Finance (No. 2) Bill (HC Bill 155)
SCHEDULE 14 continued
Contents page 330-339 340-349 350-359 360-369 370-379 380-389 390-397 400-416 417-418 420-428 430-439 440-449 450-459 460-478 479-479 480-489 490-499 500-509 510-519 520-529 530-539 Last page
Finance (No. 2) BillPage 430
(a)
companies A and B are to be treated as if they were the same
company, and
(b)
the exchange of shares is to be treated as if it were a
reorganisation of that company’s share capital.
169VM 5 New shares issued on scheme of reconstruction
(1) This section applies where—
(a)
section 136 applies in relation to an arrangement between a
company (“company A”) and the persons holding shares, or
any class of shares, in company A, under which another
10company (“company B”) issues shares to those persons, and
(b)
under section 136(2)(a) those persons are treated as
exchanging shares in company A for the shares held by them
in consequence of the arrangement.
(2) For the purposes of sections 169VI to 169VK—
(a)
15companies A and B are to be treated as if they were the same
company, and
(b)
the exchange of shares is to be treated as if it were a
reorganisation of that company’s share capital.
(3)
In the following provisions of this Chapter, any reference to an
20exchange of shares includes anything that section 136(2)(a) treats as
an exchange of shares.
169VN Modification of conditions for being a qualifying share
(1) This section applies where—
(a)
an ordinary share (“the original share”) is subscribed for by a
25qualifying person (“the investor”);
(b)
the conditions in section 169VB(2)(c) and (d) are met in
relation to the original share,
(c)
the share is involved in a reorganisation or in an exchange of
shares in relation to which section 169VL or 169VM applies,
30and accordingly is included in the original shares within the
meaning of section 169VI(6), and
(d)
subsequently there is a disposal of all or part of a holding of
shares that in relation to that reorganisation or exchange is a
new holding within the meaning given by section 169VI(2).
(2)
35As respects a share which is in that holding immediately before that
disposal, the conditions in section 169VB(2)(f) and (g) are to be
regarded as met if (and only if)—
(a)
in relation to the period beginning with the issue of the
original share and ending with the reorganisation or
40exchange of shares, those conditions were met by the original
share, and
(b)
in relation to the period beginning with the reorganisation or
exchange of shares and ending with the disposal, those
conditions were met by a share representing the original
45share.
(3)
In subsection (1)(c) “the share” includes a share that, following a
reorganisation or following an exchange of shares in relation to
which section 169VL or 169VM applies, represents the original share,
Finance (No. 2) BillPage 431
and subsection (2) applies in such a case with the necessary
modifications.
169VO Election to disapply section 127
(1) This section applies where—
(a) 5there is—
(i)
a reorganisation (within the meaning of section 126),
or
(ii)
an exchange of shares which is treated as such a
reorganisation by virtue of section 135 or 136, and
(b)
10the original shares and the new holding would fall to be
treated by virtue of section 127 as the same asset.
(2)
If an election is made under this section, a claim for investors’ relief
may be made as if the reorganisation or exchange of shares involved
a disposal of the original shares; and if such a claim is made section
15127 and sections 169VI to 169VN do not apply.
(3)
Any election under this section must be made by the qualifying
person.
(4)
Any election under this section must be made on or before the first
anniversary of the 31 January following the tax year in which the
20reorganisation or exchange of shares takes place.
(5)
In this section “the original shares” and “the new holding” have the
meaning given by section 126.
Supplemental
169VP “Subscribe” etc
(1)
25For the purposes of this Chapter (other than this subsection) a person
“subscribes for” a share in a company if—
(a) that person subscribes for the share,
(b)
the share is issued to that person by the company for
consideration consisting wholly of cash,
(c) 30the share is fully paid up at the time it is issued,
(d)
the share is subscribed for, and 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 was the avoidance of tax, and
(e)
35the share is subscribed for, and issued, by way of a bargain at
arm’s length.
(2) If—
(a)
an individual (“A”) subscribed for, or is treated under this
subsection as having subscribed for, any shares,
(b)
40A transferred the shares to another individual (“B”) during
their lives, and
(c)
A was living together with B as B‘s spouse or civil partner at
the time of the transfer,
B is to be treated for the purposes of this Chapter as having
45subscribed for the shares.
Finance (No. 2) BillPage 432
(3)
Accordingly, for the purposes of this Chapter any period for which
A held the shares continuously is to be added to, and treated as part
of, the period for which B held the shares continuously.
169VQ “Trading company” etc
(1)
5In this Chapter “trading company” and “the holding company of a
trading group” have the same meaning as in section 165 (see section
165A).
(2)
For the purposes of this Chapter a company is not to be regarded as
ceasing to be a trading company, or the holding company of a
10trading group, merely because of anything done in consequence of—
(a)
the company, or any of its subsidiaries, being in
administration or receivership, or
(b)
a resolution having been passed, or an order made, for the
winding up of the company or any of its subsidiaries.
(3) 15But subsection (2) applies only if—
(a)
the entry into administration or receivership, or the
resolution or order for winding up, and
(b)
everything done as a result of the company concerned being
in administration or receivership, or as a result of that
20resolution or order,
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.
169VR General definitions
25In this Chapter—
-
“employment” has the meaning given by section 4 of ITEPA
2003; -
“exchange of shares” is to be read in accordance with section
169VM(3); -
30“excluded share” has the meaning given by section 169VB;
-
a “holding” of shares in a company means a holding of such
shares which by virtue of section 104(1) is to be regarded as a
single asset; -
“investors’ relief” has the meaning given by section 169VA(3);
-
35“office” has the meaning given by section 5(3) of ITEPA 2003;
-
“potentially qualifying share” has the meaning given by section
169VB; -
“qualifying person” has the meaning given by section 169VC(6);
-
“qualifying share” has the meaning given by section 169VB;
-
40“ordinary shares”, in relation to a company, means any shares
forming part of the company’s ordinary share capital (within
the meaning given by section 989 of ITA 2007); -
“subscribe” is to be read in accordance with section 169VP;
-
“trading company” and “the holding company of a trading
45group” are to be read in accordance with section 169VQ.”
Finance (No. 2) BillPage 433
3 After Schedule 7ZA of TCGA 1992 (inserted by Schedule 13) insert—
Section 169VB
““Schedule 7ZB Investors’ relief: disqualification of shares
Disqualification of shares where value received in period of restriction
1 (1) Sub-paragraph (2) applies where—
(a)
5shares in a company are issued to a qualifying person (“the
investor”),
(b)
any of those shares would, apart from this Schedule, be or
be treated as being qualifying shares or potentially
qualifying shares at a particular time (“the relevant time”),
10and
(c)
the investor receives any value, other than insignificant
value, from the company at any time in the period of
restriction.
(2)
The shares in question are to be treated for the purposes of this
15Chapter as being excluded shares at the relevant time.
(3) Where—
(a)
the investor receives value (“the relevant receipt”) from the
company during the period of restriction,
(b)
the investor has received from the company one or more
20receipts 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 aggregate amount of the value of the receipts within
paragraphs (a) and (b) is not an amount of insignificant
25value,
the investor is to be treated for the purposes of this Schedule as if
the relevant receipt had been a receipt of an amount equal to that
aggregate amount.
(4) In this Schedule “the period of restriction” means the period—
(a)
30beginning one year before the date the shares are issued,
and
(b)
ending immediately before the third anniversary of the
date the shares are issued.
(5)
In the following provisions of this Schedule references to “the
35shares” are to the shares referred to in sub-paragraph (1)(a).
(6) This paragraph is subject to paragraph 4.
“Receives value”
2
(1)
For the purposes of this Schedule the investor receives value from
the company if the company—
(a)
40repays, redeems or repurchases any of its share capital or
securities which belong to the investor or makes any
Finance (No. 2) BillPage 434
payment to the investor for giving up a right to any of the
company’s share capital or any security on its cancellation
or extinguishment,
(b)
repays, in pursuance of any arrangements for or in
5connection with the acquisition of the shares, 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 the shares, and
(ii)
otherwise than in consideration of the
10extinguishment of a debt incurred before that date,
(c)
makes to the investor any payment for giving up the
investor’s right to any debt on its extinguishment,
(d)
releases or waives any liability of the investor to the
company or discharges, or undertakes to discharge, any
15liability 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,
(f) provides a benefit or facility for the investor,
(g)
disposes of an asset to the investor for no consideration or
20for a consideration which is or the value of which is less
than the market value of the asset,
(h)
acquires an asset from the investor for a consideration
which is or the value of which is more than the market
value of the asset, or
(i)
25makes any payment to the investor other than a qualifying
payment.
(2)
For the purposes of sub-paragraph (1)(e) there is to be treated as if
it were a loan made by the company to the investor—
(a)
the amount of any debt (other than an ordinary trade debt)
30incurred by the investor to the company, and
(b)
the amount of any debt due from the investor to a third
person which has been assigned to the company.
(3)
For the purposes of this paragraph the investor also receives value
from the company if any person connected with the company—
(a)
35purchases 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.
(4) 40In this paragraph “qualifying payment” means—
(a)
the payment by any company of such remuneration for
service as an officer or employee of that company as may
be reasonable in relation to the duties of that office or
employment,
(b)
45any payment or reimbursement by any company of
travelling or other expenses wholly, exclusively and
necessarily incurred by the investor to whom the payment
is made in the performance of duties as an officer or
employee of that company,
Finance (No. 2) BillPage 435
(c)
the payment by any company of any interest which
represents no more than a reasonable commercial return
on money lent to that company,
(d)
the payment by any company of any dividend or other
5distribution which does not exceed a normal return on any
investment in shares in or other securities of that company,
(e)
any payment for the supply of goods which does not
exceed their market value,
(f)
any payment for the acquisition of an asset which does not
10exceed its market value,
(g)
the payment by any company, as rent for any property
occupied by the company, of an amount not exceeding a
reasonable and commercial rent for the property,
(h) any reasonable and necessary remuneration which—
(i)
15is paid by any company for services rendered to
that company in the course of a trade or profession
carried on wholly or partly in the United Kingdom;
and
(ii)
is taken into account in calculating for tax purposes
20the profits of that trade or profession, or
(i) a payment in discharge of an ordinary trade debt.
(5)
For the purposes of this paragraph a 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
25been discharged.
(6) In this paragraph—
(a)
references to a debt or liability do not, in relation to a
company, include references to any debt or liability which
would be discharged by the making by that company of a
30qualifying payment, and
(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 be a qualifying payment.
(7) 35In this paragraph and paragraph 3—
(a)
any reference to a payment or disposal to the investor
includes a reference to a payment or disposal made to the
investor indirectly or to the investor’s order or for the
investor’s benefit;
(b)
40any reference to the investor includes an associate of the
investor;
(c)
any reference to a company includes a person who at any
time in the period of restriction is connected with the
company, whether or not that person is connected at the
45material time.
(8)
In this paragraph “ordinary trade debt” means any debt for goods
or services supplied in the ordinary course of a trade or business
where any credit given—
(a) does not exceed six months, and
Finance (No. 2) BillPage 436
(b)
is not longer than that normally given to customers of the
person carrying on the trade or business.
Amount of value
3
(1)
For the purposes of paragraph 1, the value received by the
5investor is—
(a)
in a case within paragraph 2(1)(a), (b) or (c), the amount
received by the investor or, if greater, the market value of
the share capital, securities or debt in question;
(b)
in a case within paragraph 2(1)(d), the amount of the
10liability;
(c)
in a case within paragraph 2(1)(e), the amount of the loan
or advance reduced by the amount of any repayment made
before the issue of the shares;
(d)
in a case within paragraph 2(1)(f), the cost to the company
15of providing the benefit or facility less any consideration
given for it by the investor;
(e)
in a case within paragraph 2(1)(g) or (h), the difference
between the market value of the asset and the
consideration (if any) given for it;
(f)
20in a case within paragraph 2(1)(i), the amount of the
payment;
(g)
in a case within paragraph 2(3), the amount received by the
investor or, if greater, the market value of the share capital
or securities in question.
(2)
25In this Schedule references to a receipt of insignificant value
(however expressed) are references to a receipt of an amount of
insignificant value.
This is subject to sub-paragraph (4).
(3)
For the purposes of this Schedule “an amount of insignificant
30value” means an amount of value which does not exceed £1,000.
(4) For the purposes of this Schedule, if at any time in the period—
(a) beginning one year before the shares are issued, and
(b) expiring at the end of the issue date,
arrangements are in existence which provide for the investor to
35receive or to be entitled to receive, at any time in the period of
restriction, any value from the company that issued the shares, no
amount of value received by the investor is to be treated as a
receipt of insignificant value.
(5) In sub-paragraph (4)—
(a)
40any reference to the investor includes a reference to any
person who, at any time in the period of restriction, is an
associate of the investor (whether or not that person is such
an associate at the material time), and
(b)
the reference to the company includes a reference to any
45person who, at any time in the period of restriction, is
connected with the company (whether or not that person
is so connected at the material time).
Finance (No. 2) BillPage 437
Receipt of replacement value
4 (1) Where—
(a)
by reason of a receipt of value within sub-paragraph (1)
(other than paragraph (b)) or sub-paragraph (3) of
5paragraph 2 (“the original value”), any shares would, in
the absence of this paragraph, be treated under this
Schedule as excluded shares at a particular time,
(b)
at or before that time the original supplier receives value
(“the replacement value”) from the original recipient by
10reason of a qualifying receipt, and
(c)
the amount of the replacement value is not less than the
amount of the original value,
the receipt of the original value is to be disregarded for the
purposes of this Schedule.
(2) 15This paragraph is subject to paragraph 5.
(3) For the purposes of this paragraph and paragraph 5—
(a)
“the original recipient” means the person who receives the
original value, and
(b)
“the original supplier” means the person from whom that
20value was received.
(4)
A receipt of the replacement value is a qualifying receipt for the
purposes of sub-paragraph (1) if it arises—
(a)
by reason of the original recipient doing one or more of the
following—
(i)
25making a payment to the original supplier, other
than a payment which falls within paragraph (c) or
to which sub-paragraph (5) applies,
(ii)
acquiring any asset from the original supplier for a
consideration the amount or value of which is more
30than 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)
35where the receipt of the original value was within
paragraph 2(1)(d), by reason of an event the effect of which
is to reverse the event which constituted the receipt of the
original value, or
(c)
where the receipt of the original value was within
40paragraph 2(3), by reason of the original recipient
repurchasing the share capital or securities in question, or
(as the case may be) reacquiring the right in question, for a
consideration the amount or value of which is not less than
the amount of the original value.
(5) 45This sub-paragraph applies to—
(a)
any payment for any goods, services or facilities, provided
(whether in the course of a trade or otherwise) by—
(i) the original supplier, or
Finance (No. 2) BillPage 438
(ii)
any other person who, at any time in the period of
restriction, is an associate of, or connected with,
that supplier (whether or not that person is such an
associate, or so connected, at the material time),
5which 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 money lent to—
(i) the original recipient, or
(ii)
10any person who, at any time in the period of
restriction, is an associate of the original recipient
(whether or not such an associate at the material
time),
(c)
any payment for the acquisition of an asset which does not
15exceed 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 the period of
restriction, is an associate of the original recipient
20(whether or not 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
25(within the meaning of paragraph 2(8)), and
(f)
any payment for shares in or securities of any company in
circumstances that do not fall within sub-paragraph
(4)(a)(ii).
(6)
For the purposes of this paragraph, the amount of the replacement
30value is—
(a)
in a case within paragraph (a) of sub-paragraph (4), the
aggregate of—
(i)
the amount of any payment within sub-paragraph
(i) of that paragraph, and
(ii)
35the difference between the market value of any
asset within sub-paragraph (ii) or (iii) of that
paragraph and the amount or value of the
consideration (if any) received for it,
(b)
in a case within sub-paragraph (4)(b), the same as the
40amount of the original value, and
(c)
in a case within sub-paragraph (4)(c), the amount or value
of the consideration received by the original supplier,
and paragraph 3(1) applies for the purposes of determining the
amount of the original value.
(7)
45In this paragraph 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.
5
(1)
The receipt of the replacement value by the original supplier is to
be disregarded for the purposes of paragraph 4, as it applies in
50relation to the shares, to the extent to which that receipt has
Finance (No. 2) BillPage 439
previously been set (under that paragraph) against any receipts of
value which are, in consequence, disregarded for the purposes of
paragraph 4 as that paragraph applies in relation to those shares
or any other shares subscribed for by the investor.
(2)
5The receipt of the replacement value by the original supplier (“the
event”) is also be disregarded for the purposes of paragraph 4 if—
(a)
the event occurs before the start of the period of restriction,
or
(b)
in a case where the event occurs after the time the original
10recipient receives the original value, it does not occur as
soon after that time as is reasonably practicable in the
circumstances.
But nothing in paragraph 4 or this paragraph requires the
replacement value to be received after the original value.
(3)
15In this paragraph “the original value” and “the replacement value”
are to be construed in accordance with paragraph 4.
Interpretation
6 In this Schedule—
-
“arrangements” includes any scheme, agreement,
20understanding, transaction or series of transactions
(whether or not legally enforceable); -
“associate” has the meaning that would be given by section
448 of CTA 2010 if in that section “relative” did not include
a brother or sister; -
25“period of restriction” has the meaning given by paragraph
1(4); -
“the shares” has the meaning given by paragraph 1(5).”
Section 82
SCHEDULE 15 Inheritance tax: increased nil-rate band
1 30IHTA 1984 is amended as follows.
2
(1)
Section 8D (extra nil-rate band on death if interest in home goes to
descendants etc) is amended as follows.
(2) In subsection (4), after “8G” insert “(and see also section 8M)”.
(3) In subsection (9), before the definition of “tax year” insert—
-
35“““consumer prices index” means the all items consumer prices
index published by the Statistics Board,”.
3
(1)
Section 8E (residence nil-rate amount: interest in home goes to descendants
etc) is amended as follows.
(2) In subsection (6), after “(7)” insert “and sections 8FC and 8M(2B) to (2E)”.
(3) 40In subsection (7), for paragraphs (a) and (b) substitute—
“(a) the person’s residence nil-rate amount is equal to VT,