Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
42

75
Limits on relief
(1)
Subsection (2) applies if—
(a)
a company disposes of any shares for which it has subscribed in a
qualifying trading company (“qualifying shares”),
(b)
those shares either—
5
(i)
form part of a section 104 holding or a 1982 holding at the time
of the disposal, or
(ii)
formed part of such a holding at an earlier time, and
(c)
the company makes a claim under section 70 in respect of a loss
incurred on the disposal.
10
(2)
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
qualifying shares had not formed part of the holding.
(3)
Subsection (4) applies if—
(a)
a company disposes of any qualifying shares,
15
(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
(c)
the company makes a claim under section 70 in respect of a loss
20
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
transaction, and
25
(b)
the other shares were not to be so treated.
(5)
Subsection (6) applies if—
(a)
a company (“the investor”) disposes of any qualifying shares,
(b)
the qualifying shares (taken as a single asset), and other shares in the
same company that are not capable of being qualifying shares (taken as
30
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 investor makes a claim under section 70 in respect of a loss incurred
on the disposal.
35

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
qualifying shares and the other shares in the same company were not to be
40
treated as the same asset.
(7)
In this section—
“section 104 holding” has the meaning given by section 104(3) of TCGA
1992, and
“1982 holding” has the meaning given by section 109(1) of that Act.
45
(8)
For the purposes of this section and section 76, shares are not capable of being
qualifying shares at any time if—

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
43

(a)
the company concerned acquired the shares otherwise than by
subscription,
(b)
condition C in section 78(4) was not met in relation to the issue of the
shares, or
(c)
condition D in section 78(5) would not be met if the shares were
5
disposed of at that time.
(9)
For the purposes of subsection (5), shares are not capable of being qualifying
shares at any time if they are shares of a different class from the shares
mentioned in paragraph (a) of that subsection.
76
Disposal of shares forming part of mixed holding
10
(1)
This section applies if a company 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
(b)
other shares.
(2)
Any question—
15
(a)
whether a disposal by the company of shares forming part of the mixed
holding is of qualifying shares, or
(b)
as to which of any qualifying shares acquired by the company at
different times such a disposal relates to,

is to be determined as provided by the following provisions of this section.
20
(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
with the whole or any part of a section 104 holding or a 1982
25
holding, in accordance with subsection (5),
(b)
in the case of a mixed holding which includes any shares—
(i)
to which investment relief is attributable under Schedule 15 to
FA 2000 (corporate venturing scheme), and
(ii)
which have been held continuously (within the meaning of
30
paragraph 97 of that Schedule) from the time they were issued
until the disposal,

in accordance with subsection (6).
(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 and 107 of
35
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 company out of the
section 104 or 1982 holding as relating to shares acquired later rather than
earlier.
40
(6)
For the purposes of subsection (3)(b), the question is to be determined—
(a)
as provided by paragraph 93 of Schedule 15 to FA 2000 (identification
of shares on a disposal of part of a holding where investment relief is
attributable to any shares in the holding held continuously by the
disposing company), but
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Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
44

(b)
as if the references in that paragraph to a disposal had the same
meaning as in the preceding provisions of this section.
(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.
5
(8)
In this section “holding” means any number of shares of the same class held by
one company in the same capacity, growing or diminishing as shares of that
class are acquired or disposed of.

For this purpose 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
10
so treated if dealt in on such an exchange.
(9)
In this section “section 104 holding”, “1982 holding” and “qualifying shares”
have the same meaning as in section 75.
77
Section 76: supplementary
(1)
In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not
15
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 76 as acquired when the original
shares were acquired.
(2)
Any shares held or disposed of by a nominee or bare trustee for a company are
20
treated for the purposes of section 76 as held or disposed of by that company.
(3)
In this section “new holding” and “original shares” have the same meaning as
in section 127 of TCGA 1992 (or, as the case may be, that section as applied by
the enactment concerned).
Qualifying trading companies: the requirements
25
78
Qualifying trading companies
(1)
For the purposes of this Chapter a qualifying trading company is a company
which meets each of conditions A to D.
(2)
Condition A is that the company either—
(a)
meets each of the following requirements on the date of the disposal—
30
(i)
the trading requirement (see section 79),
(ii)
the control and independence requirement (see section 81),
(iii)
the qualifying subsidiaries requirement (see section 82), and
(iv)
the property managing subsidiaries requirement (see section
83), or
35
(b)
has ceased to meet any of those requirements at a time which is not
more than 3 years before that date and has not since that time been an
excluded company, an investment company or a trading company.
(3)
Condition B is that the company either—
(a)
has met each of the requirements mentioned in condition A for a
40
continuous period of 6 years ending on that date or at that time, or
(b)
has met each of those requirements for a shorter continuous period
ending on that date or at that time and has not before the beginning of

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
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that period been an excluded company, an investment company or a
trading company.
(4)
Condition C is that the company—
(a)
met the gross assets requirement (see section 84) both immediately
before and immediately after the issue of the shares in respect of which
5
the share loss relief is claimed, and
(b)
met the unquoted status requirement (see section 85) at the relevant
time within the meaning of that section.
(5)
Condition D is that the company has carried on its business wholly or mainly
in the United Kingdom throughout the period—
10
(a)
beginning with the incorporation of the company or, if later, 12 months
before the shares in question were issued, and
(b)
ending with the date of the disposal.
79
The trading requirement
(1)
The trading requirement is that—
15
(a)
the company, ignoring any incidental purposes, exists wholly for the
purpose of carrying on one or more qualifying trades, or
(b)
the company is a parent company and the business of the group does
not consist wholly or as to a substantial part in the carrying on of non-
qualifying activities.
20
(2)
If the company intends that one or more other companies should become its
qualifying subsidiaries with a view to their carrying on one or more qualifying
trades—
(a)
the company is treated as a parent company for the purposes of
subsection (1)(b), and
25
(b)
the reference in subsection (1)(b) to the group includes the company
and any existing or future company that will be its qualifying
subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that
intention.
30
(3)
For the purpose of subsection (1)(b) the business of the group means what
would be the business of the group if the activities of the group companies
taken together were regarded as one business.
(4)
For the purpose of determining the business of a group, activities are ignored
so far as they are activities carried on by a mainly trading subsidiary otherwise
35
than for its main purpose.
(5)
For the purposes of determining the business of a group, activities of a group
company are ignored so far as they consist in—
(a)
the holding of shares in or securities of a qualifying subsidiary of the
parent company,
40
(b)
the making of loans to another group company,
(c)
the holding and managing of property used by a group company for
the purpose of one or more qualifying trades carried on by a group
company, or
(d)
the holding and managing of property used by a group company for
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the purpose of research and development from which it is intended—

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
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(i)
that a qualifying trade to be carried on by a group company will
be derived, or
(ii)
that a qualifying trade carried on or to be carried on by a group
company will benefit.
(6)
Any reference in subsection (5)(d)(i) or (ii) to a group company includes a
5
reference to any existing or future company which will be a group company at
any future time.
(7)
In this section—
“excluded activities” has the meaning given by section 192 of ITA 2007
read with sections 193 to 199 of that Act,
10
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or
any of its qualifying subsidiaries,
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of
15
the company in question,
“mainly trading subsidiary” means a subsidiary which, apart from
incidental purposes, exists wholly for the purpose of carrying on one or
more qualifying trades, and any reference to the main purpose of such
a subsidiary is to be read accordingly,
20
“non-qualifying activities” means—
(a)
excluded activities, and
(b)
activities (other than research and development) carried on
otherwise than in the course of a trade,
“parent company” means a company that has one or more qualifying
25
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007,
“qualifying trade” has the meaning given by section 189 of that Act, and
“research and development” has the meaning given by section 1138 of this
30
Act.
(8)
In sections 189(1)(b) and 194(4)(c) of ITA 2007 (as applied by subsection (7) for
the purposes of the definitions of “excluded activities” and “qualifying trade”)
“period B” means the continuous period that is relevant for the purposes of
section 78(3).
35
(9)
In section 195 of ITA 2007 (as applied by subsection (7) for the purpose of the
definition of “excluded activities”), references to the issuing company are to be
read as references to the company mentioned in subsection (1).
80
Ceasing to meet trading requirement because of administration etc
(1)
A company is not regarded as ceasing to meet the trading requirement merely
40
because of anything done in consequence of the company or any of its
subsidiaries being in administration or receivership.

This has effect subject to subsections (2) and (3).
(2)
Subsection (1) applies only if—
(a)
the entry into administration or receivership, and
45
(b)
everything done as a result of the company concerned being in
administration or receivership,

Corporation Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
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is for genuine commercial reasons, and is not part of a scheme or arrangement
the main purpose or one of the main purposes of which is the avoidance of tax.
(3)
A company ceases to meet the trading requirement if before the time that is
relevant for the purposes of section 78(2)—
(a)
a resolution is passed, or an order is made, for the winding up of the
5
company or any of its subsidiaries (or, in the case of a winding up
otherwise than under the Insolvency Act 1986 or the Insolvency
(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is
done for the like purpose), or
(b)
the company or any of its subsidiaries is dissolved without winding up.
10

This is subject to subsection (4).
(4)
Subsection (3) does not apply if —
(a)
the winding up is for genuine commercial reasons, and is not part of a
scheme or arrangement the main purpose or one of the main purposes
of which is the avoidance of tax, and
15
(b)
the company continues, during the winding up, to be a trading
company.
(5)
References in this section to a company being “in administration” or “in
receivership” are to be read in accordance with section 252 of ITA 2007.
81
The control and independence requirement
20
(1)
The control element of the requirement is that—
(a)
the company must not control (whether on its own or together with any
person connected with it) any company which is not a qualifying
subsidiary of the company, and
(b)
no arrangements must be in existence by virtue of which the company
25
could fail to meet paragraph (a) (whether at a time during the
continuous period that is relevant for the purposes of section 78(3) or
otherwise).
(2)
The independence element of the requirement is that—
(a)
the company must not—
30
(i)
be a 51% subsidiary of another company, or
(ii)
be under the control of another company (or of another
company and any other person connected with that other
company), without being a 51% subsidiary of that other
company, and
35
(b)
no arrangements must be in existence by virtue of which the company
could fail to meet paragraph (a) (whether at a time during the
continuous period that is relevant for the purposes of section 78(3) or
otherwise).
(3)
This section is subject to section 87(3).
40
(4)
In this section—
“arrangements” includes any scheme, agreement or understanding
(whether or not legally enforceable),
“control”, in subsection (1)(a), is to be read in accordance with sections 450
and 451 (but see section 1124 for the meaning of “control” in subsection
45
(2)(a)(ii)), and

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Part 4 — Loss relief
Chapter 5 — Losses on disposal of shares
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“qualifying subsidiary” is to be read in accordance with section 191 of ITA
2007.
82
The qualifying subsidiaries requirement
(1)
The qualifying subsidiaries requirement is that any subsidiary that the
company has must be a qualifying subsidiary of the company.
5
(2)
In this section “qualifying subsidiary” is to be read in accordance with section
191 of ITA 2007.
83
The property managing subsidiaries requirement
(1)
The property managing subsidiaries requirement is that any property
managing subsidiary that the company has must be a qualifying 90%
10
subsidiary of the company.
(2)
In this section—
“property managing subsidiary” has the meaning given by section 188(2)
of ITA 2007, and
“qualifying 90% subsidiary” has the meaning given by section 190 of that
15
Act.
84
The gross assets requirement
(1)
The gross assets requirement in the case of a single company is that the value
of the company’s gross assets—
(a)
must not exceed £7 million immediately before the shares in respect of
20
which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
(2)
The gross assets requirement in the case of a parent company is that the value
of the group assets—
(a)
must not exceed £7 million immediately before the shares in respect of
25
which the share loss relief is claimed are issued, and
(b)
must not exceed £8 million immediately afterwards.
(3)
The value of the group assets means the sum of the values of the gross assets
of each of the members of the group, ignoring any that consist in rights against,
or shares in or securities of, another member of the group.
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(4)
In this section—
“group” means a parent company and its qualifying subsidiaries,
“parent company” means a company that has one or more qualifying
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191 of ITA
35
2007, and
“single company” means a company that does not have one or more
qualifying subsidiaries.
85
The unquoted status requirement
(1)
The unquoted status requirement is that, at the time (“the relevant time”) at
40
which the shares in respect of which the share loss relief is claimed are issued—