Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

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.
25
      (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.