CIOT Budget representations on share gains

The CIOT has submitted two sets of representations, ahead of the 15 March 2023 Budget:

• CGT relief for gifts of business assets: TCGA 1992 s 165 provides that gains arising on gifts of shares in trading companies can be held over and deducted from the recipient’s acquisition base cost, with the held-over gains taxed on a future sale. Relief is restricted, however, to the extent that the company has assets that are not related to the trade. This has the unintended consequence that relief is denied where a company has substantial goodwill or other intangible fixed assets created or acquired on or after 1 April 2002. Those assets are dealt with under the CTA 2009 corporate intangibles regime rather than as ‘chargeable assets’ under TCGA and are caught by the restriction, even though they are not non-trading assets.

The CIOT suggests that the legislation should be amended to avoid this unintended consequence, by removing the word ‘chargeable’. Relief would then be restricted on the basis of the ratio of a company’s business assets to its total assets. The CIOT’s paper helpfully includes three examples which illustrate the problem.

• Company purchase of own shares – multiple completion contracts: this relates to the requirement that, immediately after a purchase of own shares, the seller must not be connected with the company, in order for the proceeds to be taxed as a capital gain (and for business asset disposal relief to apply, for example). A person is ‘connected’ if that person ‘possesses’ certain amounts of share capital. HMRC has said that ‘possesses’ refers to legal rather than beneficial ownership. This creates a problem where shares are sold under a multiple completion contract; the seller may lose beneficial ownership on the date of the contract but retain legal ownership until the sale has completed (the point being that under multiple completion contracts, legal completion takes place in tranches – helping the company finance the transaction over a number of years). If the seller remains legal owner they remain connected and will not qualify for capital treatment.

The CIOT suggests that the legislation should make clear that ownership in this context refers to ‘beneficial ownership’.