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

CHAPTER IU.K. PERSONAL RELIEFS

The reliefsU.K.

256 General.U.K.

[F1(1)]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 [F2287 and 288].

[F3(2)Where under any provision of this Chapter the relief to which a person is entitled for any year of assessment consists in an income tax reduction calculated by reference to a specified amount, the effect of that relief shall be that the amount of that person’s liability for that year to income tax on his total income shall be the amount to which he would have been liable apart from that provision less whichever is the smaller of—

(a)the amount equal to [F410 per cent.] of the specified amount; and

(b)the amount which reduces his liability to nil.

(3)In determining for the purposes of subsection (2) above the amount of income tax to which a person would be liable apart from any provision providing for an income tax reduction, no account shall be taken—

(a)where that provision is [F5section 257AA], of any income tax reduction under any of the other provisions of this Chapter;

(b)F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . or

(c)whatever that provision—

(i)of any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 or by way of a credit under section 790(1); or

(ii)of any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment;

F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..]

[F9257 Personal allowance.U.K.

(1)The claimant shall be entitled to a deduction from his total income of [F10£3,005,].

(2)If the claimant F11. . . 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 [F10£3,670] (instead of the deduction provided for by subsection (1) above).

(3)If the claimant F11. . . is at any time within the year of assessment of the age of [F1275] or upwards, he shall be entitled to a deduction from his total income of [F10£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 [F10£12,300], subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by [F12one half] of the excess (but not so as to reduce those amounts below that specified in subsection (1) above).]]

[F13257AA Children’s tax credit.U.K.

F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

257A Married couple’s allowance.U.K.

(1)F15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)[F16If the claimant is, for the whole or any part of the year of assessment, a married man whose wife is living with him, and] either of them [F17was born before 6th April 1935], he shall be entitled [F18for that year to an income tax reduction calculated by reference to £2,665 ]. . . .

(3)[F16If the claimant is, for the whole or any part of the year of assessment, a married man whose wife is living with him, and] either of them

[F19(a)] is at any time within that year of the age of [F2075] or upwards,[F21 and

(b)was born before 6th April 1935,]

he shall be entitled [F22for that year to an income tax reduction calculated by reference to £2,705 (instead of to the reduction] provided for by subsection F23. . . (2) above).

(4)For the purposes of [F24subsection (3)] above a person who would have been of or over [F25the age of 75] 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 [F26£12,300], subsections (2) and (3) above shall apply as if the amounts specified in them were reduced by—

(a)[F20one half] of the excess, less

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

F27. . .

[F28(5A)The amounts specified in subsections (2) and (3) above shall not by virtue of subsection (5) above be treated as reduced below £1,970.]

(6)A man shall not be entitled by virtue of this section to more than one [F29income tax reduction] 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 [F30subsections (2) and (3)] above were reduced by one twelfth for each month of the year ending before the date of the marriage.

• In this subsection “month” means a month beginning with the 6th day of a month of the calendar year.

[F31(7)F32. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)F32. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9)F32. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F34257BA Elections as to transfer of relief under section 257A.U.K.

(1)A woman may elect that for any year of assessment for which her husband is entitled to relief under section 257A—

(a)she shall be entitled (on making a claim) [F35to an income tax reduction calculated by reference to] one half of the amount specified in [F36section 257A(5A)] for that year, and

(b)the amount [F37by reference to which the calculation of the income tax reduction to which he is entitled under section 257A is to be made] shall be reduced accordingly.

(2)A husband and wife may jointly elect that for any year of assessment for which the husband is entitled to relief under section 257A—

(a)she shall be entitled (on making a claim) [F35to an income tax reduction calculated by reference to] the amount specified in [F36section 257A(5A)] for that year, and

(b)the amount that [F37by reference to which the calculation of the income tax reduction to which he is entitled under section 257A is to be made] shall be reduced accordingly F38. . . .

(3)A man may elect that for any year of assessment for which his wife is entitled to relief by virtue of an election under subsection (2) above—

(a)he shall be entitled (on making a claim) to [F39to an income tax reduction calculated by reference to] one half of the amount specified in [F36section 257A(5A)] for that year (in addition to [F40any income tax reduction to which he is already entitled] under section 257A), and

(b)the amount [F41by reference to which the calculation of the income tax reduction to which she is entitled by virtue of that election is to be made] shall be reduced accordingly.

(4)An election under this section shall be made by giving notice to the inspector in such form as the Board may determine and—

(a)subject to subsections (5) and (7) below, shall be made before the first year of assessment for which it is to have effect, and

(b)shall have effect for that and each succeeding year of assessment for which the husband is entitled to relief under section 257A, subject to its withdrawal under subsection (8) below or a subsequent election under this section.

(5)An election may be made during the first year of assessment for which it is to have effect if that is the year of assessment in which the marriage takes place.

(6)Where subsection (5) above applies, the references in subsections (1)(a), (2)(a) and (3)(a) above to the amount specified for the year of assessment in [F36section 257A(5A)] shall be read as references to that amount reduced in accordance with section 257A(6).

(7)An election may be made within the first thirty days of the first year of assessment for which it is to have effect if before that year the inspector has been given written notification that it is intended to make the election.

(8)The person or persons by whom an election was made may withdraw it by giving notice to the inspector in such form as the Board may determine; but the withdrawal shall not have effect until the year of assessment after the one in which the notice is given.

(9)A woman shall not be entitled by virtue of an election under this section to more than one [F42income tax reduction] for any year of assessment.]

F43257BB Transfer of relief under section 257A where relief exceeds income.U.K.

(1)Where—

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

[F44(b)the amount of the reduction to which he is entitled is determined in accordance with section 256(2)(b) [F45 (read with section 25(6)(c) of the M2Finance Act 1990 where applicable)] or, by virtue of his having no income tax liability to which that reduction is applicable, is nil,

his wife shall be entitled (in addition to any reduction to which she is entitled by virtue of an election under section 257BA) to an income tax reduction calculated by reference to an amount equal to the unused part of the amount by reference to which her husband’s income tax reduction fell to be calculated in pursuance of section 257A and any election under section 257BA.]

(2)Subsection (1) above shall not apply for a year of assessment unless the claimant’s husband gives notice to the inspector that it is to apply.

(3)Where—

(a)a woman is entitled to relief by virtue of an election under section 257BA, but

[F46(b)the amount of the reduction to which she is entitled is determined in accordance with section 256(2)(b) [F45 (read with section 25(6)(c) of the M2Finance Act 1990 where applicable)] or, by virtue of her having no income tax liability to which that reduction is applicable, is nil,

her husband shall be entitled (in addition to any other reduction to which he is entitled by virtue of section 257A) to an income tax reduction calculated by reference to an amount equal to the unused part of the amount by reference to which his wife’s income tax reduction fell to be calculated in pursuance of that election.]

[F47(3A)In this section references, in relation to such an amount as is mentioned in subsection (1)(b) or (3)(b), to the unused part of an amount by reference to which any income tax reduction fell to be calculated are references to so much of it (including, where the amount so mentioned is nil, all of it) as has no practical effect on the determination of the amount so mentioned.]

(4)Subsection (3) above shall not apply for a year of assessment unless the claimant’s wife gives notice to the inspector that it is to apply.

(5)Any notice under subsection (2) or (4) above—

(a)shall be given [F48on or before the fifth anniversary of the 31st January next following] 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)F49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F50257B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(1)If the retail prices index for the month of [F54September] preceding a year of assessment is higher than it was for the previous [F54September], then, unless Parliament otherwise determines, [F55sections 257 [F56F57. . . ] 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.

F58(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F59(2A)Subsection (1) above shall not require any change to be made in the amounts deductible or repayable under [F60PAYE regulations] during 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 [F55sections 257 [F56F57. . . ] and 257A].

[F61(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.

F62. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F63. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F64. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F65258 Widower’s or widow’s housekeeper.U.K.

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

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

F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F67. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261 Claims under section 259 for year of marriage.U.K.

F68. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F69261A Additional relief in respect of children for year of separation.U.K.

F70. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

262 Widow’s bereavement allowance.U.K.

F71. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F72263 Dependent relatives.U.K.

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

F73264 Claimant depending on services of a son or daughter.U.K.

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

[F74265 Blind person’s allowance.U.K.

(1)If the claimant F75. . . is a registered blind person for the whole or any part of the year of assessment, he shall be entitled to a deduction of [F76£1,280] from his total income.

[F77(1A)Section 257C (indexation) shall have effect (using the rounding up rule in subsection (1)(b) of that section) for the application of this section for the year 1998-99 and any subsequent year of assessment as it has effect for the application of sections 257 and 257A.]

(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)F78. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)under F79. . . section 289 [F80 or

(c)on account of any payments to which section 593(2) or 639(3) applies,][F81or

(d)F82. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .] [F83F84 . . .

(e)F84. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(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 F85. . ..

(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 [F86on or before the fifth anniversary of the 31st January next following] 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 [F87section 257BB(2)].

(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)M3Subject 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)M4The 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 —

[F88(i)a person who has permission under Part 4 of the Financial Services and Markets Act 2000 or under paragraph 15 of Schedule 3 to that Act (as a result of qualifying for authorisation under paragraph 12(1) of that Schedule) to effect or carry out contracts of long-term insurance; or

(ii)a member of the Society who effects or carries out contracts of long-term insurance in accordance with Part 19 of the Financial Services and Markets Act 2000;]

(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)M5except in respect of premiums payable under policies for securing a capital sum on death, whether in conjunction with any other benefit or not;

(b)M6in 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)M7in 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)M8in respect of premiums payable during the period of deferment in respect of a policy of deferred assurance.

(4)M9Subject 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 [F8912.5 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)M10Where—

(a)a person is entitled to relief under this section in respect of part only of a payment made to a [F90friendly 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)), [F91and

(c)the insurance or contract is not excluded by subsection (6A) below,]

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.

[F92(6A)For the purposes of subsection (6)(c) above, an insurance or contract is excluded by this subsection if it is made on or after 1st September 1996 and affords provision for sickness or other infirmity (whether bodily or mental), unless—

(a)it also affords assurance for a gross sum independent of sickness or other infirmity;

(b)not less than 60 per cent. of the amount of the premiums is attributable to the provision afforded during sickness or other infirmity; and

(c)there is no bonus or addition which may be declared or accrue upon the assurance of the gross sum.]

(7)M11Where a person makes a payment to a trade union as defined in section 28(1) of the M12Trade 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)M13Where 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)M14Subsections (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 [F93spouse] of such a member as if the individual were so resident.

(10)M15Subsection (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)M17Subsection (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 [F94spouse, 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.

[F95(13)In this section and Schedule 14, “friendly society” means the same as in the Friendly Societies Act 1992 (and includes any society that by virtue of section 96(2) of that Act is to be treated as a registered friendly society within the meaning of that Act).]

[F96(14)In subsection (2)(a)—

• “contracts of long-term insurance” means contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001; and

• “member of the society” has the same meaning as in Lloyd’s Act 1982 M18.]

[F97266ALife assurance premiums paid by employerU.K.

(1)This section applies if—

(a)pursuant to a non-approved retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for or in respect of any employee of that employer, and

(b)the payment is made under such an insurance or contract as is mentioned in section 266.

This section applies whether or not the accrual of the relevant benefits is dependent on any contingency.

(2)Relief, if not otherwise allowable, shall be given to that employee under section 266 in respect of the payment to the extent, if any, to which such relief would have been allowable to him if—

(a)the payment had been made by him, and

(b)the insurance or contract under which the payment is made had been made with him.

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

(a)a retirement benefits scheme is “non-approved” unless it is—

(i)an approved scheme,

(ii)a relevant statutory scheme, or

(iii)a scheme set up by a government outside the United Kingdom for the benefit of its employees or primarily for their benefit, and

(b)benefits are provided in respect of an employee if they are provided for the employee’s spouse, widow or widower, children, dependants or personal representatives.

(4)Sections 611, 611A and 612 apply for the purposes of this section as they apply for the purposes of Chapter 1 of Part 14.

(5)Section 388 of ITEPA 2003 (apportionment of payments in respect of more than one employee) applies in relation to a sum within subsection (1) as it applies in relation to a sum within section 386 of that Act (charge on payments to non-approved retirement benefits schemes).

(6)This section does not apply in any case where either of the following provisions of ITEPA 2003 provides for section 386 of that Act not to apply—

(a)section 389 (employments where earnings charged on remittance basis), and

(b)section 390 (non-domiciled employees with foreign employers).]

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.

M19(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.

M20(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.

M21(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.

M22(1)Where—

(a)[F98by virtue of section 465 of ITTOIA 2005] a gain arising in connection with a policy F99. . . 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 F100. . .; and

(c)any sum is at any time after the making of the insurance F99. . . lent to or at the direction of that individual by or by arrangement with the body issuing the policy F101. . .;

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 F99. . . 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; F102. . .

F102(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

M23(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.

[F103273 Payments securing annuities.U.K.

[F104(1)]Subject to [F105subsection (2) and] sections 274 F106. . . 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.

[F107(2)No deduction may be made under this section in respect of any contribution paid by any person under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.]]

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

(1)M24The 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)M25The 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)M26In subsection (2) above “the appropriate rate”—

(a)in relation to premiums to which section 266 applies, means [F10812.5 per cent.];

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

(4)M27War 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.

F110275 Meaning of “relative”.U.K.

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

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

M28(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.

[F111(1A)In subsection (1) above the references to relief under this Chapter do not include references to relief consisting in such an income tax reduction as is mentioned in section 256(2).]

(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.

M29(1)F112. . . 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, F113. . .

(c)F113. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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)F114. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

278 Non-residents.U.K.

(1)M30Subject 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)belowF115, subsection (1) above shall not apply in the case of any individual who F116. . . —

(a)is a Commonwealth citizen or [F117an EEA national]; 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 [F118, or a widower whose late wife] was in the service of the Crown.

[F118F119(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(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 incomeF120.

(4)M31Subsection (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 reducedF118.

(5)M32For 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)aboveF120.

(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 availableF120.

(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)F120.

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

[F121(9)In this section “EEA national” means a national of any State, other than the United Kingdom, which is a Contracting Party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992, as adjusted by the Protocol signed at Brussels on 17th March 1993.]

CHAPTER IIU.K. TAXATION OF INCOME OF SPOUSES

General rulesU.K.

F122279 Aggregation of wife’s income with husband’s.U.K.

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

F123280 Transfer of reliefs.U.K.

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

F124281 Tax repayments to wives.U.K.

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

[F125282 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.].

[F126282A 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 [F127Part 9 of ITTOIA 2005 (partnerships)] applies.

[F128(4A)Subsection (1) above shall not apply to income consisting of a distribution arising from property consisting of—

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

(b)close company shares to which they are beneficially entitled in equal or unequal shares.

In this subsection “close company shares” means shares in or securities of a close company; and for this purpose “shares” and “securities” have the same meaning as in Part 6 (see section 254).]

(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.

F129283 Option for separate assessment.U.K.

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

F130284 Effect of separate assessment on personal reliefs.U.K.

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

F131285 Collection from wife of tax assessed on husband but attributable to her income.U.K.

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

F132286 Right of husband to disclaim liability for tax on deceased wife’s income.U.K.

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

Separate taxationU.K.

F133287 Separate taxation of wife’s earnings.U.K.

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

F134288 Elections under section 287.U.K.

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

CHAPTER IIIU.K. [F135ENTERPRISE INVESTMENT SCHEME]

[F136289 Eligibility for relief.U.K.

(1)For the purposes of this Chapter, an individual is eligible for relief, subject to the following provisions of this Chapter, if—

(a)eligible shares in a qualifying company for which he has subscribed F137. . . are issued to him and, under section 291, he qualifies for relief in respect of those shares,

[F138(aza)he subscribed for the shares (other than any of them which are bonus shares) wholly in cash,]

[F139(aa)at the time when they are issued the shares [F140(other than any of them which are bonus shares) are fully paid up],]

(b)the shares [F141(other than any of them which are bonus shares)] are issued in order to raise money for the purpose of a qualifying business activity,

[F142(ba)the requirements of subsection (1A) below are satisfied in relation to the company,]F143. . .

[F144[F145(c)at least 80 per cent. of the money raised by the issue of—

(i)the shares, and

(ii)all other eligible shares (if any) in the company of the same class which are issued on the same day,

is employed wholly for the purpose of the activity mentioned in paragraph (b) above not later than the time mentioned in subsection (3) below, and]

(d)all of the money so raised is employed wholly for that purpose not later than 12 months after that time.]

[F146(1A)The requirements of this subsection are satisfied in relation to the qualifying company if at no time in the relevant period is any of the following, namely—

(a)the relevant qualifying trade,

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

(c)relevant research and development (if any),

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

(1B)In a case where relevant preparation work is carried on by the qualifying company or a qualifying 90% subsidiary of that company, there is to be disregarded, for the purpose of determining whether the requirements of subsection (1A) above are satisfied in relation to the qualifying company, the carrying on of the relevant qualifying trade by a company other than—

(a)the qualifying company, or

(b)a subsidiary of that company,

at any time in the relevant period before the qualifying company or any qualifying 90% subsidiary of that company carries on that trade.

(1C)The requirements of subsection (1A) above are not to be regarded as failing to be satisfied in relation to the qualifying company if—

(a)by reason only of anything done as a consequence of the qualifying company or any other company being in administration or receivership, or

(b)by reason only of the qualifying company or any other company being wound up or dissolved without winding up,

the relevant qualifying trade ceases to be carried on in the relevant period by the qualifying company or any qualifying 90% subsidiary of that company and is subsequently carried on in that period by a person who is not at any time in the period of restriction connected with the qualifying company.

(1D)Subsection (1C) above applies only if (as the case may be)—

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

(b)the winding up or dissolution,

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

(1E)In this section—

• “relevant preparation work” means preparations falling within subsection (2)(a)(ii) below which are the subject of the qualifying business activity mentioned in subsection (1) above,

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

• “relevant research and development” means—

  (a)

  research and development falling within subsection (2)(b) below which is the subject of that qualifying business activity, and

  (b)

  any other preparations for the carrying on of the qualifying trade which is the subject of that activity.]

(2)In this Chapter “qualifying business activity”, in relation to a company, means—

(a)the company or any [F147qualifying 90% subsidiary of that company]—

(i)carrying on a qualifying trade which, on the date the shares are issued, [F148the company or any such subsidiary] is carrying on, or

(ii)[F149preparing to carry on, or carrying on,] a qualifying trade which, on that date, [F150is intended to be carried] on wholly or mainly in the United Kingdom [F151by the company or any such subsidiary and which is begun to be carried on by the company or any such subsidiary] within two years after that date,

but only if, at any time in the relevant period when the qualifying [F152trade is so] carried on, it is carried on wholly or mainly in the United Kingdom, [F153or]

(b)the company or any [F154qualifying 90% subsidiary of that company] carrying on research and development—

(i)which, on the date the shares are issued, [F155the company or any such subsidiary is carrying on or which the company or any such subsidiary] begins to carry on immediately afterwards, and

(ii)from which it is intended that a qualifying trade which the company or any [F156such subsidiary] will carry on wholly or mainly in the United Kingdom will be derived,

but only if, at any time in the relevant period when the research and development or the qualifying trade derived from it is carried on, it is carried on wholly or mainly in the United Kingdom.F157. . .

(c)F158. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(a)the end of the period of twelve months beginning with the issue of the eligible shares, or

(b)in the case of money raised only for the purpose referred to in subsection (2)(a) above, the end of that period or, if later, the end of the period of twelve months beginning when the company or [F159a qualifying 90% subsidiary of that company] begins to carry on the qualifying trade,

and for the purposes of this Chapter, the [F160conditions in subsection (1)(c) and (d) above do] not fail to be satisfied by reason only of the fact that an amount of money which is not significant is employed for another purpose.

[F161(3A)In determining—

(a)for the purposes of subsection (2)(a)(ii) or (3)(b) above when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, or

(b)for the purposes of subsection (2)(b)(i) above when research and development is begun to be carried on by such a subsidiary of a company,

there shall be disregarded any carrying on of the trade or, as the case may be, the research and development by it before it became such a subsidiary of the company.]

(4)F162. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)F162. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6)An individual is not eligible for relief in respect of any shares unless the shares are subscribed [F163for], 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.

(7)In this Chapter “eligible shares” means new ordinary shares which, throughout [F164 the period—

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

(b)ending immediately before the termination date relating to those shares,]

carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future F165. . . right to be redeemed.

(8)Section 312(1A)(b) applies to determine the relevant period for the purposes of this section.

[F166(8A)Shares are not fully paid up for the purposes of subsection (1)(aa) above if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.]

[F167(9)For the purposes of this Chapter, a company (“the relevant subsidiary”) is a qualifying 90% subsidiary of another company (“the holding company”) if the following conditions are met—

(a)the holding company possesses not less than 90% of the issued share capital of, and not less than 90% of the voting power in, the relevant subsidiary;

(b)the holding company would—

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

(ii)in any other circumstances,

be beneficially entitled to receive not less than 90% of the assets of the relevant subsidiary which would then be available for distribution to the equity holders of the subsidiary;

(c)the holding company is beneficially entitled to not less than 90% of any profits of the relevant subsidiary which are available for distribution to the equity holders of the subsidiary;

(d)no person other than the holding company has control of the relevant subsidiary within the meaning of section 840; and

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

(10)Subsections (3), (3A) and (4) of section 308 apply in relation to the conditions in subsection (9) above as they apply in relation to the conditions in subsection (2) of that section, but with the following modifications.

(11)Those modifications are—

(a)that references in subsections (3), (3A) and (4) of that section to the subsidiary are to be read as references to the relevant subsidiary, and

(b)that subsection (4) of that section is to be read as if the words the holding company were substituted for the words “the qualifying company or (as the case may be) by another subsidiary”.

(12)For the purposes of subsection (9) above—

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

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

are to be determined in accordance with paragraphs 1 and 3 of Schedule 18.

(13)But in making that determination—

(a)references in paragraph 3 of Schedule 18 to the first company are to be read as references to an equity holder, and

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

[F168289A Form of relief.U.K.

(1)Where an individual eligible for relief in respect of any amount subscribed for eligible shares makes a claim, then, subject to the following provisions of this Chapter, the amount of his liability for the year of assessment in which the shares were issued (“the current year”) to income tax on his total income shall be the following amount.

(2)That amount is the amount to which he would be so liable apart from this section less whichever is the smaller of—

(a)an amount equal to tax at the lower rate for the current year on the amount or, as the case may be, the aggregate of the amounts subscribed for eligible shares issued in that year in respect of which he is eligible for relief, and

(b)the amount which reduces his liability to nil.

(3)Subject to subsection (4) below, if in the case of any issue of relevant shares, that is, shares—

(a)which are issued before 6th October in the current year, and

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

the individual so requests in his claim, subsection (1) above shall apply as if, in respect of such part of that issue as may be specified in his claim, the shares had been issued in the preceding year of assessment; and his liability to income tax for both years of assessment shall be determined accordingly.

(4)Not more than half of the relevant shares comprised in any issue may be treated by virtue of subsection (3) above as issued in the previous year; and the number of relevant shares (comprised in any issues) so treated as issued in a particular year shall not be such that the total amount subscribed for them exceeds [F169£25,000].

(5)In determining for the purposes of subsection (2) above the amount of income tax to which a person would be liable apart from this section, no account shall be taken of—

(a)any income tax reduction under Chapter I of Part VII of this Act or under section 347B,

(b)any income tax reduction under section 353(1A),

(c)any income tax reduction under section 54(3A) of the Finance Act 1989,

[F170(ca)any income tax reduction under paragraph 19(2) of Schedule 16 to the Finance Act 2002 (community investment tax relief),]

(d)any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 or by way of a credit under section 790(1), or

(e)any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.

(6)[F171A claim for relief in respect of eligible shares issued by a company shall not be allowed unless subsection (7) below is complied with in relation to the issue of shares in question] but, where it is complied with, the relief may be given at any time when it appears that the conditions for the relief may be satisfied.

(7)This subsection is complied with if—

(a)in [F172a case where the money raised by an issue of eligible shares is raised wholly] for the purpose of a qualifying business activity falling within paragraph (a) of section 289(2), the [F173trade concerned has been carried on for four months by no person other than the qualifying company or a qualifying 90% subsidiary of that company], [F174and]

(b)in [F175a case where the money raised by an issue of eligible shares is raised wholly or partly] for the purpose of a qualifying business activity falling within paragraph (b) of that subsection [F176the research and development concerned has been carried on for four months by no person other than the qualifying company or a qualifying 90% subsidiary of that company]. F177. . .

(c)F178. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)Where—

[F179(a)by reason only of the qualifying company or any other company being wound up or dissolved without winding up—

(i)the trade concerned is carried on as mentioned in subsection (7)(a) above, or

(ii)the research and development concerned is carried on as mentioned in subsection (7)(b) above,

for a period shorter than four months, and]

(b)F180. . . the winding up or dissolution [F181is for] bona fide commercial reasons and [F182is not] part of a scheme or arrangement the main purpose or one of the main purposes of [F183which is] the avoidance of tax,

subsection (7)(a) [F184or, as the case may be, (7)(b)] above shall have effect as if it referred to that shorter period.

[F185(8A)[F186 Where, by reason only of anything done as a consequence of the qualifying company or any other company being in administration or receivership—

(a)the trade concerned is carried on as mentioned in subsection (7)(a) above for a period shorter than four months, or

(b)the research and development concerned is carried on as mentioned in subsection (7)(b) above for a period shorter than four months,

subsection (7)(a) or, as the case may be, (7)(b) above shall have effect as if it referred to that shorter period.]

This applies only if—

(a)[F187the entry into administration or receivership], and

(b)everything done as a consequence of the company [F188concerned] being in administration or receivership,

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

(9)F189. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F190289B Attribution of relief to shares.U.K.

(1)References in this Chapter, in relation to any individual, to the relief attributable to any shares or issue of shares shall be read, subject to the provisions of this Chapter providing for the reduction or withdrawal of relief, as references to any reduction made in the individual’s liability to income tax which is attributed to those shares or that issue in accordance with this section.

(2)Where an individual’s liability to income tax is reduced in any year of assessment (“the current year”) under section 289A, then—

(a)where the reduction is given by reason of an issue of shares made (or treated as made) in the current year, the amount of the reduction shall be attributed to that issue, and

(b)where the reduction is given by reason of two or more issues of shares made (or treated as made) in the current year, the reduction—

(i)shall be apportioned between those issues in the same proportions as the amounts subscribed by the individual for each issue, and

(ii)shall be attributed to those issues accordingly.

(3)Where under this section an amount of any reduction of income tax is attributed to an issue of shares (“the original issue”) in a company to an individual—

(a)a proportionate part of that amount shall be attributed to each share comprised in the original issue, and

(b)if any [F191corresponding bonus shares in that company] are issued to him at any subsequent time—

(i)a proportionate part of the total amount attributed immediately before that time to shares comprised in the original issue shall be attributed to each of the shares in the holding comprising those shares and the bonus shares, and

(ii)this Chapter shall apply as if the original holding had comprised all those shares.

[F192(3A)In subsection (3) above “corresponding bonus shares” means bonus shares which—

(a)are issued in respect of the shares comprised in the original issue; and

(b)are of the same class, and carry the same rights, as those shares.]

[F193(4)Subject to subsection (5) below, in this Chapter references (however expressed) to an issue of eligible shares in any company to an individual are references to any eligible shares in the company that are of the same class and are issued to him on the [F194same day, but this subsection does not apply in relation to section 289A(6) and (7)].]

(5)Where section 289A(1) applies in the case of any issue of shares as if part of the issue had been issued in a previous year, this section and [F195sections 299(4) and 306(1)] shall have effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous year).

(6)Where, at a time when any relief is attributable to, or to any part of, any issue of shares, the relief falls to be withdrawn or reduced under this Chapter—

(a)where it falls to be withdrawn, the relief attributable to each of the shares in question shall be reduced to nil, and

(b)where it falls to be reduced by any amount, the relief attributable to each of the shares in question shall be reduced by a proportionate part of that amount.]

290 Minimum and maximum subscriptions.U.K.

M33(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.

[F196(2)An individual shall not be eligible for relief in any year of assessment in respect of any amount subscribed for eligible shares exceeding [F197£200,000] (whether the shares are issued in that or a subsequent year).]

[F198F199290A Restriction of relief where amounts raised exceed permitted maximum.U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F200291 Individuals qualifying for relief.U.K.

(1)An individual qualifies for relief in respect of eligible shares in a company (referred to in this section and sections 291A and 291B as the “issuing company”) if—

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

[F201(b)subject to section 291A(4), he is not at any time in the period—

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

(ii)ending immediately before the termination date relating to those shares,

connected with the company (whether before or after its incorporation).]

(2)For the purposes of this section F202 . . . , an individual is connected with the issuing company if he, or an associate of his, is—

(a)an employee of, or of a partner of, the issuing company or any subsidiary,

(b)a partner of the issuing company or any subsidiary, or

(c)subject to section 291A, a director of, or of a company which is a partner of, the issuing company or any subsidiary,

or if he, or an associate of his, is so connected by virtue of section 291B.

[F203(3)In subsection (2) above “subsidiary”, in relation to the issuing company, means a company which at any time in the relevant period is a 51 per cent subsidiary of the issuing company, whether or not it is such a subsidiary while the individual concerned or his associate is such an employee, partner or director as is mentioned in that subsection.]

(4)For the purposes of subsections (2) and (3) above and section 291A, in the case of a person who is both a director and an employee of a company—

(a)references (however expressed) to him in his capacity as a director of the company include him in his capacity as an employee of the company, but

(b)(apart from that) he is not to be treated as an employee of the company.

(5)Section 312(1A)(a) applies to determine the relevant period for the purposes of this section and sections 291A and 291B.

[F204[F205(6)F206. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]]]

[F207291A Connected persons: directors.U.K.

(1)An individual is not connected with the issuing company by reason only that he, or an associate of his, is a director of that or another company unless he or his associate (or a partnership of which he or his associate is a member)—

(a)receives a payment from the issuing company or a related person during [F208the period mentioned in section 291(1)(b)], or

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

(2)In this section—

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

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

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

(b)any reference to a payment to an individual includes a payment made to him indirectly or to his order or for his benefit.

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

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

(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,

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

(f)any reasonable and necessary remuneration which —

(i)is paid for services rendered to the issuing company or related person in the course of a trade or profession [F209carried on wholly or partly in the United Kingdom ](not being secretarial or managerial services or services of a kind provided by the person to whom they are rendered), and

(ii)is taken into account[F210 in calculating for tax purposes the profits of that trade or profession].

(4)An individual (“the subscriber”) who subscribes for eligible shares (“the relevant shares”) may qualify for the relief notwithstanding his connection with the company at any time in the relevant period if—

(a)he is so connected by reason only of his, or his associate’s, being a director of, or of a company which is a partner of, the issuing company or a subsidiary in receipt of, or entitled to receive, remuneration as such, and

(b)the following conditions are satisfied;

and in this subsection and subsection (5) below “remuneration” includes any benefit or facility.

(5)The conditions are that—

(a)in relation to the director (whether he is the subscriber or his associate), his remuneration, or the remuneration to which he is entitled, (leaving out of account any reasonable and necessary remuneration falling within subsection (3)(f) above) consists only of remuneration which is reasonable remuneration for services rendered to the company of which he is a director in his capacity as such,

(b)the subscriber was issued with eligible shares (whether the relevant shares or a previous issue of eligible shares) at a time when he had never been—

(i)connected with the issuing company, or

[F211(ii)involved in carrying on (whether on his own account or as a partner, director or employee) the whole or any part of the trade carried on by the issuing company or a subsidiary, and]

(c)where the issue of the relevant shares did not satisfy paragraph (b) above, they were not issued after the end of the period—

[F212(i)]beginning with the date of the latest issue of eligible shares which satisfied that paragraph, [F213and

(ii)ending immediately before the termination date relating to those eligible shares,]

and in paragraph (b) above “trade” includes any business, profession or vocation F214. . . .

(6)In this section “subsidiary”, in relation to the issuing company, means a 51 per cent. subsidiary of the issuing company.]

[F215291B Connected persons: persons interested in capital etc. of company.U.K.

(1)An individual is connected with the issuing 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 any subsidiary,

(b)the loan capital and issued share capital of the company or any subsidiary, or

(c)the voting power in the company or any subsidiary.

(2)An individual is connected with the issuing 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 any subsidiary or in any other circumstances, entitle him to receive more than 30 per cent. of the assets of the company or subsidiary (the “company in question”) which would then be available for distribution to equity holders of the company in question.

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

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

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

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 in question are available for distribution to its equity holders.

(4)An individual is connected with a company if he has control of it or of any subsidiary.

(5)Where an individual subscribes for shares in a company with which (apart from this subsection) he is not connected, 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 (assuming it to be an issuing company) that or any other individual who is a party to the arrangement is connected.

[F216(5A)An individual is not connected with a company by reason only of the fact that one or more shares in the company are held by him, or by an associate of his, at a time when the company—

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

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

[F217(6)In this section “subsidiary”, in relation to the issuing company, means a company which at any time in the relevant period is a 51 per cent. subsidiary of the issuing company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section.]

(7)For the purposes of this section 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,

(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 on it).

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

(10)Section 840 applies for the purposes of this section.]

292 Parallel trades. F218U.K.

M34(1)[F219An individual is not eligible for relief in respect of any shares in a company if, 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 [F220any company which is a 51 per cent. subsidiary of that company on the date referred to in subsection (2) above]; and

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

[F221(5)This section shall not apply where the shares mentioned in subsection (1) above are issued on or after 29th November 1994.]

293 Qualifying companies.U.K.

[F222(1)Subject to section 294, a company is a qualifying company (whether it is resident in the United Kingdom or elsewhere) if it complies with the requirements of this section.

[F223(1A)At the beginning of the relevant period, the company must be—

(a)an unquoted company, and

(b)a company to which subsection (1B) below does not apply.

(1B)This subsection applies to a company—

(a)if arrangements are in existence for it to cease to be an unquoted company; or

(b)if—

(i)arrangements are in existence for it to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, in relation to which section 304A (certain exchanges resulting in acquisition of share capital by new company) applies, and

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

(2)The company must, throughout the relevant period, F224. . . be—

(a)a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities, or

[F225(aa)the parent company of a trading group.]

(3)In this section “qualifying subsidiary”, in relation to a company, means a subsidiary of a kind which that company may hold by virtue of section 308.]

[F226(3A)For the purposes of this section a company is the parent company of a trading group if—

(a)it has one or more subsidiaries;

(b)each of its subsidiaries is a qualifying subsidiary of the company; and

(c)the requirements of subsection (3B) below are fulfilled by what would be the business of the company and its subsidiaries if all the activities, taken together, of the company and its subsidiaries were regarded as one business.

(3B)A business fulfils the requirements of this subsection if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say—

(a)activities falling within section 297(2)(a) to (g) but not within subsection (3C) below; and

(b)activities [F227(other than research and development F228. . .)] carried on otherwise than in the course of a trade.

(3C)The activities falling within this subsection are—

(a)the receiving of royalties or licence fees in circumstances where [F229the requirement mentioned in section 297(4) is] satisfied in relation to the company receiving them;

(b)the letting of ships, other than [F230offshore installations] or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of section 297(6) are satisfied in relation to the company so letting them.

(3D)Activities of a company or of any of its subsidiaries shall be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—

(a)the holding of shares in or securities of, or the making of loans to, one or more of the company’s subsidiaries; or

(b)the holding and managing of property used by the company or 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.

(3E)Activities of a subsidiary of a company shall also be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—

(a)the making of loans to the company; or

(b)in the case of a mainly trading subsidiary, activities carried on otherwise than in pursuance of its main purpose.

(3F)For the purposes of subsection (3E) above—

(a)“mainly trading subsidiary” means a subsidiary which, apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades; and

(b)that purpose shall be taken to be its main purpose.]

F231(4)F232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F233(4A)A company F234. . . shall not be regarded as ceasing to comply with subsection (2) above by reason [F235only] of anything done as a consequence of [F236the company, or any of its subsidiaries,] being in administration or receivership.

This subsection has effect subject to subsection (4B) and subsection (5) below.

(4B)Subsection (4A) applies only if—

(a)[F237the entry into administration or receivership], and

(b)everything done as a consequence of the company [F238concerned] being in administration or receivership,

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

(5)M35Without 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 [F239or any of its subsidiaries] (or, in the case of a winding up otherwise than under the M36Insolvency Act 1986 or the M37Companies (Northern Ireland) Order 1986, any other act is done for the like purpose) or the company [F240or any of its subsidiaries] is dissolved without winding up.

(6)A company shall not be regarded as ceasing to comply with subsection (2) above if it does so [F241by reason only of the company or any of its subsidiaries] being wound up or dissolved without winding up and—

(a)F242. . . the winding up or dissolution is for bona fide commercial reasons [F243and is not] part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax; F244. . .

(b)F244. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F245(6ZA)The company must not at any time in the relevant period have a property managing subsidiary which is not a qualifying 90% subsidiary of the company.

(6ZB)“Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(6ZC)In subsection (6ZB) above, “land” and “property deriving its value from land” have the same meaning as in section 776.]

[F246(6A)The value of the relevant assets—

(a)must not exceed £15 million immediately before the issue of the eligible shares; and

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

(6B)Subject to subsection (6C) below, the reference in subsection (6A) above to the value of the relevant assets is a reference—

(a)in relation to a time when the company did not have any qualifying subsidiaries, to the value of the gross assets of the company at that time; and

(b)in relation to any other time, to the aggregate value at that time of the gross assets of all the companies in the company’s group.

(6C)For the purposes of subsection (6B) above assets of any member of the company’s group that consist in rights against, or in shares in or securities of, another member of the group shall be disregarded.

(6D)In subsections (6B) and (6C) above references, in relation to any time, to the company’s group are references to the company and its qualifying subsidiaries at that time.]

(7)F247. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F248[F249(8)Subject to section 304A, the company must not at any time in the relevant period—

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

(b)be—

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

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

and 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 (whether during that period or otherwise).

(8AA)In subsection (8)(b) above “control” has the meaning given by section 840.]

(8A)Section 312(1A)(b) applies to determine the relevant period for the purposes of this section and sections 294, 295 and 296.]

[F250(8B)In arriving at the relevant period for the purposes of sections 294 to 296 any time falling on or after 29th November 1994 shall be ignored; and subsection (8A) above shall have effect subject to the preceding provisions of this subsection.]

F251(9)F232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F251(10)F232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F251(11)F232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .