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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.

30

(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

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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

76

 

(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,

 
 

Income Tax Bill
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

40

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

 
 

 
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