Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
388

Commencement
7     (1)
The amendments made by this Part have effect in relation to shares issued
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
5
Taxation of Chargeable Gains Act 1992 (c. 12) for the purposes of section
151B(8)(b)(ii) of that Act.
Part 3
Miscellaneous
8
Schedule 28B to the Taxes Act 1988 (venture capital trusts: meaning of
10
“qualifying holdings”) is amended as follows.
9
In paragraph 3 (requirement as to company’s business)—
(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
15
at all times since, a qualifying company (whether or not the
same such company at every such time) must”,
(ii)
in paragraph (b)—
(a)
for “it intended to carry” substitute “was intended to
be carried”,
20
(b)
after “Kingdom” insert “by a qualifying company”,
(iii)
omit the words from “and for the purposes” to the end,
(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
25
to be carried on by a qualifying company”,
(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”,
30
(c)
after sub-paragraph (5) insert—
    “(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)
35
above when the intended trade was begun to be carried on
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.”.
40
10
After paragraph 5 insert—
“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.
45

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
389

      (2)
The subsidiary falls within this sub-paragraph if—
(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—
5
(i)
in the event of a winding up of the subsidiary, or
(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
10
subsidiary;
(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;
15
(d)
no person other than the relevant company has control of
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.
20
      (3)
Sub-paragraphs (4) to (4C) and (5) of paragraph 10 below apply in
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
25
be read as if the words “or (as the case may be) by another
subsidiary of that company” were omitted.
      (5)
For the purposes of this paragraph—
(a)
the persons who are equity holders of the subsidiary, and
(b)
the percentage of the assets of the subsidiary to which an
30
equity holder would be entitled,

shall be determined in accordance with paragraphs 1 and 3 of
Schedule 18.
      (6)
But in making that determination—
(a)
references in paragraph 3 of that Schedule to the first
35
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
which assets of the subsidiary are available for distribution
40
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
company” to “employ” substitute “is intended to be employed”,
45
(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”,

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
390

(c)
for sub-paragraphs (2A) to (2C) substitute—
   “(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
5
(b)
any preparations for that trade falling within
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.
10
    (2AC)
Sub-paragraph (2AD) below applies where preparations
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.
15
    (2AD)
Where this sub-paragraph applies, the requirements of this
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—
20
(a)
the relevant company, or
(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.
25
    (2AE)
The requirements of this 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—
(a)
by the partners in a partnership of which the
30
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
subsidiary of that company, is a party.
35
    (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
of the relevant company or any other company
40
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,

the trade mentioned in sub-paragraph (2AB)(a) above
45
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
before the issue of the relevant holding, with the relevant
50
company.

Finance Bill
Schedule 19 — Venture capital trusts
Part 3 — Miscellaneous
391

    (2AG)
Sub-paragraph (2AF) above applies only if (as the case
may be)—
(a)
the entry into administration or receivership and
everything done as a consequence of the company
concerned being in administration or receivership,
5
or
(b)
the winding up or dissolution,

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.
10
    (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.”,
(d)
omit sub-paragraph (5).
12
In paragraph 10 (meaning of “qualifying subsidiary”)—
15
(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
relevant company;”,
(c)
in sub-paragraph (3)(e), for “the relevant company could cease to fall
20
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)—
(i)
after “time when it” insert “or any other company”,
(ii)
omit “it is shown”,
25
(iii)
omit the first “that” in paragraph (a),
(iv)
omit “that” in paragraph (b),
(v)
for “and not” substitute “and is not”,
(e)
after sub-paragraph (4) insert—
    “(4A)
Sub-paragraph (4B) below applies at a time when the
30
subsidiary or any other company is in administration or
receivership.
     (4B)
The subsidiary shall not be regarded, by reason only of
anything done as a consequence of the company
concerned being in administration or receivership, as
35
having ceased to be a company falling within sub-
paragraph (3) above if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company
concerned being in administration or receivership,
40

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.
     (4C)
Sub-paragraph (2) of paragraph 11A below applies for the
purposes of sub-paragraphs (4A) and (4B) above as it
45
applies for the purpose of that paragraph.”,
(f)
in sub-paragraph (5)—
(i)
omit the words “it is shown that”,
(ii)
for “and not” substitute “and is not to be”,

Finance Bill
Schedule 20 — Corporate venturing scheme
392

(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
must not have a property managing subsidiary which is not a
5
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
from land.
10
      (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”,
(b)
omit the first “that” in paragraph (a),
15
(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”.
16
The amendments made by this Part have effect for the purpose of
20
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.
Schedule 20
Section 95

Corporate venturing scheme
25
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”)—
(a)
in sub-paragraph (1)(b)(ii), and
(b)
in sub-paragraph (2)(a) and (b),
30

for “qualifying subsidiaries” substitute “qualifying 90% subsidiaries”.
3
In paragraph 15 (introduction) after paragraph (e) insert—
“(ea)
property managing subsidiaries (see paragraph 21A);”.
4
In paragraph 20 (the qualifying subsidiaries requirement) for sub-paragraph
(2) substitute—
35
     “(2)
In this paragraph “subsidiary” means any company which the
company controls, either on its own or together with any person
connected with it.

Finance Bill
Schedule 20 — Corporate venturing scheme
393

      (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)—
5
(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
10
“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”.
15
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
20
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
25
from land.
      (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)—
30
(a)
in sub-paragraph (3)(b), for “at least one group company” substitute
“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
35
the issuing company”,
(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”,
40
(d)
after sub-paragraph (9) insert—
    “(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
45
the issued share capital of, and not less than 90% of
the voting power in, the subsidiary;

Finance Bill
Schedule 20 — Corporate venturing scheme
394

(b)
the issuing company would—
(i)
in the event of a winding up of the
subsidiary, or
(ii)
in any other circumstances,

be beneficially entitled to receive not less than 90%
5
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
less than 90% of any profits of the subsidiary which
10
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
section 840 of the Taxes Act 1988; and
15
(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)—
(a)
sub-paragraphs (3) and (4) of paragraph 21 apply
20
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
when arrangements are in existence for the
25
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
reasons and is not to be part of a scheme or
30
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)—
35
(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)—
40
(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
45
“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”.
50