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 6 — Supplementary and general
176

Supplementary
324
Regulations under Chapter
(1)
Regulations under this Chapter may—
(a)
contain such administrative provisions (including provision for
advance clearance and provision for the withdrawal of clearances) as
5
appear to the Treasury to be necessary or appropriate,
(b)
authorise the Commissioners for Her Majesty’s Revenue and Customs
to give notice to any person requiring that person to provide such
information, specified in the notice, as they may reasonably require in
order to determine whether any conditions imposed by regulations
10
under this Chapter are met,
(c)
make different provision for different cases,
(d)
contain incidental, supplemental, consequential and transitional
provision and savings, and
(e)
include provision having retrospective effect.
15
(2)
Without prejudice to any specific provision of this Chapter, a power conferred
by any provision of this Chapter to make regulations includes power to
provide for Her Majesty’s Revenue and Customs to exercise a discretion in
dealing with any matter.
325
Interpretation of Chapter
20
In this Chapter—
“regulations” means regulations made by the Treasury, and
“tax enactments” means provisions of or made under—
(a)
the Tax Acts,
(b)
TCGA 1992 or any other enactment relating to capital gains tax,
25
or
(c)
TMA 1970.
Chapter 6
Supplementary and general
Acquisitions for restructuring purposes
30
326
Restructuring to which section 327 applies
(1)
Section 327 applies if—
(a)
arrangements are made for a company (“the new company”) to acquire
all the shares (“old shares”) in another company (“the old company”),
(b)
the acquisition provided for by the arrangements falls within
35
subsection (2), and
(c)
the Commissioners for Her Majesty’s Revenue and Customs have,
before any exchange of shares takes place under the arrangements,
given an approval notification.
(2)
An acquisition of shares falls within this subsection if—
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Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
177

(a)
the consideration for the old shares consists wholly of the issue of
shares (“new shares”) in the new company,
(b)
new shares are issued in consideration of old shares only at times when
there are no issued shares in the new company other than subscriber
shares and new shares previously issued in consideration of old shares,
5
(c)
the consideration for new shares of each description consists wholly of
old shares of the corresponding description, and
(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.
10
(3)
For the purposes of subsection (1)(c) an approval notification is one which, on
the application of either the old company or the new company, is given to the
applicant company and states that the Commissioners for Her Majesty’s
Revenue and Customs are satisfied that the exchange of shares under the
arrangements—
15
(a)
will be effected for genuine commercial reasons, and
(b)
will not form part of any such scheme or arrangements as are
mentioned in section 137(1) of TCGA 1992 (schemes with avoidance
purposes).
(4)
Nothing in section 327 treats any of the requirements of Chapter 4 as being met
20
in relation to any new shares unless the matching old shares were first issued
to the company holding them and have been held by that company from the
time when they were issued until they are acquired by the new company.
(5)
If, at any time after the arrangements first came into existence and before the
new company acquired all the old shares, the arrangements—
25
(a)
cease to be arrangements for the acquisition of all the old shares by the
new company, or
(b)
cease to be arrangements for an acquisition falling within subsection
(2),

section 327 does not treat any requirement of Chapter 4 as being met, and
30
subsection (8) of that section does not apply, in the case of any new shares at
any time after the arrangements have so ceased.
327
Certain requirements of Chapter 4 to be treated as met
(1)
If this section applies, subsections (2) to (8) have effect to determine the extent
to which, and the times for which, the requirements of the following provisions
35
of Chapter 4 are met in relation to the new shares—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 290 (the trading requirement),
section 291 (the carrying on of a qualifying activity requirement),
40
section 293 (the use of money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying
activity requirement),
section 296 (the control and independence requirement), and
section 297 (the gross assets requirement).
45
(2)
If the requirements of sections 290 and 291 were met in relation to the old
company and any old shares immediately before the beginning of the period
for giving effect to the arrangements, then (so far as it would not otherwise be

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
178

the case) those requirements are treated as being met in relation to the new
company and the matching new shares at all times which—
(a)
fall in that period, and
(b)
do not fall after a time when (apart from the arrangements) those
requirements would have ceased by virtue of—
5
(i)
section 291(4) or (5), or
(ii)
any cessation of a trade by any company,

to be met in relation to the old company and the matching old shares.
(3)
For the purposes of section 291, the period of two years mentioned in
subsection (4) of that section is treated, in the case of any new shares, as
10
expiring at the same time as it would have expired (or by virtue of this
subsection would have been treated as expiring) in the case of the matching old
shares.
(4)
Subject to subsection (5), if—
(a)
there is an exchange under the arrangements of any new shares for any
15
old shares, and
(b)
those old shares are shares in relation to which the requirements of
sections 293, 294 and 297 were (or were treated as being) met to any
extent immediately before the exchange,

those requirements are to be treated, at all times after that time, as met to the
20
same extent in relation to the matching new shares.
(5)
If there is a time following any exchange under the arrangements of any new
shares for any old shares when (apart from the arrangements) the requirement
of section 293 would have ceased under—
(a)
subsection (1) of that section, or
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(b)
this subsection,

to be met in relation to those old shares, that requirement ceases at that time to
be met in relation to the matching new shares.
(6)
For the purposes of section 287, any new shares acquired under the
arrangements are to be treated as representing an investment which—
30
(a)
raised the same amount of money as was raised (or, by virtue of this
subsection, is treated as having been raised) by the issue of the
matching old shares, and
(b)
raised that amount by an issue of shares in the new company made at
the time when the issue of the matching old shares took place (or, as the
35
case may be, is treated as having taken place).
(7)
In determining whether the requirements of section 296 are met in relation to
the old company or the new company at a time in the period for giving effect
to the arrangements, ignore both—
(a)
the arrangements themselves, and
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(b)
any exchange of new shares for old shares that has already taken place
under the arrangements.
(8)
For the purposes of section 289, the value of the new shares, both—
(a)
immediately after the time of their acquisition, and
(b)
immediately after the time of any subsequent relevant event occurring
45
by virtue of the arrangements,

is to be taken to be the same as the value, when last valued in accordance with
that section, of the old shares for which they are exchanged.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
179

328
Supplementary
(1)
Subject to subsection (2), references in sections 326 and 327 and this section,
except in the expression “subscriber shares”, to shares in a company include
references to any securities of that company.
(2)
For the purposes of subsection (1) a relevant security of the old company is not
5
to be treated as a security of the old company if—
(a)
the arrangements do not provide for the acquisition of the security by
the new company, or
(b)
such treatment prevents section 326(1)(b) from being met in connection
with the arrangements.
10
(3)
In subsection (2) “relevant security” means an instrument which is a security
for the purposes of Chapter 4 merely because of section 285(2).
(4)
References in section 327 to the period for giving effect to the arrangements are
references to the period which—
(a)
begins with the time when the arrangements first came into existence,
15
and
(b)
ends with the time when the new company completes its acquisition
under the arrangements of all the old shares.
(5)
For the purposes of sections 326 and 327 and this section—
(a)
old shares and new shares are of a corresponding description if, were
20
they shares in the same company, they would be of the same
description, and
(b)
old shares and new shares are matching shares in relation to each other
if the old shares are the shares for which the new shares are exchanged
under the arrangements.
25
Conversion of shares etc and company reorganisations
329
Conversion of convertible shares and securities
(1)
This section applies if—
(a)
shares have been issued to a company (“the investing company”) by the
exercise by it of any right of conversion attached to other shares or
30
securities held by it (“the convertibles”),
(b)
the shares so issued are in the same company as the convertibles to
which the right was attached,
(c)
the convertibles to which the right was attached were first issued to the
investing company and were held by it from the time they were issued
35
until converted, and
(d)
the right was attached to the convertibles when they were first so issued
and was not varied before it was exercised.
(2)
If this section applies, subsections (3) and (4) have effect to determine the extent
to which, and the times for which, the requirements of the following provisions
40
of Chapter 4 are met in relation to the shares issued to the investing company
by the exercise by it of the right of conversion—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 291 (the carrying on of a qualifying activity requirement),
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Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
180

section 293 (the use of money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying
activity requirement), and
section 297 (the gross assets requirement).
(3)
Subsections (3) to (6) of section 327 apply in relation to the exchange of
5
convertibles for shares by virtue of the exercise of the right of conversion as if—
(a)
that exchange were an exchange, under any arrangements to which
that section applies, of new shares for old shares, and
(b)
the references in those subsections and section 328(5)(b) to the
arrangements were references to the provision conferring the right of
10
conversion.
(4)
For the purposes of section 289 the value of the new shares immediately after
the time of their acquisition by the investing company is to be taken as the same
as the value, when last valued in accordance with that section, of the
convertibles for which they are exchanged.
15
330
Power to facilitate company reorganisations etc involving exchange of shares
(1)
The Treasury may by regulations make provision for cases where—
(a)
a holding of shares or securities that meets the requirements of Chapter
4 is exchanged for other shares or securities,
(b)
the exchange is made for genuine commercial reasons and does not
20
form part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax, and
(c)
the new shares or securities do not meet some or all of the requirements
of Chapter 4,

providing that the new shares or securities are to be treated as meeting those
25
requirements.
(2)
The references in subsection (1) to an exchange of shares or securities include
any form of company reorganisation or other arrangement which involves a
holder of shares in or securities of a company receiving other shares or
securities—
30
(a)
whether the original shares or securities are transferred, cancelled or
retained, and
(b)
whether the new shares or securities are in or of the same or another
company.
(3)
The regulations must specify—
35
(a)
the cases in which, and conditions subject to which, they apply,
(b)
which requirements of Chapter 4 are to be treated as met, and
(c)
the period for which those requirements are to be treated as met.
(4)
The regulations may contain such administrative provisions (including
provision for advance clearances) as appear to the Treasury to be necessary or
40
appropriate.
(5)
The regulations may authorise the Commissioners for Her Majesty’s Revenue
and Customs to give notice to any person requiring that person to provide such
information, specified in the notice, as they may reasonably require in order to
determine whether any conditions imposed by the regulations are met.
45
(6)
Regulations under this section —

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
181

(a)
may make different provision for different cases,
(b)
may contain incidental, supplemental, consequential and transitional
provision and savings, and
(c)
may include provision having retrospective effect.
Supplementary
5
331
Meaning of a company being “in administration” or “in receivership”
(1)
References in this Part to a company being “in administration” or “in
receivership” are to be read as follows.
(2)
A company is “in administration” if—
(a)
it is in administration within the meaning of Schedule B1 to the
10
Insolvency Act 1986 (c. 45) or Schedule B1 to the Insolvency (Northern
Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
(b)
there is in force in relation to it under the law of a country or territory
outside the United Kingdom any appointment corresponding to an
appointment of an administrator under either of those Schedules.
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(3)
A company is “in receivership” if there is in force in relation to it—
(a)
an order for the appointment of an administrative receiver, a receiver
and manager or a receiver under Chapter 1 or 2 of Part 3 of the
Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland)
Order 1989, or
20
(b)
any corresponding order under the law of a country or territory outside
the United Kingdom.
332
Minor definitions etc
In this Part—
“associate” has the meaning given by section 253,
25
“company” includes any body corporate or unincorporated association
but does not include a partnership, and is to be read in accordance with
section 99 of TCGA 1992 (unit trust schemes),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
30
“group company”, in relation to a group, means the parent company or
any of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company’s ordinary
share capital,
“parent company” means a company that has one or more qualifying
35
subsidiaries and “single company” means a company that does not,
“research and development” has the meaning given by section 1006, and
“shares” includes stock.

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 1 — Introduction
182

Part 7
Community investment tax relief
Chapter 1
Introduction
CITR
5
333
Meaning of “CITR”
This Part provides for community investment tax relief (“CITR”), that is,
entitlement to tax reductions in respect of amounts invested by individuals in
community development finance institutions.
334
Eligibility for CITR
10
(1)
An individual (“the investor”) who makes an investment (“the investment”) in
a body is eligible for CITR in respect of the investment if—
(a)
that body is accredited as a community development finance
institution under Chapter 2 at the time the investment is made,
(b)
the investment is a qualifying investment (see Chapter 3), and
15
(c)
the general conditions of Chapter 4 are met.
(2)
In this Part references to “the CDFI” are to the body in which the investment is
made.
335
Form and amount of CITR
(1)
If the investor is eligible for CITR in respect of the investment, the investor may
20
make a claim in respect of the investment for any one or more of the relevant
tax years.
(2)
If the investor makes a claim for a relevant tax year, the investor is entitled to
a tax reduction for that year of 5% of the invested amount in respect of the
investment for the year.
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(3)
For this purpose the “relevant” tax years are—
(a)
the tax year in which the investment date falls, and
(b)
each of the 4 subsequent tax years.
(4)
The tax reduction is given effect at Step 6 of the calculation in section 23.
(5)
The investor is entitled to make a claim for CITR for a relevant tax year if—
30
(a)
the investor considers that the conditions for the CITR are for the time
being met, and
(b)
the investor has received a tax relief certificate (see section 348) relating
to the investment from the CDFI,

but no claim may be made before the end of the tax year to which it relates.
35
(6)
Subsection (5) is subject to the following provisions—
(a)
section 354 (loans: no claim after disposal or excessive repayments or
receipts of value),