Income Tax Act 2007
An Act to restate, with minor changes, certain enactments relating to income tax; and for connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Part 1Overview
1Overview of Income Tax Acts
(1)
The following Acts make provision about income tax—
(a)
ITEPA 2003 (which is about charges to tax on employment income, pension income and social security income),
(b)
ITTOIA 2005 (which is about charges to tax on trading income, property income, savings and investment income and some other miscellaneous income), and
(c)
this Act (which contains the other main provisions about income tax).
(2)
There are also provisions about income tax elsewhere: see in particular—
(a)
Part 18 of ICTA (double taxation relief),
(b)
CAA 2001 (allowances for capital expenditure), and
(c)
Part 4 of FA 2004 (pension schemes etc).
(3)
Schedule 1 to the Interpretation Act 1978 (c. 30) defines “the Income Tax Acts” (as all enactments relating to income tax).
2Overview of Act
(1)
This Act has 17 Parts.
(2)
Part 2 contains basic provisions about income tax including—
(a)
provision about the annual nature of income tax (Chapter 1),
(b)
the rates at which income tax is charged (Chapter 2), and
(c)
the calculation of income tax liability (Chapter 3).
(3)
Part 3 is about taxpayers’ personal reliefs including—
(a)
personal allowances (Chapter 2),
(b)
blind persons’ allowances (Chapter 2), and
(c)
tax reductions for married couples and civil partners (Chapter 3).
(4)
Part 4 is about loss relief including relief for—
(a)
trade losses (Chapters 2 and 3),
(b)
losses from property businesses (Chapter 4),
(c)
losses in an employment or office (Chapter 5),
(d)
losses on disposal of shares (Chapter 6), and
(e)
losses from miscellaneous transactions (Chapter 7).
(5)
Part 5 is about relief under the enterprise investment scheme.
(6)
Part 6 is about—
(a)
relief for investment in venture capital trusts, and
(b)
other matters relating to venture capital trusts.
(7)
Part 7 is about community investment tax relief.
(8)
Part 8 is about a variety of reliefs including relief for—
(a)
interest payments (Chapter 1),
(b)
gifts to charity including gift aid (Chapters 2 and 3),
(c)
annual payments and patent royalties (Chapter 4), and
(d)
maintenance payments (Chapter 5).
(9)
Part 9 contains special rules about settlements and trustees including—
(a)
general provision about settlements and trustees (Chapter 2),
(b)
special income tax rates for trusts (Chapters 3, 4, 5 and 6),
(c)
rules about trustees’ expenses (Chapters 4 and 8),
(d)
rules about trustees’ discretionary payments (Chapter 7),
(e)
rules about unauthorised unit trusts (Chapter 9), and
(f)
rules about heritage maintenance settlements (Chapter 10).
(10)
Part 10 contains special rules about charitable trusts etc.
(11)
Part 11 is about manufactured payments and repos.
(12)
Part 12 is about accrued income profits.
(13)
Part 13 is about tax avoidance in relation to—
(a)
transactions in securities (Chapter 1),
(b)
transfers of assets abroad (Chapter 2),
(c)
transactions in land (Chapter 3),
(d)
sales of occupation income (Chapter 4), and
(e)
trade losses (Chapter 5).
(14)
Part 14 deals with some miscellaneous rules about income tax liability, including—
(a)
limits on liability to income tax for non-UK residents (Chapter 1),
(b)
special rules about residence (Chapter 2), and
(c)
rules about jointly held property (Chapter 3).
(15)
Part 15 is about the deduction of income tax at source.
(16)
Part 16 contains definitions which apply for the purposes of the Income Tax Acts and other general provisions which apply for the purposes of those Acts.
(17)
Part 17—
(a)
contains provisions to be used in interpreting this Act,
(b)
introduces Schedule 1 (minor and consequential amendments),
(c)
introduces Schedule 2 (transitional provisions and savings),
(d)
introduces Schedule 3 (repeals and revocations, including of spent enactments),
(e)
introduces Schedule 4 (index of defined expressions that apply for the purposes of this Act),
(f)
confers powers on the Treasury to make orders, and
(g)
makes provision about the coming into force of this Act.
Part 2Basic provisions
Chapter 1Charges to income tax
3Overview of charges to income tax
(1)
Income tax is charged under—
(a)
Part 2 of ITEPA 2003 (employment income),
(b)
Part 9 of ITEPA 2003 (pension income),
(c)
Part 10 of ITEPA 2003 (social security income),
(d)
Part 2 of ITTOIA 2005 (trading income),
(e)
Part 3 of ITTOIA 2005 (property income),
(f)
Part 4 of ITTOIA 2005 (savings and investment income), and
(g)
Part 5 of ITTOIA 2005 (miscellaneous income).
(2)
Income tax is also charged under other provisions, including—
(a)
Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),
(b)
section 7 of F(No.2)A 2005 (social security pension lump sums),
(c)
Part 10 of this Act (special rules about charitable trusts etc),
(d)
Chapter 2 of Part 12 of this Act (accrued income profits), and
(e)
Part 13 of this Act (tax avoidance).
4Income tax an annual tax
(1)
Income tax is charged for a year only if an Act so provides.
(2)
A year for which income tax is charged is called a “tax year”.
(3)
A tax year begins on 6 April and ends on the following 5 April.
(4)
“The tax year 2007-08” means the tax year beginning on 6 April 2007 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).
(5)
Every assessment to income tax must be made for a tax year.
(6)
Subsection (5) is subject to Chapter 15 of Part 15 (by virtue of which an assessment may relate to a return period).
5Income tax and companies
(1)
Income tax is not charged on income of a company so far as the company is within the charge to corporation tax in respect of the income.
(2)
See in particular sections 6(2) and 11(1) of ICTA for the circumstances in which a company is within the charge to corporation tax in respect of its income.
Chapter 2Rates at which income tax is charged
The rates
6The starting rate, basic rate and higher rate
(1)
The main rates at which income tax is charged are—
(a)
the starting rate,
(b)
the basic rate, and
(c)
the higher rate.
(2)
The starting rate, basic rate and higher rate for a tax year are the rates determined as such by Parliament for the tax year.
(3)
For other rates at which income tax is charged see—
(a)
section 7 (savings rate),
(b)
section 8 (dividend ordinary rate and dividend upper rate), and
(c)
section 9 (trust rate and dividend trust rate).
7The savings rate
The savings rate is 20%.
8The dividend ordinary rate and dividend upper rate
(1)
The dividend ordinary rate is 10%.
(2)
The dividend upper rate is 32.5%.
9The trust rate and dividend trust rate
(1)
The trust rate is 40%.
(2)
The dividend trust rate is 32.5%.
Income charged at particular rates
10Income charged at the starting, basic and higher rates: individuals
(1)
Income tax is charged at the starting rate on an individual’s income up to the starting rate limit.
(2)
Income tax is charged at the basic rate on an individual’s income above the starting rate limit and up to the basic rate limit.
(3)
Income tax is charged at the higher rate on an individual’s income above the basic rate limit.
(4)
This section is subject to—
section 12 (income charged at the savings rate),
section 13 (income charged at the dividend ordinary and dividend upper rates: individuals), and
any other provisions of the Income Tax Acts which provide for income of an individual to be charged at different rates of income tax in some circumstances.
(5)
See section 20 for the starting rate limit and the basic rate limit.
11Income charged at the basic rate: other persons
(1)
Income tax is charged at the basic rate on the income of persons other than individuals.
(2)
This section is subject to—
section 12 (income charged at the savings rate),
section 14 (income charged at the dividend ordinary rate: other persons),
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate), and
any other provisions of the Income Tax Acts which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.
12Income charged at the savings rate
(1)
Income tax is charged at the savings rate on a person’s income which—
(a)
is savings income, and
(b)
would otherwise be charged at the basic rate.
(2)
This is subject to—
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),
section 504(3) (treatment of income of unauthorised unit trust), and
any other provisions of the Income Tax Acts (apart from sections 10 and 11) which provide for income to be charged at different rates of income tax in some circumstances.
(3)
Section 16 has effect for determining the extent to which a person’s savings income would otherwise be charged at the basic rate.
13Income charged at the dividend ordinary and dividend upper rates: individuals
(1)
Income tax is charged at the dividend ordinary rate on an individual’s income which—
(a)
is dividend income,
(b)
would otherwise be charged at the starting or basic rate, and
(c)
is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(2)
Income tax is charged at the dividend upper rate on an individual’s income which—
(a)
is dividend income, and
(b)
would otherwise be charged at the higher rate.
(3)
Subsections (1) and (2) are subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.
(4)
Section 16 has effect for determining the extent to which an individual’s dividend income would otherwise be charged at the starting, basic or higher rate.
14Income charged at the dividend ordinary rate: other persons
(1)
Income tax is charged at the dividend ordinary rate on the income of persons other than individuals which—
(a)
is dividend income,
(b)
would otherwise be charged at the basic rate, and
(c)
is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(2)
This is subject to—
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged at the dividend trust rate or at the trust rate),
section 504(3) (treatment of income of unauthorised unit trust), and
any other provisions of the Income Tax Acts (apart from section 11) which provide for income of persons other than individuals to be charged at different rates of income tax in some circumstances.
15Income charged at the trust rate and the dividend trust rate
For the circumstances in which income tax is charged at the trust rate and the dividend trust rate, see Chapters 3 to 6 of Part 9.
16Savings and dividend income to be treated as highest part of total income
(1)
This section has effect for determining the rate at which income tax would be charged on a person’s savings or dividend income apart from sections 12 and 13.
(2)
It also has effect for all other income tax purposes except for the purposes of—
(a)
section 491 (special rates not to apply to first slice of trustees’ trust rate income), and
(b)
sections 535 to 537 of ITTOIA 2005 (gains from contracts for life insurance etc: top slicing relief).
(3)
If a person has savings income but no dividend income, the savings income is treated as the highest part of the person’s total income.
(4)
If a person has dividend income but no savings income, the dividend income is treated as the highest part of the person’s total income.
(5)
If a person has both savings income and dividend income—
(a)
the savings income and dividend income are together treated as the highest part of the person’s total income, and
(b)
the dividend income is treated as the higher part of that part of the person’s total income.
(6)
See section 1012 for the relationship between—
(a)
the rules in this section, and
(b)
other rules requiring particular income to be treated as the highest part of a person’s total income.
(7)
References in this section to dividend income do not include dividend income which is relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
17Repayment: tax paid at basic rate instead of starting or savings rate
(1)
This section applies if income tax at the basic rate has been paid on income on which income tax is chargeable at the starting or savings rate.
(2)
If a claim is made, any necessary repayment of tax must be made.
18Meaning of “savings income”
(1)
This section applies for the purposes of the Income Tax Acts.
(2)
“Savings income” is income—
(a)
which is within subsection (3) or (4), and
(b)
which is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(3)
Income is within this subsection if it is—
(a)
income chargeable under Chapter 2 of Part 4 of ITTOIA 2005 (interest),
(b)
income chargeable under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), other than income from annuities specified in section 718(2) of that Act (annuities purchased from certain life assurance premium payments or under wills etc),
(c)
income chargeable under Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities), or
(d)
income chargeable under Chapter 2 of Part 12 of this Act (accrued income profits).
(4)
Income is within this subsection if—
(a)
it is chargeable under Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc), and
(b)
an individual is, or personal representatives are, liable for income tax on it (under section 465 or 466 of that Act).
19Meaning of “dividend income”
(1)
This section applies for the purposes of the Income Tax Acts.
(2)
“Dividend income” is income which is—
(a)
chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies),
(b)
chargeable under Chapter 4 of that Part (dividends from non-UK resident companies),
(c)
chargeable under Chapter 5 of that Part (stock dividends from UK resident companies),
(d)
chargeable under Chapter 6 of that Part (release of loan to participator in close company), or
(e)
a relevant foreign distribution chargeable under Chapter 8 of Part 5 of ITTOIA 2005 (income not otherwise charged).
(3)
In subsection (2) “relevant foreign distribution” means a distribution of a non-UK resident company which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but
(b)
would be chargeable under Chapter 3 of that Part if the company were UK resident.
Starting rate limit and basic rate limit
20The starting rate limit and the basic rate limit
(1)
The starting rate limit is £2,150.
(2)
The basic rate limit is £33,300.
(3)
The basic rate limit is increased in some circumstances: see—
(a)
section 414(2) (gift aid relief), and
(b)
section 192(4) of FA 2004 (relief for pension contributions).
21Indexation of the starting rate limit and the basic rate limit
(1)
This section applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.
(2)
The starting rate limit for the tax year is the amount found as follows.
Step 1
Increase the starting rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £10, it is the starting rate limit for the tax year.
If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.
That amount is the starting rate limit for the tax year.
(3)
The basic rate limit for the tax year is the amount found as follows.
Step 1
Increase the basic rate limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £100, it is the basic rate limit for the tax year.
If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.
That amount is the basic rate limit for the tax year.
(4)
Subsections (2) and (3) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.
(5)
Before the start of the tax year the Treasury must make an order replacing the amounts specified in section 20 with the amounts which, as a result of subsections (2) and (3), are the starting rate limit and the basic rate limit for the tax year.
Chapter 3Calculation of income tax liability
22Overview of Chapter
(1)
This Chapter deals with the calculation of a person’s income tax liability for a tax year.
(2)
But it does not deal with any income tax liability mentioned in section 32.
(3)
This Chapter needs to be read with Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents).
23The calculation of income tax liability
To find the liability of a person (“the taxpayer”) to income tax for a tax year, take the following steps.
Step 1
Identify the amounts of income on which the taxpayer is charged to income tax for the tax year.
The sum of those amounts is “total income”.
Each of those amounts is a “component” of total income.
Step 2
Deduct from the components the amount of any relief under a provision listed in relation to the taxpayer in section 24 to which the taxpayer is entitled for the tax year.
See section 25 for further provision about the deduction of those reliefs.
The sum of the amounts of the components left after this step is “net income”.
Step 3
Deduct from the amounts of the components left after Step 2 any allowances to which the taxpayer is entitled for the tax year under Chapter 2 of Part 3 of this Act or section 257 or 265 of ICTA (individuals: personal allowance and blind person’s allowance).
See section 25 for further provision about the deduction of those allowances.
Step 4
Calculate tax at each applicable rate on the amounts of the components left after Step 3.
See Chapter 2 of this Part for the rates at which income tax is charged and the income charged at particular rates.
If the taxpayer is a trustee, see also Chapters 3 to 6 and 10 of Part 9 (special rules about settlements and trustees) for further provision about the income charged at particular rates.
Step 5
Add together the amounts of tax calculated at Step 4.
Step 6
Deduct from the amount of tax calculated at Step 5 any tax reductions to which the taxpayer is entitled for the tax year under a provision listed in relation to the taxpayer in section 26.
See sections 27 to 29 for further provision about the deduction of those tax reductions.
Step 7
Add to the amount of tax left after Step 6 any amounts of tax for which the taxpayer is liable for the tax year under any provision listed in relation to the taxpayer in section 30.
The result is the taxpayer’s liability to income tax for the tax year.
24Reliefs deductible at Step 2
(1)
If the taxpayer is an individual, the provisions referred to at Step 2 of the calculation in section 23 are—
(a)
the following—
section 72 (early trade losses relief),
Chapter 6 of Part 4 (share loss relief),
Chapter 3 of Part 8 (gifts of shares, securities and real property to charities etc),
sections 457 and 458 of this Act or section 266(7) of ICTA (payments to trade unions or police organisations),
section 193(4) of FA 2004 (pension schemes: relief under net pay arrangement: excess relief), and
section 194(1) of FA 2004 (pension schemes: relief on making of claim), and
(b)
the following—
section 64 (trade loss relief against general income),
section 83 (carry-forward trade loss relief),
section 89 (terminal trade loss relief),
section 96 (post-cessation trade relief),
section 118 (carry-forward property loss relief),
section 120 (property loss relief against general income),
section 125 (post-cessation property relief),
section 128 (employment loss relief against general income),
section 152 (loss relief against miscellaneous income),
Chapter 1 of Part 8 (interest payments),
Chapter 4 of Part 8 (annual payments and patent royalties),
section 574 (manufactured dividends on UK shares: payments by non-companies),
section 579 (manufactured interest on UK securities: payments not otherwise deductible),
Part 2 of CAA 2001 (plant and machinery allowances), in a case where the allowance is to be given effect under section 258 of that Act (special leasing of plant and machinery),
Part 3 of CAA 2001 (industrial buildings allowances), in a case where the allowance is to be given effect under section 355 of that Act (buildings for miners etc: carry-back of balancing allowances),
Part 8 of CAA 2001 (patent allowances), in a case where the allowance is to be given effect under section 479 of that Act (persons having qualifying non-trade expenditure),
section 555 of ITEPA 2003 (deduction for liabilities related to former employment),
section 446 of ITTOIA 2005 (strips of government securities: relief for losses),
section 454(4) of ITTOIA 2005 (listed securities held since 26 March 2003: relief for losses: persons other than trustees), and
section 600 of ITTOIA 2005 (relief for patent expenses).
(2)
In any other case, the provisions referred to at Step 2 of the calculation in section 23 are—
(a)
the provisions listed in subsection (1)(b), and
(b)
section 505 (relief for trustees of unauthorised unit trust).
25Reliefs and allowances deductible at Steps 2 and 3: supplementary
(1)
This section supplements the provisions about reliefs and allowances in Steps 2 and 3 of the calculation in section 23.
(2)
At Steps 2 and 3, deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer’s liability to income tax.
(3)
Subsection (2) is subject to—
section 65(2) to (4) (priority rule in relation to trade loss relief against general income),
section 80(2) (ring fence income),
section 83(3) and (4) (carry-forward trade loss relief against trade profits),
section 89(3) (terminal trade loss relief against trade profits),
section 93(2) (terminal trade loss relief and mineral extraction trade),
section 95(2) (foreign trades etc reliefs only against qualifying foreign income),
section 115(2) (restrictions on reliefs for firms exploiting films),
section 118(3) and (4) (carry-forward property loss relief against property business profits),
section 121(2) and (3) (priority rule in relation to property loss relief against general income),
section 129(2) to (4) (priority rule in relation to employment loss relief against general income),
section 133(4) (share loss relief against general income),
section 152(4) and (7) (loss relief against miscellaneous income),
sections 574(3) to (8) and 575 (manufactured dividends on UK shares: restrictions on deductions),
section 579(2) to (5) and 580 (manufactured interest on UK securities: restrictions on deductions),
section 258 of CAA 2001 (special leasing of plant or machinery),
section 355 of that Act (buildings for miners etc: carry-back of balancing allowances),
section 479 of that Act (persons having qualifying non-trade expenditure),
section 601 of ITTOIA 2005 (how relief for patent expenses is given), and
any other provision of the Income Tax Acts under which reliefs or allowances deductible at Step 2 or 3 are not permitted to be deducted from particular components of income or are required to be deducted from particular components of income or in a different order.
(4)
A relief or allowance may be deducted at Step 2 or 3 only so far as there is sufficient income from which to deduct it.
(5)
In deciding whether there is sufficient income from which to deduct a relief or allowance, reliefs and allowances already deducted at Step 2 or 3 must be taken into account.
(6)
Nothing in Step 2 or 3 is to be read as permitting a relief or allowance to be deducted more than once.
26Tax reductions
(1)
If the taxpayer is an individual, the provisions referred to at Step 6 of the calculation in section 23 are—
(a)
the following—
Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or 257BB of ICTA (tax reductions for married couples and civil partners),
Chapter 1 of Part 5 (EIS relief),
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 7 (community investment tax relief),
section 453 (qualifying maintenance payments),
section 459 of this Act or section 273 of ICTA (payments for benefit of family members),
section 461 (spreading of patent royalty receipts),
section 353(1A) of ICTA (relief for interest on loan to buy life annuity),
section 535 of ITTOIA 2005 (top slicing relief), and
section 539 of ITTOIA 2005 (relief for deficiencies), and
(b)
the following—
section 788 of ICTA (double taxation arrangements: relief by agreement),
section 790(1) of ICTA (relief for foreign tax where no double taxation arrangements),
section 401 of ITTOIA 2005 (relief: qualifying distribution after linked non-qualifying distribution), and
sections 677 and 678 of ITTOIA 2005 (relief where foreign estates have borne UK income tax).
(2)
In any other case, the provisions referred to at Step 6 of the calculation in section 23 are—
(a)
the provisions listed in subsection (1)(b), and
(b)
section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax relief).
27Order of deducting tax reductions: individuals
(1)
This section makes provision about the order in which tax reductions are to be deducted at Step 6 of the calculation in section 23, if the taxpayer is an individual.
(2)
Deduct the tax reductions in the order which will result in the greatest reduction in the taxpayer’s liability to income tax for the tax year.
(3)
Subsection (2) is subject to subsections (4) to (6).
(4)
If the taxpayer is entitled to tax reductions for the tax year under more than one of the provisions listed in subsection (5), a tax reduction under a provision mentioned earlier in the list must be deducted before a tax reduction under a provision mentioned later in the list.
(5)
The provisions are—
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 5 (EIS relief),
Chapter 1 of Part 7 (community investment tax relief),
section 353(1A) of ICTA (relief for interest on loan to buy life annuity),
section 453 (qualifying maintenance payments),
section 459 of this Act or section 273 of ICTA (payments for benefit of family members), and
Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or 257BB of ICTA (tax reductions for married couples and civil partners).
(6)
If the taxpayer is entitled to a tax reduction under—
(a)
section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b)
section 790(1) of ICTA (relief for foreign tax where no double taxation arrangements),
that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year.
28Order of deducting tax reductions: other persons
(1)
This section makes provision about the order in which tax reductions are to be deducted at Step 6 of the calculation in section 23, if the taxpayer is a person other than an individual.
(2)
Deduct the tax reductions in the order which will result in the greatest reduction in the taxpayer’s liability to income tax for the tax year.
(3)
Subsection (2) is subject to subsections (4) and (5).
(4)
If the taxpayer is entitled to a tax reduction under—
(a)
section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b)
section 790(1) of ICTA (relief for foreign tax where no double taxation arrangements),
that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year, subject to subsection (5).
(5)
If the taxpayer is a trustee and is entitled to a tax reduction under section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax relief) that tax reduction must be deducted after any other tax reduction to which the taxpayer is entitled for the tax year.
29Tax reductions: supplementary
(1)
This section supplements the provisions about tax reductions in Step 6 of the calculation in section 23.
(2)
A tax reduction may be deducted at Step 6 only so far as there is sufficient tax calculated at Step 5 of the calculation from which to deduct it.
(3)
In deciding whether there is sufficient tax calculated at Step 5 from which to deduct a tax reduction, tax reductions already deducted at Step 6 must be taken into account.
(4)
Subsections (2) and (3) apply in addition to—
(a)
section 796(1) and (2) of ICTA (limits on credit for foreign tax), and
(b)
any other provision of the Income Tax Acts that limits the amount of a tax reduction.
(5)
For the purposes of this Chapter, a person is treated as being entitled to a tax reduction under section 788 of ICTA if the person is entitled to credit against income tax under double taxation arrangements.
30Additional tax
(1)
If the taxpayer is an individual, the provisions referred to at Step 7 of the calculation in section 23 are—
section 424 (gift aid: charge to tax),
section 205 of FA 2004 (pension schemes: the short service refund lump sum charge),
section 206 of FA 2004 (pension schemes: the special lump sum death benefits charge),
section 208(2)(a) of FA 2004 (pension schemes: the unauthorised payments charge),
section 209(3)(a) of FA 2004 (pension schemes: the unauthorised payments surcharge),
section 214 of FA 2004 (pension schemes: the lifetime allowance charge),
section 227 of FA 2004 (pension schemes: the annual allowance charge), and
section 7 of F(No.2)A 2005 (social security pension lump sum).
(2)
If the taxpayer is a trustee, the provision referred to at Step 7 of the calculation in section 23 is section 496 (discretionary payments by trustees: tax pool adjustment).
31Total income: supplementary
(1)
This section applies for the purposes of calculating total income.
(2)
Income from which a deduction in respect of income tax is to be made (or treated as made) at the basic or savings rate in force for a tax year is treated as income of that tax year.
(3)
If—
(a)
a dividend is paid, or another distribution is made, in a tax year,
(b)
a person is entitled to a tax credit in respect of the dividend or other distribution, and
(c)
the amount or value of the dividend or other distribution is treated under section 398 of ITTOIA 2005 as increased by the amount of the tax credit,
the amount or value as increased is treated as income of that tax year.
(4)
Subsections (2) and (3) apply even if all or part of the income, or the dividend or other distribution, accrued or will accrue in a different tax year.
(5)
An assessment that has become final and conclusive for income tax purposes for a tax year is also final and conclusive for the purposes of calculating total income.
32Liability not dealt with in the calculation
The liabilities referred to in section 22(2) are income tax liability—
under section 79(1) (capital allowances restrictions: withdrawal of relief),
under section 81(6) (dealings in commodity futures: withdrawal of relief),
under section 112(5) (non-active partners: withdrawal of relief),
under section 235 (withdrawal or reduction of EIS relief),
under sections 266 to 270 (withdrawal or reduction of VCT relief),
under section 372 (withdrawal or reduction of CITR),
under section 512 (heritage maintenance settlements: application of property for non-heritage purposes),
under Chapter 1 of Part 13 (transactions in securities),
under regulations made under section 918(4) (foreign payers of manufactured dividends: Real Estate Investment Trusts: the reverse charge),
under section 920 or 923 (foreign payers of manufactured interest or manufactured overseas dividends: the reverse charge),
under Chapter 15, 16 or 17 of Part 15 (deduction of tax at source: collection mechanisms),
under section 804(5B)(a) of ICTA (recovery of excess credit for overseas tax),
under paragraph 11(3) of Schedule 20 to FA 1994 (recovery of excess credit for overseas tax: changes for facilitating self-assessment),
of the person who is (or persons who are) the responsible person in relation to an employer-financed retirement benefits scheme under section 394(2) of ITEPA 2003,
under Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges), except any liability under a provision mentioned in section 30(1), and
under section 682(4) of ITTOIA 2005 (assessments, adjustments and claims after the administration period), so far as the liability represents a tax reduction given effect at Step 6 of the calculation in section 23.
Part 3Personal reliefs
Chapter 1Introduction
33Overview of Part
(1)
This Part provides for personal reliefs.
(2)
Chapter 2 provides for entitlement to a personal allowance and a blind person’s allowance.
(3)
Chapter 3 provides for tax reductions for married couples and civil partners.
(4)
Chapter 4 contains provision applicable for the purposes of Chapters 2 and 3, in particular—
(a)
requirements about residence etc of claimants to allowances under Chapter 2 or tax reductions under Chapter 3, and
(b)
indexation of the amounts of those allowances and tax reductions.
Chapter 2Personal allowance and blind person’s allowance
Introduction
34Allowances under Chapter
(1)
In this Chapter—
(a)
sections 35, 36 and 37 deal with entitlement to a personal allowance,
(b)
section 38 deals with entitlement to a blind person’s allowance, and
(c)
section 39 deals with the transfer of part of a blind person’s allowance to a spouse or civil partner.
(2)
An allowance under this Chapter is given effect at Step 3 of the calculation in section 23.
Personal allowances
35Personal allowance for those aged under 65
An individual who makes a claim is entitled to a personal allowance of £5,035 for a tax year if the individual—
(a)
is under the age of 65 throughout the tax year, and
(b)
meets the requirements of section 56 (residence etc).
36Personal allowance for those aged 65 to 74
(1)
An individual who makes a claim is entitled to a personal allowance of £7,280 for a tax year if the individual—
(a)
is 65 or over at some time in the tax year, but under 75 throughout the tax year, and
(b)
meets the requirements of section 56 (residence etc).
(2)
For an individual whose adjusted net income for the tax year exceeds £20,100, the allowance under subsection (1)—
(a)
is reduced by half the excess, but
(b)
is not reduced below the amount of a personal allowance under section 35.
(3)
For the meaning of “adjusted net income” see section 58.
37Personal allowance for those aged 75 and over
(1)
An individual who makes a claim is entitled to a personal allowance of £7,420 for a tax year if the individual—
(a)
is 75 or over at some time in the tax year, and
(b)
meets the requirements of section 56 (residence etc).
(2)
For an individual whose adjusted net income for the tax year exceeds £20,100, the allowance under subsection (1)—
(a)
is reduced by half the excess, but
(b)
is not reduced below the amount of a personal allowance under section 35.
(3)
For the meaning of “adjusted net income” see section 58.
Blind person’s allowance
38Blind person’s allowance
(1)
An individual who makes a claim is entitled to a blind person’s allowance of £1,660 for a tax year if the individual—
(a)
meets the first or second condition for the whole or part of the tax year, and
(b)
meets the requirements of section 56 (residence etc).
(2)
The first condition is that the individual is registered as a blind person in a register kept under section 29 of the National Assistance Act 1948 (c. 29) (registers kept by local authorities in England and Wales).
(3)
The second condition is that—
(a)
the individual is ordinarily resident in Scotland or Northern Ireland, and
(b)
because of the individual’s blindness, the individual is unable to do any work for which eyesight is essential.
(4)
If an individual who is entitled to a blind person’s allowance for a particular tax year—
(a)
became registered as a blind person in a register kept under section 29 of the National Assistance Act 1948 in the tax year, but
(b)
obtained the evidence of blindness on the basis of which the registration was made in the preceding tax year,
the individual is treated as having met the first condition for the whole of the preceding tax year.
39Transfer of part of blind person’s allowance to a spouse or civil partner
(1)
This section applies to an individual who is entitled to a blind person’s allowance under section 38 for a tax year if—
(a)
the individual is a person whose spouse or civil partner is living with the individual for the whole or any part of the tax year, and
(b)
the spouse or civil partner meets the requirements of section 56 (residence etc).
(2)
If—
(a)
the allowance exceeds the individual’s remaining relievable income,
(b)
the individual makes an election, and
(c)
the individual’s spouse or civil partner makes a claim,
the individual’s spouse or civil partner is entitled to an allowance for the tax year equal to the amount of the excess.
(3)
The individual’s remaining relievable income is the amount found by—
(a)
taking the amount of the individual’s net income, and
(b)
subtracting any personal allowance to which the individual is entitled for the tax year.
40Election for transfer of allowance under section 39
(1)
An election under section 39—
(a)
must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year to which it relates, and
(b)
cannot be withdrawn.
(2)
If an individual makes an election for a tax year under section 39 the individual is treated as also giving notice under section 51(4) that section 51(1) (tax reductions for married couples and civil partners: transfer of unused relief) is to apply for the tax year.
Supplementary
41Allowances in year of death
(1)
Any allowance to which an individual is entitled under this Chapter for any tax year, including the tax year in which the individual dies, is given in full.
(2)
If an individual was due to reach the age of 65 in a tax year, but dies in the tax year before reaching that age, the individual is treated for the purposes of section 36 as having reached the age of 65 in the tax year.
(3)
If an individual was due to reach the age of 75 in a tax year, but dies in the tax year before reaching that age, the individual is treated for the purposes of sections 36 and 37 as having reached the age of 75 in the tax year.
Chapter 3Tax reductions for married couples and civil partners
Introduction
42Tax reductions under Chapter
(1)
This Chapter contains provisions about entitlement to tax reductions in a case where a party to a marriage or civil partnership was born before 6 April 1935.
(2)
Individuals are entitled to tax reductions under the following provisions of this Chapter—
(a)
section 45 (marriages before 5 December 2005),
(b)
section 46 (marriages and civil partnerships on or after 5 December 2005),
(c)
section 47 (election by individual to transfer relief under section 45 or 46),
(d)
section 48 (joint election to transfer relief under section 45 or 46),
(e)
section 49 (election for partial transfer back of relief),
(f)
section 51 (transfer of unused relief), and
(g)
section 52 (transfer back of unused relief).
(3)
The tax reductions under sections 45 to 49 are subject to section 54 (tax reductions in the year of marriage or entry into civil partnership).
(4)
A tax reduction under this Chapter is given effect at Step 6 of the calculation in section 23.
43Meaning of “the minimum amount”
In this Chapter “the minimum amount” means £2,350.
44Election for new rules to apply
(1)
In this Chapter “an election for the new rules to apply” means an election made by a husband and wife who got married before 5 December 2005 for the new rules to apply to them instead of the old rules.
(2)
In subsection (1)—
“the new rules” means the rules for relief under section 46 (marriages and civil partnerships on or after 5 December 2005), and
“the old rules” means the rules for relief under section 45 (marriages before 5 December 2005).
(3)
An election for the new rules to apply—
(a)
must be made jointly by the parties to the marriage,
(b)
must be made before the first tax year for which it is to be in force,
(c)
continues in force in each subsequent tax year, and
(d)
cannot be withdrawn.
Married couple’s allowance
45Marriages before 5 December 2005
(1)
If a man—
(a)
makes a claim for a tax year, and
(b)
meets the conditions set out in subsection (2),
he is entitled to a tax reduction for the tax year of 10% of the amount specified in subsection (3)(a) or (b) (as applicable).
(2)
The conditions are that—
(a)
for the whole or part of the tax year he is married and his wife is living with him,
(b)
the marriage took place before 5 December 2005 and no election for the new rules to apply is in force for the tax year,
(c)
he or his wife was born before 6 April 1935, and
(d)
he meets the requirements of section 56 (residence etc).
(3)
The amount is—
(a)
£6,135, if either the man or his wife is aged 75 or over at some time in the tax year, and
(b)
£6,065, in any other case.
(4)
For a man whose adjusted net income for the tax year exceeds £20,100, the amounts specified in subsection (3) are reduced by—
(a)
half the excess, less
(b)
any reduction in his personal allowance under section 36(2) or 37(2).
(5)
But subsection (4) does not reduce the amounts specified in subsection (3) below the minimum amount.
(6)
For the meaning of “adjusted net income” see section 58.
46Marriages and civil partnerships on or after 5 December 2005
(1)
If an individual—
(a)
makes a claim for a tax year, and
(b)
meets the conditions set out in subsection (2),
the individual is entitled to a tax reduction for the tax year of 10% of the amount specified in subsection (3)(a) or (b) (as applicable).
(2)
The conditions are that—
(a)
for the whole or part of the tax year the individual is married or in a civil partnership and is living with the spouse or civil partner,
(b)
the marriage took place, or the civil partnership was formed, on or after 5 December 2005 or, if the marriage took place before that date, an election for the new rules to apply is in force for the tax year,
(c)
the individual, or the spouse or civil partner, was born before 6 April 1935,
(d)
the individual meets the requirements of section 56 (residence etc), and
(e)
the individual’s net income for the tax year exceeds that of the spouse or civil partner or, if they have the same amount of net income for the tax year, the individual is specified in an election as the person to be entitled to relief under this section for the year.
(3)
The amount is—
(a)
£6,135, if either the individual, or the spouse or civil partner, is aged 75 or over at some time in the tax year, and
(b)
£6,065, in any other case.
(4)
For an individual whose adjusted net income for the tax year exceeds £20,100, the amounts specified in subsection (3) are reduced by—
(a)
half the excess, less
(b)
any reduction in the individual’s personal allowance under section 36(2) or 37(2).
(5)
But subsection (4) does not reduce the amounts specified in subsection (3) below the minimum amount.
(6)
An election under subsection (2)(e)—
(a)
is to be made jointly by the parties to the marriage or civil partnership, and
(b)
is to be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year to which the election relates.
(7)
For the meaning of “adjusted net income” see section 58.
Elections to transfer relief
47Election by individual to transfer relief under section 45 or 46
(1)
If—
(a)
an individual’s spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year, and
(b)
the individual meets the conditions set out in subsection (2),
the individual is entitled to a tax reduction for that tax year of 10% of half the minimum amount.
(2)
The conditions are that the individual—
(a)
has made an election which is in force for the tax year,
(b)
makes a claim, and
(c)
meets the requirements of section 56 (residence etc).
(3)
If an individual is entitled to a tax reduction under subsection (1), the tax reduction to which the individual’s spouse or civil partner is entitled under section 45 or 46 is calculated for the tax year as if the appropriate amount were reduced by half the minimum amount.
(4)
In subsection (3) “the appropriate amount” means—
(a)
if the individual’s spouse is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) or (b) (as applicable), after any reductions under section 45(4) and 54(2), or
(b)
if the individual’s spouse or civil partner is entitled to a tax reduction under section 46, the amount specified in section 46(3)(a) or (b) (as applicable), after any reductions under sections 46(4) and 54(2).
48Joint election to transfer relief under section 45 or 46
(1)
If—
(a)
an individual’s spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year, and
(b)
the conditions set out in subsection (2) are met,
the individual is entitled to a tax reduction for that tax year of 10% of the minimum amount.
(2)
The conditions are that—
(a)
the individual and the individual’s spouse or civil partner have made a joint election which is in force for the tax year,
(b)
the individual makes a claim, and
(c)
the individual meets the requirements of section 56 (residence etc).
(3)
If an individual is entitled to a tax reduction under subsection (1), the tax reduction to which the individual’s spouse or civil partner is entitled under section 45 or 46 is calculated for the tax year as if the appropriate amount were reduced by the minimum amount.
(4)
In subsection (3) “the appropriate amount” means—
(a)
if the individual’s spouse is entitled to a tax reduction under section 45, the amount specified in section 45(3)(a) or (b) (as applicable), after any reductions under section 45(4) and 54(2), or
(b)
if the individual’s spouse or civil partner is entitled to a tax reduction under section 46, the amount specified in section 46(3)(a) or (b) (as applicable), after any reductions under sections 46(4) and 54(2).
49Election for partial transfer back of relief
(1)
If an individual whose spouse or civil partner is entitled under section 48(1) to a tax reduction for a tax year—
(a)
has made an election which is in force for the tax year, and
(b)
makes a claim,
the individual is entitled to a tax reduction for that tax year of 10% of half the minimum amount (in addition to any tax reduction to which the individual is entitled under section 45 or 46).
(2)
The amount of the tax reduction to which the individual’s spouse or civil partner is entitled under section 48(1) for that tax year is 10% of half the minimum amount (instead of 10% of the minimum amount).
50Procedure for making and withdrawing elections under sections 47 to 49
(1)
This section applies to elections under sections 47 to 49.
(2)
An election—
(a)
must, except in the cases dealt with by subsection (3), be made before the first tax year in which it is to be in force, and
(b)
continues in force in each subsequent tax year until it is withdrawn.
(3)
An election—
(a)
may be made in the first tax year in which it is to be in force if that is the tax year in which the marriage takes place or the civil partnership is formed, and
(b)
may be made in the first 30 days of the first tax year in which it is to be in force if appropriate notice is given before the tax year.
(4)
In subsection (3), “appropriate notice” means notice given to an officer of Revenue and Customs by the individual or (in the case of a joint election) individuals concerned that it is intended to make the election.
(5)
An election may be withdrawn only by—
(a)
a notice given by the individual or individuals by whom the election was made, or
(b)
a subsequent election under section 47, 48 or 49.
(6)
If an election is withdrawn under subsection (5)(a), the withdrawal does not have effect until the tax year after the one in which the notice is given.
(7)
A notice under subsection (5)(a)—
(a)
must be given to an officer of Revenue and Customs, and
(b)
must be in the form specified by the Commissioners for Her Majesty’s Revenue and Customs.
Transfer of unused relief
51Transfer of unused relief
(1)
If—
(a)
an individual’s spouse or civil partner is entitled to a tax reduction under section 45 or 46 for a tax year,
(b)
the spouse or civil partner’s MCA tax reductions are greater than the spouse or civil partner’s comparable tax liability, and
(c)
the conditions set out in subsection (4) are met,
the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner’s MCA tax reductions.
(2)
The spouse or civil partner’s MCA tax reductions are the sum of—
(a)
the tax reduction to which the spouse or civil partner is entitled under section 45 or 46, and
(b)
any tax reduction under section 49 to which the spouse or civil partner is entitled for the tax year.
(3)
The unused part of the spouse or civil partner’s MCA tax reductions is equal to—
(a)
the spouse or civil partner’s MCA tax reductions, less
(b)
the spouse or civil partner’s comparable tax liability.
(4)
The conditions are that—
(a)
the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year,
(b)
the individual makes a claim, and
(c)
the individual meets the requirements of section 56 (residence etc).
(5)
The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 47 or 48.
(6)
The meaning of “comparable tax liability” is given in section 53.
52Transfer back of unused relief
(1)
If—
(a)
an individual’s spouse or civil partner is entitled to a tax reduction under section 47 or 48 for a tax year,
(b)
the tax reduction is greater than the spouse or civil partner’s comparable tax liability, and
(c)
the conditions set out in subsection (3) are met,
the individual is entitled to a tax reduction for that tax year equal to the unused part of the spouse or civil partner’s tax reduction.
(2)
The unused part of the spouse or civil partner’s tax reduction is equal to—
(a)
the tax reduction to which the spouse or civil partner is entitled, less
(b)
the spouse or civil partner’s comparable tax liability.
(3)
The conditions are that—
(a)
the spouse or civil partner gives notice to an officer of Revenue and Customs that subsection (1) is to apply for the tax year, and
(b)
the individual makes a claim.
(4)
The tax reduction to which the individual is entitled under subsection (1) is in addition to any tax reduction to which the individual is entitled under section 45, 46 or 49.
(5)
The meaning of “comparable tax liability” is given in section 53.
53Transfer of unused relief: general
(1)
For the purposes of sections 51 and 52, the comparable tax liability of an individual is the amount of the individual’s tax left after Step 6 of the calculation in section 23 for the tax year, making that calculation with the modifications set out in subsections (2) and (3).
(2)
In making that calculation, do not deduct any tax reduction under—
(a)
section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b)
section 790(1) of ICTA (relief for foreign tax where there are no double taxation arrangements).
(3)
If the individual’s entitlement to a tax reduction under this Chapter is extinguished under section 423(4) (gift aid: restriction of reliefs) to any extent, deduct from the amount calculated in accordance with subsections (1) and (2) the amount by which the tax reduction is reduced.
(4)
A notice under section 51 or 52—
(a)
must be given on or before the fifth anniversary of the normal self-assessment filing date for the tax year to which it relates,
(b)
must be in the form specified by the Commissioners for Her Majesty’s Revenue and Customs, and
(c)
cannot be withdrawn.
(5)
For the purposes of this section a person is treated as being entitled to a tax reduction under section 788 of ICTA if the person is entitled to credit against income tax under double taxation arrangements.
Supplementary
54Tax reductions in the year of marriage or entry into civil partnership
(1)
Subsection (2) applies if an individual—
(a)
gets married or enters into a civil partnership in a tax year, and
(b)
claims a tax reduction under section 45 or 46 for that tax year.
(2)
In calculating the amount of the tax reduction (if any) to which the individual is entitled under that section, the amounts specified in section 45(3) or 46(3) (as applicable) are reduced by one twelfth for each month of the tax year which is a month ending before the date on which—
(a)
the marriage took place, or
(b)
the civil partnership was formed.
(3)
The reference in subsection (2) to the amounts specified in section 45(3) or 46(3) is to those amounts after any reduction under section 45(4) or 46(4).
(4)
But if—
(a)
the individual has previously been married or in a civil partnership in the same tax year, and
(b)
the conditions in section 45(2) or 46(2) are met in relation to the earlier marriage or civil partnership,
subsection (2) applies only if the claim is in respect of the later marriage or civil partnership.
(5)
If a claim under section 47, 48 or 49 is for the tax year in which the marriage takes place, or the civil partnership is formed, the references in those sections to the minimum amount are to be read as references to the minimum amount reduced by one twelfth for each month of the tax year which is a month ending before the date on which—
(a)
the marriage took place, or
(b)
the civil partnership was formed.
(6)
In this section, “month” means a period beginning with the sixth day of a calendar month and ending with the fifth day of the next calendar month.
55Sections 45 to 53: supplementary
(1)
An individual is not entitled to more than one tax reduction under sections 45 to 48 for a tax year (regardless of whether the individual is a party to more than one marriage or civil partnership in the tax year).
(2)
For the purposes of sections 45 and 46 an individual is treated as having reached the age of 75 in a tax year if the individual was due to reach the age of 75 in the tax year, but dies in the tax year before reaching that age.
(3)
Unless this Chapter provides otherwise, a tax reduction to which an individual is entitled under this Chapter for a tax year, including the tax year in which the individual dies, is given in full.
Chapter 4General
56Residence etc of claimants
(1)
This section applies in relation to an individual who claims—
(a)
an allowance under Chapter 2 (personal allowance and blind person’s allowance) for a tax year, or
(b)
a tax reduction under Chapter 3 (tax reductions for married couples and civil partners) for a tax year.
(2)
The individual meets the requirements of this section if the individual—
(a)
is UK resident for the tax year, or
(b)
meets the condition in subsection (3).
(3)
An individual meets the condition in this subsection if, at any time in the tax year, the individual—
(a)
is resident in the Isle of Man or the Channel Islands,
(b)
has previously resided in the United Kingdom and is resident abroad for the sake of the health of—
(i)
the individual, or
(ii)
a member of the individual’s family who is resident with the individual,
(c)
is a person who is or has been employed in the service of the Crown,
(d)
is employed in the service of any territory under Her Majesty’s protection,
(e)
is employed in the service of a missionary society, or
(f)
is a person whose late spouse or late civil partner was employed in the service of the Crown.
57Indexation of allowances
(1)
This section provides for increases in the amounts specified in—
(a)
section 35 (personal allowance for those aged under 65),
(b)
section 36(1) (personal allowance for those aged 65 to 74),
(c)
section 37(1) (personal allowance for those aged 75 and over),
(d)
section 38(1) (blind person’s allowance),
(e)
section 43 (tax reductions for married couples and civil partners: the minimum amount),
(f)
section 45(3)(a) and (b) (marriages before 5 December 2005),
(g)
section 46(3)(a) and (b) (marriages and civil partnerships on or after 5 December 2005), and
(h)
sections 36(2), 37(2), 45(4) and 46(4) (adjusted net income limit).
(2)
It applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.
(3)
For the tax year—
(a)
the allowances specified in sections 35, 36(1), 37(1), 38(1),
(b)
the amounts specified in sections 45(3)(a) and (b) and 46(3)(a) and (b), and
(c)
the minimum amount specified in section 43,
are found as follows.
Step 1
Multiply the allowance, amount or (as the case may be) the minimum amount for the previous tax year by the same percentage as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £10, it is the increase for the tax year.
If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.
That amount is the increase for the tax year.
Step 3
Add the increase for the tax year to the allowance, amount or (as the case may be) the minimum amount for the previous tax year.
The result is the allowance, amount or (as the case may be) the minimum amount for the tax year.
(4)
For the tax year, the adjusted net income limits specified in sections 36(2), 37(2), 45(4) and 46(4) are found as follows.
Step 1
Increase the adjusted net income limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £100, it is the adjusted net income limit for the tax year.
If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which is a multiple of £100.
That amount is the adjusted net income limit for the tax year.
(5)
Subsections (1) to (4) do not require a change to be made in the amounts deductible or repayable under PAYE regulations during the period beginning on 6 April and ending on 17 May in the tax year.
(6)
Before the start of the tax year the Treasury must make an order replacing the amounts specified in the provisions listed in subsection (1) with the amounts which, as a result of this section, are the allowances, amounts, the minimum amount and the adjusted net income limits for the tax year.
58Meaning of “adjusted net income”
(1)
For the purposes of Chapters 2 and 3, an individual’s adjusted net income for a tax year is calculated as follows.
Step 1
Take the amount of the individual’s net income for the tax year.
Step 2
If in the tax year the individual makes, or is treated under section 426 as making, a gift that is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid) deduct the grossed up amount of the gift.
Step 3
If the individual is given relief in accordance with section 192 of FA 2004 (relief at source) in respect of any contribution paid in the tax year under a pension scheme, deduct the gross amount of the contribution.
Step 4
Add back any relief under section 457 or 458 (payments to trade unions or police organisations) that was deducted in calculating the individual’s net income for the tax year.
The result is the individual’s adjusted net income for the tax year.
(2)
The grossed up amount of a gift is the amount of the gift grossed up by reference to the basic rate for the tax year.
(3)
The gross amount of a contribution is the amount of the contribution before deduction of tax under section 192(1) of FA 2004.
Part 4Loss relief
Chapter 1Introduction
59Overview of Part
(1)
This Part provides for income tax relief for—
(a)
losses in a trade, profession or vocation (and certain post-cessation payments and events) (see Chapters 2 and 3),
(b)
losses in a UK property business or overseas property business (and, in the case of a UK property business, certain post-cessation payments and events) (see Chapter 4),
(c)
losses in an employment or office (see Chapter 5),
(d)
losses on a disposal of certain shares (see Chapter 6), and
(e)
losses in certain miscellaneous transactions (see Chapter 7).
(2)
This Part needs to be read with Chapter 3 of Part 2 (calculation of income tax liability).
(3)
For rules about the calculation of losses for the purposes of this Part, see—
(a)
section 26 of ITTOIA 2005 (losses of a trade, profession or vocation calculated on same basis as profits),
(b)
section 272 of ITTOIA 2005 (which applies section 26 of that Act, so that losses of a UK property business or overseas property business are calculated on the same basis as profits),
(c)
section 11 of ITEPA 2003 (calculation of “net taxable earnings”), and
(d)
section 872 of ITTOIA 2005 (losses from miscellaneous transactions calculated on same basis as miscellaneous income).
Chapter 2Trade losses
Introduction
60Overview of Chapter
(1)
This Chapter—
(a)
provides for trade loss relief against general income (see sections 64 to 70),
(b)
provides for early trade losses relief (see sections 72 to 74),
(c)
contains provision restricting both those reliefs (see sections 75 to 82),
(d)
provides for carry-forward trade loss relief (see sections 83 to 88),
(e)
provides for terminal trade loss relief (see sections 89 to 94),
(f)
contains restrictions on the above reliefs for trades, professions and vocations carried on wholly outside the United Kingdom (see section 95), and
(g)
provides for post-cessation trade relief (see sections 96 to 100).
(2)
This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).
(3)
For a rule treating an individual as starting or permanently ceasing to carry on a trade, profession or vocation for income tax purposes (including those of this Part), see—
(a)
section 17 of ITTOIA 2005 (effect of becoming or ceasing to be a UK resident), and
(b)
section 852(6) and (7) of ITTOIA 2005 (corresponding rule in the case of a trade or profession carried on by a firm).
(4)
For the purposes of this Chapter sideways relief is—
(a)
trade loss relief against general income, or
(b)
early trade losses relief.
(5)
References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).
61Non-partners: losses of a tax year
(1)
This section applies if a trade, profession or vocation is carried on by a person otherwise than as a partner in a firm.
(2)
For the purposes of this Chapter any reference to the person making a loss in the trade, profession or vocation in a tax year is to the person making a loss in the trade, profession or vocation in the basis period for the tax year.
(3)
This section is subject to section 70 (restriction on trade loss relief against general income in case of farming or market gardening).
(4)
For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
(5)
In particular, see the rule in section 206 of ITTOIA 2005 (restriction on bringing losses into account twice).
62Partners: losses of a tax year etc
(1)
This section applies if a trade or profession is carried on by a person as a partner in a firm.
(2)
Any reference to a person making a loss in a trade or profession in a tax year is to the partner making a loss in the partner’s notional trade in the basis period for the tax year (as to which, see sections 852 and 853 of ITTOIA 2005).
(3)
Further—
(a)
any reference to a person making a claim for relief for a loss made in a trade or profession is to the partner making a claim for relief for a loss made in the partner’s notional trade,
(b)
any reference to a basis period for a tax year is to the basis period for the partner’s notional trade for the tax year,
(c)
any reference to the profits or losses of a partner’s notional trade of a tax year is to the partner’s share of the firm’s profits or losses of the trade or profession treated for the purposes of Chapter 15 of Part 2 of ITTOIA 2005 as the profits or losses of the partner’s notional trade in the basis period for the tax year,
(d)
any reference to a person starting to carry on a trade or profession is to the partner starting to carry on the notional trade in accordance with section 852(2) or (3) of ITTOIA 2005, and
(e)
any reference to a person permanently ceasing to carry on a trade or profession is to the partner permanently ceasing to carry on the notional trade in accordance with section 852(4) to (6) of ITTOIA 2005.
(4)
In this section a partner’s “notional trade” has the same meaning as in Part 9 of ITTOIA 2005.
(5)
This section applies for the purposes of this Chapter and Chapter 3, except that it does not apply for the purposes of section 67(2) or sections 68 to 70 (restriction on trade loss relief against general income in case of farming or market gardening).
63Prohibition against double counting
If relief is given under any provision of this Chapter for a loss or part of a loss, relief is not to be given for—
(a)
the same loss, or
(b)
the same part of the loss,
under any other provision of this Chapter or of the Income Tax Acts.
Trade loss relief against general income
64Deduction of losses from general income
(1)
A person may make a claim for trade loss relief against general income if the person—
(a)
carries on a trade in a tax year, and
(b)
makes a loss in the trade in the tax year (“the loss-making year”).
(2)
The claim is for the loss to be deducted in calculating the person’s net income—
(a)
for the loss-making year,
(b)
for the previous tax year, or
(c)
for both tax years.
(See Step 2 of the calculation in section 23.)
(3)
If the claim is made in relation to both tax years, the claim must specify the tax year for which a deduction is to be made first.
(4)
Otherwise the claim must specify either the loss-making year or the previous tax year.
(5)
The claim must be made on or before the first anniversary of the normal self-assessment filing date for the loss-making year.
(6)
Nothing in this section prevents a person who makes a claim specifying a particular tax year in respect of a loss from making a further claim specifying the other tax year in respect of the unused part of the loss.
(7)
This section applies to professions and vocations as it applies to trades.
(8)
This section needs to be read with—
(a)
section 65 (how relief works),
(b)
sections 66 to 70 (restrictions on the relief),
(c)
sections 75 to 79 (restrictions on the relief and early trade losses relief in relation to capital allowances),
(d)
section 80 (restrictions on those reliefs in relation to ring fence income),
(e)
section 81 (restrictions on those reliefs in relation to dealings in commodity futures), and
(f)
section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
65How relief works
(1)
This subsection explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss in calculating the person’s net income for the specified tax year.
Step 2
This step applies only if the claim is made in relation to both tax years.
Deduct the part of the loss not deducted at Step 1 in calculating the person’s net income for the other tax year.
Other claims
If the loss has not been deducted in full at Steps 1 and 2, the person may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).
(2)
There is a priority rule if a person—
(a)
makes a claim for trade loss relief against general income (“the first claim”) in relation to the loss-making year, and
(b)
makes a separate claim in respect of a loss made in the following tax year in relation to the same tax year as the first claim.
(3)
The rule is that priority is given to making deductions under the first claim.
(4)
For this purpose a “separate claim” means—
(a)
a claim for trade loss relief against general income, or
(b)
a claim for employment loss relief against general income under section 128.
Restriction on relief for uncommercial trades
66Restriction on relief unless trade is commercial
(1)
Trade loss relief against general income for a loss made in a trade in a tax year is not available unless the trade is commercial.
(2)
The trade is commercial if it is carried on throughout the basis period for the tax year—
(a)
on a commercial basis, and
(b)
with a view to the realisation of profits of the trade.
(3)
If at any time a trade is carried on so as to afford a reasonable expectation of profit, it is treated as carried on at that time with a view to the realisation of profits.
(4)
If the trade forms part of a larger undertaking, references to profits of the trade are to be read as references to profits of the undertaking as a whole.
(5)
If there is a change in the basis period in the way in which the trade is carried on, the trade is treated as carried on throughout the basis period in the way in which it is carried on by the end of the basis period.
(6)
The restriction imposed by this section does not apply to a loss made in the exercise of functions conferred by or under an Act.
(7)
This section applies to professions and vocations as it applies to trades.
Restriction on relief for “hobby” farming or market gardening
67Restriction on relief in case of farming or market gardening
(1)
This section applies if a loss is made in a trade of farming or market gardening in a tax year (“the current tax year”).
(2)
Trade loss relief against general income is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade in each of the previous 5 tax years (see section 70).
(3)
This section does not prevent relief for the loss from being given if—
(a)
the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking,
(b)
the farming or market gardening activities meet the reasonable expectation of profit test (see section 68), or
(c)
the trade was started, or treated as started, at any time within the 5 tax years before the current tax year (see section 69 below, as well as section 17 of ITTOIA 2005).
68Reasonable expectation of profit
(1)
This section explains how the farming or market gardening activities (“the activities”) meet the reasonable expectation of profit test for the purposes of section 67.
(2)
The test is decided by reference to the expectations of a competent farmer or market gardener (a “competent person”) carrying on the activities.
(3)
The test is met if—
(a)
a competent person carrying on the activities in the current tax year would reasonably expect future profits (see subsection (4)), but
(b)
a competent person carrying on the activities at the beginning of the prior period of loss (see subsection (5)) could not reasonably have expected the activities to become profitable until after the end of the current tax year.
(4)
In determining whether a competent person carrying on the activities in the current tax year would reasonably expect future profits regard must be had to—
(a)
the nature of the whole of the activities, and
(b)
the way in which the whole of the activities were carried on in the current tax year.
(5)
“The prior period of loss” means—
(a)
the 5 tax years before the current tax year, or
(b)
if losses in the trade, calculated without regard to capital allowances, were also made in successive tax years before those 5 tax years (see section 70), the period comprising both the successive tax years and the 5 tax years.
69Whether trade is the same trade
(1)
This section applies for the purposes of sections 67 and 68.
(2)
If there is a change in the persons carrying on a trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on—
(a)
the trade is treated as permanently ceasing to be carried on, and
(b)
a new trade is treated as starting to be carried on,
at the date of the change (but see subsections (3) to (6)).
(3)
A husband and wife are treated as the same person.
(4)
Persons who are civil partners of each other are treated as the same person.
(5)
A husband or wife is treated as the same person as—
(a)
a company of which either one of them has control, or
(b)
a company of which both have control.
(6)
A person’s civil partner is treated as the same person as—
(a)
a company of which either of the civil partners has control, or
(b)
a company of which both have control.
(7)
“Control” has the same meaning as in Part 11 of ICTA (see section 416 of that Act).
70Determining losses in previous tax years
(1)
This section applies for the purposes of sections 67(2) and 68(5) in determining whether a loss, calculated without regard to capital allowances, is made in the trade in any tax year before the current tax year.
(2)
The loss made in a tax year before the current tax year is not taken to be the loss (if any) made in the basis period for the tax year, but is instead the loss made in the tax year itself.
(3)
This loss is determined by reference to—
(a)
the profits or losses of periods of account of the trade (calculated for income tax purposes, but without regard to capital allowances), or
(b)
if (as a result of section 69) a person claiming the relief is treated as the same person as a company within the charge to corporation tax, the profits or losses of the company’s accounting periods (calculated for corporation tax purposes, but without regard to capital allowances),
or by reference to both.
(4)
If—
(a)
a period of account does not coincide with a tax year, or
(b)
an accounting period does not coincide with a tax year,
any of the steps in section 203(2) of ITTOIA 2005 may be taken to arrive at the profits or losses made in a tax year.
For this purpose references in section 203(2) of that Act to basis periods are read as references to tax years and references to periods of account are read as including accounting periods.
(5)
The steps must be taken in accordance with section 203(3) or (4) of ITTOIA 2005.
(6)
A loss in a trade is calculated without regard to capital allowances by ignoring—
(a)
the allowances treated as expenses of the trade under CAA 2001, and
(b)
the charges treated as receipts of the trade under that Act.
Use of trading loss as CGT loss
71Treating trade losses as CGT losses
A person who cannot deduct all of a loss under a claim for trade loss relief against general income may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261B and 261C of TCGA 1992.
Early trade losses relief
72Relief for individuals for losses in first 4 years of trade
(1)
An individual may make a claim for early trade losses relief if the individual makes a loss in a trade—
(a)
in the tax year in which the trade is first carried on by the individual, or
(b)
in any of the next 3 tax years.
(2)
The claim is for the loss to be deducted in calculating the individual’s net income for the 3 tax years before the one in which the loss is made (see Step 2 of the calculation in section 23).
(3)
The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the loss is made.
(4)
This section applies to professions and vocations as it applies to trades.
(5)
This section needs to be read with—
(a)
section 73 (how relief works),
(b)
section 74 (restrictions on the relief),
(c)
sections 75 to 79 (restrictions on the relief and trade loss relief against general income in relation to capital allowances),
(d)
section 80 (restrictions on those reliefs in relation to ring fence income),
(e)
section 81 (restrictions on those reliefs in relation to dealings in commodity futures), and
(f)
section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
73How relief works
This section explains how the deductions are made for the 3 tax years mentioned in section 72(2).
The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss in calculating the individual’s net income for the earliest of the 3 tax years.
Step 2
Deduct any part of the loss not deducted at Step 1 in calculating the individual’s net income for the next tax year.
Step 3
Deduct any part of the loss not deducted at Step 1 or 2 in calculating the individual’s net income for the latest of the 3 tax years.
Other claims
If the loss has not been deducted in full at Steps 1 to 3, the individual may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).
74Restrictions on relief unless trade is commercial etc
(1)
Early trade losses relief for a loss made by an individual in a trade in a tax year is not available unless the trade is commercial.
(2)
The trade is commercial if it is carried on throughout the basis period for the tax year—
(a)
on a commercial basis, and
(b)
in such a way that profits of the trade could reasonably be expected to be made in the basis period or within a reasonable time afterwards.
(3)
If the trade forms part of a larger undertaking, the reference to profits of the trade is to be read as a reference to profits of the undertaking as a whole.
(4)
Early trade losses relief for a loss made by an individual is not available if—
(a)
the individual first carries on the trade at a time when the individual has a spouse or civil partner and is living with the spouse or civil partner,
(b)
the spouse or civil partner previously carried on the trade, and
(c)
the loss is made in a tax year falling after the relevant 4 year period.
(5)
The relevant 4 year period comprises—
(a)
the tax year in which the spouse or civil partner first carried on the trade, and
(b)
the next 3 tax years.
(6)
This section applies to professions and vocations as it applies to trades.
Restrictions on sideways relief for certain capital allowances
75Trade leasing allowances given to individuals
(1)
Sideways relief is not available to an individual for so much of a loss as derives from a trade leasing allowance unless the individual meets the time commitment test.
(2)
A trade leasing allowance is an allowance made under Part 2 of CAA 2001 in respect of—
(a)
expenditure incurred on the provision of plant or machinery for leasing in the course of a trade, or
(b)
expenditure incurred on the provision for the purposes of a trade of an asset which is not to be leased but which is fee-producing.
(3)
An asset is fee-producing if payments in the nature of—
(a)
royalties, or
(b)
licence fees,
are to arise from rights granted by the individual in connection with the asset.
(4)
To meet the time commitment test conditions A and B must be met.
(5)
Condition A is that the individual must carry on the trade for a continuous period of at least 6 months beginning or ending in the basis period for the tax year in which the loss was made (“the loss-making basis period”).
(6)
Condition B is that substantially the whole of the individual’s time must be given to carrying on the trade—
(a)
for a continuous period of at least 6 months beginning or ending in the loss-making basis period (if the individual starts or permanently ceases to carry on the trade in the tax year (or does both)), or
(b)
throughout the loss-making basis period (in any other case).
76First-year allowances: introduction
Sideways relief is not available to an individual for so much of a loss as derives from a first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 applies.
77First-year allowances: partnerships with companies
(1)
This section applies if—
(a)
the first-year allowance is in respect of expenditure incurred at any time on the provision of plant or machinery for leasing in the course of a qualifying activity, and
(b)
either the qualifying activity was at that time carried on by the individual in partnership with a company or arrangements have been made with a view to the activity being so carried on.
(2)
It does not matter—
(a)
if the firm includes other partners, or
(b)
when the arrangements were made.
(3)
For the purposes of this section—
(a)
letting a ship on charter is treated as leasing the ship, and
(b)
references to making arrangements include effecting schemes.
78First-year allowances: arrangements to reduce tax liabilities
(1)
This section applies if—
(a)
the first-year allowance is made in connection with a relevant qualifying activity or a relevant asset (see subsections (2) and (3)), and
(b)
arrangements within subsection (4) have been made.
(2)
A qualifying activity is a relevant one if—
(a)
at the time when the expenditure was incurred, the activity was carried on by the individual as a partner in a firm, or
(b)
at a later time, it has been carried on by the individual as a partner in a firm or transferred to a person connected with the individual.
(3)
An asset is a relevant one if, after the time when the expenditure was incurred, the asset was transferred by the individual—
(a)
to a person connected with the individual, or
(b)
to a person at a price lower than its market value.
(4)
Arrangements are within this subsection if as a result of them—
(a)
the sole benefit, or
(b)
the main benefit,
that might be expected to arise to the individual from the transaction under which the expenditure was incurred is the obtaining of a reduction in tax liability by means of sideways relief.
(5)
It does not matter when the arrangements were made.
(6)
References to making arrangements include effecting schemes.
79Capital allowances restrictions: supplementary
(1)
If relief is given in a case to which section 75 or 76 applies, the relief is withdrawn by the making of an assessment to income tax under this section.
(2)
Expressions which are used—
(a)
in any of sections 75 to 78, and
(b)
in Part 2 of CAA 2001,
have the same meaning in those sections as in that Part.
Restriction on sideways relief for specific trades
80Ring fence income
(1)
This section applies if—
(a)
a person has income arising from oil extraction activities or oil rights (“ring fence income”), and
(b)
the person makes a loss in any trade.
(2)
Sideways relief for the loss is not to be given against the person’s ring fence income except so far as the loss arises from oil extraction activities or oil rights.
(3)
“Oil extraction activities” and “oil rights” have the same meaning as in Chapter 5 of Part 12 of ICTA (see section 502 of that Act).
81Dealings in commodity futures
(1)
This section applies if—
(a)
a person makes a loss in a trade of dealing in commodity futures,
(b)
the person carried on the trade as a partner in a firm,
(c)
the person or one or more of the other partners in the firm was a company, and
(d)
arrangements within subsection (3) have been made.
(2)
Sideways relief is not available for the loss.
(3)
Arrangements are within this subsection if as a result of them—
(a)
the sole benefit, or
(b)
the main benefit,
that might be expected to arise to the person from the person’s interest in the firm is the obtaining of a reduction in tax liability by means of sideways relief.
(4)
It does not matter whether the arrangements were made in the partnership agreement or in any other way.
(5)
References to making arrangements include effecting schemes.
(6)
If relief is given in a case to which this section applies, the relief is withdrawn by the making of an assessment to income tax under this section.
(7)
“Commodity futures” means commodity futures that are for the time being dealt in on a recognised futures exchange (within the meaning of ITTOIA 2005, see section 558(3) of that Act).
82Exploitation of films
In the case of a trade carried on by an individual which consists of or includes the exploitation of films—
(a)
see sections 115 and 116 for a restriction on sideways relief if the trade was carried on by the individual as a partner in a firm, and
(b)
see section 796 for a charge to income tax if the individual made a loss in the trade (whether carried on alone or as a partner in a firm) for which sideways relief is claimed.
Carry-forward trade loss relief
83Carry forward against subsequent trade profits
(1)
A person may make a claim for carry-forward trade loss relief if—
(a)
the person has made a loss in a trade in a tax year, and
(b)
relief for the loss has not been fully given under this Chapter or any other provision of the Income Tax Acts or under section 261B of TCGA 1992 (use of trading loss as a CGT loss).
(2)
The claim is for the part of the loss for which relief has not been given under any such provision (“the unrelieved loss”) to be deducted in calculating the person’s net income for subsequent tax years (see Step 2 of the calculation in section 23).
(3)
But a deduction for that purpose is to be made only from profits of the trade.
(4)
In calculating a person’s net income for a tax year, deductions under this section from the profits of a trade are to be made before deductions of any other reliefs from those profits.
(5)
This section applies to professions and vocations as it applies to trades (and section 84 is to be read accordingly).
(6)
This section needs to be read with—
(a)
section 84 (how relief works),
(b)
section 85 (use of trade-related interest and dividends if trade profits insufficient),
(c)
section 86 (trade transferred to a company),
(d)
section 87 (ring fence trades),
(e)
section 88 (carry forward of certain interest as loss), and
(f)
sections 17(3) and 852(7) of ITTOIA 2005 (effect of becoming or ceasing to be UK resident).
84How relief works
This section explains how the deductions are to be made.
The amount of the unrelieved loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the unrelieved loss from the profits of the trade of the next tax year.
Step 2
Deduct from the profits of the trade of the following tax year the amount of the unrelieved loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to the profits of the trade of subsequent tax years until all the unrelieved loss is deducted.
85Use of trade-related interest and dividends if trade profits insufficient
(1)
This section applies if carry-forward trade loss relief cannot be fully given in relation to the profits of a trade of a tax year because (apart from this section) there are no profits, or insufficient profits, of the trade of the tax year.
(2)
For the purposes of the relief any interest or dividends for the tax year that relate to the trade are treated as profits of the trade of the tax year.
(3)
Interest or dividends for the tax year relate to the trade if they—
(a)
arise in the tax year, and
(b)
would be brought into account in calculating the profits of the trade but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts.
86Trade transferred to a company
(1)
This section applies if—
(a)
a trade is carried on by an individual otherwise than as a partner in a firm or by individuals in partnership,
(b)
the trade is transferred to a company,
(c)
the consideration for the transfer is wholly or mainly the allotment of shares to the individual or individuals, and
(d)
in the case of any individual to whom, or to whose nominee or nominees, shares are so allotted, the individual’s total income for a relevant tax year includes income derived by the individual from the company.
(2)
For the purposes of carry-forward trade loss relief, the income so derived is treated as—
(a)
profits of the trade of the relevant tax year carried on by the individual, or
(b)
if the trade was carried on by the individual in partnership, profits of the individual’s notional trade of the relevant tax year.
(3)
The tax year in which the transfer is made is a relevant one if—
(a)
the individual is the beneficial owner of the shares allotted as mentioned above, and
(b)
the company carries on the trade,
throughout the period beginning with the date of the transfer and ending with the next 5 April.
(4)
Otherwise a tax year is a relevant one if—
(a)
the individual is the beneficial owner of the shares allotted as mentioned above, and
(b)
the company carries on the trade,
throughout the tax year.
(5)
The income derived from the company may be by way of dividends on the shares or otherwise.
(6)
This section applies to businesses which are not trades as it applies to trades.
87Ring fence trades
(1)
This section applies if—
(a)
a person makes a loss in a tax year carrying on oil-related activities (within the meaning of section 16 of ITTOIA 2005),
(b)
those activities are treated under that section as a separate trade for the tax year or a subsequent tax year,
(c)
the person makes profits in a subsequent tax year from other activities, and
(d)
the other activities and the oil-related activities would, but for that section, together form a single trade.
(2)
For the purposes of carry-forward trade loss relief for the loss, the person may treat profits from the other activities in a subsequent tax year as if they were profits of the separate trade (despite section 16 of ITTOIA 2005).
88Carry forward of certain interest as loss
(1)
This section applies if—
(a)
an individual pays interest in a tax year which is eligible for relief under section 383 (as a result of section 388 or 398),
(b)
the interest is an expense incurred wholly and exclusively for the purposes of a trade carried on wholly or partly in the United Kingdom, and
(c)
relief under section 383 cannot be fully given in respect of the interest because there is no income or insufficient income in the tax year.
(2)
For the purposes of carry-forward trade loss relief, the amount for which relief has not been given may be carried forward to subsequent tax years as if it were a loss made in the trade.
(3)
This section applies to professions and vocations as it applies to trades.
Terminal trade loss relief
89Carry back of losses on a permanent cessation of a trade
(1)
A person may make a claim for terminal trade loss relief if the person—
(a)
permanently ceases to carry on a trade in a tax year (“the final tax year”), and
(b)
makes a terminal loss in the trade (see section 90).
(2)
The claim is for the total amount of terminal losses made in the trade by the person (“the relievable loss”) to be deducted in calculating the person’s net income for the final tax year and the 3 previous tax years (see Step 2 of the calculation in section 23).
(3)
But a deduction for that purpose is to be made only from profits of the trade.
(4)
This section applies to professions and vocations as it applies to trades (and sections 90 and 91 are to be read accordingly).
(5)
This section needs to be read with—
(a)
section 91 (how relief works),
(b)
section 92 (use of trade-related interest and dividends if trade profits insufficient),
(c)
section 93 (mineral extraction trade and carry back of balancing allowances), and
(d)
section 94 (carry back of certain interest as loss).
90Losses that are “terminal losses”
(1)
Each of the following is a terminal loss made in the trade—
(a)
the loss (if any) made in the trade in the period beginning with the start of the final tax year and ending with the cessation, and
(b)
the loss (if any) made in the trade in the period consisting of so much of the previous tax year as falls in the 12 months prior to the cessation.
(2)
The profit or loss of a period mentioned in subsection (1)(a) or (b) (a “terminal loss period”) is determined by reference to the profits or losses of periods of account of the trade (calculated for income tax purposes).
(3)
If no period of account coincides with a terminal loss period, any of the following steps may be taken if they are necessary in order to arrive at the profit or loss of the terminal loss period—
(a)
apportioning the profit or loss of a period of account between the part of the period that falls in the terminal loss period and the part that does not, and
(b)
adding the profit or loss of a period of account (or part of a period) to profits or losses of other periods of account (or parts).
(4)
Section 203(3) and (4) of ITTOIA 2005 applies for the purposes of subsection (3) as it applies for the purposes of section 203(2) of that Act.
(5)
If as a result of section 205 of ITTOIA 2005 a deduction is allowed for overlap profit in calculating the profits of the trade of the final tax year, that deduction is to be made in calculating the loss (if any) mentioned in subsection (1)(a) (and is therefore irrelevant for the purposes of subsection (1)(b)).
(6)
In the case of a notional trade carried on by a partner in a firm—
(a)
the periods of account of the notional trade are taken to be the periods of account of the actual trade, and
(b)
the references in subsections (2) and (3) to the profits or losses of periods of account of the trade are to the partner’s share of the profits or losses of the actual trade determined in accordance with sections 849 and 850 of ITTOIA 2005.
91How relief works
This section explains how the deductions are to be made.
The amount of the relievable loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the relievable loss from the profits of the trade of the final tax year.
Step 2
Deduct any part of the relievable loss not deducted at Step 1 from the profits of the trade of the previous tax year.
Step 3
Deduct any part of the relievable loss not deducted at Step 1 or 2 from the profits of the trade of the tax year before the previous one.
Step 4
Deduct any part of the relievable loss not deducted at Step 1, 2 or 3 from the profits of the trade of the tax year before that one.
Other claims
If the relievable loss has not been deducted in full at Steps 1 to 4, the person may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).
92Use of trade-related interest and dividends if trade profits insufficient
(1)
This section applies if terminal trade loss relief cannot be fully given in relation to the profits of a trade of a tax year because (apart from this section) there are no profits, or insufficient profits, of the trade of the tax year.
(2)
For the purposes of the relief any interest or dividends for the tax year that relate to the trade are treated as profits of the trade of the tax year.
(3)
Interest or dividends for the tax year relate to the trade if they—
(a)
arise in the tax year, and
(b)
would be brought into account in calculating the profits of the trade but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts.
93Mineral extraction trade and carry back of balancing allowances
(1)
This section applies if—
(a)
a person permanently ceases to carry on a mineral extraction trade, and
(b)
the person makes a claim for terminal trade loss relief and a claim in respect of a balancing allowance under section 355 of CAA 2001.
(2)
Terminal trade loss relief must be given before relief under section 355 of CAA 2001.
(3)
In giving effect to the terminal trade loss relief, the balancing allowance is to be ignored.
(4)
“Mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394 of that Act).
94Carry back of certain interest as loss
(1)
This section applies if—
(a)
an individual pays interest in a tax year which is eligible for relief under section 383 (as a result of section 388 or 398),
(b)
the interest is an expense incurred wholly and exclusively for the purposes of a trade carried on wholly or partly in the United Kingdom, and
(c)
relief under section 383 cannot be fully given in respect of the interest because there is no income or insufficient income in the tax year.
(2)
For the purposes of terminal trade loss relief, the amount for which relief has not been given may be treated as a loss made in the trade at the date of payment.
(3)
This section applies to professions and vocations as it applies to trades.
Wholly foreign trades
95Foreign trades etc: reliefs only against foreign income
(1)
This section applies if a person—
(a)
carries on a trade, profession or vocation wholly outside the United Kingdom, and
(b)
makes a loss in the trade, profession or vocation.
(2)
In that case—
(a)
sideways relief for the loss is available only against the person’s qualifying foreign income,
(b)
trade income relief for the loss is available only against the person’s qualifying foreign trade income, and
(c)
section 261B of TCGA 1992 (use of trading loss as a CGT loss) does not apply in relation to the loss.
(3)
“Trade income relief” means—
(a)
carry-forward trade loss relief, or
(b)
terminal trade loss relief.
(4)
“Qualifying foreign income” means—
(a)
qualifying foreign trade income, or
(b)
income falling within section 23, 355, 575, 613, 615, 631 or 635 of ITEPA 2003 (foreign employment or pension income).
(5)
“Qualifying foreign trade income” means the profits of any trade, profession or vocation carried on wholly outside the United Kingdom.
(6)
But “qualifying foreign income” and “qualifying foreign trade income” do not include any income which is charged to income tax in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
Post-cessation trade relief
96Post-cessation trade relief
(1)
A person may make a claim for post-cessation trade relief if, after permanently ceasing to carry on a trade—
(a)
the person makes a qualifying payment, or
(b)
a qualifying event occurs in relation to a debt owed to the person,
and the payment is made, or the event occurs, within 7 years of that cessation.
(2)
If the claim is made in respect of a payment, the claim is for the payment to be deducted in calculating the person’s net income for the tax year in which the payment is made (see Step 2 of the calculation in section 23).
(3)
If the claim is made in respect of an event, the claim is for the appropriate amount of the debt to be deducted in calculating the person’s net income for the relevant tax year (see Step 2 of the calculation in section 23).
(4)
The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the deduction is to be made.
(5)
If—
(a)
the person is a company within the charge to income tax under Chapter 2 of Part 2 of ITTOIA 2005 in respect of a trade, and
(b)
the company ceases at any time to be within that tax charge in respect of the trade,
the company is treated for the purposes of this section as permanently ceasing to carry on the trade at that time.
(6)
This section applies to professions and vocations as it applies to trades (and sections 97 and 98 are to be read accordingly).
(7)
This section needs to be read with—
(a)
section 97 (meaning of “qualifying payment”),
(b)
section 98 (meaning of “qualifying event” etc),
(c)
section 99 (reduction of relief for unpaid trade expenses), and
(d)
section 100 (prohibition against double counting).
97Meaning of “qualifying payment”
(1)
For the purposes of section 96 a person makes a “qualifying payment” after permanently ceasing to carry on a trade if the person makes a payment wholly and exclusively for any of purposes A to D.
(2)
A payment is made for purpose A if it is made—
(a)
in remedying defective work done, goods supplied or services provided in the course of the trade, or
(b)
by way of damages (whether awarded or agreed) in respect of defective work done, goods supplied or services provided in the course of the trade.
(3)
A payment is made for purpose B if it is made in meeting the expenses of legal or other professional services in connection with a claim (a “claim about defects”) that—
(a)
work done in the course of the trade was defective,
(b)
goods supplied in the course of the trade were defective, or
(c)
services provided in the course of the trade were defective.
(4)
A payment is made for purpose C if it is made in insuring—
(a)
against liabilities arising out of any claim about defects, or
(b)
against the liability to meet the expenses of legal or other professional services in connection with any claim about defects.
(5)
A payment is made for purpose D if it is made for the purpose of collecting a debt which was brought into account in calculating the profits of the trade.
98Meaning of “qualifying event” etc
(1)
This section explains for the purposes of section 96 what is meant by—
(a)
a “qualifying event” occurring in relation to a debt owed to a person who has permanently ceased to carry on a trade, and
(b)
“the appropriate amount of the debt” to be deducted in calculating a person’s net income for “the relevant tax year”.
(2)
A qualifying event occurs in relation to a debt owed to the person if—
(a)
an unpaid debt was brought into account in calculating the profits of the trade,
(b)
the person is entitled to the benefit of the debt, and
(c)
the debt is released (in whole or in part) as part of a statutory insolvency arrangement (within the meaning of Part 2 of ITTOIA 2005).
The event occurs when the debt is released.
(3)
The appropriate amount of the debt to be deducted is—
(a)
the amount released, or
(b)
if the person was entitled to only part of the benefit of the debt, the corresponding part of the amount released.
(4)
The relevant tax year is the tax year in which the debt is released.
(5)
A qualifying event also occurs in relation to a debt owed to the person if—
(a)
an unpaid debt was brought into account in calculating the profits of the trade,
(b)
the person is entitled to the benefit of the debt, and
(c)
the debt proves to be bad.
The event occurs when the debt proves to be bad.
(6)
The appropriate amount of the debt to be deducted is—
(a)
the amount of the debt, or
(b)
if the person was entitled to only part of the benefit of the debt, the corresponding part of the amount of the debt.
(7)
The relevant tax year is the tax year specified in the claim.
(8)
The person making the claim may specify—
(a)
the tax year in which the debt proves to be bad, or
(b)
a subsequent tax year throughout which the debt remains bad (so long as the tax year begins within 7 years of the cessation),
but, if the person has previously made a claim specifying a tax year in respect of the debt, the person may not specify another tax year in respect of it.
99Reduction of relief for unpaid trade expenses
(1)
This section applies for the purposes of post-cessation trade relief in respect of a person’s trade if a deduction was made in calculating the profits of the trade for an expense not actually paid (an “unpaid expense”).
(2)
The amount of the person’s relief for a tax year is reduced (but not below nil) by—
(a)
the total amount of unpaid expenses at the end of the tax year, or
(b)
if the person carried on the trade as a partner in a firm, the person’s share of the total amount of unpaid expenses at the end of the tax year.
(3)
But any unpaid expense which is taken into account in reducing the amount of the person’s relief for a tax year is left out of account in making reductions for subsequent tax years.
(4)
If the person actually pays an amount in respect of an unpaid expense taken into account in reducing the amount of the person’s relief, the person is treated as making a qualifying payment for the purposes of section 96.
(5)
The amount of the qualifying payment is—
(a)
the amount actually paid, or
(b)
if less, the amount of the reduction.
(6)
This section applies to professions and vocations as it applies to trades.
100Prohibition against double counting
(1)
Post-cessation trade relief is not available for an amount for which relief is given, or is available, under any other provision of the Income Tax Acts.
(2)
For this purpose—
(a)
relief available under section 254 of ITTOIA 2005 (allowable deductions against post-cessation receipts) is treated as given for other amounts before any amount for which post-cessation trade relief is available, and
(b)
relief under that section is treated as available if it would have been available but for the fact that the post-cessation receipts (against which the deductions would have been allowed) are exempt under section 524 of this Act.
101Treating excess post-cessation trade relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation trade relief may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261D and 261E of TCGA 1992.
Chapter 3Restrictions on trade loss relief for certain partners
Introduction
102Overview of Chapter
(1)
This Chapter restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as—
(a)
a limited partner in any tax year (see sections 104 to 106 and section 114),
(b)
a member of a limited liability partnership (an “LLP”) in any tax year (see sections 107 to 109 and section 114), or
(c)
a non-active partner in an early tax year (see sections 110 to 114).
(2)
This Chapter also restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as a partner in a firm if the trade consists of or includes the exploitation of films (see sections 115 and 116).
(3)
This Chapter needs to be read with sections 791 to 795 (income tax charge recovering excess relief for losses made by individuals carrying on a trade in partnership).
(4)
See also—
(a)
sections 796 to 803 (income tax charge in relation to individuals claiming relief for film-related trading losses), and
(b)
sections 804 to 809 (income tax charge in relation to individuals carrying on a trade in partnership claiming relief for licence-related trading losses).
103Meaning of “sideways relief”, “capital gains relief” and “firm”
(1)
For the purposes of this Chapter sideways relief is—
(a)
trade loss relief against general income (see sections 64 to 70), or
(b)
early trade losses relief (see sections 72 to 74).
(2)
For the purposes of this Chapter—
(a)
capital gains relief is, in relation to a loss, the treatment of the loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and
(b)
capital gains relief is given for a loss when it is so treated.
(3)
References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).
Limited partners
104Restriction on reliefs for limited partners
(1)
This section applies if—
(a)
at a time in a tax year (“the relevant tax year”) an individual carries on a trade (“the relevant trade”) as a limited partner in a firm, and
(b)
the individual makes a loss in the relevant trade in the relevant tax year.
(2)
There is a restriction on the amount of relief within subsection (3) which may be given to the individual for the loss.
(3)
The relief within this subsection is—
(a)
sideways relief against the individual’s income apart from profits of the relevant trade, and
(b)
capital gains relief.
(4)
The restriction is that—
(a)
the sum of the amount of the relief given and the total amount of all other relevant relief given, less
(b)
the total amount of recovered relief,
must not exceed the individual’s contribution to the firm as at the end of the basis period for the relevant tax year (see section 105).
(5)
“Relevant relief” means sideways relief or capital gains relief given to the individual for—
(a)
a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a limited partner, or
(b)
a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner (see section 112).
(6)
“The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.
(7)
If the firm is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—
(a)
apply subsection (5) in relation to each other trade as well as the relevant trade and then add the results together, and
(b)
apply subsection (6) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.
105Meaning of “contribution to the firm”
(1)
For the purposes of section 104 the individual’s contribution to the firm is the sum of amounts A and B.
(2)
Amount A is the amount which the individual has contributed to the firm as capital less so much of that amount (if any) as is within subsection (4).
(3)
In particular, the individual’s share of any profits of the firm is to be included in the amount which the individual has contributed to the firm as capital so far as that share has been added to the firm’s capital.
(4)
An amount of capital is within this subsection if it is an amount which—
(a)
the individual has previously drawn out or received back,
(b)
the individual is or may be entitled to draw out or receive back at any time when the individual is carrying on a trade as a limited partner in the firm, or
(c)
the individual is or may be entitled to require another person to reimburse to the individual.
(5)
In subsection (4) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.
(6)
Amount B is the amount of the individual’s total share of profits within subsection (7) except so far as—
(a)
that share has been added to the firm’s capital, or
(b)
the individual has received that share in money or money’s worth.
(7)
Profits are within this subsection if they are from the relevant trade.
(8)
In determining the amount of the individual’s total share of profits within subsection (7) ignore the individual’s share of any losses from the relevant trade which would (apart from this subsection) reduce that amount.
(9)
In subsections (3), (7) and (8) any reference to profits or losses are to profits or losses calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits or losses for income tax purposes).
(10)
If the firm is carrying on, or has carried on, other trades apart from the relevant trade, subsections (7) and (8) have effect as if references to the relevant trade were references to the relevant trade or any of the other trades.
(11)
This section needs to be read with any regulations made under section 114 (specified amounts to be excluded in calculating the individual’s contribution to the firm for the purposes of section 104).
106Meaning of “limited partner”
(1)
In this Chapter “limited partner” means an individual who carries on a trade—
(a)
as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907 (c. 24),
(b)
as a partner in a firm who in substance acts as a limited partner in relation to the trade (see subsection (2)), or
(c)
while the condition mentioned in subsection (3) is met in relation to the individual.
(2)
An individual in substance acts as a limited partner in relation to a trade if the individual—
(a)
is not entitled to take part in the management of the trade, and
(b)
is entitled to have any liabilities (or those beyond a certain limit) for debts or obligations incurred for the purposes of the trade met or reimbursed by some other person.
(3)
The condition referred to in subsection (1)(c) is that—
(a)
the individual carries on the trade jointly with other persons,
(b)
under the law of a territory outside the United Kingdom, the individual is not entitled to take part in the management of the trade, and
(c)
under that law, the individual is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade.
(4)
In the case of an individual who is a limited partner as a result of subsection (1)(c), references in this Chapter to the individual’s firm are to be read as references to the relationship between the individual and the other persons mentioned in subsection (3)(a).
Members of LLPs
107Restriction on reliefs for members of LLPs
(1)
This section applies if—
(a)
an individual carries on a trade (“the relevant trade”) as a member of an LLP at a time in a tax year, and
(b)
the individual makes a loss in the relevant trade in the tax year (“the relevant tax year”).
(2)
But if the relevant tax year is an early tax year during which the individual carries on the relevant trade as a non-active partner (see section 112)—
(a)
this section does not apply, and
(b)
section 110 applies instead.
(3)
There is a restriction on the amount of relief within subsection (4) which may be given to the individual for the loss.
(4)
The relief within this subsection is—
(a)
sideways relief against the individual’s income apart from profits of the relevant trade, and
(b)
capital gains relief.
(5)
The restriction is that—
(a)
the sum of the amount of the relief given and the total amount of all other relevant relief given, less
(b)
the total amount of recovered relief,
must not exceed the individual’s contribution to the LLP as at the end of the basis period for the relevant tax year (see section 108).
(6)
“Relevant relief” means sideways relief or capital gains relief given to the individual for—
(a)
a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a member of an LLP, or
(b)
a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner.
(7)
“The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.
(8)
If the LLP is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—
(a)
apply subsection (6) in relation to each other trade as well as the relevant trade and then add the results together, and
(b)
apply subsection (7) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.
108Meaning of “contribution to the LLP”
(1)
For the purposes of section 107 the individual’s contribution to the LLP at any time (“the relevant time”) is the sum of amounts A and B.
(2)
Amount A is the amount which the individual has contributed to the LLP as capital less so much of that amount (if any) as is within subsection (5).
(3)
In particular, the individual’s share of any profits of the LLP is to be included in the amount which the individual has contributed to the LLP as capital so far as that share has been added to the LLP’s capital.
(4)
In subsection (3) the reference to profits is to profits calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits for income tax purposes).
(5)
An amount of capital is within this subsection if it is an amount which—
(a)
the individual has previously drawn out or received back,
(b)
the individual draws out or receives back during the period of 5 years beginning with the relevant time,
(c)
the individual is or may be entitled to draw out or receive back at any time when the individual is a member of the LLP, or
(d)
the individual is or may be entitled to require another person to reimburse to the individual.
(6)
In subsection (5) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.
(7)
Amount B is the amount of the individual’s liability on a winding up of the LLP so far as that amount is not included in amount A.
(8)
For the purposes of subsection (7) the amount of the individual’s liability on a winding up of the LLP is the amount which—
(a)
the individual is liable to contribute to the assets of the LLP in the event of its being wound up, and
(b)
the individual remains liable to contribute for the period of at least 5 years beginning with the relevant time (or until the LLP is wound up, if that happens before the end of that period).
(9)
This section needs to be read with any regulations made under section 114 (specified amounts to be excluded in calculating the individual’s contribution to the LLP for the purposes of section 107).
109Unrelieved losses brought forward
(1)
This section applies for the purpose of determining an individual’s entitlement to sideways relief and capital gains relief if—
(a)
the individual carries on a trade as a member of an LLP at a time during a tax year (“the current tax year”), and
(b)
as a result of section 107, sideways relief or capital gains relief has not been given to the individual for amounts of loss made in the trade in previous tax years as a member of the LLP.
(2)
So far as they are not excluded by subsection (3), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.
(3)
An amount of loss is excluded so far as—
(a)
as a result of this section, sideways relief or capital gains relief has been given to the individual for the amount for years prior to the current tax year or would have been so given had a claim been made, or
(b)
other than as a result of this section, relief under the Income Tax Acts has been given to the individual for the amount for years prior to the current tax year or for the current tax year.
Non-active members of LLPs or other partnerships (apart from limited partnerships)
110Restriction on reliefs for non-active partners in early tax years
(1)
This section applies if—
(a)
an individual carries on a trade (“the relevant trade”) as a non-active partner in a firm during an early tax year (see section 112), and
(b)
the individual makes a loss in the relevant trade in that tax year (“the relevant tax year”).
(2)
There is a restriction on the amount of relief within subsection (3) which may be given to the individual for the loss.
(3)
The relief within this subsection is—
(a)
sideways relief against the individual’s income apart from profits of the relevant trade, and
(b)
capital gains relief.
(4)
The restriction is that—
(a)
the sum of the amount of the relief given and the total amount of all other relevant relief given, less
(b)
the total amount of recovered relief,
must not exceed the individual’s contribution to the firm as at the end of the basis period for the relevant tax year (see section 111).
(5)
“Relevant relief” means sideways relief or capital gains relief given to the individual for—
(a)
a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a limited partner or as a member of an LLP, or
(b)
a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner.
(6)
“The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.
(7)
If the firm is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—
(a)
apply subsection (5) in relation to each other trade as well as the relevant trade and then add the results together, and
(b)
apply subsection (6) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.
(8)
In this section “trade” does not include a trade which consists of the underwriting business of a member of Lloyd’s (within the meaning of section 184 of FA 1993).
111Meaning of “contribution to the firm”
(1)
For the purposes of section 110 the individual’s contribution to the firm at any time (“the relevant time”) is the sum of amount A and amount B and, if there is a winding up of the firm, amount C.
(2)
Amount A is the amount which the individual has contributed to the firm as capital less so much of that amount (if any) as is within subsection (4).
(3)
In particular, the individual’s share of any profits of the firm is to be included in the amount which the individual has contributed to the firm as capital so far as that share has been added to the firm’s capital.
(4)
An amount of capital is within this subsection if it is an amount which—
(a)
the individual has previously drawn out or received back,
(b)
the individual draws out or receives back during the period of 5 years beginning with the relevant time,
(c)
the individual is or may be entitled to draw out or receive back at any time when the individual is carrying on a trade as a partner in the firm, or
(d)
the individual is or may be entitled to require another person to reimburse to the individual.
(5)
In subsection (4) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.
(6)
Amount B is the amount of the individual’s total share of profits within subsection (7) except so far as—
(a)
that share has been added to the firm’s capital, or
(b)
the individual has received that share in money or money’s worth.
(7)
Profits are within this subsection if they are from the relevant trade.
(8)
In determining the amount of the individual’s total share of profits within subsection (7) ignore the individual’s share of any losses from the relevant trade which would (apart from this subsection) reduce that amount.
(9)
In subsections (3), (7) and (8) any reference to profits or losses are to profits or losses calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits or losses for income tax purposes).
(10)
If the firm is carrying on, or has carried on, other trades apart from the relevant trade, subsections (7) and (8) have effect as if references to the relevant trade were references to the relevant trade or any of the other trades.
Subsection (8) of section 110 applies for the purposes of this subsection as it applies for the purposes of that section.
(11)
Amount C is the amount which the individual has contributed to the assets of the firm on its winding up so far as it is not included in amount A or B.
(12)
This section needs to be read with any regulations made under section 114 (specified amounts to be excluded in calculating the individual’s contribution to the firm for the purposes of section 110).
112Meaning of “non-active partner” and “early tax year” etc
(1)
For the purposes of this Chapter an individual carries on a trade as a non-active partner during a tax year if the individual—
(a)
carries on the trade as a partner in a firm at a time during the year,
(b)
does not carry on the trade as a limited partner at any time during the year, and
(c)
does not devote a significant amount of time to the trade in the relevant period for the year.
(2)
For the purposes of this Chapter an individual devotes a significant amount of time to a trade in the relevant period for a tax year if, in that period, the individual spends an average of at least 10 hours a week personally engaged in activities carried on for the purposes of the trade.
(3)
For this purpose “the relevant period” means the basis period for the tax year (unless the basis period is shorter than 6 months).
(4)
If the basis period for the tax year is shorter than 6 months, “the relevant period” means—
(a)
the period of 6 months beginning with the date on which the individual first started to carry on the trade (if the basis period begins with that date), or
(b)
the period of 6 months ending with the date on which the individual permanently ceased to carry on the trade (if the basis period ends with that date).
(5)
If—
(a)
any relief is given on the assumption that the individual devoted or will devote a significant amount of time to the trade in the relevant period for a tax year, but
(b)
the individual in fact failed or fails to do so,
the relief is withdrawn by the making of an assessment to income tax under this section.
(6)
In this Chapter “early tax year” means, in relation to an individual carrying on a trade—
(a)
the tax year in which the individual first started to carry on the trade, or
(b)
one of the next 3 tax years.
113Unrelieved losses brought forward
(1)
This section applies for the purpose of determining an individual’s entitlement to sideways relief and capital gains relief in relation to a trade if—
(a)
at a time during a tax year (“the current tax year”) the individual carries on the trade as a partner in a firm or makes a contribution to the assets of a firm within subsection (2) on the firm’s winding up, and
(b)
as a result of section 110, sideways relief or capital gains relief has not been given to the individual for amounts of loss made in the trade in previous tax years.
(2)
A firm is within this subsection if the individual has carried on the trade as a partner in the firm.
(3)
So far as they are not excluded by subsection (4), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.
(4)
An amount of loss is excluded so far as—
(a)
as a result of this section, sideways relief or capital gains relief has been given to the individual for the amount for years prior to the current tax year or would have been so given had a claim been made, or
(b)
other than as a result of this section, relief under the Income Tax Acts has been given to the individual for the amount for years prior to the current tax year or for the current tax year.
(5)
For the purpose of applying sections 107 and 110 in relation to the amounts of loss treated by this section as having been made in the current tax year—
(a)
the individual is treated as having carried on the trade during the current tax year as a non-active partner in the firm, and
(b)
the current tax year is treated as if it were an early tax year in relation to the individual’s carrying on of the trade.
(6)
Subsection (7) applies if the individual—
(a)
made a contribution in the current tax year to the assets of the firm on its winding up, but
(b)
did not carry on the trade as a partner in the firm in the current tax year.
(7)
If this subsection applies—
(a)
the restrictions under sections 66 and 74(1) do not apply in relation to the amounts of loss treated by this section as having been made in the current tax year, and
(b)
in the application of this Chapter in relation to those amounts of loss, section 110(4) has effect as if the words “the basis period for” were omitted.
(8)
In subsection (1)(b) the reference to amounts of loss does not include amounts of loss which have been treated by section 109 as having been made in any previous tax year.
Regulations
114Exclusion of amounts in calculating contribution to the firm or LLP
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that any amount of a specified description is to be excluded in calculating—
(a)
the individual’s contribution to the firm for the purposes of section 104 or 110, or
(b)
the individual’s contribution to the LLP for the purposes of section 107.
(2)
“Specified” means specified in the regulations.
(3)
The regulations may—
(a)
make provision having retrospective effect,
(b)
contain incidental, supplemental, consequential and transitional provision and savings, and
(c)
make different provision for different cases or purposes.
(4)
The provision which may be made as a result of subsection (3)(b) includes provision amending or repealing any provision of an Act passed before FA 2005.
(5)
No regulations may be made under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.
Restrictions for film trades carried on in partnership
115Restrictions on reliefs for firms exploiting films
(1)
This section applies if—
(a)
an individual carries on a trade as a partner in a firm at a time during a tax year,
(b)
the trade consists of or includes the exploitation of films,
(c)
the individual makes a loss in the trade in the tax year (“the affected tax year”),
(d)
the individual does not devote a significant amount of time to the trade in the relevant period for the affected tax year (see section 112),
(e)
the affected tax year is the one in which the individual first started to carry on the trade or is one of the next 3 tax years, and
(f)
a relevant agreement existed at a time during the affected tax year which guaranteed the individual an amount of income (see subsections (5) to (9)).
(2)
Sideways relief for the loss is not available to the individual, except against any of the individual’s income which consists of profits of the trade.
(3)
Capital gains relief for the loss is not available to the individual.
(4)
But see section 116 (exclusion from restrictions for certain film expenditure).
(5)
An agreement is relevant if—
(a)
it is an agreement made with a view to the individual’s carrying on the trade,
(b)
it is an agreement made in the course of the individual’s carrying it on, or
(c)
it is related to an agreement falling within paragraph (a) or (b).
(6)
An agreement is relevant whether or not the individual is or may be required under the agreement to contribute an amount to the trade.
(7)
Agreements are related to one another if they are entered into under the same arrangement (regardless of when either agreement is entered into).
(8)
A relevant agreement guarantees the individual an amount of income if it (or any part of it) is designed to secure the receipt by the individual of that amount (or at least that amount) of income.
(9)
It does not matter when the amount of income is (or is to be) received.
(10)
In this section “film” is to be read in accordance with paragraph 1 of Schedule 1 to the Films Act 1985 (c. 21).
116Exclusion from restrictions under section 115: certain film expenditure
(1)
The restrictions under section 115 do not apply to so much of the loss (if any) as derives from unrestricted film expenditure.
(2)
Expenditure is unrestricted film expenditure if—
(a)
it is deducted under a relevant film provision for the purposes of the calculation required by section 849 of ITTOIA 2005 (calculation of firm’s profits or losses), or
(b)
it is incidental expenditure which (although not deducted under a relevant film provision) is incurred in connection with the production of a film, or the acquisition of the original master version of a film, in relation to which expenditure is so deducted.
(3)
Expenditure is incidental if it is on management, administration or obtaining finance.
(4)
The following are determined on a just and reasonable basis—
(a)
the amount of the loss that derives from unrestricted film expenditure, and
(b)
the extent to which expenditure is within subsection (2)(b).
(5)
In this section—
“the acquisition of the original master version of a film” has the same meaning as in Chapter 9 of Part 2 of ITTOIA 2005 (see sections 130 and 132 of that Act),
“film” is to be read in accordance with paragraph 1 of Schedule 1 to the Films Act 1985, and
“a relevant film provision” means any one of sections 137 to 140 of ITTOIA 2005 (relief for certified master versions of films).
Chapter 4Losses from property businesses
Introduction
117Overview of Chapter
(1)
This Chapter—
(a)
provides for losses made in a UK property business or overseas property business in a tax year to be carried forward for deduction from profits in subsequent tax years (see sections 118 and 119),
(b)
provides in limited circumstances for relief against general income for losses made in a UK property business or overseas property business (see sections 120 to 124), and
(c)
provides for relief for certain post-cessation payments and events in connection with a UK property business (see section 125).
(2)
This Chapter also makes provision for a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation to be treated as a trade for the purposes of this Part (see section 127).
Carry-forward property loss relief
118Carry forward against subsequent property business profits
(1)
Relief is given to a person under this section if the person—
(a)
carries on a UK property business or overseas property business (alone or in partnership) in a tax year, and
(b)
makes a loss in the business in the tax year.
(2)
The relief is given by deducting the loss in calculating the person’s net income for subsequent tax years (see Step 2 of the calculation in section 23).
(3)
But a deduction for that purpose is to be made only from profits of the business.
(4)
In calculating a person’s net income for a tax year, deductions under this section from the profits of a business are to be made before deductions of any other reliefs from those profits.
(5)
No relief is to be given under this section so far as relief for the loss is given under section 120.
(6)
This section needs to be read with section 119 (how relief works).
119How relief works
This section explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss from the profits of the business for the next tax year.
Step 2
Deduct from the profits of the business for the following tax year the amount of the loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to the profits of the business for subsequent tax years until all the loss is deducted.
Property loss relief against general income
120Deduction of property losses from general income
(1)
A person may make a claim for property loss relief against general income if—
(a)
in a tax year (“the loss-making year”) the person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), and
(b)
the loss has a capital allowances connection or the business has a relevant agricultural connection.
(2)
The claim is for the applicable amount of the loss to be deducted in calculating the person’s net income—
(a)
for the loss-making year, or
(b)
for the next tax year.
(See Step 2 of the calculation in section 23.)
(3)
The claim must specify the tax year for which the deduction is to be made.
(4)
But if the applicable amount of the loss is not deducted in full in giving effect to a claim for the specified tax year, the person may make a separate claim for property loss relief against general income for the other tax year.
(5)
For this purpose “the other tax year” means the tax year which was not specified in the claim already made, but which could have been specified.
(6)
This section needs to be read with—
(a)
section 121 (how relief works),
(b)
section 122 (meaning of “the applicable amount of the loss”),
(c)
section 123 (meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection”), and
(d)
section 124 (supplementary).
121How relief works
(1)
This subsection explains how the deductions are to be made.
The amount of the applicable amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the applicable amount of the loss in calculating the person’s net income for the specified tax year.
Step 2
This step applies if the applicable amount of the loss has not been deducted in full and the person makes a separate claim for the other tax year.
Deduct the part of the applicable amount of the loss not deducted at Step 1 in calculating the person’s net income for the other tax year.
Other relief
If the applicable amount of the loss has not been deducted in full at Steps 1 and 2, relief is given under section 118 for the part not so deducted.
(2)
There is a priority rule if—
(a)
a person makes a claim for property loss relief against general income (“the prior claim”) in respect of a loss made in a tax year,
(b)
the prior claim specifies the next tax year as the one for which the deduction is to be made (“the relevant tax year”),
(c)
the person makes another claim for property loss relief against general income in respect of a loss made in the relevant tax year, and
(d)
that other claim also specifies the relevant tax year as the one for which the deduction is to be made.
(3)
The rule is that priority is given to making deductions under the prior claim.
122Meaning of “the applicable amount of the loss”
(1)
This section defines “the applicable amount of the loss” for the purposes of sections 120 and 121.
(2)
“The applicable amount of the loss” is—
(a)
the amount of the loss, or
(b)
if less, the amount arising from the relevant connection (see subsections (3) to (5)).
(3)
If—
(a)
the loss has a capital allowances connection, but
(b)
the business does not have a relevant agricultural connection,
the amount arising from the relevant connection is the amount (“the net capital allowances”) by which the capital allowances exceed the charges under CAA 2001.
(4)
If—
(a)
the business has a relevant agricultural connection, but
(b)
the loss does not have a capital allowances connection,
the amount arising from the relevant connection is the amount of the allowable agricultural expenses.
(5)
If—
(a)
the loss has a capital allowances connection, and
(b)
the business has a relevant agricultural connection,
the amount arising from the relevant connection is the sum of the net capital allowances and the amount of the allowable agricultural expenses.
123Meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection”
(1)
This section applies for the purposes of sections 120 and 122.
(2)
The loss has a capital allowances connection if, in calculating the loss—
(a)
the amount of the capital allowances treated as expenses of the business, exceeds
(b)
the amount of any charges under CAA 2001 treated as receipts of the business.
(3)
The business has a relevant agricultural connection if—
(a)
the business is carried on in relation to land that consists of or includes an agricultural estate, and
(b)
allowable agricultural expenses deducted in calculating the loss are attributable to the estate.
(4)
“Agricultural estate” means land—
(a)
which is managed as one estate, and
(b)
which consists of or includes land occupied wholly or mainly for purposes of husbandry.
(5)
“Allowable agricultural expenses”, in relation to an agricultural estate, means any expenses attributable to the estate which are deductible—
(a)
in respect of maintenance, repairs, insurance or management of the estate, and
(b)
otherwise than in respect of interest payable on a loan.
(6)
But expenses attributable to the parts of the estate used wholly for purposes other than those of husbandry are to be ignored.
(7)
And if parts of the estate are used both—
(a)
for purposes of husbandry, and
(b)
for other purposes,
the expenses in respect of those parts are to be reduced so far as those parts are used for the other purposes.
124Supplementary
(1)
A claim for property loss relief against general income must be made on or before the first anniversary of the normal self-assessment filing date for the tax year specified in the claim.
(2)
If a loss has previously been carried forward under section 118, the claim must be accompanied by the amendments of any return made under—
(a)
section 8 of TMA 1970, or
(b)
section 8A of TMA 1970,
that are necessary to give effect to section 118(5) (reducing the amount of the loss carried forward (if necessary, to nil)).
Post-cessation property relief
125Post-cessation property relief
(1)
A person may make a claim for post-cessation property relief if, after permanently ceasing to carry on a UK property business (whether carried on alone or in partnership)—
(a)
the person makes a qualifying payment, or
(b)
a qualifying event occurs in relation to a debt owed to the person,
and the payment is made, or the event occurs, within 7 years of that cessation.
(2)
If the claim is made in respect of a payment, the claim is for the payment to be deducted in calculating the person’s net income for the tax year in which the payment is made (see Step 2 of the calculation in section 23).
(3)
If the claim is made in respect of an event, the claim is for the appropriate amount of the debt to be deducted in calculating the person’s net income for the relevant tax year (see Step 2 of the calculation in section 23).
(4)
The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the deduction is to be made.
(5)
If—
(a)
the person is a company within the charge to income tax under Chapter 3 of Part 3 of ITTOIA 2005 in respect of a UK property business, and
(b)
the company ceases at any time to be within that tax charge in respect of the business,
the company is treated for the purposes of this section as permanently ceasing to carry on the business at that time.
(6)
The following provisions apply for the purposes of post-cessation property relief as they apply for the purposes of post-cessation trade relief (but as if any reference to a trade were to a UK property business)—
(a)
section 97 (meaning of “qualifying payment”),
(b)
section 98 (meaning of “qualifying event” etc),
(c)
section 99 (reduction of relief for unpaid trade expenses), and
(d)
section 100 (prohibition against double counting).
126Treating excess post-cessation property relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation property relief may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261D and 261E of TCGA 1992.
Furnished holiday accommodation
127UK furnished holiday lettings business treated as trade
(1)
This section applies if, in a tax year, a person carries on a UK furnished holiday lettings business.
(2)
“UK furnished holiday lettings business” means a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).
(3)
For the purposes of this Part (but as modified below) the person is treated instead as carrying on in the tax year a single trade—
(a)
which consists of every commercial letting of furnished holiday accommodation comprised in the person’s UK furnished holiday lettings business, and
(b)
the profits of which are chargeable to income tax.
(4)
Chapter 2 applies as if section 75 (trade leasing allowances given to individuals) were omitted.
(5)
Early trade losses relief is not available to an individual for a loss made in a tax year if the individual first let any of the relevant accommodation as furnished accommodation more than 3 years before the beginning of the tax year.
(6)
Accommodation is relevant if the trade that is treated as carried on in the tax year consists of or includes the letting of the accommodation.
(7)
If there is a letting of accommodation only part of which is furnished holiday accommodation, just and reasonable apportionments are to be made for the purpose of determining what is comprised in the trade treated as carried on.
Chapter 5Losses in an employment or office
128Employment loss relief against general income
(1)
A person may make a claim for employment loss relief against general income if the person—
(a)
is in employment or holds an office in a tax year, and
(b)
makes a loss in the employment or office in the tax year (“the loss-making year”).
(2)
The claim is for the loss to be deducted in calculating the person’s net income—
(a)
for the loss-making year,
(b)
for the previous tax year, or
(c)
for both tax years.
(See Step 2 of the calculation in section 23.)
(3)
If the claim is made in relation to both tax years, the claim must specify the year for which a deduction is to be made first.
(4)
Otherwise the claim must specify either the loss-making year or the previous tax year.
(5)
The claim must be made on or before the first anniversary of the normal self-assessment filing date for the loss-making year.
(6)
Nothing in this section prevents a person who makes a claim specifying a particular tax year in respect of a loss from making a further claim specifying the other tax year in respect of the unused part of the loss.
(7)
This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).
(8)
This section needs to be read with section 129 (how relief works).
129How relief works
(1)
This subsection explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss in calculating the person’s net income for the specified tax year.
Step 2
This step applies only if the claim is made in relation to both tax years.
Deduct the part of the loss not deducted at Step 1 in calculating the person’s net income for the other tax year.
(2)
There is a priority rule if a person—
(a)
makes a claim for employment loss relief against general income (“the first claim”) in relation to the loss-making year, and
(b)
makes a separate claim in respect of a loss made in the following tax year in relation to the same tax year as the first claim.
(3)
The rule is that priority is given to making deductions under the first claim.
(4)
For this purpose a “separate claim” means—
(a)
a claim for employment loss relief against general income, or
(b)
a claim for trade loss relief against general income (see sections 64 to 70).
130Treating loss in employment or office as CGT loss
A person who cannot deduct all of a loss in an employment or office under a claim for employment loss relief against general income may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261B and 261C of TCGA 1992.
Chapter 6Losses on disposal of shares
Qualifying trading companies: the requirements
137The trading requirement
(1)
The trading requirement is that—
(a)
the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or
(b)
the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.
(2)
If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
(a)
the company is treated as a parent company for the purposes of subsection (1)(b), and
(b)
the reference in subsection (1)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(3)
For the purpose of subsection (1)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
(4)
For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.
(5)
For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—
(a)
the holding of shares in or securities of a qualifying subsidiary of the parent company,
(b)
the making of loans to another group company,
(c)
the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or
(d)
the holding and managing of property used by a group company for the purpose of research and development from which it is intended—
(i)
that a qualifying trade to be carried on by a group company will be derived, or
(ii)
that a qualifying trade carried on or to be carried on by a group company will benefit.
(6)
Any reference in subsection (5)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.
(7)
In this section—
“excluded activities” has the meaning given by section 192 read with sections 193 to 199,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,
“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,
“mainly trading subsidiary” means a subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
(a)
excluded activities, and
(b)
activities (other than research and development) carried on otherwise than in the course of a trade,
“parent company” means a company that has one or more qualifying subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191,
“qualifying trade” has the meaning given by section 189, and
“research and development” has the meaning given by section 1006.
(8)
In sections 189(1)(b) and 194(4)(c) (as applied by subsection (7) for the purposes of the definitions of “excluded activities” and “qualifying trade”) “period B” means the continuous period that is relevant for the purposes of section 134(3).
138Ceasing to meet trading requirement because of administration or receivership
(1)
A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.
This has effect subject to subsections (2) and (3).
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
(b)
everything done as a result of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(3)
A company ceases to meet the trading requirement if before the time that is relevant for the purposes of section 134(2)—
(a)
a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose), or
(b)
the company or any of its subsidiaries is dissolved without winding up.
This is subject to subsection (4).
(4)
Subsection (3) does not apply if —
(a)
the winding up is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and
(b)
the company continues, during the winding up, to be a trading company.
(5)
References in this section to a company being “in administration” or “in receivership” are to be read in accordance with section 252.
139The control and independence requirement
(1)
The control element of the requirement is that—
(a)
the company must not control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the company, and
(b)
no arrangements must be in existence by virtue of which the company could fail to meet paragraph (a) (whether at a time during the continuous period that is relevant for the purposes of section 134(3) or otherwise).
(2)
The independence element of the requirement is that—
(a)
the company must not—
(i)
be a 51% subsidiary of another company, or
(ii)
be under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company, and
(b)
no arrangements must be in existence by virtue of which the company could fail to meet paragraph (a) (whether at a time during the continuous period that is relevant for the purposes of section 134(3) or otherwise).
(3)
This section is subject to section 145(3).
(4)
In this section—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable,
“control”, in subsection (1)(a), is to be read in accordance with section 416(2) to (6) of ICTA,
“qualifying subsidiary” is to be read in accordance with section 191.
140The qualifying subsidiaries requirement
(1)
The qualifying subsidiaries requirement is that any subsidiary that the company has must be a qualifying subsidiary of the company.
(2)
In this section “qualifying subsidiary” is to be read in accordance with section 191.
141The property managing subsidiaries requirement
(1)
The property managing subsidiaries requirement is that any property managing subsidiary that the company has must be a qualifying 90% subsidiary of the company.
(2)
In this section—
“property managing subsidiary” has the meaning given by section 188(2),
“qualifying 90% subsidiary” has the meaning given by section 190.
142The gross assets requirement
(1)
The gross assets requirement in the case of a single company is that the value of the company’s gross assets—
(a)
must not exceed £7 million immediately before the shares in respect of which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
(2)
The gross assets requirement in the case of a parent company is that the value of the group assets—
(a)
must not exceed £7 million immediately before the shares in respect of which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
(3)
The value of the group assets means the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.
(4)
In this section—
“group” means a parent company and its qualifying subsidiaries,
“parent company” means a company that has one or more qualifying subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191, and
“single company” means a company that does not have one or more qualifying subsidiaries.
143The unquoted status requirement
(1)
The unquoted status requirement is that, at the time (“the relevant time”) at which the shares in respect of which the share loss relief is claimed are issued—
(a)
the company must be an unquoted company,
(b)
there must be no arrangements in existence for the company to cease to be an unquoted company, and
(c)
there must be no arrangements in existence for the company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—
(i)
section 145 applies in relation to the exchange, and
(ii)
arrangements have been made with a view to the new company ceasing to be an unquoted company.
(2)
The arrangements referred to in subsection (1)(b) and (c)(ii) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company or the new company are at any subsequent time—
(a)
listed on a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005, or
(b)
listed on an exchange, or dealt in by any means, designated by an order made for the purposes of section 184(3)(b) or (c),
if the order was made after the relevant time.
(3)
In this section—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable, and
“unquoted company” has the meaning given by section 184(2).
144Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 137 to 143 as they consider appropriate.
Qualifying trading companies: supplementary
145Relief after an exchange of shares for shares in another company
(1)
This section and section 146 apply in relation to shares to which EIS relief is not attributable if—
(a)
a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another company (“the old company”),
(b)
the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description consists wholly of old shares of the corresponding description,
(d)
new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings, and
(e)
by virtue of section 127 of TCGA 1992 as applied by section 135(3) of that Act (company reconstructions etc), the exchange of shares is not to be treated as involving a disposal of the old shares or an acquisition of the new shares.
In this subsection references to shares, except in the expressions “shares to which EIS relief is not attributable” and “subscriber shares”, include securities.
(2)
For the purposes of this Chapter the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares.
(3)
Nothing in—
(a)
section 136(2) (disposals of new shares), and
(b)
section 139 (the control and independence requirement),
applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1) or, in the case of section 139, arrangements with a view to such an exchange.
(4)
For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.
(5)
References in section 146 to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.
146Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by an individual or by a nominee for an individual, the old shares for which they were exchanged were shares—
(a)
to which EIS relief was not attributable, and
(b)
which had been subscribed for by the individual.
(2)
This Chapter has effect in relation to any subsequent disposal or other event as if—
(a)
the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for by the individual,
(b)
the new shares had been issued by the new company at the time when the old shares were issued to the individual by the old company, and
(c)
any requirements of this Chapter which were met at any time before the exchange by the old company had been met at that time by the new company.
Miscellaneous and supplementary
150Deemed time of issue for certain shares
(1)
In this section “the relevant provisions” means—
section 134(5)(a),
section 142(1)(a) and (2)(a),
section 143(1), and
section 146(2)(b).
(2)
If—
(a)
any shares were issued to an individual (“A”) or are treated under subsection (3) or this subsection as having been issued to A at a particular time,
(b)
the shares are transferred by A to another individual (“B”) during their lives, and
(c)
A was B’s spouse or civil partner at the time of the transfer,
the shares are treated for the purposes of the relevant provisions as having been issued to B at the time they were issued to A or are treated as having been so issued.
(3)
If—
(a)
any shares (“the original shares”) have been issued to an individual, or are treated under subsection (2) or this subsection as having been issued to an individual at a particular time, and
(b)
any corresponding bonus shares are subsequently issued to the individual,
the bonus shares are treated for the purposes of the relevant provisions as having been issued at the time the original shares were issued to the individual or are treated as having been so issued.
151Interpretation of Chapter
(1)
In this Chapter (subject to subsections (2) to (8))—
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise),
“civil partner” refers to one of two civil partners who are living together,
“corresponding bonus shares”, in relation to any shares, means bonus shares which—
(a)
are issued in respect of those shares, and
(b)
are in the same company, are of the same class, and carry the same rights, as those shares,
“EIS relief” means—
(a)
EIS income tax relief under Part 5 of this Act, and
(b)
in relation to shares issued after 31 December 1993 and before 6 April 2007, relief under Chapter 3 of Part 7 of ICTA (enterprise investment scheme),
“excluded company” means a company which—
(a)
has a trade which consists wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments,
(b)
has a trade which is not carried on on a commercial basis and in such a way that profits in the trade can reasonably be expected to be realised,
(c)
is a holding company of a group other than a trading group, or
(d)
is a building society or a registered industrial and provident society,
“group” (except in sections 137 and 142) means a company which has one or more 51% subsidiaries together with that or those subsidiaries,
“holding company” means a company whose business consists wholly or mainly in the holding of shares or securities of companies which are its 51% subsidiaries,
“investment company” has the meaning given by section 130 of ICTA except that it does not include the holding company of a trading group,
“qualifying shares” has the meaning given by section 131(2),
“registered industrial and provident society” means a society registered or treated as registered under the Industrial and Provident Societies Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)),
“shares”—
(a)
includes stock, but
(b)
does not include shares or stock not forming part of a company’s ordinary share capital,
“share loss relief” has the meaning given by section 131(1),
“spouse” refers to one of two spouses who are living together,
“trading company” means a company other than an excluded company which is—
(a)
a company whose business consists wholly or mainly of the carrying on of a trade or trades, or
(b)
the holding company of a trading group,
“trading group” means a group the business of whose members, when taken together, consists wholly or mainly in the carrying on of a trade or trades, and
“the year of the loss” has the meaning given by section 131(1).
(2)
For the purposes of the definition of “corresponding bonus shares” in subsection (1), shares are not treated as being of the same class unless they would be so treated if dealt in on the Stock Exchange.
(3)
In section 148(3)(b) and (6) “shares” does not include stock.
(4)
Except as provided by subsection (5), paragraph (b) of that definition does not apply in the definition of “excluded company” in subsection (1) or in sections 145(1) to (4) and 147(3) to (6), (8) and (9).
(5)
Paragraph (b) of that definition applies in relation to the expression “shares to which EIS relief is not attributable” in section 145(1).
(6)
The definition of “shares” in subsection (1) does not apply in sections 137(5)(a), 142(3) and 143(1)(c) and (2).
(7)
For the purposes of the definition of “trading group” in subsection (1), any trade carried on by a subsidiary which is an excluded company is treated as not constituting a trade.
(8)
For the purposes of this Chapter a disposal of shares which results in an allowable loss for capital gains tax purposes is treated as made at the time when the disposal is made or treated as made for the purposes of TCGA 1992.
Chapter 7Losses from miscellaneous transactions
Loss relief against miscellaneous income
152Losses from miscellaneous transactions
(1)
A person may make a claim for loss relief against miscellaneous income if in a tax year (“the loss-making year”) the person makes a loss in any relevant transaction.
(2)
A transaction is a relevant one if, assuming there were profits or other income arising from it—
(a)
those profits or that other income would be section 1016 income, and
(b)
the person would be liable for income tax charged on those profits or that other income.
(3)
The claim is for the loss to be deducted in calculating the person’s net income for the loss-making year and subsequent tax years (see Step 2 of the calculation in section 23).
(4)
But a deduction for that purpose is to be made only from the person’s miscellaneous income.
(5)
A person’s miscellaneous income is so much of the person’s total income as is—
(a)
income or gains arising from transactions, and
(b)
section 1016 income.
This is subject to subsection (6).
(6)
If the loss was made by the person as a partner in a partnership, the transactions covered by subsection (5)(a) are limited to transactions entered into by the partnership.
(7)
In calculating a person’s net income for a tax year, deductions under this section from the person’s miscellaneous income are to be made before deductions of any other reliefs from that miscellaneous income.
(8)
In this section “section 1016 income” means income on which income tax is charged under or by virtue of any provision to which section 1016 applies.
(9)
This section needs to be read with—
(a)
section 153 (how relief works),
(b)
section 154 (transactions in deposit rights), and
(c)
section 155 (claims).
153How relief works
This section explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss from the miscellaneous income for the loss-making year.
Step 2
Deduct from the miscellaneous income for the next tax year the amount of the loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to miscellaneous income for subsequent tax years until all the loss is deducted.
Deposit rights
154Transactions in deposit rights
(1)
This section applies if—
(a)
a person makes a loss from the disposal or exercise of a right to receive an amount,
(b)
the disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4 of ITTOIA 2005 (see subsection (2)), and
(c)
the person’s total income for a tax year includes interest payable on the amount.
(2)
The disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4 of ITTOIA 2005 if, assuming there were a profit or gain from it, the profit or gain would be charged to tax under that Chapter.
(3)
For the purposes of the giving of loss relief against miscellaneous income for the loss mentioned in subsection (1)(a), the interest mentioned in subsection (1)(c) is treated as miscellaneous income for the tax year.
Supplementary
155Time limit for claiming relief
(1)
So far as a claim for loss relief against miscellaneous income concerns the amount of the loss for a tax year, it must be made on or before the fifth anniversary of the normal self-assessment filing date for the tax year.
(2)
But—
(a)
the question whether, and
(b)
if so, how much,
loss relief against miscellaneous income should be given for a tax year may be the subject of a separate claim made on or before the fifth anniversary of the normal self-assessment filing date for the tax year.
Part 5Enterprise investment scheme
Chapter 1Introduction
EIS relief
156Meaning of “EIS relief” and commencement
(1)
This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares.
(2)
In this Part “EIS” stands for the enterprise investment scheme.
(3)
In accordance with section 1034(3), this Part has effect only in relation to shares issued on or after 6 April 2007.
This is subject to Schedule 2 (transitional provisions and savings).
157Eligibility for EIS relief
(1)
An individual (“the investor”) is eligible for EIS relief in respect of an amount subscribed by the investor on the investor’s own behalf for an issue of shares in a company (“the issuing company”) if—
(a)
the shares (“the relevant shares”) are issued to the investor,
(b)
the investor is a qualifying investor in relation to the relevant shares (see Chapter 2),
(c)
the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and
(d)
the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4).
(2)
To be eligible for EIS relief in respect of an amount subscribed for shares issued by the issuing company in a tax year, the investor must have subscribed at least £500 for shares in the issuing company which—
(a)
meet the requirements of section 173(2) (ordinary shares which carry no preferential rights or rights of redemption), and
(b)
are issued in the tax year.
(3)
Subsection (2) is subject to section 251(3) (approved investment funds).
158Form and amount of EIS relief
(1)
If an individual—
(a)
is eligible for EIS relief in respect of any amount subscribed for shares, and
(b)
makes a claim in respect of all or some of the shares included in the issue,
the individual is entitled to a tax reduction for the tax year in which the shares were issued (“the current year”).
This is subject to the provisions of this Part.
(2)
The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the savings rate for the current year on—
(a)
the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims EIS relief, or
(b)
if less, £400,000.
(3)
The tax reduction is given effect at Step 6 of the calculation in section 23.
(4)
Subject to subsection (5), if in the case of any issue of shares—
(a)
which are issued before 6 October in the current year, and
(b)
in respect of the amount subscribed for which the individual is eligible for EIS relief,
the individual so claims, subsections (1) and (2) apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year; and the individual’s liability to tax for both tax years is determined accordingly.
(5)
But—
(a)
no more than half the shares included in an issue may be treated under subsection (4) as issued in the preceding tax year, and
(b)
the total amount subscribed for any shares (included in any issues) treated under subsection (4) as issued in that year is not to exceed £50,000.
Miscellaneous
159Periods A, B and C
(1)
This section applies for the purposes of this Part in relation to any shares issued by a company.
(2)
“Period A” means the period—
(a)
beginning—
(i)
with the incorporation of the company, or
(ii)
if the company was incorporated more than two years before the date on which the shares were issued, two years before that date, and
(b)
ending immediately before the termination date relating to the shares (see section 256).
(3)
“Period B” means the period—
(a)
beginning with the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
(4)
“Period C” means the period—
(a)
beginning 12 months before the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
160Overview of other Chapters of Part
In this Part—
(a)
Chapter 5 provides for the attribution of EIS relief to shares and the making of claims for such relief,
(b)
Chapter 6 provides for EIS relief to be withdrawn or reduced in the circumstances mentioned in that Chapter,
(c)
Chapter 7 makes provision with respect to the procedure for the withdrawal or reduction of EIS relief, and
(d)
Chapter 8 contains supplementary and general provisions.
161Other tax reliefs relating to EIS
(1)
Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the income of an individual who incurs an allowable loss for capital gains tax purposes on a disposal of shares to which EIS relief is attributable.
(2)
Subsection (3) of section 392 (loan to buy interest in close company) provides that subsection (2)(a) of that section does not apply if at any time—
(a)
the individual by whom the shares are acquired, or
(b)
that individual’s spouse or civil partner,
makes a claim for EIS relief in respect of the shares.
(3)
Section 150A of TCGA 1992 makes provision about gains or losses on the disposal of shares to which EIS relief is attributable.
(4)
Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under EIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.
(5)
Schedule 5BA to TCGA 1992 provides for the application of taper relief in cases where EIS relief or relief under Schedule 5B to that Act applies.
Chapter 2The investor
Introduction
162Overview of Chapter
The investor is a qualifying investor in relation to the relevant shares if the requirements of this Chapter are met as to—
(a)
no connection with the issuing company (see section 163),
(b)
no linked loans (see section 164), and
(c)
no tax avoidance (see section 165).
The requirements
163The no connection with the issuing company requirement
(1)
The investor must not be connected with the issuing company (whether before or after its incorporation) at any time during the period—
(a)
beginning two years before the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
(2)
This is subject to section 169(1).
164The no linked loans requirement
(1)
No linked loan is to be made by any person, at any time in period A, to the investor or an associate of the investor.
(2)
In this section “linked loan” means any loan which—
(a)
would not have been made, or
(b)
would not have been made on the same terms,
if the investor had not subscribed for the relevant shares, or had not been proposing to do so.
(3)
References in this section to the making by any person of a loan to the investor or an associate of the investor include references—
(a)
to the giving by that person of any credit to the investor or any associate of the investor, and
(b)
to the assignment to that person of a debt due from the investor or any associate of the investor.
165The no tax avoidance requirement
The relevant shares must be subscribed for by the investor for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Meaning of connection with issuing company
166Connection with issuing company
(1)
For the purposes of this Chapter (except section 168(4)), an individual is connected with the issuing company if the individual or an associate of the individual is connected with that company under—
(a)
section 167 (employees, directors and partners),
(b)
section 170 (persons interested in capital etc of company), or
(c)
section 171 (persons subscribing for shares under certain arrangements).
(2)
See too section 257(2).
167Employees, directors and partners
(1)
An individual is connected with the issuing company if the individual—
(a)
is an employee of—
(i)
the issuing company,
(ii)
any subsidiary of the issuing company, or
(iii)
a partner of the issuing company or any of its subsidiaries,
(b)
is a partner of—
(i)
the issuing company, or
(ii)
any subsidiary of the issuing company, or
(c)
subject to section 168, is a director of—
(i)
the issuing company,
(ii)
any subsidiary of the issuing company, or
(iii)
a company which is a partner of the issuing company or any of its subsidiaries.
(2)
In subsection (1) “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company, whether or not it is such a subsidiary while the individual or associate concerned is such an employee, partner or director as is mentioned in that subsection.
(3)
For the purposes of this section and sections 168 and 169, in the case of an individual (“A”) who is both a director and an employee of a company—
(a)
references (however expressed) to A in A’s capacity as a director of the company include A in A’s capacity as an employee of the company, but
(b)
(apart from that) A is to be treated as a director, and not as an employee, of the company.
168Directors excluded from connection
(1)
An individual is not connected with the issuing company under section 167 merely because the individual, or an associate of the individual, is a director of that or another company unless the individual or associate (or a partnership of which the individual or associate is a member)—
(a)
receives a payment from the issuing company or a related person during the period mentioned in section 163, or
(b)
is entitled to receive such a payment in respect of that period or any part of it.
(2)
For the purposes of subsection (1) the following are ignored—
(a)
any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the individual or an associate of the individual in the performance of the individual’s or associate’s duties as a director,
(b)
any interest which represents no more than a reasonable commercial return on money lent to the issuing company or a related person,
(c)
any dividend or other distribution which does not exceed a normal return on the investment,
(d)
any payment for the supply of goods which does not exceed their market value,
(e)
any payment of rent for any property occupied by the issuing company or a related person which does not exceed a reasonable and commercial rent for the property, and
(f)
any necessary and reasonable remuneration which meets the conditions in subsection (3).
(3)
The conditions are that the remuneration—
(a)
is paid for services rendered to the issuing company or related person in the course of a trade or profession carried on wholly or partly in the United Kingdom (not being secretarial or managerial services or services of a kind provided by the person to whom they are rendered), and
(b)
is taken into account in calculating for tax purposes the profits of that trade or profession.
(4)
In this section—
(a)
“related person”, in relation to the issuing company, means—
(i)
any company of which the individual or an associate of the individual is a director and which is a subsidiary or partner of the issuing company, or a partner of a subsidiary of the issuing company, and
(ii)
any person connected with the issuing company or with a company falling within sub-paragraph (i), and
(b)
any reference to a payment to an individual includes a payment made to the individual indirectly or to the individual’s order or for the individual’s benefit.
(5)
In this section and section 169 “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company.
169Directors qualifying for relief despite connection
(1)
Section 163(1) does not prevent the investor from being a qualifying investor despite the investor’s connection with the issuing company at any time in period A relating to the relevant shares if—
(a)
the investor is connected with that company merely because of the investor, or the investor’s associate—
(i)
being a director of, or of a company which is a partner of, the issuing company or a subsidiary of the issuing company, and
(ii)
being in receipt of, or entitled to receive, remuneration as such, and
(b)
conditions A and B and (where applicable) condition C are met.
(2)
Condition A is that, in relation to the director (“D”), whether D is the investor or an associate of the investor—
(a)
D’s remuneration, or
(b)
the remuneration to which D is entitled,
consists only of remuneration which is reasonable remuneration for services rendered to the company of which D is a director in D’s capacity as such.
(3)
Condition B is that the investor was issued with the relevant shares, or a previous issue of shares in the issuing company which meet the requirements of section 173(2), at a time when the investor had never been—
(a)
connected with the issuing company, or
(b)
involved in carrying on (whether on the investor’s own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the issuing company or a subsidiary of that company.
(4)
Condition C is that, if the issue of the relevant shares did not meet condition B, they were issued before the termination date relating to the latest issue of shares which met that condition.
(5)
For the purposes of condition A any necessary and reasonable remuneration falling within section 168(2)(f) is to be left out of account.
(6)
In this section “remuneration” includes any benefit or facility.
170Persons interested in capital etc of company
(1)
An individual is connected with the issuing company if the individual directly or indirectly possesses or is entitled to acquire more than 30% of—
(a)
the ordinary share capital of the company or any subsidiary of the company,
(b)
the loan capital and issued share capital of the company or any such subsidiary, or
(c)
the voting power in the company or any such subsidiary.
(2)
An individual is connected with the issuing company if the individual directly or indirectly possesses or is entitled to acquire such rights as would—
(a)
in the event of the winding up of the company or any subsidiary of the company, or
(b)
in any other circumstances,
entitle the individual to receive more than 30% of the assets of the company or subsidiary (“the company in question”) which would then be available for distribution to equity holders of the company in question.
(3)
For the purposes of subsection (2)—
(a)
the persons who are equity holders of the company in question, and
(b)
the percentage of the assets of the company in question to which the individual would be entitled,
are determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4)
In making that determination—
(a)
references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and
(b)
references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the company in question are available for distribution to its equity holders.
(5)
An individual is not connected with a company merely because one or more shares in the company are held by the individual or by an associate of the individual, at a time when the company—
(a)
has not issued any shares other than subscriber shares, and
(b)
has not begun to carry on, or make preparations for carrying on, any trade or business.
(6)
An individual is connected with the issuing company if the individual has control of the issuing company or of any subsidiary of that company.
(7)
In this section “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section.
(8)
For the purposes of this section the loan capital of a company is treated as including any debt incurred by the company—
(a)
for any money borrowed or capital assets acquired by the company,
(b)
for any right to receive income created in favour of the company, or
(c)
for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium on it).
(9)
For the purposes of this section—
(a)
an individual is treated as entitled to acquire anything which the individual is entitled to acquire at a future date or will at a future date be entitled to acquire, and
(b)
there is attributed to any individual any rights or powers of any other person who is an associate of the individual.
(10)
In determining for the purposes of this section whether an individual is connected with a company, no debt incurred by—
(a)
the company, or
(b)
any subsidiary of the company,
by overdrawing an account with a person carrying on a business of banking is to be treated as loan capital of the company or subsidiary if the debt arose in the ordinary course of that business.
171Persons subscribing for shares under certain arrangements
(1)
This section applies if an individual (“A”) subscribes for shares in a company (“the company”) with which A is not connected under section 167 or 170.
(2)
If—
(a)
A subscribes for the shares as part of an arrangement, and
(b)
the arrangement provides for another person to subscribe for shares in another company with which (assuming it to be the issuing company) A, or any other individual who is a party to the arrangement, is connected,
A is connected with the company under this section.
Chapter 3General requirements
Introduction
172Overview of Chapter
The general requirements are met in respect of the relevant shares if the requirements of this Chapter are met as to—
(a)
the shares (see section 173),
(b)
the purpose of the issue (see section 174),
(c)
the use of the money raised (see section 175),
(d)
the minimum period (see section 176),
(e)
no pre-arranged exits (see section 177), and
(f)
no tax avoidance (see section 178).
The requirements
173The shares requirement
(1)
The relevant shares must meet—
(a)
the requirements of subsection (2), and
(b)
unless they are bonus shares, the requirements of subsection (3).
(2)
Shares meet the requirements of this subsection if they are ordinary shares which do not, at any time during period B, carry—
(a)
any present or future preferential right to dividends or to a company’s assets on its winding up, or
(b)
any present or future right to be redeemed.
(3)
Shares meet the requirements of this subsection if they—
(a)
are subscribed for wholly in cash, and
(b)
are fully paid up at the time they are issued.
(4)
Shares are not fully paid up for the purposes of subsection (3)(b) if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.
174The purpose of the issue requirement
The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purpose of a qualifying business activity.
175The use of the money raised requirement
(1)
The requirement of this section is that—
(a)
at least 80% of the money raised by the issue of—
(i)
the relevant shares (other than any of them which are bonus shares), and
(ii)
all other shares (if any) in the company of the same class which meet the requirements of section 173(2) and are issued on the same day,
is employed wholly for the purpose of the qualifying business activity for which it was raised not later than the time mentioned in subsection (3), and
(b)
all of the money so raised is employed wholly for that purpose not later than 12 months after that time.
(2)
The requirements in subsection (1)(a) and (b) do not fail to be met merely because an amount of money which is not significant is employed for another purpose.
(3)
The time referred to in subsection (1)(a) is—
(a)
the end of the period of 12 months beginning with the issue of the shares, or
(b)
in the case of money raised only for the purpose of an activity to which section 179(2) applies, the end of the period of 12 months beginning with—
(i)
the issue of the shares, or
(ii)
if later, the time when the company or a qualifying 90% subsidiary of the company begins to carry on the qualifying trade.
(4)
In determining for the purposes of subsection (3)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, any carrying on by it of the trade before it became such a subsidiary is ignored.
176The minimum period requirement
(1)
The issue of shares which includes the relevant shares must meet—
(a)
the requirement of subsection (2) in a case where the money raised by an issue of shares is raised wholly for the purpose of a qualifying business activity falling within section 179(2),
(b)
the requirement of subsection (3) in a case where the money raised by an issue of shares is raised wholly or partly for the purpose of a qualifying business activity falling within section 179(4).
(2)
The requirement is that—
(a)
the trade concerned must have been carried on for a period of at least 4 months ending at or after the time of the issue, and
(b)
throughout that period—
(i)
the trade must have been carried on by the issuing company or a qualifying 90% subsidiary of that company, and
(ii)
the trade must not have been carried on by any other person.
(3)
The requirement is that—
(a)
the research and development concerned must have been carried on for a period of at least 4 months ending at or after the time of the issue, and
(b)
throughout that period—
(i)
the research and development must have been carried on by the issuing company or a qualifying 90% subsidiary of that company, and
(ii)
the research and development must not have been carried on by any other person.
(4)
If—
(a)
merely because of the issuing company or any other company being wound up, or dissolved without winding up—
(i)
the trade is carried on as mentioned in subsection (2), or
(ii)
the research and development is carried on as mentioned in subsection (3),
for a period shorter than 4 months, and
(b)
the winding up or dissolution—
(i)
is for genuine commercial reasons, and
(ii)
is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.
(5)
If—
(a)
merely because of anything done as a result of the issuing company or any other company being in administration or receivership—
(i)
the trade is carried on as mentioned in subsection (2), or
(ii)
the research and development is carried on as mentioned in subsection (3),
for a period shorter than 4 months, and
(b)
the entry into administration or receivership, and everything done as a result of the company concerned being in administration or receivership—
(i)
is for genuine commercial reasons, and
(ii)
is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.
177The no pre-arranged exits requirement
(1)
The issuing arrangements for the relevant shares must not include—
(a)
arrangements with a view to the subsequent repurchase, exchange or other disposal of those shares or of other shares in or securities of the issuing company,
(b)
arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the issuing company or a person connected with that company,
(c)
arrangements for the disposal of, or of a substantial amount (in terms of value) of, the assets of the issuing company or of a person connected with that company, or
(d)
arrangements the main purpose or one of the main purposes of which is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in the issuing company against what would otherwise be the risks attached to making the investment.
(2)
The arrangements referred to in subsection (1)(a) do not include any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 247(1).
(3)
The arrangements referred to in subsection (1)(b) and (c) do not include any arrangements applicable only on the winding up of a company except in a case where—
(a)
the issuing arrangements include arrangements for the company to be wound up, or
(b)
the arrangements are applicable on the winding up of the company otherwise than for genuine commercial reasons.
(4)
The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision—
(a)
for the issuing company itself, or
(b)
if the issuing company is a parent company that meets the trading requirement in section 181(2)(b), for the issuing company itself, for the issuing company itself and one or more of its subsidiaries or for one or more of its subsidiaries,
of any such protection against the risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances.
(5)
In this section “the issuing arrangements” means—
(a)
the arrangements under which the shares are issued to the individual, and
(b)
any arrangements made before the issue of the shares to the individual in relation to or in connection with that issue.
178The no tax avoidance requirement
The relevant shares must be issued for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Meaning of “qualifying business activity”
179Meaning of “qualifying business activity”
(1)
In this Part “qualifying business activity”, in relation to the issuing company, means—
(a)
activity A, or
(b)
activity B,
if it is carried on by the company or a qualifying 90% subsidiary of the company.
This is subject to subsections (3) and (5).
(2)
Activity A is—
(a)
the carrying on of a qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or
(b)
the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade—
(i)
which, on that date, is intended to be carried on wholly or mainly in the United Kingdom by the company or such a subsidiary, and
(ii)
which is begun to be carried on by the company or such a subsidiary within two years after that date.
(3)
But activity A is a qualifying business activity only if, at any time in period B when the qualifying trade is so carried on, the qualifying trade is carried on wholly or mainly in the United Kingdom.
(4)
Activity B is the carrying on of research and development—
(a)
which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or which the company or such a subsidiary begins to carry on immediately afterwards, and
(b)
from which, on that date, it is intended—
(i)
that a qualifying trade which the company or such a subsidiary will carry on wholly or mainly in the United Kingdom will be derived, or
(ii)
that a qualifying trade which the company or such a subsidiary is carrying on, or will carry on, wholly or mainly in the United Kingdom will benefit.
(5)
But activity B is a qualifying business activity only if, at any time in period B when—
(a)
the research and development is carried on, or
(b)
the qualifying trade which is derived, or which benefits or is intended to benefit, from the research and development is carried on,
the research and development or, as the case may be, the qualifying trade is carried on wholly or mainly in the United Kingdom.
(6)
In determining—
(a)
for the purposes of subsection (2)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of the company, or
(b)
for the purposes of subsection (4)(a) when research and development is begun to be carried on by such a subsidiary,
any carrying on of the trade or, as the case may be, the research and development by it before it became such a subsidiary is ignored.
(7)
References in subsection (2)(b)(i) or (4)(b) to a qualifying 90% subsidiary of the company include references to any existing or future company which will be such a subsidiary at any future time.
Chapter 4The issuing company
Introduction
180Overview of Chapter
The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to—
(a)
trading (see section 181),
(b)
the issuing company to carry on the qualifying business activity (see section 183),
(c)
unquoted status (see section 184),
(d)
control and independence (see section 185),
(e)
gross assets (see section 186),
(f)
qualifying subsidiaries (see section 187), and
(g)
property managing subsidiaries (see section 188).
The requirements
181The trading requirement
(1)
The issuing company must meet the trading requirement throughout period B.
(2)
The trading requirement is that—
(a)
the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or
(b)
the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.
(3)
If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
(a)
the company is treated as a parent company for the purposes of subsection (2)(b), and
(b)
the reference in subsection (2)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(4)
For the purpose of subsection (2)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
(5)
For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.
(6)
For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—
(a)
the holding of shares in or securities of a qualifying subsidiary of the parent company,
(b)
the making of loans to another group company,
(c)
the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or
(d)
the holding and managing of property used by a group company for the purpose of research and development from which it is intended—
(i)
that a qualifying trade to be carried on by a group company will be derived, or
(ii)
that a qualifying trade carried on or to be carried on by a group company will benefit.
(7)
Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.
(8)
In this section—
“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly, and
“non-qualifying activities” means—
(a)
excluded activities, and
(b)
activities (other than research and development) carried on otherwise than in the course of a trade.
(9)
This section is supplemented by section 189 (meaning of “qualifying trade”) and sections 192 to 199 (excluded activities).
182Ceasing to meet trading requirement because of administration or receivership
(1)
A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.
This has effect subject to subsections (2) and (3).
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
(b)
everything done as a result of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(3)
A company ceases to meet the trading requirement if before the end of period B—
(a)
a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or
(b)
the company or any of its subsidiaries is dissolved without winding up.
This is subject to subsection (4).
(4)
Subsection (3) does not apply if the winding up or dissolution is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
183The issuing company to carry on the qualifying business activity requirement
(1)
The requirement of this section is met in relation to the issuing company if, at no time in period B, is any of the following—
(a)
the relevant qualifying trade,
(b)
relevant preparation work (if any), and
(c)
relevant research and development (if any),
carried on by a person other than the issuing company or a qualifying 90% subsidiary of that company.
(2)
Subsection (3) has effect for the purpose of determining whether the requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.
(3)
The carrying on of the relevant qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.
(4)
The requirement of this section is not regarded as failing to be met in relation to the issuing company if, merely because of any act or event within subsection (5), the relevant qualifying trade—
(a)
ceases to be carried on in period B by the issuing company or any qualifying 90% subsidiary of that company, and
(b)
is subsequently carried on in that period by a person who is not at any time in period C connected with the issuing company.
(5)
The following are acts and events within this subsection—
(a)
anything done as a consequence of the issuing company or any other company being in administration or receivership, and
(b)
the issuing company or any other company being wound up, or dissolved without being wound up.
(6)
Subsection (4) applies only if—
(a)
the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or
(b)
the winding up or dissolution,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(7)
In this section—
“relevant preparation work” means preparations within section 179(2)(b) which are the subject of the qualifying business activity mentioned in section 174,
“the relevant qualifying trade” means the qualifying trade which is the subject of that qualifying business activity,
“relevant research and development” means—
(a)
research and development within section 179(4) which is the subject of that qualifying business activity, and
(b)
any other preparations for the carrying on of the qualifying trade which is the subject of that activity.
184The unquoted status requirement
(1)
At the beginning of period B—
(a)
the issuing company must be an unquoted company,
(b)
there must be no arrangements in existence for the issuing company to cease to be an unquoted company, and
(c)
there must be no arrangements in existence for the issuing company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—
(i)
section 247 applies in relation to the exchange, and
(ii)
arrangements have been made with a view to the new company ceasing to be an unquoted company.
(2)
In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public.
(3)
For the purposes of subsection (2), shares, stocks, debentures or other securities are marketed to the general public if they are—
(a)
listed on the Stock Exchange or a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005,
(b)
listed on a designated exchange in a country outside the United Kingdom, or
(c)
dealt in outside the United Kingdom by such means as may be designated.
(4)
In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty’s Revenue and Customs for the purposes of that provision.
(5)
An order made for the purposes of subsection (3)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.
(6)
The arrangements referred to in subsection (1)(b) and (c)(ii) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company are at any subsequent time—
(a)
listed on a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005, or
(b)
listed on an exchange, or dealt in by any means, designated by an order made for the purposes of subsection (3)(b) or (c),
if the order was made after the beginning of period B.
185The control and independence requirement
(1)
The control element of the requirement is that—
(a)
the issuing company must not at any time in period B control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the issuing company, and
(b)
no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).
(2)
The independence element of the requirement is that—
(a)
the issuing company must not at any time in period B—
(i)
be a 51% subsidiary of another company, or
(ii)
be under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company, and
(b)
no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).
(3)
This section is subject to section 247(4) (exchange of shares).
186The gross assets requirement
(1)
In the case of relevant shares issued by a single company, the value of the company’s assets—
(a)
must not exceed £7 million immediately before the relevant share issue, and
(b)
must not exceed £8 million immediately afterwards.
(2)
In the case of relevant shares issued by a parent company, the value of the group assets—
(a)
must not exceed £7 million immediately before the relevant share issue, and
(b)
must not exceed £8 million immediately afterwards.
(3)
In this section—
(a)
the relevant share issue is the issue of shares in the company that includes the relevant shares, and
(b)
the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.
187The qualifying subsidiaries requirement
Any subsidiary that the issuing company has at any time in period B must be a qualifying subsidiary of the company.
188The property managing subsidiaries requirement
(1)
Any property managing subsidiary that the issuing company has at any time in period B must be a qualifying 90% subsidiary of the company.
(2)
“Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.
(3)
In subsection (2) references to property deriving its value from land include—
(a)
any shareholding in a company deriving its value directly or indirectly from land,
(b)
any partnership interest deriving its value directly or indirectly from land,
(c)
any interest in settled property deriving its value directly or indirectly from land, and
(d)
any option, consent or embargo affecting the disposition of land.
Definitions
189Meaning of “qualifying trade”
(1)
For the purposes of this Part, a trade is a qualifying trade if—
(a)
it is conducted on a commercial basis and with a view to the realisation of profits, and
(b)
it does not at any time in period B consist wholly or as to a substantial part in the carrying on of excluded activities.
(2)
References in this section and sections 192 to 198 to a trade are to be read without regard to the definition of “trade” in section 989.
190Meaning of “qualifying 90% subsidiary”
(1)
For the purposes of this Part, a company (“the subsidiary”) is a qualifying 90% subsidiary of another company (“the relevant company”) if the following conditions are met—
(a)
the relevant company possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,
(b)
the relevant company would—
(i)
in the event of a winding up of the subsidiary, or
(ii)
in any other circumstances,
be beneficially entitled to receive at least 90% of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary,
(c)
the relevant company is beneficially entitled to receive at least 90% of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary,
(d)
no person other than the relevant company has control of the subsidiary, and
(e)
no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) would cease to be met.
(2)
Subsections (3), (4) and (5) of section 191 (conditions not regarded as ceasing to be met because of winding up, dissolution, administration, receivership or arrangements for disposal not having tax avoidance as main purpose) apply in relation to the conditions in subsection (1)—
(a)
as they apply in relation to the conditions in subsection (2) of that section, but
(b)
with the omission from subsection (5) of “or (as the case may be) by another subsidiary”.
(3)
For the purposes of subsection (1)—
(a)
the persons who are equity holders of the subsidiary, and
(b)
the percentage of the assets of the subsidiary to which an equity holder would be entitled,
are to be determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4)
In making that determination—
(a)
references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and
(b)
references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.
191Meaning of “qualifying subsidiary”
(1)
For the purposes of this Part, a company (“the subsidiary”) is a qualifying subsidiary of another company (“the relevant company”) if the following conditions are met.
(2)
The conditions are that—
(a)
the subsidiary is a 51% subsidiary of the relevant company,
(b)
no person other than the relevant company, or another of its subsidiaries, has control of the subsidiary, and
(c)
no arrangements are in existence by virtue of which either of the conditions in paragraphs (a) and (b) would cease to be met.
(3)
The conditions do not cease to be met merely because the subsidiary or any other company is wound up, or dissolved without winding up, if the winding up or dissolution—
(a)
is for genuine commercial reasons, and
(b)
is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(4)
The conditions do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration or receivership, if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(5)
The conditions do not cease to be met merely because arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of all its interest in the subsidiary, if the disposal—
(a)
is to be for genuine commercial reasons, and
(b)
is not to be part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Excluded activities
192Meaning of “excluded activities”
(1)
The following are excluded activities for the purposes of sections 181 and 189—
(a)
dealing in land, in commodities or futures or in shares, securities or other financial instruments,
(b)
dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution,
(c)
banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities,
(d)
leasing (including letting ships on charter or other assets on hire),
(e)
receiving royalties or licence fees,
(f)
providing legal or accountancy services,
(g)
property development,
(h)
farming or market gardening,
(i)
holding, managing or occupying woodlands, any other forestry activities or timber production,
(j)
operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment,
(k)
operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home, and
(l)
any activities which are excluded activities under section 199 (provision of services or facilities for another business).
(2)
Subsection (1) is supplemented by the following provisions—
(a)
section 193 (wholesale and retail distribution),
(b)
section 194 (leasing of ships),
(c)
section 195 (receipt of royalties and licence fees),
(d)
section 196 (property development),
(e)
section 197 (hotels and comparable establishments), and
(f)
section 198 (nursing homes and residential care homes).
193Excluded activities: wholesale and retail distribution
(1)
This section supplements section 192(1)(b).
(2)
In this section—
(a)
subsections (3) and (4) are for determining whether a trade is a trade of wholesale or retail distribution, and
(b)
subsections (5) and (6) are for determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution.
(3)
A trade of wholesale distribution is one in which goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption.
(4)
A trade of retail distribution is one in which goods are offered or exposed for sale and sold to members of the general public for their use or consumption.
(5)
A trade of wholesale or retail distribution is not an ordinary trade of wholesale or retail distribution if—
(a)
it consists to a substantial extent—
(i)
in dealing in goods of a kind which are collected or held as an investment, or
(ii)
in that activity and any other excluded activity taken together, and
(b)
a substantial proportion of those goods are held for a period which is significantly longer than the period for which the trader would reasonably be expected to hold them while trying to dispose of them at their market value.
(6)
In determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution regard is to be had to the extent to which it has the following features—
(a)
the goods are bought by the trader in quantities larger than those in which the trader sells them,
(b)
the goods are bought and sold by the trader in different markets,
(c)
the trader employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, in addition to any remuneration paid to any person connected with it,
(d)
there are purchases from or sales to persons who are connected with the trader,
(e)
purchases are matched with forward sales or vice versa,
(f)
the goods are held by the trader for longer than is normal for goods of the kind in question,
(g)
the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade,
(h)
the trader does not take physical possession of the goods.
(7)
In subsection (6)—
(a)
the features in paragraphs (a) to (c) are regarded as indications that the trade is an ordinary trade of wholesale or retail distribution, and
(b)
those in paragraphs (d) to (h) are regarded as indications to the contrary.
194Excluded activities: leasing of ships
(1)
This section supplements section 192(1)(d) so far as it relates to the leasing of ships other than offshore installations or pleasure craft.
(2)
In the following provisions “ship” accordingly means a ship other than an offshore installation or a pleasure craft.
(3)
If the requirements of subsection (4) are met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 192(1)(d) as a result only of its consisting in letting ships on charter.
(4)
The requirements of this subsection are that—
(a)
every ship let on charter by the company carrying on the trade is beneficially owned by the company,
(b)
every ship beneficially owned by the company is registered in the United Kingdom,
(c)
throughout period B the company is solely responsible for arranging the marketing of the services of its ships, and
(d)
the conditions mentioned in subsection (5) are met in relation to every letting on charter by the company.
(5)
The conditions referred to in subsection (4)(d) are—
(a)
the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer,
(b)
no provision for the grant of a new letting to end more than 12 months after the provision is made (whether in the charterparty or otherwise) is in force during the period of the letting otherwise than at the option of the charterer,
(c)
the letting is by way of a bargain at arm’s length between the company and a person who is not connected with it,
(d)
under the terms of the charter the company is responsible as principal—
(i)
for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry, and
(ii)
for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period, and
(e)
no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) on behalf of the company.
(6)
If in the case of the company carrying on the trade (“the letting company”) the charterer is also a company and—
(a)
the charterer is a qualifying subsidiary of the letting company, or
(b)
the letting company is a qualifying subsidiary of the charterer, or
(c)
both companies are qualifying subsidiaries of a third company,
subsection (5) has effect with the omission of paragraph (c).
(7)
If any of the requirements of subsection (4) is not met in relation to any lettings of ships, the trade is not, as a result, to be treated as consisting in the carrying on of excluded activities if—
(a)
those lettings, and
(b)
any other excluded activities
do not, taken together, amount to a substantial part of the trade.
(8)
In this section “pleasure craft” means any ship of a kind primarily used for sport or recreation.
195Excluded activities: receipt of royalties and licence fees
(1)
This section supplements section 192(1)(e) (receipt of royalties and licence fees).
(2)
If the requirement of subsection (3) is met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 192(1)(e) as a result only of its consisting to a substantial extent in the receiving of royalties or licence fees.
(3)
The requirement of this subsection is that the royalties or licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.
(4)
For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—
(a)
by the company carrying on the trade, or
(b)
by a company which at all times during which it created the intangible asset was—
(i)
the holding company of the company carrying on the trade, or
(ii)
a qualifying subsidiary of that holding company.
(5)
In the case of an intangible asset that is intellectual property, references to the creation of an asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).
(6)
In this section—
“holding company” means a company that—
(a)
has one or more 51% subsidiaries, but
(b)
is not itself a 51% subsidiary of another company,
“intangible asset” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice,
“intellectual property” means—
(a)
any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right, or
(b)
any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a).
196Excluded activities: property development
(1)
This section supplements section 192(1)(g).
(2)
“Property development” means the development of land—
(a)
by a company which has, or at any time has had, an interest in the land, and
(b)
with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.
(3)
For this purpose “interest in land” means, subject to subsection (4)—
(a)
any estate, interest or right in or over land, including any right affecting the use or disposition of land, or
(b)
any right to obtain such an estate, interest or right from another which is conditional on the other’s ability to grant it.
(4)
References in this section to an interest in land do not include—
(a)
the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or
(b)
in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.
197Excluded activities: hotels and comparable establishments
(1)
This section supplements section 192(1)(j).
(2)
The reference to a comparable establishment is to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (with or without catering services).
(3)
The activities of a person are not to be taken to fall within section 192(1)(j) unless that person has an estate or interest in, or is in occupation of, the hotel or comparable establishment in question.
198Excluded activities: nursing homes and residential care homes
(1)
This section supplements section 192(1)(k).
(2)
“Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care—
(a)
for persons suffering from sickness, injury or infirmity, or
(b)
for women who are pregnant or have given birth.
(3)
“Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—
(a)
old age,
(b)
mental or physical disability,
(c)
past or present dependence on alcohol or drugs,
(d)
any past illnesses, or
(e)
past or present mental disorder.
(4)
The activities of a person are not to be taken to fall within section 192(1)(k) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.
199Excluded activities: provision of services or facilities for another business
(1)
Providing services or facilities for a business carried on by another person (other than a company of which the provider of the services or facilities is a qualifying subsidiary) is an excluded activity if—
(a)
the business consists wholly or as to a substantial part of activities falling within any of paragraphs (a) to (k) of section 192(1), and
(b)
a controlling interest in the business is held by a person who also has a controlling interest in the business carried on by the provider of the services or facilities.
(2)
Subsections (3) to (5) explain what is meant by a controlling interest in a business for the purposes of subsection (1)(b).
(3)
In the case of a business carried on by a company, a person (“A”) has a controlling interest in the business if—
(a)
A controls the company,
(b)
the company is a close company and A or an associate of A is a director of the company and is either—
(i)
the beneficial owner of more than 30% of the ordinary share capital of the company, or
(ii)
able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital, or
(c)
at least half the business could, in accordance with section 344(2) of ICTA (persons to whom company’s trade may be treated as belonging), be regarded as belonging to A for the purposes of section 343 of that Act (company reconstructions without a change of ownership).
(4)
In any other case, a person has a controlling interest in a business if the person is entitled to at least half the assets used for, or of the income arising from, the business.
(5)
For the purposes of this section—
(a)
any rights or powers of a person who is an associate of another are to be attributed to that other person, and
(b)
“business” includes any trade, profession or vocation.
Supplementary
200Power to amend by Treasury order
The Treasury may by order make such amendments of sections 181, 182, 184 to 189 and 192 to 199 as they consider appropriate.
Chapter 5Attribution of and claims for EIS relief
Attribution
201Attribution of EIS relief to shares
(1)
References in this Part, in relation to any individual, to the EIS relief attributable to any shares or issue of shares are to be read as references to any reduction made in the individual’s liability to income tax that is attributed to those shares or that issue in accordance with this section.
This is subject to the provisions of Chapters 6 and 7 providing for the withdrawal or reduction of EIS relief.
(2)
If an individual’s liability to income tax is reduced in any tax year, then—
(a)
if the reduction is obtained because of one issue of shares, the amount of the reduction is attributed to that issue, and
(b)
if the reduction is obtained because of two or more issues of shares, the amount of the reduction—
(i)
is apportioned between those issues in the same proportions as the amounts claimed by the individual in respect of each issue, and
(ii)
is attributed to those issues accordingly.
(3)
If under this section an amount of any reduction of income tax is attributed to an issue of shares (“the original issue”) to an individual, a proportionate part of that amount is attributed to each share in respect of which the claim was made.
(4)
If corresponding bonus shares are issued to the individual in respect of any shares (“the original shares”) to which EIS relief is attributed—
(a)
a proportionate part of the total amount attributed to the original shares immediately before the bonus shares are issued is attributed to each of the shares in the holding comprising the original shares and the bonus shares, and
(b)
after the issue of the bonus shares, this Part applies as if the original issue had included those shares.
(5)
In subsection (4) “corresponding bonus shares” means bonus shares which are in the same company, of the same class, and carry the same rights as the original shares.
(6)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).
(7)
If, at a time when EIS relief is attributable to, or to any part of, any issue of shares, the relief falls to be withdrawn or reduced under Chapters 6 and 7—
(a)
if it falls to be withdrawn, the relief attributable to each of the shares in question is reduced to nil, and
(b)
if it falls to be reduced by any amount, the relief attributable to each of the shares in question is reduced by a proportionate part of that amount.
Claims: general
202Time for making claims for EIS relief
(1)
A claim for EIS relief in respect of shares issued by a company in any tax year may be made—
(a)
not earlier than the time the requirement in section 176(2) or (3) (trade etc must have been carried on for 4 months) is first met, and
(b)
not later than the fifth anniversary of the normal self-assessment filing date for the tax year.
(2)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).
203Entitlement to claim
(1)
The investor is entitled to make a claim for EIS relief in respect of the amount subscribed by the investor for the relevant shares if the investor has received from the issuing company a compliance certificate in respect of those shares.
(2)
For the purposes of PAYE regulations no regard is to be had to EIS relief unless a claim for it has been duly made.
(3)
No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that the investor is eligible for EIS relief unless a claim for the relief has been duly made by the investor.
Claims: supporting documents
204Compliance certificates
(1)
A “compliance certificate” is a certificate which—
(a)
is issued by the issuing company in respect of the relevant shares,
(b)
states that, except so far as they fall to be met by or in relation to the investor, the requirements for EIS relief are for the time being met in relation to those shares, and
(c)
is in such form as the Commissioners for Her Majesty’s Revenue and Customs may direct.
(2)
Before issuing a compliance certificate in respect of the relevant shares, the issuing company must provide an officer of Revenue and Customs with a compliance statement in respect of the issue of shares which includes the relevant shares.
(3)
The issuing company must not issue a compliance certificate without the authority of an officer of Revenue and Customs.
(4)
If the issuing company, or a person connected with the issuing company, has given notice to an officer of Revenue and Customs under section 241 of this Act or paragraph 16(2) or (4) of Schedule 5B to TCGA 1992, a compliance certificate must not be issued unless the authority is given or renewed after the receipt of the notice.
(5)
If an officer of Revenue and Customs—
(a)
has been requested to give or renew an authority to issue a compliance certificate, and
(b)
has decided whether or not to do so,
the officer must give notice of the officer’s decision to the issuing company.
205Compliance statements
(1)
A “compliance statement” is a statement, in respect of an issue of shares, to the effect that, except so far as they fall to be met by or in relation to the individuals to whom shares included in that issue have been issued, the requirements for EIS relief (see section 157)—
(a)
are for the time being met in relation to the shares to which the statement relates, and
(b)
have been so met at all times since the shares were issued.
(2)
In determining for the purposes of subsection (1) whether the requirements for EIS relief are met at any time in relation to the issue of shares, references in this Part to “the relevant shares” are read as references to the shares included in the issue.
(3)
A compliance statement must be in such form as the Commissioners for Her Majesty’s Revenue and Customs direct and must contain—
(a)
such additional information as the Commissioners reasonably require, including in particular information relating to the persons who have requested the issue of compliance certificates,
(b)
a declaration that the statement is correct to the best of the issuing company’s knowledge and belief, and
(c)
such other declarations as the Commissioners may reasonably require.
(4)
The issuing company may not provide an officer of Revenue and Customs with a compliance statement in respect of any shares issued by it in any tax year—
(a)
before the requirement in section 176(2) or (3) (trade etc must have been carried on for 4 months) is met, or
(b)
later than two years after the end of that tax year or, if that requirement is first met after the end of that tax year, later than two years after the requirement is first met.
206Appeal against refusal to authorise compliance certificate
For the purpose of the provisions of TMA 1970 relating to appeals, the refusal of an officer of Revenue and Customs to authorise the issue of a compliance certificate is taken to be a decision disallowing a claim by the issuing company.
207Penalties for fraudulent certificate or statement etc
The issuing company is liable to a penalty not exceeding £3,000 if—
(a)
it issues a compliance certificate, or provides a compliance statement, which is made fraudulently or negligently, or
(b)
it issues a compliance certificate in contravention of section 204(3) or (4).
Chapter 6Withdrawal or reduction of EIS relief
Introduction
208Overview of Chapter
This Chapter provides for EIS relief to be withdrawn or reduced under—
(a)
section 209 (disposal of shares),
(b)
section 211 (call options),
(c)
section 212 (put options),
(d)
section 213 (value received by the investor),
(e)
section 224 (repayments etc of share capital to other persons),
(f)
section 232 (acquisition of a trade or trading assets),
(g)
section 233 (acquisition of share capital), and
(h)
section 234 (relief subsequently found not to have been due).
Disposals
209Disposal of shares
(1)
This section applies if—
(a)
the investor disposes of any of the relevant shares,
(b)
the disposal takes place before period A ends, and
(c)
EIS relief is attributable to the shares.
(2)
If the disposal is not made by way of a bargain made at arm’s length, the EIS relief attributable to the shares must be withdrawn.
(3)
If the disposal is made by way of a bargain made at arm’s length, the EIS relief attributable to the shares must—
(a)
if it is greater than the amount given by the formula set out below, be reduced by that amount, and
(b)
in any other case, be withdrawn.
The formula is—
where—
R is the amount or value of the consideration received by the investor for the shares, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(4)
This section does not apply to a disposal of shares to which an amount of EIS relief is attributable if—
(a)
the disposal was made by an individual (“A”) to another individual (“B”), and
(b)
A and B were married to, or were civil partners of, each other and living together at the time of the disposal.
(5)
Section 246 contains rules for determining which shares of any class are treated as disposed of for the purposes of this section if the investor disposes of some but not all the shares of that class which are held by the investor.
210Cases where maximum EIS relief not obtained
(1)
If the investor’s liability to income tax is reduced for any tax year in respect of any issue of shares and—
(a)
the amount of the reduction (“A”), is less than
(b)
the amount (“B”) which is equal to tax at the savings rate for that year on the amount on which the investor claims EIS relief in respect of the shares,
section 209(3) has effect in relation to a disposal of any of the shares as if the amount or value referred to as “R” were reduced by multiplying it by the fraction—
(2)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, subsection (1) has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).
(3)
If the amount of EIS relief attributable to any of the relevant shares has been reduced before the EIS relief was obtained, the amount referred to in subsection (1) as A is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.
(4)
Subsection (3) does not apply to a reduction of EIS relief by virtue of section 201(4) (attribution of EIS relief if there is a corresponding issue of bonus shares).
211Call options
(1)
This section applies if the investor grants an option which, if exercised, would bind the investor to sell any of the relevant shares.
(2)
The grant of the option is treated for the purposes of section 209 as a disposal of the shares to which the option relates.
(3)
Nothing in this section prejudices section 177 (no pre-arranged exits).
212Put options
(1)
This section applies if, at any time in period A, a person grants the investor an option which, if exercised, would bind the grantor to purchase any of the relevant shares.
(2)
Any EIS relief attributable to the shares to which the option relates must be withdrawn.
(3)
For the purposes of subsection (2) the shares to which an option relates are those which, if—
(a)
the option were exercised immediately after the grant, and
(b)
any shares in the issuing company acquired by the investor after the grant were disposed of immediately after being acquired,
would be treated for the purposes of section 209 as disposed of in pursuance of the option.
Value received by investor
213Value received by the investor
(1)
This section applies if the investor receives any value from the issuing company at any time in period C relating to the relevant shares.
(2)
Any EIS relief attributable to the shares must—
(a)
if it is greater than the amount given by the formula set out below, be reduced by that amount, and
(b)
in any other case, be withdrawn.
The formula is—
where—
R is the amount of the value received by the investor, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(3)
This section is subject to the following sections—
(a)
section 214 (value received: receipts of insignificant value),
(b)
section 218 (value received where there is more than one issue of shares),
(c)
section 219 (value received where part of share issue treated as made in previous tax year),
(d)
section 220 (cases where maximum EIS relief not obtained),
(e)
section 221 (receipts of value by and from connected persons etc), and
(f)
section 222 (receipt of replacement value).
Sections 218 to 220 are to be applied in the order in which they appear in this Part.
(4)
Value received is to be ignored, for the purposes of this section, to the extent to which EIS relief attributable to the shares has already been withdrawn or reduced on its account.
(5)
For the purposes of this section and sections 214 to 223, an individual who acquires any relevant shares on such a transfer as is mentioned in section 245 (spouses or civil partners) is treated as the investor.
214Value received: receipts of insignificant value
(1)
Section 213(2) does not apply if the receipt of value is a receipt of insignificant value.
This is subject to subsection (2).
(2)
If—
(a)
value is received (“the relevant receipt”) by the investor from the issuing company at any time in period C relating to the relevant shares,
(b)
the investor has received from the issuing company one or more receipts of insignificant value at a time or times—
(i)
during that period, but
(ii)
not later than the time of the relevant receipt, and
(c)
the total amount of the value of the receipts within paragraph (a) and (b) is not an amount of insignificant value,
the investor is treated for the purposes of this Chapter as if the relevant receipt had been a receipt of an amount of value equal to that total amount.
(3)
A receipt does not fall within subsection (2)(b) if it has previously formed part of a total amount falling within subsection (2)(c).
215Meaning of “receipts of insignificant value”
(1)
This section applies for the purposes of section 214.
(2)
“A receipt of insignificant value” means a receipt of an amount of insignificant value, that is, an amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the amount subscribed by the investor for the relevant shares.
This is subject to subsection (3).
(3)
If at any time in the period—
(a)
beginning 12 months before the issue of the relevant shares, and
(b)
ending at the end of the issue date,
repayment arrangements are in existence, no amount of value received by the investor is treated as a receipt of insignificant value.
(4)
For this purpose “repayment arrangements” means arrangements which provide for the investor to receive, or to be entitled to receive, any value from the issuing company at any time in period C relating to the relevant shares.
(5)
For the purposes of this section—
(a)
the references to the investor include references to any person who at any time in period C relating to the relevant shares is an associate of the investor (whether or not that person is such an associate at the material time), and
(b)
the reference in subsection (4) to the issuing company includes a reference to a person who at any time in period C relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).
216When value is received
(1)
This section applies for the purposes of sections 213 (value received by the investor) and 218 (value received where there is more than one issue of shares).
(2)
The investor receives value from the issuing company at any time when the issuing company—
(a)
repays, redeems or repurchases any of its share capital or securities which belong to the investor or makes any payment to the investor for giving up the investor’s right to any of the issuing company’s share capital or any security on its cancellation or extinguishment,
(b)
repays, in pursuance of any arrangements for or in connection with the acquisition of the shares in respect of which EIS relief is claimed, any debt owed to the investor other than a debt which was incurred by the company—
(i)
on or after the date of issue of those shares, and
(ii)
otherwise than in consideration of the extinguishment of a debt incurred before that date,
(c)
makes to the investor any payment for giving up on its extinguishment the investor’s right to any debt, other than a debt in respect of a repayment of the kind mentioned in section 168(2)(a) or (f) (ignoring of certain expenses or remuneration) or an ordinary trade debt,
(d)
releases or waives any liability of the investor to the issuing company or discharges or undertakes to discharge any liability of the investor to a third person,
(e)
makes a loan or advance to the investor which has not been repaid in full before the issue of the shares in respect of which EIS relief is claimed,
(f)
provides a benefit or facility for the investor,
(g)
transfers an asset to the investor for no consideration or for consideration less than its market value or acquires an asset from the investor for consideration greater than its market value, or
(h)
makes to the investor any other payment except—
(i)
a payment of a kind mentioned in any of the provisions of section 168(2) (ignoring of certain payments), or
(ii)
a payment in discharge of an ordinary trade debt.
(3)
For the purposes of subsection (2)(d) the issuing company is to be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(4)
For the purposes of subsection (2)(e) the following is to be treated as if it were a loan made by the issuing company to the investor—
(a)
the amount of any debt (other than an ordinary trade debt) incurred by the investor to the issuing company, and
(b)
the amount of any debt due from the investor to a third party which has been assigned to the issuing company.
(5)
The investor also receives value from the issuing company if—
(a)
in respect of ordinary shares held by the investor any payment or asset is received in a winding up or in connection with a dissolution of the company, and
(b)
the winding up or dissolution falls within section 182(4) (no tax avoidance).
(6)
The investor also receives value from the issuing company if any person who would, for the purposes of section 163, be treated as connected with the company—
(a)
purchases any of its share capital or securities which belong to the investor, or
(b)
makes any payment to the investor for giving up any right in relation to any of the company’s share capital or securities.
(7)
If because of the investor’s disposal of shares in a company any EIS relief attributable to those shares is withdrawn or reduced under section 209, the investor is not to be treated as receiving value from the company in respect of the disposal.
(8)
The investor is not to be treated as receiving value from the issuing company merely because of the payment to the investor, or any associate of the investor, of any remuneration for services rendered to that company as a director if the remuneration is reasonable remuneration.
(9)
Section 167(3) (director also an employee) applies for the purposes of subsection (8) as it applies for the purposes of section 167, and the reference in that subsection to the payment of remuneration includes the provision of any benefit or facility.
(10)
In this section “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business if any credit given—
(a)
is for not more than 6 months, and
(b)
is not longer than that normally given to customers of the person carrying on the trade or business.
217The amount of value received
In a case falling within a provision listed in column 1 of the following table, the amount of value received for the purposes of sections 213 and 218 is given by the corresponding entry in column 2 of the table.
Provision |
The amount of value received |
---|---|
Section 216(2)(a), (b) or (c) |
The amount received by the investor or, if greater, the market value of the shares, securities or debt |
Section 216(2)(d) |
The amount of the liability |
Section 216(2)(e) |
The amount of the loan or advance, less the amount of any repayment made before the issue of the relevant shares |
Section 216(2)(f) |
The cost to the issuing company of providing the benefit or facility, less any consideration given for it by the investor |
Section 216(2)(g) |
The difference between the market value of the asset and the consideration (if any) given for it |
Section 216(2)(h) |
The amount of the payment |
Section 216(5) |
The amount of the payment or the market value of the asset |
Section 216(6) |
The amount received by the investor or, if greater, the market value of the shares or securities |
218Value received where there is more than one issue of shares
(1)
This section applies if—
(a)
two or more issues of shares in the issuing company have been made to the investor which include shares in respect of which the investor obtains EIS relief, and
(b)
value is received by the investor at any time in the applicable periods for two or more of those issues.
(2)
Section 213(2) has effect in relation to the shares included in each of the issues referred to in subsection (1)(b) as if the amount of value referred to as “R” were reduced by multiplying it by the fraction—
where—
A is the amount on which the investor obtains EIS relief in respect of the shares included in the issue in question, and
B is the sum of that amount and the corresponding amount or amounts in respect of the other issue or issues.
(3)
For the purposes of subsection (1) “the applicable period” for an issue of shares is period C in relation to those shares.
219Value received where part of share issue treated as made in previous tax year
(1)
This section applies if—
(a)
section 213(2) applies to an issue of shares, and
(b)
section 158(1) and (2) (form and amount of EIS relief) applies in the case of that issue as if part of the issue had been issued in a previous tax year.
(2)
This subsection explains how the calculation under section 213(2) is to be made.
Step 1
Apportion the amount referred to as “R” between the tax year in which the shares were issued and the previous tax year by multiplying that amount by the fraction—
where—
A is the amount on which the investor obtains EIS relief in respect of the shares treated as issued in the tax year in question, and
B is the sum of that amount and the corresponding amount in respect of the shares treated as issued in the other tax year.
Step 2
In relation to each of the amounts (“R1” and “R2”) so apportioned to the two tax years, calculate the amounts (“X1” and “X2”) that would be given by the formula if there were separate issues of shares in those tax years.
In calculating amounts X1 and X2, apply section 220 if appropriate but do not apply section 218.
Step 3
Add amounts X1 and X2 together.
The result is the required amount.
220Cases where maximum EIS relief not obtained
(1)
If the investor’s liability to income tax is reduced for any tax year in respect of any issue of shares and—
(a)
the amount of the reduction (“A”), is less than
(b)
the amount (“B”) which is equal to income tax at the savings rate for that year on the amount on which the investor claims EIS relief in respect of the shares,
section 213(2) has effect in relation to any value received as if the amount referred to as “R” were reduced by multiplying it by the fraction—
(2)
If the amount of EIS relief attributable to any of the relevant shares has been reduced before the EIS relief was obtained, the amount referred to in subsection (1) as “A” is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.
(3)
Subsection (2) does not apply to a reduction of EIS relief by virtue of section 201(4) (attribution of EIS relief where there is a corresponding issue of bonus shares).
221Receipts of value by and from connected persons etc
In sections 213, 214 and 216 to 218—
(a)
any reference to a payment or transfer to the investor includes a reference to a payment or transfer made to the investor indirectly or to the investor’s order or for the investor’s benefit,
(b)
any reference to the investor includes a reference to an associate of the investor, and
(c)
any reference to the issuing company includes a reference to a person who at any time in period A relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).
222Receipt of replacement value
(1)
If—
(a)
any EIS relief attributable to the relevant shares would, in the absence of this section, be reduced or withdrawn under section 213 because of a receipt of value within section 216(2) or (6) (“the original value”),
(b)
the original supplier receives value (“the replacement value”) from the original recipient and the receipt is a qualifying receipt, and
(c)
the amount of the replacement value is at least the amount of the original value,
section 213 does not, because of the receipt of the original value, have effect to reduce or withdraw the EIS relief.
This is subject to section 223(1) and (2).
(2)
For the purposes of this section—
“the original recipient” means the person who receives the original value,
“the original supplier” means the person from whom that value was received.
(3)
If the amount of the original value is, by virtue of section 218, treated as reduced for the purposes of section 213(2) as it applies in relation to the relevant shares in question, the reference in subsection (1)(c) to the amount of the original value is to be read as a reference to the amount of that value ignoring the reduction.
(4)
A receipt of the replacement value is a qualifying receipt for the purposes of subsection (1) if it arises—
(a)
because of the original recipient doing one or more of the following—
(i)
making a payment to the original supplier, other than a payment within paragraph (c) or a payment to which subsection (5) applies,
(ii)
acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset,
(iii)
disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset,
(b)
if the receipt of the original value was within section 216(2)(d), because of an event the effect of which is to reverse the event which constituted the receipt of the original value, or
(c)
if the receipt of the original value was within section 216(6), because of the original recipient repurchasing the share capital or securities in question, or (as the case may be) re-acquiring the right in question, for a consideration the amount or value of which is at least the amount of the original value.
(5)
This subsection applies to—
(a)
any payment for any goods, services or facilities, provided (whether in the course of trade or otherwise) by—
(i)
the original supplier, or
(ii)
any other person who, at any time in period C relating to the relevant shares, is an associate of, or is connected with, that supplier (whether or not the other person is such an associate, or is so connected, at the material time),
which is reasonable in relation to the market value of those goods, services or facilities,
(b)
any payment of any interest which represents no more than a reasonable commercial return on any money lent to—
(i)
the original recipient, or
(ii)
any person who, at any time in period C relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),
(c)
any payment for the acquisition of an asset which does not exceed its market value,
(d)
any payment, as rent for any property occupied by—
(i)
the original recipient, or
(ii)
any person who, at any time in period C relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),
of an amount not exceeding a reasonable and commercial rent for the property,
(e)
any payment in discharge of an ordinary trade debt, and
(f)
any payment for shares in or securities of any company in circumstances that do not fall within subsection (4)(a)(ii).
(6)
For the purposes of this section, the amount of the replacement value is—
(a)
in a case within paragraph (a) of subsection (4), the sum of—
(i)
the amount of any payment within sub-paragraph (i) of that paragraph, and
(ii)
the difference between the market value of any asset to which sub-paragraph (ii) or (iii) of that paragraph applies and the amount or value of the consideration (if any) received for it,
(b)
in a case within subsection (4)(b), the same as the amount of the original value, and
(c)
in a case within subsection (4)(c), the amount or value of the consideration received by the original supplier.
Section 217 applies for the purpose of determining the amount of the original value.
(7)
In this section—
(a)
any reference to a payment to a person (however expressed) includes a reference to a payment made to the person indirectly or to the person’s order or for the person’s benefit, and
(b)
“ordinary trade debt” has the meaning given by section 216(10).
223Section 222: supplementary
(1)
The receipt of the replacement value by the original supplier is ignored for the purposes of section 222(1) to the extent to which it has previously been set (under that section) against a receipt of value to prevent any reduction or withdrawal of EIS relief under section 213.
(2)
The receipt of the replacement value by the original supplier (“the event”) is ignored for the purposes of section 222 if—
(a)
the event occurs before period C relating to the relevant shares,
(b)
if the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances, or
(c)
if an appeal has been brought by the investor against an assessment to withdraw or reduce any EIS relief attributable to the relevant shares because of the receipt of the original value, the event occurs more than 60 days after the day on which the amount of relief which falls to be withdrawn has been finally determined.
But nothing in section 222 or this section requires the replacement value to be received after the original value.
(3)
This subsection applies if—
(a)
the receipt of the replacement value by the original supplier is a qualifying receipt for the purposes of section 222(1), and
(b)
in consequence of the receipt any receipts of value are ignored for the purposes of section 213 as that section applies in relation to the shares in question or any other shares subscribed for by the investor, and
(c)
the event which gives rise to the receipt is (or includes) a subscription for shares by—
(i)
the investor, or
(ii)
any person who at any time in period C relating to the relevant shares is an associate of the investor (whether or not the person is such an associate at the material time).
(4)
If either of the following applies—
(a)
subsection (3), and
(b)
paragraph 13C(3) of Schedule 5B to TCGA 1992 (which makes corresponding provision in relation to relief under that Schedule in respect of re-investment under EIS),
the person who subscribes for the shares is not to be eligible for any EIS relief in relation to those shares or any other shares in the same issue.
(5)
In this section “the original recipient”, “the original supplier” and “replacement value” have the same meaning as in section 222.
Miscellaneous
232Acquisition of a trade or trading assets
(1)
Any EIS relief attributable to any shares in a company held by an individual is withdrawn if—
(a)
at any time in period A, the company or any qualifying subsidiary—
(i)
begins to carry on as its trade, or as part of its trade, a trade which was previously carried on at any time in that period otherwise than by the company or any qualifying subsidiary, or
(ii)
acquires the whole, or the greater part, of the assets used for the purposes of a trade previously so carried on, and
(b)
the individual is a person, or one of a group of persons, to whom subsection (2) or (3) applies.
(2)
This subsection applies to any person or group of persons—
(a)
to whom an interest amounting in total to more than a half share in the trade (as previously carried on) belonged at any time in period A, and
(b)
who is or are a person or group of persons to whom such an interest in the trade carried on by the company belongs or has, at any such time, belonged.
(3)
This subsection applies to any person or group of persons who—
(a)
control or, at any time in period A, have controlled the company, and
(b)
is or are a person or group of persons who, at any such time, controlled another company which previously carried on the trade.
(4)
For the purposes of subsection (2)—
(a)
the person to whom a trade belongs and, if a trade belongs to two or more persons, their respective shares in that trade are determined in accordance with section 344(1)(a) and (b), (2) and (3) of ICTA, and
(b)
any interest, rights or powers of a person who is an associate of another person are treated as those of that other person.
(5)
In determining whether any EIS relief attributable to any shares in the issuing company held by an individual who—
(a)
is a director of, or of a company which is a partner of, the issuing company or any qualifying subsidiary, and
(b)
is in receipt of, or entitled to receive, remuneration as such a director falling within section 169(2) (reasonable remuneration for services),
is to be withdrawn, the reference in subsection (3)(b), and (so far as relating to that provision) the reference in subsection (1)(a)(i), to any time in period A are to be read as references to any time before the end of period A.
(6)
Section 167(3) (director also an employee) applies for the purposes of subsection (5) as it applies for the purposes of section 168, and in subsection (5) “remuneration” includes any benefit or facility.
(7)
In this section “trade” includes any business or profession, and references to a trade previously carried on include references to part of such a trade.
233Acquisition of share capital
(1)
Any EIS relief attributable to any shares in a company held by an individual is withdrawn if —
(a)
the company comes to acquire all of the issued share capital of another company at any time in period A, and
(b)
the individual is a person, or one of a group of persons, to whom subsection (2) applies.
(2)
This subsection applies to any person or group of persons who—
(a)
control or have, at any time in period A, controlled the company, and
(b)
is or are a person or group of persons who, at any such time, controlled the other company.
(3)
In determining whether any EIS relief attributable to any shares in the issuing company held by an individual who—
(a)
is a director of, or of a company which is a partner of, the issuing company or any qualifying subsidiary, and
(b)
is in receipt of, or entitled to receive, remuneration as such a director falling within section 169(2),
is to be withdrawn, the reference in subsection (2)(b) to any time in period A is to be read as a reference to any time before the end of period A.
(4)
Section 167(3) applies for the purposes of subsection (3) as it applies for the purposes of section 168, and in subsection (3) “remuneration” includes any benefit or facility.
234Relief subsequently found not to have been due
(1)
Any EIS relief obtained by the investor which is subsequently found not to have been due must be withdrawn.
(2)
EIS relief obtained by the investor in respect of the relevant shares may not be withdrawn on the ground—
(a)
that the requirements of sections 174 and 175 (the purpose of the issue and use of money raised requirements) are not met in respect of the shares, or
(b)
that the issuing company is not a qualifying company in relation to the shares (see Chapter 4),
unless the requirements of subsection (3) are met.
(3)
The requirements of this subsection are met if either—
(a)
the issuing company has given notice under section 241, or paragraph 16(2) or (4) of Schedule 5B to TCGA 1992, (information to be provided by issuing company etc) in relation to the relevant issue of shares, or
(b)
an officer of Revenue and Customs has given notice to that company stating the officer’s opinion that, because of the ground in question, the whole or any part of the EIS relief obtained by any individual in respect of shares included in the relevant issue of shares was not due.
(4)
In this section “the relevant issue of shares” means the issue of shares in the issuing company which includes the relevant shares.
Chapter 7Withdrawal or reduction of EIS relief: procedure
Assessments and appeals
235Assessments for the withdrawal or reduction of EIS relief
If any EIS relief which has been obtained falls to be withdrawn or reduced under Chapter 6, it must be withdrawn or reduced by the making of an assessment to income tax for the tax year for which the relief was obtained.
236Appeals against section 234(3)(b) notices
(1)
For the purposes of the provisions of TMA 1970 relating to appeals, the giving of notice by an officer of Revenue and Customs under section 234(3)(b) is taken to be a decision disallowing a claim by the issuing company.
(2)
If any issue has been determined on an appeal brought by virtue of paragraph 1A(6) of Schedule 5B to TCGA 1992 (appeal against notice that shares never have been, or have ceased to be, eligible shares), the determination is conclusive for the purposes of any appeal brought by virtue of subsection (1) on which that issue arises.
237Time limits for assessments
(1)
An officer of Revenue and Customs may not—
(a)
make an assessment for withdrawing or reducing the EIS relief attributable to any of the relevant shares, or
(b)
give a notice under section 234(3)(b),
more than 6 years after the end of the relevant tax year.
(2)
In subsection (1) “the relevant tax year” means—
(a)
the tax year in which the time mentioned in section 175(3) (the use of money raised requirement) falls, or
(b)
the tax year in which the event which causes the EIS relief to be withdrawn or reduced occurs,
whichever is the later.
(3)
Subsection (1) is without prejudice to section 36 of TMA 1970 (fraudulent or negligent conduct).
238Cases where assessment not to be made
(1)
No assessment for withdrawing or reducing EIS relief in respect of shares issued to an individual may be made because of an event occurring after the individual’s death.
(2)
Subsection (3) applies if an individual has, by a disposal or disposals to which section 209(3) applies, disposed of all shares which—
(a)
have been issued to the individual by the issuing company, and
(b)
are shares—
(i)
to which EIS relief is attributable, or
(ii)
in relation to which period A has not come to an end.
(3)
No assessment for withdrawing or reducing EIS relief in respect of those shares may be made because of any subsequent event unless the event occurs at a time when the individual is connected with the company within the meaning of section 166.
Interest
239Date from which interest is chargeable
(1)
In its application to an assessment made by virtue of section 235 in the case of relief withdrawn or reduced by virtue of a provision listed in column 1 of the following table, section 86 of TMA 1970 (interest on overdue income tax) has effect as if the relevant date were given by the corresponding entry in column 2 of the table.
Provision |
Relevant date |
---|---|
Section 163, any of sections 181 to 188 or section 224, 232 or 233 |
The date of the event which caused the withdrawal or reduction of EIS relief |
Section 164 |
The date of the making of the loan (see subsection (2)) |
Section 209 |
The date of the disposal |
Section 212(1) |
The date of the grant of the option |
Section 213 |
The date of the receipt of value |
(2)
The reference in the second entry in the table to the making of a loan is to be read in accordance with section 164(3).
Information
240Information to be provided by the investor
(1)
This section applies if the investor has obtained EIS relief in respect of the relevant shares, and an event occurs as a result of which—
(a)
the investor is not a qualifying investor in relation to the shares,
(b)
the EIS relief falls to be withdrawn or reduced by virtue of section 164 (no linked loans requirement),
(c)
the EIS relief falls to be withdrawn or reduced under—
(i)
section 209 (disposal of shares),
(ii)
section 211 (call options), or
(iii)
section 212 (put options), or
(d)
the EIS relief falls to be withdrawn or reduced under section 213 (receipt of value by the investor), or would fall to be so withdrawn or reduced but for section 222 (receipt of replacement value).
(2)
The investor must within 60 days of coming to know of the event give a notice to an officer of Revenue and Customs containing particulars of the event.
(3)
If the investor—
(a)
is required under this section to give notice of a receipt of value which is within section 213, or would be within that section but for section 222, and
(b)
has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,
the notice must include particulars of that receipt of replacement value (or expected receipt).
(4)
In subsection (3) “qualifying receipt” and “replacement value” are to be read in accordance with section 222.
241Information to be provided by the issuing company etc
(1)
This section applies if the issuing company has provided an officer of Revenue and Customs with a compliance statement in respect of an issue of shares and an event occurs as a result of which—
(a)
the requirement of section 175 (the use of money raised) is not met in respect of any of the shares included in the issue, or would not be met if EIS relief had been obtained in respect of the shares in question,
(b)
any provision of Chapter 4 has effect to prevent the issuing company being a qualifying company in relation to any of the shares included in the issue, or would have such an effect if EIS relief had been obtained in respect of the shares in question, or
(c)
any provision of Chapter 6 which is listed in subsection (2) has effect to cause any EIS relief attributable to any of the shares included in the issue to be withdrawn or reduced, or—
(i)
would have such an effect if EIS relief had been obtained in respect of the shares in question, or
(ii)
in the case of section 213, would have such an effect but for section 222 (receipt of replacement value).
(2)
The provisions are—
(a)
section 213 (value received by the investor),
(b)
section 224 (repayments etc of share capital to other persons),
(c)
section 232 (acquisition of a trade or trading assets), and
(d)
section 233 (acquisition of share capital).
(3)
If this section applies—
(a)
the issuing company, and
(b)
any person connected with the issuing company who has knowledge of the matters mentioned in subsection (1),
must give a notice to an officer of Revenue and Customs containing particulars of the event.
(4)
Any notice required to be given by the issuing company under subsection (3)(a) must be given—
(a)
within 60 days of the event, or
(b)
if the event is a receipt of value within section 216(2) from a person connected with the company (see section 221), within 60 days of the company coming to know of the event.
(5)
Any notice required to be given by a person under subsection (3)(b) must be given within 60 days of the person coming to know of the event.
(6)
If a person—
(a)
is required under this section to give notice of a receipt of value which is within section 213, or would be within that section but for section 222, and
(b)
has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,
the notice must include particulars of that receipt of replacement value (or expected receipt).
(7)
In subsection (6) “qualifying receipt” and “replacement value” are to be read in accordance with section 222.
242Power to require information where section 240 or 241 applies or could have applied
(1)
This section applies if an officer of Revenue and Customs has reason to believe that a person—
(a)
has not given a notice which the person is required to give under section 240 or 241 in respect of any event,
(b)
has given or received value within the meaning of section 216(2) or (6) which, but for the fact that the amount given or received was an amount of insignificant value, would have triggered a requirement to give such a notice, or
(c)
has made or received any repayment within the meaning given by section 224(7) which, but for the fact that it falls to be ignored for the purposes of section 224 by virtue of section 225(1), would have triggered a requirement to give a notice under section 241.
(2)
The officer may by notice require the person concerned to supply the officer, within such time as the officer may specify in the notice, with such information relating to the event as the officer may reasonably require for the purposes of this Part.
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
In subsection (1)(b) the reference to an amount of insignificant value is construed in accordance with section 215(2).
243Power to require information in other cases
(1)
Subsection (2) applies if EIS relief is claimed in respect of shares in a company, and an officer of Revenue and Customs has reason to believe that it may not be due because of any such arrangement or scheme as is mentioned in—
(a)
section 165 or 182(2) or (4) (no tax avoidance),
(b)
section 171 (persons subscribing for shares under certain arrangements),
(c)
section 176(4) or (5), 183(6) or 191(3), (4) or (5) (winding up, administration etc),
(d)
section 177(1) (no pre-arranged exits), or
(e)
section 185(1) or (2), 190(1) or 191(2) (conditions ceasing to be met).
The reference in paragraph (c) to subsections (3), (4) and (5) of section 191 is to be read as including those subsections as applied by section 190(2).
(2)
The officer may by notice require any person concerned to supply the officer within such time as may be specified in the notice with—
(a)
a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangement or scheme exists or has existed, and
(b)
such other information as the officer may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
For the purposes of subsection (2), in a case falling within a provision listed in column 1 of the following table, the person concerned is given by the corresponding entry in column 2 of the table.
Provision |
The person concerned |
---|---|
Subsection (1)(a) |
The claimant, the company and any person controlling the company |
Subsection (1)(b) |
The claimant |
Subsection (1)(c) |
The claimant, the company, any other company in question and any person controlling the company or any other company in question |
Subsection (1)(d) |
The claimant, the company and any person connected with the company |
Subsection (1)(e) |
The company and any person controlling the company |
References in this subsection to the claimant include references to any person to whom the claimant appears to have made such a transfer as is mentioned in section 245 (spouses or civil partners) of any of the shares in question.
(5)
If EIS relief has been obtained in respect of shares in a company—
(a)
any person who receives from the company any payment or asset which may constitute value received (by the person or another) for the purposes of section 213, and
(b)
any person on whose behalf such a payment or asset is received,
must, if so required by an officer of Revenue and Customs, state whether the payment or asset so received is received on behalf of any other person and, if so, the name and address of that other person.
(6)
If EIS relief has been claimed in respect of shares in a company—
(a)
any person who holds or has held shares in the company, and
(b)
any person on whose behalf any such shares are or were held,
must, if so required by an officer of Revenue and Customs, state whether the shares so held are or were held on behalf of any other person and, if so, the name and address of that other person.
244Obligations of secrecy
No obligation of secrecy imposed by statute or otherwise prevents an officer of Revenue and Customs from disclosing to a company that EIS relief has been obtained or claimed in respect of a particular number or proportion of its shares.
Chapter 8Supplementary and general
Acquisition of issuing company
247Continuity of EIS relief where issuing company is acquired by new company
(1)
This section applies if—
(a)
a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares) in another company (“the old company”),
(b)
the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description consists wholly of old shares of the corresponding description,
(d)
new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings,
(e)
at some time before the issue of the new shares—
(i)
the old company issued shares which meet the requirements of section 173(2), and
(ii)
a compliance certificate in respect of those shares was issued by that company for the purposes of subsection (1) of section 203 and in accordance with section 204, and
(f)
before the issue of the new shares the Commissioners for Her Majesty’s Revenue and Customs have, on the application of the new company or the old company, notified that company that they are satisfied that the exchange of shares—
(i)
will be effected for genuine commercial reasons, and
(ii)
will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).
In this subsection references to shares, except in the expressions “subscriber shares” and “shares which meet the requirements of section 173(2)”, include securities.
(2)
Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance) applies for the purposes of subsection (1)(f) as it applies for the purposes of subsection (1) of that section.
(3)
For the purposes of this Part—
(a)
the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares, and
(b)
any EIS relief which is attributable to any old shares is attributable instead to the new shares for which they are exchanged.
(4)
Nothing in section 185 (the control and independence requirement) applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1), or arrangements with a view to such an exchange.
(5)
For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.
(6)
References in sections 248 and 249 to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.
248Carry over of obligations etc where EIS relief attributed to new shares
(1)
This section applies if, under section 247, any EIS relief which is attributable to any old shares becomes attributable instead to any new shares.
(2)
This Part has effect as if anything which, under—
(a)
section 203(1) (entitlement to claim),
(b)
section 234(3) (relief subsequently found not to be due), or
(c)
sections 241 to 244 (information to be provided),
has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company.
(3)
Any appeal brought by the old company against a notice under section 234(3)(b) may be prosecuted by the new company as if it had been brought by that company.
249Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by an individual to which EIS relief becomes attributable under section 247, the old shares for which they were exchanged were subscribed for by and issued to the individual.
(2)
This Part has effect as if—
(a)
the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for by the individual,
(b)
the new shares had been issued to the individual by the new company at the time when the old shares were issued to the individual by the old company,
(c)
the claim for EIS relief made in respect of the old shares had been made in respect of the new shares, and
(d)
the individual’s liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the individual’s liability was so reduced in respect of the old shares.
(3)
Subsection (4) applies if, in the case of any new shares held by an individual to which EIS relief becomes so attributable under section 247, the old shares for which they were exchanged were transferred to the individual as mentioned in section 245.
(4)
This Part has effect in relation to any subsequent disposal or other event as if—
(a)
the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for,
(b)
the new shares had been issued by the new company at the time when the old shares were issued by the old company,
(c)
the claim for EIS relief made in respect of the old shares had been made in respect of the new shares, and
(d)
the individual’s liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the liability of the individual who subscribed for the old shares was so reduced in respect of those shares.
Nominees etc
250Nominees and bare trustees
(1)
Shares subscribed for, issued to, held by or disposed of for an individual by a nominee are treated for the purposes of this Part as subscribed for, issued to, held by or disposed of by the individual.
(2)
If shares have been issued to a bare trust for two or more beneficiaries, this Part has effect (with the necessary modifications) as if—
(a)
each beneficiary had subscribed as an individual for all of those shares, and
(b)
the amount subscribed by each beneficiary was equal to the total amount subscribed on the issue of those shares divided by the number of beneficiaries.
(3)
In subsection (2) and section 251 “shares” means shares which meet the requirements of section 173(2).
251Approved investment fund as nominee
(1)
Subsection (2) applies if an individual claims EIS relief in respect of shares in a company at a time when—
(a)
the shares have been issued to the managers of an approved fund as nominee for the individual,
(b)
the fund has closed, that is to say, no further investments in the fund are to be accepted, and
(c)
the amounts which the managers have, as nominee for the individual, subscribed for shares issued within 6 months after the closing of the fund represent at least 90% of the individual’s investment in the fund.
In this section “the managers of an approved fund” means the person or persons having the management of an investment fund approved for the purposes of this section by the Commissioners for Her Majesty’s Revenue and Customs.
(2)
In any case where this subsection applies, section 158 (form and amount of EIS relief) and section 201 (attribution of EIS relief to shares) have effect as if—
(a)
any reference to the tax year or other period in which the shares are issued were a reference to the tax year or other period in which the fund closes, and
(b)
any reference to the time of the issue of the shares, or the time of the subscription for the shares, were a reference to the time of the closing of the fund.
(3)
Section 157(2) (minimum subscription) does not apply if the amount is subscribed as nominee for an individual by the managers of an approved fund.
(4)
If an individual claims EIS relief in respect of shares in a company which have been issued to the managers of an approved fund as nominee for the individual, section 203(1) (entitlement to claim) applies as if —
(a)
it required the certificate referred to in that section to be issued by the company to the managers, and
(b)
it provided that no claim for EIS relief may be made unless the person making the claim has received from the managers a certificate issued by the managers in accordance with subsection (5).
(5)
A certificate is issued in accordance with this subsection if—
(a)
it certifies that the managers hold compliance certificates issued to them by the companies concerned, for the purposes of section 203(1), in respect of the holding of shares shown on the managers’ certificate, and
(b)
it is in such form as the Commissioners for Her Majesty’s Revenue and Customs may authorise.
(6)
The managers of an approved fund may be required by a notice given to them by an officer of Revenue and Customs to deliver to the officer, within the time limited by the notice, a return of the holdings of shares shown on certificates issued by them in accordance with subsection (5) in the tax year to which the return relates.
(7)
Section 207 (penalties for fraudulent certificate or statement etc) does not apply in relation to any certificate issued by the managers of an approved fund for the purposes of subsection (4).
Interpretation
252Meaning of a company being “in administration” or “in receivership”
(1)
References in this Part to a company being “in administration” or “in receivership” are to be read as follows.
(2)
A company is “in administration” if—
(a)
it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 (c. 45) or Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
(b)
there is in force in relation to it under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.
(3)
A company is “in receivership” if there is in force in relation to it—
(a)
an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland) Order 1989, or
(b)
any corresponding order under the law of a country or territory outside the United Kingdom.
253Meaning of “associate”
(1)
In this Part “associate”, in relation to a person, means—
(a)
any relative or partner of that person,
(b)
the trustee or trustees of any settlement in relation to which that person, or any relative of that person (living or dead), is or was a settlor, and
(c)
if that person has an interest in any shares or obligations of a company which are subject to any trust or are part of the estate of a deceased person—
(i)
the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and
(ii)
if that person is a company, any other company which has an interest in those shares or obligations.
(2)
In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal descendant.
254Meaning of “disposal of shares”
(1)
In this Part references to a disposal of shares include references to a disposal of an interest or right in or over shares.
(2)
An individual is to be treated, for the purposes of this Part, as disposing of any shares which the individual is treated by virtue of section 136 of TCGA 1992 as exchanging for other shares.
255Meaning of “issue of shares”
(1)
In this Part—
(a)
references (however expressed) to an issue of shares in any company are to such of the shares in the company as are of the same class and are issued on the same day, and
(b)
references (however expressed) to an issue of shares in any company to an individual are to such of the shares in the company as are of the same class and are issued to the individual on the same day.
(2)
Subsection (1)(b) has effect subject to sections 201(6), 202(2), 210(2), 219(1) and 228(1).
256Meaning of “the termination date”
(1)
In this Part “the termination date”, in relation to any shares issued by a company, means—
(a)
the third anniversary of the issue date, or
(b)
if—
(i)
the money raised by the issue was raised wholly or mainly for the purpose of a qualifying business activity within section 179(2) (the issuing company or a qualifying 90% subsidiary of that company carrying on or preparing to carry on a qualifying trade), and
(ii)
neither the issuing company nor any of its qualifying 90% subsidiaries had begun to carry on the trade in question on the issue date,
the third anniversary of the date on which the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.
(2)
In determining for the purposes of subsection (1) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, any carrying on of the trade by it before it became such a subsidiary is to be ignored.
257Minor definitions etc
(1)
In this Part—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable,
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company’s ordinary share capital,
“parent company” means a company that has one or more qualifying subsidiaries and “single company” means a company that does not,
“period A”, “period B” and “period C” have the meaning given by section 159, and
“research and development” has the meaning given by section 1006.
(2)
Section 993 (connected persons) does not apply for the purposes of Chapter 2 (other than section 168(4)).
(3)
Section 995 (control) does not apply for the purposes of the following provisions—
section 185(1)(a),
section 199(3)(a) and (b)(ii),
section 232(3),
section 233(2), and
section 243(4),
and in those provisions “control” is to be read in accordance with section 416(2) to (6) of ICTA.
(4)
In this Part—
(a)
references in any provision to the reduction of any EIS relief attributable to any shares include a reference—
(i)
to the reduction of the relief to nil, and
(ii)
if no relief has yet been obtained, to the reduction of the amount which apart from that provision would be the EIS relief, and
(b)
references to the withdrawal of EIS relief in respect of any shares are—
(i)
to the withdrawal of the EIS relief attributable to those shares, or
(ii)
if no relief has yet been obtained, to ceasing to be eligible for EIS relief in respect of those shares.
(5)
For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on the Stock Exchange.
(6)
For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.
(7)
In this Part—
(a)
references to EIS relief obtained by an individual in respect of any shares include references to EIS relief obtained by the individual in respect of those shares at any time after the individual has disposed of them, and
(b)
references to the withdrawal or reduction of EIS relief obtained by an individual in respect of any shares include references to the withdrawal or reduction of EIS relief obtained by the individual in respect of those shares at any such time.
(8)
In the case of requirements that cannot be met until a future date, references in this Part to requirements being met for the time being are to nothing having occurred to prevent their being met.
Part 6Venture capital trusts
Chapter 1Introduction
258Overview of Part
In this Part—
(a)
Chapter 2 provides for VCT income tax relief (“VCT relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares issued to them by venture capital trusts,
(b)
Chapter 3 provides for VCT approvals,
(c)
Chapter 4 makes provision as to the meaning of “qualifying holding” for the purposes of Chapter 3,
(d)
Chapter 5 confers power for regulations to make provision in relation to the winding up and merger of venture capital trusts, and
(e)
Chapter 6 makes supplementary and general provision.
259Venture capital trusts and VCT approvals
(1)
In this Part “venture capital trust” means a company which—
(a)
is not a close company, and
(b)
is for the time being approved for the purposes of this Part by the Commissioners for Her Majesty’s Revenue and Customs (see Chapter 3),
and “VCT” means a venture capital trust.
(2)
In this Part “VCT approval” means an approval of a company for the purposes of this Part.
260Other tax reliefs relating to VCTs
(1)
Chapter 5 of Part 6 of ITTOIA 2005 (venture capital trust dividends) provides that, if conditions are met, no liability to income tax arises in respect of dividends paid in respect of shares in a VCT.
(2)
Section 100 of TCGA 1992 (exemption for venture capital trusts etc) provides that gains accruing to a VCT are not to be chargeable gains.
(3)
Section 151A of TCGA 1992 (venture capital trusts: reliefs) provides that a gain or loss accruing to an individual on a qualifying disposal of any ordinary shares in a company which—
(a)
was a VCT at the time when the individual acquired the shares, and
(b)
is still a VCT at the time of the disposal,
is not to be a chargeable gain or, as the case may be, an allowable loss.
(4)
Schedule 5C to TCGA 1992 (venture capital trusts: deferred charge on re-investment, but only in relation to shares issued before 6 April 2004) provides that, if conditions are met, an individual’s unused qualifying expenditure on shares in a VCT may be set against what would otherwise be chargeable gains.
Chapter 2VCT relief
Entitlement to relief
261Eligibility for relief
(1)
An individual (“A”) is eligible for VCT relief for a tax year if—
(a)
a VCT issues eligible shares to A in that year,
(b)
the VCT issues the shares for raising money, and
(c)
A subscribes for the shares on A’s own behalf.
(2)
The amount in respect of which A is eligible for VCT relief for the tax year by reference to any shares is the amount subscribed by A for the shares.
(3)
A is eligible for VCT relief by reference to any shares only if—
(a)
the shares are both subscribed for and issued—
(i)
for genuine commercial reasons, and
(ii)
not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and
(b)
A is at least 18 years old when the shares are issued.
(4)
A is not eligible for VCT relief by reference to any shares if they are treated as issued to A by virtue of section 195(8) of FA 2003 (tax treatment of disposal by company of its own shares).
See section 271(4) for provision requiring the giving of notices about the effect of this subsection.
262Entitlement to claim relief
(1)
An individual (“A”) who is eligible for VCT relief by reference to shares issued in a tax year is entitled to claim VCT relief for that year.
(2)
A is entitled to claim VCT relief in respect of the amount on which A is eligible for VCT relief by reference to all or some of the shares.
This is subject to subsection (3).
(3)
A is not entitled to claim VCT relief for any tax year on an amount of more than £200,000.
263Form and amount of relief
(1)
An individual who—
(a)
is entitled to claim VCT relief for a tax year, and
(b)
claims such relief for the year on any amount,
is entitled to a tax reduction for the year.
(2)
The tax reduction is equal to 30% of the amount in respect of which the claim is made.
(3)
The tax reduction is given effect at Step 6 of the calculation in section 23.
264No entitlement to relief if there is a linked loan
(1)
An individual is not entitled to VCT relief by reference to any shares (“the relevant shares”) if a linked loan is made by any person, at any time in the relevant period, to the individual or an associate of the individual.
(2)
References in this section to the making by any person of a loan to an individual or any associate of the individual include references—
(a)
to the giving by that person of any credit to the individual or any associate of the individual, and
(b)
to the assignment to that person of any debt due from the individual or any associate of the individual.
(3)
In this section—
“linked loan” means a loan which—
(a)
would not have been made, or
(b)
would not have been made on the same terms,
if the individual had not subscribed for the relevant shares or had not been proposing to do so,
“the relevant period”, in relation to VCT relief in respect of any shares in a company which is a VCT, means the period—
(a)
beginning with—
(i)
the incorporation of the company, or
(ii)
if later, the date two years before the issue of the shares, and
(b)
ending immediately before the fifth anniversary of that issue.
265No entitlement to relief which would have been lost if it had already been obtained
An individual is not entitled to VCT relief by reference to any shares if circumstances have arisen which would have resulted in the withdrawal or reduction of the relief, if that relief had already been obtained.
Loss of relief
266Loss of relief if shares disposed of within 5 years
(1)
This section applies, subject to section 267 (spouses or civil partners), if an individual—
(a)
obtains VCT relief in respect of eligible shares in a VCT, and
(b)
makes a disposal of those shares within 5 years of their issue to the individual.
(2)
In the case of a disposal that is made otherwise than by way of a bargain made at arm’s length, any VCT relief obtained by reference to the shares which are disposed of is to be withdrawn.
(3)
In the case of a disposal that is made by way of a bargain made at arm’s length, any VCT relief obtained by reference to the shares disposed of must—
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.
(4)
A is 30% of the amount or value of the consideration which the individual receives for the shares.
(5)
The rules in subsections (6) and (7) are for determining which eligible shares of any class are treated as disposed of for the purposes of—
(a)
this section, and
(b)
section 267,
if a person disposes of some but not all of the eligible shares of that class which the person holds in a company.
(6)
Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day.
(7)
Shares acquired on the same day are treated as disposed of in the following order—
(a)
shares by reference to which VCT relief has not been obtained, and
(b)
shares by reference to which VCT relief has been obtained.
267Transfers of shares between spouses or civil partners
(1)
Section 266 does not apply in the case of any disposal of shares made by an individual to the individual’s spouse or civil partner, if it is made at a time when they are living together.
(2)
Subsection (3) applies if any eligible shares which—
(a)
have been issued to any individual (“the transferor”), and
(b)
are shares by reference to which any VCT relief has been obtained,
are transferred to the transferor’s spouse or civil partner (“the transferee”) by a disposal such as is mentioned in subsection (1).
(3)
If this subsection applies, section 266 and subsection (2) have effect, in relation to any subsequent disposal or other event, as if—
(a)
the transferee were the person who had subscribed for the shares,
(b)
the shares had been issued to the transferee at the time when they were issued to the transferor,
(c)
there had been, in relation to the transferred shares, such a reduction by way of VCT relief in the transferee’s liability to income tax as is equal to the actual reduction in respect of those shares of the transferor’s liability, and
(d)
that deemed reduction were (despite the transfer) to be treated for the purposes of section 266 as an amount of VCT relief obtained by reference to the shares transferred.
(4)
Any assessment for withdrawing or reducing VCT relief because of a disposal or other event falling within subsection (3) is to be made on the transferee.
268Loss of relief if VCT approval withdrawn
(1)
This section applies if—
(a)
the approval of any company as a VCT is withdrawn, and
(b)
the withdrawal of the approval is not one to which section 281(3) (VCT approval treated as never having been given) applies.
(2)
Any person who, at the time when the withdrawal takes effect, is holding any shares issued by the company by reference to which VCT relief has been obtained is treated for the purposes of section 266 as having disposed of those shares—
(a)
immediately before that time, and
(b)
otherwise than by way of a bargain made at arm’s length.
269Loss of relief which is subsequently found not to have been due
Any VCT relief obtained which is subsequently found not to have been due is to be withdrawn.
270Assessment on withdrawal or reduction of relief
(1)
An assessment for withdrawing or reducing VCT relief under any of sections 266 to 269 must be made for the tax year for which the relief was obtained.
(2)
No assessment for withdrawing or reducing VCT relief obtained by reference to shares issued to any individual may be made because of any event occurring after the individual’s death.
Supplementary
271Provision of information
(1)
If an event occurs that results in any VCT relief falling to be withdrawn or reduced, the individual by whom the relief was obtained must, within 60 days of coming to know of the event, give notice to an officer of Revenue and Customs containing particulars of the event.
(2)
If an officer of Revenue and Customs has reason to believe that a person has not given a notice which the person is required to give under subsection (1), the officer may by notice require the person to provide the officer, within such time as may be specified in the notice, with such information relating to the event as the officer may reasonably require for the purposes of the provisions of this Chapter.
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
If a company which is a VCT issues to any individual eligible shares to which section 261(4) applies, it must—
(a)
at the time of the issue of those shares, give the individual a notice stating that the individual is not eligible for VCT relief by reference to those shares, and
(b)
not later than 3 months after the issue of those shares, give a copy of that notice to an officer of Revenue and Customs.
(5)
No obligation as to secrecy imposed by statute or otherwise prevents an officer of Revenue and Customs from disclosing to a VCT that VCT relief has been obtained by reference to a particular number or proportion of its shares.
272Regulations as to procedure etc
(1)
This section applies to VCT relief and relief for which the following provide—
(a)
section 151A of TCGA 1992 (VCTs: reliefs),
(b)
Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment),
(c)
Chapter 5 of Part 6 of ITTOIA 2005 (VCT dividends), and
(d)
regulations under Chapter 5 of this Part.
(2)
The Treasury may by regulations make such provision as they consider appropriate for—
(a)
giving effect to relief to which this section applies, and
(b)
preventing such relief from being given unless a claim is made in accordance with the regulations and such other requirements as may be imposed by the regulations have been met.
(3)
Regulations under this section may make provision as to the manner in which, and the persons by whom, relief to which this section applies is to be claimed.
273Interpretation of Chapter
(1)
In this Chapter “eligible shares”, in relation to a company which is a VCT, means ordinary shares in the VCT which, throughout the period of 5 years beginning on the date on which they are issued, carry—
(a)
no present or future preferential right to dividends or to a company’s assets on its winding up, and
(b)
no present or future right to be redeemed.
(2)
In this Chapter references to a disposal of shares include references to a disposal of an interest or right in or over shares.
Chapter 3VCT approvals
Giving of approval
274Requirements for the giving of approval
(1)
Subject to section 275, the Commissioners for Her Majesty’s Revenue and Customs must not approve a company for the purposes of this Part unless it is shown to their satisfaction that the conditions mentioned in subsection (2)—
(a)
are met in relation to the most recent complete accounting period of the company, and
(b)
will be met in relation to the accounting period of the company which is current when the application for approval is made.
(2)
The conditions applied by subsection (1) (which are also applied by section 275(1) and other provisions of this Chapter) are set out in column 2 of the following table together with, in column 1 of the table, the descriptions by which they are referred to.
In each of those conditions “the relevant period” means the accounting period that is relevant for the purposes of the particular provision by which the condition is applied.
Description |
Condition |
---|---|
The listing condition |
The shares making up the company’s ordinary share capital (or, if there are such shares of more than one class, those of each class) have been or will be listed throughout the relevant period in the Official List of the Stock Exchange |
The nature of income condition |
The company’s income in the relevant period has been or will be derived wholly or mainly from shares or securities |
The income retention condition |
The company has not retained or will not retain an amount which is greater than 15% of the income it derived or will derive in the relevant period from shares or securities |
The 15% holding limit condition |
No holding in any company, other than a VCT or a company that would qualify as a VCT but for the listing condition, has represented or will represent at any time during the relevant period more than 15% by value of the company’s investments |
The 70% qualifying holdings condition |
At least 70% by value of the company’s investments has been or will be represented throughout the relevant period by shares or securities included in qualifying holdings of the company |
The 30% eligible shares condition |
At least 30% by value of the company’s qualifying holdings has been or will be represented throughout the relevant period by holdings of eligible shares |
(3)
The conditions mentioned in subsection (2) are supplemented as follows—
(a)
the nature of income condition and the income retention condition by section 276,
(b)
the 15% holding limit condition by section 277,
(c)
the 15% holding limit condition, the 70% qualifying holdings condition and the 30% eligible shares condition by sections 278 and 279, and
(d)
the 70% qualifying holdings condition and the 30% eligible shares condition by section 280.
275Alternative requirements for the giving of approval
(1)
This section applies if one or more of the conditions mentioned in section 274(2) are not met with respect to a company in relation to its most recent complete accounting period.
(2)
The Commissioners for Her Majesty’s Revenue and Customs may still approve the company for the purposes of this Part if they are satisfied that the condition or conditions in question—
(a)
will be met in relation to the period mentioned in subsection (3), and
(b)
will continue to be met in relation to accounting periods following that period.
(3)
The period is—
(a)
in relation to the listing condition, the nature of income condition, the income retention condition and the 15% holding limit condition, the accounting period of the company which is current when the application for approval is made, or its next accounting period,
(b)
in relation to the 70% qualifying holdings condition and the 30% eligible shares condition, an accounting period of the company beginning no more than 3 years after the time when the approval is given or, if earlier, when the approval takes effect.
276Conditions relating to income
(1)
Subsections (2) and (3) apply in determining for the purposes of the nature of income condition and the income retention condition—
(a)
the amount of a company’s income, or
(b)
the amount of income which a company derives from shares or securities.
(2)
The amounts to be brought into account under Chapter 2 of Part 4 of FA 1996 in respect of the company’s loan relationships are to be determined without reference to any debtor relationship of the company.
(3)
The excess of any relevant credits over any relevant debits is to be treated as income which the company derives from shares or securities.
In this subsection “relevant credits” and “relevant debits” are credits and debits brought into account by virtue of paragraph 14(3) of Schedule 26 to FA 2002 as if they were non-trading credits or non-trading debits.
(4)
The income retention condition does not apply as regards an accounting period if the amount which the company would be required to distribute in order to meet that condition is less than—
(a)
£10,000, or
(b)
if the period is shorter than 12 months, a proportionately reduced amount.
(5)
The income retention condition does not apply as regards an accounting period if—
(a)
the company is required to retain income in respect of the period by virtue of a restriction imposed by law, and
(b)
the amount of income which the company is so required to retain in respect of the period exceeds an amount equal to 15% of the income the company derives from shares or securities.
(6)
Subsection (5) does not apply if—
(a)
the amount of income the company retains in respect of the accounting period exceeds the amount of income it is required, by virtue of a restriction imposed by law, to retain in respect of the period, and
(b)
the sum of the excess and any amount of income the company distributes in respect of the period is at least—
(i)
£10,000, or
(ii)
if the period is shorter than 12 months, a proportionately reduced amount.
277The 15% holding limit condition
(1)
If the 15% holding limit condition was met when a holding in a company was acquired or last added to, the condition is treated as continuing to be met until an addition is next made to it.
(2)
“Holding in a company” means the shares or securities (whether of one class or more than one class) held in any one company.
(3)
An addition is made to a holding in a company whenever the company whose holding it is—
(a)
acquires further shares or securities in the company, but
(b)
does not do so by being allotted shares or securities without becoming liable to give any consideration.
(4)
For the purposes of this section—
(a)
holdings in companies which—
(i)
are members of a group, whether or not including the company whose holdings they are (“company A”), and
(ii)
are not excluded from the 15% holding limit condition,
are to be treated as holdings in a single company, and
(b)
if company A is a member of a group, money owed to it by another member of the group is to be treated—
(i)
as a security of the latter held by company A, and
(ii)
accordingly as, or as part of, the holding of company A in the company owing the money.
For the purposes of this subsection “group” means a company and all companies which are its 51% subsidiaries.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
(a)
a company issues shares or securities,
(b)
the shares or securities are issued to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, and
(c)
those persons do not become liable to give any consideration for the shares or securities.
In this subsection “scheme of reconstruction” has the same meaning as in section 136 of TCGA 1992.
(6)
For the purposes of this section—
(a)
a holding of the shares or securities in the second company, and
(b)
a corresponding holding of the shares or securities issued by the company,
are to be regarded as the same holding.
278Conditions relating to value of investments: general
(1)
This section and section 279 apply for the purposes of the 15% holding limit condition, the 70% qualifying holdings condition and the 30% eligible shares condition (“the relevant conditions”).
(2)
The value of a holding of investments of any description is to be taken, unless subsection (3) applies, to be its value when acquired.
(3)
If, in the case of a holding of investments of any description—
(a)
the holding is added to by a further holding of investments of that description, or
(b)
any payment is made in discharge, in whole or in part, of any obligation attached to the holding that (by discharging the whole or any part of the obligation) increases the value of the holding,
the value of the holding is to be taken to be its value immediately after the most recent addition or payment.
(4)
For the purposes of this section an addition is made to a holding of investments of any description whenever the company whose holding it is—
(a)
acquires further investments of that description, but
(b)
does not do so by being allotted shares or securities in a company without becoming liable to give any consideration.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
(a)
a company issues shares or securities,
(b)
the shares or securities are issued to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, and
(c)
those persons do not become liable to give any consideration for the shares or securities.
In this subsection “scheme of reconstruction” has the same meaning as in section 136 of TCGA 1992.
(6)
For the purposes of this section—
(a)
a holding of the shares or securities of any description in the second company, and
(b)
a corresponding holding of the shares or securities issued by the company,
are to be regarded as the same holding.
279Conditions relating to value of investments: qualifying holdings
(1)
If—
(a)
any shares (“new shares”) are exchanged for other shares (“old shares”) under arrangements in relation to which section 326 (restructuring arrangements) applies, and
(b)
those arrangements have not ceased by virtue of section 326(5) to be arrangements by reference to which requirements of Chapter 4 are treated as met,
the value of the new shares is taken to be the same as the value, when last valued in accordance with subsection (2) or (3) of section 278, of the old shares for which they are exchanged.
(2)
In subsection (1)—
(a)
references to shares in a company include references to any securities of that company, and
(b)
the reference to the value of the new shares includes references to the value of those shares both—
(i)
at the time of their acquisition, and
(ii)
immediately after any subsequent addition to a holding of the new shares that is made under the arrangements.
(3)
If—
(a)
shares (“new shares”) are issued to a company as a result of the exercise by that company of any right of conversion attached to other shares, or securities, held by that company (“convertibles”), and
(b)
section 329 (conversion of convertible shares and securities) applies in relation to the issue of the new shares,
the value of the new shares at the time of their acquisition is taken to be the same as the value, when last valued in accordance with subsection (2) or (3) of section 278, of the convertibles for which they are exchanged.
(4)
Regulations under section 330 may make provision for securing that if—
(a)
there is an exchange of shares to which regulations under section 330 apply, and
(b)
the new shares are treated by virtue of the regulations as meeting the requirements of Chapter 4,
the value of the holding of the new shares, and of any original shares that are retained under the exchange, is taken to be an amount such that the requirements of the relevant conditions do not cease to be met because of the exchange.
(5)
In subsection (4)—
(a)
“shares” includes securities, and
(b)
“exchange of shares”, “new shares” and “original shares” have the same meaning as in section 330.
280Conditions relating to qualifying holdings and eligible shares
(1)
Subsection (2) applies, subject to any regulations under subsection (3), if—
(a)
there has been an issue of ordinary share capital of a company (“the first issue”),
(b)
a VCT approval of that company has taken effect on or before the day of the making of the first issue, and
(c)
a further issue of ordinary share capital of that company has been made since the making of the first issue.
(2)
If this subsection applies, the use to which the money raised by the further issue is put, and the use of any money deriving from that use, are ignored in determining whether either or both of the 70% qualifying holdings condition and the 30% eligible shares condition are, have been or will be met in relation to—
(a)
the accounting period in which the further issue is made, or
(b)
any later accounting period ending no more than 3 years after the making of the further issue.
(3)
The Treasury may by regulations make provision for subsection (2)—
(a)
not to apply, or to be treated as not having applied, in specified cases, or
(b)
to apply, or to be treated as having applied, in specified cases—
(i)
only to a specified extent, or
(ii)
only if specified conditions (including conditions requiring approvals to be obtained) are met.
(4)
Provision made by regulations under subsection (3) may (but need not) be made so that, in any particular case, subsection (2)—
(a)
does not apply, or is treated as not having applied, at prescribed times or with effect from a prescribed time, or
(b)
applies, or is treated as having applied, in accordance with provision made under subsection (3)(b) at prescribed times or with effect from a prescribed time.
(5)
In subsection (3) “specified” means specified by regulations and in subsection (4) “prescribed” means specified by, or determined under, regulations.
(6)
Section 324 applies in relation to—
(a)
regulations under subsection (3), and
(b)
any power conferred by that subsection,
as it applies in relation to regulations under Chapter 5 and a power conferred by any provision of that Chapter.
Withdrawal of approval
281Withdrawal of VCT approval of a company
(1)
The Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) may withdraw the VCT approval of a company if at any time it appears to them that there are reasonable grounds for believing—
(a)
that the conditions for the approval of the company were not met at the time of the approval,
(b)
in a case where the Commissioners were satisfied for the purposes of section 274(1)(b) or 275(2) that any of the conditions mentioned in section 274(2) would be met in relation to any period, that the condition is one which will not be, or has not been, met in relation to that period,
(c)
in the case of a company approved under subsection (2) of section 275 (read with paragraph (b) of subsection (3) of that section), that the company has not met such other conditions as may be prescribed by regulations made by the Commissioners in relation to—
(i)
the period of 3 years mentioned in that paragraph, or
(ii)
any part of that period,
(d)
in a case where the use of any money falls to be ignored for any accounting period in accordance with section 280(2), that—
(i)
the first accounting period of the company for which the use of that money will not be ignored will be a period in relation to which any of the conditions mentioned in section 274(2) will fail to be met, or
(ii)
the company has not met such other conditions as may be prescribed by regulations made by the Commissioners in relation to, or to any part of, an accounting period for which the use of that money falls to be ignored, or
(e)
that—
(i)
the company’s most recent complete accounting period or its current one is a period in relation to which there has been or will be a failure of any of the conditions mentioned in section 274(2) to be met, and
(ii)
the failure was not or will not be one which, at the time of the approval, was allowed for in relation to that period by virtue of section 275(2).
(2)
Subject to subsections (3) and (4), the withdrawal of the approval of a company for the purposes of this Part has effect as from the time when notice of the withdrawal is given to the company.
(3)
If, in the case of a company approved as a VCT in the exercise of the power conferred by section 275(2), the approval is withdrawn at a time before all of the conditions mentioned in section 274(2) have been met with respect to the company concerned—
(a)
in relation to a complete accounting period of 12 months, or
(b)
in relation to successive complete accounting periods constituting a continuous period of at least 12 months,
the withdrawal of the approval has the effect that the approval is for all purposes treated as never having been given.
(4)
A notice withdrawing the approval of a company for the purposes of this Part may specify a time falling before the time mentioned in subsection (2) as the time from which the withdrawal is to be treated as having effect for the purposes of section 100 of TCGA 1992 (exemption for venture capital trusts etc).
But the time so specified must be no earlier than the beginning of the accounting period in relation to which it appears to the Commissioners that the condition by reference to which the approval is withdrawn has not been, or will not be, met.
(5)
Despite any limitation on the time for making assessments, an assessment to any tax chargeable in consequence of the withdrawal of any VCT approval may be made at any time before the end of the period of 3 years beginning with the time when the notice of withdrawal is given.
282Withdrawal of VCT approval in cases for which provision made under section 280(3)
(1)
The Treasury may by regulations make provision for withdrawal of VCT approval of a company to be treated—
(a)
in a case where the withdrawal is by reference to a condition for approval that would have been, or would be, met but for provision made under section 280(3), and
(b)
for the purposes of enactments specified by regulations,
as having taken effect as from a time specified in the notice of withdrawal that is earlier than the time when the notice is given to the company.
(2)
Provision made under subsection (1) has effect subject to the provisions of section 281(4) (retrospective effect of notices of withdrawal of VCT approval) as to the earliest time that may be specified by such a notice.
(3)
Section 324 applies in relation to—
(a)
regulations under subsection (1), and
(b)
any power conferred by that subsection,
as it applies in relation to regulations under Chapter 5 and a power conferred by any provision of that Chapter.
Supplementary
283Time as from which VCT approval has effect
(1)
A VCT approval has effect as from the time specified in the approval.
(2)
That time, if it falls before the time when the VCT approval is given, must be no earlier than the time when the application was made.
(3)
If the Commissioners for Her Majesty’s Revenue and Customs give a VCT approval, they may stipulate that the approval is to have effect as from the time when the application for the approval was made or any subsequent time.
284Power to make regulations as to procedure
Regulations under section 272 may make provision—
(a)
as to the making of applications for VCT approvals and otherwise as to the procedure to be followed in relation to any such applications and the giving of such approvals,
(b)
as to the procedure to be followed in connection with the withdrawal of VCT approvals,
(c)
as to the obligations of a company which is a VCT if it should appear to the company that the conditions for its VCT approval to continue in force are no longer met,
(d)
as to the accounts, records, returns and other information to be kept, and provided or otherwise made available to the Commissioners for Her Majesty’s Revenue and Customs, by companies which are or have been VCTs and by persons who hold or have held shares in such companies, and
(e)
as to the persons liable to account for any tax becoming due where a VCT approval is withdrawn.
285Interpretation of Chapter
(1)
Chapter 4 has effect for interpreting references in this Chapter to a “qualifying holding”.
(2)
In this Chapter and the following Chapters of this Part “securities”, in relation to a company, includes any liability of the company in respect of a loan (whether secured or not), except that it does not include—
(a)
any liability of the company in respect of a loan which has been made to the company on terms which allow any person to require—
(i)
the loan to be repaid, or
(ii)
any stock or security relating to the loan to be re-purchased or redeemed,
within the period of 5 years from the making of the loan or, as the case may be, the issue of the stock or security, or
(b)
any stock or security relating to a loan which has been made to the company on terms which allow any person to require the loan to be repaid, or the stock or security to be re-purchased or redeemed, within that period.
But see sections 317(4) and 328(2).
(3)
In this Chapter “eligible shares”, in relation to a company, means ordinary shares in the company which carry—
(a)
no present or future preferential right to dividends or to the company’s assets on its winding up, and
(b)
no present or future right to be redeemed.
(4)
Any reference in this Chapter to a company’s investments is taken to include, so far as it would not otherwise do so—
(a)
money in the company’s possession, and
(b)
any sum owed to the company by another person if the company has account-holder’s rights over that sum.
(5)
For the purposes of subsection (4)(b) a company has “account-holder’s rights” over a sum owed to the company if—
(a)
the company has a right (whether or not the exercise of the right is subject to conditions) to require the other person to pay out the sum, or amounts out of the sum, to the company or at the company’s direction, and
(b)
the sum is owed to the company—
(i)
as a result of amounts having been paid to the other person by or for the company, or
(ii)
as a result of the other person having identified a sum in respect of which the company may exercise such a right.
(6)
Subsection (5) does not have effect to cause a company’s investments to be taken to include anything to which the company is not beneficially entitled, but for this purpose a company is taken to be beneficially entitled to—
(a)
sums subscribed for shares issued by it, and
(b)
anything to which it is entitled that (directly or indirectly) represents such sums.
Chapter 4Qualifying holdings
Introduction
286Qualifying holdings: introduction
(1)
If any shares in or securities of any company (“the relevant company”) are at any time held by another company (“the investing company”), this Chapter applies for determining whether and to what extent those shares or securities (“the relevant holding”) are, for the purposes of Chapter 3, to be regarded as at that time comprised in the investing company’s qualifying holdings.
(2)
The relevant holding is to be regarded as comprised in the investing company’s qualifying holding at any time if—
(a)
all the following requirements of this Chapter are met at that time in relation to the relevant company and the relevant holding, and
(b)
the relevant holding consists of shares or securities which were first issued by the relevant company to the investing company and have been held by the investing company ever since.
(3)
The requirements are those imposed as to—
(a)
maximum qualifying investment (see section 287),
(b)
no guaranteed loan (see section 288),
(c)
proportion of eligible shares (see section 289),
(d)
trading (see section 290),
(e)
the carrying on of a qualifying activity (see section 291),
(f)
use of the money raised (see section 293),
(g)
the relevant company carrying on the relevant qualifying activity (see section 294),
(h)
unquoted status (see section 295),
(i)
control and independence (see section 296),
(j)
gross assets (see section 297),
(k)
qualifying subsidiaries (see section 298), and
(l)
property managing subsidiaries (see section 299).
(4)
Subject to section 293(7), subsection (5) applies if—
(a)
the requirements of section 287, 293 or 294 would be met as to only part of the money raised by the issue of the relevant holding, and
(b)
that holding is not otherwise capable of being treated as comprising separate holdings.
(5)
If this subsection applies, this Chapter has effect in relation to the relevant holding as if it were two separate holdings consisting of—
(a)
a holding from which the part of the money mentioned in subsection (4)(a) was raised, and
(b)
a holding from which the remainder was raised.
Chapter 3 has effect as if the value of the relevant holding were to be apportioned between the two holdings treated as subsisting by this subsection.
The requirements
287The maximum qualifying investment requirement
(1)
The requirement of this section is that the relevant holding did not, when it was issued, represent an investment in excess of the maximum qualifying investment for the relevant period.
(2)
Subject to subsection (7), the maximum qualifying investment for any period is exceeded so far as the total amount of money which—
(a)
is raised in that period, and
(b)
is so raised by the issue to the investing company during that period of shares in or securities of the relevant company,
exceeds £1 million.
(3)
If the relevant holding represented, when issued, an investment in excess of the maximum qualifying investment for the relevant period—
(a)
the shares or securities which represented the excess are not to be regarded as part of the relevant holding, and
(b)
the amount of money raised by those shares or securities is to be ignored for the purposes of any subsequent application of subsection (2).
(4)
For the purposes of this section, if there is any question as to whether any shares in or securities of the relevant company which are for the time being held by the investing company represent an investment in excess of the maximum qualifying investment for any period, that question is determined on the following assumption in relation to disposals by the investing company.
(5)
The assumption is that, as between shares or securities of the same description, those which represent the whole or any part of the excess are disposed of before those which do not.
(6)
Subsection (7) applies if—
(a)
at the time of the issue of the relevant holding the relevant company or any of its qualifying subsidiaries was a member of a partnership or a party to a joint venture,
(b)
the trade which meets the requirement of section 291 was at that time being carried on, or to be carried on, by those partners in partnership or by the parties to the joint venture, and
(c)
the other partners or parties to the joint venture include at least one other company.
(7)
If this subsection applies, this section has effect in relation to the relevant company as if the sum of money for the time being specified in subsection (2) were to be divided by the number of companies (including the relevant company) which, at the time when the relevant holding was issued, were members of the partnership or, as the case may be, parties to the joint venture.
(8)
For the purposes of this section “the relevant period” is the period beginning with whichever is the earlier of—
(a)
the time 6 months before the issue of the relevant holding, and
(b)
the beginning of the tax year in which the issue of that holding took place,
and (in either case) ending with the issue of that holding.
288The no guaranteed loan requirement
(1)
The requirement of this section is that there are no securities relating to a guaranteed loan in the relevant holding.
(2)
For the purposes of this section, a security relates to a guaranteed loan if (and only if) there are arrangements for the investing company to be or to become entitled to receive anything (whether directly or indirectly) from a third party in the event of the failure by any person to comply with—
(a)
the terms of the loan to which the security relates, or
(b)
the terms of the security.
(3)
For the purposes of subsection (2) it does not matter whether the arrangements apply in all cases of a failure to comply or only in some such cases.
(4)
For the purposes of this section “third party” means any person except—
(a)
the relevant company, and
(b)
if the relevant company is a parent company that meets the trading requirement in section 290(1)(b), the subsidiaries of that company.
289The proportion of eligible shares requirement
(1)
The requirement of this section is that eligible shares represent at least 10% by value of the totality of the shares in or securities of the relevant company (including the relevant holding) which are held by the investing company.
(2)
For the purposes of this section the value at any time of any shares in or securities of a company is taken (subject to subsection (4)) to be their value immediately after—
(a)
any relevant event occurring at that time, or
(b)
if no relevant event occurs at that time, the last relevant event to occur before that time.
(3)
In subsection (2) “the relevant event”, in relation to any shares in or securities of the relevant company, means—
(a)
the acquisition by the investing company of those shares or securities,
(b)
the acquisition by the investing company of any other shares in or securities of the relevant company which—
(i)
are of the same description as those shares or securities, and
(ii)
are acquired by the investing company otherwise than by being allotted to the investing company without its being liable to give any consideration, or
(c)
the making of any such payment in discharge, in whole or in part, of any obligation attached to any shares in or securities of the relevant company held by the investing company as (by discharging that obligation) increases the value of any such shares or securities.
(4)
If at any time the value of any shares or securities held by the investing company is less than the consideration given by the investing company for those shares or securities, it is to be assumed for the purposes of this section that the value of the shares or securities at that time is equal to the amount of that consideration.
(5)
In this section “eligible shares” has the same meaning as in Chapter 3 (see section 285(3)).
290The trading requirement
(1)
The requirement of this section is that—
(a)
the relevant company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or
(b)
the relevant company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.
(2)
If the relevant company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
(a)
the relevant company is treated as a parent company for the purposes of subsection (1)(b), and
(b)
the reference in subsection (1)(b) to the group includes the relevant company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(3)
For the purposes of subsection (1)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
(4)
For the purpose of determining the business of a group, activities are ignored so far as they are carried on by a mainly trading subsidiary otherwise than for its main purpose.
(5)
For the purpose of determining the business of a group, activities of a group company are ignored so far as they consist in—
(a)
the holding of shares in or securities of a qualifying subsidiary of the parent company,
(b)
the making of loans to another group company, or
(c)
the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or
(d)
the holding and managing of property used by a group company for the purpose of research and development from which it is intended—
(i)
that a qualifying trade to be carried on by a group company will be derived, or
(ii)
that a qualifying trade carried on or to be carried on by a group company will benefit.
(6)
Any reference in sub-paragraph (i) or (ii) of subsection (5)(d) to a group company includes a reference to any existing or future company which will be a group company at any future time.
(7)
In this section—
“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
(a)
excluded activities, and
(b)
activities carried on otherwise than in the course of a trade.
(8)
This section is supplemented by section 300 (meaning of “qualifying trade”) and sections 303 to 310 (excluded activities).
291The carrying on of a qualifying activity requirement
(1)
The requirement of this section, at any time on or after the issue of the relevant holding, is that a qualifying company (whether or not the same such company at every such time) must have been carrying on a qualifying activity at all times from the issue of the holding to the time in question.
(2)
A qualifying trade carried on wholly or mainly in the United Kingdom is a qualifying activity.
(3)
Preparing to carry on a qualifying trade is a qualifying activity if, at the time when the relevant holding was issued, the trade was intended to be carried on wholly or mainly in the United Kingdom by a qualifying company.
This is subject to subsections (4) and (5).
(4)
The requirement of this section is not capable of being met by virtue of subsection (3) at any time after the end of the period of two years beginning with the issue of the relevant holding unless—
(a)
the intended trade was begun to be carried on by a qualifying company before the end of that period, and
(b)
at all times since the end of that period, a qualifying company (whether or not the same such company at every such time) has been carrying on a qualifying trade wholly or mainly in the United Kingdom.
(5)
The requirement of this section is also not capable of being met by virtue of subsection (3) at any time after the abandonment, within the period mentioned in subsection (4), of the intention in question.
(6)
In determining for the purposes of subsection (4)(a) when the intended trade was begun to be carried on by a qualifying company which is a qualifying 90% subsidiary of the relevant company, any carrying on by it of the trade before it became such a subsidiary of the relevant company is ignored.
(7)
In this section “qualifying company” means the relevant company or any qualifying 90% subsidiary of that company.
(8)
The reference in subsection (7) to a qualifying company which is a qualifying 90% subsidiary of the relevant company includes, in its application to subsection (3), a reference to any existing or future qualifying company which will be a qualifying 90% subsidiary of the relevant company at any future time.
292Ceasing to meet requirements because of administration or receivership
(1)
A company is not regarded as ceasing to meet the requirement of section 290 or 291 merely because of anything done in consequence of its being in administration or receivership.
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company being in administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
293The use of the money raised requirement
(1)
The requirement of this section at any time on or after the issue of the relevant holding is that—
(a)
if that time is not more than 12 months after the trading time, any of conditions A, B and C is met,
(b)
if that time is more than 12 months but not more than 24 months after the trading time, either of conditions B and C is met, and
(c)
in any other case, condition C is met.
(2)
Condition A is that at least 80% of the money raised by the issue of the relevant holding has been or is intended to be employed wholly for the purposes of a relevant qualifying activity.
(3)
Condition B is that at least 80% of the money raised by the issue of the relevant holding has been employed wholly for the purposes of the activity.
(4)
Condition C is that all of the money raised by the issue of the relevant holding has been employed wholly for the purposes of the activity.
(5)
In subsection (1) “the trading time” means whichever is applicable of the following—
(a)
in a case where the requirement of section 291 was met in relation to the time when the relevant holding was issued and the relevant qualifying activity falls within subsection (2) of that section, the time when the relevant holding was issued, and
(b)
in a case where that requirement was met in relation to that time and the relevant qualifying activity falls within subsection (3) of that section, the time when the condition in subsection (4)(a) of that section was met by a qualifying company beginning to carry on the intended trade.
(6)
For the purposes of this section money is not to be treated as employed otherwise than wholly for the purposes of a relevant qualifying activity if the only amount employed for other purposes is an amount which is not a significant amount.
(7)
Nothing in section 286(5) requires any money whose use is ignored by virtue of subsection (6) to be treated as raised by a different holding.
(8)
In this section—
“qualifying activity” and “qualifying company” have the same meaning as in section 291, and
a qualifying activity is a “relevant qualifying activity” if—
(a)
it was also a qualifying activity at the time when the relevant holding was issued, or
(b)
it is a qualifying trade and preparing to carry it on was a qualifying activity at that time.
294The relevant company to carry on the relevant qualifying activity requirement
(1)
The requirement of this section is met if, at no time after the issue of the relevant holding, has the relevant qualifying activity in question been carried on by a person other than—
(a)
the relevant company, or
(b)
a qualifying 90% subsidiary of that company.
In this subsection “the relevant qualifying activity in question” means the relevant qualifying activity by reference to which the requirement of section 293 is met.
(2)
The requirement of this section is not to be regarded as failing to be met merely because of the carrying on of the trade in question by a person other than the relevant company, or a qualifying subsidiary of that company, at any time—
(a)
after the issue of the relevant holding, and
(b)
before the relevant company, or any qualifying 90% subsidiary of that company, carries on that trade.
(3)
The requirement of this section is not to be regarded as failing to be met merely because of the carrying on of the trade in question—
(a)
by the partners in a partnership of which the relevant company, or a qualifying 90% subsidiary of that company, is a member, or
(b)
by the parties to a joint venture to which the relevant company, or a qualifying 90% subsidiary of that company, is a party.
(4)
The requirement of this section is not to be regarded as failing to be met if—
(a)
merely because of anything done as a consequence of the relevant company or any other company being in administration or receivership, or
(b)
merely because of the relevant company or any other company being wound up or dissolved without winding up,
the trade in question ceases to be carried on by the relevant company or a qualifying 90% subsidiary of that company and is subsequently carried on by a person who has not been connected, at any time after the date which is 12 months before the issue of the relevant holding, with the relevant company.
(5)
Subsection (4) applies only if—
(a)
the entry into administration or receivership and everything done in consequence of the company concerned being in administration or receivership, or
(b)
the winding up or dissolution,
is for genuine commercial reasons and is not part of a scheme or arrangement the purpose or one of the main purposes of which is the avoidance of tax.
(6)
In this section “the trade in question” means so much of the relevant qualifying activity mentioned in subsection (1) as consists of—
(a)
a trade which was being carried on at the time when the relevant holding was issued, or
(b)
a trade for the carrying on of which preparations were being made at that time.
(7)
The definition of “relevant qualifying activity” in subsection (8) of section 293 applies for the purposes of this section as it applies for the purposes of that section.
295The unquoted status requirement
(1)
The requirement of this section is that the relevant company must be an unquoted company.
(2)
In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public.
(3)
For the purposes of subsection (2), shares, stocks, debentures or other securities are marketed to the general public if they are—
(a)
listed on the Stock Exchange or a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005,
(b)
listed on a designated exchange in a country outside the United Kingdom, or
(c)
dealt in on the Unlisted Securities Market or dealt in outside the United Kingdom by such means as may be designated.
(4)
In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty’s Revenue and Customs for the purposes of that provision.
(5)
An order made for the purposes of subsection (3)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.
(6)
If—
(a)
any shares in or securities of a company are included in the qualifying holdings of the investing company, and
(b)
that company ceases to be an unquoted company at any time while the investing company is approved as a VCT,
the requirements of this section are to be treated, in relation to shares or securities acquired before that time, as continuing to be met for a period of 5 years after that time.
296The control and independence requirement
(1)
The control element of the requirement is that—
(a)
the relevant company must not control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the relevant company, and
(b)
no arrangements must be in existence by virtue of which the relevant company could fail to meet paragraph (a).
(2)
The independence element of the requirement is that—
(a)
the relevant company must not be under the control of another company (or of another company and any other person connected with that other company), and
(b)
no arrangements must be in existence by virtue of which the relevant company could fail to meet paragraph (a).
(3)
This section is subject to section 327(7) (exchange of shares).
297The gross assets requirement
(1)
The requirement of this section in the case of a relevant company that is a single company is that the value of the company’s gross assets—
(a)
did not exceed £7 million immediately before the issue of the relevant holding, and
(b)
did not exceed £8 million immediately afterwards.
(2)
The requirement of this section in the case of a relevant company that is a parent company is that the value of the group assets—
(a)
did not exceed £7 million immediately before the issue of the relevant holding, and
(b)
did not exceed £8 million immediately afterwards.
(3)
The value of the group assets means the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.
298The qualifying subsidiaries requirement
Any subsidiary that the relevant company has must be a qualifying subsidiary of the company.
299The property managing subsidiaries requirement
(1)
Any property managing subsidiary that the relevant company has must be a qualifying 90% subsidiary of the company.
(2)
“Property managing subsidiary” means a subsidiary of the relevant company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.
(3)
In subsection (2) references to property deriving its value from land include—
(a)
any shareholding in a company deriving its value directly or indirectly from land,
(b)
any partnership interest deriving its value directly or indirectly from land,
(c)
any interest in settled property deriving its value directly or indirectly from land, and
(d)
any option, consent or embargo affecting the disposition of land.
Definitions
300Meaning of “qualifying trade”
(1)
For the purposes of this Chapter, a trade is a qualifying trade if—
(a)
it is conducted on a commercial basis and with a view to the realisation of profits, and
(b)
it does not consist wholly or as to a substantial part in the carrying on of excluded activities (see sections 303 to 310).
(2)
The carrying on of any activities of research and development from which it is intended—
(a)
that a trade will be derived which—
(i)
will be a qualifying trade, and
(ii)
will be carried on wholly or mainly in the United Kingdom, or
(b)
that a trade will benefit which—
(i)
is or will be a qualifying trade, and
(ii)
is or will be carried on wholly or mainly in the United Kingdom,
is to be treated as the carrying on of a qualifying trade.
(3)
But preparing to carry on such activities does not count as preparing to carry on a qualifying trade.
(4)
References in this section to a trade are to be read without regard to the definition of “trade” in section 989.
301Meaning of “qualifying 90% subsidiary”
(1)
For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying 90% subsidiary of the relevant company at any time when the following conditions are met—
(a)
the relevant company possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,
(b)
the relevant company would—
(i)
in the event of a winding up of the subsidiary, or
(ii)
in any other circumstances,
be beneficially entitled to receive at least 90% of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary,
(c)
the relevant company is beneficially entitled to receive at least 90% of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary,
(d)
no person other than the relevant company has control of the subsidiary, and
(e)
no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) would cease to be met.
(2)
Subsections (3), (4) and (5) of section 302 apply in relation to the conditions in subsection (1)—
(a)
as they apply in relation to the conditions in subsection (2) of that section, but
(b)
with the omission from subsection (5) of “or (as the case may be) by another subsidiary of that company”.
(3)
For the purposes of subsection (1)—
(a)
the persons who are equity holders of the subsidiary, and
(b)
the percentage of the assets of the subsidiary to which an equity holder would be entitled,
are to be determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4)
In making that determination—
(a)
references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and
(b)
references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.
302Meaning of “qualifying subsidiary”
(1)
For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying subsidiary of the relevant company if the following conditions are met.
(2)
The conditions are that—
(a)
the subsidiary is a 51% subsidiary of the relevant company,
(b)
no person other than the relevant company, or another of its subsidiaries, has control of the subsidiary, and
(c)
no arrangements are in existence by virtue of which either of the conditions in paragraphs (a) and (b) would cease to be met.
(3)
The conditions do not cease to be met merely because the subsidiary or any other company is wound up, if the winding up—
(a)
is for genuine commercial reasons, and
(b)
is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(4)
The conditions do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration or receivership, if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(5)
The conditions do not cease to be met merely because arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of that company of all its interest in the subsidiary, if the disposal—
(a)
is to be for genuine commercial reasons, and
(b)
is not to be part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Excluded activities
303Meaning of “excluded activities”
(1)
The following are excluded activities for the purposes of sections 290 and 300—
(a)
dealing in land, in commodities or futures or in shares, securities or other financial instruments,
(b)
dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution,
(c)
banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities,
(d)
leasing (including letting ships on charter or other assets on hire),
(e)
receiving royalties or licence fees,
(f)
providing legal or accountancy services,
(g)
property development,
(h)
farming or market gardening,
(i)
holding, managing or occupying woodlands, any other forestry activities or timber production,
(j)
operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment,
(k)
operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home, and
(l)
any activities which are excluded activities under section 310 (provision of services or facilities for another business).
(2)
Subsection (1) is supplemented by the following provisions—
(a)
section 304 (wholesale and retail distribution),
(b)
section 305 (leasing of ships),
(c)
section 306 (receipt of royalties and licence fees),
(d)
section 307 (property development),
(e)
section 308 (hotels and comparable establishments), and
(f)
section 309 (nursing homes and residential care homes).
304Excluded activities: wholesale and retail distribution
(1)
This section supplements section 303(1)(b).
(2)
In this section—
(a)
subsections (3) and (4) are for determining whether a trade is a trade of wholesale or retail distribution, and
(b)
subsections (5) and (6) are for determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution.
(3)
A trade of wholesale distribution is one in which goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption.
(4)
A trade of retail distribution is one in which goods are offered or exposed for sale and sold to members of the general public for their use or consumption.
(5)
A trade of wholesale or retail distribution is not an ordinary trade of wholesale or retail distribution if—
(a)
it consists to a substantial extent—
(i)
in dealing in goods of a kind which are collected or held as an investment, or
(ii)
in that activity and any other excluded activity taken together, and
(b)
a substantial proportion of those goods are held for a period which is significantly longer than the period for which the trader would reasonably be expected to hold them while trying to dispose of them at their market value.
(6)
In determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution regard is to be had to the extent to which it has the following features—
(a)
the goods are bought by the trader in quantities larger than those in which the trader sells them,
(b)
the goods are bought and sold by the trader in different markets,
(c)
the trader employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, in addition to any remuneration paid to any person connected with it,
(d)
there are purchases or sales from or to persons who are connected with the trader,
(e)
purchases are matched with forward sales or vice versa,
(f)
the goods are held by the trader for longer than is normal for goods of the kind in question,
(g)
the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade, and
(h)
the trader does not take physical possession of the goods.
(7)
In subsection (6)—
(a)
the features in paragraphs (a) to (c) are regarded as indications that the trade is an ordinary trade of wholesale or retail distribution, and
(b)
those in paragraphs (d) to (h) are regarded as indications to the contrary.
305Excluded activities: leasing of ships
(1)
This section supplements section 303(1)(d) so far as it relates to the leasing of ships other than offshore installations or pleasure craft.
(2)
In the following provisions “ship” accordingly means a ship other than an offshore installation or a pleasure craft.
(3)
If the requirements of subsection (4) are met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 303(1)(d) as a result only of its consisting in letting ships on charter.
(4)
The requirements of this subsection are that—
(a)
every ship let on charter by the company carrying on the trade is beneficially owned by the company,
(b)
every ship beneficially owned by the company is registered in the United Kingdom,
(c)
the company is solely responsible for arranging the marketing of the services of its ships, and
(d)
the conditions mentioned in subsection (5) are met in relation to every letting on charter by the company.
(5)
The conditions referred to in subsection (4)(d) are—
(a)
the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer,
(b)
no provision for the grant of a new letting to end more than 12 months after the provision is made (whether in the charterparty or otherwise) is in force during the period of the letting otherwise than at the option of the charterer,
(c)
the letting is by way of a bargain at arm’s length between the company and a person who is not connected with it,
(d)
under the terms of the charter the company is responsible as principal—
(i)
for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry, and
(ii)
for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period, and
(e)
no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) on behalf of the company.
(6)
If in the case of the company carrying on the trade (“the letting company”) the charterer is also a company and—
(a)
the charterer is a qualifying subsidiary of the letting company, or
(b)
the letting company is a qualifying subsidiary of the charterer, or
(c)
both companies are qualifying subsidiaries of a third company,
subsection (5) has effect with the omission of paragraph (c).
(7)
If any of the requirements of subsection (4) is not met in relation to any lettings of ships, the trade is not, as a result, to be treated as consisting in the carrying on of excluded activities if—
(a)
those lettings, and
(b)
any other excluded activities
do not, taken together, amount to a substantial part of the trade.
(8)
In this section “pleasure craft” means any ship of a kind primarily used for sport or recreation.
306Excluded activities: receipt of royalties and licence fees
(1)
This section supplements section 303(1)(e) (receipt of royalties and licence fees).
(2)
If the requirement of subsection (3) is met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 303(1)(e) as a result only of its consisting to a substantial extent in the receiving of royalties or licence fees.
(3)
The requirement of this subsection is that the royalties or licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.
(4)
For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—
(a)
by the company carrying on the trade, or
(b)
by a company which at all times during which it created the intangible asset was—
(i)
the holding company of the company carrying on the trade, or
(ii)
a company which, if that holding company were the relevant company, would be a qualifying subsidiary of that company.
(5)
In the case of an intangible asset that is intellectual property, references to the creation of an asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).
(6)
In this section—
“holding company” means a company that—
(a)
has one or more 51% subsidiaries, but
(b)
is not itself a 51% subsidiary of another company,
“intangible asset” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice, and
“intellectual property” means—
(a)
any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right, or
(b)
any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a).
307Excluded activities: property development
(1)
This section supplements section 303(1)(g).
(2)
“Property development” means the development of land—
(a)
by a company which has, or at any time has had, an interest in the land, and
(b)
with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.
(3)
For this purpose “interest in land” means, subject to subsection (4)—
(a)
any estate, interest or right in or over land, including any right affecting the use or disposition of land, or
(b)
any right to obtain such an estate, interest or right from another which is conditional on the other’s ability to grant it.
(4)
References in this section to an interest in land do not include—
(a)
the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or
(b)
in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.
308Excluded activities: hotels and comparable establishments
(1)
This section supplements section 303(1)(j).
(2)
The reference to a comparable establishment is to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (with or without catering services).
(3)
The activities of a person are not to be taken to fall within section 303(1)(j) unless that person has an estate or interest in, or is in occupation of, the hotel or comparable establishment in question.
309Excluded activities: nursing homes and residential care homes
(1)
This section supplements section 303(1)(k).
(2)
“Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care—
(a)
for persons suffering from sickness, injury or infirmity, or
(b)
for women who are pregnant or have given birth.
(3)
“Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—
(a)
old age,
(b)
mental or physical disability,
(c)
past or present dependence on alcohol or drugs,
(d)
any past illnesses, or
(e)
past or present mental disorder.
(4)
The activities of a person are not to be taken to fall within section 303(1)(k) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.
310Excluded activities: provision of services or facilities for another business
(1)
Providing services or facilities for a business carried on by another person (other than a company of which the provider of the services or facilities is a qualifying subsidiary) is an excluded activity if—
(a)
the business consists wholly or as to a substantial part of activities falling within any of paragraphs (a) to (k) of section 303(1), and
(b)
a controlling interest in the business is held by a person who also has a controlling interest in the business carried on by the provider of the services or facilities.
(2)
Subsections (3) to (5) explain what is meant by a controlling interest in a business for the purposes of subsection (1)(b).
(3)
In the case of a business carried on by a company, a person (“A”) has a controlling interest in the business if—
(a)
A controls the company,
(b)
the company is a close company and A or an associate of A, being a director of the company, either—
(i)
is the beneficial owner of more than 30% of the ordinary share capital of the company, or
(ii)
is able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital, or
(c)
at least half the business could, in accordance with section 344(2) of ICTA (persons to whom company’s trade may be treated as belonging), be regarded as belonging to A for the purposes of section 343 of that Act (company reconstructions without a change of ownership).
(4)
In any other case, a person has a controlling interest in a business if the person is entitled to at least half the assets used for, or of the income arising from, the business.
(5)
For the purposes of this section—
(a)
any rights or powers of a person who is an associate of another are to be attributed to that other person, and
(b)
“business” includes any trade, profession or vocation.
Supplementary
311Power to amend Chapter
The Treasury may by order amend this Chapter—
(a)
to make such modifications of sections 290, 291, 298 and 300, sections 303 to 310 and section 313(3) as they consider appropriate, and
(b)
to substitute different sums for the sums of money for the time being specified in sections 287(2) and 297.
312Winding up of the relevant company
None of the requirements of this Chapter is to be regarded, at a time when the relevant company is being wound up, as being, on that account, a requirement that is not met in relation to that company if—
(a)
the requirements of this Chapter would be met in relation to that company apart from the winding up, and
(b)
the winding up is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
313Interpretation of Chapter
(1)
In this Chapter —
“the investing company” has the meaning given by section 286(1),
“the relevant company” has the meaning given by section 286(1), and
“the relevant holding” has the meaning given by section 286(1).
(2)
References in this Chapter to the issue of any securities, in relation to any security consisting in a liability in respect of an unsecured loan, have effect as references to the making of the loan.
(3)
References in sections 303 to 309 to a trade are to be read without regard to the definition of “trade” in section 989 (see also section 300(4)).
(4)
For the purposes of sections 296 and 310(3) and (4), the question whether a person controls a company is to be determined in accordance with section 416(2) to (6) of ICTA with the modification given by subsection (6).
(5)
For the purposes of this Chapter, section 993 (meaning of “connected persons”) applies as if references to “control” in that section were to be read in accordance with section 416 of ICTA with the modification given by subsection (6).
(6)
The modification is that, in determining whether a person controls a company, the following are to be ignored—
(a)
any person’s possession of, or entitlement to acquire, fixed-rate preference shares in the company that do not carry voting rights, and
(b)
any person’s possession of, or entitlement to acquire, rights as a loan creditor of the company.
(7)
In subsection (6) “fixed-rate preference shares” means shares which—
(a)
were issued wholly for new consideration,
(b)
do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities, and
(c)
do not carry any right to dividends other than dividends which—
(i)
are of a fixed amount or at a fixed rate per cent of the nominal value of the shares, and
(ii)
together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued,
and in paragraph (a) “new consideration” has the meaning given by section 254 of ICTA.
Chapter 5Powers: winding up and mergers of VCTs
Winding up
314Power to treat VCT-in-liquidation as VCT
(1)
Regulations may make provision for tax enactments specified by the regulations to have effect as if—
(a)
a VCT-in-liquidation that is not a VCT were, or were during any prescribed period of its winding up, a VCT,
(b)
VCT approval withdrawn from a company—
(i)
at any time during the period when it is a VCT-in-liquidation, or
(ii)
at any time during a prescribed part of that period,
were withdrawn at a prescribed time (and not at the time when it is actually withdrawn).
(2)
In this section “prescribed” means specified by, or determined under, regulations.
315Power to treat conditions for VCT approval as met with respect to VCT-in-liquidation
(1)
Regulations may make provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated for the purposes of section 274(1) as met, or as conditions that will be met, with respect to a VCT-in-liquidation.
(2)
Provision under subsection (1) may be made so as to apply in relation to a VCT-in-liquidation—
(a)
throughout its winding up, or
(b)
during prescribed periods of its winding up.
(3)
Regulations may, for purposes of tax enactments specified by the regulations, make provision for VCT approval to be treated as having been withdrawn, with effect from a time specified by or determined under the regulations, from a VCT-in-liquidation from which the Commissioners for Her Majesty’s Revenue and Customs would have power to withdraw such approval but for provision made under subsection (1).
316Power to make provision about distributions by VCT-in-liquidation
(1)
Regulations may make provision for tax enactments specified by the regulations—
(a)
to apply in relation to distributions from a VCT-in-liquidation (including, in particular, distributions in the course of dissolving it or winding it up),
(b)
not to apply in relation to such distributions,
(c)
to apply in relation to such distributions with modifications specified by the regulations.
(2)
Provision under subsection (1) may be made so as to apply in relation to distributions from a VCT-in-liquidation made—
(a)
at any time during its winding up, or
(b)
during periods of its winding up specified by, or determined under, regulations.
317Power to facilitate disposal to VCT by VCT-in-liquidation
(1)
Regulations may make provision authorised by subsection (2) for cases where shares in or securities of a company are acquired by a VCT from a VCT-in-liquidation.
(2)
The provision that may be made under subsection (1) for such a case is—
(a)
provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated for the purposes of section 274(1) as met, or as conditions that will be met, with respect to the VCT in relation to periods ending after the acquisition,
(b)
provision for the shares or securities acquired to be treated, at times after the acquisition when they are held by the VCT, as meeting the requirements of Chapter 4 (provisions for determining whether shares or securities form part of qualifying holdings), and
(c)
provision for shares in the VCT issued in connection with the acquisition of the shares or securities from the VCT-in-liquidation and either—
(i)
issued to a person who is a member of the VCT-in-liquidation, or
(ii)
issued to the VCT-in-liquidation and distributed by it in the course of its winding up or dissolution to a person who is one of its members,
to be treated, for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment), as representing shares in the VCT-in-liquidation held by that person.
(3)
Provision under subsection (1) may be made so as to apply in relation to shares or securities acquired from a VCT-in-liquidation—
(a)
at any time during its winding up, or
(b)
during periods of its winding up specified by, or determined under, regulations.
(4)
In this section “securities” means any securities and includes any liability that is a security in relation to a company because of section 285(2) (securities).
318Power in respect of periods before and after winding up
(1)
Any power under sections 314 to 317 to make provision in relation to a VCT-in-liquidation includes power to make corresponding or similar provision in relation to—
(a)
a company for whose winding up an application has been made to a court and which is not a VCT-in-liquidation but would be if, at the time that the application was made, the court had ordered the company’s winding up to commence at that time, or
(b)
a company that has been a VCT-in-liquidation but no longer is a VCT-in-liquidation because it has been wound up.
(2)
For the purposes of making provision in reliance on subsection (1), references in sections 314 to 317 (however expressed) to a VCT-in-liquidation’s winding up, or the commencement or ending of its winding up, may be taken to be references to, or to the commencement or ending of, the extension period for a company to which subsection (1) applies.
(3)
In this section—
“the extension period”—
(a)
in relation to a company to which subsection (1)(a) applies, means the period beginning with the making of the application and ending with the earlier of its final determination and the company becoming a company that is being wound up, and
(b)
in relation to a company to which subsection (1)(b) applies, means the period between the end of the company’s winding up and the company’s dissolution, and
“prescribed” means specified by, or determined under, regulations.
319Sections 314 to 318: supplementary
(1)
Provision made by regulations under sections 314 to 318 applies in cases, and subject to conditions, specified by regulations.
(2)
Such provision may (but need not) be made so as to have effect in a particular case only for such period as may be specified by, or determined under, regulations.
(3)
References in sections 314 to 318 to things done by a VCT-in-liquidation include things done by a liquidator of a VCT-in-liquidation.
320Meaning of “VCT-in-liquidation”
(1)
In this Chapter “VCT-in-liquidation” means a company—
(a)
that is being wound up (whether or not under the law of a part of the United Kingdom and whether under the law of one, or more than one, territory),
(b)
that was a VCT immediately before the commencement of its winding up, and
(c)
whose winding up is for genuine commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(2)
Regulations may, for purposes of this Chapter, make provision as to when a company’s winding up is to be treated as commencing or ending in a case where it is wound up otherwise than under the law of a part of the United Kingdom or otherwise than under the law of a single territory.
Mergers
321Power to facilitate mergers of VCTs
(1)
Regulations may make provision authorised by section 322 for cases where—
(a)
there is a merger of two or more companies each of which is a VCT immediately before the merger begins to be effected, and
(b)
the merger is for genuine commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(2)
Provision made by regulations under subsection (1) applies—
(a)
in cases, and
(b)
subject to conditions (including conditions requiring approvals to be obtained),
specified by the regulations.
322Provision that may be made by regulations under section 321
(1)
The provision that may be made under section 321(1) for a case where there is a merger of two or more companies (“the merging companies”) is as follows.
(2)
Provision for the successor company, or any of the merging companies, to be treated (whether at times before, during or after the merger) as a VCT for purposes of tax enactments specified by regulations.
(3)
Provision for section 266 (loss of relief on disposal of VCT shares within 5 years of their issue) not to apply in the case of disposals of shares in a merging company made in the course of effecting the merger.
(4)
Provision for such disposals not to be chargeable events for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment).
(5)
Provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated (whether at times before, during or after the merger) for purposes of section 274(1) as met, or as conditions that will be met, with respect to the successor company or any of the merging companies.
(6)
Provision for shares in or securities of a company that are acquired (whether at times before, during or after the merger) by the successor company from a merging company to be treated, at times after the acquisition when they are held by the successor company, as meeting requirements of Chapter 4 (provisions for determining whether shares or securities held by a VCT form part of its qualifying holdings).
(7)
Provision for tax enactments specified by regulations to apply, with or without adaptations, in relation to the merger or transactions taking place (whether before, during or after the merger) in connection with the merger.
(8)
Provision authorising disclosure for tax purposes connected with the merger—
(a)
by Her Majesty’s Revenue and Customs,
(b)
to any of the merging companies or the successor company,
(c)
of any information provided to Her Majesty’s Revenue and Customs by or on behalf of any of the merging companies or the successor company.
323Meaning of “merger” and “successor company”
(1)
For the purposes of this Chapter there is a merger of two or more companies (“the merging companies”) if—
(a)
shares in one of the merging companies (“company A”) are issued to members of the other merging company or companies, and
(b)
the shares issued to members of the other merging company or, in the case of each of the other merging companies, the shares issued to members of that other company, are issued—
(i)
in exchange for their shares in that other company, or
(ii)
by way of consideration for a transfer to company A of the whole or part of the business of that other company.
(2)
For the purposes of this Chapter there is also a merger of two or more companies (“the merging companies”) if—
(a)
shares in a company (“company B”) that is not one of the merging companies are issued to members of the merging companies, and
(b)
in the case of each of the merging companies, the shares issued to members of that company are issued—
(i)
in exchange for their shares in that company, or
(ii)
by way of consideration for a transfer to company B of the whole or part of the business of that company.
(3)
In this Chapter “the successor company”—
(a)
in relation to a merger such as is described in subsection (1), means the company that performs the role of company A, and
(b)
in relation to a merger such as is described in subsection (2), means the company that performs the role of company B.
Supplementary
324Regulations under Chapter
(1)
Regulations under this Chapter may—
(a)
contain such administrative provisions (including provision for advance clearance and provision for the withdrawal of clearances) as appear to the Treasury to be necessary or appropriate,
(b)
authorise the Commissioners for Her Majesty’s Revenue and Customs to give notice to any person requiring that person to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by regulations under this Chapter are met,
(c)
make different provision for different cases,
(d)
contain incidental, supplemental, consequential and transitional provision and savings, and
(e)
include provision having retrospective effect.
(2)
Without prejudice to any specific provision of this Chapter, a power conferred by any provision of this Chapter to make regulations includes power to provide for Her Majesty’s Revenue and Customs to exercise a discretion in dealing with any matter.
325Interpretation of Chapter
In this Chapter—
“regulations” means regulations made by the Treasury, and
“tax enactments” means provisions of or made under—
(a)
the Tax Acts,
(b)
TCGA 1992 or any other enactment relating to capital gains tax, or
(c)
TMA 1970.
Chapter 6Supplementary and general
Acquisitions for restructuring purposes
326Restructuring to which section 327 applies
(1)
Section 327 applies if—
(a)
arrangements are made for a company (“the new company”) to acquire all the shares (“old shares”) in another company (“the old company”),
(b)
the acquisition provided for by the arrangements falls within subsection (2), and
(c)
the Commissioners for Her Majesty’s Revenue and Customs have, before any exchange of shares takes place under the arrangements, given an approval notification.
(2)
An acquisition of shares falls within this subsection if—
(a)
the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,
(b)
new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than subscriber shares and new shares previously issued in consideration of old shares,
(c)
the consideration for new shares of each description consists wholly of old shares of the corresponding description, and
(d)
new shares of each description are issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings.
(3)
For the purposes of subsection (1)(c) an approval notification is one which, on the application of either the old company or the new company, is given to the applicant company and states that the Commissioners for Her Majesty’s Revenue and Customs are satisfied that the exchange of shares under the arrangements—
(a)
will be effected for genuine commercial reasons, and
(b)
will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).
(4)
Nothing in section 327 treats any of the requirements of Chapter 4 as being met in relation to any new shares unless the matching old shares were first issued to the company holding them and have been held by that company from the time when they were issued until they are acquired by the new company.
(5)
If, at any time after the arrangements first came into existence and before the new company acquired all the old shares, the arrangements—
(a)
cease to be arrangements for the acquisition of all the old shares by the new company, or
(b)
cease to be arrangements for an acquisition falling within subsection (2),
section 327 does not treat any requirement of Chapter 4 as being met, and subsection (8) of that section does not apply, in the case of any new shares at any time after the arrangements have so ceased.
327Certain requirements of Chapter 4 to be treated as met
(1)
If this section applies, subsections (2) to (8) have effect to determine the extent to which, and the times for which, the requirements of the following provisions of Chapter 4 are met in relation to the new shares—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 290 (the trading requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 293 (the use of the money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying activity requirement),
section 296 (the control and independence requirement), and
section 297 (the gross assets requirement).
(2)
If the requirements of sections 290 and 291 were met in relation to the old company and any old shares immediately before the beginning of the period for giving effect to the arrangements, then (so far as it would not otherwise be the case) those requirements are treated as being met in relation to the new company and the matching new shares at all times which—
(a)
fall in that period, and
(b)
do not fall after a time when (apart from the arrangements) those requirements would have ceased by virtue of—
(i)
section 291(4) or (5), or
(ii)
any cessation of a trade by any company,
to be met in relation to the old company and the matching old shares.
(3)
For the purposes of section 291, the period of two years mentioned in subsection (4) of that section is treated, in the case of any new shares, as expiring at the same time as it would have expired (or by virtue of this subsection would have been treated as expiring) in the case of the matching old shares.
(4)
Subject to subsection (5), if—
(a)
there is an exchange under the arrangements of any new shares for any old shares, and
(b)
those old shares are shares in relation to which the requirements of sections 293, 294 and 297 were (or were treated as being) met to any extent immediately before the exchange,
those requirements are to be treated, at all times after that time, as met to the same extent in relation to the matching new shares.
(5)
If there is a time following any exchange under the arrangements of any new shares for any old shares when (apart from the arrangements) the requirement of section 293 would have ceased under—
(a)
subsection (1) of that section, or
(b)
this subsection,
to be met in relation to those old shares, that requirement ceases at that time to be met in relation to the matching new shares.
(6)
For the purposes of section 287, any new shares acquired under the arrangements are to be treated as representing an investment which—
(a)
raised the same amount of money as was raised (or, by virtue of this subsection, is treated as having been raised) by the issue of the matching old shares, and
(b)
raised that amount by an issue of shares in the new company made at the time when the issue of the matching old shares took place (or, as the case may be, is treated as having taken place).
(7)
In determining whether the requirements of section 296 are met in relation to the old company or the new company at a time in the period for giving effect to the arrangements, ignore both—
(a)
the arrangements themselves, and
(b)
any exchange of new shares for old shares that has already taken place under the arrangements.
(8)
For the purposes of section 289, the value of the new shares, both—
(a)
immediately after the time of their acquisition, and
(b)
immediately after the time of any subsequent relevant event occurring by virtue of the arrangements,
is to be taken to be the same as the value, when last valued in accordance with that section, of the old shares for which they are exchanged.
328Supplementary
(1)
Subject to subsection (2), references in sections 326 and 327 and this section, except in the expression “subscriber shares”, to shares in a company include references to any securities of that company.
(2)
For the purposes of subsection (1) a relevant security of the old company is not to be treated as a security of the old company if—
(a)
the arrangements do not provide for the acquisition of the security by the new company, or
(b)
such treatment prevents section 326(1)(b) from being met in connection with the arrangements.
(3)
In subsection (2) “relevant security” means an instrument which is a security for the purposes of Chapter 4 merely because of section 285(2).
(4)
References in section 327 to the period for giving effect to the arrangements are references to the period which—
(a)
begins with the time when the arrangements first came into existence, and
(b)
ends with the time when the new company completes its acquisition under the arrangements of all the old shares.
(5)
For the purposes of sections 326 and 327 and this section—
(a)
old shares and new shares are of a corresponding description if, were they shares in the same company, they would be of the same description, and
(b)
old shares and new shares are matching shares in relation to each other if the old shares are the shares for which the new shares are exchanged under the arrangements.
Supplementary
331Meaning of a company being “in administration” or “in receivership”
(1)
References in this Part to a company being “in administration” or “in receivership” are to be read as follows.
(2)
A company is “in administration” if—
(a)
it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 (c. 45) or Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
(b)
there is in force in relation to it under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.
(3)
A company is “in receivership” if there is in force in relation to it—
(a)
an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland) Order 1989, or
(b)
any corresponding order under the law of a country or territory outside the United Kingdom.
332Minor definitions etc
In this Part—
“associate” has the meaning given by section 253,
“company” includes any body corporate or unincorporated association but does not include a partnership, and is to be read in accordance with section 99 of TCGA 1992 (unit trust schemes),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company’s ordinary share capital,
“parent company” means a company that has one or more qualifying subsidiaries and “single company” means a company that does not,
“research and development” has the meaning given by section 1006, and
“shares” includes stock.
Part 7Community investment tax relief
Chapter 1Introduction
CITR
333Meaning of “CITR”
This Part provides for community investment tax relief (“CITR”), that is, entitlement to tax reductions in respect of amounts invested by individuals in community development finance institutions.
334Eligibility for CITR
(1)
An individual (“the investor”) who makes an investment (“the investment”) in a body is eligible for CITR in respect of the investment if—
(a)
that body is accredited as a community development finance institution under Chapter 2 at the time the investment is made,
(b)
the investment is a qualifying investment (see Chapter 3), and
(c)
the general conditions of Chapter 4 are met.
(2)
In this Part references to “the CDFI” are to the body in which the investment is made.
335Form and amount of CITR
(1)
If the investor is eligible for CITR in respect of the investment, the investor may make a claim in respect of the investment for any one or more of the relevant tax years.
(2)
If the investor makes a claim for a relevant tax year, the investor is entitled to a tax reduction for that year of 5% of the invested amount in respect of the investment for the year.
(3)
For this purpose the “relevant” tax years are—
(a)
the tax year in which the investment date falls, and
(b)
each of the 4 subsequent tax years.
(4)
The tax reduction is given effect at Step 6 of the calculation in section 23.
(5)
The investor is entitled to make a claim for CITR for a relevant tax year if—
(a)
the investor considers that the conditions for the CITR are for the time being met, and
(b)
the investor has received a tax relief certificate (see section 348) relating to the investment from the CDFI,
but no claim may be made before the end of the tax year to which it relates.
(6)
Subsection (5) is subject to the following provisions—
(a)
section 354 (loans: no claim after disposal or excessive repayments or receipts of value),
(b)
section 355 (securities or shares: no claim after disposal or excessive receipts of value), and
(c)
section 356 (no claim after loss of accreditation by CDFI).
Miscellaneous
336Meaning of “making an investment”
(1)
For the purposes of this Part, an individual makes an investment in a body at any time when—
(a)
the individual makes a loan (whether secured or unsecured) to the body, or
(b)
an issue of securities of or shares in the body, for which the individual has subscribed, is made to the individual.
(2)
The following provisions of this section apply for the purposes of subsection (1)(a).
(3)
An individual does not make a loan to a body if—
(a)
the body uses overdraft facilities provided by the individual, or
(b)
the individual subscribes for or otherwise acquires securities of the body.
(4)
If the loan agreement authorises the body to draw down amounts of the loan over a period of time, the loan is treated as made at the time when the first amount is drawn down.
337Determination of “the invested amount”
(1)
This section applies for the purpose of determining “the invested amount” in respect of any loan, securities or shares included in the investment.
This is subject to sections 363(2) and 369 (which adjust “the invested amount” in certain cases where value is received).
(2)
In the case of a loan, the invested amount is—
(a)
for the tax year in which the investment date falls, the average capital balance for the first year of the 5 year period,
(b)
for the next tax year, the average capital balance for the second year of the 5 year period, and
(c)
for any subsequent tax year—
(i)
the average capital balance for the period of 12 months beginning with the anniversary of the investment date falling in the tax year concerned, or
(ii)
if less, the average capital balance for the period of 6 months beginning 18 months after the investment date.
(3)
In the case of securities or shares, the invested amount for a tax year is the amount subscribed by the investor for the securities or shares.
(4)
For the purposes of this section, the average capital balance of the loan for a period is the mean of the daily balances of capital outstanding during the period.
338Meaning of “the 5 year period” and “the investment date”
In this Part—
“the 5 year period” means the period of 5 years beginning with the investment date, and
“the investment date” means the day the investment is made.
339Overview of other Chapters of Part
In this Part—
(a)
Chapter 5 provides for the making of claims for CITR and the attribution of CITR to investments,
(b)
Chapter 6 provides for CITR to be withdrawn or reduced in the circumstances mentioned in that Chapter, and
(c)
Chapter 7 contains supplementary and general provision.
Chapter 2Accredited community development finance institutions
340Application and criteria for accreditation
(1)
Applications for accreditation as a community development finance institution must be made to the Secretary of State in the form and manner specified by the Secretary of State.
(2)
The Secretary of State is to accredit a body if (and only if) the Secretary of State is satisfied—
(a)
that the body’s principal objective is to provide (directly or indirectly)—
(i)
finance, or
(ii)
finance and access to business advice,
for enterprises for disadvantaged communities, and
(b)
that the body meets any other criteria specified in regulations made by the Treasury.
(3)
For the purposes of this section “enterprises for disadvantaged communities” include—
(a)
enterprises located in disadvantaged areas, and
(b)
enterprises owned or operated by, or designed to serve, members of disadvantaged groups.
(4)
The criteria mentioned in paragraph (b) of subsection (2) may include criteria relating to the enterprises to which the body provides or proposes to provide finance or access to business advice.
(5)
Regulations under that paragraph may make the provision authorised by that paragraph by reference to any material published by, or on behalf of, the Secretary of State (whether before or after the coming into force of this section).
(6)
Regulations under that paragraph—
(a)
may make different provision for different cases or circumstances or in relation to different areas, and
(b)
may, in particular, make different provision in the case of bodies whose principal objective in providing finance as mentioned in subsection (2)(a) is to invest directly in enterprises that meet the conditions of subsection (7).
(7)
An enterprise meets the conditions of this subsection if it uses the money invested in it for the purposes of its business and either—
(a)
that business does not include the provision of finance for other enterprises, or
(b)
if it does, the nature and extent of such provision meets any conditions prescribed by regulations made by the Treasury.
(8)
If the Secretary of State accredits a body of a kind mentioned in subsection (6)(b), the Secretary of State must specify in the accreditation that the body is accredited as a retail community development finance institution.
341Terms and conditions of accreditation
(1)
An accreditation under this Chapter must—
(a)
be made on—
(i)
any terms required by regulations, and
(ii)
any other terms the Secretary of State considers appropriate, and
(b)
be made conditional on compliance with—
(i)
any requirements imposed by regulations, and
(ii)
any other requirements the Secretary of State considers appropriate.
(2)
The requirements that may be imposed by virtue of subsection (1)(b) include requirements relating to the provision of information.
(3)
Regulations may—
(a)
make provision for appeals to the Special Commissioners against refusals to grant accreditation under this Chapter,
(b)
make provision about the consequences of a failure to comply with any requirement of an accreditation, including—
(i)
provision for the withdrawal of the accreditation with effect from the time of the failure or a later time, and
(ii)
provision for the imposition of penalties,
(c)
make provision for the making of decisions by the Secretary of State as to any matter required to be decided for the purposes of the regulations,
(d)
make different provision for different cases or circumstances or in relation to different areas, and
(e)
contain incidental, supplemental, consequential and transitional provision and savings.
(4)
In this section “regulations” means regulations made by the Treasury.
342Period of accreditation
(1)
An accreditation has effect for a period (an “accreditation period”) of 3 years beginning on the day specified in the accreditation.
(2)
Subject to subsection (4), the accreditation must not specify a day which is earlier than—
(a)
if the body is not accredited under this Chapter at the time the application is made, the day the accreditation is granted, and
(b)
if the body is so accredited, the time the body’s current accreditation expires.
(3)
Subsection (4) applies if—
(a)
the body is accredited at the time the application is made, and
(b)
it makes a request under this subsection.
(4)
The new accreditation may specify that the existing accreditation is to be treated for the purposes of this Part (including subsection (2)(b)) as expiring immediately before the grant of the new accreditation (if it would otherwise expire at a later time).
(5)
This section has effect subject to section 341(3)(b) (power to provide for the withdrawal of accreditation).
343Delegation of Secretary of State’s functions
The Secretary of State may delegate any functions conferred on the Secretary of State by or under this Chapter.
Chapter 3Qualifying investments
344Qualifying investments: introduction
For the purposes of this Part the investment is a “qualifying investment” in the CDFI if—
(a)
the investment consists of—
(i)
a loan in relation to which the conditions of section 345 are met,
(ii)
securities in relation to which the conditions of section 346 are met, or
(iii)
shares in relation to which the conditions of section 347 are met,
(b)
the investor receives from the CDFI a valid tax relief certificate in relation to the investment (see section 348), and
(c)
the requirements of section 349 (no pre-arranged protection against risks) are met.
345Conditions to be met in relation to loans
(1)
Condition A of this section is that either—
(a)
the CDFI receives from the investor, on the investment date, the full amount of the loan, or
(b)
if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the end of that period is not later than 18 months after the investment date.
(2)
Condition B is that the loan must not carry any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within the 5 year period.
(3)
Condition C is that the loan must not have been made on terms that allow any person to require—
(a)
the repayment during the first two years of the 5 year period of any of the loan capital advanced in those two years,
(b)
the repayment during the third year of that period of more than 25% of the loan capital outstanding at the end of those two years,
(c)
the repayment before the end of the fourth year of that period of more than 50% of that loan capital, or
(d)
the repayment before the end of that period of more than 75% of that loan capital.
(4)
Subsection (3) does not apply if the CDFI is required to make the repayment as a result of its failure to meet any obligation of the loan agreement which—
(a)
is imposed merely because of the commercial risks to which the investor is exposed as lender under that agreement, and
(b)
is no more likely to be breached than any obligation that might reasonably have been agreed in respect of the loan in the absence of this Part.
(5)
The Treasury may by order substitute any other percentage for any percentage for the time being specified in subsection (3).
(6)
Any such substitution is to have effect in relation to loans made by an individual on or after the date specified in the order.
346Conditions to be met in relation to securities
(1)
Condition A of this section is that the securities must be—
(a)
subscribed for wholly in cash, and
(b)
fully paid for on the investment date.
(2)
Condition B is that the securities must not carry—
(a)
any present or future right to be redeemed within the 5 year period, or
(b)
any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.
(3)
Securities are not fully paid for the purposes of subsection (1)(b) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the securities.
347Conditions to be met in relation to shares
(1)
Condition A of this section is that the shares must be—
(a)
subscribed for wholly in cash, and
(b)
fully paid up on the investment date.
(2)
Condition B is that the shares must not carry—
(a)
any present or future right to be redeemed during the 5 year period, or
(b)
any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.
(3)
Shares are not fully paid up for the purposes of subsection (1)(b) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the shares.
348Tax relief certificates
(1)
A “tax relief certificate” means a certificate issued by the CDFI in respect of the investment which is in the form specified by the Commissioners for Her Majesty’s Revenue and Customs.
(2)
The CDFI must not issue tax relief certificates under this section in respect of investments made in the CDFI in an accreditation period if the total value of—
(a)
those investments, and
(b)
any investments to which subsection (3) applies,
will exceed the limit for that period.
(3)
This subsection applies to investments which—
(a)
have been made in the CDFI in the accreditation period, and
(b)
in respect of which the CDFI has issued tax relief certificates under paragraph 12 of Schedule 16 to FA 2002 (which makes in relation to corporation tax provision corresponding to that made by this section).
(4)
The limit for an accreditation period is—
(a)
£10 million if the CDFI is accredited for the period as a retail community development finance institution (see section 340(8)), and
(b)
£20 million in any other case.
(5)
For the purposes of subsection (2) the value of an investment made in the CDFI is—
(a)
if the investment consists of a loan—
(i)
the amount of the loan, or
(ii)
if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the amount committed under the loan agreement, and
(b)
if the investment consists of securities or shares, the amount subscribed for them.
(6)
The Treasury may by order substitute any other amount for any amount for the time being specified in subsection (4).
(7)
Any such substitution is to have effect in relation to such accreditation periods as may be specified in the order; and those periods may, if the substitution increases the amount for the time being specified in subsection (4), include periods beginning before the order takes effect.
(8)
Any tax relief certificate issued in contravention of subsection (2) is invalid.
(9)
A body is liable to a penalty of not more than £3,000 if it issues a tax relief certificate which is made fraudulently or negligently.
349No pre-arranged protection against risks
(1)
Any arrangements—
(a)
under which the investment is made, or
(b)
made, before the investor makes the investment, in relation to or in connection with the making of the investment,
must not include excluded arrangements.
(2)
For the purposes of subsection (1) “excluded arrangements”—
(a)
means arrangements the main purpose or one of the main purposes of which is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for the investor against what would otherwise be the risks attached to making the investment, but
(b)
does not include any arrangements which are confined to the provision for the investor of any protection against those risks which might reasonably be expected to be provided for commercial reasons if the investment were made in the course of a business of banking.
(3)
For the purposes of this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
Chapter 4General conditions
350No control of CDFI by investor
(1)
The investor must not control the CDFI at any time during the 5 year period.
(2)
In this section references to the investor include any person connected with the investor.
(3)
If the CDFI is a body corporate, the question whether the investor controls the CDFI is, for the purposes of this section, determined in accordance with section 995.
This is subject to subsection (6).
(4)
In any other case the investor is treated, for those purposes, as having control of the CDFI if the investor has power to secure, as a result of—
(a)
the possession of voting power in the CDFI, or
(b)
any powers conferred by the constitution of, or any other document regulating, the CDFI,
that the affairs of the body are conducted in accordance with the investor’s wishes.
This is subject to subsections (5) and (6).
(5)
If—
(a)
the CDFI is a partnership, and
(b)
the investor is a member of that partnership,
for the purposes of determining in accordance with this section whether the investor controls the CDFI, the other members of that partnership are not, as a result of their membership of the CDFI, treated as partners of the investor.
(6)
In determining whether the investor controls the CDFI there are attributed to the investor (so far as it would not otherwise be the case)—
(a)
any rights or powers that the investor is entitled to acquire at a future date or will, at a future date, become entitled to acquire, and
(b)
any rights or powers which another person holds on behalf of the investor or may be required to exercise, by direction, on the investor’s behalf.
351Investor must have beneficial ownership
(1)
The investor must be the sole beneficial owner of the investment when it is made.
(2)
If the investment consists of a loan, the person beneficially entitled to repayment of the loan is treated as the beneficial owner of the loan for the purposes of this Part.
352No acquisition of share in partnership
(1)
If the CDFI is a partnership, the investment must not consist of or include any amount of capital contributed by the investor on becoming a member of the partnership.
(2)
For this purpose the amount of capital contributed by the investor on becoming a member of the partnership includes any amount which—
(a)
purports to be provided by the investor by way of loan capital, and
(b)
is accounted for as partners’ capital in the accounts of the partnership.
353No tax avoidance purpose
The investment must not be made as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Chapter 5Claims for and attribution of CITR
Claims
354Loans: no claim after disposal or excessive repayments or receipts of value
(1)
If the investment consists of a loan, no claim may be made in respect of a tax year if—
(a)
the investor disposes of the whole or any part of the loan before the qualifying date relating to that year,
(b)
at any time after the investment is made but before that qualifying date, the amount of the capital outstanding on the loan is reduced to nil, or
(c)
before that qualifying date, paragraphs (a) and (b) of section 362(1) (repayments of loan in 5 year period exceeding permitted limits) apply in relation to the investment (whether by virtue of section 363 (receipts of value treated as repayments) or otherwise).
(2)
For the purposes of subsection (1)(a) any repayment of the loan is to be ignored.
(3)
For the purposes of this section the qualifying date relating to a tax year is the next anniversary of the investment date to occur after the end of that year.
355Securities or shares: no claim after disposal or excessive receipts of value
(1)
If the investment consists of securities or shares, a claim made in respect of a tax year must relate only to those securities or shares held by the investor, as sole beneficial owner, continuously throughout the period—
(a)
beginning when the investment is made, and
(b)
ending immediately before the qualifying date relating to the tax year.
(2)
No claim for CITR may be made in relation to a tax year if before the qualifying date relating to that year paragraphs (a) to (d) of section 364(1) (receipts of value in the 5 year period exceeding permitted limits) apply in relation to the investment or any part of it.
(3)
For the purposes of this section the qualifying date relating to a tax year is the next anniversary of the investment date to occur after the end of that year.
356No claim after loss of accreditation by the CDFI
(1)
If the CDFI ceases to be accredited under Chapter 2 with effect from a time (“the relevant time”) within the 5 year period, no claim for CITR relating to the investment may be made by the investor—
(a)
for the relevant tax year, or
(b)
for any later tax year.
(2)
For the purposes of subsection (1) the relevant tax year is—
(a)
if the relevant time falls within the first year of the 5 year period, the tax year in which the investment date fell, and
(b)
in any other case, the year in which fell the last anniversary of that date before the relevant time (or, if the relevant time itself falls on an anniversary of the investment date, the year in which that anniversary falls).
Attribution
357Attribution: general
(1)
In this Part references to the CITR attributable to any loan, securities or shares in respect of a tax year are read as references to the reduction which—
(a)
is made in the investor’s liability to income tax for that year, and
(b)
is attributed to that loan, or those securities or shares, in accordance with this section and section 358.
This is subject to the provisions of Chapter 6 for the withdrawal or reduction of CITR.
(2)
Subsections (3) and (4) apply if the investor’s liability to income tax is reduced for a tax year under this Part.
(3)
If the reduction is obtained because of one loan, or securities or shares included in one issue, the amount of the tax reduction is attributed to that loan or those securities or shares.
(4)
If the reduction is obtained because of a loan or loans, securities or shares included in two or more investments, the reduction—
(a)
is apportioned between the loan or loans, securities or shares in each of those investments in the same proportions as the invested amounts in respect of the loan or loans, securities or shares for the year, and
(b)
is attributed to that loan or those loans, securities or shares accordingly.
(5)
If under this section an amount of any reduction of income tax is attributed to any securities in the same issue, a proportionate part of that amount is attributed to each security.
(6)
If under this section an amount of any reduction of income tax is attributed to any shares in the same issue, a proportionate part of that amount is attributed to each of those shares.
(7)
If CITR attributable to a loan or any securities or shares falls to be withdrawn under Chapter 6, the CITR attributable to that loan or each of those securities or shares is reduced to nil.
(8)
If CITR attributable to any securities or shares falls to be reduced under that Chapter by any amount, the CITR attributable to each of those securities or shares is reduced by a proportionate part of that amount.
358Attribution: bonus shares
(1)
This section applies if—
(a)
corresponding bonus shares are issued to the investor in respect of any shares (“the original shares”) included in the investment, and
(b)
the original shares have been continuously held by the investor, as sole beneficial owner, from the time they were issued until the issue of the bonus shares.
(2)
A proportionate part of any amount attributed to the original shares, in respect of a tax year, immediately before the bonus shares are issued is attributed to each of the shares in the holding consisting of the original shares and the bonus shares, in respect of that year.
(3)
After the issue of the bonus shares this Part applies as if—
(a)
the original issue had included the bonus shares, and
(b)
the bonus shares had been held by the investor, as sole beneficial owner, continuously from the time the original shares were issued until the bonus shares were issued.
(4)
In this section—
“corresponding bonus shares” means bonus shares that are in the same company, are of the same class, and carry the same rights as the original shares,
“original issue” means the issue of shares forming the investment.
Chapter 6Withdrawal or reduction of CITR
Introduction
359Overview of Chapter
(1)
This Chapter provides for CITR to be withdrawn or reduced under—
(a)
section 360 (disposal of loan during 5 year period),
(b)
section 361 (disposal of securities or shares during 5 year period),
(c)
section 362 (repayment of loan capital during 5 year period),
(d)
section 363 (value received by investor during 6 year period: loans),
(e)
section 364 (value received by investor during 6 year period: securities or shares),
(f)
section 371 (CITR subsequently found not to have been due).
(2)
This Chapter also provides for the manner in which CITR is to be withdrawn or reduced (see section 372).
(3)
In this Chapter “the 6 year period” in relation to the investment is the period of 6 years beginning 12 months before the investment date.
Disposals
360Disposal of loan during 5 year period
(1)
If the investment consists of a loan and within the 5 year period—
(a)
the investor disposes of the whole of the investment, otherwise than by way of a permitted disposal, or
(b)
the investor disposes of a part of the investment,
any CITR attributable to the investment in respect of any tax year must be withdrawn.
(2)
For the purposes of this section—
(a)
a disposal is “permitted” if—
(i)
it is by way of a distribution in the course of dissolving or winding up the CDFI,
(ii)
it is a disposal within section 24(1) of TCGA 1992 (entire loss, destruction, dissipation or extinction of asset),
(iii)
it is a deemed disposal under section 24(2) of that Act (claim that value of asset has become negligible), or
(iv)
it is made after the CDFI has ceased to be accredited under this Part, and
(b)
a full or partial repayment of the loan is not treated as giving rise to a disposal.
361Disposal of securities or shares during 5 year period
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor disposes of the whole or any part of the investment (“the former investment”) within the 5 year period,
(b)
the CDFI has not ceased to be accredited before the disposal, and
(c)
the disposal does not arise as a result of an event within section 366(1)(a) (repayment, redemption or repurchase of securities or shares included in the investment).
(2)
If the disposal is not a qualifying disposal, any CITR attributable to the former investment in respect of any tax year must be withdrawn.
(3)
If the disposal is a qualifying disposal, any CITR attributable to the former investment for a tax year must—
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.
For this purpose “A” is an amount equal to 5% of the amount or value of the consideration (if any) which the investor receives for the former investment.
(4)
For the purposes of this section “qualifying disposal” means a disposal that is—
(a)
by way of a bargain made at arm’s length, or
(b)
a permitted disposal (within the meaning of section 360).
(5)
If for any tax year—
(a)
the amount of CITR attributable to the former investment (“B”) is less than
(b)
the amount (“C”) which is equal to 5% of the invested amount in respect of the former investment for that year,
subsection (3)(a) has effect in relation to that year as if the amount or value referred to in subsection (3) were reduced by multiplying it by the fraction—
(6)
If the amount of CITR attributable to the former investment in respect of a tax year has been reduced before the CITR is obtained, the amount referred to in subsection (5) as B is to be treated for the purposes of that subsection as the amount it would have been without that reduction.
(7)
Subsection (6) does not apply to a reduction by virtue of section 358 (attribution: bonus shares).
Repayment of loans
362Repayment of loan capital during 5 year period
(1)
If the investment consists of a loan and—
(a)
the average capital balance of the loan for the third, fourth or final year of the 5 year period is less than the permitted balance for the year in question, and
(b)
the difference between those balances is not an amount of insignificant value,
any CITR attributable to the investment in respect of any tax year must be withdrawn.
(2)
For the purposes of this section—
“the average capital balance” of the loan for a period is the mean of the daily balances of capital outstanding during that period, ignoring any non-standard repayments of the loan made in that period or at any earlier time, and
“the permitted balance” of the loan is—
(a)
for the third year of the 5 year period, 75% of the average capital balance for the period of 6 months beginning 18 months after the investment date,
(b)
for the fourth year of that period, 50% of that balance, and
(c)
for the final year of that period, 25% of that balance.
(3)
For the purposes of subsection (2) a repayment of the loan is a non-standard repayment if subsection (4) or (5) applies.
(4)
This subsection applies if the repayment is made at the choice or discretion of the CDFI, and not as a direct or indirect consequence of any obligation provided for under the terms of the loan agreement.
(5)
This subsection applies if the repayment is made as a result of the failure of the CDFI to meet any obligation of the loan agreement which—
(a)
is imposed merely because of the commercial risks to which the investor is exposed as lender under that agreement, and
(b)
is no more likely to be breached than any obligation that might reasonably have been agreed in respect of the loan in the absence of this Part.
(6)
For the purposes of this section “an amount of insignificant value” means an amount which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the average capital balance of the loan for the year of the 5 year period in question.
Receipts of value
363Value received by investor during 6 year period: loans
(1)
This section applies if the investment consists of a loan and the investor receives any value (other than an amount of insignificant value) from the CDFI during the 6 year period.
(2)
The investor is treated for the purposes of—
(a)
section 337 (determination of “invested amount”), and
(b)
section 362 (repayments of loan capital),
as having received a repayment of the loan of an amount equal to the amount of the value received.
(3)
For those purposes the repayment is treated as made—
(a)
if the value is received in the first or second year of the 6 year period, at the beginning of that second year, and
(b)
if the value is received in a later year of that period, at the beginning of the year in question.
(4)
For the purposes of section 362 the repayment is treated as a repayment other than a non-standard repayment (within the meaning of that section).
(5)
For the purposes of this section “an amount of insignificant value” means an amount which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the average capital balance of the loan for the year of the 6 year period in which the value is received.
(6)
For the purposes of subsection (5)(b)—
(a)
“the average capital balance” of the loan for a year is the mean of the daily balances of capital outstanding during the year (ignoring the receipt of value in question), and
(b)
any value received in the first year of the 6 year period is treated as received at the beginning of the second year of that period.
(7)
This section is subject to section 368 (value received if there is more than one investment).
(8)
Value received is ignored, for the purposes of this section, so far as the CITR attributable to any loan, securities or shares in respect of any one or more tax years has already been reduced or withdrawn on its account.
364Value received by investor during 6 year period: securities or shares
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor receives any value (other than an amount of insignificant value) from the CDFI during the 6 year period,
(b)
the investment or a part of it is held by the investor at the time the value is received and has been held by the investor, as sole beneficial owner, continuously since the investment was made (“the continuing investment”),
(c)
the receipt is wholly or partly in excess of the permitted level of receipts in respect of the continuing investment, and
(d)
the amount of that excess (“the excess”) is not an amount of insignificant value.
(2)
Any CITR attributable to the continuing investment in respect of any tax year must be withdrawn.
(3)
For the purposes of subsection (1) the permitted level of receipts is exceeded if—
(a)
any amount of value is received by the investor (ignoring any amounts of insignificant value) in the first 3 years of the 6 year period, or
(b)
the total amount of value received by the investor (ignoring any amounts of insignificant value)—
(i)
before the beginning of the fifth year of that period, exceeds 25% of the invested capital,
(ii)
before the beginning of the final year of that period, exceeds 50% of the invested capital, or
(iii)
before the end of that period, exceeds 75% of the invested capital.
(4)
In this section—
“the invested capital”, in relation to the continuing investment, means the amount subscribed for the securities or shares concerned, and
“an amount of insignificant value” means an amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the amount subscribed by the investor for the securities or shares included in the continuing investment.
(5)
This section is subject to section 368 (value received if there is more than one investment).
(6)
Value received is ignored, for the purposes of this section, so far as CITR attributable to any loan, securities or shares in respect of any one or more tax years has already been reduced or withdrawn on its account.
365Receipts of insignificant value to be added together
(1)
This section applies if—
(a)
value is received (“the relevant receipt”) by the investor from the CDFI at any time during the 6 year period relating to the investment,
(b)
the investor has received from the CDFI one or more receipts of insignificant value at a time or times—
(i)
during that period, but
(ii)
not later than the time of the relevant receipt, and
(c)
the total amount of the value of the receipts within paragraph (a) and (b) is not an amount of insignificant value.
(2)
The investor is treated for the purposes of this Part as if the relevant receipt had been a receipt of an amount of value equal to that total amount.
(3)
A receipt does not fall within subsection (1)(b) if the whole or any part of it has previously formed part of a total amount falling within subsection (1)(c).
(4)
For the purposes of this section “an amount of insignificant value” means an amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the relevant amount.
(5)
If the investment consists of a loan, the relevant amount for the purposes of subsection (4) is—
(a)
if the relevant receipt is received in the first or second year of the 6 year period, the average capital balance of the loan for the second year of that period, and
(b)
if the relevant receipt is received in a later year, the average capital balance of the loan for the year in question.
(6)
For the purposes of subsection (5)—
(a)
the average capital balance of the loan for a year is the mean of the daily balances of capital outstanding during the year, and
(b)
the relevant receipt and any receipts within subsection (1)(b) are ignored when calculating the average capital balance for the year in question.
(7)
If the investment consists of securities or shares, the relevant amount for the purposes of subsection (4) is—
(a)
if the relevant receipt is received in the first year of the 6 year period, the amount subscribed for the securities or shares, and
(b)
in any other case, the amount subscribed for such of the securities or shares as—
(i)
are held by the investor at the time the relevant receipt is received, and
(ii)
have been held by the investor, as sole beneficial owner, continuously since the investment was made.
366When value is received
(1)
For the purposes of this Chapter the investor receives value from the CDFI at any time when the CDFI—
(a)
repays, redeems or repurchases any securities or shares included in the investment,
(b)
releases or waives any liability of the investor to the CDFI or discharges, or undertakes to discharge, any liability of the investor to a third person,
(c)
makes a loan or advance to the investor which has not been repaid in full before the investment is made,
(d)
provides a benefit or facility for the investor or any associate of the investor,
(e)
disposes of an asset to the investor for no consideration or for a consideration of an amount or value which is less than the market value of the asset,
(f)
acquires an asset from the investor for a consideration of an amount or value which is more than the market value of the asset, or
(g)
makes a payment to the investor other than a qualifying payment.
(2)
For the purposes of subsection (1)(b) the CDFI is treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(3)
For the purposes of subsection (1)(c) the following are treated as loans made by the CDFI to the investor—
(a)
the amount of any debt due from the investor to the CDFI (other than an ordinary trade debt), and
(b)
the amount of any debt due from the investor to a third person which has been assigned to the CDFI.
(4)
For the purposes of this section—
(a)
references to a debt or liability do not, in relation to a person, include references to any debt or liability which would be discharged by the making by that person of a qualifying payment,
(b)
references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would have been a qualifying payment, and
(c)
any reference to a payment or disposal to a person includes a reference to a payment or disposal made to that person indirectly or to that person’s order or for that person’s benefit.
(5)
In subsection (4) references to “a person” include references to any other person who, at any time in the 6 year period, is connected with that person, whether or not the other person is so connected at the material time.
(6)
In this section—
“qualifying payment” means—
(a)
any payment by any person for any goods, services or facilities provided by the investor (in the course of the investor’s trade or otherwise) which is reasonable in relation to the market value of those goods, services or facilities,
(b)
the payment by any person of any interest which represents no more than a reasonable commercial return on money lent to that person,
(c)
the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or securities of that company,
(d)
any payment for the acquisition of an asset which does not exceed its market value,
(e)
the payment by any person, as rent for any property occupied by the person, of an amount which is not more than a reasonable and commercial rent for the property, and
(f)
a payment in discharge of an ordinary trade debt, and
“ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business if any credit given—
(a)
is for not more than 6 months, and
(b)
is not longer than that normally given to customers of the person carrying on the trade or business.
367The amount of value received
In a case falling within a provision listed in column 1 of the following table, the amount of value received for the purposes of this Chapter is given by the corresponding entry in column 2 of the table.
Provision |
The amount of value received |
---|---|
Section 366(1)(a) |
The amount received by the investor |
Section 366(1)(b) |
The amount of the liability |
Section 366(1)(c) |
The amount of the loan or advance, less the amount of any repayment made before the investment is made |
Section 366(1)(d) |
The cost to the CDFI of providing the benefit or facility, less any consideration given for it by the investor or any associate of the investor |
Section 366(1)(e) or (f) |
The difference between the market value of the asset and the consideration (if any) received for it |
Section 366(1)(g) |
The amount of the payment |
368Value received if there is more than one investment
(1)
This section applies if—
(a)
the investor makes two or more investments in the CDFI,
(b)
the investor is eligible for and claims CITR in respect of those investments, and
(c)
the investor receives value (other than value within section 366(1)(a)) which falls within the 6 year periods relating to two or more of those investments.
(2)
Sections 363, 364, 365 and 369 have effect in relation to each investment referred to in subsection (1)(c) as if the amount of the value received were reduced by multiplying it by the fraction—
where—
(a)
A is the appropriate amount in respect of the investment in question, and
(b)
B is the sum of that amount and the appropriate amount or amounts in respect of the other investment or investments.
(3)
If the investment consists of a loan, the appropriate amount for the purposes of subsection (2) is—
(a)
if the value is received in the first or second year of the 6 year period, the average capital balance of the loan for the second year of that period, and
(b)
if the value is received in a later year, the average capital balance of the loan for the year in question.
(4)
For the purposes of subsection (3)—
(a)
the average capital balance of the loan for a year is the mean of the daily balances of capital outstanding during the year, and
(b)
the receipt of value is ignored when calculating the average capital balance for the year in question.
(5)
If the investment consists of securities or shares, the appropriate amount for the purposes of subsection (2) is—
(a)
if the value is received in the first year of the 6 year period, the amount subscribed for the securities or shares, and
(b)
in any other case, the amount subscribed for such of the securities or shares as—
(i)
are held by the investor at the time the value is received, and
(ii)
have been held by the investor, as sole beneficial owner, continuously since the investment was made.
369Effect of receipt of value on future claims for CITR
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor receives any value (other than an amount of insignificant value) from the CDFI during the 6 year period, and
(b)
the investment or a part of it is held by the investor at the time the value is received and has been held by the investor, as sole beneficial owner, continuously since the investment was made (“the continuing investment”),
but no CITR attributable to the continuing investment is withdrawn under section 364 as a result of the receipt.
(2)
For the purposes of calculating any CITR in respect of any securities or shares included in the continuing investment for any relevant tax year, the amount subscribed for the securities or shares included in the continuing investment is treated as reduced by the amount of the value received.
(3)
For this purpose the “relevant” tax years are—
(a)
any tax year ending on or after the anniversary of the investment date immediately before the receipt of value, or
(b)
if the value was received on an anniversary of the investment date, any tax year ending on or after that anniversary.
(4)
For the purposes of this section “an amount of insignificant value” means an amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the amount subscribed by the investor for the securities or shares included in the continuing investment.
370Receipts of value by or from connected persons
In sections 363 to 369, if the context permits, references to the investor or the CDFI include references to any person who at any time in the 6 year period relating to the investment is connected with the investor or, as the case may be, the CDFI, whether or not the person is connected at the material time.
CITR not due
371CITR subsequently found not to have been due
If any CITR has been obtained which is subsequently found not to have been due, the CITR must be withdrawn.
Manner of withdrawal or reduction
372Manner of withdrawal or reduction of CITR
(1)
This section applies if any CITR has been obtained which falls to be withdrawn or reduced under this Chapter.
(2)
The CITR must be withdrawn or reduced by making an assessment to income tax for the tax year for which the CITR was obtained.
(3)
No assessment may be made under subsection (2) because of any event occurring after the death of the investor.
Chapter 7Supplementary and general
Miscellaneous
373Information to be provided by the investor
(1)
If—
(a)
the investor has obtained CITR in respect of the investment, and
(b)
an event occurs because of which CITR attributable to the investment for any tax year falls to be withdrawn or reduced by virtue of section 360, 361, 362 or 364,
the investor must give an officer of Revenue and Customs a notice containing particulars of the event.
(2)
Subject to subsection (3), a notice under subsection (1) must be given not later than the normal self-assessment filing date for the tax year in which the event occurred.
(3)
If—
(a)
the investor is required to give a notice as a result of the receipt of value by a person connected with the investor (see section 370), and
(b)
the end of the period of 60 days beginning when the investor comes to know of that event is later than the final notice date under subsection (2),
the notice must be given before the end of that 60 day period.
374Disclosure
(1)
No obligation as to secrecy or other restriction on the disclosure of information imposed by statute or otherwise prevents the disclosure of information—
(a)
by the Secretary of State to an officer of Revenue and Customs for the purpose of assisting Her Majesty’s Revenue and Customs to discharge their functions under the Income Tax Acts so far as relating to matters arising under this Part, or
(b)
by an officer of Revenue and Customs to the Secretary of State for the purpose of assisting the Secretary of State to discharge the Secretary of State’s functions under this Part.
(2)
Information obtained by such disclosure is not to be further disclosed except for the purposes of legal proceedings arising out of the functions referred to.
375Nominees
(1)
For the purposes of this Part—
(a)
loans made by or to, or disposed of by, a nominee for a person are treated as made by or to, or disposed of by, that person, and
(b)
securities or shares subscribed for by, issued to, acquired or held by or disposed of by a nominee for a person are treated as subscribed for by, issued to, acquired or held by or disposed of by that person.
(2)
For the purposes of subsection (1) references to things done by or to a nominee for a person include things done by or to a bare trustee for a person.
376Application for postponement of tax pending appeal
No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that an individual is eligible for CITR unless a claim for the CITR has been duly made by the individual under this Part.
377Identification of securities or shares on a disposal
(1)
This section applies for the purpose of identifying the securities or shares disposed of in any case where—
(a)
the investor disposes of part of a holding of securities or shares (“the holding”), and
(b)
the holding includes securities or shares to which CITR is attributable in respect of one or more tax years that have been held continuously by the investor from the time they were issued until the disposal.
(2)
Any disposal by the investor of securities or shares included in the holding which have been acquired by the investor on different days is treated as relating to those acquired on an earlier day rather than to those acquired on a later day.
(3)
If there is a disposal by the investor of securities or shares included in the holding which have been acquired by the investor on the same day, any of those securities or shares—
(a)
to which CITR is attributable, and
(b)
which have been held by the investor continuously from the time they were issued until the time of disposal,
are treated as disposed of after any other securities or shares included in the holding which were acquired by the investor on that day.
(4)
For the purposes of this section a holding of securities is any number of securities of a company which—
(a)
carry the same rights,
(b)
were issued under the same terms, and
(c)
are held by the investor in the same capacity.
It does not matter for this purpose that the number of the securities grows or diminishes as securities carrying those rights and issued under those terms are acquired or disposed of.
(5)
For the purposes of this section a holding of shares is any number of shares in a company which—
(a)
are of the same class, and
(b)
are held by the investor in the same capacity.
It does not matter for this purpose that the number of the shares grows or diminishes as shares of that class are acquired or disposed of.
(6)
In a case to which section 127 of TCGA 1992 (equation of original shares and new holding) applies, shares comprised in the new holding are to be treated for the purposes of subsections (2) and (3) as acquired when the original shares were acquired.
(7)
In subsection (6)—
(a)
the reference to section 127 of TCGA 1992 includes a reference to that section as it is applied by virtue of any enactment relating to chargeable gains, and
(b)
“original shares” and “new holding” have the same meaning as in section 127 of TCGA 1992 or (as the case may be) that section as applied by virtue of the enactment in question.
Definitions
378Meaning of “issue of securities or shares”
(1)
In this Part—
(a)
references (however expressed) to an issue of securities of any body are to such securities of that body as carry the same rights and are issued under the same terms and on the same day, and
(b)
references (however expressed) to an issue of shares in any body are to such shares in that body as are of the same class and issued on the same day.
(2)
In this Part references (however expressed) to an issue of securities of or shares in a body to an individual are to such of the securities or shares in an issue of securities of or shares in that body as are issued to that individual in one capacity.
379Meaning of “disposal”
(1)
Subject to subsection (2), in this Part “disposal” is read in accordance with TCGA 1992, and related expressions are read accordingly.
(2)
An investor is treated as disposing of any securities or shares which but for section 151BC(1) of TCGA 1992 the investor—
(a)
would be treated as exchanging for other securities or shares by virtue of section 136 of that Act, or
(b)
would be so treated but for section 137(1) of that Act (which restricts section 136 to genuine reconstructions).
380Construction of references to being “held continuously”
(1)
This section applies if for the purposes of this Part it becomes necessary to determine whether the investor has held the investment (or any part of it) continuously throughout any period.
(2)
The investor is not treated as having held the investment (or any part of it) continuously throughout a period if the investor—
(a)
is treated, under any provision of TCGA 1992, as having disposed of and immediately re-acquired the investment (or part) at any time during the period, or
(b)
is treated as having disposed of the investment (or part) at any such time, by virtue of section 379(2).
381Meaning of “associate”
(1)
In this Part “associate”, in relation to a person, means—
(a)
any relative or partner of that person,
(b)
the trustee or trustees of any settlement in relation to which that person, or any relative of that person (living or dead), is or was a settlor, and
(c)
if that person has an interest in any shares or obligations of a company which are subject to any trust or are part of the estate of a deceased person—
(i)
the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and
(ii)
if that person is a company, any other company which has an interest in those shares or obligations.
(2)
In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal descendant.
(3)
In subsection (1)(b) “settlor” and “settlement” have the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).
382Minor definitions etc
(1)
In this Part—
“body” includes an unincorporated association, and
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise).
(2)
For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on the Stock Exchange.
(3)
For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.
(4)
In this Part—
(a)
references to CITR obtained by the investor in respect of any investment (or part of an investment) include references to CITR obtained by the investor in respect of that investment (or part) at any time after the investor has disposed of it, and
(b)
references to the withdrawal or reduction of CITR obtained by the investor in respect of the investment (or any part of it) include references to the withdrawal or reduction of CITR obtained in respect of that investment (or part) at any such time.
(5)
In the case of any condition that cannot be met until a future date—
(a)
references in this Part to a condition being met for the time being are to nothing having occurred to prevent its being met, and
(b)
references to its continuing to be met are to nothing occurring to prevent its being met.
Part 8Other reliefs
Chapter 1Interest payments
The relief: introduction
383Relief for interest payments
(1)
A person who pays interest in a tax year is entitled to relief for the tax year for the interest if—
(a)
the loan on which the interest is payable is a loan to which a provision specified in subsection (2) applies,
(b)
the interest is eligible for relief in accordance with this Chapter, and
(c)
the person makes a claim.
(2)
The provisions are—
(a)
section 388 (loan to buy plant or machinery for partnership use),
(b)
section 390 (loan to buy plant or machinery for employment use),
(c)
section 392 (loan to buy interest in close company),