Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
187

(b)
the investor receives from the CDFI a valid tax relief certificate in
relation to the investment (see section 348), and
(c)
the requirements of section 349 (no pre-arranged protection against
risks) are met.
345
Conditions to be met in relation to loans
5
(1)
Condition A of this section is that either—
(a)
the CDFI receives from the investor, on the investment date, the full
amount of the loan, or
(b)
if the loan agreement authorises the CDFI to draw down amounts of the
loan over a period of time, the end of that period is not later than 18
10
months after the investment date.
(2)
Condition B is that the loan must not carry any present or future right to be
converted into or exchanged for a loan which is, or securities, shares or other
rights which are, redeemable within the 5 year period.
(3)
Condition C is that the loan must not have been made on terms that allow any
15
person to require—
(a)
the repayment during the first two years of the 5 year period of any of
the loan capital advanced in those two years,
(b)
the repayment during the third year of that period of more than 25% of
the loan capital outstanding at the end of those two years,
20
(c)
the repayment before the end of the fourth year of that period of more
than 50% of that loan capital, or
(d)
the repayment before the end of that period of more than 75% of that
loan capital.
(4)
Subsection (3) does not apply if the CDFI is required to make the repayment as
25
a result of its failure to meet any obligation of the loan agreement which—
(a)
is imposed merely because of the commercial risks to which the
investor is exposed as lender under that agreement, and
(b)
is no more likely to be breached than any obligation that might
reasonably have been agreed in respect of the loan in the absence of this
30
Part.
(5)
The Treasury may by order substitute any other percentage for any percentage
for the time being specified in subsection (3).
(6)
Any such substitution is to have effect in relation to loans made by an
individual on or after the date specified in the order.
35
346
Conditions to be met in relation to securities
(1)
Condition A of this section is that the securities must be—
(a)
subscribed for wholly in cash, and
(b)
fully paid for on the investment date.
(2)
Condition B is that the securities must not carry—
40
(a)
any present or future right to be redeemed within the 5 year period, or
(b)
any present or future right to be converted into or exchanged for a loan
which is, or securities, shares or other rights which are, redeemable
within that period.

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
188

(3)
Securities are not fully paid for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the
acquisition of the securities.
347
Conditions to be met in relation to shares
(1)
Condition A of this section is that the shares must be—
5
(a)
subscribed for wholly in cash, and
(b)
fully paid up on the investment date.
(2)
Condition B is that the shares must not carry—
(a)
any present or future right to be redeemed during the 5 year period, or
(b)
any present or future right to be converted into or exchanged for a loan
10
which is, or securities, shares or other rights which are, redeemable
within that period.
(3)
Shares are not fully paid up for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the
acquisition of the shares.
15
348
Tax relief certificates
(1)
A “tax relief certificate” means a certificate issued by the CDFI in respect of the
investment which is in the form specified by the Commissioners for Her
Majesty’s Revenue and Customs.
(2)
The CDFI must not issue tax relief certificates under this section in respect of
20
investments made in the CDFI in an accreditation period if the total value of—
(a)
those investments, and
(b)
any investments to which subsection (3) applies,

will exceed the limit for that period.
(3)
This subsection applies to investments which—
25
(a)
have been made in the CDFI in the accreditation period, and
(b)
in respect of which the CDFI has issued tax relief certificates under
paragraph 12 of Schedule 16 to FA 2002 (which makes in relation to
corporation tax provision corresponding to that made by this section).
(4)
The limit for an accreditation period is—
30
(a)
£10 million if the CDFI is accredited for the period as a retail
community development finance institution (see section 340(8)), and
(b)
£20 million in any other case.
(5)
For the purposes of subsection (2) the value of an investment made in the CDFI
is—
35
(a)
if the investment consists of a loan—
(i)
the amount of the loan, or
(ii)
if the loan agreement authorises the CDFI to draw down
amounts of the loan over a period of time, the amount
committed under the loan agreement, and
40
(b)
if the investment consists of securities or shares, the amount subscribed
for them.
(6)
The Treasury may by order substitute any other amount for any amount for the
time being specified in subsection (4).

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Part 7 — Community investment tax relief
Chapter 4 — General conditions
189

(7)
Any such substitution is to have effect in relation to such accreditation periods
as may be specified in the order; and those periods may, if the substitution
increases the amount for the time being specified in subsection (4), include
periods beginning before the order takes effect.
(8)
Any tax relief certificate issued in contravention of subsection (2) is invalid.
5
(9)
A body is liable to a penalty of not more than £3,000 if it issues a tax relief
certificate which is made fraudulently or negligently.
349
No pre-arranged protection against risks
(1)
Any arrangements—
(a)
under which the investment is made, or
10
(b)
made, before the investor makes the investment, in relation to or in
connection with the making of the investment,

must not include excluded arrangements.
(2)
For the purposes of subsection (1) “excluded arrangements”—
(a)
means arrangements the main purpose or one of the main purposes of
15
which is (by means of any insurance, indemnity or guarantee or
otherwise) to provide partial or complete protection for the investor
against what would otherwise be the risks attached to making the
investment, but
(b)
does not include any arrangements which are confined to the provision
20
for the investor of any protection against those risks which might
reasonably be expected to be provided for commercial reasons if the
investment were made in the course of a business of banking.
(3)
For the purposes of this section “arrangements” includes any scheme,
agreement or understanding, whether or not legally enforceable.
25
Chapter 4
General conditions
350
No control of CDFI by investor
(1)
The investor must not control the CDFI at any time during the 5 year period.
(2)
In this section references to the investor include any person connected with the
30
investor.
(3)
If the CDFI is a body corporate, the question whether the investor controls the
CDFI is, for the purposes of this section, determined in accordance with section
929.

This is subject to subsection (6).
35
(4)
In any other case the investor is treated, for those purposes, as having control
of the CDFI if the investor has power to secure, as a result of—
(a)
the possession of voting power in the CDFI, or
(b)
any powers conferred by the constitution of, or any other document
regulating, the CDFI,
40

that the affairs of the body are conducted in accordance with the investor’s
wishes.

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Part 7 — Community investment tax relief
Chapter 5 — Claims for and attribution of CITR
190


This is subject to subsections (5) and (6).
(5)
If—
(a)
the CDFI is a partnership, and
(b)
the investor is a member of that partnership,

for the purposes of determining in accordance with this section whether the
5
investor controls the CDFI, the other members of that partnership are not, as a
result of their membership of the CDFI, treated as partners of the investor.
(6)
In determining whether the investor controls the CDFI there are attributed to
the investor (so far as it would not otherwise be the case)—
(a)
any rights or powers that the investor is entitled to acquire at a future
10
date or will, at a future date, become entitled to acquire, and
(b)
any rights or powers which another person holds on behalf of the
investor or may be required to exercise, by direction, on the investor’s
behalf.
351
Investor must have beneficial ownership
15
(1)
The investor must be the sole beneficial owner of the investment when it is
made.
(2)
If the investment consists of a loan, the person beneficially entitled to
repayment of the loan is treated as the beneficial owner of the loan for the
purposes of this Part.
20
352
No acquisition of share in partnership
(1)
If the CDFI is a partnership, the investment must not consist of or include any
amount of capital contributed by the investor on becoming a member of the
partnership.
(2)
For this purpose the amount of capital contributed by the investor on becoming
25
a member of the partnership includes any amount which—
(a)
purports to be provided by the investor by way of loan capital, and
(b)
is accounted for as partners’ capital in the accounts of the partnership.
353
No tax avoidance purpose
The investment must not be made as part of a scheme or arrangement the main
30
purpose or one of the main purposes of which is the avoidance of tax.
Chapter 5
Claims for and attribution of CITR
Claims
354
Loans: no claim after disposal or excessive repayments or receipts of value
35
(1)
If the investment consists of a loan, no claim may be made in respect of a tax
year if—

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Claims for and attribution of CITR
191

(a)
the investor disposes of the whole or any part of the loan before the
qualifying date relating to that year,
(b)
at any time after the investment is made but before that qualifying date,
the amount of the capital outstanding on the loan is reduced to nil, or
(c)
before that qualifying date, paragraphs (a) and (b) of section 362(1)
5
(repayments of loan in 5 year period exceeding permitted limits) apply
in relation to the investment (whether by virtue of section 363 (receipts
of value treated as repayments) or otherwise).
(2)
For the purposes of subsection (1)(a) any repayment of the loan is to be
ignored.
10
(3)
For the purposes of this section the qualifying date relating to a tax year is the
next anniversary of the investment date to occur after the end of that year.
355
Securities or shares: no claim after disposal or excessive receipts of value
(1)
If the investment consists of securities or shares, a claim made in respect of a
tax year must relate only to those securities or shares held by the investor, as
15
sole beneficial owner, continuously throughout the period—
(a)
beginning when the investment is made, and
(b)
ending immediately before the qualifying date relating to the tax year.
(2)
No claim for CITR may be made in relation to a tax year if before the qualifying
date relating to that year paragraphs (a) to (d) of section 364(1) (receipts of
20
value in the 5 year period exceeding permitted limits) apply in relation to the
investment or any part of it.
(3)
For the purposes of this section the qualifying date relating to a tax year is the
next anniversary of the investment date to occur after the end of that year.
356
No claim after loss of accreditation by the CDFI
25
(1)
If the CDFI ceases to be accredited under Chapter 2 with effect from a time
(“the relevant time”) within the 5 year period, no claim for CITR relating to the
investment may be made by the investor—
(a)
for the relevant tax year, or
(b)
for any later tax year.
30
(2)
For the purposes of subsection (1) the relevant tax year is—
(a)
if the relevant time falls within the first year of the 5 year period, the tax
year in which the investment date fell, and
(b)
in any other case, the year in which fell the last anniversary of that date
before the relevant time (or, if the relevant time itself falls on an
35
anniversary of the investment date, the year in which that anniversary
falls).
Attribution
357
Attribution: general
(1)
In this Part references to the CITR attributable to any loan, securities or shares
40
in respect of a tax year are read as references to the reduction which—
(a)
is made in the investor’s liability to income tax for that year, and

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 5 — Claims for and attribution of CITR
192

(b)
is attributed to that loan, or those securities or shares, in accordance
with this section and section 358.

This is subject to the provisions of Chapter 6 for the withdrawal or reduction
of CITR.
(2)
Subsections (3) and (4) apply if the investor’s liability to income tax is reduced
5
for a tax year under this Part.
(3)
If the reduction is obtained because of one loan, or securities or shares included
in one issue, the amount of the tax reduction is attributed to that loan or those
securities or shares.
(4)
If the reduction is obtained because of a loan or loans, securities or shares
10
included in two or more investments, the reduction—
(a)
is apportioned between the loan or loans, securities or shares in each of
those investments in the same proportions as the invested amounts in
respect of the loan or loans, securities or shares for the year, and
(b)
is attributed to that loan or those loans, securities or shares accordingly.
15
(5)
If under this section an amount of any reduction of income tax is attributed to
any securities in the same issue, a proportionate part of that amount is
attributed to each security.
(6)
If under this section an amount of any reduction of income tax is attributed to
any shares in the same issue, a proportionate part of that amount is attributed
20
to each of those shares.
(7)
If CITR attributable to a loan or any securities or shares falls to be withdrawn
under Chapter 6, the CITR attributable to that loan or each of those securities
or shares is reduced to nil.
(8)
If CITR attributable to any securities or shares falls to be reduced under that
25
Chapter by any amount, the CITR attributable to each of those securities or
shares is reduced by a proportionate part of that amount.
358
Attribution: bonus shares
(1)
This section applies if—
(a)
corresponding bonus shares are issued to the investor in respect of any
30
shares (“the original shares”) included in the investment, and
(b)
the original shares have been continuously held by the investor, as sole
beneficial owner, from the time they were issued until the issue of the
bonus shares.
(2)
A proportionate part of any amount attributed to the original shares, in respect
35
of a tax year, immediately before the bonus shares are issued is attributed to
each of the shares in the holding consisting of the original shares and the bonus
shares, in respect of that year.
(3)
After the issue of the bonus shares this Part applies as if—
(a)
the original issue had included the bonus shares, and
40
(b)
the bonus shares had been held by the investor, as sole beneficial
owner, continuously from the time the original shares were issued until
the bonus shares were issued.
(4)
In this section—

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Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
193

“corresponding bonus shares” means bonus shares that are in the same
company, are of the same class, and carry the same rights as the original
shares,
“original issue” means the issue of shares forming the investment.
Chapter 6
5
Withdrawal or reduction of CITR
Introduction
359
Overview of Chapter
(1)
This Chapter provides for CITR to be withdrawn or reduced under—
(a)
section 360 (disposal of loan during 5 year period),
10
(b)
section 361 (disposal of securities or shares during 5 year period),
(c)
section 362 (repayment of loan capital during 5 year period),
(d)
section 363 (value received by investor during 6 year period where
investment consists of a loan),
(e)
section 364 (value received by investor during 6 year period where the
15
investment consists of securities or shares),
(f)
section 371 (CITR subsequently found not to have been due).
(2)
This Chapter also provides for the manner in which CITR is to be withdrawn
or reduced (see section 372).
(3)
In this Chapter “the 6 year period” in relation to the investment is the period of
20
6 years beginning 12 months before the investment date.
Disposals
360
Disposal of loan during 5 year period
(1)
If the investment consists of a loan and within the 5 year period—
(a)
the investor disposes of the whole of the investment, otherwise than by
25
way of a permitted disposal, or
(b)
the investor disposes of a part of the investment,

any CITR attributable to the investment in respect of any tax year must be
withdrawn.
(2)
For the purposes of this section—
30
(a)
a disposal is “permitted” if—
(i)
it is by way of a distribution in the course of dissolving or
winding up the CDFI,
(ii)
it is a disposal within section 24(1) of TCGA 1992 (entire loss,
destruction, dissipation or extinction of asset),
35
(iii)
it is a deemed disposal under section 24(2) of that Act (claim
that value of asset has become negligible), or
(iv)
it is made after the CDFI has ceased to be accredited under this
Part, and
(b)
a full or partial repayment of the loan is not treated as giving rise to a
40
disposal.