Finance Act 1998

71Pre-arranged exits from EIS

(1)After section 299A of the Taxes Act 1988 there shall be inserted the following section—

“299BPre-arranged exits

(1)An individual is not eligible for relief in respect of any shares in a company if the relevant arrangements include—

(a)arrangements with a view to the subsequent repurchase, exchange or other disposal of those shares or of other shares in or securities of the same company;

(b)arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the company or a person connected with the company;

(c)arrangements for the disposal of, or of a substantial amount of, the assets of the company or of a person connected with the company;

(d)arrangements the main purpose of which, or one of the main purposes of which, is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in that company against what would otherwise be the risks attached to making the investment.

(2)The arrangements referred to in subsection (1)(a) above do not include any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 304A(1).

(3)The arrangements referred to in subsection (1)(b) and (c) above do not include any arrangements applicable only on the winding up of a company except in a case where—

(a)the relevant arrangements include arrangements for the company to be wound up; or

(b)the company is wound up otherwise than for bona fide commercial reasons.

(4)The arrangements referred to in subsection (1)(d) above do not include any arrangements which are confined to the provision—

(a)for the company itself, or

(b)in the case of a company which is a parent company of a trading group, for the company itself, for the company itself and one or more of its subsidiaries or for one or more of its subsidiaries,

of any such protection against the risks arising in the course of carrying on its business as it might reasonably be expected so to provide in normal commercial circumstances.

(5)The reference in subsection (4) above to the parent company of a trading group shall be construed in accordance with the provision contained for the purposes of section 293 in that section.

(6)In this section “the relevant arrangements” means—

(a)the arrangements under which the shares are issued to the individual; and

(b)any arrangements made before the issue of the shares to him in relation to or in connection with that issue.

(7)In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.”

(2)In section 307(6)(a) of that Act (interest on overdue tax where relief withdrawn), after “289(6)” there shall be inserted “or 299B(1)”.

(3)In section 310 of that Act (information powers), in subsection (5), after “293(8)” there shall be inserted “, 299B(1)”.

(4)For subsection (6) of that section there shall be substituted the following subsection—

“(6)For the purposes of subsection (5) above the persons who are persons concerned are—

(a)in relation to section 289(6), the claimant, the company and any person controlling the company;

(b)in relation to section 291B(5), the claimant;

(c)in relation to section 293(8) or 308(2)(e), the company and any person controlling the company; and

(d)in relation to section 299B(1), the claimant, the company and any person connected with the company;

and for those purposes references in this subsection to the claimant include references to any person to whom the claimant appears to have made a transfer such as is mentioned in section 304(1) of any of the shares in question.”

(5)The preceding provisions of this section apply in relation to shares issued on or after 2nd July 1997.