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Transactions in Securities

This is anti-avoidance legislation that can be used by HMRC in certain circumstances involving transactions in securities and tax-intended capital transactions. The Budget announcement confirms that, as expected, the legislation is to be replaced with clearer, more targeted legislation.

Baker Tilly analysis

This is long-standing legislation, and HMRC recognised that there was a strong case for modernisation. A consultation document was released in July 2009, proposing that the legislation focus on close companies, including overseas companies, with an exemption where there will be a fundamental change in ownership (expected to mean at least a 75% change). The Budget announcement confirms that the proposals are to be enacted with effect from 22 April 2010, and the changes are to be welcomed. It had been hoped that the corporation tax rules in this area could be repealed but, unfortunately, this will not be the case.

In detail

The transactions in securities legislation is anti-avoidance legislation that HMRC can use to re-characterise transactions intended to be capital in nature and tax them instead under the income tax code if there is a tax avoidance motive. The previous rules had failed to keep pace with other changes in the tax legislation and HMRC issued a consultation document in July 2009, which proposed a number of simplifications. The new rules will target transactions in the shares of close companies and overseas equivalents. There will be an exemption in circumstances where there will be a fundamental change in ownership (expected to mean at least a 75% change). The number of transactions to which the rules will potentially apply should therefore be reduced.

There exists a clearance procedure under which taxpayers can apply to HMRC for confirmation that proposed transactions will not be caught by the anti-avoidance rules. One of HMRC’s hopes is that the new rules will mean a significant reduction in the number of clearance applications they will receive.

The rules apply to companies as well as individuals. On the basis that a company’s gains are subject to corporation tax at the same rate as income, the potential for this legislation to apply to companies is much lower than it is for individuals. Therefore, it had been hoped that the legislation as it applies to companies could be repealed. However, it appears that this will not be the case.