Finance Act 1994

5For section 291 (individuals qualifying for relief) there is substituted—

“291Individuals qualifying for relief

(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

(b)subject to section 291A(4), he is not at any time in the relevant period connected with the company.

(2)For the purposes of this section and sections 291A and 291B, 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.

(3)In subsection (2) above “subsidiary”, in relation to the issuing company, means a 51 per cent. subsidiary of the issuing company—

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

(b)whether or not it is such a subsidiary while he or his associate is such an employee, partner or director.

(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.

291AConnected persons: directors

(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 the relevant period, 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 (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 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 (“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

(ii)an employee of any person who previously carried on the trade carried on by the issuing company, 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 of five years beginning with the date of the latest issue of eligible shares which satisfied that paragraph,

and in paragraph (b) above “trade” includes any business, profession or vocation, and the reference to a trade previously carried on includes part of such a trade.

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

291BConnected persons: persons interested in capital etc. of company

(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.

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

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

(b)whether or not it is such a subsidiary while he 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.”