Corporation Tax - Chargeable Gains Deferral Relief For Substantial Shareholdings
ACCA’s response to this consultative document issued by the Inland Revenue is set out below. Copies of the consultative document can be found on the Inland Revenue’s website: www.inlandrevenue.gov.uk
We thank you for the opportunity to comment and will be pleased to
participate in any further consultation.
In general terms we welcome the underlying thinking for the relief and consider the Government is correct to seek to enhance the UK's competitiveness in this area. We would however, urge that the Government makes the relief simple wide ranging and unencumbered by complexly drafted anti-avoidance or general anti-avoidance legislation. We also consider it would help prevent the migration of investment from the UK if the implementation date for the legislation were brought forward. At the same time we are concerned that there could be the withdrawal of other reliefs as the price to pay for the current proposals being enacted.
Our specific comments follow the same order as the document itself:
Chapter 2
Close companies
While we appreciate that there are some concerns with close companies receiving the relief we consider they should be included as we are talking of companies rather than investments by individuals. If necessary the deferral criteria could be made more stringent for such companies.
Life Assurance and North Sea companies
We consider relief should be available for long-term investments by insurance companies as well as North Sea companies but defer on the specifics of how it might apply to specialists in that sector.
Chapter 3
The company in which the shares are held
There has been wide ranging variations in the definition of what is considered to be a trading company within tax legislation. We are however, broadly supportive of the approach outlined in paragraphs 3.2 to 3.5 but would urge simplicity in introducing the necessary definitions. While we have some reservations we consider the alignment of the definition to that for business asset taper relief may well be the best approach.
We consider that the relief should be available within groups and as outlined within the consultation document also within the different tiers of the group and any trading test should be by reference to the entire group.
Chapter 4
The shareholding on which the Gain arises
We consider ordinary shareholding should form the basis for any definition and we would support an alignment with the rules for capital gains tax groups.
At what level should the threshold be set
We consider the 30% threshold is too high. It should in fact be set at 20% in line with that for associated companies. Although we consider the 15% value suggested in the technical note would also be reasonable.
Holding period for the investment
There should be a minimum holding period of 12 months. The idea of a two year holding period is excessive.
Dealing with part disposals
In the case of there not being a minimum holding period requirement then there should be an apportionment approach for fairness.
On which shares can gains be deferred
We consider all shares should qualify for relief once the basic threshold has been exceeded.
Chapter 5
What type of shares should qualify
We agree that only shares which qualify for reinvestment should constitute a qualifying disposal.
What size shareholdings should qualify
The company seeking to benefit from the relief will have more certainty of the size of its holding if the size of the holding prior to reinvestment were the measure for the relief.
What special rules are needed in the case of groups of companies
We appreciate that there are unique problems associated with groups but we consider groups should be included within this regime and any associated "anti-abuse" provisions should be drafted with a light touch so as not to de facto prevent groups benefiting.
Chapter 6
How should the new relief work
We agree with the Governments intentions for the more generous availability of the relief i.e. there should be full interaction with other reliefs.
Time limits for reinvestment
We agree that the time limits should dovetail with the existing reliefs wherever possible.
Reinvestment of disposal proceeds
We consider it appropriate to give relief by reference to the application of disposal proceeds.
Mechanism for achieving deferral
We consider the most appropriate means for providing the deferral would be by way of rollover relief.
Chapter 7
Paragraph 7.3 to 7.10
We have agreed above that there are some anti-avoidance issues for groups and there may need to be some additional requirements for them to fulfil in order to obtain the relief. However, some of the discussions we have had with the Inland Revenue lead us to believe that legislation maybe drafted which will make the underlying requirements for obtaining the relief far too onerous. We urge a realistic approach to prevail.
Paragraph 7.11 to 7.13
We oppose a mini-GAAR under any circumstances. We are concerned with a possible trend to the use of mini-GAARs in various areas. It is likely, with numerous mini-GAARs being enacted, the temptation for the Government will be to consolidate them all into a maxi-GAAR at a future date. If anti-avoidance legislation is to be produced then it should be kept simple and tightly targeted.
Concluding comments
We consider the deferral relief should be made available to all types of companies, close, singletons UK and overseas groups. At the same time we do not wish to see the relief made so complex and bureaucratic as to discourage companies taking advantage of it.