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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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ETMD: consequential amendments within TCGA 1992

As explained at CG45701 the TCGA 1992 accommodates the principles of the ETMD by ensuring that, where the relevant conditions are met, transfers of assets and liabilities etc are not inhibited by tax law as it applies at either the asset tier or shareholder tier. As well as the provisions within TCGA 1992 at sections 140A - L, changes were required to other parts of the Act to prevent;

  • charges deferred under TCGA 1992 section 140 coming back into charge as a consequence of a transfer of assets or a merger within the ETMD;
  • a charge that was deferred on the acquisition of depreciating assets within section 154 coming back into charge as a consequence of a transfer of assets or a merger within the ETMD;
  • a deferred charge under section 116(10) coming back into charge as a consequence of a transfer of assets or a transfer of assets or a merger within the ETMD;
  • degrouping charges arising under section 179 as a consequence of a transfer of assets or a merger within the ETMD.

It was also necessary to ensure that Sch 7A, which is aimed at loss buying, can still apply where appropriate on the formation of a SE, see CG45741 - CG45742.

The changes to sections 140, 154, 116, 179 and Sch 7A were introduced by SI 2007/3186 and have effect from 1 January 2007 but where they involve a SE or ECS then they are effective on or after 18 August 2006.

The general principle behind the changes to sections 140, 154, 116 and 179 is that any charge which ordinarily would have arisen at the point the merger or transfer of assets takes place is disapplied and a ‘stand in shoes provision’ will apply.

A new subsection, (10A), was introduced to TCGA 1992 section 170 by F(No2)A 2005 in respect of SEs and has effect on or after 1 April 2005. This is covered in more detail in CG45740.

Paragraphs CG45734 - CG45739 explain in more detail how sections 140, 154, 116 and 179 are affected. Each paragraph begins with a very general explanation of how the relevant section, eg section 140, operates, why, without a special provision, a charge would arise and how the changes prevent this from happening whilst at the same time preserving the charge to tax. Each paragraph identifies the other parts of the guidance manual that provide a fuller explanation of how each statutory section that is affected operates eg for section 140 see CG45660+.