»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp operation of TCGA92/S135 is subject to strict anti avoidance provisions. »Ê¹ÚÌåÓýapp type of avoidance that would otherwise be possible is best illustrated by an example.

EXAMPLE

»Ê¹ÚÌåÓýapp Graves family own all the shares in the family company, John Graves Ltd. »Ê¹ÚÌåÓýappy are approached by a quoted company which wants to buy them out for cash. »Ê¹ÚÌåÓýapp Graves family incorporates another UK family company Insider Ltd. Insider Ltd acquires all the John Graves Ltd shares in exchange for an issue of Insider Ltd shares. If TCGA92/S135 applies the Graves family acquire their shares in Insider Ltd at the original cost to them of their shares in John Graves Ltd. Insider Ltd acquires the shares in John Graves Ltd at market value as this is a transaction between connected persons, see CG14580+.

Insider Ltd then sells its recently acquired John Graves Ltd shares to the quoted company for cash. »Ê¹ÚÌåÓýappre is no gain on this disposal as the shares were acquired at market value. Insider Ltd uses the funds from the sale to buy a portfolio of quoted shares and securities. »Ê¹ÚÌåÓýapp Graves family use Insider Ltd as an investment holding company.

If the share exchange provisions of TCGA92/S135 apply the Graves family have managed to avoid any Capital Gains Tax on the sale of their John Graves Ltd shares.

»Ê¹ÚÌåÓýapp avoidance in this example is very similar to that in Furniss v Dawson 55TC324, Bayliss v Gregory and Craven v White 62TC1. In all these cases the equivalent of Insider Ltd was incorporated in the Isle of Man. »Ê¹ÚÌåÓýapp example illustrates that the original CGT avoidance still works if Insider Ltd is incorporated in the UK. »Ê¹ÚÌåÓýapp use of the offshore haven company allows the shareholders to enjoy the proceeds of the sale without the usual restrictions, or taxation consequences, which apply to UK incorporated companies.