Taxation of Chargeable Gains Act 1992

[F1 164F Failure of conditions of relief. U.K.

[F2 (1) This section shall apply where a person has acquired any eligible shares in a qualifying company (“the acquired holding”) for a consideration which is treated as reduced, under section 164A or this section [F3 or section 164FA], by any amount (“the held-over gain”).]

(2) Subject to the following provisions of this section, if at any time in the relevant period—

(a) the shares comprised in the acquired holding cease to be eligible shares,

(b) the company in which the acquired holding subsists ceases to be a qualifying company,

(c) the person who acquired the acquired holding becomes neither resident nor ordinarily resident in the United Kingdom, or

(d) any of the shares comprised in the acquired holding are included in the original shares (within the meaning of sections 127 to 130) in the case of any transaction with respect to which section 116 has effect,

a chargeable gain equal to the appropriate proportion of the held-over gain shall be treated as accruing to that person immediately before that time or, in a case falling within paragraph (d) above, immediately before the disposal assumed for the purposes of section 116(10)(a).

[F4 (2A) In deciding for the purposes of subsection (2)(b) above whether a company is a qualifying company at a time falling on or after 29th November 1994 section 164H shall be ignored.]

(3) For the purposes of this section the appropriate proportion of the held-over gain is so much, if any, of that gain as has not already been [F5 charged on any disposal or under this section] or, in a case to which subsection (2) above applies by virtue of paragraph (d) of that subsection or in accordance with subsection (7) below, such part of that proportion of that gain as is just and reasonable having regard to the extent to which the acquired holding comprises the original shares.

[F6 (4) For the purposes of this section the whole or a part of any held-over gain on the acquisition of the acquired holding shall be treated—

(a) in accordance with subsection (4A) below as charged on any disposal in relation to which the whole or any part of the held-over gain falls to be taken into account in determining the chargeable gain or allowable loss accruing on the disposal, and

(b) as charged under this section so far as it falls to be disregarded in accordance with subsection (11) below.

(4A) In the case of any such disposal as is mentioned in subsection (4)(a) above, the amount of the held-over gain charged on that disposal—

(a) shall, except in the case of a part disposal, be the amount taken into account as so mentioned, and

(b) in the case of a part disposal, shall be calculated by multiplying the following, that is to say—

(i) so much of the amount of the held-over gain as has not already been charged on a previous disposal, and

(ii) the fraction used in accordance with section 42(2) for determining, subject to any deductions in pursuance of this Chapter, the amount allowable as a deduction in the computation of the gain accruing on the disposal in question.]

(5) Where the acquired holding or any asset treated as comprised in a single asset with the whole or any part of that holding has been disposed of under section 58 by the individual who acquired that holding to another person (“the spouse”)—

(a) the spouse shall not (subject to the following provisions of this subsection) be treated for the purposes of this section as a person who has acquired eligible shares for a consideration which is treated as reduced under section 164A F7 ... ;

(b) the disposal shall not be included in the disposals on which the whole or any part of the held-over gain may be treated as charged for the purposes of this section;

(c) disposals by the spouse, as well as disposals by that individual, shall be taken into account for the purposes of [F8 subsections (4) and (4A) above];

(d) any charge under subsection (2) above (other than one by virtue paragraph (c) of that subsection) shall be apportioned between that individual and the spouse according to the extent to which the appropriate proportion of the held-over gain would be charged on the disposal by each of them of their respective holdings (if any);

(e) paragraph (c) of that subsection shall have effect as if the reference in that paragraph to that individual included a reference to the spouse;

(f) a charge by virtue of that paragraph shall be imposed only on a person who becomes neither resident nor ordinarily resident in the United Kingdom; and

(g) the amount of the charge imposed on any person by virtue of that paragraph shall be that part of the charge on the appropriate proportion of the held-over gain which would be apportioned to that person in a case to which paragraph (d) above applies.

(6) Subject to subsection (7) below, where the qualifying company in which the acquired holding subsists ceases to be an unquoted company this section shall have effect as if the relevant period ended immediately before it so ceased.

(7) Where there is a transaction by virtue of which any shares in a company are to be regarded under section 127 as the same asset as the acquired holding or the whole or any part of an asset comprising that holding, this section shall not apply by virtue of subsection (2)(a) or (b) above except where—

(a) those shares are not, or cease to be, eligible shares in that company;

(b) neither that company nor (if different) the company in which the acquired holding subsisted —

(i) is or continues to be a qualifying company; or

(ii) would be or continue to be a qualifying company if it were an unquoted company;

(c) the transaction is one by virtue of which the shares comprised in the acquired holding cease to be eligible shares in pursuance of section 164L; or

(d) there is a transaction by virtue of which any shares at any time comprised in the acquired holding would have so ceased in pursuance of that section.

(8) This section shall not apply by virtue of subsection (2)(a) or (b) above where the company in which the acquired holding subsists is wound up or dissolved without winding up and—

(a) F9 ... the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax; and

(b) the company’s net assets (if any) are distributed to its members or dealt with as bona vacantia before the end of the period of 3 years from the commencement of the winding up or, as the case may be, from the dissolution.

(9) This section shall not apply by virtue of subsection (2)(c) above in relation to any person 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 any eligible shares in the company in question;

and, accordingly, no assessment shall be made by virtue of subsection (2)(c) above before the end of that period in any case where the condition in paragraph (a) above is satisfied and the condition in paragraph (b) above may be satisfied.

(10) For the purposes of subsection (9) above a person shall be taken to have disposed of an asset if there has been such a disposal as would, if the person making the disposal had been resident in the United Kingdom, have been a disposal on which F10 ... the whole or any part of the held-over gain would have been charged.

[F11 (10A) Where (apart from this subsection) a chargeable gain of any amount would by virtue of subsection (2) above accrue to the person who acquired the acquired holding but, within the period mentioned in subsection (10B) below, that person acquires a qualifying investment (within the meaning of section 164A), that person shall, on making a claim as respects the qualifying investment, be treated—

(a) as if the amount of the gain were reduced by whichever is the smallest of the following—

(i) the actual amount or value of the consideration for the acquisition of the qualifying investment,

(ii) in the case of a qualifying investment acquired otherwise than by a transaction at arm’s length, the market value of that investment at the time of its acquisition,

(iii) the amount specified for the purposes of this subsection in the claim, and

(b) as if the amount or value of the consideration for the acquisition of the qualifying investment were reduced by the amount of the reduction made under paragraph (a) above;

but paragraph (b) above shall not affect the treatment for the purposes of this Act of the other party to the transaction involving the qualifying investment.

(10B) The period referred to in subsection (10A) above is the period (not including any period before the acquisition of the acquired holding) which begins 12 months before and ends 3 years after the time when the chargeable gain accrues or would but for that subsection accrue, together with any such further period after the disposal as the Board may by notice allow.]

[F12 (10C) Subsection (10A) above is subject to sections 164FF and 164FG.]

(11) Gains on disposals made after a chargeable gain has under this section been deemed to accrue in respect of the acquired holding to any person shall be computed as if so much of the held-over gain as is equal to the amount of the chargeable gain were to be disregarded.

(12) In this section “the relevant period” means (subject to subsection (6) above) the period of 3 years after the acquisition of the acquired holding.]

Textual Amendments

F1 Ss. 164A-164N (Pt. V, Ch. 1A) inserted (27.7.1993 with effect in relation to any disposal made on or after 16.3.1993 as mentioned in s. 87(2)) by 1993 c. 34, s. 87, Sch. 7 Pt. II para.3

F2 S. 164F(1) substituted (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(a)

F3 Words in s. 164F(1) inserted (with effect in accordance with Sch. 17 para. 7(1)-(4) of the amending Act) by Finance Act 1997 (c. 16), Sch. 17 para. 3(1)

F4 S. 164F(2A) inserted (1.5.1995) by Finance Act 1995 (c. 4), s. 46(3)

F5 Words in s. 164F(3) substituted (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(b)

F6 S. 164F(4)(4A) substituted for s. 164F(4) (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(c)

F7 Words in s. 164F(5)(a) repealed (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(d)(i), Sch. 26 Pt. V(7)

F8 Words in s. 164F(5)(c) substituted (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(d)(ii)

F9 Words in s. 164F(8)(a) repealed (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 55, Sch. 41 Pt. V(10)

F10 Words in s. 164F(10) repealed (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(e), Sch. 26 Pt. V(7)

F11 S. 164F(10A)(10B) inserted (with effect in accordance with s. 91(2), Sch. 11 para. 9(2)(3) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(1)(f)

F12 S. 164F(10C) inserted (with application in accordance with s. 47(6)(7) of the amending Act) by Finance Act 1995 (c. 4), s. 47(3)

Modifications etc. (not altering text)

C1 S. 164F(1) modified (with effect in accordance with s. 91(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(2)(a)(3)

C2 S. 164F(3) modified (with effect in accordance with s. 91(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(2)(b)(3)

C3 S. 164F(4A)(a) modified (with effect in accordance with s. 91(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(2)(c)(3)

C4 S. 164F(4A)(b)(i) modified (with effect in accordance with s. 91(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 11 para. 9(2)(c)(3)