Finance (No.2) Bill

Finance (No.2) Bill - continued	House of Commons
SCHEDULE 13, CHANGES TO EIS ETC - continued
PART III, EIS DEFERRAL OF CHARGEABLE GAINS - continued

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Gains accruing on chargeable event

31. - (1) For sub-paragraphs (2) to (4) of paragraph 4 there shall be substituted the following sub-paragraphs-

	"(2) Any question for the purposes of capital gains tax as to whether any shares to which a disposal (including a disposal within marriage) relates are shares to which deferral relief is attributable shall be determined in accordance with sub-paragraphs (3) and (4) below.
	(3) Where shares of any class in a company have been acquired by an individual on different days, any disposal by him of shares of that class shall be treated as relating to those acquired on an earlier day rather than to those acquired on a later day.
	(4) Where shares of any class in a company have been acquired by an individual on the same day, any of those shares disposed of by him shall be treated as disposed of in the following order, namely-
	(a) first any to which neither deferral relief nor relief under Chapter III of Part VII of the Taxes Act is attributable;
	(b) next any to which deferral relief, but not relief under that Chapter, is attributable;
	(c) next any to which relief under that Chapter, but not deferral relief, is attributable; and
	(d) finally any to which both deferral relief and relief under that Chapter are attributable.
	(4A) The following, namely-
	(a) any shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable and which were disposed of to an individual by a disposal within marriage; and
	(b) any shares to which relief under that Chapter is attributable and which were transferred to an individual as mentioned in section 304 of that Act,
	shall be treated for the purposes of sub-paragraphs (3) and (4) above as acquired by him on the day on which they were issued.
	(4B) Chapter I of Part IV of this Act has effect subject to sub-paragraphs (2) to (4A) above.
	(4C) Sections 104, 105 and 106A shall not apply to shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable."

(2) In sub-paragraph (5)(b) of that paragraph, for the words "the assumptions for which sub-paragraph (3) above provides" there shall be substituted the words "sub-paragraphs (3) to (4A) above".

(3) This paragraph has effect in relation to disposals made on or after 6th April 1998.

Persons to whom gain accrues

32. In sub-paragraph (1) of paragraph 5, for paragraphs (c) and (d) there shall be substituted the words "or

(c) to the person who holds the shares in question when they cease (or are treated for the purposes of this Schedule as ceasing) to be eligible shares."

Claims

33. For paragraph 6 there shall be substituted the following paragraph-

	"Claims
	6. - (1) Subject to sub-paragraph (2) below, section 306 of the Taxes Act shall apply in relation to a claim under this Schedule in respect of relevant shares as it applies in relation to a claim for relief under Chapter III of Part VII of that Act in respect of eligible shares.
	(2) That section, as it so applies, shall have effect as if-
	(a) any reference to the conditions for the relief were a reference to the conditions for the application of this Schedule;
	(b) in subsection (1), the words "(or treated by section 289B(5) as so issued)" were omitted; and
	(c) subsections (7) to (9) were omitted."

Reorganisations and reconstructions

34. After paragraph 6 there shall be inserted the following paragraphs-

	"Reorganisations
	7. - (1) Where 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, namely-
	(a) shares to which deferral relief and relief under Chapter III of Part VII of the Taxes Act are attributable;
	(b) shares to which deferral relief but not relief under that Chapter is attributable; and
	(c) shares to which deferral relief is not attributable,
	then, if there is within the meaning of section 126 a reorganisation affecting those shares, section 127 shall apply (subject to the following provisions of this paragraph) separately to shares falling within paragraph (a), (b) or (c) above (so that shares of each kind are treated as a separate holding of original shares and identified with a separate new holding).
	(2) Where-
	(a) an individual holds shares ("the existing holding") which form part of the ordinary share capital of a company,
	(b) there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a), a reorganisation affecting the existing holding, and
	(c) immediately following the reorganisation, the existing holding or the allotted shares are shares to which deferral relief is attributable,
	sections 127 to 130 shall not apply in relation to the existing holding.
	Acquisition of share capital by new company
	8. - (1) This paragraph applies where-
	(a) a company ("the new company") in which the only issued shares are subscriber shares acquires all the shares ("old shares") in another company ("the old company");
	(b) the consideration for the old shares consists wholly of the issue of shares ("new shares") in the new company;
	(c) the consideration for new shares of each description consists wholly of old shares of the corresponding description;
	(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings;
	(e) at some time before the issue of the new shares-
	(i) the old company issued eligible shares; and
	(ii) a certificate in relation to those eligible shares was issued by that company for the purposes of subsection (2) of section 306 of the Taxes Act (as applied by paragraph 6 above) and in accordance with that section (as so applied); and
	(f) by virtue of section 127 as applied by section 135(3), the exchange of shares is not treated as involving a disposal of the old shares or an acquisition of the new shares.
	(2) For the purposes of this Schedule, deferral relief attributable to any old shares shall be attributable instead to the new shares for which they are exchanged.
	(3) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they were exchanged were subscribed for by and issued to the individual, this Schedule shall have effect as if-
	(a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him;
	(b) the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company; and
	(c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares.
	(4) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they are exchanged were acquired by the individual on a disposal within marriage, this Schedule shall have effect as if-
	(a) the new shares had been subscribed for at the time when, and for the amount for which, the old shares were subscribed for;
	(b) the new shares had been issued by the new company at the time when the old shares were issued by the old company; and
	(c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares.
	(5) Where deferral relief becomes so attributable to any new shares-
	(a) this Schedule shall have effect as if anything which, under paragraph 1A(5) above, paragraph 16 below or section 306(2) of the Taxes Act as applied by paragraph 6 above has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company; and
	(b) any appeal brought by the old company against a notice under paragraph 1A(5)(b) may be prosecuted by the new company as if it had been brought by that company.
	(6) For the purposes of this paragraph old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights; and in sub-paragraph (1) above references to shares, except in the expressions "eligible shares" and "subscriber shares", include references to securities.
	(7) Nothing in section 293(8) of the Taxes Act, as applied by the definition of "qualifying company" in paragraph 19(1) below, shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in sub-paragraph (1) above or arrangements with a view to such an exchange.
	Other reconstructions and amalgamations
	9. - (1) Subject to sub-paragraphs (2) and (3) below, sections 135 and 136 shall not apply in respect of shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable.
	(2) Sub-paragraph (1) above shall not have effect to disapply section 135 or 136 where-
	(a) the new holding consists of new ordinary shares ("the new shares") carrying no present or future preferential right to dividends or to a company's assets on its winding up and no present or future right to be redeemed,
	(b) the new shares are issued after the end of the relevant period, and
	(c) the condition in sub-paragraph (4) below is satisfied.
	(3) Sub-paragraph (1) above shall not have effect to disapply section 135 where shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable are exchanged for other shares in such circumstances as are mentioned in paragraph 8(1) above.
	(4) The condition is that at some time before the issue of the new shares-
	(a) the company issuing them issued eligible shares, and
	(b) a certificate in relation to those eligible shares was issued by the company for the purposes of subsection (2) of section 306 of the Taxes Act (as applied by paragraph 6 above) and in accordance with that section (as so applied).
	(5) In sub-paragraph (2) above "new holding" shall be construed in accordance with sections 126, 127, 135 and 136."

Prepared 24 June 1998