Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
365

(ii)
omit “within the relevant period”,
(iii)
omit “it is shown that”,
(iv)
after “disposal is” insert “to be”,
(v)
for “and not” substitute “and is not to be”,
(h)
omit subsection (5),
5
(i)
after subsection (5A) insert—
“(5B)
Subsections (2) to (10) of section 838 apply for the purposes of
subsection (2)(ca) above as they apply for the purposes of
subsection (1) of that section.”.
10    (1)
In section 310 of the Taxes Act 1988 (information)—
10
(a)
in subsection (5)—
(i)
for “289(6),” substitute “289(1D), (6) or (9)(e), 289A(8)(b) or
(8A),”,
(ii)
for “293(8),” substitute “293(4B), (6) or (8),”,
(iii)
for “or 308(2)(e)” substitute “or 308(2)(e), (3), (3A) or (4)”,
15
(b)
in subsection (6)—
(i)
in paragraph (a), after “289(6)” insert “or 293(4B) or (6)”,
(ii)
after paragraph (a) insert—
“(aa)
in relation to section 289(1D), 289A(8)(b) or
(8A) or 308(3), (3A) or (4), the claimant, the
20
company, any other company in question and
any person controlling the company or any
other company in question;”,
(iii)
in paragraph (c), after “section” insert “289(9)(e),”,
(c)
after subsection (6) insert—
25
“(6A)
The references in subsections (5) and (6) above to subsections
(3), (3A) and (4) of section 308 are to be read as including
those provisions as applied by section 289(10) and (11).”.
      (2)
The amendments made by this paragraph have effect in relation to any
notice given after the passing of this Act in respect of shares issued on or
30
after 17th March 2004.
11    (1)
Section 312 of the Taxes Act 1988 (interpretation) is amended as follows.
      (2)
In subsection (1)—
(a)
before the definition of “control” insert—

““bonus shares” means shares which are issued otherwise than
35
for payment (whether in cash or otherwise);”,
(b)
in the definition of “control” after “sections” insert “289(9),”,
(c)
after the definition of “research and development” insert—

““qualifying 90% subsidiary”, in relation to any company, is to
be construed in accordance with section 289(9) to (13);”,
40
(d)
in the definition of “termination date”—
(i)
in paragraph (a), for “the shares were issued wholly or
mainly in order to raise money” substitute “the money raised
by the issue was raised wholly or mainly”,
(ii)
in paragraph (a), for “subsidiary” substitute “qualifying 90%
45
subsidiary of the company”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 2 — Deferral relief
366

(iii)
in paragraph (b), for “the company or subsidiary concerned
had not” substitute “neither the company nor any of its
qualifying 90% subsidiaries had”,
(iv)
in the full-out words at the end, for “it” substitute “the
company or any qualifying 90% subsidiary of the company”.
5
      (3)
After subsection (1A) insert—
“(1ZA)
In determining, for the purposes of the definition of “termination
date” in subsection (1) above, when a qualifying trade is begun to be
carried on by a qualifying 90% subsidiary of a company there shall
be disregarded any carrying on of the trade by it before it became
10
such a subsidiary of the company.”.
Part 2
Deferral relief
12
Schedule 5B to the Taxation of Chargeable Gains Act 1992 (c. 12) (enterprise
investment scheme: re-investment) is amended as follows.
15
13    (1)
In paragraph 1(2) (definition of qualifying investment)—
(a)
in paragraph (a), omit “wholly in cash”,
(b)
after that paragraph insert—
“(aza)
he subscribed for the shares (other than any of
them which are bonus shares) wholly in cash,”,
20
(c)
in paragraph (c), for the words from “are fully” to “future date)”
substitute “(other than any of them which are bonus shares) are fully
paid up”,
(d)
in paragraph (e), after “Act” insert “(read with section 289(1B) to (1E)
of that Act)”,
25
(e)
in paragraph (f), for “all the shares comprised in the issue” substitute
“the shares (other than any of them which are bonus shares)”,
(f)
for paragraph (g) substitute—
“(g)
at least 80 per cent. of the money raised by the issue
of—
30
(i)
the shares, and
(ii)
all other eligible shares (if any) in the
company of the same class which are issued
on the same day,

is employed wholly for the purpose of that activity
35
not later than the time mentioned in section 289(3)
of the Taxes Act, and”.
      (2)
After paragraph 1(4) of that paragraph insert—
     “(5)
Shares are not fully paid up for the purposes of sub-paragraph
(2)(c) above if there is any undertaking to pay cash to any person
40
at a future date in respect of the acquisition of the shares.”.
14
In paragraph 1A (failure of conditions of application)—
(a)
in sub-paragraph (1), after “the shares” insert “mentioned in sub-
paragraph (2)(a) of that paragraph”,
(b)
in sub-paragraph (2), after “the shares” insert “mentioned in sub-
45
paragraph (2)(a) of that paragraph”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 2 — Deferral relief
367

(c)
in sub-paragraph (3), for “an issue of eligible shares,” substitute “the
shares mentioned in sub-paragraph (2)(a) of that paragraph,”,
(d)
in sub-paragraph (4), for “an issue of eligible shares, the shares”
substitute “the issue of eligible shares, the shares mentioned in sub-
paragraph (2)(a) of that paragraph”,
5
(e)
in sub-paragraph (5)(b), after “the shares” insert “mentioned in
paragraph 1(2)(a) above”.
15    (1)
In paragraph 10 (re-investment in same company, etc)—
(a)
in sub-paragraph (1), for “other securities” substitute “securities”,
(b)
after sub-paragraph (3) insert—
10
“(4)
In this paragraph “group of companies” means a company
which has one or more 51 per cent. subsidiaries, together
with those subsidiaries.”.
      (2)
The amendments made by this paragraph have effect, for the purposes of
paragraph 10(1) of Schedule 5B to the Taxation of Chargeable Gains Act 1992
15
(c. 12), in relation to holdings of shares or securities disposed of on or after
17th March 2004.
      (3)
The amendment made by sub-paragraph (1)(b) has effect, for the purposes
of paragraph 10(2) of that Schedule, in relation to eligible shares in a relevant
company issued on or after 17th March 2004.
20
16    (1)
In paragraph 13 (value received by investor) in sub-paragraph (2)(b)(i), for
“on which he subscribed for the shares” substitute “of issue of the shares”.
      (2)
Subject to sub-paragraph (3), the amendment made by this paragraph has
effect in relation to shares issued on or after 17th March 2004.
      (3)
The amendment made by this paragraph does not have effect in relation to
25
the repayment of a debt incurred before 17th March 2004 if—
(a)
the shares were subscribed for before that date, and
(b)
the debt was incurred on or after the date on which the shares were
subscribed for.
17    (1)
In paragraph 14 (value received by other persons) in sub-paragraph (7), for
30
“paragraph 14AA” substitute “paragraphs 14AA and 14A”.
      (2)
The amendment made by this paragraph has effect in relation to any
repayment (within the meaning of paragraph 14A of Schedule 5B to the
Taxation of Chargeable Gains Act 1992) made on or after 17th March 2004.
18    (1)
In paragraph 14A (certain receipts to be disregarded for the purposes of
35
paragraph 14) in sub-paragraph (6), omit paragraph (a).
      (2)
The amendment made by this paragraph has effect in relation to any
repayment (within the meaning of paragraph 14A of Schedule 5B to the
Taxation of Chargeable Gains Act 1992) made on or after 17th March 2004.
19    (1)
In paragraph 16 (information)—
40
(a)
in sub-paragraph (6), for “293(8) or 308(2)(e)” substitute “289(1D) or
(9)(e), 289A(8)(b) or (8A), 293(4B), (6) or (8) or 308(2)(e), (3), (3A) or
(4)”,
(b)
in sub-paragraph (7)—
(i)
in paragraph (a), after “above” insert “or section 293(4B) or (6)
45
of the Taxes Act”,

Finance Bill
Schedule 19 — Venture capital trusts
Part 1 — Increase in relief on investments and distributions
368

(ii)
after paragraph (a) insert—
“(aa)
in relation to section 289(1D), 289A(8)(b) or
(8A) or 308(3), (3A) or (4) of the Taxes Act,
the claimant, the company, any other
company in question and any person
5
controlling the company or any other
company in question;”,
(iii)
in paragraph (c), after “section” insert “289(9)(e),”,
(iv)
in the full-out words at the end, for “(a)” substitute “(a), (aa)”,
(c)
after sub-paragraph (7) insert—
10
    “(7A)
The references in sub-paragraphs (6) and (7) above to
subsections (3), (3A) and (4) of section 308 of the Taxes Act
are to be read as including those provisions as applied by
section 289(10) and (11) of that Act.”.
      (2)
The amendments made by this paragraph have effect in relation to any
15
notice given after the passing of this Act in respect of shares issued on or
after 17th March 2004.
20    (1)
In paragraph 19(1) (interpretation)—
(a)
before the definition of “arrangements” insert—

““51 per cent. subsidiary” has the meaning given by section 838
20
of the Taxes Act;”,
(b)
after the definition of “associate” insert—

““bonus shares” means shares which are issued otherwise than
for payment (whether in cash or otherwise);”.
      (2)
The amendment made by sub-paragraph (1)(a) has effect in relation to
25
shares issued on or after 17th March 2004, except that, for the purposes of the
amendment made by sub-paragraph (1)(b) of paragraph 15 of this Schedule,
it has effect in accordance with sub-paragraphs (2) and (3) of that paragraph.
Part 3
Commencement
30
21
Except where otherwise provided, the amendments made by this Schedule
have effect in relation to shares issued on or after 17th March 2004.
Schedule 19
Section 89

Venture capital trusts
Part 1
35
Increase in relief on investments and distributions
1
In paragraph 1(3) of Schedule 15B to the Taxes Act 1988 (maximum amount
in respect of which claim for income tax relief may be made) for “£100,000”
substitute “£200,000”.
2
In paragraph 8(1) of that Schedule (meaning of “permitted maximum”) for
40
“£100,000” substitute “£200,000”.

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
369

3
The amendments made by this Part have effect for the year 2004-05 and
subsequent years of assessment.
Part 2
Abolition of deferral relief
Main amendments
5
4
Section 151A(3) of the Taxation of Chargeable Gains Act 1992 (c. 12) (which
introduces Schedule 5C) shall cease to have effect.
5
Schedule 5C to that Act (venture capital trusts: deferred charge on re-
investment) shall cease to have effect.
Consequential amendment
10
6     (1)
The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.
      (2)
In paragraph 2(4) of Schedule 5B (enterprise investment scheme: re-
investment) omit “or Schedule 5C”.
Commencement
7     (1)
The amendments made by this Part have effect in relation to shares issued
15
on or after 6th April 2004 which are shares by reference to which an
individual is given relief under Part 1 of Schedule 15B to the Taxes Act 1988.
      (2)
But nothing in this Act affects the continuing operation of Schedule 5C to the
Taxation of Chargeable Gains Act 1992 for the purposes of section
151B(8)(b)(ii) of that Act.
20
Part 3
Miscellaneous
8
Schedule 28B to the Taxes Act 1988 (venture capital trusts: meaning of
“qualifying holdings”) is amended as follows.
9
In paragraph 3 (requirement as to company’s business)—
25
(a)
in sub-paragraph (3)—
(i)
for the words from “the relevant company” to “all times
since,” substitute “when the relevant holding was issued and
at all times since, a qualifying company (whether or not the
same such company at every such time) must”,
30
(ii)
in paragraph (b)—
(a)
for “it intended to carry” substitute “was intended to
be carried”,
(b)
after “Kingdom” insert “by a qualifying company”,
(iii)
omit the words from “and for the purposes” to the end,
35
(b)
in sub-paragraph (4)—
(i)
in paragraph (a), for the words from “the relevant company”
to “intended trade” substitute “the intended trade was begun
to be carried on by a qualifying company”,

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
370

(ii)
in paragraph (b), for the words from “that company” to “that
period,” substitute “at all times since the end of that period, a
qualifying company (whether or not the same such company
at every such time) has”,
(c)
after sub-paragraph (5) insert—
5
    “(5A)
In sub-paragraphs (3) and (4) above, “qualifying
company” means the relevant company or any relevant
qualifying subsidiary of that company.
     (5B)
In determining for the purposes of sub-paragraph (4)(a)
above when the intended trade was begun to be carried on
10
by a qualifying company which is a relevant qualifying
subsidiary of the relevant company there shall be
disregarded any carrying on of the trade by it before it
became such a subsidiary of the relevant company.”.
10
After paragraph 5 insert—
15
“Meaning of “relevant qualifying subsidiary”
5A    (1)
For the purposes of this Schedule, a company (“the subsidiary”) is
a relevant qualifying subsidiary of the relevant company at any
time when it falls within sub-paragraph (2) below.
      (2)
The subsidiary falls within this sub-paragraph if—
20
(a)
the relevant company possesses not less than 90 per cent.
of the issued share capital of, and not less than 90 per cent.
of the voting power in, the subsidiary;
(b)
the relevant company would—
(i)
in the event of a winding up of the subsidiary, or
25
(ii)
in any other circumstances,

be beneficially entitled to receive not less than 90 per cent.
of the assets of the subsidiary which would then be
available for distribution to the equity holders of the
subsidiary;
30
(c)
the relevant company is beneficially entitled to not less
than 90 per cent. of any profits of the subsidiary which are
available for distribution to the equity holders of the
subsidiary;
(d)
no person other than the relevant company has control of
35
the subsidiary within the meaning of section 840; and
(e)
no arrangements are in existence by virtue of which any of
the conditions in paragraphs (a) to (d) above would cease
to be met.
      (3)
Sub-paragraphs (4) to (4C) and (5) of paragraph 10 below apply in
40
relation to sub-paragraph (2) of this paragraph as they apply in
relation to sub-paragraph (3) of that paragraph, but with the
following modification.
      (4)
That modification is that sub-paragraph (5) of that paragraph is to
be read as if the words “or (as the case may be) by another
45
subsidiary of that company” were omitted.
      (5)
For the purposes of this paragraph—
(a)
the persons who are equity holders of the subsidiary, and

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
371

(b)
the percentage of the assets of the subsidiary to which an
equity holder would be entitled,

shall be determined in accordance with paragraphs 1 and 3 of
Schedule 18.
      (6)
But in making that determination—
5
(a)
references in paragraph 3 of that Schedule to the first
company are to be read as references to an equity holder,
and
(b)
references in that paragraph to a winding up are to be read
as including references to any other circumstances in
10
which assets of the subsidiary are available for distribution
to its equity holders.”.
11
In paragraph 6 (requirements as to the money raised by the investment in
question)—
(a)
in sub-paragraph (1)(a)(ii), for the words from “the relevant
15
company” to “employ” substitute “is intended to be employed”,
(b)
in sub-paragraph (2AA)(b), for the words from “the relevant
company” to the end substitute “the condition in paragraph 3(4)(a)
above was satisfied”,
(c)
for sub-paragraphs (2A) to (2C) substitute—
20
   “(2AB)
The requirements of this paragraph are not satisfied if
either of the following, namely—
(a)
the trade by reference to which the requirements of
paragraph 3(3) above are satisfied, and
(b)
any preparations for that trade falling within
25
paragraph 3(3)(b) above,

are carried on, at any time after the issue of the relevant
holding, by a person other than the relevant company or a
relevant qualifying subsidiary of that company.
    (2AC)
Sub-paragraph (2AD) below applies where preparations
30
mentioned in sub-paragraph (2AB)(b) above are carried on
by the relevant company or a relevant qualifying
subsidiary of that company at any time after the issue of
the relevant holding.
    (2AD)
Where this sub-paragraph applies, the requirements of this
35
paragraph are not to be regarded, by virtue of sub-
paragraph (2AB) above, as failing to be satisfied by reason
only of the carrying on of the trade mentioned in sub-
paragraph (2AB)(a) above by a person other than—
(a)
the relevant company, or
40
(b)
a qualifying subsidiary of that company,

at any time after the issue of the relevant holding but
before the relevant company or any relevant qualifying
subsidiary of that company carries on that trade.
    (2AE)
The requirements of this paragraph are not to be regarded,
45
by virtue of sub-paragraph (2AB) above, as failing to be
satisfied by reason only of the carrying on of the trade
mentioned in sub-paragraph (2AB)(a) above—