Capital Gains Tax Act 1979 (repealed 6.3.1992)

• (b) there is no right of recourse to settled property not so appropriated, or to the income of settled property not so appropriated,

and, without prejudice to subsection (6) below, the settled property so appropriated shall, while the annuity is payable, and on the occasion of the death of the annuitant, be treated for the purposes of this section as being settled property under a separate settlement.

• (6) If there is a life interest in a part of the settled property and, where that is a life interest in income, there is no right of recourse to, or to the income of, the remainder of the settled property, the part of the settled property in which the life interest subsists shall while it subsists be treated for the purposes of this section as being settled property under a separate settlement.

Death of life tenant: exclusion of chargeable gain

56

• (1) Where, by virtue of section 54(1) above, the assets forming part of any settled property are deemed to be disposed of and re-acquired by the trustee on the occasion when a person becomes absolutely entitled thereto as against the trustee, then, if that occasion is the termination of a life interest (within the meaning of section 55 above) by the death of the person entitled to that interest—

• (a) no chargeable gain shall accrue on the disposal, and

• (b) if on the death the property reverts to the disponer the disposal and re-acquisition under that subsection shall be deemed to be for such consideration as to secure that neither a gain nor a loss accrues to the trustee, and shall, if the trustee had first acquired the property at a date earlier than 6th April 1965, be deemed to be at that earlier date.

• (2) Where section 55(1) above applies on the death of the person entitled to the life interest referred to therein, no chargeable gain shall accrue on the disposal deemed to be made under that section.

Death of annuitant

57

Sections 54(1) and 55(1) above shall apply, where an annuity which is not a life interest is terminated by the death of the annuitant, as they apply on the termination of a life interest by the death of the person entitled thereto.

Disposal of interests in settled property

58

• (1) No chargeable gain shall accrue on the disposal of an interest created by or arising under a settlement (including, in particular, an annuity or life interest, and the reversion to an annuity or life interest) by the person for whose benefit the interest was created by the terms of the settlement or by any other person except one who acquired, or derives his title from one who acquired, the interest for a consideration in money or money's worth, other than consideration consisting of another interest under the settlement.

• (2) Subject to subsection (1) above, where a person who has acquired an interest in settled property (including in particular the reversion to an annuity or life interest) becomes, as the holder of that interest, absolutely entitled as against the trustee to any settled property, he shall be treated as disposing of the interest in consideration of obtaining that settled property (but without prejudice to any gain accruing to the trustee on the disposal of that property deemed to be effected by him under section 54(1) above).

Other cases

Gifts: recovery from donee

59

• (1) If in any year of assessment a chargeable gain accrues to any person on the disposal of an asset by way of gift and any amount of capital gains tax assessed on that person for that year of assessment is not paid within twelve months from the date when the tax becomes payable the donee may, by an assessment made not later than two years from the date when the tax became payable, be assessed and charged (in the name of the donor) to capital gains tax on an amount not exceeding the amount of the chargeable gain so accruing, and not exceeding the grossed up amount of that capital gains tax unpaid at the time when he is so assessed, grossing up at the marginal rate of tax, that is to say taking capital gains tax on a chargeable gain at the amount which would not have been chargeable but for that chargeable gain.

• (2) A person paying any amount of tax in pursuance of this section shall be entitled to recover a sum of that amount from the donor.

• (3) References in this section to a donor include, in the case of an individual who has died, references to his personal representatives.

• (4) In this section references to a gift include references to any transaction otherwise than by way of a bargain made at arm's length so far as money or money's worth passes under the transaction without full consideration in money or money's worth, and “donor” and “donee” shall be construed accordingly ; and this section shall apply in relation to a gift made by two or more donors with the necessary modifications and subject to any necessary apportionments.

Partnerships

60

Where two or more persons carry on a trade or business in partnership—

• (a) tax in respect of chargeable gains accruing to them on the disposal of any partnership assets shall, in Scotland as well as elsewhere in the United Kingdom, be assessed and charged on them separately, and

• (b) any partnership dealings shall be treated as dealings by the partners and not by the firm as such, and

• (c) section 153(1)(2) of the Taxes Act (residence of partnerships) shall apply in relation to tax chargeable in pursuance of this Act as it applies in relation to income tax.

Insolvents' assets

61

• (1) In relation to assets held by a person as trustee or assignee in bankruptcy or under a deed of arrangement this Act shall apply as if the assets were vested in, and the acts of the trustee or assignee in relation to the assets were the acts of, the bankrupt or debtor (acquisitions from or disposals to him by the bankrupt or debtor being disregarded accordingly), and tax in respect of any chargeable gains which accrue to any such trustee or assignee shall be assessable on and recoverable from him.

• (2) Assets held by a trustee or assignee in bankruptcy or under a deed of arrangement at the death of the bankrupt or debtor shall for the purposes of this Act be regarded as held by a personal representative of the deceased and—

• (a) subsection (1) above shall not apply after the death, and

• (b) section 49(1) above (under which assets passing on a death are deemed to be acquired by the persons on whom they devolve) shall apply as if any assets held by a trustee or assignee in bankruptcy or under a deed of arrangement at the death of the bankrupt or debtor were assets of which the deceased was competent to dispose and which then devolved on the trustee or assignee as if he were a personal representative.

• (3) Assets vesting in a trustee in bankruptcy after the death of the bankrupt or debtor shall for the purposes of this Act be regarded as held by a personal representative of the deceased, and subsection (1) above shall not apply.

• (4) The definition of “settled property” in section 51 above shall not include any property as being property held by a trustee or assignee in bankruptcy or under a deed of arrangement.

• (5) In this section “deed of arrangement” means a deed of arrangement to which the Deeds of Arrangement Act 1914 or any corresponding enactment forming part of the law of Scotland or Northern Ireland applies.

Transactions between connected persons

62

• (1) This section shall apply where a person acquires an asset and the person making the disposal is connected with him.

• (2) Without prejudice to the generality of section 19(3) above the person acquiring the asset and the person making the disposal shall be treated as parties to a transaction otherwise than by way of a bargain made at arm's length.

• (3) If on the disposal a loss accrues to the person making the disposal, it shall not be deductible except from a chargeable gain accruing to him on some other disposal of an asset to the person acquiring the asset mentioned in subsection (1) above, being a disposal made at a time when they are connected persons:

Provided that this subsection shall not apply to a disposal by way of gift in settlement if the gift and the income from it is wholly or primarily applicable for educational, cultural or recreational purposes, and the persons benefiting from the application for those purposes are confined to members of an association of persons for whose benefit the gift was made, not being persons all or most of whom are connected persons.

• (4) Where the asset mentioned in subsection (1) above is an option to enter into a sale or other transaction given by the person making the disposal a loss accruing to the person acquiring the asset shall not be an allowable loss unless it accrues on a disposal of the option at arm's length to a person who is not connected with him.

• (5) In a case where the asset mentioned in subsection (1) above is subject to any right or restriction enforceable by the person making the disposal, or by a person connected with him, then (the amount of the consideration for the acquisition being, in accordance with subsection (2) above, deemed to be equal to the market value of the asset) that market value shall be—

• (a) what its market value would be if not subject to the right or restriction, minus—

• (b) the market value of the right or restriction or the amount by which its extinction would enhance the value of the asset to its owner, whichever is the less:

Provided that if the right or restriction is of such a nature that its enforcement would or might effectively destroy or substantially impair the value of the asset without bringing any countervailing advantage either to the person making the disposal or a person connected with him or is an option or other right to acquire the asset or, in the case of incorporeal property, is a right to extinguish the asset in the hands of the person giving the consideration by forfeiture or merger or otherwise, that market value of the asset shall be determined, and the amount of the gain accruing on the disposal shall be computed, as if the right or restriction did not exist.

• (6) Subsection (5) above shall not apply to a right of forfeiture or other right exercisable on breach of a covenant contained in a lease of land or other property, and shall not apply to any right or restriction under a mortgage or other charge.

Connected persons: interpretation

63

• (1) Any question whether a person is connected with another shall for the purposes of this Act be determined in accordance with the following subsections of this section (any provision that one person is connected with another being taken to mean that they are connected with one another).

• (2) A person is connected with an individual if that person is the individual's husband or wife, or is a relative, or the husband or wife of a relative, of the individual or of the individual's husband or wife.

• (3) A person, in his capacity as trustee of a settlement, is connected with any individual who in relation to the settlement is a settlor, with any person who is connected with such an individual and with a body corporate which, under section 454 of the Taxes Act, is deemed to be connected with that settlement (“settlement” and “settlor” having for the purposes of this subsection the meanings assigned to them by subsection (3) of the said section 454).

• (4) Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the husband or wife or a relative of any individual with whom he is in partnership.

• (5) A company is connected with another company—

• (a) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other, or

• (b) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected.

• (6) A company is connected with another person, if that person has control of it or if that person and persons connected with him together have control of it.

• (7) Any two or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure or exercise control of the company.

• (8) In this section “relative” means brother, sister, ancestor or lineal descendant.

PART IV — Shares and Securities

CHAPTER I — General

Interpretation

64

• (1) In this Act, unless the context otherwise requires—

• “gilt-edged securities” has the meaning given by Schedule 2 to this Act,

• “shares” includes stock,

• “class”, in relation to shares or securities, means a class of shares or securities of any one company.

• (2) For the purposes of this Act shares or debentures comprised in any letter of allotment or similar instrument shall be treated as issued unless the right to the shares or debentures thereby conferred remains provisional until accepted, and there has been no acceptance.

Rules of identification

Pooling

65

• (1) This section has effect subject to—

• (a) section 66 below, and

• (b) paragraphs 3 and 13(2) of Schedule 5 to this Act,

and this section shall not apply to gilt-edged securities.

• (2) Any number of securities of the same class held by one person in one capacity shall for the purposes of this Act be regarded as indistinguishable parts of a single asset (in this section referred to as a holding) growing or diminishing on the occasions on which additional securities of the class in question are acquired, or some of the securities of the class in question are disposed of.

• (3) Without prejudice to the generality of subsection (2) above, a disposal of securities in a holding, other than the disposal outright of the entire holding, is a disposal of part of an asset and the provisions of this Act relating to the computation of a gain accruing on a disposal of part of an asset shall apply accordingly.

• (4) Shares, or securities of a company, shall not be treated for the purposes of this section as being of the same class unless they are so treated by the practice of a recognised stock exchange in the United Kingdom or elsewhere or would be so treated if dealt with on such a stock exchange, but shall be treated in accordance with this section notwithstanding that they are identified in some other way by the disposal or by the transfer or delivery giving effect to it.

• (5) This section shall apply separately in relation to any securities held by a person to whom they were issued as an employee of the company or of any other person on terms which restrict his rights to dispose of them, so long as those terms are in force, and, while applying separately to any such securities, shall have effect as if the owner held them in a capacity other than that in which he holds any other securities of the same class.

• (6) Nothing in this section shall be taken as affecting the manner in which the market value of any asset is to be ascertained.

• (7) In this section “securities” means—

• (a) shares, or securities of a company, and

• (b) subject to the exclusion of gilt-edged securities in subsection (1) above, any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

Disposal on or before day of acquisition

66

• (1) The following provisions shall apply where securities of the same kind are acquired or disposed of by the same person on the same day and in the same capacity—

• (a) all the securities so acquired shall be treated as acquired by a single transaction and all the securities so disposed of shall be treated as disposed of by a single transaction, and

• (b) all the securities so acquired shall, so far as their quantity does not exceed that of the securities so disposed of, be identified with those securities.

• (2) Where the quantity of the securities so disposed of exceeds the quantity of the securities so acquired, then so far as the excess—

• (a) is not required by paragraph 2(2), 3(3) or 13(3) of Schedule 5 to this Act to be identified with securities held on or acquired before 6th April 1965, and

• (b) cannot be treated under section 65 above as diminishing a holding, it shall be treated as diminishing a quantity subsequently acquired, and a quantity so acquired at an earlier date, rather than one so acquired at a later date.

• (3) Shares shall not be treated for the purposes of this section as being of the same kind unless they are treated as being of the same class by the practice of a recognised stock exchange in the United Kingdom or elsewhere or would be so treated if dealt with on such a stock exchange.

• (4) In this section “securities” includes shares and any assets dealt with without identifying the particular assets disposed of or acquired, and in the case of gilt-edged securities subsection (2) above has effect subject to section 68 below.

Gilt-edged securities

Exemption for long-term gains

67

• (1) A gain which accrues on the disposal by any person of gilt-edged securities shall not be a chargeable gain except where the disposal occurs within 12 months after the acquisition of the securities.

• (2) So much of subsection (1) above as excepts a disposal occurring within 12 months after the acquisition of the securities shall not apply where the person disposing of the securities had acquired them—

• (a) by devolution on death or as legatee, or

• (b) if they were settled property, on becoming absolutely entitled thereto as against the trustee.

• (3) Where, in the case of a man and his wife, section 44 above applies in relation to the acquisition of any securities by the one from the other, and the one making the acquisition subsequently disposes of the securities by a disposal to which that section does not apply, he shall be treated for the purposes of the exception in subsection (1) above as if he had acquired the securities when the other did.

Identification (general)

68

• (1) The following provisions shall apply, for the purpose of identifying gilt-edged securities disposed of by any person with securities of the same kind acquired by him in the same capacity.

• (2) Securities disposed of at an earlier date shall be identified before securities disposed of at a later date, and their identification shall have effect also for determining what securities might be comprised in the later disposal.

• (3) Securities disposed of shall be identified with securities acquired within the twelve months preceding the disposal rather than with securities not so acquired, and with securities so acquired at an earlier date rather than with securities so acquired at a later date.

• (4) This section has effect subject to section 66(1) above, and 69 below.

Identification: disposal to husband or wife and third person

69

• (1) Where, in the case of a man and his wife living with him, one of them—

• (a) disposes of gilt-edged securities of any kind to the other, and

• (b) disposes of gilt-edged securities of the same kind to a third person,

then, if under the preceding provisions of this Chapter any of the securities disposed of to the husband or wife would be identified with securities acquired within the twelve months preceding the disposal and any of the securities disposed of to the third person with securities not so acquired, the securities disposed of to the third person shall be identified with securities so acquired before any securities disposed of to the husband or wife are so identified.

• (2) If there is more than one disposal to the wife or husband, or to a third party, the provisions of this section shall be applied to securities disposed of at an earlier date before they are applied to securities disposed of at a later date, and the identification of the securities disposed of at the earlier date shall have effect also for determining what securities might be comprised in the later disposal.

Re-acquisition after sale at a loss

70

• (1) Where a loss accrues to a person on the disposal of gilt-edged securities and he re-acquires the same securities within the prescribed period after the disposal that loss shall not be deductible except from a chargeable gain accruing to him on the disposal of the securities re-acquired.

• (2) Where a person disposes of gilt-edged securities and acquires gilt-edged securities of the same kind within the prescribed period after the disposal he shall be treated for the purposes of subsection (1) above as re-acquiring the securities disposed of (or such quantity of them as does not exceed the quantity acquired) but so that—

• (a) there cannot be in relation to the same disposal more than one re-acquisition of the same security, nor can there be by the same acquisition of a security a re-acquisition in relation to more than one disposal, and

• (b) if an acquisition could be treated as a re-acquisition of securities disposed of either at an earlier or at a later date it shall be treated as a re-acquisition of the securities disposed of at the earlier date, and

• (c) if securities disposed of by the same disposal could be treated as re-acquired at an earlier or at a later date they shall be treated as re-acquired at the earlier date.

• (3) Where a person who holds gilt-edged securities (the “original holding”) acquires securities of the same kind (an “additional holding ”) and within the prescribed period after the acquisition disposes of securities of that kind, he shall be treated for the purposes of subsection (1) above as if he had within the prescribed period after the disposal re-acquired the securities disposed of or such quantity of them as does not exceed the original holding or the additional holding, whichever is the less.

Paragraphs (a), (b) and (c) of subsection (2) above shall have effect in relation to the acquisition of the additional holding as if it were a re-acquisition of the securities disposed of.

• (4) In the case of a man and his wife living with him—

• (a) the preceding provisions of this section shall, with the necessary modifications, apply also where a loss on the disposal accrues to one of them and the acquisition after the disposal is made by the other,

• (b) paragraph (a) above shall have effect in relation to subsection (3) above as if the acquisition of the additional holding were an acquisition after the disposal.

• (5) In the case of companies in the same group subsections (1), (2) and (3) above shall, with the necessary modifications, apply also where a loss on the disposal accrues to one of them and the acquisition is made by the other.

• (6) In this section references to the acquisition of securities shall not include references—

• (a) to acquisition as trading stock, or

• (b) in the case of a company which is a member of a group, to acquisition from another company which is a member of that group throughout the prescribed period before and after the disposal.

• (7) In this section—

• “group” has the meaning given in section 272 of the Taxes Act;

• “the prescribed period” means— in the case of an acquisition through a stock exchange, one month; in the case of an acquisition otherwise than as aforesaid, six months;

• “trading stock”, in relation to a company carrying on fife assurance business as defined in section 323 of the Taxes Act, does not include investments held in connection with that business except in so far as they are referable to general annuity business or pension business as defined in that section ;

and references to a person's holding, acquiring and disposing of securities are references to his doing so in the same capacity.

Savings certificates, etc.

Exemption for government non-marketable securities

71

• (1) Savings certificates and non-marketable securities issued under the National Loans Act 1968 or the National Loans Act 1939, or any corresponding enactment forming part of the law of Northern Ireland, shall not be chargeable assets, and accordingly no chargeable gain shall accrue on their disposal.

• (2) In this section—

• (a) “savings certificates” means savings certificates issued under section 12 of the National Loans Act 1968, or section 7 of the National Debt Act 1958, or section 59 of the Finance Act 1920, and any war savings certificates as defined in section 9(3) of the National Debt Act 1972, together with any savings certificates issued under any enactment forming part of the law of Northern Ireland and corresponding to the said enactments, and

• (b) “non-marketable securities” means securities which are not transferable, or which are transferable only with the consent of some Minister of the Crown, or the consent of a department of the Government of Northern Ireland, or only with the consent of the National Debt Commissioners.

Capital distribution in respect of shares, etc.

Distribution which is not a new holding within Chapter II

72

• (1) Where a person receives or becomes entitled to receive in respect of shares in a company any capital distribution from the company (other than a new holding as defined in section 77 below) he shall be treated as if he had in consideration of that capital distribution disposed of an interest in the shares.

• (2) If the inspector is satisfied that the amount distributed is small, as compared with the value of the shares in respect of which it is distributed, and so directs—

• (a) the occasion of the capital distribution shall not be treated for the purposes of this Act as a disposal of the asset, and

• (b) the amount distributed shall be deducted from any expenditure allowable under this Act as a deduction in computing a gain or loss on the disposal of the shares by the person receiving or becoming entitled to receive the distribution of capital.

• (3) A person who is dissatisfied with the refusal of the inspector to give a direction under this section may appeal to the Commissioners having jurisdiction on an appeal against an assessment to tax in respect of a gain accruing on the disposal.

• (4) Where the allowable expenditure is less than the amount distributed (or is nil)—

• (a) subsections (2) and (3) above shall not apply, and

• (b) if the recipient so elects (and there is any allowable expenditure)—

• (i) the amount distributed shall be reduced by the amount of the allowable expenditure, and

• (ii) none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the capital distribution, or on any subsequent occasion. In this subsection “allowable expenditure” means the expenditure which immediately before the occasion of the capital distribution was attributable to the shares under paragraphs (a) and (b) of section 32(1) above.

• (5) In this section—

• (a) the “amount distributed” means the amount or value of the capital distribution,

• (b) “capital distribution” means any distribution from a company, including a distribution in the course of dissolving or winding up the company, in money or money's worth except a distribution which in the hands of the recipient constitutes income for the purposes, of income tax.

Disposal of right to acquire shares

73

• (1) Where a person receives or becomes entitled to receive in respect of any shares in a company a provisional allotment of shares in or debentures of the company and he disposes of his rights section 72 above shall apply as if the amount of the consideration for the disposal were a capital distribution received by him from the company in respect of the first-mentioned shares, and as if that person had, instead of disposing of the rights, disposed of an interest in those shares.

• (2) If under Schedule 5 to this Act it is to be assumed that, at a time after the creation of the rights and before their disposal, the said person sold and immediately re-acquired the shares in respect of which the rights were created, the same assumption shall be made as respect the rights.

• (3) This section shall apply in relation to rights obtained in respect of debentures of a company as it applies in relation to rights obtained in respect of shares in a company.

Close companies

Disposal of shares: relief in respect of income tax consequent on shortfall in distributions

74

• (1) If in pursuance of paragraph 5 of Schedule 16 to the Finance Act 1972 (consequences for income tax of apportionment of income etc. of close company) a person is assessed to income tax, then, in the computation under Chapter II of Part; II of this Act of the gain accruing on a disposal by him of any shares forming part of his interest in the company to which the relevant apportionment relates, the amount of the income tax paid by him, so far as attributable to those shares, shall be allowable as a deduction.

• (2) Subsection (1) above shall not apply in relation to tax charged in respect of undistributed income which has, before the disposal, been subsequently distributed and is then exempt from tax by virtue of sub-paragraph (6) of the said paragraph 5 or in relation to tax treated as having been paid by virtue of sub-paragraph (2Mb) of that paragraph.

• (3) For the purposes of this section the income assessed to tax shall be the highest part of the individual's income for the year of assessment in question, but so that if the highest part of the said income is taken into account under this section in relation to an assessment to tax the next highest part shall be taken into account in relation to any other relevant assessment, and so on.

• (4) For the purpose of identifying shares forming part of an interest in a company with shares subsequently disposed of which are of the same class, shares bought at an earlier time shall be deemed to have been disposed of before shares bought at a later time.

• (5) The provisions of this section shall be construed as if this section formed part of the said paragraph 5.

Shares in close company transferring assets at an undervalue

75

• (1) If after 6th April 1965 a company which is a close company transfers an asset to any person otherwise than by way of a bargain made at arm's length and for a consideration of an amount or value less than the market value of the asset an amount equal to the difference shall be apportioned among the issued shares of the company, and the holders of those shares shall be treated in accordance with the following provisions of this section.

• (2) For the purposes of the computation under Chapter II of Part II of this Act of a gain accruing on the disposal of any of those shares by the person owning them on the date of transfer an amount equal to the amount so apportioned to that share shall be excluded from the expenditure allowable as a deduction under section 32(1)(a) above from the consideration for the disposal.

• (3) If the person owning any of the said shares at the date of transfer is itself a close company an amount equal to the amount apportioned to the shares so owned under subsection (1) above to that close company shall be apportioned among the issued shares of that close company, and the holders of those shares shall be treated in accordance with subsection (2) above, and so on through any number of close companies.

• (4) This section shall not apply where the transfer of the asset is a disposal to which section 273(1) of the Taxes Act (transfers within a group of companies) applies.

Share option schemes

Consideration for acquisition of shares under share option schemes

76

Section 19(3) above (assets deemed acquired and disposed of at market value) shall not apply in calculating the consideration for the acquisition of shares in pursuance of a share option scheme as defined in Schedule 12 to the Finance Act 1972.

CHAPTER II — Reorganisation of Share Capital, Conversion of Securities, Etc

Reorganisation or reduction of share capital

Application of sections 78 to 81

77

• (1) For the purposes of this section and sections 78 to 81 below “reorganisation” means a reorganisation or reduction of a company's share capital, and in relation to the reorganisation—

• (a) “original shares” means shares held before and concerned in the reorganisation,

• (b) “new holding” means, in relation to any original shares, the shares in and debentures of the company which as a result of the reorganisation represent the original shares (including such, if any, of the original shares as remain).

• (2) The reference in subsection (1) above to the reorganisation of a company's share capital includes—

• (a) any case where persons are, whether for payment or not, allotted shares in or debentures of the company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of shares in the company or of any class of shares in the company, and

• (b) any case where there are more than one class of share and the rights attached to shares of any class are altered.

• (3) The reference in subsection (1) above to a reduction of share capital does not include the paying off of redeemable share capital, and where shares in a company are redeemed by the company otherwise than by the issue of shares or debentures (with or without other consideration) and otherwise than in a liquidation, the shareholder shall be treated as disposing of the shares at the time of the redemption.

Equation of original shares and new holding

78

Subject to sections 79 to 81 below, a reorganisation shall not be treated as involving any disposal of the original shares or any acquisition of the new holding or any part of it, but the original shares (taken as a single asset) and the new holding (taken as a single asset) shall be treated as the same asset acquired as the original shares were acquired.

Consideration given or received by holder

79

• (1) Where, on a reorganisation, a person gives or becomes liable to give any consideration for his new holding or any part of it, that consideration shall in relation to any disposal of the new holding or any part of it be treated as having been given for the original shares, and if the new holding or part of it is disposed of with a liability attaching to it in respect of that consideration, the consideration given for the disposal shall be adjusted accordingly:

Provided that there shall not be treated as consideration given for the new holding or any part of it any surrender, cancellation or other alteration of the original shares or of the rights attached thereto, or any consideration consisting of any application, in paying up the new holding or any part of it, of assets of the company or of any dividend or other distribution declared out of those assets but not made.

• (2) Where on a reorganisation a person receives (or is deemed to receive), or becomes entitled to receive, any consideration, other than the new holding, for the disposal of an interest in the original shares, and in particular—

• (a) where under section 72 above he is to be treated as if he had in consideration of a capital distribution disposed of an interest in the original shares, or

• (b) where he receives (or is deemed to receive) consideration from other shareholders in respect of a surrender of rights derived from the original shares,

he shall be treated as if the new holding resulted from his having for that consideration disposed of an interest in the original shares (but without prejudice to the original shares and the new holding being treated in accordance with section 78 above as the same asset).

• (3) Where for the purpose of subsection (2) above it is necessary in computing the gain or loss accruing on the disposal of the interest in the original shares mentioned in subsection (2) above to apportion the cost of acquisition of the original shares between what is disposed of and what is retained, the apportionment shall be made in the like manner as under section 80(1) below.

Part disposal of new holding

80

• (1) Where for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of any part of the new holding it is necessary to apportion the cost of acquisition of any of the original shares between what is disposed of and what is retained, the apportionment shall be made by reference to market value at the date of the disposal (with such adjustment of the market value of any part of the new holding as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned).

• (2) This section has effect subject to section 81(2) below.

Composite new holdings

81

• (1) This section shall apply to a new holding—

• (a) if it consists of more than one class of shares in or debentures of the company and one or more of those classes is of shares or debentures which, at any time not later than the end of the period of three months beginning with the date on which the reorganisation took effect, or of such longer period as the Board may by notice in writing allow, had quoted market values on a recognised stock exchange in the United Kingdom or elsewhere, or

• (b) if it consists of more than one class of rights of unit holders and one or more of those classes is of rights the prices of which were published daily by the managers of the scheme at any time not later than the end of that period of three months (or longer if so allowed).

• (2) Where for the purpose of computing the gain or loss accruing to a person from the acquisition and disposal of the whole or any part of any class of shares or debentures or rights of unit holders forming part of a new holding to which this section applies it is necessary to apportion costs of acquisition between what is disposed of and what is retained, the cost of acquisition of the new holding shall first be apportioned between the entire classes of shares or debentures or rights of which it consists by reference to market value on the first day (whether that day fell before the reorganisation took effect or later) on which market values or prices were quoted or published for the shares, debentures or rights as mentioned in subsection (1)(a) or (1)(b) above (with such adjustment of the market value of any class as may be required to offset any liability attaching thereto but forming part of the cost to be apportioned).

• (3) For the purposes of this section the day on which a reorganisation involving the allotment of shares or debentures or unit holders' rights takes effect is the day following the day on which the right to renounce any allotment expires.

Conversion of securities

Equation of converted securities and new holding

82

• (1) Sections 78 to 81 above shall apply with any necessary adaptations in relation to the conversion of securities as they apply in relation to a reorganisation (that is to say a reorganisation or reduction of a company's share capital).

• (2) This section has effect subject to sections 83 and 84 below.

• (3) For the purposes of this section and section 83 below—

• (a) “conversion of securities” includes—

• (i) a conversion of securities of a company into shares in the company, and

• (ii) a conversion at the option of the holder of the securities converted as an alternative to the redemption of those securities for cash, and

• (iii) any exchange of securities effected in pursuance of any enactment (including an enactment passed after this Act) which provides for the compulsory acquisition of any shares or securities and the issue of securities or other securities instead,

• (b) “security” includes any loan stock or similar security whether of the Government of the United Kingdom or of any other government, or of any public or local authority in the United Kingdom or elsewhere, or of any company, and whether secured or unsecured.

Premiums on conversion of securities

83

• (1) This section applies where, on a conversion of securities, a person receives, or becomes entitled to receive, any sum of money (in this section called “the premium”) which is by way of consideration (in addition to his new holding) for the disposal of the converted securities.

• (2) If the inspector is satisfied that the premium is small, as compared with the value of the converted securities, and so directs—

• (a) receipt of the premium shall not be treated for the purposes of this Act as a disposal of part of the converted securities, and

• (b) the premium shall be deducted from any expenditure allowable under this Act as a deduction in computing a gain or loss on the disposal of the new holding by the person receiving or becoming entitled to receive the premium.

• (3) A person who is dissatisfied with the refusal of the inspector to give a direction under subsection (2) above may appeal to the Commissioners having jurisdiction on an appeal against an assessment to tax in respect of a gain accruing to him on a disposal of the securities.

• (4) Where the allowable expenditure is less than the premium (or is nil)—

• (a) subsections (2) and (3) above shall not apply, and

• (b) if the recipient so elects (and there is any allowable expenditure)—

• (i) the amount of the premium shall be reduced by the amount of the allowable expenditure, and

• (ii) none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the conversion, or on any subsequent occasion.

• (5) In subsection (4) above “allowable expenditure” means expenditure which immediately before the conversion was attributable to the converted securities under paragraphs (a) and (b) of section 32(1) above.

Compensation stock

84

• (1) This section has effect where gilt-edged securities are exchanged for shares in pursuance of any enactment (including an enactment passed after this Act) which provides for the compulsory acquisition of any shares and the issue of gilt-edged securities instead.

• (2) The exchange shall not constitute a conversion of securities within section 82 above and accordingly the gilt-edged securities shall not be treated as having been acquired on any date earlier than that on which they were issued or for any consideration other than the value of the shares as determined for the purposes of the exchange.

• (3) The exchange shall be treated as not involving any disposal of the shares by the person from whom they were compulsorily acquired but—

• (a) there shall be calculated the gain or loss that would have accrued to him if he had then disposed of the shares for a consideration equal to the value mentioned in subsection (2) above, and

• (b) on a subsequent disposal of the whole or part of the gilt-edged securities by the person to whom they were issued—

• (i) there shall be deemed to accrue to him (in addition to any gain or loss that actually accrues) the whole or a corresponding part of the gain or loss mentioned in paragraph (a) above, and

• (ii) if the disposal is within section 67(1) above (exemption for gilt-edged securities) that section shall have effect only in relation to any gain or loss that actually accrues and not in relation to any gain or loss that is deemed to accrue as aforesaid.

• (4) Where a person to whom gilt-edged securities of any kind were issued as mentioned in subsection (1) above disposes of securities of that kind, the securities of which he disposes—

• (a) shall, so far as possible, be identified with any securities of that kind which he has acquired otherwise than as mentioned in subsection (1) above within the twelve months preceding the disposal, and

• (b) so far as they cannot be identified as aforesaid, shall be indentified (without regard to sections 66, 68(3) and 69 above) with securities which were issued to him as mentioned in subsection (1) above, taking those issued earlier before those issued later.

• (5) Subsection (3)(b) above shall not apply to any disposal falling within the provisions of—

• (a) section 44(1) above (disposals between husband and wife),

• (b) section 49(4) above (disposals by personal representatives to legatees), or

• (c) section 273(1) of the Taxes Act (disposals within a group of companies);

but a person who has acquired the securities on a disposal falling within those provisions (and without there having been a previous disposal not falling within those provisions or a devolution on death) shall be treated for the purposes of subsections (3)(b) and (4) above as if the securities had been issued to him.

• (6) Where the gilt-edged securities to be exchanged for any shares are not issued until after the date on which the shares are compulsorily acquired but on that date a right to the securities is granted, this section shall have effect as if the exchange had taken place on that date, as if references to the issue of the securities and the person to whom they were issued were references to the grant of the right and the person to whom it was granted and references to the disposal of the securities included references to disposals of the rights.

• (7) In this section “shares” includes securities within the meaning of section 82 above.

• (8) This section has effect subject to section 54 of the Finance Act 1976 (compulsory acquisition from certain companies of aircraft and shipbuilding shares).

Company reconstructions and amalgamations

Exchange of securities for those in another company

85

• (1) Subsection (3) below has effect where a company (company A) issues shares or debentures to a person in exchange for shares in or debenture of another company (company B) and—

• (a) company A holds, or in consequence of the exchange will hold, more than one quarter of the ordinary share capital (as defined in section 526(5) of the Taxes Act) of company B, or

• (b) company A issues the shares or debentures in exchange for shares as the result of a general offer—

• (i) which is made to members of company B or any class of them (with or without exceptions for persons connected with company A), and

• (ii) which is made in the first instance on a condition such that if it were satisfied company A would have control of company B.

• (2) Subsection (3) below also has effect where under section 86 below persons are to be treated as exchanging shares or debentures for shares or debentures held by them in consequence of the arrangement there mentioned.

• (3) Subject to the provisions of sections 87 and 88 below, sections 78 to 81 above shall apply with any necessary adaptations as if the two companies mentioned in subsection (1) above, or as the case may be in section 86 below, were the same company and the exchange were a reorganisation of its share capital.

Reconstruction or amalgamation involving issue of securities

86

• (1) Where—

• (a) an arrangement between a company and the persons holding shares in or debentures of the company, or any class of such shares or debentures, is entered into for the purposes of or in connection with a scheme of reconstruction or amalgamation, and

• (b) under the arrangement another company issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of shares in or debentures of the first-mentioned company, but the shares in or debentures of the first-mentioned company are either retained by those persons or cancelled,

then those persons shall be treated as exchanging the first-mentioned shares or debentures for those held by them in consequence of the arrangement (any shares or debentures retained being for this purpose regarded as if they had been cancelled and replaced by a new issue), and subsections (2) and (3) of section 85 above shall apply accordingly.

• (2) In this section “scheme of reconstruction or amalgamation” means a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and references to shares or debentures being retained include their being retained with altered rights or in an altered form whether as the result of reduction, consolidation, division or otherwise.

• (3) This section, and section 85(2) above, shall apply in relation to a company which has no share capital as if references to shares in or debentures of a company included references to any interests in the company possessed by members of the company.

Restriction on application of sections 85 and 86

87

• (1) Subject to subsection (2) below, and section 88 below, neither section 85 nor section 86 above shall apply to any issue by a company of shares in or debentures of that company in exchange for or in respect of shares in or debentures of another company unless the exchange, reconstruction or amalgamation in question is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax.

• (2) Subsection (1) above shall not affect the operation of section 85 or 86 in any case where the person to whom the shares or debentures are issued does not hold more than 5 per cent. of, or of any class of, the shares in or debentures of the second company mentioned in subsection (1) above.

• (3) For the purposes of subsection (2) above shares or debentures held by persons connected with the person there mentioned shall be treated as held by him.

• (4) If any tax assessed on a person (the chargeable person) by virtue of subsection (1) above is not paid within six months from the date when it is payable, any other person who—

• (a) holds all or any part of the shares or debentures that were issued to the chargeable person, and

• (b) has acquired them without there having been, since their acquisition by the chargeable person, any disposal of them not falling within section 44(1) above or section 273 of the Taxes Act (disposals between spouses or members of a group of companies),

may, at any time within two years from the time when the tax became payable, be assessed and charged (in the name of the chargeable person) to all or, as the case may be, a corresponding part of the unpaid tax; and a person paying any amount of tax under this subsection shall be entitled to recover a sum of that amount from the chargeable person.

• (5) In this section references to shares or debentures include references to any interests or options to which this Chapter applies by virtue of section 86(3) above (interests in a company with no share capital) or section 139 below (quoted options).

Procedure for clearance in advance

88

• (1) Section 87 above shall not affect the operation of section 85 or 86 above in any case where, before the issue is made, the Board have, on the application of either company mentioned in section 87(1) above, notified the company that the Board are satisfied that the exchange, reconstruction or amalgamation will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangements as are mentioned in section 87(1) above.

• (2) Any application under subsection (1) above shall be in writing and shall contain particulars of the operations that are to be effected and the Board may, within thirty days of the receipt of the application or of any further particulars previously required under this subsection, by notice require the applicant to furnish further particulars for the purpose of enabling the Board to make their decision; and if any such notice is not complied with within thirty days or such longer period as the Board may allow, the Board need not proceed further on the application.

• (3) The Board shall notify their decision to the applicant within thirty days of receiving the application or, if they give a notice under subsection (2) above, within thirty days of the notice being complied with.

• (4) If the Board notify the applicant that they are not satisfied as mentioned in subsection (1) above or do not notify their decision to the applicant within the time required by subsection (3) above, the applicant may within thirty days of the notification or of that time require the Board to transmit the application, together with any notice given and further particulars furnished under subsection (2) above, to the Special Commissioners; and in that event any notification by the Special Commissioners shall have effect for the purposes of subsection (1) above as if it were a notification by the Board.

• (5) If any particulars furnished under this section do not fully and accurately disclose all facts and considerations material for the decision of the Board or the Special Commissioners, any resulting notification that the Board or Commissioners are satisfied as mentioned in subsection (1) above shall be void.

Stock dividends

Stock dividends: consideration for new holding

89

• (1) In applying section 79(1) above in relation to the issue of any share capital to which section 34 of the Finance (No. 2) Act 1975 (stock dividends) applies as involving a reorganisation of the company's share capital, there shall be allowed, as consideration given for so much of the new holding as was issued as mentioned in—

• (a) subsection (4), (5) or (6) of the said section 34, or

• (b) paragraph 3(1) of Schedule 8 to that Act,

(read in each case with subsection (3) of the said section 34) an amount equal to what is, for that much of the new holding, the appropriate amount in cash within the meaning of paragraph 1 of the said Schedule 8.

• (2) This section shall have effect notwithstanding the proviso to section 79(1) above.

Capital gains on certain stock dividends

90

• (1) This section applies where a company issues any share capital to which section 34 of the Finance (No. 2) Act 1975 applies in respect of shares in the company held by a person as trustee, and another person is at the time of the issue absolutely entitled thereto as against the trustee or would be so entitled but for being an infant or other person under disability (or two or more other persons are or would be jointly so entitled thereto).

• (2) Notwithstanding paragraph (a) of section 77(2) above the case shall not constitute a reorganisation of the company's share capital for the purposes of sections 77 to 79 above.

• (3) Notwithstanding section 19(3)(a) above (disposal at market value) the person who is or would be so entitled to the share capital (or each of the persons who are or would be jointly so entitled thereto) shall be treated for the purposes of section 32(1) (a) above as having acquired that share capital, or his interest in it, for a consideration equal to the appropriate amount in cash within the meaning of paragraph 1 of Schedule 8 to the Finance (No. 2) Act 1975.

Quoted options

Application of Chapter II to quoted options

91

The preceding provisions of this Chapter have effect subject to section 139 below (quoted option to be regarded for the purposes of this Chapter as the shares which could be acquired by exercising the option).

CHAPTER III — Unit Trusts etc.

Preliminary

Interpretation

92

In this Act—

• (a) “unit trust scheme” has the meaning given by section 26(1) of the Prevention of Fraud (Investments) Act 1958 or section 22 of the Prevention of Fraud (Investments) Act (Northern Ireland) 1940,

• (b) “authorised unit trust” has the meaning given by section 358 of the Taxes Act,

• (c) “investment trust” has the meaning given by section 359 of the Taxes Act,

• (d) “court investment fund” means a common investment fund established under section 1 of the Administration of Justice Act 1965.

Application of Act to unit trusts

93

This Act shall apply in relation to any unit trust scheme as if—

• (a) the scheme were a company,

• (b) the rights of the unit holders were shares in the company, and

• (c) in the case of an authorised unit trust, the company were resident and ordinarily resident in the United Kingdom.

General

Reduction of tax liability on disposal of units or shares

94

• (1) Subject to subsections (2) and (6) below, this section applies to disposals of shares in—

• (a) authorised unit trusts,

• (b) unit trust schemes to which section 97 below applies,

• (c) investment trusts, and

• (d) any court investment fund.

• (2) Paragraphs (a), (b) and (c) of subsection (1) above do not apply to any share of a class to which there would not be attributable in a liquidation of the trust the whole or a substantial part—

• (a) of the assets of the trust representing gains on capital, or

• (b) if those assets would be so attributable to two or more classes of shares, of a proportion of those assets corresponding to the proportion of all the issued shares of those classes represented by the issued shares of the class in question.

Where there are shares on which different amounts have been paid up the proportion mentioned in paragraph (b) above shall be calculated by reference to the amount paid up on the issued share capital of each class of shares.

• (3) Where gains accrue to a person in any year of assessment on any disposals to which this section applies, the capital gains tax to which he is chargeable for that year shall be reduced by a credit equal to whichever of the following amounts is the smallest—

• (a) the amount of that tax,

• (b) an amount equal to 10 per cent. of the total chargeable gains accruing to him in that year on disposals to which this section applies,

• (c) an amount equal to 10 per cent. of the total amount of chargeable gains accruing to him in that year on which capital gains tax is chargeable.

• (4) Subsection (3) above shall have effect in relation to the corporation tax chargeable on a company for an accounting period in which gains accrue to it on any disposals to which this section applies as it has effect in relation to the capital gains tax chargeable on a person other than a company, and shall so have effect as if—

• (a) references to a year of assessment were references to an accounting period, and

• (b) for the total amount of chargeable gains mentioned in paragraph (c) of that subsection there were substituted the amount of gains charged to corporation tax for the accounting period in question increased, where subsection (5) below applies, in accordance with that subsection.

In this subsection “gains charged to corporation tax” means the profits on which corporation tax falls finally to be borne after deducting the income charged to corporation tax as defined in section 85(6) of the Finance Act 1972 (read with section 110(4) of that Act) except that, in relation to an accounting period for which the company claims a credit for foreign tax, those gains shall be determined in accordance with section 100(5) of that Act.

• (5) In relation to an accounting period for which any reduction falls to be made under section 93 of the Finance Act 1972 in the amount to be included in respect of chargeable gains in the company's total profits, the gains mentioned in subsection (4)(b) above shall be increased by multiplying by the inverse of the fraction of that amount remaining after the reduction; and if under subsection (3) or (4) of the said section 93 the reduction falls to be made by reference to different portions of that amount, the increase under this subsection shall be made similarly, using the inverse of the fractions of those portions remaining after any reduction.

• (6) Where a person disposes of a share—

• (a) which at the time of disposal is a qualifying share (that is to say, a share falling within subsection (1)(a), (b) or (c) above) but has not at all times while in the ownership of that person been a qualifying share, or

• (b) which at the time of disposal is not a qualifying share but has previously while in his ownership been such a share,

this section shall apply to the disposal, but for the purposes of subsection (3)(b) above the gain accruing on the disposal shall be treated as reduced in proportion to the time for which the share was in the ownership of that person without being a qualifying share.

• (7) Where under Chapter II above the share of which a person disposes falls to be identified with another asset or other assets previously held by him, subsection (6) above shall have effect as if—

• (a) his period of ownership of the share disposed of included his period of ownership of the other asset or assets, and

• (b) the share disposed of had or had not been a qualifying share at any time during that additional period according to whether or not the other asset or any of those other assets was a qualifying share at that time.

• (8) Where a person disposes of a share which at the time of disposal is a qualifying share and which he has received on a conversion of—

• (a) a share other than a qualifying share, or

• (b) loan stock,

previously held by him, being a conversion pursuant to rights in that behalf attached to the share or stock previously held, subsections (6) and (7) above shall have effect as if that share or stock had been a qualifying share throughout any time for which the company by which it was issued was a body of the kind mentioned in paragraph (a), (b) or (c) of subsection (1) above.

• (9) Where the gain accruing on a disposal to which this section applies falls to be computed in accordance with paragraph 14(2)(b) of Schedule 5 to this Act (unquoted securities held before 6th April 1965 which are subsequently converted or exchanged)—

• (a) the period of ownership of the share disposed of shall not be treated under subsection (7)(a) above as having begun before the time mentioned in the said paragraph 14(2)(b); and

• (b) for the purposes of subsection (3)(b) above the gain shall be taken to be that mentioned in sub-paragraph (ii) of the said paragraph 14(2)(b) reduced, where applicable, in accordance with subsections (6) and (7) above.

• (10) For the purposes of subsections (6) to (8) above no account shall be taken of any period of ownership before 6th April 1965 ; and nothing in Chapter II above shall be construed as enabling any asset to be treated as having been a qualifying share at any time when it was not such in fact.

• (11) For the purposes of this section loan stock issued by an investment trust before 11th April 1972, being loan stock to which there would be attributable in a liquidation of the trust the whole of the assets of the trust representing gains on capital, shall be treated as shares in the trust falling within subsection (1) above.

Unit trusts

Valuation of assets and rights

95

Nothing in any trust deed executed before 1st September 1972 and regulating any authorised unit trust, or any unit trust scheme to which section 97 below applies, shall preclude the managers of the trust or the trustee, in valuing the assets of the trust at any time during an accounting period, from making a deduction for any tax for which the trust may become liable in respect of its net gains in that period up to that time.

Unit trusts for exempt unit holders

96

If throughout a year of assessment all the issued units in a unit trust scheme are assets such that any gain accruing if they were disposed of by the unit holder would be wholly exempt from capital gains tax or corporation tax (otherwise than by reason of residence) gains accruing to the unit trust scheme in that year of assessment shall not be chargeable gains.

Unit trusts for pension schemes

97

• (1) This section applies to a unit trust scheme for any year of assessment if throughout that year all the issued units in the unit trust scheme constitute investments to which section 208(2) of the Taxes Act or section 21(7) of the Finance Act 1970 (pension schemes) applies, each being an investment such that any gain accruing if it were disposed of by the unit holder would either be wholly exempt from capital gains tax or corporation tax, or be so exempt as to not less than 85 per cent.

• (2) Of all the gains accruing to the unit trust scheme in the year of assessment one-tenth (that is one-tenth of what would apart from this subsection be chargeable gains) shall be chargeable gains.

• (3) The rate of capital gains tax payable on chargeable gains accruing to a unit trust scheme to which this section applies in the year of assessment shall be 10 per cent.

Transfer of company's assets to unit trust which later comes within section 96 or 97

98

• (1) Where section 267 of the Taxes Act (roll-over for assets transferred on company reconstruction or amalgamation) has applied on the transfer of a company's business (in whole or in part) to a unit trust scheme to which at the time of the transfer neither section 96 nor section 97 applied, then if—

• (a) at any time after the transfer the unit trust scheme becomes in a year of assessment one to which either of those sections does apply, and

• (b) at the beginning of that year of assessment the unit trust scheme still owns any of the assets of the business transferred,

the unit trust scheme shall be treated for all the purposes of this Act as if immediately after the transfer it had sold, and immediately re-acquired, the assets referred to in paragraph (b) above at their market value at that time.

• (2) Notwithstanding any limitation on the time for making assessments, an assessment to corporation tax chargeable in consequence of subsection (1) above may be made at any time within six years after the end of the year of assessment referred to in subsection (1) above, and where under this section a unit trust scheme is to be treated as having disposed of, and reacquired, an asset of a business, all such recomputations of liability in respect of other disposals and all such adjustments of tax, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of the provisions of this section shall be carried out.

Court investment funds etc.

Funds in court

99

• (1) For the purposes of section 46 above (nominees and bare trustees) funds in court held by the Accountant General shall be regarded as held by him as nominee for the persons entitled to or interested in the funds, or as the case may be for their trustees.

• (2) Where funds in court standing to an account are invested or, after investment, are realised the method by which the Accountant General effects the investment or the realisation of investments shall not affect the question whether there is for the purposes of this Act an acquisition, or as the case may be a disposal, of an asset representing funds in court standing to the account, and in particular there shall for those purposes be an acquisition or disposal of shares in a court investment fund notwithstanding that the investment in such shares of funds in court standing to an account, or the realisation of funds which have been so invested, is effected by setting off, in the Accountant General's accounts, investment in one account against realisation of investments in another.

• (3) In this section “funds in court” means—

• (a) money in the Supreme Court, money in county courts and statutory deposits described in section 14 of the Administration of Justice Act 1965, and

• (b) any such moneys as are mentioned in section 30 of the said Act of 1965 (which relates to Northern Ireland) and money in a county court in Northern Ireland,

and investments representing such money; and references in this section to the Accountant General are references to the Accountant General of the Supreme Court of Judicature in England and, in relation to money within paragraph (b) above and investments representing such money, include references to the Accountant General of the Supreme Court of Judicature of Northern Ireland or any other person by whom such funds are held.

Reduced rate of tax

100

The rate of capital gains tax payable on chargeable gains accruing to a court investment fund shall be 10 per cent.

PART V — Land

Private residences

Relief on disposal of private residence

101

• (1) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an. interest in—

• (a) a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence, or

• (b) land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.

• (2) In this section “the permitted area” means, subject to subsections (3) and (4) below, an area (inclusive of the site of the dwelling-house) of one acre.

• (3) In any particular case the permitted area shall be such area, larger than one acre, as the Commissioners concerned may determine if satisfied that, regard being had to the size and character of the dwelling-house, that larger area is required for the reasonable enjoyment of it (or of the part in question) as a residence.

• (4) Where part of the land occupied with a residence is and part is not within subsection (1) above, then (up to the permitted area) that part shall be taken to be within subsection (1) above which, if the remainder were separately occupied, would be the most suitable for occupation and enjoyment with the residence.

• (5) So far as it is necessary for the purposes of this section to determine which of two or more residences is an individual's main residence for any period—

• (a) the individual may conclude that question by notice in writing to the inspector given within two years from the beginning of that period, or given by the end of the year 1966-67, if that is later, but subject to a right to vary that notice by a further notice in writing to the inspector as respects any period beginning not earlier than two years before the giving of the further notice,

• (b) subject to paragraph (a) above, the question shall be concluded by the determination of the inspector, which may be as respects either the whole or specified parts of the period of ownership in question,

and notice of any determination of the inspector under paragraph (b) above shall be given to the individual who may appeal to the General Commissioners or the Special Commissioners against that determination within thirty days of service of the notice.

• (6) In the case of a man and his wife living with him—

• (a) there can only be one residence or main residence for both, so long as living together, and, where a notice under subsection (5)(a) above affects both the husband and the wife, it must be given by both, and

• (b) any notice under subsection (5)(b) above which affects a residence owned by the husband and a residence owned by the wife shall be given to each and either may appeal under that subsection.

• (7) In this section, and sections 102 to 105 below, “the period of ownership ” where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter II of Part II of this Act is allowable as a deduction in computing under that Chapter the amount of the gain to which this section applies, and in the case of a man and his wife living with him—

• (a) if the one disposes of, or of his or her interest in, the dwelling-house or part of a dwelling-house which is their only or main residence to the other, and in particular if it passes on death to the other as legatee, the other's period of ownership shall begin with the beginning of the period of ownership of the one making the disposal, and

• (b) if paragraph (a) above applies, but the dwelling-house or part of a dwelling-house was not the only or main residence of both throughout the period of ownership of the one making the disposal, account shall be taken of any part of that period during which it was his only or main residence as if it was also that of the other.

• (8) If at any time (being a time after 30th July 1978) during an individual's period of ownership of a dwelling-house or part of a dwelling-house he—

• (a) resides in living accommodation which is for him job-related within the meaning of paragraph 4A of Schedule 1 to the Finance Act 1974, and

• (b) intends in due course to occupy the dwelling-house or part of a dwelling-house as his only or main residence,

this section, and sections 102 to 105 below, shall apply as if the dwelling-house or part of a dwelling-house were at that time occupied by him as a residence.

• (9) Apportionments of consideration shall be made wherever required by this section or sections 102 to 105 below and, in particular, where a person disposes of a dwelling-house only part of which is his only or main residence.

Amount of relief

102

• (1) No part of a gain to which section 101 above applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual's only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last twelve months of that period.

• (2) Where subsection (1) above does not apply, a fraction of the gain shall not be a chargeable gain, and that fraction shall be—

• (a) the length of the part or parts of the period of ownership during which the dwelling-house or the part of the dwelling-house was the individual's only or main residence, but inclusive of the last twelve months of the period of ownership in any event, divided by

• (b) the length of the period of ownership.

• (3) For the purposes of subsections (1) and (2) above—

• (a) a period of absence not exceeding three years (or periods of absence which together did not exceed three years), and in addition

• (b) any period of absence throughout which the individual worked in an employment or office all the duties of which were performed outside the United Kingdom, and in addition

• (c) any period of absence not exceeding four years (or periods of absence which together did not exceed four years) throughout which the individual was prevented from residing in the dwelling-house or part of the dwelling-house in consequence of the situation of his place of work or in consequence of any condition imposed by his employer requiring him to reside elsewhere, being a condition reasonably imposed to secure the effective performance by the employee of his duties,

shall be treated as if in that period of absence the dwelling-house or the part of the dwelling-house was the individual's only or main residence if both before and after the period there was a time when the dwelling-house was the individual's only or main residence.

In this subsection “period of absence” means a period during which the dwelling-house or the part of the dwelling-house was not the individual's only or main residence and throughout which he had no residence or main residence eligible for relief under this section.

• (4) In this section “period of ownership” does not include any period before 6th April 1965.

Amount of relief: further provisions

103

• (1) If the gain accrues from the disposal of a dwelling-house or part of a dwelling-house part of which is used exclusively for the purposes of a trade or business, or of a profession or vocation, the gain shall be apportioned and section 102 above shall apply in relation to the part of the gain apportioned to the part which is not exclusively used for those purposes.

• (2) If at any time in the period of ownership there is a change in what is occupied as the individual's residence, whether on account of a reconstruction or conversion of a building or for any other reason, or there have been changes as regards the use of part of the dwelling-house for the purpose of a trade or business, or of a profession or vocation, or for any other purpose, the relief given by section 102 above may be adjusted in such manner as the Commissioners concerned may consider to be just and reasonable.

• (3) Section 102 above shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling-house or the part of a dwelling-house was made wholly or partly for the purpose of realising a gain from the disposal of it, and shall not apply in relation to a gain so far as attributable to any expenditure which was incurred after the beginning of the period of ownership and was incurred wholly or partly for the purpose of realising a gain from the disposal.

Private residence occupied under terms of settlement

104

Sections 101 to 103 above shall also apply in relation to a gain accruing to a trustee on a disposal of settled property being an asset within section 101(1) above where during the period of ownership of the trustee the dwelling-house or part of the dwelling-house mentioned in that subsection has been the only or main residence of a person entitled to occupy it under the terms of the settlement, and in those sections as so applied—

• (a) references to the individual shall be taken as references to the trustee except in relation to the occupation of the dwelling-house or part of the dwelling-house, and

• (b) the notice which may be given to the inspector under section 101(5)(a) above shall be a joint notice by the trustee and the person entitled to occupy the dwelling-house or part of the dwelling-house.

Private residence occupied by dependent relative

105

• (1) This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in, a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, the sole residence of a dependent relative of the individual, provided rent-free and without any other consideration.

• (2) If the individual so claims, such relief shall be given in respect of it and its garden or grounds as would be given under sections 101 to 103 above if the dwelling-house (or part of the dwelling-house) had been the individual's only or main residence in the period of residence by the dependent relative, and shall be so given in addition to any relief available under those sections apart from this section.

• (3) Not more than one dwelling-house (or part of a dwelling-house) may qualify for relief as being the residence of a dependent relative of the claimant at any one time nor, in the case of a man and his wife living with him, as being the residence of a dependent relative of the claimant or of the claimant's husband or wife at any one time.

• (4) The inspector, before allowing a claim, may require the claimant to show that the giving of the relief claimed will not under subsection (3) above preclude the giving of relief to the claimant's wife or husband or that a claim to any such relief has been relinquished.

• (5) In this section “dependent relative” means, in relation to an individual—

• (a) any relative of his or of his wife who is incapacitated by old age or infirmity from maintaining himself, or

• (b) his or his wife's mother who, whether or not incapacitated, is either widowed, or living apart from her husband, or a single woman in consequence of dissolution or annulment of marriage.

• (6) If the individual mentioned in subsection (5) above is a woman the references in that subsection to the individual's wife shall be construed as references to the individual's husband.

Leases

Leases of land and other assets

106

Schedule 3 to this Act shall have effect as respects leases of land and of other assets.

Part disposals

Small part disposals

107

• (1) This section applies to a transfer of land forming part only of a holding of land, where—

• (a) the amount or value of the consideration for the transfer is small, as compared with the market value of the holding as it subsisted immediately before the transfer, and

• (b) the transfer is not one which, by virtue of section 44 above (transfers between husband and wife) or section 273(1) of the Taxes Act (transfers within groups of companies), is treated as giving rise to neither a gain nor a loss.

• (2) Subject to subsection (3) below, if the transferor so claims, the transfer shall not be treated for the purposes of this Act as a disposal, but all sums which, if it had been so treated, would have been brought into account as consideration for that disposal in the computation under Chapter II of Part II of this Act of a gain accruing on the disposal shall be deducted from any expenditure allowable under that Chapter as a deduction in computing a gain on any subsequent disposal of the holding.

• (3) This section shall not apply—

• (a) if the amount or value of the consideration for the transfer exceeds £10,000, or

• (b) where in the year of assessment in which the transfer is made, the transferor made any other disposal of land, if the total amount or value of the consideration for all disposals of land made by the transferor in that year exceeds £10,000.

• (4) No account shall be taken under subsection (3) above of any tranfer of land to which section 108 below applies.

• (5) In relation to a transfer which is not for full consideration in money or money's worth “the amount or value of the consideration” in this section shall mean the market value of the land transferred.

• (6) For the purposes of this section the holding of land shall comprise only the land in respect of which the expenditure allowable under paragraphs (a) and (b) of section 32(1) above would be apportioned under section 35 above if the transfer had been treated as a disposal (that is, as a part disposal of the holding).

• (7) In this section references to a holding of land include references to any estate or interest in a holding of land, not being an estate or interest which is a wasting asset, and references to part of a holding shall be construed accordingly.

Part disposal to authority with compulsory powers

108

• (1) This section applies to a transfer of land forming part only of a holding of land to an authority exercising or having compulsory powers where—

• (a) the amount or value of the consideration for the transfer, or if the transfer is not for full consideration in money or money's worth, the market value of the land transferred, is small, as compared with the market value of the holding as it subsisted immediately before the transfer, and

• (b) the transferor had not taken any steps by advertising or otherwise to dispose of any part of the holding or to make his willingness to dispose of it known to the authority or others.

• (2) If the transferor so claims, the transfer shall not be treated for the purposes of this Act as a disposal, but all sums which, if it had been so treated, would have been brought into account as consideration for that disposal in the computation under Chapter II of Part II of this Act of a gain accruing on the disposal shall be deducted from any expenditure allowable under that Chapter as a deduction in computing a gain on any subsequent disposal of the holding.

• (3) For the purposes of this section the holding of land shall comprise only the land in respect of which the expenditure allowable under paragraphs (a) and (b) of section 32(1) above would be apportioned under section 35 above if the transfer had been treated as a disposal (that is, as a part disposal of the holding).

• (4) In this section references to a holding of land include references to an estate or interest in a holding of land, not being an estate or interest which is a wasting asset, and references to part of a holding shall be construed accordingly.

• (5) In this section “authority exercising or having compulsory powers” means, in relation to the land transferred, a person or body of persons acquiring it compulsorily or who has or have been, or could be, authorised to acquire it compulsorily for the purposes for which it is acquired, or for whom another person or body of persons has or have been, or could be, authorised so to acquire it.

Part disposal: consideration exceeding allowable expenditure

109

• (1) The provisions of sections 107(2) and 108(2) above shall have effect subject to this section.

• (2) Where the allowable expenditure is less than the consideration for the part disposal (or is nil)—

• (a) the said provisions shall not apply, and

• (b) if the recipient so elects (and there is any allowable expenditure)—

• (i) the consideration for the part disposal shall be reduced by the amount of the allowable expenditure, and

• (ii) none of that expenditure shall be allowable as a deduction in computing a gain accruing on the occasion of the part disposal or on any subsequent occasion.

In this subsection “allowable expenditure” means expenditure which, immediately before the part disposal, was attributable to the holding of land under paragraphs (a) and (b) of section 32(1) above.

Compulsory acquisition

Compensation paid on compulsory acquisition

110

• (1) Where land or an interest in or right over land is acquired and the acquisition is, or could have been, made under compulsory powers, then in considering whether, under section 43(4) above, the purchase price or compensation or other consideration for the acquisition should be apportioned and treated in part as a capital sum within section 20(1)(a) above (disposal arising on receipt of capital sum), whether as compensation for loss of goodwill or for disturbance or otherwise, or should be apportioned in any other way, the fact that the acquisition is or could have been made compulsorily, and any statutory provision treating the purchase price or compensation or other consideration as exclusively paid in respect of the land itself, shall be disregarded.

• (2) In any case where land or an interest in land is acquired as mentioned in subsection (1) above from any person and the compensation or purchase price includes an amount in respect of severance of the land comprised in the acquisition or sale from other land in which that person is entitled in the same capacity to an interest, or in respect of that other land as being injuriously affected, there shall be deemed for the purposes of this Act to be a part disposal of that other land.

Time of disposal and acquisition

111

Where an interest in land is acquired, otherwise than under a contract, by an authority possessing compulsory purchase powers the time at which the disposal and acquisition is made is the time at which the compensation for the acquisition is agreed or otherwise determined (variations on appeal being disregarded for this purpose) or, if earlier (but after 20th April 1971), the time when the authority enter on the land in pursuance of their powers.

Agricultural land and woodlands

Grants for giving up agricultural land

112

For the purposes of capital gains tax, a sum payable to an individual by virtue of a scheme under section 27 of the Agriculture Act 1967 (grants for relinquishing occupation of uncommercial agricultural units) shall not be treated as part of the consideration obtain by him for, or otherwise as accruing to him on, the disposal of any asset.

Woodlands

113

• (1) shall be excluded from the computation under Chapter II of Part II of this Act of the gain accruing on the disposal if the person making the disposal is the person assessed to the tax under Schedule B.

• (a) Consideration for the disposal of trees standing or felled or cut on land assessed to income tax or corporation tax under Schedule B, and

• (b) capital sums received under a policy of insurance in respect of the destruction of or damage or injury to trees by fire or other hazard on such land,

• (2) Subsection (1)(b) above has effect notwithstanding section 20(1) above (disposal arising on receipt of capital sum).

• (3) In the computation under Chapter II of Part II above so much of the cost of woodland in the United Kingdom shall be disregarded as is attributable to trees growing on the land.

• (4) In the computation under Chapter II of Part II above of the gain accruing on a disposal of woodland in the United Kingdom so much of the consideration for the disposal as is attributable to trees growing on the land shall' be excluded.

• (5) References in this section to trees include references to saleable underwood.

Development land tax etc.

Interaction with development land tax and other taxation

114

The provisions of this Act have effect subject to—

• (a) the Development Land Tax Act 1976, and in particular Schedule 6 to that Act,