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s169Q TCGA 1992 elections

Can a s169Q TCGA election be made even when BADR is not available?

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Client company is selling to a PLC.   Deal will involve some day 1 cash and some shares in PLC (that need to be retained for 2-3 years due to terms of the deal).  The terms of the deal etc will, almost certainly, result in the 'share for share' provisions (s135 etc) applying to this transaction.

There are a fair few shareholders who do not qualify for Business Asset Disposal Relief as they hold less than 5% of the shares in the client company.

They are, however, nervous about potential changes to CGT in the coming years and so the question is;

Even though BADR is not available - can a s169Q TCGA 1992 election be made in order to crystallise the gain and 'lock in' the 20% CGT rate currently on offer.

 

Reading s169Q (2) my gut reaction is no........but wondered if any others on here had looked at this previously.  Any annswers greatly appreciated.

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Psycho
By Wilson Philips
02nd Jun 2021 18:53

S169Q is, in my view, an example of bad drafting. Grammatically, it doesn’t make sense as it does not specify exactly what the election is. One does not normally elect to make a claim - you normally make an election or you make a claim, sometimes both. S169Q reads as though one is electing to make a claim.

In any event, though, if you read the explanatory notes to FB2008, your conclusion appears to be the correct one.

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Replying to Wilson Philips:
Psycho
By Wilson Philips
02nd Jun 2021 22:37

Where I have a small amount of doubt is in the last sentence of CG64155

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Replying to Wilson Philips:
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By Grinno74
03rd Jun 2021 08:56

I think you've hit the nail on the head.....my problem is the wording - very unclear. The election is embedded within the old 'ER' legislation and so it makes sense that it can only apply when ER is available. would also agree that CG64155 does appear to be worded in a slightly different way!!!

Slightly daft example - but imagine the situation where someone has previously used £999,999 of their £1m allowance. They have £1 of relief left and then make a £3m gain (that qualifies for BADR) that is all related to share for share proceeds. they could in theory make the election, claim £1 of ER and then lock in 20% on the remaining gain. My head hurts!

Really appreciate your input

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Replying to Grinno74:
Psycho
By Wilson Philips
03rd Jun 2021 09:43

Since the legislation (and HMRC's guidance) is clearly ambiguous, it might be possible to get a non-statutory clearance. If you do, please let us know how you get on.

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By Dib
03rd Jun 2021 16:43

I spoke with a leading tax commentator friend of mine about this recently and his answer was that 'no' is the correct answer.

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Replying to Dib:
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By The Dullard
04th Jun 2021 17:21

I agree with your commentator friend, and read s 169Q and the FB2008 explanatory notes differently to Wilson.

Absent an election under s 169Q - which is an election for 169Q to apply (nothing more, nothing less - there is no disposal, and so no BADR claim can be made.

The election, permits the making of a BADR claim as if the share for share exchange provisions do not apply, and if such a claim is made (facilitated by an election under s 169Q), then those provisions are disapplied. That's what s 169Q(2) and the explanatory notes say.

The election facilitates the claim and if the claim, facilitated by the election is made, then there is a disapplication of the share for share exchange provisions.

The election on its own does nothing. A BADR claim cannot be made without the election. If both the election and a BADR claim are made, s 127 is disapplied.

That's all in s 169Q(2). Subsections 1 and 5 deal with the circumstances in which the election is possible, subsection 3 deals with who makes the election, and subsection 4 deal with the timing of the election, which corresponds for the timing of making a claim under s 169M.

S 169Q(2) does all the work though, and I don't see any ambiguity. It says that if an election is made under s 169Q then a claim may be made under s 169M, as if s 127 does not apply. It continues by saying that if such an election is made under s 169Q and such a claim is made under s 169M, then s 127 is disapplied.

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Replying to The Dullard:
Psycho
By Wilson Philips
04th Jun 2021 18:35

I’m not sure why you think you and I read the FB2008 ENs differently, given that our end-conclusions are pretty much the same.

Where we differ slightly is on the question of whether there is any ambiguity. I don’t think there is anything that says an election under s169Q is an election for that section to apply. Although your reading is a perfectly sensible one. All we have is a reference to an “election under this section”. Contrast for example s138A which clearly states what the election does.

The ambiguity arises principally from the wording in HMRC’s example. That may just be sloppy drafting but nevertheless I don’t see any harm in asking HMRC the question. They might just get the answer wrong and say yes.

We are otherwise agreed that on a reading of s169Q such an election should not be possible.

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 15:26

Sorry to revive another old thread... but sometimes it's worth looking at Aweb when the issue comes up (with due caution, obvs) and, sometimes, when you do, you find you have something to add.

Wilson Philips wrote:

We are otherwise agreed that on a reading of s169Q such an election should not be possible.

I think a more accurate restatement of Dulls's view would be: an election under s169Q could be made but it would have no effect. (The last paragraph in CG64155 is, as you say, compressing the position and in so doing it misstates it, if read too literally.)

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 16:35

I don't think we disagree although your resurrection of the thread has prompted me to look at 169Q again and I remain unclear as to exactly what the election is. The wording of subs. 2 implies that one may make an election and - if one chooses to do so - make a claim for BADR. The claim for BADR cannot be made without the election but it seems that the election can be made without then proceeding to make a claim for BADR (which ties in with HMRC's example). There would seem to be little point in doing so, given that a BADR claim appears to be a pre-requisite to disapply s127. Nevertheless, just what is one electing to do, prior to deciding whether or not to claim BADR?

Or is it the case that 'election' is not a a formal election in the normal tax sense, but merely a choice - ie "I hereby choose to make a claim for BADR as if ..."?

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 17:12

I think you may be overstudying/overthinking. Wood, trees.

Maybe it is odd that s169Q starts with "this section applies" and then proceeds, basically, not to apply unless the taxpayer makes an election under the section. Maybe it's even odder that, even then, it has no effect unless the taxpayer also makes a claim to BADR. But that that is the case is clear from the "if such a claim is made" condition.

So... odd and odder? Maybe. Hard to twig (sorry, going back to the wood and trees!)? Agreed. Room for misunderstanding? Certainly. Ambiguous? Not at all, no - not by any stretch.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 18:19

OK, simple question- what do you consider to be the election to which subs. 2 refers?

I’ll start for you - “I hereby elect under TCGA 1992 s169Q that …”

BTW, I’m not disagreeing with you - just trying to pick apart the words.

Any ambiguity lies not in the legislation itself but in HMRC’s interpretation of the same. So I remain of the view that there is no harm in asking HMRC.

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 18:22

I'd already got what you meant. But the answer is simple - stop your election a word and two dots earlier.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 18:27

General Elections in this country would have some rather odd outcomes if the ballot paper stopped at “I hereby elect.”

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 18:31

If you really really want to add some words... I hereby elect that s169Q applies.

Btw, what are you asking HMRC?

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 19:17

But you can't elect for s169Q to apply. Subs. 1 says that it will apply if the appropriate conditions are met, not that it will apply if an election is made for it to apply. The election is made "under this section". Once you've established that s169Q applies, you then go on to consider whether or not to make an election.

What I would be saying to HMRC is that the wording of s169Q is clumsy to say the least, and that their guidance suggests that it is possible to make an election under that section without necessarily involving a BADR claim. Would they please clarify.

Although HMRC perhaps do provide a hint to an appropriate form of wording, eg "I hereby elect for BADR to be available on the basis that the no disposal treatment of s127 does not apply".

I don't know if they are merely parroting HMRC, but Croner-i say "The effect of an election will be to treat the reorganisation as a disposal of the original shares, crystallise the accrued gain at that point and, if all conditions for business asset disposal relief (formerly entrepreneurs’ relief) are satisfied, tax will be payable at the rate of 10 per cent. ". The (my) inference from that is that if all conditions are not satisfied BADR will not be available, but that test appears after the (other) effects of the election, suggesting that availaibility of BADR is not in fact a pre-requisite. I think we are agreed that is a wrong inference but given what I continue to consider to be ambiguity I'd still be asking HMRC for clarity.

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 20:47

I'm not sure you've spotted the difference between my restatement of Dulls's comment and yours. An election can be made under s169Q. Such election has no effect UNLESS YOU ALSO claim BADR.

If you really really wanted to write it out in full, your election might include: I hereby elect under s169Q that the provisions of s127 shall not apply on the making of a claim to BADR - that's the other end of the stick to the one you grabbed a hold of.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 21:22

So, you can make an election, without claiming BADR. Regardless of whether the election is effective, what exactly are you electing for? As I say, it can’t be to apply s169Q. And it can’t be to make a BADR claim. So, again, what is the election? I don’t think I have the wrong end of the stick - merely explaining the basis of an approach to HMRC. You see no ambiguity anywhere. I do see ambiguity and have no problem with asking HMRC to clarify their position. If they confirm, as I would expect, what we both understand to be the position all well and good. But there’s always a chance one might get a written ruling to the contrary.

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Replying to Wilson Philips:
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By Tax Dragon
19th Jul 2021 23:08

I didn't mean to imply you had the wrong end of the stick. I meant... actually metaphors never get me anywhere, so let me just say:

We agree it's not possible to make a BADR claim without making the election. We agree the effect of the election is thus to enable you to make the claim. We agree no election, no claim. We agree no claim, no other effect of the election. We agree it's not the election that disapplies s127, it's the BADR claim.

I'm not really sure what we disagree on.

Anyway I wonder if the OP did approach HMRC. I wonder what HMRC said, if so. OP - do you mind sharing?

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Replying to Tax Dragon:
Psycho
By Wilson Philips
19th Jul 2021 23:31

I don’t think that we disagree on anything fundamentally, other than that you perhaps read the legislation with more certainty than I do. Given the section’s location, and the EN previously referred to, I don’t have much doubt that the sole purpose of 169Q is to allow the taxpayer to avoid a loss of BADR as a consequence of s127. However, no-one has yet been able to explain exactly what the election is - which seems to be separate from, but a pre-requisite of, the BADR claim and perhaps this has confused HMRC (and Croner-I). There is sufficient ambiguity in their words if not the legislation to merit a request for clarity. I think that is the only point on which we might disagree.

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Replying to Wilson Philips:
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By The Dullard
20th Jul 2021 00:59

Please both just stop. It's pointless. It's not at all interesting. The need to see who can p155 higher up the wall is also frankly pathetic.

The election is under s 169(2) for the treatment in s described in 169(2) to apply, which can only apply if there is also a claim under s 169(M) for BADR. The election is there and can be made, but it just won't have any effect unless there is also a BADR claim. There is not sufficient ambiguity to warrant asking HMRC about it (particularly given that they are now just a bunch of fuchwits anyway); do both or do neither.

But yeah, please just stop.

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Replying to The Dullard:
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By Tax Dragon
20th Jul 2021 06:39

I (thought we) had.

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