CG44100 | Targeted rules to prevent income to capital converter schemes by companies - general

Anti-avoidance provisions in Finance Act 2006 (called Targeted Anti-Avoidance rules, or ‘TAARs’ for short) included a measure to counter the conversion of income streams into capital gains, and the creation of a capital gain “matched” by an income deduction, where the gains are then wholly or partly franked by capital losses.

The legislation was announced in the Chancellor’s Pre Budget Report (“PBR”) on 5 December 2005 and is effective from that date.

A statement of principles, draft guidance document and draft legislation were published at PBR. The statement of principles, on which the legislation was based, and final version of the published guidance document can be found at appendix 8.

The intent of this TAAR is to apply the third of the principles set out in the HMRC statement of 5 December 2005, that relief for capital losses should only be available against capital gains, not income profits.

The legislation was amended slightly by section 63 of the Finance Act 2014 to put beyond doubt that the TAAR applies whatever the computational process that is used to determine the income figure. Contact Capital Gains Technical Group if it is suggested that this change is relevant to a particular case.

The effect of sections 184G to I of the Taxation of Chargeable Gains Act 1992 is that capital losses will not be available to frankgains arising in consequence of, or in connection with arrangements with a main purpose ofsecuring a tax advantage.