Finance Act 1993

Deferral of unrealised gains U.K.

139 Claim to defer unrealised gains. U.K.

(1) This section applies where (apart from a claim under this section as regards an accounting period) an unrealised exchange gain would accrue to a company—

(a) for an accrual period constituting or falling within the accounting period, and

(b) as regards a long-term capital asset or a long-term capital liability;

and the reference here to an exchange gain is to an exchange gain of a trade or an exchange gain of part of a trade or a non-trading exchange gain.

(2) This section does not apply unless an amount is available for relief under this section for the accounting period.

(3) The company may claim that—

(a) the gain, or part of it, shall be treated in accordance with section 140(3) below, and

(b) an amount shall be treated in accordance with section 140(4) to (10) below as regards the asset or liability.

(4) The claim must—

(a) stipulate the amount of the gain or part to be treated as mentioned in subsection (3)(a) above;

(b) stipulate the amount to be treated as mentioned in subsection (3)(b) above;

(c) identify the asset or liability concerned.

(5) The following rules apply to a claim—

(a) only one claim may be made as regards an accounting period, but where this section applies in relation to two or more gains which would accrue to a company for an accrual period or accrual periods constituting or falling within the accounting period the claim may be made in relation to more than one of the gains;

(b) the amount stipulated under subsection (4)(b) above as regards an asset or liability must be the same as, and must be expressed in the same currency as, the amount of the gain or part stipulated under subsection (4)(a) above as regards the asset or liability;

(c) the amount (or total of the amounts) stipulated under subsection (4)(a) above as regards an accounting period must not exceed the amount available for relief under this section for the accounting period.

(6) A claim may not be made or withdrawn as regards an accounting period if—

(a) the company has been assessed to corporation tax for the period, and

(b) the assessment has become final and conclusive;

but the preceding provisions of this subsection do not apply if the claim or withdrawal is made before the expiry of the period of two years beginning with the end of the accounting period.

(7) In a case where—

(a) the period of six years beginning with the end of an accounting period expires, and

(b) no assessment of the company to corporation tax for the accounting period has become final and conclusive,

a claim may not be made or withdrawn as regards that accounting period.

(8) In a case where—

(a) subsection (6) or (7) above would otherwise prevent a claim being made in a particular case, and

(b) the Board make a determination under this subsection,

a claim may be made on or before such day as the Board allow.

Modifications etc. (not altering text)

C1 S. 139 modified (23.3.1995) by S.I. 1994/3226, reg. 2(2)

S. 139 modified (23.3.1995) by S.I. 1994/3228, regs. 2(2)(6), 4(2)

S. 139 modified (1.1.1999) by S.I. 1998/3177, reg. 7

140 Deferral of unrealised gains. U.K.

(1) This section applies where a claim is made under section 139 above as regards an asset or liability.

(2) For the purposes of this section—

(a) the first accrual period is the accrual period mentioned in section 139(1) above, and

(b) the second accrual period is the accrual period next occurring as regards the asset or liability while it is held or owed by the company.

(3) Any gain or part whose amount is stipulated under section 139(4)(a) above as regards the asset or liability shall be treated as not accruing as regards the asset or liability for the first accrual period.

(4) If throughout the second accrual period the asset is held, or the liability is owed, by the company solely for the purposes of a trade or part of a trade—

(a) an exchange gain of the trade or part for the accrual period shall be treated as accruing to the company as regards the asset or liability,

(b) the amount of the gain shall be the amount stipulated under section 139(4)(b) above as regards the asset or liability, and

(c) section 128(4) above shall apply.

(5) If throughout the second accrual period the asset is held, or the liability is owed, by the company solely for purposes other than trading purposes—

(a) a non-trading exchange gain for the accrual period shall be treated as accruing to the company as regards the asset or liability,

(b) the amount of the gain shall be the amount stipulated under section 139(4)(b) above as regards the asset or liability, and

(c) section 129(2) above shall apply.

(6) Where as regards the second accrual period neither subsection (4) nor subsection (5) above applies—

(a) the amount stipulated under section 139(4)(b) above as regards the asset or liability shall be apportioned for the period on a just and reasonable basis, and

(b) subsections (7) and (8) below shall apply.

(7) Where for the second accrual period part of an amount is attributed to a trade or part of a trade under subsection (6) above—

(a) an exchange gain of the trade or part for the accrual period shall be treated as accruing to the company as regards the asset or liability,

(b) the amount of the gain shall be the amount of the part so attributed, and

(c) section 128(4) above shall apply.

(8) Where for the second accrual period part of an amount is attributed to purposes other than trading purposes under subsection (6) above—

(a) a non-trading exchange gain for the accrual period shall be treated as accruing to the company as regards the asset or liability,

(b) the amount of the gain shall be the amount of the part so attributed, and

(c) section 129(2) above shall apply.

(9) In a case where—

(a) an exchange gain of a trade or of part of a trade for the second accrual period is treated as accruing to a company by virtue of the preceding provisions of this section (or would be so treated apart from this subsection), and

(b) in that period the asset or liability is to any extent held or owed by the company in exempt circumstances,

to that extent the gain shall be treated as a non-trading exchange gain (and not as a gain of the trade or part) and section 129(2) above shall apply.

(10) Any apportionment required by subsection (9) above shall be made on a just and reasonable basis.

(11) Subsections (4) to (10) above shall have effect subject to any further application of section 139 above as regards the asset or liability.

(12) For the purposes of this section a part of a trade is any part of a trade whose basic profits or losses for the relevant accounting period are by virtue of regulations under section 94 above to be computed and expressed in a particular currency for the purposes of corporation tax; and the relevant accounting period is the accounting period which constitutes the second accrual period or in which that accrual period falls.

Modifications etc. (not altering text)

C2 S. 140 modified (23.3.1995) by S.I. 1994/3226, reg. 2(2)

S. 140 modified (1.1.1999) by S.I. 1998/3177, reg. 7

S. 140 modified (23.3.1995) by S.I. 1994/3228, reg. 2(2)(6)

141 Deferral: amount available for relief. U.K.

(1) An amount is available for relief under section 139 above for an accounting period if amount A is exceeded by amount B or (if amount C is lower than amount B) amount A is exceeded by amount C; and the amount available for relief for the period is the amount of the difference between amount A and amount B or (as the case may be) between amount A and amount C.

(2) Amount A is one tenth of the amount falling within subsection (3) below.

(3) The amount falling within this subsection is an amount equal to the amount of the company’s profits for the accounting period on which corporation tax would fall finally to be borne apart from—

(a) a claim under section 139 above as regards the accounting period, and

(b) section 402 of the Taxes Act 1988 (group relief);

and section 238(4) of the Taxes Act 1988 (amount of profits on which corporation tax falls finally to be borne) shall apply for the purposes of this subsection.

(4) Amount B is the amount found by deducting amount B(2) from amount B(1) where—

(a) amount B(1) is the total amount of unrealised exchange gains which accrue or would (apart from a claim under section 139 above as regards the accounting period) accrue to the company, in an accrual period or accrual periods constituting or falling within the accounting period, as regards long-term capital assets or long-term capital liabilities or both;

(b) amount B(2) is the total amount of unrealised exchange losses accruing to the company in such an accrual period or accrual periods as regards such assets or liabilities or both.

(5) Amount C is the amount found by deducting amount C(2) from amount C(1) where—

(a) amount C(1) is the total amount of exchange gains which accrue or would (apart from a claim under section 139 above as regards the accounting period) accrue to the company, in an accrual period or accrual periods falling within the accounting period, as regards relevant items;

(b) amount C(2) is the total amount of exchange losses accruing to the company in such an accrual period or periods as regards relevant items.

(6) In subsections (4) and (5) above the references to exchange gains and losses are to exchange gains and losses of a trade and exchange gains and losses of part of a trade and non-trading exchange gains and losses.

(7) For the purposes of subsection (5) above relevant items are—

(a) assets falling within section 153(1)(a) below;

(b) liabilities falling within section 153(2)(a) below;

(c) currency contracts.

Modifications etc. (not altering text)

C3 S. 141 modified (23.3.1995) by S.I. 1994/3226, reg. 2(2)

S. 141 modified (23.3.1995) by S.I. 1994/3228, regs. 2(2)(6), 4(3)-(8)

S. 141 modified (1.1.1999) by S.I. 1998/3177, reg. 7

142 Deferral: non-sterling trades. U.K.

(1) Where apart from this subsection—

(a) a gain falling within section 139(1) above would be expressed in a currency other than sterling, or

(b) a gain or loss falling within section 141(4) or (5) above would be expressed in a currency other than sterling,

the amount of the gain or loss shall be treated for the purposes of sections 139 to 141 above as the sterling equivalent of its amount expressed in the other currency.

(2) For the purposes of subsection (1) above the sterling equivalent of an amount is—

(a) the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 93(6) above in the case of the basic profits or losses for the accounting period concerned of the trade of which the gain or loss is a gain or loss (or would be apart from section 139 above), or

(b) the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 94(11) above in the case of the basic profits or losses for the accounting period concerned of the part of the trade of which the gain or loss is a gain or loss (or would be apart from section 139 above).

(3) Subsection (4) below applies where—

(a) part of an exchange gain of a trade, or part of an exchange gain of part of a trade, is treated as not accruing to a company for an accrual period by virtue of section 140(3) above, and

(b) the local currency of the trade or part for the accounting period which constitutes the accrual period or in which it falls is a currency other than sterling.

(4) The amount the company is treated as receiving under section 128(4) above in respect of the accounting period and by virtue of the gain (as reduced) shall be taken into account after the basic profits or losses of the trade or part for the accounting period are found in sterling for the purposes of corporation tax.

(5) In a case where—

(a) an exchange gain of a trade, or of part of a trade, for an accrual period is treated as accruing to a company under section 140 above, and

(b) the local currency of the trade or part for the accounting period which constitutes the accrual period or in which it falls is a currency other than sterling,

the amount of the gain shall be treated as the local currency equivalent of its amount expressed in sterling.

(6) The translation required by subsection (5) above shall be made by reference to the London closing exchange rate for the two currencies concerned—

(a) for the last day of the accrual period mentioned in subsection (5) above, or

(b) if that accrual period does not end with the end of a day, for the day on which that accrual period ends.

Modifications etc. (not altering text)

C4 S. 142 modified (1.1.1999) by S.I. 1998/3177, reg. 7

S. 142 modified (23.3.1995) by S.I. 1994/3228, reg. 2(2)(6)

C5 S. 142(1)-(4) excluded (1.5.1995) by 1988 c. 1, Sch. 24 para. 15 (as inserted (1.5.1995) by 1995 c. 4, s. 133, Sch. 25 paras. 1, 6(5))

F1 143 Deferral: supplementary. U.K.

(1) For the purposes of sections 139 and 141 above and this section an exchange gain or loss is unrealised if the accrual period concerned is one which ends solely by virtue of an accounting period of the company coming to an end.

(2) In a case where—

(a) an unrealised exchange gain would accrue as mentioned in section 139(1) above,

(b) the gain represents the whole or part of an initial exchange gain accruing under section 127 above, and

(c) the whole or part of the unrealised exchange gain is attributable to any part by which the nominal amount of the debt has decreased,

the company may not claim under section 139 above as regards so much of the unrealised exchange gain as is so attributable.

(3) In applying subsection (2)(c) above the gain shall be apportioned on a just and reasonable basis.

(4) For the purposes of sections 139 and 141 above an asset or liability is a long-term capital asset or liability if the following conditions are fulfilled—

(a) the asset or liability falls within section 153(1)(a) or (2)(a) below,

(b) the debt under which it subsists is such that, under the terms as originally entered into, the time for settlement is not less than one year from the time when the debt was created, and

(c) the asset or liability represents capital throughout the accounting period mentioned in section 139(1) above;

and the time for settlement is the earliest time at which the creditor can require settlement if he exercises all available options and rights.

(5) For the purposes of section 140 above an asset is held, or a liability is owed, in exempt circumstances at a given time if it is then held or owed—

(a) for the purposes of long term insurance business;

(b) for the purposes of mutual insurance business;

(c) for the purposes of the occupation of commercial woodlands;

(d) by a housing association approved at that time for the purposes of section 488 of the Taxes Act 1988;

(e) by a self-build society approved at that time for the purposes of section 489 of that Act.

(6) In subsection (5) above—

• “long term insurance business” means insurance business of any of the classes specified in Schedule 1 to the M1 Insurance Companies Act 1982;

• “commercial woodlands” means woodlands in the United Kingdom which are managed on a commercial basis and with a view to the realisation of profits.

(7) Regulations may—

(a) make provision modifying the effect of sections 139 to 142 above and the preceding provisions of this section in a case where the debt under which a long-term capital asset or liability subsists is settled and replaced to any extent by another debt under which (or other debts under each of which) such an asset or liability subsists;

(b) make provision modifying the effect of sections 139 to 142 above and the preceding provisions of this section in a case where a group of companies is involved;

(c) provide that the amount falling within section 141(3) above shall be treated as reduced in accordance with prescribed rules;

and any provision under paragraph (a) above may include provision that realised gains or losses are to be treated as wholly or partly unrealised.

Textual Amendments

F1 S. 143(1)-(6) modified (1.1.1999) by 1998/3177, reg. 7

S. 143(1)-(6) modified (23.3.1995) by S.I. 1994/3228, reg. 2(2)(6)

Modifications etc. (not altering text)

C6 S. 143(2) excluded (23.3.1995) by S.I. 1994/3228, reg. 2(2)(c)(6)(b)(ii)

Marginal Citations

M1 1982 c. 50.