Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
158

(ii)
that a qualifying trade carried on or to be carried on by a group
company will benefit.
(6)
Any reference in sub-paragraph (i) or (ii) of subsection (5)(d) to a group
company includes a reference to any existing or future company which will be
a group company at any future time.
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(7)
In this section—
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of
the company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart
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from incidental purposes, exists wholly for the purpose of carrying on
one or more qualifying trades, and any reference to the main purpose
of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
(a)
excluded activities, and
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(b)
activities carried on otherwise than in the course of a trade.
(8)
This section is supplemented by section 300 (meaning of “qualifying trade”)
and sections 303 to 310 (excluded activities).
291
The carrying on of a qualifying activity requirement
(1)
The requirement of this section, at any time on or after the issue of the relevant
20
holding, is that a qualifying company (whether or not the same such company
at every such time) must have been carrying on a qualifying activity at all times
from the issue of the holding to the time in question.
(2)
A qualifying trade carried on wholly or mainly in the United Kingdom is a
qualifying activity.
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(3)
Preparing to carry on a qualifying trade is a qualifying activity if, at the time
when the relevant holding was issued, the trade was intended to be carried on
wholly or mainly in the United Kingdom by a qualifying company.

This is subject to subsections (4) and (5).
(4)
The requirement of this section is not capable of being met by virtue of
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subsection (3) at any time after the end of the period of two years beginning
with the issue of the relevant holding unless—
(a)
the intended trade was begun to be carried on by a qualifying company
before the end of that period, and
(b)
at all times since the end of that period, a qualifying company (whether
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or not the same such company at every such time) has been carrying on
a qualifying trade wholly or mainly in the United Kingdom.
(5)
The requirement of this section is also not capable of being met by virtue of
subsection (3) at any time after the abandonment, within the period mentioned
in subsection (4), of the intention in question.
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(6)
In determining for the purposes of subsection (4)(a) when the intended trade
was begun to be carried on by a qualifying company which is a qualifying 90%
subsidiary of the relevant company, any carrying on by it of the trade before it
became such a subsidiary of the relevant company is ignored.
(7)
In this section “qualifying company” means the relevant company or any
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qualifying 90% subsidiary of that company.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
159

(8)
The reference in subsection (7) to a qualifying company which is a qualifying
90% subsidiary of the relevant company includes, in its application to
subsection (3), a reference to any existing or future qualifying company which
will be a qualifying 90% subsidiary of the relevant company at any future time.
292
Ceasing to meet requirements because of administration or receivership
5
(1)
A company is not regarded as ceasing to meet the requirement of section 290
or 291 merely because of anything done in consequence of its being in
administration or receivership.
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
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(b)
everything done as a consequence of the company being in
administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement
the main purpose or one of the main purposes of which is the avoidance of tax.
293
The use of the money raised requirement
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(1)
The requirement of this section at any time on or after the issue of the relevant
holding is that—
(a)
if that time is not more than 12 months after the trading time, any of
conditions A, B and C is met,
(b)
if that time is more than 12 months but not more than 24 months after
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the trading time, either of conditions B and C is met, and
(c)
in any other case, condition C is met.
(2)
Condition A is that at least 80% of the money raised by the issue of the relevant
holding has been or is intended to be employed wholly for the purposes of a
relevant qualifying activity.
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(3)
Condition B is that at least 80% of the money raised by the issue of the relevant
holding has been employed wholly for the purposes of the activity.
(4)
Condition C is that all of the money raised by the issue of the relevant holding
has been employed wholly for the purposes of the activity.
(5)
In subsection (1) “the trading time” means whichever is applicable of the
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following—
(a)
in a case where the requirement of section 291 was met in relation to the
time when the relevant holding was issued and the relevant qualifying
activity falls within subsection (2) of that section, the time when the
relevant holding was issued, and
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(b)
in a case where that requirement was met in relation to that time and
the relevant qualifying activity falls within subsection (3) of that
section, the time when the condition in subsection (4)(a) of that section
was met by a qualifying company beginning to carry on the intended
trade.
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(6)
For the purposes of this section money is not to be treated as employed
otherwise than wholly for the purposes of a relevant qualifying activity if the
only amount employed for other purposes is an amount which is not a
significant amount.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
160

(7)
Nothing in section 286(5) requires any money whose use is ignored by virtue
of subsection (6) to be treated as raised by a different holding.
(8)
In this section—
“qualifying activity” and “qualifying company” have the same meaning
as in section 291, and
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a qualifying activity is a “relevant qualifying activity” if—
(a)
it was also a qualifying activity at the time when the relevant
holding was issued, or
(b)
it is a qualifying trade and preparing to carry it on was a
qualifying activity at that time.
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294
The relevant company to carry on the relevant qualifying activity requirement
(1)
The requirement of this section is met if, at no time after the issue of the
relevant holding, has the relevant qualifying activity in question been carried
on by a person other than—
(a)
the relevant company, or
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(b)
a qualifying 90% subsidiary of that company.

In this subsection “the relevant qualifying activity in question” means the
relevant qualifying activity by reference to which the requirement of section
293 is met.
(2)
The requirement of this section is not to be regarded as failing to be met merely
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because of the carrying on of the trade in question by a person other than the
relevant company, or a qualifying subsidiary of that company, at any time—
(a)
after the issue of the relevant holding, and
(b)
before the relevant company, or any qualifying 90% subsidiary of that
company, carries on that trade.
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(3)
The requirement of this section is not to be regarded as failing to be met merely
because of the carrying on of the trade in question—
(a)
by the partners in a partnership of which the relevant company, or a
qualifying 90% subsidiary of that company, is a member, or
(b)
by the parties to a joint venture to which the relevant company, or a
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qualifying 90% subsidiary of that company, is a party.
(4)
The requirement of this section is not to be regarded as failing to be met if—
(a)
merely because of anything done as a consequence of the relevant
company or any other company being in administration or
receivership, or
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(b)
merely because of the relevant company or any other company being
wound up or dissolved without winding up,

the trade in question ceases to be carried on by the relevant company or a
qualifying 90% subsidiary of that company and is subsequently carried on by
a person who has not been connected, at any time after the date which is 12
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months before the issue of the relevant holding, with the relevant company.
(5)
Subsection (4) applies only if—
(a)
the entry into administration or receivership and everything done in
consequence of the company concerned being in administration or
receivership, or
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(b)
the winding up or dissolution,

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
161


is for genuine commercial reasons and is not part of a scheme or arrangement
the purpose or one of the main purposes of which is the avoidance of tax.
(6)
In this section “the trade in question” means so much of the relevant qualifying
activity mentioned in subsection (1) as consists of—
(a)
a trade which was being carried on at the time when the relevant
5
holding was issued, or
(b)
a trade for the carrying on of which preparations were being made at
that time.
(7)
The definition of “relevant qualifying activity” in subsection (8) of section 293
applies for the purposes of this section as it applies for the purposes of that
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section.
295
The unquoted status requirement
(1)
The requirement of this section is that the relevant company must be an
unquoted company.
(2)
In this section “unquoted company” means a company none of whose shares,
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stocks, debentures or other securities are marketed to the general public.
(3)
For the purposes of subsection (2), shares, stocks, debentures or other securities
are marketed to the general public if they are—
(a)
listed on the Stock Exchange or a stock exchange that is a recognised
stock exchange by virtue of an order made under section 1005,
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(b)
listed on a designated exchange in a country outside the United
Kingdom, or
(c)
dealt in on the Unlisted Securities Market or dealt in outside the United
Kingdom by such means as may be designated.
(4)
In subsection (3)(b) and (c) “designated” means designated by an order made
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by the Commissioners for Her Majesty’s Revenue and Customs for the
purposes of that provision.
(5)
An order made for the purposes of subsection (3)(b) may designate an
exchange by name, or by reference to any class or description of exchanges,
including a class or description framed by reference to any authority or
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approval given in a country outside the United Kingdom.
(6)
If—
(a)
any shares in or securities of a company are included in the qualifying
holdings of the investing company, and
(b)
that company ceases to be an unquoted company at any time while the
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investing company is approved as a VCT,

the requirements of this section are to be treated, in relation to shares or
securities acquired before that time, as continuing to be met for a period of 5
years after that time.
296
The control and independence requirement
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(1)
The control element of the requirement is that—
(a)
the relevant company must not control (whether on its own or together
with any person connected with it) any company which is not a
qualifying subsidiary of the relevant company, and

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
162

(b)
no arrangements must be in existence by virtue of which the relevant
company could fail to meet paragraph (a).
(2)
The independence element of the requirement is that—
(a)
the relevant company must not be under the control of another
company (or of another company and any other person connected with
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that other company), and
(b)
no arrangements must be in existence by virtue of which the relevant
company could fail to meet paragraph (a).
(3)
This section is subject to section 327(7) (exchange of shares).
297
The gross assets requirement
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(1)
The requirement of this section in the case of a relevant company that is a single
company is that the value of the company’s gross assets—
(a)
did not exceed £7 million immediately before the issue of the relevant
holding, and
(b)
did not exceed £8 million immediately afterwards.
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(2)
The requirement of this section in the case of a relevant company that is a
parent company is that the value of the group assets—
(a)
did not exceed £7 million immediately before the issue of the relevant
holding, and
(b)
did not exceed £8 million immediately afterwards.
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(3)
The value of the group assets means the sum of the values of the gross assets
of each of the members of the group, ignoring any that consist in rights against,
or shares in or securities of, another member of the group.
298
The qualifying subsidiaries requirement
Any subsidiary that the relevant company has must be a qualifying subsidiary
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of the company.
299
The property managing subsidiaries requirement
(1)
Any property managing subsidiary that the relevant company has must be a
qualifying 90% subsidiary of the company.
(2)
“Property managing subsidiary” means a subsidiary of the relevant company
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whose business consists wholly or mainly in the holding or managing of land
or any property deriving its value from land.
(3)
In subsection (2) references to property deriving its value from land include—
(a)
any shareholding in a company deriving its value directly or indirectly
from land,
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(b)
any partnership interest deriving its value directly or indirectly from
land,
(c)
any interest in settled property deriving its value directly or indirectly
from land, and
(d)
any option, consent or embargo affecting the disposition of land.
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