Finance Act 1973

• (2) For the purposes of sub-paragraph (1)(a) above "ordinary shares " means all shares other than fixed-rate preference shares.

• (3) In this Schedule " fixed-rate preference shares " means shares which—

• (a) are issued for consideration which is or includes new consideration ; and

• (b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities ; and

• (c) do not carry any right to dividends other than dividends which—

• (i) are of a fixed amount or at a fixed rate per cent, of the nominal value of the shares, and

• (ii) represent no more than a reasonable commercial return on the new consideration received by the company in respect of the issue of the shares ; and

• (d) on repayment do not carry any rights to an amount exceeding that new consideration except in so far as those rights are reasonably comparable with those general for fixed dividend shares fisted in the Official List of The Stock Exchange.

• (4) Section 303(7) of the Taxes Act (definition of " loan creditor " for purposes of provisions relating to close companies) shall apply for the purposes of sub-paragraph (1)(b) above as it applies for the purposes of the Chapter specified therein, except that the proviso (which has the effect of excluding banks) shall be omitted.

• (5) In sub-paragraph (1)(b) above " normal commercial loan" means a loan of or including new consideration and—

• (a) which does not carry any right either to conversion into shares or securities of any other description or to the acquisition of additional shares or securities ; and

• (b) which does not entitle the loan creditor to any amount by way of interest which depends to any extent on the results of the company's business or any part of it or on the value of any of the company's assets or which exceeds a reasonable commercial return on the new consideration lent; and

• (c) in respect of which the loan creditor is entitled, on repayment, to an amount which either does not exceed the new consideration lent or is reasonably comparable with the amount generally repayable (in respect of an equal amount of new consideration) under the terms of issue of securities listed in the Official List of The Stock Exchange.

• (6) Notwithstanding anything in sub-paragraphs (1) to (5) above but subject to sub-paragraph (7) below, where—

• (a) any person has, directly or indirectly, provided new consideration for any shares or securities in the company, and

• (b) that person, or any person connected with him, uses for the purposes of his trade assets which belong to the company and in respect of which there is made to the company any of the allowances specified in paragraphs (a) to (d) of section 31(6) of this Act (substituting, for this purpose, a reference to the company for any reference in those paragraphs to the partnership),

then, for the purposes of this Schedule, that person, and no other, shall be treated as being an equity holder in respect of those shares or securities and as being beneficially entitled to any distribution of profits or assets attributable to those shares or securities.

• (7) In any case where sub-paragraph (b) above applies in relation to a bank in such circumstances that—

• (a) the only new consideration provided by the bank as mentioned in paragraph (a) of that sub-paragraph is provided in the normal course of its banking business by way of a normal commercial loan as defined in sub-paragraph (5) above ; and

• (b) the cost to the company concerned of the assets falling within paragraph (b) of that sub-paragraph which are used as mentioned in that paragraph by the bank or a person connected with the bank is less than the amount of that new consideration,

references in sub-paragraph (b) above, other than the reference in paragraph (a) thereof, to shares or securities in the company shall be construed as a reference to so much only of the loan referred to in paragraph (a) above as is equal to the cost referred to in paragraph (b) above.

• (8) In this paragraph " new consideration " has the same meaning as in Part X of the Taxes Act and any question whether one person is connected with another shall be determined in accordance with section 533 of that Act.

2

• (1) Subject to the following provisions of this Part of this Schedule, for the purposes of section 28 of this Act, the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company means the percentage to which the first company would be so entitled in the relevant accounting period on a distribution in money to those equity holders of—

• (a) an amount of profits equal to the total profits of the other company which arise in that accounting period (whether or not any of those profits are in fact distributed), or

• (b) if there are no profits of the other company in that accounting period, profits of £100,

and in the following provisions of this Part of this Schedule, that distribution is referred to as " the profit distribution ".

• (2) For the purposes of the profit distribution, it shall be assumed that no payment is made by way of repayment of share capital or of the principal secured by any loan unless that payment is a distribution.

• (3) Subject to sub-paragraph (2) above, where an equity holder is entitled as such to a payment of any description which, apart from this sub-paragraph, would not be treated as a distribution, it shall nevertheless be treated as an amount to which he is entitled on the profit distribution.

3

• (1) Subject to the following provisions of this Part of this Schedule, for the purposes of section 28 of this Act the percentage to which one company would be beneficially entitled of any assets of another company available for distribution to its equity holders on a winding-up means the percentage to which the first company would be so entitled if the other company were to be wound up and on that winding-up the value of the assets available for distribution to its equity holders (that is to say, after deducting any liabilities to other persons) were equal to—

• (a) the excess, if any, of the total amount of the assets of the company, as shown in the balance sheet relating to its affairs as at the end of the relevant accounting period, over the total amount of those of its liabilities as so shown which are not liabilities to equity holders as such, or

• (b) if there is no such excess or if the company's balance sheet is prepared to a date other than the end of the relevant accounting period, £100.

• (2) In the following provisions of this Part of this Schedule, a winding-up on the basis specified in sub-paragraph (1) above is referred to as " the notional winding-up ".

• (3) If, on the notional winding-up, an equity holder would be entitled as such to an amount of assets of any description which, apart from this sub-paragraph, would not be treated as a distribution of assets, it shall nevertheless be treated, subject to sub-paragraph (4) below, as an amount to which the equity holder is entitled on the distribution of assets on the notional winding-up.

• (4) If an amount (in this sub-paragraph referred to as "the returned amount") which corresponds to the whole or any part of the new consideration provided by an equity holder of a company for any shares or securities in respect of which he is an equity holder is applied by the company, directly or indirectly, in the making of a loan to, or in the acquisition of any shares or securities in, the equity holder or any person connected with him, then, for the purposes of this Part of this Schedule—

• (a) the total amount referred to in sub-paragraph (1)(a) above shall be taken to be reduced by a sum equal to the returned amount; and

• (b) the amount of assets to which the equity holder is beneficially entitled on the notional winding-up shall be taken to be reduced by a sum equal to the returned amount.

• (5) In sub-paragraph (4) above " new consideration " has the same meaning as in Part X of the Taxes Act and any question whether one person is connected with another shall be determined in accordance with section 533 of that Act.

4

• (1) This paragraph applies if any of the equity holders—

• (a) to whom the profit distribution is made, or

• (b) who is entitled to participate in the notional winding-up,

holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are wholly or partly limited by reference to a specified amount or amounts (whether the limitation takes the form of the capital by reference to which a distribution is calculated or operates by reference to an amount of profits or assets or otherwise).

• (2) Where this paragraph applies, there shall be determined—

• (a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and

• (b) the percentage of assets to which, on the notional winding up, the first company referred to in paragraph 3(1) above would be entitled,

if, to the extent that they are limited as mentioned in sub-paragraph (1) above, the rights of every equity holder falling within that sub-paragraph (including the first company concerned if it is such an equity holder) had been waived.

• (3) If, on the profit distribution, the percentage of profits determined as mentioned in sub-paragraph (2)(a) above is less than the percentage of profits determined under paragraph 2(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of section 28 of this Act to be the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled as mentioned in that paragraph.

• (4) If, on the notional winding-up, the percentage of assets determined as mentioned in sub-paragraph (2)(b) above is less than the percentage of assets determined under paragraph 3(1) above without regard to that sub-paragraph, the lesser percentage shall be taken for the purposes of section 28 of this Act to be the percentage to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled of any assets of the other company available for distribution to its equity holders on a winding-up.

5

• (1) This paragraph applies if, at any time in the relevant accounting period, any of the equity holders—

• (a) to whom the profit distribution is made, or

• (b) who is entitled to participate in the notional winding-up,

holds, as such an equity holder, any shares or securities which carry rights in respect of dividend or interest or assets on a winding-up which are of such a nature (as, for example, if any shares will cease to carry a right to a dividend at a future time) that if the profit distribution or the notional winding-up were to take place in a different accounting period the percentage to which, in accordance with the preceding provisions of this Part of this Schedule, that equity holder would be entitled of profits on the profit distribution or of assets on the notional winding-up would be different from the percentage determined in the relevant accounting period.

• (2) Where this paragraph applies, there shall be determined—

• (a) the percentage of profits to which, on the profit distribution, the first company referred to in paragraph 2(1) above would be entitled, and

• (b) the percentage of assets to which, on the notional winding-up, the first company referred to in paragraph 3(1) above would be entitled,

if the rights of the equity holders in the relevant accounting period were the same as they would be in the different accounting period referred to in sub-paragraph (1) above.

• (3) If in the relevant accounting period an equity holder holds, as such, any shares or securities in respect of which arrangements exist by virtue of which, in that or any subsequent accounting period, the equity holder's entitlement to profits on the profit distribution or to assets on the notional winding-up could be different as compared with his entitlement if effect were not given to the arrangements, then for the purposes of this paragraph—

• (a) it shall be assumed that effect would be given to those arrangements in a later accounting period, and

• (b) those shares or securities shall be treated as though any variation in the equity holder's entitlement to profits or assets resulting from giving effect to the arrangements were the result of the operation of such rights attaching to the shares or securities as are referred to in sub-paragraph (1) above.

• (4) Sub-paragraphs (3) and (4) of paragraph 4 above shall apply for the purposes of this paragraph as they apply for the purposes of that paragraph and, accordingly, references therein to sub-paragraphs (2)(a) and (2)(b) of that paragraph shall be construed as references to sub-paragraphs (2)(a) and (2)(b) of this paragraph.

• (5) In any case where paragraph 4 above applies as well as this paragraph, paragraph 4 above shall be applied separately (in relation to the profit distribution and the notional winding-up)—

• (a) on the basis specified in sub-paragraph (2) above, and

• (b) without regard to that sub-paragraph,

and sub-paragraphs (3) and (4) of paragraph 4 above shall apply accordingly in relation to the percentages so determined as if for the word " lesser " there were substituted the word " lowest ".

6

For the purposes of section 28 of this Act and paragraphs 2 to 5 above—

• (a) the percentage to which one company is beneficially entitled of any profits available for distribution to the equity holders of another company, and

• (b) the percentage to which one company would be beneficially entitled of any assets of another company on a winding-up,

means the percentage to which the first company is, or would be, so entitled either directly or through another body corporate or other bodies corporate or partly directly and partly through another body corporate or other bodies corporate.

7

• (1) In this Part of this Schedule "the relevant accounting period " means—

• (a) in a case falling within subsection (2) of section 28 of this Act, the accounting period current at the time in question ; and

• (b) in a case falling within subsection (3) of that section, the accounting period in relation to which the share in the consortium falls to be determined.

• (2) For the purposes of this Part of this Schedule, a loan to a company shall be treated as a security, whether or not it is a secured loan, and, if it is a secured loan, regardless of the nature of the security.

PART II — Transitional Provisions

8

• (1) This paragraph shall apply in any case where—

• (a) immediately before 6th March 1973, one company (in this paragraph referred to as " the subsidiary company ") was, for the purposes of the enactments relating to group relief, a 75 per cent, or a 90 per cent, subsidiary of another company (in this paragraph referred to as " the parent company "); and

• (b) by virtue of section 28 or section 29 of this Act the subsidiary company ceased on that date to be such a subsidiary for the purposes of those enactments.

• (2) Subject to paragraph 11 below, if this paragraph applies then, with respect to any period beginning on 6th March 1973 and ending before 1st April 1974, the subsidiary company shall be treated for the purposes of the enactments relating to group relief as continuing to be a 75 per cent, or, as the case may be, a 90 per cent, subsidiary of the parent company if—

• (a) immediately before 1st April 1974 the subsidiary company is such a subsidiary for the purposes of those enactments ; and

• (b) throughout that period the subsidiary company would have been such a subsidiary for the purposes of those enactments if sections 28 and 29 of this Act had not been passed.

9

• (1) This paragraph shall apply in any case where, immediately before 6th March 1973, a company was a member of a consortium for the purposes of the enactments relating to group relief and.—

• (a) by virtue of section 28 of this Act, the company's share in the consortium is on that date less than it was before it; or

• (b) by virtue of subsection (2) of section 29 of this Act, on that date a trading company or holding company which is owned by the consortium or a trading company which is a 90 per cent, subsidiary of a holding company which is owned by the consortium ceases to be able to surrender relief to members of the consortium.

• (2) Subject to paragraph 11 below, if this paragraph applies then, with respect to any period beginning on 6th March 1973 and ending before 1st April 1974, the member's share in the consortium shall be treated for the purposes of the enactments relating to group relief as of the same magnitude as it was immediately before 6th March 1973 and the trading company or the holding company, as the case may be, shall continue to be entitled to surrender relief to members of the consortium if—

• (a) throughout that period there is no variation in the percentage of the ordinary share capital of the surrendering company or, as the case may be, the holding company through which the surrendering company is owned, which is beneficially owned by that member ; and

• (b) immediately before 1st April 1974 the member's share in the consortium (determined in accordance with section 28 of this Act) is of the same magnitude as it was immediately before 6th March 1973 ; and

• (c) immediately before 1st April 1974 subsection (2) of section 29 of this Act does not apply in relation to the surrendering company.

10

• (1) This paragraph shall apply with respect to claims for group relief in respect of any amount which is attributable—

• (a) to first-year allowances, within the meaning of Chapter I of Part III of the Finance Act 1971, in respect of expenditure incurred by the surrendering company on the provision of machinery or plant, or

• (b) to writing-down allowances, within the meaning of Chapter II of Part I of the Capital Allowances Act 1968, or, as the case may require, Chapter I of Part III of the Finance Act 1971, in respect of expenditure incurred by the surrendering company on the provision of machinery or plant, or

• (c) to initial allowances under section 56 of the Capital Allowances Act 1968 (in respect of expenditure on works in connection with mines, etc.) in respect of expenditure incurred by the surrendering company and falling within section 52(1) of the Finance Act 1971 (expenditure incurred on or after 27th October 1970 on the construction of works in a development area or Northern Ireland), or

• (d) to allowances under section 91 of the Capital Allowances Act 1968 in respect of expenditure incurred by the surrendering company on scientific research,

where the expenditure is incurred under a contract entered into by the surrendering company before 6th March 1973.

• (2) Notwithstanding anything in section 28 or section 29 of this Act or in the preceding provisions of this Schedule, but subject to paragraph 11 below, group relief may be claimed in respect of any such amount as is referred to in sub-paragraph (1) above if—

• (a) immediately before 6th March 1973 the surrendering company and the company claiming relief were members of a group of companies and, throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is no reduction in the rights of the parent company with respect to the matters specified in paragraphs (a) and (b) of subsection (2) of section 28 of this Act, or

• (b) immediately before 6th March 1973 the company claiming relief was a member of a consortium and, throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is no variation in the percentage of the ordinary share capital of the company owned by the consortium which is beneficially owned by that member and no reduction in the rights of that member (in respect of the company owned by the consortium) with respect to the matters specified in paragraphs (b) and (c) of subsection (3) of section 28 of this Act,

and, in either case, no such arrangements as are specified in subsection (1) or subsection (2) of section 29 of this Act come into existence after 5th March 1973 with respect to any of the companies concerned and no variation is made in any such arrangements which are in existence on that date with respect to any of those companies.

• (3) For the purposes of sub-paragraph (2)(a) above "the parent company" means the company of which another member of the group referred to in that sub-paragraph was, immediately before 6th March 1973, a 75 per cent, subsidiary, and the rights of the parent company referred to in that paragraph are—

• (a) if the parent company is either the surrendering company or the company claiming relief, its rights in the other company; and

• (b) in any other case, its rights in both the surrendering company and the company claiming relief.

• (4) For the purposes of this paragraph an amount which the claimant company claims by way of group relief shall be treated as attributable to an allowance falling within any of paragraphs (a) to (d) of sub-paragraph (1) above to the extent that that amount would not have been available for surrender by the surrendering company if no such allowance had been available to the surrendering company in respect of the expenditure concerned.

11

• (1) Sub-paragraph (2) of paragraph 8, sub-paragraph (2) of paragraph 9 or, as the case may be, sub-paragraph (2) of paragraph 10 above shall not apply if, during the period referred to in that sub-paragraph.—

• (a) there is a major change in the nature or conduct of a trade or business carried on by the relevant company; or

• (b) the relevant company sets up and commences a trade or business which it did not carry on immediately before 6th March 1973.

• (2) Sub-paragraph (2) of paragraph 8 or, as the case may be, sub-paragraph (2) of paragraph 9 above shall not apply if, during the period referred to in that sub-paragraph, the relevant company ceases to carry on a trade, in whole or in part, and a successor company begins to carry it on.

• (3) In sub-paragraphs (1) and (2) above " the relevant company " means.—

• (a) in relation to sub-paragraph (2) of paragraph 8 above, the subsidiary company, as defined in that paragraph ; and

• (b) in relation to sub-paragraph (2) of paragraph 9 above, the trading company or the holding company referred to in that sub-paragraph ; and

• (c) in relation to sub-paragraph (2) of paragraph 10 above.—

• (i) if the claim for group relief is attributable to an allowance falling within paragraph (a) or paragraph (b) of sub-paragraph (1) of that paragraph and the machinery or plant to which the allowance relates is brought into use on or before 6th March 1978, the company claiming group relief ; and

• (ii) in any other case, either the company claiming group relief or the company which, if this paragraph did not apply, would be the surrendering company.

• (4) In paragraph (a) of sub-paragraph (1) above " major change in the nature or conduct of a trade or business" has the same meaning as in subsection (1) of section 101 of the Finance Act 1972 (change in ownership of company: calculation and treatment of advance corporation tax).

• (5) For the purposes of sub-paragraph (2) above, a company is a successor company in relation to the relevant company if the circumstances are such that—

• (a) section 252 of the Taxes Act (company reconstructions with out change of ownership) applies in relation to the relevant company and the other company as the predecessor and the successor within the meaning of that section ; or

• (b) the two companies are connected with each other within the terms of section 533 of the Taxes Act.

SCHEDULE 13

Amendment of section 92

1

Section 92 of the Finance Act 1972 shall be amended as follows.

2

In subsection (1) for the words from the beginning to " paragraph (b) above " there shall be substituted the words " Where a company (in this section referred to as ' the surrendering company') has paid an amount of advance corporation tax in respect of a dividend or dividends paid by it in an accounting period and the advance corporation tax has not been repaid, it may, on making a claim, surrender the benefit of the whole or part of that amount ".

3

In subsections (2), (6) and (7) the word " surplus " shall be omitted wherever it occurs.

4

In subsection (2)—

• (a) for the words " subsection (4)" there shall be substituted the words " subsections (3A) and (4) "; and

• (b) for the words " subsection (1)(b) " (in both places) there shall be substituted the words " subsection (1) ".

5

After subsection (3) there shall be inserted the following subsection :—

(3A) No advance corporation tax which a subsidiary is treated as having paid by virtue of subsection (2) above shall be set against the subsidiary's liability to corporation tax under subsection (3) of section 85 above ; but in determining for the purposes of subsections (3) and (4) of that section what (if any) amount of surplus advance corporation tax there is in any accounting period of a subsidiary, an amount so treated as having been paid shall be set against its liability to corporation tax before any advance corporation tax paid in respect of any distribution made by the subsidiary.

6

In subsection (5) for the word " two " there shall be substituted the word " six ".

7

In subsection (8) after the words " United Kingdom ; and " there shall be inserted the words " subject to subsection (9) below ".

8

At the end of the section there shall be added the following subsections:—

(9) Notwithstanding that, apart from this subsection, one company (in this subsection referred to as ' the subsidiary company ') would at any time, by virtue of subsection (8) above, be a subsidiary of another company (in this subsection referred to as ' the parent company') for the purposes of this section, the subsidiary company shall not be treated at that time as a subsidiary for those purposes— (a) if arrangements are in existence by virtue of which any person has or could obtain, or any persons together have or could obtain, control of the subsidiary company but not of the parent company, and (b) unless the following conditions are also fulfilled, namely.— (i) that the parent company is beneficially entitled to more than 50 per cent, of any profits available for distribution to equity holders of the subsidiary company; and (ii) that the parent company would be beneficially entitled to more than 50 per cent, of any assets of the subsidiary company available for distribution to its equity holders on a winding-up. (10) In subsecton (9)(a) above, ' control' has the meaning assigned to it by section 534 of the Taxes Act. (11) Part I of Schedule 12 to the Finance Act 1973 shall have effect for the purposes of subsection (9)(b) above, subject to the following modifications:— (a) for any reference therein to section 28 of that Act there shall be substituted a reference to subsection (9)(b) above ; and (b) paragraph 7(1) shall be omitted and for any reference in that Part to the relevant accounting period there shall be substituted a reference to the accounting period current at the time in question.

Consequential amendments

9

In section 90(3) of the Finance Act 1972 after the words " for the next accounting period " there shall be inserted the words " or the benefit of which could be surrendered under section 92 below ".

10

Paragraph 7(7) of Schedule 16 to that Act shall cease to have effect.

11

In paragraph 9 of Schedule 23 to that Act for the words from the beginning to " but those provisions " there shall be substituted the words " The restrictions imposed by the preceding provisions of this Schedule on the amount of advance corporation tax which a company may set against its liability to corporation tax under section 85 of this Act shall, with the necessary modifications, apply in determining the amount of advance corporation tax of which it may surrender the benefit under section 92 of this Act, but this provision " ; and for the words " such surplus" (in the last place where they occur) there shall be substituted the words " advance corporation tax ".

SCHEDULE 14

1

Part V of the Finance Act 1972 shall be amended in accordance with the following provisions of this Schedule.

2

In subsection (1) and subsection (2) of section 95 before the words " the corporation tax charged" there shall be inserted the words " the company may claim that ".

3

In section 96(1) after the words " of this section " there shall be inserted the words " the body may claim that ".

4

Any power which the inspector may exercise under paragraph 19 of Schedule 16 may be exercised by him for the purposes of sections 95 or 96 as amended by the preceding paragraphs.

5

In section 103(5) for the words preceding the paragraphs there shall be substituted the words " Where the rate of advance corporation tax for any financial year differs from the rate last fixed "; and

• (a) in paragraph (a) for the words "in respect of the distribution" there shall be substituted the words " in respect of a distribution made in that financial year on or before 5th April "; and

• (b) in paragraph (b) for the words " if the distribution is made " there shall be substituted the words " if a distribution is made on or before 5th April ".

6

In paragraph 10(1) of Schedule 22, in the words quoted from Part X of the Taxes Act " the company " shall in each case be substituted for " a company ".

7

In paragraph 11 of Schedule 23—

• (a) in sub-paragraph (2) for the words " 6th April" there shall be substituted the words " 5th April "; and

• (b) at the end of sub-paragraph (5) there shall be added the words " and references to a distribution period shall be construed in accordance with sub-paragraph (b) of paragraph 2 above, whether or not the company is one to which that paragraph applies ".

SCHEDULE 15

Appeals

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collection

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 16

Interpretation

1

• (1) In this Schedule " member " means an underwriting member of Lloyd's or of any approved association of underwriters, and expressions used in Schedule 10 to the Taxes Act have the same meanings as in that Schedule.

• (2) For the purposes of this Schedule an underwriting year corresponds to a year of assessment if it ends in that year.

Basis of assessment under Schedule D

2

For the year 1972-73 and subsequent years of assessment income tax on the profits or gains arising from a member's underwriting business or from assets forming part of a premiums trust fund shall be computed on the profits or gains of that year of assessment; but for this purpose and all other purposes of the Income Tax Acts—

• (a) the profits or gains arising in any year of assessment from a member's underwriting business shall be taken to be those arising in the corresponding underwriting year; and

• (b) the profits or gains arising from assets forming part of a premiums trust fund shall be taken to be those allocated under the rules or practice of Lloyd's or of the association concerned to the corresponding underwriting year.

Set-off of losses against general income

3

For the year 1972-73 and subsequent years of assessment relief under section 168 of the Taxes Act in respect of a loss sustained by a member in his underwriting business in any year of assessment shall not be given under subsection (2) of that section (carry forward) but may, if the member so claims and he was a member in the preceding year of assessment, be given against his income for that preceding year, so far as it cannot be given against the income for the year in which the loss was sustained and can be given after any relief for a loss sustained in that preceding year.

Re-insurance

4

Except where an assessment on income arising from a member's underwriting business had been made before 6th April 1973 and was not subject to appeal on or after that date—

• (a) any premium paid by him on an insurance against losses in his underwriting business shall be deducted as an expense in computing the profits or gains arising from that business; and

• (b) any insurance money paid to him under such an insurance shall be taken into account as a trading receipt in computing those profits or gains for the year of assessment for which the premium was allowed as a deduction.

Disposal of assets in premiums trust fund

5

The cost of acquisition and the consideration for the disposal of assets forming part of a premiums trust fund shall be left out of account in computing the profits or gains or losses of a member's underwriting business for the purposes of Schedule D (and accordingly shall not be excluded for the purposes of capital gains tax under paragraph 2 or 5 of Schedule 6 to the Finance Act 1965).

6

• (1) Subject to paragraph 7 below, for the year 1972-73 and subsequent years of assessment the chargeable gains or allowable losses accruing on the disposal of assets forming part of a premiums trust fund shall be taken to be those allocated to the corresponding underwriting year.

• (2) The amount of the gains or losses so allocated at the end of any accounting period shall be such proportion of the difference mentioned in sub-paragraph (3) below as is allocated to the underwriting year under the rules or practice of Lloyd's or of the association concerned.

• (3) The difference referred to in sub-paragraph (2) above is the difference between the valuations at the beginning and at the end of the accounting period of the assets forming part of the fund, the value at the beginning of the period of assets acquired during the period being taken as the cost of acquisition and the value at the end of the period of assets disposed of during the period being taken as the consideration for the disposal.

7

Paragraph 6 above does not apply to the computation of chargeable gains or allowable losses on the disposal of securities of any of the descriptions specified in Schedule 9 to the Finance Act 1965 or of specified securities within the meaning of section 41 of the Finance Act 1969.

Special reserve funds

8

For the year 1973-74 and subsequent years of assessment Schedule 10 to the Taxes Act shall have effect subject to paragraphs 9 to 13 below.

9

The arrangements referred to in paragraph 1 shall not be confined to members who elect to take advantage of them.

10

For paragraph (a) of the proviso to paragraph 7(1) there shall be substituted the following paragraph:—

(a) the amount of any such payment shall be notified to the inspector not later than twelve months after the date at which the accounts of the business for that underwriting year are deemed by the Commissioners of Inland Revenue to be closed for the purposes of the arrangements, and no such payment shall be made more than thirty days after the date on which the inspector has notified his agreement in writing or, if later, thirty days after the expiration of those twelve months;

.

11

In sub-paragraph (1) of paragraph 11 the words " for all income tax purposes ", where they appear in paragraph (a), shall be omitted and at the end of the sub-paragraph there shall be added the following words:—

but paragraph (a) above— (i) shall not reduce any income other than income derived from the underwriter's underwriting business or from any deposit made or assets held on trust in connection with that business, and (ii) subject to paragraph (i) above, shall reduce income other than investment income before reducing investment income.

12

After sub-paragraph (2) of paragraph 11 there shall be inserted the following sub-paragraph:—

(2A) Where such a payment as is mentioned in paragraph 8(1) above is made out of a special reserve fund of an underwriter by reason that he has sustained a loss, relief in respect of the loss shall, so far as possible, be given by treating the loss as reducing the income represented by the payment.

13

After paragraph 12 there shall be inserted the following paragraph—

(12A) (1) So much of an underwriter's income as is attributable to payments from his special reserve fund or to such an excess as is mentioned in paragraph 12 above shall (so far as remaining after allowing for any relief by which it is reduced) be treated as investment income if, but only if, his income from his underwriting business falls to be so treated. (2) Where, as a result of a change in the circumstances in which an underwriting business is carried on, an underwriter's income from the business falls to be treated as investment income the change shall be disregarded for the purposes of sub-paragraph (1) above except to the extent that the special reserve fund represents payments made into it after the change; and for this purpose any amount withdrawn after the change to give effect to the requirements of paragraph 8 above shall, so far as possible and notwithstanding paragraph 12(3) above, be regarded as having been met by payments into the fund made after the change.

Consequential amendment

14

For the year 1972-73 and subsequent years of assessment paragraph 16(2) of Schedule 10 to the Taxes Act shall have effect as if for the words following " correspond to each other " there were substituted the words " if the underwriting year ends in the year of assessment ".

Administrative and supplementary provisions

15

• (1) In sub-paragraph (2) of paragraph 9 of Schedule 7 to the Finance Act 1965 (assessment of trustees) for the words " any such fund" there shall be substituted the words " any premiums trust fund " and at the end of the paragraph there shall be added the following sub-paragraph

(4) For the purposes of sub-paragraphs (2) and (3) above the underwriting agent may be treated as a trustee of the premiums trust fund

.

• (2) This paragraph shall have effect for the year 1973-74 and subsequent years of assessment.

16

For the year 1973-74 and subsequent years of assessment income tax on the profits or gains arising to a member from assets forming part of a premiums trust fund may be assessed on the underwriting agent through whom his business is carried on.

17

• (1) The Board may by regulations provide—

• (a) for the assessment and collection of tax charged in accordance with the preceding provisions of this Schedule;

• (b) for the transition from the law in force for earlier years of assessment to the law as modified by this Schedule and for the modification for that purpose of the law applicable to the year 1971-72 and later years of assessment,

• (c) for modifying the provisions of this Schedule in relation to syndicates continuing for more than two years after the end of an underwriting year;

• (d) for giving relief from capital gains tax in cases of an underwriter dying while carrying on his business; and

• (e) for giving credit for foreign tax.

• (2) Regulations under this paragraph shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

SCHEDULE 17

AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE REPUBLIC OF IRELAND WITH RESPECT TO CERTAIN EXEMPTIONS FROM TAX

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Ireland ;

With a view to making such alterations in the Agreement made the 14th April 1926, between the British Government and the Government of the Irish Free State in respect of Double Income Tax as may be necessary in consequence of the alterations in the British Income Tax Acts effected by the British Finance Acts 1971 and 1972 ;

Have agreed as follows:

Article 1

Article 2

Article 1 (b) of the said Agreement shall be amended by the addition of:

Article 3

In Article 2 of the said Agreement, as amended by Article 2 of the Agreement of 25th April 1928, any reference to the standard rate of British income tax shall be construed as meaning the basic rate of British income tax and any reference to British surtax shall be construed as meaning the excess of liability to British income tax over what it would be if all British income tax were charged at the basic rate only.

Article 4

This Agreement shall enter into force on the exchange of Notes confirming that the necessary steps have been taken to give it the force of law in the United Kingdom and the Republic of Ireland, and shall thereupon have effect:

In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Agreement.

Done in two originals at London this 2nd day of May, 1973.

SCHEDULE 18

Interpretation

1

In this Schedule—

• " the principal section " means section 45 of this Act;

• "principal value " means principal value for the purposes of estate duty and " basic principal value ", in relation to any investments, means the value which, apart from the principal section and section 35 of the Finance Act 1968, would be the principal value of those investments ;

• " relevant proportion ", in relation to the investments to which a claim relates, or any of them, means the proportion by which the loss on sale is reduced under subsection (4) of the principal section;

• " sale value ", in relation to any qualifying investments, means their value for the purposes of subsection (2)(b) of the principal section; and

• " value on death ", in relation to any qualifying investments, means their value for the purposes of subsection (2)(a) of the principal section.

The appropriate person

2

For the purposes of the principal section and this Schedule—

• (a) the executors of the deceased, and

• (b) the trustees of a settlement,

shall each be treated as a single and continuing body of persons (distinct from the persons who may from time to time be the executors or trustees).

3

A claim made by the appropriate person under subsection (2) of the principal section shall specify the capacity in which he makes the claim, and any reference in that section to qualifying investments which are sold by him is a reference to investments which, immediately before their sale, were held by him in the capacity in which he makes the claim.

Valuation on sale and purchase

4

In any case where, for the purposes of the principal section, it is necessary to determine the price at which any investments were purchased or sold or the best consideration that could reasonably have been obtained on the sale of any investments, no account shall be taken of any expenses (whether by way of commission, stamp duty or otherwise) which are incidental to the sale or purchase.

5

• (1) Subject to sub-paragraph (2) below, for the purposes of the principal section where any investments are sold or purchased by the appropriate person the date on which they are so sold or purchased shall be taken to be the date on which he entered into a contract to sell or purchase the investments.

• (2) If the sale or purchase of any investments by the appropriate person results from the exercise (whether by him or by any other person) of an option, then, for the purposes of the principal section, the date on which the investments are sold or purchased shall be taken to be the date on which the option was granted.

Principal value where only part of a fund is dutiable

6

• (1) In any case where;—

• (a) part only of a holding of qualifying investments is treated for the purposes of estate duty as passing on a death, and

• (b) investments comprised in that holding are sold as mentioned in paragraph (c) of subsection (1) of the principal section,

the principal section and this Schedule shall apply as if the entirety of the holding fell within paragraph (a) of subsection (1) of that section and, if a claim is made under that section in respect of the investments referred to in paragraph (b) above, the dutiable fraction of the principal value of the investments to which the claim relates, as determined under that section, shall be the principal value of that part of those investments which is treated as passing on the death.

• (2) In sub-paragraph (1) above, " dutiable fraction " means the fraction of which the numerator is the basic principal value of the part of the holding referred to in paragraph (a) of that sub-paragraph and the denominator is the basic principal value of the entirety of that holding.

Exchanges of qualifying investments

7

• (1) Subject to sub-paragraph (3) below, if, within the period specified in paragraph (c) of subsection (1) of the principal section, the appropriate person exchanges (with or without any payment by way of equality of exchange) any qualifying investments falling within paragraphs (a) and (b) of that subsection, then, regardless of the nature of the property taken in exchange, if the market value of those investments is at the date of the exchange greater than their value on death, they shall be treated for the purposes of the principal section and this Schedule as having been sold at the date of the exchange for a price equal to that market value.

• (2) For the purposes of this paragraph, the market value of any investments at any time means the value which would be the basic principal value of the investments if they formed part of the estate of a person who died at that time.

• (3) This paragraph does not apply in any case where the exchange falls within paragraph 10(1) below.

Aggregation of capital receipts with sale price of investments

8

• (1) For the purposes of subsection (2)0) of the principal section if—

• (a) at any time after the death in question (whether during or after the expiry of the period specified in paragraph (c) of subsection (1) of that section) the appropriate person receives any capital payment or payments which is or are attributable to any qualifying investments falling within paragraphs (a) and (b) of that subsection, and

• (b) those investments are sold by him as mentioned in paragraph (c) of that subsection,

the price for which those investments were sold or, as the case may be, the best consideration referred to in subsection (2)(b) of the principal section shall be taken to be increased by an amount equal to the capital payment, or, as the case may be, the aggregate of the capital payments, referred to in paragraph (a) above.

• (2) If the appropriate person receives or becomes entitled to receive in respect of any qualifying investments a provisional allotment of shares in or debentures of a company and he disposes of his rights, the amount of the consideration for the disposal shall be treated for the purposes of this paragraph as a capital payment attributable to those investments.

• (3) In this paragraph " capital payment", in relation to any investment, does not include the price paid on the sale of the investment but, subject to that, includes any money or money's worth which does not constitute income for the purposes of income tax.

Payment of calls

9

For the purposes of subsection (2)(a) of the principal section if—

• (a) at any time after the death in question (whether during or after the expiry of the period specified in paragraph (c) of subsection (1) of that section) the appropriate person pays an amount in pursuance of a call in respect of any qualifying investments falling within paragraphs (a) and (b) of that subsection, and

• (b) those investments are sold by him as mentioned in paragraph (c) of that subsection,

the value on death of those investments shall be the aggregate of the amount so paid and the basic principal value of those investments.

Effect of changes in a holding between death and sale

10

• (1) This paragraph applies in any case where, within the period specified in paragraph (c) of subsection (1) of the principal section, there occurs in relation to any qualifying investments falling within paragraphs (a) and (b) of that subsection (in this paragraph referred to as "the original holding") a transaction to which paragraph 4 of Schedule 7 to the Finance Act 1965 applies, that is to say.—

• (a) a reorganisation, within the meaning of that paragraph, or reduction of the share capital of a company ; or

• (b) the conversion of securities, within the meaning of paragraph 5 of that Schedule ; or

• (c) the issue by a company of shares or debentures in exchange for shares in or debentures of another company in such circumstances that paragraph 6 of that Schedule applies ; or

• (d) the issue by a company of shares or debentures under such an arrangement as is referred to in paragraph 7 of that Schedule;

or any transaction relating to a unit trust scheme which corresponds to any of the transactions referred to in paragraphs (a) to (d) above and to which paragraph 4 of that Schedule applies by virtue of section 45(8) of the Finance Act 1965.

• (2) Subject to sub-paragraph (3) below, where this paragraph applies the holding of investments which, as a result of the transaction, constitutes the new holding, within the meaning of paragraph 4 of the said Schedule 7, shall be treated for the purposes of the principal section and this Schedule as being the same as the original holding; and references in the following provisions of this paragraph to the new holding shall be construed accordingly.

• (3) If, in a case where this paragraph applies, the appropriate person gives, or becomes liable to give, as part of or in connection with the transaction concerned, any consideration for the new holding or any part of it, then, for the purposes of sub-paragraph (5) below, the value on death of the new holding shall be treated as the aggregate of—

• (a) the value on death of the original holding, and

• (b) an amount equal to that consideration,

and in any other case the value on death of the new holding shall be taken to be the same as the value on death of the original holding.

• (4) For the purposes of sub-paragraph (3) above, there shall not be treated as consideration given for the new holding or any part of it—

• (a) any surrender, cancellation or other alteration of any of the investments comprised in the original holding or of the rights attached thereto, or

• (b) any consideration consisting of any application, in paying up the new holding or any part of it, of assets of the company concerned or of any dividend or other distribution declared out of those assets but not made.

• (5) If, in a case where this paragraph applies, the appropriate person sells, within the period referred to in sub-paragraph (1) above, any investments comprised in the new holding, the value on death of those investments shall be determined by the formula—

$$Vs(H−S)(Vs+Vr)$ where— Vs is the sale value of the investments, Vr is the market value at the time of the sale of any investments remaining in the new holding after the sale, H is the value on death of the new holding, and S is the value on death of any investments which were originally comprised in the new holding but have been sold on a previous occasion or occasions.$

• (6) Sub-paragraph (2) of paragraph 7 above shall apply for the purposes of sub-paragraph (5) above as it applies for the purposes of that paragraph.

Effect of purchase, etc. of investments of the same description

11

• (1) If, at any time within the period specified in paragraph (c) of subsection (1) of the principal section, the appropriate person sells any investments which form part of a holding of investments which are all of the same description and consist of—

• (a) investments falling within paragraphs (a) and (b) of that subsection, and

• (b) investments acquired by him, by purchase or otherwise, after the death concerned but not in circumstances in which paragraph 10 above applies,

the investments so sold shall be apportioned for the purposes of the principal section and this Schedule between those falling within paragraph (a) and those falling within paragraph (b) above in the same proportion as, immediately before the sale, the investments comprised in the holding and falling within paragraph (a) above bore to the investments so comprised and falling within paragraph (b) above.

• (2) For the purposes of this paragraph, if the appropriate person holds investments of any description in the capacity of an executor or trustee, the investments shall not be treated as forming part of the same holding as investments which, though of the same description, are held by him otherwise than in that capacity.

Attribution of principal values to specific investments

12

• (1) This paragraph shall have effect in determining the principal value (and, accordingly, the market value for the purposes of capital gains tax under section 26 of the Finance Act 1965) of any investment (in this paragraph referred to as a " specific investment ") which is included among the investments to which a claim relates.

• (2) Subject to the following provisions of this paragraph, the principal value of a specific investment shall be its sale value.

• (3) Subject to the following provisions of this paragraph, in a case where the calculation of the loss on sale of the investments to which a claim relates is affected by subsection (4) of the principal section—

• (a) if the value on death of a specific investment exceeds its sale price, the principal value of that investment shall be the aggregate of its sale value and an amount equal to the relevant proportion of the difference between its sale price and its value on death ; and

• (b) if the sale price of a specific investment exceeds its value on death, the principal value of the investment shall be its sale value less an amount equal to the relevant proportion of the difference between its value on death and its sale price.

• (4) For the purposes of sub-paragraphs (2) and (3) above, the sale value of a specific investment in respect of which an amount has been paid in pursuance of a call, as mentioned in paragraph 9 above, shall be reduced by the amount so paid in respect of that investment.

• (5) In a case where, by virtue of sub-paragraph (3) of paragraph 10 above, the value on death of the new holding, within the meaning of that paragraph, includes an amount equal to the consideration referred to in that sub-paragraph, the sale value of any specific investment comprised in the new holding shall be reduced, for the purposes of sub-paragraphs (2) and (3) above, by an amount which bears to that consideration the like proportion as the value on death of the specific investment sold bears to the value on death of the whole of the new holding.

• (6) In sub-paragraph (3) above " sale price", in relation to a specific investment, means the price for which the investment was sold by the appropriate person or, if it is greater, the best consideration which could reasonably have been obtained for the specific investment at the time of the sale ; and paragraph 8 above shall apply for the purposes of this sub-paragraph as it applies for the purposes of subsection (2)(b) of the principal section.

Loss on sale not to exceed principal value

13

In any case where, apart from this paragraph, the loss on sale of any investments—

• (a) in respect of which an amount has been paid in pursuance of a call, as mentioned in paragraph 9 above, or

• (b) which are sold as mentioned in paragraph 10(5) above,

would exceed their basic principal value, their sale value shall be treated for the purposes of the principal section and paragraph 12 above as being of such an amount that the loss on sale would be equal to their basic principal value.

SCHEDULE 19

PART I — Chargeable Transactions

1

Subject to the following provisions of this Schedule, the chargeable transactions for the purposes of section 47 of this Act are—

• (a) the formation of a capital company ;

• (b) an increase in the capital of a capital company by the contribution of assets of any kind ;

• (c) an increase in the assets of a capital company by the contribution of assets of any kind in consideration, not of shares in the capital or assets of the company, but of rights of the same kind as those of members of the company, such as voting rights, a share in the profits or a share in the surplus on liquidation ;

• (d) any transaction as a result of which the liability of a member of a capital company which, before the transaction, was unlimited becomes limited to his share in the company's capital, in particular, where the limitation of liability results from the conversion of a capital company into a different type of capital company ;

• (e) the transfer to Great Britain from a third country of the place of effective management of a capital company if the registered office of the company is in a third country;

• (f) the transfer to Great Britain from a third country of the registered office of a capital company if the place of effective management of the company is in a third country;

• (g) the transfer to Great Britain from another member State of the place of effective management of a corporation or body of persons which is a capital company for the purposes of this Schedule but which is not treated as such in that other member State ; and

• (h) the transfer to Great Britain from another member State of the registered office of a corporation or body of persons if—

• (i) the place of effective management of the corporation or body is in a third country ; and

• (ii) the corporation or body is a capital company for the purposes of this Schedule but is not treated as such in the member State from which the transfer takes place.

2

• (1) For the purposes of paragraph 1(a) above "formation", in relation to a capital company.—

• (a) includes the conversion into a capital company of a corporation or body of persons which, before the conversion, is not a capital company ; and

• (b) does not include the conversion of a capital company into a different type of capital company or any alteration of the constituent instrument or regulations of the capital company.

• (2) For the avoidance of doubt it is hereby declared that—

• (a) the conversion of loan stock of a capital company into share capital; and

• (b) the issue of shares in a capital company in satisfaction of a debt owed by the company,

are transactions falling within paragraph 1(b) above.

3

• (1) Any reference in paragraph 1 above to a corporation or body of persons being treated as a capital company in another member State is a reference to the corporation or body of persons being treated under the provisions of the law of that member State corresponding to section 47 of this Act in a manner similar to that in which a corporation or body of persons which is a capital company for the purposes of that section is treated under that section.

• (2) In paragraph 1 above "third country" means a country which is not, and does not form part of, a member State.

PART II — Amount on which Duty is Charged

4

• (1) Subject to the following provisions of this Part of this Schedule, in the case of the relevant document relating to a chargeable transaction falling within any of sub-paragraphs (a) to (c) of paragraph 1 above, the amount on which duty is chargeable under section 47(5) of this Act shall be the actual value of assets of any kind contributed by the members.

• (2) Sub-paragraph (1) above shall not apply in the case of a chargeable transaction falling within paragraph 1(a) above which consists of the conversion into a capital company of a corporation or body of persons which, before the conversion, is not a capital company; and in the case of the relevant document relating to any such transaction, the amount on which duty is chargeable under section 47(5) of this Act shall, subject to the following provisions of this Part of this Schedule, be the actual value of the assets of any kind belonging to the capital company immediately after the conversion, less its liabilities at that time.

• (3) If, in the case of a chargeable transaction failing within any of sub-paragraphs (a) to (c) of paragraph 1 above, the consideration provided by the capital company for the acquisition of all or any of the assets contributed as mentioned in sub-paragraph (1) above consists, in whole or in part, of the assumption by the company of any liabilities transferred to it or the discharge by the company of any liabilities, the actual value of assets contributed shall be treated for the purposes of that sub-paragraph as reduced by an amount equal to the liabilities so assumed or discharged.

5

In the case of the relevant document relating to a chargeable transaction falling within paragraph 1(d) above, the amount on which duty is chargeable under section 47(5) of this Act shall be the value of the share in the company's assets, less the share in the company's liabilities, which immediately before the transaction belonged to members who then had unlimited liability for the company's obligations but who, as a result of the transaction, have only a limited liability.

6

• (1) Subject to sub-paragraph (2) and paragraphs 7 and 8 below, in the case of the relevant document relating to a chargeable transaction falling within any of sub-paragraphs (e) to (h) of paragraph 1 above, the amount on which duty is chargeable under section 47(5) of this Act shall be the actual value of the assets of any kind belonging to the capital company at the time of the transaction, less its liabilities at that time.

• (2) If the Commissioners consider it appropriate to do so, in relation to the relevant document falling within sub-paragraph (1) above, they may for the purposes of that sub-paragraph treat the actual value of the shares in the capital company belonging to the members of the company at the time of the transaction to which the relevant document relates as being the amount on which duty is chargeable as mentioned in that sub-paragraph.

7

• (1) Notwithstanding anything in paragraph 4 above, if the amount on which, apart from this sub-paragraph, duty would be chargeable under section 47(5) of this Act in the case of the relevant document falling within that paragraph is less than—

• (a) if sub-paragraph (1) of that paragraph applies, the nominal value of the shares in the capital company allotted on the occasion of the transaction to which the relevant document relates, or

• (b) if sub-paragraph (2) of that paragraph applies, the nominal value of the shares in the capital company belonging to the members of the company immediately after the transaction to which the relevant document relates,

duty shall be chargeable under that section, in the case of that document, on an amount equal to that nominal value.

• (2) Notwithstanding anything in sub-paragraph (1) of paragraph 6 above, but subject to sub-paragraph (2) of that paragraph, if the amount on which, apart from this sub-paragraph, duty would be chargeable under section 47(5) of this Act in the case of the relevant document falling within the said sub-paragraph (1) is less than the nominal value of the shares in the capital company belonging to the members of the company at the time of the transaction to which the relevant document relates, duty shall be chargeable under that section, in the case of that document, on an amount equal to that nominal value.

8

Notwithstanding anything in the preceding provisions of this Part of this Schedule, in determining, in the case of any document, the amount on which duty is chargeable under section 47(5) of this Act, no account shall be taken, except as provided in paragraph 5 above, of—

• (a) the amount of the assets contributed to a capital company by a member whose liability for the company's obligations is unlimited; or

• (b) the share of such a member in the company's assets.

PART III — Exempt Transactions

9

• (1) Subject to the following provisions of this paragraph, a chargeable transaction falling within paragraph 1(b) above (in this paragraph referred to as " the relevant transaction ") shall be an exempt transaction for the purposes of section 47 of this Act if it is shown to the satisfaction of the Commissioners that—

• (a) less than four years before the relevant transaction occurred the nominal capital of the capital company concerned was reduced by any amount (in this paragraph referred to as " the amount of the reduction ") as a result of losses sustained, and

• (b) either there has been in the interim period no chargeable transaction falling within paragraph 1(b) above in relation to the capital company concerned or the total of the increases in that company's capital which have been effected in the interim period by any such chargeable transaction (or transactions) is less than the amount of the reduction,

and for the purposes of paragraph (b) above "the interim period" means the period beginning with the reduction referred to in paragraph (a) above and ending immediately before the relevant transaction.

• (2) If—

• (a) the relevant transaction is an exempt transaction by virtue of sub-paragraph (1) above, and

• (b) the increase in the capital of the capital company concerned which is effected by the relevant transaction, taken with the increases (if any) which have been effected in the company's capital in the interim period as mentioned in paragraph (b) of that sub-paragraph, exceeds the amount of the reduction,

stamp duty shall be chargeable under section 47(5) of this Act on the relevant document relating to the relevant transaction, but only on such proportion of the amount determined in relation to that document under Part II of this Schedule as corresponds to the proportion which that excess bears to the total of the increase in capital effected by the relevant transaction.

• (3) In any case where the reduction in nominal capital referred to in paragraph (a) of sub-paragraph (1) above occurred on or before 31st July 1973, references in paragraph (b) of that sub-paragraph to a chargeable transaction falling within paragraph 1(b) above include references to a transaction which occurred before that date but which would have been such a chargeable transaction if this Schedule had been in force when the transaction occurred.

• (4) If, in the case of the relevant transaction, it appears to the Commissioners that the amount of the reduction in nominal capital referred to in sub-paragraph (1)(a) above is greater than the total of the losses as a result of which the reduction occurred, sub-paragraphs (1) and (2) above shall have effect as if for references to the amount of the reduction there were substituted references to the total of those losses.

• (5) For the purposes of this paragraph, the increase in a company's capital effected by a transaction falling within sub-paragraph (1)(b) above shall be—

• (a) the actual value of assets of any kind contributed, on the occasion of the transaction, by the members of the capital company to which the transaction relates, or

• (b) the nominal value of the shares in that capital company allotted on the occasion of the transaction,

whichever is the greater.

10

• (1) A chargeable transaction shall be an exempt transaction for the purposes of section 47 of this Act if it is shown to the satisfaction of the Commissioners—

• (a) that, by virtue of the transaction, a capital company which is in the process of being formed or which is already in existence—

• (i) has acquired share capital of another capital company to the extent that, after the transaction, not less than 75 per cent, of the issued share capital of that other company is beneficially owned by the first company, or

• (ii) has acquired the whole or any part of the undertaking of another capital company, and

• (b) that the conditions specified in sub-paragraph (2) below are fulfilled in relation to the transaction ;

and in this paragraph the first company mentioned in paragraph (a) above is referred to as " the acquiring company " and the other company mentioned in sub-paragraph (i) or (ii) of that paragraph is referred to as " the acquired company ".

• (2) The conditions referred to in sub-paragraph (1) above are—

• (a) that the place of effective management or the registered office of the acquired company is in a member State ; and

• (b) that so much, if any, of the consideration (taking no account of such part thereof as consists of the assumption or discharge by the acquiring company of liabilities of the acquired company) for the acquisition referred to in that sub-paragraph as does not consist—

• (i) where shares are to be acquired, of the issue of shares in the acquiring company to the holders of shares in the acquired company in exchange for the shares held by them in the acquired company.

• (ii) where the whole or any part of the undertaking is to be acquired, of the issue of shares in the acquiring company to the acquired company or to holders of shares in the acquired company,

consists wholly of a payment in cash which does not exceed 10 per cent, of the nominal value of the shares which make up the balance of the consideration.