Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
73

(c)
the consideration for the new shares of each description 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
5
(e)
by virtue of section 127 of TCGA 1992 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 in the expressions “shares to
10
which EIS relief is not attributable” and “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—
(a)
section 136(2) (disposals of new shares), and
15
(b)
section 139 (the control and independence requirement),

applies in relation to such an exchange of shares, or shares and securities, as is
mentioned in subsection (1) or, in the case of section 139, arrangements with a
view to such an exchange.
(4)
For the purposes of this section old shares and new shares are of a
20
corresponding description if, on the assumption that they were shares in the
same company, they would be of the same class and carry the same rights.
(5)
References in section 146 to “old shares”, “new shares”, “the old company” and
“the new company” are to be read in accordance with this section.
146
Substitution of new shares for old shares
25
(1)
Subsection (2) applies if, in the case of any new shares held by an individual or
by a nominee for an individual, the old shares for which they were exchanged
were shares—
(a)
to which EIS relief was not attributable, and
(b)
which had been subscribed for by the individual.
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(2)
This Chapter has effect in relation to any subsequent disposal or other event as
if—
(a)
the new shares had been subscribed for by the individual at the time
when, and for the amount for which, the old shares were subscribed for
by the individual,
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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 individual 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 time by the new
company.
40
Limits on share loss relief and mixed holdings
147
Limits on share loss relief
(1)
Subsection (2) applies if—
(a)
an individual disposes of any qualifying shares,

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
74

(b)
those shares either—
(i)
form part of a section 104 holding or a 1982 holding at the time of the
disposal, or
(ii)
formed part of such a holding at an earlier time, and
(c)
the individual makes a claim under section 132 in respect of a loss incurred on
5
the disposal.
(2)
The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares had
not formed part of the holding.
(3)
Subsection (4) applies if—
10
(a)
an individual disposes of any qualifying shares,
(b)
the qualifying shares, and other shares that are not capable of being qualifying
shares, are for the purposes of TCGA 1992 to be treated as acquired by a single
transaction by virtue of section 105(1)(a) of that Act (disposal of shares
acquired on same day etc), and
15
(c)
the individual makes a claim under section 132 in respect of a loss incurred on
the disposal.
(4)
The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if—
(a)
the qualifying shares were to be treated as acquired by a single transaction, and
20
(b)
the other shares were not to be so treated.
(5)
Subsection (6) applies if—
(a)
an individual disposes of any qualifying shares,
(b)
the qualifying shares (taken as a single asset), and other shares in the same
company that are not capable of being qualifying shares (taken as a single
25
asset), are for the purposes of TCGA 1992 to be treated as the same asset by
virtue of section 127 of that Act (reorganisation etc treated as not involving
disposal), and
(c)
the individual makes a claim under section 132 in respect of a loss incurred on
the disposal,
30

References in this subsection and subsection (6) to other shares in the same company
include debentures of the same company.
(6)
The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares and
the other shares in the same company were not to be treated as the same asset.
35
(7)
In this section—
“section 104 holding” has the meaning given by section 104(3) of TCGA 1992,
and
“1982 holding” has the meaning given by section 109(1) of that Act.
(8)
For the purposes of this section and section 148, shares to which EIS relief is not
40
attributable are not capable of being qualifying shares at any time if—
(a)
the individual acquired the shares otherwise than by subscription,
(b)
condition C in section 134(4) was not met in relation to the issue of the
shares, or
(c)
condition D in section 134(5) would not be met if the shares were
45
disposed of at that time.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
75

(9)
For the purposes of subsection (5), shares to which EIS relief is not attributable
are not capable of being qualifying shares at any time if they are shares of a
different class from the shares mentioned in paragraph (a) of that subsection.
148
Disposal of shares forming part of mixed holding
(1)
This section applies if an individual disposes of shares forming part of a mixed
5
holding of shares, that is, a holding of shares in a company which includes—
(a)
shares that are not capable of being qualifying shares, and
(b)
other shares.
(2)
Any question—
(a)
whether a disposal by the individual of shares forming part of the
10
mixed holding is of qualifying shares, or
(b)
as to which of any qualifying shares acquired by the individual at
different times such a disposal relates to,

is to be determined as provided by the following provisions of this section.
(3)
Any such question as is mentioned in subsection (2) is to be determined—
15
(a)
except in a case falling within paragraph (b)—
(i)
in accordance with subsection (4), and
(ii)
in the case of shares which under that subsection are identified
with the whole or any part of a section 104 holding or a 1982
holding, in accordance with subsection (5),
20
(b)
in the case of a mixed holding which includes any of the following—
(i)
shares issued before 1 January 1994 in respect of which relief
has been given under Chapter 3 of Part 7 of ICTA (business
expansion scheme) and has not been withdrawn,
(ii)
shares to which EIS relief is attributable, and
25
(iii)
shares to which deferral relief (within the meaning of Schedule
5B to TCGA 1992) is attributable,

in accordance with subsection (6).
(4)
For the purposes of subsection (3)(a)(i), the question is to be determined by
identifying the shares disposed of in accordance with sections 105 to 105B and
30
106A of TCGA 1992.
(5)
For the purposes of subsection (3)(a)(ii), the question is to be determined by
treating the disposal and any previous disposal by the individual out of the
section 104 or 1982 holding as relating to shares acquired later rather than
earlier.
35
(6)
For the purposes of subsection (3)(b), the question is to be determined—
(a)
in relation to shares issued before 1 January 1994, as provided by
subsections (3) to (4C) of section 299 of ICTA (as that section has effect
in relation to shares so issued),
(b)
in relation to shares issued on or after that date and before 6 April 2007,
40
as provided by subsections (6) to (6D) of that section (as that section has
effect in relation to shares so issued), and
(c)
in relation to shares issued on or after 6 April 2007, as provided by
section 246 of this Act.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
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(7)
Any such question as is mentioned in subsection (2) which cannot be
determined as provided by subsections (3) to (6) is to be determined on a just
and reasonable basis.
(8)
In this section “holding” means any number of shares of the same class held by
one individual in the same capacity, growing or diminishing as shares of that
5
class are acquired or disposed of.

For this purpose—
(a)
shares are not to be treated as being of the same class unless they are so
treated by the practice of a recognised stock exchange or would be so
treated if dealt in on such an exchange, and
10
(b)
subsection (4) of section 104 of TCGA 1992 applies as it applies for the
purposes of subsection (1) of that section.
(9)
In this section “section 104 holding” and “1982 holding” have the same
meaning as in section 147.
149
Section 148: supplementary
15
(1)
In the case of a disposal of shares within section 148(3)(b)(ii) or (iii) to which
section 105A of TCGA 1992 (election for alternative treatment: approved-
scheme shares) applies—
(a)
section 299 of ICTA (identification of shares) has effect for the purposes
of section 148(6)(b), and
20
(b)
section 246 of this Act has effect for the purposes of section 148(6)(c),

with the same modifications as those with which they have effect for the
purposes of section 150A(4) of TCGA 1992 (enterprise investment schemes).
(2)
In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not
involving disposal) applies (including a case where that section applies by
25
virtue of an enactment relating to chargeable gains), shares included in the new
holding are treated for the purposes of section 148 as acquired when the
original shares were acquired.
(3)
Any shares held or disposed of by a nominee or bare trustee for an individual
are treated for the purposes of section 148 as held or disposed of by that
30
individual.
(4)
In this section “new holding” and “original shares” have the same meaning as
in section 127 of TCGA 1992 (or, as the case may be, that section as applied by
the enactment concerned).
Miscellaneous and supplementary
35
150
Deemed time of issue for certain shares
(1)
In this section “the relevant provisions” means—
section 134(5)(a),
section 142(1)(a) and (2)(a),
section 143(1), and
40
section 146(2)(b).
(2)
If—

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
77

(a)
any shares were issued to an individual (“A”) or are treated under
subsection (3) or this subsection as having been issued to A at a
particular time,
(b)
the shares are transferred by A to another individual (“B”) during their
lives, and
5
(c)
A was B’s spouse or civil partner at the time of the transfer,

the shares are treated for the purposes of the relevant provisions as having
been issued to B at the time they were issued to A or are treated as having been
so issued.
(3)
If—
10
(a)
any shares (“the original shares”) have been issued to an individual, or
are treated under subsection (2) or this subsection as having been
issued to an individual at a particular time, and
(b)
any corresponding bonus shares are subsequently issued to the
individual,
15

the bonus shares are treated for the purposes of the relevant provisions as
having been issued at the time the original shares were issued to the individual
or are treated as having been so issued.
151
Interpretation of Chapter
(1)
In this Chapter (subject to subsections (2) to (8))—
20
“bonus shares” means shares which are issued otherwise than for
payment (whether in cash or otherwise),
“civil partner” refers to one of two civil partners who are living together,
“corresponding bonus shares”, in relation to any shares, means bonus
shares which—
25
(a)
are issued in respect of those shares, and
(b)
are in the same company, are of the same class, and carry the
same rights, as those shares,
“EIS relief” means—
(a)
EIS income tax relief under Part 5 of this Act, and
30
(b)
in relation to shares issued after 31 December 1993 and before 6
April 2007, relief under Chapter 3 of Part 7 of ICTA (enterprise
investment scheme),
“excluded company” means a company which—
(a)
has a trade which consists wholly or mainly of dealing in land,
35
in commodities or futures or in shares, securities or other
financial instruments,
(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,
40
(c)
is a holding company of a group other than a trading group, or
(d)
is a building society or a registered industrial and provident
society,
“group” (except in sections 137 and 142) means a company which has one
or more 51% subsidiaries together with that or those subsidiaries,
45
“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,

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Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
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“investment company” has the meaning given by section 130 of ICTA
except that it does not include the holding company of a trading group,
“qualifying shares” has the meaning given by section 131(2),
“registered industrial and provident society” means a society registered
or treated as registered under the Industrial and Provident Societies
5
Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern
Ireland) 1969 (c. 24 (N.I.)),
“shares”—
(a)
includes stock, but
(b)
does not include shares or stock not forming part of a
10
company’s ordinary share capital,
“share loss relief” has the meaning given by section 131(1),
“spouse” refers to one of two spouses who are living together,
“trading company” means a company other than an excluded company
which is—
15
(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,
“trading group” means a group the business of whose members, when
taken together, consists wholly or mainly in the carrying on of a trade
20
or trades, and
“the year of the loss” has the meaning given by section 131(1).
(2)
For the purposes of the definition of “corresponding bonus shares” in
subsection (1), shares are not treated as being of the same class unless they
would be so treated if dealt in on the Stock Exchange.
25
(3)
In section 148(3)(b) and (6) “shares” does not include stock.
(4)
Except as provided by subsection (5), paragraph (b) of that definition does not
apply in the definition of “excluded company” in subsection (1) or in sections
145(1) to (4) and 147(3) to (6), (8) and (9).
(5)
Paragraph (b) of that definition applies in relation to the expression “shares to
30
which EIS relief is not attributable” in section 145(1).
(6)
The definition of “shares” in subsection (1) does not apply in sections 137(5)(a),
142(3) and 143(1)(c) and (2).
(7)
For the purposes of the definition of “trading group” in subsection (1), any
trade carried on by a subsidiary which is an excluded company is treated as not
35
constituting a trade.
(8)
For the purposes of this Chapter a disposal of shares which results in an
allowable loss for capital gains tax purposes is treated as made at the time
when the disposal is made or treated as made for the purposes of TCGA 1992.

Income Tax Bill
Part 4 — Loss relief
Chapter 7 — Losses from miscellaneous transactions
79

Chapter 7
Losses from miscellaneous transactions
Loss relief against miscellaneous income
152
Losses from miscellaneous transactions
(1)
A person may make a claim for loss relief against miscellaneous income if in a
5
tax year (“the loss-making year”) the person makes a loss in any relevant
transaction.
(2)
A transaction is a relevant one if, assuming there were profits or other income
arising from it—
(a)
those profits or that other income would be section 950 income, and
10
(b)
the person would be liable for income tax charged on those profits or
that other income.
(3)
The claim is for the loss to be deducted in calculating the person’s net income
for the loss-making year and subsequent tax years (see Step 2 of the calculation
in section 23).
15
(4)
But a deduction for that purpose is to be made only from the person’s
miscellaneous income.
(5)
A person’s miscellaneous income is so much of the person’s total income as
is—
(a)
income or gains arising from transactions, and
20
(b)
section 950 income.

This is subject to subsection (6).
(6)
If the loss was made by the person as a partner in a partnership, the
transactions covered by subsection (5)(a) are limited to transactions entered
into by the partnership.
25
(7)
In calculating a person’s net income for a tax year, deductions under this
section from the person’s miscellaneous income are to be made before
deductions of any other reliefs from that miscellaneous income.
(8)
In this section “section 950 income” means income on which income tax is
charged under or by virtue of any provision to which section 950 applies.
30
(9)
This section needs to be read with—
(a)
section 153 (how relief works),
(b)
section 154 (transactions in deposit rights), and
(c)
section 155 (claims).
153
How relief works
35
This section explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).

Step 1
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Deduct the loss from the miscellaneous income for the loss-making year.