HM Revenue and Customs (HMRC) have just updated their guidance in relation to tax clearances and CGT reform, as it appears in their CGT FAQs as follows:
Q. "What will HMRC consider reasonable rearranging of affairs where a clearance has been given under section 701 ITA 2007 (or section 707 Income and Corporation Taxes Act (ICTA) 1988)?
A. A clearance under section 701 (or section 707) confirms that HMRC are satisfied that no counteraction should be taken under section 698 (or 703) about the transactions in securities that are described in the application for clearance.
The provisions in Chapter 1 of Part 13 ITA 2007 are concerned with income tax but not capital gains tax (and since 6 April 2007 Chapter 1 of Part 17 ICTA 1988 is concerned only with Corporation Tax (CT)).
No one is required to apply for clearance but we receive thousands of clearance applications each year from people who value the certainty it provides. The clearance we give relates only to the transactions described to us in the application.
It is not possible to give a blanket statement of the view we will take where additional transactions not covered by the clearance are effected in order to take advantage of the current CGT rules. It will be a matter for judgement, in the light of the facts and circumstances of the particular case, whether the clearance given needs to be revisited and counteraction considered either for the original transactions or for the combined effects of the original and additional transactions.
In the circumstances described in the question above, we will not normally refuse clearance for disposals of loan notes, issued in a transaction for which we originally gave clearance before October 2007, if those disposals.
- Do not provide any additional opportunity to take consideration in a form free of income tax (even if they result in consideration being received earlier).
- Are in essence motivated by a desire to take advantage of the current (pre-6 April 2008) CGT rules.
- Take place between 9 October 2007 and 5 April 2008.
The sale of loan notes to a company controlled by the vendor is an example of a disposal that may fail to meet 1. above, as it may give the vendor the opportunity to receive consideration in a form free of income tax that could have been paid as a dividend by the holding company.
Where greater certainty is required, we will be happy to consider a revised clearance application under section 701 (or section 707) including particulars of all the transactions. Applicants are reminded, however, that February/March is always a popular time for making clearance applications (and especially this year), so it is particularly important to apply in good time.
HMRC’s FAQs on the new CGT regime appear to be on their 11th update since publication last Autumn.
