EXPLANATORY NOTE

1. This clause provides for the ending of capital gains tax relief for gifts of business assets on the transfer of shares or securities to companies. The relief is not available for transfers on or after 9 November 1999 (the date of the announcement to end the relief).

__________________

2. Subsections (1) and (2) add further cross-references to existing legislative provisions.

3. Subsection (3) updates the legislation to remove two references to the defunct Unlisted Securities Market.

4. Subsection (4) prevents business assets gifts relief being available in the case of the disposal of shares or securities to a company.

5. Subsection (5) provides for the clause to have effect for disposals made on or after 9 November 1999.

__________________

6. The gift of a chargeable asset may give rise to a capital gains tax liability. The liability may be deferred, however, if the gift is of qualifying business assets and a claim to gifts hold-over relief is made. Qualifying assets include assets used in a trade or profession and shares or securities in an unlisted trading company.

7. Where gifts hold-over relief is allowed

• the donor is not charged any tax on the held-over gain;

• the recipient is treated for capital gains tax purposes as acquiring the asset for the current market value less the amount of the chargeable gain on the gift; and

• as a consequence the gain is effectively brought back into charge when the recipient disposes of the asset.

8. This relief was being widely abused where shares or securities, rather than assets used in a trade, were involved. The relief was being exploited in schemes where the primary purpose was to avoid a CGT liability on an anticipated sale, rather than simply defer the liability on a bona fide gift. Some of the schemes involved the direct transfer of shares or securities to companies so that a tax exemption or other tax shelter could be taken advantage of. Others employed the relief as part of a complex series of transactions where the sole purpose was to shift gains outside United Kingdom tax jurisdiction.

9. This clause therefore withdraws relief in the limited circumstances where shares or securities are transferred by individuals or trustees to companies. The relief continues to be available for all other transfers of business assets, including the transfer of assets used in a trade when a business is incorporated.

______________________________________________