IR36 29 November CAPITAL GAINS TAX : ROLL-OVER RELIEF WITHIN GROUPS OF COMPANIES The Chancellor proposes in his Budget to change the rules governing business asset roll-over relief from capital gains tax for companies within groups. The changes will - give statutory backing to a long standing practice concerning availability of roll-over relief for groups of companies; - prevent companies receiving excessive relief when assets are transferred between members of a group; - extend relief available when land subject to a compulsory purchase order is sold by one group member, and replacement land bought by another group member; - legislate for an existing extra-statutory concession. The Chancellor's intention is to remove uncertainty over how roll-over relief for groups of companies operates to ensure that it does so as was always intended, and to prevent loss of tax through manipulation of the relief by groups. The new measures will apply where either the disposal of the original asset, or the acquisition of its replacement, takes place on or after Budget day, and to claims made on or after today. The statutory backing for the Revenue's long-standing practice is deemed to have had effect from 6 April 1965. Preventing 'roll-around' should produce some Pounds 50m in extra Revenue in 1996-97, and subsequent years, and also prevent a further loss of tax from use of this device. The extension of roll-over relief for compulsory purchases of land should have a negligible cost. DETAILS The changes announced today will give statutory backing for the current practice which allows roll-over relief when one company within a group disposes of an asset at a gain, but another company in the group acquires the replacement asset. This clarifies the position following the case of Campbell Connelly & Co. Ltd -v- Barnett; prevent 'roll around' which currently allows group members to secure roll-over relief when existing assets are transferred between group members, but no new asset is brought into the group; allow roll-over relief between members of a group of companies when land is disposed of by one member of a group as a result of a compulsory purchase order, and replacement land is acquired by another group member; legislate for an existing extra-statutory concession (ESC D30) which gives roll-over relief where assets are used in a trade carried on by a group of companies, but are held by a non-trading member of the group. NOTES FOR EDITORS Statutory backing for existing practice 1. Roll-over relief under Section 152 Taxation of Chargeable Gains Act (TCGA) 1992 allows a business to replace its trading assets without incurring an immediate tax charge. Tax arising on the sale of a business asset may be deferred or 'rolled- over' if the proceeds from the sale are used to acquire another qualifying business asset. The deferred charge is reinstated when the replacement asset itself is sold. 2. For the purposes of roll-over relief, companies within a group have, in practice, always been treated as if they were a single company. This allowed one company in a group to roll-over a gain made on the sale of an asset against the acquisition cost of another asset, even though the new asset was acquired by a different group company. 3. The case of Campbell Connelly & Co. Ltd -v- Barnett cast doubt about the statutory basis of this practice. In September 1992, the then Financial Secretary to the Treasury announced that, notwithstanding the outcome of the case, roll-over relief would continue to be available as before. The Court of Appeal's judgement in November 1993 in this case left those doubts unresolved, and the Chancellor's proposal will now give legislative backing to the Financial Secretary's announcement. Subject to a formal claim, roll-over relief will be given on the same basis as under the earlier practice. A separate sheet attached to this Press Release gives more information on the details required when claiming the relief. Groups and compulsory purchase of land 4. An equivalent to roll-over is available when a person disposes of land subject to a compulsory purchase order, and acquires replacement land. The Chancellor's proposal will provide this relief when different companies in a group make the acquisition and disposal. Exploitation of roll-over relief by groups 5. Under Section 171 TCGA 1992, an asset can be transferred within a group without a tax charge arising (a 'no gain/no loss' transfer). At present, an asset acquired in this way can be treated as a replacement asset for roll-over relief purposes. Companies can use these arrangements to defer paying tax on a capital gain despite the fact that the group as a whole has made no new acquisition. These arrangements, known as 'roll around', effectively grant roll-over relief in circumstances never intended when roll-over relief was first introduced. 6. The Chancellor's proposal will prevent relief being given when no new asset is acquired by the group. It operates by denying roll-over relief on assets acquired via a no gain/no loss transfer. Extra statutory concession D30 7. Strictly, roll-over relief is only available to a company which is itself trading. Extra Statutory Concession D30 gives relief for assets used in a trade by members of a group, even though the company which actually holds the asset does not itself trade. The Chancellor proposes to legislate for this concession as part of the package of measures for roll-over relief. CLAIMS TO ROLL-OVER RELIEF The Board of Inland Revenue has determined under Section 42(5) of the Taxes Management Act 1970 that a claim to roll-over relief under Section 152-159 of the Taxation of Chargeable Gains Act 1992 shall be made in writing, specifying: 1. The identity of the claimant; 2. The assets which have been disposed of; 3. The date of disposal of each of those assets; 4. The consideration received for the disposal of each of those assets; 5. The assets which have been acquired; 6. The date of acquisition of each of those assets or the dates on which unconditional contracts for the acquisition of each of those assets were entered into; 7. The consideration given for each of those assets; and 8. The amount of the consideration received for the disposal of each of the specified assets which has been applied in the acquisition of each replacement asset. Where the claim to relief is made by virtue of Section 175(2A) TCGA 1992, the claim shall be made jointly by the two companies involved.