CG17922 - Taper relief: anti-avoidance rules: value shifting

TCGA92/SCHA1/PARA12

TCGA92/SCHA1/PARA12 applies to disposals of shares or securities in a close company and is extended to rights over a company by paragraph 12(7). In this paragraph any reference to shares should be read as including securities or such rights. Close company is defined by ICTA88/S414 and ICTA88/S415, see CTM60100 onwards. Paragraph 12 applies where there has been a relevant shift of value into shares in the close company from other shares. Where Section 12 applies, the period earlier than the time of the latest shift of value into those shares is treated as a period that does not count for taper relief. Paragraph 12(8) limits the effect of paragraph 12 to cases where the shift of value has occurred at any time in the period after 5 April 1998 for which the shares had been held at the time of the disposal.

• RELEVANT SHIFT OF VALUE

Paragraph 12(3) defines a relevant shift of value as taking place whenever:

• a person who has control of a close company exercises his control of that company so that value passes out of a relevant holding into the shares disposed of; or
• effect is given to any other transaction by virtue of which value passes into those shares out of a relevant holding.

• RELEVANT HOLDING

Where value is shifted into shares in a company, Paragraph 12(5) defines a relevant holding as being a reference to any holding of shares in that company or a holding in another company which is controlled by the same person or persons as that company. The relevant holding can be held by:

• the person who held the shares into which value has been passed immediately following the value shifting transaction; or
• a person connected with him.

CERTAIN VALUE SHIFTS ARE TO BE IGNORED

Paragraph 12(4) excludes from paragraph 12 any case where:

• the value passing into the shares from the relevant holding is insignificant or;
• when the shift of value took place the qualifying holding period for the relevant holding was at least as long as the qualifying holding period for the shares into which the value was shifted.

The qualifying holding period for a holding or other asset at the time of the value shift is defined by paragraph 12(6) as being what the qualifying holding period would have been if the holding or other asset had been disposed of at that time.