Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
194

361
Disposal of securities or shares during 5 year period
(1)
This section applies if the investment consists of securities or shares and—
(a)
the investor disposes of the whole or any part of the investment (“the
former investment”) within the 5 year period,
(b)
the CDFI has not ceased to be accredited before the disposal, and
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(c)
the disposal does not arise as a result of an event within section
366(1)(a) (repayment, redemption or repurchase of securities or shares
included in the investment).
(2)
If the disposal is not a qualifying disposal, any CITR attributable to the former
investment in respect of any tax year must be withdrawn.
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(3)
If the disposal is a qualifying disposal, any CITR attributable to the former
investment for a tax year must—
(a)
if it is greater than A, be reduced by A, and
(b)
in any other case, be withdrawn.

For this purpose “A” is an amount equal to 5% of the amount or value of the
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consideration (if any) which the investor receives for the former investment.
(4)
For the purposes of this section “qualifying disposal” means a disposal that
is—
(a)
by way of a bargain made at arm’s length, or
(b)
a permitted disposal (within the meaning of section 360).
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(5)
If for any tax year—
(a)
the amount of CITR attributable to the former investment (“B”) is less
than
(b)
the amount (“C”) which is equal to 5% of the invested amount in respect
of the former investment for that year,
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subsection (3)(a) has effect in relation to that year as if the amount or value
referred to in subsection (3) were reduced by multiplying it by the fraction—
(6)
If the amount of CITR attributable to the former investment in respect of a tax
year has been reduced before the CITR is obtained, the amount referred to in
subsection (5) as B is to be treated for the purposes of that subsection as the
30
amount it would have been without that reduction.
(7)
Subsection (6) does not apply to a reduction by virtue of section 358
(attribution: bonus shares).
Repayment of loans
362
Repayment of loan capital during 5 year period
35
(1)
If the investment consists of a loan and—
(a)
the average capital balance of the loan for the third, fourth or final year
of the 5 year period is less than the permitted balance for the year in
question, and

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
195

(b)
the difference between those balances is not an amount of insignificant
value,

any CITR attributable to the investment in respect of any tax year must be
withdrawn.
(2)
For the purposes of this section—
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“the average capital balance” of the loan for a period is the mean of the
daily balances of capital outstanding during that period, ignoring any
non-standard repayments of the loan made in that period or at any
earlier time, and
“the permitted balance” of the loan is—
10
(a)
for the third year of the 5 year period, 75% of the average capital
balance for the period of 6 months beginning 18 months after
the investment date,
(b)
for the fourth year of that period, 50% of that balance, and
(c)
for the final year of that period, 25% of that balance.
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(3)
For the purposes of subsection (2) a repayment of the loan is a non-standard
repayment if subsection (4) or (5) applies.
(4)
This subsection applies if the repayment is made at the choice or discretion of
the CDFI, and not as a direct or indirect consequence of any obligation
provided for under the terms of the loan agreement.
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(5)
This subsection applies if the repayment is made as a result of the failure of the
CDFI 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
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reasonably have been agreed in respect of the loan in the absence of this
Part.
(6)
For the purposes of this section “an amount of insignificant value” means an
amount which—
(a)
is not more than £1,000, or
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(b)
if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 5 year period in question.
Receipts of value
363
Value received by investor during 6 year period: loans
(1)
This section applies if the investment consists of a loan and the investor
35
receives any value (other than an amount of insignificant value) from the CDFI
during the 6 year period.
(2)
The investor is treated for the purposes of—
(a)
section 337 (determination of “invested amount”), and
(b)
section 362 (repayments of loan capital),
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as having received a repayment of the loan of an amount equal to the amount
of the value received.
(3)
For those purposes the repayment is treated as made—

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
196

(a)
if the value is received in the first or second year of the 6 year period, at
the beginning of that second year, and
(b)
if the value is received in a later year of that period, at the beginning of
the year in question.
(4)
For the purposes of section 362 the repayment is treated as a repayment other
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than a non-standard repayment (within the meaning of that section).
(5)
For the purposes of this section “an amount of insignificant value” means an
amount which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the average capital
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balance of the loan for the year of the 6 year period in which the value
is received.
(6)
For the purposes of subsection (5)(b)—
(a)
“the average capital balance” of the loan for a year is the mean of the
daily balances of capital outstanding during the year (ignoring the
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receipt of value in question), and
(b)
any value received in the first year of the 6 year period is treated as
received at the beginning of the second year of that period.
(7)
This section is subject to section 368 (value received if there is more than one
investment).
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(8)
Value received is ignored, for the purposes of this section, so far as the CITR
attributable to any loan, securities or shares in respect of any one or more tax
years has already been reduced or withdrawn on its account.
364
Value received by investor during 6 year period: securities or shares
(1)
This section applies if the investment consists of securities or shares and—
25
(a)
the investor receives any value (other than an amount of insignificant
value) from the CDFI during the 6 year period,
(b)
the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing
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investment”),
(c)
the receipt is wholly or partly in excess of the permitted level of receipts
in respect of the continuing investment, and
(d)
the amount of that excess (“the excess”) is not an amount of
insignificant value.
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(2)
Any CITR attributable to the continuing investment in respect of any tax year
must be withdrawn.
(3)
For the purposes of subsection (1) the permitted level of receipts is exceeded
if—
(a)
any amount of value is received by the investor (ignoring any amounts
40
of insignificant value) in the first 3 years of the 6 year period, or
(b)
the total amount of value received by the investor (ignoring any
amounts of insignificant value)—
(i)
before the beginning of the fifth year of that period, exceeds 25%
of the invested capital,
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Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
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(ii)
before the beginning of the final year of that period, exceeds
50% of the invested capital, or
(iii)
before the end of that period, exceeds 75% of the invested
capital.
(4)
In this section—
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“the invested capital”, in relation to the continuing investment, means the
amount subscribed for the securities or shares concerned, and
“an amount of insignificant value” means an amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the amount
10
subscribed by the investor for the securities or shares included
in the continuing investment.
(5)
This section is subject to section 368 (value received if there is more than one
investment).
(6)
Value received is ignored, for the purposes of this section, so far as CITR
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attributable to any loan, securities or shares in respect of any one or more tax
years has already been reduced or withdrawn on its account.
365
Receipts of insignificant value to be added together
(1)
This section applies if—
(a)
value is received (“the relevant receipt”) by the investor from the CDFI
20
at any time during the 6 year period relating to the investment,
(b)
the investor has received from the CDFI one or more receipts of
insignificant value at a time or times—
(i)
during that period, but
(ii)
not later than the time of the relevant receipt, and
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(c)
the total amount of the value of the receipts within paragraph (a) and
(b) is not an amount of insignificant value.
(2)
The investor is treated for the purposes of this Part as if the relevant receipt had
been a receipt of an amount of value equal to that total amount.
(3)
A receipt does not fall within subsection (1)(b) if the whole or any part of it has
30
previously formed part of a total amount falling within subsection (1)(c).
(4)
For the purposes of this section “an amount of insignificant value” means an
amount of value which—
(a)
is not more than £1,000, or
(b)
if it is more than £1,000, is insignificant in relation to the relevant
35
amount.
(5)
If the investment consists of a loan, the relevant amount for the purposes of
subsection (4) is—
(a)
if the relevant receipt is received in the first or second year of the 6 year
period, the average capital balance of the loan for the second year of
40
that period, and
(b)
if the relevant receipt is received in a later year, the average capital
balance of the loan for the year in question.
(6)
For the purposes of subsection (5)—

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
198

(a)
the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
(b)
the relevant receipt and any receipts within subsection (1)(b) are
ignored when calculating the average capital balance for the year in
question.
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(7)
If the investment consists of securities or shares, the relevant amount for the
purposes of subsection (4) is—
(a)
if the relevant receipt is received in the first year of the 6 year period,
the amount subscribed for the securities or shares, and
(b)
in any other case, the amount subscribed for such of the securities or
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shares as—
(i)
are held by the investor at the time the relevant receipt is
received, and
(ii)
have been held by the investor, as sole beneficial owner,
continuously since the investment was made.
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366
When value is received
(1)
For the purposes of this Chapter the investor receives value from the CDFI at
any time when the CDFI—
(a)
repays, redeems or repurchases any securities or shares included in the
investment,
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(b)
releases or waives any liability of the investor to the CDFI or
discharges, or undertakes to discharge, any liability of the investor to a
third person,
(c)
makes a loan or advance to the investor which has not been repaid in
full before the investment is made,
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(d)
provides a benefit or facility for the investor or any associate of the
investor,
(e)
disposes of an asset to the investor for no consideration or for a
consideration of an amount or value which is less than the market value
of the asset,
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(f)
acquires an asset from the investor for a consideration of an amount or
value which is more than the market value of the asset, or
(g)
makes a payment to the investor other than a qualifying payment.
(2)
For the purposes of subsection (1)(b) the CDFI is treated as having released or
waived a liability if the liability is not discharged within 12 months of the time
35
when it ought to have been discharged.
(3)
For the purposes of subsection (1)(c) the following are treated as loans made by
the CDFI to the investor—
(a)
the amount of any debt due from the investor to the CDFI (other than
an ordinary trade debt), and
40
(b)
the amount of any debt due from the investor to a third person which
has been assigned to the CDFI.
(4)
For the purposes of this section—
(a)
references to a debt or liability do not, in relation to a person, include
references to any debt or liability which would be discharged by the
45
making by that person of a qualifying payment,
(b)
references to a benefit or facility do not include references to any benefit
or facility provided in circumstances such that, if a payment had been

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Part 7 — Community investment tax relief
Chapter 6 — Withdrawal or reduction of CITR
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made of an amount equal to its value, that payment would have been a
qualifying payment, and
(c)
any reference to a payment or disposal to a person includes a reference
to a payment or disposal made to that person indirectly or to that
person’s order or for that person’s benefit.
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(5)
In subsection (4) references to “a person” include references to any other
person who, at any time in the 6 year period, is connected with that person,
whether or not the other person is so connected at the material time.
(6)
In this section—
“qualifying payment” means—
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(a)
any payment by any person for any goods, services or facilities
provided by the investor (in the course of the investor’s trade or
otherwise) which is reasonable in relation to the market value of
those goods, services or facilities,
(b)
the payment by any person of any interest which represents no
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more than a reasonable commercial return on money lent to that
person,
(c)
the payment by any company of any dividend or other
distribution which does not exceed a normal return on any
investment in shares in or securities of that company,
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(d)
any payment for the acquisition of an asset which does not
exceed its market value,
(e)
the payment by any person, as rent for any property occupied
by the person, of an amount which is not more than a
reasonable and commercial rent for the property, and
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(f)
a payment in discharge of an ordinary trade debt, and
“ordinary trade debt” means any debt for goods or services supplied in
the ordinary course of a trade or business if any credit given—
(a)
is for not more than 6 months, and
(b)
is not longer than that normally given to customers of the
30
person carrying on the trade or business.
367
The amount of value received
In a case falling within a provision listed in column 1 of the following table, the
amount of value received for the purposes of this Chapter is given by the
corresponding entry in column 2 of the table.
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Provision
The amount of value received

Section 366(1)(a)
The amount received by the investor

Section 366(1)(b)
The amount of the liability

Section 366(1)(c)
The amount of the loan or advance, less the

amount of any repayment made before the

40

investment is made

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Provision
The amount of value received

Section 366(1)(d)
The cost to the CDFI of providing the

benefit or facility, less any consideration

given for it by the investor or any associate

of the investor

5

Section 366(1)(e) or (f)
The difference between the market value of

the asset and the consideration (if any)

received for it

Section 366(1)(g)
The amount of the payment

368
Value received if there is more than one investment
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(1)
This section applies if—
(a)
the investor makes two or more investments in the CDFI,
(b)
the investor is eligible for and claims CITR in respect of those
investments, and
(c)
the investor receives value (other than value within section 366(1)(a))
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which falls within the 6 year periods relating to two or more of those
investments.
(2)
Sections 363, 364, 365 and 369 have effect in relation to each investment
referred to in subsection (1)(c) as if the amount of the value received were
reduced by multiplying it by the fraction—
20

where—
(a)
A is the appropriate amount in respect of the investment in question,
and
(b)
B is the sum of that amount and the appropriate amount or amounts in
respect of the other investment or investments.
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(3)
If the investment consists of a loan, the appropriate amount for the purposes of
subsection (2) is—
(a)
if the value is received in the first or second year of the 6 year period,
the average capital balance of the loan for the second year of that
period, and
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(b)
if the value is received in a later year, the average capital balance of the
loan for the year in question.
(4)
For the purposes of subsection (3)—
(a)
the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
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(b)
the receipt of value is ignored when calculating the average capital
balance for the year in question.
(5)
If the investment consists of securities or shares, the appropriate amount for
the purposes of subsection (2) is—