CG64165 - Business Asset Disposal Relief: share exchanges etc. involving QCBs before 6th April 2008 - deferred gains coming back into charge on or after 6th April 2008 - transitional rules
Entrepreneursā Relief was renamed in Finance Act 2020 with effect from 6 April 2020.Ā The new name is generally used in this guidance but should be read as applying to times before that date.
FA2008 Schedule 3 Paragraph 7
FA2008/Sch3/Para7 provides transitional rules to allow claims for relief where:-
- an exchange of shares or securities for qualifying corporate bonds (QCBs) (the ārelevant transactionā as in section 116 TCGA) took place before 6 April 2008, but
- a gain deferred in respect of that transaction becomes chargeable on or after 6th April 2008 as a result of a disposal, including by way of redemption, of the QCBs (the ārelevant disposalā). The rules under which gains are deferred may be found at CG53820+.
TCGA92/S169R (see CG64160) applies where the exchange of shares or securities for QCBs takes place on or after 6 April 2008. However where that exchange takes place before 6 April 2008, but a deferred gain relating to the exchange comes into charge on or after that date, TCGA92/S169R can have no effect because, at the time of the exchange, Business Asset Disposal Relief did not exist and hence could not be claimed.
Where the gain deferred is in respect of a ārelevant transactionā which took place before 6th April 2008 but the ārelevant disposalā that brings the deferred gain into charge took place on or after 6th April 2008 the relief may be claimed in respect of that ārelevant disposalā if a disposal of the āold assetā (the shares or securities exchanged for the QCBs) would have qualified for that relief on the assumption that Business Asset Disposal Relief had been available at the time of the relevant transaction - FA08/Sch3 /Para7(2).
Relief will be available only to the person who made the exchange. If all or part of the ānew assetā (the QCBs) has been transferred to a spouse or civil partner and as a result all or part of the deferred gain subsequently arises to that person, relief will not be available in respect of that part of the deferred gain. If however the ānew assetā (or any part) is returned to the investor before the āfirst relevant disposalā, the gain can qualify for relief.
Business Asset Disposal Relief under these transitional rules must be claimed on the first occasion on or after 6 April 2008 when a deferred gain comes into charge (āthe first relevant disposalā). Relief (if due) will be given in respect of all deferred gains relating to that same exchange (or ārelevant transactionā) that have not come into charge before that date - FA08/Sch3/Para7(3), to the extent that the ānew assetā (the QCBs) is held at that time by the person who made the exchange.
If there is a claim to relief under these transitional rules, the gains in respect of which relief is claimed will form part of the claimantās maximum lifetime limit of gains qualifying for relief.
The time limit for claiming the relief (see CG63970) in respect of the āfirst relevant disposalā commences at the date that this event occurs.
Where the āfirst relevant disposalā of QCBs since 6 April 2008 takes place before 23 June 2010.
Where āthe first relevant disposalā of QCBs has taken place between 6 April 2008 to 22 June 2010 and a claim to relief was made under the original FA 2008 transitional rules then the entire amount of the āfrozenā gain not brought back into charge since 6 April 2008 will be reduced by 4/9.
Any proportion of that deferred gain that had not come into charge before 23 June 2010 will have been reduced by 4/9 as a result of the claim, so a subsequent disposal of QCBs on or after 23 June 2010 will bring such a reduced gain into charge at the normal CGT rate applicable at the time. The Business Asset Disposal Relief rate of 10% will not apply to that reduced deferred gain.
Where the āfirst relevant disposalā of QCBs since 6 April 2008 takes place on or after 23 June 2010.
F(No.2)A2010/Sch1/Para10 revises these transitional provisions following the change to the way in which the relief is given. The revised approach has effect only in cases where none of the gains deferred as at 6 April 2008 have come into charge from 6 April 2008 to 22 June 2010.
When all or part of a gain deferred before 6 April 2008 first comes into charge on or after 23 June 2010 (because āthe first relevant disposalā takes place on or after that date), because of a disposal of all or some of the QCBs, a claim for relief in respect of the gain can be made under the transitional provisions in FA2008/Sch3. Where such a claim is made (and the other conditions for the relief are satisfied at the time of the exchange), the result is that the gain is charged at the Business Asset Disposal Relief rate of 10%.
Calculation
Relief is available in respect of so much of the gain deferred as a result of the ārelevant transactionā as has not come into charge before 6 April 2008. So, subject to the lifetime limit of gains qualifying for relief, that amount is then either:
- (for āfirst relevant disposalsā made from 6 April 2008 to 22 June 2010) reduced by 4/9ths and the net amount becomes the amount to be brought into charge in respect of disposals of the ānew assetā (the QCBs) on or after 6 April 2008 - FA08/Sch3/Para7 (4) & (5). See example 1 at CG64166.
- (for āfirst relevant disposalsā made on or after 23 June 2010) are brought into charge at the relief rate of 10% in respect of disposals of the ānew assetā (the QCBs) made on or after that date - FA08/Sch3/Para7 (4) & (5) as amended by F(No.2)A 2010. See example 2 at CG64166.
Where the whole of the new asset (the QCBs) is not disposed of at the time of the āfirst relevant disposalā then on each subsequent ārelevant disposalā by the individual after 6 April 2008, a proportion of the total amount (net of the relief if the 4/9th reduction applies) comes into charge. That proportion is equivalent to the proportion of the QCBs held at the time of the āfirst relevant disposalā that are disposed of in the subsequent ārelevant disposalā - FA08/Sch3/Para7 (6) & (7).
So if the āfirst relevant disposalā is of one-third of the QCBs held at that time, one-third of the net gain comes into charge on that occasion. A further proportion of the net gain will come into charge on later ārelevant disposalsā by the individual, pro rata to the proportion of the QCBs disposed of in each disposal.