Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
502

“576G
The gross assets requirement
(1)
The gross assets requirement in the case of a single company is that
the value of the company’s gross assets—
(a)
must not exceed £7 million immediately before the shares in
respect of which the relief is claimed under this Chapter are
5
issued, and
(b)
must not exceed £8 million immediately afterwards.
(2)
The gross assets requirement in the case of a parent company is that
the value of the group assets—
(a)
must not exceed £7 million immediately before the shares in
10
respect of which the relief is claimed under this Chapter are
issued, and
(b)
must not exceed £8 million immediately afterwards.
(3)
The value of the group assets means the aggregate of the values of
the gross assets of each of the members of the group, disregarding
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any that consist in rights against, or shares in or securities of, another
member of the group.
(4)
In this section—
“group” means a parent company and its qualifying
subsidiaries,
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“parent company” means a company that has one or more
qualifying subsidiaries,
“qualifying subsidiary” is to be read in accordance with section
191 of ITA 2007, and
“single company” means a company that does not have one or
25
more qualifying subsidiaries.”
127
After section 576G insert—
“576H
The unquoted status requirement
(1)
The unquoted status requirement is that, at the time (“the relevant
time”) at which the shares in respect of which the relief is claimed
30
under this Chapter are issued—
(a)
the company must be an unquoted company,
(b)
there must be no arrangements in existence for the company
to cease to be an unquoted company, and
(c)
there must be no arrangements in existence for the company
35
to become a subsidiary of another company (“the new
company”) by virtue of an exchange of shares, or shares and
securities, if—
(i)
section 576J applies in relation to the exchange, and
(ii)
arrangements have been made with a view to the new
40
company ceasing to be an unquoted company.
(2)
The arrangements referred to in subsection (1)(b) and (c)(ii) do not
include arrangements in consequence of which any shares, stocks,
debentures or other securities of the company or the new company
are at any subsequent time—
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(a)
listed on a stock exchange that is a recognised stock exchange
by virtue of an order made under section 939 of ITA 2007, or

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
503

(b)
listed on an exchange, or dealt in by any means, designated
by an order made for the purposes of section 184(3)(b) or (c)
of that Act,

if the order was made after the relevant time.
(3)
In this section—
5
“arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable,
“debenture” has the meaning given by section 744 of the
Companies Act 1985,
“unquoted company” has the meaning given by section 184(2)
10
of ITA 2007.”
128
After section 576H insert—
“576I
Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 576B
to 576H as they consider appropriate.”
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129
After section 576I insert—
“Qualifying trading companies: supplementary provisions
576J
Relief after an exchange of shares for shares in another company
(1)
This section and section 576K apply in relation to shares if—
(a)
a company (“the new company”) in which the only issued
20
shares are subscriber shares acquires all the shares (“old
shares”) in another company (“the old company”),
(b)
the consideration for the old shares consists wholly of the
issue of shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description
25
consists wholly of old shares of the corresponding
description,
(d)
new shares of each description are issued to the holders of old
shares of the corresponding description in respect of and in
proportion to their holdings, and
30
(e)
by virtue of section 127 of the 1992 Act as applied by section
135(3) of that Act (company reconstructions etc), the
exchange of shares is not to be treated as involving a disposal
of the old shares or an acquisition of the new shares.

In this subsection references to shares, except the first and that in the
35
expression “subscriber shares”, include securities.
(2)
For the purposes of this Chapter the exchange of shares is not
regarded as involving any disposal of the old shares or any
acquisition of the new shares.
(3)
Nothing in section 576D (the control and independence requirement)
40
applies in relation to such an exchange of shares, or shares and
securities, as is mentioned in subsection (1), or arrangements with a
view to such an exchange.
(4)
For the purposes of this section old shares and new shares are of a
corresponding description if, on the assumption that they were
45

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
504

shares in the same company, they would be of the same class and
carry the same rights.
(5)
References in section 576K to “old shares”, “new shares”, “the old
company” and “the new company” are to be read in accordance with
this section.”
5
130
After section 576J insert—
“576K
Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by a
company or by a nominee for a company, the old shares for which
they were exchanged were shares that had been subscribed for by the
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company (“the investor”).
(2)
This Chapter has effect as if—
(a)
the new shares had been subscribed for by the investor at the
time when, and for the amount for which, the old shares were
subscribed for by the investor,
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(b)
the new shares had been issued by the new company at the
time when the old shares were issued to the investor by the
old company, and
(c)
any requirements of this Chapter which were met at any time
before the exchange by the old company had been met at that
20
time by the new company.
(3)
Section 573(6) applies for the purposes of this section.”
131
After section 576K insert—
“Supplemental
576L
Interpretation of Chapter
25
(1)
In this Chapter (subject to subsections (2) to (5))—
“excluded company” means a company which—
(a)
has a trade which consists wholly or mainly of
dealing in land, in commodities or futures or in
shares, securities or other financial instruments,
30
(b)
has a trade which is not carried on on a commercial
basis and in such a way that profits in the trade can
reasonably be expected to be realised,
(c)
is a holding company of a group other than a trading
group, or
35
(d)
is a building society or a registered industrial and
provident society,
“group” (except in sections 576B and 576G) means a company
which has one or more 51% subsidiaries together with that or
those subsidiaries,
40
“holding company” means a company whose business consists
wholly or mainly in the holding of shares or securities of
companies which are its 51% subsidiaries,
“investment company” has the meaning given by section 130
except that it does not include the holding company of a
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trading group,

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
505

“registered industrial and provident society” means a society
registered or treated as registered under the Industrial and
Provident Societies Act 1965 or the Industrial and Provident
Societies Act (Northern Ireland) Act 1969,
“shares”—
5
(a)
includes stock, but
(b)
does not include shares or stock not forming part of a
company’s ordinary share capital,
“trading company” means a company other than an excluded
company which is—
10
(a)
a company whose business consists wholly or mainly
of the carrying on of a trade or trades, or
(b)
the holding company of a trading group, and
“trading group” means a group the business of whose
members, when taken together, consists wholly or mainly in
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the carrying on of a trade or trades.
(2)
Except as provided by subsection (3), paragraph (b) of the definition
of “shares” in subsection (1) does not apply in the definition of
“excluded company” in subsection (1) or in section 576J(1) to (4).
(3)
Paragraph (b) of that definition applies in relation to the first
20
reference to “shares” in section 576J(1).
(4)
The definition of “shares” in subsection (1) does not apply in sections
576B(5)(a), 576G(3) and 576H(1)(c) and (2).
(5)
For the purposes of the definition of “trading group” in subsection
(1), any trade carried on by a subsidiary which is an excluded
25
company is treated as not constituting a trade.”
132
Omit section 581A (interest on foreign currency securities etc).
133   (1)
Amend section 582 (funding bonds issued in respect of interest on certain
debts) as follows.
      (2)
In subsection (1)(b) omit the words from “or section” to “income tax
30
purposes)”.
      (3)
For subsections (2) and (2A) substitute—
“(2)
Subsection (2A) applies if an issue of funding bonds is treated as a
payment of interest as mentioned in subsection (1)(a) and—
(a)
the person by or through whom the bonds are issued is
35
required to retain bonds under section 872(2) of ITA 2007, but
(b)
it is impracticable for the person to do so.
(2A)
In that case, tax in respect of the amount of interest treated by virtue
of subsection (1)(a) as having been paid by the issue of the bonds
shall be charged under Case VI of Schedule D for the chargeable
40
period in which the bonds are issued on the persons receiving or
entitled to the bonds.”
134
Omit section 582A (designated international organisations: miscellaneous
exemptions).
135
Omit section 587A (new issues of securities: extra return).
45

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
506

136   (1)
Amend section 587B (gifts of shares, securities and real property to charities
etc) as follows.
      (2)
In subsection (1)—
(a)
for “Subsections (2) and (3) below apply” substitute “Subsection (2)
below applies”, and
5
(b)
for “an individual, or a company which is not itself a charity,”
substitute “a company which is not itself a charity”.
      (3)
In subsection (2)—
(a)
omit paragraph (a)(i),
(b)
in paragraph (a)(ii) omit “in the case of a disposal by a company,”,
10
(c)
in paragraph (b) omit the words from “of this Act” to the end, and
(d)
omit the words from “but paragraph (a)(i)” to the end.
      (4)
Omit subsection (3).
      (5)
In subsection (5)—
(a)
for “the person” substitute “the company”, and
15
(b)
for “him” substitute “it”.
      (6)
In subsection (6) for “person” substitute “company”.
      (7)
In subsection (7)(a) for “person” substitute “company”.
      (8)
In subsection (8)(a) for “subsections (2) and (3)” substitute “subsection (2)”.
      (9)
In subsection (8B)(a)—
20
(a)
for “the person” substitute “the company”, and
(b)
for “him” substitute “it”.
     (10)
In subsection (9)—
(a)
for the definitions of “authorised unit trust” and “open-ended
investment company” substitute—
25
““authorised unit trust” has the meaning given by
section 468;”,
(b)
in the definition of “charity” for “each of the bodies mentioned in
section 507(1);” substitute “—
(a)
the Trustees of the National Heritage
30
Memorial Fund;
(b)
the Historic Buildings and Monuments
Commission for England; and
(c)
the National Endowment for Science,
Technology and the Arts;”,
35
(c)
in the definition of “the incidental costs of making the disposal to the
person making it” for “person” substitute “company”, and
(d)
after the definition of “offshore fund” insert—
““open-ended investment company” is to be read in
accordance with section 468A(2) to (4);”.
40
     (11)
In subsection (9B)—
(a)
for “person”, in both places where it occurs, substitute “company”,
and
(b)
for “his”, in both places where it occurs, substitute “its”.

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
507

     (12)
In subsection (9C)—
(a)
for “a person, who” substitute “a company, which”, and
(b)
for “the person” substitute “the company”.
     (13)
In subsection (12) for “section 587C” substitute “sections 587BA and 587C”.
137
After section 587B insert—
5
“587BA
Qualifying interests in land held jointly
(1)
This section applies for the purposes of section 587B where a
qualifying investment is a qualifying interest in land.
(2)
Where two or more persons (“the owners”)—
(a)
are jointly beneficially entitled to the qualifying interest in
10
land, or
(b)
are, taken together, beneficially entitled in common to the
qualifying interest in land,

relief under section 587B is available if at least one of the owners is a
qualifying company and all the owners dispose of the whole of their
15
beneficial interests in the qualifying interest in land to the charity.
(3)
Subsection (4) applies if one or more of the owners is not a company.
(4)
For the purpose of determining whether the owners’ beneficial
interests are disposed of as mentioned in subsection (2), section
587B(9B) and (9C) applies as if references to a company included a
20
reference to a person who is not a company.
(5)
Relief under section 587B is available to each of the owners which is
a qualifying company.
(6)
If one or more of the owners is an individual—
(a)
the relevant amount is taken to be the relievable amount
25
calculated for the purposes of Chapter 3 of Part 8 of ITA 2007,
and
(b)
the amount of relief under section 587B to be given to a
qualifying company is such share of the relievable amount as
is allocated to the company by the agreement mentioned in
30
section 442(5) of ITA 2007.
(7)
Subsections (8) to (12) apply if none of the owners is an individual.
(8)
The amount of relief under section 587B to be given to a qualifying
company is such share of the relevant amount as is allocated to the
company by an agreement made between those owners which are
35
qualifying companies.
(9)
Calculate the relevant amount as if—
(a)
the owners were a single qualifying company, and
(b)
the disposals of the owners’ beneficial interests were a single
disposal by that single company of the whole of the beneficial
40
interest in the qualifying interest in land.
(10)
In particular, for the purposes of section 587B(7) calculate the
consideration for which the disposal is made by virtue of section
257(2)(a) of the 1992 Act by—

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
508

(a)
calculating, for each owner, the consideration for which the
disposal of the owner’s beneficial interest is so made, and
(b)
adding together all the consideration calculated under
paragraph (a).
(11)
If one or more of the owners is not a qualifying company, in
5
calculating the relevant amount make just and reasonable
adjustments to reduce the relevant amount to reflect the fact that
relief under section 587B is not available to that owner or to those
owners.
(12)
If one or more of the owners is within paragraph (b) of section
10
587B(8), in calculating the relevant amount make just and reasonable
adjustments to reduce the relevant amount to reflect the
requirements of sub-paragraph (ii) of that paragraph.
(13)
A company is a qualifying company if—
(a)
it is not itself a charity, and
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(b)
it is not within section 587B(8)(a).”
138   (1)
Amend section 587C (supplementary provision for gifts of real property) as
follows.
      (2)
Omit subsections (2) and (3).
      (3)
In subsection (4)—
20
(a)
for “person” substitute “company”, and
(b)
for “he” substitute “it”.
      (4)
In subsection (6)—
(a)
for “person (or each of the persons) who made the disposal to the
charity” substitute “following”, and
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(b)
at the end insert—
“(a)
in a case to which section 587BA does not apply, the
company which made the disposal, and
(b)
in a case to which section 587BA applies, each
qualifying company which is an owner.”
30
      (5)
In subsection (8) for the words from “the person” to “of them)” substitute “a
person mentioned in subsection (8A)”.
      (6)
After that subsection insert—
“(8A)
The persons are—
(a)
in a case to which section 587BA does not apply—
35
(i)
the company which made the disposal, or
(ii)
a person connected with that company, and
(b)
in a case to which section 587BA applies—
(i)
a person who is an owner, or
(ii)
a person connected with such a person.”
40
      (7)
In subsection (10)—
(a)
omit paragraph (a) and the “and” immediately after it, and
(b)
in paragraph (b) omit “in the case of a company,”.