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33 1978

CAPITAL GAINS TAX (AMENDMENT) ACT, 1978

SCHEDULE 1

Supplementary Provisions

Section 16 .

Compensation applied in restoring assets; deduction of grants from market value of assets held on the 6th day of April, 1974

1. (1) A capital sum which, under subsection (1) of section 29 (compensation and insurance money) of the Principal Act, falls to be deducted from any expenditure allowable under Schedule 1 to that Act as a deduction in computing a gain on the disposal of an asset shall be deducted from the sum applied in restoring the asset before the provisions of section 3 (1) are applied to the residue, if any, of the said sum.

(2) An amount determined in accordance with section 3 (2) in respect of an asset shall be reduced by any expenditure within paragraph 3 (7) of Schedule 1 to the Principal Act which relates to the asset and which was incurred before the 6th day of April, 1974, and the provisions of section 3 (1) shall apply to the residue of the said amount.

Enhancement, etc. expenditure

2. (1) Where any of the expenditure which is allowable as a deduction under Schedule 1 to the Principal Act in the computation of a gain accruing on the disposal of an asset is within paragraph 3 (1) (b) of that Schedule, the chargeable gain determined in accordance with section 3 shall, for the purposes of applying section 4, be apportioned as provided for in this paragraph.

(2) The chargeable gain referred to in subparagraph (1) shall be attributed to the expenditure, if any, within paragraph 3 (1) (a) of the said Schedule as one item of expenditure and to each item of expenditure within the said paragraph 3 (1) (b) in proportion to the respective amounts of those items of expenditure, and each part of the gain as so attributed to an item of expenditure within the said paragraph 3 (1) (b) shall be treated for the purposes of the said section 4 as a chargeable gain accruing on the disposal of a separate asset the period of ownership of which commenced at the time such item of expenditure was first reflected in the state or nature of the asset disposed of or (if it is an item of expenditure incurred by the person making the disposal in establishing, preserving or defending his title to, or to a right over, the asset) at the time such item of expenditure was incurred.

(3) Where, in a case within subparagraph (2), there is no expenditure within the said paragraph 3 (1) (a) or such expenditure is, compared with any item of expenditure within the said paragraph 3 (1) (b), disproportionately small having regard to the value of the asset immediately before the subsequent item of expenditure was incurred, the part of the gain which is not attributable to the enhancement of the value of the asset due to any item of expenditure within the said paragraph 3 (1) (b) shall be deemed to be attributed to expenditure within the said paragraph 3 (1) (a), and the part or parts of the gain attributable to expenditure within the said paragraph 3 (1) (b) shall be reduced accordingly.

(4) Where subsection (1) of section 3 applies in the computation of the chargeable gain referred to in subparagraph (1), this paragraph shall have effect as if any reference to expenditure were a reference to expenditure as determined after applying the provisions of that section.

Calls on shares

3. Where, as respects an issue of shares in or debentures of a company, a person gives any consideration on a date which is more than twelve months after the date on which the shares or debentures were allotted, the consideration shall, in the computation of a gain accruing to him on a disposal of the shares or debentures, be deemed, for the purposes of section 3, to be expenditure incurred on the date on which the consideration was given, and section 4 and paragraph 2 shall apply as if the consideration were expenditure within paragraph 3 (1) (b), and not within paragraph 3 (1) (a), of Schedule 1 to the Principal Act.

Shares, commodities, etc.: identification

4. (1) For the purpose of identifying shares acquired with shares subsequently disposed of, so far as the shares are of the same class, shares acquired at an earlier time shall be deemed to have been disposed of before shares acquired at a later time.

(2) Shares shall not be treated for the purposes of this paragraph as being of the same class unless, if dealt with on a stock exchange, they would be so treated, but shall be treated in accordance with this paragraph notwithstanding that they are identified in a different way by a disposal or by the transfer or delivery giving effect to it.

(3) This paragraph applies to securities as it applies to shares.

(4) This paragraph, without subparagraph (2), shall apply in relation to any assets as it applies in relation to shares where the assets are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

(5) (a) This subparagraph applies in relation to the disposal, on or after the 6th day of April, 1978, of any assets to which paragraph 13 of Schedule 1 to the Principal Act applied, where—

(i) any such assets were, on the 6th day of April, 1978, comprised in a holding of the kind referred to in that paragraph, and

(ii) the holding consisted of assets acquired on different dates, and

(iii) before the 6th day of April, 1978, there had been a disposal of assets which, if that disposal had not taken place, would have been comprised in the holding on that date.

(b) For the purposes of applying subparagraph (1) in relation to each disposal to which this subparagraph applies—

(i) shares acquired on different dates shall, notwithstanding paragraph 13 of Schedule 1 to the Principal Act, be treated as if they were distinguishable parts of a single asset (in this subparagraph referred to as “the holding”) acquired respectively on the separate dates on which they were acquired and for the consideration for which they were acquired, and

(ii) it shall be assumed that, on each occasion prior to the 6th day of April, 1978, on which a disposal was made of shares in the holding, each of the distinguishable parts of the holding as it existed immediately prior to the disposal was reduced, both as regards the number of shares comprised in that part and the expenditure attributable to that part under clauses (a) and (b) of paragraph 3 (1) of Schedule 1 to the Principal Act, in the same proportion as the number of shares so disposed of bears to the number of shares comprised in the holding immediately prior to that disposal, and

(iii) the number of shares comprised in each such part on the 6th day of April, 1978, and the expenditure attributable (apart from section 3) to that part under clauses (a) and (b) of paragraph 3 (1) of Schedule 1 to the Principal Act shall, in relation to a disposal made on or after that date, be the number and expenditure, respectively, determined in accordance with this subparagraph.

(c) Nothing in this subparagraph shall affect the computation of any chargeable gain or allowable loss in relation to any disposal of assets made before the 6th day of April, 1978.

(6) This paragraph shall apply subject to paragraph 14 of Schedule 1 to the Principal Act.

Reorganisation or reduction of share capital

5. Paragraph 2 of Schedule 2 to the Principal Act is hereby amended by the substitution for subparagraph (3) of the following subparagraph:

“(3) Where, on a reorganisation or reduction of a company's share capital, a person gives or becomes liable to give any consideration for his new holding or any part of it, that consideration shall, in the computation of a gain accruing to him on a disposal of the new holding or any part of it, be deemed for the purposes of section 3 of the Capital Gains Tax (Amendment) Act, 1978, to be expenditure incurred on the date the consideration was given, and section 4 of that Act and paragraph 2 of Schedule 1 to that Act shall apply as if the consideration were expenditure within paragraph 3 (1) (b), and not within paragraph 3 (1) (a), of Schedule 1, and if the new holding or part of it is disposed of with a liability attaching to it in respect of that consideration, the consideration given for the disposal shall be adjusted accordingly:

Provided that there shall not be treated as consideration given for such acquisition—

(a) any surrender, cancellation or other alteration of the original shares or of the rights attached thereto, or

(b) any consideration consisting of any application, in paying up the shares or debentures or any part of them, of any assets of the company, or of any dividend or other distribution declared out of those assets but not made,

but, if section 56 (taxation of shares in lieu of cash dividends) of the Finance Act, 1974 , applies in relation to the issue of any of the shares, the sum in cash which the person would have received if he had not exercised the option to receive additional share capital instead of a sum in cash shall be treated, for the purposes of this subparagraph, as consideration given for those shares.”.

Disposals of shares in close companies

6. (1) Subject to subparagraphs (5) and (6), this paragraph has effect where—

(a) (i) at any time, including a time before the 6th day of April, 1978, any of the persons having control of a close company, or any person who, in the terms of section 33 of the Principal Act, is connected with a person having control of a close company, has transferred assets to the company, or

(ii) at any time after the 5th day of April, 1978, a close company acquires any assets,

(b) shares or securities in the company are disposed of on or after the 6th day of April, 1978, by a person—

(i) to whom section 4 (1) applies, and

(ii) who has control of the company,

(c) there is, apart from section 4 (2), a chargeable gain on that disposal, and

(d) the shares or securities, or any of them, were held by the person for a period of ownership of more than three years.

(2) Assets referred to in clauses (i) and (ii) of subparagraph (1) (a), or assets representing such assets, are referred to subsequently in this paragraph as “relevant assets”, but, in relation to the said clause (ii), shall not include cash, plant or machinery on which capital allowances have or could have been claimed under the Tax Acts, trade debtors or trading stock.

(3) (a) In a case where this paragraph has effect—

(i) it shall be assumed for the purposes of this subparagraph that the company concerned sold all of its chargeable assets at their market value on the date of the disposal of the shares or securities and that thereupon, in case those assets were used for the purposes of the company's trade, they ceased to be so used,

(ii) if all of the relevant assets in respect of which chargeable gains would accrue on the assumption made in the immediately preceding subclause were acquired by the company on the same date, an amount of the chargeable gain (being the whole or a portion there-of) referred to in subparagraph (1) (c) represented by the fraction /images/en.act.1978.0033.sched1.1.png of that chargeable gain shall be deemed, for the purposes of section 4, to accrue on assets owned by the person referred to in subparagraph (1) (b) for a period of ownership commencing on that date, where—

A is the amount (but not exceeding B) secondly referred to in clause (b) (ii), and

B is the amount referred to in clause (b) (i),

and

(iii) if the relevant assets of the kind referred to in the immediately preceding subclause were acquired on different dates, the amount (referred to subsequently in this clause as “C”) which would be obtained by multiplying the amount of the chargeable gain referred to in subparagraph (1) (c) by the fraction /images/en.act.1978.0033.sched1.2.png in the subclause aforesaid if all of those relevant assets had been acquired on the same date shall be ascertained and, if no allowable losses fall to be taken into account under clause (b) (ii), C shall be apportioned among the said relevant assets acquired on each separate date in the same proportion that the amount of the chargeable gain attributable to such assets acquired on each such date bears to the entire chargeable gains referred to in the said clause and each such part of C as so ascertained shall be deemed, for the purposes of section 4, to be an amount of the chargeable gain referred to in subparagraph (1) (c) accruing on assets owned by the person referred to in subparagraph (1) (b) for a period of ownership commencing on the date of acquisition of the assets to which that part is apportioned as aforesaid:

Provided that if allowable losses fall to be taken into account under clause (b) (ii), the preceding provisions of this subclause shall apply with the modification that the amount of the chargeable gain attributable to relevant assets acquired on each separate date shall be ascertained by applying the provisions of paragraph 7 (deduction of losses) as if the company concerned were a person to whom that paragraph applies and as if the gains attributable to relevant assets acquired on a later date were chargeable to capital gains tax at a rate higher than the rate appropriate to gains attributable to relevant assets acquired on an earlier date.

(b) This subparagraph shall have effect if but only if—

(i) an amount of chargeable gains would accrue to the company concerned on the assumption referred to in clause (a) (i), after deducting any allowable losses arrived at on the same assumption (but without deducting any other allowable losses available to the company), and

(ii) in arriving at the said amount, account was taken of an amount of chargeable gains attributable to relevant assets after deducting allowable losses attributable to such assets.

(4) Where tax falls to be charged on a portion only of a chargeable gain under the provisions of subparagraph (3), the balance of that chargeable gain shall be charged to tax in accordance with the provisions, other than that subparagraph, of the Capital Gains Tax Acts.

(5) This paragraph shall not have effect in relation to a disposal of shares or securities in a close company by a person who was not, at the date of the disposal or at any time within three years prior to that date, entitled to more than fifty per cent. of the voting power in the company or would not, on a winding up of the company on that date or at any such time, have been entitled to more than fifty per cent. of the assets of the company, unless—

(a) the disposal by that person (or, if there is a series of such disposals made by him to the same person, any such disposal) is to another person who, in consequence of that disposal (or of all or any of those disposals) would become entitled to more than fifty per cent. of the voting power in the company or, on a winding up of the company, to more than fifty per cent. of the assets of the company, or

(b) the disposal by that person is part of a series of disposals of shares or securities in the company, made by him and by persons who, in the terms of section 33 of the Principal Act, are connected with him, to another person who, in consequence of all or any of those disposals would become entitled to more than fifty per cent. of the voting power in the company or, on a winding up of the company, to more than fifty per cent. of the assets of the company.

(6) This paragraph shall not have effect in relation to a disposal if the amount of capital gains tax chargeable apart from this paragraph on the person referred to in subparagraph (1) (b) for the year of assessment in which the disposal takes place would be greater than the amount of tax chargeable on the person for the year if this paragraph did apply.

(7) (a) The reference in subparagraph (1) (a) (ii) and in subparagraph (3) (a) (i) to a company shall include a reference to a subsidiary of that company.

(b) The provisions of subparagraph (3) (a) shall apply for the purpose of determining the period of ownership of shares or securities in a subsidiary as they apply for the purpose of determining the period of ownership of assets owned by the person referred to in subparagraph (1) (b), and so much (if any) of those shares or securities as are shares or securities in relation to which those provisions determine the period of ownership shall be relevant assets; and the provisions of this clause shall apply where the shares or securities in the subsidiary are owned by another subsidiary of the company and so on through any number of subsidiaries of that company.

(c) In this subparagraph “subsidiary”, in relation to a company, means a 75 per cent. subsidiary of that company within the meaning of section 156 of the Corporation Tax Act, 1976 .

Deduction of losses

7. For the purposes of subsection (1) of section 5 (amount chargeable and time of payment) of the Principal Act, where, on the assumption that there were no allowable losses to be deducted under that subsection, a person would be chargeable under the Capital Gains Tax Acts at more than one rate of tax for a year of assessment, any allowable losses falling to be deducted under that subsection shall be deducted—

(a) if he would be so chargeable at two different rates, from the chargeable gains which would be so chargeable at the higher of those rates and, so far as they cannot be so deducted, from the chargeable gains which would be so chargeable at the lower of those rates, and

(b) if he would be so chargeable at three or more rates, from the chargeable gains which would be so chargeable at the highest of those rates and, so far as they cannot be so deducted, from the chargeable gains which would be so chargeable at the next highest of those rates, and so on.

Exemption of first £500 of gains

8. For the purposes of subsection (2) of section 16 (gains of £500 and under) of the Principal Act, where, on the assumption that that subsection did not apply, an individual would be chargeable under the Capital Gains Tax Acts at more than one rate of tax for a year of assessment, the relief to be given under that subsection in respect of the first £500 of chargeable gains shall be given—

(a) if he would be so chargeable at two different rates, in respect of the chargeable gains which would be so chargeable at the higher of those rates and, so far as relief cannot be so given, in respect of the chargeable gains which would be so chargeable at the lower of those rates, and

(b) if he would be so chargeable at three or more rates, in respect of the chargeable gains which would be so chargeable at the highest of those rates and, so far as relief cannot be so given, in respect of the chargeable gains which would be so chargeable at the next highest of those rates, and so on.

Rate of capital gains tax applicable to chargeable gains accruing on the disposal of qualifying units

9. Section 32 (inserted by the Finance Act, 1977) of the Capital Gains Tax Act, 1975 , is hereby amended, for the year 1978-79 and each subsequent year of assessment, by the substitution for subsection (3) of the following subsection:

“(3) Chargeable gains which derive from the disposal of qualifying units and which accrue to a person who is chargeable to capital gains tax shall be chargeable to tax at one-half of the rate at which they would be chargeable under the Capital Gains Tax Acts apart from this subsection.”.

Part disposal before the 6th day of April, 1978

10. (1) Where, on or after the 6th day of April, 1974, but before the 6th day of April, 1978, a person made a disposal, to which the provisions of paragraph 6 of Schedule 1 to the Principal Act applied, of an asset which was held by him on the 6th day of April, 1974, and—

(a) the amount of the chargeable gain which accrued on that disposal was determined under the provisions of paragraph 18 of that Schedule, and

(b) any property derived from that asset remained undisposed of on the 6th day of April, 1978,

then, for the purpose of determining the balance of the expenditure which, under the said paragraph 6, is to be attributed to the property which remains undisposed of, it shall be assumed that, on the disposal, the amount of the chargeable gain referred to in clause (a) had been determined, not under the provisions of the said paragraph 18, but on the assumption that the asset was disposed of and immediately re-acquired by the person on the 6th day of April, 1974.

(2) Where, on or after the 6th day of April, 1974, but before the 6th day of April, 1978, a person made a disposal, to which the provisions of paragraph 6 of Schedule 1 to the Principal Act applied, of an asset which was acquired by him on a death which occurred on or after the 6th day of April, 1974, and—

(a) the amount of the chargeable gain which accrued on that disposal was determined on the basis that the asset had been acquired by him on a date earlier than the date of that death, and

(b) any property derived from that asset remained undisposed of on the 6th day of April, 1978,

then, notwithstanding the provisions of subparagraph (1), for the purpose of determining the balance of the expenditure which, under the said paragraph 6, is to be attributed to the property which remains undisposed of, it shall be assumed that, on the disposal, the amount of the chargeable gain referred to in clause (a) had been determined as if section 14 (1) of the Principal Act, as amended by section 6, or, as the case may be, section 15 (4) (b) of that Act, as amended by section 7, had applied at the date of that disposal.

(3) Nothing in this paragraph shall affect any liability to capital gains tax or to corporation tax in respect of a disposal made prior to the 6th day of April, 1978.