Finance Bill

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Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
381

(a)
for paragraph (a) substitute—
“(a)
by reason only of the qualifying company or any
other company being wound up or dissolved without
winding up—
(i)
the trade concerned is carried on as
5
mentioned in subsection (7)(a) above, or
(ii)
the research and development concerned is
carried on as mentioned in subsection (7)(b)
above,

for a period shorter than four months, and”,
10
(b)
in paragraph (b)—
(i)
omit “it is shown that”,
(ii)
for “was for” substitute “is for”,
(iii)
for “not as” substitute “is not”,
(iv)
for “which was” substitute “which is”,
15
(c)
in the full-out words at the end, after “(7)(a)” insert “or, as the case
may be, (7)(b)”.
      (5)
In subsection (8A)—
(a)
for the words from “Where” to “shorter period.” substitute—

“Where, by reason only of anything done as a consequence of
20
the qualifying company or any other company being in
administration or receivership—
(a)
the trade concerned is carried on as mentioned in
subsection (7)(a) above for a period shorter than four
months, or
25
(b)
the research and development concerned is carried on
as mentioned in subsection (7)(b) above for a period
shorter than four months,

subsection (7)(a) or, as the case may be, (7)(b) above shall
have effect as if it referred to that shorter period.”,
30
(b)
in paragraph (b), after “company” insert “concerned”.
3
In section 289B of the Taxes Act 1988 (attribution of relief to shares) in
subsection (4), for “same day” substitute “same day, but this subsection does
not apply in relation to section 289A(6) and (7)”.
4     (1)
In section 290(2) of the Taxes Act 1988 (maximum subscriptions) for
35
“£150,000” substitute “£200,000”.
      (2)
The amendment made by this paragraph has effect for the year 2004-2005
and subsequent years of assessment.
5     (1)
Section 293 of the Taxes Act 1988 (qualifying companies) is amended as
follows.
40
      (2)
In subsection (4A)—
(a)
omit “which is in administration or receivership”,
(b)
after “by reason” insert “only”,
(c)
for “its” substitute “the company, or any of its subsidiaries,”.
      (3)
In subsection (4B)(b), after “company” insert “concerned”.
45
      (4)
In subsection (5)—
(a)
after “winding up of the company” insert “or any of its subsidiaries”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
382

(b)
after “or the company” insert “or any of its subsidiaries”.
      (5)
In subsection (6)—
(a)
for “by reason of” substitute “by reason only of the company or any
of its subsidiaries”,
(b)
in paragraph (a), for “and not” substitute “and is not”.
5
      (6)
After subsection (6) insert—
“(6ZA)
The company must not at any time in the relevant period have a
property managing subsidiary which is not a qualifying 90%
subsidiary of the company.
(6ZB)
“Property managing subsidiary” means a subsidiary of the company
10
whose business consists wholly or mainly in the holding or
managing of land or any property deriving its value from land.
(6ZC)
In subsection (6ZB) above, “land” and “property deriving its value
from land” have the same meaning as in section 776.”.
6     (1)
In section 300 of the Taxes Act 1988 (value received from company) for
15
subsection (2)(b) substitute—
“(b)
repays, in pursuance of any arrangements for or in
connection with the acquisition of the shares in
respect of which the relief is claimed, any debt owed
to the individual other than a debt which was
20
incurred by the company—
(a)
on or after the date of issue of those shares;
and
(b)
otherwise than in consideration of the
extinguishment of a debt incurred before that
25
date;”.
      (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
the repayment of a debt incurred before 17th March 2004 if—
30
(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.
7     (1)
In section 303 of the Taxes Act 1988 (value received by persons other than
claimants) in subsection (9A), for “section 303AA” substitute “sections
35
303AA and 303A”.
      (2)
The amendment made by this paragraph has effect in relation to any
repayment (within the meaning of section 303A of the Taxes Act 1988) made
on or after 17th March 2004.
8     (1)
In section 303A of the Taxes Act 1988 (restriction on withdrawal of relief
40
under section 303) in subsection (6), omit paragraph (a).
      (2)
The amendment made by this paragraph has effect in relation to any
repayment (within the meaning of section 303A of the Taxes Act 1988) made
on or after 17th March 2004.
9
In section 308 of the Taxes Act 1988 (application to subsidiaries)—
45
(a)
in subsection (1)(a), omit the words from “and, except” to “relevant
period”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 1 — Income tax relief
383

(b)
in subsection (2)—
(i)
omit paragraphs (a) to (c),
(ii)
before paragraph (d) insert—
“(ca)
that more than 50 per cent. of the
ordinary share capital of the
5
subsidiary is owned directly or
indirectly by the qualifying
company;”,
(iii)
in paragraph (e), for “the conditions in paragraphs (a) to”
substitute “either of the conditions in paragraphs (ca) and”,
10
and for “could” substitute “would”,
(c)
in the opening words of subsection (3), for “the qualifying company”
substitute “any other company”,
(d)
in subsection (3)(a)—
(i)
omit “it is shown that”,
15
(ii)
for “and not” substitute “and is not”,
(e)
omit subsection (3)(b) and the word “and” immediately preceding it,
(f)
after subsection (3) insert—
“(3A)
The conditions shall not be regarded as ceasing to be satisfied
by reason only of anything done as a consequence of the
20
subsidiary or any other company being in administration or
receivership if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company
concerned being in administration or receivership,
25

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.”,
(g)
in subsection (4)—
(i)
after “only of” insert “arrangements being in existence for”,
30
(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),
35
(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)—
40
(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)”,
45
(b)
in subsection (6)—
(i)
in paragraph (a), after “289(6)” insert “or 293(4B) or (6)”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 2 — Deferral relief
384

(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
company, any other company in question and
any person controlling the company or any
5
other company in question;”,
(iii)
in paragraph (c), after “section” insert “289(9)(e),”,
(c)
after subsection (6) insert—
“(6A)
The references in subsections (5) and (6) above to subsections
(3), (3A) and (4) of section 308 are to be read as including
10
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
after 17th March 2004.
11    (1)
Section 312 of the Taxes Act 1988 (interpretation) is amended as follows.
15
      (2)
In subsection (1)—
(a)
before the definition of “control” insert—

““bonus shares” means shares which are issued otherwise than
for payment (whether in cash or otherwise);”,
(b)
in the definition of “control” after “sections” insert “289(9),”,
20
(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);”,
(d)
in the definition of “termination date”—
(i)
in paragraph (a), for “the shares were issued wholly or
25
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%
subsidiary of the company”,
(iii)
in paragraph (b), for “the company or subsidiary concerned
30
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”.
      (3)
After subsection (1A) insert—
35
“(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
such a subsidiary of the company.”.
40
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.
13    (1)
In paragraph 1(2) (definition of qualifying investment)—
45
(a)
in paragraph (a), omit “wholly in cash”,

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 2 — Deferral relief
385

(b)
after that paragraph insert—
“(aza)
he subscribed for the shares (other than any of
them which are bonus shares) wholly in cash,”,
(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
5
paid up”,
(d)
in paragraph (e), after “Act” insert “(read with section 289(1B) to (1E)
of that Act)”,
(e)
in paragraph (f), for “all the shares comprised in the issue” substitute
“the shares (other than any of them which are bonus shares)”,
10
(f)
for paragraph (g) substitute—
“(g)
at least 80 per cent. of the money raised by the issue
of—
(i)
the shares, and
(ii)
all other eligible shares (if any) in the
15
company of the same class which are issued
on the same day,

is employed wholly for the purpose of that activity
not later than the time mentioned in section 289(3)
of the Taxes Act, and”.
20
      (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
at a future date in respect of the acquisition of the shares.”.
14
In paragraph 1A (failure of conditions of application)—
25
(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-
paragraph (2)(a) of that paragraph”,
(c)
in sub-paragraph (3), for “an issue of eligible shares,” substitute “the
30
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”,
(e)
in sub-paragraph (5)(b), after “the shares” insert “mentioned in
35
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—
“(4)
In this paragraph “group of companies” means a company
40
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
(c. 12), in relation to holdings of shares or securities disposed of on or after
45
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.

Finance Bill
Schedule 18 — Enterprise investment scheme
Part 2 — Deferral relief
386

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
5
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
10
“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 (c. 12)) made on or after 17th March
2004.
15
18    (1)
In paragraph 14A (certain receipts to be disregarded for the purposes of
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.
20
19    (1)
In paragraph 16 (information)—
(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)—
25
(i)
in paragraph (a), after “above” insert “or section 293(4B) or (6)
of the Taxes Act”,
(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,
30
the claimant, the 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),”,
35
(iv)
in the full-out words at the end, for “(a)” substitute “(a), (aa)”,
(c)
after sub-paragraph (7) insert—
    “(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
40
section 289(10) and (11) of that Act.”.
      (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
after 17th March 2004.
20    (1)
In paragraph 19(1) (interpretation)—
45
(a)
before the definition of “arrangements” insert—

““51 per cent. subsidiary” has the meaning given by section 838
of the Taxes Act;”,

Finance Bill
Schedule 19 — Venture capital trusts
Part 2 — Abolition of deferral relief
387

(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
shares issued on or after 17th March 2004, except that, for the purposes of the
5
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
21
Except where otherwise provided, the amendments made by this Schedule
10
have effect in relation to shares issued on or after 17th March 2004.
Schedule 19
Section 94

Venture capital trusts
Part 1
Increase in relief on investments and distributions
15
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
“£100,000” substitute “£200,000”.
20
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
25
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
30
6     (1)
The Taxation of Chargeable Gains Act 1992 is amended as follows.
      (2)
In paragraph 2(4) of Schedule 5B (enterprise investment scheme: re-
investment) omit “or Schedule 5C”.