Office of Public Sector Information
SCHEDULE 13 continued PART III continued
(2) For the purposes of this paragraph an individual receives value from the company if the company—
(a) repays, redeems or repurchases any of its share capital or securities which belong to the individual or makes any payment to him for giving up his right to any of the company’s share capital or any security on its cancellation or extinguishment;
(b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the individual other than a debt which was incurred by the company—
(i) on or after the date on which he subscribed for the shares; and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date;
(c) makes to the individual any payment for giving up his right to any debt on its extinguishment;
(d) releases or waives any liability of the individual to the company or discharges, or undertakes to discharge, any liability of his to a third person;
(e) makes a loan or advance to the individual which has not been repaid in full before the issue of the shares;
(f) provides a benefit or facility for the individual;
(g) disposes of an asset to the individual for no consideration or for a consideration which is or the value of which is less than the market value of the asset;
(h) acquires an asset from the individual for a consideration which is or the value of which is more than the market value of the asset; or
(i) makes any payment to the individual other than a qualifying payment.
(3) For the purposes of sub-paragraph (2)(e) above there shall be treated as if it were a loan made by the company to the individual—
(a) the amount of any debt (other than an ordinary trade debt) incurred by the individual to the company; and
(b) the amount of any debt due from the individual to a third person which has been assigned to the company.
(4) For the purposes of this paragraph an individual also receives value from the company if he receives in respect of ordinary shares held by him any payment or asset in a winding up or in connection with a dissolution of the company, being a winding up or dissolution falling within section 293(6) of the Taxes Act.
(5) For the purposes of this paragraph an individual also receives value from the company if any person who would, for the purposes of section 291 of the Taxes Act, be treated as connected with the company—
(a) purchases any of its share capital or securities which belong to the individual; or
(b) makes any payment to him for giving up any right in relation to any of the company’s share capital or securities.
(6) Where an individual’s disposal of shares in a company gives rise to a chargeable event falling within paragraph 3(1)(a) or (b) above, the individual shall not be treated for the purposes of this paragraph as receiving value from the company in respect of the disposal.
(7) In this paragraph “qualifying payment” means—
(a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment; eturn on any investment in shares in or other securities of that company;
(e) any payment for the supply of goods which does not exceed their market value;
(f) any payment for the acquisition of an asset which does not exceed its market value;
(g) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property;
(h) any reasonable and necessary remuneration which—
(i) is paid by any company for services rendered to that company in the course of a trade or profession; and
(ii) is taken into account in computing the profits of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits are assessed under that Schedule;
(i) a payment in discharge of an ordinary trade debt.
(8) For the purposes of this paragraph a company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(9) In this paragraph—
(a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment; and
(b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment.
(10) In this paragraph—
(a) any reference to a payment or disposal to an individual includes a reference to a payment or disposal made to him indirectly or to his order or for his benefit;
(b) any reference to an individual includes a reference to an associate of his; and
(c) any reference to a company includes a reference to a person who at any time in the relevant period is connected with the company, whether or not he is so connected at the material time.
(11) In this paragraph “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given—
(a) does not exceed six months; and
(b) is not longer than that normally given to customers of the person carrying on the trade or business.
14 (1) Sub-paragraph (2) below applies where an individual subscribes for eligible shares (“the shares”) in a company and at any time in the seven year period the company or any subsidiary—
(a) repays, redeems or repurchases any of its share capital which belongs to any member other than the individual or an individual falling within sub-paragraph (3) below, or
(b) makes any payment (directly or indirectly) to any such member, or to his order or for his benefit, for the giving up of his right to any of the share capital of the company or subsidiary on its cancellation or extinguishment.
(2) The shares shall be treated for the purposes of this Schedule—
(a) if the repayment, redemption, repurchase or payment in question is made or effected on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if it is made or effected after that date, as ceasing to be eligible shares on the date when it is made or effected.
(3) An individual falls within this sub-paragraph if the repayment, redemption, repurchase or payment in question—
(a) gives rise to a qualifying chargeable event in respect of him, or
(b) causes any relief under Chapter III of Part VII of the Taxes Act attributable to his shares in the company to be withdrawn or reduced by virtue of section 299 or 300(2)(a) of that Act.
(4) In sub-paragraph (3) above “qualifying chargeable event” means—
(a) a chargeable event falling within paragraph 3(1)(a) or (b) above; or
(b) a chargeable event falling within paragraph 3(1)(e) above by virtue of sub-paragraph (1)(b) of paragraph 13 above (as it applies by virtue of sub-paragraph (2)(a) of that paragraph).
(5) Where—
(a) a company issues share capital (“the original shares”) of nominal value equal to the authorised minimum (within the meaning of the [1985 c. 6.] Companies Act 1985) for the purposes of complying with the requirements of section 117 of that Act (public company not to do business unless requirements as to share capital complied with), and
(b) after the registrar of companies has issued the company with a certificate under section 117, it issues eligible shares,
the preceding provisions of this paragraph shall not apply in relation to any redemption of any of the original shares within 12 months of the date on which those shares were issued.
(6) In relation to companies incorporated under the law of Northern Ireland references in sub-paragraph (5) above to the [1985 c. 6.] Companies Act 1985 and to section 117 of that Act shall have effect as references to the [S.I. 1986/1032 (N.I.6).] Companies (Northern Ireland) Order 1986 and to Article 127 of that Order.
(7) References in this paragraph to a subsidiary of a company are references to a company which at any time in the relevant period is a 51 per cent. subsidiary of the first mentioned company, whether or not it is such a subsidiary at the time of the repayment, redemption, repurchase or payment in question.
15 (1) Where at any time in the relevant period an investment-linked loan is made by any person to an individual who subscribes for eligible shares (“the shares”) in a company, the shares shall be treated for the purposes of this Schedule—
(a) if the loan is made on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if the loan is made after that date, as ceasing to be eligible shares on the date when the loan is made.
(2) A loan made by any person to an individual is an investment-linked loan for the purposes of this paragraph if the loan is one which would not have been made, or would not have been made on the same terms, if the individual had not subscribed for the shares or had not been proposing to do so.
(3) References in this paragraph to the making by any person of a loan to an individual include references—
(a) to the giving by that person of any credit to that individual; and
(b) to the assignment or assignation to that person of any debt due from that individual.
(4) In this paragraph any reference to an individual includes a reference to an associate of his.”
36 After paragraph 15 there shall be inserted the following paragraphs—
16 (1) Where, in relation to any relevant shares held by an individual—
(a) a chargeable event falling within paragraph 3(1)(a) or (b) above occurs at any time in the five year period,
(b) a chargeable event falling within paragraph 3(1)(c) or (d) above occurs, or
(c) a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 12(2)(b), 13(1)(b) or 15(1)(b) above,
the individual shall within 60 days of his coming to know of the event give a notice to the inspector containing particulars of the circumstances giving rise to the event.
(2) Where, in relation to any relevant shares in a company, a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 1A(1) or (2), 13(1)(b) or 14(2)(b) above—
(a) the company, and
(b) any person connected with the company who has knowledge of that matter,
shall within 60 days of the event or, in the case of a person within paragraph (b) above, of his coming to know of it, give a notice to the inspector containing particulars of the circumstances giving rise to the event.
(3) A chargeable event falling within paragraph 3(1)(e) above which, but for paragraph 1A(5) above, would occur at any time by virtue of paragraph 1A(1) or (2) above shall be treated for the purposes of sub-paragraph (2) above as occurring at that time.
(4) Where a company has issued a certificate under section 306(2) of the Taxes Act (as applied by paragraph 6 above) in respect of any eligible shares in the company, and the condition in paragraph 1(2)(g) above is not satisfied in relation to the shares—
(a) the company, and
(b) any person connected with the company who has knowledge of that matter,
shall within 60 days of the time mentioned in section 289(3) of the Taxes Act or, in the case of a person within paragraph (b) above, of his coming to know that the condition is not satisfied, give notice to the inspector setting out the particulars of the case.
(5) If the inspector has reason to believe that a person has not given a notice which he is required to give—
(a) under sub-paragraph (1) or (2) above in respect of any chargeable event, or
(b) under sub-paragraph (4) above in respect of any particular case,
the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event or case as the inspector may reasonably require for the purposes of this Schedule.
(6) Where a claim is made under this Schedule in respect of shares in a company and the inspector has reason to believe that it may not be well founded by reason of any such arrangements as are mentioned in paragraphs 1(2)(d) or 11(1) above, or section 293(8) or 308(2)(e) of the Taxes Act, he may by notice require any person concerned to furnish him within such time (not being less than 60 days) as may be specified in the notice with—
(a) a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangements exist or have existed;
(b) such other information as the inspector may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.
(7) For the purposes of sub-paragraph (6) above, the persons who are persons concerned are—
(a) in relation to paragraph 1(2)(d) above, the claimant, the company and any person controlling the company;
(b) in relation to paragraph 11(1) above, the claimant, the company and any person connected with the company; and
(c) in relation to section 293(8) or 308(2)(e) of the Taxes Act, the company and any person controlling the company;
and for those purposes the references in paragraphs (a) and (b) above to the claimant include references to any person to whom the claimant appears to have made a disposal within marriage of any of the shares in question.
(8) Where deferral relief is attributable to shares in a company—
(a) any person who receives from the company any payment or asset which may constitute value received (by him or another) for the purposes of paragraph 13 above, and
(b) any person on whose behalf such a payment or asset is received,
shall, if so required by the inspector, state whether the payment or asset received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person.
(9) Where a claim has been made under this Schedule in relation to shares in a company, any person who holds or has held shares in the company and any person on whose behalf any such shares are or were held shall, if so required by the inspector, state—
(a) whether the shares which are or were held by him or on his behalf are or were held on behalf of any person other than himself; and
(b) if so, the name and address of that person.
(10) No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a company that relief has been given or claimed in respect of a particular number or proportion of its shares.
17 (1) Subject to the following provisions of this paragraph, this Schedule shall apply as if—
(a) any reference to an individual included a reference to the trustees of a settlement, and
(b) in relation to any such trustees, the reference in paragraph 1(1) above to any asset were a reference to any asset comprised in any settled property to which this paragraph applies (a “trust asset”).
(2) This paragraph applies—
(a) to any settled property in which the interests of the beneficiaries are not interests in possession, if all the beneficiaries are individuals, and
(b) to any settled property in which the interests of the beneficiaries are interests in possession, if any of the beneficiaries are individuals.
(3) If, at the time of the disposal of the trust asset in a case where this Schedule applies by virtue of this paragraph—
(a) the settled property comprising that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, but
(b) not all the beneficiaries are individuals,
only the relevant proportion of the gain which would accrue to the trustees on the disposal shall be taken into account for the purposes of this Schedule as it so applies.
(4) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(a) above unless, immediately after the acquisition of the relevant shares, the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(a) above.
(5) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above unless, immediately after the acquisition of the relevant shares—
(a) the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, and
(b) if not all the beneficiaries are individuals, the relevant proportion is not less than the proportion which was the relevant proportion at the time of the disposal of the trust asset.
(6) If, at any time, in the case of settled property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, both individuals and others have interests in possession, “the relevant proportion” at that time is the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is—
(a) the total amount of the income of the settled property, being income the interests in which are held by beneficiaries who are individuals, and
(b) the total amount of all the income of the settled property.
(7) Where, in the case of any settled property in which any beneficiary holds an interest in possession, one or more beneficiaries (“the relevant beneficiaries”) hold interests not in possession, this paragraph shall apply as if—
(a) the interests of the relevant beneficiaries were a single interest in possession, and
(b) that interest were held, where all the relevant beneficiaries are individuals, by an individual and, in any other case, by a person who is not an individual.
(8) In this paragraph references to interests in possession do not include interests for a fixed term and, except in sub-paragraph (1), references to individuals include any charity.
18 (1) Paragraphs 13 and 15 above shall have effect in relation to the subscription for shares by the trustees of a settlement as if references to the individual subscribing for the shares were references to—
(a) those trustees;
(b) any individual or charity by virtue of whose interest, at a relevant time, paragraph 17 above applies to the settled property; or
(c) any associate of such an individual, or any person connected with such a charity.
(2) The relevant times for the purposes of sub-paragraph (1)(b) above are the time when the shares are issued and—
(a) in a case where paragraph 13 above applies, the time when the value is received;
(b) in a case where paragraph 15 above applies, the time when the loan is made.
19 (1) For the purposes of this Schedule—
“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;
“associate” has the meaning that would be given by subsections (3) and (4) of section 417 of the Taxes Act if in those subsections “relative” did not include a brother or sister;
“eligible shares” has the meaning given by section 289(7) of that Act;
“the five year period”, in the case of any relevant shares, means the period of five years beginning with the issue of the shares;
“non-resident” means a person who is neither resident nor ordinarily resident in the United Kingdom;
“ordinary share capital” has the same meaning as in the Taxes Act;
“ordinary shares”, in relation to a company, means shares forming part of its ordinary share capital;
“qualifying business activity” has the meaning given by section 289(2) of the Taxes Act;
“qualifying company”, in relation to any eligible shares, means a company which, in relation to those shares, is a qualifying company for the purposes of Chapter III of Part VII of that Act;
“the relevant period”, in the case of any shares, means the period found by applying section 312(1A)(a) of that Act by reference to the company that issued the shares and by reference to the shares;
“relevant shares”, in relation to a case to which this Schedule applies, means any of the shares which are acquired by the investor in making the qualifying investment;
“the seven year period” has the meaning given by section 291(6) of the Taxes Act.
(2) For the purposes of this Schedule, “deferral relief” is attributable to any shares if—
(a) expenditure on the shares has been set under this Schedule against the whole or part of any gain; and
(b) in relation to the shares there has been no chargeable event for the purposes of this Schedule.
(3) In this Schedule—
(a) references (however expressed) to an issue of eligible shares in any company are to any eligible shares in the company that are of the same class and are issued on the same day;
(b) references to a disposal within marriage are references to any disposal to which section 58 applies; and
(c) references to Chapter III of Part VII of the Taxes Act or any provision of that Chapter are to that Chapter or provision as it applies in relation to shares issued on or after 1st January 1994.
(4) For the purposes of this Schedule shares in a company shall not be treated as being of the same class unless they would be so treated if dealt with on the Stock Exchange.
(5) Notwithstanding anything in section 288(5), shares shall not for the purposes of this Schedule be treated as issued by reason only of being comprised in a letter of allotment or similar instrument.”
37 Any reference in this Part to a provision of Chapter III of Part VII of the Taxes Act 1988 is a reference to that provision as it has effect in relation to shares issued before 1st January 1994.
38 (1) In subsection (8) of section 293 of the Taxes Act 1988 (qualifying companies), for the words “Subject to sections 308 and 309” there shall be substituted the words “Subject to sections 304A, 308 and 309”.
(2) This paragraph has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after 6th April 1998.
39 (1) At the beginning of subsection (1) of section 299 of the Taxes Act 1988 (disposals of shares) there shall be inserted the words “Subject to section 304(5),”.
(2) For subsection (4) of that section there shall be substituted the following subsections—
“(4) Where shares of any class in a company have been acquired by an individual on different days, any disposal by him of shares of that class shall, subject to subsection (3) above, be treated for the purposes of this section as relating to those acquired on an earlier day rather than to those acquired on a later day.
(4A) Where shares of any class in a company have been acquired by an individual on the same day, any disposal by him of shares of that class shall, subject to subsection (3) above, be treated for the purposes of this section as relating to those in respect of which relief has not been given, or has been withdrawn, rather than to those in respect of which relief has been given and has not been withdrawn.
(4B) Any shares in respect of which relief has been given and has not been withdrawn and which were transferred to an individual as mentioned in section 304 shall be treated for the purposes of subsections (4) and (4A) above as acquired by him on the day on which they were issued.
(4C) In a case to which section 127 of the 1992 Act applies (whether or not by virtue of section 135(3) of that Act), shares comprised in the new holding shall be treated for the purposes of subsections (4) and (4A) above as acquired when the original shares were acquired.
In this subsection “new holding” and “original shares” shall be construed in accordance with sections 126, 127, 135 and 136 of the 1992 Act.”
(3) This paragraph has effect in relation to disposals made on or after 6th April 1998.
40 (1) After subsection (6) of section 304 of the Taxes Act 1988 (husband and wife) there shall be inserted the following subsection—
“(7) Subsections (3) to (4C) of section 299 shall apply for the purposes of this section as they apply for the purposes of that section.”
(2) This paragraph has effect in relation to disposals made on or after 6th April 1998.
41 (1) After that section there shall be inserted the following section—
(1) This section applies where—
(a) a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another 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 new shares of each description consists wholly of old shares of the corresponding description;
(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;
(e) at some time before the issue of the new shares—
(i) the old company issued eligible shares; and
(ii) a certificate in relation to those eligible shares was issued by that company for the purposes of subsection (2) of section 306 and in accordance with that section; and
(f) before the issue of the new shares, the Board have, on the application of the new company or the old company, notified that company that the Board are satisfied that the exchange of shares—
(i) will be effected for bona fide commercial reasons; and
(ii) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act.
(2) For the purposes of this Chapter—
(a) the exchange of shares shall not be regarded as involving any disposal of the old shares or any acquisition of the new shares; and
(b) any relief which has been given (and not withdrawn) in respect of any old shares shall be treated as given (and not withdrawn) in respect of the new shares for which they are exchanged.
(3) Where, in the case of any new shares held by an individual in respect of which relief is treated as so given (and not withdrawn), the old shares for which they are exchanged were subscribed for by and issued to the individual, this Chapter shall have effect as if—
(a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him;
(b) the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company;
(c) the claim for relief made in respect of the old shares had been made in respect of the new shares;
(d) relief had been given to him in respect of the new shares for the same year of assessment as that for which relief was given to him in respect of the old shares; and
(e) any reduction made, or falling to be made, in the amount of relief given to him in respect of the old shares had been made, or fell to be made, in the amount of relief given to him in respect of the new shares.
(4) Where, in the case of any new shares held by an individual in respect of which relief is treated as so given (and not withdrawn), the old shares for which they are exchanged were transferred to the individual as mentioned in section 304, this Chapter shall have effect in relation to any subsequent disposal or other event as if—
(a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for;
(b) the new shares had been issued by the new company at the time when the old shares were issued by the old company;
(c) the claim for relief made in respect of the old shares had been made in respect of the new shares;
(d) relief had been given to him in respect of the new shares for the same year of assessment as that for which relief was given in respect of the old shares; and
(e) any reduction made, or falling to be made, in the amount of relief given in respect of the old shares had been made, or fell to be made, in the amount of relief given to him in respect of the new shares.
(5) Where relief is treated as so given (and not withdrawn) in respect of any new shares, this Chapter shall have effect as if anything which, under section 306(2) or 310, has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company.
(6) 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 same company, they would be of the same class and carry the same rights; and in subsection (1) above references to shares, except in the expressions “eligible shares” and “subscriber shares”, include references to securities.
(7) Nothing in section 293(8) shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1) above or arrangements with a view to such an exchange.
(8) Subsection (2) of section 138 of the 1992 Act shall apply for the purposes of subsection (1)(f) above as it applies for the purposes of subsection (1) of that section.”
(2) This paragraph has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after 6th April 1998.
42 (1) In subsection (4)(a) of section 150 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (business expansion schemes)—
(a) for the words “issued to a person” there shall be substituted the words “acquired by an individual”; and
(b) after the word “relates” there shall be inserted the word “to”.
Finance Act 1998 (C. 36)