Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
142

264
No entitlement to relief if there is a linked loan
(1)
An individual is not entitled to VCT relief by reference to any shares (“the
relevant shares”) if a linked loan is made by any person, at any time in the
relevant period, to the individual or an associate of the individual.
(2)
References in this section to the making by any person of a loan to an
5
individual or any associate of the individual include references—
(a)
to the giving by that person of any credit to the individual or any
associate of the individual, and
(b)
to the assignment to that person of any debt due from the individual or
any associate of the individual.
10
(3)
In this section—
“linked loan” means a loan which—
(a)
would not have been made, or
(b)
would not have been made on the same terms,
if the individual had not subscribed for the relevant shares or had not
15
been proposing to do so,
“the relevant period”, in relation to VCT relief in respect of any shares in
a company which is a VCT, means the period—
(a)
beginning with—
(i)
the incorporation of the company, or
20
(ii)
if later, the date two years before the issue of the shares,
and
(b)
ending immediately before the fifth anniversary of that issue.
265
No entitlement to relief which would have been lost if it had already been
obtained
25
An individual is not entitled to VCT relief by reference to any shares if
circumstances have arisen which would have resulted in the withdrawal or
reduction of the relief, if that relief had already been obtained.
Loss of relief
266
Loss of relief if shares disposed of within 5 years
30
(1)
This section applies, subject to section 267 (spouses or civil partners), if an
individual—
(a)
obtains VCT relief in respect of eligible shares in a VCT, and
(b)
makes a disposal of those shares within 5 years of their issue to the
individual.
35
(2)
In the case of a disposal that is made otherwise than by way of a bargain made
at arm’s length, any VCT relief obtained by reference to the shares which are
disposed of is to be withdrawn.
(3)
In the case of a disposal that is made by way of a bargain made at arm’s length,
any VCT relief obtained by reference to the shares disposed of must—
40
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
143

(4)
A is 30% of the amount or value of the consideration which the individual
receives for the shares.
(5)
The rules in subsections (6) and (7) are for determining which eligible shares of
any class are treated as disposed of for the purposes of—
(a)
this section, and
5
(b)
section 267,

if a person disposes of some but not all of the eligible shares of that class which
the person holds in a company.
(6)
Shares acquired on an earlier day are treated as disposed of before shares
acquired on a later day.
10
(7)
Shares acquired on the same day are treated as disposed of in the following
order—
(a)
shares by reference to which VCT relief has not been obtained, and
(b)
shares by reference to which VCT relief has been obtained.
267
Transfers of shares between spouses or civil partners
15
(1)
Section 266 does not apply in the case of any disposal of shares made by an
individual to the individual’s spouse or civil partner, if it is made at a time
when they are living together.
(2)
Subsection (3) applies if any eligible shares which—
(a)
have been issued to any individual (“the transferor”), and
20
(b)
are shares by reference to which any VCT relief has been obtained,

are transferred to the transferor’s spouse or civil partner (“the transferee”) by
a disposal such as is mentioned in subsection (1).
(3)
If this subsection applies, section 266 and subsection (2) have effect, in relation
to any subsequent disposal or other event, as if—
25
(a)
the transferee were the person who had subscribed for the shares,
(b)
the shares had been issued to the transferee at the time when they were
issued to the transferor,
(c)
there had been, in relation to the transferred shares, such a reduction by
way of VCT relief in the transferee’s liability to income tax as is equal
30
to the actual reduction in respect of those shares of the transferor’s
liability, and
(d)
that deemed reduction were (despite the transfer) to be treated for the
purposes of section 266 as an amount of VCT relief obtained by
reference to the shares transferred.
35
(4)
Any assessment for withdrawing or reducing VCT relief because of a disposal
or other event falling within subsection (3) is to be made on the transferee.
268
Loss of relief if VCT approval withdrawn
(1)
This section applies if—
(a)
the approval of any company as a VCT is withdrawn, and
40
(b)
the withdrawal of the approval is not one to which section 281(3) (VCT
approval treated as never having been given) applies.
(2)
Any person who, at the time when the withdrawal takes effect, is holding any
shares issued by the company by reference to which VCT relief has been

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 2 — VCT relief
144

obtained is treated for the purposes of section 266 as having disposed of those
shares—
(a)
immediately before that time, and
(b)
otherwise than by way of a bargain made at arm’s length.
269
Loss of relief which is subsequently found not to have been due
5
Any VCT relief obtained which is subsequently found not to have been due is
to be withdrawn.
270
Assessment on withdrawal or reduction of relief
(1)
An assessment for withdrawing or reducing VCT relief under any of sections
266 to 269 must be made for the tax year for which the relief was obtained.
10
(2)
No assessment for withdrawing or reducing VCT relief obtained by reference
to shares issued to any individual may be made because of any event occurring
after the individual’s death.
Supplementary
271
Provision of information
15
(1)
If an event occurs that results in any VCT relief falling to be withdrawn or
reduced, the individual by whom the relief was obtained must, within 60 days
of coming to know of the event, give notice to an officer of Revenue and
Customs containing particulars of the event.
(2)
If an officer of Revenue and Customs has reason to believe that a person has
20
not given a notice which the person is required to give under subsection (1), the
officer may by notice require the person to provide the officer, within such time
as may be specified in the notice, with such information relating to the event as
the officer may reasonably require for the purposes of the provisions of this
Chapter.
25
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
If a company which is a VCT issues to any individual eligible shares to which
section 261(4) applies, it must—
(a)
at the time of the issue of those shares, give the individual a notice
stating that the individual is not eligible for VCT relief by reference to
30
those shares, and
(b)
not later than 3 months after the issue of those shares, give a copy of
that notice to an officer of Revenue and Customs.
(5)
No obligation as to secrecy imposed by statute or otherwise prevents an officer
of Revenue and Customs from disclosing to a VCT that VCT relief has been
35
obtained by reference to a particular number or proportion of its shares.
272
Regulations as to procedure etc
(1)
This section applies to VCT relief and relief for which the following provide—
(a)
section 151A of TCGA 1992 (VCTs: reliefs),
(b)
Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment),
40

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
145

(c)
Chapter 5 of Part 6 of ITTOIA 2005 (VCT dividends), and
(d)
regulations under Chapter 5 of this Part.
(2)
The Treasury may by regulations make such provision as they consider
appropriate for—
(a)
giving effect to relief to which this section applies, and
5
(b)
preventing such relief from being given unless a claim is made in
accordance with the regulations and such other requirements as may be
imposed by the regulations have been met.
(3)
Regulations under this section may make provision as to the manner in which,
and the persons by whom, relief to which this section applies is to be claimed.
10
273
Interpretation of Chapter
(1)
In this Chapter “eligible shares”, in relation to a company which is a VCT,
means ordinary shares in the VCT which, throughout the period of 5 years
beginning on the date on which they are issued, carry—
(a)
no present or future preferential right to dividends or to a company’s
15
assets on its winding up, and
(b)
no present or future right to be redeemed.
(2)
In this Chapter references to a disposal of shares include references to a
disposal of an interest or right in or over shares.
Chapter 3
20
VCT approvals
Giving of approval
274
Requirements for the giving of approval
(1)
Subject to section 275, the Commissioners for Her Majesty’s Revenue and
Customs must not approve a company for the purposes of this Part unless it is
25
shown to their satisfaction that the conditions mentioned in subsection (2)—
(a)
are met in relation to the most recent complete accounting period of the
company, and
(b)
will be met in relation to the accounting period of the company which
is current when the application for approval is made.
30
(2)
The conditions applied by subsection (1) (which are also applied by section
275(1) and other provisions of this Chapter) are set out in column 2 of the
following table together with, in column 1 of the table, the descriptions by
which they are referred to.

In each of those conditions “the relevant period” means the accounting period
35
that is relevant for the purposes of the particular provision by which the
condition is applied.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
146

Description
Condition

The listing condition
The shares making up the company’s

ordinary share capital (or, if there are such

shares of more than one class, those of each

class) have been or will be listed

5

throughout the relevant period in the

Official List of the Stock Exchange

The nature of income
The company’s income in the relevant

condition
period has been or will be derived wholly

or mainly from shares or securities

10

The income retention
The company has not retained or will not

condition
retain an amount which is greater than

15% of the income it derived or will derive

in the relevant period from shares or

securities

15

The 15% holding limit
No holding in any company, other than a

condition
VCT or a company that would qualify as a

VCT but for the listing condition, has

represented or will represent at any time

during the relevant period more than 15%

20

by value of the company’s investments

The 70% qualifying
At least 70% by value of the company’s

holdings condition
investments has been or will be

represented throughout the relevant

period by shares or securities included in

25

qualifying holdings of the company

The 30% eligible shares
At least 30% by value of the company’s

condition
qualifying holdings has been or will be

represented throughout the relevant

period by holdings of eligible shares

30
(3)
The conditions mentioned in subsection (2) are supplemented as follows—
(a)
the nature of income condition and the income retention condition by
section 276,
(b)
the 15% holding limit condition by section 277,
(c)
the 15% holding limit condition, the 70% qualifying holdings condition
35
and the 30% eligible shares condition by sections 278 and 279, and
(d)
the 70% qualifying holdings condition and the 30% eligible shares
condition by section 280.
275
Alternative requirements for the giving of approval
(1)
This section applies if one or more of the conditions mentioned in section
40
274(2) are not met with respect to a company in relation to its most recent
complete accounting period.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
147

(2)
The Commissioners for Her Majesty’s Revenue and Customs may still approve
the company for the purposes of this Part if they are satisfied that the condition
or conditions in question—
(a)
will be met in relation to the period mentioned in subsection (3), and
(b)
will continue to be met in relation to accounting periods following that
5
period.
(3)
The period is—
(a)
in relation to the listing condition, the nature of income condition, the
income retention condition and the 15% holding limit condition, the
accounting period of the company which is current when the
10
application for approval is made, or its next accounting period,
(b)
in relation to the 70% qualifying holdings condition and the 30%
eligible shares condition, an accounting period of the company
beginning no more than 3 years after the time when the approval is
given or, if earlier, when the approval takes effect.
15
276
Conditions relating to income
(1)
Subsections (2) and (3) apply in determining for the purposes of the nature of
income condition and the income retention condition—
(a)
the amount of a company’s income, or
(b)
the amount of income which a company derives from shares or
20
securities.
(2)
The amounts to be brought into account under Chapter 2 of Part 4 of FA 1996
in respect of the company’s loan relationships are to be determined without
reference to any debtor relationship of the company.
(3)
The excess of any relevant credits over any relevant debits is to be treated as
25
income which the company derives from shares or securities.

In this subsection “relevant credits” and “relevant debits” are credits and debits
brought into account by virtue of paragraph 14(3) of Schedule 26 to FA 2002 as
if they were non-trading credits or non-trading debits.
(4)
The income retention condition does not apply as regards an accounting
30
period if the amount which the company would be required to distribute in
order to meet that condition is less than—
(a)
£10,000, or
(b)
if the period is shorter than 12 months, a proportionately reduced
amount.
35
(5)
The income retention condition does not apply as regards an accounting
period if—
(a)
the company is required to retain income in respect of the period by
virtue of a restriction imposed by law, and
(b)
the amount of income which the company is so required to retain in
40
respect of the period exceeds an amount equal to 15% of the income the
company derives from shares or securities.
(6)
Subsection (5) does not apply if—
(a)
the amount of income the company retains in respect of the accounting
period exceeds the amount of income it is required, by virtue of a
45
restriction imposed by law, to retain in respect of the period, and

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
148

(b)
the sum of the excess and any amount of income the company
distributes in respect of the period is at least—
(i)
£10,000, or
(ii)
if the period is shorter than 12 months, a proportionately
reduced amount.
5
277
The 15% holding limit condition
(1)
If the 15% holding limit condition was met when a holding in a company was
acquired or last added to, the condition is treated as continuing to be met until
an addition is next made to it.
(2)
“Holding in a company” means the shares or securities (whether of one class
10
or more than one class) held in any one company.
(3)
An addition is made to a holding in a company whenever the company whose
holding it is—
(a)
acquires further shares or securities in the company, but
(b)
does not do so by being allotted shares or securities without becoming
15
liable to give any consideration.
(4)
For the purposes of this section—
(a)
holdings in companies which—
(i)
are members of a group, whether or not including the company
whose holdings they are (“company A”), and
20
(ii)
are not excluded from the 15% holding limit condition,

are to be treated as holdings in a single company, and
(b)
if company A is a member of a group, money owed to it by another
member of the group is to be treated—
(i)
as a security of the latter held by company A, and
25
(ii)
accordingly as, or as part of, the holding of company A in the
company owing the money.

For the purposes of this subsection “group” means a company and all
companies which are its 51% subsidiaries.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
30
(a)
a company issues shares or securities,
(b)
the shares or securities are issued to persons holding shares or
securities in a second company in respect of and in proportion to (or as
nearly as may be in proportion to) their holdings in the second
company, and
35
(c)
those persons do not become liable to give any consideration for the
shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in
section 136 of TCGA 1992.
(6)
For the purposes of this section—
40
(a)
a holding of the shares or securities in the second company, and
(b)
a corresponding holding of the shares or securities issued by the
company,

are to be regarded as the same holding.