LAM03350 - Calculation of ‘I’ Income and chargeable gains: Deemed disposals: cessation/transfer of business; seeding an authorised contractual scheme (ACS): losses on disposal to connected 'authorised fund manager'

Cessation/transfer of business

If a UK company, or a UK permanent establishment of an overseas company, ceases to carry on long-term business before all of the spread gains (LAM03330) have been brought into charge, any gains that have not been charged to tax in earlier accounting periods are brought into charge in the accounting period ending with the cessation of long-term business – TCGA92/S213(4) and S213(4ZA).

This rule does not apply where there is a Part VII FSMA transfer of business and certain conditions are met – see LAM13040.

Seeding relief for transfer to ACSs and relevant offshore funds

When an insurance company transfers an asset to a UK-ACS (IFM08130) co-ownership fund, or an offshore transparent fund that create rights in the nature of co-ownership, in exchange for an issue of units to the insurance company, TCGA92/S211B will apply.

The insurance company will be treated as having disposed of the asset to the fund on the basis that neither a gain nor loss will accrue to the company if, immediately before the asset was transferred, the asset was held for the purposes of the insurance company’s long-term business and immediately after the transfer the asset is held in the same category as the original asset i.e. it is not a box transfer LAM03210.

The units that the life insurance company will receive from the fund are treated as having been acquired for a consideration equal to the amount of consideration used to arrive at the no gain no loss position.

Anti-avoidance rules

Anti-avoidance rules are built into TCGA92/S213 to prevent a life company seeding an asset into a fund immediately prior to disposal and taking advantage of the 7 year spreading of chargeable gains that apply to holdings in a co-ownership ACS IFM08640.

The rule applies where, within three years after the end of the accounting period in which the original S211B transfer occurred, there is an actual disposal or part disposal of the units received in respect of that transfer. In that case TCGA92/S213(4ZB)-(4ZC) treats the chargeable gain or allowable loss that would otherwise be spread over later years as accruing in the year of disposal.

For disposals before 1 January 2018, S213(4ZD) and (4ZE) provide that, in applying these rules to relevant offshore funds, the meaning of relevant offshore fund within TCGA92/S103A will apply. For disposals after 1 January 2018 the definition in Regulation 11 of SI2009/3001 will apply.

Further guidance on the tax treatment of participants in ACSs can be found in IFM08500 – IFM08600.

Transfers to managers of authorised investment funds

The buying and selling of units in authorised investment funds (AIF) is normally transacted through the relevant authorised manager of the fund. Life insurers may be part of a group that has its own ‘in-house’ fund manager responsible for many of the AIFs. In the absence of any special provisions, the connected party rules TCGA92/18(3) may apply.

Relief is provided in TCGA92/S210C, which disapplies the connected party rules and prevents these losses becoming of more limited use CG14561. Losses arising from disposals of AIFs to the manager of the fund, as defined for S210C, can be set against chargeable gains under the normal rules of TCGA92.

S210C defines the manager as:

  • in the case of an authorised unit trust, the person who is the manager for the purposes of FSMA 2000 defined in the FCA Handbook
  • in the case of an open-ended investment company, a director or other person having responsibility for management of the scheme property
  • in the case of an authorised contractual scheme, which is a co-ownership scheme, ref the person who is the operator of the scheme for the purposes of FSMA 2000

These are formal appointments required by regulation.