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 7 — Losses from miscellaneous transactions
79

(4)
But a deduction for that purpose is to be made only from the person’s
miscellaneous income.
(5)
A person’s miscellaneous income is so much of the person’s total income as
is—
(a)
income or gains arising from transactions, and
5
(b)
section 1016 income.

This is subject to subsection (6).
(6)
If the loss was made by the person as a partner in a partnership, the
transactions covered by subsection (5)(a) are limited to transactions entered
into by the partnership.
10
(7)
In calculating a person’s net income for a tax year, deductions under this
section from the person’s miscellaneous income are to be made before
deductions of any other reliefs from that miscellaneous income.
(8)
In this section “section 1016 income” means income on which income tax is
charged under or by virtue of any provision to which section 1016 applies.
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(9)
This section needs to be read with—
(a)
section 153 (how relief works),
(b)
section 154 (transactions in deposit rights), and
(c)
section 155 (claims).
153
How relief works
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This section 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).
Step 1
Deduct the loss from the miscellaneous income for the loss-making year.
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Step 2
Deduct from the miscellaneous income for the next tax year the amount of the
loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to miscellaneous income for subsequent
30
tax years until all the loss is deducted.
Deposit rights
154
Transactions in deposit rights
(1)
This section applies if—
(a)
a person makes a loss from the disposal or exercise of a right to receive
35
an amount,
(b)
the disposal or exercise is a transaction in a deposit under Chapter 11
of Part 4 of ITTOIA 2005 (see subsection (2)), and
(c)
the person’s total income for a tax year includes interest payable on the
amount.
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Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 1 — Introduction
80

(2)
The disposal or exercise is a transaction in a deposit under Chapter 11 of Part
4 of ITTOIA 2005 if, assuming there were a profit or gain from it, the profit or
gain would be charged to tax under that Chapter.
(3)
For the purposes of the giving of loss relief against miscellaneous income for
the loss mentioned in subsection (1)(a), the interest mentioned in subsection
5
(1)(c) is treated as miscellaneous income for the tax year.
Supplementary
155
Time limit for claiming relief
(1)
So far as a claim for loss relief against miscellaneous income concerns the
amount of the loss for a tax year, it must be made on or before the fifth
10
anniversary of the normal self-assessment filing date for the tax year.
(2)
But—
(a)
the question whether, and
(b)
if so, how much,

loss relief against miscellaneous income should be given for a tax year may be
15
the subject of a separate claim made on or before the fifth anniversary of the
normal self-assessment filing date for the tax year.
Part 5
Enterprise investment scheme
Chapter 1
20
Introduction
EIS relief
156
Meaning of “EIS relief” and commencement
(1)
This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to
tax reductions in respect of amounts subscribed by individuals for shares.
25
(2)
In this Part “EIS” stands for the enterprise investment scheme.
(3)
In accordance with section 1034(3), this Part has effect only in relation to shares
issued on or after 6 April 2007.

This is subject to Schedule 2 (transitional provisions and savings).
157
Eligibility for EIS relief
30
(1)
An individual (“the investor”) is eligible for EIS relief in respect of an amount
subscribed by the investor on the investor’s own behalf for an issue of shares
in a company (“the issuing company”) if—
(a)
the shares (“the relevant shares”) are issued to the investor,
(b)
the investor is a qualifying investor in relation to the relevant shares
35
(see Chapter 2),

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 1 — Introduction
81

(c)
the general requirements (including requirements as to the purpose of
the issue of shares and the use of money raised) are met in respect of the
relevant shares (see Chapter 3), and
(d)
the issuing company is a qualifying company in relation to the relevant
shares (see Chapter 4).
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(2)
To be eligible for EIS relief in respect of an amount subscribed for shares issued
by the issuing company in a tax year, the investor must have subscribed at least
£500 for shares in the issuing company which—
(a)
meet the requirements of section 173(2) (ordinary shares which carry no
preferential rights or rights of redemption), and
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(b)
are issued in the tax year.
(3)
Subsection (2) is subject to section 251(3) (approved investment funds).
158
Form and amount of EIS relief
(1)
If an individual—
(a)
is eligible for EIS relief in respect of any amount subscribed for shares,
15
and
(b)
makes a claim in respect of all or some of the shares included in the
issue,

the individual is entitled to a tax reduction for the tax year in which the shares
were issued (“the current year”).
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This is subject to the provisions of this Part.
(2)
The amount of the tax reduction to which the individual is entitled is the
amount equal to tax at the savings rate for the current year on—
(a)
the amount or, as the case may be, the sum of the amounts subscribed
for shares issued in that year in respect of which the individual is
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eligible for and claims EIS relief, or
(b)
if less, £400,000.
(3)
The tax reduction is given effect at Step 6 of the calculation in section 23.
(4)
Subject to subsection (5), if in the case of any issue of shares—
(a)
which are issued before 6 October in the current year, and
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(b)
in respect of the amount subscribed for which the individual is eligible
for EIS relief,

the individual so claims, subsections (1) and (2) apply as if, in respect of such
part of that issue as may be specified in the claim, the shares had been issued
in the preceding tax year; and the individual’s liability to tax for both tax years
35
is determined accordingly.
(5)
But—
(a)
no more than half the shares included in an issue may be treated under
subsection (4) as issued in the preceding tax year, and
(b)
the total amount subscribed for any shares (included in any issues)
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treated under subsection (4) as issued in that year is not to exceed
£50,000.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 1 — Introduction
82

Miscellaneous
159
Periods A, B and C
(1)
This section applies for the purposes of this Part in relation to any shares issued
by a company.
(2)
“Period A” means the period—
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(a)
beginning—
(i)
with the incorporation of the company, or
(ii)
if the company was incorporated more than two years before
the date on which the shares were issued, two years before that
date, and
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(b)
ending immediately before the termination date relating to the shares
(see section 256).
(3)
“Period B” means the period—
(a)
beginning with the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
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(4)
“Period C” means the period—
(a)
beginning 12 months before the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
160
Overview of other Chapters of Part
In this Part—
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(a)
Chapter 5 provides for the attribution of EIS relief to shares and the
making of claims for such relief,
(b)
Chapter 6 provides for EIS relief to be withdrawn or reduced in the
circumstances mentioned in that Chapter,
(c)
Chapter 7 makes provision with respect to the procedure for the
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withdrawal or reduction of EIS relief, and
(d)
Chapter 8 contains supplementary and general provisions.
161
Other tax reliefs relating to EIS
(1)
Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the
income of an individual who incurs an allowable loss for capital gains tax
30
purposes on a disposal of shares to which EIS relief is attributable.
(2)
Subsection (3) of section 392 (loan to buy interest in close company) provides
that subsection (2)(a) of that section does not apply if at any time—
(a)
the individual by whom the shares are acquired, or
(b)
that individual’s spouse or civil partner,
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makes a claim for EIS relief in respect of the shares.
(3)
Section 150A of TCGA 1992 makes provision about gains or losses on the
disposal of shares to which EIS relief is attributable.
(4)
Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under
EIS of the proceeds of assets disposed of in circumstances where there would
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otherwise be a chargeable gain.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 2 — The investor
83

(5)
Schedule 5BA to TCGA 1992 provides for the application of taper relief in cases
where EIS relief or relief under Schedule 5B to that Act applies.
Chapter 2
The investor
Introduction
5
162
Overview of Chapter
The investor is a qualifying investor in relation to the relevant shares if the
requirements of this Chapter are met as to—
(a)
no connection with the issuing company (see section 163),
(b)
no linked loans (see section 164), and
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(c)
no tax avoidance (see section 165).
The requirements
163
The no connection with the issuing company requirement
(1)
The investor must not be connected with the issuing company (whether before
or after its incorporation) at any time during the period—
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(a)
beginning two years before the issue of the shares, and
(b)
ending immediately before the termination date relating to the shares.
(2)
This is subject to section 169(1).
164
The no linked loans requirement
(1)
No linked loan is to be made by any person, at any time in period A, to the
20
investor or an associate of the investor.
(2)
In this section “linked loan” means any loan which—
(a)
would not have been made, or
(b)
would not have been made on the same terms,

if the investor had not subscribed for the relevant shares, or had not been
25
proposing to do so.
(3)
References in this section to the making by any person of a loan to the investor
or an associate of the investor include references—
(a)
to the giving by that person of any credit to the investor or any associate
of the investor, and
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(b)
to the assignment to that person of a debt due from the investor or any
associate of the investor.
165
The no tax avoidance requirement
The relevant shares must be subscribed for by the investor for genuine
commercial reasons, and not as part of a scheme or arrangement the main
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purpose or one of the main purposes of which is the avoidance of tax.