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Draft, legislation released today closed a loophole
in one of the targeted anti-avoidance rules introduced in the 2005
Pre-Budget Report.
Additionally, the conditions for relief granted to certain companies with
qualifying capital losses from deemed de-grouping disposals arising before 5
December 2005 will be simplified.
The targeted anti-avoidance rule in question is intended to prevent groups
of companies from securing a tax advantage where a company changes ownership
and one of the main purposes of the arrangements is to allow the new owners
to access the capital losses or gains realised by the acquired company.
Under the current rules, where there is a change of ownership of a company
and one of the main purposes of this arrangement is to secure a tax
advantage involving the deduction of a capital loss from a chargeable gain,
the loss may not be deducted from the gain unless both the gain and loss are
from assets under the same ownership before the change. Today’s draft
legislation removes the limited ability to offset a loss on a pre-change
asset against a gain on another pre-change asset by arranging for the
company which incurs a qualifying loss or gain to be sold with one or more
subsidiary companies.
The other amendment relates to the situation where companies had realised capital losses prior to 5 December 2005 (the
date of the 2005 Pre-Budget Report) on certain deemed disposals of assets
due to a degrouping event. This loss can be offset against gains accruing on
other pre-change assets owned by the company holding those assets or any
other company which was a member of the same group prior to the de-grouping.
Under today’s announcement, conditions for this relief will be simplified to
ensure that companies do not lose relief for losses following the takeover
of the original group or where the company which incurred the loss is sold
or liquidated.
Our view
We expect that the
tightening up of the targeted anti-avoidance rule is an example of HM
Revenue & Customs using the disclosure rules to identify and remove
weaknesses in tax legislation.
We welcome the
simplification of the relief in respect of capital losses realised prior
to 5 December 2005. |
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