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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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FA08/Sch7/para126 and section 13 TCGA


TCGA92/S13 allows the gains accruing to non-resident close companies to be attributed to participators in those companies. It is relevant to both TCGA92/S86 and TCGA/S87 as it is quite common for trustees to hold the trust property through a wholly-owned company rather than own it directly. Section 13(10) applies section 13 to non-resident trustees. Section 13 was subject to major reform in 2013. See CGM57200+ for general guidance on section 13 and CG57395 for specific guidance on trustees.

Without some modification FA08/Sch7/para126 would not apply to section 13 gains that accrue to trustees because the trustees do not themselves own the asset or make the disposal. FA08/Sch7/para126(11) provides for paragraph 126 relief to apply to section 13 gains. In simple terms it treats the company as if it were trustees. The basic rule is the same. The company making the disposal must have owned the asset from 6 April 2008 to the date of the disposal, paragraph 126(11)(b). But a number of special rules are required to deal with particular issues that arise on section 13.

The main problem is that the gains are attributed to participators in proportion to their interest in the company and this interest may fluctuate between 6 April 2008 and the date of disposal. Paragraph 126(11)(c) provides that the trustees must have been a participator in the company throughout the period from 6 April 2008 to the date of disposal. Changes in the value of the interest are dealt with in paragraph 126(16) to (18). Only the “appropriate proportion” of the asset is rebased, paragraph 126(16). This is defined in paragraph 126(18) as:

Minimum proportion
The proportionate interest at the date of disposal

The “minimum proportion” is the smallest proportionate interest the trustees have for section 13 purposes from 6 April 2008 to the date of disposal.

The other problem is that section 14 TCGA extends section 171 TCGA so that it applies to a non-resident group of companies allowing assets to be moved between group companies at no gain/no loss. If this has happened to an asset held at 6 April 2008 paragraph 126(14) applies. This treats the transferee company making the disposal which gives rise to the gain as owning the asset on 6 April 2008.

It is possible that the trustees’ proportionate interest in the transferor and transferee companies may differ, particularly if there are loan creditors. Paragraph 126(15) provides you apply the “appropriate proportion” relevant to the company which held the asset on 6 April 2008.

The example in CG38880 illustrates the application of paragraph 126(11). Section 13 only attributes gains accruing to non-resident companies. It has no application to losses. CG38885 illustrates the effect of a paragraph 126 election reducing the section 13 gain to a loss.

See CG38900 if a section 13 company is included in a transfer to which TCGA92/S90 applies.