Definitions Flashcards
(37 cards)
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Portfolio holding
A holding of
Associated companies
Companies where one has a >50% holding in the other; ortwo companies are under the common control of a third partyA company is associated with all of its associates’ associatesInclude: Overseas companies, companies joining/leaving the group during the accounting periodExclude: Companies dormant throughout the year, passive (non-trading) holding companies (companies with no other income or expenses other than receiving dividends from associated companies, where the shares are the only assets it holds.
MCINOCOT examples
Change in: Service provided Nature of customers Assets traded in location of premises Suppliers, management, staff Methods of manufacturing Pricing or Purchasing policies
Loss Group
75% group. Two companies are members where one company is a 75% sub of the other or both are 75% subs of a thirda 75% sub is one where 75% of the ord is directly or indirectly owned,
the owner has 75% of profits distributable to shareholders;
it has the right to 75% or more of net assets on a winding up;
The shares are not held as trading stock.
Equity Holders
Holders or ords and
Loan creditors in respect of a loan which is not a “normal commercial loan”
Link Company
A Consortium member that is also part of a losses group
Connected Parties (Capital Gains)
Companies under the same control;
A company and the person who controls the company.
Transactions with connected parties (not in same gains group) are deemed to be at open market value
Wasting Chattel
Exempt;
Non wasting chattels
Exempt if proceeds and cost £6000, marginal if proceeds OR cost > £6,000
Depreciating Asset
An asset with a life =
Chargeable Gains Group
One company owns =>75% of another company;
Two companies under common =>75% control of a third company;
Companies can only be in one gains group, which must always start with the topco. There is no opting in or out;
Non-residents can act as links but can not participate.
Pre-Entry Capital Losses
Designed to stop companies buying loss makers to use the relief;
Since 2011, apply to losses realised prior to a company joining a group and losses unrealised when the company joined the group but were realised before 19 July 2011.
Pre-entry capital losses can be used to offset gains:
from a disposal made before the company joins the group;
from the disposal of an asset owned when the company joined the group;
from the disposal of an asset acquired after the company joined the group where that asset was both acquired from outside the group and used by the company for the purposes of its business;
never against capital losses of the new group.
Value shifting without a capital disposal
Involves manipulating values of assets without a diposal having occurred. The rules are to prevent value being extracted on a tax free basis and a disposal is then made at a loss because the asset has been reduced in value by the value shifting.Rules apply when:
a controlling shareholder of a company uses that control so that value passes out of shares that they (or persons connected with them) own into other shares in the company;
the owner of an asset) whether a property or other asset) sells the asset and leases it back, and there are arrangements in favour of the original owner;
rights or restrictions over any asset are reduced, or removed, by the person entitled to enforce them.The person who transfers value is deemed to make a disposal (or part disposal) at market value, and the recipient takes the asset with a base cost equivalent to that market value.
Value shifting via tax free benefits
Stripping out value from an asset in form of tax free benefit then disposing of it. Eg, a dividend is paid which is free of tax in the hands of the receiving company.
Value shiting on disposal of shares or securities by a company
Payment of a dividend out of an untaxed accounting profit rather than distributable reserves. Examples being:
capital gains consideration does not reflect the true value of the assets disposed of;
the creation of distributable reserces prior to disposal;
value passing from the company which is sold to the vendor group, typically by way of dividend;
dividend payments funded by way of a loan;
subscription for extra shares in order to increase the base cost of the overall holding and receives the value of the amount subscribed.
Deprciatory Transactions
Applies to companies that are members of gains groups. Depreciatory transaction can be the payment of a dividend from profits that have not been taxed - for example an asset sold between members of a gains group where an accounting profit exists, but the asset was transferrred at NGNL.
Informal winding up
When a liquidator is not appointed. Distributions to shareholders regarded as capital as long as they do not exceed £25,000 (this is all distributions since the ‘intention was formed’ to wind up the company. If > 25000 the whole is treated as income. Repayment of share capital is outside this and does not count towards the 25000 limit
Mixed consideration share purchase
Apportion costs to the share and cash part of the deal. If the cash received is
Group Share Exchanges
Where the reorganisation provisions would normally result in a transaction being treated as if it did not involve a disposal of shares, but
should there have been a disposal, any gain accruing on that disposal would have been exempt under SSE, the no disposal treatment is disapplied so that an exempt gain accrues instead.
Scheme of reconstruction
If a merger qualifies as a scheme of reconstruction then assets are transferred at NGNL. The following must apply:
The successor company issues share capital to the holder of the other company; and
The scheme should confer all the shareholders of the same class an equal entitlement; and either:
There must be a continuity of business; or
The scheme is carried out in pursuance of a compromise arrangement to which Part 26 of CA 2006 applies, and no part of the original company is transferred to any other person.An application may be made for advance clearance that the transaction will be treated as a scheme of reconstruction.The new shares or debentures issued stand in the shoes of the old shares.If the old shares are cancelled, their cost becomes the cost of the new shares. If not, then the original cost is split over the two holdings based on mv.Scheme must be for bona fide commercial reasons.
Cessation of trade
trading losses brought forward are lost;
Balancing adjustments may arise on assets qualifying for capital allowances.
Significant Increase in capital
An increase of £1m or more or if capital doubles over a 3-year period.
Ramsay Principles of tax avoidance
For the Ramsay principle to apply there must be a series of transactions:Which was, at the tim when the intermediate transaction was entered into, preordained in order to produce a given result;Which had no other purpose other than tax mitigation;Where there was at that time no practical likelihood that the pre-planned events would not take plance in the order ordained, so that the intermediate transaction was not even contemplated practically as having an independent life;And the pre-ordained events did in fact take place
