Conversion: Schedule 20A FA93: Nameco conversions: ancillary trust fund (ATF) assets
FA93/SCH20A/PARA4 applies to net chargeable gains on ATF assets (part of Funds at Lloyd’s (FAL) - see LLM1200). The basic requirements for relief to be available are
- as with relief under paragraph 3, relief in respect of the net chargeable gains accruing on the disposal of ATF assets must be claimed
- in order to make a claim, the Name must have claimed roll-over relief under paragraph 3 on the syndicate capacity disposal (except where it was not possible to make such a claim because either there were no net chargeable gains to roll over, or the syndicate capacity disposal was made before 6 April 2004)
- the relief is available only on the first transfer of ATF assets (on or after 6 April 2004) of ATF assets to the Nameco.
Such assets will need to be released by Lloyd’s back to the Name before transfer to the Nameco, and the relief therefore requires that the assets are withdrawn from the ATF and transferred to the Nameco “without unreasonable delay”.
The share ownership and control conditions that must be satisfied at the time of the syndicate capacity disposal for roll-over relief under FA93/SCH20A/PARA3 to be available must also be satisfied at the time of the ATF disposal. In addition, those conditions must be met throughout the period (if any) between the time of the syndicate capacity disposal and the time of the ATF transfer. The ATF transfer must be in consideration solely for the issue of shares in the company. Again the relief operates in essentially the same manner as TCGA92/S162 by rolling over the gain against the cost for CGT purposes of the issued shares, apportioned as necessary between the shares (or, where relevant, any asset derived from those shares).
There is a further restriction that may apply to restrict the amount of net chargeable gains on FAL that may be rolled over against the cost of the consideration shares. FA93/SCH20A/PARA4 (5) requires the amount of the gain rolled over to be restricted to the lesser of the security needed for the Name’s last underwriting year and the amount needed for the Nameco’s first underwriting year. This is achieved by reducing the amount of the gain on FAL assets by multiplying it by the fraction R/T.
“R” means the amount of the FAL assets needed for the lesser of the Name’s last private underwriting year and the Nameco’s first underwriting year.
“T” means the market value of the assets immediately before the transfer.
This restriction means that a Name cannot obtain relief for more assets than are needed to support the Nameco’s business in its first underwriting year (or the level of business in the Name’s last year, if that was less).
A Name transfers FAL of £500,000 (the amount required to support the Name’s last underwriting year) to a Nameco, but the amount required to support the Nameco’s first underwriting year is £400,000. Some of the assets transferred give rise to chargeable gains of £70,000, and others to allowable losses £10,000. Relief under FA93/SCH20A/PARA4 is given on the net aggregate chargeable gains, subject to the restriction for the amount of the FAL assets required for underwriting:
£400,000/£500,000 x £60,000 [£70,000 - £10,000] = £48,000
The amount of the gain rolled over against the cost of the shares received in consideration for the FAL is £48,000, unless the cost of the shares is less, in which case the amount rolled over is restricted to that lesser amount.
Unlike the relief in paragraph 3, relief under paragraph 4 may be claimed where the ATF transfer is made to a Nameco to which syndicate capacity was transferred before 6 April 2004. For this to apply, the share ownership and company control conditions must be met both at that time and throughout the period from then until the ATF transfer.