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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Taxation of the investment return: investment gains: portfolio assets: anti-avoidance provisions

Apart from ICTA88/S95ZA and related legislation (see GIM5050) a further anti-avoidance provision which may apply to portfolio assets whose sale gives rise to a trading profit is ICTA88/S774. This may apply where a general insurer gets relief in computing profits from depreciation in value of a right against an associated non dealing company or gets relief for any payment made to such a company, where the other company does not bring the depreciation or payment into account for its own tax purposes. In the course of the debate on FA69, which retained what became ICTA88/S774 when other similar anti-avoidance provisions (originally from FA60) were repealed, it was stated that simply a drop in the value of the shares held in the associated company would not trigger the provision, because this was not a drop in the value of rights subsisting against the company.

A simple example is the writing off of a loan to an associated company where the loan is an asset the profit or loss on which will form part of the computation of trade profits (see CTM36900). But such cases are now dealt with by the loan relationships legislation of Chapter 2 Part 4 FA96, and FA96/S80 (5) gives that code precedence. Another, not within the loan relationships provisions, is where a dealing company acquires preference shares in an associated company carrying a right to substantial arrears of dividend which are then waived. ICTA88/S774 will apply to charge the non-dealing company, unless it can be argued (see Lupton v FA & AB Ltd 47TC580) that the transaction is not of genuine trading character in any event.