PART VIIU.K. GENERAL PROVISIONS RELATING TO TAXATION OF INCOME OF INDIVIDUALS

CHAPTER IU.K. PERSONAL RELIEFS

The reliefsU.K.

256 General.U.K.

M1An individual who makes a claim in that behalf or, in the case of relief under section 266, who satisfies the conditions of that section, shall be entitled to such relief as is specified in sections 257 to 274, subject however to the provisions of sections 275 to 278 and [F1287 and 288.]

[F3257 Personal allowance.U.K.

(1)The claimant shall be entitled to a deduction from his total income of [F4£3,005,].

(2)If the claimant proves that he is at any time within the year of assessment of the age of 65 or upwards, he shall be entitled to a deduction from his total income of [F4£3,670] (instead of the deduction provided for by subsection (1) above).

(3)If the claimant proves that he is at any time within the year of assessment of the age of [F575] or upwards, he shall be entitled to a deduction from his total income of [F4£3,820] (instead of the deduction provided for by subsection (1) or (2) above).

(4)For the purposes of subsections (2) and (3) above a person who would have been of or over a specified age within the year of assessment if he had not died in the course of it shall be treated as having been of that age within that year.

(5)In relation to a claimant whose total income for the year of assessment exceeds [F4£12,300], subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by [F5one half] of the excess (but not so as to reduce those amounts below that specified in subsection (1) above).]]

257A Married couple’s allowance.U.K.

(1)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, he shall be entitled to a deduction from his total income of [F7£1,720].

(2)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, and that either of them is at any time within that year of the age of 65 or upwards, he shall be entitled to a deduction from his total income of [F7£2,145] (instead of the deduction provided for by subsection (1) above).

(3)If the claimant proves that for the whole or any part of the year of assessment he is a married man whose wife is living with him, and that either of them is at any time within that year of the age of [F875] or upwards, he shall be entitled to a deduction from his total income of [F7£2,185] (instead of the deduction provided for by subsection (1) or (2) above).

(4)For the purposes of subsections (2) and (3) above a person who would have been of or over a specified age within the year of assessment if he had not died in the course of it shall be treated as having been of that age within that year.

(5)In relation to a claimant whose total income for the year of assessment exceeds [F7£12,300], subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by—

(a)[F8one half] of the excess, less

(b)any reduction made in his allowance under section 257 by virtue of subsection (5) of that section,

(but not so as to reduce amounts so specified below the amount specified in subsection (1) above).

(6)A man shall not be entitled by virtue of this section to more than one deduction for any year of assessment; and in relation to a claim by a man who becomes married in the year of assessment and has not previously in the year been entitled to relief under this section, this section shall have effect as if the amounts specified in subsections (1) to (3) above were reduced by one twelfth for each month of the year ending before the date of the marriage.

257B Transfer of relief under section 257A.U.K.

(1)Where—

(a)a man is entitled to relief under section 257A, but

(b)the amount which he is entitled to deduct from his total income by virtue of that section exceeds what is left of his total income after all other deductions have been made from it,

his wife shall be entitled to a deduction from her total income of an amount equal to the excess.

(2)In determining for the purposes of subsection (1)(b) above the amount that is left of a person’s total income for a year of assessment after other deductions have been made from it, there shall be disregarded any deduction made—

(a)on account of any payments of relevant loan interest which become due in that year and to which section 369 applies, or

(b)under section 289 [F12or

(c)on account of any payments to which section 593(2) or 639(3) applies,][F13or

(d)on account of any payments to which section 54(5) of the Finance Act 1989 applies.]

(3)This section shall not apply for a year of assessment unless the claimant’s husband has given to the inspector written notice that it is to apply; and any such notice—

(a)shall be given not later than six years after the end of the year of assessment to which it relates,

(b)shall be in such form as the Board may determine, and

(c)shall be irrevocable.

257C Indexation of amounts in sections 257 and 257A.U.K.

(1)If the retail prices index for the month of December preceding a year of assessment is higher than it was for the previous December, then, unless Parliament otherwise determines, sections 257 and 257A shall apply for that year as if for each amount specified in them as they applied for the previous year (whether by virtue of this section or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail prices index, and—

(a)if in the case of an amount specified in sections 257(5) and 257A(5) the result is not a multiple of £100, rounding it up to the nearest amount which is such a multiple;

(b)if in the case of any other amount the increase is not a multiple of £10, rounding the increase up to the nearest amount which is such a multiple.

(2)Subsection (1) above shall not require any change to be made in the amounts deductible or repayable under section 203 [F14during the period beginning with 6th April and ending with 17th May in the year of assessment.]

(3)The Treasury shall in each year of assessment make an order specifying the amounts which by virtue of subsection (1) above will be treated as specified for the following year of assessment in sections 257 and 257A.

[F15(4)This section shall have effect in relation to reliefs for the year 1990-91 (as well as for later years);and for that purpose it shall be assumed that sections 257and 257Aapplied for the year 1989-90as they apply, apart from this section, for the year 1990-91.]

257D Transitional relief: husband with excess allowances.U.K.

(1)Where—

(a)a husband and wife are living together for the whole or any part of the year 1990-91 and section 279 (but not section 287) applied in relation to them for the whole or any part of the year 1989-90, and

(b)the deductions which the husband was entitled to make from his total income for the year 1989-90 under this Chapter exceed the aggregate mentioned in subsection (2) below,

the wife shall be entitled to a deduction from her total income for the year 1990-91 of an amount equal to the excess.

(2)The aggregate referred to in subsection (1) above is the aggregate of—

(a)the husband’s total income for the year 1990-91, and

(b)the deductions which the wife is entitled to make from her total income for that year under this Chapter (apart from this section).

(3)Where—

(a)a husband and wife are living together for the whole or any part of the year 1990-91 and for part of the year 1989-90 but section 279 did not apply in relation to them for any part of the year 1989-90, and

(b)the deductions which the husband was entitled to make from his total income for the year 1989-90 under this Chapter, apart from section 257(6), exceed his total income for the year 1990-91,

then, subject to subsection (4) below, the wife shall be entitled to a deduction from her total income for the year 1990-91 of an amount equal to the excess.

(4)If the deductions which the wife is entitled to make from her total income for the year 1990-91 under this Chapter (apart from this section) exceed the lesser of—

(a)her total income for the year 1989-90, and

(b)the deductions which she was entitled to make from her total income for that year under this Chapter, apart from section 259, section 262 and section 280,

the deduction provided for by subsection (3) above shall be reduced by an amount equal to the excess.

(5)Where—

(a)a husband and wife are living together for the whole or any part of the year 1991-92 or any subsequent year of assessment (“the year in question”), and

(b)they were also living together throughout the immediately preceding year of assessment and the wife made a deduction from her total income for that year under this section, and

(c)the deductions which the wife is entitled to make from her total income under this Chapter (apart from this section) are either no greater for the year in question than for the immediately preceding year, or greater by a margin which does not exceed the deduction referred to in paragraph (b) above, and

(d)the deductions which the husband is entitled to make from his total income for the year in question under this Chapter, apart from section 257A and section 265, exceed his total income for that year,

the wife shall be entitled to a deduction from her total income for that year.

(6)The amount of that deduction shall be equal to—

(a)the deduction referred to in subsection (5)(b) above, reduced where applicable by an amount equal to the margin referred to in subsection (5)(c), or

(b)the excess referred to in subsection (5)(d),

whichever is less.

(7)In determining for the purposes of subsection (5)(b) above whether the wife made a deduction from her total income for the immediately preceding year of assessment under this section, and the amount of any such deduction, it shall be assumed that a deduction under this section is made after all other deductions (except any deduction under section 289).

(8)In determining for the purposes of this section a person’s total income for the year of assessment there shall be disregarded any deduction made—

(a)on account of any payments of relevant loan interest which become due in that year and to which section 369 applies, or

(b)under this Chapter or under section 289; [F16or

(c)on account of any payments to which section 593(2) or 639(3) applies,][F17or

(d)on account of any payments to which section 54(5) of the Finance Act 1989 applies]

and in determining for the purposes of subsection (1)(b) above the deductions which a man was entitled to make under this Chapter for the year 1989-90, any application under section 283 shall be disregarded.

(9)This section shall not apply for a year of assessment unless the claimant’s husband has given to the inspector written notice that it is to apply; and any such notice—

(a)shall be given not later than six years after the end of the year of assessment to which it relates,

(b)shall be in such form as the Board may determine, and

(c)shall be irrevocable.

(10)A notice given under subsection (9) above in relation to a year of assessment shall have effect also as a notice under section 257B(3) (and, where it is relevant, under section 265(5)).

257E Transitional relief: the elderly.U.K.

(1)This section shall apply in relation to a claimant for any year of assessment for the whole or any part of which he has his wife living with him if he proves—

(a)that for the year 1989-90 he was entitled to relief by virtue of section 257(2)(a) of this Act (as it had effect for that year) and that his entitlement was due to her age and not to his (he being under the age of 65 throughout that year), or

(b)that for the year 1989-90 he was entitled to relief by virtue of section 257(3)(a) of this Act (as it had effect for that year) and that his entitlement was due to her age and not to his (he being under the age of [F1875] throughout the year),

and, in either case, that the amount of that relief exceeded the aggregate amount of any relief to which he would be entitled for the year 1990-91 under sections 257 and 257A (apart from this section).

(2)Where this section applies, section 257 shall have effect—

(a)in a case within subsection (1)(a) above as if for the amount specified in subsection (1) of that section there were substituted [F19£3,400], and

(b)in a case within subsection (1)(b) above, as if for the amounts specified in subsections (1) and (2) of that section there were substituted [F20£3,540].

(3)Section 257(5) shall have effect in relation to section 257(1) as modified by this section as it has effect in relation to section 257(2) and (3); and in all cases the reference in section 257(5) to the amount specified in section 257(1) is a reference to the amount specified apart from this section.

(4)The references in section 257C to the amounts specified in section 257 are references to the amounts specified apart from this section.

(5)In determining for the purposes of this section the amount of any reliefs to which a person was entitled for the year 1989-90, any application under section 283 shall be disregarded.

257F Transitional relief: separated couples.U.K.

If the claimant proves—

(a)that he and his wife ceased to live together before 6th April 1990 but that ever since they ceased to live together they have continued to be married to one another and she has been wholly maintained by him, and

(b)that he is not entitled to make any deduction in respect of the sums paid for her maintenance in computing for income tax purposes the amount of his income for the year to which the claim relates, and

(c)that he was entitled to a deduction for the year 1989-90 by virtue of section 257(1)(a) of this Act (as it had effect for that year) and, if the claim relates to a year later than 1990-91, that he has been entitled by virtue of this section to a deduction under section 257A for each intervening year,

sections 257A and 257E (but not section 257B or section 257D) shall have effect for the year to which the claim relates as if his wife were living with him.

F21258 Widower’s or widow’s housekeeper.U.K.

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

259 Additional relief in respect of children.U.K.

[F22(1)This section applies to—

(a)any woman who is not throughout the year of assessment married and living with her husband;

(b)any man who is neither married and living with his wife for the whole or any part of the year, nor entitled to a deduction from his total income by virtue of section 257F; and

(c)any man who for the whole or any part of the year is married to and living with a wife who is totally incapacitated by physical or mental infirmity throughout the year.]

(2)M2Subject to subsections (3) [F23to 4(A)] below and to section 260, if the claimant, being a person to whom this section applies, proves in the case of a year of assessment that a qualifying child is resident with him for the whole or part of the year, he shall be entitled to a deduction from his total income of an amount equal to [F24that specified in section 257A(1).]

(3)M3A claimant is entitled to only one deduction under subsection (2) above for any year of assessment irrespective of the number of qualifying children resident with him in that year.

[F24(4)A woman shall not be entitled to relief under this section for a year of assessment during any part of which she is married and living with her husband unless the child in respect of whom the relief is claimed is resident with her during a part of the year when she is not married and living with her husband.]

[F25(4A)Where—

(a)a man and a woman who are not married to each other live together as husband and wife for the whole or any part of a year of assessment, and

(b)apart from this subsection each of them would on making a claim be entitled to a deduction under subsection (2) above,

neither of them shall be entitled to such a deduction except in respect of the youngest of the children concerned (that is to say, the children in respect of whom either would otherwise be entitled to a deduction).]

(5)M4For the purposes of this section a qualifying child means, in relation to any claimant and any year of assessment, a child who—

(a)is born in, or is under the age of 16 years at the commencement of, the year or, being over that age at the commencement of that year, is receiving full-time instruction at any university, college, school or other educational establishment; and

(b)is a child of the claimant or, not being such a child, is born in, or is under the age of 18 years at the commencement of, the year and maintained for the whole or part of that year by the claimant at his own expense.

(6)In subsection (5)(a) above the reference to a child receiving full-time instruction at an educational establishment includes a reference to a child undergoing training by any person (“the employer”) for any trade, profession or vocation in such circumstances that the child is required to devote the whole of his time to the training for a period of not less than two years.

(7)If any question arises under this section whether a child is receiving full-time instruction at an educational establishment, the Board may consult the Secretary of State or the Department of Education for Northern Ireland.

(8)In subsection (5)(b) above the reference to a child of the claimant includes a reference to a stepchild of his, an illegitimate child of his if he has married the other parent after the child’s birth and an adopted child of his if the child was under the age of 18 years when he was adopted.

(9)Notwithstanding anything in section 9 of the M5Family Law Reform Act 1969 or section 5 of the M6Age of Majority Act (Northern Ireland) 1969 or any rule of law in Scotland, for the purposes of subsection (5) above a child whose birthday falls on 6th April shall be taken to be over the age of 16 at the commencement of the year which begins with his 16th birthday and over the age of 18 at the commencement of the year which begins with his 18th birthday.

260 Apportionment of relief under section 259.U.K.

M7(1)Where for any year of assessment two or more individuals are entitled to relief under section 259 in connection with the same child—

(a)the amount referred to in subsection (2) of that section shall be apportioned between them; and

(b)the deduction to which each of them is entitled under that section shall, subject to subsection (2) below, be equal to so much of that amount as is apportioned to him.

(2)Where for any year of assessment amounts are apportioned to an individual under this section in respect of two or more children, the deduction to which he is entitled for that year under section 259 shall be equal to the sum of those amounts or the amount referred to in subsection (2) of that section, whichever is the less.

(3)Any amount required to be apportioned under this section shall be apportioned between the individuals concerned in such proportions as may be agreed between them or, in default of agreement, in proportion to the length of the periods for which the child in question is resident with them respectively in the year of assessment; and where the proportions are not so agreed, the apportionment shall be made by such body of General Commissioners, being the General Commissioners for a division in which one of the individuals resides, as the Board may direct, or, if none of the individuals resides in [F26the United Kingdom], by the Special Commissioners.

(4)Where a claim is made under section 259 and it appears that, if the claim is allowed, an apportionment will be necessary under this section, the Board may if they think fit direct that the claim itself shall be dealt with by any specified body of Commissioners which could under this section be directed to make the apportionment and that the same Commissioners shall also make any apportionment which proves to be necessary; and where a direction is given under this subsection no other body of Commissioners shall have jurisdiction to determine the claim.

(5)The Commissioners making any apportionment under this section shall hear and determine the case in like manner as an appeal, but any individual who is, or but for the provisions of this section would be, entitled to relief in connection with the child shall be entitled to appear and be heard by the Commissioners or to make representations to them in writing.

(6)For the purposes of this section an individual shall not be regarded as entitled to relief under section 259 for any year of assessment in connection with the same child as another individual if there is another child in connection with whom he, and he alone, is entitled to relief under that section for that year.

[F27261 Claims under section 259 for year of marriage.U.K.

A man (but not a woman) who becomes married during a year of assessment may by notice to the inspector elect that his marriage shall be disregarded for the purposes of any claim that he makes for that year under section 259, and, in that case, the marriage shall also be disregarded for the purposes of any claim that he makes for that year under section 257A.]

[F29262 Widow’s bereavement allowance.U.K.

Where a married man whose wife is living with him dies, his widow shall be entitled—

(a)for the year of assessment in which the death occurs, to a deduction from her total income of an amount equal to the amount specified in section 257A(1) for that year, and

(b)(unless she marries again before the beginning of it) for the next following year of assessment, to a deduction of an amount equal to the amount specified in section 257A(1) for that year.]

F30263 Dependent relatives.U.K.

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

F31264 Claimant depending on services of a son or daughter.U.K.

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

[F32265 Blind person’s allowance.U.K.

(1)If the claimant proves that he is a registered blind person for the whole or any part of the year of assessment, he shall be entitled to a deduction of [F33£1,080] from his total income.

(2)Where—

(a)a person entitled to relief under subsection (1) above is a married man whose wife is living with him for the whole of any part of the year of assessment, but

(b)the amount which he is entitled to deduct from his total income by virtue of that subsection exceeds what is left of his total income after all other deductions have been made from it,

his wife shall be entitled to a deduction from her total income of an amount equal to the excess.

(3)In determining for the purposes of subsection (2)(b) above the amount that is left of a person’s total income for a year of assessment after other deductions have been made from it, there shall be disregarded any deduction made—

(a)on account of any payments of relevant loan interest which becomes due in that year and to which section 369 applies, or

(b)under section 257A or section 289 [F34or

(c)on account of any payments to which section 593(2) or 639(3) applies,][F35or

(d)on account of any payments to which section 54(5) of the Finance Act 1989 applies.]

(4)Subsections (2) and (3) above shall have effect where a wife is entitled to relief under subsection (1) above as they have effect where the husband is entitled to that relief, but with the appropriate modifications (and in particular the omission from subsection (3) of the reference to section 257A).

(5)Subsections (2) to (4) above shall not apply for a year of assessment unless the person entitled to relief under subsection (1) has given to the inspector written notice that they are to apply; and any such notice—

(a)shall be given not later than six years after the end of the year of assessment to which it relates,

(b)shall be in such form as the Board may determine, and

(c)shall be irrevocable.

(6)A notice given under subsection (5) above in relation to a year of assessment by a husband shall have effect also as a notice under section 257B(3).

(7)In this section “registered blind person” means a person registered as a blind person in a register compiled under section 29 of the National Assistance Act 1948 or, in the case of a person ordinarily resident in Scotland or Northern Ireland, a person who is a blind person within the meaning of section 64(1) of that Act].

266 Life assurance premiums.U.K.

(1)M8Subject to the provisions of this section, sections 274 and 619(6) and Schedules 14 and 15, an individual who pays any such premium as is specified in subsection (2) below or makes a payment falling within subsection (7) below shall (without making any claim) be entitled to relief under this section.

(2)M9The premiums referred to in subsection (1) above are any premiums paid by an individual under a policy of insurance or contract for a deferred annuity, where—

(a)the payments are made to —

(i)any insurance company legally established in the United Kingdom or any branch in the United Kingdom of an insurance company lawfully carrying on in the United Kingdom life assurance business (as defined in section 431); or

(ii)underwriters being members of Lloyd’s who comply with the requirements set forth in section 83 of the M10Insurance Companies Act 1982; or

(iii)a registered friendly society; or

(iv)in the case of a deferred annuity, the National Debt Commissioners; and

(b)the insurance or, as the case may be, the deferred annuity is on the life of the individual or on the life of his spouse; and

(c)the insurance or contract was made by him or his spouse.

(3)Subject to subsections (7), (10) and (11) below, no relief under this section shall be given—

(a)M11except in respect of premiums payable under policies for securing a capital sum on death, whether in conjunction with any other benefit or not;

(b)M12in respect of premiums payable under any policy issued in respect of an insurance made after 19th March 1968 unless the policy is a qualifying policy;

(c)M13in respect of premiums payable under any policy issued in respect of an insurance made after 13th March 1984, except where the relief relates to part only of any such payment as falls within subsection (6) below;

(d)M14in respect of premiums payable during the period of deferment in respect of a policy of deferred assurance.

(4)M15Subject to subsections (6) to (8) below, relief under this section in respect of any premiums paid by an individual in a year of assessment shall be given by making good to the person to whom they are paid any deficiency arising from the deductions authorised under subsection (5) below; and this section and Schedule 14 shall have effect in relation to any premium or part of a premium which is paid otherwise than in the year of assessment in which it becomes due and payable as if it were paid in that year.

(5)Subject to the provisions of Schedule 14—

(a)an individual resident in the United Kingdom who is entitled to relief under this section in respect of any premium may deduct from any payment in respect of the premium and retain an amount equal to [F3612.5 per cent.] of the payment; and

(b)the person to whom the payment is made shall accept the amount paid after the deduction in discharge of the individual’s liability to the same extent as if the deduction had not been made and may recover the deficiency from the Board.

(6)M16Where—

(a)a person is entitled to relief under this section in respect of part only of a payment made to a registered friendly society; and

(b)the insurance or contract was made by the society in the course of tax exempt life or endowment business (as defined in section 466(2)),

subsection (4) above shall not apply with respect to that relief but there shall be deducted from his total income an amount equal to one-half of that part of the payment.

(7)M17Where a person makes a payment to a trade union as defined in section 28(1) of the M18Trade Union and Labour Relations Act 1974, and part of that payment is attributable to the provision of superannuation, life insurance or funeral benefits, he shall be entitled to relief under this section in respect of that part of the payment, but—

(a)subsection (4) above shall not apply; and

(b)there shall be deducted from his total income an amount equal to one-half of that part of the payment.

(8)M19Where the individual is not resident in the United Kingdom but is entitled to relief by virtue of section 278(2), subsection (4) above shall not apply but (subject to section 278(3)) the like relief shall be given to him under paragraph 6 of Schedule 14.

(9)M20Subsections (5) and (8) above shall apply in relation to an individual who is not resident in the United Kingdom but is a member of the armed forces of the Crown or the [F37spouse] of such a member as if the individual were so resident.

(10)M21Subsection (3)(b) above shall not apply—

(a)to any policy of life insurance having as its sole object the provision on an individual’s death or disability of a sum substantially the same as any amount then outstanding under a mortgage of his residence, or of any premises occupied by him for the purposes of a business, being a mortgage the principal amount secured by which is repayable by instalments payable annually or at shorter regular intervals; or

(b)to any policy of life insurance issued in connection with an approved scheme as defined in Chapter I of Part XIV.

(11)M23Subsection (3)(a) and (d) above shall not affect premiums payable—

(a)under policies or contracts made in connection with any superannuation or bona fide pension scheme for the benefit of the employees of any employer, or of persons engaged in any particular trade, profession, vocation or business, or for the benefit of the [F38spouse, widow, widower or children or other dependants of any such employee or person,] or

(b)under policies taken out by teachers in the schools known in the year 1918 as secondary schools, pending the establishment of a superannuation or pension scheme for those teachers.

(12)Schedule 14 shall have effect for the purpose of modifying, for certain cases, and supplementing the provisions of this section.

267 Qualifying policies.U.K.

Schedule 15, Part I of which contains the basic rules for determining whether or not a policy is a qualifying policy, Part II of which makes provision for the certification etc. of policies as qualifying policies and Part III of which modifies Parts I and II in their application to certain policies issued by non-resident companies, shall have effect for the purpose of determining whether or not a policy is a qualifying policy; and, accordingly, any reference in this Act to a qualifying policy shall be construed in accordance with that Schedule.

268 Early conversion or surrender of life policies.U.K.

M24(1)Where a policy of life insurance to which this section applies has been issued and, within four years from the making of the insurance in respect of which it was issued, any of the following events happens, that is to say—

(a)the surrender of the whole or part of the rights conferred by the policy;

(b)the falling due (otherwise than on death) of a sum payable in pursuance of a right conferred by the policy to participate in profits; and

(c)the conversion of the policy into a paid-up or partly paid-up policy;

the body by whom the policy was issued shall pay to the Board, out of the sums payable by reason of the surrender or, as the case may be, out of the sum falling due or out of the fund available to pay the sums which will be due on death or on the maturity of the policy, a sum determined in accordance with the following provisions of this section, unless the body is wound up and the event is a surrender or conversion effected in connection with the winding-up.

(2)The sum payable under subsection (1) above shall, subject to the following provisions of this section, be equal to the lower of the following, that is to say—

(a)the appropriate percentage of the premiums payable under the policy up to the happening of the event; and

(b)the surrender value of the policy at the time of the happening of the event less the complementary percentage of the premiums mentioned in paragraph (a) above.

(3)If the event is one of those mentioned below, the sum payable to the Board shall not exceed the following limit, that is to say—

(a)if it is the surrender of part of the rights conferred by the policy, the value of the rights surrendered at the time of the surrender;

(b)if it is the conversion of the policy into a partly paid-up policy, the surrender value at the time of the conversion, of so much of the policy as is paid up; and

(c)if it is the falling due of a sum, that sum.

(4)If the event was preceded by the happening of such an event as is mentioned in subsection (1) above, subsection (2) above shall apply—

(a)as if the lower of the amounts mentioned therein were reduced by the sum paid under this section in respect of the earlier event; and

(b)if the earlier event was such an event as is mentioned in paragraph (a) or (c) of subsection (3) above, as if the surrender value of the policy were increased by the amount which, under that paragraph, limited or might have limited the sum payable under this section in respect of the earlier event.

(5)For the purposes of this section the appropriate percentage, in relation to any event, is the percentage equal to the following fraction of the percentage found by doubling that mentioned in section 266(5)(a) as in force for the year of assessment in which the event happened, that is to say—

(a)if the event happens in the first two of the four years mentioned in subsection (1) above, three-sixths;

(b)if it happens in the third of those years, two-sixths; and

(c)if it happens in the last of those years, one-sixth;

and the complementary percentage, in relation to any event, is 100 per cent. less the appropriate percentage.

(6)Where the annual amount of the premiums payable under a policy of life insurance is at any time increased (whether under the policy or by any contract made after its issue) so as to exceed by more than 25 per cent.—

(a)if the insurance was made on or before 26th March 1974, the annual amount as at that date, or

(b)in the case of any other insurance, the first annual amount so payable,

the additional rights attributable to the excess shall be treated for the purposes of this section as conferred by a new policy issued in respect of an insurance made at that time, and the excess shall be treated as premiums payable under the new policy.

(7)This section applies to any policy of life insurance which is a qualifying policy unless—

(a)it is a policy in respect of the premiums on which relief under section 266 is not available by virtue of subsection (3)(c) of that section; or

(b)it is a policy of life insurance issued in connection with an approved scheme, as defined in Chapter I of Part XIV;

and in relation to a policy of life insurance issued in respect of an insurance made before 27th March 1974 applies only in accordance with subsection (6) above.

269 Surrender etc. of policies after four years.U.K.

M25(1)Where a policy of life insurance to which this section applies has been issued and, in the fifth or any later year from the making of the insurance in respect of which it was issued, either of the following events happens, that is to say—

(a)the surrender of the whole or part of the rights conferred by the policy; and

(b)the falling due (otherwise than on death or maturity) of a sum payable in pursuance of a right conferred by the policy to participate in profits;

then, if either of those events has happened before, the body by whom the policy was issued shall pay to the Board, out of the sums payable by reason of the surrender, or, as the case may be, out of the sum falling due, a sum determined in accordance with the following provisions of this section.

(2)The sum payable under subsection (1) above shall, subject to the following provisions of this section, be equal to the applicable percentage of the lower of the following—

(a)the total of the premiums which are payable in that year under the policy; and

(b)the sums payable by reason of the surrender or, as the case may be, the sum falling due;

and the percentage to be applied for this purpose shall be a percentage equal to that mentioned in section 266(5)(a) as in force for the year of assessment in which the event happens.

(3)Where, after a sum has become payable under subsection (1) above, and within the same year from the making of the insurance, another such event happens as is mentioned therein, the sums payable under that subsection in respect of both or all of the events shall not exceed the applicable percentage of the total mentioned in subsection (2)(a) above.

(4)Where, on the happening of an event in the fifth or any later year from the making of the insurance, any sum is payable under subsection (1) of section 268 as applied by subsection (6) of that section as well as under subsection (1) above, subsection (2) above shall apply as if the sums or sum mentioned in paragraph (b) thereof were reduced by the sum payable under that section.

(5)This section applies to any policy of life insurance which is a qualifying policy unless—

(a)it is a policy in respect of the premiums on which relief under section 266 is not available by virtue of subsection (3)(c) of that section; or

(b)it is a policy issued in the course of an industrial insurance business; or

(c)it was issued in respect of an insurance made before 27th March 1974.

270 Provisions supplementary to sections 268 and 269.U.K.

M26(1)Where on the happening of an event in relation to a policy of life insurance a sum is payable under section 268 or 269, relief under section 266 in respect of the relevant premiums paid under the policy shall be reduced by the sum so payable or, as the case may be, by so much of the sum as does not exceed the amount of that relief (or as does not exceed so much of that amount as remains after any previous reduction under this section).

(2)For the purposes of this section the relevant premiums are—

(a)in relation to a sum payable under section 268, the premiums payable under the policy up to the happening of the event by reason of which the sum is payable; and

(b)in relation to a sum payable under section 269, the premiums payable in the year (from the making of the insurance) in which the event happens by reason of which the sum is payable.

(3)Where the relevant premiums are payable in more than one year of assessment the reduction in relief under this section shall, so far as possible, reduce relief for an earlier year of assessment before reducing relief for a later one.

(4)Any sum paid under section 268 or 269 by reason of any event shall be treated—

(a)as between the parties, as received by the person by whom the premiums under the policy were paid; and

(b)for the purposes of section 266, as a sum paid by that person in satisfaction of his liability resulting from the reduction of relief under this section;

and where that sum exceeds that liability he shall be entitled, on a claim made by him not later than six years after the end of the year of assessment in which the event happens, to repayment of the excess.

271 Deemed surrender in cases of certain loans.U.K.

M27(1)Where—

(a)under section 547 a gain arising in connection with a policy F40. . . would be treated as forming part of an individual’s total income; and

(b)the policy was issued in respect of an insurance made after 26th March 1974 F41. . .; and

(c)any sum is at any time after the making of the insurance F40. . . lent to or at the direction of that individual by or by arrangement with the body issuing the policy F42. . .;

then, subject to subsection (2) below, the same results shall follow under sections 268 to 270 as if at the time the sum was lent there had been a surrender of part of the rights conferred by the policy F40. . . and the sum had been paid as consideration for the surrender (and if the policy is a qualifying policy, whether or not the premiums under it are eligible for relief under section 266, those results shall follow under section 269, whether or not a gain would be treated as arising on the surrender).

(2)Subsection (1) above does not apply—

(a)in relation to a policy if—

(i)it is a qualifying policy; and

(ii)either interest at a commercial rate is payable on the sum lent or the sum is lent to a full-time employee of the body issuing the policy for the purpose of assisting him in the purchase or improvement of a dwelling used or to be used as his only or main residence; F43. . .

F43(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

272 Collection of sums payable under sections 268 and 269.U.K.

M28(1)Any body by whom a policy to which section 268 or 269 applies has been issued shall, within 30 days of the end of each period of 12 months ending with 31st March in every year, make a return to the collector of the sums which, in that period, have become payable by it under either of those sections.

(2)Any sum which is to be included in a return made under subsection (1) above shall be due at the time by which the return is to be made and shall be paid without being demanded.

(3)Where any sum which was or ought to have been included in such a return is not paid by the end of the period for which the return was to be made, it may be recovered by an assessment as if it were income tax for the year of assessment in which that period ends; and where it appears to the inspector that a sum which ought to have been so included had not been included or that a return is not correct he may make such an assessment to the best of his judgment.

(4)All the provisions of the Income Tax Acts relating to the assessment and collection of tax, interest on unpaid tax, appeals and penalties shall, with the necessary modifications, apply in relation to sums due under this section; and for the purposes of those provisions so far as they relate to interest on unpaid tax, a sum assessed in pursuance of this section shall be treated as having been payable when it would have been payable had it been included in a return under subsection (1) above.

(5)Where, on an appeal against an assessment made in pursuance of this section, it is determined that a greater sum has been assessed than was payable, the excess, if paid, shall be repaid.

(6)Where a body has paid a sum which is payable under section 268 or 269 it shall give within 30 days to the person by whom the sum is, under section 270(4), treated as received a statement specifying that sum and showing how it has been arrived at.

(7)The Board or an inspector may, by notice served on the body by whom a policy to which section 268 or 269 applies has been issued, require the body, within such time, not being less than 30 days, as may be specified in the notice—

(a)to furnish such particulars; or

(b)to make available for inspection by an officer authorised by the Board such books and other documents in the possession or under the control of the body;

as the Board or officer may reasonably require for the purposes of those sections or this section.

[F44273 Payments securing annuities.U.K.

Subject to sections 274, 617(3) and 619(6), if the claimant is, under any Act of Parliament or under any terms and conditions of employment, liable to the payment of any sum, or to the deduction from any salary or stipend of any sum, for the purpose of securing a deferred annuity to a widow or widower of the claimant or provision for the claimant’s children after the claimant dies, the claimant shall be entitled to a deduction from the amount of income tax on which he or she is chargeable equal to income tax at the basic rate on the amount of the sum which he or she has paid or which has been deducted from his or her salary or stipend.]

274 Limits on relief under sections 266 and 273.U.K.

(1)M29The aggregate of the premiums or other sums in respect of which relief is given to any person under section 266 shall not exceed £1,500 in any year of assessment or one-sixth of that person’s total income, whichever is the greater.

(2)M30The aggregate of the relief given under sections 266 and 273 in respect of premiums or sums payable for securing any benefits other than capital sums on death shall not exceed the amount of the income tax calculated at the appropriate rate on £100.

(3)M31In subsection (2) above “the appropriate rate”—

(a)in relation to premiums to which section 266 applies, means [F4512.5 per cent.];

(b)in relation to other payments, means the basic rate of income tax.

(4)M32War insurance premiums shall not be taken into account in calculating the limits of one-sixth of total income or of £100 mentioned in this section.

SupplementalU.K.

F46275 Meaning of “relative”.U.K.

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

276 Effect on relief of charges on income.U.K.

M33(1)Where any of the claimant’s income is income the income tax on which (at the basic rate) he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment, he shall not be entitled to relief under this Chapter in respect of that income, except to the extent, if any, that the relief would exceed tax at the basic rate on that income.

(2)Notwithstanding subsection (1) above, relief under section 273 may be given to the extent that the deduction from tax provided for by that section can be made from so much of the income tax with which the claimant is chargeable as exceeds what would be the amount of that tax if all income tax were chargeable at the basic rate to the exclusion of any other rate.

277 Partners.U.K.

M34(1)Subject to subsection (2) below, the following persons having joint interests, that is to say—

(a)coparceners, joint tenants, or tenants in common of the profits of any property, and

(b)joint tenants, or tenants of land or tenements in partnership, being in the actual and joint occupation thereof in partnership, who are entitled to the profits thereof in shares, and

(c)partners carrying on a trade, profession or vocation together who are entitled to the profits thereof in shares,

may claim any relief under this Chapter according to their respective shares and interests, and any such claims which are proved may be dealt with in the same manner as in the case of several interests.

(2)The income of a partner from a partnership carrying on any trade, profession or vocation shall be deemed to be the share to which he is entitled during the year to which the claim relates in the partnership profits, such profits being estimated according to the provisions of the Income Tax Acts.

278 Non-residents.U.K.

(1)M35Subject to the provisions of this section, no relief under this Chapter shall be given in the case of any individual who is not resident in the United Kingdom.

(2)Subject to subsection (3)belowF47, subsection (1) above shall not apply in the case of any individual who satisfies the Board that he or she—

(a)is a Commonwealth citizen or a citizen of the Republic of Ireland; or

(b)is a person who is or who has been employed in the service of the Crown, or who is employed in the service of any missionary society or in the service of any territory under Her Majesty’s protection; or

(c)is resident in the Isle of Man or the Channel Islands; or

(d)has previously resided within the United Kingdom, and is resident abroad for the sake of his or her health, or the health of a member of his or her family resident with him or her; or

(e)is a widow whose late husband [F48, or a widower whose late wife] was in the service of the Crown.

[F48(2A)Notwithstanding subsection (2) above, no relief shall be given under section 257D in a case where the husband is not resident in the United Kingdom.]

(3)No relief under this Chapter shall be given so as to reduce the amount of the income tax payable by the individual below the amount which results from applying the fraction—

Ais the amount of his income subject to income tax charged in the United Kingdom; and

Bis the amount of his total incomeF49.

(4)M36Subsection (3)above shall have effect as if the amount of any relief to which an individual is entitled under section 266(4)were an amount by which his liability to income tax is reducedF48.

(5)M37For the purposes of subsection (3)above as it applies to an individual whose income includes income eligible for double taxation relief—

(a)in computing the amount of the income tax payable by the individual, the tax chargeable in respect of the income eligible for double taxation relief shall be disregarded;

(b)in computing the amount of his income subject to income tax charged in the United Kingdom, the income eligible for double taxation relief shall be disregarded; and

(c)in computing his total income from all sources, including income which is not subject to income tax charged in the United Kingdom, income eligible for double taxation relief shall be included, and the income tax which would be chargeable on that total income shall be computed without regard to the double taxation relief available in respect of the income eligible for double taxation relief;

and, accordingly, where this subsection applies, the amount of the tax chargeable in respect of the income eligible for double taxation relief shall not be affected by subsections (2)and (3)aboveF49.

(6)Subsection (5)shall not operate so as to make the tax payable by an individual for a year of assessment higher than it would have been if the double taxation relief had not been availableF49.

(7)In subsection (5)above “income eligible for double taxation relief” means any dividends, interest, royalties or other profits which are chargeable to income tax but in respect of which relief (other than credit) is available under an Order in Council under section 788so as to limit the rate of income tax so chargeable (but not so as to confer an exemption and make it income which is not subject to income tax charged in the United Kingdom)F49.

(8)Any claim which an individual is entitled to make by virtue of subsection (2) above shall be made to the Board.

CHAPTER IIU.K. TAXATION OF INCOME OF SPOUSES

General rulesU.K.

F50279 Aggregation of wife’s income with husband’s.U.K.

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

F51280 Transfer of reliefs.U.K.

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

F52281 Tax repayments to wives.U.K.

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

[F53282 Construction of references to husband and wife living together. U.K.

A husband and wife shall be treated for income tax purposes as living together unless—

(a)they are separated under an order of a court of competent jurisdiction, or by deed of separation, or

(b)they are in fact separated in such circumstances that the separation is likely to be permanent.].

[F54282A Jointly held property.U.K.

(1)Subject to the following provisions of this section, income arising from property held in the names of a husband and his wife shall for the purposes of income tax be regarded as income to which they are beneficially entitled to equal shares.

(2)Subsection (1) above shall not apply to income to which neither the husband nor the wife is beneficially entitled.

(3)Subsection (1) above shall not apply to income—

(a)to which either the husband or the wife is beneficially entitled to the exclusion of the other, or

(b)to which they are beneficially entitled in unequal shares,

if a declaration relating to it has effect under section 282B.

(4)Subsection (1) above shall not apply to—

(a)earned income, or

(b)income which is not earned income but to which section 111 applies.

(5)Subsection (1) above shall not apply to income to which the husband or the wife is beneficially entitled if or to the extent that it is treated by virtue of any other provision of the Income Tax Acts as the income of the other of them or of a third party.

(6)References in this section to a husband and his wife are references to a husband and wife living together.]

282B Jointly held property: declarations.U.K.

(1)The declaration referred to in section 282A (3) is a declaration by both the husband and the wife of their beneficial interests in—

(a)the income to which the declaration relates, and

(b)the property from which that income arises.

(2)Subject to the following subsections, a declaration shall have effect under this section in relation to income arising on or after the date of the declaration; but a declaration made before 6th June 1990 shall also have effect in relation to income arising before that date.

(3)A declaration shall not have effect under this section unless notice of it is given to the inspector, in such form and manner as the Board may prescribe, within the period of 60 days beginning with the date of the declaration.

(4)A declaration shall not have effect under this section in relation to income from property if the beneficial interests of the husband and the wife in the property itself do not correspond to their beneficial interests in the income.

(5)A declaration having effect under this section shall continue to have effect unless and until the beneficial interests of the husband and wife in either the income to which it relates, or the property from which the income arises, cease to accord with the declaration.

Separate assessmentsU.K.

F55283 Option for separate assessment.U.K.

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

F56284 Effect of separate assessment on personal reliefs.U.K.

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

F57285 Collection from wife of tax assessed on husband but attributable to her income.U.K.

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

F58286 Right of husband to disclaim liability for tax on deceased wife’s income.U.K.

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

Separate taxationU.K.

F59287 Separate taxation of wife’s earnings.U.K.

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

288 Elections under section 287.U.K.

M38(1)An election under section 287 (“an election”)must be made in such form and manner as the Board may prescribe and must be made not earlier than six months before the beginning of the year of assessment for which it is made nor later than 12months after the end of that year or such later time as the Board may in any particular case allow.

(2)An election for any year of assessment shall, unless revoked, have effect for any subsequent year of assessment.

(3)An election in force for any year may be revoked by notice in such form and manner as the Board may prescribe and any such notice must be given jointly by the husband and the wife not later than 12months after the end of that year or such later time as the Board may in any particular case allow.

(4)An election or revocation of an election under this section that could have been made jointly with a person who has died may, within the time permitted by this section, be made jointly with his personal representatives F60.

CHAPTER IIIU.K. RELIEF FOR INVESTMENT IN CORPORATE TRADES: THE BUSINESS EXPANSION SCHEME

289 The relief.U.K.

(1)This Chapter has effect for affording relief from income tax where an individual who qualifies for the relief subscribes for eligible shares in a qualifying company, and either—

(a)M39those shares are issued to him after 5th April 1983 for the purpose of raising money for a qualifying trade which is being carried on by the company or which it intends to carry on; or

(b)M40those shares are issued to him after 18th March 1986 for the purpose of raising money—

(i)for research and development which is being carried on by the company or by any subsidiary of the company on the date on which the shares are issued, or begins so to be carried on immediately thereafter, and from which it is intended that a qualifying trade (to be so carried on) will be derived; or

(ii)both for any such research and development and the resulting trade; or

(c)M41those shares are issued to him after 5th April 1985 and before 19th March 1986 for the purpose of raising money—

(i)for research and development which is being carried on at the time when the shares are issued, or begins immediately thereafter, and from which the company intends to derive a qualifying trade which will be carried on by it; or

(ii)both for any such research and development and the resulting trade; or

(d)M42those shares are issued to him after the passing of the Finance Act 1986 (25th July 1986) for the purpose of raising money for oil exploration which—

(i)is being carried on by the company, or by any subsidiary of the company, on the date on which the shares are issued; or

(ii)begins so to be carried on immediately thereafter; and from which it is intended that a qualifying trade (to be so carried on) will be derived.

(2)M43Subsection (1)(d) above shall not apply unless—

(a)throughout the period of three years beginning with the date on which the shares were issued the company, or any subsidiary of the company, holds an exploration licence which was granted to it, or to another such subsidiary;

(b)the exploration is carried out solely within the area to which the licence applies; and

(c)on the date on which the shares are issued, neither the company nor any subsidiary of the company holds an appraisal licence or a development licence relating to that area or any part of that area.

(3)M44Where, at any time after the issue of the shares but before the end of the period mentioned in subsection (2)(a) above, the company, or any subsidiary of the company, comes to hold an appraisal licence or development licence which relates to the area, or any part of the area, to which the exploration licence relates, the exploration licence and that other licence shall be treated for the purposes of subsection (2)(a) above as a single exploration licence.

(4)M45In this Chapter “eligible shares” means new ordinary shares which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future preferential right to be redeemed.

(5)Subject to subsection (6) below, the relief in respect of the amount subscribed by an individual for any eligible shares shall be given as a deduction of that amount from his total income for the year of assessment in which the shares are issued, and references in this Chapter to the amount of the relief are references to the amount of that deduction.

(6)M46If—

(a)the shares are issued before 6th October in a year of assessment; and

(b)the claimant so requests in his claim for relief;

the relief shall be given partly by way of deduction from the claimant’s total income for the year of assessment in which the shares are issued and partly by way of deduction from his total income for the preceding year of assessment.

(7)A deduction from the claimant’s total income for the year of assessment preceding that in which the shares are issued shall be of such amount as may be specified in the claim; but

(a)that amount shall not exceed one half of the total relief in respect of the shares; and

(b)the aggregate of that amount and the amounts of any other deductions made by virtue of subsection (6) above from the claimant’s total income for the year of assessment preceding that in which the shares are issued shall not exceed £5,000.

(8)The relief shall be given on a claim and shall not be allowed—

(a)M47in a case falling within subsection (1)(a)—

(i)unless and until the company has carried on the trade for four months; and

(ii)if the company is not carrying on that trade at the time when the shares are issued, unless the company begins to carry it on within two years after that time;

(b)M48in a case falling within subsection (1)(b) or (c) unless and until the company or (as the case may be) the subsidiary has carried on the research and development for four months;

(c)M49in a case falling within subsection (1)(d) unless and until the company has carried on the exploration for four months.

(9)M50A claim for relief may be allowed—

(a)under subsection (1)(a), (c) or (d) at any time after the trade, the research and development or the exploration (as the case may be) has been carried on by the company for four months;

(b)under subsection (1)(b) at any time after the research and development has been carried on for four months;

if the conditions for the relief are then satisfied.

(10)M51In the case of a claim allowed before the end of the relevant period, the relief shall be withdrawn if by reason of any subsequent event it appears that the claimant was not entitled to the relief allowed.

(11)M52An individual is not entitled to relief in respect of any shares unless the shares are subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose, or one of the main purposes of which, is the avoidance of tax.

(12)M53In this Chapter “the relevant period”, in relation to relief in respect of any eligible shares issued by a company, means—

(a)as respects sections 291, 299, 300, 302 and 303, the period beginning with the incorporation of the company (or, if the company was incorporated more than two years before the date on which the shares were issued, beginning two years before that date) and ending five years after the issue of the shares; and

(b)as respects [F61sections 290A, 293], 294, 297, 308 and 309, the period beginning with the date on which the shares were issued and ending either—

(i)three years after that date; or

(ii)in a case falling within subsection (1)(a), where the company was not at that date carrying on a qualifying trade, three years after the date on which it subsequently began to carry on such a trade.

(13)M54Where by reason of its being wound up, or dissolved without winding up, the company carries on the qualifying trade for a period shorter than four months, subsection (8)(a) above shall have effect as if it referred to that shorter period but only if it is shown that the winding up or dissolution was for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

(14)M55The relief shall be treated for the purposes of section 835(5) as a deduction to be made under Chapter I of this Part after all other deductions under that Chapter and shall be disregarded for the purposes of calculating relief under section 550(2),paragraph 3of Schedule 2 F62 and paragraphs 4 and 16 of Schedule 11 where an election has effect under paragraph 12 of that Schedule.

(15)Where effect is given to a claim for relief by repayment of tax, section 824 shall have effect in relation to the repayment as if the time from which the 12 months mentioned in subsections (1)(b) and (3)(a) of that section are to be calculated were the end of the year of assessment in which the shares are issued or, if the period mentioned in subsection (8)(a) above ends in a later year, the end of that later year.

290 Minimum and maximum subscriptions.U.K.

M56(1)Subject to section 311(3), the relief shall not be given in respect of any amount subscribed by an individual for eligible shares issued to him by any company in any year of assessment unless the amount or total amount subscribed by him for the eligible shares issued to him by the company in that year is £500 or more.

(2)No more than £40,000 may be deducted by way of relief under section 289 from the total income of an individual for a year of assessment.

[F65290A Restriction of relief where amounts raised exceed permitted maximum.U.K.

(1)Where—

(a)a company raises any amount through the issue of eligible shares after 15th March 1988; and

(b)the aggregate of that amount and of all other amounts (if any) so raised within the period mentioned in subsection (2) below exceeds [F66£750,000].

the relief shall not be given in respect of the excess.

(2)The period referred to in subsection (1) above is—

(a)the period of 6 months ending with the date of the issue of the shares; or

(b)the period beginning with the preceding 6th April and ending with the date of that issue,

whichever is the longer.

(3)In determining the aggregate mentioned in subsection (1) above, no account shall be taken of any amount—

(a)which is subscribed by a person other than an individual who qualifies for relief; or

(b)as respects which relief is precluded by section 290 or this section.

(4)Where—

(a)at any time within the relevant period, the company in question or any of its subsidiaries carries on any trade or part of a trade in partnership, or as a party to a joint venture, with one or more other persons; and

(b)that other person, or at least one of those other persons, is a company,

the reference to [F67£750,000] in subsection (1) above shall have effect as if it were a reference to—

(5)Where this section precludes the giving of relief on claims in respect of shares issued to two or more individuals, the available relief shall be divided between them in proportion to the amounts which have been respectively subscribed by them for the shares to which their claims relate and which would, apart from this section, be eligible for relief.

(6)Where—

(a)in the case of a company falling within subsection (2)(a) of section 293, the qualifying trade or each of the qualifying trades is a trade to which subsection (7) below applies;

(b)in the case of a company falling within subsection (2)(b)(i) of that section, the subsidiary or each of the subsidiaries is a dormant subsidiary or exists wholly, or substantially wholly, for the purpose of carrying on one or more qualifying trades which or each of which is a trade to which subsection (7) below applies; or

(c)in the case of a company falling within subsection (2)(b)(ii) of that section, the requirements mentioned in each of paragraphs (a) and (b) above are satisfied,

subsections (1) and (4) above shall have effect as if for the amount there specified there were substituted £5 million.

(7)This subsection applies to a trade if it consists, wholly or substantially wholly, of operating or letting ships, other than oil rigs or pleasure craft, and—

(a)every ship operated or let 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;

(c)throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships; and

(d)the conditions mentioned in section 297(7) are satisfied in relation to every letting by the company.

(8)Where—

(a)any of the requirements mentioned in paragraphs (a) to (c) of subsection (7) above are not satisfied in relation to any ships; or

(b)any of the conditions referred to in paragraph (d) of that subsection are not satisfied in relation to any lettings,

the trade shall not thereby be precluded from being a trade to which that subsection applies if the operation or letting of those ships, or, as the case may be, those lettings do not amount to a substantial part of the trade.

(9)The Treasury may by order amend any of the foregoing provisions of this section by substituting a different amount for the amount for the time being specified there.

(10)Where—

(a)the issue of the eligible shares is made in pursuance of a prospectus published, or an offer in writing made, before 15th March 1988;

(b)the shares are issued after that date and before 6th April 1988; and

(c)subsection (6) above does not apply,

subsections (1) and (4) above shall have effect as if for the amount there specified there were substituted £1 million.

(11)In this section—

• “let” means let on charter and “letting” shall be construed accordingly;

• “oil rig” and “pleasure craft” have the same meanings as in section 297;

• “prospectus” has the meaning given by section 744 of the M57Companies Act 1985 or Article 2(3) of the M58Companies (Northern Ireland) Order 1986.]

291 Individuals qualifying for relief.U.K.

(1)M59Subject to section 292, an individual qualifies for the relief if he—

(a)subscribes for the eligible shares on his own behalf,

(b)is resident and ordinarily resident in the United Kingdom at the time when they are issued, and

(c)is not at any time in the relevant period connected with the company;

and, in relation to shares issued after 5th April 1986, an individual who is at any time performing duties which are treated by virtue of section 132(4)(a) as performed in the United Kingdom shall be treated for the purposes of this section as resident and ordinarily resident in the United Kingdom at that time.

[F68(1A)]

(2)M60An individual is connected with the company if he, or an associate of his, is—

(a)an employee of the company or of a partner of the company;

(b)a partner of the company; or

(c)subject to subsection (3) below, a director of the company or of another company which is a partner of that company.

(3)An individual is not connected with a company by reason only that he, or an associate of his, is a director unless he or his associate (or a partnership of which he or his associate is a member) receives a payment from the company during the period of five years beginning with the date on which the shares are issued or is entitled to receive such a payment in respect of that period or any part of it; but for that purpose there shall be disregarded—

(a)any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by him or his associate in the performance of his duties as a director of the company;

(b)any interest which represents no more than a reasonable commercial return on money lent to the company;

(c)any dividend or other distribution which does not exceed a normal return on the investment;

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

(e)any reasonable and necessary remuneration which —

(i)is paid for services rendered to the company in the course of a trade or profession (not being secretarial or managerial services or services of a kind provided by the company itself); and

(ii)is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule.

(4)An individual is connected with the company if he directly or indirectly possesses or is entitled to acquire more than 30 per cent. of—

(a)the issued ordinary share capital of the company; or

(b)the loan capital and issued share capital of the company; or

(c)the voting power in the company.

(5)For the purposes of subsection (4)(b) above the loan capital of a company shall be treated as including any debt incurred by the company—

(a)for any money borrowed or capital assets acquired by the company; or

(b)for any right to receive income created in favour of the company; or

(c)for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium thereon).

(6)An individual is connected with the company if he directly or indirectly possesses or is entitled to acquire such rights as would, in the event of the winding up of the company or in any other circumstances, entitle him to receive more than 30 per cent. of the assets of the company which would then be available for distribution to equity holders of the company, and for the purposes of this subsection—

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

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

shall be determined in accordance with paragraphs 1 and 3 of Schedule 18, taking references in paragraph 3 to the first company as references to an equity holder and references to a winding up as including references to any other circumstances in which assets of the company are available for distribution to its equity holders.

(7)An individual is connected with a company if he has control of it within the meaning of section 840.

(8)For the purposes of this section an individual shall be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire, and there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(9)M61In determining for the purposes of this section whether an individual is connected with a company, no debt incurred by the company by overdrawing an account with a person carrying on a business of banking shall be treated as loan capital of the company if the debt arose in the ordinary course of that business.

(10)Where an individual subscribes for shares in a company with which he is not connected (either within the meaning of this section or by virtue of section 309(6)(b)) he shall nevertheless be treated as connected with it if he subscribes for the shares as part of any arrangement which provides for another person to subscribe for shares in another company with which that or any other individual who is a party to the arrangement is connected (within the meaning of this section or by virtue of section 309(6)(b)).

292 Parallel trades. F71U.K.

M62(1)An individual is not entitled to relief in respect of any shares in a company which are issued after 18th March 1986 where, at the date mentioned in subsection (2) below—

(a)he is one of a group of persons—

(i)who control the company; or

(ii)to whom belongs an interest amounting in the aggregate to more than a half share in the trade carried on by the company;

(b)he is also an individual, or one of a group of persons—

(i)controlling another company; or

(ii)to whom belongs an interest amounting in the aggregate to more than a half share in another trade; and

(c)the trade carried on by the company, or a substantial part of it—

(i)is concerned with the same or similar types of property or parts thereof or provides the same or similar services or facilities; and

(ii)serves substantially the same or similar outlets or markets;

as the other trade or (as the case may be) the trade carried on by the other company.

(2)The date mentioned in subsection (1) above is—

(a)the date on which the shares are issued; or

(b)if later, the date on which the company begins to carry on the trade.

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

(a)the persons to whom a trade belongs, and (where a trade belongs to two or more persons) their respective shares in that trade, shall be determined in accordance with section 344(1)(a) and (b), (2) and (3); and

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

(4)For the purposes of this section—

(a)references to a company’s trade include references to the trade of any of its subsidiaries; and

(b)“trade” in the expressions “another trade”, “other trade” and “trade carried on by the other company” includes any business, profession or vocation.

293 Qualifying companies.U.K.

(1)M63Subject to section 294, a company is a qualifying company if it is incorporated in the United Kingdom and complies with the requirements of this section.

(2)M64The company must, throughout the relevant period, be an unquoted company which is resident in the United Kingdom and not resident elsewhere, and be—

(a)a company which exists wholly, or substantially wholly, for the purpose of carrying on wholly or mainly in the United Kingdom one or more qualifying trades; or

(b)a company whose business consists wholly of—

(i)the holding of shares or securities of, or the making of loans to, one or more qualifying subsidiaries of the company; or

(ii)both the holding of such shares or securities, or the making of such loans, and the carrying on wholly or mainly in the United Kingdom of one or more qualifying trades.

(3)M65In this section “qualifying subsidiary”, in relation to a company, means a subsidiary of that company of a kind which may be held by virtue of sections 308 and 309.

F72(4)M66Where a company has one or more qualifying subsidiaries, it shall not be a qualifying company in relation to shares issued after 18th March 1986 if the qualifying trade or trades carried on by the company and its subsidiaries, taken as a whole, are not carried out wholly or mainly in the United Kingdom.

(5)M67Without prejudice to the generality of subsection (2) above, but subject to subsection (6) below, a company ceases to comply with that subsection if before the end of the relevant period a resolution is passed, or an order is made, for the winding up of the company (or, in the case of a winding up otherwise than under the M68Insolvency Act 1986 or the M69Companies (Northern Ireland) Order 1986, any other act is done for the like purpose) or the company is dissolved without winding up.

(6)A company shall not be regarded as ceasing to comply with subsection (2) above if it does so by reason of being wound up or dissolved without winding up and—

(a)it is shown that the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax; and

(b)the company’s net assets, if any, are distributed to its members or dealt with as bona vacantia before the end of the relevant period or, in the case of a winding up, the end (if later) of three years from the commencement of the winding up.

(7)The company’s share capital must not, at any time in the relevant period, include any issued shares that are not fully paid up.

(8)Subject to sections 308 and 309, the company must not at any time in the relevant period—

(a)control (or together with any person connected with it control) another company or be under the control of another company (or another company and any other person connected with that other company); or

(b)be a 51 per cent. subsidiary of another company or itself have a 51 per cent. subsidiary;

and no arrangements must be in existence at any time in that period by virtue of which the company could fall within paragraph (a) or (b) above.

F73(9)M70A company is not a qualifying company in relation to shares issued before 19th March 1986 if—

(a)an individual has acquired a controlling interest in the company’s trade after 5th April 1983; and

(b)at any time in the period mentioned in subsection (10) below he has, or has had, a controlling interest in another trade; and

(c)the trade carried on by the company or a substantial part of it—

(i)is concerned with the same or similar types of property or parts thereof or provides the same or similar services or facilities as the other trade, or

(ii)serves substantially the same or similar outlets or markets as the other trade.

F73(10)M71The period referred to in subsection (9) above is the period beginning two years before and ending three years after—

(a)the date on which the shares were issued; or

(b)if later, the date on which the company began to carry on the trade.

F73(11)In subsections (9) and (10) above references to a company’s trade include references to the trade of any of its subsidiaries.

294 Companies with interests in land. F74U.K.

M72(1)Subject to section 296, a company is not a qualifying company in relation to shares issued after 18th March 1986 if at any time during the relevant period—

(a)the value of the interests in land held by the company at that time; or

(b)where lower, the value of the interests in land which were held by the company immediately after the issue of the shares (adjusted in accordance with section 295);

is greater than half the value of the company’s assets as a whole.

(2)For the purposes of this section, the value of the interests in land held by a company on any date shall be arrived at by first aggregating the market value on that date of each of those interests and then deducting—

(a)the amount of any debts of the company which are secured on any of those interests (including any debt secured by a floating charge on property which comprises any of those interests);

(b)the amount of any unsecured debts of the company which do not fall due for payment before the expiry of the period of 12 months beginning with that date; and

(c)the amount paid up in respect of those shares of the company (if any) which carry a present or future preferential right to the company’s assets on its winding up.

(3)For the purposes of this section, the value of a company’s assets as a whole shall be arrived at by first aggregating the market value of each of those assets and then deducting the amount of the debts and liabilities of the company.

(4)For the purposes of subsection (3) above, the amount paid up in respect of those shares of a company (if any) which carry a present or future preferential right to the company’s assets on its winding up shall be treated as a debt of the company, but otherwise a company’s share capital, share premium account and reserves shall not be treated for those purposes as debts or liabilities of the company.

(5)In this section “interest in land” means any estate or interest in land, any right in or over land or affecting the use or disposition of land, and any right to obtain such an estate, interest or right from another which is conditional on that other’s ability to grant the estate, interest or right in question, except that it does not include—

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

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

[F75(5A)For the purposes of this section, the value of an interest in any building or other land shall be adjusted by deducting the market value of any machinery or plant which is so installed or otherwise fixed in or to the building or other land as to become, in law, part of it.]

(6)In arriving at the value of any interest in land for the purposes of this section—

(a)it shall be assumed that there is no source of mineral deposits in the land of a kind which it would be practicable to exploit by extracting them from underground otherwise than by means of opencast mining or quarrying; and

(b)any borehole on the land shall be disregarded if it was made in the course of oil exploration.

(7)Where a company is a member of a partnership which holds any interest in land—

(a)that interest shall, for the purposes of this section and sections 295 and 296, be treated as an interest in land held by the company; but

(b)its value at any time shall, for those purposes, be taken to be such fraction of its value (apart from this subsection) as is equal to the fraction of the assets of the partnership to which the company would be entitled if the partnership were dissolved at that time.

(8)Where a qualifying company has one or more subsidiaries, the company and its subsidiaries (“the group”) shall be treated as a single company for the purposes of this section and sections 295 and 296; but any debt owed by, or liability of, one member of the group to another shall be disregarded for those purposes.

(9)The Treasury may by order amend subsection (1) above by substituting a different fraction for the fraction for the time being specified there.

295 Valuation of interests in land for purposes of section 294(1)(b). U.K.

M73(1)For the purposes of section 294(1)(b), the value of the interests in land held by a company immediately after the issue of the shares in question (“the original interests”) shall be adjusted by—

(a)adding—

(i)the cost of any interests in land subsequently acquired by the company (“the later interests”); and

(ii)any expenditure (whenever payable) incurred by the company wholly and exclusively in enhancing the value of any of the original or later interests;

(b)deducting any consideration received by the company on the disposal of any of the original or later interests or on the grant by the company of any interest in land out of any of those interests;

(c)deducting any consideration otherwise derived by the company from its ownership of any of the original or later interests.

(2)Any sum which is received by a company by way of rent, or which is attributable to the use of any premises by the company, shall be disregarded for the purposes of subsection (1)(c) above.

(3)For the purposes of this section—

(a)the cost of an interest in land acquired by a company shall be taken to be the amount or value of the consideration given by the company, or on its behalf, wholly and exclusively for the acquisition of the interest;

(b)consideration shall be brought into account without any discount for the postponement of the right to receive any part of it; and

(c)the grant of an interest in land out of any of the original interests shall be treated as a disposal of the original interest in question.

(4)Where—

(a)the interest of a company as lessee under a lease (“the lease”) falls to be valued at any time for the purposes of section 294 or the cost of acquiring that interest falls to be calculated for the purposes of this section; and

(b)the aggregate amount of the rent payable by the lessee under the lease before the end of the relevant period exceeds that which would be so payable under a lease of the premises at a full market rent (but otherwise on the same terms and conditions as the lease);

the value of the company’s interest at that time shall be calculated on the assumption that the aggregate amount payable as mentioned in paragraph (b) above is a nominal amount and, where the interest was acquired after the issue of the shares in question, it shall be assumed that the company paid the appropriate premium when acquiring the interest.

(5)In determining, for the purposes of this section, the consideration for the disposal or acquisition of an interest in land, no account shall be taken in the first instance of any contingent liability assumed by the company or by any other person.

(6)If it is subsequently shown to the satisfaction of the Board that a contingent liability which was not taken into account in determining the consideration for a disposal or acquisition has become enforceable and is being or had been enforced, such adjustment, whether by way of a further assessment or the discharge or repayment of tax or otherwise, shall be made as is required in consequence.

(7)Where the relief obtainable under subsection (6) above requires a discharge or repayment of tax, it shall be given on a claim to the Board and such a claim may be made at any time.

296 Section 294 disapplied where amounts raised total £50,000 or less. F76U.K.

M74(1)Where a company raises any amount through the issue of eligible shares, section 294—

(a)shall not have effect to deny relief in relation to those shares if the aggregate of that amount and of all other amounts (if any) so raised within the period of 12 months ending with the date of that issue does not exceed £50,000; and

(b)where that aggregate exceeds £50,000, shall have effect to deny relief only in relation to the excess.

(2)Where—

(a)at any time within the relevant period, the company in question or any of its subsidiaries carries on any trade or part of a trade in partnership, or as a party to a joint venture, with one or more other persons; and

(b)that other person, or at least one of those other persons, is a company;

each reference to £50,000 in subsection (1)(a) and (b) above shall have effect as if it were a reference to—

(3)Where section 294, as read with this section, requires a restriction to be placed on the relief given on claims in respect of shares issued to two or more individuals, the available relief shall be divided between them in proportion to the amounts which have been respectively subscribed by them for the shares to which their claims relate and which would, apart from the restrictions, be eligible for the relief.

(4)A claimant who is dissatisfied with the manner in which the available relief is divided under this section between him and any other claimant or claimants may apply to the appropriate Commissioners who shall, after giving the other claimant or claimants an opportunity to appear and be heard or to make representations in writing, determine the question for all the claimants in the same way as an appeal.

(5)In this section “the appropriate Commissioners” means—

(a)in a case where the same body of General Commissioners has jurisdiction with respect to all the claimants, those Commissioners, unless all the claimants agree that the question should be determined by the Special Commissioners;

(b)in a case where different bodies of General Commissioners have jurisdiction with respect to the claimants, such of those bodies as the Board may direct, unless all the claimants agree that the question should be determined by the Special Commissioners;

(c)in any other case, the Special Commissioners.

(6)In calculating the aggregate mentioned in subsection (1)(a) above in respect of any period of 12 months which begins on or before 18th March 1986, any amount raised by the issue of eligible shares on or before that date shall be disregarded.

297 Qualifying trades. F77U.K.

(1)M75Subject to section 298(6) and (7) below, a trade is a qualifying trade if it complies with the requirements of this section.

(2)M76Subject to subsection (9) below, the trade must not at any time in the relevant period consist of one or more of the following activities if that activity amounts, or those activities when taken together amount, to a substantial part of the trade—

(a)dealing in commodities, shares, securities, land or futures;

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

(c)banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d)oil extraction activities;

(e)leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;

(f)providing legal or accountancy services;

(g)providing services or facilities for any trade carried on by another person which consists to any substantial extent of activities within any of paragraphs (a) to (f) above and in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company;

(h)M77property development;

(j)M78farming.

(3)M79For the purposes of subsection (2)(b) above—

(a)a trade of wholesale distribution is one in which the 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;

(b)a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption;

(c)a trade is not an ordinary trade of wholesale or retail distribution if—

(i)it consists to a substantial extent of dealing in goods of a kind which are collected or held as an investment or of that activity and any other activity of a kind falling within subsection (2) above, taken together; and

(ii)a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value; and

(d)in determining whether a trade is an ordinary trade of wholesale or retail distribution regard shall be had to the extent to which it has the following features, that is to say—

(i)the goods are bought by the trader in quantities larger than those in which he sells them;

(ii)the goods are bought and sold by the trader in different markets;

(iii)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;

(iv)there are purchases or sales from or to persons who are connected with the trader;

(v)purchases are matched with forward sales or vice versa;

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

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

(viii)the trader does not take physical possession of the goods;

those features in sub-paragraphs (i) to (iii) being regarded as indications that the trade is such an ordinary trade and those in sub-paragraphs (iv) to (viii) being regarded as indications of the contrary.

(4)M80A trade shall not be treated as failing to comply with this section by reason only of its consisting to a substantial extent of receiving royalties or licence fees if—

(a)the company carrying on the trade is engaged throughout the relevant period in—

(i)the production of films; or

(ii)the production of films and the distribution of films produced by it in the relevant period; and

(b)all royalties and licence fees received by it in that period are in respect of films produced by it in that period or sound recordings in relation to such films or other products arising from such films.

(5)M81A trade shall not be treated as failing to comply with this section by reason only that at any time after 19th March 1985 it consists to a substantial extent of receiving royalties or licence fees if—

(a)the company carrying on the trade is engaged in research and development throughout the relevant period; and

(b)all royalties and licence fees received by it in that period are attributable to research and development which it has carried out.

(6)M82A trade shall not be treated as failing to comply with this section by reason only of its consisting of letting ships, other than oil rigs or pleasure craft, on charter if—

(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; and

(c)throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships; and

(d)the conditions mentioned in subsection (7) below are satisfied in relation to every letting on charter by the company;

but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this section if those lettings and any other activity of a kind falling within subsection (2) above do not, when taken together, amount to a substantial part of the trade.

(7)The conditions are that—

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

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

(c)the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;

(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) above on behalf of the company;

but this subsection shall have effect, in relation to any letting between the company in question and its subsidiary, or between it and another company of which it is a subsidiary or between it and a company which is a subsidiary of the same company of which it is a subsidiary, as if paragraph (c) were omitted.

(8)M83The trade must, during the relevant period, be conducted on a commercial basis and with a view to the realisation of profits.

(9)M84A trade which consists to any substantial extent of oil extraction activities shall, if it would be a qualifying trade were it not for subsection (2)(d) above, be treated as a qualifying trade for the purposes of section 289(1)(d).

298 Provisions supplementary to sections 293 and 297. F78U.K.

(1)M85For the purposes of sections 293(9) and 297 a person has a controlling interest in a trade—

(a)in the case of a trade carried on by a company, if—

(i)he controls the company;

(ii)the company is a close company and he or an associate of his is a director of the company and the beneficial owner of, or able directly or through the medium of other companies or by any other indirect means to control, more than 30 per cent. of the ordinary share capital of the company; or

(iii)not less than half of the trade could in accordance with section 344(2) be regarded as belonging to him;

(b)in any other case, if he is entitled to not less than half of the assets used for, or the income arising from, the trade.

(2)For the purposes of subsection (1) above, there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(3)References in this section and section 297 to a trade shall be construed without regard to so much of the definition of “trade” in section 832(1) as relates to adventures or concerns in the nature of trade; but the foregoing provisions do not affect the construction of references in section 297(2)(g) or subsection (1) above to a trade carried on by a person other than the company and those references shall be construed as including a reference to any business, profession or vocation.

(4)M86The Treasury may by order amend section 297 and this section, except in relation to shares issued before 19th March 1986, in such manner as they consider expedient.

(5)M87In section 297—

• “film” means an original master negative of a film, an original master film disc or an original master film tape;

• “oil rig” means any ship which is an offshore installation for the purposes of the M88Mineral Workings (Offshore Installations) Act 1971;

• “pleasure craft” means any ship of a kind primarily used for sport or recreation;

• “property development” means the development of land, by a company which has, or at any time has had, an interest in the land (within the meaning of section 294(5)), with the sole or main object of realising a gain from disposing of the land when developed; and

• “sound recording” means, in relation to a film, its sound track, original master audio disc or, as the case may be, original master audio tape.

(6)M89Section 297 shall have effect in relation to shares issued before 19th March 1986 subject to the following modifications—

(a)in subsection (2) the words “or those activities when taken together amount” shall be omitted;

(b)subsection (2)(h) shall not apply unless the shares were issued after 19th March 1985;

(c)subsection (2)(j) shall not apply unless the shares were issued after 13th March 1984;

(d)in subsection (3) the words in paragraph (a) “to members of the general public for their use or consumption” and paragraph (c) shall be omitted; and

(e)subsections (6) and (7) shall be omitted;

and in relation to shares issued after 18th March 1986 section 297(2) shall have effect with the omission of paragraphs (h) and (j).

(7)M90Section 297(2) shall have effect so far as it relates to oil extraction only in relation to shares issued after 25th July 1986.

(8)M91Section 297(4) shall have effect in relation to shares issued before 17th March 1987 with the omission of paragraph (a)(ii), together with the word “or” immediately before it, (but not the word “and” at the end of it) and the words in paragraph (b) “in that period” in the second place where they appear.

299 Disposal of shares.U.K.

(1)M92Where an individual disposes of any eligible shares before the end of the relevant period, then—

(a)if the disposal is otherwise than by way of a bargain made at arm’s length, he shall not be entitled to any relief in respect of those shares; and

(b)in any other case, the amount of relief to which he is entitled in respect of those shares shall be reduced by the amount or value of the consideration which he receives for them.

(2)M93Where after 18th March 1986 an option, the exercise of which would bind the grantor to purchase any shares, is granted to an individual during the relevant period, the individual shall not be entitled to any relief in respect of the shares to which the option relates.

(3)M94Where an individual holds ordinary shares of any class in a company and the relief has been given (and not withdrawn) in respect of some shares of that class but not others, any disposal by him of ordinary shares of that class in the company, and any option of the kind mentioned in subsection (2) above, shall be treated for the purposes of this section as relating—

(a)first, to those (if any) in respect of which relief has been given (and not withdrawn) under Chapter II of Part IV of the Finance Act 1981 rather than to others; and

(b)then, to those in respect of which relief has been given (and not withdrawn) under this Chapter (or Schedule 5 to the Finance Act 1983).

(4)M95Where the relief has been given (and not withdrawn) to an individual in respect of shares of any class in a company which have been issued to him at different times, any disposal by him of shares of that class shall, subject to subsection (3) above, be treated for the purposes of this section as relating to those issued earlier rather than to those issued later.

(5)M96Where shares in respect of which the relief was given have by virtue of any such allotment as is mentioned in section 77(2)(a) of the 1979 Act (not being an allotment for payment) fallen to be treated under section 78 of that Act as the same asset as a new holding—

(a)a disposal of the whole or part of the new holding shall be treated for the purposes of this section as a disposal of the whole or a corresponding part of those shares; and

(b)the new holding shall be treated for the purposes of subsection (3) above as shares in respect of which the relief has been given.

(6)M97For the purposes of this section—

(a)shares in a company shall not be treated as being of the same class unless they would be so treated if dealt with on the Stock Exchange; and

(b)references to a disposal of shares include references to the grant of an option (after 18th March 1986) the exercise of which would bind the grantor to sell the shares.

300 Value received from company.U.K.

(1)M98Subject to section 299, where an individual who subscribes for eligible shares in a company—

(a)has, before the issue of the shares but within the relevant period, received any value from the company; or

(b)after their issue but before the end of the relevant period, receives any such value;

the amount of the relief to which he is entitled in respect of the shares shall be reduced by the value received; but the value received shall be disregarded to the extent to which relief under Schedule 5 to the Finance Act 1983 or under this Chapter has been reduced on its account.

(2)M99For the purposes of this section an individual receives value from the company if the company—

(a)repays, redeems or repurchases any of its share capital or securities which belong to the individual or makes any payment to him for giving up his right to any of the company’s share capital or any security on its cancellation or extinguishment;

(b)repays any debt owed to the individual other than a debt which was incurred by the company—

(i)on or after the date on which he subscribed for the shares in respect of which the relief is claimed; and

(ii)otherwise than in consideration of the extinguishment of a debt incurred before that date;

(c)makes to the individual any payment for giving up his right to any debt (other than a debt in respect of a payment of the kind mentioned in section 291(3)(a) or (e) or an ordinary trade debt) on its extinguishment;

(d)releases or waives any liability of the individual to the company or discharges, or undertakes to discharge, any liability of his to a third person;

(e)makes a loan or advance to the individual which has not been repaid in full before the issue of the shares in respect of which relief is claimed;

(f)provides a benefit or facility for the individual;

(g)transfers an asset to the individual for no consideration or for consideration less than its market value or acquires an asset from him for consideration exceeding its market value; or

(h)makes to him any other payment except a payment of the kind mentioned in section 291(3)(a), (b), (c), (d) or (e) or a payment in discharge of an ordinary trade debt.

(3)For the purposes of this section an individual also receives value from the company if he receives in respect of ordinary shares held by him any payment or asset in a winding up or in connection with a dissolution of the company, being a winding up or dissolution falling within section 293(6).

(4)The value received by an individual is—

(a)in a case within paragraph (a), (b) or (c) of subsection (2) above, the amount receivable by the individual or, if greater, the market value of the shares, securities or debt in question;

(b)in a case within paragraph (d) of that subsection, the amount of the liability;

(c)in a case within paragraph (e) of that subsection, the amount of the loan or advance reduced by the amount of any repayment made before the issue of the shares in respect of which relief is claimed;

(d)in a case within paragraph (f) of that subsection, the cost to the company of providing the benefit or facility less any consideration given for it by the individual;

(e)in a case within paragraph (g) of that subsection, the difference between the market value of the asset and the consideration (if any) given for it;

(f)in a case within paragraph (h) of that subsection, the amount of the payment; and

(g)in a case within subsection (3) above, the amount of the payment or, as the case may be, the market value of the asset.

(5)M100For the purposes of this section an individual also receives value from the company if any person who would, for the purposes of section 291, be treated as connected with the company—

(a)purchases any of its share capital or securities which belong to the individual; or

(b)makes any payment to him for giving up any right in relation to any of the company’s share capital or securities;

and the value received by the individual is the amount receivable by the individual or, if greater, the market value of the shares or securities in question.

301 Provisions supplementary to section 300.U.K.

(1)M101Where by virtue of section 300 any relief is withheld or withdrawn in the case of an individual to whom ordinary shares in a company have been issued at different times before 19th March 1986 the relief shall be withheld or withdrawn in respect of shares issued earlier rather than in respect of shares issued later.

(2)M102Where relief to which an individual is entitled in respect of eligible shares issued after 18th March 1986 is reduced by virtue of section 300, effect shall be given to the reduction by apportioning it, as between any such eligible shares held by him, in such a way as appears to the inspector, or on an appeal to the Commissioners concerned, to be just and reasonable.

(3)M103For the purposes of section 300(2)(d) a company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.

(4)For the purposes of section 300(2)(e) there shall be treated as if it were a loan made by the company to the individual—

(a)the amount of any debt (other than an ordinary trade debt) incurred by the individual to the company; and

(b)the amount of any debt due from the individual to a third person which has been assigned to the company.

(5)In this section and section 300, “an ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where the credit given does not exceed six months and is not longer than that normally given to the customers of the person carrying on the trade or business.

(6)In this section and section 300—

(a)any reference to a payment or transfer to an individual includes a reference to a payment or transfer made to him indirectly or to his order or for his benefit; and

(b)any reference to an individual includes a reference to an associate of his and any reference to the company includes a reference to any person connected with the company.

(7)M104Section 300 shall apply in relation to shares issued before 19th March 1986 with the omission—

(a)in subsection (2)(e) of the words “which has not been repaid in full before the issue of the shares in respect of which relief is claimed”; and

(b)in subsection (4)(c) of the words “reduced by the amount of any repayment made before the issue of the shares in respect of which relief is claimed”.

302 Replacement capital.U.K.

M105(1)An individual is not entitled to relief in respect of any shares in a company where—

(a)at any time in the relevant period, the company or any of its subsidiaries—

(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 company or any of its subsidiaries; or

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

(b)subsection (2) below applies in relation to that individual.

(2)This subsection applies in relation to an individual where—

(a)any person or group of persons to whom an interest amounting in the aggregate to more than a half share in the trade (as previously carried on) belonged, at any time in the relevant period, is or are a person or group of persons to whom such an interest in the trade carried on by the company belongs or has, at any such time, belonged; or

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

and the individual is that person or one of those persons.

(3)An individual is not entitled to relief in respect of any shares in a company where—

(a)the company comes to acquire all of the issued share capital of another company, at any time in the relevant period; and

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

and that individual is that person or one of those persons.

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

(a)the persons to whom a trade belongs and, where a trade belongs to two or more persons, their respective shares in that trade shall be determined in accordance with section 344(1)(a) and (b), (2) and (3); and

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

(5)In this section—

• “subsidiary” means a subsidiary of a kind which a qualifying company may have by virtue of sections 308 and 309; and

• “trade” includes any business, profession or vocation, and references to a trade previously carried on include references to part of such a trade.

303 Value received by persons other than claimants.U.K.

(1)M106The relief to which an individual is entitled in respect of any shares in a company shall be reduced in accordance with subsection (2) below if at any time in the relevant period the company repays, redeems or repurchases any of its share capital which belongs to any member other than—

(a)that individual; or

(b)another individual whose relief is thereby withdrawn or reduced by virtue of section 299 or reduced by virtue of section 300(2)(a);

or makes any payment to any such member for giving up his right to any of the company’s share capital on its cancellation or extinguishment.

(2)M107Where subsection (1) above applies, the amount of relief to which an individual is entitled shall be reduced by the amount receivable by the member or, if greater, the nominal value of the share capital in question; and where, apart from this subsection, two or more individuals would be entitled to relief the reduction shall be made in proportion to the amounts of relief to which they would, apart from this subsection, have been entitled.

(3)Where at any time in the relevant period a member of a company receives or is entitled to receive any value from the company within the meaning of this subsection, then, for the purposes of section 291(4) in its application to any subsequent time—

(a)the amount of the company’s issued ordinary share capital; and

(b)the amount of the part of that capital which consists of the shares which (within the meaning of section 291) the individual directly or indirectly possesses or is entitled to acquire, and the amount of the part consisting of the remainder,

shall each be treated as reduced in accordance with subsection (4) below.

(4)The amount of each of the parts mentioned in subsection (3)(b) above shall be treated as equal to such proportion of that amount as the amount subscribed for that part less the relevant value bears to the amount subscribed; and the amount of the issued share capital shall be treated as equal to the sum of the amounts treated under this subsection as the amount of those parts respectively.

(5)In subsection (4) above “the relevant value”, in relation to each of the parts there mentioned, means the value received by the member or members entitled to the shares of which that part consists.

(6)For the purposes of subsection (3) above a member of a company receives or is entitled to receive value from the company in any case in which an individual would receive value from the company by virtue of section 300(2)(d), (e), (f), (g) or (h) (but treating as excepted from paragraph (h) all payments made for full consideration) and the value received shall be determined as for the purposes of that section.

(7)For the purposes of subsection (6) above a person shall be treated as entitled to receive anything which he is entitled to receive at a future date or will at a future date be entitled to receive.

(8)M108Subsection (1) above does not apply in relation to the redemption of any share capital for which the redemption date was fixed before 15th March 1983.

(9)Where—

(a)a company issues share capital (“the original shares”) of nominal value equal to the authorised minimum (within the meaning of the M109Companies Act 1985) for the purposes of complying with the requirements of section 117 of that Act (public company not to do business unless requirements as to share capital complied with); and

(b)after the registrar of companies has issued the company with a certificate under section 117, it issues eligible shares;

subsection (1) above shall not apply in relation to any redemption of any of the original shares within 12 months of the date on which those shares were issued.

(10)M111Where relief to which an individual is entitled in respect of eligible shares issued after 18th March 1986 is reduced by virtue of this section, effect shall be given to the reduction by apportioning it as between any such eligible shares held by him in such a way as appears to the inspector, or on appeal to the Commissioners concerned, to be just and reasonable.

(11)M112In relation to shares issued before 19th March 1986, subsection (1)(b) above shall have effect with the omission of the words “withdrawn or reduced by virtue of section 299 or”.

Valid from 28/07/2000

[F84303A Restriction on withdrawal of relief under section 303.U.K.

(1)Subsections (4) and (7) below apply where, by reason of a repayment, any investment relief which is attributable under Schedule 15 to the Finance Act 2000 to any shares is withdrawn under paragraph 56(2) of that Schedule.

(2)For the purposes of this section “repayment” means a repayment, redemption, repurchase or payment mentioned in paragraph 56(1) of that Schedule (repayments etc. which cause withdrawal of investment relief).

(3)For the purposes of this section “the relevant amount” is the amount determined by the formula—

Where—

X is the amount of the repayment, and

Y is the aggregate amount of investment relief withdrawn by reason of the repayment.

(4)Where the relevant amount does not exceed £1,000 the repayment shall be disregarded for the purposes of section 303(1), unless repayment arrangements are in existence at any time in the period—

(a)beginning one year before the shares mentioned in subsection (1) above are issued, and

(b)expiring at the end of the issue date of those shares.

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

(a)for a repayment by the company that issued the shares (“the issuing company”) or any subsidiary of that company, or

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

at any time.

(6)Subsection (5)(a) above applies in relation to a subsidiary of the issuing company whether or not it is such a subsidiary—

(a)at the time of the repayment mentioned in subsection (1) above, or

(b)when the arrangements were made.

(7)Where the repayment is not disregarded by virtue of subsection (4) above, the amount receivable by reason of the repayment shall be treated for the purposes of section 303(1C)(a) as an amount equal to the relevant amount.

(8)Where, but for the existence of paragraph 57(1) of Schedule 15 to the Finance Act 2000 (repayments causing insignificant changes to share capital to be disregarded), any investment relief would be withdrawn by reason of a repayment, the repayment shall be disregarded for the purposes of section 303(1).

(9)In this section—

(a)“investment relief” has the same meaning as in that Schedule; and

(b)references to the withdrawal of investment relief include its reduction.]

Textual Amendments

F84S. 303A inserted (with effect in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 2(3)

304 Husband and wife.U.K.

(1)M113In the case of any amount subscribed by a married woman for eligible shares issued to her at a time—

(a)when she is living with her husband; and

(b)which falls in a year of assessment for which his income includes (or, if there were any, would include) any of hers,

the deduction under section 289(5)shall, subject to Chapter IIof this Part and subsections (2)to (5)below, be made from his total income, and references in this Chapter to the relief to which an individual is entitled in respect of any shares shall be construed accordingly.

(2)M114The limits in section 290shall apply jointly to a husband and wife as respects amounts subscribed for shares at a time—

(a)when they are married and living together; and

(b)which falls in a year of assessment for which his income includes (or, if there were any, would include) any of hers;

but if the husband dies or they are divorced or cease to live together before the end of any such year those limits shall apply to the wife as respects amounts subscribed by her for shares issued in the remainder of the year as if it were a separate year of assessment.

(3)Where an application under section 283(1)or an election under section 287(1)is in force for a year of assessment in which shares are issued for which amounts have been subscribed both by the husband and the wife, then, if section 290(2)requires a restriction to be placed on the relief given on a claim or claims in respect of those amounts, the available relief shall be divided between the husband and wife in proportion to the amounts which have been respectively subscribed by them for the shares to which the claim or claims relate and which would, apart from the restriction, be eligible for the relief.

(4)Subsections (2)and (3)above shall apply in relation to the limit of £5,000imposed by section 289(7)as it applies in relation to the limit of £40,000imposed by section 290(2);and for this purpose the reference in subsection (3)above to a division in proportion to the amounts subscribed by the husband and wife shall be construed as a reference to a division in proportion to the aggregate amounts of the relevant deductions sought by each of them in their claims under section 289(6) F85.

[F86(5)Subsection (1) of section 299 shall not apply to a disposal made by a married man to his wife or a married woman to her husband at a time when they are living together; but where shares issued to one of them have been transferred to the other by a transaction inter vivos that subsection shall apply on the disposal of the shares by the transferee to a third person and any assessment for withdrawing relief in respect of the shares shall be made on the transferee.

(6)If any relief given for the year 1989-90 or any earlier year of assessment in respect of shares for which a married man or married woman has subscribed and which were issued while they were living together falls to be withdrawn in the year 1990-91 or any subsequent year of assessment by virtue of a disposal of those shares by the person who subscribed for them, any assessment for withdrawing that relief shall be made on the person making the disposal and shall be made by reference to the reduction of tax flowing from the amount of the relief regardless of any allocation of that relief under section 280 or of any allocation of the reduction under section 284 for the year of assessment for which the relief was given.]

305 Reorganisation of share capital.U.K.

M115(1)Where shares in respect of which relief has been given and not withdrawn have by virtue of any such allotment, otherwise than for payment, as is mentioned in section 77(2)(a) of the 1979 Act fallen to be treated under section 78 of that Act as the same asset as a new holding—

(a)a disposal of the whole or part of the new holding shall be treated for the purposes of this Part as a disposal of the whole or a corresponding part of those shares; and

(b)the new holding shall be treated for the purposes of section 299(3) as shares in respect of which relief has been given and not withdrawn.

(2)Where—

(a)there is, by virtue of any such allotment for payment as is mentioned in section 77(2)(a) of the 1979 Act, a reorganisation affecting ordinary shares in respect of which relief has been given; and

(b)immediately before the reorganisation the relief had not been withdrawn; and

(c)the amount of relief (or, where the relief has been reduced, the amount remaining) and the market value of the shares immediately before the reorganisation, exceeds their market value immediately after the reorganisation;

the relief shall be reduced by an amount equal to whichever is the smaller of those excesses.

(3)Subsection (2) above shall also apply where—

(a)an individual who has received, or become entitled to receive, in respect of any ordinary shares in a company, a provisional allotment of shares in or debentures of the company disposes of his rights; and

(b)subsection (2) above would have applied (apart from this subsection) had those rights not been disposed of but an allotment of shares or debentures made to him.

(4)This section has effect in relation to reorganisations occurring after 18th March 1986.

306 Claims.U.K.

M116(1)A claim for relief in respect of eligible shares issued by a company in any year of assessment shall be made—

(a)not earlier than the end of the period of four months mentioned in section 289(8)(a), (b) or (c), as the case may be; and

(b)not later than two years after the end of that year of assessment or, if that period of four months ended after the end of that year, not later than two years after the end of that period.

(2)A claim for relief in respect of eligible shares in a company shall not be allowed unless it is accompanied by a certificate issued by the company in such form as the Board may direct and certifying that the conditions for the relief, so far as applying to the company and the trade, are satisfied in relation to those shares.

(3)Before issuing a certificate for the purposes of subsection (2) above a company shall furnish the inspector with a statement to the effect that it satisfies the conditions for the relief, so far as they apply in relation to the company and the trade, and has done so at all times since the beginning of the relevant period.

(4)No such certificate shall be issued without the authority of the inspector or where the company, or a person connected with the company, has given notice to the inspector under section 310(2).

(5)Any statement under subsection (3) above shall contain such information as the Board may reasonably require, shall be in such form as the Board may direct and shall contain a declaration that it is correct to the best of the company’s knowledge and belief.

(6)Where a company has issued a certificate for the purposes of subsection (2) above, or furnished a statement under subsection (3) above and—

(a)the certificate or statement is made fraudulently or negligently; or

(b)the certificate was issued in contravention of subsection (4) above;

the company shall be liable to a penalty not exceeding [F89£3,000].

(7)For the purposes of regulations made under section 203 no regard shall be had to the relief unless a claim for it has been duly made and admitted.

(8)No application shall be made under section 55(3) or (4) of the Management Act (application for postponement of payment of tax pending appeal) on the ground that the applicant is entitled to the relief unless a claim for the relief has been duly made by him.

(9)For the purposes of section 86 of the Management Act (interest on overdue tax), tax charged by an assessment—

(a)shall be regarded as due and payable notwithstanding that relief from the tax (whether by discharge or repayment) is subsequently given on a claim for the relief; but

(b)shall, unless paid earlier or due and payable later, be regarded as paid on the date of the making of the claim on which the relief is given;

and section 91 of that Act (effect on interest of reliefs) shall not apply in consequence of any discharge or repayment for giving effect to the relief.

(10)M117For the purposes of the provisions of the Management Act relating to appeals against decisions on claims, the refusal of the inspector to authorise the issue of a certificate under subsection (2) above shall be taken to be a decision refusing a claim made by the company.

307 Withdrawal of relief.U.K.

(1)M118Where any relief has been given which is subsequently found not to have been due, it shall be withdrawn by the making of an assessment to tax under Case VI of Schedule D for the year of assessment for which the relief was given; but where by virtue of section 289(6) relief has been given for each of two consecutive years of assessment, any withdrawal of relief shall be made for the first of those years before being made for the second.

(2)M119Subject to subsections (3) to (7) below, any assessment for withdrawing relief which is made by reason of an event occurring after the date of the claim may be made within six years after the end of the year of assessment in which that event occurs.

(3)No assessment for withdrawing relief in respect of shares issued to any person shall be made by reason of any event occurring after his death.

(4)Where a person has, by a disposal or disposals to which section 299(1)(b) applies, disposed of all the ordinary shares issued to him by a company, no assessment for withdrawing relief in respect of any of those shares shall be made by reason of any subsequent event unless it occurs at a time when he is connected with the company within the meaning of section 291.

(5)Subsection (2) above is without prejudice to section 36 of the Management Act ([F90fraudulent or negligent conduct]).

(6)In its application to an assessment made by virtue of this section, section 86 of the Management Act (interest on overdue tax) shall have effect as if the reckonable date were—

(a)M120in the case of relief withdrawn by virtue of section 289(11)—

(i)so far as effect has been given to the relief in accordance with regulations under section 203, 5th April in the year of assessment in which effect was so given;

(ii)so far as effect has not been so given, the date on which the relief was granted.

(b)M121in the case of relief withdrawn by virtue of section 291, 293, 297, 302, 303(1) or 305 in consequence of any event after the grant of the relief, the date of that event;

(c)in the case of relief withdrawn by virtue of section 299(1) in consequence of a disposal after the grant of the relief, the date of the disposal;

(d)in the case of relief withdrawn by virtue of section 300 in consequence of a receipt of value after the grant of the relief, the date of the receipt.

(7)M122For the purposes of subsection (6) above the date on which the relief is granted is the date on which a repayment of tax for giving effect to the relief was made or, if there was no such repayment, the date on which the inspector issued a notice to the claimant showing the amount of tax payable after giving effect to the relief.

(8)M123Where a company has ceased to be a qualifying company in consequence of the operation of section 294, subsection (6) above shall apply as if the relief was withdrawn in consequence of an event which occurred at the time when the company so ceased to be a qualifying company.

(9)Subsections (1) to (7) above apply in relation to relief under Chapter II of Part IV of the Finance Act 1981 as they apply in relation to relief under this Chapter (or Schedule 5 to the Finance Act 1983) but—

(a)with the substitution for references to sections 299 (in both places), 291, 289(11), 293, 297, 302, 303(1), 305 and 300 of this Act of references respectively to sections 57, 54, 59(1), 53(7), 54, 55, 56, 59(2) and 58 of the Finance Act 1981; and

(b)with the omission of subsection (6)(a)(i).

308 Application to subsidiaries.U.K.

M124(1)A qualifying company may, in the relevant period, have one or more subsidiaries if—

(a)the conditions mentioned in subsection (2) below are satisfied in respect of the subsidiary or, as the case may be, each subsidiary and, except as provided by subsection (3) below, continue to be so satisfied until the end of the relevant period; and

(b)the subsidiary or, as the case may be, each subsidiary exists wholly, or substantially wholly, for the purpose of carrying on one or more qualifying trades or is a property managing, or dormant, subsidiary;

(2)The conditions referred to are—

(a)that the qualifying company, or another of its subsidiaries, possesses not less than 90 per cent. of the issued share capital of, and not less than 90 per cent. of the voting power in, the subsidiary;

(b)that the qualifying company, or another of its subsidiaries, would in the event of a winding up of the subsidiary or in any other circumstances be beneficially entitled to receive not less than 90 per cent. of the assets of the subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c)that the qualifying company or another of its subsidiaries is beneficially entitled to not less than 90 per cent. of any profits of the subsidiary which are available for distribution to the equity holders of the subsidiary;

(d)that no person other than the qualifying company or another of its subsidiaries has control of the subsidiary within the meaning of section 840; and

(e)that no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) above could cease to be satisfied.

(3)The conditions shall not be regarded as ceasing to be satisfied by reason only of the subsidiary or the qualifying company being wound up, or dissolved without winding up, if—

(a)it is shown that the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax; and

(b)the net assets, if any, of the subsidiary or, as the case may be, the qualifying company are distributed to its members or dealt with as bona vacantia before the end of the relevant period, or in the case of a winding up, the end (if later) of three years from the commencement of the winding up.

(4)The conditions shall not be regarded as ceasing to be satisfied by reason only of the disposal by the qualifying company or (as the case may be) by another subsidiary, within the relevant period, of all its interest in the subsidiary if it is shown that the disposal is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(5)For the purposes of this section—

(a)a subsidiary of a qualifying company is a property managing subsidiary if it exists wholly, or substantially wholly, for the purpose of holding and managing property used by the qualifying company, or by any of its subsidiaries, for the purposes of—

(i)research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or

(ii)one or more qualifying trades so carried on;

(b)a subsidiary is a dormant subsidiary if it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments; and

(c)the persons who are equity holders of a subsidiary and the percentage of the assets of a subsidiary to which an equity holder would be entitled shall be determined in accordance with paragraphs 1 and 3 of Schedule 18, taking references in paragraph 3 to the first company as references to an equity holder and references to a winding up as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.

(6)M125In relation to shares issued before 19th March 1986 this section shall have effect subject to the following modifications—

(a)the following paragraph shall be substituted for subsection (1)(b)—

“(b)the subsidiary or each subsidiary was incorporated in the United Kingdom and is a company falling within section 293(2)(a).”;

(b)the following subsection shall be substituted for subsection (2)—

“(2)The conditions referred to in subsection (1)(a) above are—

(a)that the qualifying company possesses all the issued share capital of, and all the voting power in, the subsidiary; and

(b)that no other person has control of the subsidiary within the meaning of section 840; and

(c)that no arrangements are in existence by virtue of which the conditions in paragraphs (a) and (b) above could cease to be satisfied.”; and

(c)subsections (4) and (5) shall be omitted.

309 Further provisions as to subsidiaries.U.K.

(1)M126Where a qualifying company has one or more subsidiaries in the relevant period, this Chapter shall have effect subject to subsections (2) to (8) below.

(2)M127The shares issued by the qualifying company may, instead of or as well as being issued for the purpose mentioned in subsection (1)(a) of section 289, be issued for the purpose of raising money for a qualifying trade which is being carried on by a subsidiary or which a subsidiary intends to carry on; and, where shares are so issued, subsections (8), (9), 12(b)(ii) and (13) of that section shall have effect as if references to the company were or, as the case may be, included references to the subsidiary.

(3)In relation to a qualifying trade carried on by a subsidiary the reference in section 297(2)(g) to another person shall not include a reference to the company of which it is a subsidiary.

(4)In section 303(1) references to the company (except the first) shall include references to a company which during the relevant period is a subsidiary of the company whether it becomes a subsidiary before or after the redemption, repayment, repurchase or payment referred to in that subsection.

(5)M128In subsections (2), (4) and (6) of section 291, references to the company (except, in each subsection, the first such reference) include references to a company which is during the relevant period a subsidiary of that company—

(a)whether it becomes a subsidiary before, during or after the year of assessment in respect of which the individual concerned claims relief; or

(b)whether or not it is such a subsidiary while he is such an employee, partner or director as is mentioned in subsection (2) or while he has or is entitled to acquire such capital or voting power or rights as are mentioned in subsections (4) and (6).

(6)Without prejudice to the provisions of section 291 (as it has effect in accordance with subsection (5) above), an individual shall be treated as connected with a company if—

(a)he has at any time in the relevant period had control (within the meaning of section 840) of another company which has since that time and before the end of the relevant period become a subsidiary of the company; or

(b)he directly or indirectly possesses or is entitled to acquire any loan capital of a subsidiary of that company.

(7)Section 291(5) and (8) shall apply for the purposes of this section.

(8)M129In sections 300(1) and 303(3) references to the receipt of value from the company shall include references to the receipt of value from any company which during the relevant period is a subsidiary of that company, whether it becomes a subsidiary before or after the individual concerned receives any value from it, and other references to the company in sections 300 and 301 and in section 303(6) shall be construed accordingly.

310 Information.U.K.

(1)M130Where an event occurs by reason of which any relief given to an individual falls to be withdrawn by virtue of sections 291, 299, 300 or 304(2) to (6), the individual shall within 60 days of his coming to know of the event give a notice to the inspector containing particulars of the event.

(2)Where an event occurs by reason of which any relief in respect of any shares in a company falls to be withdrawn by virtue of section 289(11), 293, 297, 300, 302 or 303—

(a)the company; and

(b)any person connected with the company who has knowledge of that matter;

shall within 60 days of the event or, in the case of a person within paragraph (b) above, of his coming to know of it, give a notice to the inspector containing particulars of the event or payment.

(3)M131Where—

(a)a company has issued a certificate under section 306(2) in respect of any eligible shares in the company; and

(b)it appears to the company, or to any person connected with the company who has knowledge of the matter, that section 294 may have effect to deny relief in respect of those shares;

the company or (as the case may be) that person or (where it so appears to each of them) both the company and that person shall give notice to the inspector setting out the particulars of the case.

(4)M132If the inspector has reason to believe that a person has not given a notice which he is required to give under subsection (1) or (2) above in respect of any event, or under subsection (3) above in respect of any particular case, the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event or case as the inspector may reasonably require for the purposes of this Chapter.

(5)M133Where relief is claimed in respect of shares in a company and the inspector has reason to believe that it may not be due by reason of any such arrangement or scheme as is mentioned in section 289(11), 291(10), 293(8) or 308(2)(e), he may by notice require any person concerned to furnish him within such time (not being less than 60 days) 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 arrangement or scheme exists or has existed;

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

(6)References in subsection (5) above to the person concerned are references, in relation to sections 289(11), 291(10) and 308(2)(e), to the claimant and, in relation to sections 289(11), 293(8) and 308(2)(e), to the company and any person controlling the company.

(7)M134Where relief has been given in respect of shares in a company—

(a)any person who receives from the company any payment or asset which may constitute value received (by him or another) for the purposes of sections 300, 301 and 303(3); and

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

shall, if so required by the inspector, state whether the payment or asset received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person.

(8)Where relief has been claimed in respect of shares in a company, any person who holds or has held shares in the company and any person on whose behalf any such shares are or were held shall, if so required by the inspector, state whether the shares which are or were held by him or on his behalf are or were held on behalf of any person other than himself and, if so, the name and address of that person.

(9)No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a company that relief has been given or claimed in respect of a particular number or proportion of its shares.

(10)M135This section shall have effect in relation to relief under Chapter II of Part IV of the Finance Act 1981 as it has effect in relation to relief under this Chapter but with the substitution—

(a)in subsection (1) for “291, 299, 300 or 304(2) to (6)” of “ 54, 57, 58 and 60(6) of the Finance Act 1981 ”;

(b)for subsection (3) of the following subsection—

“(3)Where the company is notified by the inspector that relief has been given in respect of any shares issued by the company on a specified date, then, if any shares in the company (whether or not shares in respect of which relief has been given) are transferred at any time in the period of five years beginning with that date, the company shall within 60 days of—

(a)coming to know of the transfer; or

(b)receiving the notification from the inspector,

whichever is the later, give a notice to the inspector containing particulars of the transfer.”;

(c)in subsection (5) for references to sections 289(11), 291(10), 293(8) and 308(2)(e) of references to sections 54(9), 55(8) and 59(1) of the 1981 Act;

(d)in subsection (6) for “289(11), 293(10) and 308(2)(e)” and “289(11), 293(8) and 308(2)(e)” of “ 54(9) and 59(1) of the Finance Act 1981 ” and “ 55(8) and 59(1) of that Act ”, respectively;

(e)in subsection (7) for “300, 301 or 303(3)” of “ 58 or 59(4) of the Finance Act 1981 ”.

(11)In any case where this section has effect in accordance with subsection (10) above and the qualifying company has one or more subsidiaries—

(a)subsection (3) above shall, where the inspector has notified the subsidiary that relief has been given in respect of shares in the company of which it is a subsidiary, apply to the subsidiary as respects any transfer of its shares as it applies to the company as respects any transfer of shares in the company; and