Clause 41 - Reallocation within group of gain or
Finance Bill
10:30 am
Mr Howard Flight (Arundel and South Downs, Conservative)
Clause 41 contains measures relating to reforms for which businesses have been calling for some time, and the Institute of Directors has welcomed them. The clause improves flexibility.
Section 179 of the Taxation of Chargeable Gains Act 1992 was introduced to combat the ''envelope scheme'', in which groups disposed of an asset pregnant with capital gain by transferring it to an intra-group, or to a special-purpose company, on a no-gains-no-loss basis, and then sold shares, rather than
the asset, in that company. The scheme was organised so that the capital gain from the sale of shares in the special-purpose company was lower than the gain that would have come from the sale of the assets in isolation. Under the section, the transfer of the original asset intra-group is taxed if the special-purpose company leaves the capital gains group within six years of the asset's transfer. The resulting de-grouping provision was inflexible and permitted no roll-over or ability to use capital losses elsewhere in the group. This clause and clause 42 seek to address those problems. However, six years is a long time to wait, and many straightforward commercial transactions are caught by the period. That other main criticism of the section has not been addressed.
The new stamp duty anti-avoidance clauses that we shall discuss later catch similar transactions but use a two-year time limit. Therefore, new clause 4 proposes a two-year time period. It has the support of the Chartered Institute of Taxation, which takes the view that it would be sufficient to counteract envelope schemes, so we hope that the Government will consider sympathetically putting the time limit in line with the stamp duty arrangements.