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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.

15

(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

20

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.

25

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.

40

 
 

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).

5

(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

10

(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”).

20

   

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

25

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

30

(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)

40

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—

5

(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

10

(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.

15

(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—

20

(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

25

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,

35

   

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

40

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

10

(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—

15

(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

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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

30

(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

35

purpose or one of the main purposes of which is the avoidance of tax.

 
 

 
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