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HMRC internal manual

Capital Gains Manual

Gifts: business assets: definitions

For gifts on or after 6 April 2008, the definitions of “holding company”, “trading company” and “trading group” for the purposes of TCGA92/S165 are contained in TCGA92/S165A. Note that the definition of a “trading company” in S165A includes a company with qualifying shareholdings in joint venture companies.

However, in the case of gifts of shares in companies which have qualifying shareholdings in joint venture companies, it is still necessary to apply the apportionment provisions contained in TCGA92/Sch 7 para 7 as described in CG66970+ to restrict the hold-over relief to the business assets of the company. Qualifying shareholdings in joint venture companies are non-business assets.

Prior to 6 April 2008 the relevant definitions were contained in TCGA92/SchA1 para 22.

Applications for a ruling on the status of a company

An individual may need to establish whether a company is a trading company or holding company of a trading group, in order to establish whether a disposal qualifies for relief under TCGA92/S165. That person should, in the first instance, seek advice from the company to confirm this.

The responsibility for ensuring that the assets are “business assets” for the purposes of S165 rests with the individual making the disposal. They will need to take a view and make their self-assessment return on this basis. Where appropriate the white space on the return may be used to point out that an unsuccessful approach has been made to the company for confirmation of its status.

The company itself may have genuine doubt or difficulty as to its trading status. There is no statutory clearance procedure under which companies can have their status confirmed. However in such circumstances a company can seek from HMRC an opinion under the terms of the Other Non-Statutory Clearance service as to its trading status for the purpose of a shareholder’s hold-over relief claim. In order to maintain confidentiality the Officer dealing with the company’s tax affairs will not be able to correspond directly with individual shareholders.

A non-statutory clearance is written confirmation of HMRC’s view of the application of tax law to a specific transaction or event where there is genuine uncertainty as to how the legislation applies in the company’s circumstances. Any application should contain the information in the checklist in the Other Non-Statutory Clearance Guidance (HMRC website).

The status of a company or group is a question of fact which may alter as the balance of their activities change, so it will not be possible to confirm a company’s status for future periods. Because of the inherent difficulty in giving a view based on uncertain information, in some cases those involved may prefer to wait until all the relevant facts are known before approaching HMRC.

You should offer your opinion whenever this is practicable and, if this differs from the company’s view, explain the reasons for that difference. Having expressed your opinion you should not then enter into any further correspondence on the matter. Any dispute should be resolved through the process of an enquiry into a return or claim. See Regina v CIR ex parte Bishopp (on behalf of PWC) and Allan (on behalf of E&Y) 72TC322.