Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
372

(a)
by the partners in a partnership of which the
relevant company, or a relevant qualifying
subsidiary of that company, is a member, or
(b)
by the parties to a joint venture to which the
relevant company, or a relevant qualifying
5
subsidiary of that company, is a party.
    (2AF)
The requirements of this paragraph are not to be regarded,
by virtue of sub-paragraph (2AB) above, as failing to be
satisfied if—
(a)
by reason only of anything done as a consequence
10
of the relevant company or any other company
being in administration or receivership, or
(b)
by reason only of the relevant company or any
other company being wound up or dissolved
without winding up,
15

the trade mentioned in sub-paragraph (2AB)(a) above
ceases to be carried on by the relevant company or a
relevant qualifying subsidiary of that company and is
subsequently carried on by a person who has not been
connected, at any time after the date which is one year
20
before the issue of the relevant holding, with the relevant
company.
    (2AG)
Sub-paragraph (2AF) above applies only if (as the case
may be)—
(a)
the entry into administration or receivership and
25
everything done as a consequence of the company
concerned being in administration or receivership,
or
(b)
the winding up or dissolution,

is for bona fide commercial reasons and is not part of a
30
scheme or arrangement the main purpose of which or one
of the main purposes of which is the avoidance of tax.
    (2AH)
Sub-paragraph (2) of paragraph 11A below applies for the
purposes of sub-paragraphs (2AF) and (2AG) above as it
applies for the purpose of that paragraph.”,
35
(d)
omit sub-paragraph (5).
12
In paragraph 10 (meaning of “qualifying subsidiary”)—
(a)
omit sub-paragraph (3)(a) to (c),
(b)
before sub-paragraph (3)(d) insert—
“(ca)
the subsidiary is a 51 per cent. subsidiary of the
40
relevant company;”,
(c)
in sub-paragraph (3)(e), for “the relevant company could cease to fall
within this sub-paragraph” substitute “either of the conditions in
paragraphs (ca) and (d) above would cease to be met”,
(d)
in sub-paragraph (4)—
45
(i)
after “time when it” insert “or any other company”,
(ii)
omit “it is shown”,
(iii)
omit the first “that” in paragraph (a),
(iv)
omit “that” in paragraph (b),
(v)
for “and not” substitute “and is not”,
50

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
373

(e)
after sub-paragraph (4) insert—
    “(4A)
Sub-paragraph (4B) below applies at a time when the
subsidiary or any other company is in administration or
receivership.
     (4B)
The subsidiary shall not be regarded, by reason only of
5
anything done as a consequence of the company
concerned being in administration or receivership, as
having ceased to be a company falling within sub-
paragraph (3) above if—
(a)
the entry into administration or receivership, and
10
(b)
everything done as a consequence of the company
concerned being in administration or receivership,

is for bona fide commercial reasons and is not part of a
scheme or arrangement the main purpose of which or one
of the main purposes of which is the avoidance of tax.
15
     (4C)
Sub-paragraph (2) of paragraph 11A below applies for the
purposes of sub-paragraphs (4A) and (4B) above as it
applies for the purpose of that paragraph.”,
(f)
in sub-paragraph (5)—
(i)
omit the words “it is shown that”,
20
(ii)
for “and not” substitute “and is not to be”,
(g)
omit sub-paragraph (6).
13
After paragraph 10 insert—
“Requirement as to property managing subsidiaries
10ZA  (1)
The requirement of this paragraph is that the relevant company
25
must not have a property managing subsidiary which is not a
relevant qualifying subsidiary of the relevant company.
      (2)
“Property managing subsidiary” means a qualifying subsidiary of
the relevant company whose business consists wholly or mainly in
the holding or managing of land or any property deriving its value
30
from land.
      (3)
In sub-paragraph (2) above, “land” and “property deriving its
value from land” have the same meaning as in section 776.”.
14
In paragraph 11 (winding up of the relevant company)—
(a)
omit “it is shown”,
35
(b)
omit the first “that” in paragraph (a),
(c)
omit “that” in paragraph (b),
(d)
in paragraph (b), for “and not” substitute “and is not”.
15
In paragraph 11A (company in administration or receivership) in sub-
paragraph (1), after “by reason” insert “only”.
40
16
The amendments made by this Part have effect for the purpose of
determining whether shares or securities issued on or after 17th March 2004
are, for the purposes of section 842AA of the Taxes Act 1988, to be regarded
as comprised in a company’s qualifying holdings.

Finance Bill
Schedule 20 — Corporate venturing scheme
374

Schedule 20
Section 90

Corporate venturing scheme
1
Schedule 15 to the Finance Act 2000 (c. 17) (the corporate venturing scheme)
is amended as follows.
2
In paragraph 3 (meaning of “the qualification period”)—
5
(a)
in sub-paragraph (1)(b)(ii), and
(b)
in sub-paragraph (2)(a) and (b),

for “qualifying subsidiaries” substitute “qualifying 90% subsidiaries”.
3
In paragraph 15 (introduction) after paragraph (e) insert—
“(ea)
property managing subsidiaries (see paragraph 21A);”.
10
4
In paragraph 20 (the qualifying subsidiaries requirement) for sub-paragraph
(2) substitute—
     “(2)
In this paragraph “subsidiary” means any company which the
company controls, either on its own or together with any person
connected with it.
15
      (3)
For the purpose of sub-paragraph (2), the question whether a
person controls a company shall be determined in accordance
with section 416(2) to (6) of the Taxes Act 1988.”.
5     (1)
Paragraph 21 (meaning of “qualifying subsidiary”) is amended as follows.
      (2)
In sub-paragraph (2)—
20
(a)
omit paragraphs (a) to (c),
(b)
before paragraph (d) insert—
“(ca)
the subsidiary is a 51% subsidiary of the relevant
company;”,
(c)
in paragraph (e) for “the conditions in paragraphs (a) to” substitute
25
“either of the conditions in paragraphs (ca) and”.
      (3)
In sub-paragraph (4)(a)(ii), after “company” insert “concerned”.
      (4)
In sub-paragraph (5)—
(a)
after “qualifying subsidiary” insert “of the relevant company”,
(b)
for “and not part” substitute “and is not to be part”.
30
6
After paragraph 21 insert—
“The property managing subsidiaries requirement
21A   (1)
The issuing company is not a qualifying issuing company in
relation to the relevant shares if, at any time during the
qualification period relating to those shares, it has a property
35
managing subsidiary which is not a qualifying 90% subsidiary of
the issuing company (see paragraph 23(10) and (11)).
      (2)
“Property managing subsidiary” means a qualifying subsidiary of
the issuing company whose business consists wholly or mainly in
the holding or managing of land or any property deriving its value
40
from land.

Finance Bill
Schedule 20 — Corporate venturing scheme
375

      (3)
In sub-paragraph (2), “land” and “property deriving its value from
land” have the same meaning as in section 776 of the Taxes Act
1988.”.
7
In paragraph 23 (the trading activities requirement)—
(a)
in sub-paragraph (3)(b), for “at least one group company” substitute
5
“the issuing company or a qualifying 90% subsidiary of the issuing
company”,
(b)
in sub-paragraph (5)—
(i)
for “a subsidiary” substitute “a qualifying 90% subsidiary of
the issuing company”,
10
(ii)
for “or subsidiary” substitute “or a qualifying 90% subsidiary
of the issuing company”,
(c)
in sub-paragraph (6), for “the company”, in the first place, substitute
“a company”,
(d)
after sub-paragraph (9) insert—
15
    “(10)
For the purposes of this Schedule, a company (“the
subsidiary”) is a qualifying 90% subsidiary of the issuing
company if the following conditions are met—
(a)
the issuing company possesses not less than 90% of
the issued share capital of, and not less than 90% of
20
the voting power in, the subsidiary;
(b)
the issuing company would—
(i)
in the event of a winding up of the
subsidiary, or
(ii)
in any other circumstances,
25

be beneficially entitled to receive not less than 90%
of the assets of the subsidiary which would then be
available for distribution to the shareholders of the
subsidiary;
(c)
the issuing company is beneficially entitled to not
30
less than 90% of any profits of the subsidiary which
are available for distribution to the shareholders of
the subsidiary;
(d)
no person other than the issuing company has
control of the subsidiary within the meaning of
35
section 840 of the Taxes Act 1988; and
(e)
no arrangements are in existence by virtue of which
any of the conditions in paragraphs (a) to (d) would
cease to be met.
     (11)
For the purposes of sub-paragraph (10)—
40
(a)
sub-paragraphs (3) and (4) of paragraph 21 apply
in relation to the conditions in sub-paragraph (10)
as they apply in relation to the conditions in
paragraph 21(2), and
(b)
the subsidiary shall not be regarded, at any time
45
when arrangements are in existence for the
disposal by the issuing company of all its interest in
the subsidiary, as having ceased on that account to
be a qualifying 90% subsidiary of the issuing
company if the disposal is to be for commercial
50
reasons and is not to be part of a scheme or

Finance Bill
Schedule 20 — Corporate venturing scheme
376

arrangement the main purpose of which, or one of
the main purposes of which, is the avoidance of
tax.”.
8
In paragraph 24 (ceasing to meet trading requirements by reason of
administration, receivership etc)—
5
(a)
in sub-paragraph (1)—
(i)
omit “which is in administration or receivership”,
(ii)
after “by reason” insert “only”,
(b)
in sub-paragraph (2)(b), after “company” insert “concerned”,
(c)
in sub-paragraph (4)—
10
(i)
in paragraph (a), for “of the company or any of its
subsidiaries” substitute “only of the company or any of its
qualifying subsidiaries”,
(ii)
in paragraph (b), for “and not” substitute “and is not”.
9
In paragraph 25 (meaning of “qualifying trade”) in sub-paragraph (3)(b), for
15
“any other group company” substitute “the issuing company or any of its
qualifying 90% subsidiaries”.
10
In paragraph 35 (requirement as to the shares) in sub-paragraph (2), for “the
issuing company at a future date” substitute “any person at a future date in
respect of the acquisition of the shares”.
20
11
In paragraph 36 (requirement as to money raised)—
(a)
in sub-paragraph (1B)(b)—
(i)
for “relevant trade was not being carried on” substitute
“issuing company or a qualifying 90% subsidiary of that
company had not begun to carry on the relevant trade”,
25
(ii)
for “subsidiary” substitute “qualifying 90% subsidiary of that
company”,
(b)
in sub-paragraphs (4)(b)(ii) and (5)(b), for “qualifying subsidiary”
substitute “qualifying 90% subsidiary”.
12
In paragraph 40 (entitlement to claim)—
30
(a)
in sub-paragraph (2), for paragraph (a) substitute—
“(a)
the funded trade has been carried on for four
months by no person other than the issuing
company or a qualifying 90% subsidiary of that
company, disregarding—
35
(i)
any time spent preparing to carry on that
trade, and
(ii)
any person required to be disregarded in
accordance with sub-paragraph (2A) or
(2B), and”,
40
(b)
after sub-paragraph (2) insert—
    “(2A)
At any time when the funded trade is carried on by the
partners in a partnership of which the issuing company, or
a qualifying 90% subsidiary of that company, is a member,
there shall be disregarded for the purposes of sub-
45
paragraph (2)(a) any other members of the partnership at
that time.

Finance Bill
Schedule 21 — Chargeable gains: restriction of gifts relief etc
377

     (2B)
At any time when the funded trade is carried on by the
parties to a joint venture to which the issuing company, or
a qualifying 90% subsidiary of that company, is a party,
there shall be disregarded for the purposes of sub-
paragraph (2)(a) any other parties to the joint venture at
5
that time.”,
(c)
for sub-paragraph (5)(a) substitute—
“(a)
by reason only of the issuing company or any other
company being wound up or dissolved without
winding up, the funded trade is carried on as
10
mentioned in sub-paragraph (2)(a) for a period
shorter than four months, and”,
(d)
in sub-paragraph (5)(b), for “was”, in each place, substitute “is”,
(e)
for sub-paragraph (6)(a) substitute—
“(a)
by reason only of anything done as a consequence
15
of the issuing company or any other company
being in administration or receivership, the funded
trade is carried on as mentioned in sub-paragraph
(2)(a) for a period shorter than four months, and”,
(f)
in sub-paragraph (6)(b), after “company” insert “concerned”.
20
13
In paragraph 102 (minor definitions etc) after sub-paragraph (7) insert—
     “(8)
In determining for the purposes of paragraph 3(2), 23(5) or 36(1B)
when a trade is begun to be carried on by a qualifying 90%
subsidiary of the issuing company there shall be disregarded any
carrying on of the trade by it before it became such a subsidiary.”.
25
14
In paragraph 103 (index of defined expressions), after the entry for
“qualifying subsidiary” insert—

“qualifying 90% subsidiary
paragraph 23(10) and (11)”.

15
The amendments made by this Schedule have effect in relation to shares
issued on or after 17th March 2004.
30
Schedule 21
Section 111

Chargeable gains: restriction of gifts relief etc
Penalties for failure to furnish particulars etc
1     (1)
Section 98 of the Taxes Management Act 1970 (c. 9) is amended as follows.
      (2)
In the first column of the Table, insert at the appropriate place—
35
“Section 169G(2) of the 1992 Act.”.
Charge on settlor with interest in settlement etc: supplementary provisions
2     (1)
Section 79 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
as follows.

Finance Bill
Schedule 21 — Chargeable gains: restriction of gifts relief etc
378

      (2)
After subsection (5) insert—
“(5A)
In subsection (5) above “arrangements” includes any scheme,
agreement or understanding, whether or not legally enforceable.”.
      (3)
In subsection (6) (power of inspector to require information for purposes of
sections 77, 78 and 79) for “inspector” substitute “officer of the Board”.
5
Relief for gifts of business assets
3     (1)
Section 165 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In subsection (1) (circumstances in which subsection (4) applies, subject to
certain provisions) for “and 169” substitute “, 169, 169B and 169C”.
10
      (3)
In subsection (3) (relief not to apply to disposal in certain cases) after
paragraph (b) insert—
“(ba)
in the case of a disposal of shares or securities, the transferee
is a company,”.
      (4)
In subsection (8) (definitions) for paragraph (aa) substitute—
15
“(aa)
“holding company” has the meaning given by paragraph
22(1), “trading company” has the meaning given by
paragraph 22A, and “trading group” has the meaning given
by paragraph 22B, of Schedule A1; and”.
      (5)
In subsection (10) (deduction to be allowed in computing chargeable gain on
20
subsequent disposal by transferee, where disposal by transferor is
chargeable transfer for inheritance tax purposes) for “after 13th March 1989,
in respect of which a claim is made under this section,” substitute “in
relation to which subsection (4) above applies”.
Gifts relief not to be available on certain transfers to settlor-interested settlements etc
25
4
After section 169A of the Taxation of Chargeable Gains Act 1992 (c. 12)
insert—
“Gifts to settlor-interested settlements etc
169B
Gifts to settlor-interested settlements etc
(1)
Neither section 165(4) nor section 260(3) shall apply in relation to a
30
disposal (“the relevant disposal”)—
(a)
made by a person (“the transferor”) to the trustees of a
settlement, and
(b)
in respect of which Condition 1 or Condition 2 below is
satisfied.
35
(2)
Condition 1 is that, immediately after the making of the relevant
disposal,—
(a)
there is a settlor (see section 169E) who has an interest in the
settlement (see section 169F), or
(b)
an arrangement (see section 169G) subsists under which such
40
an interest will or may be acquired by a settlor.
(3)
Condition 2 is that—