Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
657

Relief after an exchange of shares for shares in another company
48    (1)
In relation to new shares issued before 6 April 2007, section 145 applies
with—
(a)
the substitution for subsection (1)(e) of—
“(e)
before the issue of the new shares, the Commissioners
5
for Her Majesty’s Revenue and Customs have, on the
application of the new company or the old company,
notified that company that the exchange of shares—
(i)
will be effected for genuine commercial
reasons, and
10
(ii)
will not form part of any such scheme or
arrangement as is mentioned in section 137(1)
of TCGA 1992.”, and
(b)
the omission of subsection (3)(a).
      (2)
Section 145 does not apply in relation to shares issued before 6 April 1998.
15
      (3)
Sub-paragraphs (1)(a) and (2) apply in relation to section 576J of ICTA
(which makes corresponding provision for the purposes of corporation tax)
as they apply in relation to section 145.
      (4)
For the purposes of sub-paragraph (3) sub-paragraph (1) applies with the
substitution for “TCGA 1992” of “the 1992 Act”.
20
Substitution of new shares for old shares
49    (1)
Section 146 does not apply in relation to shares issued before 6 April 1998.
      (2)
Sub-paragraph (1) applies in relation to section 576K of ICTA (which makes
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 146.
25
Interpretation of Chapter
50    (1)
In relation to shares issued before 6 April 1998, section 151 applies with the
following modifications—
(a)
in the definition of “excluded company” in subsection (1), the
substitution for “in land, in commodities or futures or in shares,
30
securities or other financial instruments” of “in shares, securities,
land, trades or commodity futures”,
(b)
in subsection (7), the insertion after “excluded company” of “or is a
non-UK resident”.
      (2)
Sub-paragraph (1) applies in relation to section 576L of ICTA (which makes
35
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 151.
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1)(b) has effect with
the substitution for “subsection (7)” of “subsection (5)”.
Meaning of “qualifying subsidiary”
40
51    (1)
In relation to shares issued before 17 March 2004, section 191 (as applied by
sections 137(7), 139(4), 140(2) and 142(4)) applies with the following
modifications—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
658

(a)
in subsection (1), the insertion at the end of “and, except as provided
by subsection (3), continue to be met until the time that is relevant for
the purposes of section 134(2)”,
(b)
in subsection (2), the substitution for paragraph (a) of—
“(a)
the relevant company, or another of its subsidiaries,
5
possesses at least 75% of the issued share capital of,
and at least 75% of the voting power in, the
subsidiary,
(aa)
the relevant company, or another of its subsidiaries,
would in the event of a winding up of the subsidiary,
10
or in any other circumstances, be beneficially entitled
to receive at least 75% of the assets of the subsidiary
which would then be available for distribution to the
equity holders of the subsidiary,
(ab)
the relevant company, or another of its subsidiaries, is
15
beneficially entitled to at least 75% of any profits of
the subsidiary which are available for distribution to
the equity holders of the subsidiary,”,
(c)
in paragraph (c) of subsection (2), the substitution for “either of the
conditions in paragraphs (a) and (b)” of “any of the conditions in
20
paragraphs (a), (aa), (ab) and (b)”,
(d)
in subsection (3), the substitution for “any other company” of “the
relevant company” and the substitution for the words from “the
winding up or dissolution” to the end of that subsection of—
“(a)
the winding up or dissolution is for genuine
25
commercial reasons, and not part of a scheme or
arrangement the main purpose or one of the main
purposes of which is the avoidance of tax,
(b)
the net assets, if any, of the subsidiary or, as the case
may be, the relevant company are distributed to its
30
members, or dealt with as bona vacantia, before the
time that is relevant for the purposes of section 134(2)
or, in the case of a winding up, the end (if later) of 3
years from the commencement of the winding up.”,
(e)
the omission of subsection (4),
35
(f)
in subsection (5), the substitution for “arrangements are existence
for” of “of” and the insertion after “another subsidiary” of “within the
continuous period that is relevant for the purposes of section 134(3)”,
(g)
in subsection (5)(a), the omission of “to be”,
(h)
in subsection (5)(b), the substitution for “is not to be” of “not”, and
40
(i)
after subsection (5), the insertion of—
“(6)
The persons who are equity holders of a subsidiary, and the
percentage of the assets of a subsidiary to which an equity
holder would be entitled, is to be determined in accordance
with paragraphs 1 and 3 of Schedule 18 to ICTA, taking—
45
(a)
references in paragraph 3 to the first company as
references to an equity holder, and
(b)
references to a winding up as including references to
any other circumstances in which assets of the
subsidiary are available for distribution to its equity
50
holders.”

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
659

      (2)
Sub-paragraph (1) applies in relation to section 191 as applied by sections
576B(7), 576D(4), 576E(2) and 576G(4) of ICTA (which make corresponding
provision for the purposes of corporation tax) as it applies in relation to
section 191 as applied by sections 137(7), 139(4), 140(2) and 142(4).
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1) applies with—
5
(a)
in paragraphs (a) and (d), the substitution for “section 134(2)” of
“section 576A(2) of ICTA”, and
(b)
in paragraph (f), the substitution for “section 134(3)” of “section
576A(3) of ICTA”.
Meaning of “excluded activities”
10
52    (1)
In relation to shares issued before 7 March 2001, section 192(1) (as applied by
section 137(7)) applies with the insertion after paragraph (c) of—
“(ca)
oil extraction activities (within the meaning of Chapter 5 of
Part 12 of ICTA),”.
      (2)
In the application of sub-paragraph (1) on or after 7 March 2001, shares—
15
(a)
that were issued on or after 6 April 1998 but before 7 March 2001, and
(b)
to which EIS relief or relief under Schedule 5B to TCGA 1992 was
attributable immediately before 7 March 2001,

are treated as having been issued on or after 7 March 2001.
      (3)
Sub-paragraphs (1) and (2) apply in relation to section 192(1) as applied by
20
section 576B(7) of ICTA (which makes corresponding provision for the
purposes of corporation tax) as they apply in relation to section 192(1) as
applied by section 137(7).
Excluded activities: wholesale and retail distribution
53    (1)
In relation to shares issued before 6 April 2007, section 193(5)(b) (as applied
25
by section 137(7)) applies with the following modifications—
(a)
the insertion after “held” of “by the company”, and
(b)
the substitution for “the trader” of “a vendor”.
      (2)
Sub-paragraph (1) applies in relation to section 193(5)(b) as applied by
section 576B(7) of ICTA (which makes corresponding provision for the
30
purposes of corporation tax) as it applies in relation to section 193(5)(b) as
applied by section 137(7).
Excluded activities: leasing of ships
54    (1)
In relation to shares issued before 6 April 2007, section 194 (as applied by the
definition of “non-qualifying activities” in section 137(7)) applies with the
35
omission of subsection (7).
      (2)
In relation to shares issued before 6 April 2004, section 194 (as applied by
section 137(7)) applies with the following modifications—
(a)
in subsection (1), the substitution for “offshore installations” of “oil
rigs”,
40
(b)
in subsection (2), the substitution for “offshore installation” of “oil
rig”, and
(c)
in subsection (8), the insertion after “this section” of—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
660

““oil rig” means any ship which is an offshore installation for the
purposes of the Mineral Workings (Offshore Installations) Act
1971,”.
      (3)
Sub-paragraphs (1) and (2) apply in relation to section 194 as applied by
section 576B(7) of ICTA (which makes corresponding provision for the
5
purposes of corporation tax) as they apply in relation to section 194 as
applied by section 137(7).
Excluded activities: receipt of royalties and licence fees
55    (1)
In relation to shares issued before 6 April 2000, Chapter 6 of Part 4 applies
with the substitution for section 195 (as applied by section 137(7)) of—
10
“195
Excluded activities: receipt of royalties and licence fees
(1)
This section supplements section 192(1)(e) (receipt of royalties and
licence fees).
(2)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
15
consisting to a substantial extent in the receiving of royalties or
licence fees if—
(a)
the company carrying on the trade is engaged throughout the
relevant period in—
(i)
the production of films, or
20
(ii)
the production of films and the distribution of films
produced by it in the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
period are in respect of films produced by it in that period or
sound recordings in relation to such films or other products
25
arising from such films.
(3)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
consisting to a substantial extent in the receiving of royalties or
licence fees if—
30
(a)
the company carrying on the trade is engaged in research and
development throughout the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
period are attributable to research and development which it
has carried out.
35
(4)
In this section “the relevant period” means the continuous period
that is relevant for the purposes of section 134(3).”
      (2)
Sub-paragraph (1) applies in relation to section 195 as applied by section
576B(7) of ICTA (which makes corresponding provision for the purposes of
corporation tax) as it applies in relation to section 195 as applied by section
40
137(7).
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1) applies with the
substitution for “section 134(3)” of “section 576A(3) of ICTA”.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
661

Excluded activities: provision of services or facilities for another business
56    (1)
In relation to shares issued before 6 April 2007, section 199 (as applied by
section 137(7)) applies with the following modifications—
(a)
in subsections (1) to (4), the substitution of “trade” for “business”,
wherever it occurs, and
5
(b)
in subsection (5) the substitution for paragraph (b) of—
“(b)
references to a trade, in relation to the provider of the
services or facilities, are to be read without regard to
the definition of “trade” in section 989, and
(c)
“trade”, in relation to the other person, includes any
10
business, profession or vocation”.
      (2)
Sub-paragraph (1) applies in relation to section 199 as applied by section
576B(7) of ICTA (which makes corresponding provision for the purposes of
corporation tax) as it applies in relation to section 199 as applied by section
137(7).
15
Meaning of a company being “in administration”
57    (1)
Sub-paragraph (2) applies in relation to—
(a)
an administration order under Part 3 of the Insolvency (Northern
Ireland) Order 1989 the petition for which was presented before 6
April 2007, or
20
(b)
any corresponding order under the law of a country or territory
outside the United Kingdom the proceedings for which were
instituted before that date.
      (2)
Section 252 (as it applies for the purposes of Chapter 6 of Part 4) applies with
the substitution for subsection (2) of—
25
“(2)
A company is “in administration” if—
(a)
it is in administration within the meaning of Schedule B1 to
the Insolvency Act 1986, or
(b)
there is in force in relation to it—
(i)
an administration order under Part 3 of the
30
Insolvency (Northern Ireland) Order 1989, or
(ii)
any corresponding order under the law of a country
or territory outside the United Kingdom.”
      (3)
For the purposes of sub-paragraph (2), section 252 applies for the purposes
of Chapter 6 of Part 4 in any case where—
35
(a)
it is applied by section 138(5),
(b)
it applies for the purposes of section 190 as applied by section 141(2),
or
(c)
it applies for the purposes of section 191 as applied by section 137(7),
139(4), 140(2) or 142(4).
40
      (4)
In relation to an administration order under Part 2 of the Insolvency Act 1986
the petition for which was presented before 15 September 2003, section 252
(as applied by section 138(5)) applies with the substitution for subsection (2)
of—
“(2)
A company is “in administration” if there is in force in relation to it—
45

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 7 — Enterprise investment scheme
662

(a)
an administration order under Part 2 of the Insolvency Act
1986 or Part 3 of the Insolvency (Northern Ireland) Order
1989, or
(b)
any corresponding order under the law of a country or
territory outside the United Kingdom.”
5
      (5)
Section 252 (as applied by section 138(5)) does not apply in relation to shares
issued before 21 March 2000.
      (6)
In the application of sub-paragraph (5) on or after 21 March 2000, shares—
(a)
that were issued on or after 6 April 1998 but before 21 March 2000,
and
10
(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.
      (7)
Sub-paragraphs (1) to (6) apply in relation to Chapter 5A of Part 13 of ICTA
and section 576C(5) of that Act (which make corresponding provision for the
15
purposes of corporation tax) as they apply in relation to Chapter 6 of Part 4
and section 138(5).
      (8)
For the purposes of sub-paragraph (7), section 252 applies for the purposes
of Chapter 5A of Part 13 of ICTA in any case where—
(a)
it is applied by section 576C(5) of ICTA,
20
(b)
it applies for the purposes of section 190 as applied by section 576F(2)
of ICTA, or
(c)
it applies for the purposes of section 191 as applied by section
576B(7), 576D(4), 576E(2) or 576G(4) of ICTA.
Part 7
25
Enterprise investment scheme
The gross assets requirement
58    (1)
In relation to shares to which sub-paragraph (2) or (3) applies, section 186
applies with the substitution in subsections (1) and (2)—
(a)
of “£15 million” for “£7 million”, and
30
(b)
of “£16 million” for “£8 million”.
      (2)
This sub-paragraph applies to shares issued to a person who subscribed for
them before 22 March 2006.
      (3)
This sub-paragraph applies to shares issued to the managers of an
investment fund approved for the purposes of section 251 by the
35
Commissioners for Her Majesty’s Revenue and Customs if—
(a)
the fund was approved before 22 March 2006,
(b)
investments in the fund have been accepted before 6 April 2006, and
(c)
the shares are issued to the managers as nominee for an individual
who has (whether or not before 6 April 2006) invested in the fund.
40

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
663

Part 8
Venture capital trusts
Eligibility for relief
59
Section 261(4) does not apply in relation to shares acquired by a company
before 1 December 2003.
5
Form and amount of relief
60    (1)
In relation to shares issued before 6 April 2006, section 263(2) applies with
the substitution of “tax at the higher rate for the tax year on” for “30% of”.
      (2)
In relation to shares issued before 6 April 2004, section 263(2) applies with
the substitution of “the savings rate” for “the higher rate”.
10
No entitlement to relief if there is a linked loan
61
In relation to shares issued before 6 April 2006, section 264(3) applies with
the substitution, in paragraph (b) of the definition of “the relevant period”,
of “the third anniversary” for “the fifth anniversary”.
Loss of relief if shares disposed of within 5 years
15
62    (1)
In relation to shares issued before 6 April 2006—
(a)
subsection (1) of section 266 applies with the substitution of “3 years”
for “5 years”, and
(b)
subsection (4) of that section applies with the omission of “30% of”
and the insertion at the end of “multiplied by the higher rate for the
20
tax year in which the shares were issued”.
      (2)
In relation to shares issued before 6 April 2004, section 266(4) applies with
the substitution of “the savings rate” for “the higher rate”.
Interpretation of Chapter 2
63    (1)
In relation to shares issued before 6 April 2007, section 273(1) applies as if it
25
gave “eligible shares” the same meaning as that given by paragraph 6(1) of
Schedule 15B to ICTA at the time of the issue of the shares.
      (2)
In relation to shares issued before 6 April 2006, section 273(1) applies with
the substitution of “3 years” for “5 years”.
The 15% holding limit condition
30
64
In relation to shares or securities issued before 17 April 2002, section 277(5)
applies with the following modifications—
(a)
the insertion after “reconstruction”, in the first place where it occurs,
of “or amalgamation”, and
(b)
the omission of the words from “In this subsection” to the end.
35
Conditions relating to value of investments
65    (1)
Sub-paragraph (2) applies if any question arises which—