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HMRC internal manual

Oil Taxation Manual

Capital gains: non residents: unquoted shares

The inclusion of unquoted shares in the definition of disposals to which TCGA92\S276 applies ensures that gains are caught at the shareholder tier which might otherwise be circumvented by the transfer of valuable assets or rights into a company and the subsequent sale of the shares in that company.

Unquoted shares are defined by TCGA92\S276(6) as shares other than those listed on a recognised stock exchange within the meaning of that phrase as defined in the Taxes Acts. This ensures that disposals of shares by individuals or companies at the portfolio level of investment in quoted shares are outside the provisions. Shares also include stock and any security as defined in CTA10\S1117(1), including, for example, unsecured loan stock.

Not all disposals of unquoted shares are caught. TCGA92\S276(4)(b) limits the charge to gains on disposals where the shares derive their value, or the greater part of their value, directly or indirectly from exploration or exploitation assets situated in the UK or a designated area or from such assets and exploration or exploitation rights taken together.

The use of the word ‘indirectly’ in TCGA92\S276(2)(c) and TCGA92\S276(4)(b) ensures that gains on share disposals may still be caught even where there may be other companies interposed between the company whose shares are being disposed of, and the company holding the oil rights or assets directly. It should be noted that as ‘company’ is not defined for these purposes in any special way, it is capable of extending to companies whose business is contracting, as well as to companies whose business is exploration and production. Also, if the unquoted shares fall within the definition, then the full amount of the gain is caught, notwithstanding that an element of the gain may derive from non-UK/non-oily assets.

The definition of exploration or exploitation rights in TCGA92\S276(2)(b) is by reference to ‘assets to be produced…’ and is regarded as a reference to rights to future production. In considering whether the value of unquoted shares derives wholly or mainly from such rights, assets which have derived from past production (for example cash, trade debtors, and so on.) are not taken into account.

Where the value of unquoted shares derives wholly or mainly from onshore activities, the restriction in TCGA92\S276(2)(a) discussed at OT30820 will apply to exclude these from the scope of the charge.

The value to be considered is the value at the date of disposal. This is a question of fact, and as such, can only be decided at, or subsequent to, the date of disposal. A pre-transaction ruling is not therefore appropriate in this area.