Summary of measures

The Government is to consult on the possibility of introducing a rollover relief for gains on substantial shareholdings held by companies. This would be a major relaxation to the capital gains rules for companies. By removing the immediate tax charge when companies rationalise their substantial shareholdings, it will promote business efficiency.

The Inland Revenue will be publishing a Technical Note containing detailed proposals for consultation. Subject to the outcome of that consultation, the relief will be included in next year’s Finance Bill.

Further details

1. The Government’s present thinking is that a rollover relief for gains on shareholdings held by companies should be along the following lines:
– shareholdings in excess of a threshold of 30% would qualify;
– only shareholdings in trading companies or trading groups would be within the scope;
– rollover would be possible into other substantial shareholdings or into the wider range of assets which presently qualify for business asset rollover relief, and vice-versa;
– life insurance companies would be included, but only in respect of their structural shareholdings;
– it will be necessary to consider the application of the relief to other specific sectors (such as the oil industry).

2. There will be a large number of detailed issues to be considered. These will be set out in a Technical Note to be published by the Inland Revenue in the early summer. If the Government decides to proceed, draft clauses will be published in due course, comments invited and the clauses included in Finance Bill 2001.

Background notes

1. The present business asset rollover relief applies to both companies and individuals and enables gains on a range of assets (land and buildings, fixed plant machinery, goodwill etc) to be rolled over against the cost of replacement assets in the same range. The assets must be used for the purposes of a trade and the proceeds of sale of the old asset have to be reinvested into the new asset for full rollover to be available.

2. Shares are not included in the range of assets which qualify for rollover relief. Introducing relief for companies’ gains on substantial shareholdings will, if implemented, be a significant extension of the existing rules.

3. Full details of the cost and implications of the relief will be published when the details are settled in the light of consultation and the Government has decided whether or not to proceed.

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