This document discusses these rules in detail, together with the required conditions; relevant consideration; excluded circumstances; and calculation of income tax advantage.
The transactions in securities legislation is anti-avoidance legislation aimed at situations where close com-pany shareholders have engineered a disposal of shares to obtain a beneficial CGT rate, ie avoid income tax, on specified transactions. Following consultation, in 'Simplifying Transactions in Securities Legislation', the rules have been amended by Finance Act 2010. Most of the changes apply to individuals.
The rules are well illustrated by considering the case of CIR v Cleary. In this case, two sisters sold the shares in one of their companies to another in return for cash proceeds of £121,000 (considered to be mar-ket value). The House of Lords considered that this was caught by the transactions in securities rules and that the proceeds of £121,000 were subject to income tax. HMRC set out how it considered the conditions for the transactions in securities rules were met:
- the sale of shares was a transaction in securities
- the company was close and the sisters received consideration which would have been available for distribution by the company if the company had applied them otherwise (ie by buying the shares)
- the sisters obtained a tax advantage (but for the issue of a counteraction notice), ie they had avoided income tax
Commissioners of Inland Revenue v Cleary 44 TC 399 (subscription sensitive)