Finance Bill (HC Bill 47)

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For this purpose a receipt does not fall within paragraph (b) in
relation to the shares if it has previously been aggregated under
this sub-paragraph in relation to them.

(4) In this Schedule “the period of restriction” means the period—

(a) 5beginning 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 sub-paragraphs (3) and (4) and in the following provisions of
10this Schedule references to “the shares” 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
15the company if the company—

(a) repays, redeems or repurchases any of its share capital or
securities which belong to the investor or makes any
payment to the investor for giving up a right to any of the
company’s share capital or any security on its cancellation
20or extinguishment,

(b) repays, in pursuance of any arrangements for or in
connection with the acquisition of the shares, any debt
owed to the investor other than a debt which was incurred
by the company—

(i) 25on or after the date of issue of the shares, and

(ii) otherwise than in consideration of the
extinguishment 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) 30releases or waives any liability of the investor to the
company or discharges, or undertakes to discharge, any
liability 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) 35provides a benefit or facility for the investor,

(g) disposes of an asset to the investor for no consideration or
for 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
40which is or the value of which is more than the market
value of the asset, or

(i) makes 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
45it were a loan made by the company to the investor—

(a) the amount of any debt (other than an ordinary trade debt)
incurred by the investor to the company, and

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(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) 5purchases 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) 10In 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) 15any 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,

(c) 20the 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
distribution which does not exceed a normal return on any
25investment 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
exceed its market value,

(g) 30the 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) is paid by any company for services rendered to
35that 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
the profits of that trade or profession, or

(i) 40a 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
been discharged.

(6) 45In 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
qualifying payment, and

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(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) 5In 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) 10any 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
15material 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

(b) 20is 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
investor is—

(a) 25in 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
liability;

(c) 30in 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
of providing the benefit or facility less any consideration
35given 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) in a case within paragraph 2(1)(i), the amount of the
40payment;

(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) In this Schedule references to a receipt of insignificant value
45(however expressed) are references to a receipt of an amount of
insignificant value.

This is subject to sub-paragraph (4).

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(3) For the purposes of this Schedule “an amount of insignificant
value” 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) 5expiring at the end of the issue date,

arrangements are in existence which provide for the investor to
receive 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
10receipt of insignificant value.

(5) In sub-paragraph (4)—

(a) any 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
15an associate at the material time), and

(b) the reference to the company includes a reference to any
person 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).

20Receipt 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
paragraph 2 (“the original value”), any shares would, in
25the 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
reason of a qualifying receipt, and

(c) 30the 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) This paragraph is subject to paragraph 5.

(3) 35For 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
value was received.

(4) 40A 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) making a payment to the original supplier, other
45than a payment which falls within paragraph (c) or
to which sub-paragraph (5) applies,

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(ii) acquiring any asset from the original supplier for a
consideration the amount or value of which is more
than the market value of the asset,

(iii) disposing of any asset to the original supplier for
5no consideration or for a consideration the amount
or value of which is less than the market value of
the asset,

(b) where the receipt of the original value was within
paragraph 2(1)(d), by reason of an event the effect of which
10is to reverse the event which constituted the receipt of the
original value, or

(c) where the receipt of the original value was within
paragraph 2(3), by reason of the original recipient
repurchasing the share capital or securities in question, or
15(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) This sub-paragraph applies to—

(a) any payment for any goods, services or facilities, provided
20(whether in the course of a trade or otherwise) by—

(i) the original supplier, or

(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
25associate, or so connected, at the material time),

which 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) 30the original recipient, or

(ii) any 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) 35any payment for the acquisition of an asset which does not
exceed 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
40restriction, is an associate of the original recipient
(whether or not such an associate at the material
time),

of an amount not exceeding a reasonable and commercial
rent for the property,

(e) 45any payment in discharge of an ordinary trade debt
(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) 50For the purposes of this paragraph, the amount of the replacement
value is—

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(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) 5the 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
10amount 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) 15In 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
20relation to the shares, to the extent to which that receipt has
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) 25The 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
30recipient 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) 35In 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,
    40understanding, 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;

  • 45“period of restriction” has the meaning given by paragraph
    1(4);

  • “the shares” has the meaning given by paragraph 1(5).”

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SCHEDULE 15 Section 92 Inheritance tax: increased nil-rate band

1 IHTA 1984 is amended as follows.

2 (1) Section 8D (extra nil-rate band on death if interest in home goes to
5descendants 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—

  • ““consumer prices index” means the all items consumer prices
    index published by the Statistics Board,”.

3 (1) 10Section 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) In subsection (7), for paragraphs (a) and (b) substitute—

(a) the person’s residence nil-rate amount is equal to VT,

(b) 15where E is less than or equal to TT, an amount, equal to the
difference between VT and the person’s default allowance, is
available for carry-forward, and

(c) where E is greater than TT, an amount, equal to the difference
between VT and the person’s adjusted allowance, is available
20for carry-forward.”

(4) In subsection (8)—

(a) before the entry for section 8H insert—

  • “section 8FC (modifications of this section where there is
    entitlement to a downsizing addition),”, and

(b) 25in the entry for section 8H, after ““qualifying residential interest””
insert “, “qualifying former residential interest” and “residential
property interest””.

4 In section 8F(4) (list of other relevant sections)—

(a) before the entry for section 8H insert—

  • 30“section 8FD (which applies instead of this section
    where there is entitlement to a downsizing
    addition),”, and

(b) in the entry for section 8H, after ““qualifying residential interest””
insert “, “qualifying former residential interest” and “residential
35property interest””.

5 After section 8F insert—

8FA Downsizing addition: entitlement: low-value death interest in home

(1) There is entitlement to a downsizing addition in calculating the
person’s residence nil-rate amount if each of conditions A to F is met
40(see subsection (8) for the amount of the addition).

(2) Condition A is that—

(a) the person’s residence nil-rate amount is given by section
8E(2) or (4), or

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(b) the person’s estate immediately before the person’s death
includes a qualifying residential interest but none of the
interest is closely inherited, and—

(i) where E is less than or equal to TT, so much of VT as
5is attributable to the person’s qualifying residential
interest is less than the person’s default allowance, or

(ii) where E is greater than TT, so much of VT as is
attributable to the person’s qualifying residential
interest is less than the person’s adjusted allowance.

10Section 8E(6) and (7) do not apply, and any entitlement to a
downsizing addition is to be ignored, when deciding whether
paragraph (a) of condition A is met.

(3) Condition B is that not all of VT is attributable to the person’s
qualifying residential interest.

(4) 15Condition C is that there is a qualifying former residential interest in
relation to the person (see sections 8H(4A) to (4F) and 8HA).

(5) Condition D is that the value of the qualifying former residential
interest exceeds so much of VT as is attributable to the person’s
qualifying residential interest.

20Section 8FE(2) explains what is meant by the value of the qualifying
former residential interest.

(6) Condition E is that at least some of the remainder is closely inherited,
where “the remainder” means everything included in the person’s
estate immediately before the person’s death other than the person’s
25qualifying residential interest.

(7) Condition F is that a claim is made for the addition in accordance
with section 8L(1) to (3).

(8) Where there is entitlement as a result of this section, the addition—

(a) is equal to the lost relievable amount (see section 8FE) if that
30amount is less than so much of VT as is attributable to so
much of the remainder as is closely inherited, and

(b) otherwise is equal to so much of VT as is attributable to so
much of the remainder as is closely inherited.

(9) Subsection (8) has effect subject to section 8M(2G) (reduction of
35downsizing addition in certain cases involving conditional
exemption).

(10) See also—

  • section 8FC (effect of an addition: section 8E case),

  • section 8FD (effect of an addition: section 8F case),

  • 40section 8H (meaning of “qualifying residential interest”,
    “qualifying former residential interest” and “residential
    property interest”),

  • section 8J (meaning of “inherit”),

  • section 8K (meaning of “closely inherited”), and

  • 45section 8M (cases involving conditional exemption).

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8FB Downsizing addition: entitlement: no residential interest at death

(1) There is also entitlement to a downsizing addition in calculating the
person’s residence nil-rate amount if each of conditions G to K is met
(see subsection (7) for the amount of the addition).

(2) 5Condition G is that the person’s estate immediately before the
person’s death (“the estate”) does not include a residential property
interest.

(3) Condition H is that VT is greater than nil.

(4) Condition I is that there is a qualifying former residential interest in
10relation to the person (see sections 8H(4A) to (4F) and 8HA).

(5) Condition J is that at least some of the estate is closely inherited.

(6) Condition K is that a claim is made for the addition in accordance
with section 8L(1) to (3).

(7) Where there is entitlement as a result of this section, the addition—

(a) 15is equal to the lost relievable amount (see section 8FE) if that
amount is less than so much of VT as is attributable to so
much of the estate as is closely inherited, and

(b) otherwise is equal to so much of VT as is attributable to so
much of the estate as is closely inherited.

(8) 20Subsection (7) has effect subject to section 8M(2G) (reduction of
downsizing addition in certain cases involving conditional
exemption).

(9) See also—

  • section 8FD (effect of an addition: section 8F case),

  • 25section 8H (meaning of “qualifying residential interest”,
    “qualifying former residential interest” and “residential
    property interest”),

  • section 8J (meaning of “inherit”),

  • section 8K (meaning of “closely inherited”), and

  • 30section 8M (cases involving conditional exemption).

8FC Downsizing addition: effect: section 8E case

(1) Subsection (2) applies if—

(a) as a result of section 8FA, there is entitlement to a downsizing
addition in calculating the person’s residence nil-rate
35amount, and

(b) the person’s residence nil-rate amount is given by section 8E.

(2) Section 8E has effect as if, in subsections (2) to (5) of that section, each
reference to NV/100 were a reference to the total of—

(a) NV/100, and

(b) 40the downsizing addition.

8FD Downsizing addition: effect: section 8F case

(1) This section applies if—

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(a) as a result of section 8FA or 8FB, there is entitlement to a
downsizing addition in calculating the person’s residence
nil-rate amount, and

(b) apart from this section, the person’s residence nil-rate
5amount is given by section 8F.

(2) Subsections (3) to (6) apply instead of section 8F.

(3) The person’s residence nil-rate amount is equal to the downsizing
addition.

(4) Where—

(a) 10E is less than or equal to TT, and the downsizing addition is
equal to the person’s default allowance, or

(b) E is greater than TT, and the downsizing addition is equal to
the person’s adjusted allowance,

no amount is available for carry-forward.

(5) 15Where—

(a) E is less than or equal to TT, and

(b) the downsizing addition is less than the person’s default
allowance,

an amount, equal to the difference between the downsizing addition
20and the person’s default allowance, is available for carry-forward.

(6) Where—

(a) E is greater than TT, and

(b) the downsizing addition is less than the person’s adjusted
allowance,

25an amount, equal to the difference between the downsizing addition
and the person’s adjusted allowance, is available for carry-forward.

8FE Calculation of lost relievable amount

(1) This section is about how to calculate the person’s lost relievable
amount for the purposes of sections 8FA(8) and 8FB(7).

(2) 30For the purposes of this section and section 8FA(5), the value of the
person’s qualifying former residential interest is the value of the
interest at the time of completion of the disposal of the interest.

(3) In this section, the person’s “former allowance” is the total of—

(a) the residential enhancement at the time of completion of the
35disposal of the qualifying former residential interest,

(b) any brought-forward allowance that the person would have
had if the person had died at that time, having regard to the
circumstances of the person at that time (see section 8G as
applied by subsection (4)), and

(c) 40if the person’s allowance on death includes an amount of
brought-forward allowance which is greater than the amount
of brought-forward allowance given by paragraph (b), the
difference between those two amounts.

(4) For the purposes of calculating any brought-forward allowance that
45the person (“P”) would have had as mentioned in subsection (3)(b)—