Finance (No. 2) Bill (HC Bill 190)

255B Gains and losses on investments in social enterprises

(1) For the purpose of determining the gain or loss on any disposal of an
asset by an individual where—

(a) an amount of SI relief is attributable to the asset, and

(b) 5apart from this subsection there would be a loss,

treat the consideration given by the individual for the acquisition of
the asset as reduced by the amount of the SI relief.

(2) If—

(a) an individual disposes of an asset,

(b) 10an amount of SI relief is attributable to the asset,

(c) the disposal takes place after the end of the 3 years beginning
with the day when the individual acquired the asset, and

(d) apart from this subsection, there would be a gain on the
disposal,

15the gain is not a chargeable gain, subject to section 255C.

(3) Despite section 16(2), subsection (2) above does not apply to a
disposal on which a loss accrues.

(4) Any question as to—

(a) which of any assets acquired by an individual at different
20times a disposal relates to, being assets to which SI relief is
attributable, or

(b) whether a disposal relates to assets to which SI relief is
attributable or to other assets,

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

(5) Chapter 1 of this Part has effect subject to subsection (4).

(6) Sections 104, 105 and 106A do not apply to assets to which SI relief is
attributable.

(7) There are to be made all such adjustments of capital gains tax,
30whether by way of assessment or by way of discharge or repayment
of tax, as may be required in consequence of SI relief being given or
withdrawn.

(8) In this section and sections 255C to 255E “SI relief” means relief
under Part 5B of ITA 2007 (income tax relief for investments in social
35enterprises).

(9) That Part applies for the purposes of this section and sections 255C
to 255E to determine whether SI relief is attributable to any asset and,
if so, the amount of SI relief so attributable.

255C Application of section 255B(2) where maximum SI relief not obtained

(1) 40Subsection (2) applies if—

(a) an individual’s liability to income tax has been reduced (or
treated by virtue of section 257T of ITA 2007 (spouses or civil
partners) as reduced) for any tax year under section 257JA of
ITA 2007 (SI relief) in respect of the acquisition of an asset,

(b) the amount of the reduction (“D”) is less than the amount
given by—

where—

• 5I is the amount on which the individual has SI relief in
  the case of the asset, and

• R is the SI rate for the tax year for which the SI relief was
  obtained, and

(c) D is not within paragraph (b) solely by virtue of section 29(2)
10and (3) of ITA 2007.

(2) If the individual disposes of the asset and there is a gain on the
disposal, section 255B(2) has effect in relation to the gain as if it were
reduced by multiplying it by—

(3) 15In this section “SI rate” has the meaning given by section 257JA(5) of
ITA 2007.

255D Application of section 255B(2) where SI relief has been reduced

(1) Subsection (2) applies if before a disposal of an asset—

(a) value is received in circumstances where SI relief attributable
20to the asset is reduced by an amount under section 257Q(1)(a)
of ITA 2007, or

(b) there is a repayment, redemption, repurchase or payment in
circumstances where SI relief attributable to the asset is
reduced by an amount under section 257QJ(2)(a) of ITA 2007,
25or

(c) paragraphs (a) and (b) both apply.

(2) If section 255B(2) applies on the disposal but section 255C does not,
section 255B(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
30fraction—

where—

• A is equal to the amount by which the SI relief given in respect
  of the asset is reduced as mentioned in subsection (1) above,
  35and

• B is equal to the amount of the SI relief given in respect of the
  asset.

(3) If sections 255B(2) and 255C apply on the disposal, section 255B(2)
applies only to so much of the gain as is found by—

(a) 40taking the part of the gain found under section 255C, and

(b) deducting from that part so much of it as is found by
multiplying it by the fraction mentioned in subsection (2).

(4) If the SI relief given in respect of the asset is reduced as mentioned in
subsection (1) by more than one amount, the amount referred to as A

in subsection (2) is to be taken to be equal to the aggregate of those
amounts.

(5) The amount referred to in subsection (2) as B is to be found without
regard to any reduction mentioned in subsection (1).

255E Reorganisations involving shares to which SI relief is attributable

(1) 5Subsection (2) applies if an individual holds shares which form part
of the ordinary share capital of a company and include shares of
more than one of the following kinds—

(a) shares to which SI relief is attributable and to which
subsection (3) applies,

(b) 10shares to which SI relief is attributable and to which
subsection (3) does not apply, and

(c) shares to which SI relief is not attributable and to which
subsection (3) does not apply.

(2) If there is a reorganisation within the meaning of section 126
15affecting the shares listed in subsection (1), section 127 applies
separately to those shares so that shares of each kind are treated as a
separate holding of original shares and identified with a separate
new holding.

(3) This subsection applies to any shares if—

(a) 20expenditure on the shares has been set under Schedule 8B to
this Act against the whole or part of any gain, and

(b) in relation to the shares there has been no chargeable event
for the purposes of that Schedule.

(4) If—

(a) 25an 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

(c) 30immediately following the reorganisation, SI relief is
attributable to the existing holding or the allotted shares,

sections 127 to 130 do not apply in relation to the existing holding.

(5) Subject to subsection (6), sections 135 and 136 do not apply in respect
of shares to which SI relief is attributable.

(6) 35Subsection (5) does not have effect to disapply section 135 or 136 in a
case where the original shares are shares to which SI relief is
attributable if—

(a) the new holding consists of new ordinary shares which meet
conditions A and B of section 257L of ITA 2007,

(b) 40the new shares are issued after the end of three years
beginning with the day on which the original shares were
acquired,

(c) before issuing the new shares, the company had issued
shares which met conditions A and B of section 257L of ITA
452007, and

(d) the company issued a compliance certificate in relation to
those earlier shares for the purposes of section 257PA(1) of

ITA 2007 and in accordance with sections 257PB and 257PC
of ITA 2007.

(7) In subsection (6) “new holding” is to be construed in accordance with
sections 126, 127, 135 and 136.

(8) In this section—

• 5“ordinary share capital” has the meaning given in section 989 of
  ITA 2007;

• “ordinary shares”, in relation to a company, means shares
  forming part of its ordinary share capital.”

3 Before Schedule 9 insert—

Section 255A

“ Schedule 8B 10Hold-over relief for gains re-invested in social enterprises

When does the Schedule apply?

1 (1) This Schedule applies if—

(a) a chargeable gain accrues to an individual (“the investor”),

(b) the investor acquires one or more assets (“the social
15holding”),

(c) the investor is eligible for SI relief under Part 5B of ITA
2007 in respect of the consideration given for the social
holding, and

(d) conditions A, B, C, D and E are met.

(2) 20Condition A is that the gain is one that accrues—

(a) on the disposal by the investor of an asset,

(b) in accordance with section 169N (but see sub-paragraph
(7)), or

(c) as a result of the operation of paragraph 5 in connection
25with a chargeable event within paragraph 6(1)(c) or (d).

(3) Condition B is that the gain is one that accrues—

(a) on or after 6 April 2014, and

(b) before 6 April 2019 (but see sub-paragraph (8)).

(4) Condition C is that the investor is resident in the United
30Kingdom—

(a) when the gain accrues, and

(b) when the social holding is acquired.

(5) Condition D is that the social holding is acquired by the investor
on the investor’s own behalf.

(6) 35Condition E is that the social holding is acquired—

(a) in the 3 years beginning with the day when the gain
accrues, or

(b) in the year that ends at the beginning of that day.

(7) The reference in sub-paragraph (2)(b) to a gain accruing in
40accordance with section 169N does not include such a gain so far

as it is chargeable to capital gains tax at the rate in section 169N(3)
(rate where entrepreneurs’ relief is available).

(8) The Treasury may by order substitute a later date for the date for
the time being specified in sub-paragraph (3)(b).

2 (1) This Schedule also applies if—

(a) 5a chargeable gain accrues to an individual (“the investor”),

(b) the gain accrues as a result of the operation of paragraph 5
in connection with a chargeable event within paragraph
6(1)(a), (b) or (c),

(c) the chargeable event is either—

(i) 10a disposal to a social enterprise of shares in or
debentures of the social enterprise, or

(ii) the cancellation, extinguishment, redemption or
repayment by a social enterprise of shares in or
debentures of the social enterprise,

(d) 15as part of the chargeable event or in connection with it, and
in place of the shares or debentures, the investor acquires
one or more assets (“the social holding”) from the social
enterprise,

(e) other than the investor’s ceasing to hold the shares or
20debentures, no detriment is suffered in return for the
acquisition of the social holding,

(f) the asset acquired, or each of the assets acquired, is a share
in or debenture of the social enterprise,

(g) but for section 257LA of ITA 2007 (consideration for
25acquisition must be wholly in cash and fully paid) the
investor would be eligible for SI relief under Part 5B of ITA
2007 in respect of the consideration given for the social
holding, and

(h) conditions F, G, H and J are met.

(2) 30Condition F is that the gain is one that accrues—

(a) on or after 6 April 2014, and

(b) before 6 April 2019 (but see sub-paragraph (6)).

(3) Condition G is that the investor is resident in the United
Kingdom—

(a) 35when the gain accrues, and

(b) when the social holding is acquired.

(4) Condition H is that the social holding is acquired by the investor
on the investor’s own behalf.

(5) Condition J is that the social holding is acquired—

(a) 40in the 3 years beginning with the day when the gain
accrues, or

(b) in the year that ends at the beginning of that day.

(6) The Treasury may by order substitute a later date for the date for
the time being specified in sub-paragraph (2)(b).

(7) 45In this paragraph “debenture” includes any instrument creating or
acknowledging indebtedness.

Interpretation of Schedule

3 (1) In the following provisions of this Schedule—

• “the amount invested” means, in a case where this Schedule
  applies because of paragraph 1, the consideration
  5mentioned in paragraph 1(1)(c),

• “the investor” means the individual mentioned in paragraph
  1(1)(a) or, as the case may be, paragraph 2(1)(a),

• “the original gain” means the chargeable gain mentioned in
  paragraph 1(1)(a) or, as the case may be, paragraph 2(1)(a),
  10and

• “the social holding” means the asset or assets mentioned in
  paragraph 1(1)(b) or, as the case may be, paragraph 2(1)(d).

(2) In this Schedule, a “disposal within marriage or civil partnership”
is a disposal to which section 58 (certain disposals between
15spouses or civil partners) applies.

Claim to hold gain over while invested in a social enterprise

4 (1) The investor may make a claim for the original gain to be
reduced—

(a) in a case within paragraph 1, by the amount invested, or by
20a part of that amount specified in the claim, or

(b) in a case within paragraph 2, to the extent specified in the
claim,

but, in either case, subject as follows.

(2) The reduction may not be more than the original gain or, if the
25original gain has already been reduced under one or more of the
listed provisions, the reduction may not be more than the reduced
gain.

(3) In a case within paragraph 1, the claim may not relate to any part
of the amount invested that under any of the listed provisions has
30already been set against a chargeable gain.

(4) The “listed provisions” are—

(a) sub-paragraph (1),

(b) Schedule 5B, and

(c) paragraph 1(5) of Schedule 5BB.

(5) 35The total of all reductions claimed by the investor under sub-
paragraph (1) in any tax year must not be more than £1,000,000.

(6) If there is relief by way of a reduction under sub-paragraph (1)
then, for the purposes of this Schedule, that relief—

(a) is attributable to the asset or assets that form the social
40holding, but

(b) ceases to be attributable to any particular asset, or to any
particular part of a particular asset, when—

(i) a chargeable event occurs in relation to that asset or
part, or

(ii) 45the person holding the asset or part dies.

Held-over gain treated as accruing on disposal etc of the qualifying investment

5 (1) This paragraph applies if there has been a reduction under
paragraph 4(1).

(2) A chargeable gain equal to the amount of the reduction is treated
5as accruing when a chargeable event occurs in relation to the social
holding without any chargeable event having previously occurred
in relation to any of the holding.

(3) When a chargeable event occurs in relation to part only of the
social holding without any chargeable event having previously
10occurred in relation to any of that part, a chargeable gain
calculated in accordance with sub-paragraph (4) is treated as
accruing.

(4) The calculation is—

Step 1

15Subtract from the amount of the reduction any chargeable gains
previously treated as accruing as a result of the operation of sub-
paragraph (3).

Step 2

Attribute a proportionate part of the amount calculated at Step 1
20to each part of the social holding held, immediately before the
occurrence of the chargeable event in question, by the investor or
a person who has acquired any part of the holding from the
investor on a disposal within marriage or civil partnership.

Step 3

25Chargeable events

6 (1) A chargeable event occurs in relation to an asset that forms the
whole or any part of the social holding if (after the acquisition of
the holding)—

(a) the investor disposes of the asset otherwise than by way of
30a disposal within marriage or civil partnership,

(b) the asset is disposed of, otherwise than by way of a
disposal to the investor, by a person who acquired the
asset on a disposal made within marriage or civil
partnership,

(c) 35the asset is cancelled, extinguished, redeemed or repaid, or

(d) any of the conditions in Chapters 3 and 4 of Part 5B of ITA
2007 for the investor’s eligibility for SI relief under that
Part in respect of the amount invested fails to be met.

In this sub-paragraph “asset” includes part of an asset.

(2) 40In the event of the death of—

(a) the investor, or

(b) a person who, on a disposal within marriage or civil
partnership, has acquired the whole or any part of the
social holding,

nothing which occurs at or after the time of death is a chargeable
5event in relation to any part of the holding held by the deceased
person immediately before the time of death.

(3) If a person makes a disposal of assets of a particular class while
retaining other assets of that class—

(a) assets of that class acquired by the person on an earlier day
10are treated for the purposes of this Schedule as disposed of
before assets of that class acquired by the person on a later
day, and

(b) assets of that class acquired by the person on the same day
are treated for the purposes of this Schedule as disposed of
15in the following order—

(i) first, any to which neither relief under this
Schedule, nor SI relief under Part 5B of ITA 2007, is
attributable,

(ii) next, any to which relief under this Schedule, but
20not SI relief under that Part, is attributable,

(iii) next, any to which SI relief under that Part, but not
relief under this Schedule, is attributable, and

(iv) finally, any to which both SI relief under that Part,
and relief under this Schedule, are attributable.

(4) 25For the purposes of sub-paragraph (3), assets—

(a) to which relief under this Schedule is attributable, and

(b) which have not been held continuously by the investor
since the social holding was acquired,

are treated as having been acquired when the social holding was
30acquired if SI relief under Part 5B of ITA 2007 is not also
attributable to them.

(5) For the purposes of sub-paragraph (3), assets—

(a) to which SI relief under Part 5B of ITA 2007 is attributable,
and

(b) 35which were transferred to an individual as mentioned in
section 257T of ITA 2007 (transfers between spouses or
civil partners),

are treated as having been acquired when the social holding was
acquired.

(6) 40Chapter 1 of Part 4 of this Act has effect subject to sub-paragraphs
(3) to (5).

(7) Sections 104, 105 and 106A do not apply to assets to which relief
under this Schedule is attributable if SI relief under Part 5B of ITA
2007 is not also attributable to them.

(8) 45Where, at the time of a chargeable event, an asset that formed the
whole or any part of the social holding is treated for the purposes
of this Act as represented by assets which consist of or include
assets other than that asset—

(a) so much of the original gain as is attributable to the asset is
treated, in determining for the purposes of this paragraph
the amount of the original gain to be treated as attributable
to each of those assets, as apportioned in such manner as
5may be just and reasonable between those assets, and

(b) as between different assets treated as representing the
same asset, sub-paragraphs (3) to (5) apply with the
necessary modifications in relation to those assets as they
would apply in relation to the asset.

(9) 10In order to determine, for the purposes of sub-paragraph (8), the
amount of the original gain attributable to any asset, a
proportionate part of the amount of the original gain is to be
attributed to each asset that forms the whole or any part of so
much of the social holding as is held, immediately before the
15occurrence of the chargeable event in question, by the investor or
a person who has acquired any part of the social holding from the
investor on a disposal within marriage or civil partnership.

(10) In subsections (8) and (9) references to the original gain are to so
much of the original gain as remains after deduction from it of the
20amount of any chargeable gain treated as accruing as a result of
the previous operation of paragraph 5.

Person to whom held-over gain is treated as accruing

7 (1) This paragraph applies where a chargeable gain is treated as
accruing as a result of the operation of paragraph 5.

(2) 25If the chargeable event is a disposal, that chargeable gain is treated
as accruing to the person who makes the disposal.

(3) If the chargeable event occurs—

(a) when an asset, or part of an asset, is cancelled,
extinguished, redeemed or repaid, or

(b) 30when a condition, for eligibility for relief in respect of the
consideration given for the acquisition of an asset, fails to
be met,

that chargeable gain is treated as accruing to the person who holds
the asset, or part, when the chargeable event occurs.

35Claims: procedure

8 (1) Sections 257P(1), 257PA(1) and 257PB to 257PD of ITA 2007—

(a) apply in relation to a claim under this Schedule in respect
of the social holding as they apply in relation to a claim
under Part 5B to ITA 2007 in respect of an investment, and

(b) 40as they so apply, have effect as if any reference to the
requirements for relief under that Part were a reference to
the conditions for the application of this Schedule.

(2) In section 257PE(2) of ITA 2007 (power to make consequential
amendments etc when amending provision about claims for SI
45relief) “enactment” includes (in particular) sub-paragraph (1).”

Section 64

SCHEDULE 11 Extended ring fence expenditure supplement for onshore activities

1 In Part 8 of CTA 2010 (oil activities), after Chapter 5 insert—

“ CHAPTER 5A Extended ring fence expenditure supplement for onshore activities

5Introduction

329A Overview of Chapter

(1) This Chapter entitles a company carrying on a ring fence trade, on
making a claim in respect of an accounting period, to an additional
supplement in respect of—

(a) 10qualifying pre-commencement onshore expenditure
incurred before the date the trade is set up and commenced,

(b) losses incurred in the trade which relate to onshore oil-
related activities,

(c) some or all of the supplement allowed in respect of earlier
15periods under Chapter 5, and

(d) the additional supplement allowed in respect of earlier
periods under this Chapter.

(2) Sections 329B to 329H make provision about the application and
interpretation of this Chapter.

(3) 20Sections 329I to 329M make provision about additional supplement
in relation to expenditure incurred by the company—

(a) with a view to carrying on a ring fence trade, but

(b) in an accounting period before the company sets up and
commences that trade.

(4) 25Sections 329N to 329T make provision about additional supplement
in relation to losses incurred in carrying on the ring fence trade.

(5) There is a limit (of 4) on the number of accounting periods in respect
of which a company may claim additional supplement.

(6) In determining the amount of additional supplement allowable,
30reductions fall to be made in respect of—

(a) disposal receipts in respect of any asset representing
qualifying pre-commencement onshore expenditure,

(b) onshore ring fence losses that could be deducted under
section 37 (relief for trade losses against total profits) or
35section 42 (ring fence trades: further extension of period for
relief) from ring fence profits of earlier periods,

(c) onshore ring fence losses incurred in earlier periods that fall
to be used under section 45 (carry forward of trade loss
against subsequent trade profits) to reduce profits of
40succeeding periods, and

(d) unrelieved group ring fence profits.