Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
147

(2)
The amounts to be brought into account under Chapter 2 of Part 4 of FA 1996
in respect of the company’s loan relationships are to be determined without
reference to any debtor relationship of the company.
(3)
The excess of any relevant credits over any relevant debits is to be treated as
income which the company derives from shares or securities.
5

In this subsection “relevant credits” and “relevant debits” are credits and debits
brought into account by virtue of paragraph 14(3) of Schedule 26 to FA 2002 as
if they were non-trading credits or non-trading debits.
(4)
The income retention condition does not apply as regards an accounting
period if the amount which the company would be required to distribute in
10
order to meet that condition is less than—
(a)
£10,000, or
(b)
if the period is shorter than 12 months, a proportionately reduced
amount.
(5)
The income retention condition does not apply as regards an accounting
15
period if—
(a)
the company is required to retain income in respect of the period by
virtue of a restriction imposed by law, and
(b)
the amount of income which the company is so required to retain in
respect of the period exceeds an amount equal to 15% of the income the
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company derives from shares or securities.
(6)
Subsection (5) does not apply if—
(a)
the amount of income the company retains in respect of the accounting
period exceeds the amount of income it is required, by virtue of a
restriction imposed by law, to retain in respect of the period, and
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(b)
the sum of the excess and any amount of income the company
distributes in respect of the period is at least—
(i)
£10,000, or
(ii)
if the period is shorter than 12 months, a proportionately
reduced amount.
30
277
The 15% holding limit condition
(1)
If the 15% holding limit condition was met when a holding in a company was
acquired or last added to, the condition is treated as continuing to be met until
an addition is next made to it.
(2)
“Holding in a company” means the shares or securities (whether of one class
35
or more than one class) held in any one company.
(3)
An addition is made to a holding in a company whenever the company whose
holding it is—
(a)
acquires further shares or securities in the company, but
(b)
does not do so by being allotted shares or securities without becoming
40
liable to give any consideration.
(4)
For the purposes of this section—
(a)
holdings in companies which—
(i)
are members of a group, whether or not including the company
whose holdings they are (“company A”), and
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(ii)
are not excluded from the 15% holding limit condition,

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
148


are to be treated as holdings in a single company, and
(b)
if company A is a member of a group, money owed to it by another
member of the group is to be treated—
(i)
as a security of the latter held by company A, and
(ii)
accordingly as, or as part of, the holding of company A in the
5
company owing the money.

For the purposes of this subsection “group” means a company and all
companies which are its 51% subsidiaries.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
(a)
a company issues shares or securities,
10
(b)
the shares or securities are issued to persons holding shares or
securities in a second company in respect of and in proportion to (or as
nearly as may be in proportion to) their holdings in the second
company, and
(c)
those persons do not become liable to give any consideration for the
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shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in
section 136 of TCGA 1992.
(6)
For the purposes of this section—
(a)
a holding of the shares or securities in the second company, and
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(b)
a corresponding holding of the shares or securities issued by the
company,

are to be regarded as the same holding.
278
Conditions relating to value of investments: general
(1)
This section and section 279 apply for the purposes of the 15% holding limit
25
condition, the 70% qualifying holdings condition and the 30% eligible shares
condition (“the relevant conditions”).
(2)
The value of a holding of investments of any description is to be taken, unless
subsection (3) applies, to be its value when acquired.
(3)
If, in the case of a holding of investments of any description—
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(a)
the holding is added to by a further holding of investments of that
description, or
(b)
any payment is made in discharge, in whole or in part, of any obligation
attached to the holding that (by discharging the whole or any part of the
obligation) increases the value of the holding,
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the value of the holding is to be taken to be its value immediately after the most
recent addition or payment.
(4)
For the purposes of this section an addition is made to a holding of investments
of any description whenever the company whose holding it is—
(a)
acquires further investments of that description, but
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(b)
does not do so by being allotted shares or securities in a company
without becoming liable to give any consideration.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
(a)
a company issues shares or securities,
(b)
the shares or securities are issued to persons holding shares or
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securities in a second company in respect of and in proportion to (or as

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
149

nearly as may be in proportion to) their holdings in the second
company, and
(c)
those persons do not become liable to give any consideration for the
shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in
5
section 136 of TCGA 1992.
(6)
For the purposes of this section—
(a)
a holding of the shares or securities of any description in the second
company, and
(b)
a corresponding holding of the shares or securities issued by the
10
company,

are to be regarded as the same holding.
279
Conditions relating to value of investments: qualifying holdings
(1)
If—
(a)
any shares (“new shares”) are exchanged for other shares (“old shares”)
15
under arrangements in relation to which section 326 (restructuring
arrangements) applies, and
(b)
those arrangements have not ceased by virtue of section 326(5) to be
arrangements by reference to which requirements of Chapter 4 are
treated as met,
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the value of the new shares is taken to be the same as the value, when last
valued in accordance with subsection (2) or (3) of section 278, of the old shares
for which they are exchanged.
(2)
In subsection (1)—
(a)
references to shares in a company include references to any securities
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of that company, and
(b)
the reference to the value of the new shares includes references to the
value of those shares both—
(i)
at the time of their acquisition, and
(ii)
immediately after any subsequent addition to a holding of the
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new shares that is made under the arrangements.
(3)
If—
(a)
shares (“new shares”) are issued to a company as a result of the exercise
by that company of any right of conversion attached to other shares, or
securities, held by that company (“convertibles”), and
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(b)
section 329 (conversion of convertible shares and securities) applies in
relation to the issue of the new shares,

the value of the new shares at the time of their acquisition is taken to be the
same as the value, when last valued in accordance with subsection (2) or (3) of
section 278, of the convertibles for which they are exchanged.
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(4)
Regulations under section 330 may make provision for securing that if—
(a)
there is an exchange of shares to which regulations under section 330
apply, and
(b)
the new shares are treated by virtue of the regulations as meeting the
requirements of Chapter 4,
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the value of the holding of the new shares, and of any original shares that are
retained under the exchange, is taken to be an amount such that the

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
150

requirements of the relevant conditions do not cease to be met because of the
exchange.
(5)
In subsection (4)—
(a)
“shares” includes securities, and
(b)
“exchange of shares”, “new shares” and “original shares” have the same
5
meaning as in section 330.
280
Conditions relating to qualifying holdings and eligible shares
(1)
Subsection (2) applies, subject to any regulations under subsection (3), if—
(a)
there has been an issue of ordinary share capital of a company (“the first
issue”),
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(b)
a VCT approval of that company has taken effect on or before the day
of the making of the first issue, and
(c)
a further issue of ordinary share capital of that company has been made
since the making of the first issue.
(2)
If this subsection applies, the use to which the money raised by the further
15
issue is put, and the use of any money deriving from that use, are ignored in
determining whether either or both of the 70% qualifying holdings condition
and the 30% eligible shares condition are, have been or will be met in relation
to—
(a)
the accounting period in which the further issue is made, or
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(b)
any later accounting period ending no more than 3 years after the
making of the further issue.
(3)
The Treasury may by regulations make provision for subsection (2)—
(a)
not to apply, or to be treated as not having applied, in specified cases, or
(b)
to apply, or to be treated as having applied, in specified cases—
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(i)
only to a specified extent, or
(ii)
only if specified conditions (including conditions requiring
approvals to be obtained) are met.
(4)
Provision made by regulations under subsection (3) may (but need not) be
made so that, in any particular case, subsection (2)—
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(a)
does not apply, or is treated as not having applied, at prescribed times
or with effect from a prescribed time, or
(b)
applies, or is treated as having applied, in accordance with provision
made under subsection (3)(b) at prescribed times or with effect from a
prescribed time.
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(5)
In subsection (3) “specified” means specified by regulations and in subsection
(4) “prescribed” means specified by, or determined under, regulations.
(6)
Section 324 applies in relation to—
(a)
regulations under subsection (3), and
(b)
any power conferred by that subsection,
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as it applies in relation to regulations under Chapter 5 and a power conferred
by any provision of that Chapter.