Legalize / United Kingdom / Public General Act

Income Tax Act 2007

Type Public General Act

Publication 2007-03-20

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(a) the winding up is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and

(b) the company continues, during the winding up, to be a trading company.

(5) References in this section to a company being “in administration” or “in receivership” are to be read in accordance with section 252.

The control and independence requirement

139

(1) The control element of the requirement is that—

(a) the company must not control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the company, and

(b) no arrangements must be in existence by virtue of which the company could fail to meet paragraph (a) (whether at a time during the continuous period that is relevant for the purposes of section 134(3) or otherwise).

(2) The independence element of the requirement is that—

(a) the company must not—

(i) be a 51% subsidiary of another company, or

(ii) be under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company, and

(b) no arrangements must be in existence by virtue of which the company could fail to meet paragraph (a) (whether at a time during the continuous period that is relevant for the purposes of section 134(3) or otherwise).

(3) This section is subject to section 145(3).

(4) In this section—

“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable,

“control”, in subsection (1)(a), is to be read in accordance with sections 450 and 451 of CTA 2010,

“qualifying subsidiary” is to be read in accordance with section 191.

The qualifying subsidiaries requirement

140

(1) The qualifying subsidiaries requirement is that any subsidiary that the company has must be a qualifying subsidiary of the company.

(2) In this section “qualifying subsidiary” is to be read in accordance with section 191.

The property managing subsidiaries requirement

141

(1) The property managing subsidiaries requirement is that any property managing subsidiary that the company has must be a qualifying 90% subsidiary of the company.

(2) In this section—

“property managing subsidiary” has the meaning given by section 188(2),

“qualifying 90% subsidiary” has the meaning given by section 190.

The gross assets requirement

142

(1) The gross assets requirement in the case of a single company is that the value of the company's gross assets—

(a) must not exceed £7 million immediately before the shares in respect of which the share loss relief is claimed are issued, and

(b) must not exceed £8 million immediately afterwards.

(2) The gross assets requirement in the case of a parent company is that the value of the group assets—

(a) must not exceed £7 million immediately before the shares in respect of which the share loss relief is claimed are issued, and

(b) must not exceed £8 million immediately afterwards.

(3) The value of the group assets means the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

(4) In this section—

“group” means a parent company and its qualifying subsidiaries,

“parent company” means a company that has one or more qualifying subsidiaries,

“qualifying subsidiary” is to be read in accordance with section 191, and

“single company” means a company that does not have one or more qualifying subsidiaries.

The unquoted status requirement

143

(1) The unquoted status requirement is that, at the time (“the relevant time”) at which the shares in respect of which the share loss relief is claimed are issued—

(a) the company must be an unquoted company,

(b) there must be no arrangements in existence for the company to cease to be an unquoted company, and

(c) there must be no arrangements in existence for the company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—

(i) section 145 applies in relation to the exchange, and

(ii) arrangements have been made with a view to the new company ceasing to be an unquoted company.

(2) The arrangements referred to in subsection (1)(b) and (c)(ii) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company or the new company are at any subsequent time—

(a) listed on a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005(1)(b), or

(b) listed on an exchange, or dealt in by any means, designated by an order made for the purposes of section 184(3)(b) or (c),

if the order was made after the relevant time.

(3) In this section—

“arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable, and

“unquoted company” has the meaning given by section 184(2).

Power to amend requirements by Treasury order

144

The Treasury may by order make such amendments of sections 137 to 143 as they consider appropriate.

Qualifying trading companies: supplementary

Relief after an exchange of shares for shares in another company

145

(1) This section and section 146 apply in relation to shares to which EIS relief is not attributable if—

(a) a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another company (“the old company”),

(b) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,

(c) the consideration for the new shares of each description consists wholly of old shares of the corresponding description,

(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings, and

(e) by virtue of section 127 of TCGA 1992 as applied by section 135(3) of that Act (company reconstructions etc), the exchange of shares is not to be treated as involving a disposal of the old shares or an acquisition of the new shares.

In this subsection references to shares, except in the expressions “shares to which EIS relief is not attributable” and “subscriber shares”, include securities.

(2) For the purposes of this Chapter the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares.

(3) Nothing in—

(a) section 136(2) (disposals of new shares), and

(b) section 139 (the control and independence requirement),

applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1) or, in the case of section 139, arrangements with a view to such an exchange.

(4) For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.

(5) References in section 146 to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.

Substitution of new shares for old shares

146

(1) Subsection (2) applies if, in the case of any new shares held by an individual or by a nominee for an individual, the old shares for which they were exchanged were shares—

(a) to which EIS relief was not attributable, and

(b) which had been subscribed for by the individual.

(2) This Chapter has effect in relation to any subsequent disposal or other event as if—

(a) the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for by the individual,

(b) the new shares had been issued by the new company at the time when the old shares were issued to the individual by the old company, and

(c) any requirements of this Chapter which were met at any time before the exchange by the old company had been met at that time by the new company.

(3) Nothing in subsection (2) applies in relation to section 195(7) as applied by section 137(7) for the purposes mentioned in section 137(8).

147

(1) Subsection (2) applies if—

(a) an individual disposes of any qualifying shares,

(b) those shares either—

(i) form part of a section 104 holding ... at the time of the disposal, ...

(ii) at a time earlier than the time of the disposal but after 5 April 2008 formed part of a section 104 holding, or

(iii) at a time earlier than that time and than 6 April 2008 formed part of an old section 104 holding or a 1982 holding, and

(2) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if the qualifying shares had not formed part of the holding.

(3) Subsection (4) applies if—

(a) an individual disposes of any qualifying shares,

(b) the qualifying shares, and other shares that are not capable of being qualifying shares, are for the purposes of TCGA 1992 to be treated as acquired by a single transaction by virtue of section 105(1)(a) of that Act (disposal of shares acquired on same day etc), and

(4) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if—

(a) the qualifying shares were to be treated as acquired by a single transaction, and

(b) the other shares were not to be so treated.

(5) Subsection (6) applies if—

(a) an individual disposes of any qualifying shares,

(b) the qualifying shares (taken as a single asset), and other shares in the same company that are not capable of being qualifying shares (taken as a single asset), are for the purposes of TCGA 1992 to be treated as the same asset by virtue of section 127 of that Act (reorganisation etc treated as not involving disposal), and

References in this subsection and subsection (6) to other shares in the same company include debentures of the same company.

(6) The amount of share loss relief on the disposal is not to exceed the sums that would be allowed as deductions in calculating the amount of the loss if the qualifying shares and the other shares in the same company were not to be treated as the same asset.

(7) In this section—

“section 104 holding” has the meaning given by section 104(3) of TCGA 1992 and “old section 104 holding” is a holding that was a section 104 holding within the meaning of that provision as it applied in relation to disposals before 6 April 2008, and

“1982 holding” has the meaning given by section 109(1) of that Act as it applied in relation to disposals before 6 April 2008.

(8) For the purposes of this section and section 148, shares to which EIS relief is not attributable are not capable of being qualifying shares at any time if—

(a) the individual acquired the shares otherwise than by subscription, or

(b) condition C in section 134(4) was not met in relation to the issue of the shares, ...

(9) For the purposes of subsection (5), shares to which EIS relief is not attributable are not capable of being qualifying shares at any time if they are shares of a different class from the shares mentioned in paragraph (a) of that subsection.

Disposal of shares forming part of mixed holding

148

(1) This section applies if an individual disposes of shares forming part of a mixed holding of shares, that is, a holding of shares in a company which includes—

(a) shares that are not capable of being qualifying shares, and

(b) other shares.

(2) Any question—

(a) whether a disposal by the individual of shares forming part of the mixed holding is of qualifying shares, or

(b) as to which of any qualifying shares acquired by the individual at different times such a disposal relates to,

is to be determined as provided by the following provisions of this section.

(3) Any such question as is mentioned in subsection (2) is to be determined—

(a) except in a case falling within paragraph (b)—

(i) in accordance with subsection (4), and

(ii) in the case of shares which under that subsection are identified with the whole or any part of a section 104 holding ..., in accordance with subsection (5),

(b) in the case of a mixed holding which includes any of the following—

(ai) shares to which SEIS relief is attributable (as determined in accordance with Part 5A),

(i) shares issued before 1 January 1994 in respect of which relief has been given under Chapter 3 of Part 7 of ICTA (business expansion scheme) and has not been withdrawn,

(ii) shares to which EIS relief is attributable, and

(iii) shares to which deferral relief (within the meaning of Schedule 5B to TCGA 1992) is attributable,

in accordance with subsection (6).

(4) For the purposes of subsection (3)(a)(i), the question is to be determined by identifying the shares disposed of in accordance with sections 105 to 105B and 106A of TCGA 1992.

(5) For the purposes of subsection (3)(a)(ii), the question is to be determined by treating the disposal and any previous disposal by the individual out of the section 104 ... holding as relating to shares acquired later rather than earlier.

(6) For the purposes of subsection (3)(b), the question is to be determined—

(a) in relation to shares issued before 1 January 1994, as provided by subsections (3) to (4C) of section 299 of ICTA (as that section has effect in relation to shares so issued),

(b) in relation to shares issued on or after that date and before 6 April 2007, as provided by subsections (6) to (6D) of that section (as that section has effect in relation to shares so issued), and

(7) Any such question as is mentioned in subsection (2) which cannot be determined as provided by subsections (3) to (6) is to be determined on a just and reasonable basis.

(8) In this section “holding” means any number of shares of the same class held by one individual in the same capacity, growing or diminishing as shares of that class are acquired or disposed of.

For this purpose—

(a) shares are not to be treated as being of the same class unless they are so treated by the practice of a recognised stock exchange or would be so treated if dealt in on such an exchange, and

(b) subsection (4) of section 104 of TCGA 1992 applies as it applies for the purposes of subsection (1) of that section.

(9) In this section “section 104 holding” has the same meaning as in section 147.

Section 148: supplementary

149

(1) In the case of a disposal of shares within section 148(3)(b)(ii) or (iii) to which section 105A of TCGA 1992 (election for alternative treatment: approved-scheme shares) applies—

(a) section 299 of ICTA (identification of shares) has effect for the purposes of section 148(6)(b), and

(b) section 246 of this Act has effect for the purposes of section 148(6)(c),

with the same modifications as those with which they have effect for the purposes of section 150A(4) of TCGA 1992 (enterprise investment schemes).

(2) In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not involving disposal) applies (including a case where that section applies by virtue of an enactment relating to chargeable gains), shares included in the new holding are treated for the purposes of section 148 as acquired when the original shares were acquired.

(3) Any shares held or disposed of by a nominee or bare trustee for an individual are treated for the purposes of section 148 as held or disposed of by that individual.

(4) In this section “new holding” and “original shares” have the same meaning as in section 127 of TCGA 1992 (or, as the case may be, that section as applied by the enactment concerned).

Miscellaneous and supplementary

Deemed time of issue for certain shares

150

(1) In this section “the relevant provisions” means—

section 142(1)(a) and (2)(a),

section 143(1), and

section 146(2)(b).

(2) If—

(a) any shares were issued to an individual (“A”) or are treated under subsection (3) or this subsection as having been issued to A at a particular time,

(b) the shares are transferred by A to another individual (“B”) during their lives, and

the shares are treated for the purposes of the relevant provisions as having been issued to B at the time they were issued to A or are treated as having been so issued.

(3) If—

(a) any shares (“the original shares”) have been issued to an individual, or are treated under subsection (2) or this subsection as having been issued to an individual at a particular time, and

(b) any corresponding bonus shares are subsequently issued to the individual,

the bonus shares are treated for the purposes of the relevant provisions as having been issued at the time the original shares were issued to the individual or are treated as having been so issued.

Interpretation of Chapter

151

(1) In this Chapter (subject to subsections (2) to (8))—

“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise),

“civil partner” refers to one of two civil partners who are living together,

“corresponding bonus shares”, in relation to any shares, means bonus shares which—are issued in respect of those shares, andare in the same company, are of the same class, and carry the same rights, as those shares,

“EIS relief” means—EIS income tax relief under Part 5 of this Act, andin relation to shares issued after 31 December 1993 and before 6 April 2007, relief under Chapter 3 of Part 7 of ICTA (enterprise investment scheme),

“excluded company” means a company which—has a trade which consists wholly or mainly of dealing in land, in commodities or futures or in shares, securities or other financial instruments,has a trade which is not carried on on a commercial basis and in such a way that profits in the trade can reasonably be expected to be realised,is a holding company of a group other than a trading group, oris a building society or a registered society,

“group” (except in sections 137 and 142) means a company which has one or more 51% subsidiaries together with that or those subsidiaries,

“holding company” means a company whose business consists wholly or mainly in the holding of shares or securities of companies which are its 51% subsidiaries,

“investment company” means a company— whose business consists wholly or mainly in the making of investments, andwhich derives the principal part of its income from the making of investments,but does not include the holding company of a trading group,

“qualifying shares” has the meaning given by section 131(2),

“registered society” means—a registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014, a society registered or treated as registered under the Industrial and Provident Societies Act (Northern Ireland) 1969, or an SCE formed in accordance with Council Regulation (EC) No 1435/2003 on the Statute for a European Cooperative Society,

“shares”—includes stock, butdoes not include shares or stock not forming part of a company's ordinary share capital,

“share loss relief” has the meaning given by section 131(1),

“spouse” refers to one of two spouses who are living together,

“trading company” means a company other than an excluded company which is—a company whose business consists wholly or mainly of the carrying on of a trade or trades, orthe holding company of a trading group,

“trading group” means a group the business of whose members, when taken together, consists wholly or mainly in the carrying on of a trade or trades, and

“the year of the loss” has the meaning given by section 131(1).

(2) For the purposes of the definition of “corresponding bonus shares” in subsection (1), shares are not treated as being of the same class unless they would be so treated if dealt in on a recognised stock exchange.

(3) In section 148(3)(b) and (6) “shares” does not include stock.

(4) Except as provided by subsection (5), paragraph (b) of the definition of shares in subsection (1) does not apply in the definition of “excluded company” in subsection (1) or in sections 145(1) to (4) and 147(3) to (6), (8) and (9).

(5) Paragraph (b) of that definition applies in relation to the expression “shares to which EIS relief is not attributable” in section 145(1).

(6) The definition of “shares” in subsection (1) does not apply in sections 137(5)(a), 142(3) and 143(1)(c) and (2).

(7) For the purposes of the definition of “trading group” in subsection (1), any trade carried on by a subsidiary which is an excluded company is treated as not constituting a trade.

(8) For the purposes of this Chapter a disposal of shares which results in an allowable loss for capital gains tax purposes is treated as made at the time when the disposal is made or treated as made for the purposes of TCGA 1992.

Chapter 7 — Losses from miscellaneous transactions

Loss relief against miscellaneous income

Losses from miscellaneous transactions

152

(1) If in a tax year (“the loss-making year”) a person makes a loss in a relevant transaction, the person may make a claim for loss relief against relevant miscellaneous income.

(2) A transaction is a relevant one if, assuming there were profits or other income arising from it—

(a) those profits or that other income would be income on which income tax is charged under, or by virtue of, a relevant section 1016 provision (“the relevant provision”), and

(b) the person would be liable for income tax charged on those profits or that other income.

(2A) A relevant section 1016 provision” means a provision to which section 1016 applies, other than—

(a) regulation 17 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) (treatment of participants in non-reporting funds: charge to tax on disposal of asset), or

(b) Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc).

(3) The claim is for the loss to be deducted in calculating the person's net income for the loss-making year and subsequent tax years (see Step 2 of the calculation in section 23).

(4) But a deduction for that purpose is to be made only from the person's relevant miscellaneous income.

(5) The person's “relevant miscellaneous income is so much of the person's total income as is—

(a) income or gains arising from transactions, and

(b) income on which income tax is charged under, or by virtue of, the relevant provision.

This is subject to subsection (6).

(6) If the loss was made by the person as a partner in a partnership, the transactions covered by subsection (5)(a) are limited to transactions entered into by the partnership.

(7) In calculating a person's net income for a tax year, deductions under this section from the person's relevant miscellaneous income are to be made before deductions of any other reliefs from that relevant miscellaneous income.

(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) This section needs to be read with—

(a) section 153 (how relief works),

(b) section 154 (transactions in deposit rights),...

(ba) section 154A (anti-avoidance), and

How relief works

153

This section explains how the deductions are to be made. The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).

Deposit rights

Transactions in deposit rights

154

(1) This section applies if—

(a) a person makes a loss from the disposal or exercise of a right to receive an amount,

(b) the disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4 of ITTOIA 2005 (see subsection (2)), and

(2) The disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4 of ITTOIA 2005 if, assuming there were a profit or gain from it, the profit or gain would be charged to tax under that Chapter.

(3) For the purposes of the giving of loss relief against relevant miscellaneous income for the loss mentioned in subsection (1)(a), the interest mentioned in subsection (1)(c) is treated as relevant miscellaneous income, for the tax year, in relation to the loss.

Supplementary

Time limit for claiming relief

155

(1) So far as a claim for loss relief against relevant miscellaneous income concerns the amount of the loss for a tax year, it must be made not more than 4 years after the end of the tax year.

(2) But—

(a) the question whether, and

(b) if so, how much,

loss relief against relevant miscellaneous income should be given for a tax year may be the subject of a separate claim made not more than 4 years after the end of the tax year.

Part 5 — Enterprise investment scheme

Chapter 1 — Introduction

EIS relief

Meaning of “EIS relief” and commencement

156

(1) This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares.

(2) In this Part “EIS” stands for the enterprise investment scheme.

(3) In accordance with section 1034(3), this Part has effect only in relation to shares issued on or after 6 April 2007.

This is subject to Schedule 2 (transitional provisions and savings).

Eligibility for EIS relief

157

(1) An individual (“the investor”) is eligible for EIS relief in respect of an amount subscribed by the investor on the investor's own behalf for an issue of shares in a company (“the issuing company”) if—

(za) the risk-to-capital condition is met (see section 157A),

(a) the shares (“the relevant shares”) are issued to the investor,

(aa) the shares are issued before 6 April 2035,

(b) the investor is a qualifying investor in relation to the relevant shares (see Chapter 2),

(c) the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and

(d) the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4).

(1A) The Treasury may, by regulations, amend subsection (1)(aa) to substitute a different date for the date for the time being specified there.

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

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

Form and amount of EIS relief

158

(1) If an individual—

(a) is eligible for EIS relief in respect of any amount subscribed for shares, and

(b) makes a claim in respect of all or some of the shares included in the issue,

the individual is entitled to a tax reduction for the tax year in which the shares were issued (“the current year”).

This is subject to the provisions of this Part.

(2) The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the EIS rate for the current year on—

(a) the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims EIS relief (qualifying shares), or

(b) if less, the allowable amount.

(2ZA) The allowable amount is—

(a) if the qualifying shares do not include any KIC shares: £1 million;

(b) if the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares is £1 million or more: £2 million;

(c) if neither paragraph (a) nor paragraph (b) applies: £1 million plus the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares.

(2ZB) In subsection (2ZA) “KIC shares” means shares in a company which, or in companies each of which, is a knowledge-intensive company at the time the shares are issued (see section 252A and subsection (6)).

(2A) In this Part “the EIS rate” means 30%.

(3) The tax reduction is given effect at Step 6 of the calculation in section 23.

(4) ... if in the case of any issue of shares—

(a) which are issued ... in the current year, and

(b) in respect of the amount subscribed for which the individual is eligible for EIS relief,

the individual so claims, subsections (1) to (2ZB) apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year; and the individual's liability to tax for both tax years is determined accordingly.

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

(6) If the issuing company began to carry on a trade less than three years before the date the relevant shares are issued, section 252A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (2) to (4A)—

(2) The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation. (3) The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure. (4) In subsections (2) and (3)— - “relevant operating costs” means— 1. if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and 2. if the issuing company is a parent company at the time the relevant shares are issued, the sum of— 1. the operating costs of the issuing company, and 2. the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company; - “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued.

(7) In subsection (6) “trade” includes—

(a) any business or profession,

(b) so far as not within paragraph (a), the carrying on of research and development activities from which it is intended a trade will be derived or will benefit,

Miscellaneous

Periods A, B and C

159

(1) This section applies for the purposes of this Part in relation to any shares issued by a company.

(2) “Period A” means the period—

(a) beginning—

(i) with the incorporation of the company, or

(ii) if the company was incorporated more than two years before the date on which the shares were issued, two years before that date, and

(b) ending immediately before the termination date relating to the shares (see section 256).

(3) “Period B” means the period—

(a) beginning with the issue of the shares, and

(b) ending immediately before the termination date relating to the shares.

(4) “Period C” means the period—

(a) beginning 12 months before the issue of the shares, and

(b) ending immediately before the termination date relating to the shares.

Overview of other Chapters of Part

160

In this Part—

(a) Chapter 5 provides for the attribution of EIS relief to shares and the making of claims for such relief,

(b) Chapter 6 provides for EIS relief to be withdrawn or reduced in the circumstances mentioned in that Chapter,

(d) Chapter 8 contains supplementary and general provisions.

Other tax reliefs relating to EIS

161

(1) Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the income of an individual who incurs an allowable loss for capital gains tax purposes on a disposal of shares to which EIS relief is attributable.

(2) Subsection (3) of section 392 (loan to buy interest in close company) provides that subsection (2)(a) of that section does not apply if at any time—

(a) the individual by whom the shares are acquired, or

(b) that individual's spouse or civil partner,

makes a claim for EIS relief in respect of the shares.

(3) Section 150A of TCGA 1992 makes provision about gains or losses on the disposal of shares to which EIS relief is attributable.

(4) Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under EIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.

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

Chapter 2 — The investor

Introduction

Overview of Chapter

162

The investor is a qualifying investor in relation to the relevant shares if the requirements of this Chapter are met as to—

(a) no connection with the issuing company (see section 163),

(b) no linked loans (see section 164), ...

(ba) existing shareholdings (see section 164A), and

The requirements

The no connection with the issuing company requirement

163

(1) The investor must not be connected with the issuing company (whether before or after its incorporation) at any time during the period—

(a) beginning two years before the issue of the shares, and

(b) ending immediately before the termination date relating to the shares.

(2) This is subject to section 169(1).

The no linked loans requirement

164

(1) No linked loan is to be made by any person, at any time in period A, to the investor or an associate of the investor.

(2) In this section “linked loan” means any loan which—

(a) would not have been made, or

(b) would not have been made on the same terms,

if the investor had not subscribed for the relevant shares, or had not been proposing to do so.

(3) References in this section to the making by any person of a loan to the investor or an associate of the investor include references—

(a) to the giving by that person of any credit to the investor or any associate of the investor, and

(b) to the assignment to that person of a debt due from the investor or any associate of the investor.

The no tax avoidance requirement

165

The relevant shares must be subscribed for by the investor for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Meaning of connection with issuing company

Connection with issuing company

166

(1) For the purposes of this Chapter (except section 168(4)), an individual is connected with the issuing company if the individual or an associate of the individual is connected with that company under—

(a) section 167 (employees, directors and partners),

(b) section 170 (persons interested in capital etc of company), or

(1A) But see section 252A(12) for provision which disapplies section 168.

(2) See too section 257(2).

Employees, directors and partners

167

(1) An individual is connected with the issuing company if the individual—

(a) is an employee of—

(i) the issuing company,

(ii) any subsidiary of the issuing company, or

(iii) a partner of the issuing company or any of its subsidiaries,

(b) is a partner of—

(i) the issuing company, or

(ii) any subsidiary of the issuing company, or

(i) the issuing company,

(ii) any subsidiary of the issuing company, or

(iii) a company which is a partner of the issuing company or any of its subsidiaries.

(2) In subsection (1) “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company, whether or not it is such a subsidiary while the individual or associate concerned is such an employee, partner or director as is mentioned in that subsection.

(3) For the purposes of this section and sections 168 and 169, in the case of an individual (“A”) who is both a director and an employee of a company—

(a) references (however expressed) to A in A's capacity as a director of the company include A in A's capacity as an employee of the company, but

(b) (apart from that) A is to be treated as a director, and not as an employee, of the company.

Directors excluded from connection

168

(1) An individual is not connected with the issuing company under section 167 merely because the individual, or an associate of the individual, is a director of that or another company unless the individual or associate (or a partnership of which the individual or associate is a member)—

(a) receives a payment from the issuing company or a related person during the period mentioned in section 163, or

(b) is entitled to receive such a payment in respect of that period or any part of it.

(2) For the purposes of subsection (1) the following are ignored—

(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the individual or an associate of the individual in the performance of the individual's or associate's duties as a director,

(b) any interest which represents no more than a reasonable commercial return on money lent to the issuing company or a related person,

(d) any payment for the supply of goods which does not exceed their market value,

(e) any payment of rent for any property occupied by the issuing company or a related person which does not exceed a reasonable and commercial rent for the property, and

(f) any necessary and reasonable remuneration which meets the conditions in subsection (3).

(3) The conditions are that the remuneration—

(a) is paid for services rendered to the issuing company or related person in the course of a trade or profession carried on wholly or partly in the United Kingdom (not being secretarial or managerial services or services of a kind provided by the person to whom they are rendered), and

(b) is taken into account in calculating for tax purposes the profits of that trade or profession.

(4) In this section—

(a) “related person”, in relation to the issuing company, means—

(i) any company of which the individual or an associate of the individual is a director and which is a subsidiary or partner of the issuing company, or a partner of a subsidiary of the issuing company, and

(ii) any person connected with the issuing company or with a company falling within sub-paragraph (i), and

(b) any reference to a payment to an individual includes a payment made to the individual indirectly or to the individual's order or for the individual's benefit.

(5) In this section and section 169 “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company.

Directors qualifying for relief despite connection

169

(1) Section 163(1) does not prevent the investor from being a qualifying investor despite the investor's connection with the issuing company at any time in period A relating to the relevant shares if—

(a) the investor is connected with that company merely because of the investor, or the investor's associate—

(i) being a director of, or of a company which is a partner of, the issuing company or a subsidiary of the issuing company, and

(ii) being in receipt of, or entitled to receive, remuneration as such, and

(b) conditions A and B and (where applicable) condition C are met.

(2) Condition A is that, in relation to the director (“D”), whether D is the investor or an associate of the investor—

(a) D's remuneration, or

(b) the remuneration to which D is entitled,

consists only of remuneration which is reasonable remuneration for services rendered to the company of which D is a director in D's capacity as such.

(3) Condition B is that the investor was issued with the relevant shares, or a previous issue of shares in the issuing company which meet the requirements of section 173(2), at a time when the investor had never been—

(a) connected with the issuing company, or

(b) involved in carrying on (whether on the investor's own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the issuing company or a subsidiary of that company.

(4) Condition C is that, if the issue of the relevant shares did not meet condition B, they were issued before —

(a) the termination date relating to the latest issue of shares which met that condition, or

(b) if that issue is an issue in respect of which the investor is eligible for SEIS relief (within the meaning of Part 5A), before the date specified in section 257AC(4) in relation to the shares.

(5) For the purposes of condition A any necessary and reasonable remuneration falling within section 168(2)(f) is to be left out of account.

(6) In this section “remuneration” includes any benefit or facility.

Persons interested in capital etc of company

170

(1) An individual is connected with the issuing company if the individual directly or indirectly possesses or is entitled to acquire more than 30% of—

(a) the ordinary share capital of the company or any subsidiary of the company,

(b) the ... issued share capital of the company or any such subsidiary, or

(2) An individual is connected with the issuing company if the individual directly or indirectly possesses or is entitled to acquire such rights as would—

(a) in the event of the winding up of the company or any subsidiary of the company, or

(b) in any other circumstances,

entitle the individual to receive more than 30% of the assets of the company or subsidiary (“the company in question”) which would then be available for distribution to equity holders of the company in question.

(3) For the purposes of subsection (2)—

(a) the persons who are equity holders of the company in question, and

(b) the percentage of the assets of the company in question to which the individual would be entitled,

are determined in accordance with Chapter 6 of Part 5 of CTA 2010.

(4) In making that determination—

(a) references in section 166 of that Act to company A are to be read as references to an equity holder, and

(b) references in that section to a winding up are to be read as including references to any other circumstances in which assets of the company in question are available for distribution to its equity holders.

(5) An individual is not connected with a company merely because one or more shares in the company are held by the individual or by an associate of the individual, at a time when the company—

(a) has not issued any shares other than subscriber shares, and

(b) has not begun to carry on, or make preparations for carrying on, any trade or business.

(6) An individual is connected with the issuing company if the individual has control of the issuing company or of any subsidiary of that company.

(7) In this section “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section.

(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) For the purposes of this section—

(a) an individual is treated as entitled to acquire anything which the individual is entitled to acquire at a future date or will at a future date be entitled to acquire, and

(b) there is attributed to any individual any rights or powers of any other person who is an associate of the individual.

(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Persons subscribing for shares under certain arrangements

171

(1) This section applies if an individual (“A”) subscribes for shares in a company (“the company”) with which A is not connected under section 167 or 170.

(2) If—

(a) A subscribes for the shares as part of an arrangement, and

(b) the arrangement provides for another person to subscribe for shares in another company with which (assuming it to be the issuing company) A, or any other individual who is a party to the arrangement, is connected,

A is connected with the company under this section.

Chapter 3 — General requirements

Introduction

Overview of Chapter

172

The general requirements are met in respect of the relevant shares if the requirements of this Chapter are met as to—

(a) the shares (see section 173),

(aa) the maximum amount raised annually through risk finance investments (see section 173A),

(aaa) the maximum risk finance investments at the issue date (see section 173AA),

(aab) the maximum risk finance investments at times during period B (see section 173AB),

(ab) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) the purpose of the issue (see section 174),

(ca) the permitted maximum age (see section 175A),

(d) the minimum period (see section 176),

(e) no pre-arranged exits (see section 177), and

(f) no tax avoidance (see section 178), and

(g) no disqualifying arrangements (see section 178A).

The requirements

The shares requirement

173

(1) The relevant shares must meet—

(a) the requirements of subsection (2), and

(b) unless they are bonus shares, the requirements of subsection (3).

(2) Shares meet the requirements of this subsection if they are ordinary shares which do not, at any time during period B, carry—

(a) any present or future preferential right to dividends that is within subsection (2A),

(aa) any present or future preferential right to a company's assets on its winding up, or

(b) any present or future right to be redeemed.

(2A) A preferential right to dividends carried by a share in a company is within this subsection if—

(a) the amount of any dividends payable pursuant to the right, or the date or dates on which they are payable, depend to any extent on a decision of the company, the holder of the share or any other person, or

(b) the amount of any dividends that become payable at any time pursuant to the right includes any amount that became payable at any earlier time pursuant to the right, but has not been paid.

(3) Shares meet the requirements of this subsection if they—

(a) are subscribed for wholly in cash, and

(b) are fully paid up at the time they are issued.

(4) Shares are not fully paid up for the purposes of subsection (3)(b) if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.

The purpose of the issue requirement

174

(1) The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purpose of a qualifying business activity so as to promote business growth and development.

(2) For this purpose “business growth and development” means the growth and development of—

(a) if the issuing company is a single company, the business of that company, and

(b) if the issuing company is a parent company, what would be the business of the group if the activities of the group companies taken together were regarded as one business.

The use of the money raised requirement

175

(1) The requirement of this section is that all of the money raised by the issue of the relevant shares (other than any of them which are bonus shares) is, no later than the time mentioned in subsection (3), employed wholly for the purpose of the qualifying business activity for which it was raised.

(1ZA) Employing money raised by the issue of the relevant shares (whether on its own or together with other money) on the acquisition, directly or indirectly, of—

(a) an interest in another company such that a company becomes a 51% subsidiary of the issuing company,

(b) a further interest in a company which is a 51% subsidiary of the issuing company,

(d) intangible assets employed for the purposes of a trade, or

(e) goodwill employed for the purposes of a trade,

does not amount to employing that money for the purposes of a qualifying business activity.

(1ZB) The Treasury may by regulations provide that subsection (1ZA) does not apply in relation to acquisitions of intangible assets which are of a description specified, or which occur in circumstances specified, in the regulations.

(1ZC) For the purposes of subsections (1ZA) and (1ZB)—

“goodwill” has the same meaning as in Part 8 of CTA 2009 (see section 715(3));

“intangible assets” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice;

and section 173A(6) and (7) (meaning of “trade” etc) applies as it applies for the purposes of section 173A.

(1A) Also, otherwise employing money on the acquisition of shares or stock in a company does not of itself amount to employing the money for the purposes of a qualifying business activity.

(2) The requirement in subsection (1) does not fail to be met merely because an amount of money which is not significant is employed for another purpose.

(3) The time referred to in subsection (1) is—

(a) the end of the period of two years beginning with the issue of the shares, or

(b) in the case of money raised only for the purpose of an activity to which section 179(2) applies, the end of the period of two years beginning with—

(i) the issue of the shares, or

(ii) if later, the time when the company or a qualifying 90% subsidiary of the company begins to carry on the qualifying trade.

(4) In determining for the purposes of subsection (3)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, any carrying on by it of the trade before it became such a subsidiary is ignored.

The minimum period requirement

176

(1) The issue of shares which includes the relevant shares must meet—

(a) the requirement of subsection (2) in a case where the money raised by an issue of shares is raised wholly for the purpose of a qualifying business activity falling within section 179(2),

(b) the requirement of subsection (3) in a case where the money raised by an issue of shares is raised wholly or partly for the purpose of a qualifying business activity falling within section 179(4).

(2) The requirement is that—

(a) the trade concerned must have been carried on for a period of at least 4 months ending at or after the time of the issue, and

(b) throughout that period—

(i) the trade must have been carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii) the trade must not have been carried on by any other person.

(3) The requirement is that—

(a) the research and development concerned must have been carried on for a period of at least 4 months ending at or after the time of the issue, and

(b) throughout that period—

(i) the research and development must have been carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii) the research and development must not have been carried on by any other person.

(4) If—

(a) merely because of the issuing company or any other company being wound up, or dissolved without winding up—

(i) the trade is carried on as mentioned in subsection (2), or

(ii) the research and development is carried on as mentioned in subsection (3),

for a period shorter than 4 months, and

(b) the winding up or dissolution—

(i) is for genuine commercial reasons, and

(ii) is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.

(5) If—

(a) merely because of anything done as a result of the issuing company or any other company being in administration or receivership—

(i) the trade is carried on as mentioned in subsection (2), or

(ii) the research and development is carried on as mentioned in subsection (3),

for a period shorter than 4 months, and

(b) the entry into administration or receivership, and everything done as a result of the company concerned being in administration or receivership—

(i) is for genuine commercial reasons, and

(ii) is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.

The no pre-arranged exits requirement

177

(1) The issuing arrangements for the relevant shares must not include—

(a) arrangements with a view to the subsequent repurchase, exchange or other disposal of those shares or of other shares in or securities of the issuing company,

(b) arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the issuing company or a person connected with that company,

(c) arrangements for the disposal of, or of a substantial amount (in terms of value) of, the assets of the issuing company or of a person connected with that company, or

(d) arrangements the main purpose or one of the main purposes of which is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in the issuing company against what would otherwise be the risks attached to making the investment.

(2) The arrangements referred to in subsection (1)(a) do not include—

(a) any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 247(1), or

(b) any arrangements with a view to any shares in the issuing company being exchanged for, or converted into, shares in that company of a different class.

(3) The arrangements referred to in subsection (1)(b) and (c) do not include any arrangements applicable only on the winding up of a company except in a case where—

(a) the issuing arrangements include arrangements for the company to be wound up, or

(b) the arrangements are applicable on the winding up of the company otherwise than for genuine commercial reasons.

(4) The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision—

(a) for the issuing company itself, or

(b) if the issuing company is a parent company that meets the trading requirement in section 181(2)(b), for the issuing company itself, for the issuing company itself and one or more of its subsidiaries or for one or more of its subsidiaries,

of any such protection against the risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances.

(5) In this section “the issuing arrangements” means—

(a) the arrangements under which the shares are issued to the individual, and

(b) any arrangements made before the issue of the shares to the individual in relation to or in connection with that issue.

The no tax avoidance requirement

178

The relevant shares must be issued for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Meaning of “qualifying business activity”

179

(1) In this Part “qualifying business activity”, in relation to the issuing company, means—

(a) activity A, or

(b) activity B,

if it is carried on by the company or a qualifying 90% subsidiary of the company.

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

(2) Activity A is—

(a) the carrying on of a qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or

(b) the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade—

(i) which, on that date, is intended to be carried on ... by the company or such a subsidiary, and

(ii) which is begun to be carried on by the company or such a subsidiary within two years after that date.

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

(4) Activity B is the carrying on of research and development—

(a) which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or which the company or such a subsidiary begins to carry on immediately afterwards, and

(b) from which, on that date, it is intended—

(i) that a qualifying trade which the company or such a subsidiary will carry on ... will be derived, or

(ii) that a qualifying trade which the company or such a subsidiary is carrying on, or will carry on, ... will benefit.

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

(6) In determining—

(a) for the purposes of subsection (2)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of the company, or

(b) for the purposes of subsection (4)(a) when research and development is begun to be carried on by such a subsidiary,

any carrying on of the trade or, as the case may be, the research and development by it before it became such a subsidiary is ignored.

(7) References in subsection (2)(b)(i) or (4)(b) to a qualifying 90% subsidiary of the company include references to any existing or future company which will be such a subsidiary at any future time.

Chapter 4 — The issuing company

Introduction

Overview of Chapter

180

The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to—

(za) UK permanent establishment (see section 180A),

(zb) financial health (see section 180B),

(a) trading (see section 181),

(b) the issuing company to carry on the qualifying business activity (see section 183),

(d) control and independence (see section 185),

(e) gross assets (see section 186),

(ea) number of employees (see section 186A),

(f) qualifying subsidiaries (see section 187), and

(g) property managing subsidiaries (see section 188).

The requirements

The trading requirement

181

(1) The issuing company must meet the trading requirement throughout period B.

(2) The trading requirement is that—

(a) the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or

(b) the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.

(3) If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—

(a) the company is treated as a parent company for the purposes of subsection (2)(b), and

(b) the reference in subsection (2)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that intention.

(4) For the purpose of subsection (2)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

(5) For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.

(6) For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—

(a) the holding of shares in or securities of a qualifying subsidiary of the parent company,

(b) the making of loans to another group company,

(c) the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or

(d) the holding and managing of property used by a group company for the purpose of research and development from which it is intended—

(i) that a qualifying trade to be carried on by a group company will be derived, or

(ii) that a qualifying trade carried on or to be carried on by a group company will benefit.

(7) Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.

(8) In this section—

“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,

“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly, and

“non-qualifying activities” means—excluded activities, andactivities (other than research and development) carried on otherwise than in the course of a trade.

(9) This section is supplemented by section 189 (meaning of “qualifying trade”) and sections 192 to 199 (excluded activities).

Ceasing to meet trading requirement because of administration or receivership

182

(1) A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.

This has effect subject to subsections (2) and (3).

(2) Subsection (1) applies only if—

(a) the entry into administration or receivership, and

(b) everything done as a result of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(3) A company ceases to meet the trading requirement if before the end of period B—

(a) a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or

(b) the company or any of its subsidiaries is dissolved without winding up.

This is subject to subsection (4).

(4) Subsection (3) does not apply if the winding up or dissolution is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

The issuing company to carry on the qualifying business activity requirement

183

(1) The requirement of this section is met in relation to the issuing company if, at no time in period B, is any of the following—

(a) the relevant qualifying trade,

(b) relevant preparation work (if any), and

carried on by a person other than the issuing company or a qualifying 90% subsidiary of that company.

(2) Subsection (3) has effect for the purpose of determining whether the requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.

(3) The carrying on of the relevant qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.

(4) The requirement of this section is not regarded as failing to be met in relation to the issuing company if, merely because of any act or event within subsection (5), the relevant qualifying trade—

(a) ceases to be carried on in period B by the issuing company or any qualifying 90% subsidiary of that company, and

(b) is subsequently carried on in that period by a person who is not at any time in period C connected with the issuing company.

(5) The following are acts and events within this subsection—

(a) anything done as a consequence of the issuing company or any other company being in administration or receivership, and

(b) the issuing company or any other company being wound up, or dissolved without being wound up.

(6) Subsection (4) applies only if—

(a) the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or

(b) the winding up or dissolution,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(7) In this section—

“relevant preparation work” means preparations within section 179(2)(b) which are the subject of the qualifying business activity mentioned in section 174,

“the relevant qualifying trade” means the qualifying trade which is the subject of that qualifying business activity,

“relevant research and development” means—research and development within section 179(4) which is the subject of that qualifying business activity, andany other preparations for the carrying on of the qualifying trade which is the subject of that activity.

The unquoted status requirement

184

(1) At the beginning of period B—

(a) the issuing company must be an unquoted company,

(b) there must be no arrangements in existence for the issuing company to cease to be an unquoted company, and

(c) there must be no arrangements in existence for the issuing company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—

(i) section 247 applies in relation to the exchange, and

(ii) arrangements have been made with a view to the new company ceasing to be an unquoted company.

(2) In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public.

(3) For the purposes of subsection (2), shares, stocks, debentures or other securities are marketed to the general public if they are—

(a) listed on a recognised stock exchange,

(b) listed on a designated exchange in a country outside the United Kingdom, or

(4) In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.

(5) An order made for the purposes of subsection (3)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.

(6) The arrangements referred to in subsection (1)(b) and (c)(ii) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company are at any subsequent time—

(a) listed on a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005(1)(b), or

(b) listed on an exchange, or dealt in by any means, designated by an order made for the purposes of subsection (3)(b) or (c),

if the order was made after the beginning of period B.

The control and independence requirement

185

(1) The control element of the requirement is that—

(a) the issuing company must not at any time in period B control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the issuing company, and

(b) no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).

(2) The independence element of the requirement is that—

(a) the issuing company must not at any time in period B—

(i) be a 51% subsidiary of another company, or

(ii) be under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company, and

(b) no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).

(3) This section is subject to section 247(4) (exchange of shares).

The gross assets requirement

186

(1) In the case of relevant shares issued by a single company, the value of the company's assets—

(a) must not exceed £15 million immediately before the relevant share issue, and

(b) must not exceed £16 million immediately afterwards.

(2) In the case of relevant shares issued by a parent company, the value of the group assets—

(a) must not exceed £15 million immediately before the relevant share issue, and

(b) must not exceed £16 million immediately afterwards.

(3) In this section—

(a) the relevant share issue is the issue of shares in the company that includes the relevant shares, and

(b) the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

The qualifying subsidiaries requirement

187

Any subsidiary that the issuing company has at any time in period B must be a qualifying subsidiary of the company.

The property managing subsidiaries requirement

188

(1) Any property managing subsidiary that the issuing company has at any time in period B must be a qualifying 90% subsidiary of the company.

(2) “Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3) In subsection (2) references to property deriving its value from land include—

(a) any shareholding in a company deriving its value directly or indirectly from land,

(b) any partnership interest deriving its value directly or indirectly from land,

(d) any option, consent or embargo affecting the disposition of land.

Definitions

Meaning of “qualifying trade”

189

(1) For the purposes of this Part, a trade is a qualifying trade if—

(a) it is conducted on a commercial basis and with a view to the realisation of profits, and

(b) it does not at any time in period B consist wholly or as to a substantial part in the carrying on of excluded activities.

(2) References in this section and sections 192 to 198 to a trade are to be read without regard to the definition of “trade” in section 989.

Meaning of “qualifying 90% subsidiary”

190

(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying 90% subsidiary of another company (“the relevant company”) if the following conditions are met—

(a) the relevant company possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,

(b) the relevant company would—

(i) in the event of a winding up of the subsidiary, or

(ii) in any other circumstances,

be beneficially entitled to receive at least 90% of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary,

(c) the relevant company is beneficially entitled to receive at least 90% of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary,

(d) no person other than the relevant company has control of the subsidiary, and

(e) no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) would cease to be met.

(1A) For the purposes of this Part, a company (“company A”) which is a subsidiary of another company (“company B”) is a qualifying 90% subsidiary of a third company (“company C”) if—

(a) company A is a qualifying 90% subsidiary of company B, and company B is a qualifying 100% subsidiary of company C, or

(b) company A is a qualifying 100% subsidiary of company B, and company B is a qualifying 90% subsidiary of company C.

(1B) For the purposes of subsection (1A), no account is to be taken of any control company C may have of company A.

(1C) For those purposes, a company (“company X”) is a qualifying 100% subsidiary of another company (“company Y”) at any time when the conditions in subsection (1)(a) to (e) would be met if—

(a) company X were the subsidiary,

(b) company Y were the relevant company, and

(2) Subsections (3), (4) and (5) of section 191 (conditions not regarded as ceasing to be met because of winding up, dissolution, administration, receivership or arrangements for disposal not having tax avoidance as main purpose) apply in relation to the conditions in subsection (1)—

(a) as they apply in relation to the conditions in subsection (2) of that section, but

(b) with the omission from subsection (5) of “or (as the case may be) by another subsidiary”.

(3) For the purposes of subsection (1)—

(a) the persons who are equity holders of the subsidiary, and

(b) the percentage of the assets of the subsidiary to which an equity holder would be entitled,

are to be determined in accordance with Chapter 6 of Part 5 of CTA 2010.

(4) In making that determination—

(a) references in section 166 of that Act to company A are to be read as references to an equity holder, and

(b) references in that section to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.

Meaning of “qualifying subsidiary”

191

(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying subsidiary of another company (“the relevant company”) if the following conditions are met.

(2) The conditions are that—

(a) the subsidiary is a 51% subsidiary of the relevant company,

(b) no person other than the relevant company, or another of its subsidiaries, has control of the subsidiary, and

(c) no arrangements are in existence by virtue of which either of the conditions in paragraphs (a) and (b) would cease to be met.

(3) The conditions do not cease to be met merely because the subsidiary or any other company is wound up, or dissolved without winding up, if the winding up or dissolution—

(a) is for genuine commercial reasons, and

(b) is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(4) The conditions do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration or receivership, if—

(a) the entry into administration or receivership, and

(b) everything done as a consequence of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(5) The conditions do not cease to be met merely because arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of all its interest in the subsidiary, if the disposal—

(a) is to be for genuine commercial reasons, and

(b) is not to be part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Excluded activities

Meaning of “excluded activities”

192

(1) The following are excluded activities for the purposes of sections 181 and 189—

(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments,

(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution,

(d) leasing (including letting ships on charter or other assets on hire),

(e) receiving royalties or licence fees,

(f) providing legal or accountancy services,

(g) property development,

(h) farming or market gardening,

(i) holding, managing or occupying woodlands, any other forestry activities or timber production,

(ia) shipbuilding,

(ib) producing coal,

(ic) producing steel,

(j) operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment,

(k) operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home, ...

(ka) generating or exporting electricity or making electricity generating capacity available,

(kb) generating heat,

(kc) generating any form of energy not within paragraph (ka) or (kb),

(kd) producing gas or fuel, and

(l) any activities which are excluded activities under section 199 (provision of services or facilities for another business).

(2) Subsection (1) is supplemented by the following provisions—

(a) section 193 (wholesale and retail distribution),

(b) section 194 (leasing of ships),

(d) section 196 (property development),

(da) section 196A (shipbuilding),

(db) section 196B (producing coal),

(dc) section 196C (producing steel),

(e) section 197 (hotels and comparable establishments), ...

(f) section 198 (nursing homes and residential care homes) , ... and

(g) section 198A (export of electricity).

(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Excluded activities: wholesale and retail distribution

193

(1) This section supplements section 192(1)(b).

(2) In this section—

(a) subsections (3) and (4) are for determining whether a trade is a trade of wholesale or retail distribution, and

(b) subsections (5) and (6) are for determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution.

(3) A trade of wholesale distribution is one in which goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption.

(4) A trade of retail distribution is one in which goods are offered or exposed for sale and sold to members of the general public for their use or consumption.

(5) A trade of wholesale or retail distribution is not an ordinary trade of wholesale or retail distribution if—

(a) it consists to a substantial extent—

(i) in dealing in goods of a kind which are collected or held as an investment, or

(ii) in that activity and any other excluded activity taken together, and

(b) a substantial proportion of those goods are held for a period which is significantly longer than the period for which the trader would reasonably be expected to hold them while trying to dispose of them at their market value.

(6) In determining whether a trade of wholesale or retail distribution is an ordinary trade of wholesale or retail distribution regard is to be had to the extent to which it has the following features—

(a) the goods are bought by the trader in quantities larger than those in which the trader sells them,

(b) the goods are bought and sold by the trader in different markets,

(c) the trader employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, in addition to any remuneration paid to any person connected with it,

(d) there are purchases from or sales to persons who are connected with the trader,

(e) purchases are matched with forward sales or vice versa,

(f) the goods are held by the trader for longer than is normal for goods of the kind in question,

(g) the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade,

(h) the trader does not take physical possession of the goods.

(7) In subsection (6)—

(a) the features in paragraphs (a) to (c) are regarded as indications that the trade is an ordinary trade of wholesale or retail distribution, and

(b) those in paragraphs (d) to (h) are regarded as indications to the contrary.

Excluded activities: leasing of ships

194

(1) This section supplements section 192(1)(d) so far as it relates to the leasing of ships other than offshore installations or pleasure craft.

(2) In the following provisions “ship” accordingly means a ship other than an offshore installation or a pleasure craft.

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Income Tax Act 2007

The control and independence requirement

139

The qualifying subsidiaries requirement

140

The property managing subsidiaries requirement

141

The gross assets requirement

142

The unquoted status requirement

143

Power to amend requirements by Treasury order

144

Qualifying trading companies: supplementary

Relief after an exchange of shares for shares in another company

145

Substitution of new shares for old shares

146

Limits on share loss relief and mixed holdings

Limits on share loss relief

147

Disposal of shares forming part of mixed holding

148

Section 148: supplementary

149

Miscellaneous and supplementary

Deemed time of issue for certain shares

150

Interpretation of Chapter

151

Chapter 7 — Losses from miscellaneous transactions

Loss relief against miscellaneous income

Losses from miscellaneous transactions

152

How relief works

153

Deposit rights

Transactions in deposit rights

154

Supplementary

Time limit for claiming relief

155

Part 5 — Enterprise investment scheme

Chapter 1 — Introduction

EIS relief

Meaning of “EIS relief” and commencement

156

Eligibility for EIS relief

157

Form and amount of EIS relief

158

Miscellaneous

Periods A, B and C

159

Overview of other Chapters of Part

160

Other tax reliefs relating to EIS

161

Chapter 2 — The investor

Introduction

Overview of Chapter

162

The requirements

The no connection with the issuing company requirement

163

The no linked loans requirement

164

The no tax avoidance requirement

165

Meaning of connection with issuing company

Connection with issuing company

166

Employees, directors and partners

167

Directors excluded from connection

168

Directors qualifying for relief despite connection

169

Persons interested in capital etc of company

170