The amendment responds to comments on the Finance Bill clause from numerous corporate groups and their accountants, who asked that the provisions of schedule 10 be made available to companies in respect of transactions undertaken before the passing of the Finance Act. It will allow a group of companies to elect to apply the provisions of the schedule from 1 April 2011. I announced the fact that the Government would introduce the amendment in a written statement on 4 April.
The degrouping charge ensures that tax is paid on gains when, instead of selling an asset directly, a group of companies sells a company that owns an asset. Otherwise, tax could be lost, either as a result of normal commercial arrangements or through tax avoidance. Business identified the degrouping charge rules as one of the most complex and burdensome aspects of the capital gains rules affecting corporate groups.
Clause 45 and schedule 10 make a number of significant changes to the way that degrouping charges are applied. The changes are intended to simplify the operation of the rules for groups acquiring or disposing of subsidiary companies. The changes made by schedule 10 will mean that when a group disposes of a company’s shares such that it leaves the group, any degrouping charge will be treated as additional consideration for the disposal. That will ensure that shareholder reliefs such as the substantial shareholdings exemption will also apply to the degrouping charge.
There is a new facility for claims to reduce the amount of a degrouping charge where tax is charged on the same economic gain both through the degrouping charge and through a chargeable gain on the shares. It will be a useful alternative way to avoid unnecessary degrouping charges where the substantial shareholdings exemption is not available and using the associated companies exception is either burdensome or impractical. We have clarified the rules for the associated companies exception to degrouping charges, in line with expectations following the decision of the court.
The combined effect of the changes to the substantial shareholdings exemption and others outlined above is that companies will face fewer degrouping charges when they are planning an acquisition or disposal of a company. Every corporate group that makes an acquisition or disposal of a trading business will find something in schedule 10 that is useful. The improved interaction with the substantial shareholdings exemption will remove tax barriers that get in the way of assembling the assets of a trade ready for sale.
The changes improve the targeting of the rule, ensuring the aim of preventing tax avoidance is still achieved, but without the potential for double taxation. This amendment provides that these benefits are available straight away if a group would find them useful. There is protection to ensure that a company cannot be disadvantaged by an early commencement election made after it has left a group, since such a company would need to consent to the making of the election. I urge the Committee to accept this amendment.
I have one question. I am grateful to the Minister for his explanation, but we touched in discussion of an earlier clause on the question of intangibles and he said he would return to the question on clause 45. I want to be clear about what he means in relation to that. I am concerned that intangibles, such as goodwill in a business—for example, when purchasing a hotel—could be disadvantaged by this clause, or are not consistently addressed by this clause. There is an inconsistency in that old goodwill—pre-2002—will be treated as a corporate capital asset and therefore will not suffer a degrouping charge, where post-2002 goodwill could be subject to degrouping charges, so for some businesses the simplification is not as useful as it is for others. I would welcome clarification on goodwill being dealt with as part of this clause.
I am grateful to the right hon. Gentleman for raising the issue of whether the changes should be extended to the intangible fixed assets degrouping charge. We have not made a change to the intangible fixed assets regime, primarily because it is outside the scope of this review, which was directed at the simplification of chargeable gains rules.