Chapter IIGifts of business assets
165Relief for gifts of business assets
(1)If—
(a)an individual (“the transferor”) makes a disposal otherwise than under a bargain at arm’s length of an asset within subsection (2) below, and
(b)a claim for relief under this section is made by the transferor and the person who acquires the asset (“the transferee”) or, where the trustees of a settlement are the transferee, by the transferor alone,
then, subject to subsection (3) and sections 166 and 167, subsection (4) below shall apply in relation to the disposal.
(2)An asset is within this subsection if—
(a)it is, or is an interest in, an asset used for the purposes of a trade, profession or vocation carried on by—
(i)the transferor, or
(ii)his family company, or
(iii)a member of a trading group of which the holding company is his family company, or
(b)it consists of shares or securities of a trading company, or of the holding company of a trading group, where—
(i)the shares or securities are neither quoted on a recognised stock exchange nor dealt in on the Unlisted Securities Market, or
(ii)the trading company or holding company is the transferor’s family company.
(3)Subsection (4) below does not apply in relation to a disposal if—
(a)in the case of a disposal of an asset, any gain accruing to the transferor on the disposal is (apart from this section) wholly relieved under Schedule 6, or
(b)in the case of a disposal of shares or securities, the appropriate proportion determined under paragraph 7(2) or 8(2) of Schedule 6 of any gain accruing to the transferor on the disposal is (apart from this section) wholly relieved under that Schedule, or
(c)in the case of a disposal of qualifying corporate bonds, a gain is deemed to accrue by virtue of section 116(10)(b), or
(d)subsection (3) of section 260 applies in relation to the disposal (or would apply if a claim for relief were duly made under that section).
(4)Where a claim for relief is made under this section in respect of a disposal—
(a)the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, and
(b)the amount of the consideration for which, apart from this section, the transferee would be regarded for the purposes of capital gains tax as having acquired the asset or, as the case may be, the shares or securities,
shall each be reduced by an amount equal to the held-over gain on the disposal.
(5)Part I of Schedule 7 shall have effect for extending the relief provided for by virtue of subsections (1) to (4) above in the case of agricultural property and for applying it in relation to settled property.
(6)Subject to Part II of Schedule 7 and subsection (7) below, the reference in subsection (4) above to the held-over gain on a disposal is a reference to the chargeable gain which would have accrued on that disposal apart from subsection (4) above and (in appropriate cases) Schedule 6, and in subsection (7) below that chargeable gain is referred to as the unrelieved gain on the disposal.
(7)In any case where—
(a)there is actual consideration (as opposed to the consideration equal to the market value which is deemed to be given by virtue of section 17(1)) for a disposal in respect of which a claim for relief is made under this section, and
(b)that actual consideration exceeds the sums allowable as a deduction under section 38,
the held-over gain on the disposal shall be the amount by which the unrelieved gain on the disposal exceeds the excess referred to in paragraph (b) above.
(8)Subject to subsection (9) below, in this section and Schedule 7—
(a)“family company”, “holding company”, “trading company” and “trading group” have the meanings given by paragraph 1 of Schedule 6, and
(b)“trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.
(9)In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.
(10)Where a disposal after 13th March 1989, in respect of which a claim is made under this section, is (or proves to be) a chargeable transfer for inheritance tax purposes, there shall be allowed as a deduction in computing (for capital gains tax purposes) the chargeable gain accruing to the transferee on the disposal of the asset in question an amount equal to whichever is the lesser of—
(a)the inheritance tax attributable to the value of the asset, and
(b)the amount of the chargeable gain as computed apart from this subsection,
and, in the case of a disposal which, being a potentially exempt transfer, proves to be a chargeable transfer, all necessary adjustments shall be made, whether by the discharge or repayment of capital gains tax or otherwise.
(11)Where an amount of inheritance tax—
(a)falls to be redetermined in consequence of the transferor’s death within 7 years of making the chargeable transfer in question, or
(b)is otherwise varied,
after it has been taken into account under subsection (10) above, all necessary adjustments shall be made, whether by the making of an assessment to capital gains tax or by the discharge or repayment of such tax.
166Gifts to non-residents
(1)Section 165(4) shall not apply where the transferee is neither resident nor ordinarily resident in the United Kingdom.
(2)Section 165(4) shall not apply where the transferee is an individual or a company if that individual or company—
(a)though resident or ordinarily resident in the United Kingdom, is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom, and
(b)by virtue of the arrangements would not be liable in the United Kingdom to tax on a gain arising on a disposal of the asset occurring immediately after its acquisition.
167Gifts to foreign-controlled companies
(1)Section 165(4) shall not apply where the transferee is a company which is within subsection (2) below.
(2)A company is within this subsection if it is controlled by a person who, or by persons each of whom—
(a)is neither resident nor ordinarily resident in the United Kingdom, and
(b)is connected with the person making the disposal.
(3)For the purposes of subsection (2) above, a person who (either alone or with others) controls a company by virtue of holding assets relating to that or any other company and who is resident or ordinarily resident in the United Kingdom shall be regarded as neither resident nor ordinarily resident there if—
(a)he is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom, and
(b)by virtue of the arrangements he would not be liable in the United Kingdom to tax on a gain arising on a disposal of the assets.
168Emigration of donee
(1)If—
(a)relief is given under section 165 in respect of a disposal to an individual or under section 260 in respect of a disposal to an individual (“the relevant disposal”); and
(b)at a time when he has not disposed of the asset in question, the transferee becomes neither resident nor ordinarily resident in the United Kingdom,
then, subject to the following provisions of this section, a chargeable gain shall be deemed to have accrued to the transferee immediately before that time, and its amount shall be equal to the held-over gain (within the meaning of section 165 or 260) on the relevant disposal.
(2)For the purposes of subsection (1) above the transferee shall be taken to have disposed of an asset before the time there referred to only if he has made a disposal or disposals in connection with which the whole of the held-over gain on the relevant disposal was represented by reductions made in accordance with section 165(4)(b) or 260(3)(b) and where he has made a disposal in connection with which part of that gain was so represented, the amount of the chargeable gain deemed by virtue of this section to accrue to him shall be correspondingly reduced.
(3)The disposals by the transferee that are to be taken into account under subsection (2) above shall not include any disposal to which section 58 applies; but where any such disposal is made by the transferee, disposals by his spouse shall be taken into account under subsection (2) above as if they had been made by him.
(4)Subsection (1) above shall not apply by reason of a person becoming neither resident nor ordinarily resident more than 6 years after the end of the year of assessment in which the relevant disposal was made.
(5)Subsection (1) above shall not apply in relation to a disposal made to an individual if—
(a)the reason for his becoming neither resident nor ordinarily resident in the United Kingdom is that he works in an employment or office all the duties of which are performed outside the United Kingdom, and
(b)he again becomes resident or ordinarily resident in the United Kingdom within the period of 3 years from the time when he ceases to be so, without having meanwhile disposed of the asset in question;
and accordingly no assessment shall be made by virtue of subsection (1) above before the end of that period in any case where the condition in paragraph (a) above is, and the condition in paragraph (b) above may be, satisfied.
(6)For the purposes of subsection (5) above a person shall be taken to have disposed of an asset if he has made a disposal in connection with which the whole or part of the held-over gain on the relevant disposal would, had he been resident in the United Kingdom, have been represented by a reduction made in accordance with section 165(4)(b) or 260(3)(b) and subsection (3) above shall have effect for the purposes of this subsection as it has effect for the purposes of subsection (2) above.
(7)Where an amount of tax assessed on a transferee by virtue of subsection (1) above is not paid within the period of 12 months beginning with the date when the tax becomes payable then, subject to subsection (8) below, the transferor may be assessed and charged (in the name of the transferee) to all or any part of that tax.
(8)No assessment shall be made under subsection (7) above more than 6 years after the end of the year of assessment in which the relevant disposal was made.
(9)Where the transferor pays an amount of tax in pursuance of subsection (7) above, he shall be entitled to recover a corresponding sum from the transferee.
(10)Gains on disposals made after a chargeable gain has under this section been deemed to accrue by reference to a held-over gain shall be computed without any reduction under section 165(4)(b) or 260(3)(b) in respect of that held-over gain.
169Gifts into dual resident trusts
(1)This section applies where there is or has been a disposal of an asset to the trustees of a settlement in such circumstances that, on a claim for relief, section 165 or 260 applies, or would but for this section apply, so as to reduce the amounts of the chargeable gain and the consideration referred to in section 165(4) or 260(3).
(2)In this section “a relevant disposal” means such a disposal as is referred to in subsection (1) above.
(3)Relief under section 165 or 260 shall not be available on a relevant disposal if—
(a)at the material time the trustees to whom the disposal is made fall to be treated, under section 69, as resident and ordinarily resident in the United Kingdom, although the general administration of the trust is ordinarily carried on outside the United Kingdom; and
(b)on a notional disposal of the asset concerned occurring immediately after the material time, the trustees would be regarded for the purposes of any double taxation relief arrangements—
(i)as resident in a territory outside the United Kingdom; and
(ii)as not liable in the United Kingdom to tax on a gain arising on that disposal.
(4)In subsection (3) above—
(a)“the material time” means the time of the relevant disposal; and
(b)a “notional disposal” means a disposal by the trustees of the asset which was the subject of the relevant disposal.