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

articles Not indexed

Reform history JSON API

(1) The receipt of the replacement value by the original supplier is ignored for the purposes of section 257QH(1) to the extent to which it has previously been set under section 257QH against a receipt of value to prevent any reduction or withdrawal of SI relief under section 257Q.

(2) The receipt of the replacement value by the original supplier (“the event”) is ignored for the purposes of section 257QH if—

(a) the event occurs before the longer applicable period,

(b) where the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances, or

(c) where an appeal has been brought by the investor against an assessment to withdraw or reduce any SI relief attributable to the investment because of the receipt of the original value, the event occurs more than 60 days after the day on which the amount of the relief which falls to be withdrawn has been finally determined.

But nothing in section 257QH or this section requires the replacement value to be received after the original value.

(3) This subsection applies if—

(a) the receipt of the replacement value by the original supplier is a qualifying receipt for the purposes of section 257QH(1), and

(b) in consequence of the receipt, any receipts of value are ignored for the purposes of section 257Q as that section applies in relation to the investment or any other investments made by the investor, and

(i) the investor, or

(ii) any person who at any time in the longer applicable period is an associate of the investor (whether or not the person is such an associate at the material time).

(4) If subsection (3) applies, the person who makes the investment concerned is not to be eligible for SI relief in relation to the investment concerned or any other investments in the same issue.

(5) In this section “the original recipient”, “the original supplier” and “replacement value” have the same meaning as in section 257QH.

Repayments etc of investments to other persons

257QJ

(1) This section applies if any SI relief is attributable to the whole or any part of the investment and, at any time in the longer applicable period, the social enterprise or any subsidiary—

(a) repays, redeems or repurchases any of its share capital which belongs to any member other than—

(i) the investor, or

(ii) a person who falls within subsection (5), or

(b) makes any payment to any such member for giving up the member's right to any of the share capital of the social enterprise or subsidiary on its cancellation or extinguishment.

(2) The SI relief must—

(a) if it is greater than the amount given by the formula set out in subsection (3), be reduced by that amount, and

(b) in any other case, be withdrawn.

(3) The formula is—

$$A×R$where—A is the amount received by the member, andR is the SI rate for the tax year for which the SI relief was given.$

(4) This section is subject to sections 257QK to 257QP; and sections 257QL to 257QO are to be applied in the order in which they appear in this Part.

(5) A person falls within this subsection if the repayment causes any SI relief attributable to that person's shares in the social enterprise to be withdrawn or reduced by virtue of—

(a) section 257QE(2)(a) (receipt of value by virtue of repayment of investments etc), or

(b) section 257R (disposal of whole or part of the investment).

(6) A repayment is treated as having the effect mentioned in subsection (5)(a) if it would have that effect were it not an insignificant receipt; and here “insignificant receipt” is to be read in accordance with section 257QA(1).

(7) A repayment is to be ignored, for the purposes of this section, to the extent to which SI relief attributable to any shares has already been withdrawn or reduced on its account.

(8) In this section and sections 257QK to 257QP—

(a) “repayment” means a repayment, redemption, repurchase or payment mentioned in subsection (1)(a) or (b), and

(b) references to a subsidiary of the social enterprise are references to a company which at any time in the longer applicable period is a 51% subsidiary of the social enterprise (whether or not it is such a subsidiary at the time of the repayment).

257QK

(1) A repayment is ignored for the purposes of section 257QJ if both—

(a) the market value of the shares to which it relates (“the target shares”) immediately before the event occurs, and

(b) the amount received by the member in question,

are insignificant in relation to the market value of the remaining issued share capital of the social enterprise, or (as the case may be) the subsidiary, immediately after the event occurs.

This is subject to subsection (3).

(2) For the purposes of subsection (1) it is to be assumed that the target shares are cancelled at the time the repayment is made.

(3) Subsection (1) does not apply if repayment arrangements are in existence at any time in the period—

(a) beginning 12 months before the investment date, and

(b) ending at the end of the investment date.

(4) For this purpose “repayment arrangements” means arrangements which provide—

(a) for a repayment by the social enterprise or any subsidiary of the social enterprise (whether or not it is such a subsidiary at the time the arrangements are made), or

(b) for anyone to be entitled to such a repayment,

at any time in the longer applicable period.

257QL

(1) This section applies if, in relation to the same repayment, section 257QJ(2) applies to SI relief attributable to two or more issues of shares.

(2) Section 257QJ(3) has effect in relation to the shares included in each of those issues as if the amount referred to as A were reduced by multiplying it by the fraction—

$$IT$where—I is the amount on which SI relief was obtained by individuals in respect of shares which are included in the issue and to which SI relief is or, but for section 257QJ(2)(b), would be attributable, andT is the total of that amount and the corresponding amount or amounts in respect of the other issue or issues.$

257QM

(1) This section applies if, in relation to the same repayment, section 257QJ(2) applies to SI relief attributable to shares held by two or more individuals.

(2) Section 257QJ(3) has effect in relation to each individual as if the amount referred to as A were reduced by multiplying it by the fraction—

$$IT$where—I is the amount on which the individual obtains SI relief in respect of the shares to which SI relief is or, but for section 257QJ(2)(b), would be attributable, andT is the total of that amount and the corresponding amount or amounts on which the other individual or individuals obtain SI relief in respect of such shares.$

257QN

(1) This section applies if—

(a) section 257QJ(2) applies to SI relief attributable to shares held by an individual, and

(b) part of the issue of shares has been treated as issued to the individual in a previous tax year for the purposes of section 257JA(1) and (2).

(2) This subsection explains how the calculation under section 257QJ(3) is to be made.

Step 1 Apportion the amount referred to as A between the tax year in which the shares were issued and the previous tax year by multiplying that amount by the fraction—$IT$where—I is the amount on which the individual obtains SI relief in respect of the shares treated as issued in the tax year in question, andT is the total of that amount and the corresponding amount in respect of the shares treated as issued in the other tax year.

Step 2 In relation to each of the amounts (“A1” and “A2”) so apportioned to the two tax years, calculate the amounts (“X1” and “X2”) that would be given by the formula if there were separate issues of shares in those tax years. In calculating amounts X1 and X2, apply section 257QO if appropriate but do not apply section 257QL or 257QM.

Step 3 Add amounts X1 and X2 together. The result is the required amount.

257QO

(1) This section applies if section 257QJ(2) applies to SI relief attributable to shares held by the investor and—

(a) the amount of the reduction (“D”) in the investor's liability to income tax for any tax year in respect of the shares, is less than

(b) the amount given by—

$$I×R$where—I is the amount on which the investor claims SI relief in respect of the investment, andR is the SI rate for the tax year for which the SI relief was given.$

(2) Section 257QJ(3) has effect as if the amount referred to as A were reduced by multiplying it by the fraction—

$DI×R$

(3) If the amount of SI relief attributable to any of the shares has been reduced before the SI relief was obtained, the amount referred to in subsections (1) and (2) as D is to be treated for the purposes of those subsections as the amount it would have been without that reduction.

(4) Subsection (3) does not apply to a reduction of SI relief by virtue of section 257N(5) (attribution of SI relief where there is a corresponding issue of bonus shares).

257QP

(1) This section applies if—

(a) a company issues share capital (“the original shares”) of nominal value equal to the authorised minimum (within the meaning of the Companies Act 2006) for the purposes of complying with section 761 of that Act (public company: requirement as to minimum share capital), and

(b) the registrar of companies issues the company with a certificate under that section.

(2) Section 257QJ(2) does not apply in relation to any redemption of the original shares within 12 months of the date on which they were issued.

Miscellaneous

257QQ

(1) Any SI relief attributable to the investment is withdrawn if—

(a) at any time in the longer applicable period, the social enterprise or any qualifying subsidiary—

(i) begins to carry on as its trade, or as part of its trade, a trade which was previously carried on at any time in that period otherwise than by the social enterprise or any qualifying subsidiary, or

(ii) acquires the whole, or the greater part, of the assets used for the purposes of a trade previously so carried on, and

(b) the investor is a person, or one of a group of persons, to whom subsection (2) or (3) applies.

(2) This subsection applies to any person or group of persons—

(a) to whom an interest amounting in total to more than a half share in the trade (as previously carried on) belonged at any time in the longer applicable period, and

(b) who is or are a person or group of persons to whom such an interest in the trade carried on by the social enterprise belongs or has, at any such time, belonged.

(3) This subsection applies to any person or group of persons who—

(a) control or, at any time in the longer applicable period, have controlled the social enterprise, and

(b) is or are a person or group of persons who, at any such time, controlled another company which previously carried on the trade.

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

(a) for the purpose of determining the person to whom a trade belongs and, if a trade belongs to two or more persons, their respective shares in that trade—

(i) apply section 941(6) of CTA 2010, and

(ii) an interest in a trade belonging to a company may be treated in accordance with any of the options set out in section 942 of that Act, and

(b) any interest, rights or powers of a person who is an associate of another person are treated as those of that other person.

(5) If the investor—

(a) is a director of, or of a company which is a partner of, the social enterprise or any qualifying subsidiary, and

(b) is in receipt of, or entitled to receive, remuneration as such a director falling within section 257LF(5)(g) (reasonable remuneration for services),

then, in determining whether any SI relief attributable to the investment is to be withdrawn, the reference in subsection (3)(b), and (so far as relating to that provision) the reference in subsection (1)(a)(i), to any time in the longer applicable period are to be read as references to any time before the end of the longer applicable period.

(6) Section 257LF(8) (director also an employee) applies for the purposes of subsection (5) as it applies for the purposes of section 257LF, and in subsection (5) “remuneration” includes any benefit or facility.

(7) In this section “trade” includes any business or profession, and references to a trade previously carried on include references to part of such a trade.

257QR

(1) Any SI relief attributable to the investment is withdrawn if—

(a) the social enterprise comes to acquire all of the issued share capital of another company at any time in the longer applicable period, and

(b) the investor is a person, or one of a group of persons, to whom subsection (2) applies.

(2) This subsection applies to any person or group of persons who—

(a) control or have, at any time in the longer applicable period, controlled the social enterprise, and

(b) is or are a person or group of persons who, at any such time, controlled the other company.

(3) If the investor—

(a) is a director of, or of a company which is a partner of, the social enterprise or any qualifying subsidiary, and

(b) is in receipt of, or entitled to receive, remuneration as such a director falling within section 257LF(5)(g) (reasonable remuneration for services),

then, in determining whether any SI relief attributable to the investment is to be withdrawn, the reference in subsection (2)(b) to any time in the longer applicable period is to be read as a reference to any time before the end of the longer applicable period.

(4) Section 257LF(8) (director also an employee) applies for the purposes of subsection (3) as it applies for the purposes of section 257LF, and in subsection (3) “remuneration” includes any benefit or facility.

257QS

(1) Any SI relief obtained by the investor which is subsequently found not to have been due must be withdrawn.

(2) SI relief obtained by the investor in respect of the investment may not be withdrawn on the ground that the requirements of Chapter 4 are not met unless the requirements of subsection (3) are met.

(3) The requirements of this subsection are met if either—

(a) the social enterprise has given notice under section 257SF in relation to the investment (information to be provided by the social enterprise etc), or

(b) an officer of Revenue and Customs has given notice to the social enterprise stating the officer's opinion that, because of the ground in question, the whole or any part of the SI relief attributable to the investment (whether alone or with other SI relief) was not due.

Disposals

257R

(1) This section applies if—

(a) the investor disposes of the whole or part of the investment,

(b) the disposal takes place before the shorter applicable period ends,

(d) the disposal is not to an individual who—

(i) is the spouse, or civil partner, of the investor, and

(ii) is living together with the investor at the time of the disposal, and

(e) the disposal does not occur as a result of the investor's death.

(2) If the disposal is not made by way of a bargain at arm's length, the SI relief attributable to those shares, or qualifying debt investments, must be withdrawn.

(3) If the disposal is made by way of a bargain at arm's length, the SI relief attributable to those shares or qualifying debt investments must—

(a) if it is greater than the amount given by the formula set out in subsection (4), be reduced by that amount, and

(b) in any other case, be withdrawn.

(4) The formula is—

$$C×R$where—C is the amount or value of the consideration received by the investor for the shares or qualifying debt investments, andR is the SI rate for the tax year for which the SI relief was given.$

257RA

(1) Subsection (2) applies if the investor's liability to income tax for any tax year is reduced under this Part in respect of the investment and—

(a) the amount of the reduction (“D”), is less than

(b) the amount given by—

$$A×R$where—A is the amount on which the investor claims SI relief in respect of the investment, andR is the SI rate for that tax year.$

(2) Section 257R(3) and (4) have effect as if the amount or value referred to as C were reduced by multiplying it by the fraction—

$DA×R$

(3) If section 257JA(1) and (2) apply in the case of the investment as if part of it had been made in a previous tax year, subsections (1) and (2) of this section have effect as if that part and the remainder had been invested by separate investments (and that part had been invested by an investment made on a day in the previous tax year).

(4) If the amount of SI relief attributable to the investment or any part of it has been reduced before SI relief was obtained, the amount referred to in subsections (1) and (2) as D is to be treated for the purposes of those subsections as the amount that it would have been without that reduction.

(5) Subsection (4) does not apply to a reduction of SI relief by virtue of section 257N(5) (attribution of SI relief if there is a corresponding issue of bonus shares).

257RB

(1) This section applies if the investor grants an option which, if exercised, would bind the investor to sell the whole or part of investment.

(2) The grant of the option is treated for the purposes of section 257R as a disposal—

(a) of the investment, or

(b) (as the case may be) of the part of the investment to which the option relates.

(3) Nothing in this section prejudices section 257LB (no pre-arranged exits).

257RC

(1) This section applies if, at any time in the longer applicable period, a person grants the investor an option which, if exercised, would bind the grantor to purchase the whole or part of the investment.

(2) Any SI relief—

(a) attributable to the investment, or

(b) (as the case may be) attributable to the part of the investment to which the option relates,

must be withdrawn.

(3) For the purposes of subsection (2)(b), the part of the investment to which an option relates is the part which, if—

(a) the option were exercised immediately after the grant, and

(b) any investments made in the social enterprise by the investor after the grant were disposed of immediately after being made,

would be treated for the purposes of section 257R as disposed of in pursuance of the option.

CHAPTER 8 — Withdrawal or reduction of SI relief: procedure

Assessments and appeals

257S

If any SI relief which has been obtained falls to be withdrawn or reduced under Chapter 7, it must be withdrawn or reduced by the making of an assessment to income tax for the tax year for which the relief was obtained.

257SA

For the purposes of the provisions of TMA 1970 relating to appeals, the giving of notice by an officer of Revenue and Customs under section 257QS(3)(b) is taken to be a decision disallowing a claim by the social enterprise.

257SB

(1) An officer of Revenue and Customs may—

(a) make an assessment for withdrawing or reducing the SI relief attributable to whole or any part of the investment, or

(b) give a notice under section 257QS(3)(b),

at any time not more than 6 years after the end of the relevant tax year.

(2) In subsection (1) “the relevant tax year” means—

(a) the tax year containing the end of the 28 months beginning with the investment date, or

(b) if later, the tax year in which occurs the event which causes the SI relief to be withdrawn or reduced.

(3) Subsection (1) is without prejudice to section 36(1A) of TMA 1970 (loss of tax brought about deliberately etc).

257SC

(1) No assessment for withdrawing or reducing SI relief in respect of the investment may be made because of an event occurring after the investor's death.

(2) Subsection (3) applies if the investor has, by a disposal or disposals to which section 257R(3) applies, disposed of all investments which—

(a) have been made by the investor in the social enterprise, and

(b) are investments—

(i) to which SI relief is attributable, or

(ii) have not been held by the investor until the end of the third anniversary of the date on which they were made.

(3) No assessment for withdrawing or reducing SI relief in respect of those investments may be made because of any subsequent event unless the event occurs at a time when the requirements of sections 257LF, 257LG and 257LH are not met in relation to the investor by reference to any of those investments.

Interest

257SD

(1) In its application to an assessment made by virtue of section 257S in the case of relief withdrawn or reduced by virtue of a provision listed in subsection (2), section 86 of TMA 1970 (interest on overdue income tax) has effect as if the relevant date were 31 January next following the tax year for which the assessment is made.

(2) The provisions are—

section 257LD,

any of sections 257LF to 257LH,

any of sections 257M to 257MJ,

section 257MN,

section 257Q,

section 257QJ,

section 257QQ,

section 257QR

section 257R, and

section 257RC.

Information

257SE

(1) This section applies if the investor has obtained SI relief in respect of the investment, and an event occurs as a result of which—

(a) the SI relief falls to be withdrawn or reduced by virtue of any of sections 257LD, 257LF, 257LG and 257LH,

(b) the SI relief falls to be withdrawn or reduced under section 257Q (receipt of value), or would fall to be so withdrawn or reduced but for section 257QH (receipt of replacement value), or

(2) The investor must within 60 days of coming to know of the event give a notice to an officer of Revenue and Customs containing particulars of the event.

(3) If the investor—

(a) is required under this section to give notice of a receipt of value which is within section 257Q, or would be within that section but for section 257QH, and

(b) has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt (or expected receipt).

(4) In subsection (3) “qualifying receipt” and “replacement value” are to be read in accordance with section 257QH.

257SF

(1) This section applies if the social enterprise has provided an officer of Revenue and Customs with a compliance statement in respect of the investment and an event occurs as a result of which—

(a) any of the requirements in sections 257M, 257MC to 257MK, 257MM(1) and 257MN is not met in respect of the investment, or

(b) any of sections 257Q, 257QJ, 257QQ and 257QR has effect to cause any SI relief attributable to the investment to be withdrawn or reduced, or—

(i) would have such an effect if SI relief had been obtained in respect of the investment, or

(ii) in the case of section 257Q, would have such an effect but for section 257QH (receipt of replacement value).

(2) If this section applies—

(a) the social enterprise, and

(b) any person connected with the social enterprise who has knowledge of the matters mentioned in subsection (1),

must give a notice to an officer of Revenue and Customs containing particulars of the event.

(3) Any notice required to be given by the social enterprise under subsection (2)(a) must be given—

(a) within 60 days of the event, or

(b) if the event is a receipt of value within section 257QE(2) from a person connected with the social enterprise (see section 257QG), within 60 days of the social enterprise coming to know of the event.

(4) Any notice required to be given by a person under subsection (2)(b) must be given within 60 days of the person coming to know of the event.

(5) If a person—

(a) is required under this section to give notice of a receipt of value which is within section 257Q, or would be within that section but for section 257QH, and

(b) has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or expected receipt).

(6) In subsection (5) “qualifying receipt” and “replacement value” are to be read in accordance with section 257QH.

(7) If the event mentioned in subsection (1) is one whose occurrence results in the requirement in section 257M not being met in respect of the investment, the references in subsections (2) and (3) to the social enterprise are to—

(a) the body concerned even though it has ceased to be a social enterprise, or

(b) the body into which the social enterprise has been converted.

257SG

(1) This section applies if an officer of Revenue and Customs has reason to believe that a person—

(a) has not given a notice which the person is required to give under section 257SE or 257SF in respect of any event,

(b) has given or received value within the meaning of section 257QE(2) or (6) which, but for the fact that the amount given or received was an insignificant receipt, would have triggered a requirement to give such a notice, or

(c) has made or received any repayment within the meaning given by section 257QJ(8) which, but for the fact that it falls to be ignored for the purposes of section 257QJ by virtue of section 257QK(1), would have triggered a requirement to give a notice under section 257SF.

(2) The officer may by notice require the person concerned to supply the officer, within such time as the officer may specify in the notice, with such information relating to the event as the officer may reasonably require for the purposes of this Part.

(3) The period specified in a notice under subsection (2) must be at least 60 days.

(4) In subsection (1)(b) the reference to an insignificant receipt is to be read in accordance with section 257QA(1).

257SH

(1) Subsection (2) applies if SI relief is claimed in respect of the investment, and an officer of Revenue and Customs has reason to believe that it may not be due because of any such arrangements as are mentioned in section 257LB(1), 257LC, 257LE, 257LEA, 257LH, 257ME(3), 257MK(2) or (4), 257MM(5) or (6), 257MN(5), 257MU or 257MV(1), (5), (6) or (7).

(2) The officer may by notice require any person concerned to supply the officer within such time as may be specified in the notice with—

(a) a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangements exist or have existed, and

(b) such other information as the officer may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.

(3) The period specified in a notice under subsection (2) must be at least 60 days.

(4) For the purposes of subsection (2), in the case of a provision listed in column 1 of the following table, the person concerned is given by the corresponding entry in column 2 of the table.

Provision	The person concerned
Section 257LB(1) or 257LC	The investor, the social enterprise and any person connected with the social enterprise
Section 257LE or 257MK(2) or (4)	The investor, the social enterprise and any person controlling the social enterprise
Section 257LEA	The investor, the social enterprise, any person controlling the social enterprise and any person whom an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question
Section 257LH	The investor
Section 257ME(3), 257MU(1) or 257MV(1)	The social enterprise and any person controlling the social enterprise
Section 257MM(5) or (6), 257MN(5), 257MU(2), (3) or (4) or 257MV(5), (6) or (7)	The investor, the social enterprise, any other company in question, and any person controlling the social enterprise or any other company in question

References in the table to the investor include references to any person to whom the investor appears to have made such a transfer as is mentioned in section 257T (spouses or civil partners) of the whole or part of the investment.

(5) If SI relief has been obtained in respect of the investment—

(a) any person who receives from the social enterprise any payment or asset which may constitute value received (by the person or another) for the purposes of section 257Q, and

(b) any person on whose behalf such a payment or asset is received,

must, if so required by an officer of Revenue and Customs, state whether the payment or asset so received is received on behalf of any other person and, if so, the name and address of that other person.

(6) If SI relief has been claimed in respect of the investment—

(a) any person who holds or has held investments in the social enterprise, and

(b) any person on whose behalf any such investments are or were held,

must, if so required by an officer of Revenue and Customs, state whether the investments so held are or were held on behalf of any other person and, if so, the name and address of that other person.

257SI

(1) Section 18(1) of the Commissioners for Revenue and Customs Act 2005 does not prevent an officer of Revenue and Customs from disclosing to the social enterprise that SI relief has been obtained or claimed in respect of a particular number or proportion of any investments in it.

(2) Section 18(1) of the Commissioners for Revenue and Customs Act 2005 does not prevent—

(a) disclosure to the Regulator of Community Interest Companies for the purposes of the Regulator's functions,

(b) disclosure to a Minister of the Crown for the purposes of functions of a Minister of the Crown under sections 257JD to 257JG, or

(3) Information disclosed in reliance on subsection (2) may not be further disclosed except—

(a) with the consent of the Commissioners for Her Majesty's Revenue and Customs, or

(b) if the disclosure is required by an enactment.

(4) Information originally disclosed in reliance on subsection (2)(a) may be disclosed in reliance on subsection (3)(a) only for the purposes of the Regulator's functions.

(5) Information originally disclosed in reliance on subsection (2)(b) or (c) may be disclosed in reliance on subsection (3)(a) only for the purposes of—

(a) functions of a Minister of the Crown under sections 257JD to 257JG, or

(b) functions delegated to a person under section 257JH(1).

(6) If, in contravention of subsections (3) to (5), any revenue and customs information relating to a person is disclosed and the identity of the person—

(a) is specified in the disclosure, or

(b) can be deduced from it,

section 19 of the Commissioners for Revenue and Customs Act 2005 (offence of wrongful disclosure) applies as it applies in relation to a disclosure of such information in contravention of section 20(9) of that Act.

(7) In subsection (6) “revenue and customs information relating to a person” has the meaning given by section 19(2) of that Act.

(8) Subject to subsections (3) and (5), no obligation as to confidentiality or other restriction on disclosure, whether imposed by an enactment or otherwise, prevents disclosure of relevant information—

(a) to a Minister of the Crown for the purposes of functions of a Minister of the Crown under sections 257JD to 257JG,

(b) to a person for the purposes of functions delegated to the person under section 257JH(1), or

(c) to an officer of Revenue and Customs for the purpose of assisting Her Majesty's Revenue and Customs to discharge their functions under the Income Tax Acts so far as relating to matters arising under this Part.

(9) In subsection (8) “relevant information” means information obtained—

(a) by a Minister of the Crown, or

(b) by a person to whom functions have been delegated under section 257JH(1),

in the course of discharging functions under sections 257JD to 257JG.

(10) In this section “Minister of the Crown” has the meaning given by section 8(1) of the Ministers of the Crown Act 1975.

CHAPTER 9 — Miscellaneous and supplementary provisions

257T

(1) This section applies if—

(a) the investor transfers the whole or part of the investment to another individual (“B”) during their lives,

(b) the investor was married to, or was the civil partner of, B at the time of the transfer, and

(2) This Part (including subsection (1)) has effect, in relation to any subsequent disposal or other event, as if—

(a) B were the investor as respects the transferred stake,

(b) B's liability to income tax had been reduced in respect of the transferred stake for the same tax year as that for which the investor's was so reduced,

(c) the amount by which B's liability to income tax had been reduced in respect of the transferred stake were the same as that by which the investor's liability had been so reduced, and

(d) the same amount of SI relief had continued to be attributable to the transferred stake despite the transfer.

(3) If the amount of SI relief attributable to the transferred stake had been reduced before the relief was obtained by the investor—

(a) this Part has effect, in relation to any subsequent disposal or other event, as if the amount of SI relief attributable to the transferred stake had been correspondingly reduced before the relief was obtained by B, and

(b) section 257QD(2), 257QO(3) and 257RA(4) apply in relation to B as they would have applied in relation to the investor.

(4) If, because of any such disposal or other event, an assessment for reducing or withdrawing SI relief is to be made, the assessment is to be made on B.

257TA

(1) The rules in subsections (2) and (3) are for determining which investments of any class are treated as disposed of for the purposes of—

(a) section 257R (disposal of the investment), or

(b) section 257T (spouses or civil partners),

if the investor disposes of some but not all of the investments of that class which the investor holds in the social enterprise.

(2) Investments made on an earlier day are treated as disposed of before investments made on a later day.

(3) Investments made on the same day are treated as disposed of in the following order—

(a) first, any to which neither SI relief nor hold-over relief is attributable,

(b) next, any to which hold-over relief, but not SI relief, is attributable,

(d) finally, any to which both SI relief and hold-over relief are attributable.

(4) Any investments within paragraph (c) or (d) of subsection (3) which are treated by section 257N(7) as issued on an earlier day are treated as disposed of before any other investments falling within that paragraph of subsection (3).

(5) The following—

(a) any investments to which SI relief is attributable and which were transferred to an individual as mentioned in section 257T, and

(b) any investments to which hold-over relief, but not SI relief, is attributable and which were acquired by an individual on a disposal to which section 58 of TCGA 1992 applies,

are treated for the purposes of subsections (2) and (3) as acquired by the individual on the day on which they were made.

(6) In a case to which section 127 of TCGA 1992 applies (including the 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 subsections (2) and (3) as acquired when the original shares were acquired.

(7) In this section—

“hold-over relief” means relief under Schedule 8B to TCGA 1992;

“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).

257TB

(1) References in this Part to a company being “in administration” or “in receivership” are to be read as follows.

(2) A company is “in administration” if—

(a) it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 or Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b) there is in force in relation to it under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.

(3) A company is “in receivership” if there is in force in relation to it—

(a) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland) Order 1989, or

(b) any corresponding order under the law of a country or territory outside the United Kingdom.

257TC

(1) In this Part “associate”, in relation to a person, means—

(a) any relative or partner of the person,

(b) the trustee or trustees of any settlement in relation to which the person, or any relative of the person (living or dead), is or was a settlor, and

(c) if the person has an interest in any shares or obligations of a company which are subject to any trust or are part of the estate of a deceased person—

(i) the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and

(ii) if the person is a company, any other company which has an interest in those shares or obligations.

(2) In this section “relative” means spouse, civil partner, ancestor or lineal descendant.

257TD

(1) In this Part “control” is to be read in accordance with sections 450 and 451 of CTA 2010 but as if “company” in those sections included a charity that is a trust.

(2) For the purposes of this Part, a charity that is a trust has “control” of another person if, as a result of the operation of subsection (1), the trustees (in their capacity as trustees of the trust) have, or any of them has, control of the person.

(3) A person has “control” of a charity that is a trust if—

(a) the person is a trustee of the charity and some or all of the powers of the trustees of the charity could be exercised by—

(i) the person acting alone, or

(ii) by the person acting together with any other persons who are trustees of the charity and who are connected with the person,

(b) the person, alone or together with other persons, has power to appoint or remove a trustee of the charity, or

(c) the person, alone or together with other persons, has any power of approval or direction in relation to the carrying-out by the trustees of any of their functions.

(4) Subsection (3) is in addition to, and does not limit, subsection (1); and both of those subsections are subject to subsection (5).

(5) For the purposes of this Part, a regulator is to be treated as not having control of any company regulated by the regulator.

(6) Section 995 of this Act (control) does not apply for the purposes of this Part.

257TE

(1) In this Part—

“arrangements” (except as used, in sections 257LB and 257QK, in the expressions “issuing arrangements” and “repayment arrangements”) includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions,

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

“compliance statement” has the meaning given by section 257PB,

“director”—is read in accordance with section 452 of CTA 2010 but as if “company” in that section included a charity that is a trust, andin relation to a charity that is a trust (but subject to section 257LF(9)), includes (in particular) each trustee of the trust,

“disposal”, in relation to any shares or other investments, includes disposal of an interest or right in or over them,

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

“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,

“ordinary shares” means shares forming part of a company's ordinary share capital,

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

“qualifying subsidiary” has the meaning given by section 257MU, and

“single company” means a company that does not have any qualifying subsidiaries.

(2) For the purposes of this Part, the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.

264A

(1) This section applies where—

(a) an individual subscribes for shares (“the relevant shares”) in a VCT (“the VCT”), and

(b) there is at least one linked sale of other shares by the individual.

(2) For the purposes of this Part, the amount the individual subscribes for the shares is to be treated as reduced (but not below nil) by the total consideration given for the linked sales of other shares.

This is subject to subsection (3).

(3) If a sale is linked in relation to more than one subscription for shares—

(a) the consideration for it is to be applied to reduce subscriptions under subsection (2) in the order in which the subscriptions are made, and

(b) accordingly, to the extent that any consideration has been used to reduce an earlier subscription, it is not available to reduce a later one.

(4) A sale of shares (“the sold shares”) is “linked” if conditions A and B are met.

(5) Condition A is that the sold shares are in—

(a) the VCT, or

(b) if subsection (7A) applies, a company which is (or later becomes) a successor or predecessor of the VCT.

(6) Condition B is that—

(a) the individual subscribes for the relevant shares in circumstances where—

(i) the purchase of the sold shares from the individual was conditional upon the individual subscribing for shares in the VCT, or

(ii) the individual's subscription for shares in the VCT was conditional upon that purchase, or

(b) the subscription for the relevant shares and the sale of the sold shares are within 6 months of each other (irrespective of which came first).

(7) A company (“company X”) is a “successor or predecessor of the VCT” if—

(a) there is a merger of two or more companies for the purposes of Chapter 5 (see section 323) and—

(i) the VCT is one of the merged companies and company X is “the successor company” (as defined by that section), or

(ii) the VCT is “the successor company” and company X is one of the merged companies, or

(b) section 327 (effect of restructuring of VCT) applies and—

(i) the VCT is “the old company” and company X is “the new company” for the purposes of that section, or

(ii) company X is “the old company” and the VCT is “the new company” for those purposes.

(7A) This subsection applies if—

(a) the date of the merger or restructuring referred to in subsection (7) (“D2”) is before, or the same as, the date when the individual subscribes for the relevant shares (“D1”), or

(b) D2 is after D1 but no more than two years after, and either—

(i) the individual could reasonably be expected to know at the time of subscribing for the relevant shares that the merger or restructuring referred to in subsection (7) was likely to take place, or

(ii) the main purpose of the merger or restructuring, or one of its main purposes, is to enable individuals to obtain a tax advantage in connection with VCT relief.

(7B) For the purposes of subsection (7A)—

(a) the date of the merger or restructuring is the date of the issue of shares referred to in section 323(1)(a) or (2)(a) or section 326(2)(a) (or, if there is more than one such issue, the date of the first of them);

(b) a “tax advantage” includes—

(i) relief or increased relief from tax,

(ii) repayment or increased repayment of tax,

(iii) avoidance or reduction of a charge to tax or an assessment to tax, and

(iv) avoidance of a possible assessment to tax.

(8) This section does not apply if, or to the extent that, the subscription for the relevant shares is a result of the individual electing to reinvest dividends payable to the individual on shares in the VCT, in acquiring further shares in the VCT.

309B

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

Nominees

330A

Shares subscribed for, issued to, held by or disposed of for an individual by a nominee are treated for the purposes of this Part as subscribed for, issued to, held by or disposed of by the individual.

393A

(1) For the purposes of sections 392 and 393, a close company (“the candidate company”) is a close investment-holding company in an accounting period unless throughout the period it exists wholly or mainly for one or more of the permitted purposes set out in subsection (2).

There is an exception to this rule in subsection (5).

(2) The candidate company exists for a permitted purpose so far as it exists—

(a) for the purpose of carrying on a trade or trades on a commercial basis,

(b) for the purpose of making investments in land, or estates or interests in land, in cases where the land is, or is intended to be, let commercially (see subsection (3)),

(i) is a qualifying company, or

(ii) falls within subsection (4),

(d) for the purpose of co-ordinating the administration of two or more qualifying companies,

(e) for the purpose of the making of investments as mentioned in paragraph (b)—

(i) by one or more qualifying companies, or

(ii) by a company which has control of the candidate company, or

(f) for the purpose of a trade or trades carried on on a commercial basis—

(i) by one or more qualifying companies, or

(ii) by a company which has control of the candidate company.

(3) For the purposes of subsection (2)(b), any letting of land is taken to be commercial unless the land is let to—

(a) a person connected with the candidate company (“a connected person”), or

(b) a person who is—

(i) the spouse or civil partner of a connected person,

(ii) a relative of a connected person, or the spouse or civil partner of a relative of a connected person,

(iii) the relative of the spouse or civil partner of a connected person, or

(iv) the spouse or civil partner of a relative of a spouse or civil partner of the connected person.

(4) A company falls within this subsection (see subsection (2)(c)(ii)) if—

(a) it is under the control of the candidate company or of a company which has control of the candidate company, and

(b) it exists wholly or mainly for the purpose of holding shares in or securities of, or of making loans to, one or more qualifying companies.

(5) If a company is wound up and was not a close investment-holding company in the accounting period that ends (by virtue of section 12(2) of CTA 2009) immediately before the winding up starts, the company is not treated for the purposes of sections 392 and 393 as being a close investment-holding company in the subsequent accounting period.

(6) In this section “qualifying company” means a company which—

(a) is under the control of the candidate company or of a company which has control of the candidate company, and

(b) exists wholly or mainly for either or both of the purposes mentioned in subsection (2)(a) and (b).

(7) In this section—

“accounting period” has the meaning given by section 1119 of CTA 2010,

“close company” includes a company which—is resident in an EEA state ..., andif it were UK resident, would be a close company,

“control” has the meaning given by section 450 of CTA 2010, and

“relative” means brother, sister, ancestor or lineal descendant.

The no guaranteed loan requirement

Chapter 5AA — Disposals of income streams through partnerships

809AAZA

(1) This Chapter applies (subject to subsection (2)) if directly or indirectly in consequence of, or otherwise in connection with, arrangements involving a person within the charge to income tax (“the transferor”) and another person (“the transferee”)—

(a) there is, or is in substance, a disposal of a right to relevant receipts by the transferor to the transferee,

(b) the disposal is effected (wholly or partly) by or through a partnership (“the relevant partnership”),

(i) the transferor is a member of the relevant partnership or of a partnership associated with the relevant partnership, and

(ii) the transferee is a member of the relevant partnership or of a partnership associated with the relevant partnership, and

(d) the main purpose, or one of the main purposes, of one or more steps taken in effecting the disposal is the obtaining of a tax advantage for any person.

(2) This Chapter does not apply if—

(a) the transferor is the spouse or civil partner of the transferee and they are living together, or

(b) the transferor is a brother, sister, ancestor or lineal descendant of the transferee.

(3) In subsection (1)(a) the reference to a disposal of a right to relevant receipts includes anything constituting a disposal of such a right for the purposes of TCGA 1992.

(4) For the purposes of subsection (1)(b) the disposal might, in particular, be effected by an acquisition or disposal of, or an increase or decrease in, an interest in the relevant partnership (including a share of the profits or assets of the relevant partnership or an interest in such a share).

(5) For the purposes of subsection (1)(c) it does not matter if the transferor and the transferee are not members of a partnership as mentioned at the same time.

(6) For the purposes of subsection (1)(c) a partnership is “associated” with the relevant partnership if—

(a) it is a member of the relevant partnership, or

(b) it is a member of a partnership which is associated with the relevant partnership (whether by virtue of paragraph (a) or this paragraph).

(7) In subsections (1)(c) and (5) references to the transferor include a person connected with the transferor and references to the transferee include a person connected with the transferee.

(8) In this Chapter—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

“partnership” includes a limited liability partnership whether or not section 863(1) of ITTOIA 2005 applies in relation to it,

“relevant receipts” means any income—which (but for the disposal) would be charged to income tax as income of the transferor (whether directly or as a member of a partnership), orwhich (but for the disposal) would be brought into account as income in calculating profits of the transferor (whether directly or as a member of a partnership) for income tax purposes, and

“tax advantage” means a tax advantage, as defined in section 1139 of CTA 2010, in relation to income tax or the charge to corporation tax on income.

809AAZB

(1) The relevant amount is to be treated as income of the transferor chargeable to income tax in the same way and to the same extent as that in which the relevant receipts—

(a) would have been chargeable to income tax as income of the transferor, or

(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes,

but for the disposal.

(2) In subsection (1) “the relevant amount” is to be read in accordance with section 809AZB(2) and section 809AZB(3) to (6) applies for the purpose of determining when income under subsection (1) is treated as arising.

(3) For this purpose, in section 809AZB(2) to (6) references to the transfer of the right are to be read as references to the disposal of the right.

(4) If, apart from this subsection and section 809DZB(3)—

(a) both this Chapter and Chapter 5D would apply in relation to the disposal, and

(b) Chapter 5D would give a greater amount of income of the transferor chargeable to income tax,

this Chapter is not to apply in relation to the disposal.

Chapter 5D — Disposals of assets through partnerships

809DZA

(1) This Chapter applies if conditions A and B are met.

(2) Condition A is (subject to subsection (3)) that directly or indirectly in consequence of, or otherwise in connection with, arrangements involving a person within the charge to income tax (“the transferor”) and another person (“the transferee”)—

(a) there is, or is in substance, a disposal of an asset (“the transferred asset”) by the transferor to the transferee,

(b) the disposal is effected (wholly or partly) by or through a partnership (“the relevant partnership”),

(i) the transferor is a member of the relevant partnership or of a partnership associated with the relevant partnership, and

(ii) the transferee is a member of the relevant partnership or of a partnership associated with the relevant partnership, and

(d) the main purpose, or one of the main purposes, of one or more steps taken in effecting the disposal is the obtaining of a tax advantage for any person.

(3) Condition A is not met if—

(a) the transferor is the spouse or civil partner of the transferee and they are living together, or

(b) the transferor is a brother, sister, ancestor or lineal descendant of the transferee.

(4) In subsection (2)(a) the reference to a disposal of an asset includes anything constituting a disposal of an asset for the purposes of TCGA 1992.

(5) For the purposes of subsection (2)(b) the disposal might, in particular, be effected by an acquisition or disposal of, or an increase or decrease in, an interest in the relevant partnership (including a share of the profits or assets of the relevant partnership or an interest in such a share).

(6) For the purposes of subsection (2)(c) it does not matter if the transferor and the transferee are not members of a partnership as mentioned at the same time.

(7) For the purposes of subsection (2)(c) a partnership is “associated” with the relevant partnership if—

(a) it is a member of the relevant partnership, or

(b) it is a member of a partnership which is associated with the relevant partnership (whether by virtue of paragraph (a) or this paragraph).

(8) In subsections (2)(c) and (6) references to the transferor include a person connected with the transferor and references to the transferee include a person connected with the transferee.

(9) Condition B is that it is reasonable to assume that, had the transferred asset instead been disposed of directly by the transferor to the transferee, the relevant amount (or any part of it)—

(a) would have been chargeable to income tax as income of the transferor, or

(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes.

(10) In this Chapter “the relevant amount” means the amount of the consideration received by the transferor for the disposal.

(11) If the transferor receives—

(a) no consideration for the disposal, or

(b) consideration which is substantially less than the market value of the transferred asset,

assume for the purposes of subsection (10) that the transferor receives consideration of an amount equal to the market value of the transferred asset.

(12) In subsection (11) references to the market value of the transferred asset are to that value at the time of the disposal.

(13) In this Chapter—

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

“partnership” includes a limited liability partnership whether or not section 863(1) of ITTOIA 2005 applies in relation to it, and

“tax advantage” means a tax advantage, as defined in section 1139 of CTA 2010, in relation to income tax or the charge to corporation tax on income.

809DZB

(1) The relevant amount is to be treated as income of the transferor chargeable to income tax in the same way and to the same extent as that in which it—

(a) would have been chargeable to income tax as income of the transferor, or

(b) would have been brought into account as income in calculating profits of the transferor for income tax purposes,

as mentioned in section 809DZA(9).

(2) Section 809AZB(3) to (6) applies for the purpose of determining when income under subsection (1) is treated as arising (reading references to the transfer of the right as references to the disposal of the transferred asset).

(3) If, apart from this subsection and section 809AAZB(4)—

(a) both this Chapter and Chapter 5AA would apply in relation to the disposal, and

(b) Chapter 5AA would give the same amount, or a greater amount, of income of the transferor chargeable to income tax,

this Chapter is not to apply in relation to the disposal.

Section 721A: tainting

154A

(1) Subsection (2) applies if—

(a) a person makes a loss in a relevant transaction, and

(b) that loss arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements.

(2) The person is not to be given loss relief under section 152 for the loss.

(3) Subsection (4) applies if—

(a) a person has income on which income tax is chargeable under, or by virtue of, a relevant section 1016 provision, and

(b) that income arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements.

(4) The person is not to be given loss relief against that income under section 152.

(5) In this section “relevant tax avoidance arrangements” means arrangements—

(a) to which the person is party, and

(b) the main purpose, or one of the main purposes, of which is to obtain a reduction in tax liability by means of loss relief under section 152.

(6) In subsection (5) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

257MW

(1) The Treasury may by regulations add to, repeal or otherwise amend any provision of sections 257MQ to 257MT (excluded activities).

(2) Regulations under this section may—

(a) make different provision for different cases or purposes;

(b) contain incidental, supplemental, consequential and transitional provision and savings.

(3) So far as they cause an activity to cease to be an excluded activity, amendments made by regulations under this section may have effect in relation to times before they come into force, but not times before 6 April 2015.

(4) This section is without prejudice to any other power to amend any provision of this Part.

CHAPTER 5E — Disguised investment management fees

809EZA

(1) Where one or more disguised fees arise to an individual in a tax year from one or more investment schemes (whether or not by virtue of the same arrangements), the individual is liable for income tax for the tax year in respect of the disguised fee or fees as if—

(a) the individual were carrying on a trade for the tax year,

(b) the disguised fee or fees were the profits of the trade of the tax year, and

(2) For the purposes of subsection (1) the trade is treated as carried on—

(a) in the United Kingdom, to the extent that the individual performs the relevant services in the United Kingdom;

(b) outside the United Kingdom, to the extent that the individual performs the relevant services outside the United Kingdom;

and for this purpose “the relevant services” means the investment management services by virtue of which the disguised fee or fees arise to the individual in the tax year.

(2A) Subsection (2B) applies instead of subsections (1) and (2) where—

(a) one or more disguised fees arise to an individual in a tax year (“the relevant tax year”) from one or more investment schemes (whether or not by virtue of the same arrangements),

(b) the disguised fees consist of carried interest which is income-based carried interest,

(d) the individual makes a foreign income claim for the relevant tax year.

(2B) To the extent that the income-based carried interest arises by virtue of pre-arrival services, the individual is liable for income tax for the relevant tax year in respect of it as if—

(a) in relation to pre-arrival services performed in the United Kingdom—

(i) the individual were carrying on a trade for the relevant year consisting of the performance of those services,

(ii) the income-based carried interest, so far as arising by virtue of those services, were profits of that trade, and

(iii) the individual were the person receiving or entitled to those profits, and

(b) in relation to pre-arrival services performed outside the United Kingdom—

(i) the individual were carrying on a trade for the relevant tax year consisting of the performance of those services,

(ii) the income-based carried interest, so far as arising by virtue of those services, were profits of that trade, and

(iii) the individual were the person receiving or entitled to those profits.

(2C) In subsection (2B) “pre-arrival services” means investment management services performed in any period—

(a) ending immediately before a qualifying tax year in relation to the individual (within the meaning of section 845B(3) of ITTOIA (qualifying new residents)), and

(b) that consists only of tax years for which the individual is not UK resident.

(3) For the purposes of this Chapter a “disguised fee” arises to an individual in a tax year from an investment scheme if—

(a) the individual at any time performs or is to perform investment management services directly or indirectly in respect of the scheme under any arrangements,

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) under the arrangements, a management fee arises to the individual ... from an investment scheme in the tax year (see section 809EZB), and

(d) some or all of the management fee is untaxed;

and the amount of the disguised fee is so much of the management fee as is untaxed.

(4) For the purposes of subsection (3) the management fee is “untaxed” if and to the extent that the fee would not (apart from this section)—

(a) be charged to tax under ITEPA 2003 as employment income of the individual for any tax year, or

(b) be brought into account in calculating the profits of a trade of the individual for the purposes of income tax for any tax year.

(5) In subsection (4) “trade” includes profession or vocation.

(6) In this Chapter “investment scheme” means—

(a) a collective investment scheme, or

(b) an investment trust.

(7) The reference in subsection (6)(a) to a collective investment scheme includes—

(a) arrangements which permit an external investor to participate in investments acquired by the collective investment scheme without participating in the scheme itself, and

(b) arrangements under which sums arise to an individual performing investment management services in respect of the collective investment scheme without those sums arising from the scheme itself.

809EZB

(1) Subject as follows, for the purposes of section 809EZA “management fee” means any sum (including a sum in the form of a loan or advance or an allocation of profits) except so far as the sum constitutes—

(a) a repayment (in whole or part) of an investment made directly or indirectly by the individual in the scheme,

(b) an arm's length return on an investment made directly or indirectly by the individual in the scheme, or

(c) carried interest which is not income-based carried interest (see sections 809EZC and 809EZD for carried interest, and Chapter 5F for income-based carried interest).

(2) For the purposes of subsection (1)(b) a return on an investment is “an arm's length return” if—

(a) the return is on an investment which is of the same kind as investments in the scheme made by external investors,

(b) the return on the investment is reasonably comparable to the return to external investors on those investments, and

(c) the terms governing the return on the investment are reasonably comparable to the terms governing the return to external investors on those investments.

(2A) For the purposes of subsection (2)(b), the return on the investment is reasonably comparable to the return to external investors on the investments referred to in subsection (2)(a) if (and only if)—

(a) the rate of return on the investment is reasonably comparable to the rate of return to external investors on those investments, and

(b) any other factors relevant to determining the size of the return on the investment are reasonably comparable to the factors determining the size of the return to external investors on those investments.

(3) In this Chapter “sum” includes any money or money's worth (and other expressions are to be construed accordingly).

(4) Where—

(a) a sum in the form of money's worth arises to the individual from the scheme in the ordinary course of the scheme's business, and

(b) the individual gives the scheme money in exchange for the sum,

the sum constitutes a “management fee” only to the extent that its market value at the time it arises exceeds the amount of the money given by the individual.

809EZC

(1) For the purposes of section 809EZB “carried interest” means a sum which arises to the individual under the arrangements by way of profit-related return.

This is subject to subsections (3) to (8) (sums where no significant risk of not arising); and see also section 809EZD (sums treated as carried interest).

(2) A sum which arises to the individual under the arrangements does so by way of “profit-related return” if under the arrangements—

(a) the sum is to, or may, arise only if—

(i) there are profits for a period on the investments, or on particular investments, made for the purposes of the scheme, or

(ii) there are profits arising from a disposal of the investments, or of particular investments, made for those purposes,

(b) the amount of the sum which is to, or may, arise is variable, to a substantial extent, by reference to those profits, and

but where any part of the sum does not meet these conditions, that part is not to be regarded as arising by way of “profit-related return”.

(3) Where—

(a) one or more sums (“actual sums”) arise to the individual under the arrangements by way of profit-related return in a tax year, and

(b) there was no significant risk that a sum of at least a certain amount (“the minimum amount”) would not arise to the individual,

so much of the actual sum, or of the aggregate of the actual sums, as is equal to the minimum amount is not “carried interest”.

(See subsections (7) and (8) as to how the minimum amount is to be apportioned between the actual sums where more than one actual sum arises in the tax year.)

(4) For the purposes of subsection (3)(b) assess the risk both—

(a) in relation to each actual sum (and the investments to which it relates) individually, taking into account also any other sums that might have arisen to the individual under the arrangements instead of that sum, and

(b) in relation to the actual sum or sums and any other sums that might have arisen to the individual under the arrangements by way of profit-related return in the tax year (and the investments to which all those sums relate) taken as a whole;

(so that, in a particular case, some of the minimum amount may arise by assessing the risk in accordance with paragraph (a) and some by assessing it in accordance with paragraph (b)).

(5) For the purposes of subsection (3)(b) assess the risk as at the latest of—

(a) the time when the individual becomes party to the arrangements,

(b) the time when the individual begins to perform investment management services directly or indirectly in respect of the scheme under the arrangements, and

(c) the time when a material change is made to the arrangements so far as relating to the sums which are to, or may, arise to the individual.

(6) For the purposes of subsection (3)(b) ignore any risk that a sum is prevented from arising to the individual (by reason of insolvency or otherwise).

(7) Where more than one actual sum arises in the tax year, the minimum amount is to be apportioned between the actual sums as follows for the purposes of subsection (3)—

(a) so much of the minimum amount as is attributable to a particular actual sum is to be apportioned to that actual sum, and

(b) so much of the minimum amount as is not attributable to any particular actual sum is to be apportioned between the actual sums on a just and reasonable basis.

(8) For the purpose of subsection (7) any part of the minimum amount is attributable to a particular actual sum to the extent that there was no significant risk that that part would not arise to the individual in relation to that actual sum, assessing the risk in accordance with subsection (4)(a).

809EZD

(1) A sum falling within subsection (2) or (3)—

(a) is to be assumed to meet the requirements of section 809EZC, and

(b) accordingly, is to be treated as constituting “carried interest” for the purposes of section 809EZB.

(2) A sum falls within this subsection if, under the arrangements, it is to, or may, arise to the individual out of profits on the investments made for the purposes of the scheme, but only after—

(a) all, or substantially all, of the investments in the scheme made by the participants have been repaid to the participants, and

(b) each external investor has received a preferred return on all, or substantially all, of the investor's investments in the scheme.

(3) A sum falls within this subsection if, under the arrangements, it is to, or may, arise to the individual out of profits on a particular investment made for the purposes of the scheme, but only after—

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