EXPLANATORY NOTE

1. This clause provides a statutory charge to tax where a taxpayer has taken advantage of any extra statutory concession published before 9 March 1999 which allows capital gains to be relieved in an earlier period on the understanding that they are brought back into charge in a later period, and tax on the deferred gains is not then paid. The charge is based on the amount of the gains deferred under the concession from the earlier period and applies where those deferred gains subsequently arise on or after 9 March 1999, irrespective of when the relief was given.

2. The charge is being introduced to cover the situation where taxpayers, who should pay tax on capital gains which have been deferred by way of a concession rather than by way of statute, do not in fact return and pay tax on those deferred gains. Where taxpayers return and pay tax on the deferred gains, a charge under this clause will not apply.

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3. Subsection (1) introduces new sections 284A and 284B after section 284 of the Taxation of Chargeable Gains Act 1992.

New section 284A

4. New section 284A(1) identifies the circumstances in which the new section is to apply as those where there was no statutory entitlement to a capital gains relief but where such relief has been given by way of a concession published by the Board of Inland Revenue before 9 March 1999 and the concession involved the application of an enactment which would not otherwise have applied.

5. New section 284A(2) provides that, at the time the relief was given, the concession must have been one which was available to anyone falling within its terms.

6. New section 284A(3) provides for an amount equal to the capital gain relieved for the earlier chargeable period to be charged in the later chargeable period if a taxpayer "repudiates the benefit of the relief " arising from the concession. An explanation of this term is given in subsection (6). In essence, a charge may be applied under this subsection if a taxpayer does not return the capital gain arising as a consequence of the concession.

7. New section 284A(4) explains what is meant by "a capital gains relief" and "the amount of the benefit" of any such relief. The relief may be a relief from capital gains tax or from corporation tax on capital gains.

8. New section 284A(5) expands on the circumstances set out in subsection (1) in which the section applies, by covering certain concessions which have the effect of deferring capital gains without invoking a specific statutory provision.

9. New section 284A(6) sets out the circumstances in which a taxpayer "repudiates the benefit of any relief". The circumstances are that

the benefit of the relief would have been "recouped" from the taxpayer (as explained in subsection (7)) if the relief had been given by way of statute rather than by way of a concession, but

it cannot actually be recouped from him because the taxpayer is relying on the fact that the original relief was obtained by way of a concession rather than under statute, and

the taxpayer has not accepted the recoupment (that is, the deferred capital gain) by acting in the way provided by section 284A(8).

10. New section 284A(7) explains what is meant by the benefit of a capital gains relief being recouped. In essence it means that the deferred gain is brought back into charge in a later period either by increasing a taxpayer’s chargeable gains or reducing his allowable losses for that period.

11. New section 284A(8) enables the taxpayer upon whom the deferred gain falls to avoid a charge under section 284A(3) by indicating in writing to the Board that he accepts that the benefit of the relief may be recouped from him. This acceptance, which is irrevocable, could be done by any means, but would normally be done simply by returning or self-assessing the gain deferred as a consequence of the concession.

12. New section 284A(9) makes it clear that "concession" means any practice, interpretation or other statement in the nature of a concession.

New section 284B

13 New section 284B(1) provides that the amount charged under section 284A(3) shall not qualify for taper relief.

14. New section 284B(2) provides that the amount charged under section 284A(3) shall not exceed the amount of the chargeable gain relieved in the earlier period.

15. New section 284B(3) enables a taxpayer who has been charged to tax under section 284A(3) to revert to the non-statutory deferred gain if he gives an indication under section 284A(8), within the time allowed under section 284B(4), that he accepts that gain instead. If he does that, then any assessment which includes an amount charged under section 284A(3) will be adjusted and any overpaid tax will be repaid.

16. New section 284B(4) provides that the indication referred to in section 284B(3) may be given within

12 months of the making of the assessment;

the time allowed for amending a self-assessment or company tax return;

where a claim to relief against the liability is made, the time allowed for making that claim.

17. New section 284B(5) ensures that section 284B(3) has effect notwithstanding any normal time limits for making or amending an assessment.

18. Subsection (2) provides that new sections 284A and 284B are to apply to any liability arising on or after 9 March 1999 as a consequence of a concession, irrespective of when the relief was given by way of that concession.

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19. The purpose of this clause is to ensure that taxpayers pay tax on capital gains deferred from one period to another under the terms of a published concession.

20. The type of capital gains concessions to which the clause applies are those which allow roll-over relief, or a similar deferral-type relief, including any relief which treats a disposal of a chargeable asset as giving rise to neither a loss nor a gain. All these reliefs allow the gain not to be charged at the time of the disposal on the basis that the gain will be brought back into charge on the occasion of a subsequent event. The gain may then either be charged on the same taxpayer who received the benefit of the relief or another taxpayer to whom the asset has, in the meantime, been passed in circumstances which do not give rise to any liability.

ESC D15 which extends business asset roll-over relief to cover gains on assets of a company which is 90% owned by an unincorporated association.

ESC D16 which extends business asset roll-over relief where the proceeds from the disposal of an asset are reinvested in the repurchase of the same asset.

ESC D22 which extends business asset roll-over relief where the proceeds from the disposal of an asset are used to enhance the value of another asset.

ESC D39 which treats a lease of a property which is surrendered before its expiry as the same asset as a new lease to replace it, if certain conditions are met, so that any gain on the surrender of the old lease may be picked up on any later sale of the new lease.

22. Where relief is given under concessions like these the deferred gain arises only as a consequence of the concession and not by way of a statutory provision. Taxpayers are expected to return and pay tax on the deferred gain as part of the understanding on which the concession is granted. However, if the taxpayer upon whom the deferred gain falls does not return the gain, a capital gains charge cannot be enforced. In such circumstances, this clause remedies that situation by applying a statutory capital gains charge in the later period of an amount equal to the gain relieved for the earlier period.

23. Example:

A taxpayer with two business properties sells one (property A), realising a chargeable gain of £35,000, and uses the proceeds from the sale to modernise and expand the other (property B).

He wants to claim roll-over relief but cannot do so under the terms of the legislation because the proceeds from the sale of property A have not been applied by him in acquiring "other" assets but only to enhance the value of an asset he already owns. However Extra Statutory Concession D22 allows roll-over relief in this situation and he takes advantage of that concession. As a consequence, the expenditure which he may claim on the eventual disposal of property B is reduced by the rolled-over gain of £35,000. Five years later he sells the business, realising a gain of £80,000 on property B including the rolled-over gain of £35,000 from the sale of property A.

Under the terms of the concession he is expected to return and pay tax on the total gain of £80,000 (including the deferred gain of £35,000) less any appropriate taper relief, on the sale of property B. However, as the deferred gain of £35,000 arises as a consequence of a relief given by way of a concession, only the charge on the balance of £45,000 (less any appropriate taper relief) can be enforced.

This clause remedies that situation by applying a statutory charge on the £35,000 - the amount of untapered gain relieved in the earlier period - if the taxpayer returns or self assesses on the basis of a gain of only £45,000.

If the taxpayer carries through the terms of the concession by returning or self assessing the total gain of £80,000 (less any appropriate taper relief) on the sale of property B, a charge under the clause would not arise.