Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
248

257HJ
Minor definitions
(1)
In this Part—
“arrangements” includes any scheme, agreement,
understanding, transaction or series of transactions (whether
or not legally enforceable);
5
“associate” has the same meaning as in Part 5 (see section 253);
“bonus shares” means shares which are issued otherwise than
for payment (whether in cash or otherwise);
“director” is read in accordance with section 452 of CTA 2010;
“EIS relief” means relief under Part 5;
10
“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
15
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” and “period B” have the meaning given by section
20
257AC;
“permanent establishment” has the same meaning as in Part 5
(see section 191A);
“qualifying business activity” has the meaning given by section
257HG;
25
“qualifying subsidiary” has the same meaning as in Part 5 (see
section 191);
“qualifying 90% subsidiary” has the same meaning as in Part 5
(see section 190);
“research and development” has the meaning given by section
30
1006.
(2)
Section 252 (meaning of a company being “in administration” or “in
receivership”) applies for the purposes of this Part.
(3)
Section 995 (control) does not apply for the purposes of the following
provisions—
35
(a)
section 257DG(1)(a),
(b)
section 257FP,
(c)
section 257FQ,
(d)
section 257GH(4);

and in those provisions “control” is to be read in accordance with
40
sections 450 and 451 of CTA 2010.
(4)
In this Part—
(a)
references in any provision to the reduction of any SEIS relief
attributable to any shares include a reference—
(i)
to the reduction of the relief to nil, and
45
(ii)
if no relief has yet been obtained, to the reduction of
the amount which apart from that provision would be
the SEIS relief, and

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
249

(b)
references to the withdrawal of SEIS relief in respect of any
shares are—
(i)
to the withdrawal of the SEIS relief attributable to
those shares, or
(ii)
if no relief has yet been obtained, to ceasing to be
5
eligible for SEIS 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
a recognised stock exchange.
(6)
For the purposes of this Part the market value at any time of any asset
10
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 SEIS relief obtained by an individual in respect
15
of any shares include a reference to SEIS 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 SEIS relief
obtained by an individual in respect of any shares include a
20
reference to the withdrawal or reduction of SEIS relief
obtained by the individual in respect of those shares at any
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
25
are to nothing having occurred to prevent their being met.”
Part 2
Relief for capital gains
Introductory
2
TCGA 1992 is amended as follows.
30
Disposal of shares to which SEIS relief is attributable
3
Before section 151 insert—
“150E
Seed enterprise investment scheme
(1)
For the purpose of determining the gain or loss on any disposal of
shares by an individual where—
35
(a)
an amount of SEIS relief is attributable to the shares, and
(b)
apart from this subsection there would be a loss,

the consideration given by the individual for the shares is to be
treated as reduced by the amount of the relief.
(2)
Where—
40
(a)
shares are disposed of by an individual after the end of the
period referred to in section 257AC(2) of ITA 2007,
(b)
an amount of SEIS relief is attributable to the shares, and

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
250

(c)
(apart from this subsection) there would be a gain,

the gain is not a chargeable gain.
(3)
Despite section 16(2), subsection (2) does not apply to a disposal on
which a loss accrues.
(4)
Subsection (5) applies where—
5
(a)
an individual’s liability to income tax has been reduced (or
treated by virtue of section 257H of ITA 2007 (spouses and
civil partners) as reduced) for any tax year under section
257AB of that Act in respect of an issue of shares,
(b)
the amount of the reduction (“R”) is less than the amount
10
(“T”) which is equal to tax at the SEIS rate on the amount
subscribed for the issue, and
(c)
R is not within paragraph (b) solely by virtue of section 29(2)
and (3) of ITA 2007.
(5)
If there is a disposal of the shares on which there is a gain, subsection
15
(2) applies only to so much of the gain as is found by multiplying it
by the fraction—
(6)
Any question as to—
(a)
which of any shares that—
(i)
are acquired by an individual at different times, and
20
(ii)
are shares to which SEIS relief is attributable,

a disposal relates to, or
(b)
whether a disposal relates to shares to which SEIS relief is
attributable,

is to be determined for the purposes of capital gains tax as for the
25
purposes of section 257HA of ITA 2007.

Chapter 1 of this Part has effect subject to this subsection.
(7)
Sections 104, 105 and 106A do not apply to shares to which SEIS relief
is attributable.
(8)
Where—
30
(a)
an individual holds shares (“the existing holding”) which
form part of the ordinary share capital of a company,
(b)
there is, by virtue of any such allotment for payment as is
mentioned in section 126(2)(a), a reorganisation affecting the
existing holding, and
35
(c)
immediately following the reorganisation, SEIS relief is
attributable to the existing holding or the allotted shares,

sections 127 to 130 do not apply in relation to the existing holding.
(9)
Sections 135 and 136 do not apply in respect of shares to which SEIS
relief is attributable.
40
(10)
Subsection (9) does not have effect to disapply section 135 or 136
where—
(a)
the new holding consists of new ordinary shares carrying no
present or future preferential right to dividends or to a

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
251

company’s assets on its winding up and no present or future
right to be redeemed,
(b)
the new shares are issued after the end of the relevant period,
and
(c)
the condition in subsection (11) is satisfied.
5
(11)
The condition is that at some time before the issue of the new
shares—
(a)
the company issuing them issued eligible shares, and
(b)
a certificate in relation to those eligible shares was issued by
the company for the purposes of section 257EB(1) of ITA 2007
10
and in accordance with sections 257EC and 257ED of that Act.
(12)
All such adjustments of capital gains tax are to be made, whether by
way of assessment or by way of discharge or repayment of tax, as
may be required in consequence of the SEIS relief being given or
withdrawn.
15
(13)
Where shares to which SEIS relief is attributable are exchanged for
other shares in circumstances such that section 257HB of ITA 2007
(acquisition of share capital by new company) applies—
(a)
subsection (9) above does not have effect to disapply section
135, and
20
(b)
sections 257HB(3)(b), 257HC(2)(a) and 257HD of ITA 2007
apply for the purposes of this section as they apply for the
purposes of Part 5A of that Act.
(14)
For the purposes of this section—
“eligible shares” means shares that meet the requirements of
25
section 257CA(2);
“new holding” is to be construed in accordance with sections
126, 127, 135 and 136;
“ordinary share capital” has the meaning given in section 989 of
ITA 2007;
30
“ordinary shares”, in relation to a company, means shares
forming part of its ordinary share capital;
“relevant period” means the period found by applying section
257AC(2) of ITA 2007 by reference to the company issuing the
shares referred to in subsection (9) and by reference to those
35
shares;
“the SEIS rate” has the meaning given by section 257AB(3) of
ITA 2007;
“SEIS relief” means relief under Part 5A of ITA 2007 (seed
enterprise investment scheme);
40

and that Part applies to determine whether SEIS relief is attributable
to any shares and, if so, the amount of SEIS relief so attributable.
150F
Seed enterprise investment scheme: reduction of relief
(1)
This section has effect where—
(a)
section 150E(2) applies on a disposal of shares, and
45
(b)
before the disposal, value is received in circumstances where
SEIS relief attributable to the shares is reduced by an amount
under section 257FE(2)(a) of ITA 2007.

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
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(2)
If section 150E(2) applies on the disposal but section 150E(5) does
not, section 150E(2) applies only to so much of the gain as remains
after deducting so much of it as is found by multiplying it by the
fraction—

where—
5

A is the amount by which the SEIS relief attributable to the shares is
reduced as mentioned in subsection (1), and

B is the amount of the relief attributable to the shares.
(3)
If section 150E(2) and (5) apply on the disposal, section 150E(2)
applies only to so much of the gain as is found by—
10
(a)
taking the part of the gain found under section 150E(5), and
(b)
deducting from that part so much of it as is found by
multiplying it by the fraction mentioned in subsection (2)
above.
(4)
Where the SEIS relief attributable to the shares is reduced as
15
mentioned in subsection (1) by more than one amount, “A” in
subsection (2) is to be taken to be equal to the aggregate of the
amounts.
(5)
The amount which is “B” in subsection (2) is to be found without
regard to any reduction mentioned in subsection (1).
20
(6)
For the purposes of this section, Part 5A of ITA 2007 (seed enterprise
investment scheme) applies to determine whether SEIS relief is
attributable to any shares and, if so, the amount of SEIS relief so
attributable.”
Seed enterprise investment scheme: re-investment relief
25
4
After section 150F (inserted by paragraph 3 of this Schedule) insert—
“150G
Seed enterprise investment scheme: re-investment

Schedule 5BB to this Act (which provides relief in respect of re-
investment under the seed enterprise investment scheme in the tax
year 2012-13) has effect.”
30
5
After Schedule 5B insert—
“Schedule 5BB
Seed enterprise investment scheme: re-investment
SEIS re-investment relief
1     (1)
Sub-paragraph (5) applies where conditions A to C are met in
35
relation to an individual (“the investor”).
      (2)
Condition A is that—
(a)
there would (ignoring sub-paragraphs (5) and (6)) be a
chargeable gain (“the original gain”) accruing to the
investor at any time in the tax year 2012-13, and
40

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
253

(b)
the original gain is one accruing on the disposal of an asset
by the investor at any time (“the disposal time”) in that
year.
      (3)
Condition B is that—
(a)
the investor is eligible for SEIS relief for the tax year 2012-
5
13 in respect of an amount subscribed for an issue of shares
in a company made to the investor in that year,
(b)
the investor makes a claim for and obtains SEIS relief for
that year in respect of all or some of those shares (“the
relevant SEIS shares”), and
10
(c)
if the relevant SEIS shares, or any corresponding bonus
shares in relation to those shares, were issued before the
disposal time, they are still held by the investor at the
disposal time.
      (4)
Condition C is that—
15
(a)
the investor has made a claim under this paragraph for
relief in relation to the original gain, and
(b)
the claim is in respect of the amount on which SEIS relief is
claimed by the investor in respect of the relevant SEIS
shares (“the SEIS expenditure”) or part of that amount.
20
      (5)
So much of the SEIS expenditure as—
(a)
is specified in the claim,
(b)
is unused, and
(c)
does not exceed so much of the original gain as is
unmatched,
25

is to be set against a corresponding amount of the original gain.
      (6)
Where an amount of the SEIS expenditure is set against the whole
or part of the original gain under sub-paragraph (5), so much of
that gain as is equal to that amount is to be treated as not being a
chargeable gain.
30
      (7)
For the purposes of this paragraph—
(a)
the SEIS expenditure is unused to the extent that it has not
already been set under sub-paragraph (5) or paragraph
2(1) of Schedule 5B against the whole or any part of a
chargeable gain, and
35
(b)
the original gain is unmatched, in relation to the SEIS
expenditure, to the extent that it has not had any other
expenditure set against it under sub-paragraph (5) or
paragraph 2(1) of Schedule 5B.
Restrictions on relief under paragraph 1
40
2     (1)
Sub-paragraph (2) applies if the investor’s tax reduction under
section 257AB of ITA 2007 for the tax year 2012-13 is limited by
subsection (2)(b) of that section (calculation of tax reduction where
claim made for amounts subscribed for shares which exceed
£100,000).
45

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 2 — Relief for capital gains
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      (2)
Paragraph 1(5) to (7) has effect as if references to the SEIS
expenditure were references to so much of that expenditure as is
given by the formula— $equation: cross[(*B"Regular"B*)over[(*B"Regular"B*)times[(*B"Regular"B*)char[(*B"Regular"B*)S], char[(*B"Regular"B*)A]],times[(*B"Regular"B*)char[(*B"Regular"B*)T],char[(*B"Regular"B*)S], char[(*B"Regular"B*)A]]],comma[times[string["\xa3 "],num[100.0000000000000000,"100"]], num[0.0000000000000000,"000"]]]$

where—

SA means the SEIS expenditure (ignoring this paragraph);
5

TSA means the total of the amounts subscribed for shares
issued in the tax year 2012-13 in respect of which the
investor is eligible for and claims SEIS relief for that tax
year.
      (3)
Sub-paragraph (4) applies if the amount of SEIS relief attributable
10
to any of the relevant SEIS shares has been reduced under Chapter
6 of Part 5A of ITA 2007 before the SEIS relief was obtained
(otherwise than by virtue of corresponding bonus shares being
issued in respect of those shares).
      (4)
Paragraph 1(5) to (7) has effect as if the SEIS expenditure were the
15
amount found by multiplying that expenditure by the fraction—

where—

“R1” means the amount of SEIS relief attributable to the
relevant SEIS shares when the relief is obtained;

“R2” means the amount of SEIS relief which would have
20
been so attributable in the absence of the reduction.
      (5)
In a case where sub-paragraphs (2) and (4) both apply, sub-
paragraph (2) is to be applied before sub-paragraph (4).
Claims
3     (1)
Section 257EA of ITA 2007 (time for making claims for SEIS relief)
25
applies in relation to a claim made by the investor for the purposes
of paragraph 1 in relation to the SEIS expenditure as it applies in
relation to a claim for SEIS relief in respect of that expenditure.
      (2)
Nothing in paragraph 1(3) prevents a claim being made by the
investor under paragraph 1 before SEIS relief has actually been
30
obtained by the investor in relation to the SEIS relief.
Attribution of SEIS re-investment relief to relevant SEIS shares
4     (1)
References in this Schedule to the SEIS re-investment relief
attributable to any shares are to be read as references to the total
amount attributed to those shares in accordance with this
35
paragraph.
      (2)
Sub-paragraph (3) applies where the whole or part of the SEIS
expenditure is set off against a chargeable gain under paragraph
1(5).
      (3)
A proportionate part of the expenditure which is so set off is
40
attributed to each of the relevant SEIS shares.