THE bumper flow of Capital Gains Tax (CGT) into the exchequer may be the reason that there were few announcements from Mr Hammond in this area.
Furthermore, given last year’s changes to CGT rates and, the general uncertainty over the Brexit negotiations, it is perhaps not surprising that the chancellor is keeping his powder dry on the CGT front.
However, there were some announcements which will be of interest to companies which hold shares in other corporates and to businesses which deal in property. It should also not be forgotten that certain changes affecting CGT on non-domiciles come into effect shortly.
Substantial Shareholding Exemption (SSE)
SSE is a generous exemption which has been around for a number of years. Subject to certain conditions it provides that a qualifying company does not have to pay corporation tax on capital gains realised when it sells shares in a trading company.
Broadly, the rules require the following conditions to met:
* The investing company must be a trading company or a member of a trading group before and after the sale.
* The investee company must be a trading company before and after the sale
* The investing company must have held at least 10 per cent of the shares in the investee company for a continuous period of at least 12 months in the 24 months prior to sale.
It is proposed that the conditions for SSE are simplified for disposals on or after 1 April 2017 as follows
– The condition that the investing company is required to be a trading company or part of a trading group is being removed.
– The condition that the investment must have been held for a continuous period of 12 months in the 24 months preceding the sale is being extended to a continuous period of 12 months in the six years preceding the sale.
– The condition that the company in which the shares are sold continues to be a qualifying company immediately after the sale, is withdrawn, unless the sale is to a connected party.
– For a class of investors defined as Qualifying Institutional Investors, the condition that the company in which the shares were sold is a trading company has also been removed. The draft legislation contains a list of Qualifying Institutional Investors.
SSE still remains a complex area but these simplifications are welcome. In particular, the fact that the ‘trading’ test only has to be met in the investee company with effect from 1 April will help deal structuring going forwards.
Appropriations to trading stock
Where a business allocates an asset from fixed assets to trading stock there is a deemed disposal at market value for CGT purposes. Where a capital gain arises an election can be made to roll the gain into the base cost of the stock which defers the gain until the property is sold. Where a loss arises, the law previously enabled the business to add the value of the loss to the cost of the property in stock thereby converting the capital loss into a trading loss. From 8 March 2017, the government will remove the ability for businesses to convert capital losses into trading losses when appropriating a capital asset to trading stock. This will be of interest and significance to property developers and dealers.
Non-domiciles
It should not be forgotten that non-domiciled individuals who have been resident in the UK for 15 out of the last 20 years will automatically be deemed to be domiciled in the UK for tax purposes from 6 April 2017. This means that they will automatically be subject to CGT on their worldwide gains and will not be able to access the remittance basis.
For more information regarding the Capital Gains Tax changes contact Aaron Hemmington at Hawsons Chartered Accountants on 01604 645600, email or visit www.hawsons.co.uk.