(c) the value is received other than by virtue of a disposal that is
itself a potentially chargeable event.

(3) But the extraction of value rule is not breached merely because a
relevant person receives value that—

(a) 5is treated for income tax or corporation tax purposes as the
receipt of income or would be so treated if that person were
liable to such tax, and

(b) is paid or provided to the person in the ordinary course of
business and on arm’s length terms.

(4) 10Each of the following is an “involved company”—

(a) the target company,

(b) if the target company is an eligible stakeholder company, any
eligible trading company in which it has made or intends to
make an investment,

(c) 15if the target company is an eligible holding company, any
eligible trading company that is a 51% subsidiary of it, and

(d) any company that is connected with a company within
paragraph (a), (b) or (c).

(5) The 2-year start-up rule is breached if—

(a) 20immediately after the end of the period of 2 years beginning
with the day on which the investment was made, the target
company is non-operational, or

(b) at any time after the end of that period, the target company
becomes non-operational.

(6) 25The target company is “non-operational” at any time when—

(a) it is an eligible trading company but is not trading,

(b) it is an eligible stakeholder company but—

(i) it holds no investments in eligible trading companies,
or

(ii) 30none of the eligible trading companies in which it
holds investments is trading, or

(c) it is an eligible holding company but—

(i) the group of which it is a member is not an eligible
trading group, or

(ii) 35none of its 51% subsidiaries in the eligible trading
group of which it is a member is an eligible trading
company that is trading.

(7) In subsection (6), “trading” means carrying on one or more
commercial trades (including the carrying on of any activities treated
40under section 809VE(4) as the carrying on of a commercial trade).

(8) If consideration for a disposal of all or part of the holding is or is to
be paid in instalments, the disposal is to be treated for the purposes
of this section as if it were separate disposals, one for each instalment
(and each giving rise to a separate potentially chargeable event).

(9) 45An event listed in subsection (1) does not count as a potentially
chargeable event if it is due to an insolvency step taken for genuine
commercial reasons (but this does not prevent the extraction of any

value in connection with the insolvency step from counting as a
potentially chargeable event).

(10) For the purposes of subsection (9), an insolvency step is taken if—

(a) the target company enters into administration or receivership
or is wound up or dissolved,

(b) 5the target company is an eligible stakeholder company and
any eligible trading company in which it holds an investment
enters into administration or receivership or is wound up or
dissolved,

(c) the target company is an eligible holding company and any
10eligible trading company in the group that is a 51%
subsidiary of it enters into administration or receivership or
is wound up or dissolved, or

(d) a similar step is taken in relation to a company mentioned in
paragraph (a), (b) or (c) under the law of a country or territory
15outside the United Kingdom.

809VI The appropriate mitigation steps

(1) If the potentially chargeable event is a disposal of all or part of the
holding, the appropriate mitigation steps are regarded as taken if the
whole of the disposal proceeds have been taken offshore or re-
20invested.

(2) For any other case, the appropriate mitigation steps are regarded as
taken if—

(a) P has disposed of the entire holding (or so much of it as P
retains when the potentially chargeable event occurs), and

(b) 25the whole of the disposal proceeds have been taken offshore
or re-invested.

(3) But if the disposal proceeds exceed X, subsections (1) and (2)(b)
apply only to so much of the proceeds as is equal to X.

(4) “X” is—

(a) 30the sum originally invested, less

(b) so much of that sum as has, on previous occasions involving
the same investment—

(i) been taken into account in determining the affected
income or gains under section 809VG(2),

(ii) 35been taken offshore or re-invested in order to avoid
the application of that section, or

(iii) been used to make a tax deposit without which the
amount actually taken offshore or re-invested would
not have been enough to satisfy subsection (1) or
40(2)(b) (see section 809VK).

(5) “The sum originally invested” means the amount of the money, or
the market value of the other property, used to make the investment.

(6) Market value is to be assessed for these purposes as at the date of the
relevant event (see section 809VA).

(7) Proceeds are “re-invested” if a relevant person uses them to make
another qualifying investment (or the proceeds are themselves a
qualifying investment) whether in the same or a different company.

(8) In cases where a breach of the extraction of value rule occurs in
5connection with the winding-up or dissolution of the target
company—

(a) subsection (2)(a) does not apply,

(b) the reference in subsection (2)(b) to the disposal proceeds is
to the value received, and

(c) 10references in this section and in succeeding provisions of the
business investment provisions to the disposal proceeds are
to be read as references to the value received.

809VJ The grace period allowed for the appropriate mitigation steps

(1) The grace period allowed for the step mentioned in section
15809VI(2)(a) is the period of 90 days beginning—

(a) if the potentially chargeable event is a breach of the extraction
of value rule, with the day on which the value is received, and

(b) otherwise, with the day on which a relevant person first
became aware or ought reasonably to have become aware of
20the potentially chargeable event.

(2) The grace period allowed for the step mentioned in section 809VI(1)
and (2)(b) is the period of 45 days beginning with the day on which
the disposal proceeds first became available for use by or for the
benefit of P or any other relevant person.

(3) 25An officer of Revenue and Customs may agree in a particular case to
extend the grace period allowed for an appropriate mitigation step
in exceptional circumstances.

(4) An officer of Revenue and Customs may agree in a particular case to
extend the grace period allowed for an appropriate mitigation step
30in circumstances specified in regulations made by the
Commissioners.

(5) Regulations under subsection (4) may have effect in relation to
investments made before the day on which the regulations are made.

(6) Nothing in subsection (4) or in regulations made under it limits the
35power conferred by subsection (3).

(7) The powers conferred on officers of Revenue and Customs by
subsections (3) and (4) include power to agree to extend a grace
period for a length of time that is indefinite but is capable of
becoming definite by means identified in the agreement (such as the
40satisfaction of conditions).

809VK Retention of funds to meet CGT liabilities

(1) This section applies if—

(a) there is a disposal of all or part of the holding,

(b) the disposal counts as a potentially chargeable event or is
45part of the appropriate mitigation steps taken in consequence
of a potentially chargeable event,

(c) a chargeable gain (but not a loss) accrues to P on the disposal,

(d) P is chargeable to capital gains tax (but not corporation tax)
in respect of that gain, and

(e) the actual disposal proceeds are less than Y.

(2) 5The difference between the actual disposal proceeds and Y is
referred to in this section as “the shortfall”.

(3) “The actual disposal proceeds” means the disposal proceeds but
disregarding section 809Z8(4).

(4) “Y” is the sum of—

(a) 10the amount (if any) that would, but for this section, be
required to be taken offshore or re-invested in order to satisfy
section 809VI(1) or (2)(b), and

(b) the amount found by applying the highest potential CGT rate
to the amount (computed in accordance with TCGA 1992) of
15the chargeable gain accruing to P on the disposal.

(5) The highest potential CGT rate is—

(a) if the chargeable gain accrues to P as the trustees of a
settlement or accrues to the personal representatives of P, the
rate specified in section 4(3) of TCGA 1992, and

(b) 20otherwise, the rate specified in section 4(4) of that Act
(regardless of the rate at which income tax is chargeable in
respect of P’s income).

(6) If this section applies, the amount that is required to be taken
offshore or re-invested in order to satisfy section 809VI(1) or (2)(b) is
25reduced by the permitted amount.

(7) “The permitted amount” is so much of the shortfall as is used, within
the grace period allowed for taking the disposal proceeds offshore or
re-investing them, to make a deposit in respect of which a certificate
of tax deposit is issued to P under section 12 of the National Loans
30Act 1968.

(8) A reduction may not be made under subsection (6) unless—

(a) when details of the deposit are confirmed to Her Majesty’s
Revenue and Customs, the confirmation letter states that this
section is intended to apply to the deposit, and

(b) 35the amount of the deposit is no greater than the shortfall.

809VL Effect of taking appropriate mitigation steps within grace period

(1) This section explains the effect for the purposes of this Chapter in
cases where section 809VG(2) does not apply because the
appropriate mitigation steps were taken within the grace period
40allowed for each step.

(2) If disposal proceeds were taken offshore as part of those steps,
nothing in section 809VA(2) prevents anything subsequently done in
relation to those proceeds (or anything deriving from them) from
counting as a remittance of the underlying income or gains to the
45United Kingdom at the time when the thing is subsequently done.

(3) If disposal proceeds were re-invested as part of those steps—

(a) the underlying income or gains continue to be treated under
section 809VA(2) as not remitted to the United Kingdom, and

(b) the business investment provisions apply to the re-
investment as they apply to the original investment.

(4) 5In the application of the business investment provisions to the re-
investment—

(a) treat the potentially chargeable event mentioned in section
809VG(1)(b) as the relevant event,

(b) treat the underlying income or gains as the income or gains
10treated under section 809VA(2) as not remitted to the United
Kingdom as a result of the re-investment, and

(c) treat the amount used to make the re-investment as the sum
originally invested.

(5) If the re-investment is made using more than the minimum amount
15of disposal proceeds required to satisfy section 809VI(1) or (2)(b)—

(a) that investment is to be treated as two separate investments,
one made using the minimum amount of disposal proceeds
and one made using the excess, and

(b) references in the business investment provisions to “the
20investment” and “the holding” relate only to the investment
made using the minimum amount of disposal proceeds.

(6) “The underlying income or gains” means the affected income or
gains (within the meaning of section 809VG) or, if one part of the
disposal proceeds is taken offshore and the other part re-invested, a
25corresponding proportion of the affected income or gains.

(7) A further claim must be made in accordance with section 809VA in
respect of the re-investment and, if no such claim is made on or
before the first anniversary of the 31 January following the tax year
in which the re-investment was made, section 809VG(2) applies, as
30respects the original investment, as if the appropriate mitigation
steps had not been taken within the grace period allowed for each
step.

(8) Section 809VM makes further provision in cases involving a tax
deposit.

809VM 35 Cases involving tax deposits

(1) This section applies in cases where—

(a) section 809VG(2) did not apply because the appropriate
mitigation steps were taken within the grace period allowed
for each step,

(b) 40the amount required to be taken offshore or re-invested in
order to satisfy section 809VI(1) or (2)(b) had been reduced
under section 809VK, and

(c) but for that reduction, the amount that was actually taken
offshore or re-invested would not have been enough to
45satisfy section 809VI(1) or (2)(b).

(2) The tax deposit that gave rise to the reduction is referred to in this
section as “the tax deposit”.

(3) Use of the tax deposit to pay the relevant tax liability does not count
as remitting the underlying income or gains to the United Kingdom
(and, accordingly, section 809VA(2) continues to apply to the income
or gains).

(4) 5If any of the CTD conditions is breached, the underlying income or
gains are to be treated as having been remitted to the United
Kingdom immediately after the day on which the breach occurs.

(5) “The underlying income or gains” means such portion of the affected
income or gains (within the meaning of section 809VG) as is—

(a) 10represented by the payment, in the case of subsection (3), or

(b) affected by the breach, in the case of subsection (4).

(6) The CTD conditions are as follows—

(a) the tax deposit must not be used to pay a tax liability other
than the relevant tax liability,

(b) 15if any of the tax deposit is withdrawn by the depositor, the
amount withdrawn must be taken offshore or re-invested
within the period of 45 days beginning with the day on which
the withdrawal was made, and

(c) any part of the tax deposit that has been neither used to pay
20a tax liability nor withdrawn by the due date must be
withdrawn by the depositor and taken offshore or re-
invested within the period of 45 days beginning with that
date.

(7) Where the CTD conditions were not breached because the requisite
25amount was taken offshore or re-invested within the 45-day period
mentioned in subsection (6)(b) or (c)—

(a) section 809VL applies to the amount taken offshore or re-
invested as it applies to disposal proceeds, but

(b) read the reference in section 809VL(4)(a) to the potentially
30chargeable event as a reference to—

(i) the withdrawal, in a case within subsection (6)(b), and

(ii) the due date, in a case within subsection (6)(c).

(8) For the purposes of this section—

(a) “the relevant tax liability” means P’s liability to capital gains
35tax for the tax year in which the disposal took place,

(b) “the due date” means the date by which the relevant tax
liability is required to be paid,

(c) “re-invested” has the meaning given in section 809VI(7), and

(d) references to withdrawal include repayment for whatever
40reason.

809VN Order of disposals etc

(1) Subsection (2) applies if at any time income or chargeable gains of an
individual are treated under section 809VA as not remitted to the
United Kingdom as a result of—

(a) 45more than one qualifying investment made in the same target
company,

(b) more than one qualifying investment made in companies in
the same eligible trading group, or

(c) qualifying investments made in an eligible trading company
and in an eligible stakeholder company that holds
investments in that trading company.

(2) In the application of section 809VG at that time—

(a) 5treat the investments and holdings as if they were a single
qualifying investment and a single holding, and

(b) assume that a disposal of all or part of that deemed single
holding affects the deemed single investment in the order in
which the qualifying investments were made (that is to say,
10on a first in, first out basis).

(3) Subsection (4) applies if at any time—

(a) income or chargeable gains of an individual are treated under
section 809VA as not remitted to the United Kingdom as a
result of one or more qualifying investments,

(b) 15in addition to that investment or those investments, a
relevant person holds at least one other investment in the
same target company, the same eligible trading group or a
related eligible company, and

(c) that other investment is not a qualifying investment.

(4) 20In the application of section 809VG at that time—

(a) treat the investments and holdings as if they were a single
investment and a single holding, and

(b) assume that a disposal of all or part of that deemed single
holding is a disposal of a holding from a qualifying
25investment until the holdings from all the qualifying
investments have been disposed of.

(5) The reference to a “related eligible company”—

(a) in relation to an eligible trading company, is to an eligible
stakeholder company that holds investments in that
30company, and

(b) in relation to an eligible stakeholder company, is to an
eligible trading company in which that company holds
investments.

(6) Subsections (2) and (4) apply whether the investments in question
35are held by the same relevant person or different ones.

809VO Investments made from mixed funds

(1) This section applies if—

(a) but for section 809VA(2), income or gains would have been
remitted to the United Kingdom by virtue of a relevant event,
40and

(b) section 809Q (transfers from mixed funds) would have
applied in determining the amount that would have been so
remitted.

(2) The relevant event counts as an offshore transfer for the purposes of
45section 809R(4).

(3) The holding is to be treated as containing a proportion of each kind
of income and capital contained in the invested property equal to the
fixed proportion.

(4) “The fixed proportion” is the proportion of that kind of income or
5capital contained in the invested property by virtue of subsection (2).

(5) “The invested property” means the money or other property used to
make the investment.

(6) Subsection (7) applies in cases where—

(a) section 809VG(2) does not apply because an amount is taken
10offshore, re-invested or used to make a tax deposit, or

(b) section 809VM(4) does not apply because an amount is taken
offshore or re-invested.

(7) The amount taken offshore, re-invested or used to make a tax deposit
is treated, immediately after that step, as containing the fixed
15proportion of each kind of income and capital contained in the
holding.

(8) In cases where section 809VG(2) applies—

(a) the affected income or gains are so much of the fixed amount
of each kind of income or gain mentioned in subsection (1)(a)
20as reflects the portion of the investment affected by the
potentially chargeable event (see section 809VG(6)),

(b) “the fixed amount” is the amount of that kind of income or
gain that the holding is treated as containing by virtue of
subsection (3), and

(c) 25section 809Q does not apply in determining the affected
income or gains.

(9) Section 809R(2) and (3) and section 809S apply for the purposes of
this section.”

8 After the sections inserted by paragraph 7 insert the heading “Relief for
30certain UK services”.

9 Immediately before section 809X insert the heading “Exempt property relief”.

Formerly exempt property used to make investment

10 In section 809Y (property that ceases to be exempt property treated as
remitted), after subsection (5) insert—

“(6) 35Subsection (1) does not apply to property that ceases to be exempt
property if—

(a) the property, or anything into which it is converted, is used
by a relevant person to make a qualifying investment within
the period of 45 days beginning with the day on which it
40ceased to be exempt property, and

(b) the remittance basis user makes a claim for relief under this
subsection on or before the first anniversary of the 31 January
following the tax year in which the property ceases to be
exempt property.

(7) The reference in subsection (6)(a) to anything into which property is
converted is—

(a) if the property is disposed of, the disposal proceeds, and

(b) if the property is converted into money in some other way,
5the money into which it is converted,

(including where the disposal or conversion occurs after the
property ceases to be exempt property).

(8) If subsection (1) does not apply by virtue of subsection (6)—

(a) the property (or thing into which it was converted) used to
10make the investment is to be treated as containing or deriving
from an amount of each kind of income and gain mentioned
in section 809Q(4)(a) to (h) equal to the fixed amount,

(b) the income or gains treated under section 809X as not
remitted to the United Kingdom continue to be treated as not
15remitted to the United Kingdom even though the property
has ceased to be exempt property, and

(c) the business investment provisions apply to the income and
gains as they apply to income or gains treated under section
809VA(2) as not remitted to the United Kingdom.

(9) 20“The fixed amount” is the amount of that kind of income or gain
contained in the property when it was brought to, or received or
used in, the United Kingdom (as mentioned in section 809X).

(10) If the investment is made using more than just the property (or thing
into which it was converted), treat only the part made using the
25property (or thing into which it was converted) as “the investment”
for the purposes of the business investment provisions.”

11 In section 809Z2 (personal use rule), in subsection (2), omit paragraph (a)
(including the word “and” at the end of it).

12 In section 809Z4 (temporary importation rule), in subsection (3)—

(a) 30omit “or” at the end of paragraph (b),

(b) insert “or” at the end of paragraph (c), and

(c) after that paragraph insert—

“(d) all or any part of the income or chargeable gains
contained in the property (or from which the property
35derives) is treated, or continues to be treated, under
section 809VA(2), 809Y(8)(b) or 809YC(2) as not
remitted to the United Kingdom.”

Interpretation provisions

13 In section 809M (meaning of “relevant person”), in subsection (1), for
40“sections 809L, 809N and 809O” substitute “this Chapter”.

14 In section 809Z7 (interpretation of Chapter), omit subsection (7).

15 For the heading of that section substitute “Meaning of “foreign income and
gains” etc”.

16 After that section insert—

“809Z8 Meaning of “the disposal proceeds”

(1) In this Chapter, in relation to a sale or other disposal, “the disposal
proceeds” means—

(a) 5the consideration for the disposal, less

(b) any agency fees that are deducted before the consideration is
paid or otherwise made available to or for the benefit of the
person making the disposal (“the transferor”) or any other
relevant person.

(2) 10The following rules apply in determining the consideration for the
disposal.

(3) If the consideration is provided in the form of anything other than
money, the amount of the consideration is the market value of the
thing at the time of the disposal.

(4) 15If the disposal is made other than by way of a bargain made at arm’s
length, the disposal is deemed to be made for a consideration equal
to the market value, immediately before the disposal, of the thing
being disposed of.

(5) Without limiting the generality of subsection (4), a disposal made to
20another relevant person or to a person connected with a relevant
person is treated in all cases as made other than by way of a bargain
at arm’s length.

(6) In subsection (1), “agency fees” means fees and other incidental costs
of the disposal that are charged to the transferor by any person by or
25through whom the disposal is effected, but excluding any such fees
or costs that—

(a) are charged to the transferor by another relevant person, or

(b) are to be passed on to or otherwise applied for the benefit of
a relevant person.

(7) 30The exclusion mentioned in subsection (6) does not apply to the
extent that the fees or costs—

(a) relate to a service actually provided by the relevant person to
the transferor in connection with effecting the disposal, and

(b) do not exceed the amount that would be charged for that
35service if it were provided in the ordinary course of business
and on arm’s length terms.

809Z9 Taking proceeds etc offshore or investing them

(1) This section applies to a provision of this Chapter that is satisfied if
something (for example, disposal proceeds) is taken offshore or used
40by a relevant person to make a qualifying investment.

(2) Things are to be regarded as “taken offshore” if (and only if) they are
taken outside the United Kingdom such that, on leaving the United
Kingdom, they cease to be available—

(a) to be used or enjoyed in the United Kingdom by or for the
45benefit of a relevant person, or