Corporation Tax: capital gains assets transferred to non-resident company - reorganisations of share capital
Published 22 November 2017
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Who is likely to be affected
UK companies that have previously transferred the assets and trade of a foreign branch to an overseas company in exchange for the issue of shares in that company, where taxation of any capital gains on the transfer has been postponed, and the overseas trading company is involved in a subsequent corporate reconstruction.
General description of the measure
This measure removes an unintended tax charge that can arise in certain circumstances.
Where the trade and assets of a UK company’s foreign branch are transferred to an overseas company in exchange for shares in that company, existing legislation allows tax on any capital gains on this disposal of assets to be postponed. The postponement is temporary, until the overseas company sells the assets, or the UK company disposes of the shares in the overseas company, other than in exchange for further shares during a corporate reconstruction. Under the current rules, an unintended consequence is that if the shares exchanged during the reconstruction fall within conditions for the Substantial Shareholding Exemption (SSE) to apply, the postponed tax charge may become payable, even though the group still owns the shares of the overseas company.
This measure seeks to correct that anomaly.
Policy objective
The measure removes an unintended tax barrier to commercial restructuring of corporate groups. That tax barrier can particularly impact financial sector businesses that have traditionally operated through a network of foreign branches, and which need to restructure, for example to meet changing regulatory requirements in the territories where they conduct their business. The measure corrects an anomaly in the way that three pieces of legislation interact so that postponed tax charges do not become payable earlier than the government intended.
Background to the measure
The measure was announced at Autumn Budget 2017 and follows representations from affected business sectors.
Detailed proposal
Operative date
The measure will have effect for disposals of shares in, or securities of a company made on or after 22 November 2017.
Current law
Current law is in Chapter II of Part IV, and Schedule 7AC to the Taxation of Chargeable Gains Act 1992 (TCGA).
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 to ensure that a corporate reconstruction involving an exchange of shares in an overseas company that previously received the trade and assets of a branch of a UK company does not end the postponement of a tax liability under section 140 of the TCGA 1992 because of the priority of the SSE over the usual treatment of share exchanges.
The measure inserts a new rule in section 140 to ensure that the ‘no disposal’ treatment for share exchanges applies for the purposes of determining whether there has been a disposal which would end the postponement of tax. This will apply notwithstanding the provisions in the SSE rules that otherwise take priority.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure affects companies and is not expected to impact on any of the groups with protected characteristic.
Impact on business including civil society organisations
This measure will only impact on companies that have previously transferred the trade and assets of a foreign branch to an overseas company in return for shares in that company, and now need to restructure the group, for example by inserting a local holding company. The measure is expected to have a negligible impact on business administrative burdens. One off costs include familiarisation with the new rules. It is not expected that there will be any on-going costs.
There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other))
There will be negligible impact on HMRC for this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Corey Herbertson on 03000 542955 or email: corey.herbertson@hmrc.gsi.gov.uk