Transactions in securities and the Phoenix TAAR ― outline of regime

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Transactions in securities and the Phoenix TAAR ― outline of regime
  • Transactions in securities
  • Definition of a transaction in securities
  • Prescribed conditions
  • Calculation of income tax advantage
  • Clearances
  • TAAR tackling ‘phoenixism’

Transactions in securities and the Phoenix TAAR ― outline of regime

The transactions in securities (TiS) legislation is anti-avoidance legislation aimed at situations where close company shareholders have engineered a disposal of shares to obtain a beneficial capital gains tax (CGT) rate, ie avoid income tax, on specified transactions. Note there are also TiS rules for corporate tax purposes. These are to all intents and purposes redundant as companies are generally exempt from corporation tax on dividends and cannot, therefore, be said to be avoiding corporation tax on income if, instead, they receive capital sums. However, the corporate tax provisions have not been repealed in case some complex avoidance schemes would then become available to the corporate sector.

The targeted anti-avoidance rule (TAAR) which aims to combat cases of ‘phoenixism’ applies to certain distributions made in the process of winding up companies on or after 6 April 2016. Prior to April 2016, such transactions were usually covered by the TiS regime. The TAAR was introduced to provide absolute certainty of treatment for such transactions. and in practice when there is a company winding up, the TAAR may be in point rather than the TiS.

This guidance note runs through the key legislative rules and definitions. The concepts are further expanded in Simon’s Taxes D9.1. HMRC guidance on the TiS rules and on the TAAR can be found at CTM36800 and CTM36300 respectively.

For a separate discussion of some of the TiS and TAAR issues that may be encountered on a sale / winding up of a business in practice, see the Transactions in securities and the Phoenix TAAR on a company sale or winding up guidance note.

Transactions in securities

The transaction in securities (TiS) rules apply only to close companies where:

  1. a person is a party to one or more transaction(s) in securities

  2. one of two prescribed conditions applies

  3. the main purpose, or one of the main purposes, of the transaction in securities is to obtain an income

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