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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Targeted rules to prevent income to capital converter schemes by companies - income to capital schemes

TCGA92/S184G deals with schemes that convert income into capital. TCGA92/S184G(1) setsout the basic conditions which need to be met before the legislation will apply. Inaddition the legislation will only apply where HMRC has issued a notice to that effect, asdescribed in CG44140+.

The rule is intended to target those arrangements that include both of the following inorder to secure a tax advantage as a main purpose:

  • An amount that would otherwise have been accounted for tax purposes as income has been converted to a capital sum.
  • That capital sum gives rise to a chargeable gain, which it was intended would be reduced by capital losses

Whilst there is no requirement that the capital receipt be identical in amount ortiming to the income that would have arisen in the absence of the arrangements, it isclear that it should represent that income. In some cases, the accounting treatment mayclearly demonstrate the link, in that what for tax purposes is a capital receipt, is shownin the company accounts as income.