Inland Revenue 2

9 November 1999





CAPITAL GAINS TAX - COUNTERING AVOIDANCE

As part of the Government's drive to counter tax avoidance, the Chancellor has today announced a change to capital gains tax gifts relief.

Legislation will be introduced in next year's Finance Bill to end business assets gifts relief on the transfer of shares or securities to companies. Any such transfers made on or after today will no longer qualify for relief.



DETAILS

1. Where gifts relief is allowed :

  • the donor is not charged any tax on the 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.


3. The main purpose of the relief is to prevent erosion of business capital when a business is handed down within the family and to prevent the break-up of small businesses. However, the relief is also available where assets used in an unincorporated trade are transferred to a company.

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

5. The tax being lost through these arrangements is currently estimated as in excess of £50 million per annum.

6. Legislation to be introduced in next year's Finance Bill will end the relief for transfers of shares or securities to a company made on or after today.







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