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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(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).

144 Power 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

145 Relief 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.

146 Substitution 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.



Limits on share loss relief and mixed holdings

147 Limits on share loss relief

(1) Subsection (2) applies if--

(a) an individual disposes of any qualifying shares,

(b) those shares either--

(i) form part of a section 104 holding or a 1982 holding at the time of the disposal, or

(ii) formed part of such a holding at an earlier time, and

(c) the individual makes a claim under section 132 in respect of a loss incurred on the disposal.

(2) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if the qualifying shares had not formed part of the holding.

(3) Subsection (4) applies if--

(a) an individual disposes of any qualifying shares,

(b) the qualifying shares, and other shares that are not capable of being qualifying shares, are for the purposes of TCGA 1992 to be treated as acquired by a single transaction by virtue of section 105(1)(a) of that Act (disposal of shares acquired on same day etc), and

(c) the individual makes a claim under section 132 in respect of a loss incurred on the disposal.

(4) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if--

(a) the qualifying shares were to be treated as acquired by a single transaction, and

(b) the other shares were not to be so treated.

(5) Subsection (6) applies if--

(a) an individual disposes of any qualifying shares,

(b) the qualifying shares (taken as a single asset), and other shares in the same company that are not capable of being qualifying shares (taken as a single asset), are for the purposes of TCGA 1992 to be treated as the same asset by virtue of section 127 of that Act (reorganisation etc treated as not involving disposal), and

(c) the individual makes a claim under section 132 in respect of a loss incurred on the disposal,

References in this subsection and subsection (6) to other shares in the same company include debentures of the same company.

(6) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if the qualifying shares and the other shares in the same company were not to be treated as the same asset.

(7) In this section--

  • "section 104 holding" has the meaning given by section 104(3) of TCGA 1992, and

  • "1982 holding" has the meaning given by section 109(1) of that Act.

(8) For the purposes of this section and section 148, shares to which EIS relief is not attributable are not capable of being qualifying shares at any time if--

(a) the individual acquired the shares otherwise than by subscription,

(b) condition C in section 134(4) was not met in relation to the issue of the shares, or

(c) condition D in section 134(5) would not be met if the shares were disposed of at that time.

(9) For the purposes of subsection (5), shares to which EIS relief is not attributable are not capable of being qualifying shares at any time if they are shares of a different class from the shares mentioned in paragraph (a) of that subsection.

148 Disposal of shares forming part of mixed holding

(1) This section applies if an individual disposes of shares forming part of a mixed holding of shares, that is, a holding of shares in a company which includes--

(a) shares that are not capable of being qualifying shares, and

(b) other shares.

(2) Any question--

(a) whether a disposal by the individual of shares forming part of the mixed holding is of qualifying shares, or

(b) as to which of any qualifying shares acquired by the individual at different times such a disposal relates to,

is to be determined as provided by the following provisions of this section.

(3) Any such question as is mentioned in subsection (2) is to be determined--

(a) except in a case falling within paragraph (b)--

(i) in accordance with subsection (4), and

(ii) in the case of shares which under that subsection are identified with the whole or any part of a section 104 holding or a 1982 holding, in accordance with subsection (5),

(b) in the case of a mixed holding which includes any of the following--

(i) shares issued before 1 January 1994 in respect of which relief has been given under Chapter 3 of Part 7 of ICTA (business expansion scheme) and has not been withdrawn,

(ii) shares to which EIS relief is attributable, and

(iii) shares to which deferral relief (within the meaning of Schedule 5B to TCGA 1992) is attributable,

in accordance with subsection (6).

(4) For the purposes of subsection (3)(a)(i), the question is to be determined by identifying the shares disposed of in accordance with sections 105 to 105B and 106A of TCGA 1992.

(5) For the purposes of subsection (3)(a)(ii), the question is to be determined by treating the disposal and any previous disposal by the individual out of the section 104 or 1982 holding as relating to shares acquired later rather than earlier.

(6) For the purposes of subsection (3)(b), the question is to be determined--

(a) in relation to shares issued before 1 January 1994, as provided by subsections (3) to (4C) of section 299 of ICTA (as that section has effect in relation to shares so issued),

(b) in relation to shares issued on or after that date and before 6 April 2007, as provided by subsections (6) to (6D) of that section (as that section has effect in relation to shares so issued), and

(c) in relation to shares issued on or after 6 April 2007, as provided by section 246 of this Act.

(7) Any such question as is mentioned in subsection (2) which cannot be determined as provided by subsections (3) to (6) is to be determined on a just and reasonable basis.

(8) In this section "holding" means any number of shares of the same class held by one individual in the same capacity, growing or diminishing as shares of that class are acquired or disposed of.

For this purpose--

(a) shares are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt in on such an exchange, and

(b) subsection (4) of section 104 of TCGA 1992 applies as it applies for the purposes of subsection (1) of that section.

(9) In this section "section 104 holding" and "1982 holding" have the same meaning as in section 147.

149 Section 148: supplementary

(1) In the case of a disposal of shares within section 148(3)(b)(ii) or (iii) to which section 105A of TCGA 1992 (election for alternative treatment: approved-scheme shares) applies--

(a) section 299 of ICTA (identification of shares) has effect for the purposes of section 148(6)(b), and

(b) section 246 of this Act has effect for the purposes of section 148(6)(c),

with the same modifications as those with which they have effect for the purposes of section 150A(4) of TCGA 1992 (enterprise investment schemes).

(2) In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not involving disposal) applies (including a case where that section applies by virtue of an enactment relating to chargeable gains), shares included in the new holding are treated for the purposes of section 148 as acquired when the original shares were acquired.

(3) Any shares held or disposed of by a nominee or bare trustee for an individual are treated for the purposes of section 148 as held or disposed of by that individual.

(4) In this section "new holding" and "original shares" have the same meaning as in section 127 of TCGA 1992 (or, as the case may be, that section as applied by the enactment concerned).



Miscellaneous and supplementary

150 Deemed 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.

151 Interpretation 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 7 Losses from miscellaneous transactions

Loss relief against miscellaneous income

152 Losses 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).

153 How 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

154 Transactions 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

155 Time 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 5 Enterprise investment scheme

Chapter 1 Introduction

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EIS relief

156 Meaning 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).

157 Eligibility 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).

158 Form 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

159 Periods 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.

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