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

(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 310 (provision of services or facilities for another business).

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

(a) section 304 (wholesale and retail distribution),

(b) section 305 (leasing of ships),

(d) section 307 (property development),

(da) section 307A (shipbuilding),

(db) section 307B (producing coal),

(dc) section 307C (producing steel),

(e) section 308 (hotels and comparable establishments), ...

(f) section 309 (nursing homes and residential care homes), ... and

(g) section 309A (export of electricity).

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

Excluded activities: wholesale and retail distribution

304

(1) This section supplements section 303(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 or sales from or 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, and

(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

305

(1) This section supplements section 303(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.

(3) If the requirements of subsection (4) are met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 303(1)(d) as a result only of its consisting in letting ships on charter.

(4) The requirements of this subsection are that—

(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company,

(b) every ship beneficially owned by the company is registered in the United Kingdom,

(d) the conditions mentioned in subsection (5) are met in relation to every letting on charter by the company.

(5) The conditions referred to in subsection (4)(d) are—

(a) the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer,

(b) no provision for the grant of a new letting to end more than 12 months after the provision is made (whether in the charterparty or otherwise) is in force during the period of the letting otherwise than at the option of the charterer,

(d) under the terms of the charter the company is responsible as principal—

(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry, and

(ii) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period, and

(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) on behalf of the company.

(6) If in the case of the company carrying on the trade (“the letting company”) the charterer is also a company and—

(a) the charterer is a qualifying subsidiary of the letting company, or

(b) the letting company is a qualifying subsidiary of the charterer, or

subsection (5) has effect with the omission of paragraph (c).

(7) If any of the requirements of subsection (4) is not met in relation to any lettings of ships, the trade is not, as a result, to be treated as consisting in the carrying on of excluded activities if—

(a) those lettings, and

(b) any other excluded activities

do not, taken together, amount to a substantial part of the trade.

(8) In this section “pleasure craft” means any ship of a kind primarily used for sport or recreation.

Excluded activities: receipt of royalties and licence fees

306

(1) This section supplements section 303(1)(e) (receipt of royalties and licence fees).

(2) If the requirement of subsection (3) is met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 303(1)(e) as a result only of its consisting to a substantial extent in the receiving of royalties or licence fees.

(3) The requirement of this subsection is that the royalties or licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

(4) For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—

(a) by the relevant company, or

(b) by a company which was a qualifying subsidiary of the relevant company throughout a period during which it created the whole or greater part (in terms of value) of the intangible asset.

(5) In the case of an intangible asset that is intellectual property, references to the creation of an asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).

(6) In this section—

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

“intellectual property” means—any patent, trade mark, registered design, copyright, design right, performer's right or plant breeder's right, orany rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a).

(7) If—

(a) the relevant company acquired all the shares (“old shares”) in another company (“the old company”) at a time when the only shares issued in the relevant company were subscriber shares, and

(b) the consideration for the old shares consisted wholly of the issue of shares in the relevant company,

references in subsection (4) to the relevant company include the old company.

Excluded activities: property development

307

(1) This section supplements section 303(1)(g).

(2) “Property development” means the development of land—

(a) by a company which has, or at any time has had, an interest in the land, and

(b) with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.

(3) For this purpose “interest in land” means, subject to subsection (4)—

(a) any estate, interest or right in or over land, including any right affecting the use or disposition of land, or

(b) any right to obtain such an estate, interest or right from another which is conditional on the other's ability to grant it.

(4) References in this section to an interest in land do not include—

(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or

(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.

Excluded activities: hotels and comparable establishments

308

(1) This section supplements section 303(1)(j).

(2) The reference to a comparable establishment is to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (with or without catering services).

(3) The activities of a person are not to be taken to fall within section 303(1)(j) unless that person has an estate or interest in, or is in occupation of, the hotel or comparable establishment in question.

Excluded activities: nursing homes and residential care homes

309

(1) This section supplements section 303(1)(k).

(2) “Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care—

(a) for persons suffering from sickness, injury or infirmity, or

(b) for women who are pregnant or have given birth.

(3) “Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—

(a) old age,

(b) mental or physical disability,

(d) any past illnesses, or

(e) past or present mental disorder.

(4) The activities of a person are not to be taken to fall within section 303(1)(k) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

Excluded activities: provision of services or facilities for another business

310

(1) Providing services or facilities for a business carried on by another person (other than a company of which the provider of the services or facilities is a qualifying subsidiary) is an excluded activity if—

(a) the business consists wholly or as to a substantial part of activities falling within any of paragraphs (a) to (ka) of section 303(1), and

(b) a controlling interest in the business is held by a person who also has a controlling interest in the business carried on by the provider of the services or facilities.

(2) Subsections (3) to (5) explain what is meant by a controlling interest in a business for the purposes of subsection (1)(b).

(3) In the case of a business carried on by a company, a person (“A”) has a controlling interest in the business if—

(a) A controls the company,

(b) the company is a close company and A or an associate of A, being a director of the company, either—

(i) is the beneficial owner of more than 30% of the ordinary share capital of the company, or

(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital, or

(c) at least half the business could, in accordance with section 942 of CTA 2010 (options for purposes of ownership condition), be regarded as belonging to A for the purposes of section 941 of that Act (trade transfers without change of ownership: ownership condition).

(4) In any other case, a person has a controlling interest in a business if the person is entitled to at least half the assets used for, or of the income arising from, the business.

(5) For the purposes of this section—

(a) any rights or powers of a person who is an associate of another are to be attributed to that other person, and

(b) “business” includes any trade, profession or vocation.

Supplementary

Power to amend Chapter

311

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

Winding up of the relevant company

312

None of the requirements of this Chapter is to be regarded, at a time when the relevant company is being wound up, as being, on that account, a requirement that is not met in relation to that company if—

(a) the requirements of this Chapter would be met in relation to that company apart from the winding up, and

(b) 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.

Interpretation of Chapter

313

(1) In this Chapter —

“the investing company” has the meaning given by section 286(1),

“the relevant company” has the meaning given by section 286(1), and

“the relevant holding” has the meaning given by section 286(1).

(2) References in this Chapter to the issue of any securities, in relation to any security consisting in a liability in respect of an unsecured loan, have effect as references to the making of the loan.

(3) References in sections 303 to 309 to a trade are to be read without regard to the definition of “trade” in section 989 (see also section 300(4)).

(4) For the purposes of sections 296 and 310(3) and (4), the question whether a person controls a company is to be determined in accordance with sections 450 and 451 of CTA 2010 with the modification given by subsection (6).

(5) For the purposes of this Chapter (other than section 312A), section 993 (meaning of “connected persons”) applies as if references to “control” in that section were to be read in accordance with sections 450 and 451 of CTA 2010 with the modification given by subsection (6).

But section 993 does not apply for the purposes of the definition of “independent expert” in section 331A(10).

(6) The modification is that, in determining whether a person controls a company, the following are to be ignored—

(a) any person's possession of, or entitlement to acquire, fixed-rate preference shares in the company that do not carry voting rights, ...

(b) any person's possession of, or entitlement to acquire, rights as a loan creditor of the company, and

(i) are eligible shares, and

(ii) are held by the investing company.

(7) In subsection (6) “fixed-rate preference shares” means shares which—

(a) were issued wholly for new consideration,

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

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

(ii) together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued,

and in paragraph (a) “new consideration” has the meaning given by section 1115 of CTA 2010.

(8) In subsection (6) “eligible shares” has the same meaning as in Chapter 3 (see section 285(3A) and (3B)).

Chapter 5 — Powers: winding up and mergers of VCTs

Winding up

Power to treat VCT-in-liquidation as VCT

314

(1) Regulations may make provision for tax enactments specified by the regulations to have effect as if—

(a) a VCT-in-liquidation that is not a VCT were, or were during any prescribed period of its winding up, a VCT,

(b) VCT approval withdrawn from a company—

(i) at any time during the period when it is a VCT-in-liquidation, or

(ii) at any time during a prescribed part of that period,

were withdrawn at a prescribed time (and not at the time when it is actually withdrawn).

(2) In this section “prescribed” means specified by, or determined under, regulations.

Power to treat conditions for VCT approval as met with respect to VCT-in-liquidation

315

(1) Regulations may make provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated for the purposes of section 274(1) as met, or as conditions that will be met, with respect to a VCT-in-liquidation.

(2) Provision under subsection (1) may be made so as to apply in relation to a VCT-in-liquidation—

(a) throughout its winding up, or

(b) during prescribed periods of its winding up.

(3) Regulations may, for purposes of tax enactments specified by the regulations, make provision for VCT approval to be treated as having been withdrawn, with effect from a time specified by or determined under the regulations, from a VCT-in-liquidation from which the Commissioners for Her Majesty's Revenue and Customs would have power to withdraw such approval but for provision made under subsection (1).

Power to make provision about distributions by VCT-in-liquidation

316

(1) Regulations may make provision for tax enactments specified by the regulations—

(a) to apply in relation to distributions from a VCT-in-liquidation (including, in particular, distributions in the course of dissolving it or winding it up),

(b) not to apply in relation to such distributions,

(2) Provision under subsection (1) may be made so as to apply in relation to distributions from a VCT-in-liquidation made—

(a) at any time during its winding up, or

(b) during periods of its winding up specified by, or determined under, regulations.

Power to facilitate disposal to VCT by VCT-in-liquidation

317

(1) Regulations may make provision authorised by subsection (2) for cases where shares in or securities of a company are acquired by a VCT from a VCT-in-liquidation.

(2) The provision that may be made under subsection (1) for such a case is—

(a) provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated for the purposes of section 274(1) as met, or as conditions that will be met, with respect to the VCT in relation to periods ending after the acquisition,

(b) provision for the shares or securities acquired to be treated, at times after the acquisition when they are held by the VCT, as meeting the requirements of Chapter 4 (provisions for determining whether shares or securities form part of qualifying holdings), and

(c) provision for shares in the VCT issued in connection with the acquisition of the shares or securities from the VCT-in-liquidation and either—

(i) issued to a person who is a member of the VCT-in-liquidation, or

(ii) issued to the VCT-in-liquidation and distributed by it in the course of its winding up or dissolution to a person who is one of its members,

to be treated, for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment), as representing shares in the VCT-in-liquidation held by that person.

(3) Provision under subsection (1) may be made so as to apply in relation to shares or securities acquired from a VCT-in-liquidation—

(a) at any time during its winding up, or

(b) during periods of its winding up specified by, or determined under, regulations.

(4) In this section “securities” means any securities and includes any liability that is a security in relation to a company because of section 285(2) (securities).

Power in respect of periods before and after winding up

318

(1) Any power under sections 314 to 317 to make provision in relation to a VCT-in-liquidation includes power to make corresponding or similar provision in relation to—

(a) a company for whose winding up an application has been made to a court and which is not a VCT-in-liquidation but would be if, at the time that the application was made, the court had ordered the company's winding up to commence at that time, or

(b) a company that has been a VCT-in-liquidation but no longer is a VCT-in-liquidation because it has been wound up.

(2) For the purposes of making provision in reliance on subsection (1), references in sections 314 to 317 (however expressed) to a VCT-in-liquidation's winding up, or the commencement or ending of its winding up, may be taken to be references to, or to the commencement or ending of, the extension period for a company to which subsection (1) applies.

(3) In this section—

“the extension period”—in relation to a company to which subsection (1)(a) applies, means the period beginning with the making of the application and ending with the earlier of its final determination and the company becoming a company that is being wound up, andin relation to a company to which subsection (1)(b) applies, means the period between the end of the company's winding up and the company's dissolution, and

“prescribed” means specified by, or determined under, regulations.

Sections 314 to 318: supplementary

319

(1) Provision made by regulations under sections 314 to 318 applies in cases, and subject to conditions, specified by regulations.

(2) Such provision may (but need not) be made so as to have effect in a particular case only for such period as may be specified by, or determined under, regulations.

(3) References in sections 314 to 318 to things done by a VCT-in-liquidation include things done by a liquidator of a VCT-in-liquidation.

Meaning of “VCT-in-liquidation”

320

(1) In this Chapter “VCT-in-liquidation” means a company—

(a) that is being wound up (whether or not under the law of a part of the United Kingdom and whether under the law of one, or more than one, territory),

(b) that was a VCT immediately before the commencement of its winding up, and

(c) whose 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.

(2) Regulations may, for purposes of this Chapter, make provision as to when a company's winding up is to be treated as commencing or ending in a case where it is wound up otherwise than under the law of a part of the United Kingdom or otherwise than under the law of a single territory.

Mergers

Power to facilitate mergers of VCTs

321

(1) Regulations may make provision authorised by section 322 for cases where—

(a) there is a merger of two or more companies each of which is a VCT immediately before the merger begins to be effected, and

(b) the merger 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.

(2) Provision made by regulations under subsection (1) applies—

(a) in cases, and

(b) subject to conditions (including conditions requiring approvals to be obtained),

specified by the regulations.

Provision that may be made by regulations under section 321

322

(1) The provision that may be made under section 321(1) for a case where there is a merger of two or more companies (“the merging companies”) is as follows.

(2) Provision for the successor company, or any of the merging companies, to be treated (whether at times before, during or after the merger) as a VCT for purposes of tax enactments specified by regulations.

(3) Provision for section 266 (loss of relief on disposal of VCT shares within 5 years of their issue) not to apply in the case of disposals of shares in a merging company made in the course of effecting the merger.

(4) Provision for such disposals not to be chargeable events for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment).

(5) Provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated (whether at times before, during or after the merger) for purposes of section 274(1) as met, or as conditions that will be met, with respect to the successor company or any of the merging companies.

(5A) Provision for section 281(1)(f) (withdrawal of VCT approval where company has made a repayment of share capital etc) not to apply, or to apply subject to modifications, to the successor company or any of the merging companies, in relation to payments made, or amounts used to pay up new shares, in connection with or after the merger.

(6) Provision for shares in or securities of a company that are acquired (whether at times before, during or after the merger) by the successor company from a merging company to be treated, at times after the acquisition when they are held by the successor company, as meeting requirements of Chapter 4 (provisions for determining whether shares or securities held by a VCT form part of its qualifying holdings).

(7) Provision for tax enactments specified by regulations to apply, with or without adaptations, in relation to the merger or transactions taking place (whether before, during or after the merger) in connection with the merger.

(8) Provision authorising disclosure for tax purposes connected with the merger—

(a) by Her Majesty's Revenue and Customs,

(b) to any of the merging companies or the successor company,

(c) of any information provided to Her Majesty's Revenue and Customs by or on behalf of any of the merging companies or the successor company.

Meaning of “merger” and “successor company”

323

(1) For the purposes of this Chapter there is a merger of two or more companies (“the merging companies”) if—

(a) shares in one of the merging companies (“company A”) are issued to members of the other merging company or companies, and

(b) the shares issued to members of the other merging company or, in the case of each of the other merging companies, the shares issued to members of that other company, are issued—

(i) in exchange for their shares in that other company, or

(ii) by way of consideration for a transfer to company A of the whole or part of the business of that other company.

(2) For the purposes of this Chapter there is also a merger of two or more companies (“the merging companies”) if—

(a) shares in a company (“company B”) that is not one of the merging companies are issued to members of the merging companies, and

(b) in the case of each of the merging companies, the shares issued to members of that company are issued—

(i) in exchange for their shares in that company, or

(ii) by way of consideration for a transfer to company B of the whole or part of the business of that company.

(3) In this Chapter “the successor company”—

(a) in relation to a merger such as is described in subsection (1), means the company that performs the role of company A, and

(b) in relation to a merger such as is described in subsection (2), means the company that performs the role of company B.

Supplementary

Regulations under Chapter

324

(1) Regulations under this Chapter may—

(a) contain such administrative provisions (including provision for advance clearance and provision for the withdrawal of clearances) as appear to the Treasury to be necessary or appropriate,

(b) authorise the Commissioners for Her Majesty's Revenue and Customs to give notice to any person requiring that person to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by regulations under this Chapter are met,

(d) contain incidental, supplemental, consequential and transitional provision and savings, and

(e) include provision having retrospective effect.

(2) Without prejudice to any specific provision of this Chapter, a power conferred by any provision of this Chapter to make regulations includes power to provide for Her Majesty's Revenue and Customs to exercise a discretion in dealing with any matter.

Interpretation of Chapter

325

In this Chapter—

“regulations” means regulations made by the Treasury, and

“tax enactments” means provisions of or made under—the Tax Acts,TCGA 1992 or any other enactment relating to capital gains tax, orTMA 1970.

Chapter 6 — Supplementary and general

Acquisitions for restructuring purposes

Restructuring to which section 327 applies

326

(1) Sections 326A, 327 and 327A apply if—

(a) arrangements are made for a company (“the new company”) to acquire all the shares (“old shares”) in another company (“the old company”),

(b) the acquisition provided for by the arrangements falls within subsection (2), and

(c) the Commissioners for Her Majesty's Revenue and Customs have, before any exchange of shares takes place under the arrangements, given an approval notification.

(2) An acquisition of shares falls within this subsection if—

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

(b) new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than subscriber shares and new shares previously issued in consideration of old shares,

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

(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.

(3) For the purposes of subsection (1)(c) an approval notification is one which, on the application of either the old company or the new company, is given to the applicant company and states that the Commissioners for Her Majesty's Revenue and Customs are satisfied that the exchange of shares under the arrangements—

(a) will be effected for genuine commercial reasons, and

(b) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).

(4) Nothing in section 326A treats any of the requirements of Chapter 3 as being met, and nothing in section 327 treats any of the requirement of Chapter 4 as being met in relation to any new shares unless the matching old shares were first issued to the company holding them and have been held by that company from the time when they were issued until they are acquired by the new company.

(5) If, at any time after the arrangements first came into existence and before the new company acquired all the old shares, the arrangements—

(a) cease to be arrangements for the acquisition of all the old shares by the new company, or

(b) cease to be arrangements for an acquisition falling within subsection (2),

section 326A does not treat any requirement of Chapter 3 as being met and section 327 does not treat any requirement of Chapter 4 as being met, and subsection (8) of that section does not apply, in the case of any new shares at any time after the arrangements have so ceased.

Certain requirements of Chapter 4 to be treated as met

327

(1) If this section applies, subsections (2) to (8) have effect to determine the extent to which, and the times for which, the requirements of the following provisions of Chapter 4 are met in relation to the new shares—

section 287 (the maximum qualifying investment requirement),

section 289 (the proportion of eligible shares requirement),

section 290 (the trading requirement),

section 291 (the carrying on of a qualifying activity requirement),

section 292A (the maximum amount raised annually through risk finance investments requirement),

section 292AA (the maximum amount raised through risk finance investments when relevant holding is issued requirement),

section 292AB (the maximum risk finance investments during the 5-year post-investment period requirement),

section 293 (the use of the money raised requirement),

section 294 (the relevant company to carry on the relevant qualifying activity requirement),

section 294A (the permitted company age requirement),

section 296 (the control and independence requirement), ...

section 297 (the gross assets requirement),...

section 297A (the number of employees requirement) , and

section 297B (the proportion of skilled employees requirement).

(2) If the requirements of sections 290 and 291 were met in relation to the old company and any old shares immediately before the beginning of the period for giving effect to the arrangements, then (so far as it would not otherwise be the case) those requirements are treated as being met in relation to the new company and the matching new shares at all times which—

(a) fall in that period, and

(b) do not fall after a time when (apart from the arrangements) those requirements would have ceased by virtue of—

(i) section 291(4) or (5), or

(ii) any cessation of a trade by any company,

to be met in relation to the old company and the matching old shares.

(3) For the purposes of section 291, the period of two years mentioned in subsection (4) of that section is treated, in the case of any new shares, as expiring at the same time as it would have expired (or by virtue of this subsection would have been treated as expiring) in the case of the matching old shares.

(4) Subject to subsection (5), if—

(a) there is an exchange under the arrangements of any new shares for any old shares, and

(b) those old shares are shares in relation to which the requirements of sections 292A, 292AA, 292AB, 293, 294 , 294A, 297 , 297A and 297B were (or were treated as being) met to any extent immediately before the exchange,

those requirements are to be treated, at all times after that time, as met to the same extent in relation to the matching new shares.

(4A) If—

(a) there is an exchange under the arrangements of any new shares for any old shares,

(b) that exchange occurs during the period of 5 years beginning with the day after the day on which the old shares were issued, and

(c) those old shares are shares in relation to which the requirement of section 292AB (maximum risk finance investments during 5-year post-investment period) applies and is met,

that requirement is to be treated as applying and met in relation to the matching new shares.

(4B) But, where that requirement applies in relation to the old shares, it is met in relation to those shares if (and only if) it would be met were—

(a) the first reference to the relevant company in section 292AB(4), and

(b) the references to the relevant company in section 292AB(5) and (7)(a)(i),

read, in relation to times in that 5 year period which fall at or after the time of the exchange, as references to the new company.

(4C) For the purposes of subsections (4A) and (4B), the requirement in section 292AB is treated as applying in relation to the old shares if condition A or B in that section would be met if references in section 292AB(5) and (7)(a)(i) to the relevant company were read as references to the new company.

(4D) The requirement in section 293 (the use of money raised) is met in relation to the old shares if (and only if) it would be met if references to the relevant company in section 293(5ZA) were read as including a reference to the new company.

(4E) The requirement of section 294A (permitted company age) is met in relation to the old shares if (and only if) it would be met if—

(a) in section 294A(4) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the new company,

(b) in section 294A(6)(d) and (f) the references to the relevant company included a reference to the new company,

(c) in paragraphs (a)(ii) and (b)(iii) of the definition of “the total relevant turnover amount” in section 294A(8) the reference to a company which becomes a 51% subsidiary of the relevant company after the investment date included a reference to a company which becomes a 51% subsidiary of the new company after that date otherwise than as a result of the exchange.

(4F) If—

(a) there is an exchange under the arrangements of any new shares for any old shares,

(b) that exchange occurs during the period of 3 years beginning with the issue of the old shares, and

(c) those old shares are shares in relation to which the requirement of section 297B (proportion of skilled employees requirement) is met,

that requirement is to be treated as met in relation to the matching new shares.

(4G) The requirement of section 297B is met in relation to the old shares if (and only if) it would be met in relation to those shares were references to the relevant company, in subsections (1) and (3) of that section (and, in the definitions of the terms mentioned in subsection (4) as they apply for the purposes of those subsections), read as references to the new company in relation to times in that 3 year period which fall at or after the exchange.

(5) If there is a time following any exchange under the arrangements of any new shares for any old shares when (apart from the arrangements) the requirement of section 293 would have ceased under—

(a) subsection (1) of that section, or

(b) this subsection,

to be met in relation to those old shares, that requirement ceases at that time to be met in relation to the matching new shares.

(6) For the purposes of section 287, any new shares acquired under the arrangements are to be treated as representing an investment which—

(a) raised the same amount of money as was raised (or, by virtue of this subsection, is treated as having been raised) by the issue of the matching old shares, and

(b) raised that amount by an issue of shares in the new company made at the time when the issue of the matching old shares took place (or, as the case may be, is treated as having taken place).

(7) In determining whether the requirements of section 296 are met in relation to the old company or the new company at a time in the period for giving effect to the arrangements, ignore both—

(a) the arrangements themselves, and

(b) any exchange of new shares for old shares that has already taken place under the arrangements.

(8) For the purposes of section 289, the value of the new shares, both—

(a) immediately after the time of their acquisition, and

(b) immediately after the time of any subsequent relevant event occurring by virtue of the arrangements,

is to be taken to be the same as the value, when last valued in accordance with that section, of the old shares for which they are exchanged.

Supplementary

328

(1) Subject to subsection (2), references in sections 326 and 327 and this section, except in the expression “subscriber shares”, to shares in a company include references to any securities of that company.

(2) For the purposes of subsection (1) a relevant security of the old company is not to be treated as a security of the old company if—

(a) the arrangements do not provide for the acquisition of the security by the new company, or

(b) such treatment prevents section 326(1)(b) from being met in connection with the arrangements.

(3) In subsection (2) “relevant security” means an instrument which is a security for the purposes of Chapter 4 merely because of section 285(2).

(4) References in section 327 to the period for giving effect to the arrangements are references to the period which—

(a) begins with the time when the arrangements first came into existence, and

(b) ends with the time when the new company completes its acquisition under the arrangements of all the old shares.

(5) For the purposes of sections 326 and 327 and this section—

(a) old shares and new shares are of a corresponding description if, were they shares in the same company, they would be of the same description, and

(b) old shares and new shares are matching shares in relation to each other if the old shares are the shares for which the new shares are exchanged under the arrangements.

Conversion of shares etc and company reorganisations

Conversion of convertible shares and securities

329

(1) This section applies if—

(a) shares have been issued to a company (“the investing company”) by the exercise by it of any right of conversion attached to other shares or securities held by it (“the convertibles”),

(b) the shares so issued are in the same company as the convertibles to which the right was attached,

(c) the convertibles to which the right was attached were first issued to the investing company and were held by it from the time they were issued until converted, and

(d) the right was attached to the convertibles when they were first so issued and was not varied before it was exercised.

(2) If this section applies, subsections (3) and (4) have effect to determine the extent to which, and the times for which, the requirements of the following provisions of Chapter 4 are met in relation to the shares issued to the investing company by the exercise by it of the right of conversion—

section 287 (the maximum qualifying investment requirement),

section 289 (the proportion of eligible shares requirement),

section 291 (the carrying on of a qualifying activity requirement),

section 293 (the use of the money raised requirement),

section 294 (the relevant company to carry on the relevant qualifying activity requirement), and

section 297 (the gross assets requirement).

(3) Subsections (3) to (6) of section 327 apply in relation to the exchange of convertibles for shares by virtue of the exercise of the right of conversion as if—

(a) that exchange were an exchange, under any arrangements to which that section applies, of new shares for old shares, and

(b) the references in those subsections and section 328(5)(b) to the arrangements were references to the provision conferring the right of conversion.

(4) For the purposes of section 289 the value of the new shares immediately after the time of their acquisition by the investing company is to be taken as the same as the value, when last valued in accordance with that section, of the convertibles for which they are exchanged.

Power to facilitate company reorganisations etc involving exchange of shares

330

(1) The Treasury may by regulations make provision for cases where—

(a) a holding of shares or securities that meets the requirements of Chapter 4 is exchanged for other shares or securities,

(b) the exchange is made for genuine commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and

providing that the new shares or securities are to be treated as meeting those requirements.

(1A) The Treasury may by regulations make provision for the purposes of this Part for cases where—

(a) a holding of shares or securities that does not meet the requirements of Chapter 4 is exchanged for other shares or securities not meeting those requirements, and

(b) the exchange is made for genuine commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(2) The references in subsections (1) and (1A) to an exchange of shares or securities include any form of company reorganisation or other arrangement which involves a holder of shares in or securities of a company receiving other shares or securities—

(a) whether the original shares or securities are transferred, cancelled or retained, and

(b) whether the new shares or securities are in or of the same or another company.

(3) Regulations under subsection (1) must specify—

(a) the cases in which, and conditions subject to which, they apply,

(b) which requirements of Chapter 4 are to be treated as met, and

(3A) Regulations under subsection (1A) may, among other things, make provision—

(a) for the new shares or securities to be treated in any respect in the same way as the original shares and securities for any period;

(b) as to when the new shares or securities are to be regarded as having been acquired;

(4) Regulations under this section may contain such administrative provisions (including provision for advance clearances) as appear to the Treasury to be necessary or appropriate.

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

(6) Regulations under this section —

(a) may make different provision for different cases,

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

Supplementary

Meaning of a company being “in administration” or “in receivership”

331

(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 (c. 45) 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.

Minor definitions etc

332

In this Part—

“associate” has the meaning given by section 253,

“company” includes any body corporate or unincorporated association but does not include a partnership, and is to be read in accordance with section 99 of TCGA 1992 (unit trust schemes),

“director” is read in accordance with section 452 of CTA 2010,

“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 and “single company” means a company that does not,

“research and development” has the meaning given by section 1006, and

“shares” includes stock.

Part 7 — Community investment tax relief

Chapter 1 — Introduction

CITR

Meaning of “CITR”

333

This Part provides for community investment tax relief (“CITR”), that is, entitlement to tax reductions in respect of amounts invested by individuals in community development finance institutions.

Eligibility for CITR

334

(1) An individual (“the investor”) who makes an investment (“the investment”) in a body is eligible for CITR in respect of the investment if—

(a) that body is accredited as a community development finance institution under Chapter 2 at the time the investment is made,

(b) the investment is a qualifying investment (see Chapter 3), and

(2) In this Part references to “the CDFI” are to the body in which the investment is made.

Form and amount of CITR

335

(1) If the investor is eligible for CITR in respect of the investment, the investor may make a claim in respect of the investment for any one or more of the relevant tax years.

(2) If the investor makes a claim for a relevant tax year, the investor is entitled to a tax reduction for that year of 5% of the invested amount in respect of the investment for the year.

(3) For the purposes of this section and section 335A the “relevant” tax years are—

(a) the tax year in which the investment date falls, and

(b) each of the 4 subsequent tax years.

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

(5) The investor is entitled to make a claim for CITR for a relevant tax year if—

(a) the investor considers that the conditions for the CITR are for the time being met, and

(b) the investor has received a tax relief certificate (see section 348) relating to the investment from the CDFI,

but no claim may be made before the end of the tax year to which it relates.

(6) Subsection (5) is subject to the following provisions—

(a) section 354 (loans: no claim after disposal or excessive repayments or receipts of value),

(b) section 355 (securities or shares: no claim after disposal or excessive receipts of value), and

Miscellaneous

Meaning of “making an investment”

336

(1) For the purposes of this Part, an individual makes an investment in a body at any time when—

(a) the individual makes a loan (whether secured or unsecured) to the body, or

(b) an issue of securities of or shares in the body, for which the individual has subscribed, is made to the individual.

(2) The following provisions of this section apply for the purposes of subsection (1)(a).

(3) An individual does not make a loan to a body if—

(a) the body uses overdraft facilities provided by the individual, or

(b) the individual subscribes for or otherwise acquires securities of the body.

(4) If the loan agreement authorises the body to draw down amounts of the loan over a period of time, the loan is treated as made at the time when the first amount is drawn down.

Determination of “the invested amount”

337

(1) This section applies for the purpose of determining “the invested amount” in respect of any loan, securities or shares included in the investment.

This is subject to sections 363(2) and 369 (which adjust “the invested amount” in certain cases where value is received).

(2) In the case of a loan, the invested amount is—

(a) for the tax year in which the investment date falls, the average capital balance for the first year of the 5 year period,

(b) for the next tax year, the average capital balance for the second year of the 5 year period, and

(i) the average capital balance for the period of 12 months beginning with the anniversary of the investment date falling in the tax year concerned, or

(ii) if less, the average capital balance for the period of 6 months beginning 18 months after the investment date.

(3) In the case of securities or shares, the invested amount for a tax year is the amount subscribed by the investor for the securities or shares.

(4) For the purposes of this section, the average capital balance of the loan for a period is the mean of the daily balances of capital outstanding during the period.

Meaning of “the 5 year period” and “the investment date”

338

In this Part—

“the 5 year period” means the period of 5 years beginning with the investment date, and

“the investment date” means the day the investment is made.

Overview of other Chapters of Part

339

In this Part—

(a) Chapter 5 provides for the making of claims for CITR and the attribution of CITR to investments,

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

Chapter 2 — Accredited community development finance institutions

Application and criteria for accreditation

340

(1) Applications for accreditation as a community development finance institution must be made to the Secretary of State in the form and manner specified by the Secretary of State.

(2) The Secretary of State is to accredit a body if (and only if) the Secretary of State is satisfied—

(a) that the body's principal objective is to provide (directly or indirectly)—

(i) finance, or

(ii) finance and access to business advice,

for enterprises for disadvantaged communities, and

(b) that the body meets any other criteria specified in regulations made by the Treasury.

(3) For the purposes of this section “enterprises for disadvantaged communities” include—

(a) enterprises located in disadvantaged areas, and

(b) enterprises owned or operated by, or designed to serve, members of disadvantaged groups.

(4) The criteria mentioned in paragraph (b) of subsection (2) may include criteria relating to the enterprises to which the body provides or proposes to provide finance or access to business advice.

(5) Regulations under that paragraph may make the provision authorised by that paragraph by reference to any material published by, or on behalf of, the Secretary of State (whether before or after the coming into force of this section).

(5A) Regulations under that paragraph may include provision for the purposes of Part 7 of CTA 2010 in addition to provision made for the purposes of this Part.

(6) Regulations under that paragraph—

(a) may make different provision for different cases or circumstances or in relation to different areas, and

(b) may, in particular, make different provision in the case of bodies whose principal objective in providing finance as mentioned in subsection (2)(a) is to invest directly in enterprises that meet the conditions of subsection (7).

(7) An enterprise meets the conditions of this subsection if it uses the money invested in it for the purposes of its business and either—

(a) that business does not include the provision of finance for other enterprises, or

(b) if it does, the nature and extent of such provision meets any conditions prescribed by regulations made by the Treasury.

(8) If the Secretary of State accredits a body of a kind mentioned in subsection (6)(b), the Secretary of State must specify in the accreditation that the body is accredited as a retail community development finance institution.

Terms and conditions of accreditation

341

(1) An accreditation under this Chapter must—

(a) be made on—

(i) any terms required by regulations, and

(ii) any other terms the Secretary of State considers appropriate, and

(b) be made conditional on compliance with—

(i) any requirements imposed by regulations, and

(ii) any other requirements the Secretary of State considers appropriate.

(2) The requirements that may be imposed by virtue of subsection (1)(b) include requirements relating to the provision of information.

(3) Regulations may—

(a) make provision for appeals to the tribunal against refusals to grant accreditation under this Chapter,

(b) make provision about the consequences of a failure to comply with any requirement of an accreditation, including—

(i) provision for the withdrawal of the accreditation with effect from the time of the failure or a later time, and

(ii) provision for the imposition of penalties,

(c) make provision for the making of decisions by the Secretary of State as to any matter required to be decided for the purposes of the regulations,

(d) make different provision for different cases or circumstances or in relation to different areas, and

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

(3A) Regulations under this section may include provision for the purposes of Part 7 of CTA 2010 in addition to provision made for the purposes of this Part.

(4) In this section “regulations” means regulations made by the Treasury.

Period of accreditation

342

(1) An accreditation has effect for a period (an “accreditation period”) of 3 years beginning on the day specified in the accreditation.

(2) Subject to subsection (4), the accreditation must not specify a day which is earlier than—

(a) if the body is not accredited under this Chapter at the time the application is made, the day the accreditation is granted, and

(b) if the body is so accredited, the time the body's current accreditation expires.

(3) Subsection (4) applies if—

(a) the body is accredited at the time the application is made, and

(b) it makes a request under this subsection.

(4) The new accreditation may specify that the existing accreditation is to be treated for the purposes of this Part (including subsection (2)(b)) as expiring immediately before the grant of the new accreditation (if it would otherwise expire at a later time).

(5) This section has effect subject to section 341(3)(b) (power to provide for the withdrawal of accreditation).

Delegation of Secretary of State’s functions

343

The Secretary of State may delegate any functions conferred on the Secretary of State by or under this Chapter.

Chapter 3 — Qualifying investments

Qualifying investments: introduction

344

For the purposes of this Part the investment is a “qualifying investment” in the CDFI if—

(a) the investment consists of—

(i) a loan in relation to which the conditions of section 345 are met,

(ii) securities in relation to which the conditions of section 346 are met, or

(iii) shares in relation to which the conditions of section 347 are met,

(b) the investor receives from the CDFI a valid tax relief certificate in relation to the investment (see section 348), and

Conditions to be met in relation to loans

345

(1) Condition A of this section is that either—

(a) the CDFI receives from the investor, on the investment date, the full amount of the loan, or

(b) if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the end of that period is not later than 18 months after the investment date.

(2) Condition B is that the loan must not carry any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within the 5 year period.

(3) Condition C is that the loan must not have been made on terms that allow any person to require—

(a) the repayment during the first two years of the 5 year period of any of the loan capital advanced in those two years,

(b) the repayment during the third year of that period of more than 25% of the loan capital outstanding at the end of those two years,

(d) the repayment before the end of that period of more than 75% of that loan capital.

(4) Subsection (3) does not apply if the CDFI is required to make the repayment as a result of its failure to meet any obligation of the loan agreement which—

(a) is imposed merely because of the commercial risks to which the investor is exposed as lender under that agreement, and

(b) is no more likely to be breached than any obligation that might reasonably have been agreed in respect of the loan in the absence of this Part.

(5) The Treasury may by order substitute any other percentage for any percentage for the time being specified in subsection (3).

(6) Any such substitution is to have effect in relation to loans made by an individual on or after the date specified in the order.

Conditions to be met in relation to securities

346

(1) Condition A of this section is that the securities must be—

(a) subscribed for wholly in cash, and

(b) fully paid for on the investment date.

(2) Condition B is that the securities must not carry—

(a) any present or future right to be redeemed within the 5 year period, or

(b) any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.

(3) For the purposes of subsection (1)(b), securities are not fully paid for if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the securities.

Conditions to be met in relation to shares

347

(1) Condition A of this section is that the shares must be—

(a) subscribed for wholly in cash, and

(b) fully paid up on the investment date.

(2) Condition B is that the shares must not carry—

(a) any present or future right to be redeemed during the 5 year period, or

(b) any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.

(3) Shares are not fully paid up for the purposes of subsection (1)(b) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the shares.

Tax relief certificates

348

(1) A “tax relief certificate” means a certificate issued by the CDFI in respect of the investment which is in the form specified by the Commissioners for Her Majesty's Revenue and Customs.

(2) The CDFI must not issue tax relief certificates under this section in respect of investments made in the CDFI in an accreditation period if the total value of—

(a) those investments, and

(b) any investments to which subsection (3) applies,

will exceed the limit for that period.

(3) This subsection applies to investments ...—

(a) which have been made in the CDFI in the accreditation period, and

(b) in respect of which the CDFI has issued tax relief certificates under section 229 of CTA 2010 (which makes in relation to corporation tax provision corresponding to that made by this section).

(4) The limit for an accreditation period is—

(a) £25 million if the CDFI is accredited for the period as a retail community development finance institution (see section 340(8)), and

(b) £100 million in any other case.

(5) For the purposes of subsection (2) the value of an investment made in the CDFI is—

(a) if the investment consists of a loan—

(i) the amount of the loan, or

(ii) if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the amount committed under the loan agreement, and

(b) if the investment consists of securities or shares, the amount subscribed for them.

(6) The Treasury may by order substitute any other amount for any amount for the time being specified in subsection (4).

(7) Any such substitution is to have effect in relation to such accreditation periods as may be specified in the order; and those periods may, if the substitution increases an amount for the time being specified in subsection (4), include periods beginning before the order comes into force.

(8) Any tax relief certificate issued in contravention of subsection (2) is invalid.

(9) A body is liable to a penalty of not more than £3,000 if it issues a tax relief certificate which is made fraudulently or negligently.

No pre-arranged protection against risks

349

(1) Any arrangements—

(a) under which the investment is made, or

(b) made, before the investor makes the investment, in relation to or in connection with the making of the investment,

must not include excluded arrangements.

(2) For the purposes of subsection (1) “excluded arrangements”—

(a) means 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 the investor against what would otherwise be the risks attached to making the investment, but

(b) does not include any arrangements which are confined to the provision for the investor of any protection against those risks which might reasonably be expected to be provided for commercial reasons if the investment were made in the course of a business of banking.

(3) For the purposes of this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Chapter 4 — General conditions

No control of CDFI by investor

350

(1) The investor must not control the CDFI at any time during the 5 year period.

(2) In this section references to the investor include any person connected with the investor.

(3) If the CDFI is a body corporate, the question whether the investor controls the CDFI is, for the purposes of this section, determined in accordance with section 995.

This is subject to subsection (6).

(4) In any other case the investor is treated, for those purposes, as having control of the CDFI if the investor has power to secure, as a result of—

(a) the possession of voting power in the CDFI, or

(b) any powers conferred by the constitution of, or any other document regulating, the CDFI,

that the affairs of the body are conducted in accordance with the investor's wishes.

This is subject to subsections (5) and (6).

(5) If—

(a) the CDFI is a partnership, and

(b) the investor is a member of that partnership,

for the purposes of determining in accordance with this section whether the investor controls the CDFI, the other members of that partnership are not, as a result of their membership of the CDFI, treated as partners of the investor.

(6) In determining whether the investor controls the CDFI there are attributed to the investor (so far as it would not otherwise be the case)—

(a) any rights or powers that the investor is entitled to acquire at a future date or will, at a future date, become entitled to acquire, and

(b) any rights or powers which another person holds on behalf of the investor or may be required to exercise, by direction, on the investor's behalf.

Investor must have beneficial ownership

351

(1) The investor must be the sole beneficial owner of the investment when it is made.

(2) If the investment consists of a loan, the person beneficially entitled to repayment of the loan is treated as the beneficial owner of the loan for the purposes of this Part.

352

(1) If the CDFI is a partnership, the investment must not consist of or include any amount of capital contributed by the investor on becoming a member of the partnership.

(2) For this purpose the amount of capital contributed by the investor on becoming a member of the partnership includes any amount which—

(a) purports to be provided by the investor by way of loan capital, and

(b) is accounted for as partners' capital in the accounts of the partnership.

No tax avoidance purpose

353

The investment must not be made as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Chapter 5 — Claims for and attribution of CITR

Claims

Loans: no claim after disposal or excessive repayments or receipts of value

354

(1) If the investment consists of a loan, no claim may be made in respect of a tax year if—

(a) the investor disposes of the whole or any part of the loan before the qualifying date relating to that year,

(b) at any time after the investment is made but before that qualifying date, the amount of the capital outstanding on the loan is reduced to nil, or

(c) before that qualifying date, paragraphs (a) and (b) of section 362(1) (repayments of loan in 5 year period exceeding permitted limits) apply in relation to the investment (whether by virtue of section 363 (receipts of value treated as repayments) or otherwise).

(2) For the purposes of subsection (1)(a) any repayment of the loan is to be ignored.

(3) For the purposes of this section the qualifying date relating to a tax year is the next anniversary of the investment date to occur after the end of that year.

Securities or shares: no claim after disposal or excessive receipts of value

355

(1) If the investment consists of securities or shares, a claim made in respect of a tax year must relate only to those securities or shares held by the investor, as sole beneficial owner, continuously throughout the period—

(a) beginning when the investment is made, and

(b) ending immediately before the qualifying date relating to the tax year.

(2) No claim for CITR may be made in relation to a tax year if before the qualifying date relating to that year paragraphs (a) to (d) of section 364(1) (receipts of value in the 6 year period exceeding permitted limits) apply in relation to the investment or any part of it.

(3) For the purposes of this section the qualifying date relating to a tax year is the next anniversary of the investment date to occur after the end of that year.

No claim after loss of accreditation by the CDFI

356

(1) If the CDFI ceases to be accredited under Chapter 2 with effect from a time... within the 5 year period, no claim for CITR relating to the investment may be made by the investor—

(a) for the relevant tax year, or

(b) for any later tax year.

(2) To find the relevant tax year proceed under the rest of this section, in which references to the time of accreditation ceasing are to the time with effect from which the CDFI ceases to be accredited.

(3) If the time of accreditation ceasing falls within the first year of the 5 year period, the relevant tax year is the year in which the investment date fell.

(4) In any other case the relevant tax year is—

(a) the year in which fell the last anniversary of the investment date before the time of accreditation ceasing, or

(b) if the time of accreditation ceasing itself falls on an anniversary of the investment date, the year in which that anniversary falls.

Attribution

Attribution: general

357

(1) In this Part references to the CITR attributable to any loan, securities or shares in respect of a tax year are read as references to the reduction which—

(a) is made in the investor's liability to income tax for that year, and

(b) is attributed to that loan, or those securities or shares, in accordance with this section and section 358.

This is subject to the provisions of Chapter 6 for the withdrawal or reduction of CITR.

(2) Subsections (3) and (4) apply if the investor's liability to income tax is reduced for a tax year under this Part.

(3) If the reduction is obtained because of one loan, or securities or shares included in one issue, the amount of the tax reduction is attributed to that loan or those securities or shares.

(4) If the reduction is obtained because of a loan or loans, securities or shares included in two or more investments, the reduction—

(a) is apportioned between the loan or loans, securities or shares in each of those investments in the same proportions as the invested amounts in respect of the loan or loans, securities or shares for the year, and

(b) is attributed to that loan or those loans, securities or shares accordingly.

(4A) In the case of CITR under section 335A, in subsection (4)(a) the reference to the year is to be read as a reference to the year mentioned in section 335A(1)(a).

(5) If under this section an amount of any reduction of income tax is attributed to any securities in the same issue, a proportionate part of that amount is attributed to each security.

(6) If under this section an amount of any reduction of income tax is attributed to any shares in the same issue, a proportionate part of that amount is attributed to each of those shares.

(7) If CITR attributable to a loan or any securities or shares falls to be withdrawn under Chapter 6, the CITR attributable to that loan or each of those securities or shares is reduced to nil.

(8) If CITR attributable to any securities or shares falls to be reduced under that Chapter by any amount, the CITR attributable to each of those securities or shares is reduced by a proportionate part of that amount.

Attribution: bonus shares

358

(1) This section applies if—

(a) corresponding bonus shares are issued to the investor in respect of any shares (“the original shares”) included in the investment, and

(b) the original shares have been continuously held by the investor, as sole beneficial owner, from the time they were issued until the issue of the bonus shares.

(2) A proportionate part of any amount attributed to the original shares, in respect of a tax year, immediately before the bonus shares are issued is attributed to each of the shares in the holding consisting of the original shares and the bonus shares, in respect of that year.

(3) After the issue of the bonus shares this Part applies as if—

(a) the original issue had included the bonus shares, and

(b) the bonus shares had been held by the investor, as sole beneficial owner, continuously from the time the original shares were issued until the bonus shares were issued.

(4) In this section—

“corresponding bonus shares” means bonus shares that are in the same company, are of the same class, and carry the same rights as the original shares,

“original issue” means the issue of shares forming the investment.

Chapter 6 — Withdrawal or reduction of CITR

Introduction

Overview of Chapter

359

(1) This Chapter provides for CITR to be withdrawn or reduced under—

(a) section 360 (disposal of loan during 5 year period),

(b) section 361 (disposal of securities or shares during 5 year period),

(d) section 363 (value received by investor during 6 year period: loans),

(e) section 364 (value received by investor during 6 year period: securities or shares),

(f) section 371 (CITR subsequently found not to have been due).

(2) This Chapter also provides for the manner in which CITR is to be withdrawn or reduced (see section 372).

(3) In this Chapter “the 6 year period” in relation to the investment is the period of 6 years beginning 12 months before the investment date.

Disposals

Disposal of loan during 5 year period

360

(1) If the investment consists of a loan and within the 5 year period—

(a) the investor disposes of the whole of the investment, otherwise than by way of a permitted disposal, or

(b) the investor disposes of a part of the investment,

any CITR attributable to the investment in respect of any tax year must be withdrawn.

(2) For the purposes of this section—

(a) a disposal is “permitted” if—

(i) it is by way of a distribution in the course of dissolving or winding up the CDFI,

(ii) it is a disposal within section 24(1) of TCGA 1992 (entire loss, destruction, dissipation or extinction of asset),

(iii) it is a deemed disposal under section 24(2) of that Act (claim that value of asset has become negligible), or

(iv) it is made after the CDFI has ceased to be accredited under this Part, and

(b) a full or partial repayment of the loan is not treated as giving rise to a disposal.

Disposal of securities or shares during 5 year period

361

(1) This section applies if the investment consists of securities or shares and—

(a) the investor disposes of the whole or any part of the investment (“the former investment”) within the 5 year period,

(b) the CDFI has not ceased to be accredited before the disposal, and

(c) the disposal does not arise as a result of an event within section 366(1)(a) (repayment, redemption or repurchase of securities or shares included in the investment).

(2) If the disposal is not a qualifying disposal, any CITR attributable to the former investment in respect of any tax year must be withdrawn.

(3) Subsections (3A) to (3H) apply if—

(a) the disposal is a qualifying disposal, and

(b) the investor has made a claim under section 335 in respect of the former investment for a tax year (“tax year X”).

(3A) Subsection (3B) applies if the total of the following CITR does not exceed A—

(a) any CITR attributable to the former investment in respect of tax year X given under section 335, and

(b) any CITR attributable to the former investment in respect of later tax years given under section 335A where tax year X is the tax year mentioned in section 335A(1)(a).

(3B) All CITR falling within subsection (3A)(a) or (b) must be withdrawn.

(3C) If the total of the CITR falling within subsection (3A)(a) or (b) exceeds A, that total must be reduced by A.

(3D) For the purposes of subsection (3C) CITR given in a later tax year must be reduced before CITR given in an earlier tax year.

(3E) For the purposes of subsections (3A) and (3C) “A” is an amount equal to 5% of the amount or value of the consideration (if any) which the investor receives for the former investment.

(3F) If—

(a) the total of the CITR falling within subsection (3A)(a) or (b)(“B”) is less than

(b) the amount (“C”) which is equal to 5% of the invested amount in respect of the former investment for tax year X,

“A” is to be reduced by multiplying it by the fraction—

$B C$

(3G) If the amount of CITR attributable to the former investment in respect of a tax year has been reduced before the CITR is obtained, the amount referred to in subsection (3F) as B is to be treated for the purposes of that subsection as the amount it would have been without the reduction.

(3H) Subsection (3G) does not apply to a reduction by virtue of section 358 (attribution: bonus shares).

(4) For the purposes of this section “qualifying disposal” means a disposal that is—

(a) by way of a bargain made at arm's length, or

(b) a permitted disposal (within the meaning of section 360).

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

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

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

Repayment of loans

Repayment of loan capital during 5 year period

362

(1) If the investment consists of a loan and—

(a) the average capital balance of the loan for the third, fourth or final year of the 5 year period is less than the permitted balance for the year in question, and

(b) the difference between those balances is not an amount of insignificant value,

any CITR attributable to the investment in respect of any tax year must be withdrawn.

(2) For the purposes of this section—

“the average capital balance” of the loan for a period is the mean of the daily balances of capital outstanding during that period, ignoring any non-standard repayments of the loan made in that period or at any earlier time, and

“the permitted balance” of the loan is—for the third year of the 5 year period, 75% of the average capital balance for the period of 6 months beginning 18 months after the investment date,for the fourth year of that period, 50% of that balance, andfor the final year of that period, 25% of that balance.

(3) For the purposes of subsection (2) a repayment of the loan is a non-standard repayment if subsection (4) or (5) applies.

(4) This subsection applies if the repayment is made at the choice or discretion of the CDFI, and not as a direct or indirect consequence of any obligation provided for under the terms of the loan agreement.

(5) This subsection applies if the repayment is made as a result of the failure of the CDFI to meet any obligation of the loan agreement which—

(a) is imposed merely because of the commercial risks to which the investor is exposed as lender under that agreement, and

(b) is no more likely to be breached than any obligation that might reasonably have been agreed in respect of the loan in the absence of this Part.

(6) For the purposes of this section “an amount of insignificant value” means an amount which—

(a) is not more than £1,000, or

(b) if it is more than £1,000, is insignificant in relation to the average capital balance of the loan for the year of the 5 year period in question.

Receipts of value

Value received by investor during 6 year period: loans

363

(1) This section applies if the investment consists of a loan and the investor receives any value (other than an amount of insignificant value) from the CDFI during the 6 year period.

(2) The investor is treated for the purposes of—

(a) section 337 (determination of “invested amount”), and

(b) section 362 (repayments of loan capital),

as having received a repayment of the loan of an amount equal to the amount of the value received.

(3) For those purposes the repayment is treated as made—

(a) if the value is received in the first or second year of the 6 year period, at the beginning of that second year, and

(b) if the value is received in a later year of that period, at the beginning of the year in question.

(4) For the purposes of section 362 the repayment is treated as a repayment other than a non-standard repayment (within the meaning of that section).

(5) For the purposes of this section “an amount of insignificant value” means an amount of value which—

(a) is not more than £1,000, or

(b) if it is more than £1,000, is insignificant in relation to the average capital balance of the loan for the year of the 6 year period in which the value is received.

(6) For the purposes of subsection (5)(b)—

(a) “the average capital balance” of the loan for a year is the mean of the daily balances of capital outstanding during the year (ignoring the receipt of value in question), and

Reading this document does not replace reading the official text published on legislation.gov.uk. Contains public sector information licensed under the Open Government Licence v3.0. We assume no responsibility for any inaccuracies arising from the conversion of the original CLML XML to this format.

This text is published under legislation.gov.uk's own terms of reuse, not a Legalize or public-domain licence. legislation.gov.uk
Open Government Licence v3.0 (attribution required)
© Crown and database right. Derived from content available under the Open Government Licence v3.0 from legislation.gov.uk.