Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 2 — Capital gains tax reform
118

      (2)
In subsection (1), for “This” substitute “For the purposes of corporation tax,
this”.
      (3)
In the heading, for “Pre-April” substitute “Corporation tax: pre-April”.
91
For the heading of section 110 substitute “Indexation for section 104
holdings for corporation tax”.
5
92
Omit section 110A (indexation for section 104 holdings: CGT).
93
In the heading of section 112 (parallel pooling regulations), insert at the end
“: corporation tax”.
94    (1)
Section 113 (calls on shares) is amended as follows.
      (2)
Before subsection (1) insert—
10
“(A1)
This section has effect for the purposes of corporation tax.”
      (3)
In the heading, insert at the end “: corporation tax”.
95    (1)
Section 114 (consideration for options) is amended as follows.
      (2)
Before subsection (1) insert—
“(A1)
This section has effect for the purposes of corporation tax.”
15
      (3)
In the heading, insert at the end “: corporation tax”.
96
In FA 1998, omit—
(a)
section 123(1) and (2), and
(b)
section 125(2) and (3).
97
Chapter 6 of Part 4 of ITA 2007 (losses on disposals of shares) is amended as
20
follows.
98    (1)
Section 147 (limits on share loss relief) is amended as follows.
      (2)
In subsection (1)(b)—
(a)
in sub-paragraph (i), omit “or a 1982 holding” and “or” at the end,
and
25
(b)
for sub-paragraph (ii) substitute—
“(ii)
at a time earlier than the time of the disposal
but after 5 April 2008 formed part of a section
104 holding, or
(iii)
at a time earlier than that time and than 6
30
April 2008 formed part of an old section 104
holding or a 1982 holding, and”.
      (3)
In subsection (7)—
(a)
in the definition of “section 104 holding” after “1992” insert “and “old
section 104 holding” is a holding that was a section 104 holding
35
within the meaning of that provision as it applied in relation to
disposals before 6 April 2008”, and
(b)
in the definition of “1982 holding”, insert at the end “as it applied in
relation to disposals before 6 April 2008”.
99    (1)
Section 148 (disposal of shares forming part of mixed holding) is amended
40
as follows.

Finance Bill
Schedule 3 — Entrepreneurs’ relief
119

      (2)
In subsection (3)(a)(ii), omit “or a 1982 holding”.
      (3)
In subsection (5), omit “or 1982”.
      (4)
In subsection (9), for “and “1982 holding” have” substitute “has”.
100
The amendments made by paragraphs 84 to 99 have effect in relation to
disposals on or after 6 April 2008.
5
Meaning of “tax year”
101   (1)
Section 288 of TCGA 1992 (interpretation) is amended as follows.
      (2)
In subsection (1), for the definition of “year of assessment” substitute—
““year of assessment” means tax year;”.
      (3)
After that subsection insert—
10
“(1ZA)
In this Act and other enactments relating to capital gains tax “tax
year” means a year beginning on 6 April and ending on the following
5 April; and “the tax year 2008-09” means the tax year beginning on
6 April 2008 (and any corresponding expression in which two years
are similarly mentioned is to be read in the same way).”
15
102
In consequence of the amendments made by paragraph 101, omit—
(a)
the definition of “tax year” in section 41(1) of FA 2005, and
(b)
paragraph 342(2)(i) of Schedule 1 to ITA 2007.
Schedule 3
Section 7

Entrepreneurs’ relief
20
Introduction
1
TCGA 1992 is amended as follows.
Main provisions
2
In Part 5 (transfer of business assets), after section 169G insert—
“Chapter 3
25
Entrepreneurs’ relief
169H
Introduction
(1)
This Chapter provides relief from capital gains tax in respect of
qualifying business disposals (to be known as “entrepreneurs’
relief”).
30
(2)
The following are qualifying business disposals—
(a)
a material disposal of business assets: see section 169I,
(b)
a disposal of trust business assets: see section 169J, and
(c)
a disposal associated with a relevant material disposal: see
section 169K.
35

Finance Bill
Schedule 3 — Entrepreneurs’ relief
120

(3)
But in the case of certain qualifying business disposals,
entrepreneurs’ relief is given only in respect of disposals of relevant
business assets comprised in the qualifying business disposal: see
section 169L.
(4)
Section 169M makes provision requiring the making of a claim for
5
entrepreneurs’ relief.
(5)
Sections 169N to 169P make provision as to the amount of
entrepreneurs’ relief.
(6)
Section 169Q and 169R make provision about reorganisations.
(7)
Section 169S contains interpretative provisions for the purposes of
10
this Chapter.
169I
Material disposal of business assets
(1)
There is a material disposal of business assets where—
(a)
an individual makes a disposal of business assets (see
subsection (2)), and
15
(b)
the disposal of business assets is a material disposal (see
subsections (3) to (7)).
(2)
For the purposes of this Chapter a disposal of business assets is—
(a)
a disposal of the whole or part of a business,
(b)
a disposal of (or of interests in) one or more assets in use, at
20
the time at which a business ceases to be carried on, for the
purposes of the business, or
(c)
a disposal of one or more assets consisting of (or of interests
in) shares in or securities of a company.
(3)
A disposal within paragraph (a) of subsection (2) is a material
25
disposal if the business is owned by the individual throughout the
period of 1 year ending with the date of the disposal.
(4)
A disposal within paragraph (b) of that subsection is a material
disposal if—
(a)
the business is owned by the individual throughout the
30
period of 1 year ending with the date on which the business
ceases to be carried on, and
(b)
that date is within the period of 3 years ending with the date
of the disposal.
(5)
A disposal within paragraph (c) of subsection (2) is a material
35
disposal if condition A or B is met.
(6)
Condition A is that, throughout the period of 1 year ending with the
date of the disposal—
(a)
the company is the individual’s personal company and is
either a trading company or the holding company of a
40
trading group, and
(b)
the individual is an officer or employee of the company or (if
the company is a member of a trading group) of one or more
companies which are members of the trading group.

Finance Bill
Schedule 3 — Entrepreneurs’ relief
121

(7)
Condition B is that the conditions in paragraphs (a) and (b) of
subsection (6) are met throughout the period of 1 year ending with
the date on which the company—
(a)
ceases to be a trading company without continuing to be or
becoming a member of a trading group, or
5
(b)
ceases to be a member of a trading group without continuing
to be or becoming a trading company,

and that date is within the period of 3 years ending with the date of
the disposal.
(8)
For the purposes of this section—
10
(a)
an individual who disposes of (or of interests in) assets used
for the purposes of a business carried on by the individual on
entering into a partnership which is to carry on the business
is to be treated as disposing of a part of the business,
(b)
the disposal by an individual of the whole or part of the
15
individual’s interest in the assets of a partnership is to be
treated as a disposal by the individual of the whole or part of
the business carried on by the partnership, and
(c)
at any time when a business is carried on by a partnership,
the business is to be treated as owned by each individual who
20
is at that time a member of the partnership.
169J
Disposal of trust business assets
(1)
There is a disposal of trust business assets where—
(a)
the trustees of a settlement make a disposal of settlement
business assets (see subsection (2)),
25
(b)
there is an individual who is a qualifying beneficiary (see
subsection (3)), and
(c)
the relevant condition is met (see subsections (4) and (5)).
(2)
In this Chapter “settlement business assets” means—
(a)
assets consisting of (or of interests in) shares in or securities
30
of a company, or
(b)
assets (or interests in assets) used or previously used for the
purposes of a business,

which are part of the settled property.
(3)
An individual is a qualifying beneficiary if the individual has, under
35
the settlement, an interest in possession (otherwise than for a fixed
term) in—
(a)
the whole of the settled property, or
(b)
a part of it which consists of or includes the settlement
business assets disposed of.
40
(4)
In relation to a disposal of settlement business assets within
paragraph (a) of subsection (2) the relevant condition is that,
throughout a period of 1 year ending not earlier than 3 years before
the date of the disposal—
(a)
the company is the qualifying beneficiary’s personal
45
company and is either a trading company or the holding
company of a trading group, and

Finance Bill
Schedule 3 — Entrepreneurs’ relief
122

(b)
the qualifying beneficiary is an officer or employee of the
company or (if the company is a member of a group of
companies) of one or more companies which are members of
the trading group.
(5)
In relation to a disposal of settlement business assets within
5
paragraph (b) of that subsection, the relevant condition is that—
(a)
the settlement business assets are used for the purposes of the
business carried on by the qualifying beneficiary throughout
the period of 1 year ending not earlier than 3 years before the
date of the disposal, and
10
(b)
the qualifying beneficiary ceases to carry on the business on
the date of the disposal or within the period of three years
before that date.
(6)
In subsection (5)—
(a)
the reference to a business carried on by the qualifying
15
beneficiary includes a business carried on by a partnership of
which the qualifying beneficiary is a member, and
(b)
the reference to the qualifying beneficiary ceasing to carry on
the business includes the qualifying beneficiary ceasing to be
a member of the partnership or the partnership ceasing to
20
carry on the business.
169K
Disposal associated with relevant material disposal
(1)
There is a disposal associated with a relevant material disposal if
conditions A, B and C are met.
(2)
Condition A is that an individual makes a material disposal of
25
business assets which consists of—
(a)
the disposal of the whole or part of the individual’s interest
in the assets of a partnership, or
(b)
the disposal of (or of interests in) shares in or securities of a
company.
30
(3)
Condition B is that the individual makes the disposal as part of the
withdrawal of the individual from participation in the business
carried on by the partnership or by the company or (if the company
is a member of a trading group) a company which is a member of the
trading group.
35
(4)
Condition C is that, throughout the period of 1 year ending with the
earlier of—
(a)
the date of the material disposal of business assets, and
(b)
the cessation of the business of the partnership or company,

the assets which (or interests in which) are disposed of are in use for
40
the purposes of the business.
(5)
For the purposes of this Chapter the disposal mentioned in
Condition B is the disposal associated with a relevant material
disposal.
169L
Relevant business assets
45
(1)
If a qualifying business disposal is one which does not consist of the
disposal of (or of interests in) shares in or securities of a company,

Finance Bill
Schedule 3 — Entrepreneurs’ relief
123

entrepreneurs’ relief is given only in respect of the disposal of
relevant business assets comprised in the qualifying business
disposal.
(2)
In this Chapter “relevant business assets” means assets (including
goodwill) which are, or are interests in, assets to which subsection (3)
5
applies, other than excluded assets (see subsection (4) below).
(3)
This subsection applies to assets which—
(a)
in the case of a material disposal of business assets, are assets
used for the purposes of a business carried on by the
individual or a partnership of which the individual is a
10
member,
(b)
in the case of a disposal of trust business assets, are assets
used for the purposes of a business carried on by the
qualifying beneficiary or a partnership of which the
qualifying beneficiary is a member, or
15
(c)
in the case of a disposal associated with a relevant material
disposal, are assets used for the purposes of a business
carried on by the partnership or company.
(4)
The following are excluded assets—
(a)
shares and securities, and
20
(b)
assets, other than shares or securities, which are held as
investments.
169M
Relief to be claimed
(1)
Entrepreneurs’ relief is to be given only on the making of a claim.
(2)
A claim for entrepreneurs’ relief in respect of a qualifying business
25
disposal must be made—
(a)
in the case of a disposal of trust business assets, jointly by the
trustees and the qualifying beneficiary, and
(b)
otherwise, by the individual.
(3)
A claim for entrepreneurs’ relief in respect of a qualifying business
30
disposal must be made on or before the first anniversary of the 31
January following the tax year in which the qualifying business
disposal is made.
(4)
A claim for entrepreneurs’ relief in respect of a qualifying business
disposal may only be made if the amount resulting under section
35
169N(1) is a positive amount.
169N
Amount of relief: general
(1)
Where a claim is made in respect of a qualifying business disposal—
(a)
the relevant gains (see subsection (5)) are to be aggregated,
and
40
(b)
any relevant losses (see subsection (6)) are to be aggregated
and deducted from the aggregate arrived at under paragraph
(a).
(2)
The resulting amount is to be reduced by 4/9ths.
(3)
But if the aggregate of—
45

Finance Bill
Schedule 3 — Entrepreneurs’ relief
124

(a)
the amount resulting under subsection (1), and
(b)
the total of the amounts resulting under that subsection by
virtue of its operation in relation to earlier relevant qualifying
business disposals (if any),

exceeds £1 million, the reduction is to be made in respect of only so
5
much (if any) of the amount resulting under subsection (1) as (when
added to that total) does not exceed £1 million.
(4)
The amount arrived at under subsections (1) to (3) is to be treated for
the purposes of this Act as a chargeable gain accruing at the time of
the disposal to the individual or trustees by whom the claim is made.
10
(5)
In subsection (1)(a) “relevant gains” means—
(a)
if the qualifying business disposal is of (or of interests in)
shares in or securities of a company (or both), the gains
accruing on the disposal (computed in accordance with the
provisions of this Act fixing the amount of chargeable gains),
15
and
(b)
otherwise, the gains accruing on the disposal of any relevant
business assets comprised in the qualifying business disposal
(so computed).
(6)
In subsection (1)(b) “relevant losses” means—
20
(a)
if the qualifying business disposal is of (or of interests in)
shares in or securities of a company (or both), any losses
accruing on the disposal (computed in accordance with the
provisions of this Act fixing the amount of allowable losses,
on the assumption that notice has been given under section
25
16(2A) in respect of them), and
(b)
otherwise, any losses accruing on the disposal of any relevant
business assets comprised in the qualifying business disposal
(so computed, on that assumption).
(7)
In subsection (3) “earlier relevant qualifying business disposals”
30
means—
(a)
where the qualifying business disposal is made by an
individual, earlier qualifying business disposals made by the
individual and earlier disposals of trust business assets in
respect of which the individual is the qualifying beneficiary,
35
and
(b)
where the qualifying business disposal is a disposal of trust
business assets in respect of which an individual is the
qualifying beneficiary, earlier disposals of trust business
assets in respect of which that individual is the qualifying
40
beneficiary and earlier qualifying business disposals made
by that individual.
(8)
If, on the same day, there is both a disposal of trust business assets in
respect of which an individual is the qualifying beneficiary and a
qualifying business disposal by the individual, this section applies as
45
if the disposal of trust business assets were later.
(9)
Any gain or loss taken into account under subsection (1) is not to be
taken into account under this Act as a chargeable gain or an
allowable loss.