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FA08/Sch7/para126(11)

TCGA92/S13* allows the gains accruing to non-resident close companies to be attributed to participators in those companies. It is relevant to both TCGA92/S86 and TCGA/S87 as it is quite common for trustees to hold the trust property through a wholly-owned company rather than own it directly. Section 13(10)* applies section 13* to non-resident trustees. Section 13* was subject to major reform in 2013. See CGM57200+ for general guidance on section 13* and CG57395 for specific guidance on trustees.

Without some modification FA08/Sch7/para126 would not apply to section 13* gains that accrue to trustees because the trustees do not themselves own the asset or make the disposal. FA08/Sch7/para126(11) provides for paragraph 126 relief to apply to section 13* gains. In simple terms it treats the company as if it were trustees. The basic rule is the same. The company making the disposal must have owned the asset from 6 April 2008 to the date of the disposal, paragraph 126(11)(b). But a number of special rules are required to deal with particular issues that arise on section 13*.

The main problem is that the gains are attributed to participators in proportion to their interest in the company and this interest may fluctuate between 6 April 2008 and the date of disposal. Paragraph 126(11)(c) provides that the trustees must have been a participator in the company throughout the period from 6 April 2008 to the date of disposal. Changes in the value of the interest are dealt with in paragraph 126(16) to (18). Only the “appropriate proportion� of the asset is rebased, paragraph 126(16). This is defined in paragraph 126(18) as:

• Minimum proportion
• The proportionate interest at the date of disposal

The “minimum proportion� is the smallest proportionate interest the trustees have for section 13* purposes from 6 April 2008 to the date of disposal.

The other problem is that section 14* TCGA extends section 171 TCGA so that it applies to a non-resident group of companies allowing assets to be moved between group companies at no gain/no loss. If this has happened to an asset held at 6 April 2008 paragraph 126(14)* applies. This treats the transferee company making the disposal which gives rise to the gain as owning the asset on 6 April 2008.

It is possible that the trustees� proportionate interest in the transferor and transferee companies may differ, particularly if there are loan creditors. Paragraph 126(15)* provides you apply the “appropriate proportion� relevant to the company which held the asset on 6 April 2008.

The example in CG38880 illustrates the application of paragraph 126(11)*. Section 13* only attributes gains accruing to non-resident companies. It has no application to losses. CG38885 illustrates the effect of a paragraph 126 election reducing the section 13* gain to a loss.

See CG38900 if a section 13 company is included in a transfer to which TCGA92/S90 applies.

*These sections were re-written for disposals from 6 April 2019 see CG10150.