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Income Tax Bill


Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)

650

 

Restriction on reliefs for non-active partners: pre-10 February 2004 events

32         

In Chapter 3 of Part 4 any reference to an early tax year in relation to an

individual carrying on a trade does not include a tax year the basis period

for which ends before 10 February 2004.

33    (1)  

Sub-paragraphs (2) to (9) set out relief which is not covered by section 110(5)

5

(relevant relief).

      (2)  

Relief is not covered if it is given for a loss made in a trade in a tax year the

basis period for which ends before 10 February 2004.

      (3)  

Sub-paragraphs (4) to (9) apply if the individual carried on a trade in a tax

year the basis period for which includes 10 February 2004.

10

      (4)  

Relief given for a loss made in the trade is not covered so far as the loss

derives from an allowance or deduction within sub-paragraph (5).

      (5)  

An allowance or deduction is within this sub-paragraph if it is—

(a)   

a capital allowance in respect of expenditure incurred before 10

February 2004 which is treated as an expense of the trade, or

15

(b)   

a deduction in respect of expenditure incurred before 10 February

2004 under section 42(1) of F(No.2)A 1992 or any of sections 138 to

140 of ITTOIA 2005.

      (6)  

For the purposes of sub-paragraph (4) the amount of a loss that derives from

an allowance or deduction within sub-paragraph (5) is determined on a just

20

and reasonable basis.

      (7)  

Relief given for a loss made in the trade is not covered so far as it is given for

the pre-announcement allowance in relation to the trade.

      (8)  

“Pre-announcement allowance” is to be read in accordance with section

118ZJ(4) and (6) to (8) of ICTA.

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      (9)  

For that purpose, references to the first restricted year are to be read as

references to the tax year mentioned in sub-paragraph (3).

           

If sub-paragraph (3) covers more than one tax year, the first restricted year

is the first of the tax years covered.

     (10)  

Sub-paragraph (11) applies for the purpose of applying the restriction in

30

section 110(4) (relevant relief not to exceed contribution to the firm) in

relation to an individual if before 10 February 2004 the individual

contributed an amount of capital to the firm.

     (11)  

That amount of capital is reduced (but not below nil)—

(a)   

by the amount of relief (if any) to be left out of account for the

35

purposes of section 110(5) as a result of paragraph 32 or this

paragraph (ignoring sub-paragraph (4)), and

(b)   

by any pre-announcement allowance so far as—

(i)   

relief has not been given for the allowance, and

(ii)   

had relief been given for the allowance, the relief would have

40

to be left out of account for the purposes of section 110(5)(b)

as mentioned in paragraph (a).

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)

651

 

Regulations under section 114

34    (1)  

The provision which may be made in regulations under section 114 does not

include provision affecting the amount of relief that may be given for a loss

made in a trade that is not a post-1 December 2004 loss (as determined in

accordance with section 795).

5

      (2)  

The repeal by this Act of sections 118ZN and 118ZO of ICTA (or any

provision inserting or amending, or affecting the application of, those

sections) does not affect the power of the Commissioners for Her Majesty’s

Revenue and Customs to make regulations under section 118ZN having

effect before the tax year 2007-08.

10

Application of existing regulations under sections 114 and 802

35    (1)  

After the commencement of sections 114 and 802, the Partnerships

(Restrictions on Contributions to a Trade) Regulations 2005 (S.I. 2005/2017)

have effect as if made under those sections.

      (2)  

The Regulations so have effect subject to the following modifications.

15

      (3)  

They have effect as if in regulation 2—

(a)   

in the definition of “bank” for “section 840A of ICTA” there were

substituted “section 991 of ITA 2007”,

(b)   

for the definition of “contribution to the relevant trade” there were

substituted—

20

““capital contribution”—

(a)   

for the purposes of section 114 of ITA 2007,

means the contribution to the firm for the

purposes of section 104 or 110 of that Act or

the contribution to the LLP for the purposes of

25

section 107 of that Act, and

(b)   

for the purposes of section 802 of ITA 2007,

has the meaning given by section 801(3) of

that Act;”, and

(c)   

for the definition of “ICTA” there were substituted—

30

““ITA 2007” means the Income Tax Act 2007;”.

      (4)  

They have effect as if in regulations 3 to 6 for “contribution to the relevant

trade”, wherever occurring, there were substituted “capital contribution”.

      (5)  

They have effect as if—

(a)   

in regulation 3(a) for “section 118ZN of ICTA” there were substituted

35

“section 114(1)(a) and (b) of ITA 2007”, and

(b)   

in regulation 3(b) for the words from “section 119” to the end there

were substituted “section 797 of ITA 2007 as mentioned in section

802(2) of that Act”.

      (6)  

They have effect as if in regulation 6(c) for “the trade” there were substituted

40

“a trade”.

Losses in an employment or office

36    (1)  

This paragraph applies for the purposes of section 128 if the loss is made in

the tax year 2007-08.

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares

652

 

      (2)  

Relief for the loss can be given for the tax year 2006-07.

      (3)  

Sub-paragraphs (4) and (5) apply if relief for the loss is claimed for the tax

year 2006-07.

      (4)  

If relief is to be given, the relief is given in the way it would have been given

had it been given under section 380(1)(b) of ICTA ignoring this Act (and

5

section 129 of this Act is to be read accordingly).

      (5)  

Section 72 of FA 1991 applies as if the relief had been claimed under section

380(1)(b) of ICTA.

Loss relief against miscellaneous income: Case VI losses

37    (1)  

This paragraph applies if a person makes a loss in any transaction—

10

(a)   

which was of such a nature that, if any profits had arisen from it, the

person would have been liable to income tax under Case VI of

Schedule D for any tax year before the tax year 2005-06, and

(b)   

which did not fall within section 34, 35 or 36 of ICTA.

      (2)  

So far as relief for the loss has not previously been given, the loss (or the

15

unused part of it) is to be treated as a loss available for deduction in

accordance with section 153.

Part 6

Losses on disposal of shares

Qualifying trading companies

20

38    (1)  

In relation to shares issued before 17 March 2004, section 134(2)(a) applies

with the omission of sub-paragraph (iv) and the “and” immediately before

it.

      (2)  

In relation to shares issued before 6 April 1998, section 134 applies with the

substitution for subsections (2) to (5) of—

25

“(2)   

Condition A is that the company either—

(a)   

is a trading company on the date of the disposal, or

(b)   

has ceased to be a trading company at a time which is not

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

been an excluded company or an investment company.

30

(3)   

Condition B is that the company either—

(a)   

has been a trading company for a continuous period of 6

years ending on that date or at that time, or

(b)   

has been a trading company for a shorter continuous period

ending on that date or at that time and has not since the

35

beginning of that period been an excluded company or an

investment company.

(4)   

Condition C is that none of the shares in the company has been listed

on a recognised stock exchange at any time in the period—

(a)   

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

40

12 months before the date on which the shares in question

were subscribed for, and

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares

653

 

(b)   

ending with the date on which the shares are disposed of.

(5)   

Condition D is that the company has been UK resident throughout

the period from its incorporation until the date of the disposal.”

      (3)  

In relation to shares issued before 7 March 2001, section 134(4)(b) applies

with the substitution for “at the relevant time” of “throughout the relevant

5

period”.

      (4)  

For the purposes of sub-paragraph (3), shares that were issued—

(a)   

on or after 5 April 1998, but

(b)   

before 7 March 2001,

           

are treated as having been issued on or after 7 March 2001 in respect of any

10

part of the relevant period which falls on or after that date.

      (5)  

Sub-paragraphs (1) to (4) apply in relation to section 576A of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

apply in relation to section 134.

Disposals of new shares

15

39    (1)  

In relation to new shares issued before 6 April 2007, section 136(2) applies

with the omission of “This is subject to section 145(3).”

      (2)  

In this paragraph “new shares” is to be read in accordance with section 145.

The trading requirement

40    (1)  

In relation to shares issued before 6 April 2007, section 137 applies with the

20

following modifications—

(a)   

the omission of subsection (2),

(b)   

in subsection (5), the omission of paragraph (d)(ii) and the “or”

immediately before it, and

(c)   

the omission of subsection (6).

25

      (2)  

In relation to shares issued before 6 April 2000, section 137 applies with the

substitution for the definition of “research and development” in subsection

(7) of—

““research and development” means any activity which is

intended to result in a patentable invention (within the

30

meaning of the Patents Act 1977) or in a computer program.”

      (3)  

Section 137 does not apply in relation to shares issued before 6 April 1998.

      (4)  

Sub-paragraphs (1) to (3) apply in relation to section 576B of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

apply in relation to section 137.

35

Ceasing to meet trading requirement because of administration or receivership

41    (1)  

In relation to shares issued before 17 March 2004, section 138 applies with

the following modifications—

(a)   

in subsection (1), the omission of “merely” and the substitution for

“the company or any of its subsidiaries” of “its”,

40

(b)   

in subsection (2)(b), the omission of “concerned”,

(c)   

in subsection (3)(a), the omission of “or any of its subsidiaries”,

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares

654

 

(d)   

in subsection (3)(b), the omission of “or any of its subsidiaries”, and

(e)   

in subsection (4), the omission of “is”, in the second place where it

occurs.

      (2)  

In relation to an administration order the petition for which was presented

before 15 September 2003, section 138(2) applies with the substitution for

5

paragraph (a) of—

“(a)   

the making of the order in question, and”.

      (3)  

In relation to shares issued before 21 March 2000, section 138 applies with

the omission of subsections (1) and (2).

      (4)  

In the application of sub-paragraph (3) on or after 21 March 2000, shares—

10

(a)   

that were issued on or after 6 April 1998 but before 21 March 2000,

and

(b)   

to which EIS relief or relief under Schedule 5B to TCGA 1992 was

attributable immediately before 21 March 2000,

           

are treated as having been issued on or after 21 March 2000.

15

      (5)  

Section 138 does not apply in relation to shares issued before 6 April 1998.

      (6)  

Sub-paragraphs (1) to (5) apply in relation to section 576C of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

apply in relation to section 138.

The control and independence requirement

20

42    (1)  

In relation to shares issued before 6 April 2007, section 139(1)(a) applies with

the omission of “of the company”.

      (2)  

In relation to shares issued before 21 March 2000, section 139 applies with

the following modifications—

(a)   

the substitution for subsections (1) to (3) of—

25

“(1)   

The control element of the requirement is that—

(a)   

the company must not control (or together with any

person connected with it control) another company or

have a 51% subsidiary, and

(b)   

no arrangements must be in existence by virtue of

30

which the company could fail to meet paragraph (a).

(2)   

The independence element of the requirement is that—

(a)   

the company must not be under the control of another

company (or another company and any other person

connected with that company) or be a 51% subsidiary

35

of another company, and

(b)   

no arrangements must be in existence by virtue of

which the company could fail to meet paragraph (a).

(3)   

This section is subject to section 145(3); and nothing in

subsection (1) prevents the company having one or more

40

qualifying subsidiaries.”, and

(b)   

in subsection (4) the omission of the definition of “arrangements”

and, in the definition of “control”, the omission of “in subsection

(1)(a)”.

      (3)  

In the application of sub-paragraph (2) on or after 21 March 2000, shares—

45

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares

655

 

(a)   

that were issued on or after 6 April 1998 but before 21 March 2000,

and

(b)   

to which EIS relief or relief under Schedule 5B to TCGA 1992 was

attributable immediately before 21 March 2000,

           

are treated as having been issued on or after 21 March 2000.

5

      (4)  

Section 139 does not apply in relation to shares issued before 6 April 1998.

      (5)  

Sub-paragraphs (1) to (4) apply in relation to section 576D of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

apply in relation to section 139.

      (6)  

For the purposes of sub-paragraph (5), sub-paragraph (2) applies with the

10

following modifications—

(a)   

in paragraph (a), the substitution for “section 145(3)” of “section

576J(3)”, and

(b)   

in paragraph (b), the insertion at the end of “and paragraph (b)”.

The qualifying subsidiaries requirement

15

43    (1)  

Section 140 does not apply in relation to shares issued before 6 April 1998.

      (2)  

Sub-paragraph (1) applies in relation to section 576E of ICTA (which makes

corresponding provision for the purposes of corporation tax) as it applies in

relation to section 140.

The property managing subsidiaries requirement

20

44    (1)  

Section 141 does not apply in relation to shares issued before 17 March 2004.

      (2)  

Sub-paragraph (1) applies in relation to section 576F of ICTA (which makes

corresponding provision for the purposes of corporation tax) as it applies in

relation to section 141.

The gross assets requirement

25

45    (1)  

In relation to shares issued before 6 April 2006, section 142 applies with the

substitution in subsections (1) and (2)—

(a)   

of “£15 million” for “£7 million”, and

(b)   

of “£16 million” for “£8 million”.

      (2)  

For the purposes of sub-paragraph (1) shares issued on or after 6 April 2006

30

to a person who subscribed for them before 22 March 2006 are treated as

having been issued before 6 April 2006.

      (3)  

Section 142 does not apply in relation to shares issued before 6 April 1998.

      (4)  

Sub-paragraphs (1) to (3) apply in relation to section 576G of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

35

apply in relation to section 142.

The unquoted status requirement

46    (1)  

In relation to shares issued before 7 March 2001, section 143 applies with the

following modifications—

 

 

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares

656

 

(a)   

the substitution for subsection (1) of—

“(1)   

The unquoted status requirement is that the company must

be an unquoted company throughout the relevant period.”,

(b)   

the substitution for subsection (2) of—

“(2)   

If the company is an unquoted company at the time when any

5

shares are issued, it is not treated for the purposes of this

section as ceasing to be an unquoted company in relation to

those shares at any subsequent time merely because any

shares, stocks, debentures or other securities of the company

are at that time—

10

(a)   

listed on an exchange designated by an order made

for the purposes of section 184(3)(b), or

(b)   

dealt in by any means designated by an order made

for the purposes of section 184(3)(c),

   

if the order was made after the shares were issued.”, and

15

(c)   

in subsection (3) the substitution for the definition of “arrangements”

of—

““the relevant period” means the period—

(a)   

beginning with the incorporation of the

company or, if later, the date one year before

20

the issue of the shares in question, and

(b)   

ending with the date of the disposal.”

      (2)  

For the purposes of sub-paragraph (1)(a) and (c), shares that were issued—

(a)   

on or after 5 April 1998, but

(b)   

before 7 March 2001,

25

           

are treated as having been issued on or after 7 March 2001 in respect of any

part of the relevant period which falls on or after that date.

      (3)  

In the application of sub-paragraph (1)(b) on or after 7 March 2001, shares—

(a)   

that were issued on or after 5 April 1998 but before 7 March 2001, and

(b)   

to which EIS relief or relief under Schedule 5B to TCGA 1992 was

30

attributable immediately before 7 March 2001,

           

are treated as having been issued on or after 7 March 2001.

      (4)  

Section 143 does not apply in relation to shares issued before 6 April 1998.

      (5)  

Sub-paragraphs (1) to (4) apply in relation to section 576H of ICTA (which

makes corresponding provision for the purposes of corporation tax) as they

35

apply in relation to section 143.

      (6)  

For the purposes of sub-paragraph (5), sub-paragraph (1) applies with the

insertion after “section 184(3)(b)” and “section 184(3)(c)” of “of ITA 2007”.

Power to amend requirements by Treasury order

47    (1)  

Section 144 does not apply in relation to shares issued before 6 April 1998.

40

      (2)  

Sub-paragraph (1) applies in relation to section 576I of ICTA (which makes

corresponding provision for the purposes of corporation tax) as it applies in

relation to section 144.

 

 

 
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