Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
156

(b)
the amount of money raised by those shares or securities is to be
ignored for the purposes of any subsequent application of subsection
(2).
(4)
For the purposes of this section, if there is any question as to whether any
shares in or securities of the relevant company which are for the time being
5
held by the investing company represent an investment in excess of the
maximum qualifying investment for any period, that question is determined
on the following assumption in relation to disposals by the investing company.
(5)
The assumption is that, as between shares or securities of the same description,
those which represent the whole or any part of the excess are disposed of
10
before those which do not.
(6)
Subsection (7) applies if—
(a)
at the time of the issue of the relevant holding the relevant company or
any of its qualifying subsidiaries was a member of a partnership or a
party to a joint venture,
15
(b)
the trade which meets the requirement of section 291 was at that time
being carried on, or to be carried on, by those partners in partnership or
by the parties to the joint venture, and
(c)
the other partners or parties to the joint venture include at least one
other company.
20
(7)
If this subsection applies, this section has effect in relation to the relevant
company as if the sum of money for the time being specified in subsection (2)
were to be divided by the number of companies (including the relevant
company) which, at the time when the relevant holding was issued, were
members of the partnership or, as the case may be, parties to the joint venture.
25
(8)
For the purposes of this section “the relevant period” is the period beginning
with whichever is the earlier of—
(a)
the time 6 months before the issue of the relevant holding, and
(b)
the beginning of the tax year in which the issue of that holding took
place,
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and (in either case) ending with the issue of that holding.
288
The no guaranteed loan requirement
(1)
The requirement of this section is that there are no securities relating to a
guaranteed loan in the relevant holding.
(2)
For the purposes of this section, a security relates to a guaranteed loan if (and
35
only if) there are arrangements for the investing company to be or to become
entitled to receive anything (whether directly or indirectly) from a third party
in the event of the failure by any person to comply with—
(a)
the terms of the loan to which the security relates, or
(b)
the terms of the security.
40
(3)
For the purposes of subsection (2) it does not matter whether the arrangements
apply in all cases of a failure to comply or only in some such cases.
(4)
For the purposes of this section “third party” means any person except—
(a)
the relevant company, and
(b)
if the relevant company is a parent company that meets the trading
45
requirement in section 290(1)(b), the subsidiaries of that company.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
157

289
The proportion of eligible shares requirement
(1)
The requirement of this section is that eligible shares represent at least 10% by
value of the totality of the shares in or securities of the relevant company
(including the relevant holding) which are held by the investing company.
(2)
For the purposes of this section the value at any time of any shares in or
5
securities of a company is taken (subject to subsection (4)) to be their value
immediately after—
(a)
any relevant event occurring at that time, or
(b)
if no relevant event occurs at that time, the last relevant event to occur
before that time.
10
(3)
In subsection (2) “the relevant event”, in relation to any shares in or securities
of the relevant company, means—
(a)
the acquisition by the investing company of those shares or securities,
(b)
the acquisition by the investing company of any other shares in or
securities of the relevant company which—
15
(i)
are of the same description as those shares or securities, and
(ii)
are acquired by the investing company otherwise than by being
allotted to the investing company without its being liable to
give any consideration, or
(c)
the making of any such payment in discharge, in whole or in part, of
20
any obligation attached to any shares in or securities of the relevant
company held by the investing company as (by discharging that
obligation) increases the value of any such shares or securities.
(4)
If at any time the value of any shares or securities held by the investing
company is less than the consideration given by the investing company for
25
those shares or securities, it is to be assumed for the purposes of this section
that the value of the shares or securities at that time is equal to the amount of
that consideration.
(5)
In this section “eligible shares” has the same meaning as in Chapter 3 (see
section 285(3)).
30
290
The trading requirement
(1)
The requirement of this section is that—
(a)
the relevant company, ignoring any incidental purposes, exists wholly
for the purpose of carrying on one or more qualifying trades, or
(b)
the relevant company is a parent company and the business of the
35
group does not consist wholly or as to a substantial part in the carrying
on of non-qualifying activities.
(2)
If the relevant company intends that one or more other companies should
become its qualifying subsidiaries with a view to their carrying on one or more
qualifying trades—
40
(a)
the relevant company is treated as a parent company for the purposes
of subsection (1)(b), and
(b)
the reference in subsection (1)(b) to the group includes the relevant
company and any existing or future company that will be its qualifying
subsidiary after the intention in question is carried into effect.
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This subsection does not apply at any time after the abandonment of that
intention.

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Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
158

(3)
For the purposes of subsection (1)(b) the business of the group means what
would be the business of the group if the activities of the group companies
taken together were regarded as one business.
(4)
For the purpose of determining the business of a group, activities are ignored
so far as they are carried on by a mainly trading subsidiary otherwise than for
5
its main purpose.
(5)
For the purpose of determining the business of a group, activities of a group
company are ignored so far as they consist in—
(a)
the holding of shares in or securities of a qualifying subsidiary of the
parent company,
10
(b)
the making of loans to another group company, or
(c)
the holding and managing of property used by a group company for
the purpose of one or more qualifying trades carried on by a group
company, or
(d)
the holding and managing of property used by a group company for
15
the purpose of research and development from which it is intended—
(i)
that a qualifying trade to be carried on by a group company will
be derived, or
(ii)
that a qualifying trade carried on or to be carried on by a group
company will benefit.
20
(6)
Any reference in sub-paragraph (i) or (ii) of subsection (5)(d) to a group
company includes a reference to any existing or future company which will be
a group company at any future time.
(7)
In this section—
“incidental purposes” means purposes having no significant effect (other
25
than in relation to incidental matters) on the extent of the activities of
the company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart
from incidental purposes, exists wholly for the purpose of carrying on
one or more qualifying trades, and any reference to the main purpose
30
of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
(a)
excluded activities, and
(b)
activities carried on otherwise than in the course of a trade.
(8)
This section is supplemented by section 300 (meaning of “qualifying trade”)
35
and sections 303 to 310 (excluded activities).
291
The carrying on of a qualifying activity requirement
(1)
The requirement of this section, at any time on or after the issue of the relevant
holding, is that a qualifying company (whether or not the same such company
at every such time) must have been carrying on a qualifying activity at all times
40
from the issue of the holding to the time in question.
(2)
A qualifying trade carried on wholly or mainly in the United Kingdom is a
qualifying activity.
(3)
Preparing to carry on a qualifying trade is a qualifying activity if, at the time
when the relevant holding was issued, the trade was intended to be carried on
45
wholly or mainly in the United Kingdom by a qualifying company.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
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This is subject to subsections (4) and (5).
(4)
The requirement of this section is not capable of being met by virtue of
subsection (3) at any time after the end of the period of two years beginning
with the issue of the relevant holding unless—
(a)
the intended trade was begun to be carried on by a qualifying company
5
before the end of that period, and
(b)
at all times since the end of that period, a qualifying company (whether
or not the same such company at every such time) has been carrying on
a qualifying trade wholly or mainly in the United Kingdom.
(5)
The requirement of this section is also not capable of being met by virtue of
10
subsection (3) at any time after the abandonment, within the period mentioned
in subsection (4), of the intention in question.
(6)
In determining for the purposes of subsection (4)(a) when the intended trade
was begun to be carried on by a qualifying company which is a qualifying 90%
subsidiary of the relevant company, any carrying on by it of the trade before it
15
became such a subsidiary of the relevant company is ignored.
(7)
In this section “qualifying company” means the relevant company or any
qualifying 90% subsidiary of that company.
(8)
The reference in subsection (7) to a qualifying company which is a qualifying
90% subsidiary of the relevant company includes, in its application to
20
subsection (3), a reference to any existing or future qualifying company which
will be a qualifying 90% subsidiary of the relevant company at any future time.
292
Ceasing to meet requirements because of administration or receivership
(1)
A company is not regarded as ceasing to meet the requirement of section 290
or 291 merely because of anything done in consequence of its being in
25
administration or receivership.
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
(b)
everything done as a consequence of the company being in
administration or receivership,
30

is for genuine commercial reasons, and is not part of a scheme or arrangement
the main purpose or one of the main purposes of which is the avoidance of tax.
293
The use of the money raised requirement
(1)
The requirement of this section at any time on or after the issue of the relevant
holding is that—
35
(a)
if that time is not more than 12 months after the trading time, any of
conditions A, B and C is met,
(b)
if that time is more than 12 months but not more than 24 months after
the trading time, either of conditions B and C is met, and
(c)
in any other case, condition C is met.
40
(2)
Condition A is that at least 80% of the money raised by the issue of the relevant
holding has been or is intended to be employed wholly for the purposes of a
relevant qualifying activity.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
160

(3)
Condition B is that at least 80% of the money raised by the issue of the relevant
holding has been employed wholly for the purposes of the activity.
(4)
Condition C is that all of the money raised by the issue of the relevant holding
has been employed wholly for the purposes of the activity.
(5)
In subsection (1) “the trading time” means whichever is applicable of the
5
following—
(a)
in a case where the requirement of section 291 was met in relation to the
time when the relevant holding was issued and the relevant qualifying
activity falls within subsection (2) of that section, the time when the
relevant holding was issued, and
10
(b)
in a case where that requirement was met in relation to that time and
the relevant qualifying activity falls within subsection (3) of that
section, the time when the condition in subsection (4)(a) of that section
was met by a qualifying company beginning to carry on the intended
trade.
15
(6)
For the purposes of this section money is not to be treated as employed
otherwise than wholly for the purposes of a relevant qualifying activity if the
only amount employed for other purposes is an amount which is not a
significant amount.
(7)
Nothing in section 286(5) requires any money whose use is ignored by virtue
20
of subsection (6) to be treated as raised by a different holding.
(8)
In this section—
“qualifying activity” and “qualifying company” have the same meaning
as in section 291, and
a qualifying activity is a “relevant qualifying activity” if—
25
(a)
it was also a qualifying activity at the time when the relevant
holding was issued, or
(b)
it is a qualifying trade and preparing to carry it on was a
qualifying activity at that time.
294
The relevant company to carry on the relevant qualifying activity requirement
30
(1)
The requirement of this section is met if, at no time after the issue of the
relevant holding, has the relevant qualifying activity in question been carried
on by a person other than—
(a)
the relevant company, or
(b)
a qualifying 90% subsidiary of that company.
35

In this subsection “the relevant qualifying activity in question” means the
relevant qualifying activity by reference to which the requirement of section
293 is met.
(2)
The requirement of this section is not to be regarded as failing to be met merely
because of the carrying on of the trade in question by a person other than the
40
relevant company, or a qualifying subsidiary of that company, at any time—
(a)
after the issue of the relevant holding, and
(b)
before the relevant company, or any qualifying 90% subsidiary of that
company, carries on that trade.
(3)
The requirement of this section is not to be regarded as failing to be met merely
45
because of the carrying on of the trade in question—

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Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
161

(a)
by the partners in a partnership of which the relevant company, or a
qualifying 90% subsidiary of that company, is a member, or
(b)
by the parties to a joint venture to which the relevant company, or a
qualifying 90% subsidiary of that company, is a party.
(4)
The requirement of this section is not to be regarded as failing to be met if—
5
(a)
merely because of anything done as a consequence of the relevant
company or any other company being in administration or
receivership, or
(b)
merely because of the relevant company or any other company being
wound up or dissolved without winding up,
10

the trade in question ceases to be carried on by the relevant company or a
qualifying 90% 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 12
months before the issue of the relevant holding, with the relevant company.
(5)
Subsection (4) applies only if—
15
(a)
the entry into administration or receivership and everything done in
consequence of the company concerned being in administration or
receivership, or
(b)
the winding up or dissolution,

is for genuine commercial reasons and is not part of a scheme or arrangement
20
the purpose or one of the main purposes of which is the avoidance of tax.
(6)
In this section “the trade in question” means so much of the relevant qualifying
activity mentioned in subsection (1) as consists of—
(a)
a trade which was being carried on at the time when the relevant
holding was issued, or
25
(b)
a trade for the carrying on of which preparations were being made at
that time.
(7)
The definition of “relevant qualifying activity” in subsection (8) of section 293
applies for the purposes of this section as it applies for the purposes of that
section.
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295
The unquoted status requirement
(1)
The requirement of this section is that the relevant company must be an
unquoted company.
(2)
In this section “unquoted company” means a company none of whose shares,
stocks, debentures or other securities are marketed to the general public.
35
(3)
For the purposes of subsection (2), shares, stocks, debentures or other securities
are marketed to the general public if they are—
(a)
listed on the Stock Exchange or a stock exchange that is a recognised
stock exchange by virtue of an order made under section 939,
(b)
listed on a designated exchange in a country outside the United
40
Kingdom, or
(c)
dealt in on the Unlisted Securities Market or dealt in outside the United
Kingdom by such means as may be designated.
(4)
In subsection (3)(b) and (c) “designated” means designated by an order made
by the Commissioners for Her Majesty’s Revenue and Customs for the
45
purposes of that provision.

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Chapter 4 — Qualifying holdings
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(5)
An order made for the purposes of subsection (3)(b) may designate an
exchange by name, or by reference to any class or description of exchanges,
including a class or description framed by reference to any authority or
approval given in a country outside the United Kingdom.
(6)
If—
5
(a)
any shares in or securities of a company are included in the qualifying
holdings of the investing company, and
(b)
that company ceases to be an unquoted company at any time while the
investing company is approved as a VCT,

the requirements of this section are to be treated, in relation to shares or
10
securities acquired before that time, as continuing to be met for a period of 5
years after that time.
296
The control and independence requirement
(1)
The control element of the requirement is that—
(a)
the relevant company must not control (whether on its own or together
15
with any person connected with it) any company which is not a
qualifying subsidiary of the relevant company, and
(b)
no arrangements must be in existence by virtue of which the relevant
company could fail to meet paragraph (a).
(2)
The independence element of the requirement is that—
20
(a)
the relevant company must not be under the control of another
company (or of another company and any other person connected with
that other company), and
(b)
no arrangements must be in existence by virtue of which the relevant
company could fail to meet paragraph (a).
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(3)
This section is subject to section 327(7) (exchange of shares).
297
The gross assets requirement
(1)
The requirement of this section in the case of a relevant company that is a single
company is that the value of the company’s gross assets—
(a)
did not exceed £7 million immediately before the issue of the relevant
30
holding, and
(b)
did not exceed £8 million immediately afterwards.
(2)
The requirement of this section in the case of a relevant company that is a
parent company is that the value of the group assets—
(a)
did not exceed £7 million immediately before the relevant shares are
35
issued, and
(b)
did not exceed £8 million immediately afterwards.
(3)
The value of the group assets means the sum of the values of the gross assets
of each of the members of the group, ignoring any that consist in rights against,
or shares in or securities of, another member of the group.
40
298
The qualifying subsidiaries requirement
Any subsidiary that the relevant company has must be a qualifying subsidiary
of the company.