Finance Act 2002

SCHEDULE 7AC (1) (1) A gain accruing to a company (“the investing company”) on a disposal of shares or an interest in shares in another company (“the company invested in”) is not a chargeable gain if the requirements of this Schedule are met. (2) The requirements are set out in— - Part 2 (the substantial shareholding requirement), and - Part 3 (requirements to be met in relation to the investing company and the company invested in). (3) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6. (2) (1) A gain accruing to a company (“company A”) on a disposal of an asset related to shares in another company (“company B”) is not a chargeable gain if either of the following conditions is met. (2) The first condition is that— (a) immediately before the disposal company A holds shares or an interest in shares in company B, and (b) any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain. (3) The second condition is that— (a) immediately before the disposal company A does not hold shares or an interest in shares in company B but is a member of a group and another member of that group does hold shares or an interest in shares in company B, and (b) if company A, rather than that other company, held the shares or interest, any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain. (4) Where assets of a company are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, this paragraph applies as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly). (5) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6. (3) (1) A gain accruing to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”) is not a chargeable gain if the following conditions are met. (2) The conditions are— (a) that at the time of the disposal company A meets the requirement in paragraph 7 (the substantial shareholding requirement) in relation to company B; (b) that a chargeable gain or allowable loss would, apart from this paragraph, accrue to company A on the disposal (but see sub-paragraph (3) below); (c) that at the time of the disposal— (i) company A is resident in the United Kingdom, or (ii) any chargeable gain accruing to company A on the disposal would, by virtue of section 10(3), form part of that company’s chargeable profits for corporation tax purposes; (d) that there was a time within the period of two years ending with the disposal (“the relevant period”) when, if— (i) company A, or (ii) a company that at any time in the relevant period was a member of the same group as company A, had disposed of shares or an interest in shares in company B that it then held, a gain accruing would, by virtue of paragraph 1, not have been a chargeable gain; and (e) that, if at the time of the disposal the requirements of paragraph 19 (requirements relating to company invested in) are not met in relation to company B, there was a time within the relevant period when company B was controlled by— (i) company A, or (ii) company A together with any persons connected with it, or (iii) a company that at any time in the relevant period was a member of the same group as company A, or (iv) any such company together with any persons connected with it. (3) Sub-paragraph (1) does not apply if— (a) the condition in sub-paragraph (2)(b) is met but would not be met but for a failure to meet the requirement in paragraph 18(1)(b) (requirement as to investing company to be met immediately after the disposal), and (b) the failure to meet that requirement is not due to— (i) the fact that company A has been wound up or dissolved, or (ii) where the winding up or dissolution takes place as soon as is reasonably practicable in the circumstances, the fact that company A is about to be wound up or dissolved. (4) In determining for the purpose of sub-paragraph (2)(d) whether a gain accruing on the hypothetical disposal referred to would have been a chargeable gain, the requirements of paragraph 18(1)(b) and of paragraph 19(1)(b) (requirement as to company invested in to be met immediately after the disposal) shall be assumed to be met. (5) Where— (a) immediately before the disposal company B holds an asset, (b) the expenditure allowable in computing any gain or loss on that asset, were it to be disposed of by company B immediately before that disposal, would fall to be reduced because of a claim to relief under section 165 (gifts relief) in relation to an earlier disposal, and (c) that earlier disposal took place within the relevant period, sub-paragraph (1) does not prevent a gain accruing to company A on the disposal from being a chargeable gain but any loss so accruing is not an allowable loss. (6) Where assets of company B are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, sub-paragraph (5)(a) applies as if the assets were vested in the company. (7) In determining “the relevant period” for the purposes of sub-paragraph (2)(d) or (e) or sub-paragraph (5)(c), section 28 (time of disposal under contract) applies with the omission of subsection (2) (postponement of time of disposal in case of conditional contract). (8) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6. (4) (1) For the purposes of determining whether an exemption conferred by this Schedule applies, the question whether there is a disposal shall be determined without regard to— (a) section 116(10) (reorganisation, conversion of securities, etc treated as not involving disposal), (b) section 127 (share reorganisations etc treated as not involving disposal), or (c) section 192(2)(a) (distribution not treated as capital distribution). (2) Sub-paragraph (1) does not apply to a disposal of shares if the effect of its applying would be that relief attributable to the shares under Schedule 15 to the Finance Act 2000 (corporate venturing scheme) would be withdrawn or reduced under paragraph 46 of that Schedule (withdrawal or reduction of investment relief on disposal of shares). (3) Where or to the extent that an exemption conferred by this Schedule does apply— (a) the provisions mentioned in sub-paragraph (1)(a) and (b) do not apply in relation to the disposal, and (b) the provision mentioned in sub-paragraph (1)(c) does not apply in relation to the subject matter of the disposal. (4) Where section 127 is disapplied by sub-paragraph (3)(a) in a case in which that section would otherwise have applied in relation to the disposal by virtue of paragraph 84 of Schedule 15 to the Finance Act 2000 (corporate venturing scheme: share exchanges), paragraph 85 of that Schedule (attribution of relief to new shares) does not apply. (5) In this paragraph any reference to section 127 includes a reference to that provision as applied by any enactment relating to corporation tax. (5) (1) Where in pursuance of arrangements to which this paragraph applies— (a) an untaxed gain accrues to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”), and (b) before the accrual of that gain— (i) company A acquired control of company B, or the same person or persons acquired control of both companies, or (ii) there was a significant change of trading activities affecting company B at a time when it was controlled by company A, or when both companies were controlled by the same person or persons, none of the exemptions in this Schedule applies to the disposal. (2) This paragraph applies to arrangements from which the sole or main benefit that (but for this paragraph) could be expected to arise is that the gain on the disposal would, by virtue of this Schedule, not be a chargeable gain. (3) For the purposes of sub-paragraph (1)(a) a gain is “untaxed” if the gain, or all of it but a part that is not substantial, represents profits that have not been brought into account (in the United Kingdom or elsewhere) for the purposes of tax on profits for a period ending on or before the date of the disposal. (4) The reference in sub-paragraph (3) to profits being brought into account for the purposes of tax on profits includes a reference to the case where— (a) an amount in respect of those profits is apportioned to a company resident in the United Kingdom by virtue of subsection (3) of section 747 of the Taxes Act 1988 (imputation of chargeable profits etc of controlled foreign companies), and (b) a sum is chargeable on that company in respect of that amount by virtue of subsection (4) of that section for an accounting period of that company ending on or before the date of the disposal. (5) For the purposes of sub-paragraph (1)(b)(ii) there is a “significant change of trading activities affecting company B” if— (a) there is a major change in the nature or conduct of a trade carried on by company B or a 51% subsidiary of company B, or (b) there is a major change in the scale of the activities of a trade carried on by company B or a 51% subsidiary of company B, or (c) company B or a 51% subsidiary of company B begins to carry on a trade. (6) In this paragraph— - “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable; - “major change in the nature or conduct of a trade” has the same meaning as in section 768 of the Taxes Act (change of ownership of company: disallowance of trading losses); - “profits” means income or gains (including unrealised income or gains). (6) (1) The exemptions conferred by this Schedule do not apply— (a) to a disposal that by virtue of any enactment relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal, (b) to a disposal a gain on which would, by virtue of any enactment not contained in this Schedule, not be a chargeable gain, or (c) to a deemed disposal under section 440(1) or (2) of the Taxes Act (deemed disposal on transfer of asset of insurance company from one category to another). (2) The hypothetical disposal referred to in paragraph 2(2)(b) or (3)(b) or paragraph 3(2)(d) shall be assumed not to be a disposal within sub-paragraph (1)(a), (b) or (c) above. Part 2The substantial shareholding requirement (7) The investing company must have held a substantial shareholding in the company invested in throughout a twelve-month period beginning not more than two years before the day on which the disposal takes place. (8) (1) For the purposes of this Schedule a company holds a “substantial shareholding” in another company if it holds shares or interests in shares in that company by virtue of which— (a) it holds not less than 10% of the company’s ordinary share capital, (b) it is beneficially entitled to not less than 10% of the profits available for distribution to equity holders of the company, and (c) it would be beneficially entitled on a winding up to not less than 10% of the assets of the company available for distribution to equity holders. This is without prejudice to what is meant by “substantial” where the word appears in other contexts. (2) Schedule 18 to the Taxes Act 1988 (meaning of equity holder and determination of profits or assets available for distribution) applies for the purposes of sub-paragraph (1). (3) In that Schedule as it applies for those purposes— (a) for any reference to sections 403C and 413(7) of that Act, or either of those provisions, substitute a reference to sub-paragraph (1) above; (b) omit the words in paragraph 1(4) from “but" to the end; (c) omit paragraph 5(3) and paragraphs 5B to 5F; and (d) omit paragraph 7(1)(b). (9) (1) For the purposes of paragraph 7 (the substantial shareholding requirement) a company that is a member of a group is treated— (a) as holding any shares or interest in shares held by any other company in the group, and (b) as having the same entitlement as any such company to any rights enjoyed by virtue of holding shares or an interest in shares. (2) Sub-paragraph (1) is subject to paragraph 17(4) (exclusion of aggregation in case of assets of long-term insurance fund of insurance company). (10) (1) For the purposes of this Part the period for which a company has held shares is treated as extended by any earlier period during which the shares concerned, or shares from which they are derived, were held— (a) by a company from which the shares concerned were transferred to the first-mentioned company on a no-gain/ no-loss transfer, or (b) by a company from which the shares concerned, or shares from which they are derived, were transferred on a previous no-gain/no-loss transfer— (i) to a company within paragraph (a), or (ii) to another company within this paragraph. (2) For the purposes of sub-paragraph (1)— (a) a “no-gain/no-loss transfer” means a disposal and corresponding acquisition that by virtue of any enactment relating to chargeable gains are deemed to be for a consideration such that no gain or loss accrues to the person making the disposal; (b) a transfer shall be treated as if it had been a no-gain/no- loss transfer if it is a transfer to which subsection (1) of section 171 (transfers within a group) would apply but for subsection (3) of that section. (3) Where sub-paragraph (1) applies to extend the period for which a company (“company A”) is treated as having held any shares, that company shall be treated for the purposes of this Part as having had at any time the same entitlement— (a) to shares, and (b) to any rights enjoyed by virtue of holding shares, as the company (“company B”) that at that time held the shares concerned or, as the case may be, the shares from which they are derived. (4) The shares and rights to be so attributed to company A include any holding or entitlement attributed at that time to company B under paragraph 9 (aggregation of holdings of group companies). (5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares. (6) For the purposes of this paragraph shares are “derived” from other shares only where— (a) a company becomes a co-owner of shares previously owned by it alone, or vice versa, (b) a company’s interest in shares as co-owner changes (without the company ceasing to be a co-owner), (c) one holding of shares is treated by virtue of section 127 as the same asset as another, or (d) there is a sequence of two or more of the occurrences mentioned in paragraphs (a) to (c). The reference in paragraph (c) to section 127 includes a reference to that provision as applied by any enactment relating to corporation tax. (11) (1) For the purposes of this Part a company is not regarded as having held shares throughout a period if, at any time during that period, there is a deemed disposal and reacquisition of— (a) the shares concerned, or (b) shares, or an interest in shares, from which those shares are derived. (2) For the purposes of this Part a company is not regarded as having held an interest in shares throughout a period if, at any time during that period, there is a deemed disposal and reacquisition of— (a) the interest concerned, or (b) shares, or an interest in shares, from which that interest is derived. (3) In this paragraph— - “deemed disposal and reacquisition” means a disposal and immediate reacquisition treated as taking place under any enactment relating to corporation tax; - “derived” has the same meaning as in paragraph 10. (12) (1) This paragraph applies where— (a) a company that holds shares in another company transfers the shares under a repurchase agreement, and (b) by virtue of section 263A(1) (agreements for sale and repurchase of securities) the disposal is disregarded for the purposes of the enactments relating to chargeable gains. (2) During the period of the repurchase agreement— (a) the original owner shall be treated for the purposes of this Part as continuing to hold the shares transferred and accordingly as retaining his entitlement to any rights attached to them, and (b) the interim holder shall be treated for those purposes as not holding the shares transferred and as not becoming entitled to any such rights. This is subject to the following qualification. (3) If at any time before the end of the period of the repurchase agreement the original owner, or another member of the same group as the original owner, becomes the holder— (a) of any of the shares transferred, or (b) of any shares directly or indirectly representing any of the shares transferred, sub-paragraph (2) does not apply after that time in relation to those shares or, as the case may be, in relation to the shares represented by those shares. (4) In this paragraph a “repurchase agreement” means an agreement under which— (a) a person (“the original owner”) transfers shares to another person (“the interim holder”) under an agreement to sell them, and (b) the original owner or a person connected with him is required to buy them back either— (i) in pursuance of an obligation to do so imposed by that agreement or by any related agreement, or (ii) in consequence of the exercise of an option acquired under that agreement or any related agreement. For the purposes of paragraph (b) agreements are related if they are entered into in pursuance of the same arrangements (regardless of the date on which either agreement is entered into). (5) Any reference in this paragraph to the period of a repurchase agreement is to the period beginning with the transfer of the shares by the original owner to the interim holder and ending with the repurchase of the shares in pursuance of the agreement. (13) (1) This paragraph applies where— (a) a company that holds shares in another company transfers the shares under a stock lending arrangement, and (b) by virtue of section 263B(2) (stock lending arrangements) the disposal is disregarded for the purposes of the enactments relating to chargeable gains. (2) During the period of the stock lending arrangement— (a) the lender shall be treated for the purposes of this Part as continuing to hold the shares transferred and accordingly as retaining his entitlement to any rights attached to them, and (b) the borrower shall be treated for those purposes as not holding the shares transferred and as not becoming entitled to any such rights. This is subject to the following qualification. (3) If at any time before the end of the period of the stock lending arrangement the lender, or another member of the same group as the lender, becomes the holder— (a) of any of the shares transferred, or (b) of any shares directly or indirectly representing any of the shares transferred, sub-paragraph (2) does not apply after that time in relation to those shares or, as the case may be, in relation to the shares represented by those shares. (4) In this paragraph a “stock lending arrangement” means arrangements between two persons (“the borrower” and “the lender”) under which— (a) the lender transfers shares to the borrower otherwise than by way of sale, and (b) a requirement is imposed on the borrower to transfer those shares back to the lender otherwise than by way of sale. (5) Any reference in this paragraph to the period of a stock lending arrangement is to the period beginning with the transfer of the shares by the lender to the borrower and ending— (a) with the transfer of the shares back to the lender in pursuance of the arrangement, or (b) when it becomes apparent that the requirement for the borrower to make a transfer back to the lender will not be complied with. (6) The following provisions apply for the purposes of this paragraph as they apply for the purposes of section 263B— (a) subsections (5) and (6) of that section (references to transfer back of securities to include transfer of other securities of the same description); (b) section 263C (references to transfer back of securities to include payment in respect of redemption). (14) (1) This paragraph applies where shares in one company (“company X”)— (a) are exchanged (or deemed to be exchanged) for shares in another company (“company Y”), or (b) are deemed to be exchanged by virtue of section 136 for shares in company X and shares in another company (“company Y”), in circumstances such that, under section 127 as that section applies by virtue of section 135 or 136, the original shares and the new holding are treated as the same asset. (2) Where company Y— (a) is the company invested in, and is accordingly the company by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) falls to be met, or (b) is a company by reference to which, by virtue of this paragraph, that requirement may be met, or (c) is a company by reference to which, by virtue of paragraph 15 (effect of earlier demerger) that requirement may be met, that requirement may instead be met, in relation to times before the exchange (or deemed exchange), by reference to company X. (3) If in any case that requirement can be met by virtue of this paragraph (or by virtue of this paragraph together with paragraph 15), it shall be treated as met. (4) In sub-paragraph (1) “original shares” and “new holding” shall be construed in accordance with sections 126, 127, 135 and 136. (15) (1) This paragraph applies where shares in one company (“the subsidiary”) are transferred by another company (“the parent company”) on a demerger. (2) Where the subsidiary— (a) is the company invested in, and is accordingly the company by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) falls to be met, or (b) is a company by reference to which, by virtue of this paragraph, that requirement may be met, or (c) is a company by reference to which, by virtue of paragraph 14 (effect of earlier company reconstruction etc), that requirement may be met, that requirement may instead be met, in relation to times before the transfer, by reference to the parent company. (3) If in any case that requirement can be met by virtue of this paragraph (or by virtue of this paragraph together with paragraph 14), it shall be treated as met. (4) In this paragraph a “transfer of shares on a demerger” means a transfer such that, by virtue of section 192(2)(b), sections 126 to 130 apply as if the parent company and the subsidiary were the same company and the transfer were a reorganisation of that company’s share capital not involving a disposal or acquisition. (16) Where assets of the investing company, or of a company that is a member of the same group as the investing company, are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, this Part applies as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly). (17) (1) In the following two cases paragraph 8(1) (meaning of substantial shareholding) has effect as if, in paragraphs (a), (b) and (c), “30%" were substituted for “10%". (2) The first case is where the investing company is an insurance company and the disposal is of an asset of its long-term insurance fund. (3) The second case is where— (a) the investing company is a 51% subsidiary of an insurance company, and (b) the insurance company holds as an asset of its long-term insurance fund shares or an interest in shares— (i) in the investing company, or (ii) in another company through which it owns shares in the investing company. The reference in paragraph (b)(ii) to owning shares through another company has the same meaning as in section 838 of the Taxes Act (subsidiaries). (4) Where the investing company is a member of a group that includes an insurance company, paragraph 9 (aggregation of holdings of group companies) does not apply in relation to shares or an interest in shares held by the insurance company as assets of its long-term insurance fund. (5) In this paragraph “insurance company” and “long-term insurance fund” have the meanings given by section 431(2) of the Taxes Act. Part 3Requirements to be met in relation to investing company and company invested in (18) (1) The investing company must— (a) have been a sole trading company or a member of a qualifying group throughout the period (“the qualifying period”)— (i) beginning with the start of the latest twelve-month period by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) is met, and (ii) ending with the time of the disposal, and (b) be a sole trading company or a member of a qualifying group immediately after the time of the disposal. (2) For this purpose a “qualifying group” means— (a) a trading group, or (b) a group that would be a trading group if the activities of any group member that is not established for profit were disregarded to the extent that they are carried on otherwise than for profit. In determining whether a company is established for profit, no account shall be taken of any object or power of the company that is only incidental to its main objects. (3) The requirement in sub-paragraph (1)(a) is met if the investing company was a sole trading company for some of the qualifying period and a member of a qualifying group for the remainder of that period. (4) The requirement in sub-paragraph (1)(a) is treated as met if at the time of the disposal— (a) the investing company is a member of a group, and (b) there is another member of the group in relation to which that requirement would have been met if— (i) the subject matter of the disposal had been transferred to it immediately before the disposal in circumstances in which section 171(1) (transfers within a group) applied, and (ii) it had made the disposal. (5) If the disposal is by virtue of section 28(1) or (2) (asset disposed of under contract) treated as made at a time before the asset is conveyed or transferred, the requirements in sub-paragraph (1)(a) and (b) must also be complied with as they would have effect if the references in those provisions and sub-paragraph (4) to the time of the disposal were to the time of the conveyance or transfer. (6) In this paragraph a “sole trading company” means a trading company that is not a member of a group. (19) (1) The company invested in must— (a) have been a qualifying company throughout the period— (i) beginning with the start of the latest twelve-month period by reference to which the requirement of paragraph 7 (the substantial shareholding requirement) is met, and (ii) ending with the time of the disposal, and (b) be a qualifying company immediately after the time of the disposal. (2) For this purpose a “qualifying company” means a trading company or the holding company of a trading group or a trading subgroup. (3) If the disposal is by virtue of section 28(1) or (2) (asset disposed of under contract) treated as made at a time before the asset is conveyed or transferred, the requirements in sub-paragraph (1)(a) and (b) must also be complied with as they would have effect if the references there to the time of the disposal were to the time of the conveyance or transfer. (20) (1) In this Schedule “trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities. (2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by the company— (a) in the course of, or for the purposes of, a trade being carried on by it, (b) for the purposes of a trade that it is preparing to carry on, (c) with a view to its acquiring or starting to carry on a trade, or (d) with a view to its acquiring a significant interest in the share capital of another company that— (i) is a trading company or the holding company of a trading group or trading subgroup, and (ii) if the acquiring company is a member of a group, is not a member of that group. (3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the company starts to carry on the trade, as soon as is reasonably practicable in the circumstances. (4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company— (a) such as would make that company a 51% subsidiary of the acquiring company, or (b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group. (21) (1) In this Schedule “trading group” means a group— (a) one or more of whose members carry on trading activities, and (b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities. (2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the group— (a) in the course of, or for the purposes of, a trade being carried on by any member of the group, (b) for the purposes of a trade that any member of the group is preparing to carry on, (c) with a view to any member of the group acquiring or starting to carry on a trade, or (d) with a view to any member of the group acquiring a significant interest in the share capital of another company that— (i) is a trading company or the holding company of a trading group or trading subgroup, and (ii) is not a member of the same group as the acquiring company. (3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the group member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances. (4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company— (a) such as would make that company a member of the same group as the acquiring company, or (b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the joint venture company a member of the same group as the acquiring company. (5) For the purposes of this paragraph the activities of the members of the group shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities). (22) (1) In this Schedule “trading subgroup” means a subgroup— (a) one or more of whose members carry on trading activities, and (b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities. (2) For the purposes of sub-paragraph (1) “trading activities” means activities carried on by a member of the subgroup— (a) in the course of, or for the purposes of, a trade being carried on by any member of the subgroup, (b) for the purposes of a trade that any member of the subgroup is preparing to carry on, (c) with a view to any member of the subgroup acquiring or starting to carry on a trade, or (d) with a view to any member of the subgroup acquiring a significant interest in the share capital of another company that— (i) is a trading company or the holding company of a trading group or trading subgroup, and (ii) is not a member of the same group as the acquiring company. (3) Activities do not qualify as trading activities under sub-paragraph (2)(c) or (d) unless the acquisition is made, or (as the case may be) the subgroup member in question starts to carry on the trade, as soon as is reasonably practicable in the circumstances. (4) The reference in sub-paragraph (2)(d) to the acquisition of a significant interest in the share capital of another company is to an acquisition of ordinary share capital in the other company— (a) such as would make that company a member of the same subgroup as the acquiring company, or (b) such as would give the acquiring company a qualifying shareholding in a joint venture company without making the two companies members of the same group. (5) For the purposes of this paragraph the activities of the members of the subgroup shall be treated as one business (with the result that activities are disregarded to the extent that they are intra-subgroup activities). (23) (1) This paragraph applies where a company (“the company”) has a qualifying shareholding in a joint venture company. (2) In determining whether the company is a trading company— (a) its holding of shares in the joint venture company shall be disregarded, and (b) it shall be treated as carrying on an appropriate proportion— (i) of the activities of the joint venture company, or (ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries. This sub-paragraph does not apply if the company is a member of a group and the joint venture company is a member of the same group. (3) In determining whether the company is a member of a trading group or the holding company of a trading group— (a) every holding of shares in the joint venture company by a member of the group having a qualifying shareholding in that company shall be disregarded, and (b) each member of the group having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion— (i) of the activities of the joint venture company, or (ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries. This sub-paragraph does not apply if the joint venture company is a member of the group. (4) In determining whether the company is the holding company of a trading subgroup— (a) every holding of shares in the joint venture company by the company and any of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be disregarded, and (b) the company and each of its 51% subsidiaries having a qualifying shareholding in the joint venture company shall be treated as carrying on an appropriate proportion— (i) of the activities of the joint venture company, or (ii) where the joint venture company is a holding company, of the activities of that company and its 51% subsidiaries. This sub-paragraph does not apply if the joint venture company is a member of the same group as the company. (5) In sub-paragraphs (2)(b), (3)(b) and (4)(b) “an appropriate proportion” means a proportion corresponding to the percentage of the ordinary share capital of the joint venture company held by the company concerned. (6) In this paragraph “shares”, in relation to a joint venture company, includes securities of that company or an interest in shares in or securities of that company. (7) For the purposes of this paragraph the activities of a joint venture company that is a holding company and its 51% subsidiaries shall be treated as a single business (so that activities are disregarded to the extent that they are intra-group activities or, as the case may be, intra-subgroup activities). (24) (1) For the purposes of this Schedule a company is a “joint venture company” if, and only if— (a) it is a trading company or the holding company of a trading group or trading subgroup, and (b) there are five or fewer persons who between them hold 75% or more of its ordinary share capital. In determining whether there are five or fewer such persons as are mentioned in paragraph (b), the members of a group are treated as if they were a single company. (2) For the purposes of this Schedule— (a) a company that is not a member of a group has a “qualifying shareholding” in a joint venture company if, and only if, it holds shares or an interest in shares in the joint venture company by virtue of which it holds 10% or more of that company’s ordinary share capital; (b) a company that is a member of a group has a “qualifying shareholding” in a joint venture company if, and only if— (i) it holds ordinary share capital of the joint venture company, and (ii) the members of the group between them hold 10% or more of the ordinary share capital of that company. (25) The provisions of— (a) paragraph 14 (effect of earlier company reconstruction etc), and (b) paragraph 15 (effect of earlier demerger), have effect in relation to the requirements of paragraph 19 (requirements in relation to company invested in) as they have effect in relation to the requirement of paragraph 7 (the substantial shareholding requirement). Part 4Interpretation (26) (1) In this Schedule— (a) “company” has the meaning given by section 170(9); and (b) references to a group, or to membership of a group, shall be construed in accordance with the provisions of section 170 read as if “51 per cent" were substituted for “75 per cent". (2) References in this Schedule to a “subgroup” are to companies that would form a group but for the fact that one of them is a 51% subsidiary of another company. (3) In this Schedule “holding company”— (a) in relation to a group, means the company described in section 170 as the principal company of the group; (b) in relation to a subgroup, means a company that would be the holding company of a group but for being a 51% subsidiary of another company. (4) In this Schedule “51% subsidiary” has the meaning given by section 838 of the Taxes Act. In applying that section for the purposes of this Schedule, any share capital of a registered industrial and provident society shall be treated as ordinary share capital. (5) References in this Schedule to a “group” or “subsidiary” shall be construed with any necessary modifications where applied to a company incorporated under the law of a country or territory outside the United Kingdom. (27) In this Schedule “trade” means anything that— (a) is a trade, profession or vocation, within the meaning of the Income Tax Acts, and (b) is conducted on a commercial basis with a view to the realisation of profits. (28) For the purposes of this Schedule a “twelve-month period” means a period ending with the day before the first anniversary of the day with which, or in the course of which, the period began. (29) (1) References in this Schedule to an interest in shares are to an interest as a co-owner of shares. (2) It does not matter whether the shares are owned jointly or in common, or whether the interests of the co-owners are equal. (30) (1) This paragraph explains what is meant by an asset related to shares in a company. (2) An asset is related to shares in a company if it is— (a) an option to acquire or dispose of shares or an interest in shares in that company, or (b) a security to which are attached rights by virtue of which the holder is or may become entitled to acquire or dispose of (whether by conversion or exchange or otherwise)— (i) shares or an interest in shares in that company, or (ii) an option to acquire or dispose of shares or an interest in shares in that company, or (iii) another security falling within this paragraph, or (c) an option to acquire or dispose of any security within paragraph (b) or an interest in any such security, or (d) an interest in, or option over, any such option or security as is mentioned in paragraph (a), (b) or (c), or (e) any interest in, or option over, any such interest or option as is mentioned in paragraph (d) or this paragraph. (3) In determining whether a security is within sub-paragraph (2)(b), no account shall be taken— (a) of any rights attached to the security other than rights relating, directly or indirectly, to shares of the company in question, or (b) of rights as regards which, at the time the security came into existence, there was no more than a negligible likelihood that they would in due course be exercised to a significant extent. (4) The references in this paragraph to an interest in a security or option have a meaning corresponding to that given by paragraph 29 in relation to an interest in shares. (31) In this Schedule the expressions listed below are defined or otherwise explained by the provisions indicated:

Part 5Consequential provisions (32) Any exemption conferred by this Schedule shall be disregarded in determining whether shares are “chargeable shares”, or an asset is a “chargeable asset”, for the purposes of any enactment relating to corporation tax or capital gains tax. (33) (1) This paragraph applies where— (a) a company makes a claim under section 24(2) (assets of negligible value) in relation to shares held by it, and (b) by virtue of this Schedule any loss accruing to the company on a disposal of the shares at the time of the claim would not be an allowable loss. (2) Where this paragraph applies the company may not exercise the option under section 24(2) to specify a time earlier than the time of the claim as the time when the shares are treated as sold and reacquired by virtue of that subsection. (3) This paragraph applies to— (a) an interest in shares in a company, or (b) an asset related to shares in a company, as it applies to shares in that company. (34) (1) The exemptions conferred by this Schedule do not apply to or affect a chargeable gain or allowable loss deemed to accrue on a disposal by virtue of section 116(10)(b) (reorganisations, conversions and reconstructions: deemed accrual of gain or loss held over on earlier transaction). (2) Sub-paragraph (1) does not apply where the relevant earlier transaction was a deemed disposal and reacquisition under section 92(7) of the Finance Act 1996 (convertible securities etc). (35) (1) This paragraph applies where— (a) a company disposes of an asset in circumstances falling within section 140(4) (recovery of charge postponed on transfer of assets to non-resident company), and (b) by virtue of this Schedule any gain accruing to the company on the disposal would not be a chargeable gain. (2) Where this paragraph applies the amount by which the consideration received on the disposal would be treated as increased by virtue of section 140(4) shall instead be treated as accruing to the company, at the time of the disposal, as a chargeable gain to which this Schedule does not apply. (3) Any reference in section 140 to an amount being brought or taken into account under or in accordance with subsection (4) of that section includes a reference to an amount being treated, by virtue of sub-paragraph (2) above, as accruing as a chargeable gain. (36) (1) Where— (a) an asset acquired by a company otherwise than as trading stock of a trade carried on by it is appropriated by the company for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise), and (b) if the company had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to the company but for an exemption conferred by this Schedule, the company is treated for the purposes of the enactments relating to chargeable gains as if it had thereby disposed of the asset for its market value. (2) Section 173 (transfers within a group: trading stock) applies in relation to this paragraph as it applies in relation to section 161 (appropriations to and from stock). (37) (1) This paragraph applies where— (a) a company disposes of an asset, (b) the expenditure allowable in computing a gain or loss on that disposal falls to be reduced because of a claim for relief under section 165 (gifts relief) in relation to an earlier disposal, and (c) by virtue of this Schedule any gain accruing to the company on the disposal mentioned in paragraph (a) would not be a chargeable gain. (2) Where this paragraph applies the amount of the held-over gain, or an appropriate proportion of it, shall be treated as accruing to the company, at the time of the disposal mentioned in sub-paragraph (1)(a), as a chargeable gain to which this Schedule does not apply. (3) An “appropriate proportion” means a proportion determined on a just and reasonable basis having regard to the subject matter of the disposal mentioned in sub-paragraph (1)(a) and the subject matter of the earlier disposal that was the subject of the claim for relief under section 165. (4) In this paragraph “held-over gain” has the same meaning as in section 165. (38) (1) Where— (a) a company, as a result of ceasing at any time (“the time of degrouping”) to be a member of a group, is treated by section 179(3) as having sold and immediately reacquired an asset, and (b) if the company owning the asset at the time of degrouping had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain, section 179(3) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the time of degrouping. (2) Where— (a) a company, as a result of ceasing at any time (“the relevant time”) to satisfy the conditions in section 179(7), is treated by section 179(6) as having sold and immediately reacquired an asset, and (b) if the company owning the asset at the relevant time had disposed of it immediately before that time, any gain accruing on the disposal would by virtue of this Schedule not have been a chargeable gain, section 179(6) shall have effect as if it provided for the deemed sale and reacquisition to be treated as taking place immediately before the relevant time. (3) Any reference in this paragraph to a disposal or other event taking place immediately before the time of degrouping or the relevant time is to its taking place immediately before that time but on the same day. (39) (1) No gain or loss shall be treated as arising under the FOREX matching regulations on a disposal on which by virtue of this Schedule any gain would not be a chargeable gain. (2) The “FOREX matching regulations” means any regulations made under Schedule 15 to the Finance Act 1993 (exchange gains and losses: alternative method of calculation).

.

Part 2 — Consequential amendments

Degrouping: time of accrual of chargeable gain or allowable loss

2

In section 179(4) of the Taxation of Chargeable Gains Act 1992 (c. 12) (deemed sale and reacquisition on company ceasing to be member of group: time when chargeable gain or allowable loss treated as accruing), for “which, apart from this subsection, would accrue" substitute “ accruing ”.

Treatment of furnished holiday lettings

3

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

Overseas life insurance companies

4

In Schedule 7B of the Taxation of Chargeable Gains Act 1992 (c. 12) (modification of Act in relation to overseas life insurance companies), after paragraph 15 add—

(16) In Schedule 7AC, in paragraph 3(2)(c)(ii), the words “section 11(2)(b), (c) or (d) of the Taxes Act" shall be treated as substituted for the words “section 10(3)".

.

Corporate venturing scheme

5

In Schedule 15 to the Finance Act 2000 (c. 17) (the corporate venturing scheme), in paragraphs 84(1) and 85(1) after “(see paragraph 83" insert “ and paragraph 4 of Schedule 7AC to the Taxation of Chargeable Gains Act 1992 ”.

SCHEDULE 9

Part 1 — Provisions replacing sections 135 and 136 of the Taxation of Chargeable Gains Act 1992

Share exchanges

1

For section 135 of the Taxation of Chargeable Gains Act 1992 (exchange of securities for those in another company) substitute—

(135) (1) This section applies in the following circumstances where a company (“company B”) issues shares or debentures to a person in exchange for shares in or debentures of another company (“company A”). (2) The circumstances are: Case 1 Where company B holds, or in consequence of the exchange will hold, more than 25% of the ordinary share capital of company A. Case 2 Where company B issues the shares or debentures in exchange for shares as the result of a general offer— (a) made to members of company A or any class of them (with or without exceptions for persons connected with company B), and (b) made in the first instance on a condition such that if it were satisfied company B would have control of company A. Case 3 Where company B holds, or in consequence of the exchange will hold, the greater part of the voting power in company A. (3) Where this section applies, sections 127 to 131 (share reorganisations etc) apply with the necessary adaptations as if company A and company B were the same company and the exchange were a reorganisation of its share capital. (4) In this section “ordinary share capital” has the meaning given by section 832(1) of the Taxes Act and also includes— (a) in relation to a unit trust scheme, any rights that are treated by section 99(1)(b) of this Act (application of Act to unit trust schemes) as shares in a company, and (b) in relation to a company that has no share capital, any interests in the company possessed by members of the company. (5) This section applies in relation to a company that has no share capital as if references to shares in or debentures of the company included any interests in the company possessed by members of the company. (6) This section has effect subject to section 137(1) (exchange must be for bona fide commercial reasons and not part of tax avoidance scheme).

.

Scheme of reconstruction involving issue of securities

2

For section 136 of the Taxation of Chargeable Gains Act 1992 (c. 12) (reconstruction or amalgamation involving issue of securities) substitute—

(136) (1) This section applies where— (a) an arrangement between a company (“company A”) and— (i) the persons holding shares in or debentures of the company, or (ii) where there are different classes of shares in or debentures of the company, the persons holding any class of those shares or debentures, is entered into for the purposes of, or in connection with, a scheme of reconstruction, and (b) under the arrangement— (i) another company (“company B”) issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their relevant holdings in company A, and (ii) the shares in or debentures of company A comprised in relevant holdings are retained by those persons or are cancelled or otherwise extinguished. (2) Where this section applies— (a) those persons are treated as exchanging their relevant holdings in company A for the shares or debentures held by them in consequence of the arrangement, and (b) sections 127 to 131 (share reorganisations etc) apply with the necessary adaptations as if company A and company B were the same company and the exchange were a reorganisation of its share capital. For this purpose shares in or debentures of company A comprised in relevant holdings that are retained are treated as if they had been cancelled and replaced by a new issue. (3) Where a reorganisation of the share capital of company A is carried out for the purposes of the scheme of reconstruction, the provisions of subsections (1) and (2) apply in relation to the position after the reorganisation. (4) In this section— (a) “scheme of reconstruction” has the meaning given by Schedule 5AA to this Act; (b) references to “relevant holdings” of shares in or debentures of company A are— (i) where there is only one class of shares in or debentures of the company, to holdings of shares in or debentures of the company, and (ii) where there are different classes of shares in or debentures of the company, to holdings of a class of shares or debentures that is involved in the scheme of reconstruction (within the meaning of paragraph 2 of Schedule 5AA); (c) references to shares or debentures being retained include their being retained with altered rights or in an altered form, whether as the result of reduction, consolidation, division or otherwise; and (d) any reference to a reorganisation of a company’s share capital is to a reorganisation within the meaning of section 126. (5) This section applies in relation to a company that has no share capital as if references to shares in or debentures of the company included any interests in the company possessed by members of the company. (6) This section has effect subject to section 137(1) (scheme of reconstruction must be for bona fide commercial reasons and not part of tax avoidance scheme).

.

Meaning of “scheme of reconstruction”

3

After Schedule 5A to the Taxation of Chargeable Gains Act 1992 insert—

SCHEDULE 5AA Meaning of “scheme of reconstruction" (1) In section 136 “scheme of reconstruction” means a scheme of merger, division or other restructuring that meets the first and second, and either the third or the fourth, of the following conditions. (2) The first condition is that the scheme involves the issue of ordinary share capital of a company (“the successor company”) or of more than one company (“the successor companies”)— (a) to holders of ordinary share capital of another company (“the original company”) or, where there are different classes of ordinary share capital of that company, to holders of one or more classes of ordinary share capital of that company (the classes “involved in the scheme of reconstruction”), or (b) to holders of ordinary share capital of more than one other company (“the original companies”) or, where there are different classes of ordinary share capital of one or more of the original company or companies, to holders of ordinary share capital of any of those companies or of one or more classes of ordinary share capital of any of those companies (the classes “involved in the scheme of reconstruction”), and does not involve the issue of ordinary share capital of the successor company, or (as the case may be) any of the successor companies, to anyone else. (3) (1) The second condition is that under the scheme the entitlement of any person to acquire ordinary share capital of the successor company or companies by virtue of holding relevant shares, or relevant shares of any class, is the same as that of any other person holding such shares or shares of that class. (2) For this purpose “relevant shares” means shares comprised— (a) where there is one original company, in the ordinary share capital of that company or, as the case may be, in the ordinary share capital of that company of a class involved in the scheme of reconstruction; (b) where there is more than one original company, in the ordinary share capital of any of those companies or, as the case may be, in the ordinary share capital of any of those companies of a class involved in the scheme of reconstruction. (4) (1) The third condition is that the effect of the restructuring is— (a) where there is one original company, that the business or substantially the whole of the business carried on by the company is carried on— (i) by a successor company which is not the original company, or (ii) by two or more successor companies (which may include the original company); (b) where there is more than one original company, that all or part of the business or businesses carried on by one or more of the original companies is carried on by a different company, and the whole or substantially the whole of the businesses carried on by the original companies are carried on— (i) where there is one successor company, by that company (which may be one of the original companies), or (ii) where there are two or more successor companies, by those companies (which may be the same as the original companies or include any of those companies). (2) The reference in sub-paragraph (1)(a)(ii) or (b)(ii) to the whole or substantially the whole of a business, or businesses, being carried on by two or more companies includes the case where the activities of those companies taken together embrace the whole or substantially the whole of the business, or businesses, in question. (3) For the purposes of this paragraph a business carried on by a company that is under the control of another company is treated as carried on by the controlling company as well as by the controlled company. Section 840 of the Taxes Act (meaning of “control") applies for the purposes of this sub-paragraph. (4) For the purposes of this paragraph the holding and management of assets that are retained by the original company, or any of the original companies, for the purpose of making a capital distribution in respect of shares in the company shall be disregarded. In this sub-paragraph “capital distribution” has the same meaning as in section 122. (5) The fourth condition is that— (a) the scheme is carried out in pursuance of a compromise or arrangement— (i) under section 425 of the Companies Act 1985 or Article 418 of the Companies (Northern Ireland) Order 1986, or (ii) under any corresponding provision of the law of a country or territory outside the United Kingdom, and (b) no part of the business of the original company, or of any of the original companies, is transferred under the scheme to any other person. (6) Where a reorganisation of the share capital of the original company, or of any of the original companies, is carried out for the purposes of the scheme of reconstruction, the provisions of the first and second conditions apply in relation to the position after the reorganisation. (7) An issue of shares in or debentures of the successor company, or any of the successor companies, after the latest date on which any ordinary share capital of the successor company, or any of them, is issued— (a) in consideration of the transfer of any business, or part of a business, under the scheme, or (b) in pursuance of the compromise or arrangement mentioned in paragraph 5(a), shall be disregarded for the purposes of the first and second conditions. (8) (1) In this Schedule “ordinary share capital” has the meaning given by section 832(1) of the Taxes Act and also includes— (a) in relation to a unit trust scheme, any rights that are treated by section 99(1)(b) of this Act (application of Act to unit trust schemes) as shares in a company, and (b) in relation to a company that has no share capital, any interests in the company possessed by members of the company. (2) Any reference in this Schedule to a reorganisation of a company’s share capital is to a reorganisation within the meaning of section 126.

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Part 2 — Consequential amendments

Taxes Act 1988

4

• (1) The Taxes Act 1988 is amended as follows.

• (2) In section 299 (disposal of shares)—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) in subsection (4C), as that section applies to shares issued before 1st January 1994 (business expansion scheme),

for “(whether or not by virtue of section 135(3) of that Act)" substitute “ (including a case where that section applies by virtue of any enactment relating to chargeable gains) ”, and for the words from “shall be construed" to the end substitute “ have the same meaning as in section 127 of the 1992 Act (or, as the case may be, that section as applied by virtue of the enactment concerned) ”.

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taxation of Chargeable Gains Act 1992

5

• (1) The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) In section 102 (collective investment schemes with property divided into separate parts), in subsection (3)(b) after “135" insert “ or 136 ”.

• (5) In section 137 (restriction on application of sections 135 and 136)—

• (a) in subsection (1), for “, reconstruction or amalgamation" substitute “ or scheme of reconstruction ”; and

• (b) in subsection (6), for “section 136(3)" substitute “ section 135(5), 136(5) ”.

• (6) In section 138(1) (procedure for clearance in advance), for “, reconstruction or amalgamation" substitute “ or scheme of reconstruction ”.

• (7) In section 139 (reconstruction involving transfer of business), for subsection (9) substitute—

(9) In this section “scheme of reconstruction” has the same meaning as in section 136.

.

• (8) In section 147 (quoted options treated as part of new holdings)—

• (a) in subsection (1) for “or amalgamation" substitute “ , exchange or scheme of reconstruction ”; and

• (b) in subsection (2) at the end insert “ and “scheme of reconstruction" has the same meaning as in section 136 ”.

• (9) In section 151B (venture capital trusts: supplementary), in subsection (8) for paragraph (c) substitute—

(c) a reference to the exchanged holding is, in relation to section 135 or 136, to the shares in the company referred to in that section as company A.

.

• (10) In section 171(3) (transfers within a group) for “by virtue of sections 127 and 135" substitute “ by section 127 as it applies by virtue of section 135 ”.

• (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (12) In section 251 (debts: general provisions)—

• (a) in subsection (2) for “132 and 135" substitute “ 132, 135 and 136 ”;

• (b) in subsection (3)—

• (i) for “132 and 135" substitute “ 132, 135 and 136 ”, and

• (ii) for “either section 132 or 135" substitute “ section 132, 135 or 136 ”;

• (c) in subsection (6)(b) for the words from “unaffected" to the end substitute “ to which section 135 applies and which is unaffected by section 137(1) ”.

• (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (14) In Schedule 6 (retirement relief: supplementary provisions), in paragraph 2(2) for “section 135(3)" substitute “ section 135 or 136 ”.

Finance Act 2000

6

• (1) Schedule 15 to the Finance Act 2000 (c. 17) (corporate venturing scheme) is amended as follows.

• (2) In paragraph 71 (tax avoidance), in sub-paragraph (1)(b)(ii) for “reconstructions and amalgamations" substitute “ schemes of reconstruction ”.

• (3) In paragraph 82(1) (company reconstructions and amalgamations), in the closing words for “company reconstructions and amalgamations" substitute “ share exchanges and company reconstructions ”.

• (4) In paragraph 93(7) (identification of shares on a disposal: cases to which section 127 applies)—

• (a) for “(whether or not by virtue of section 135(3) of that Act)" substitute “ (including a case where that section applies by virtue of any enactment relating to chargeable gains) ”; and

• (b) for the words from “shall be construed" to the end substitute “ have the same meaning as in section 127 of the 1992 Act (or, as the case may be, that section as applied by virtue of the enactment concerned) ”.

• (5) In paragraph 96 (meaning of “disposal")—

• (a) in sub-paragraph (2)(a) for “section 136(1)" substitute “ section 136 ”;

• (b) in sub-paragraph (2)(b) for “sections 135 and 136 of that Act to bona fide reconstructions and amalgamations" substitute “ section 136 of that Act to bona fide schemes of reconstruction ”.

Part 3 — Commencement

General commencement date

7

• (1) Subject to paragraph 8, the provisions of this Schedule have effect in relation to shares or debentures issued on or after 17th April 2002 (“the commencement date”).

• (2) The reference in sub-paragraph (1) to shares or debentures includes any interests falling to be treated as shares or debentures for the purposes of section 135 or 136 of the Taxation of Chargeable Gains Act 1992 (c. 12) as substituted by this Schedule.

Commencement provision for certain consequential amendments

8

• (1) Paragraph 4(2), (3) and (5) and paragraph 6(2), (4) and (5) have effect in relation to disposals on or after the commencement date.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) Paragraph 4(6) has effect in relation to events occurring on or after the commencement date.

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 10

Introduction

1

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

Periods of share ownership that do not count because of change of activity by company

2

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

Periods of share ownership not to count where company is not active

3

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

Meaning of “holding company”

4

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

Meaning of “interest in shares”

5

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

Meaning of “joint venture company” and “qualifying shareholding”

6

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

Meaning of “ordinary share capital”

7

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

Debentures to be treated as shares

8

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

Meaning of “trading company”

9

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

Meaning of “trading group”

10