gain nor a loss) applied, paragraph 3(3) to (5) above shall have effect as if the references to the company making the disposal were references to the company which last acquired the asset otherwise than on a disposal to which section 273(1) applied.

6 (1) In this Schedule “redeemable preference shares” means shares in a company which are described as such in the terms of their issue or which fulfil the condition in paragraph (a) below and either or both of the conditions in paragraphs (b) and (c) below—

(a) that, as against other shares in the company, they carry a preferential entitlement to a dividend or to any assets in a winding up or both;

(b) that, by virtue of the terms of their issue, the exercise of a right by any person or the existence of any arrangements, they are liable to be redeemed, cancelled or repaid, in whole or in part;

(c) that, by virtue of any arrangements—

(i) to which the company which issued the shares is a party, or

(ii) where that company and another company are linked companies at the time of the issue, to which that other company is a party,

the holder has a right to require another person to acquire the shares or is obliged in any circumstances to dispose of them or another person has a right or is in any circumstances obliged to acquire them;

and for the purposes of paragraph (a) above shares are to be treated as carrying a preferential entitlement to a dividend as against other shares if, by virtue of any arrangements, there are circumstances in which a minimum dividend will be payable on those shares but not on others.

(2) In this Schedule the expressions “reorganisation”, “original shares” and “new holding” have the meanings given by section 77 of the [1979 c. 14.] Capital Gains Tax Act 1979 except that, in a case where sections 78 and 79 of that Act apply in circumstances other than a reorganisation (within the meaning of section 77 of that Act) by virtue of any other provision of Chapter II of Part IV of that Act (conversion of securities, company reconstructions and amalgamations etc.), those expressions shall be construed as they fall to be construed in sections 78 and 79 as they so apply.

(3) In this Schedule—

• “holding”, in relation to shares, means a number of shares which are to be regarded for the purposes of the Capital Gains Tax Act 1979 as indistinguishable parts of a single asset,

• “indexation allowance” has the same meaning as in Chapter III of Part III of the [1982 c. 39.] Finance Act 1982, and

• “security” has the same meaning as in section 82 of the [1979 c. 14.] Capital Gains Tax Act 1979.

Commencement

7 This Schedule shall apply to disposals on or after 15th March 1988.