Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
72

(a)
the company must be an unquoted company,
(b)
there must be no arrangements in existence for the company to cease to
be an unquoted company, and
(c)
there must be no arrangements in existence for the company to become
a subsidiary of another company (“the new company”) by virtue of an
5
exchange of shares, or shares and securities, if—
(i)
section 145 applies in relation to the exchange, and
(ii)
arrangements have been made with a view to the new company
ceasing to be an unquoted company.
(2)
The arrangements referred to in subsection (1)(b) and (c)(ii) do not include
10
arrangements in consequence of which any shares, stocks, debentures or other
securities of the company or the new company are at any subsequent time—
(a)
listed on a stock exchange that is a recognised stock exchange by virtue
of an order made under section 1005, or
(b)
listed on an exchange, or dealt in by any means, designated by an order
15
made for the purposes of section 184(3)(b) or (c),

if the order was made after the relevant time.
(3)
In this section—
“arrangements” includes any scheme, agreement or understanding,
whether or not legally enforceable, and
20
“unquoted company” has the meaning given by section 184(2).
144
Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 137 to 143 as
they consider appropriate.
Qualifying trading companies: supplementary
25
145
Relief after an exchange of shares for shares in another company
(1)
This section and section 146 apply in relation to shares to which EIS relief is not
attributable if—
(a)
a company (“the new company”) in which the only issued shares are
subscriber shares acquires all the shares (“old shares”) in another
30
company (“the old company”),
(b)
the consideration for the old shares consists wholly of the issue of
shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description consists wholly
of old shares of the corresponding description,
35
(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, and
(e)
by virtue of section 127 of TCGA 1992 as applied by section 135(3) of
that Act (company reconstructions etc), the exchange of shares is not to
40
be treated as involving a disposal of the old shares or an acquisition of
the new shares.

In this subsection references to shares, except in the expressions “shares to
which EIS relief is not attributable” and “subscriber shares”, include securities.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
73

(2)
For the purposes of this Chapter the exchange of shares is not regarded as
involving any disposal of the old shares or any acquisition of the new shares.
(3)
Nothing in—
(a)
section 136(2) (disposals of new shares), and
(b)
section 139 (the control and independence requirement),
5

applies in relation to such an exchange of shares, or shares and securities, as is
mentioned in subsection (1) or, in the case of section 139, arrangements with a
view to such an exchange.
(4)
For the purposes of this section old shares and new shares are of a
corresponding description if, on the assumption that they were shares in the
10
same company, they would be of the same class and carry the same rights.
(5)
References in section 146 to “old shares”, “new shares”, “the old company” and
“the new company” are to be read in accordance with this section.
146
Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by an individual or
15
by a nominee for an individual, the old shares for which they were exchanged
were shares—
(a)
to which EIS relief was not attributable, and
(b)
which had been subscribed for by the individual.
(2)
This Chapter has effect in relation to any subsequent disposal or other event as
20
if—
(a)
the new shares had been subscribed for by the individual at the time
when, and for the amount for which, the old shares were subscribed for
by the individual,
(b)
the new shares had been issued by the new company at the time when
25
the old shares were issued to the individual by the old company, and
(c)
any requirements of this Chapter which were met at any time before the
exchange by the old company had been met at that time by the new
company.
Limits on share loss relief and mixed holdings
30
147
Limits on share loss relief
(1)
Subsection (2) applies if—
(a)
an individual disposes of any qualifying shares,
(b)
those shares either—
(i)
form part of a section 104 holding or a 1982 holding at the time
35
of the disposal, or
(ii)
formed part of such a holding at an earlier time, and
(c)
the individual makes a claim under section 132 in respect of a loss
incurred on the disposal.
(2)
The amount of share loss relief on the disposal is not to exceed the sums that
40
would be allowed as deductions in calculating the amount of the loss if the
qualifying shares had not formed part of the holding.
(3)
Subsection (4) applies if—

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
74

(a)
an individual disposes of any qualifying shares,
(b)
the qualifying shares, and other shares that are not capable of being
qualifying shares, are for the purposes of TCGA 1992 to be treated as
acquired by a single transaction by virtue of section 105(1)(a) of that Act
(disposal of shares acquired on same day etc), and
5
(c)
the individual makes a claim under section 132 in respect of a loss
incurred on the disposal.
(4)
The amount of share loss relief on the disposal is not to exceed the sums that
would be allowed as deductions in calculating the amount of the loss if—
(a)
the qualifying shares were to be treated as acquired by a single
10
transaction, and
(b)
the other shares were not to be so treated.
(5)
Subsection (6) applies if—
(a)
an individual disposes of any qualifying shares,
(b)
the qualifying shares (taken as a single asset), and other shares in the
15
same company that are not capable of being qualifying shares (taken as
a single asset), are for the purposes of TCGA 1992 to be treated as the
same asset by virtue of section 127 of that Act (reorganisation etc
treated as not involving disposal), and
(c)
the individual makes a claim under section 132 in respect of a loss
20
incurred on the disposal,

References in this subsection and subsection (6) to other shares in the same
company include debentures of the same company.
(6)
The amount of share loss relief on the disposal is not to exceed the sums that
would be allowed as deductions in calculating the amount of the loss if the
25
qualifying shares and the other shares in the same company were not to be
treated as the same asset.
(7)
In this section—
“section 104 holding” has the meaning given by section 104(3) of TCGA
1992, and
30
“1982 holding” has the meaning given by section 109(1) of that Act.
(8)
For the purposes of this section and section 148, shares to which EIS relief is not
attributable are not capable of being qualifying shares at any time if—
(a)
the individual acquired the shares otherwise than by subscription,
(b)
condition C in section 134(4) was not met in relation to the issue of the
35
shares, or
(c)
condition D in section 134(5) would not be met if the shares were
disposed of at that time.
(9)
For the purposes of subsection (5), shares to which EIS relief is not attributable
are not capable of being qualifying shares at any time if they are shares of a
40
different class from the shares mentioned in paragraph (a) of that subsection.
148
Disposal of shares forming part of mixed holding
(1)
This section applies if an individual disposes of shares forming part of a mixed
holding of shares, that is, a holding of shares in a company which includes—
(a)
shares that are not capable of being qualifying shares, and
45
(b)
other shares.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
75

(2)
Any question—
(a)
whether a disposal by the individual of shares forming part of the
mixed holding is of qualifying shares, or
(b)
as to which of any qualifying shares acquired by the individual at
different times such a disposal relates to,
5

is to be determined as provided by the following provisions of this section.
(3)
Any such question as is mentioned in subsection (2) is to be determined—
(a)
except in a case falling within paragraph (b)—
(i)
in accordance with subsection (4), and
(ii)
in the case of shares which under that subsection are identified
10
with the whole or any part of a section 104 holding or a 1982
holding, in accordance with subsection (5),
(b)
in the case of a mixed holding which includes any of the following—
(i)
shares issued before 1 January 1994 in respect of which relief
has been given under Chapter 3 of Part 7 of ICTA (business
15
expansion scheme) and has not been withdrawn,
(ii)
shares to which EIS relief is attributable, and
(iii)
shares to which deferral relief (within the meaning of Schedule
5B to TCGA 1992) is attributable,

in accordance with subsection (6).
20
(4)
For the purposes of subsection (3)(a)(i), the question is to be determined by
identifying the shares disposed of in accordance with sections 105 to 105B and
106A of TCGA 1992.
(5)
For the purposes of subsection (3)(a)(ii), the question is to be determined by
treating the disposal and any previous disposal by the individual out of the
25
section 104 or 1982 holding as relating to shares acquired later rather than
earlier.
(6)
For the purposes of subsection (3)(b), the question is to be determined—
(a)
in relation to shares issued before 1 January 1994, as provided by
subsections (3) to (4C) of section 299 of ICTA (as that section has effect
30
in relation to shares so issued),
(b)
in relation to shares issued on or after that date and before 6 April 2007,
as provided by subsections (6) to (6D) of that section (as that section has
effect in relation to shares so issued), and
(c)
in relation to shares issued on or after 6 April 2007, as provided by
35
section 246 of this Act.
(7)
Any such question as is mentioned in subsection (2) which cannot be
determined as provided by subsections (3) to (6) is to be determined on a just
and reasonable basis.
(8)
In this section “holding” means any number of shares of the same class held by
40
one individual in the same capacity, growing or diminishing as shares of that
class are acquired or disposed of.

For this purpose—
(a)
shares are not to be treated as being of the same class unless they are so
treated by the practice of a recognised stock exchange or would be so
45
treated if dealt in on such an exchange, and
(b)
subsection (4) of section 104 of TCGA 1992 applies as it applies for the
purposes of subsection (1) of that section.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
76

(9)
In this section “section 104 holding” and “1982 holding” have the same
meaning as in section 147.
149
Section 148: supplementary
(1)
In the case of a disposal of shares within section 148(3)(b)(ii) or (iii) to which
section 105A of TCGA 1992 (election for alternative treatment: approved-
5
scheme shares) applies—
(a)
section 299 of ICTA (identification of shares) has effect for the purposes
of section 148(6)(b), and
(b)
section 246 of this Act has effect for the purposes of section 148(6)(c),

with the same modifications as those with which they have effect for the
10
purposes of section 150A(4) of TCGA 1992 (enterprise investment schemes).
(2)
In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not
involving disposal) applies (including a case where that section applies by
virtue of an enactment relating to chargeable gains), shares included in the new
holding are treated for the purposes of section 148 as acquired when the
15
original shares were acquired.
(3)
Any shares held or disposed of by a nominee or bare trustee for an individual
are treated for the purposes of section 148 as held or disposed of by that
individual.
(4)
In this section “new holding” and “original shares” have the same meaning as
20
in section 127 of TCGA 1992 (or, as the case may be, that section as applied by
the enactment concerned).
Miscellaneous and supplementary
150
Deemed time of issue for certain shares
(1)
In this section “the relevant provisions” means—
25
section 134(5)(a),
section 142(1)(a) and (2)(a),
section 143(1), and
section 146(2)(b).
(2)
If—
30
(a)
any shares were issued to an individual (“A”) or are treated under
subsection (3) or this subsection as having been issued to A at a
particular time,
(b)
the shares are transferred by A to another individual (“B”) during their
lives, and
35
(c)
A was B’s spouse or civil partner at the time of the transfer,

the shares are treated for the purposes of the relevant provisions as having
been issued to B at the time they were issued to A or are treated as having been
so issued.
(3)
If—
40
(a)
any shares (“the original shares”) have been issued to an individual, or
are treated under subsection (2) or this subsection as having been
issued to an individual at a particular time, and

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
77

(b)
any corresponding bonus shares are subsequently issued to the
individual,

the bonus shares are treated for the purposes of the relevant provisions as
having been issued at the time the original shares were issued to the individual
or are treated as having been so issued.
5
151
Interpretation of Chapter
(1)
In this Chapter (subject to subsections (2) to (8))—
“bonus shares” means shares which are issued otherwise than for
payment (whether in cash or otherwise),
“civil partner” refers to one of two civil partners who are living together,
10
“corresponding bonus shares”, in relation to any shares, means bonus
shares which—
(a)
are issued in respect of those shares, and
(b)
are in the same company, are of the same class, and carry the
same rights, as those shares,
15
“EIS relief” means—
(a)
EIS income tax relief under Part 5 of this Act, and
(b)
in relation to shares issued after 31 December 1993 and before 6
April 2007, relief under Chapter 3 of Part 7 of ICTA (enterprise
investment scheme),
20
“excluded company” means a company which—
(a)
has a trade which consists wholly or mainly of dealing in land,
in commodities or futures or in shares, securities or other
financial instruments,
(b)
has a trade which is not carried on on a commercial basis and in
25
such a way that profits in the trade can reasonably be expected
to be realised,
(c)
is a holding company of a group other than a trading group, or
(d)
is a building society or a registered industrial and provident
society,
30
“group” (except in sections 137 and 142) means a company which has one
or more 51% subsidiaries together with that or those subsidiaries,
“holding company” means a company whose business consists wholly or
mainly in the holding of shares or securities of companies which are its
51% subsidiaries,
35
“investment company” has the meaning given by section 130 of ICTA
except that it does not include the holding company of a trading group,
“qualifying shares” has the meaning given by section 131(2),
“registered industrial and provident society” means a society registered
or treated as registered under the Industrial and Provident Societies
40
Act 1965 (c. 12) or the Industrial and Provident Societies Act (Northern
Ireland) 1969 (c. 24 (N.I.)),
“shares”—
(a)
includes stock, but
(b)
does not include shares or stock not forming part of a
45
company’s ordinary share capital,
“share loss relief” has the meaning given by section 131(1),
“spouse” refers to one of two spouses who are living together,

Income Tax Bill
Part 4 — Loss relief
Chapter 7 — Losses from miscellaneous transactions
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“trading company” means a company other than an excluded company
which is—
(a)
a company whose business consists wholly or mainly of the
carrying on of a trade or trades, or
(b)
the holding company of a trading group,
5
“trading group” means a group the business of whose members, when
taken together, consists wholly or mainly in the carrying on of a trade
or trades, and
“the year of the loss” has the meaning given by section 131(1).
(2)
For the purposes of the definition of “corresponding bonus shares” in
10
subsection (1), shares are not treated as being of the same class unless they
would be so treated if dealt in on the Stock Exchange.
(3)
In section 148(3)(b) and (6) “shares” does not include stock.
(4)
Except as provided by subsection (5), paragraph (b) of that definition does not
apply in the definition of “excluded company” in subsection (1) or in sections
15
145(1) to (4) and 147(3) to (6), (8) and (9).
(5)
Paragraph (b) of that definition applies in relation to the expression “shares to
which EIS relief is not attributable” in section 145(1).
(6)
The definition of “shares” in subsection (1) does not apply in sections 137(5)(a),
142(3) and 143(1)(c) and (2).
20
(7)
For the purposes of the definition of “trading group” in subsection (1), any
trade carried on by a subsidiary which is an excluded company is treated as not
constituting a trade.
(8)
For the purposes of this Chapter a disposal of shares which results in an
allowable loss for capital gains tax purposes is treated as made at the time
25
when the disposal is made or treated as made for the purposes of TCGA 1992.
Chapter 7
Losses from miscellaneous transactions
Loss relief against miscellaneous income
152
Losses from miscellaneous transactions
30
(1)
A person may make a claim for loss relief against miscellaneous income if in a
tax year (“the loss-making year”) the person makes a loss in any relevant
transaction.
(2)
A transaction is a relevant one if, assuming there were profits or other income
arising from it—
35
(a)
those profits or that other income would be section 1016 income, and
(b)
the person would be liable for income tax charged on those profits or
that other income.
(3)
The claim is for the loss to be deducted in calculating the person’s net income
for the loss-making year and subsequent tax years (see Step 2 of the calculation
40
in section 23).