21 MARCH 2000 BUDGET-CAPITAL GAINS: SIMPLER PROCEDURES FOR COMPANIES

Summary of measures

Two measures were announced today to reduce companies’ costs and ease administration.

Under the first measure, assets will no longer have to be moved between companies in a group to ensure that gains and losses can be matched. An election to achieve the same effect will be possible. This represents an important step in making the administration of capital gains by companies easier and more flexible.

Under the second measure, certain companies with large property holdings will be able to agree with the Inland Revenue the value of all the land and buildings owned on 31 March 1982 in advance of any sales of that land.

Further details

Notional transfers of assets within groups

1. From 1 April 2000 two members of a group of companies may jointly elect that an asset which has been disposed of outside of the group by one of them may be treated as if it had been transferred between them immediately before that disposal. The second company will then be treated as having made the disposal outside the group. This will enable losses and gains on assets within the group to be matched in a single company without actually having to transfer the asset.

2. An election may be made within two years of the end of the accounting period in which the asset was disposed of outside the group.

Valuation of large land portfolios at 31 March 1982

3. For a trial period starting from today companies and groups of companies holding a property portfolio which includes either
30 or more properties held since 31 March 1982, or
if fewer, properties held since 31 March 1982 with a current aggregate value greater than 30 million pounds
will be able to ask the Inland Revenue to agree the value of land and buildings owned on 31 March 1982.

4. This service will be available only in respect of entire property portfolios. The trial period is expected to last for two years. A decision will then be taken, in the light of usage and costs, on whether the service should be continued and possibly extended.

5. Companies or groups of companies who wish to use this new service must provide values for all properties in the company or group portfolio which have been held since 31 March 1982. All values put forward for checking will have to be supported by appropriate professional valuations. Any company or group interested in using the new service can obtain further information from
Inland Revenue,
Capital and Savings Division,
Room 133,
Sapphire House,
550 Streetsbrook Road,>br> Solihull,
West Midlands B91 1QU.

A note of the tax office and reference to which the company’s Corporation Tax Return is submitted (for a group this information should be provided in relation to its principal company) should be provided.

6. This new service is in addition to the pre-return valuation check of completed property transactions which was recently extended to companies, and announced in the Inland Revenue Press Release of 10 January 2000.

Background notes

Notional transfers of assets within groups

1. The Taxation of Chargeable Gains Act does not include a general group relief to allow losses of one company in a group to be set against gains of another group company. In practice, a group can arrange that losses are set against gains by transferring assets within the group (under the no gain/no loss provisions) before disposal of those assets outside the group, so that chargeable gains and losses arise in the same company.

2. The transfer of assets within a group simply to take advantage of the tax rules may give rise to legal and administrative costs. The new measure announced by the Chancellor will allow more flexibility in matching capital gains and losses within a group. The existing tax neutral treatment for assets actually transferred between group companies will continue.

3. This new measure has been introduced following consultation with representative bodies.

Valuation of large land portfolios at 31 March 1982

4. In certain circumstances the value of assets held at 31 March 1982 needs to be known to calculate any capital gain when they are disposed of. The new service will enable companies with large property holdings to agree the value of all their land and buildings held at 31 March 1982 at one time and before disposals take place. The work on agreeing 1982 valuations will be carried out by the Valuation Office Agency, which is part of the Inland Revenue.

5. This new service has been introduced following consultation with representatives of large property holding groups.