Taxation of Chargeable Gains Act 1992, section 165

Relief for gifts of business assets

Part V Transfer of business assets , business asset disposal relief and investors' relief

(1)If—

(a) an individual (“the transferor”) makes a disposal otherwise than under a bargain at arm’s length of an asset within subsection (2) below, and

(b) a claim for relief under this section is made by the transferor and the person who acquires the asset (“the transferee”) or, where the trustees of a settlement are the transferee, by the transferor alone,

then, subject to subsection (3) and [F1124sections 166, 167[F1125 , [F1126 167A,F1126] 169, 169B and 169CF1125,F1124]] , subsection (4) below shall apply in relation to the disposal.

(2)An asset is within this subsection if—

(a)it is, or is an interest in, an asset used for the purposes of a trade, profession or vocation carried on by—

(i)the transferor, or

(ii)his [F1127personal companyF1127] , or

(iii)a member of a trading group of which the holding company is his [F1127personal companyF1127] , or

(b)it consists of shares or securities of a trading company, or of the holding company of a trading group, where—

(i)the shares or securities are [F1128not listed on a recognised stock exchangeF1128] , or

(ii)the trading company or holding company is the transferor’s [F1127personal companyF1127] .

(3)Subsection (4) below does not apply in relation to a disposal if—

F1129 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1129 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F1130 (ba)in the case of a disposal of shares or securities, the transferee is a company,F1130]

(c)in the case of a disposal of qualifying corporate bonds, a gain is deemed to accrue by virtue of section 116(10)(b), or

(d)subsection (3) of section 260 applies in relation to the disposal (or would apply if a claim for relief were duly made under that section).

(4)Where a claim for relief is made under this section in respect of a disposal—

(a)the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, and

(b)the amount of the consideration for which, apart from this section, the transferee would be regarded for the purposes of capital gains tax as having acquired the asset or, as the case may be, the shares or securities,

shall each be reduced by an amount equal to the held-over gain on the disposal.

(5)Part I of Schedule 7 shall have effect for extending the relief provided for by virtue of subsections (1) to (4) above in the case of agricultural property and for applying it in relation to settled property.

(6)F1131Subject to Part II of Schedule 7 and subsection (7) below, the reference in subsection (4) above to the held-over gain on a disposal is a reference to the chargeable gain which would have accrued on that disposal apart from subsection (4) above ..., and in subsection (7) below that chargeable gain is referred to as the unrelieved gain on the disposal.

(7)In any case where—

(a)there is actual consideration (as opposed to the consideration equal to the market value which is deemed to be given by virtue of section 17(1)) for a disposal in respect of which a claim for relief is made under this section, and

(b)that actual consideration exceeds the sums allowable as a deduction under section 38,

the held-over gain on the disposal shall be the amount by which the unrelieved gain on the disposal exceeds the excess referred to in paragraph (b) above.

[F1132 (7A)Subsections (7B) and (7C) apply in any case where—

(a)the disposal is a [F1133 direct or indirect disposal of UK land which meets the non-residence conditionF1133] , and

(b)the transferee is resident in the United Kingdom.

(7B) Subsections (4) and (6) have effect in relation to the disposal as if the references to “chargeable gain” were [F1134 references to “so much of any gain accruing on the disposal as falls to be dealt with as mentioned in subsection (7D)(a) or (b)” F1134] .

(7C) Subsection (7) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to [F1135 “so much of the gain mentioned in subsection (7B) F1135] which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”. F1132]

[F1136 (7D) For the purposes of subsections (7A) to (7C) a disposal is a “direct or indirect disposal of UK land which meets the non-residence condition” if it is—

(a)a disposal on which a gain accrues that falls to be dealt with by section 1A(3) because the asset disposed of is within paragraph (b) or (c) of that subsection, or

(b)a disposal on which a gain accrues that falls to be dealt with by section 1A(1) in accordance with section 1G(2) because the asset disposed of is within section 1A(3)(b) or (c).F1136]

(8)Subject to subsection (9) below, in this section and Schedule 7—

[F1137 (a) “personal company”, in relation to an individual, means a company the voting rights in which are exercisable, as to not less than 5 per cent., by that individual;

[F1138 (aa) “holding company”, “trading company” and “trading group” have the meaning given by section 165A; and F1138,F1137]]

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

(9) In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.

(10)Where a disposal [F1139in relation to which subsection (4) above appliesF1139] is (or proves to be) a chargeable transfer for inheritance tax purposes, there shall be allowed as a deduction in computing (for capital gains tax purposes) the chargeable gain accruing to the transferee on the disposal of the asset in question an amount equal to whichever is the lesser of—

(a)the inheritance tax attributable to the value of the asset, and

(b)the amount of the chargeable gain as computed apart from this subsection,

and, in the case of a disposal which, being a potentially exempt transfer, proves to be a chargeable transfer, all necessary adjustments shall be made, whether by the discharge or repayment of capital gains tax or otherwise.

(11)Where an amount of inheritance tax—

(a)falls to be redetermined in consequence of the transferor’s death within 7 years of making the chargeable transfer in question, or

(b)is otherwise varied,

after it has been taken into account under subsection (10) above, all necessary adjustments shall be made, whether by the making of an assessment to capital gains tax or by the discharge or repayment of such tax.

Definitions used in section 165 25

the individual

13C (1) The receipt of the replacement value by the original supplier shall be disregarded for the purposes of paragraph 13B above, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 13 above as that paragraph applies in relation to those shares or any other shares subscribed for by the individual in question (“the individual”).

Defined in Sch.5B para.13C(1) · 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
the transferor

(c) “the transferor” has the same meaning as in section 165 except that, in a case where paragraph 2 above applies, it refers to the trustees mentioned in that paragraph, and

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

(7A) In this section, sections 86A to 96 and Schedule 4C “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this subsection, means any person in whom the settled property or its management is for the time being vested (and a person who is treated as a trustee of the settlement by virtue of this subsection shall be treated as a trustee of the settlement for the purposes of section 69).

Defined in s.97(7A) · see it in the full Act

(b) “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.

Defined in s.286(3ZA) · see it in the full Act
settlement

(a) “settlement” has the same meaning as in section 620 of ITTOIA 2005, and

Defined in s.286(3ZA) · see it in the full Act

“settlement” has the meaning given by section 620 of ITTOIA 2005, and

Defined in s.97(7) · see it in the full Act
trade

“trade” has the same meaning as in the Income Tax Acts;

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

1 (1) This paragraph gives the meaning of “trading company” and “trading group” where used in the following provisions of Chapter 3 of Part 5 ( business asset disposal relief )—

(a) in section 169I (material disposal of business assets)—

(i) paragraphs (a) and (b) of subsection (6) (which apply for the purposes of conditions A and B in that section), and

(ii) sub-paragraphs (i) and (ii) of subsection (7A)(c) (which apply for the purposes of conditions C and D in that section), and

(b) section 169J(4) (disposal of trust business assets).

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

2 In provisions of Chapter 3 of Part 5 not mentioned in paragraph 1(1), “trading company” and “trading group” have the same meaning as in section 165 (see section 165A) , except that subsections (7) and (12) of section 165A are to be disregarded.

Defined in Sch.7ZA para.2 · see it in the full Act

Schedule 7ZA gives the meaning in this Chapter of “trading company” and “trading group”.

Defined in s.169SA · see it in the full Act

(2) “Trading company” and “trading group” have the same meaning as in section 165 (see section 165A) , but as modified by Part 2 of this Schedule.

Defined in Sch.7ZA para.1(2) · 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
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
trading company

1 (1) This paragraph gives the meaning of “trading company” and “trading group” where used in the following provisions of Chapter 3 of Part 5 ( business asset disposal relief )—

(a) in section 169I (material disposal of business assets)—

(i) paragraphs (a) and (b) of subsection (6) (which apply for the purposes of conditions A and B in that section), and

(ii) sub-paragraphs (i) and (ii) of subsection (7A)(c) (which apply for the purposes of conditions C and D in that section), and

(b) section 169J(4) (disposal of trust business assets).

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

(2) “Trading company” and “trading group” have the same meaning as in section 165 (see section 165A) , but as modified by Part 2 of this Schedule.

Defined in Sch.7ZA para.1(2) · see it in the full Act

2 In provisions of Chapter 3 of Part 5 not mentioned in paragraph 1(1), “trading company” and “trading group” have the same meaning as in section 165 (see section 165A) , except that subsections (7) and (12) of section 165A are to be disregarded.

Defined in Sch.7ZA para.2 · see it in the full Act

Schedule 7ZA gives the meaning in this Chapter of “trading company” and “trading group”.

Defined in s.169SA · see it in the full Act
recognised stock exchange

“recognised stock exchange” has the meaning given by section 1005 of ITA 2007 ;

Defined in s.288(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
qualifying

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

Defined in s.117(7) · see it in the full Act
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
agricultural

“agriculture” includes horticulture, fruit growing, seed growing, dairy farming, the keeping and breeding of livestock (including any creature kept for the production of food, wool, skins or fur, or for the purpose of its use in the farming of land), the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes, and “agricultural” shall be construed accordingly;

Defined in Sch.2 para.15 · see it in the full Act
property

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · see it in the full Act

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

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

“settled property” and references (however expressed) to property comprised in a settlement shall be construed accordingly .

Defined in s.97(7) · see it in the full Act

In this Act, unless the context otherwise requires, “settled property” means any property held in trust other than property to which section 60 applies (and references, however expressed, to property comprised in a settlement are references to settled property) .

Defined in s.68 · see it in the full Act
unrelieved gain

(d) “unrelieved gain”, in relation to a disposal, has the same meaning as in section 165(7).

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

(5AA) In this Act “market value” in relation to shares of a given class in an open-ended investment company the prices of which are published regularly by the authorised corporate director of that company (whether or not those shares are also quoted in The Stock Exchange Daily Official List) shall mean an amount equal to the price so published on the relevant date, or if no price was published on that date, on the latest date before that date.

Defined in s.272(5AA) · see it in the full Act

(5) In this Act “market value” in relation to any rights of unit holders in any unit trust scheme the buying and selling prices of which are published regularly by the managers of the scheme shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.

Defined in s.272(5) · see it in the full Act

(1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.

Defined in s.272(1) · see it in the full Act

(4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.

Defined in Sch.7D para.1(4) · see it in the full Act
the excess referred to in paragraph (b) above

(6ZC) Subsection (5) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to “so much of the gain mentioned in subsection (6ZB) which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”.

Defined in s.260(6ZC) · see it in the full Act

(b) section 260(5) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to “the relevant gain which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”.

Defined in s.261ZA(3) · see it in the full Act

(c) section 165(7) has effect in relation to the disposal as if the reference to “the excess referred to in paragraph (b) above” were a reference to “the relevant gain which, ignoring this section and section 17(1), would accrue to the transferor on the disposal”.

Defined in s.167A(3) · see it in the full Act
the residents

(b) if 2 or more of them are then resident ... in the United Kingdom (“the residents”) it shall be treated as being as many equal capital payments as there are residents and each of them shall be treated as receiving one of the payments.

Defined in s.96(4) · see it in the full Act
resident

“resident” means resident in accordance with the statutory residence test in Part 1 of Schedule 45 to the Finance Act 2013 ;

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

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · see it in the full Act

Cases considering section 165 8

Brian George Foulser & Anor v MacDougall (Officer of HM Revenue & Customs)

[2007] EWCA Civ 8 · 17 January 2007Interprets

Identifies the statutory hold-over-relief regime, whose specific operation is determined through section 165(4) and the limiting provisions. (see paras [1]; [7]-[8]) Applies section 165(4) to qualifying non-arm’s-length disposals, subject to sections 166 and 167. (see para [8]) The parties accepted that the shares fell within the class of assets identified by this subsection. (see para [8]) Cited only. Explains that a successful claim reduces both the transferor’s chargeable gain and the transferee’s acquisition consideration by the held-over gain, thereby deferring the capital gains tax charge. (see paras [7]; [74]) Defines the held-over gain by reference to the gain that would have accrued apart from section 165(4). (see para [7])

Gee v Gee & Anor

[2020] EWHC 1842 (Ch) · 13 July 2020

The court accepted that holdover relief could be available for the transfer of shares in a trading company with business assets, but would be restricted so far as non-business assets were concerned. The possibility of relief did not make the share-transfer obligation conditional. (see paras [14], [21]-[23])

William Reeves v The Commissioners for HMRC

[2018] UKUT 293 (TCC) · 26 September 2018

The Tribunal held that the taxpayer’s jointly claimed business-asset gift relief was available. The gain and the transferee’s acquisition consideration were accordingly subject to hold-over treatment because section 167(2), properly construed, did not exclude relief (see paras [89]-[96]; [126]).

What each judgment says about section 165 is in the case-law panel in the full Act.

Amendments and notes

17 notes from legislation.gov.uk

Amendments

  1. F1124Words in s. 165(1) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2000 (c. 17), s. 90(1)
  2. F1125Words in s. 165(1) substituted (with effect in accordance with Sch. 21 para. 10(4) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(2)
  3. F1126Word in s. 165(1) inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 23(2)
  4. F1127Words in s. 165 substituted (27.7.1993 with effect in relation to any disposal made on or after 16.3.1993 as mentioned in s. 87(2)) by 1993 c. 34, s. 87, Sch. 7 Pt. I para. 1(1)
  5. F1128Words in s. 165(2)(b)(i) substituted (with effect in accordance with s. 90(5) of the amending Act) by Finance Act 2000 (c. 17), s. 90(3)
  6. F1129S. 165(3)(a)(b) repealed (with effect in relation to disposals in the year 2003-04 and subsequent years of assessment in accordance with Sch. 27 Pt. III(31) of the amending Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. III(31)
  7. F1130S. 165(3)(ba) inserted (with effect in accordance with Sch. 21 para. 10(5) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(3)
  8. F1131Words in s. 165(6) repealed (with effect in relation to disposals in the year 2003-04 and subsequent years of assessment in accordance with Sch. 27 Pt. III(31) of the amending Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. III(31)
  9. F1132S. 165(7A)-(7C) inserted (with effect in accordance with Sch. 7 para. 60 of the amending Act) by Finance Act 2015 (c. 11), Sch. 7 para. 23(3)
  10. F1133Words in s. 165(7A)(a) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(2)
  11. F1134Words in s. 165(7B) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(3)
  12. F1135Words in s. 165(7C) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(4)
  13. F1136S. 165(7D) inserted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 55(5)
  14. F1137S. 165(8)(a)(aa) substituted for s. 165(8)(a) (with effect in relation to the year 2003-04 and subsequent years of assessment in accordance with s. 140(6) of the amending Act) by Finance Act 1998 (c. 36), s. 140(4)
  15. F1138S. 165(8)(aa) substituted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 2 para. 33
  16. F1139Words in s. 165(10) substituted (with effect in accordance with Sch. 21 para. 10(7) of the amending Act) by Finance Act 2004 (c. 12), Sch. 21 para. 3(5)

Modifications

  1. C293S. 165 modified by S.I. 2006/964, reg. 85Z3 (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Authorised Investment Funds (Tax) (Amendment) Regulations 2010 (S.I. 2010/294), regs. 1(1), 21)