The Capital Gains Tax (Parallel Pooling) Regulations 1986

Made: 3rd March 1986

Laid before the House of Commons: 4th March 1986

Coming into Operation: 1st April 1986

The Treasury in exercise of the powers conferred on them by paragraph 21 of Schedule 19 to the Finance Act 1985 hereby make the following Regulations:—

1

These Regulations may be cited as the Capital Gains Tax (Parallel Pooling) Regulations 1986 and shall come into operation on 1st April 1986.

2

In these Regulations unless the context otherwise requires:—

• “new holding” has the meaning given to it by paragraph 9(3) of Schedule 19 with the omission therefrom of the words “or sub-paragraph (2)”;

• “qualifying securities” are securities to which Regulation 3 applies;

• “relevant securities” has the meaning given to it by section 88(9) of the Finance Act 1982[^f00001];

• “Schedule 6” means Schedule 6 to the Finance Act 1983[^f00002];

• “Schedule 19” means Schedule 19 to the Finance Act 1985;

• “1982 holding” has the meaning given to it by paragraph 6 of Schedule 19;

• “1983 holding” is a holding within the meaning of paragraph 3(3) of Schedule 6.

3

These Regulations shall have effect in relation to a disposal on or after 1st April 1985 of qualifying securities, within the meaning of Schedule 6,—

• (a) in respect of which an election under that Schedule had been made by a company and not revoked on or before 31st March 1987 or such further time as may be allowed by the Board under paragraph 20(1) of Schedule 19; and

• (b) which, immediately before 1st April 1985, were regarded as indisting-uishable parts of a single asset by virtue of paragraph 3 of Schedule 6;

4

Of qualifying securities in each 1983 holding which is held by a company immediately before 1st April 1985 there shall be identified as at that time for the purposes of these Regulations—

• (a) by reference to the provisions of Regulations 5, 6, 7 and 8, the 1982 holding and the new holding of such of those securities as are not relevant securities; and

• (b) by reference to the provisions of Regulations 5, 6 and 9, the 1982 holding (and the securities not in the 1982 holding) of such of those securities as are relevant securities;

5

For the purposes of these Regulations or, as the case may be, the Schedule hereto, “A” to “H” shall be identified by reference to the circumstances obtaining in relation to each 1983 holding held by a company immediately before 1st April 1985 as follows—

• (a) A is the number of qualifying securities in the 1983 holding.

• (b) B is the amount of the unindexed pool of expenditure (within the meaning of paragraph 6 of Schedule 6) attributable to the 1983 holding.

• (c) C is the amount of the indexed pool of expenditure attributable to the 1983 holding, computed on the assumption that an operative event within the meaning of paragraph 7(3) of Schedule 6 occurred immediately before 1st April 1985.

• (d) D is the aggregate of—

• (i) A; and

• (ii) the number of securities which are of the same class as those to which paragraph (a) above refers, but which, because the conditions of paragraph 3(3)(b) of Schedule 6 are not fulfilled, do not form part of the 1983 holding.

• (e) E is the aggregate of—

• (i) B; and

• (ii) the relevant allowable expenditure in relation to a disposal immediately before 1st April 1985 of the whole of the securities to which paragraph (d)(ii) above refers.

• (f) F is the aggregate of the relevant allowable expenditure in relation to all disposals by the company made after March 1982 and before April 1985 of securities which are of the same class as those to which paragraph (a) above refers and which were acquired after 6th April 1965.

• (g) G is—

• (i) the number of securities of that same class which were held by the company immediately before 1st April 1982 and which comprise a holding within the meaning of Part II of Schedule 13 to the Finance Act 1982[^f00003]; or

• (ii) where on or after 1st April 1982 there has been a reorganisation of share capital within the meaning of section 77(1) of the Capital Gains Tax Act 1979, the number of shares which (on the assumption that there had been no part disposal of original shares within the meaning of the provisions of that subsection) would comprise a new holding within the meaning of that section.

• (h) H is the amount which would be the aggregate of the relevant allowable expenditure in relation to a disposal by the company immediately before 1st April 1985 of the whole of the securities to which paragraph (g) above refers.

6

• (1) J is the number of qualifying securities in the 1982 holding, rounded to the nearest whole number and is given by the formula—

$G × E E + F$

• (2) In relation to a disposal by the company of the whole of the 1982 holding on or after 1st April 1985, K is the relevant allowable expenditure, given by the formula—

$H × E E + F$

7

In respect of qualifying securities (“the securities”)—

• (a) the number of the securities which fall to be included in the new holding is given by the formula A − J;

• (b) the relevant allowable expenditure in relation to a disposal by the company of all the securities referred to in paragraph (a) above immediately before 1st April 1985 is given by the formula B − K;

• (c) the indexed pool of expenditure in relation to the securities referred to in paragraph (a) above for the purposes of paragraph 13(2) of Schedule 19 is given by the formula—

$( B − K ) ⁢ ( C B + 0.05 ) .$

8

In respect of the new holding (“the holding”)—

• (a) the number of securities in the holding is given by the formula D − J;

• (b) the qualifying expenditure in relation to the holding is given by the formula E − K;

• (c) the indexed pool of expenditure in relation to the holding is given by the aggregate of—

• (i) the amount given by the formula

$( B − K ) ⁢ ( C B + 0.05 ) ;$

• (ii) the relevant allowable expenditure in relation to a disposal by the company immediately before 1st April 1985 of the whole of the securities to which Regulation 5(d)(ii) refers; and

• (iii) any indexation allowance applicable to such a disposal on the assumption that the amendment of the Finance Act 1982 made by paragraphs 1 and 2 of Schedule 19 had always had effect.

9

• (1) This Regulation applies to a holding of relevant securities (“relevant securities holding”) which are qualifying securities comprised in a 1983 holding held by the company immediately before 1st April 1985 and, for the purposes of this Regulation, references to qualifying securities in Regulations 5 and 6 shall be treated as references to the relevant securities holding.

• (2) In respect of the relevant securities holding—

• (a) the number of relevant securities in the holding, not being relevant securities in the 1982 holding, is given by the formula A − J;

• (b) the relevant securities in the holding to which paragraph (a) above refers shall be treated for the purposes of the Capital Gains Tax Act 1979 as having been acquired on 31st March 1984;

• (c) the amount of the relevant allowable expenditure in relation to a disposal on or after 1st April 1985 of all the relevant securities in the holding to which paragraph (a) above refers is given by the formula

$( B − K ) × C B$

and shall be apportioned rateably to the relevant securities.

10

The Schedule to these Regulations shall have effect only for providing an example of the operation of the Regulations and, in the event of any conflict between the provisions of the Schedule and the Regulations, the Regulations shall prevail.

SCHEDULE — INTRODUCTORY

In this Schedule—

• Part I is a statement of facts which are to be assumed;

• Part II is an application of the Regulations to qualifying securities which are not relevant securities;

• Part III is an application of the Regulations to qualifying securities which are relevant securities.

PART I

1 — QUALIFYING SECURITIES AND EXPENDITURE

PG plc held, acquired or disposed of qualifying securities as follows:—

2 — RETAIL PRICES INDEX

The Retail Prices Index is assumed to be:—

3 — CALCULATION OF INDEXED POOL OF EXPENDITURE IN ACCORDANCE WITH SCHEDULE 6

4 — SECURITIES HELD LESS THAN ONE YEAR AT 31ST MARCH 1985

The 3,000 securities acquired on 31st January 1985 for £10,000 do not qualify for inclusion in the 1983 holding on 31 March 1985.

PART II — QUALIFYING SECURITIES WHICH ARE NOT RELEVANT SECURITIES

SUMMARY

1982 holding: 1600 securities—relevant allowable expenditure £6,400 (of which £4,800 qualifies for indexation from March 1982 and £1,600 from September 1983).

New holding: 10,400 securities—qualifying expenditure £33,600 and indexed pool of expenditure £36,708.

PART III — QUALIFYING SECURITIES WHICH ARE RELEVANT SECURITIES

SUMMARY

1982 holding: 1,600 securities—relevant allowable expenditure £6,400 (of which £4,800 qualifies for indexation from March 1982 and £1,600 from September 1983).

Other relevant securities: 7,400 securities treated as acquired on 31st March 1984—relevant allowable expenditure £25,348.

3,000 securities treated as acquired on 31st January 1986—relevant allowable expenditure £10,000.

Signed

Donald Thompson — A. G. Hamilton — Two of the Lords Commissioners of Her Majesty's Treasury — 3rd March 1986

Explanatory note

EXPLANATORY NOTE

The Finance Act 1985 by the provisions of section 68 and Schedule 19 extended the indexation relief for capital gains tax to take full account of inflation throughout the period of ownership of an asset where it was acquired on or after 1st March 1982 or, in the case of assets acquired earlier, for the period since March 1982. The Act empowered the Treasury to extend, by Regulations, the relief to certain companies which, under earlier legislation, had elected to have certain securities of the same class pooled (called “parallel pooling”) so as to be treated as a single asset; the Regulations are to apply to such securities of a company only if it shall not have revoked its election by 31st March 1987 (or within such further time as the Commissioners of Inland Revenue may allow).

These Regulations extend the relief to those companies.

Regulation 1 provides the title and commencement date.

Regulation 2 contains definitions.

Regulation 3 describes the scope of the Regulations and the main conditions for relief.

Regulations 4 to 9 make provision for the identification, out of the previously pooled holdings, of holdings of securities of those categories to which the above provisions of the Finance Act 1985 will apply.

Regulation 10 introduces the Schedule which provides examples of the operation of these Regulations.

Footnotes

[^f00001]: section 88(9) was amended by paragraph 3 of Schedule 19 to the Finance Act 1985.

[^f00002]: Schedule 6 was amended by section 67 of, and paragraph 11(2) of Schedule 9 and paragraph 6 of Schedule 13 to, the Finance Act 1984 (c.43) and by Part V of Schedule 19 to the Finance Act 1985.

[^f00003]: Part II of Schedule 13 was modified by Part II of Schedule 19 to the Finance Act 1985 (c. 54).