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Income Tax Bill


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

65

 

130     

Treating loss in employment or office as CGT loss

A person who cannot deduct all of a loss in an employment or office under a

claim for employment loss relief against general income may be able to treat

the unused part as an allowable loss for capital gains tax purposes: see sections

261B and 261C of TCGA 1992.

5

Chapter 6

Losses on disposal of shares

Share loss relief against general income

131     

Share loss relief

(1)   

An individual is eligible for relief under this Chapter (“share loss relief”) if—

10

(a)   

the individual incurs an allowable loss for capital gains tax purposes on

the disposal of any shares in any tax year (“the year of the loss”), and

(b)   

the shares are qualifying shares.

   

This is subject to subsections (3) and (4) and section 136(2).

(2)   

Shares are qualifying shares for the purposes of this Chapter if—

15

(a)   

EIS relief is attributable to them, or

(b)   

if EIS relief is not attributable to them, they are shares in a qualifying

trading company which have been subscribed for by the individual.

(3)   

Subsection (1) applies only if the disposal of the shares is—

(a)   

by way of a bargain made at arm’s length,

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(b)   

by way of a distribution in the course of dissolving or winding up the

company,

(c)   

a disposal within section 24(1) of TCGA 1992 (entire loss, destruction

dissipation or extinction of asset), or

(d)   

a deemed disposal under section 24(2) of that Act (claim that value of

25

the asset has become negligible).

(4)   

Subsection (1) does not apply to any allowable loss incurred on the disposal

if—

(a)   

the shares are the subject of an exchange or arrangement of the kind

mentioned in section 135 or 136 of TCGA 1992 (company

30

reconstructions etc), and

(b)   

because of section 137 of that Act, the exchange or arrangement

involves a disposal of the shares.

132     

Entitlement to claim

(1)   

An individual who is eligible for share loss relief may make a claim for the loss

35

to be deducted in calculating the individual’s net income—

(a)   

for the year of the loss,

(b)   

for the previous tax year, or

(c)   

for both tax years.

   

(See Step 2 of the calculation in section 23.)

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

66

 

(2)   

If the claim is made in relation to both tax years, the claim must specify the year

for which a deduction is to be made first.

(3)   

Otherwise the claim must specify either the year of the loss or the previous tax

year.

(4)   

The claim must be made on or before the first anniversary of the normal self-

5

assessment filing date for the year of the loss.

133     

How relief works

(1)   

This subsection 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).

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Step 1

   

Deduct the loss in calculating the individual’s net income for the specified tax

year.

Step 2

   

This step applies only if the claim is made in relation to both tax years.

15

   

Deduct the part of the loss not deducted at Step 1 in calculating the individual’s

net income for the other tax year.

(2)   

Subsection (1) is subject to sections 136(5) and 147 (which set limits on the

amounts of share loss relief that may be obtained in particular cases).

(3)   

If an individual—

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(a)   

makes a claim for share loss relief against income (“the first claim”) in

relation to the year of the loss, and

(b)   

makes a separate claim for share loss relief against income in respect of

a loss made in the following tax year in relation to the same tax year as

the first claim,

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priority is to be given to making deductions under the first claim.

(4)   

Any share loss relief claimed in respect of any income has priority over any

relief claimed in respect of that income under section 64 (deduction of losses

from general income) or 72 (early trade losses relief).

(5)   

A claim for share loss relief does not affect any claim for a deduction under

30

TCGA 1992 for so much of the allowable loss as is not deducted under

subsection (1).

Shares to which EIS relief is not attributable

134     

Qualifying trading companies

(1)   

In relation to shares to which EIS relief is not attributable (see section 131(2)(b)),

35

a qualifying trading company is a company which meets each of conditions A

to D.

(2)   

Condition A is that the company either—

(a)   

meets each of the following requirements on the date of the disposal—

(i)   

the trading requirement (see section 137),

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(ii)   

the control and independence requirement (see section 139),

 
 

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

67

 

(iii)   

the qualifying subsidiaries requirement (see section 140), and

(iv)   

the property managing subsidiaries requirement (see section

141), or

(b)   

has ceased to meet any of those requirements at a time which is not

more than 3 years before that date and has not since that time been an

5

excluded company, an investment company or a trading company.

(3)   

Condition B is that the company either—

(a)   

has met each of the requirements mentioned in condition A for a

continuous period of 6 years ending on that date or at that time, or

(b)   

has met each of those requirements for a shorter continuous period

10

ending on that date or at that time and has not before the beginning of

that period been an excluded company, an investment company or a

trading company.

(4)   

Condition C is that the company—

(a)   

met the gross assets requirement (see section 142) both immediately

15

before and immediately after the issue of the shares in respect of which

the share loss relief is claimed, and

(b)   

met the unquoted status requirement (see section 143) at the relevant

time within the meaning of that section.

(5)   

Condition D is that the company has carried on its business wholly or mainly

20

in the United Kingdom throughout the period—

(a)   

beginning with the incorporation of the company or, if later, 12 months

before the shares in question were issued, and

(b)   

ending with the date of the disposal.

135     

Subscriptions for shares

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(1)   

This section has effect in relation to shares to which EIS relief is not attributable.

(2)   

An individual subscribes for shares in a company if they are issued to the

individual by the company in consideration of money or money’s worth.

(3)   

If—

(a)   

an individual (“A”) subscribed for, or is treated under subsection (4) or

30

this subsection as having subscribed for, any shares,

(b)   

A transferred the shares to another individual (“B”) during their lives,

and

(c)   

A was B’s spouse or civil partner at the time of the transfer,

   

B is treated as having subscribed for the shares.

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(4)   

If—

(a)   

an individual has subscribed for, or is treated under subsection (3) or

this subsection as having subscribed for, any shares, and

(b)   

any corresponding bonus shares are subsequently issued to the

individual,

40

   

the individual is treated as having subscribed for the bonus shares.

136     

Disposals of new shares

(1)   

This section has effect in relation to shares to which EIS relief is not attributable.

(2)   

If—

 
 

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

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(a)   

an individual disposes of shares (“the new shares”), and

(b)   

the new shares are, by virtue of section 127 of TCGA 1992

(reorganisation etc treated as not involving disposal), identified with

other shares (“the old shares”) previously held by the individual,

   

the individual is not eligible for share loss relief on the disposal of the new

5

shares unless one of conditions A and B is met.

   

This is subject to section 145(3).

(3)   

Condition A is that the individual would have been eligible for share loss relief

on a disposal of the old shares—

(a)   

if the individual had incurred an allowable loss in disposing of them by

10

way of a bargain made at arm’s length on the occasion of the disposal

that would have occurred but for section 127 of TCGA 1992, and

(b)   

where applicable, if this Chapter had then been in force.

(4)   

Condition B is that the individual gave for the new shares consideration in

money or money’s worth other than consideration of the kind mentioned in

15

paragraph (a) or (b) of section 128(2) of TCGA 1992 (“new consideration”).

(5)   

If the individual relies on condition B, the amount of share loss relief on the

disposal of the new shares must not exceed the amount or value of the new

consideration taken into account as a deduction in calculating the amount of

the loss incurred on the disposal.

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Qualifying trading companies: the requirements

137     

The trading requirement

(1)   

The trading requirement is that—

(a)   

the company, ignoring any incidental purposes, exists wholly for the

purpose of carrying on one or more qualifying trades, or

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(b)   

the company is a parent company and the business of the group does

not consist wholly or as to a substantial part in the carrying on of non-

qualifying activities.

(2)   

If the company intends that one or more other companies should become its

qualifying subsidiaries with a view to their carrying on one or more qualifying

30

trades—

(a)   

the company is treated as a parent company for the purposes of

subsection (1)(b), and

(b)   

the reference in subsection (1)(b) to the group includes the company

and any existing or future company that will be its qualifying

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subsidiary after the intention in question is carried into effect.

   

This subsection does not apply at any time after the abandonment of that

intention.

(3)   

For the purpose of subsection (1)(b) the business of the group means what

would be the business of the group if the activities of the group companies

40

taken together were regarded as one business.

(4)   

For the purpose of determining the business of a group, activities are ignored

so far as they are activities carried on by a mainly trading subsidiary otherwise

than for its main purpose.

 
 

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

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(5)   

For the purposes of determining the business of a group, activities of a group

company are ignored so far as they consist in—

(a)   

the holding of shares in or securities of a qualifying subsidiary of the

parent company,

(b)   

the making of loans to another group company,

5

(c)   

the holding and managing of property used by a group company for

the purpose of one or more qualifying trades carried on by a group

company, or

(d)   

the holding and managing of property used by a group company for

the purpose of research and development from which it is intended—

10

(i)   

that a qualifying trade to be carried on by a group company will

be derived, or

(ii)   

that a qualifying trade carried on or to be carried on by a group

company will benefit.

(6)   

Any reference in subsection (5)(d)(i) or (ii) to a group company includes a

15

reference to any existing or future company which will be a group company at

any future time.

(7)   

In this section—

“excluded activities” has the meaning given by section 192 read with

sections 193 to 199,

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“group” means a parent company and its qualifying subsidiaries,

“group company”, in relation to a group, means the parent company or

any of its qualifying subsidiaries,

“incidental purposes” means purposes having no significant effect (other

than in relation to incidental matters) on the extent of the activities of

25

the company in question,

“mainly trading subsidiary” means a subsidiary which, apart 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,

30

“non-qualifying activities” means—

(a)   

excluded activities, and

(b)   

activities (other than research and development) carried on

otherwise than in the course of a trade,

“parent company” means a company that has one or more qualifying

35

subsidiaries,

“qualifying subsidiary” is to be read in accordance with section 191,

“qualifying trade” has the meaning given by section 189, and

“research and development” has the meaning given by section 1006.

(8)   

In sections 189(1)(b) and 194(4)(c) (as applied by subsection (7) for the purposes

40

of the definitions of “excluded activities” and “qualifying trade”) “period B”

means the continuous period that is relevant for the purposes of section 134(3).

138     

Ceasing to meet trading requirement because of administration or

receivership

(1)   

A company is not regarded as ceasing to meet the trading requirement merely

45

because of anything done in consequence of the company or any of its

subsidiaries being in administration or receivership.

   

This has effect subject to subsections (2) and (3).

 
 

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

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(2)   

Subsection (1) applies only if—

(a)   

the entry into administration or receivership, and

(b)   

everything done as a result of the company concerned being in

administration or receivership,

   

is for genuine commercial reasons, and is not part of a scheme or arrangement

5

the main purpose or one of the main purposes of which is the avoidance of tax.

(3)   

A company ceases to meet the trading requirement if before the time that is

relevant for the purposes of section 134(2)—

(a)   

a resolution is passed, or an order is made, for the winding up of the

company or any of its subsidiaries (or, in the case of a winding up

10

otherwise than under the Insolvency Act 1986 or the Insolvency

(Northern Ireland) Order 1989, any other act is done for the like

purpose), or

(b)   

the company or any of its subsidiaries is dissolved without winding up.

   

This is subject to subsection (4).

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(4)   

Subsection (3) does not apply if —

(a)   

the winding up 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, and

(b)   

the company continues, during the winding up, to be a trading

20

company.

(5)   

References in this section to a company being “in administration” or “in

receivership” are to be read in accordance with section 252.

139     

The control and independence requirement

(1)   

The control element of the requirement is that—

25

(a)   

the 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 company, and

(b)   

no arrangements must be in existence by virtue of which the company

could fail to meet paragraph (a) (whether at a time during the

30

continuous period that is relevant for the purposes of section 134(3) or

otherwise).

(2)   

The independence element of the requirement is that—

(a)   

the company must not—

(i)   

be a 51% subsidiary of another company, or

35

(ii)   

be under the control of another company (or of another

company and any other person connected with that other

company), without being a 51% subsidiary of that other

company, and

(b)   

no arrangements must be in existence by virtue of which the company

40

could fail to meet paragraph (a) (whether at a time during the

continuous period that is relevant for the purposes of section 134(3) or

otherwise).

(3)   

This section is subject to section 145(3).

(4)   

In this section—

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

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“arrangements” includes any scheme, agreement or understanding,

whether or not legally enforceable,

“control”, in subsection (1)(a), is to be read in accordance with section

416(2) to (6) of ICTA,

“qualifying subsidiary” is to be read in accordance with section 191.

5

140     

The qualifying subsidiaries requirement

(1)   

The qualifying subsidiaries requirement is that any subsidiary that the

company has must be a qualifying subsidiary of the company.

(2)   

In this section “qualifying subsidiary” is to be read in accordance with section

191.

10

141     

The property managing subsidiaries requirement

(1)   

The property managing subsidiaries requirement is that any property

managing subsidiary that the company has must be a qualifying 90%

subsidiary of the company.

(2)   

In this section—

15

“property managing subsidiary” has the meaning given by section 188(2),

“qualifying 90% subsidiary” has the meaning given by section 190.

142     

The gross assets requirement

(1)   

The gross assets requirement in the case of a single company is that the value

of the company’s gross assets—

20

(a)   

must not exceed £7 million immediately before the shares in respect of

which the share loss relief is claimed are issued, and

(b)   

must not exceed £8 million immediately afterwards.

(2)   

The gross assets requirement in the case of a parent company is that the value

of the group assets—

25

(a)   

must not exceed £7 million immediately before the shares in respect of

which the share loss relief is claimed are issued, and

(b)   

must not exceed £8 million immediately afterwards.

(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,

30

or shares in or securities of, another member of the group.

(4)   

In this section—

“group” means a parent company and its qualifying subsidiaries,

“parent company” means a company that has one or more qualifying

subsidiaries,

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“qualifying subsidiary” is to be read in accordance with section 191, and

“single company” means a company that does not have one or more

qualifying subsidiaries.

143     

The unquoted status requirement

(1)   

The unquoted status requirement is that, at the time (“the relevant time”) at

40

which the shares in respect of which the share loss relief is claimed are issued—

 
 

 
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