Taxation of Chargeable Gains Act 1992, section 117

Meaning of “qualifying corporate bond"

Part IV Shares, securities, options etc.

[F630 (A1) For the purposes of corporation tax “qualifying corporate bond” means F631 ... any asset representing a loan relationship of a company; and for purposes other than those of corporation tax references to a qualifying corporate bond shall be construed in accordance with the following provisions of this section. F630]

(1) For the purposes of this section, a “corporate bond” is a security, as defined in section 132(3)(b)—

(a)the debt on which represents and has at all times represented a normal commercial loan; and

(b)which is expressed in sterling and in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling,

and in paragraph (a) above “normal commercial loan” has the meaning which would be given by [F632 section 162 of CTA 2010 if for paragraphs (a) to (c) of subsection (2) of that section there were substituted the words “corporate bonds (within the meaning of section 117 of TCGA 1992)” F632] .

(2)For the purposes of subsection (1)(b) above—

(a)a security shall not be regarded as expressed in sterling if the amount of sterling falls to be determined by reference to the value at any time of any other currency or asset; and

(b)a provision for redemption in a currency other than sterling but at the rate of exchange prevailing at redemption shall be disregarded.

[F633 (2AA) For the purposes of this section “corporate bond” also includes any asset which is not included in the definition in subsection (1) above and which is a [F634 deeply discounted security for the purposes of Chapter 8 of Part 4 of ITTOIA 2005 (see section 430) F634] . F633]

F635 (2A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F636 (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) For the purposes of this section “corporate bond” also includes a share in a building society—

(a)which is a qualifying share,

(b)which is expressed in sterling, and

(c)in respect of which no provision is made for conversion into, or redemption in, a currency other than sterling.

(5)For the purposes of subsection (4) above, a share in a building society is a qualifying share if—

(a)it is a permanent interest bearing share, or

(b)it is of a description specified in regulations made by the Treasury for the purposes of this paragraph.

(6)Subsection (2) above applies for the purposes of subsection (4) above as it applies for the purposes of subsection (1)(b) above, treating the reference to a security as a reference to a share.

F637 (6A) For the purposes of this section “corporate bond” also includes, except in relation to a person who acquires it on or after a disposal in relation to which section 115 has or has had effect in accordance with section 116(10)(c), any debenture issued on or after 16th March 1993 which is not a security (as defined in section 132) but—

(a)is issued in circumstances such that it would fall by virtue of section 251(6) to be treated for the purposes of section 251 as such a security; and

(b)would be a corporate bond if it were a security as so defined.

[F638 (6B)An excluded indexed security issued on or after 6th April 1996 is not a corporate bond for the purposes of this section; and an excluded indexed security issued before that date shall be taken to be such a bond for the purposes of this section only if—

(a)it would be so taken apart from this subsection; and

(b)the question whether it should be so taken arises for the purposes of section 116(10).

(6C) In subsection (6B) above “excluded indexed security” has the same meaning as in [F639 Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 433) F639] . F638]

[F640 (6D)Section 151T provides for arrangements to which section 151N (alternative finance arrangements: investment bond arrangements) applies also to be a corporate bond for the purposes of this section.F640]

(7)Subject to subsections (9) and (10) below, for the purposes of this Act, a corporate bond—

(a) is a “qualifying” corporate bond if it is issued after 13th March 1984; and

(b) M13 becomes a “qualifying” corporate bond if, having been issued on or before that date, it is acquired by any person after that date and that acquisition is not as a result of a disposal which is excluded for the purposes of this subsection, or which was excluded for the purposes of section 64(4) of the Finance Act 1984 .

(8)Where a person disposes of a corporate bond which was issued on or before 13th March 1984 and, before the disposal, the bond had not become a qualifying corporate bond, the disposal is excluded for the purposes of subsection (7) above if, by virtue of any enactment—

(a)the disposal is treated for the purposes of this Act as one on which neither a gain nor a loss accrues to the person making the disposal; or

(b)the consideration for the disposal is treated for the purposes of this Act as reduced by an amount equal to the held-over gain on that disposal, as defined for the purposes of section 165 or 260.

[F641 (8A)A corporate bond falling within subsection (2AA) above is a qualifying corporate bond whatever its date of issue.F641]

F642 (9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F642 (10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(11)For the purposes of this section—

(a)where a security is comprised in a letter of allotment or similar instrument and the right to the security thereby conferred remains provisional until accepted, the security shall not be treated as issued until there has been acceptance; and

[F643 (b) “permanent interest bearing share” means a share which is a permanent interest bearing share [F644 for the purposes of F644] the [[F645,F646 PRA Handbook made by the Prudential Regulation Authority F646] under the Financial Services and Markets Act 2000 F645] as [F647 that Handbook F647] applies in relation to shares issued on the date that the share is issued,

F648 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F643] .

(12) The Treasury may by regulations provide that for the definition of the expression “permanent interest bearing share” in subsection (11) above (as it has effect for the time being) there shall be substituted a different definition of that expression, and regulations under this subsection or subsection (5)(b) above may contain such supplementary, incidental, consequential or transitional provision as the Treasury thinks fit.

(13)This section shall have effect for the purposes of section 254 with the omission of subsections (4) to (6), (11) and (12).

Definitions used in section 117 13

tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · see it in the full Act
assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
company

“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

Defined in Sch.2 para.5(5) · see it in the full Act
securities

(6) In sub-paragraph (4)(d) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.12(6) · see it in the full Act

(2) In sub-paragraph (1)(a) “securities” has the same meaning as in section 132.

Defined in Sch.4B para.7(2) · see it in the full Act
CTA 2010

“CTA 2010” means the Corporation Tax Act 2010 ;

Defined in s.288(1) · see it in the full Act
ITTOIA 2005

“ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 ;

Defined in s.288(1) · see it in the full Act
shares

“shares” includes stock;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.

Defined in Sch.7AC para.10(5) · see it in the full Act

(b) “shares” includes securities,

Defined in Sch.7 para.4(2) · see it in the full Act
the shares

(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).

Defined in Sch.7ZB para.1(5) · see it in the full Act

(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and

Defined in Sch.5B para.13(12) · see it in the full Act
building society

“building society” has the same meaning as in the Building Societies Act 1986 ;

Defined in s.288(1) · see it in the full Act
arrangements

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

Defined in s.16A(2) · see it in the full Act

(1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Defined in s.169G(1) · see it in the full Act
arrangement

(1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Defined in s.169G(1) · see it in the full Act
enactment

(2) In section 257PE(2) of ITA 2007 (power to make consequential amendments etc when amending provision about claims for SI relief) “enactment” includes (in particular) sub-paragraph (1).

Defined in Sch.8B para.8(2) · see it in the full Act

Cases considering section 117 7

Trigg v HM Revenue & Customs

[2018] EWCA Civ 17 · 18 January 2018Limits

The court treated the QCB definition as a statutory construct and applied its ordinary terms. It held that the bonds qualified notwithstanding the currency clauses. (see paras [6], [24]-[33], [40]) The court treated subsection (1) as the primary QCB definition and required its language to bear its ordinary meaning, subject to express qualifications in subsection (2). (see paras [28]-[33]) The euro was a currency other than sterling, but the clauses were triggered only after the relevant currency change had occurred and therefore did not prevent QCB status. (see paras [13], [30]-[40]) The court treated subsection (2) as the express statutory qualification of subsection (1), rather than as a basis for giving the primary definition an extended meaning. (see paras [28]-[30]) The court referred to the exclusion of securities whose sterling value is determined by reference to another currency or asset as part of the statutory context. (see paras [6], [16]) The court held that redemption in another currency at the prevailing exchange rate is disregarded, but that statutory disregard does not extend to conversion. (see paras [13], [27]-[30])

DMWSHNZ Ltd v HM Revenue and Customs

[2015] EWCA Civ 1036 · 20 October 2015Limits

Applies the distinction between the security and the underlying loan in defining a qualifying corporate bond; the distinction did not mean that the notes remained qualifying corporate bonds after repayment. (see paras [47]-[52]) Limits qualifying-corporate-bond status to an asset representing a loan relationship; that status ceased when the issuer and holder no longer stood as debtor and creditor after repayment. (see para [52])

Harding v Revenue & Customs

[2008] EWCA Civ 1164 · 23 October 2008Limits

The court treated section 117 as the governing definition of a corporate bond and the gateway to qualifying corporate bond status. The relevant conditions were applied by reference to the security’s contractual terms. (see paras [9]-[16]; [52]-[57]) The court treated subsection (1) as imposing normal-commercial-loan and sterling/no-foreign-currency-provision conditions. The appeal concerned the temporal operation of the latter condition. (see paras [13]-[16]; [52]-[57]) The court contrasted the requirement that the debt represents and has at all times represented a normal commercial loan with the different wording of paragraph (b). It did not treat that contrast as controlling paragraph (b). (see paras [13]; [43]-[45]; [53]-[56]) The court interpreted “provision” as referring to the agreement’s terms, not merely subsisting rights. A lapsed foreign-currency conversion option therefore continued to prevent qualifying corporate bond status. (see paras [10]; [52]-[57]) Cited only. Cited only. Cited only.

What each judgment says about section 117 is in the case-law panel in the full Act.

Amendments and notes

24 notes from legislation.gov.uk

Amendments

  1. F630S. 117(A1) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 61(1) (with Sch. 15)
  2. F631Words in s. 117(A1) repealed (with effect in accordance with Sch. 40 Pt. 3(10) Note 2 of the amending Act) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(10)
  3. F632Words in s. 117(1) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 231 (with Sch. 2)
  4. F633S. 117(2AA) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 61(2) (with Sch. 15)
  5. F634Words in s. 117(2AA) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 433(2) (with Sch. 2)
  6. F635S. 117(2A) repealed (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. V(3) (with Sch. 15)
  7. F636S. 117(3) repealed (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. V(3) (with Sch. 15)
  8. F637S. 117(6A) inserted (27.7.1993 with effect as mentioned in s. 84(3)) by 1993 c. 34, s. 84(1)(3)
  9. F638S. 117(6B)(6C) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 61(3) (with Sch. 15)
  10. F639Words in s. 117(6C) substituted (with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 433(3) (with Sch. 2)
  11. F640S. 117(6D) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 200 (with Sch. 9 paras. 1-9, 22)
  12. F641S. 117(8A) inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 61(4) (with Sch. 15)
  13. F642S. 117(9)(10) repealed (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 41 Pt. V(3) (with Sch. 15)
  14. F643Words in s. 117(11) substituted (with effect in accordance with art. 63(2) of the amending S.I.) by The Financial Services and Markets Act 2000 (Consequential Amendments) (Taxes) Order 2001 (S.I. 2001/3629), arts. 1(2)(a), 63(1)
  15. F644Words in s. 117(11)(b) substituted (1.1.2007) by The Capital Gains Tax (Definition of Permanent Interest Bearing Share) Regulations 2006 (S.I. 2006/3291), regs. 1, 2(1)(a)
  16. F645Words in s. 117(11)(b) substituted (1.1.2007) by The Capital Gains Tax (Definition of Permanent Interest Bearing Share) Regulations 2006 (S.I. 2006/3291), regs. 1, 2(1)(b)
  17. F646Words in s. 117(11)(b) substituted (1.4.2013) by The Financial Services Act 2012 (Consequential Amendments) Order 2013 (S.I. 2013/636), art. 1(2), Sch. para. 2(a)
  18. F647Words in s. 117(11)(b) substituted (1.4.2013) by The Financial Services Act 2012 (Consequential Amendments) Order 2013 (S.I. 2013/636), art. 1(2), Sch. para. 2(b)
  19. F648Words in s. 117(11) repealed (1.1.2007) by The Capital Gains Tax (Definition of Permanent Interest Bearing Share) Regulations 2006 (S.I. 2006/3291), regs. 1, 2(2)

Modifications

  1. C195S. 117 applied by 1993 c. 34, s. 153(11A) (as inserted (retrospective to 27.7.1993) by Finance Act 1995 (c. 4), Sch. 24 paras. 1, 4(4))
  2. C196S. 117 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Building Societies (Core Capital Deferred Shares) Regulations 2013 (S.I. 2013/460), regs. 1(1), 3(2)(b)
  3. C197S. 117(1)(a) modified (with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Taxation of Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209), regs. 1(1), 4 (with reg. 8)
  4. C198S. 117(2AA) modified (27.7.1999) by Finance Act 1999 (c. 16), s. 65(11)

Marginal citations

  1. M131984 c. 43.