Income Tax Act

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Income Tax Act 2007
2007 CHAPTER 3
An Act to restate, with minor changes, certain enactments relating to income tax; and
for connected purposes. [20th March 2007] BE IT ENACTED by the Queen's most Excellent Majesty, by and with the advice and consent of
the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by
the authority of the same, as follows:—
PART 1
OVERVIEW
1 Overview of Income Tax Acts
(1) The following Acts make provision about income tax—
(a) ITEPA 2003 (which is about charges to tax on employment income, pension
income and social security income),
(b) ITTOIA 2005 (which is about charges to tax on trading income, property
income, savings and investment income and some other miscellaneous
income), and
(c) this Act (which contains the other main provisions about income tax).
(2) There are also provisions about income tax elsewhere: see in particular—
(a) Part 18 of ICTA (double taxation relief),
(b) CAA 2001 (allowances for capital expenditure), and
(c) Part 4 of FA 2004 (pension schemes etc).
(3) Schedule 1 to the Interpretation Act 1978 (c. 30) defines “the Income Tax Acts” (as
all enactments relating to income tax).

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2 Overview of Act
(1) This Act has 17 Parts.
(2) Part 2 contains basic provisions about income tax including—
(a) provision about the annual nature of income tax (Chapter 1),
(b) the rates at which income tax is charged (Chapter 2), and
(c) the calculation of income tax liability (Chapter 3).
(3) Part 3 is about taxpayers' personal reliefs including—
(a) personal allowances (Chapter 2),
(b) blind persons' allowances (Chapter 2), and
(c) tax reductions for married couples and civil partners (Chapter 3).
(4) Part 4 is about loss relief including relief for—
(a) trade losses (Chapters 2 and 3),
(b) losses from property businesses (Chapter 4),
(c) losses in an employment or office (Chapter 5),
(d) losses on disposal of shares (Chapter 6), and
(e) losses from miscellaneous transactions (Chapter 7).
(5) Part 5 is about relief under the enterprise investment scheme.
(6) Part 6 is about—
(a) relief for investment in venture capital trusts, and
(b) other matters relating to venture capital trusts.
(7) Part 7 is about community investment tax relief.
(8) Part 8 is about a variety of reliefs including relief for—
(a) interest payments (Chapter 1),
(b) gifts to charity including gift aid (Chapters 2 and 3),
(c) annual payments and patent royalties (Chapter 4), and
(d) maintenance payments (Chapter 5).
(9) Part 9 contains special rules about settlements and trustees including—
(a) general provision about settlements and trustees (Chapter 2),
(b) special income tax rates for trusts (Chapters 3, 4, 5 and 6),
(c) rules about trustees' expenses (Chapters 4 and 8),
(d) rules about trustees' discretionary payments (Chapter 7),
(e) rules about unauthorised unit trusts (Chapter 9), and
(f) rules about heritage maintenance settlements (Chapter 10).
(10) Part 10 contains special rules about charitable trusts etc.
(11) Part 11 is about manufactured payments and repos.
(12) Part 12 is about accrued income profits.
(13) Part 13 is about tax avoidance in relation to—
(a) transactions in securities (Chapter 1),
(b) transfers of assets abroad (Chapter 2),
(c) transactions in land (Chapter 3),

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(d) sales of occupation income (Chapter 4), and
(e) trade losses (Chapter 5).
(14) Part 14 deals with some miscellaneous rules about income tax liability, including—
(a) limits on liability to income tax for non-UK residents (Chapter 1),
(b) special rules about residence (Chapter 2), and
(c) rules about jointly held property (Chapter 3).
(15) Part 15 is about the deduction of income tax at source.
(16) Part 16 contains definitions which apply for the purposes of the Income Tax Acts and
other general provisions which apply for the purposes of those Acts.
(17) Part 17—
(a) contains provisions to be used in interpreting this Act,
(b) introduces Schedule 1 (minor and consequential amendments),
(c) introduces Schedule 2 (transitional provisions and savings),
(d) introduces Schedule 3 (repeals and revocations, including of spent enactments),
(e) introduces Schedule 4 (index of defined expressions that apply for the purposes
of this Act),
(f) confers powers on the Treasury to make orders, and
(g) makes provision about the coming into force of this Act.
PART 2
BASIC PROVISIONS
CHAPTER 1
CHARGES TO INCOME TAX
3 Overview of charges to income tax
(1) Income tax is charged under—
(a) Part 2 of ITEPA 2003 (employment income),
(b) Part 9 of ITEPA 2003 (pension income),
(c) Part 10 of ITEPA 2003 (social security income),
(d) Part 2 of ITTOIA 2005 (trading income),
(e) Part 3 of ITTOIA 2005 (property income),
(f) Part 4 of ITTOIA 2005 (savings and investment income), and
(g) Part 5 of ITTOIA 2005 (miscellaneous income).
(2) Income tax is also charged under other provisions, including—
(a) Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),
(b) section 7 of F(No.2)A 2005 (social security pension lump sums),
(c) Part 10 of this Act (special rules about charitable trusts etc),
(d) Chapter 2 of Part 12 of this Act (accrued income profits), and
(e) Part 13 of this Act (tax avoidance).

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4 Income tax an annual tax
(1) Income tax is charged for a year only if an Act so provides.
(2) A year for which income tax is charged is called a “tax year”.
(3) A tax year begins on 6 April and ends on the following 5 April.
(4) “The tax year 2007-08” means the tax year beginning on 6 April 2007 (and any
corresponding expression in which two years are similarly mentioned is to be read in
the same way).
(5) Every assessment to income tax must be made for a tax year.
(6) Subsection (5) is subject to Chapter 15 of Part 15 (by virtue of which an assessment
may relate to a return period).
5 Income tax and companies
(1) Income tax is not charged on income of a company so far as the company is within the
charge to corporation tax in respect of the income.
(2) See in particular sections 6(2) and 11(1) of ICTA for the circumstances in which a
company is within the charge to corporation tax in respect of its income.
CHAPTER 2
RATES AT WHICH INCOME TAX IS CHARGED
The rates
6 The starting rate, basic rate and higher rate
(1) The main rates at which income tax is charged are—
(a) the starting rate,
(b) the basic rate, and
(c) the higher rate.
(2) The starting rate, basic rate and higher rate for a tax year are the rates determined as
such by Parliament for the tax year.
(3) For other rates at which income tax is charged see—
(a) section 7 (savings rate),
(b) section 8 (dividend ordinary rate and dividend upper rate), and
(c) section 9 (trust rate and dividend trust rate).
7 The savings rate
The savings rate is 20%.
8 The dividend ordinary rate and dividend upper rate
(1) The dividend ordinary rate is 10%.

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(2) The dividend upper rate is 32.5%.
9 The trust rate and dividend trust rate
(1) The trust rate is 40%.
(2) The dividend trust rate is 32.5%.
Income charged at particular rates
10 Income charged at the starting, basic and higher rates: individuals
(1) Income tax is charged at the starting rate on an individual's income up to the starting
rate limit.
(2) Income tax is charged at the basic rate on an individual's income above the starting rate
limit and up to the basic rate limit.
(3) Income tax is charged at the higher rate on an individual's income above the basic rate
limit.
(4) This section is subject to—
section 12 (income charged at the savings rate),
section 13 (income charged at the dividend ordinary and dividend upper rates:
individuals), and
any other provisions of the Income Tax Acts which provide for income of an
individual to be charged at different rates of income tax in some circumstances.
(5) See section 20 for the starting rate limit and the basic rate limit.
11 Income charged at the basic rate: other persons
(1) Income tax is charged at the basic rate on the income of persons other than individuals.
(2) This section is subject to—
section 12 (income charged at the savings rate),
section 14 (income charged at the dividend ordinary rate: other persons),
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged
at the dividend trust rate or at the trust rate), and
any other provisions of the Income Tax Acts which provide for income of persons
other than individuals to be charged at different rates of income tax in some
circumstances.
12 Income charged at the savings rate
(1) Income tax is charged at the savings rate on a person's income which—
(a) is savings income, and
(b) would otherwise be charged at the basic rate.
(2) This is subject to—
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged
at the dividend trust rate or at the trust rate),

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section 504(3) (treatment of income of unauthorised unit trust), and
any other provisions of the Income Tax Acts (apart from sections 10 and 11)
which provide for income to be charged at different rates of income tax in some
circumstances.
(3) Section 16 has effect for determining the extent to which a person's savings income
would otherwise be charged at the basic rate.
13 Income charged at the dividend ordinary and dividend upper rates: individuals
(1) Income tax is charged at the dividend ordinary rate on an individual's income which—
(a) is dividend income,
(b) would otherwise be charged at the starting or basic rate, and
(c) is not relevant foreign income charged in accordance with section 832 of
ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(2) Income tax is charged at the dividend upper rate on an individual's income which—
(a) is dividend income, and
(b) would otherwise be charged at the higher rate.
(3) Subsections (1) and (2) are subject to any provisions of the Income Tax Acts (apart
from section 10) which provide for income to be charged at different rates of income
tax in some circumstances.
(4) Section 16 has effect for determining the extent to which an individual's dividend
income would otherwise be charged at the starting, basic or higher rate.
14 Income charged at the dividend ordinary rate: other persons
(1) Income tax is charged at the dividend ordinary rate on the income of persons other than
individuals which—
(a) is dividend income,
(b) would otherwise be charged at the basic rate, and
(c) is not relevant foreign income charged in accordance with section 832 of
ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(2) This is subject to—
Chapters 3 to 6 of Part 9 (which provide for some income of trustees to be charged
at the dividend trust rate or at the trust rate),
section 504(3) (treatment of income of unauthorised unit trust), and
any other provisions of the Income Tax Acts (apart from section 11) which provide
for income of persons other than individuals to be charged at different rates of
income tax in some circumstances.
15 Income charged at the trust rate and the dividend trust rate
For the circumstances in which income tax is charged at the trust rate and the dividend
trust rate, see Chapters 3 to 6 of Part 9.

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16 Savings and dividend income to be treated as highest part of total income
(1) This section has effect for determining the rate at which income tax would be charged
on a person's savings or dividend income apart from sections 12 and 13.
(2) It also has effect for all other income tax purposes except for the purposes of—
(a) section 491 (special rates not to apply to first slice of trustees' trust rate income),
and
(b) sections 535 to 537 of ITTOIA 2005 (gains from contracts for life insurance
etc: top slicing relief).
(3) If a person has savings income but no dividend income, the savings income is treated
as the highest part of the person's total income.
(4) If a person has dividend income but no savings income, the dividend income is treated
as the highest part of the person's total income.
(5) If a person has both savings income and dividend income—
(a) the savings income and dividend income are together treated as the highest part
of the person's total income, and
(b) the dividend income is treated as the higher part of that part of the person's
total income.
(6) See section 1012 for the relationship between—
(a) the rules in this section, and
(b) other rules requiring particular income to be treated as the highest part of a
person's total income.
(7) References in this section to dividend income do not include dividend income which
is relevant foreign income charged in accordance with section 832 of ITTOIA 2005
(relevant foreign income charged on the remittance basis).
17 Repayment: tax paid at basic rate instead of starting or savings rate
(1) This section applies if income tax at the basic rate has been paid on income on which
income tax is chargeable at the starting or savings rate.
(2) If a claim is made, any necessary repayment of tax must be made.
18 Meaning of “savings income”
(1) This section applies for the purposes of the Income Tax Acts.
(2) “Savings income” is income—
(a) which is within subsection (3) or (4), and
(b) which is not relevant foreign income charged in accordance with section 832
of ITTOIA 2005 (relevant foreign income charged on the remittance basis).
(3) Income is within this subsection if it is—
(a) income chargeable under Chapter 2 of Part 4 of ITTOIA 2005 (interest),
(b) income chargeable under Chapter 7 of Part 4 of ITTOIA 2005 (purchased
life annuity payments), other than income from annuities specified in
section 718(2) of that Act (annuities purchased from certain life assurance
premium payments or under wills etc),

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(c) income chargeable under Chapter 8 of Part 4 of ITTOIA 2005 (profits from
deeply discounted securities), or
(d) income chargeable under Chapter 2 of Part 12 of this Act (accrued income
profits).
(4) Income is within this subsection if—
(a) it is chargeable under Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts
for life insurance etc), and
(b) an individual is, or personal representatives are, liable for income tax on it
(under section 465 or 466 of that Act).
19 Meaning of “dividend income”
(1) This section applies for the purposes of the Income Tax Acts.
(2) “Dividend income” is income which is—
(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK
resident companies),
(b) chargeable under Chapter 4 of that Part (dividends from non-UK resident
companies),
(c) chargeable under Chapter 5 of that Part (stock dividends from UK resident
companies),
(d) chargeable under Chapter 6 of that Part (release of loan to participator in close
company), or
(e) a relevant foreign distribution chargeable under Chapter 8 of Part 5 of ITTOIA
2005 (income not otherwise charged).
(3) In subsection (2) “relevant foreign distribution” means a distribution of a non-UK
resident company which—
(a) is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but
(b) would be chargeable under Chapter 3 of that Part if the company were UK
resident.
Starting rate limit and basic rate limit
20 The starting rate limit and the basic rate limit
(1) The starting rate limit is £2,150.
(2) The basic rate limit is £33,300.
(3) The basic rate limit is increased in some circumstances: see—
(a) section 414(2) (gift aid relief), and
(b) section 192(4) of FA 2004 (relief for pension contributions).
21 Indexation of the starting rate limit and the basic rate limit
(1) This section applies if the retail prices index for the September before the start of a tax
year is higher than it was for the previous September.
(2) The starting rate limit for the tax year is the amount found as follows.

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Step 1
Increase the starting rate limit for the previous tax year by the same percentage as the
percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £10, it is the starting rate limit for the tax year.
If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which
is a multiple of £10.
That amount is the starting rate limit for the tax year.
(3) The basic rate limit for the tax year is the amount found as follows.
Step 1
Increase the basic rate limit for the previous tax year by the same percentage as the
percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £100, it is the basic rate limit for the tax year.
If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which
is a multiple of £100.
That amount is the basic rate limit for the tax year.
(4) Subsections (2) and (3) do not require a change to be made in the amounts deductible or
repayable under PAYE regulations during the period beginning on 6 April and ending
on 17 May in the tax year.
(5) Before the start of the tax year the Treasury must make an order replacing the amounts
specified in section 20 with the amounts which, as a result of subsections (2) and (3),
are the starting rate limit and the basic rate limit for the tax year.
CHAPTER 3
CALCULATION OF INCOME TAX LIABILITY
22 Overview of Chapter
(1) This Chapter deals with the calculation of a person's income tax liability for a tax year.
(2) But it does not deal with any income tax liability mentioned in section 32.
(3) This Chapter needs to be read with Chapter 1 of Part 14 (limits on liability to income
tax of non-UK residents).
23 The calculation of income tax liability
To find the liability of a person (“the taxpayer”) to income tax for a tax year, take the
following steps. Step 1

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Identify the amounts of income on which the taxpayer is charged to income tax for the
tax year.
The sum of those amounts is “total income”.
Each of those amounts is a “component” of total income.
Step 2
Deduct from the components the amount of any relief under a provision listed in relation
to the taxpayer in section 24 to which the taxpayer is entitled for the tax year.
See section 25 for further provision about the deduction of those reliefs.
The sum of the amounts of the components left after this step is “net income”.
Step 3
Deduct from the amounts of the components left after Step 2 any allowances to
which the taxpayer is entitled for the tax year under Chapter 2 of Part 3 of this Act
or section 257 or 265 of ICTA (individuals: personal allowance and blind person's
allowance).
See section 25 for further provision about the deduction of those allowances.
Step 4
Calculate tax at each applicable rate on the amounts of the components left after Step 3.
See Chapter 2 of this Part for the rates at which income tax is charged and the income
charged at particular rates.
If the taxpayer is a trustee, see also Chapters 3 to 6 and 10 of Part 9 (special rules about
settlements and trustees) for further provision about the income charged at particular
rates.
Step 5
Add together the amounts of tax calculated at Step 4.
Step 6
Deduct from the amount of tax calculated at Step 5 any tax reductions to which the
taxpayer is entitled for the tax year under a provision listed in relation to the taxpayer
in section 26.
See sections 27 to 29 for further provision about the deduction of those tax reductions.
Step 7
Add to the amount of tax left after Step 6 any amounts of tax for which the taxpayer is
liable for the tax year under any provision listed in relation to the taxpayer in section 30.
The result is the taxpayer's liability to income tax for the tax year.
24 Reliefs deductible at Step 2
(1) If the taxpayer is an individual, the provisions referred to at Step 2 of the calculation
in section 23 are—

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(a) the following—
section 72 (early trade losses relief),
Chapter 6 of Part 4 (share loss relief),
Chapter 3 of Part 8 (gifts of shares, securities and real property to charities
etc),
sections 457 and 458 of this Act or section 266(7) of ICTA (payments to
trade unions or police organisations),
section 193(4) of FA 2004 (pension schemes: relief under net pay
arrangement: excess relief), and
section 194(1) of FA 2004 (pension schemes: relief on making of claim),
and
(b) the following—
section 64 (trade loss relief against general income),
section 83 (carry-forward trade loss relief),
section 89 (terminal trade loss relief),
section 96 (post-cessation trade relief),
section 118 (carry-forward property loss relief),
section 120 (property loss relief against general income),
section 125 (post-cessation property relief),
section 128 (employment loss relief against general income),
section 152 (loss relief against miscellaneous income),
Chapter 1 of Part 8 (interest payments),
Chapter 4 of Part 8 (annual payments and patent royalties),
section 574 (manufactured dividends on UK shares: payments by non-
companies),
section 579 (manufactured interest on UK securities: payments not
otherwise deductible),
Part 2 of CAA 2001 (plant and machinery allowances), in a case where
the allowance is to be given effect under section 258 of that Act (special
leasing of plant and machinery),
Part 3 of CAA 2001 (industrial buildings allowances), in a case where the
allowance is to be given effect under section 355 of that Act (buildings
for miners etc: carry-back of balancing allowances),
Part 8 of CAA 2001 (patent allowances), in a case where the allowance is
to be given effect under section 479 of that Act (persons having qualifying
non-trade expenditure),
section 555 of ITEPA 2003 (deduction for liabilities related to former
employment),
section 446 of ITTOIA 2005 (strips of government securities: relief for
losses),
section 454(4) of ITTOIA 2005 (listed securities held since 26 March
2003: relief for losses: persons other than trustees), and
section 600 of ITTOIA 2005 (relief for patent expenses).
(2) In any other case, the provisions referred to at Step 2 of the calculation in section 23
are—
(a) the provisions listed in subsection (1)(b), and
(b) section 505 (relief for trustees of unauthorised unit trust).

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25 Reliefs and allowances deductible at Steps 2 and 3: supplementary
(1) This section supplements the provisions about reliefs and allowances in Steps 2 and 3
of the calculation in section 23.
(2) At Steps 2 and 3, deduct the reliefs and allowances in the way which will result in the
greatest reduction in the taxpayer's liability to income tax.
(3) Subsection (2) is subject to—
section 65(2) to (4) (priority rule in relation to trade loss relief against general
income),
section 80(2) (ring fence income),
section 83(3) and (4) (carry-forward trade loss relief against trade profits),
section 89(3) (terminal trade loss relief against trade profits),
section 93(2) (terminal trade loss relief and mineral extraction trade),
section 95(2) (foreign trades etc reliefs only against qualifying foreign income),
section 115(2) (restrictions on reliefs for firms exploiting films),
section 118(3) and (4) (carry-forward property loss relief against property business
profits),
section 121(2) and (3) (priority rule in relation to property loss relief against
general income),
section 129(2) to (4) (priority rule in relation to employment loss relief against
general income),
section 133(4) (share loss relief against general income),
section 152(4) and (7) (loss relief against miscellaneous income),
sections 574(3) to (8) and 575 (manufactured dividends on UK shares: restrictions
on deductions),
section 579(2) to (5) and 580 (manufactured interest on UK securities: restrictions
on deductions),
section 258 of CAA 2001 (special leasing of plant or machinery),
section 355 of that Act (buildings for miners etc: carry-back of balancing
allowances),
section 479 of that Act (persons having qualifying non-trade expenditure),
section 601 of ITTOIA 2005 (how relief for patent expenses is given), and
any other provision of the Income Tax Acts under which reliefs or allowances
deductible at Step 2 or 3 are not permitted to be deducted from particular
components of income or are required to be deducted from particular components
of income or in a different order.
(4) A relief or allowance may be deducted at Step 2 or 3 only so far as there is sufficient
income from which to deduct it.
(5) In deciding whether there is sufficient income from which to deduct a relief or
allowance, reliefs and allowances already deducted at Step 2 or 3 must be taken into
account.
(6) Nothing in Step 2 or 3 is to be read as permitting a relief or allowance to be deducted
more than once.

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26 Tax reductions
(1) If the taxpayer is an individual, the provisions referred to at Step 6 of the calculation
in section 23 are—
(a) the following—
Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or 257BB
of ICTA (tax reductions for married couples and civil partners),
Chapter 1 of Part 5 (EIS relief),
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 7 (community investment tax relief),
section 453 (qualifying maintenance payments),
section 459 of this Act or section 273 of ICTA (payments for benefit of
family members),
section 461 (spreading of patent royalty receipts),
section 353(1A) of ICTA (relief for interest on loan to buy life annuity),
section 535 of ITTOIA 2005 (top slicing relief), and
section 539 of ITTOIA 2005 (relief for deficiencies), and
(b) the following—
section 788 of ICTA (double taxation arrangements: relief by agreement),
section 790(1) of ICTA (relief for foreign tax where no double taxation
arrangements),
section 401 of ITTOIA 2005 (relief: qualifying distribution after linked
non-qualifying distribution), and
sections 677 and 678 of ITTOIA 2005 (relief where foreign estates have
borne UK income tax).
(2) In any other case, the provisions referred to at Step 6 of the calculation in section 23
are—
(a) the provisions listed in subsection (1)(b), and
(b) section 26 of FA 2005 (trusts with vulnerable beneficiary: income tax relief).
27 Order of deducting tax reductions: individuals
(1) This section makes provision about the order in which tax reductions are to be deducted
at Step 6 of the calculation in section 23, if the taxpayer is an individual.
(2) Deduct the tax reductions in the order which will result in the greatest reduction in the
taxpayer's liability to income tax for the tax year.
(3) Subsection (2) is subject to subsections (4) to (6).
(4) If the taxpayer is entitled to tax reductions for the tax year under more than one of the
provisions listed in subsection (5), a tax reduction under a provision mentioned earlier
in the list must be deducted before a tax reduction under a provision mentioned later
in the list.
(5) The provisions are—
Chapter 2 of Part 6 (VCT relief),
Chapter 1 of Part 5 (EIS relief),
Chapter 1 of Part 7 (community investment tax relief),
section 353(1A) of ICTA (relief for interest on loan to buy life annuity),

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section 453 (qualifying maintenance payments),
section 459 of this Act or section 273 of ICTA (payments for benefit of family
members), and
Chapter 3 of Part 3 of this Act or section 257A, 257AB, 257BA or 257BB of ICTA
(tax reductions for married couples and civil partners).
(6) If the taxpayer is entitled to a tax reduction under—
(a) section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b) section 790(1) of ICTA (relief for foreign tax where no double taxation
arrangements),
that tax reduction must be deducted after any other tax reduction to which the taxpayer
is entitled for the tax year.
28 Order of deducting tax reductions: other persons
(1) This section makes provision about the order in which tax reductions are to be deducted
at Step 6 of the calculation in section 23, if the taxpayer is a person other than an
individual.
(2) Deduct the tax reductions in the order which will result in the greatest reduction in the
taxpayer's liability to income tax for the tax year.
(3) Subsection (2) is subject to subsections (4) and (5).
(4) If the taxpayer is entitled to a tax reduction under—
(a) section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b) section 790(1) of ICTA (relief for foreign tax where no double taxation
arrangements),
that tax reduction must be deducted after any other tax reduction to which the taxpayer
is entitled for the tax year, subject to subsection (5).
(5) If the taxpayer is a trustee and is entitled to a tax reduction under section 26 of FA
2005 (trusts with vulnerable beneficiary: income tax relief) that tax reduction must be
deducted after any other tax reduction to which the taxpayer is entitled for the tax year.
29 Tax reductions: supplementary
(1) This section supplements the provisions about tax reductions in Step 6 of the calculation
in section 23.
(2) A tax reduction may be deducted at Step 6 only so far as there is sufficient tax calculated
at Step 5 of the calculation from which to deduct it.
(3) In deciding whether there is sufficient tax calculated at Step 5 from which to deduct a
tax reduction, tax reductions already deducted at Step 6 must be taken into account.
(4) Subsections (2) and (3) apply in addition to—
(a) section 796(1) and (2) of ICTA (limits on credit for foreign tax), and
(b) any other provision of the Income Tax Acts that limits the amount of a tax
reduction.

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(5) For the purposes of this Chapter, a person is treated as being entitled to a tax reduction
under section 788 of ICTA if the person is entitled to credit against income tax under
double taxation arrangements.
30 Additional tax
(1) If the taxpayer is an individual, the provisions referred to at Step 7 of the calculation
in section 23 are—
section 424 (gift aid: charge to tax),
section 205 of FA 2004 (pension schemes: the short service refund lump sum
charge),
section 206 of FA 2004 (pension schemes: the special lump sum death benefits
charge),
section 208(2)(a) of FA 2004 (pension schemes: the unauthorised payments
charge),
section 209(3)(a) of FA 2004 (pension schemes: the unauthorised payments
surcharge),
section 214 of FA 2004 (pension schemes: the lifetime allowance charge),
section 227 of FA 2004 (pension schemes: the annual allowance charge), and
section 7 of F(No.2)A 2005 (social security pension lump sum).
(2) If the taxpayer is a trustee, the provision referred to at Step 7 of the calculation in
section 23 is section 496 (discretionary payments by trustees: tax pool adjustment).
31 Total income: supplementary
(1) This section applies for the purposes of calculating total income.
(2) Income from which a deduction in respect of income tax is to be made (or treated as
made) at the basic or savings rate in force for a tax year is treated as income of that
tax year.
(3) If—
(a) a dividend is paid, or another distribution is made, in a tax year,
(b) a person is entitled to a tax credit in respect of the dividend or other distribution,
and
(c) the amount or value of the dividend or other distribution is treated under
section 398 of ITTOIA 2005 as increased by the amount of the tax credit,
the amount or value as increased is treated as income of that tax year.
(4) Subsections (2) and (3) apply even if all or part of the income, or the dividend or other
distribution, accrued or will accrue in a different tax year.
(5) An assessment that has become final and conclusive for income tax purposes for a tax
year is also final and conclusive for the purposes of calculating total income.
32 Liability not dealt with in the calculation
The liabilities referred to in section 22(2) are income tax liability—
under section 79(1) (capital allowances restrictions: withdrawal of relief),
under section 81(6) (dealings in commodity futures: withdrawal of relief),

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under section 112(5) (non-active partners: withdrawal of relief),
under section 235 (withdrawal or reduction of EIS relief),
under sections 266 to 270 (withdrawal or reduction of VCT relief),
under section 372 (withdrawal or reduction of CITR),
under section 512 (heritage maintenance settlements: application of property for
non-heritage purposes),
under Chapter 1 of Part 13 (transactions in securities),
under regulations made under section 918(4) (foreign payers of manufactured
dividends: Real Estate Investment Trusts: the reverse charge),
under section 920 or 923 (foreign payers of manufactured interest or manufactured
overseas dividends: the reverse charge),
under Chapter 15, 16 or 17 of Part 15 (deduction of tax at source: collection
mechanisms),
under section 804(5B)(a) of ICTA (recovery of excess credit for overseas tax),
under paragraph 11(3) of Schedule 20 to FA 1994 (recovery of excess credit for
overseas tax: changes for facilitating self-assessment),
of the person who is (or persons who are) the responsible person in relation to
an employer-financed retirement benefits scheme under section 394(2) of ITEPA
2003,
under Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),
except any liability under a provision mentioned in section 30(1), and
under section 682(4) of ITTOIA 2005 (assessments, adjustments and claims after
the administration period), so far as the liability represents a tax reduction given
effect at Step 6 of the calculation in section 23.
PART 3
PERSONAL RELIEFS
CHAPTER 1
INTRODUCTION
33 Overview of Part
(1) This Part provides for personal reliefs.
(2) Chapter 2 provides for entitlement to a personal allowance and a blind person's
allowance.
(3) Chapter 3 provides for tax reductions for married couples and civil partners.
(4) Chapter 4 contains provision applicable for the purposes of Chapters 2 and 3, in
particular—
(a) requirements about residence etc of claimants to allowances under Chapter 2
or tax reductions under Chapter 3, and
(b) indexation of the amounts of those allowances and tax reductions.

Income Tax Act 2007 (c. 3)Part 3 – Personal reliefsChapter 2 – Personal allowance and blind person's allowanceDocument Generated: 2011-04-02
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CHAPTER 2
PERSONAL ALLOWANCE AND BLIND PERSON 'S ALLOWANCE
Introduction
34 Allowances under Chapter
(1) In this Chapter—
(a) sections 35, 36 and 37 deal with entitlement to a personal allowance,
(b) section 38 deals with entitlement to a blind person's allowance, and
(c) section 39 deals with the transfer of part of a blind person's allowance to a
spouse or civil partner.
(2) An allowance under this Chapter is given effect at Step 3 of the calculation in section 23.
Personal allowances
35 Personal allowance for those aged under 65
An individual who makes a claim is entitled to a personal allowance of £5,035 for a
tax year if the individual—
(a) is under the age of 65 throughout the tax year, and
(b) meets the requirements of section 56 (residence etc).
36 Personal allowance for those aged 65 to 74
(1) An individual who makes a claim is entitled to a personal allowance of £7,280 for a
tax year if the individual—
(a) is 65 or over at some time in the tax year, but under 75 throughout the tax year,
and
(b) meets the requirements of section 56 (residence etc).
(2) For an individual whose adjusted net income for the tax year exceeds £20,100, the
allowance under subsection (1)—
(a) is reduced by half the excess, but
(b) is not reduced below the amount of a personal allowance under section 35.
(3) For the meaning of “adjusted net income” see section 58.
37 Personal allowance for those aged 75 and over
(1) An individual who makes a claim is entitled to a personal allowance of £7,420 for a
tax year if the individual—
(a) is 75 or over at some time in the tax year, and
(b) meets the requirements of section 56 (residence etc).
(2) For an individual whose adjusted net income for the tax year exceeds £20,100, the
allowance under subsection (1)—
(a) is reduced by half the excess, but

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(b) is not reduced below the amount of a personal allowance under section 35.
(3) For the meaning of “adjusted net income” see section 58.
Blind person's allowance
38 Blind person's allowance
(1) An individual who makes a claim is entitled to a blind person's allowance of £1,660 for
a tax year if the individual—
(a) meets the first or second condition for the whole or part of the tax year, and
(b) meets the requirements of section 56 (residence etc).
(2) The first condition is that the individual is registered as a blind person in a register kept
under section 29 of the National Assistance Act 1948 (c. 29) (registers kept by local
authorities in England and Wales).
(3) The second condition is that—
(a) the individual is ordinarily resident in Scotland or Northern Ireland, and
(b) because of the individual's blindness, the individual is unable to do any work
for which eyesight is essential.
(4) If an individual who is entitled to a blind person's allowance for a particular tax year—
(a) became registered as a blind person in a register kept under section 29 of the
National Assistance Act 1948 in the tax year, but
(b) obtained the evidence of blindness on the basis of which the registration was
made in the preceding tax year,
the individual is treated as having met the first condition for the whole of the preceding
tax year.
39 Transfer of part of blind person's allowance to a spouse or civil partner
(1) This section applies to an individual who is entitled to a blind person's allowance under
section 38 for a tax year if—
(a) the individual is a person whose spouse or civil partner is living with the
individual for the whole or any part of the tax year, and
(b) the spouse or civil partner meets the requirements of section 56 (residence etc).
(2) If—
(a) the allowance exceeds the individual's remaining relievable income,
(b) the individual makes an election, and
(c) the individual's spouse or civil partner makes a claim,
the individual's spouse or civil partner is entitled to an allowance for the tax year equal
to the amount of the excess.
(3) The individual's remaining relievable income is the amount found by—
(a) taking the amount of the individual's net income, and
(b) subtracting any personal allowance to which the individual is entitled for the
tax year.

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40 Election for transfer of allowance under section 39
(1) An election under section 39—
(a) must be made on or before the fifth anniversary of the normal self-assessment
filing date for the tax year to which it relates, and
(b) cannot be withdrawn.
(2) If an individual makes an election for a tax year under section 39 the individual is treated
as also giving notice under section 51(4) that section 51(1) (tax reductions for married
couples and civil partners: transfer of unused relief) is to apply for the tax year.
Supplementary
41 Allowances in year of death
(1) Any allowance to which an individual is entitled under this Chapter for any tax year,
including the tax year in which the individual dies, is given in full.
(2) If an individual was due to reach the age of 65 in a tax year, but dies in the tax year
before reaching that age, the individual is treated for the purposes of section 36 as having
reached the age of 65 in the tax year.
(3) If an individual was due to reach the age of 75 in a tax year, but dies in the tax year
before reaching that age, the individual is treated for the purposes of sections 36 and 37
as having reached the age of 75 in the tax year.
CHAPTER 3
TAX REDUCTIONS FOR MARRIED COUPLES AND CIVIL PARTNERS
Introduction
42 Tax reductions under Chapter
(1) This Chapter contains provisions about entitlement to tax reductions in a case where a
party to a marriage or civil partnership was born before 6 April 1935.
(2) Individuals are entitled to tax reductions under the following provisions of this Chapter

(a) section 45 (marriages before 5 December 2005),
(b) section 46 (marriages and civil partnerships on or after 5 December 2005),
(c) section 47 (election by individual to transfer relief under section 45 or 46),
(d) section 48 (joint election to transfer relief under section 45 or 46),
(e) section 49 (election for partial transfer back of relief),
(f) section 51 (transfer of unused relief), and
(g) section 52 (transfer back of unused relief).
(3) The tax reductions under sections 45 to 49 are subject to section 54 (tax reductions in
the year of marriage or entry into civil partnership).

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(4) A tax reduction under this Chapter is given effect at Step 6 of the calculation in
section 23.
43 Meaning of “the minimum amount”
In this Chapter “the minimum amount” means £2,350.
44 Election for new rules to apply
(1) In this Chapter “an election for the new rules to apply” means an election made by a
husband and wife who got married before 5 December 2005 for the new rules to apply
to them instead of the old rules.
(2) In subsection (1)—
“the new rules” means the rules for relief under section 46 (marriages and
civil partnerships on or after 5 December 2005), and
“the old rules” means the rules for relief under section 45 (marriages before
5 December 2005).
(3) An election for the new rules to apply—
(a) must be made jointly by the parties to the marriage,
(b) must be made before the first tax year for which it is to be in force,
(c) continues in force in each subsequent tax year, and
(d) cannot be withdrawn.
Married couple's allowance
45 Marriages before 5 December 2005
(1) If a man—
(a) makes a claim for a tax year, and
(b) meets the conditions set out in subsection (2),
he is entitled to a tax reduction for the tax year of 10% of the amount specified in
subsection (3)(a) or (b) (as applicable).
(2) The conditions are that—
(a) for the whole or part of the tax year he is married and his wife is living with him,
(b) the marriage took place before 5 December 2005 and no election for the new
rules to apply is in force for the tax year,
(c) he or his wife was born before 6 April 1935, and
(d) he meets the requirements of section 56 (residence etc).
(3) The amount is—
(a) £6,135, if either the man or his wife is aged 75 or over at some time in the tax
year, and
(b) £6,065, in any other case.
(4) For a man whose adjusted net income for the tax year exceeds £20,100, the amounts
specified in subsection (3) are reduced by—
(a) half the excess, less

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(b) any reduction in his personal allowance under section 36(2) or 37(2).
(5) But subsection (4) does not reduce the amounts specified in subsection (3) below the
minimum amount.
(6) For the meaning of “adjusted net income” see section 58.
46 Marriages and civil partnerships on or after 5 December 2005
(1) If an individual—
(a) makes a claim for a tax year, and
(b) meets the conditions set out in subsection (2),
the individual is entitled to a tax reduction for the tax year of 10% of the amount
specified in subsection (3)(a) or (b) (as applicable).
(2) The conditions are that—
(a) for the whole or part of the tax year the individual is married or in a civil
partnership and is living with the spouse or civil partner,
(b) the marriage took place, or the civil partnership was formed, on or after 5
December 2005 or, if the marriage took place before that date, an election for
the new rules to apply is in force for the tax year,
(c) the individual, or the spouse or civil partner, was born before 6 April 1935,
(d) the individual meets the requirements of section 56 (residence etc), and
(e) the individual's net income for the tax year exceeds that of the spouse or civil
partner or, if they have the same amount of net income for the tax year, the
individual is specified in an election as the person to be entitled to relief under
this section for the year.
(3) The amount is—
(a) £6,135, if either the individual, or the spouse or civil partner, is aged 75 or over
at some time in the tax year, and
(b) £6,065, in any other case.
(4) For an individual whose adjusted net income for the tax year exceeds £20,100, the
amounts specified in subsection (3) are reduced by—
(a) half the excess, less
(b) any reduction in the individual's personal allowance under section 36(2) or
37(2).
(5) But subsection (4) does not reduce the amounts specified in subsection (3) below the
minimum amount.
(6) An election under subsection (2)(e)—
(a) is to be made jointly by the parties to the marriage or civil partnership, and
(b) is to be made on or before the fifth anniversary of the normal self-assessment
filing date for the tax year to which the election relates.
(7) For the meaning of “adjusted net income” see section 58.

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Elections to transfer relief
47 Election by individual to transfer relief under section 45 or 46
(1) If—
(a) an individual's spouse or civil partner is entitled to a tax reduction under
section 45 or 46 for a tax year, and
(b) the individual meets the conditions set out in subsection (2),
the individual is entitled to a tax reduction for that tax year of 10% of half the minimum
amount.
(2) The conditions are that the individual—
(a) has made an election which is in force for the tax year,
(b) makes a claim, and
(c) meets the requirements of section 56 (residence etc).
(3) If an individual is entitled to a tax reduction under subsection (1), the tax reduction
to which the individual's spouse or civil partner is entitled under section 45 or 46
is calculated for the tax year as if the appropriate amount were reduced by half the
minimum amount.
(4) In subsection (3) “the appropriate amount” means—
(a) if the individual's spouse is entitled to a tax reduction under section 45, the
amount specified in section 45(3)(a) or (b) (as applicable), after any reductions
under section 45(4) and 54(2), or
(b) if the individual's spouse or civil partner is entitled to a tax reduction under
section 46, the amount specified in section 46(3)(a) or (b) (as applicable), after
any reductions under sections 46(4) and 54(2).
48 Joint election to transfer relief under section 45 or 46
(1) If—
(a) an individual's spouse or civil partner is entitled to a tax reduction under
section 45 or 46 for a tax year, and
(b) the conditions set out in subsection (2) are met,
the individual is entitled to a tax reduction for that tax year of 10% of the minimum
amount.
(2) The conditions are that—
(a) the individual and the individual's spouse or civil partner have made a joint
election which is in force for the tax year,
(b) the individual makes a claim, and
(c) the individual meets the requirements of section 56 (residence etc).
(3) If an individual is entitled to a tax reduction under subsection (1), the tax reduction
to which the individual's spouse or civil partner is entitled under section 45 or 46 is
calculated for the tax year as if the appropriate amount were reduced by the minimum
amount.
(4) In subsection (3) “the appropriate amount” means—

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(a) if the individual's spouse is entitled to a tax reduction under section 45, the
amount specified in section 45(3)(a) or (b) (as applicable), after any reductions
under section 45(4) and 54(2), or
(b) if the individual's spouse or civil partner is entitled to a tax reduction under
section 46, the amount specified in section 46(3)(a) or (b) (as applicable), after
any reductions under sections 46(4) and 54(2).
49 Election for partial transfer back of relief
(1) If an individual whose spouse or civil partner is entitled under section 48(1) to a tax
reduction for a tax year—
(a) has made an election which is in force for the tax year, and
(b) makes a claim,
the individual is entitled to a tax reduction for that tax year of 10% of half the minimum
amount (in addition to any tax reduction to which the individual is entitled under
section 45 or 46).
(2) The amount of the tax reduction to which the individual's spouse or civil partner is
entitled under section 48(1) for that tax year is 10% of half the minimum amount
(instead of 10% of the minimum amount).
50 Procedure for making and withdrawing elections under sections 47 to 49
(1) This section applies to elections under sections 47 to 49.
(2) An election—
(a) must, except in the cases dealt with by subsection (3), be made before the first
tax year in which it is to be in force, and
(b) continues in force in each subsequent tax year until it is withdrawn.
(3) An election—
(a) may be made in the first tax year in which it is to be in force if that is the tax
year in which the marriage takes place or the civil partnership is formed, and
(b) may be made in the first 30 days of the first tax year in which it is to be in force
if appropriate notice is given before the tax year.
(4) In subsection (3), “appropriate notice” means notice given to an officer of Revenue
and Customs by the individual or (in the case of a joint election) individuals concerned
that it is intended to make the election.
(5) An election may be withdrawn only by—
(a) a notice given by the individual or individuals by whom the election was made,
or
(b) a subsequent election under section 47, 48 or 49.
(6) If an election is withdrawn under subsection (5)(a), the withdrawal does not have effect
until the tax year after the one in which the notice is given.
(7) A notice under subsection (5)(a)—
(a) must be given to an officer of Revenue and Customs, and
(b) must be in the form specified by the Commissioners for Her Majesty's Revenue
and Customs.

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Transfer of unused relief
51 Transfer of unused relief
(1) If—
(a) an individual's spouse or civil partner is entitled to a tax reduction under
section 45 or 46 for a tax year,
(b) the spouse or civil partner's MCA tax reductions are greater than the spouse or
civil partner's comparable tax liability, and
(c) the conditions set out in subsection (4) are met,
the individual is entitled to a tax reduction for that tax year equal to the unused part of
the spouse or civil partner's MCA tax reductions.
(2) The spouse or civil partner's MCA tax reductions are the sum of—
(a) the tax reduction to which the spouse or civil partner is entitled under section 45
or 46, and
(b) any tax reduction under section 49 to which the spouse or civil partner is entitled
for the tax year.
(3) The unused part of the spouse or civil partner's MCA tax reductions is equal to—
(a) the spouse or civil partner's MCA tax reductions, less
(b) the spouse or civil partner's comparable tax liability.
(4) The conditions are that—
(a) the spouse or civil partner gives notice to an officer of Revenue and Customs
that subsection (1) is to apply for the tax year,
(b) the individual makes a claim, and
(c) the individual meets the requirements of section 56 (residence etc).
(5) The tax reduction to which the individual is entitled under subsection (1) is in addition
to any tax reduction to which the individual is entitled under section 47 or 48.
(6) The meaning of “comparable tax liability” is given in section 53.
52 Transfer back of unused relief
(1) If—
(a) an individual's spouse or civil partner is entitled to a tax reduction under
section 47 or 48 for a tax year,
(b) the tax reduction is greater than the spouse or civil partner's comparable tax
liability, and
(c) the conditions set out in subsection (3) are met,
the individual is entitled to a tax reduction for that tax year equal to the unused part of
the spouse or civil partner's tax reduction.
(2) The unused part of the spouse or civil partner's tax reduction is equal to—
(a) the tax reduction to which the spouse or civil partner is entitled, less
(b) the spouse or civil partner's comparable tax liability.
(3) The conditions are that—
(a) the spouse or civil partner gives notice to an officer of Revenue and Customs
that subsection (1) is to apply for the tax year, and

Income Tax Act 2007 (c. 3)Part 3 – Personal reliefsChapter 3 – Tax reductions for married couples and civil partnersDocument Generated: 2011-04-02
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(b) the individual makes a claim.
(4) The tax reduction to which the individual is entitled under subsection (1) is in addition
to any tax reduction to which the individual is entitled under section 45, 46 or 49.
(5) The meaning of “comparable tax liability” is given in section 53.
53 Transfer of unused relief: general
(1) For the purposes of sections 51 and 52, the comparable tax liability of an individual
is the amount of the individual's tax left after Step 6 of the calculation in section 23
for the tax year, making that calculation with the modifications set out in subsections
(2) and (3).
(2) In making that calculation, do not deduct any tax reduction under—
(a) section 788 of ICTA (double taxation arrangements: relief by agreement), or
(b) section 790(1) of ICTA (relief for foreign tax where there are no double taxation
arrangements).
(3) If the individual's entitlement to a tax reduction under this Chapter is extinguished under
section 423(4) (gift aid: restriction of reliefs) to any extent, deduct from the amount
calculated in accordance with subsections (1) and (2) the amount by which the tax
reduction is reduced.
(4) A notice under section 51 or 52—
(a) must be given on or before the fifth anniversary of the normal self-assessment
filing date for the tax year to which it relates,
(b) must be in the form specified by the Commissioners for Her Majesty's Revenue
and Customs, and
(c) cannot be withdrawn.
(5) For the purposes of this section a person is treated as being entitled to a tax reduction
under section 788 of ICTA if the person is entitled to credit against income tax under
double taxation arrangements.
Supplementary
54 Tax reductions in the year of marriage or entry into civil partnership
(1) Subsection (2) applies if an individual—
(a) gets married or enters into a civil partnership in a tax year, and
(b) claims a tax reduction under section 45 or 46 for that tax year.
(2) In calculating the amount of the tax reduction (if any) to which the individual is entitled
under that section, the amounts specified in section 45(3) or 46(3) (as applicable) are
reduced by one twelfth for each month of the tax year which is a month ending before
the date on which—
(a) the marriage took place, or
(b) the civil partnership was formed.
(3) The reference in subsection (2) to the amounts specified in section 45(3) or 46(3) is to
those amounts after any reduction under section 45(4) or 46(4).

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(4) But if—
(a) the individual has previously been married or in a civil partnership in the same
tax year, and
(b) the conditions in section 45(2) or 46(2) are met in relation to the earlier marriage
or civil partnership,
subsection (2) applies only if the claim is in respect of the later marriage or civil
partnership.
(5) If a claim under section 47, 48 or 49 is for the tax year in which the marriage takes
place, or the civil partnership is formed, the references in those sections to the minimum
amount are to be read as references to the minimum amount reduced by one twelfth for
each month of the tax year which is a month ending before the date on which—
(a) the marriage took place, or
(b) the civil partnership was formed.
(6) In this section, “month” means a period beginning with the sixth day of a calendar
month and ending with the fifth day of the next calendar month.
55 Sections 45 to 53: supplementary
(1) An individual is not entitled to more than one tax reduction under sections 45 to 48 for
a tax year (regardless of whether the individual is a party to more than one marriage or
civil partnership in the tax year).
(2) For the purposes of sections 45 and 46 an individual is treated as having reached the
age of 75 in a tax year if the individual was due to reach the age of 75 in the tax year,
but dies in the tax year before reaching that age.
(3) Unless this Chapter provides otherwise, a tax reduction to which an individual is entitled
under this Chapter for a tax year, including the tax year in which the individual dies,
is given in full.
CHAPTER 4
GENERAL
56 Residence etc of claimants
(1) This section applies in relation to an individual who claims—
(a) an allowance under Chapter 2 (personal allowance and blind person's
allowance) for a tax year, or
(b) a tax reduction under Chapter 3 (tax reductions for married couples and civil
partners) for a tax year.
(2) The individual meets the requirements of this section if the individual—
(a) is UK resident for the tax year, or
(b) meets the condition in subsection (3).
(3) An individual meets the condition in this subsection if, at any time in the tax year, the
individual—
(a) is resident in the Isle of Man or the Channel Islands,

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(b) has previously resided in the United Kingdom and is resident abroad for the
sake of the health of—
(i) the individual, or
(ii) a member of the individual's family who is resident with the individual,
(c) is a person who is or has been employed in the service of the Crown,
(d) is employed in the service of any territory under Her Majesty's protection,
(e) is employed in the service of a missionary society, or
(f) is a person whose late spouse or late civil partner was employed in the service
of the Crown.
57 Indexation of allowances
(1) This section provides for increases in the amounts specified in—
(a) section 35 (personal allowance for those aged under 65),
(b) section 36(1) (personal allowance for those aged 65 to 74),
(c) section 37(1) (personal allowance for those aged 75 and over),
(d) section 38(1) (blind person's allowance),
(e) section 43 (tax reductions for married couples and civil partners: the minimum
amount),
(f) section 45(3)(a) and (b) (marriages before 5 December 2005),
(g) section 46(3)(a) and (b) (marriages and civil partnerships on or after 5
December 2005), and
(h) sections 36(2), 37(2), 45(4) and 46(4) (adjusted net income limit).
(2) It applies if the retail prices index for the September before the start of a tax year is
higher than it was for the previous September.
(3) For the tax year—
(a) the allowances specified in sections 35, 36(1), 37(1), 38(1),
(b) the amounts specified in sections 45(3)(a) and (b) and 46(3)(a) and (b), and
(c) the minimum amount specified in section 43,
are found as follows.
Step 1
Multiply the allowance, amount or (as the case may be) the minimum amount for the
previous tax year by the same percentage as the percentage increase in the retail prices
index.
Step 2
If the result of Step 1 is a multiple of £10, it is the increase for the tax year.
If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which
is a multiple of £10.
That amount is the increase for the tax year.
Step 3
Add the increase for the tax year to the allowance, amount or (as the case may be) the
minimum amount for the previous tax year.

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The result is the allowance, amount or (as the case may be) the minimum amount for
the tax year.
(4) For the tax year, the adjusted net income limits specified in sections 36(2), 37(2), 45(4)
and 46(4) are found as follows.
Step 1
Increase the adjusted net income limit for the previous tax year by the same percentage
as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £100, it is the adjusted net income limit for the
tax year.
If the result of Step 1 is not a multiple of £100, round it up to the nearest amount which
is a multiple of £100.
That amount is the adjusted net income limit for the tax year.
(5) Subsections (1) to (4) do not require a change to be made in the amounts deductible or
repayable under PAYE regulations during the period beginning on 6 April and ending
on 17 May in the tax year.
(6) Before the start of the tax year the Treasury must make an order replacing the amounts
specified in the provisions listed in subsection (1) with the amounts which, as a result
of this section, are the allowances, amounts, the minimum amount and the adjusted net
income limits for the tax year.
58 Meaning of “adjusted net income”
(1) For the purposes of Chapters 2 and 3, an individual's adjusted net income for a tax year
is calculated as follows.
Step 1
Take the amount of the individual's net income for the tax year.
Step 2
If in the tax year the individual makes, or is treated under section 426 as making, a gift
that is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid) deduct
the grossed up amount of the gift.
Step 3
If the individual is given relief in accordance with section 192 of FA 2004 (relief at
source) in respect of any contribution paid in the tax year under a pension scheme,
deduct the gross amount of the contribution.
Step 4
Add back any relief under section 457 or 458 (payments to trade unions or police
organisations) that was deducted in calculating the individual's net income for the tax
year.
The result is the individual's adjusted net income for the tax year.

Income Tax Act 2007 (c. 3)Part 4 – Loss reliefChapter 1 – IntroductionDocument Generated: 2011-04-02
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(2) The grossed up amount of a gift is the amount of the gift grossed up by reference to
the basic rate for the tax year.
(3) The gross amount of a contribution is the amount of the contribution before deduction
of tax under section 192(1) of FA 2004.
PART 4
LOSS RELIEF
CHAPTER 1
INTRODUCTION
59 Overview of Part
(1) This Part provides for income tax relief for—
(a) losses in a trade, profession or vocation (and certain post-cessation payments
and events) (see Chapters 2 and 3),
(b) losses in a UK property business or overseas property business (and, in the case
of a UK property business, certain post-cessation payments and events) (see
Chapter 4),
(c) losses in an employment or office (see Chapter 5),
(d) losses on a disposal of certain shares (see Chapter 6), and
(e) losses in certain miscellaneous transactions (see Chapter 7).
(2) This Part needs to be read with Chapter 3 of Part 2 (calculation of income tax liability).
(3) For rules about the calculation of losses for the purposes of this Part, see—
(a) section 26 of ITTOIA 2005 (losses of a trade, profession or vocation calculated
on same basis as profits),
(b) section 272 of ITTOIA 2005 (which applies section 26 of that Act, so that losses
of a UK property business or overseas property business are calculated on the
same basis as profits),
(c) section 11 of ITEPA 2003 (calculation of “net taxable earnings”), and
(d) section 872 of ITTOIA 2005 (losses from miscellaneous transactions calculated
on same basis as miscellaneous income).
CHAPTER 2
TRADE LOSSES
Introduction
60 Overview of Chapter
(1) This Chapter—
(a) provides for trade loss relief against general income (see sections 64 to 70),

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(b) provides for early trade losses relief (see sections 72 to 74),
(c) contains provision restricting both those reliefs (see sections 75 to 82),
(d) provides for carry-forward trade loss relief (see sections 83 to 88),
(e) provides for terminal trade loss relief (see sections 89 to 94),
(f) contains restrictions on the above reliefs for trades, professions and vocations
carried on wholly outside the United Kingdom (see section 95), and
(g) provides for post-cessation trade relief (see sections 96 to 100).
(2) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss
relief involving two or more years).
(3) For a rule treating an individual as starting or permanently ceasing to carry on a trade,
profession or vocation for income tax purposes (including those of this Part), see—
(a) section 17 of ITTOIA 2005 (effect of becoming or ceasing to be a UK resident),
and
(b) section 852(6) and (7) of ITTOIA 2005 (corresponding rule in the case of a
trade or profession carried on by a firm).
(4) For the purposes of this Chapter sideways relief is—
(a) trade loss relief against general income, or
(b) early trade losses relief.
(5) References in this Chapter to a firm are to be read in the same way as references to a
firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).
61 Non-partners: losses of a tax year
(1) This section applies if a trade, profession or vocation is carried on by a person otherwise
than as a partner in a firm.
(2) For the purposes of this Chapter any reference to the person making a loss in the trade,
profession or vocation in a tax year is to the person making a loss in the trade, profession
or vocation in the basis period for the tax year.
(3) This section is subject to section 70 (restriction on trade loss relief against general
income in case of farming or market gardening).
(4) For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
(5) In particular, see the rule in section 206 of ITTOIA 2005 (restriction on bringing losses
into account twice).
62 Partners: losses of a tax year etc
(1) This section applies if a trade or profession is carried on by a person as a partner in
a firm.
(2) Any reference to a person making a loss in a trade or profession in a tax year is to the
partner making a loss in the partner's notional trade in the basis period for the tax year
(as to which, see sections 852 and 853 of ITTOIA 2005).
(3) Further—

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(a) any reference to a person making a claim for relief for a loss made in a trade
or profession is to the partner making a claim for relief for a loss made in the
partner's notional trade,
(b) any reference to a basis period for a tax year is to the basis period for the
partner's notional trade for the tax year,
(c) any reference to the profits or losses of a partner's notional trade of a tax year
is to the partner's share of the firm's profits or losses of the trade or profession
treated for the purposes of Chapter 15 of Part 2 of ITTOIA 2005 as the profits
or losses of the partner's notional trade in the basis period for the tax year,
(d) any reference to a person starting to carry on a trade or profession is to the
partner starting to carry on the notional trade in accordance with section 852(2)
or (3) of ITTOIA 2005, and
(e) any reference to a person permanently ceasing to carry on a trade or profession
is to the partner permanently ceasing to carry on the notional trade in
accordance with section 852(4) to (6) of ITTOIA 2005.
(4) In this section a partner's “notional trade” has the same meaning as in Part 9 of ITTOIA
2005.
(5) This section applies for the purposes of this Chapter and Chapter 3, except that it does
not apply for the purposes of section 67(2) or sections 68 to 70 (restriction on trade loss
relief against general income in case of farming or market gardening).
63 Prohibition against double counting
If relief is given under any provision of this Chapter for a loss or part of a loss, relief
is not to be given for—
(a) the same loss, or
(b) the same part of the loss,
under any other provision of this Chapter or of the Income Tax Acts.
Trade loss relief against general income
64 Deduction of losses from general income
(1) A person may make a claim for trade loss relief against general income if the person—
(a) carries on a trade in a tax year, and
(b) makes a loss in the trade in the tax year (“the loss-making year”).
(2) The claim is for the loss to be deducted in calculating the person's net income—
(a) for the loss-making year,
(b) for the previous tax year, or
(c) for both tax years.
(See Step 2 of the calculation in section 23.)
(3) If the claim is made in relation to both tax years, the claim must specify the tax year
for which a deduction is to be made first.
(4) Otherwise the claim must specify either the loss-making year or the previous tax year.

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(5) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the loss-making year.
(6) Nothing in this section prevents a person who makes a claim specifying a particular tax
year in respect of a loss from making a further claim specifying the other tax year in
respect of the unused part of the loss.
(7) This section applies to professions and vocations as it applies to trades.
(8) This section needs to be read with—
(a) section 65 (how relief works),
(b) sections 66 to 70 (restrictions on the relief),
(c) sections 75 to 79 (restrictions on the relief and early trade losses relief in relation
to capital allowances),
(d) section 80 (restrictions on those reliefs in relation to ring fence income),
(e) section 81 (restrictions on those reliefs in relation to dealings in commodity
futures), and
(f) section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
65 How relief works
(1) This subsection explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).
Step 1
Deduct the loss in calculating the person's net income for the specified tax year.
Step 2
This step applies only if the claim is made in relation to both tax years.
Deduct the part of the loss not deducted at Step 1 in calculating the person's net income
for the other tax year.
Other claims
If the loss has not been deducted in full at Steps 1 and 2, the person may use the part
not so deducted in giving effect to any other relief under this Chapter (depending on
the terms of the relief).
(2) There is a priority rule if a person—
(a) makes a claim for trade loss relief against general income (“the first claim”) in
relation to the loss-making year, and
(b) makes a separate claim in respect of a loss made in the following tax year in
relation to the same tax year as the first claim.
(3) The rule is that priority is given to making deductions under the first claim.
(4) For this purpose a “separate claim” means—
(a) a claim for trade loss relief against general income, or
(b) a claim for employment loss relief against general income under section 128.

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Restriction on relief for uncommercial trades
66 Restriction on relief unless trade is commercial
(1) Trade loss relief against general income for a loss made in a trade in a tax year is not
available unless the trade is commercial.
(2) The trade is commercial if it is carried on throughout the basis period for the tax year—
(a) on a commercial basis, and
(b) with a view to the realisation of profits of the trade.
(3) If at any time a trade is carried on so as to afford a reasonable expectation of profit, it
is treated as carried on at that time with a view to the realisation of profits.
(4) If the trade forms part of a larger undertaking, references to profits of the trade are to
be read as references to profits of the undertaking as a whole.
(5) If there is a change in the basis period in the way in which the trade is carried on, the
trade is treated as carried on throughout the basis period in the way in which it is carried
on by the end of the basis period.
(6) The restriction imposed by this section does not apply to a loss made in the exercise of
functions conferred by or under an Act.
(7) This section applies to professions and vocations as it applies to trades.
Restriction on relief for “hobby” farming or market gardening
67 Restriction on relief in case of farming or market gardening
(1) This section applies if a loss is made in a trade of farming or market gardening in a tax
year (“the current tax year”).
(2) Trade loss relief against general income is not available for the loss if a loss, calculated
without regard to capital allowances, was made in the trade in each of the previous 5
tax years (see section 70).
(3) This section does not prevent relief for the loss from being given if—
(a) the carrying on of the trade forms part of, and is ancillary to, a larger trading
undertaking,
(b) the farming or market gardening activities meet the reasonable expectation of
profit test (see section 68), or
(c) the trade was started, or treated as started, at any time within the 5 tax years
before the current tax year (see section 69 below, as well as section 17 of
ITTOIA 2005).
68 Reasonable expectation of profit
(1) This section explains how the farming or market gardening activities (“the activities”)
meet the reasonable expectation of profit test for the purposes of section 67.
(2) The test is decided by reference to the expectations of a competent farmer or market
gardener (a “competent person”) carrying on the activities.

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(3) The test is met if—
(a) a competent person carrying on the activities in the current tax year would
reasonably expect future profits (see subsection (4)), but
(b) a competent person carrying on the activities at the beginning of the prior period
of loss (see subsection (5)) could not reasonably have expected the activities to
become profitable until after the end of the current tax year.
(4) In determining whether a competent person carrying on the activities in the current tax
year would reasonably expect future profits regard must be had to—
(a) the nature of the whole of the activities, and
(b) the way in which the whole of the activities were carried on in the current tax
year.
(5) “The prior period of loss” means—
(a) the 5 tax years before the current tax year, or
(b) if losses in the trade, calculated without regard to capital allowances, were also
made in successive tax years before those 5 tax years (see section 70), the period
comprising both the successive tax years and the 5 tax years.
69 Whether trade is the same trade
(1) This section applies for the purposes of sections 67 and 68.
(2) If there is a change in the persons carrying on a trade which involves all of the persons
carrying it on before the change permanently ceasing to carry it on—
(a) the trade is treated as permanently ceasing to be carried on, and
(b) a new trade is treated as starting to be carried on,
at the date of the change (but see subsections (3) to (6)).
(3) A husband and wife are treated as the same person.
(4) Persons who are civil partners of each other are treated as the same person.
(5) A husband or wife is treated as the same person as—
(a) a company of which either one of them has control, or
(b) a company of which both have control.
(6) A person's civil partner is treated as the same person as—
(a) a company of which either of the civil partners has control, or
(b) a company of which both have control.
(7) “Control” has the same meaning as in Part 11 of ICTA (see section 416 of that Act).
70 Determining losses in previous tax years
(1) This section applies for the purposes of sections 67(2) and 68(5) in determining whether
a loss, calculated without regard to capital allowances, is made in the trade in any tax
year before the current tax year.
(2) The loss made in a tax year before the current tax year is not taken to be the loss (if
any) made in the basis period for the tax year, but is instead the loss made in the tax
year itself.

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(3) This loss is determined by reference to—
(a) the profits or losses of periods of account of the trade (calculated for income
tax purposes, but without regard to capital allowances), or
(b) if (as a result of section 69) a person claiming the relief is treated as the same
person as a company within the charge to corporation tax, the profits or losses
of the company's accounting periods (calculated for corporation tax purposes,
but without regard to capital allowances),
or by reference to both.
(4) If—
(a) a period of account does not coincide with a tax year, or
(b) an accounting period does not coincide with a tax year,
any of the steps in section 203(2) of ITTOIA 2005 may be taken to arrive at the profits
or losses made in a tax year.
For this purpose references in section 203(2) of that Act to basis periods are read
as references to tax years and references to periods of account are read as including
accounting periods.
(5) The steps must be taken in accordance with section 203(3) or (4) of ITTOIA 2005.
(6) A loss in a trade is calculated without regard to capital allowances by ignoring—
(a) the allowances treated as expenses of the trade under CAA 2001, and
(b) the charges treated as receipts of the trade under that Act.
Use of trading loss as CGT loss
71 Treating trade losses as CGT losses
A person who cannot deduct all of a loss under a claim for trade loss relief against
general income may be able to treat the unused part as an allowable loss for capital
gains tax purposes: see sections 261B and 261C of TCGA 1992.
Early trade losses relief
72 Relief for individuals for losses in first 4 years of trade
(1) An individual may make a claim for early trade losses relief if the individual makes a
loss in a trade—
(a) in the tax year in which the trade is first carried on by the individual, or
(b) in any of the next 3 tax years.
(2) The claim is for the loss to be deducted in calculating the individual's net income for
the 3 tax years before the one in which the loss is made (see Step 2 of the calculation
in section 23).
(3) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the tax year in which the loss is made.
(4) This section applies to professions and vocations as it applies to trades.
(5) This section needs to be read with—

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(a) section 73 (how relief works),
(b) section 74 (restrictions on the relief),
(c) sections 75 to 79 (restrictions on the relief and trade loss relief against general
income in relation to capital allowances),
(d) section 80 (restrictions on those reliefs in relation to ring fence income),
(e) section 81 (restrictions on those reliefs in relation to dealings in commodity
futures), and
(f) section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
73 How relief works
This section explains how the deductions are made for the 3 tax years mentioned in
section 72(2). The amount of the loss to be deducted at any step is limited in accordance
with section 25(4) and (5).
Step 1
Deduct the loss in calculating the individual's net income for the earliest of the 3 tax
years.
Step 2
Deduct any part of the loss not deducted at Step 1 in calculating the individual's net
income for the next tax year.
Step 3
Deduct any part of the loss not deducted at Step 1 or 2 in calculating the individual's
net income for the latest of the 3 tax years.
Other claims
If the loss has not been deducted in full at Steps 1 to 3, the individual may use the part
not so deducted in giving effect to any other relief under this Chapter (depending on
the terms of the relief).
74 Restrictions on relief unless trade is commercial etc
(1) Early trade losses relief for a loss made by an individual in a trade in a tax year is not
available unless the trade is commercial.
(2) The trade is commercial if it is carried on throughout the basis period for the tax year—
(a) on a commercial basis, and
(b) in such a way that profits of the trade could reasonably be expected to be made
in the basis period or within a reasonable time afterwards.
(3) If the trade forms part of a larger undertaking, the reference to profits of the trade is to
be read as a reference to profits of the undertaking as a whole.
(4) Early trade losses relief for a loss made by an individual is not available if—
(a) the individual first carries on the trade at a time when the individual has a spouse
or civil partner and is living with the spouse or civil partner,
(b) the spouse or civil partner previously carried on the trade, and
(c) the loss is made in a tax year falling after the relevant 4 year period.

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(5) The relevant 4 year period comprises—
(a) the tax year in which the spouse or civil partner first carried on the trade, and
(b) the next 3 tax years.
(6) This section applies to professions and vocations as it applies to trades.
Restrictions on sideways relief for certain capital allowances
75 Trade leasing allowances given to individuals
(1) Sideways relief is not available to an individual for so much of a loss as derives from a
trade leasing allowance unless the individual meets the time commitment test.
(2) A trade leasing allowance is an allowance made under Part 2 of CAA 2001 in respect
of—
(a) expenditure incurred on the provision of plant or machinery for leasing in the
course of a trade, or
(b) expenditure incurred on the provision for the purposes of a trade of an asset
which is not to be leased but which is fee-producing.
(3) An asset is fee-producing if payments in the nature of—
(a) royalties, or
(b) licence fees,
are to arise from rights granted by the individual in connection with the asset.
(4) To meet the time commitment test conditions A and B must be met.
(5) Condition A is that the individual must carry on the trade for a continuous period of at
least 6 months beginning or ending in the basis period for the tax year in which the loss
was made (“the loss-making basis period”).
(6) Condition B is that substantially the whole of the individual's time must be given to
carrying on the trade—
(a) for a continuous period of at least 6 months beginning or ending in the loss-
making basis period (if the individual starts or permanently ceases to carry on
the trade in the tax year (or does both)), or
(b) throughout the loss-making basis period (in any other case).
76 First-year allowances: introduction
Sideways relief is not available to an individual for so much of a loss as derives from a
first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 applies.
77 First-year allowances: partnerships with companies
(1) This section applies if—
(a) the first-year allowance is in respect of expenditure incurred at any time on
the provision of plant or machinery for leasing in the course of a qualifying
activity, and

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(b) either the qualifying activity was at that time carried on by the individual in
partnership with a company or arrangements have been made with a view to
the activity being so carried on.
(2) It does not matter—
(a) if the firm includes other partners, or
(b) when the arrangements were made.
(3) For the purposes of this section—
(a) letting a ship on charter is treated as leasing the ship, and
(b) references to making arrangements include effecting schemes.
78 First-year allowances: arrangements to reduce tax liabilities
(1) This section applies if—
(a) the first-year allowance is made in connection with a relevant qualifying
activity or a relevant asset (see subsections (2) and (3)), and
(b) arrangements within subsection (4) have been made.
(2) A qualifying activity is a relevant one if—
(a) at the time when the expenditure was incurred, the activity was carried on by
the individual as a partner in a firm, or
(b) at a later time, it has been carried on by the individual as a partner in a firm or
transferred to a person connected with the individual.
(3) An asset is a relevant one if, after the time when the expenditure was incurred, the asset
was transferred by the individual—
(a) to a person connected with the individual, or
(b) to a person at a price lower than its market value.
(4) Arrangements are within this subsection if as a result of them—
(a) the sole benefit, or
(b) the main benefit,
that might be expected to arise to the individual from the transaction under which the
expenditure was incurred is the obtaining of a reduction in tax liability by means of
sideways relief.
(5) It does not matter when the arrangements were made.
(6) References to making arrangements include effecting schemes.
79 Capital allowances restrictions: supplementary
(1) If relief is given in a case to which section 75 or 76 applies, the relief is withdrawn by
the making of an assessment to income tax under this section.
(2) Expressions which are used—
(a) in any of sections 75 to 78, and
(b) in Part 2 of CAA 2001,
have the same meaning in those sections as in that Part.

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Restriction on sideways relief for specific trades
80 Ring fence income
(1) This section applies if—
(a) a person has income arising from oil extraction activities or oil rights (“ring
fence income”), and
(b) the person makes a loss in any trade.
(2) Sideways relief for the loss is not to be given against the person's ring fence income
except so far as the loss arises from oil extraction activities or oil rights.
(3) “Oil extraction activities” and “oil rights” have the same meaning as in Chapter 5 of
Part 12 of ICTA (see section 502 of that Act).
81 Dealings in commodity futures
(1) This section applies if—
(a) a person makes a loss in a trade of dealing in commodity futures,
(b) the person carried on the trade as a partner in a firm,
(c) the person or one or more of the other partners in the firm was a company, and
(d) arrangements within subsection (3) have been made.
(2) Sideways relief is not available for the loss.
(3) Arrangements are within this subsection if as a result of them—
(a) the sole benefit, or
(b) the main benefit,
that might be expected to arise to the person from the person's interest in the firm is the
obtaining of a reduction in tax liability by means of sideways relief.
(4) It does not matter whether the arrangements were made in the partnership agreement
or in any other way.
(5) References to making arrangements include effecting schemes.
(6) If relief is given in a case to which this section applies, the relief is withdrawn by the
making of an assessment to income tax under this section.
(7) “Commodity futures” means commodity futures that are for the time being dealt in on a
recognised futures exchange (within the meaning of ITTOIA 2005, see section 558(3)
of that Act).
82 Exploitation of films
In the case of a trade carried on by an individual which consists of or includes the
exploitation of films—
(a) see sections 115 and 116 for a restriction on sideways relief if the trade was
carried on by the individual as a partner in a firm, and
(b) see section 796 for a charge to income tax if the individual made a loss in the
trade (whether carried on alone or as a partner in a firm) for which sideways
relief is claimed.

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Carry-forward trade loss relief
83 Carry forward against subsequent trade profits
(1) A person may make a claim for carry-forward trade loss relief if—
(a) the person has made a loss in a trade in a tax year, and
(b) relief for the loss has not been fully given under this Chapter or any other
provision of the Income Tax Acts or under section 261B of TCGA 1992 (use
of trading loss as a CGT loss).
(2) The claim is for the part of the loss for which relief has not been given under any such
provision (“the unrelieved loss”) to be deducted in calculating the person's net income
for subsequent tax years (see Step 2 of the calculation in section 23).
(3) But a deduction for that purpose is to be made only from profits of the trade.
(4) In calculating a person's net income for a tax year, deductions under this section from
the profits of a trade are to be made before deductions of any other reliefs from those
profits.
(5) This section applies to professions and vocations as it applies to trades (and section 84
is to be read accordingly).
(6) This section needs to be read with—
(a) section 84 (how relief works),
(b) section 85 (use of trade-related interest and dividends if trade profits
insufficient),
(c) section 86 (trade transferred to a company),
(d) section 87 (ring fence trades),
(e) section 88 (carry forward of certain interest as loss), and
(f) sections 17(3) and 852(7) of ITTOIA 2005 (effect of becoming or ceasing to
be UK resident).
84 How relief works
This section explains how the deductions are to be made. The amount of the unrelieved
loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the unrelieved loss from the profits of the trade of the next tax year.
Step 2
Deduct from the profits of the trade of the following tax year the amount of the
unrelieved loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to the profits of the trade of subsequent tax years
until all the unrelieved loss is deducted.

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85 Use of trade-related interest and dividends if trade profits insufficient
(1) This section applies if carry-forward trade loss relief cannot be fully given in relation to
the profits of a trade of a tax year because (apart from this section) there are no profits,
or insufficient profits, of the trade of the tax year.
(2) For the purposes of the relief any interest or dividends for the tax year that relate to the
trade are treated as profits of the trade of the tax year.
(3) Interest or dividends for the tax year relate to the trade if they—
(a) arise in the tax year, and
(b) would be brought into account in calculating the profits of the trade but for the
fact that they have been subjected to tax under other provisions of the Income
Tax Acts.
86 Trade transferred to a company
(1) This section applies if—
(a) a trade is carried on by an individual otherwise than as a partner in a firm or
by individuals in partnership,
(b) the trade is transferred to a company,
(c) the consideration for the transfer is wholly or mainly the allotment of shares to
the individual or individuals, and
(d) in the case of any individual to whom, or to whose nominee or nominees, shares
are so allotted, the individual's total income for a relevant tax year includes
income derived by the individual from the company.
(2) For the purposes of carry-forward trade loss relief, the income so derived is treated as—
(a) profits of the trade of the relevant tax year carried on by the individual, or
(b) if the trade was carried on by the individual in partnership, profits of the
individual's notional trade of the relevant tax year.
(3) The tax year in which the transfer is made is a relevant one if—
(a) the individual is the beneficial owner of the shares allotted as mentioned above,
and
(b) the company carries on the trade,
throughout the period beginning with the date of the transfer and ending with the next
5 April.
(4) Otherwise a tax year is a relevant one if—
(a) the individual is the beneficial owner of the shares allotted as mentioned above,
and
(b) the company carries on the trade,
throughout the tax year.
(5) The income derived from the company may be by way of dividends on the shares or
otherwise.
(6) This section applies to businesses which are not trades as it applies to trades.
87 Ring fence trades
(1) This section applies if—

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(a) a person makes a loss in a tax year carrying on oil-related activities (within the
meaning of section 16 of ITTOIA 2005),
(b) those activities are treated under that section as a separate trade for the tax year
or a subsequent tax year,
(c) the person makes profits in a subsequent tax year from other activities, and
(d) the other activities and the oil-related activities would, but for that section,
together form a single trade.
(2) For the purposes of carry-forward trade loss relief for the loss, the person may treat
profits from the other activities in a subsequent tax year as if they were profits of the
separate trade (despite section 16 of ITTOIA 2005).
88 Carry forward of certain interest as loss
(1) This section applies if—
(a) an individual pays interest in a tax year which is eligible for relief under
section 383 (as a result of section 388 or 398),
(b) the interest is an expense incurred wholly and exclusively for the purposes of
a trade carried on wholly or partly in the United Kingdom, and
(c) relief under section 383 cannot be fully given in respect of the interest because
there is no income or insufficient income in the tax year.
(2) For the purposes of carry-forward trade loss relief, the amount for which relief has not
been given may be carried forward to subsequent tax years as if it were a loss made
in the trade.
(3) This section applies to professions and vocations as it applies to trades.
Terminal trade loss relief
89 Carry back of losses on a permanent cessation of a trade
(1) A person may make a claim for terminal trade loss relief if the person—
(a) permanently ceases to carry on a trade in a tax year (“the final tax year”), and
(b) makes a terminal loss in the trade (see section 90).
(2) The claim is for the total amount of terminal losses made in the trade by the person (“the
relievable loss”) to be deducted in calculating the person's net income for the final tax
year and the 3 previous tax years (see Step 2 of the calculation in section 23).
(3) But a deduction for that purpose is to be made only from profits of the trade.
(4) This section applies to professions and vocations as it applies to trades (and sections 90
and 91 are to be read accordingly).
(5) This section needs to be read with—
(a) section 91 (how relief works),
(b) section 92 (use of trade-related interest and dividends if trade profits
insufficient),
(c) section 93 (mineral extraction trade and carry back of balancing allowances),
and
(d) section 94 (carry back of certain interest as loss).

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90 Losses that are “terminal losses”
(1) Each of the following is a terminal loss made in the trade—
(a) the loss (if any) made in the trade in the period beginning with the start of the
final tax year and ending with the cessation, and
(b) the loss (if any) made in the trade in the period consisting of so much of the
previous tax year as falls in the 12 months prior to the cessation.
(2) The profit or loss of a period mentioned in subsection (1)(a) or (b) (a “terminal loss
period”) is determined by reference to the profits or losses of periods of account of the
trade (calculated for income tax purposes).
(3) If no period of account coincides with a terminal loss period, any of the following steps
may be taken if they are necessary in order to arrive at the profit or loss of the terminal
loss period—
(a) apportioning the profit or loss of a period of account between the part of the
period that falls in the terminal loss period and the part that does not, and
(b) adding the profit or loss of a period of account (or part of a period) to profits
or losses of other periods of account (or parts).
(4) Section 203(3) and (4) of ITTOIA 2005 applies for the purposes of subsection (3) as it
applies for the purposes of section 203(2) of that Act.
(5) If as a result of section 205 of ITTOIA 2005 a deduction is allowed for overlap profit in
calculating the profits of the trade of the final tax year, that deduction is to be made in
calculating the loss (if any) mentioned in subsection (1)(a) (and is therefore irrelevant
for the purposes of subsection (1)(b)).
(6) In the case of a notional trade carried on by a partner in a firm—
(a) the periods of account of the notional trade are taken to be the periods of account
of the actual trade, and
(b) the references in subsections (2) and (3) to the profits or losses of periods of
account of the trade are to the partner's share of the profits or losses of the actual
trade determined in accordance with sections 849 and 850 of ITTOIA 2005.
91 How relief works
This section explains how the deductions are to be made. The amount of the relievable
loss to be deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the relievable loss from the profits of the trade of the final tax year.
Step 2
Deduct any part of the relievable loss not deducted at Step 1 from the profits of the
trade of the previous tax year.
Step 3
Deduct any part of the relievable loss not deducted at Step 1 or 2 from the profits of the
trade of the tax year before the previous one.
Step 4

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Deduct any part of the relievable loss not deducted at Step 1, 2 or 3 from the profits of
the trade of the tax year before that one.
Other claims
If the relievable loss has not been deducted in full at Steps 1 to 4, the person may use the
part not so deducted in giving effect to any other relief under this Chapter (depending
on the terms of the relief).
92 Use of trade-related interest and dividends if trade profits insufficient
(1) This section applies if terminal trade loss relief cannot be fully given in relation to the
profits of a trade of a tax year because (apart from this section) there are no profits, or
insufficient profits, of the trade of the tax year.
(2) For the purposes of the relief any interest or dividends for the tax year that relate to the
trade are treated as profits of the trade of the tax year.
(3) Interest or dividends for the tax year relate to the trade if they—
(a) arise in the tax year, and
(b) would be brought into account in calculating the profits of the trade but for the
fact that they have been subjected to tax under other provisions of the Income
Tax Acts.
93 Mineral extraction trade and carry back of balancing allowances
(1) This section applies if—
(a) a person permanently ceases to carry on a mineral extraction trade, and
(b) the person makes a claim for terminal trade loss relief and a claim in respect of
a balancing allowance under section 355 of CAA 2001.
(2) Terminal trade loss relief must be given before relief under section 355 of CAA 2001.
(3) In giving effect to the terminal trade loss relief, the balancing allowance is to be ignored.
(4) “Mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see
section 394 of that Act).
94 Carry back of certain interest as loss
(1) This section applies if—
(a) an individual pays interest in a tax year which is eligible for relief under
section 383 (as a result of section 388 or 398),
(b) the interest is an expense incurred wholly and exclusively for the purposes of
a trade carried on wholly or partly in the United Kingdom, and
(c) relief under section 383 cannot be fully given in respect of the interest because
there is no income or insufficient income in the tax year.
(2) For the purposes of terminal trade loss relief, the amount for which relief has not been
given may be treated as a loss made in the trade at the date of payment.
(3) This section applies to professions and vocations as it applies to trades.

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Wholly foreign trades
95 Foreign trades etc: reliefs only against foreign income
(1) This section applies if a person—
(a) carries on a trade, profession or vocation wholly outside the United Kingdom,
and
(b) makes a loss in the trade, profession or vocation.
(2) In that case—
(a) sideways relief for the loss is available only against the person's qualifying
foreign income,
(b) trade income relief for the loss is available only against the person's qualifying
foreign trade income, and
(c) section 261B of TCGA 1992 (use of trading loss as a CGT loss) does not apply
in relation to the loss.
(3) “Trade income relief” means—
(a) carry-forward trade loss relief, or
(b) terminal trade loss relief.
(4) “Qualifying foreign income” means—
(a) qualifying foreign trade income, or
(b) income falling within section 23, 355, 575, 613, 615, 631 or 635 of ITEPA 2003
(foreign employment or pension income).
(5) “Qualifying foreign trade income” means the profits of any trade, profession or vocation
carried on wholly outside the United Kingdom.
(6) But “qualifying foreign income” and “qualifying foreign trade income” do not include
any income which is charged to income tax in accordance with section 832 of ITTOIA
2005 (relevant foreign income charged on the remittance basis).
Post-cessation trade relief
96 Post-cessation trade relief
(1) A person may make a claim for post-cessation trade relief if, after permanently ceasing
to carry on a trade—
(a) the person makes a qualifying payment, or
(b) a qualifying event occurs in relation to a debt owed to the person,
and the payment is made, or the event occurs, within 7 years of that cessation.
(2) If the claim is made in respect of a payment, the claim is for the payment to be deducted
in calculating the person's net income for the tax year in which the payment is made
(see Step 2 of the calculation in section 23).
(3) If the claim is made in respect of an event, the claim is for the appropriate amount of
the debt to be deducted in calculating the person's net income for the relevant tax year
(see Step 2 of the calculation in section 23).
(4) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the tax year for which the deduction is to be made.

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(5) If—
(a) the person is a company within the charge to income tax under Chapter 2 of
Part 2 of ITTOIA 2005 in respect of a trade, and
(b) the company ceases at any time to be within that tax charge in respect of the
trade,
the company is treated for the purposes of this section as permanently ceasing to carry
on the trade at that time.
(6) This section applies to professions and vocations as it applies to trades (and sections 97
and 98 are to be read accordingly).
(7) This section needs to be read with—
(a) section 97 (meaning of “qualifying payment”),
(b) section 98 (meaning of “qualifying event” etc),
(c) section 99 (reduction of relief for unpaid trade expenses), and
(d) section 100 (prohibition against double counting).
97 Meaning of “qualifying payment”
(1) For the purposes of section 96 a person makes a “qualifying payment” after
permanently ceasing to carry on a trade if the person makes a payment wholly and
exclusively for any of purposes A to D.
(2) A payment is made for purpose A if it is made—
(a) in remedying defective work done, goods supplied or services provided in the
course of the trade, or
(b) by way of damages (whether awarded or agreed) in respect of defective work
done, goods supplied or services provided in the course of the trade.
(3) A payment is made for purpose B if it is made in meeting the expenses of legal or other
professional services in connection with a claim (a “claim about defects”) that—
(a) work done in the course of the trade was defective,
(b) goods supplied in the course of the trade were defective, or
(c) services provided in the course of the trade were defective.
(4) A payment is made for purpose C if it is made in insuring—
(a) against liabilities arising out of any claim about defects, or
(b) against the liability to meet the expenses of legal or other professional services
in connection with any claim about defects.
(5) A payment is made for purpose D if it is made for the purpose of collecting a debt which
was brought into account in calculating the profits of the trade.
98 Meaning of “qualifying event” etc
(1) This section explains for the purposes of section 96 what is meant by—
(a) a “qualifying event” occurring in relation to a debt owed to a person who has
permanently ceased to carry on a trade, and
(b) “the appropriate amount of the debt” to be deducted in calculating a person's
net income for “the relevant tax year”.

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(2) A qualifying event occurs in relation to a debt owed to the person if—
(a) an unpaid debt was brought into account in calculating the profits of the trade,
(b) the person is entitled to the benefit of the debt, and
(c) the debt is released (in whole or in part) as part of a statutory insolvency
arrangement (within the meaning of Part 2 of ITTOIA 2005).
The event occurs when the debt is released.
(3) The appropriate amount of the debt to be deducted is—
(a) the amount released, or
(b) if the person was entitled to only part of the benefit of the debt, the
corresponding part of the amount released.
(4) The relevant tax year is the tax year in which the debt is released.
(5) A qualifying event also occurs in relation to a debt owed to the person if—
(a) an unpaid debt was brought into account in calculating the profits of the trade,
(b) the person is entitled to the benefit of the debt, and
(c) the debt proves to be bad.
The event occurs when the debt proves to be bad.
(6) The appropriate amount of the debt to be deducted is—
(a) the amount of the debt, or
(b) if the person was entitled to only part of the benefit of the debt, the
corresponding part of the amount of the debt.
(7) The relevant tax year is the tax year specified in the claim.
(8) The person making the claim may specify—
(a) the tax year in which the debt proves to be bad, or
(b) a subsequent tax year throughout which the debt remains bad (so long as the
tax year begins within 7 years of the cessation),
but, if the person has previously made a claim specifying a tax year in respect of the
debt, the person may not specify another tax year in respect of it.
99 Reduction of relief for unpaid trade expenses
(1) This section applies for the purposes of post-cessation trade relief in respect of a person's
trade if a deduction was made in calculating the profits of the trade for an expense not
actually paid (an “unpaid expense”).
(2) The amount of the person's relief for a tax year is reduced (but not below nil) by—
(a) the total amount of unpaid expenses at the end of the tax year, or
(b) if the person carried on the trade as a partner in a firm, the person's share of the
total amount of unpaid expenses at the end of the tax year.
(3) But any unpaid expense which is taken into account in reducing the amount of the
person's relief for a tax year is left out of account in making reductions for subsequent
tax years.

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(4) If the person actually pays an amount in respect of an unpaid expense taken into account
in reducing the amount of the person's relief, the person is treated as making a qualifying
payment for the purposes of section 96.
(5) The amount of the qualifying payment is—
(a) the amount actually paid, or
(b) if less, the amount of the reduction.
(6) This section applies to professions and vocations as it applies to trades.
100 Prohibition against double counting
(1) Post-cessation trade relief is not available for an amount for which relief is given, or is
available, under any other provision of the Income Tax Acts.
(2) For this purpose—
(a) relief available under section 254 of ITTOIA 2005 (allowable deductions
against post-cessation receipts) is treated as given for other amounts before any
amount for which post-cessation trade relief is available, and
(b) relief under that section is treated as available if it would have been available
but for the fact that the post-cessation receipts (against which the deductions
would have been allowed) are exempt under section 524 of this Act.
101 Treating excess post-cessation trade relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation trade
relief may be able to treat the unused part as an allowable loss for capital gains tax
purposes: see sections 261D and 261E of TCGA 1992.
CHAPTER 3
RESTRICTIONS ON TRADE LOSS RELIEF FOR CERTAIN PARTNERS
Introduction
102 Overview of Chapter
(1) This Chapter restricts the amount of relief that may be given for any loss made by an
individual in a trade carried on by the individual as—
(a) a limited partner in any tax year (see sections 104 to 106 and section 114),
(b) a member of a limited liability partnership (an “LLP”) in any tax year (see
sections 107 to 109 and section 114), or
(c) a non-active partner in an early tax year (see sections 110 to 114).
(2) This Chapter also restricts the amount of relief that may be given for any loss made by
an individual in a trade carried on by the individual as a partner in a firm if the trade
consists of or includes the exploitation of films (see sections 115 and 116).
(3) This Chapter needs to be read with sections 791 to 795 (income tax charge recovering
excess relief for losses made by individuals carrying on a trade in partnership).

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(4) See also—
(a) sections 796 to 803 (income tax charge in relation to individuals claiming relief
for film-related trading losses), and
(b) sections 804 to 809 (income tax charge in relation to individuals carrying on a
trade in partnership claiming relief for licence-related trading losses).
103 Meaning of “sideways relief”, “capital gains relief” and “firm”
(1) For the purposes of this Chapter sideways relief is—
(a) trade loss relief against general income (see sections 64 to 70), or
(b) early trade losses relief (see sections 72 to 74).
(2) For the purposes of this Chapter—
(a) capital gains relief is, in relation to a loss, the treatment of the loss as an
allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss
as a CGT loss), and
(b) capital gains relief is given for a loss when it is so treated.
(3) References in this Chapter to a firm are to be read in the same way as references to a
firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).
Limited partners
104 Restriction on reliefs for limited partners
(1) This section applies if—
(a) at a time in a tax year (“the relevant tax year”) an individual carries on a trade
(“the relevant trade”) as a limited partner in a firm, and
(b) the individual makes a loss in the relevant trade in the relevant tax year.
(2) There is a restriction on the amount of relief within subsection (3) which may be given
to the individual for the loss.
(3) The relief within this subsection is—
(a) sideways relief against the individual's income apart from profits of the relevant
trade, and
(b) capital gains relief.
(4) The restriction is that—
(a) the sum of the amount of the relief given and the total amount of all other
relevant relief given, less
(b) the total amount of recovered relief,
must not exceed the individual's contribution to the firm as at the end of the basis period
for the relevant tax year (see section 105).
(5) “Relevant relief” means sideways relief or capital gains relief given to the individual
for—
(a) a loss made in the relevant trade in a tax year at a time during which the
individual carries on that trade as a limited partner, or
(b) a loss made in the relevant trade in an early tax year during which the individual
carries on that trade as a non-active partner (see section 112).

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(6) “The total amount of recovered relief” means the total amount of income treated as
received by the individual under section 792 (recovery of excess relief) as a result of
the application of that section in relation to claims for relief for losses made by the
individual in the relevant trade.
(7) If the firm is carrying on, or has carried on, other trades apart from the relevant trade,
for the purpose of determining the total amount of all other relevant relief and the total
amount of recovered relief—
(a) apply subsection (5) in relation to each other trade as well as the relevant trade
and then add the results together, and
(b) apply subsection (6) as if the reference to the relevant trade were a reference to
the relevant trade or any of the other trades.
105 Meaning of “contribution to the firm”
(1) For the purposes of section 104 the individual's contribution to the firm is the sum of
amounts A and B.
(2) Amount A is the amount which the individual has contributed to the firm as capital less
so much of that amount (if any) as is within subsection (4).
(3) In particular, the individual's share of any profits of the firm is to be included in the
amount which the individual has contributed to the firm as capital so far as that share
has been added to the firm's capital.
(4) An amount of capital is within this subsection if it is an amount which—
(a) the individual has previously drawn out or received back,
(b) the individual is or may be entitled to draw out or receive back at any time when
the individual is carrying on a trade as a limited partner in the firm, or
(c) the individual is or may be entitled to require another person to reimburse to
the individual.
(5) In subsection (4) any reference to drawing out or receiving back an amount is to doing
so directly or indirectly but does not include drawing out or receiving back an amount
which, because of its being drawn out or received back, is chargeable to income tax as
profits of a trade.
(6) Amount B is the amount of the individual's total share of profits within subsection (7)
except so far as—
(a) that share has been added to the firm's capital, or
(b) the individual has received that share in money or money's worth.
(7) Profits are within this subsection if they are from the relevant trade.
(8) In determining the amount of the individual's total share of profits within subsection (7)
ignore the individual's share of any losses from the relevant trade which would (apart
from this subsection) reduce that amount.
(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or
losses calculated in accordance with generally accepted accounting practice (before any
adjustment required or authorised by law in calculating profits or losses for income tax
purposes).

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(10) If the firm is carrying on, or has carried on, other trades apart from the relevant trade,
subsections (7) and (8) have effect as if references to the relevant trade were references
to the relevant trade or any of the other trades.
(11) This section needs to be read with any regulations made under section 114 (specified
amounts to be excluded in calculating the individual's contribution to the firm for the
purposes of section 104).
106 Meaning of “limited partner”
(1) In this Chapter “limited partner” means an individual who carries on a trade—
(a) as a limited partner in a limited partnership registered under the Limited
Partnerships Act 1907 (c. 24),
(b) as a partner in a firm who in substance acts as a limited partner in relation to
the trade (see subsection (2)), or
(c) while the condition mentioned in subsection (3) is met in relation to the
individual.
(2) An individual in substance acts as a limited partner in relation to a trade if the individual

(a) is not entitled to take part in the management of the trade, and
(b) is entitled to have any liabilities (or those beyond a certain limit) for debts or
obligations incurred for the purposes of the trade met or reimbursed by some
other person.
(3) The condition referred to in subsection (1)(c) is that—
(a) the individual carries on the trade jointly with other persons,
(b) under the law of a territory outside the United Kingdom, the individual is not
entitled to take part in the management of the trade, and
(c) under that law, the individual is not liable beyond a certain limit for debts or
obligations incurred for the purposes of the trade.
(4) In the case of an individual who is a limited partner as a result of subsection (1)(c),
references in this Chapter to the individual's firm are to be read as references to the
relationship between the individual and the other persons mentioned in subsection (3)
(a).
Members of LLPs
107 Restriction on reliefs for members of LLPs
(1) This section applies if—
(a) an individual carries on a trade (“the relevant trade”) as a member of an LLP
at a time in a tax year, and
(b) the individual makes a loss in the relevant trade in the tax year (“the relevant
tax year”).
(2) But if the relevant tax year is an early tax year during which the individual carries on
the relevant trade as a non-active partner (see section 112)—
(a) this section does not apply, and
(b) section 110 applies instead.

52 Income Tax Act 2007 (c. 3) Part 4 – Loss relief Chapter 3 – Restrictions on trade loss relief for certain partners Document Generated: 2011-04-02
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(3) There is a restriction on the amount of relief within subsection (4) which may be given
to the individual for the loss.
(4) The relief within this subsection is—
(a) sideways relief against the individual's income apart from profits of the relevant
trade, and
(b) capital gains relief.
(5) The restriction is that—
(a) the sum of the amount of the relief given and the total amount of all other
relevant relief given, less
(b) the total amount of recovered relief,
must not exceed the individual's contribution to the LLP as at the end of the basis period
for the relevant tax year (see section 108).
(6) “Relevant relief” means sideways relief or capital gains relief given to the individual
for—
(a) a loss made in the relevant trade in a tax year at a time during which the
individual carries on that trade as a member of an LLP, or
(b) a loss made in the relevant trade in an early tax year during which the individual
carries on that trade as a non-active partner.
(7) “The total amount of recovered relief” means the total amount of income treated as
received by the individual under section 792 (recovery of excess relief) as a result of
the application of that section in relation to claims for relief for losses made by the
individual in the relevant trade.
(8) If the LLP is carrying on, or has carried on, other trades apart from the relevant trade,
for the purpose of determining the total amount of all other relevant relief and the total
amount of recovered relief—
(a) apply subsection (6) in relation to each other trade as well as the relevant trade
and then add the results together, and
(b) apply subsection (7) as if the reference to the relevant trade were a reference to
the relevant trade or any of the other trades.
108 Meaning of “contribution to the LLP”
(1) For the purposes of section 107 the individual's contribution to the LLP at any time
(“the relevant time”) is the sum of amounts A and B.
(2) Amount A is the amount which the individual has contributed to the LLP as capital less
so much of that amount (if any) as is within subsection (5).
(3) In particular, the individual's share of any profits of the LLP is to be included in the
amount which the individual has contributed to the LLP as capital so far as that share
has been added to the LLP's capital.
(4) In subsection (3) the reference to profits is to profits calculated in accordance with
generally accepted accounting practice (before any adjustment required or authorised
by law in calculating profits for income tax purposes).
(5) An amount of capital is within this subsection if it is an amount which—
(a) the individual has previously drawn out or received back,

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(b) the individual draws out or receives back during the period of 5 years beginning
with the relevant time,
(c) the individual is or may be entitled to draw out or receive back at any time when
the individual is a member of the LLP, or
(d) the individual is or may be entitled to require another person to reimburse to
the individual.
(6) In subsection (5) any reference to drawing out or receiving back an amount is to doing
so directly or indirectly but does not include drawing out or receiving back an amount
which, because of its being drawn out or received back, is chargeable to income tax as
profits of a trade.
(7) Amount B is the amount of the individual's liability on a winding up of the LLP so far
as that amount is not included in amount A.
(8) For the purposes of subsection (7) the amount of the individual's liability on a winding
up of the LLP is the amount which—
(a) the individual is liable to contribute to the assets of the LLP in the event of its
being wound up, and
(b) the individual remains liable to contribute for the period of at least 5 years
beginning with the relevant time (or until the LLP is wound up, if that happens
before the end of that period).
(9) This section needs to be read with any regulations made under section 114 (specified
amounts to be excluded in calculating the individual's contribution to the LLP for the
purposes of section 107).
109 Unrelieved losses brought forward
(1) This section applies for the purpose of determining an individual's entitlement to
sideways relief and capital gains relief if—
(a) the individual carries on a trade as a member of an LLP at a time during a tax
year (“the current tax year”), and
(b) as a result of section 107, sideways relief or capital gains relief has not been
given to the individual for amounts of loss made in the trade in previous tax
years as a member of the LLP.
(2) So far as they are not excluded by subsection (3), the amounts of loss mentioned in
subsection (1)(b) are treated as having been made in the current tax year.
(3) An amount of loss is excluded so far as—
(a) as a result of this section, sideways relief or capital gains relief has been given
to the individual for the amount for years prior to the current tax year or would
have been so given had a claim been made, or
(b) other than as a result of this section, relief under the Income Tax Acts has been
given to the individual for the amount for years prior to the current tax year or
for the current tax year.

54 Income Tax Act 2007 (c. 3) Part 4 – Loss relief Chapter 3 – Restrictions on trade loss relief for certain partners Document Generated: 2011-04-02
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Non-active members of LLPs or other partnerships (apart from limited partnerships)
110 Restriction on reliefs for non-active partners in early tax years
(1) This section applies if—
(a) an individual carries on a trade (“the relevant trade”) as a non-active partner in
a firm during an early tax year (see section 112), and
(b) the individual makes a loss in the relevant trade in that tax year (“the relevant
tax year”).
(2) There is a restriction on the amount of relief within subsection (3) which may be given
to the individual for the loss.
(3) The relief within this subsection is—
(a) sideways relief against the individual's income apart from profits of the relevant
trade, and
(b) capital gains relief.
(4) The restriction is that—
(a) the sum of the amount of the relief given and the total amount of all other
relevant relief given, less
(b) the total amount of recovered relief,
must not exceed the individual's contribution to the firm as at the end of the basis period
for the relevant tax year (see section 111).
(5) “Relevant relief” means sideways relief or capital gains relief given to the individual
for—
(a) a loss made in the relevant trade in a tax year at a time during which the
individual carries on that trade as a limited partner or as a member of an LLP, or
(b) a loss made in the relevant trade in an early tax year during which the individual
carries on that trade as a non-active partner.
(6) “The total amount of recovered relief” means the total amount of income treated as
received by the individual under section 792 (recovery of excess relief) as a result of
the application of that section in relation to claims for relief for losses made by the
individual in the relevant trade.
(7) If the firm is carrying on, or has carried on, other trades apart from the relevant trade,
for the purpose of determining the total amount of all other relevant relief and the total
amount of recovered relief—
(a) apply subsection (5) in relation to each other trade as well as the relevant trade
and then add the results together, and
(b) apply subsection (6) as if the reference to the relevant trade were a reference to
the relevant trade or any of the other trades.
(8) In this section “trade” does not include a trade which consists of the underwriting
business of a member of Lloyd's (within the meaning of section 184 of FA 1993).
111 Meaning of “contribution to the firm”
(1) For the purposes of section 110 the individual's contribution to the firm at any time
(“the relevant time”) is the sum of amount A and amount B and, if there is a winding
up of the firm, amount C.

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(2) Amount A is the amount which the individual has contributed to the firm as capital less
so much of that amount (if any) as is within subsection (4).
(3) In particular, the individual's share of any profits of the firm is to be included in the
amount which the individual has contributed to the firm as capital so far as that share
has been added to the firm's capital.
(4) An amount of capital is within this subsection if it is an amount which—
(a) the individual has previously drawn out or received back,
(b) the individual draws out or receives back during the period of 5 years beginning
with the relevant time,
(c) the individual is or may be entitled to draw out or receive back at any time when
the individual is carrying on a trade as a partner in the firm, or
(d) the individual is or may be entitled to require another person to reimburse to
the individual.
(5) In subsection (4) any reference to drawing out or receiving back an amount is to doing
so directly or indirectly but does not include drawing out or receiving back an amount
which, because of its being drawn out or received back, is chargeable to income tax as
profits of a trade.
(6) Amount B is the amount of the individual's total share of profits within subsection (7)
except so far as—
(a) that share has been added to the firm's capital, or
(b) the individual has received that share in money or money's worth.
(7) Profits are within this subsection if they are from the relevant trade.
(8) In determining the amount of the individual's total share of profits within subsection (7)
ignore the individual's share of any losses from the relevant trade which would (apart
from this subsection) reduce that amount.
(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or
losses calculated in accordance with generally accepted accounting practice (before any
adjustment required or authorised by law in calculating profits or losses for income tax
purposes).
(10) If the firm is carrying on, or has carried on, other trades apart from the relevant trade,
subsections (7) and (8) have effect as if references to the relevant trade were references
to the relevant trade or any of the other trades.
Subsection (8) of section 110 applies for the purposes of this subsection as it applies
for the purposes of that section.
(11) Amount C is the amount which the individual has contributed to the assets of the firm
on its winding up so far as it is not included in amount A or B.
(12) This section needs to be read with any regulations made under section 114 (specified
amounts to be excluded in calculating the individual's contribution to the firm for the
purposes of section 110).
112 Meaning of “non-active partner” and “early tax year” etc
(1) For the purposes of this Chapter an individual carries on a trade as a non-active partner
during a tax year if the individual—

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(a) carries on the trade as a partner in a firm at a time during the year,
(b) does not carry on the trade as a limited partner at any time during the year, and
(c) does not devote a significant amount of time to the trade in the relevant period
for the year.
(2) For the purposes of this Chapter an individual devotes a significant amount of time to
a trade in the relevant period for a tax year if, in that period, the individual spends an
average of at least 10 hours a week personally engaged in activities carried on for the
purposes of the trade.
(3) For this purpose “the relevant period” means the basis period for the tax year (unless
the basis period is shorter than 6 months).
(4) If the basis period for the tax year is shorter than 6 months, “the relevant period” means

(a) the period of 6 months beginning with the date on which the individual first
started to carry on the trade (if the basis period begins with that date), or
(b) the period of 6 months ending with the date on which the individual
permanently ceased to carry on the trade (if the basis period ends with that date).
(5) If—
(a) any relief is given on the assumption that the individual devoted or will devote
a significant amount of time to the trade in the relevant period for a tax year, but
(b) the individual in fact failed or fails to do so,
the relief is withdrawn by the making of an assessment to income tax under this section.
(6) In this Chapter “early tax year” means, in relation to an individual carrying on a trade—
(a) the tax year in which the individual first started to carry on the trade, or
(b) one of the next 3 tax years.
113 Unrelieved losses brought forward
(1) This section applies for the purpose of determining an individual's entitlement to
sideways relief and capital gains relief in relation to a trade if—
(a) at a time during a tax year (“the current tax year”) the individual carries on the
trade as a partner in a firm or makes a contribution to the assets of a firm within
subsection (2) on the firm's winding up, and
(b) as a result of section 110, sideways relief or capital gains relief has not been
given to the individual for amounts of loss made in the trade in previous tax
years.
(2) A firm is within this subsection if the individual has carried on the trade as a partner
in the firm.
(3) So far as they are not excluded by subsection (4), the amounts of loss mentioned in
subsection (1)(b) are treated as having been made in the current tax year.
(4) An amount of loss is excluded so far as—
(a) as a result of this section, sideways relief or capital gains relief has been given
to the individual for the amount for years prior to the current tax year or would
have been so given had a claim been made, or

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(b) other than as a result of this section, relief under the Income Tax Acts has been
given to the individual for the amount for years prior to the current tax year or
for the current tax year.
(5) For the purpose of applying sections 107 and 110 in relation to the amounts of loss
treated by this section as having been made in the current tax year—
(a) the individual is treated as having carried on the trade during the current tax
year as a non-active partner in the firm, and
(b) the current tax year is treated as if it were an early tax year in relation to the
individual's carrying on of the trade.
(6) Subsection (7) applies if the individual—
(a) made a contribution in the current tax year to the assets of the firm on its
winding up, but
(b) did not carry on the trade as a partner in the firm in the current tax year.
(7) If this subsection applies—
(a) the restrictions under sections 66 and 74(1) do not apply in relation to the
amounts of loss treated by this section as having been made in the current tax
year, and
(b) in the application of this Chapter in relation to those amounts of loss,
section 110(4) has effect as if the words “the basis period for” were omitted.
(8) In subsection (1)(b) the reference to amounts of loss does not include amounts of loss
which have been treated by section 109 as having been made in any previous tax year.
Regulations
114 Exclusion of amounts in calculating contribution to the firm or LLP
(1) The Commissioners for Her Majesty's Revenue and Customs may by regulations
provide that any amount of a specified description is to be excluded in calculating—
(a) the individual's contribution to the firm for the purposes of section 104 or 110,
or
(b) the individual's contribution to the LLP for the purposes of section 107.
(2) “Specified” means specified in the regulations.
(3) The regulations may—
(a) make provision having retrospective effect,
(b) contain incidental, supplemental, consequential and transitional provision and
savings, and
(c) make different provision for different cases or purposes.
(4) The provision which may be made as a result of subsection (3)(b) includes provision
amending or repealing any provision of an Act passed before FA 2005.
(5) No regulations may be made under this section unless a draft of them has been laid
before and approved by a resolution of the House of Commons.

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Restrictions for film trades carried on in partnership
115 Restrictions on reliefs for firms exploiting films
(1) This section applies if—
(a) an individual carries on a trade as a partner in a firm at a time during a tax year,
(b) the trade consists of or includes the exploitation of films,
(c) the individual makes a loss in the trade in the tax year (“the affected tax year”),
(d) the individual does not devote a significant amount of time to the trade in the
relevant period for the affected tax year (see section 112),
(e) the affected tax year is the one in which the individual first started to carry on
the trade or is one of the next 3 tax years, and
(f) a relevant agreement existed at a time during the affected tax year which
guaranteed the individual an amount of income (see subsections (5) to (9)).
(2) Sideways relief for the loss is not available to the individual, except against any of the
individual's income which consists of profits of the trade.
(3) Capital gains relief for the loss is not available to the individual.
(4) But see section 116 (exclusion from restrictions for certain film expenditure).
(5) An agreement is relevant if—
(a) it is an agreement made with a view to the individual's carrying on the trade,
(b) it is an agreement made in the course of the individual's carrying it on, or
(c) it is related to an agreement falling within paragraph (a) or (b).
(6) An agreement is relevant whether or not the individual is or may be required under the
agreement to contribute an amount to the trade.
(7) Agreements are related to one another if they are entered into under the same
arrangement (regardless of when either agreement is entered into).
(8) A relevant agreement guarantees the individual an amount of income if it (or any part
of it) is designed to secure the receipt by the individual of that amount (or at least that
amount) of income.
(9) It does not matter when the amount of income is (or is to be) received.
(10) In this section “film” is to be read in accordance with paragraph 1 of Schedule 1 to
the Films Act 1985 (c. 21).
116 Exclusion from restrictions under section 115: certain film expenditure
(1) The restrictions under section 115 do not apply to so much of the loss (if any) as derives
from unrestricted film expenditure.
(2) Expenditure is unrestricted film expenditure if—
(a) it is deducted under a relevant film provision for the purposes of the calculation
required by section 849 of ITTOIA 2005 (calculation of firm's profits or losses),
or
(b) it is incidental expenditure which (although not deducted under a relevant
film provision) is incurred in connection with the production of a film, or

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the acquisition of the original master version of a film, in relation to which
expenditure is so deducted.
(3) Expenditure is incidental if it is on management, administration or obtaining finance.
(4) The following are determined on a just and reasonable basis—
(a) the amount of the loss that derives from unrestricted film expenditure, and
(b) the extent to which expenditure is within subsection (2)(b).
(5) In this section—
“the acquisition of the original master version of a film” has the same
meaning as in Chapter 9 of Part 2 of ITTOIA 2005 (see sections 130 and 132
of that Act),
“film” is to be read in accordance with paragraph 1 of Schedule 1 to the
Films Act 1985, and
“a relevant film provision” means any one of sections 137 to 140 of ITTOIA
2005 (relief for certified master versions of films).
CHAPTER 4
LOSSES FROM PROPERTY BUSINESSES
Introduction
117 Overview of Chapter
(1) This Chapter—
(a) provides for losses made in a UK property business or overseas property
business in a tax year to be carried forward for deduction from profits in
subsequent tax years (see sections 118 and 119),
(b) provides in limited circumstances for relief against general income for losses
made in a UK property business or overseas property business (see sections
120 to 124), and
(c) provides for relief for certain post-cessation payments and events in connection
with a UK property business (see section 125).
(2) This Chapter also makes provision for a UK property business which consists of, or
so far as it includes, the commercial letting of furnished holiday accommodation to be
treated as a trade for the purposes of this Part (see section 127).
Carry-forward property loss relief
118 Carry forward against subsequent property business profits
(1) Relief is given to a person under this section if the person—
(a) carries on a UK property business or overseas property business (alone or in
partnership) in a tax year, and
(b) makes a loss in the business in the tax year.

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(2) The relief is given by deducting the loss in calculating the person's net income for
subsequent tax years (see Step 2 of the calculation in section 23).
(3) But a deduction for that purpose is to be made only from profits of the business.
(4) In calculating a person's net income for a tax year, deductions under this section from
the profits of a business are to be made before deductions of any other reliefs from
those profits.
(5) No relief is to be given under this section so far as relief for the loss is given under
section 120.
(6) This section needs to be read with section 119 (how relief works).
119 How relief works
This section explains how the deductions are to be made. The amount of the loss to be
deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss from the profits of the business for the next tax year.
Step 2
Deduct from the profits of the business for the following tax year the amount of the
loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to the profits of the business for subsequent tax
years until all the loss is deducted.
Property loss relief against general income
120 Deduction of property losses from general income
(1) A person may make a claim for property loss relief against general income if—
(a) in a tax year (“the loss-making year”) the person makes a loss in a UK
property business or overseas property business (whether carried on alone or
in partnership), and
(b) the loss has a capital allowances connection or the business has a relevant
agricultural connection.
(2) The claim is for the applicable amount of the loss to be deducted in calculating the
person's net income—
(a) for the loss-making year, or
(b) for the next tax year.
(See Step 2 of the calculation in section 23.)
(3) The claim must specify the tax year for which the deduction is to be made.

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(4) But if the applicable amount of the loss is not deducted in full in giving effect to a claim
for the specified tax year, the person may make a separate claim for property loss relief
against general income for the other tax year.
(5) For this purpose “the other tax year” means the tax year which was not specified in the
claim already made, but which could have been specified.
(6) This section needs to be read with—
(a) section 121 (how relief works),
(b) section 122 (meaning of “the applicable amount of the loss”),
(c) section 123 (meaning of “the loss has a capital allowances connection” and
“the business has a relevant agricultural connection”), and
(d) section 124 (supplementary).
121 How relief works
(1) This subsection explains how the deductions are to be made.
The amount of the applicable amount of the loss to be deducted at any step is limited
in accordance with section 25(4) and (5).
Step 1
Deduct the applicable amount of the loss in calculating the person's net income for the
specified tax year.
Step 2
This step applies if the applicable amount of the loss has not been deducted in full and
the person makes a separate claim for the other tax year.
Deduct the part of the applicable amount of the loss not deducted at Step 1 in calculating
the person's net income for the other tax year.
Other relief
If the applicable amount of the loss has not been deducted in full at Steps 1 and 2, relief
is given under section 118 for the part not so deducted.
(2) There is a priority rule if—
(a) a person makes a claim for property loss relief against general income (“the
prior claim”) in respect of a loss made in a tax year,
(b) the prior claim specifies the next tax year as the one for which the deduction
is to be made (“the relevant tax year”),
(c) the person makes another claim for property loss relief against general income
in respect of a loss made in the relevant tax year, and
(d) that other claim also specifies the relevant tax year as the one for which the
deduction is to be made.
(3) The rule is that priority is given to making deductions under the prior claim.

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122 Meaning of “the applicable amount of the loss”
(1) This section defines “the applicable amount of the loss” for the purposes of sections
120 and 121.
(2) “The applicable amount of the loss” is—
(a) the amount of the loss, or
(b) if less, the amount arising from the relevant connection (see subsections (3) to
(5)).
(3) If—
(a) the loss has a capital allowances connection, but
(b) the business does not have a relevant agricultural connection,
the amount arising from the relevant connection is the amount (“the net capital
allowances”) by which the capital allowances exceed the charges under CAA 2001.
(4) If—
(a) the business has a relevant agricultural connection, but
(b) the loss does not have a capital allowances connection,
the amount arising from the relevant connection is the amount of the allowable
agricultural expenses.
(5) If—
(a) the loss has a capital allowances connection, and
(b) the business has a relevant agricultural connection,
the amount arising from the relevant connection is the sum of the net capital allowances
and the amount of the allowable agricultural expenses.
123 Meaning of “the loss has a capital allowances connection” and “the business has
a relevant agricultural connection”
(1) This section applies for the purposes of sections 120 and 122.
(2) The loss has a capital allowances connection if, in calculating the loss—
(a) the amount of the capital allowances treated as expenses of the business,
exceeds
(b) the amount of any charges under CAA 2001 treated as receipts of the business.
(3) The business has a relevant agricultural connection if—
(a) the business is carried on in relation to land that consists of or includes an
agricultural estate, and
(b) allowable agricultural expenses deducted in calculating the loss are attributable
to the estate.
(4) “Agricultural estate” means land—
(a) which is managed as one estate, and
(b) which consists of or includes land occupied wholly or mainly for purposes of
husbandry.
(5) “Allowable agricultural expenses”, in relation to an agricultural estate, means any
expenses attributable to the estate which are deductible—
(a) in respect of maintenance, repairs, insurance or management of the estate, and

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(b) otherwise than in respect of interest payable on a loan.
(6) But expenses attributable to the parts of the estate used wholly for purposes other than
those of husbandry are to be ignored.
(7) And if parts of the estate are used both—
(a) for purposes of husbandry, and
(b) for other purposes,
the expenses in respect of those parts are to be reduced so far as those parts are used
for the other purposes.
124 Supplementary
(1) A claim for property loss relief against general income must be made on or before the
first anniversary of the normal self-assessment filing date for the tax year specified in
the claim.
(2) If a loss has previously been carried forward under section 118, the claim must be
accompanied by the amendments of any return made under—
(a) section 8 of TMA 1970, or
(b) section 8A of TMA 1970,
that are necessary to give effect to section 118(5) (reducing the amount of the loss
carried forward (if necessary, to nil)).
Post-cessation property relief
125 Post-cessation property relief
(1) A person may make a claim for post-cessation property relief if, after permanently
ceasing to carry on a UK property business (whether carried on alone or in partnership)

(a) the person makes a qualifying payment, or
(b) a qualifying event occurs in relation to a debt owed to the person,
and the payment is made, or the event occurs, within 7 years of that cessation.
(2) If the claim is made in respect of a payment, the claim is for the payment to be deducted
in calculating the person's net income for the tax year in which the payment is made
(see Step 2 of the calculation in section 23).
(3) If the claim is made in respect of an event, the claim is for the appropriate amount of
the debt to be deducted in calculating the person's net income for the relevant tax year
(see Step 2 of the calculation in section 23).
(4) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the tax year for which the deduction is to be made.
(5) If—
(a) the person is a company within the charge to income tax under Chapter 3 of
Part 3 of ITTOIA 2005 in respect of a UK property business, and
(b) the company ceases at any time to be within that tax charge in respect of the
business,

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the company is treated for the purposes of this section as permanently ceasing to carry
on the business at that time.
(6) The following provisions apply for the purposes of post-cessation property relief as they
apply for the purposes of post-cessation trade relief (but as if any reference to a trade
were to a UK property business)—
(a) section 97 (meaning of “qualifying payment”),
(b) section 98 (meaning of “qualifying event” etc),
(c) section 99 (reduction of relief for unpaid trade expenses), and
(d) section 100 (prohibition against double counting).
126 Treating excess post-cessation property relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation property
relief may be able to treat the unused part as an allowable loss for capital gains tax
purposes: see sections 261D and 261E of TCGA 1992.
Furnished holiday accommodation
127 UK furnished holiday lettings business treated as trade
(1) This section applies if, in a tax year, a person carries on a UK furnished holiday lettings
business.
(2) “UK furnished holiday lettings business” means a UK property business which consists
of, or so far as it includes, the commercial letting of furnished holiday accommodation
(within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).
(3) For the purposes of this Part (but as modified below) the person is treated instead as
carrying on in the tax year a single trade—
(a) which consists of every commercial letting of furnished holiday
accommodation comprised in the person's UK furnished holiday lettings
business, and
(b) the profits of which are chargeable to income tax.
(4) Chapter 2 applies as if section 75 (trade leasing allowances given to individuals) were
omitted.
(5) Early trade losses relief is not available to an individual for a loss made in a tax year if
the individual first let any of the relevant accommodation as furnished accommodation
more than 3 years before the beginning of the tax year.
(6) Accommodation is relevant if the trade that is treated as carried on in the tax year
consists of or includes the letting of the accommodation.
(7) If there is a letting of accommodation only part of which is furnished holiday
accommodation, just and reasonable apportionments are to be made for the purpose of
determining what is comprised in the trade treated as carried on.

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CHAPTER 5
LOSSES IN AN EMPLOYMENT OR OFFICE
128 Employment loss relief against general income
(1) A person may make a claim for employment loss relief against general income if the
person—
(a) is in employment or holds an office in a tax year, and
(b) makes a loss in the employment or office in the tax year (“the loss-making
year”).
(2) The claim is for the loss to be deducted in calculating the person's net income—
(a) for the loss-making year,
(b) for the previous tax year, or
(c) for both tax years.
(See Step 2 of the calculation in section 23.)
(3) If the claim is made in relation to both tax years, the claim must specify the year for
which a deduction is to be made first.
(4) Otherwise the claim must specify either the loss-making year or the previous tax year.
(5) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the loss-making year.
(6) Nothing in this section prevents a person who makes a claim specifying a particular tax
year in respect of a loss from making a further claim specifying the other tax year in
respect of the unused part of the loss.
(7) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss
relief involving two or more years).
(8) This section needs to be read with section 129 (how relief works).
129 How relief works
(1) This subsection explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).
Step 1
Deduct the loss in calculating the person's net income for the specified tax year.
Step 2
This step applies only if the claim is made in relation to both tax years.
Deduct the part of the loss not deducted at Step 1 in calculating the person's net income
for the other tax year.
(2) There is a priority rule if a person—

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(a) makes a claim for employment loss relief against general income (“the first
claim”) in relation to the loss-making year, and
(b) makes a separate claim in respect of a loss made in the following tax year in
relation to the same tax year as the first claim.
(3) The rule is that priority is given to making deductions under the first claim.
(4) For this purpose a “separate claim” means—
(a) a claim for employment loss relief against general income, or
(b) a claim for trade loss relief against general income (see sections 64 to 70).
130 Treating loss in employment or office as CGT loss
A person who cannot deduct all of a loss in an employment or office under a claim for
employment loss relief against general income may be able to treat the unused part as
an allowable loss for capital gains tax purposes: see sections 261B and 261C of TCGA
1992.
CHAPTER 6
LOSSES ON DISPOSAL OF SHARES
Share loss relief against general income
131 Share loss relief
(1) An individual is eligible for relief under this Chapter (“share loss relief”) if—
(a) the individual incurs an allowable loss for capital gains tax purposes on the
disposal of any shares in any tax year (“the year of the loss”), and
(b) the shares are qualifying shares.
This is subject to subsections (3) and (4) and section 136(2).
(2) Shares are qualifying shares for the purposes of this Chapter if—
(a) EIS relief is attributable to them, or
(b) if EIS relief is not attributable to them, they are shares in a qualifying trading
company which have been subscribed for by the individual.
(3) Subsection (1) applies only if the disposal of the shares is—
(a) by way of a bargain made at arm's length,
(b) by way of a distribution in the course of dissolving or winding up the company,
(c) a disposal within section 24(1) of TCGA 1992 (entire loss, destruction
dissipation or extinction of asset), or
(d) a deemed disposal under section 24(2) of that Act (claim that value of the asset
has become negligible).
(4) Subsection (1) does not apply to any allowable loss incurred on the disposal if—
(a) the shares are the subject of an exchange or arrangement of the kind mentioned
in section 135 or 136 of TCGA 1992 (company reconstructions etc), and
(b) because of section 137 of that Act, the exchange or arrangement involves a
disposal of the shares.

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132 Entitlement to claim
(1) An individual who is eligible for share loss relief may make a claim for the loss to be
deducted in calculating the individual's net income—
(a) for the year of the loss,
(b) for the previous tax year, or
(c) for both tax years.
(See Step 2 of the calculation in section 23.)
(2) If the claim is made in relation to both tax years, the claim must specify the year for
which a deduction is to be made first.
(3) Otherwise the claim must specify either the year of the loss or the previous tax year.
(4) The claim must be made on or before the first anniversary of the normal self-assessment
filing date for the year of the loss.
133 How relief works
(1) This subsection explains how the deductions are to be made.
The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).
Step 1
Deduct the loss in calculating the individual's net income for the specified tax year.
Step 2
This step applies only if the claim is made in relation to both tax years.
Deduct the part of the loss not deducted at Step 1 in calculating the individual's net
income for the other tax year.
(2) Subsection (1) is subject to sections 136(5) and 147 (which set limits on the amounts
of share loss relief that may be obtained in particular cases).
(3) If an individual—
(a) makes a claim for share loss relief against income (“the first claim”) in relation
to the year of the loss, and
(b) makes a separate claim for share loss relief against income in respect of a loss
made in the following tax year in relation to the same tax year as the first claim,
priority is to be given to making deductions under the first claim.
(4) Any share loss relief claimed in respect of any income has priority over any relief
claimed in respect of that income under section 64 (deduction of losses from general
income) or 72 (early trade losses relief).
(5) A claim for share loss relief does not affect any claim for a deduction under TCGA
1992 for so much of the allowable loss as is not deducted under subsection (1).

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Shares to which EIS relief is not attributable
134 Qualifying trading companies
(1) In relation to shares to which EIS relief is not attributable (see section 131(2)(b)), a
qualifying trading company is a company which meets each of conditions A to D.
(2) Condition A is that the company either—
(a) meets each of the following requirements on the date of the disposal—
(i) the trading requirement (see section 137),
(ii) the control and independence requirement (see section 139),
(iii) the qualifying subsidiaries requirement (see section 140), and
(iv) the property managing subsidiaries requirement (see section 141), or
(b) has ceased to meet any of those requirements at a time which is not more than
3 years before that date and has not since that time been an excluded company,
an investment company or a trading company.
(3) Condition B is that the company either—
(a) has met each of the requirements mentioned in condition A for a continuous
period of 6 years ending on that date or at that time, or
(b) has met each of those requirements for a shorter continuous period ending on
that date or at that time and has not before the beginning of that period been an
excluded company, an investment company or a trading company.
(4) Condition C is that the company—
(a) met the gross assets requirement (see section 142) both immediately before and
immediately after the issue of the shares in respect of which the share loss relief
is claimed, and
(b) met the unquoted status requirement (see section 143) at the relevant time
within the meaning of that section.
(5) Condition D is that the company has carried on its business wholly or mainly in the
United Kingdom throughout the period—
(a) beginning with the incorporation of the company or, if later, 12 months before
the shares in question were issued, and
(b) ending with the date of the disposal.
135 Subscriptions for shares
(1) This section has effect in relation to shares to which EIS relief is not attributable.
(2) An individual subscribes for shares in a company if they are issued to the individual by
the company in consideration of money or money's worth.
(3) If—
(a) an individual (“A”) subscribed for, or is treated under subsection (4) or this
subsection as having subscribed for, any shares,
(b) A transferred the shares to another individual (“B”) during their lives, and
(c) A was B's spouse or civil partner at the time of the transfer,
B is treated as having subscribed for the shares.
(4) If—

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(a) an individual has subscribed for, or is treated under subsection (3) or this
subsection as having subscribed for, any shares, and
(b) any corresponding bonus shares are subsequently issued to the individual,
the individual is treated as having subscribed for the bonus shares.
136 Disposals of new shares
(1) This section has effect in relation to shares to which EIS relief is not attributable.
(2) If—
(a) an individual disposes of shares (“the new shares”), and
(b) the new shares are, by virtue of section 127 of TCGA 1992 (reorganisation etc
treated as not involving disposal), identified with other shares (“the old shares”)
previously held by the individual,
the individual is not eligible for share loss relief on the disposal of the new shares unless
one of conditions A and B is met.
This is subject to section 145(3).
(3) Condition A is that the individual would have been eligible for share loss relief on a
disposal of the old shares—
(a) if the individual had incurred an allowable loss in disposing of them by way of
a bargain made at arm's length on the occasion of the disposal that would have
occurred but for section 127 of TCGA 1992, and
(b) where applicable, if this Chapter had then been in force.
(4) Condition B is that the individual gave for the new shares consideration in money or
money's worth other than consideration of the kind mentioned in paragraph (a) or (b)
of section 128(2) of TCGA 1992 (“new consideration”).
(5) If the individual relies on condition B, the amount of share loss relief on the disposal of
the new shares must not exceed the amount or value of the new consideration taken into
account as a deduction in calculating the amount of the loss incurred on the disposal.
Qualifying trading companies: the requirements
137 The trading requirement
(1) The trading requirement is that—
(a) the company, ignoring any incidental purposes, exists wholly for the purpose
of carrying on one or more qualifying trades, or
(b) the company is a parent company and the business of the group does not consist
wholly or as to a substantial part in the carrying on of non-qualifying activities.
(2) If the company intends that one or more other companies should become its qualifying
subsidiaries with a view to their carrying on one or more qualifying trades—
(a) the company is treated as a parent company for the purposes of subsection (1)
(b), and
(b) the reference in subsection (1)(b) to the group includes the company and
any existing or future company that will be its qualifying subsidiary after the
intention in question is carried into effect.

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This subsection does not apply at any time after the abandonment of that intention.
(3) For the purpose of subsection (1)(b) the business of the group means what would be
the business of the group if the activities of the group companies taken together were
regarded as one business.
(4) For the purpose of determining the business of a group, activities are ignored so far
as they are activities carried on by a mainly trading subsidiary otherwise than for its
main purpose.
(5) For the purposes of determining the business of a group, activities of a group company
are ignored so far as they consist in—
(a) the holding of shares in or securities of a qualifying subsidiary of the parent
company,
(b) the making of loans to another group company,
(c) the holding and managing of property used by a group company for the purpose
of one or more qualifying trades carried on by a group company, or
(d) the holding and managing of property used by a group company for the purpose
of research and development from which it is intended—
(i) that a qualifying trade to be carried on by a group company will be
derived, or
(ii) that a qualifying trade carried on or to be carried on by a group company
will benefit.
(6) Any reference in subsection (5)(d)(i) or (ii) to a group company includes a reference to
any existing or future company which will be a group company at any future time.
(7) In this section—
“excluded activities” has the meaning given by section 192 read with
sections 193 to 199,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any
of its qualifying subsidiaries,
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of the
company in question,
“mainly trading subsidiary” means a subsidiary which, apart from incidental
purposes, exists wholly for the purpose of carrying on one or more qualifying
trades, and any reference to the main purpose of such a subsidiary is to be read
accordingly,
“non-qualifying activities” means—
(a) excluded activities, and
(b) activities (other than research and development) carried on otherwise than
in the course of a trade,
“parent company” means a company that has one or more qualifying
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191,
“qualifying trade” has the meaning given by section 189, and
“research and development” has the meaning given by section 1006.

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(8) In sections 189(1)(b) and 194(4)(c) (as applied by subsection (7) for the purposes of
the definitions of “excluded activities” and “qualifying trade”) “period B” means the
continuous period that is relevant for the purposes of section 134(3).
138 Ceasing to meet trading requirement because of administration or receivership
(1) A company is not regarded as ceasing to meet the trading requirement merely because
of anything done in consequence of the company or any of its subsidiaries being in
administration or receivership.
This has effect subject to subsections (2) and (3).
(2) Subsection (1) applies only if—
(a) the entry into administration or receivership, and
(b) everything done as a result of the company concerned being in administration
or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(3) A company ceases to meet the trading requirement if before the time that is relevant
for the purposes of section 134(2)—
(a) a resolution is passed, or an order is made, for the winding up of the company
or any of its subsidiaries (or, in the case of a winding up otherwise than under
the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any
other act is done for the like purpose), or
(b) the company or any of its subsidiaries is dissolved without winding up.
This is subject to subsection (4).
(4) Subsection (3) does not apply if —
(a) the winding up is for genuine commercial reasons, and is not part of a scheme
or arrangement the main purpose or one of the main purposes of which is the
avoidance of tax, and
(b) the company continues, during the winding up, to be a trading company.
(5) References in this section to a company being “in administration” or “in receivership”
are to be read in accordance with section 252.
139 The control and independence requirement
(1) The control element of the requirement is that—
(a) the company must not control (whether on its own or together with any person
connected with it) any company which is not a qualifying subsidiary of the
company, and
(b) no arrangements must be in existence by virtue of which the company could
fail to meet paragraph (a) (whether at a time during the continuous period that
is relevant for the purposes of section 134(3) or otherwise).
(2) The independence element of the requirement is that—
(a) the company must not—
(i) be a 51% subsidiary of another company, or

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(ii) be 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
(b) no arrangements must be in existence by virtue of which the company could
fail to meet paragraph (a) (whether at a time during the continuous period that
is relevant for the purposes of section 134(3) or otherwise).
(3) This section is subject to section 145(3).
(4) In this section—
“arrangements” includes any scheme, agreement or understanding, whether
or not legally enforceable,
“control”, in subsection (1)(a), is to be read in accordance with
section 416(2) to (6) of ICTA,
“qualifying subsidiary” is to be read in accordance with section 191.
140 The qualifying subsidiaries requirement
(1) The qualifying subsidiaries requirement is that any subsidiary that the company has
must be a qualifying subsidiary of the company.
(2) In this section “qualifying subsidiary” is to be read in accordance with section 191.
141 The property managing subsidiaries requirement
(1) The property managing subsidiaries requirement is that any property managing
subsidiary that the company has must be a qualifying 90% subsidiary of the company.
(2) In this section—
“property managing subsidiary” has the meaning given by section 188(2),
“qualifying 90% subsidiary” has the meaning given by section 190.
142 The gross assets requirement
(1) The gross assets requirement in the case of a single company is that the value of the
company's gross assets—
(a) must not exceed £7 million immediately before the shares in respect of which
the share loss relief is claimed are issued, and
(b) must not exceed £8 million immediately afterwards.
(2) The gross assets requirement in the case of a parent company is that the value of the
group assets—
(a) must not exceed £7 million immediately before the shares in respect of which
the share loss relief is claimed are issued, and
(b) must not exceed £8 million immediately afterwards.
(3) The value of the group assets means the sum of the values of the gross assets of each
of the members of the group, ignoring any that consist in rights against, or shares in or
securities of, another member of the group.
(4) In this section—
“group” means a parent company and its qualifying subsidiaries,

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“parent company” means a company that has one or more qualifying
subsidiaries,
“qualifying subsidiary” is to be read in accordance with section 191, and
“single company” means a company that does not have one or more
qualifying subsidiaries.
143 The unquoted status requirement
(1) The unquoted status requirement is that, at the time (“the relevant time”) at which the
shares in respect of which the share loss relief is claimed are issued—
(a) the company must be an unquoted company,
(b) there must be no arrangements in existence for the company to cease to be an
unquoted company, and
(c) there must be no arrangements in existence for the company to become a
subsidiary of another company (“the new company”) by virtue of an exchange
of shares, or shares and securities, if—
(i) section 145 applies in relation to the exchange, and
(ii) arrangements have been made with a view to the new company ceasing
to be an unquoted company.
(2) The arrangements referred to in subsection (1)(b) and (c)(ii) do not include
arrangements in consequence of which any shares, stocks, debentures or other securities
of the company or the new company are at any subsequent time—
(a) listed on a stock exchange that is a recognised stock exchange by virtue of an
order made under section 1005, or
(b) listed on an exchange, or dealt in by any means, designated by an order made
for the purposes of section 184(3)(b) or (c),
if the order was made after the relevant time.
(3) In this section—
“arrangements” includes any scheme, agreement or understanding, whether
or not legally enforceable, and
“unquoted company” has the meaning given by section 184(2).
144 Power to amend requirements by Treasury order
The Treasury may by order make such amendments of sections 137 to 143 as they
consider appropriate.
Qualifying trading companies: supplementary
145 Relief after an exchange of shares for shares in another company
(1) This section and section 146 apply in relation to shares to which EIS relief is not
attributable if—
(a) a company (“the new company”) in which the only issued shares are subscriber
shares acquires all the shares (“old shares”) in another company (“the old
company”),
(b) the consideration for the old shares consists wholly of the issue of shares (“new
shares”) in the new company,

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(c) the consideration for the new shares of each description consists wholly of old
shares of the corresponding description,
(d) new shares of each description are issued to the holders of old shares of the
corresponding description in respect of and in proportion to their holdings, and
(e) by virtue of section 127 of TCGA 1992 as applied by section 135(3) of that Act
(company reconstructions etc), the exchange of shares is not to be treated as
involving a disposal of the old shares or an acquisition of the new shares.
In this subsection references to shares, except in the expressions “shares to which EIS
relief is not attributable” and “subscriber shares”, include securities.
(2) For the purposes of this Chapter the exchange of shares is not regarded as involving
any disposal of the old shares or any acquisition of the new shares.
(3) Nothing in—
(a) section 136(2) (disposals of new shares), and
(b) section 139 (the control and independence requirement),
applies in relation to such an exchange of shares, or shares and securities, as is
mentioned in subsection (1) or, in the case of section 139, arrangements with a view
to such an exchange.
(4) For the purposes of this section old shares and new shares are of a corresponding
description if, on the assumption that they were shares in the same company, they would
be of the same class and carry the same rights.
(5) References in section 146 to “old shares”, “new shares”, “the old company” and “the
new company” are to be read in accordance with this section.
146 Substitution of new shares for old shares
(1) Subsection (2) applies if, in the case of any new shares held by an individual or by a
nominee for an individual, the old shares for which they were exchanged were shares—
(a) to which EIS relief was not attributable, and
(b) which had been subscribed for by the individual.
(2) This Chapter has effect in relation to any subsequent disposal or other event as if—
(a) the new shares had been subscribed for by the individual at the time when, and
for the amount for which, the old shares were subscribed for by the individual,
(b) the new shares had been issued by the new company at the time when the old
shares were issued to the individual by the old company, and
(c) any requirements of this Chapter which were met at any time before the
exchange by the old company had been met at that time by the new company.
Limits on share loss relief and mixed holdings
147 Limits on share loss relief
(1) Subsection (2) applies if—
(a) an individual disposes of any qualifying shares,
(b) those shares either—
(i) form part of a section 104 holding or a 1982 holding at the time of the
disposal, or

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(ii) formed part of such a holding at an earlier time, and
(c) the individual makes a claim under section 132 in respect of a loss incurred on
the disposal.
(2) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares had
not formed part of the holding.
(3) Subsection (4) applies if—
(a) an individual disposes of any qualifying shares,
(b) the qualifying shares, and other shares that are not capable of being qualifying
shares, are for the purposes of TCGA 1992 to be treated as acquired by a
single transaction by virtue of section 105(1)(a) of that Act (disposal of shares
acquired on same day etc), and
(c) the individual makes a claim under section 132 in respect of a loss incurred on
the disposal.
(4) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if—
(a) the qualifying shares were to be treated as acquired by a single transaction, and
(b) the other shares were not to be so treated.
(5) Subsection (6) applies if—
(a) an individual disposes of any qualifying shares,
(b) the qualifying shares (taken as a single asset), and other shares in the same
company that are not capable of being qualifying shares (taken as a single
asset), are for the purposes of TCGA 1992 to be treated as the same asset by
virtue of section 127 of that Act (reorganisation etc treated as not involving
disposal), and
(c) the individual makes a claim under section 132 in respect of a loss incurred on
the disposal,
References in this subsection and subsection (6) to other shares in the same company
include debentures of the same company.
(6) The amount of share loss relief on the disposal is not to exceed the sums that would be
allowed as deductions in calculating the amount of the loss if the qualifying shares and
the other shares in the same company were not to be treated as the same asset.
(7) In this section—
“section 104 holding” has the meaning given by section 104(3) of TCGA
1992, and
“1982 holding” has the meaning given by section 109(1) of that Act.
(8) For the purposes of this section and section 148, shares to which EIS relief is not
attributable are not capable of being qualifying shares at any time if—
(a) the individual acquired the shares otherwise than by subscription,
(b) condition C in section 134(4) was not met in relation to the issue of the shares, or
(c) condition D in section 134(5) would not be met if the shares were disposed of
at that time.

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(9) For the purposes of subsection (5), shares to which EIS relief is not attributable are not
capable of being qualifying shares at any time if they are shares of a different class from
the shares mentioned in paragraph (a) of that subsection.
148 Disposal of shares forming part of mixed holding
(1) This section applies if an individual disposes of shares forming part of a mixed holding
of shares, that is, a holding of shares in a company which includes—
(a) shares that are not capable of being qualifying shares, and
(b) other shares.
(2) Any question—
(a) whether a disposal by the individual of shares forming part of the mixed holding
is of qualifying shares, or
(b) as to which of any qualifying shares acquired by the individual at different times
such a disposal relates to,
is to be determined as provided by the following provisions of this section.
(3) Any such question as is mentioned in subsection (2) is to be determined—
(a) except in a case falling within paragraph (b)—
(i) in accordance with subsection (4), and
(ii) in the case of shares which under that subsection are identified with
the whole or any part of a section 104 holding or a 1982 holding, in
accordance with subsection (5),
(b) in the case of a mixed holding which includes any of the following—
(i) shares issued before 1 January 1994 in respect of which relief has been
given under Chapter 3 of Part 7 of ICTA (business expansion scheme)
and has not been withdrawn,
(ii) shares to which EIS relief is attributable, and
(iii) shares to which deferral relief (within the meaning of Schedule 5B to
TCGA 1992) is attributable,
in accordance with subsection (6).
(4) For the purposes of subsection (3)(a)(i), the question is to be determined by identifying
the shares disposed of in accordance with sections 105 to 105B and 106A of TCGA
1992.
(5) For the purposes of subsection (3)(a)(ii), the question is to be determined by treating
the disposal and any previous disposal by the individual out of the section 104 or 1982
holding as relating to shares acquired later rather than earlier.
(6) For the purposes of subsection (3)(b), the question is to be determined—
(a) in relation to shares issued before 1 January 1994, as provided by subsections
(3) to (4C) of section 299 of ICTA (as that section has effect in relation to shares
so issued),
(b) in relation to shares issued on or after that date and before 6 April 2007, as
provided by subsections (6) to (6D) of that section (as that section has effect
in relation to shares so issued), and
(c) in relation to shares issued on or after 6 April 2007, as provided by section 246
of this Act.

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(7) Any such question as is mentioned in subsection (2) which cannot be determined as
provided by subsections (3) to (6) is to be determined on a just and reasonable basis.
(8) In this section “holding” means any number of shares of the same class held by one
individual in the same capacity, growing or diminishing as shares of that class are
acquired or disposed of.
For this purpose—
(a) shares are not to be treated as being of the same class unless they are so treated
by the practice of a recognised stock exchange or would be so treated if dealt
in on such an exchange, and
(b) subsection (4) of section 104 of TCGA 1992 applies as it applies for the
purposes of subsection (1) of that section.
(9) In this section “section 104 holding” and “1982 holding” have the same meaning as
in section 147.
149 Section 148: supplementary
(1) In the case of a disposal of shares within section 148(3)(b)(ii) or (iii) to which
section 105A of TCGA 1992 (election for alternative treatment: approved-scheme
shares) applies—
(a) section 299 of ICTA (identification of shares) has effect for the purposes of
section 148(6)(b), and
(b) section 246 of this Act has effect for the purposes of section 148(6)(c),
with the same modifications as those with which they have effect for the purposes of
section 150A(4) of TCGA 1992 (enterprise investment schemes).
(2) In a case to which section 127 of TCGA 1992 (reorganisation etc treated as not involving
disposal) applies (including a case where that section applies by virtue of an enactment
relating to chargeable gains), shares included in the new holding are treated for the
purposes of section 148 as acquired when the original shares were acquired.
(3) Any shares held or disposed of by a nominee or bare trustee for an individual are treated
for the purposes of section 148 as held or disposed of by that individual.
(4) In this section “new holding” and “original shares” have the same meaning as in
section 127 of TCGA 1992 (or, as the case may be, that section as applied by the
enactment concerned).
Miscellaneous and supplementary
150 Deemed time of issue for certain shares
(1) In this section “the relevant provisions” means—
section 134(5)(a),
section 142(1)(a) and (2)(a),
section 143(1), and
section 146(2)(b).
(2) If—

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(a) any shares were issued to an individual (“A”) or are treated under subsection (3)
or this subsection as having been issued to A at a particular time,
(b) the shares are transferred by A to another individual (“B”) during their lives,
and
(c) A was B's spouse or civil partner at the time of the transfer,
the shares are treated for the purposes of the relevant provisions as having been issued
to B at the time they were issued to A or are treated as having been so issued.
(3) If—
(a) any shares (“the original shares”) have been issued to an individual, or are
treated under subsection (2) or this subsection as having been issued to an
individual at a particular time, and
(b) any corresponding bonus shares are subsequently issued to the individual,
the bonus shares are treated for the purposes of the relevant provisions as having been
issued at the time the original shares were issued to the individual or are treated as
having been so issued.
151 Interpretation of Chapter
(1) In this Chapter (subject to subsections (2) to (8))—
“bonus shares” means shares which are issued otherwise than for payment
(whether in cash or otherwise),
“civil partner” refers to one of two civil partners who are living together,
“corresponding bonus shares”, in relation to any shares, means bonus shares
which—
(a) are issued in respect of those shares, and
(b) are in the same company, are of the same class, and carry the same rights,
as those shares,
“EIS relief” means—
(a) EIS income tax relief under Part 5 of this Act, and
(b) in relation to shares issued after 31 December 1993 and before 6 April
2007, relief under Chapter 3 of Part 7 of ICTA (enterprise investment
scheme),
“excluded company” means a company which—
(a) has a trade which consists wholly or mainly of dealing in land,
in commodities or futures or in shares, securities or other financial
instruments,
(b) has a trade which is not carried on on a commercial basis and in such a
way that profits in the trade can reasonably be expected to be realised,
(c) is a holding company of a group other than a trading group, or
(d) is a building society or a registered industrial and provident society,
“group” (except in sections 137 and 142) means a company which has one
or more 51% subsidiaries together with that or those subsidiaries,
“holding company” means a company whose business consists wholly or
mainly in the holding of shares or securities of companies which are its 51%
subsidiaries,
“investment company” has the meaning given by section 130 of ICTA except
that it does not include the holding company of a trading group,
“qualifying shares” has the meaning given by section 131(2),

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“registered industrial and provident society” means a society registered or
treated as registered under the Industrial and Provident Societies Act 1965
(c. 12) or the Industrial and Provident Societies Act (Northern Ireland) 1969
(c. 24 (N.I.)),
“shares”—
(a) includes stock, but
(b) does not include shares or stock not forming part of a company's ordinary
share capital,
“share loss relief” has the meaning given by section 131(1),
“spouse” refers to one of two spouses who are living together,
“trading company” means a company other than an excluded company
which is—
(a) a company whose business consists wholly or mainly of the carrying on
of a trade or trades, or
(b) the holding company of a trading group,
“trading group” means a group the business of whose members, when taken
together, consists wholly or mainly in the carrying on of a trade or trades, and
“the year of the loss” has the meaning given by section 131(1).
(2) For the purposes of the definition of “corresponding bonus shares” in subsection (1),
shares are not treated as being of the same class unless they would be so treated if dealt
in on the Stock Exchange.
(3) In section 148(3)(b) and (6) “shares” does not include stock.
(4) Except as provided by subsection (5), paragraph (b) of that definition does not apply
in the definition of “excluded company” in subsection (1) or in sections 145(1) to (4)
and 147(3) to (6), (8) and (9).
(5) Paragraph (b) of that definition applies in relation to the expression “shares to which
EIS relief is not attributable” in section 145(1).
(6) The definition of “shares” in subsection (1) does not apply in sections 137(5)(a), 142(3)
and 143(1)(c) and (2).
(7) For the purposes of the definition of “trading group” in subsection (1), any trade carried
on by a subsidiary which is an excluded company is treated as not constituting a trade.
(8) For the purposes of this Chapter a disposal of shares which results in an allowable loss
for capital gains tax purposes is treated as made at the time when the disposal is made
or treated as made for the purposes of TCGA 1992.
CHAPTER 7
LOSSES FROM MISCELLANEOUS TRANSACTIONS
Loss relief against miscellaneous income
152 Losses from miscellaneous transactions
(1) A person may make a claim for loss relief against miscellaneous income if in a tax year
(“the loss-making year”) the person makes a loss in any relevant transaction.

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(2) A transaction is a relevant one if, assuming there were profits or other income arising
from it—
(a) those profits or that other income would be section 1016 income, and
(b) the person would be liable for income tax charged on those profits or that other
income.
(3) The claim is for the loss to be deducted in calculating the person's net income for the
loss-making year and subsequent tax years (see Step 2 of the calculation in section 23).
(4) But a deduction for that purpose is to be made only from the person's miscellaneous
income.
(5) A person's miscellaneous income is so much of the person's total income as is—
(a) income or gains arising from transactions, and
(b) section 1016 income.
This is subject to subsection (6).
(6) If the loss was made by the person as a partner in a partnership, the transactions covered
by subsection (5)(a) are limited to transactions entered into by the partnership.
(7) In calculating a person's net income for a tax year, deductions under this section from
the person's miscellaneous income are to be made before deductions of any other reliefs
from that miscellaneous income.
(8) In this section “section 1016 income” means income on which income tax is charged
under or by virtue of any provision to which section 1016 applies.
(9) This section needs to be read with—
(a) section 153 (how relief works),
(b) section 154 (transactions in deposit rights), and
(c) section 155 (claims).
153 How relief works
This section explains how the deductions are to be made. The amount of the loss to be
deducted at any step is limited in accordance with section 25(4) and (5).
Step 1
Deduct the loss from the miscellaneous income for the loss-making year.
Step 2
Deduct from the miscellaneous income for the next tax year the amount of the loss not
previously deducted.
Step 3
Continue to apply Step 2 in relation to miscellaneous income for subsequent tax years
until all the loss is deducted.

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Deposit rights
154 Transactions in deposit rights
(1) This section applies if—
(a) a person makes a loss from the disposal or exercise of a right to receive an
amount,
(b) the disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4
of ITTOIA 2005 (see subsection (2)), and
(c) the person's total income for a tax year includes interest payable on the amount.
(2) The disposal or exercise is a transaction in a deposit under Chapter 11 of Part 4 of
ITTOIA 2005 if, assuming there were a profit or gain from it, the profit or gain would
be charged to tax under that Chapter.
(3) For the purposes of the giving of loss relief against miscellaneous income for the loss
mentioned in subsection (1)(a), the interest mentioned in subsection (1)(c) is treated as
miscellaneous income for the tax year.
Supplementary
155 Time limit for claiming relief
(1) So far as a claim for loss relief against miscellaneous income concerns the amount of
the loss for a tax year, it must be made on or before the fifth anniversary of the normal
self-assessment filing date for the tax year.
(2) But—
(a) the question whether, and
(b) if so, how much,
loss relief against miscellaneous income should be given for a tax year may be the
subject of a separate claim made on or before the fifth anniversary of the normal self-
assessment filing date for the tax year.
PART 5
ENTERPRISE INVESTMENT SCHEME
CHAPTER 1
INTRODUCTION
EIS relief
156 Meaning of “EIS relief” and commencement
(1) This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to tax
reductions in respect of amounts subscribed by individuals for shares.
(2) In this Part “EIS” stands for the enterprise investment scheme.

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(3) In accordance with section 1034(3), this Part has effect only in relation to shares issued
on or after 6 April 2007.
This is subject to Schedule 2 (transitional provisions and savings).
157 Eligibility for EIS relief
(1) An individual (“the investor”) is eligible for EIS relief in respect of an amount
subscribed by the investor on the investor's own behalf for an issue of shares in a
company (“the issuing company”) if—
(a) the shares (“the relevant shares”) are issued to the investor,
(b) the investor is a qualifying investor in relation to the relevant shares (see
Chapter 2),
(c) the general requirements (including requirements as to the purpose of the issue
of shares and the use of money raised) are met in respect of the relevant shares
(see Chapter 3), and
(d) the issuing company is a qualifying company in relation to the relevant shares
(see Chapter 4).
(2) To be eligible for EIS relief in respect of an amount subscribed for shares issued by
the issuing company in a tax year, the investor must have subscribed at least £500 for
shares in the issuing company which—
(a) meet the requirements of section 173(2) (ordinary shares which carry no
preferential rights or rights of redemption), and
(b) are issued in the tax year.
(3) Subsection (2) is subject to section 251(3) (approved investment funds).
158 Form and amount of EIS relief
(1) If an individual—
(a) is eligible for EIS relief in respect of any amount subscribed for shares, and
(b) makes a claim in respect of all or some of the shares included in the issue,
the individual is entitled to a tax reduction for the tax year in which the shares were
issued (“the current year”).
This is subject to the provisions of this Part.
(2) The amount of the tax reduction to which the individual is entitled is the amount equal
to tax at the savings rate for the current year on—
(a) the amount or, as the case may be, the sum of the amounts subscribed for shares
issued in that year in respect of which the individual is eligible for and claims
EIS relief, or
(b) if less, £400,000.
(3) The tax reduction is given effect at Step 6 of the calculation in section 23.
(4) Subject to subsection (5), if in the case of any issue of shares—
(a) which are issued before 6 October in the current year, and
(b) in respect of the amount subscribed for which the individual is eligible for EIS
relief,

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the individual so claims, subsections (1) and (2) apply as if, in respect of such part of
that issue as may be specified in the claim, the shares had been issued in the preceding
tax year; and the individual's liability to tax for both tax years is determined accordingly.
(5) But—
(a) no more than half the shares included in an issue may be treated under
subsection (4) as issued in the preceding tax year, and
(b) the total amount subscribed for any shares (included in any issues) treated under
subsection (4) as issued in that year is not to exceed £50,000.
Miscellaneous
159 Periods A, B and C
(1) This section applies for the purposes of this Part in relation to any shares issued by a
company.
(2) “Period A” means the period—
(a) beginning—
(i) with the incorporation of the company, or
(ii) if the company was incorporated more than two years before the date
on which the shares were issued, two years before that date, and
(b) ending immediately before the termination date relating to the shares (see
section 256).
(3) “Period B” means the period—
(a) beginning with the issue of the shares, and
(b) ending immediately before the termination date relating to the shares.
(4) “Period C” means the period—
(a) beginning 12 months before the issue of the shares, and
(b) ending immediately before the termination date relating to the shares.
160 Overview of other Chapters of Part
In this Part—
(a) Chapter 5 provides for the attribution of EIS relief to shares and the making of
claims for such relief,
(b) Chapter 6 provides for EIS relief to be withdrawn or reduced in the
circumstances mentioned in that Chapter,
(c) Chapter 7 makes provision with respect to the procedure for the withdrawal or
reduction of EIS relief, and
(d) Chapter 8 contains supplementary and general provisions.
161 Other tax reliefs relating to EIS
(1) Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the income
of an individual who incurs an allowable loss for capital gains tax purposes on a disposal
of shares to which EIS relief is attributable.

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(2) Subsection (3) of section 392 (loan to buy interest in close company) provides that
subsection (2)(a) of that section does not apply if at any time—
(a) the individual by whom the shares are acquired, or
(b) that individual's spouse or civil partner,
makes a claim for EIS relief in respect of the shares.
(3) Section 150A of TCGA 1992 makes provision about gains or losses on the disposal of
shares to which EIS relief is attributable.
(4) Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under EIS
of the proceeds of assets disposed of in circumstances where there would otherwise be
a chargeable gain.
(5) Schedule 5BA to TCGA 1992 provides for the application of taper relief in cases where
EIS relief or relief under Schedule 5B to that Act applies.
CHAPTER 2
THE INVESTOR
Introduction
162 Overview of Chapter
The investor is a qualifying investor in relation to the relevant shares if the requirements
of this Chapter are met as to—
(a) no connection with the issuing company (see section 163),
(b) no linked loans (see section 164), and
(c) no tax avoidance (see section 165).
The requirements
163 The no connection with the issuing company requirement
(1) The investor must not be connected with the issuing company (whether before or after
its incorporation) at any time during the period—
(a) beginning two years before the issue of the shares, and
(b) ending immediately before the termination date relating to the shares.
(2) This is subject to section 169(1).
164 The no linked loans requirement
(1) No linked loan is to be made by any person, at any time in period A, to the investor
or an associate of the investor.
(2) In this section “linked loan” means any loan which—
(a) would not have been made, or
(b) would not have been made on the same terms,

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if the investor had not subscribed for the relevant shares, or had not been proposing
to do so.
(3) References in this section to the making by any person of a loan to the investor or an
associate of the investor include references—
(a) to the giving by that person of any credit to the investor or any associate of
the investor, and
(b) to the assignment to that person of a debt due from the investor or any associate
of the investor.
165 The no tax avoidance requirement
The relevant shares must be subscribed for by the investor for genuine commercial
reasons, 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.
Meaning of connection with issuing company
166 Connection with issuing company
(1) For the purposes of this Chapter (except section 168(4)), an individual is connected
with the issuing company if the individual or an associate of the individual is connected
with that company under—
(a) section 167 (employees, directors and partners),
(b) section 170 (persons interested in capital etc of company), or
(c) section 171 (persons subscribing for shares under certain arrangements).
(2) See too section 257(2).
167 Employees, directors and partners
(1) An individual is connected with the issuing company if the individual—
(a) is an employee of—
(i) the issuing company,
(ii) any subsidiary of the issuing company, or
(iii) a partner of the issuing company or any of its subsidiaries,
(b) is a partner of—
(i) the issuing company, or
(ii) any subsidiary of the issuing company, or
(c) subject to section 168, is a director of—
(i) the issuing company,
(ii) any subsidiary of the issuing company, or
(iii) a company which is a partner of the issuing company or any of its
subsidiaries.
(2) In subsection (1) “subsidiary”, in relation to the issuing company, means a company
which at any time in period A is a 51% subsidiary of the issuing company, whether
or not it is such a subsidiary while the individual or associate concerned is such an
employee, partner or director as is mentioned in that subsection.

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(3) For the purposes of this section and sections 168 and 169, in the case of an individual
(“A”) who is both a director and an employee of a company—
(a) references (however expressed) to A in A's capacity as a director of the
company include A in A's capacity as an employee of the company, but
(b) (apart from that) A is to be treated as a director, and not as an employee, of
the company.
168 Directors excluded from connection
(1) An individual is not connected with the issuing company under section 167 merely
because the individual, or an associate of the individual, is a director of that or another
company unless the individual or associate (or a partnership of which the individual or
associate is a member)—
(a) receives a payment from the issuing company or a related person during the
period mentioned in section 163, or
(b) is entitled to receive such a payment in respect of that period or any part of it.
(2) For the purposes of subsection (1) the following are ignored—
(a) any payment or reimbursement of travelling or other expenses wholly,
exclusively and necessarily incurred by the individual or an associate of the
individual in the performance of the individual's or associate's 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 necessary and reasonable remuneration which meets the conditions in
subsection (3).
(3) The conditions are that the remuneration—
(a) is paid for services rendered to the issuing company or related person in the
course of a trade or profession carried 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
(b) is taken into account in calculating for tax purposes the profits of that trade or
profession.
(4) In this section—
(a) “related person”, in relation to the issuing company, means—
(i) any company of which the individual or an associate of the individual is
a director and which is a subsidiary or partner of the issuing company,
or a partner of a subsidiary of the issuing company, and
(ii) any person connected with the issuing company or with a company
falling within sub-paragraph (i), and
(b) any reference to a payment to an individual includes a payment made to the
individual indirectly or to the individual's order or for the individual's benefit.

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(5) In this section and section 169 “subsidiary”, in relation to the issuing company, means
a company which at any time in period A is a 51% subsidiary of the issuing company.
169 Directors qualifying for relief despite connection
(1) Section 163(1) does not prevent the investor from being a qualifying investor despite
the investor's connection with the issuing company at any time in period A relating to
the relevant shares if—
(a) the investor is connected with that company merely because of the investor, or
the investor's associate—
(i) being a director of, or of a company which is a partner of, the issuing
company or a subsidiary of the issuing company, and
(ii) being in receipt of, or entitled to receive, remuneration as such, and
(b) conditions A and B and (where applicable) condition C are met.
(2) Condition A is that, in relation to the director (“D”), whether D is the investor or an
associate of the investor—
(a) D's remuneration, or
(b) the remuneration to which D is entitled,
consists only of remuneration which is reasonable remuneration for services rendered
to the company of which D is a director in D's capacity as such.
(3) Condition B is that the investor was issued with the relevant shares, or a previous issue
of shares in the issuing company which meet the requirements of section 173(2), at a
time when the investor had never been—
(a) connected with the issuing company, or
(b) involved in carrying on (whether on the investor's own account or as a partner,
director or employee) the whole or any part of the trade, business or profession
carried on by the issuing company or a subsidiary of that company.
(4) Condition C is that, if the issue of the relevant shares did not meet condition B, they
were issued before the termination date relating to the latest issue of shares which met
that condition.
(5) For the purposes of condition A any necessary and reasonable remuneration falling
within section 168(2)(f) is to be left out of account.
(6) In this section “remuneration” includes any benefit or facility.
170 Persons interested in capital etc of company
(1) An individual is connected with the issuing company if the individual directly or
indirectly possesses or is entitled to acquire more than 30% of—
(a) the ordinary share capital of the company or any subsidiary of the company,
(b) the loan capital and issued share capital of the company or any such subsidiary,
or
(c) the voting power in the company or any such subsidiary.
(2) An individual is connected with the issuing company if the individual directly or
indirectly possesses or is entitled to acquire such rights as would—
(a) in the event of the winding up of the company or any subsidiary of the company,
or

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(b) in any other circumstances,
entitle the individual to receive more than 30% 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)—
(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,
are determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4) In making that determination—
(a) references in paragraph 3 of that Schedule 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 company in
question are available for distribution to its equity holders.
(5) An individual is not connected with a company merely because one or more shares in
the company are held by the individual or by an associate of the individual, 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 make preparations for carrying on, any trade or
business.
(6) An individual is connected with the issuing company if the individual has control of the
issuing company or of any subsidiary of that company.
(7) In this section “subsidiary”, in relation to the issuing company, means a company which
at any time in period A is a 51% 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.
(8) For the purposes of this section the loan capital of a company is 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).
(9) For the purposes of this section—
(a) an individual is treated as entitled to acquire anything which the individual is
entitled to acquire at a future date or will at a future date be entitled to acquire,
and
(b) there is attributed to any individual any rights or powers of any other person
who is an associate of the individual.
(10) In determining for the purposes of this section whether an individual is connected with
a company, no debt incurred by—
(a) the company, or
(b) any subsidiary of the company,

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by overdrawing an account with a person carrying on a business of banking is to be
treated as loan capital of the company or subsidiary if the debt arose in the ordinary
course of that business.
171 Persons subscribing for shares under certain arrangements
(1) This section applies if an individual (“A”) subscribes for shares in a company (“the
company”) with which A is not connected under section 167 or 170.
(2) If—
(a) A subscribes for the shares as part of an arrangement, and
(b) the arrangement provides for another person to subscribe for shares in another
company with which (assuming it to be the issuing company) A, or any other
individual who is a party to the arrangement, is connected,
A is connected with the company under this section.
CHAPTER 3
GENERAL REQUIREMENTS
Introduction
172 Overview of Chapter
The general requirements are met in respect of the relevant shares if the requirements
of this Chapter are met as to—
(a) the shares (see section 173),
(b) the purpose of the issue (see section 174),
(c) the use of the money raised (see section 175),
(d) the minimum period (see section 176),
(e) no pre-arranged exits (see section 177), and
(f) no tax avoidance (see section 178).
The requirements
173 The shares requirement
(1) The relevant shares must meet—
(a) the requirements of subsection (2), and
(b) unless they are bonus shares, the requirements of subsection (3).
(2) Shares meet the requirements of this subsection if they are ordinary shares which do
not, at any time during period B, carry—
(a) any present or future preferential right to dividends or to a company's assets
on its winding up, or
(b) any present or future right to be redeemed.
(3) Shares meet the requirements of this subsection if they—
(a) are subscribed for wholly in cash, and

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(b) are fully paid up at the time they are issued.
(4) Shares are not fully paid up for the purposes of subsection (3)(b) if there is any
undertaking to pay cash to any person at a future date in respect of the acquisition of
the shares.
174 The purpose of the issue requirement
The relevant shares (other than any of them which are bonus shares) must be issued in
order to raise money for the purpose of a qualifying business activity.
175 The use of the money raised requirement
(1) The requirement of this section is that—
(a) at least 80% of the money raised by the issue of—
(i) the relevant shares (other than any of them which are bonus shares), and
(ii) all other shares (if any) in the company of the same class which meet
the requirements of section 173(2) and are issued on the same day,
is employed wholly for the purpose of the qualifying business activity for which
it was raised not later than the time mentioned in subsection (3), and
(b) all of the money so raised is employed wholly for that purpose not later than
12 months after that time.
(2) The requirements in subsection (1)(a) and (b) do not fail to be met merely because an
amount of money which is not significant is employed for another purpose.
(3) The time referred to in subsection (1)(a) is—
(a) the end of the period of 12 months beginning with the issue of the shares, or
(b) in the case of money raised only for the purpose of an activity to which
section 179(2) applies, the end of the period of 12 months beginning with—
(i) the issue of the shares, or
(ii) if later, the time when the company or a qualifying 90% subsidiary of
the company begins to carry on the qualifying trade.
(4) In determining for the purposes of subsection (3)(b) when a qualifying trade is begun
to be carried on by a qualifying 90% subsidiary of a company, any carrying on by it of
the trade before it became such a subsidiary is ignored.
176 The minimum period requirement
(1) The issue of shares which includes the relevant shares must meet—
(a) the requirement of subsection (2) in a case where the money raised by an issue
of shares is raised wholly for the purpose of a qualifying business activity
falling within section 179(2),
(b) the requirement of subsection (3) in a case where the money raised by an issue
of shares is raised wholly or partly for the purpose of a qualifying business
activity falling within section 179(4).
(2) The requirement is that—
(a) the trade concerned must have been carried on for a period of at least 4 months
ending at or after the time of the issue, and
(b) throughout that period—

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(i) the trade must have been carried on by the issuing company or a
qualifying 90% subsidiary of that company, and
(ii) the trade must not have been carried on by any other person.
(3) The requirement is that—
(a) the research and development concerned must have been carried on for a period
of at least 4 months ending at or after the time of the issue, and
(b) throughout that period—
(i) the research and development must have been carried on by the issuing
company or a qualifying 90% subsidiary of that company, and
(ii) the research and development must not have been carried on by any
other person.
(4) If—
(a) merely because of the issuing company or any other company being wound up,
or dissolved without winding up—
(i) the trade is carried on as mentioned in subsection (2), or
(ii) the research and development is carried on as mentioned in
subsection (3),
for a period shorter than 4 months, and
(b) the winding up or dissolution—
(i) is for genuine commercial reasons, and
(ii) is not part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax,
subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.
(5) If—
(a) merely because of anything done as a result of the issuing company or any other
company being in administration or receivership—
(i) the trade is carried on as mentioned in subsection (2), or
(ii) the research and development is carried on as mentioned in
subsection (3),
for a period shorter than 4 months, and
(b) the entry into administration or receivership, and everything done as a result of
the company concerned being in administration or receivership—
(i) is for genuine commercial reasons, and
(ii) is not part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax,
subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter period.
177 The no pre-arranged exits requirement
(1) The issuing arrangements for the relevant shares must not 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 issuing
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 issuing company or a person connected
with that company,

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(c) arrangements for the disposal of, or of a substantial amount (in terms of value)
of, the assets of the issuing company or of a person connected with that
company, or
(d) arrangements the main purpose or one of the main purposes of which is (by
means of any insurance, indemnity or guarantee or otherwise) to provide partial
or complete protection for persons investing in shares in the issuing company
against what would otherwise be the risks attached to making the investment.
(2) The arrangements referred to in subsection (1)(a) do not include any arrangements
with a view to such an exchange of shares, or shares and securities, as is mentioned
in section 247(1).
(3) The arrangements referred to in subsection (1)(b) and (c) do not include any
arrangements applicable only on the winding up of a company except in a case where—
(a) the issuing arrangements include arrangements for the company to be wound
up, or
(b) the arrangements are applicable on the winding up of the company otherwise
than for genuine commercial reasons.
(4) The arrangements referred to in subsection (1)(d) do not include any arrangements
which are confined to the provision—
(a) for the issuing company itself, or
(b) if the issuing company is a parent company that meets the trading requirement
in section 181(2)(b), for the issuing company itself, for the issuing 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 might reasonably be expected to be provided in normal commercial circumstances.
(5) In this section “the issuing 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 the individual in
relation to or in connection with that issue.
178 The no tax avoidance requirement
The relevant shares must be issued for genuine commercial reasons, 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.
Meaning of “qualifying business activity”
179 Meaning of “qualifying business activity”
(1) In this Part “qualifying business activity”, in relation to the issuing company, means—
(a) activity A, or
(b) activity B,
if it is carried on by the company or a qualifying 90% subsidiary of the company.
This is subject to subsections (3) and (5).
(2) Activity A is—

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(a) the carrying on of a qualifying trade which, on the date the relevant shares are
issued, the company or a qualifying 90% subsidiary of the company is carrying
on, or
(b) the activity of preparing to carry on (or preparing to carry on and then carrying
on) a qualifying trade—
(i) which, on that date, is intended to be carried on wholly or mainly in
the United Kingdom by the company or such a subsidiary, and
(ii) which is begun to be carried on by the company or such a subsidiary
within two years after that date.
(3) But activity A is a qualifying business activity only if, at any time in period B when
the qualifying trade is so carried on, the qualifying trade is carried on wholly or mainly
in the United Kingdom.
(4) Activity B is the carrying on of research and development—
(a) which, on the date the relevant shares are issued, the company or a qualifying
90% subsidiary of the company is carrying on, or which the company or such
a subsidiary begins to carry on immediately afterwards, and
(b) from which, on that date, it is intended—
(i) that a qualifying trade which the company or such a subsidiary will
carry on wholly or mainly in the United Kingdom will be derived, or
(ii) that a qualifying trade which the company or such a subsidiary is
carrying on, or will carry on, wholly or mainly in the United Kingdom
will benefit.
(5) But activity B is a qualifying business activity only if, at any time in period B when—
(a) the research and development is carried on, or
(b) the qualifying trade which is derived, or which benefits or is intended to benefit,
from the research and development is carried on,
the research and development or, as the case may be, the qualifying trade is carried on
wholly or mainly in the United Kingdom.
(6) In determining—
(a) for the purposes of subsection (2)(b) when a qualifying trade is begun to be
carried on by a qualifying 90% subsidiary of the company, or
(b) for the purposes of subsection (4)(a) when research and development is begun
to be carried on by such a subsidiary,
any carrying on of the trade or, as the case may be, the research and development by it
before it became such a subsidiary is ignored.
(7) References in subsection (2)(b)(i) or (4)(b) to a qualifying 90% subsidiary of the
company include references to any existing or future company which will be such a
subsidiary at any future time.

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CHAPTER 4
THE ISSUING COMPANY
Introduction
180 Overview of Chapter
The issuing company is a qualifying company in relation to the relevant shares if the
requirements of this Chapter are met as to—
(a) trading (see section 181),
(b) the issuing company to carry on the qualifying business activity (see
section 183),
(c) unquoted status (see section 184),
(d) control and independence (see section 185),
(e) gross assets (see section 186),
(f) qualifying subsidiaries (see section 187), and
(g) property managing subsidiaries (see section 188).
The requirements
181 The trading requirement
(1) The issuing company must meet the trading requirement throughout period B.
(2) The trading requirement is that—
(a) the company, ignoring any incidental purposes, exists wholly for the purpose
of carrying on one or more qualifying trades, or
(b) the company is a parent company and the business of the group does not consist
wholly or as to a substantial part in the carrying on of non-qualifying activities.
(3) If the company intends that one or more other companies should become its qualifying
subsidiaries with a view to their carrying on one or more qualifying trades—
(a) the company is treated as a parent company for the purposes of subsection (2)
(b), and
(b) the reference in subsection (2)(b) to the group includes the company and
any existing or future company that will be its qualifying subsidiary after the
intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(4) For the purpose of subsection (2)(b) the business of the group means what would be
the business of the group if the activities of the group companies taken together were
regarded as one business.
(5) For the purpose of determining the business of a group, activities are ignored so far
as they are activities carried on by a mainly trading subsidiary otherwise than for its
main purpose.
(6) For the purposes of determining the business of a group, activities of a group company
are ignored so far as they consist in—

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(a) the holding of shares in or securities of a qualifying subsidiary of the parent
company,
(b) the making of loans to another group company,
(c) the holding and managing of property used by a group company for the purpose
of one or more qualifying trades carried on by a group company, or
(d) the holding and managing of property used by a group company for the purpose
of research and development from which it is intended—
(i) that a qualifying trade to be carried on by a group company will be
derived, or
(ii) that a qualifying trade carried on or to be carried on by a group company
will benefit.
(7) Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to
any existing or future company which will be a group company at any future time.
(8) In this section—
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of the
company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from
incidental purposes, exists wholly for the purpose of carrying on one or more
qualifying trades, and any reference to the main purpose of such a subsidiary
is to be read accordingly, and
“non-qualifying activities” means—
(a) excluded activities, and
(b) activities (other than research and development) carried on otherwise than
in the course of a trade.
(9) This section is supplemented by section 189 (meaning of “qualifying trade”) and
sections 192 to 199 (excluded activities).
182 Ceasing to meet trading requirement because of administration or receivership
(1) A company is not regarded as ceasing to meet the trading requirement merely because
of anything done in consequence of the company or any of its subsidiaries being in
administration or receivership.
This has effect subject to subsections (2) and (3).
(2) Subsection (1) applies only if—
(a) the entry into administration or receivership, and
(b) everything done as a result of the company concerned being in administration
or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(3) A company ceases to meet the trading requirement if before the end of period B—
(a) a resolution is passed, or an order is made, for the winding up of the company or
any of its subsidiaries (or, in the case of a winding up otherwise than under the
Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989
(S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or
(b) the company or any of its subsidiaries is dissolved without winding up.

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This is subject to subsection (4).
(4) Subsection (3) does not apply if the winding up or dissolution is for genuine commercial
reasons, and is not part of a scheme or arrangement the main purpose or one of the main
purposes of which is the avoidance of tax.
183 The issuing company to carry on the qualifying business activity requirement
(1) The requirement of this section is met in relation to the issuing company if, at no time
in period B, is any of the following—
(a) the relevant qualifying trade,
(b) relevant preparation work (if any), and
(c) relevant research and development (if any),
carried on by a person other than the issuing company or a qualifying 90% subsidiary
of that company.
(2) Subsection (3) has effect for the purpose of determining whether the requirement of this
section is met in relation to the issuing company in a case where relevant preparation
work is carried out by that company or a qualifying 90% subsidiary of that company.
(3) The carrying on of the relevant qualifying trade by a company other than the issuing
company or a subsidiary of that company is to be ignored if it takes place at any time in
period B before the issuing company or any qualifying 90% subsidiary of that company
begins to carry on that trade.
(4) The requirement of this section is not regarded as failing to be met in relation to the
issuing company if, merely because of any act or event within subsection (5), the
relevant qualifying trade—
(a) ceases to be carried on in period B by the issuing company or any qualifying
90% subsidiary of that company, and
(b) is subsequently carried on in that period by a person who is not at any time in
period C connected with the issuing company.
(5) The following are acts and events within this subsection—
(a) anything done as a consequence of the issuing company or any other company
being in administration or receivership, and
(b) the issuing company or any other company being wound up, or dissolved
without being wound up.
(6) Subsection (4) applies only if—
(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 genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(7) In this section—
“relevant preparation work” means preparations within section 179(2)
(b) which are the subject of the qualifying business activity mentioned in
section 174,

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“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 within section 179(4) 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.
184 The unquoted status requirement
(1) At the beginning of period B—
(a) the issuing company must be an unquoted company,
(b) there must be no arrangements in existence for the issuing company to cease
to be an unquoted company, and
(c) there must be no arrangements in existence for the issuing company to become
a subsidiary of another company (“the new company”) by virtue of an exchange
of shares, or shares and securities, if—
(i) section 247 applies in relation to the exchange, and
(ii) arrangements have been made with a view to the new company ceasing
to be an unquoted company.
(2) In this section “unquoted company” means a company none of whose shares, stocks,
debentures or other securities are marketed to the general public.
(3) For the purposes of subsection (2), shares, stocks, debentures or other securities are
marketed to the general public if they are—
(a) listed on the Stock Exchange or a stock exchange that is a recognised stock
exchange by virtue of an order made under section 1005,
(b) listed on a designated exchange in a country outside the United Kingdom, or
(c) dealt in outside the United Kingdom by such means as may be designated.
(4) In subsection (3)(b) and (c) “designated” means designated by an order made by
the Commissioners for Her Majesty's Revenue and Customs for the purposes of that
provision.
(5) An order made for the purposes of subsection (3)(b) may designate an exchange by
name, or by reference to any class or description of exchanges, including a class or
description framed by reference to any authority or approval given in a country outside
the United Kingdom.
(6) The arrangements referred to in subsection (1)(b) and (c)(ii) do not include
arrangements in consequence of which any shares, stocks, debentures or other securities
of the company are at any subsequent time—
(a) listed on a stock exchange that is a recognised stock exchange by virtue of an
order made under section 1005, or
(b) listed on an exchange, or dealt in by any means, designated by an order made
for the purposes of subsection (3)(b) or (c),
if the order was made after the beginning of period B.
185 The control and independence requirement
(1) The control element of the requirement is that—

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(a) the issuing company must not at any time in period B control (whether on its
own or together with any person connected with it) any company which is not
a qualifying subsidiary of the issuing company, and
(b) no arrangements must be in existence at any time in that period by virtue of
which the issuing company could fail to meet paragraph (a) (whether during
that period or otherwise).
(2) The independence element of the requirement is that—
(a) the issuing company must not at any time in period B—
(i) be a 51% subsidiary of another company, or
(ii) be 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
(b) no arrangements must be in existence at any time in that period by virtue of
which the issuing company could fail to meet paragraph (a) (whether during
that period or otherwise).
(3) This section is subject to section 247(4) (exchange of shares).
186 The gross assets requirement
(1) In the case of relevant shares issued by a single company, the value of the company's
assets—
(a) must not exceed £7 million immediately before the relevant share issue, and
(b) must not exceed £8 million immediately afterwards.
(2) In the case of relevant shares issued by a parent company, the value of the group assets—
(a) must not exceed £7 million immediately before the relevant share issue, and
(b) must not exceed £8 million immediately afterwards.
(3) In this section—
(a) the relevant share issue is the issue of shares in the company that includes the
relevant shares, and
(b) the value of the group assets is the sum of the values of the gross assets of
each of the members of the group, ignoring any that consist in rights against,
or shares in or securities of, another member of the group.
187 The qualifying subsidiaries requirement
Any subsidiary that the issuing company has at any time in period B must be a qualifying
subsidiary of the company.
188 The property managing subsidiaries requirement
(1) Any property managing subsidiary that the issuing company has at any time in period
B must be a qualifying 90% subsidiary of the company.
(2) “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.
(3) In subsection (2) references to property deriving its value from land include—

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(a) any shareholding in a company deriving its value directly or indirectly from
land,
(b) any partnership interest deriving its value directly or indirectly from land,
(c) any interest in settled property deriving its value directly or indirectly from
land, and
(d) any option, consent or embargo affecting the disposition of land.
Definitions
189 Meaning of “qualifying trade”
(1) For the purposes of this Part, a trade is a qualifying trade if—
(a) it is conducted on a commercial basis and with a view to the realisation of
profits, and
(b) it does not at any time in period B consist wholly or as to a substantial part in
the carrying on of excluded activities.
(2) References in this section and sections 192 to 198 to a trade are to be read without
regard to the definition of “trade” in section 989.
190 Meaning of “qualifying 90% subsidiary”
(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying 90%
subsidiary of another company (“the relevant company”) if the following conditions
are met—
(a) the relevant company possesses at least 90% of the issued share capital of, and
at least 90% of the voting power in, the subsidiary,
(b) the relevant company would—
(i) in the event of a winding up of the subsidiary, or
(ii) in any other circumstances,
be beneficially entitled to receive at least 90% of the assets of the subsidiary
which would then be available for distribution to equity holders of the
subsidiary,
(c) the relevant company is beneficially entitled to receive at least 90% of any
profits of the subsidiary which are available for distribution to equity holders
of the subsidiary,
(d) no person other than the relevant company has control of the subsidiary, and
(e) no arrangements are in existence by virtue of which any of the conditions in
paragraphs (a) to (d) would cease to be met.
(2) Subsections (3), (4) and (5) of section 191 (conditions not regarded as ceasing to be met
because of winding up, dissolution, administration, receivership or arrangements for
disposal not having tax avoidance as main purpose) apply in relation to the conditions
in subsection (1)—
(a) as they apply in relation to the conditions in subsection (2) of that section, but
(b) with the omission from subsection (5) of “or (as the case may be) by another
subsidiary”.
(3) For the purposes of subsection (1)—
(a) the persons who are equity holders of the subsidiary, and

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(b) the percentage of the assets of the subsidiary to which an equity holder would
be entitled,
are to be determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4) In making that determination—
(a) references in paragraph 3 of that Schedule 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 subsidiary are
available for distribution to its equity holders.
191 Meaning of “qualifying subsidiary”
(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying subsidiary
of another company (“the relevant company”) if the following conditions are met.
(2) The conditions are that—
(a) the subsidiary is a 51% subsidiary of the relevant company,
(b) no person other than the relevant company, or another of its subsidiaries, has
control of the subsidiary, and
(c) no arrangements are in existence by virtue of which either of the conditions in
paragraphs (a) and (b) would cease to be met.
(3) The conditions do not cease to be met merely because the subsidiary or any other
company is wound up, or dissolved without winding up, if the winding up or dissolution

(a) is for genuine commercial reasons, and
(b) is not part of a scheme or arrangement the main purpose or one of the main
purposes of which is the avoidance of tax.
(4) The conditions do not cease to be met merely because of anything done as a consequence
of the subsidiary or any other company being in administration or receivership, if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company concerned being in
administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(5) The conditions do not cease to be met merely because arrangements are in existence
for the disposal by the relevant company or (as the case may be) by another subsidiary
of all its interest in the subsidiary, if the disposal—
(a) is to be for genuine commercial reasons, and
(b) is not to be part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax.
Excluded activities
192 Meaning of “excluded activities”
(1) The following are excluded activities for the purposes of sections 181 and 189—

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(a) dealing in land, in commodities or futures or in shares, securities or other
financial instruments,
(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale
or retail distribution,
(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or
other financial activities,
(d) leasing (including letting ships on charter or other assets on hire),
(e) receiving royalties or licence fees,
(f) providing legal or accountancy services,
(g) property development,
(h) farming or market gardening,
(i) holding, managing or occupying woodlands, any other forestry activities or
timber production,
(j) operating or managing hotels or comparable establishments or managing
property used as an hotel or comparable establishment,
(k) operating or managing nursing homes or residential care homes or managing
property used as a nursing home or residential care home, and
(l) any activities which are excluded activities under section 199 (provision of
services or facilities for another business).
(2) Subsection (1) is supplemented by the following provisions—
(a) section 193 (wholesale and retail distribution),
(b) section 194 (leasing of ships),
(c) section 195 (receipt of royalties and licence fees),
(d) section 196 (property development),
(e) section 197 (hotels and comparable establishments), and
(f) section 198 (nursing homes and residential care homes).
193 Excluded activities: wholesale and retail distribution
(1) This section supplements section 192(1)(b).
(2) In this section—
(a) subsections (3) and (4) are for determining whether a trade is a trade of
wholesale or retail distribution, and
(b) subsections (5) and (6) are for determining whether a trade of wholesale or
retail distribution is an ordinary trade of wholesale or retail distribution.
(3) A trade of wholesale distribution is one in which goods are offered for sale and sold
to persons for resale by them, or for processing and resale by them, to members of the
general public for their use or consumption.
(4) A trade of retail distribution is one in which goods are offered or exposed for sale and
sold to members of the general public for their use or consumption.
(5) A trade of wholesale or retail distribution is not an ordinary trade of wholesale or retail
distribution if—
(a) it consists to a substantial extent—
(i) in dealing in goods of a kind which are collected or held as an
investment, or

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(ii) in that activity and any other excluded activity taken together, and
(b) a substantial proportion of those goods are held for a period which is
significantly longer than the period for which the trader would reasonably be
expected to hold them while trying to dispose of them at their market value.
(6) In determining whether a trade of wholesale or retail distribution is an ordinary trade
of wholesale or retail distribution regard is to be had to the extent to which it has the
following features—
(a) the goods are bought by the trader in quantities larger than those in which the
trader sells them,
(b) the goods are bought and sold by the trader in different markets,
(c) the trader employs staff and incurs expenses in the trade in addition to the cost
of the goods and, in the case of a trade carried on by a company, in addition to
any remuneration paid to any person connected with it,
(d) there are purchases from or sales to persons who are connected with the trader,
(e) purchases are matched with forward sales or vice versa,
(f) the goods are held by the trader for longer than is normal for goods of the kind
in question,
(g) the trade is carried on otherwise than at a place or places commonly used for
wholesale or retail trade,
(h) the trader does not take physical possession of the goods.
(7) In subsection (6)—
(a) the features in paragraphs (a) to (c) are regarded as indications that the trade is
an ordinary trade of wholesale or retail distribution, and
(b) those in paragraphs (d) to (h) are regarded as indications to the contrary.
194 Excluded activities: leasing of ships
(1) This section supplements section 192(1)(d) so far as it relates to the leasing of ships
other than offshore installations or pleasure craft.
(2) In the following provisions “ship” accordingly means a ship other than an offshore
installation or a pleasure craft.
(3) If the requirements of subsection (4) are met, a trade is not to be regarded as consisting
in the carrying on of excluded activities within section 192(1)(d) as a result only of its
consisting in letting ships on charter.
(4) The requirements of this subsection are that—
(a) every ship let on charter by the company carrying on the trade is beneficially
owned by the company,
(b) every ship beneficially owned by the company is registered in the United
Kingdom,
(c) throughout period B the company is solely responsible for arranging the
marketing of the services of its ships, and
(d) the conditions mentioned in subsection (5) are met in relation to every letting
on charter by the company.
(5) The conditions referred to in subsection (4)(d) are—

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(a) the letting is for a period not exceeding 12 months and no provision is made
at any time (whether in the charterparty or otherwise) for extending it beyond
that period otherwise than at the option of the charterer,
(b) no provision for the grant of a new letting to end more than 12 months after the
provision is made (whether in the charterparty or otherwise) is in force during
the period of the letting otherwise than at the option of the charterer,
(c) the letting is by way of a bargain at arm's length between the company and a
person who is not connected with it,
(d) under the terms of the charter the company is responsible as principal—
(i) for taking, throughout the period of the charter, management decisions
in relation to the ship, other than those of a kind generally regarded
by persons engaged in trade of the kind in question as matters of
husbandry, and
(ii) for defraying all expenses in connection with the ship throughout that
period, or substantially all such expenses, other than those directly
incidental to a particular voyage or to the employment of the ship
during that period, and
(e) no arrangements exist by virtue of which a person other than the company may
be appointed to be responsible for the matters mentioned in paragraph (d) on
behalf of the company.
(6) If in the case of the company carrying on the trade (“the letting company”) the charterer
is also a company and—
(a) the charterer is a qualifying subsidiary of the letting company, or
(b) the letting company is a qualifying subsidiary of the charterer, or
(c) both companies are qualifying subsidiaries of a third company,
subsection (5) has effect with the omission of paragraph (c).
(7) If any of the requirements of subsection (4) is not met in relation to any lettings of ships,
the trade is not, as a result, to be treated as consisting in the carrying on of excluded
activities if—
(a) those lettings, and
(b) any other excluded activities
do not, taken together, amount to a substantial part of the trade.
(8) In this section “pleasure craft” means any ship of a kind primarily used for sport or
recreation.
195 Excluded activities: receipt of royalties and licence fees
(1) This section supplements section 192(1)(e) (receipt of royalties and licence fees).
(2) If the requirement of subsection (3) is met, a trade is not to be regarded as consisting
in the carrying on of excluded activities within section 192(1)(e) as a result only of its
consisting to a substantial extent in the receiving of royalties or licence fees.
(3) The requirement of this subsection is that the royalties or licence fees (or all but for a
part that is not a substantial part in terms of value) are attributable to the exploitation
of relevant intangible assets.
(4) For this purpose an intangible asset is a “relevant intangible asset” if the whole or
greater part (in terms of value) of it has been created—

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(a) by the company carrying on the trade, or
(b) by a company which at all times during which it created the intangible asset
was—
(i) the holding company of the company carrying on the trade, or
(ii) a qualifying subsidiary of that holding company.
(5) In the case of an intangible asset that is intellectual property, references to the creation
of an asset by a company are to its creation in circumstances in which the right to exploit
it vests in the company (whether alone or jointly with others).
(6) In this section—
“holding company” means a company that—
(a) has one or more 51% subsidiaries, but
(b) is not itself a 51% subsidiary of another company,
“intangible asset” means any asset which falls to be treated as an intangible
asset in accordance with generally accepted accountancy practice,
“intellectual property” means—
(a) any patent, trade mark, registered design, copyright, design right,
performer's right or plant breeder's right, or
(b) any rights under the law of a country or territory outside the United
Kingdom which correspond or are similar to those falling within
paragraph (a).
196 Excluded activities: property development
(1) This section supplements section 192(1)(g).
(2) “Property development” means the development of land—
(a) by a company which has, or at any time has had, an interest in the land, and
(b) with the sole or main object of realising a gain from the disposal of an interest
in the land when it is developed.
(3) For this purpose “interest in land” means, subject to subsection (4)—
(a) any estate, interest or right in or over land, including any right affecting the use
or disposition of land, or
(b) any right to obtain such an estate, interest or right from another which is
conditional on the other's ability to grant it.
(4) References in this section to an interest in land do not include—
(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose
debt is secured by way of mortgage, an agreement for a mortgage or a charge
of any kind over land, or
(b) in the case of land in Scotland, the interest of a creditor in a charge or security
of any kind over land.
197 Excluded activities: hotels and comparable establishments
(1) This section supplements section 192(1)(j).
(2) The reference to a comparable establishment is to a guest house, hostel or other
establishment the main purpose of maintaining which is the provision of facilities for
overnight accommodation (with or without catering services).

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(3) The activities of a person are not to be taken to fall within section 192(1)(j) unless
that person has an estate or interest in, or is in occupation of, the hotel or comparable
establishment in question.
198 Excluded activities: nursing homes and residential care homes
(1) This section supplements section 192(1)(k).
(2) “Nursing home” means any establishment which exists wholly or mainly for the
provision of nursing care—
(a) for persons suffering from sickness, injury or infirmity, or
(b) for women who are pregnant or have given birth.
(3) “Residential care home” means any establishment which exists wholly or mainly for
the provision of residential accommodation, together with board and personal care, for
persons in need of personal care because of—
(a) old age,
(b) mental or physical disability,
(c) past or present dependence on alcohol or drugs,
(d) any past illnesses, or
(e) past or present mental disorder.
(4) The activities of a person are not to be taken to fall within section 192(1)(k) unless that
person has an estate or interest in, or is in occupation of, the nursing home or residential
care home in question.
199 Excluded activities: provision of services or facilities for another business
(1) Providing services or facilities for a business carried on by another person (other than
a company of which the provider of the services or facilities is a qualifying subsidiary)
is an excluded activity if—
(a) the business consists wholly or as to a substantial part of activities falling within
any of paragraphs (a) to (k) of section 192(1), and
(b) a controlling interest in the business is held by a person who also has a
controlling interest in the business carried on by the provider of the services
or facilities.
(2) Subsections (3) to (5) explain what is meant by a controlling interest in a business for
the purposes of subsection (1)(b).
(3) In the case of a business carried on by a company, a person (“A”) has a controlling
interest in the business if—
(a) A controls the company,
(b) the company is a close company and A or an associate of A is a director of the
company and is either—
(i) the beneficial owner of more than 30% of the ordinary share capital of
the company, or
(ii) able, directly or through the medium of other companies or by any other
indirect means, to control more than 30% of that share capital, or
(c) at least half the business could, in accordance with section 344(2) of ICTA
(persons to whom company's trade may be treated as belonging), be regarded

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as belonging to A for the purposes of section 343 of that Act (company
reconstructions without a change of ownership).
(4) In any other case, a person has a controlling interest in a business if the person is entitled
to at least half the assets used for, or of the income arising from, the business.
(5) For the purposes of this section—
(a) any rights or powers of a person who is an associate of another are to be
attributed to that other person, and
(b) “business” includes any trade, profession or vocation.
Supplementary
200 Power to amend by Treasury order
The Treasury may by order make such amendments of sections 181, 182, 184 to 189
and 192 to 199 as they consider appropriate.
CHAPTER 5
ATTRIBUTION OF AND CLAIMS FOR EIS RELIEF
Attribution
201 Attribution of EIS relief to shares
(1) References in this Part, in relation to any individual, to the EIS relief attributable to
any shares or issue of shares are to be read as references to any reduction made in
the individual's liability to income tax that is attributed to those shares or that issue in
accordance with this section.
This is subject to the provisions of Chapters 6 and 7 providing for the withdrawal or
reduction of EIS relief.
(2) If an individual's liability to income tax is reduced in any tax year, then—
(a) if the reduction is obtained because of one issue of shares, the amount of the
reduction is attributed to that issue, and
(b) if the reduction is obtained because of two or more issues of shares, the amount
of the reduction—
(i) is apportioned between those issues in the same proportions as the
amounts claimed by the individual in respect of each issue, and
(ii) is attributed to those issues accordingly.
(3) If under this section an amount of any reduction of income tax is attributed to an issue
of shares (“the original issue”) to an individual, a proportionate part of that amount is
attributed to each share in respect of which the claim was made.
(4) If corresponding bonus shares are issued to the individual in respect of any shares (“the
original shares”) to which EIS relief is attributed—

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(a) a proportionate part of the total amount attributed to the original shares
immediately before the bonus shares are issued is attributed to each of the shares
in the holding comprising the original shares and the bonus shares, and
(b) after the issue of the bonus shares, this Part applies as if the original issue had
included those shares.
(5) In subsection (4) “corresponding bonus shares” means bonus shares which are in the
same company, of the same class, and carry the same rights as the original shares.
(6) If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue
had been issued in a previous tax year, this section has 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 tax year).
(7) If, at a time when EIS relief is attributable to, or to any part of, any issue of shares, the
relief falls to be withdrawn or reduced under Chapters 6 and 7—
(a) if it falls to be withdrawn, the relief attributable to each of the shares in question
is reduced to nil, and
(b) if it falls to be reduced by any amount, the relief attributable to each of the
shares in question is reduced by a proportionate part of that amount.
Claims: general
202 Time for making claims for EIS relief
(1) A claim for EIS relief in respect of shares issued by a company in any tax year may
be made—
(a) not earlier than the time the requirement in section 176(2) or (3) (trade etc must
have been carried on for 4 months) is first met, and
(b) not later than the fifth anniversary of the normal self-assessment filing date for
the tax year.
(2) If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue
had been issued in a previous tax year, this section has 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 tax year).
203 Entitlement to claim
(1) The investor is entitled to make a claim for EIS relief in respect of the amount subscribed
by the investor for the relevant shares if the investor has received from the issuing
company a compliance certificate in respect of those shares.
(2) For the purposes of PAYE regulations no regard is to be had to EIS relief unless a claim
for it has been duly made.
(3) No application may be made under section 55(3) or (4) of TMA 1970 (application for
postponement of payment of tax pending appeal) on the ground that the investor is
eligible for EIS relief unless a claim for the relief has been duly made by the investor.

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Claims: supporting documents
204 Compliance certificates
(1) A “compliance certificate” is a certificate which—
(a) is issued by the issuing company in respect of the relevant shares,
(b) states that, except so far as they fall to be met by or in relation to the investor,
the requirements for EIS relief are for the time being met in relation to those
shares, and
(c) is in such form as the Commissioners for Her Majesty's Revenue and Customs
may direct.
(2) Before issuing a compliance certificate in respect of the relevant shares, the issuing
company must provide an officer of Revenue and Customs with a compliance statement
in respect of the issue of shares which includes the relevant shares.
(3) The issuing company must not issue a compliance certificate without the authority of
an officer of Revenue and Customs.
(4) If the issuing company, or a person connected with the issuing company, has given
notice to an officer of Revenue and Customs under section 241 of this Act or paragraph
16(2) or (4) of Schedule 5B to TCGA 1992, a compliance certificate must not be issued
unless the authority is given or renewed after the receipt of the notice.
(5) If an officer of Revenue and Customs—
(a) has been requested to give or renew an authority to issue a compliance
certificate, and
(b) has decided whether or not to do so,
the officer must give notice of the officer's decision to the issuing company.
205 Compliance statements
(1) A “compliance statement” is a statement, in respect of an issue of shares, to the effect
that, except so far as they fall to be met by or in relation to the individuals to whom
shares included in that issue have been issued, the requirements for EIS relief (see
section 157)—
(a) are for the time being met in relation to the shares to which the statement relates,
and
(b) have been so met at all times since the shares were issued.
(2) In determining for the purposes of subsection (1) whether the requirements for EIS
relief are met at any time in relation to the issue of shares, references in this Part to “the
relevant shares” are read as references to the shares included in the issue.
(3) A compliance statement must be in such form as the Commissioners for Her Majesty's
Revenue and Customs direct and must contain—
(a) such additional information as the Commissioners reasonably require,
including in particular information relating to the persons who have requested
the issue of compliance certificates,
(b) a declaration that the statement is correct to the best of the issuing company's
knowledge and belief, and
(c) such other declarations as the Commissioners may reasonably require.

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(4) The issuing company may not provide an officer of Revenue and Customs with a
compliance statement in respect of any shares issued by it in any tax year—
(a) before the requirement in section 176(2) or (3) (trade etc must have been carried
on for 4 months) is met, or
(b) later than two years after the end of that tax year or, if that requirement is first
met after the end of that tax year, later than two years after the requirement is
first met.
206 Appeal against refusal to authorise compliance certificate
For the purpose of the provisions of TMA 1970 relating to appeals, the refusal of an
officer of Revenue and Customs to authorise the issue of a compliance certificate is
taken to be a decision disallowing a claim by the issuing company.
207 Penalties for fraudulent certificate or statement etc
The issuing company is liable to a penalty not exceeding £3,000 if—
(a) it issues a compliance certificate, or provides a compliance statement, which is
made fraudulently or negligently, or
(b) it issues a compliance certificate in contravention of section 204(3) or (4).
CHAPTER 6
W ITHDRAWAL OR REDUCTION OF EIS RELIEF
Introduction
208 Overview of Chapter
This Chapter provides for EIS relief to be withdrawn or reduced under—
(a) section 209 (disposal of shares),
(b) section 211 (call options),
(c) section 212 (put options),
(d) section 213 (value received by the investor),
(e) section 224 (repayments etc of share capital to other persons),
(f) section 232 (acquisition of a trade or trading assets),
(g) section 233 (acquisition of share capital), and
(h) section 234 (relief subsequently found not to have been due).
Disposals
209 Disposal of shares
(1) This section applies if—
(a) the investor disposes of any of the relevant shares,
(b) the disposal takes place before period A ends, and
(c) EIS relief is attributable to the shares.

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(2) If the disposal is not made by way of a bargain made at arm's length, the EIS relief
attributable to the shares must be withdrawn.
(3) If the disposal is made by way of a bargain made at arm's length, the EIS relief
attributable to the shares must—
(a) if it is greater than the amount given by the formula set out below, be reduced
by that amount, and
(b) in any other case, be withdrawn.
The formula is—
where—
R is the amount or value of the consideration received by the investor for the shares, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(4) This section does not apply to a disposal of shares to which an amount of EIS relief
is attributable if—
(a) the disposal was made by an individual (“A”) to another individual (“B”), and
(b) A and B were married to, or were civil partners of, each other and living together
at the time of the disposal.
(5) Section 246 contains rules for determining which shares of any class are treated as
disposed of for the purposes of this section if the investor disposes of some but not all
the shares of that class which are held by the investor.
210 Cases where maximum EIS relief not obtained
(1) If the investor's liability to income tax is reduced for any tax year in respect of any issue
of shares and—
(a) the amount of the reduction (“A”), is less than
(b) the amount (“B”) which is equal to tax at the savings rate for that year on the
amount on which the investor claims EIS relief in respect of the shares,
section 209(3) has effect in relation to a disposal of any of the shares as if the amount
or value referred to as “R” were reduced by multiplying it by the fraction—

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(2) If section 158(1) and (2) applies in the case of any issue of shares as if part of the issue
had been issued in a previous tax year, subsection (1) has 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 tax year).
(3) If the amount of EIS relief attributable to any of the relevant shares has been reduced
before the EIS relief was obtained, the amount referred to in subsection (1) as A is to
be treated for the purposes of that subsection as the amount that it would have been
without that reduction.
(4) Subsection (3) does not apply to a reduction of EIS relief by virtue of section 201(4)
(attribution of EIS relief if there is a corresponding issue of bonus shares).
211 Call options
(1) This section applies if the investor grants an option which, if exercised, would bind the
investor to sell any of the relevant shares.
(2) The grant of the option is treated for the purposes of section 209 as a disposal of the
shares to which the option relates.
(3) Nothing in this section prejudices section 177 (no pre-arranged exits).
212 Put options
(1) This section applies if, at any time in period A, a person grants the investor an option
which, if exercised, would bind the grantor to purchase any of the relevant shares.
(2) Any EIS relief attributable to the shares to which the option relates must be withdrawn.
(3) For the purposes of subsection (2) the shares to which an option relates are those which,
if—
(a) the option were exercised immediately after the grant, and
(b) any shares in the issuing company acquired by the investor after the grant were
disposed of immediately after being acquired,
would be treated for the purposes of section 209 as disposed of in pursuance of the
option.
Value received by investor
213 Value received by the investor
(1) This section applies if the investor receives any value from the issuing company at any
time in period C relating to the relevant shares.
(2) Any EIS relief attributable to the shares must—
(a) if it is greater than the amount given by the formula set out below, be reduced
by that amount, and
(b) in any other case, be withdrawn.
The formula is—

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where—
R is the amount of the value received by the investor, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(3) This section is subject to the following sections—
(a) section 214 (value received: receipts of insignificant value),
(b) section 218 (value received where there is more than one issue of shares),
(c) section 219 (value received where part of share issue treated as made in
previous tax year),
(d) section 220 (cases where maximum EIS relief not obtained),
(e) section 221 (receipts of value by and from connected persons etc), and
(f) section 222 (receipt of replacement value).
Sections 218 to 220 are to be applied in the order in which they appear in this Part.
(4) Value received is to be ignored, for the purposes of this section, to the extent to which
EIS relief attributable to the shares has already been withdrawn or reduced on its
account.
(5) For the purposes of this section and sections 214 to 223, an individual who acquires
any relevant shares on such a transfer as is mentioned in section 245 (spouses or civil
partners) is treated as the investor.
214 Value received: receipts of insignificant value
(1) Section 213(2) does not apply if the receipt of value is a receipt of insignificant value.
This is subject to subsection (2).
(2) If—
(a) value is received (“the relevant receipt”) by the investor from the issuing
company at any time in period C relating to the relevant shares,
(b) the investor has received from the issuing company one or more receipts of
insignificant value at a time or times—
(i) during that period, but
(ii) not later than the time of the relevant receipt, and
(c) the total amount of the value of the receipts within paragraph (a) and (b) is not
an amount of insignificant value,
the investor is treated for the purposes of this Chapter as if the relevant receipt had been
a receipt of an amount of value equal to that total amount.
(3) A receipt does not fall within subsection (2)(b) if it has previously formed part of a total
amount falling within subsection (2)(c).

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215 Meaning of “receipts of insignificant value”
(1) This section applies for the purposes of section 214.
(2) “A receipt of insignificant value” means a receipt of an amount of insignificant value,
that is, an amount of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the amount subscribed
by the investor for the relevant shares.
This is subject to subsection (3).
(3) If at any time in the period—
(a) beginning 12 months before the issue of the relevant shares, and
(b) ending at the end of the issue date,
repayment arrangements are in existence, no amount of value received by the investor
is treated as a receipt of insignificant value.
(4) For this purpose “repayment arrangements” means arrangements which provide for the
investor to receive, or to be entitled to receive, any value from the issuing company at
any time in period C relating to the relevant shares.
(5) For the purposes of this section—
(a) the references to the investor include references to any person who at any time
in period C relating to the relevant shares is an associate of the investor (whether
or not that person is such an associate at the material time), and
(b) the reference in subsection (4) to the issuing company includes a reference to a
person who at any time in period C relating to the relevant shares is connected
with that company (whether or not that person is so connected at the material
time).
216 When value is received
(1) This section applies for the purposes of sections 213 (value received by the investor)
and 218 (value received where there is more than one issue of shares).
(2) The investor receives value from the issuing company at any time when the issuing
company—
(a) repays, redeems or repurchases any of its share capital or securities which
belong to the investor or makes any payment to the investor for giving up the
investor's right to any of the issuing company's share capital or any security on
its cancellation or extinguishment,
(b) repays, in pursuance of any arrangements for or in connection with the
acquisition of the shares in respect of which EIS relief is claimed, any debt
owed to the investor other than a debt which was incurred by the company—
(i) on or after the date of issue of those shares, and
(ii) otherwise than in consideration of the extinguishment of a debt
incurred before that date,
(c) makes to the investor any payment for giving up on its extinguishment the
investor's right to any debt, other than a debt in respect of a repayment of the
kind mentioned in section 168(2)(a) or (f) (ignoring of certain expenses or
remuneration) or an ordinary trade debt,

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(d) releases or waives any liability of the investor to the issuing company or
discharges or undertakes to discharge any liability of the investor to a third
person,
(e) makes a loan or advance to the investor which has not been repaid in full before
the issue of the shares in respect of which EIS relief is claimed,
(f) provides a benefit or facility for the investor,
(g) transfers an asset to the investor for no consideration or for consideration less
than its market value or acquires an asset from the investor for consideration
greater than its market value, or
(h) makes to the investor any other payment except—
(i) a payment of a kind mentioned in any of the provisions of
section 168(2) (ignoring of certain payments), or
(ii) a payment in discharge of an ordinary trade debt.
(3) For the purposes of subsection (2)(d) the issuing company is to be treated as having
released or waived a liability if the liability is not discharged within 12 months of the
time when it ought to have been discharged.
(4) For the purposes of subsection (2)(e) the following is to be treated as if it were a loan
made by the issuing company to the investor—
(a) the amount of any debt (other than an ordinary trade debt) incurred by the
investor to the issuing company, and
(b) the amount of any debt due from the investor to a third party which has been
assigned to the issuing company.
(5) The investor also receives value from the issuing company if—
(a) in respect of ordinary shares held by the investor any payment or asset is
received in a winding up or in connection with a dissolution of the company,
and
(b) the winding up or dissolution falls within section 182(4) (no tax avoidance).
(6) The investor also receives value from the issuing company if any person who would,
for the purposes of section 163, be treated as connected with the company—
(a) purchases any of its share capital or securities which belong to the investor, or
(b) makes any payment to the investor for giving up any right in relation to any of
the company's share capital or securities.
(7) If because of the investor's disposal of shares in a company any EIS relief attributable to
those shares is withdrawn or reduced under section 209, the investor is not to be treated
as receiving value from the company in respect of the disposal.
(8) The investor is not to be treated as receiving value from the issuing company merely
because of the payment to the investor, or any associate of the investor, of any
remuneration for services rendered to that company as a director if the remuneration
is reasonable remuneration.
(9) Section 167(3) (director also an employee) applies for the purposes of subsection (8)
as it applies for the purposes of section 167, and the reference in that subsection to the
payment of remuneration includes the provision of any benefit or facility.
(10) In this section “ordinary trade debt” means any debt for goods or services supplied in
the ordinary course of a trade or business if any credit given—
(a) is for not more than 6 months, and

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(b) is not longer than that normally given to customers of the person carrying on
the trade or business.
217 The amount of value received
In a case falling within a provision listed in column 1 of the following table, the amount
of value received for the purposes of sections 213 and 218 is given by the corresponding
entry in column 2 of the table.
ProvisionThe amount of value receivedSection 216(2)(a), (b) or (c)The amount received by the investor or,
if greater, the market value of the shares,
securities or debt
Section 216(2)(d)The amount of the liabilitySection 216(2)(e)The amount of the loan or advance, less
the amount of any repayment made before
the issue of the relevant shares
Section 216(2)(f)The cost to the issuing company of
providing the benefit or facility, less any
consideration given for it by the investor
Section 216(2)(g)The difference between the market value
of the asset and the consideration (if any)
given for it
Section 216(2)(h)The amount of the paymentSection 216(5)The amount of the payment or the market
value of the asset
Section 216(6)The amount received by the investor or, if
greater, the market value of the shares or
securities
218 Value received where there is more than one issue of shares
(1) This section applies if—
(a) two or more issues of shares in the issuing company have been made to the
investor which include shares in respect of which the investor obtains EIS relief,
and
(b) value is received by the investor at any time in the applicable periods for two
or more of those issues.
(2) Section 213(2) has effect in relation to the shares included in each of the issues referred
to in subsection (1)(b) as if the amount of value referred to as “R” were reduced by
multiplying it by the fraction—

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where—
A is the amount on which the investor obtains EIS relief in respect of the shares included
in the issue in question, and
B is the sum of that amount and the corresponding amount or amounts in respect of the
other issue or issues.
(3) For the purposes of subsection (1) “the applicable period” for an issue of shares is
period C in relation to those shares.
219 Value received where part of share issue treated as made in previous tax year
(1) This section applies if—
(a) section 213(2) applies to an issue of shares, and
(b) section 158(1) and (2) (form and amount of EIS relief) applies in the case
of that issue as if part of the issue had been issued in a previous tax year.
(2) This subsection explains how the calculation under section 213(2) is to be made.
Step 1
Apportion the amount referred to as “R” between the tax year in which the shares were
issued and the previous tax year by multiplying that amount by the fraction—
where—
A is the amount on which the investor obtains EIS relief in respect of the shares treated
as issued in the tax year in question, and
B is the sum of that amount and the corresponding amount in respect of the shares
treated as issued in the other tax year.
Step 2

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In relation to each of the amounts (“R1” and “R2”) so apportioned to the two tax years,
calculate the amounts (“X1” and “X2”) that would be given by the formula if there
were separate issues of shares in those tax years.
In calculating amounts X1 and X2, apply section 220 if appropriate but do not apply
section 218.
Step 3
Add amounts X1 and X2 together.
The result is the required amount.
220 Cases where maximum EIS relief not obtained
(1) If the investor's liability to income tax is reduced for any tax year in respect of any issue
of shares and—
(a) the amount of the reduction (“A”), is less than
(b) the amount (“B”) which is equal to income tax at the savings rate for that year
on the amount on which the investor claims EIS relief in respect of the shares,
section 213(2) has effect in relation to any value received as if the amount referred to
as “R” were reduced by multiplying it by the fraction—
(2) If the amount of EIS relief attributable to any of the relevant shares has been reduced
before the EIS relief was obtained, the amount referred to in subsection (1) as “A” is
to be treated for the purposes of that subsection as the amount that it would have been
without that reduction.
(3) Subsection (2) does not apply to a reduction of EIS relief by virtue of section 201(4)
(attribution of EIS relief where there is a corresponding issue of bonus shares).
221 Receipts of value by and from connected persons etc
In sections 213, 214 and 216 to 218—
(a) any reference to a payment or transfer to the investor includes a reference to
a payment or transfer made to the investor indirectly or to the investor's order
or for the investor's benefit,
(b) any reference to the investor includes a reference to an associate of the investor,
and
(c) any reference to the issuing company includes a reference to a person who
at any time in period A relating to the relevant shares is connected with that
company (whether or not that person is so connected at the material time).

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222 Receipt of replacement value
(1) If—
(a) any EIS relief attributable to the relevant shares would, in the absence of this
section, be reduced or withdrawn under section 213 because of a receipt of
value within section 216(2) or (6) (“the original value”),
(b) the original supplier receives value (“the replacement value”) from the original
recipient and the receipt is a qualifying receipt, and
(c) the amount of the replacement value is at least the amount of the original value,
section 213 does not, because of the receipt of the original value, have effect to reduce
or withdraw the EIS relief.
This is subject to section 223(1) and (2).
(2) For the purposes of this section—
“the original recipient” means the person who receives the original value,
“the original supplier” means the person from whom that value was received.
(3) If the amount of the original value is, by virtue of section 218, treated as reduced for
the purposes of section 213(2) as it applies in relation to the relevant shares in question,
the reference in subsection (1)(c) to the amount of the original value is to be read as a
reference to the amount of that value ignoring the reduction.
(4) A receipt of the replacement value is a qualifying receipt for the purposes of
subsection (1) if it arises—
(a) because of the original recipient doing one or more of the following—
(i) making a payment to the original supplier, other than a payment within
paragraph (c) or a payment to which subsection (5) applies,
(ii) acquiring any asset from the original supplier for a consideration the
amount or value of which is more than the market value of the asset,
(iii) disposing of any asset to the original supplier for no consideration or
for a consideration the amount or value of which is less than the market
value of the asset,
(b) if the receipt of the original value was within section 216(2)(d), because of an
event the effect of which is to reverse the event which constituted the receipt
of the original value, or
(c) if the receipt of the original value was within section 216(6), because of the
original recipient repurchasing the share capital or securities in question, or
(as the case may be) re-acquiring the right in question, for a consideration the
amount or value of which is at least the amount of the original value.
(5) This subsection applies to—
(a) any payment for any goods, services or facilities, provided (whether in the
course of trade or otherwise) by—
(i) the original supplier, or
(ii) any other person who, at any time in period C relating to the relevant
shares, is an associate of, or is connected with, that supplier (whether
or not the other person is such an associate, or is so connected, at the
material time),
which is reasonable in relation to the market value of those goods, services or
facilities,

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(b) any payment of any interest which represents no more than a reasonable
commercial return on any money lent to—
(i) the original recipient, or
(ii) any person who, at any time in period C relating to the relevant shares,
is an associate of that recipient (whether or not the person is such an
associate at the material time),
(c) any payment for the acquisition of an asset which does not exceed its market
value,
(d) any payment, as rent for any property occupied by—
(i) the original recipient, or
(ii) any person who, at any time in period C relating to the relevant shares,
is an associate of that recipient (whether or not the person is such an
associate at the material time),
of an amount not exceeding a reasonable and commercial rent for the property,
(e) any payment in discharge of an ordinary trade debt, and
(f) any payment for shares in or securities of any company in circumstances that
do not fall within subsection (4)(a)(ii).
(6) For the purposes of this section, the amount of the replacement value is—
(a) in a case within paragraph (a) of subsection (4), the sum of—
(i) the amount of any payment within sub-paragraph (i) of that paragraph,
and
(ii) the difference between the market value of any asset to which sub-
paragraph (ii) or (iii) of that paragraph applies and the amount or value
of the consideration (if any) received for it,
(b) in a case within subsection (4)(b), the same as the amount of the original value,
and
(c) in a case within subsection (4)(c), the amount or value of the consideration
received by the original supplier.
Section 217 applies for the purpose of determining the amount of the original value.
(7) In this section—
(a) any reference to a payment to a person (however expressed) includes a
reference to a payment made to the person indirectly or to the person's order
or for the person's benefit, and
(b) “ordinary trade debt” has the meaning given by section 216(10).
223 Section 222: supplementary
(1) The receipt of the replacement value by the original supplier is ignored for the purposes
of section 222(1) to the extent to which it has previously been set (under that section)
against a receipt of value to prevent any reduction or withdrawal of EIS relief under
section 213.
(2) The receipt of the replacement value by the original supplier (“the event”) is ignored
for the purposes of section 222 if—
(a) the event occurs before period C relating to the relevant shares,
(b) if the event occurs after the time the original recipient receives the original
value, it does not occur as soon after that time as is reasonably practicable in
the circumstances, or

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(c) if an appeal has been brought by the investor against an assessment to withdraw
or reduce any EIS relief attributable to the relevant shares because of the receipt
of the original value, the event occurs more than 60 days after the day on which
the amount of relief which falls to be withdrawn has been finally determined.
But nothing in section 222 or this section requires the replacement value to be received
after the original value.
(3) This subsection applies if—
(a) the receipt of the replacement value by the original supplier is a qualifying
receipt for the purposes of section 222(1), and
(b) in consequence of the receipt any receipts of value are ignored for the purposes
of section 213 as that section applies in relation to the shares in question or any
other shares subscribed for by the investor, and
(c) the event which gives rise to the receipt is (or includes) a subscription for shares
by—
(i) the investor, or
(ii) any person who at any time in period C relating to the relevant shares
is an associate of the investor (whether or not the person is such an
associate at the material time).
(4) If either of the following applies—
(a) subsection (3), and
(b) paragraph 13C(3) of Schedule 5B to TCGA 1992 (which makes corresponding
provision in relation to relief under that Schedule in respect of re-investment
under EIS),
the person who subscribes for the shares is not to be eligible for any EIS relief in relation
to those shares or any other shares in the same issue.
(5) In this section “the original recipient”, “the original supplier” and “replacement value”
have the same meaning as in section 222.
Repayments etc of share capital to other persons
224 Repayments etc of share capital to other persons
(1) This section applies if any EIS relief is attributable to shares held by an individual and,
at any time in period C, the issuing company or any subsidiary—
(a) repays, redeems or repurchases any of its share capital which belongs to any
member other than—
(i) the individual, or
(ii) a person who falls within subsection (4), or
(b) makes any payment to any such member for giving up the member's right to
any of the share capital of the company or subsidiary on its cancellation or
extinguishment.
(2) The EIS relief must—
(a) if it is greater than the amount given by the formula set out below, be reduced
by that amount, and
(b) in any other case, be withdrawn.
The formula is—

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where—
R is the amount received by the member, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(3) This section is subject to the following sections—
(a) section 225 (insignificant repayments ignored for the purposes of this section),
(b) section 226 (amount of repayments etc where there is more than one issue of
shares),
(c) section 227 (single issue affecting more than one individual),
(d) section 228 (single issue treated as made partly in previous tax year),
(e) section 229 (maximum relief not obtained for share issue),
(f) section 230 (repayment of authorised minimum within 12 months), and
(g) section 231 (restriction on withdrawal of relief).
Sections 226 to 229 are to be applied in the order in which they appear in this Part.
(4) A person falls within this subsection if the repayment—
(a) causes any EIS relief attributable to that person's shares in the issuing company
to be withdrawn or reduced by virtue of—
(i) section 209 (disposal of shares), or
(ii) section 216(2)(a) (receipt of value by virtue of repayment of share
capital etc),
(b) causes any investment relief under Schedule 15 to FA 2000 (the corporate
venturing scheme) attributable to that person's shares in the issuing company
to be withdrawn or reduced by virtue of—
(i) paragraph 46 of that Schedule (disposal of shares), or
(ii) paragraph 49(1)(a) of that Schedule (receipt of value by virtue of
repayment of share capital etc), or
(c) gives rise to a qualifying chargeable event within the meaning of paragraph
14(4) of Schedule 5B to TCGA 1992 (EIS: deferral relief) in respect of that
person's shares in the issuing company.
(5) A repayment is treated as having the effect mentioned in subsection (4)(a), (b) or (c) if
it would have that effect were it not a receipt of insignificant value for the purposes of
whichever of the following is applicable—
(a) section 213,
(b) paragraph 47 of Schedule 15 to FA 2000, and
(c) paragraph 13 of Schedule 5B to TCGA 1992.
(6) A repayment is to be ignored, for the purposes of this section, to the extent to which EIS
relief attributable to any shares has already been withdrawn or reduced on its account.
(7) In this section and sections 225 to 231—

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(a) “repayment” means a repayment, redemption, repurchase or payment
mentioned in subsection (1)(a) or (b), and
(b) references to a subsidiary of a company are references to a company which, at
any time in period A relating to the shares in question, is a 51% subsidiary of
the company, whether or not it is such a subsidiary at the time of the repayment.
225 Insignificant repayments ignored for purposes of section 224
(1) A repayment is ignored for the purposes of section 224 (repayments etc of share capital
to other persons) if both—
(a) the market value of the shares to which it relates (“the target shares”)
immediately before the event occurs, and
(b) the amount received by the member in question,
are insignificant in relation to the market value of the remaining issued share capital
of the issuing company (or, as the case may be, the subsidiary) immediately after the
event occurs.
This is subject to subsection (3).
(2) For the purposes of subsection (1) it is assumed that the target shares are cancelled at
the time the repayment is made.
(3) Subsection (1) does not apply if repayment arrangements are in existence at any time
in the period—
(a) beginning 12 months before the issue of the relevant shares, and
(b) ending at the end of the issue date.
(4) For this purpose “repayment arrangements” means arrangements which provide—
(a) for a repayment by the issuing company or any subsidiary of that company
(whether or not it is such a subsidiary at the time the arrangements are made), or
(b) for anyone to be entitled to such a repayment,
at any time in period C relating to the relevant shares.
226 Amount of repayments etc where there is more than one issue of shares
(1) This section applies if, in relation to the same repayment, section 224(2) applies to EIS
relief attributable to two or more issues of shares.
(2) Section 224(2) has effect in relation to the shares included in each of those issues as if
the amount referred to as “R” were reduced by multiplying it by the fraction—
where—

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A is the amount on which EIS relief was obtained by the individuals in respect of shares
which are included in the issue and to which EIS relief is or, but for section 224(2)(b),
would be attributable, and
B is the sum of that amount and the corresponding amount or amounts in respect of the
other issue or issues.
227 Single issue affecting more than one individual
(1) This section applies if, in relation to the same repayment, section 224(2) applies to EIS
relief attributable to shares held by two or more individuals.
(2) Section 224(2) has effect in relation to each individual as if the amount referred to as
“R” were reduced by multiplying it by the fraction—
where—
A is the amount on which the individual obtains EIS relief in respect of the shares to
which EIS relief is or, but for section 224(2)(b), would be attributable, and
B is the sum of that amount and the corresponding amount or amounts on which the
other individual or individuals obtain EIS relief in respect of such shares.
228 Single issue treated as made partly in previous tax year
(1) This section applies if—
(a) section 224(2) applies to EIS relief attributable to shares held by an individual,
and
(b) part of the issue of shares has been treated as issued to the individual in a
previous tax year for the purposes of section 158(1) and (2) (form and
amount of EIS relief).
(2) This subsection explains how the calculation under section 224(2) is to be made.
Step 1
Apportion the amount referred to as “R” between the tax year in which the shares were
issued and the previous tax year by multiplying that amount by the fraction—

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where—
A is the amount on which the individual obtains EIS relief in respect of the shares treated
as issued in the tax year in question, and
B is the sum of that amount and the corresponding amount in respect of the shares
treated as issued in the other tax year.
Step 2
In relation to each of the amounts (“R1” and “R2”) so apportioned to the two tax years,
calculate the amounts (“X1” and “X2”) that would be given by the formula if there
were separate issues of shares in those tax years.
In calculating amounts X1 and X2, apply section 229 if appropriate but do not apply
section 226 or 227.
Step 3
Add amounts X1 and X2 together.
The result is the required amount.
229 Maximum relief not obtained for share issue
(1) This section applies if section 224(2) applies to EIS relief attributable to shares held
by an individual and—
(a) the amount of the reduction (“A”) in the individual's liability to income tax for
any tax year in respect of the shares, is less than
(b) the amount (“B”) which is equal to income tax at the savings rate for that year
on the amount on which the individual claims EIS relief in respect of the shares.
(2) Section 224(2) has effect as if the amount referred to as “R” were reduced by
multiplying it by the fraction—

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(3) If the amount of EIS relief attributable to any of the relevant shares has been reduced
before the EIS relief was obtained, the amount referred to in subsections (1) and (2) as
“A” is to be treated for the purposes of those subsections as the amount that it would
have been without that reduction.
(4) Subsection (3) does not apply to a reduction of EIS relief by virtue of section 201(4)
(attribution of EIS relief where there is a corresponding issue of bonus shares).
230 Repayment of authorised minimum within 12 months
(1) This section applies if—
(a) a company issues share capital (“the original shares”) of nominal value equal to
the authorised minimum (within the meaning of the Companies Act 1985 (c. 6))
for the purposes of complying with section 117 of that Act (public company
not to do business unless requirements as to share capital complied with), and
(b) the registrar of companies issues the company with a certificate under that
section.
(2) Section 224(2) does not apply in relation to any redemption of the original shares within
12 months of the date on which they were issued.
(3) In relation to companies incorporated under the law of Northern Ireland, references in
subsection (1) to the Companies Act 1985 and to section 117 of that Act have effect as
references to the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6))
and to Article 127 of that Order.
231 Restriction on withdrawal of relief under section 224
(1) This section applies if, because of a repayment, any investment relief which is
attributable under Schedule 15 to FA 2000 to any shares is withdrawn under paragraph
56(2) of that Schedule.
(2) For the purposes of this section “the relevant amount” is the amount determined by
the formula—
where—
A is the amount of the repayment, and
B is the total amount of investment relief withdrawn because of the repayment.
(3) If the relevant amount does not exceed £1,000, the repayment is ignored for the purposes
of section 224(1), unless repayment arrangements are in existence at any time in the
period—
(a) beginning 12 months before the issue of the shares mentioned in subsection (1),
and
(b) ending at the end of the issue date.

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(4) For this purpose “repayment arrangements” means arrangements which provide—
(a) for a repayment by the issuing company or any subsidiary of that company, or
(b) for anyone to be entitled to such a repayment,
at any time.
(5) Subsection (4)(a) applies in relation to a subsidiary of the issuing company whether or
not it is such a subsidiary when the arrangements were made.
(6) If the repayment is not ignored by virtue of subsection (3), the amount received because
of the repayment is treated for the purposes of section 224(2) as an amount equal to
the relevant amount.
(7) In this section—
(a) “investment relief” has the same meaning as in Schedule 15 to FA 2000
(corporate venturing scheme), and
(b) references to the withdrawal of investment relief include its reduction.
Miscellaneous
232 Acquisition of a trade or trading assets
(1) Any EIS relief attributable to any shares in a company held by an individual is
withdrawn if—
(a) at any time in period A, the company or any qualifying subsidiary—
(i) begins to carry on as its trade, or as part of its trade, a trade which was
previously carried on at any time in that period otherwise than by the
company or any qualifying subsidiary, or
(ii) acquires the whole, or the greater part, of the assets used for the
purposes of a trade previously so carried on, and
(b) the individual is a person, or one of a group of persons, to whom subsection (2)
or (3) applies.
(2) This subsection applies to any person or group of persons—
(a) to whom an interest amounting in total to more than a half share in the trade
(as previously carried on) belonged at any time in period A, and
(b) who is or are a person or group of persons to whom such an interest in the trade
carried on by the company belongs or has, at any such time, belonged.
(3) This subsection applies to any person or group of persons who—
(a) control or, at any time in period A, have controlled the company, and
(b) is or are a person or group of persons who, at any such time, controlled another
company which previously carried on the trade.
(4) For the purposes of subsection (2)—
(a) the person to whom a trade belongs and, if a trade belongs to two or more
persons, their respective shares in that trade are determined in accordance with
section 344(1)(a) and (b), (2) and (3) of ICTA, and
(b) any interest, rights or powers of a person who is an associate of another person
are treated as those of that other person.

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(5) In determining whether any EIS relief attributable to any shares in the issuing company
held by an individual who—
(a) is a director of, or of a company which is a partner of, the issuing company or
any qualifying subsidiary, and
(b) is in receipt of, or entitled to receive, remuneration as such a director falling
within section 169(2) (reasonable remuneration for services),
is to be withdrawn, the reference in subsection (3)(b), and (so far as relating to that
provision) the reference in subsection (1)(a)(i), to any time in period A are to be read
as references to any time before the end of period A.
(6) Section 167(3) (director also an employee) applies for the purposes of subsection (5) as
it applies for the purposes of section 168, and in subsection (5) “remuneration” includes
any benefit or facility.
(7) In this section “trade” includes any business or profession, and references to a trade
previously carried on include references to part of such a trade.
233 Acquisition of share capital
(1) Any EIS relief attributable to any shares in a company held by an individual is
withdrawn if —
(a) the company comes to acquire all of the issued share capital of another company
at any time in period A, and
(b) the individual is a person, or one of a group of persons, to whom subsection (2)
applies.
(2) This subsection applies to any person or group of persons who—
(a) control or have, at any time in period A, controlled the company, and
(b) is or are a person or group of persons who, at any such time, controlled the
other company.
(3) In determining whether any EIS relief attributable to any shares in the issuing company
held by an individual who—
(a) is a director of, or of a company which is a partner of, the issuing company or
any qualifying subsidiary, and
(b) is in receipt of, or entitled to receive, remuneration as such a director falling
within section 169(2),
is to be withdrawn, the reference in subsection (2)(b) to any time in period A is to be
read as a reference to any time before the end of period A.
(4) Section 167(3) applies for the purposes of subsection (3) as it applies for the purposes
of section 168, and in subsection (3) “remuneration” includes any benefit or facility.
234 Relief subsequently found not to have been due
(1) Any EIS relief obtained by the investor which is subsequently found not to have been
due must be withdrawn.
(2) EIS relief obtained by the investor in respect of the relevant shares may not be
withdrawn on the ground—
(a) that the requirements of sections 174 and 175 (the purpose of the issue and use
of money raised requirements) are not met in respect of the shares, or

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(b) that the issuing company is not a qualifying company in relation to the shares
(see Chapter 4),
unless the requirements of subsection (3) are met.
(3) The requirements of this subsection are met if either—
(a) the issuing company has given notice under section 241, or paragraph 16(2)
or (4) of Schedule 5B to TCGA 1992, (information to be provided by issuing
company etc) in relation to the relevant issue of shares, or
(b) an officer of Revenue and Customs has given notice to that company stating
the officer's opinion that, because of the ground in question, the whole or any
part of the EIS relief obtained by any individual in respect of shares included
in the relevant issue of shares was not due.
(4) In this section “the relevant issue of shares” means the issue of shares in the issuing
company which includes the relevant shares.
CHAPTER 7
W ITHDRAWAL OR REDUCTION OF EIS RELIEF : PROCEDURE
Assessments and appeals
235 Assessments for the withdrawal or reduction of EIS relief
If any EIS relief which has been obtained falls to be withdrawn or reduced under Chapter
6, it must be withdrawn or reduced by the making of an assessment to income tax for
the tax year for which the relief was obtained.
236 Appeals against section 234(3)(b) notices
(1) For the purposes of the provisions of TMA 1970 relating to appeals, the giving of notice
by an officer of Revenue and Customs under section 234(3)(b) is taken to be a decision
disallowing a claim by the issuing company.
(2) If any issue has been determined on an appeal brought by virtue of paragraph 1A(6) of
Schedule 5B to TCGA 1992 (appeal against notice that shares never have been, or have
ceased to be, eligible shares), the determination is conclusive for the purposes of any
appeal brought by virtue of subsection (1) on which that issue arises.
237 Time limits for assessments
(1) An officer of Revenue and Customs may not—
(a) make an assessment for withdrawing or reducing the EIS relief attributable to
any of the relevant shares, or
(b) give a notice under section 234(3)(b),
more than 6 years after the end of the relevant tax year.
(2) In subsection (1) “the relevant tax year” means—
(a) the tax year in which the time mentioned in section 175(3) (the use of money
raised requirement) falls, or

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(b) the tax year in which the event which causes the EIS relief to be withdrawn
or reduced occurs,
whichever is the later.
(3) Subsection (1) is without prejudice to section 36 of TMA 1970 (fraudulent or negligent
conduct).
238 Cases where assessment not to be made
(1) No assessment for withdrawing or reducing EIS relief in respect of shares issued to an
individual may be made because of an event occurring after the individual's death.
(2) Subsection (3) applies if an individual has, by a disposal or disposals to which
section 209(3) applies, disposed of all shares which—
(a) have been issued to the individual by the issuing company, and
(b) are shares—
(i) to which EIS relief is attributable, or
(ii) in relation to which period A has not come to an end.
(3) No assessment for withdrawing or reducing EIS relief in respect of those shares may
be made because of any subsequent event unless the event occurs at a time when the
individual is connected with the company within the meaning of section 166.
Interest
239 Date from which interest is chargeable
(1) In its application to an assessment made by virtue of section 235 in the case of relief
withdrawn or reduced by virtue of a provision listed in column 1 of the following table,
section 86 of TMA 1970 (interest on overdue income tax) has effect as if the relevant
date were given by the corresponding entry in column 2 of the table.
ProvisionRelevant dateSection 163, any of sections 181 to 188
or section 224, 232 or 233
The date of the event which caused the
withdrawal or reduction of EIS relief
Section 164The date of the making of the loan (see
subsection (2))
Section 209The date of the disposalSection 212(1)The date of the grant of the optionSection 213The date of the receipt of value
(2) The reference in the second entry in the table to the making of a loan is to be read in
accordance with section 164(3).

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Information
240 Information to be provided by the investor
(1) This section applies if the investor has obtained EIS relief in respect of the relevant
shares, and an event occurs as a result of which—
(a) the investor is not a qualifying investor in relation to the shares,
(b) the EIS relief falls to be withdrawn or reduced by virtue of section 164 (no
linked loans requirement),
(c) the EIS relief falls to be withdrawn or reduced under—
(i) section 209 (disposal of shares),
(ii) section 211 (call options), or
(iii) section 212 (put options), or
(d) the EIS relief falls to be withdrawn or reduced under section 213 (receipt of
value by the investor), or would fall to be so withdrawn or reduced but for
section 222 (receipt of replacement value).
(2) The investor must within 60 days of coming to know of the event give a notice to an
officer of Revenue and Customs containing particulars of the event.
(3) If the investor—
(a) is required under this section to give notice of a receipt of value which is within
section 213, or would be within that section but for section 222, and
(b) has knowledge of any replacement value received (or expected to be received)
because of a qualifying receipt,
the notice must include particulars of that receipt of replacement value (or expected
receipt).
(4) In subsection (3) “qualifying receipt” and “replacement value” are to be read in
accordance with section 222.
241 Information to be provided by the issuing company etc
(1) This section applies if the issuing company has provided an officer of Revenue and
Customs with a compliance statement in respect of an issue of shares and an event
occurs as a result of which—
(a) the requirement of section 175 (the use of money raised) is not met in respect
of any of the shares included in the issue, or would not be met if EIS relief had
been obtained in respect of the shares in question,
(b) any provision of Chapter 4 has effect to prevent the issuing company being a
qualifying company in relation to any of the shares included in the issue, or
would have such an effect if EIS relief had been obtained in respect of the shares
in question, or
(c) any provision of Chapter 6 which is listed in subsection (2) has effect to cause
any EIS relief attributable to any of the shares included in the issue to be
withdrawn or reduced, or—
(i) would have such an effect if EIS relief had been obtained in respect of
the shares in question, or
(ii) in the case of section 213, would have such an effect but for section 222
(receipt of replacement value).

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(2) The provisions are—
(a) section 213 (value received by the investor),
(b) section 224 (repayments etc of share capital to other persons),
(c) section 232 (acquisition of a trade or trading assets), and
(d) section 233 (acquisition of share capital).
(3) If this section applies—
(a) the issuing company, and
(b) any person connected with the issuing company who has knowledge of the
matters mentioned in subsection (1),
must give a notice to an officer of Revenue and Customs containing particulars of the
event.
(4) Any notice required to be given by the issuing company under subsection (3)(a) must
be given—
(a) within 60 days of the event, or
(b) if the event is a receipt of value within section 216(2) from a person connected
with the company (see section 221), within 60 days of the company coming to
know of the event.
(5) Any notice required to be given by a person under subsection (3)(b) must be given
within 60 days of the person coming to know of the event.
(6) If a person—
(a) is required under this section to give notice of a receipt of value which is within
section 213, or would be within that section but for section 222, and
(b) has knowledge of any replacement value received (or expected to be received)
because of a qualifying receipt,
the notice must include particulars of that receipt of replacement value (or expected
receipt).
(7) In subsection (6) “qualifying receipt” and “replacement value” are to be read in
accordance with section 222.
242 Power to require information where section 240 or 241 applies or could have
applied
(1) This section applies if an officer of Revenue and Customs has reason to believe that
a person—
(a) has not given a notice which the person is required to give under section 240
or 241 in respect of any event,
(b) has given or received value within the meaning of section 216(2) or (6) which,
but for the fact that the amount given or received was an amount of insignificant
value, would have triggered a requirement to give such a notice, or
(c) has made or received any repayment within the meaning given by
section 224(7) which, but for the fact that it falls to be ignored for the purposes
of section 224 by virtue of section 225(1), would have triggered a requirement
to give a notice under section 241.

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(2) The officer may by notice require the person concerned to supply the officer, within
such time as the officer may specify in the notice, with such information relating to the
event as the officer may reasonably require for the purposes of this Part.
(3) The period specified in a notice under subsection (2) must be at least 60 days.
(4) In subsection (1)(b) the reference to an amount of insignificant value is construed in
accordance with section 215(2).
243 Power to require information in other cases
(1) Subsection (2) applies if EIS relief is claimed in respect of shares in a company, and an
officer of Revenue and Customs has reason to believe that it may not be due because
of any such arrangement or scheme as is mentioned in—
(a) section 165 or 182(2) or (4) (no tax avoidance),
(b) section 171 (persons subscribing for shares under certain arrangements),
(c) section 176(4) or (5), 183(6) or 191(3), (4) or (5) (winding up, administration
etc),
(d) section 177(1) (no pre-arranged exits), or
(e) section 185(1) or (2), 190(1) or 191(2) (conditions ceasing to be met).
The reference in paragraph (c) to subsections (3), (4) and (5) of section 191 is to be read
as including those subsections as applied by section 190(2).
(2) The officer may by notice require any person concerned to supply the officer within
such time as may be specified in the notice with—
(a) a declaration in writing stating whether or not, according to the information
which that person has or can reasonably obtain, any such arrangement or
scheme exists or has existed, and
(b) such other information as the officer may reasonably require for the purposes
of the provision in question and as that person has or can reasonably obtain.
(3) The period specified in a notice under subsection (2) must be at least 60 days.
(4) For the purposes of subsection (2), in a case falling within a provision listed in column
1 of the following table, the person concerned is given by the corresponding entry in
column 2 of the table.
ProvisionThe person concernedSubsection (1)(a)The claimant, the company and any
person controlling the company
Subsection (1)(b)The claimantSubsection (1)(c)The claimant, the company, any other
company in question and any person
controlling the company or any other
company in question
Subsection (1)(d)The claimant, the company and any
person connected with the company
Subsection (1)(e)The company and any person controlling
the company

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References in this subsection to the claimant include references to any person to whom
the claimant appears to have made such a transfer as is mentioned in section 245
(spouses or civil partners) of any of the shares in question.
(5) If EIS relief has been obtained in respect of shares in a company—
(a) any person who receives from the company any payment or asset which
may constitute value received (by the person or another) for the purposes of
section 213, and
(b) any person on whose behalf such a payment or asset is received,
must, if so required by an officer of Revenue and Customs, state whether the payment
or asset so received is received on behalf of any other person and, if so, the name and
address of that other person.
(6) If EIS relief has been claimed in respect of shares in a company—
(a) any person who holds or has held shares in the company, and
(b) any person on whose behalf any such shares are or were held,
must, if so required by an officer of Revenue and Customs, state whether the shares so
held are or were held on behalf of any other person and, if so, the name and address
of that other person.
244 Obligations of secrecy
No obligation of secrecy imposed by statute or otherwise prevents an officer of Revenue
and Customs from disclosing to a company that EIS relief has been obtained or claimed
in respect of a particular number or proportion of its shares.
CHAPTER 8
SUPPLEMENTARY AND GENERAL
Disposals of shares
245 Transfers between spouses or civil partners
(1) This section applies if—
(a) shares to which an amount of EIS relief is attributable were issued to an
individual (“A”),
(b) A transferred the shares to another individual (“B”) during their lives,
(c) A was married to, or was the civil partner of, B at the time of the transfer, and
(d) section 209 (disposal of shares) does not apply to the transfer.
(2) This Part has effect, in relation to any subsequent disposal or other event, as if—
(a) B were the individual who had subscribed for the shares,
(b) the amount that B had subscribed for the shares were the amount that A had
subscribed for them,
(c) B's liability to income tax had been reduced in respect of the shares for the same
tax year as that for which A's was so reduced,

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(d) the amount by which B's liability to income tax had been reduced in respect
of the shares were the same as that by which A's liability to income tax had
been so reduced, and
(e) that amount of EIS relief had continued to be attributable to the shares despite
the transfer.
(3) If the amount of EIS relief attributable to the shares had been reduced before the relief
was obtained by A—
(a) this Part has effect, in relation to any subsequent disposal or other event, as if
the amount of EIS relief attributable to the shares transferred to B had been
correspondingly reduced before the relief was obtained by B, and
(b) sections 210(3), 220(2) and 229(3) apply in relation to B as they would have
applied in relation to A.
(4) If, because of any such disposal or other event, an assessment for reducing or
withdrawing EIS relief is to be made, the assessment is to be made on B.
246 Identification of shares on a disposal
(1) The rules in subsections (2) and (3) are for determining which shares of any class are
treated as disposed of for the purposes of—
(a) section 209 (disposal of shares), or
(b) section 245 (spouses or civil partners),
if the investor disposes of some but not all of the shares of that class which the investor
holds in a company.
(2) Shares acquired on an earlier day are treated as disposed of before shares acquired on
a later day.
(3) Shares acquired on the same day are treated as disposed of in the following order—
(a) first any to which neither EIS relief nor deferral relief is attributable,
(b) next any to which deferral relief, but not EIS relief, is attributable,
(c) next any to which EIS relief, but not deferral relief, is attributable, and
(d) finally any to which both EIS relief and deferral relief are attributable.
(4) Any shares within paragraph (c) or (d) of subsection (3) which are treated by
section 201(6) as issued on an earlier day are treated as disposed of before any other
shares falling within that paragraph of subsection (3).
(5) The following—
(a) any shares to which EIS relief is attributable and which were transferred to an
individual as mentioned in section 245, and
(b) any shares to which deferral relief, but not EIS relief, is attributable and which
were acquired by an individual on a disposal to which section 58 of TCGA
1992 applies,
are treated for the purposes of subsections (2) and (3) as acquired by the individual on
the day on which they were issued.
(6) In a case to which section 127 of TCGA 1992 applies (including the case where that
section applies by virtue of an enactment relating to chargeable gains), shares included
in the new holding are treated for the purposes of subsections (2) and (3) as acquired
when the original shares were acquired.

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(7) In this section—
“deferral relief” has the same meaning as in Schedule 5B to TCGA 1992,
“new holding” and “original shares” have the same meaning as in
section 127 of TCGA 1992 (or, as the case may be, that section as applied by
the enactment concerned).
Acquisition of issuing company
247 Continuity of EIS relief where issuing company is acquired by new company
(1) This section applies if—
(a) a company (“the new company”) in which the only issued shares are subscriber
shares acquires all the shares (“old shares) in another company (“the old
company”),
(b) the consideration for the old shares consists wholly of the issue of shares (“new
shares”) in the new company,
(c) the consideration for the new shares of each description consists wholly of old
shares of the corresponding description,
(d) new shares of each description are issued to the holders of old shares of the
corresponding description in respect of and in proportion to their holdings,
(e) at some time before the issue of the new shares—
(i) the old company issued shares which meet the requirements of
section 173(2), and
(ii) a compliance certificate in respect of those shares was issued by that
company for the purposes of subsection (1) of section 203 and in
accordance with section 204, and
(f) before the issue of the new shares the Commissioners for Her Majesty's
Revenue and Customs have, on the application of the new company or the old
company, notified that company that they are satisfied that the exchange of
shares—
(i) will be effected for genuine commercial reasons, and
(ii) will not form part of any such scheme or arrangements as are mentioned
in section 137(1) of TCGA 1992 (schemes with avoidance purposes).
In this subsection references to shares, except in the expressions “subscriber shares”
and “shares which meet the requirements of section 173(2)”, include securities.
(2) Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance) applies
for the purposes of subsection (1)(f) as it applies for the purposes of subsection (1) of
that section.
(3) For the purposes of this Part—
(a) the exchange of shares is not regarded as involving any disposal of the old
shares or any acquisition of the new shares, and
(b) any EIS relief which is attributable to any old shares is attributable instead to
the new shares for which they are exchanged.
(4) Nothing in section 185 (the control and independence requirement) applies in relation to
such an exchange of shares, or shares and securities, as is mentioned in subsection (1),
or arrangements with a view to such an exchange.

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(5) For the purposes of this section old shares and new shares are of a corresponding
description if, on the assumption that they were shares in the same company, they would
be of the same class and carry the same rights.
(6) References in sections 248 and 249 to “old shares”, “new shares”, “the old company”
and “the new company” are to be read in accordance with this section.
248 Carry over of obligations etc where EIS relief attributed to new shares
(1) This section applies if, under section 247, any EIS relief which is attributable to any old
shares becomes attributable instead to any new shares.
(2) This Part has effect as if anything which, under—
(a) section 203(1) (entitlement to claim),
(b) section 234(3) (relief subsequently found not to be due), or
(c) sections 241 to 244 (information to be provided),
has been done, or is required to be done, by or in relation to the old company had been
done, or were required to be done, by or in relation to the new company.
(3) Any appeal brought by the old company against a notice under section 234(3)(b) may
be prosecuted by the new company as if it had been brought by that company.
249 Substitution of new shares for old shares
(1) Subsection (2) applies if, in the case of any new shares held by an individual to which
EIS relief becomes attributable under section 247, the old shares for which they were
exchanged were subscribed for by and issued to the individual.
(2) This Part has effect as if—
(a) the new shares had been subscribed for by the individual at the time when, and
for the amount for which, the old shares were subscribed for by the individual,
(b) the new shares had been issued to the individual by the new company at the
time when the old shares were issued to the individual by the old company,
(c) the claim for EIS relief made in respect of the old shares had been made in
respect of the new shares, and
(d) the individual's liability to income tax had been reduced in respect of the new
shares for the same tax year as that for which the individual's liability was so
reduced in respect of the old shares.
(3) Subsection (4) applies if, in the case of any new shares held by an individual to which
EIS relief becomes so attributable under section 247, the old shares for which they were
exchanged were transferred to the individual as mentioned in section 245.
(4) This Part has effect in relation to any subsequent disposal or other event as if—
(a) the new shares had been subscribed for by the individual at the time when, and
for the amount for which, the old shares were subscribed for,
(b) the new shares had been issued by the new company at the time when the old
shares were issued by the old company,
(c) the claim for EIS relief made in respect of the old shares had been made in
respect of the new shares, and

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(d) the individual's liability to income tax had been reduced in respect of the new
shares for the same tax year as that for which the liability of the individual who
subscribed for the old shares was so reduced in respect of those shares.
Nominees etc
250 Nominees and bare trustees
(1) Shares subscribed for, issued to, held by or disposed of for an individual by a nominee
are treated for the purposes of this Part as subscribed for, issued to, held by or disposed
of by the individual.
(2) If shares have been issued to a bare trust for two or more beneficiaries, this Part has
effect (with the necessary modifications) as if—
(a) each beneficiary had subscribed as an individual for all of those shares, and
(b) the amount subscribed by each beneficiary was equal to the total amount
subscribed on the issue of those shares divided by the number of beneficiaries.
(3) In subsection (2) and section 251 “shares” means shares which meet the requirements
of section 173(2).
251 Approved investment fund as nominee
(1) Subsection (2) applies if an individual claims EIS relief in respect of shares in a
company at a time when—
(a) the shares have been issued to the managers of an approved fund as nominee
for the individual,
(b) the fund has closed, that is to say, no further investments in the fund are to be
accepted, and
(c) the amounts which the managers have, as nominee for the individual,
subscribed for shares issued within 6 months after the closing of the fund
represent at least 90% of the individual's investment in the fund.
In this section “the managers of an approved fund” means the person or persons having
the management of an investment fund approved for the purposes of this section by the
Commissioners for Her Majesty's Revenue and Customs.
(2) In any case where this subsection applies, section 158 (form and amount of EIS relief)
and section 201 (attribution of EIS relief to shares) have effect as if—
(a) any reference to the tax year or other period in which the shares are issued were
a reference to the tax year or other period in which the fund closes, and
(b) any reference to the time of the issue of the shares, or the time of the
subscription for the shares, were a reference to the time of the closing of the
fund.
(3) Section 157(2) (minimum subscription) does not apply if the amount is subscribed as
nominee for an individual by the managers of an approved fund.
(4) If an individual claims EIS relief in respect of shares in a company which have been
issued to the managers of an approved fund as nominee for the individual, section 203(1)
(entitlement to claim) applies as if —

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(a) it required the certificate referred to in that section to be issued by the company
to the managers, and
(b) it provided that no claim for EIS relief may be made unless the person making
the claim has received from the managers a certificate issued by the managers
in accordance with subsection (5).
(5) A certificate is issued in accordance with this subsection if—
(a) it certifies that the managers hold compliance certificates issued to them by
the companies concerned, for the purposes of section 203(1), in respect of the
holding of shares shown on the managers' certificate, and
(b) it is in such form as the Commissioners for Her Majesty's Revenue and Customs
may authorise.
(6) The managers of an approved fund may be required by a notice given to them by an
officer of Revenue and Customs to deliver to the officer, within the time limited by
the notice, a return of the holdings of shares shown on certificates issued by them in
accordance with subsection (5) in the tax year to which the return relates.
(7) Section 207 (penalties for fraudulent certificate or statement etc) does not apply in
relation to any certificate issued by the managers of an approved fund for the purposes
of subsection (4).
Interpretation
252 Meaning of a company being “in administration” or “in receivership”
(1) References in this Part to a company being “in administration” or “in receivership”
are to be read as follows.
(2) A company is “in administration” if—
(a) it is in administration within the meaning of Schedule B1 to the Insolvency Act
1986 (c. 45) or Schedule B1 to the Insolvency (Northern Ireland) Order 1989
(S.I. 1989/2405 (N.I. 19)), or
(b) there is in force in relation to it under the law of a country or territory outside
the United Kingdom any appointment corresponding to an appointment of an
administrator under either of those Schedules.
(3) A company is “in receivership” if there is in force in relation to it—
(a) an order for the appointment of an administrative receiver, a receiver and
manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986
or Part 4 of the Insolvency (Northern Ireland) Order 1989, or
(b) any corresponding order under the law of a country or territory outside the
United Kingdom.
253 Meaning of “associate”
(1) In this Part “associate”, in relation to a person, means—
(a) any relative or partner of that person,
(b) the trustee or trustees of any settlement in relation to which that person, or any
relative of that person (living or dead), is or was a settlor, and
(c) if that person has an interest in any shares or obligations of a company which
are subject to any trust or are part of the estate of a deceased person—

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(i) the trustee or trustees of the settlement concerned or, as the case may
be, the personal representatives of the deceased, and
(ii) if that person is a company, any other company which has an interest
in those shares or obligations.
(2) In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal
descendant.
254 Meaning of “disposal of shares”
(1) In this Part references to a disposal of shares include references to a disposal of an
interest or right in or over shares.
(2) An individual is to be treated, for the purposes of this Part, as disposing of any shares
which the individual is treated by virtue of section 136 of TCGA 1992 as exchanging
for other shares.
255 Meaning of “issue of shares”
(1) In this Part—
(a) references (however expressed) to an issue of shares in any company are to
such of the shares in the company as are of the same class and are issued on
the same day, and
(b) references (however expressed) to an issue of shares in any company to an
individual are to such of the shares in the company as are of the same class and
are issued to the individual on the same day.
(2) Subsection (1)(b) has effect subject to sections 201(6), 202(2), 210(2), 219(1) and
228(1).
256 Meaning of “the termination date”
(1) In this Part “the termination date”, in relation to any shares issued by a company, means

(a) the third anniversary of the issue date, or
(b) if—
(i) the money raised by the issue was raised wholly or mainly for the
purpose of a qualifying business activity within section 179(2) (the
issuing company or a qualifying 90% subsidiary of that company
carrying on or preparing to carry on a qualifying trade), and
(ii) neither the issuing company nor any of its qualifying 90% subsidiaries
had begun to carry on the trade in question on the issue date,
the third anniversary of the date on which the issuing company or any qualifying
90% subsidiary of that company begins to carry on that trade.
(2) In determining for the purposes of subsection (1) when a qualifying trade is begun to be
carried on by a qualifying 90% subsidiary of a company, any carrying on of the trade
by it before it became such a subsidiary is to be ignored.
257 Minor definitions etc
(1) In this Part—

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“arrangements” includes any scheme, agreement or understanding, whether
or not legally enforceable,
“bonus shares” means shares which are issued otherwise than for payment
(whether in cash or otherwise),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any
of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company's ordinary share
capital,
“parent company” means a company that has one or more qualifying
subsidiaries and “single company” means a company that does not,
“period A”, “period B” and “period C” have the meaning given by
section 159, and
“research and development” has the meaning given by section 1006.
(2) Section 993 (connected persons) does not apply for the purposes of Chapter 2 (other
than section 168(4)).
(3) Section 995 (control) does not apply for the purposes of the following provisions—
section 185(1)(a),
section 199(3)(a) and (b)(ii),
section 232(3),
section 233(2), and
section 243(4),
and in those provisions “control” is to be read in accordance with section 416(2) to
(6) of ICTA.
(4) In this Part—
(a) references in any provision to the reduction of any EIS relief attributable to any
shares include a reference—
(i) to the reduction of the relief to nil, and
(ii) if no relief has yet been obtained, to the reduction of the amount which
apart from that provision would be the EIS relief, and
(b) references to the withdrawal of EIS relief in respect of any shares are—
(i) to the withdrawal of the EIS relief attributable to those shares, or
(ii) if no relief has yet been obtained, to ceasing to be eligible for EIS relief
in respect of those shares.
(5) For the purposes of this Part shares in a company are not treated as being of the same
class unless they would be so treated if dealt in on the Stock Exchange.
(6) For the purposes of this Part the market value at any time of any asset is the price which
it might reasonably be expected to fetch on a sale at that time in the open market free
from any interest or right which exists by way of security in or over it.
(7) In this Part—
(a) references to EIS relief obtained by an individual in respect of any shares
include references to EIS relief obtained by the individual in respect of those
shares at any time after the individual has disposed of them, and

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(b) references to the withdrawal or reduction of EIS relief obtained by an individual
in respect of any shares include references to the withdrawal or reduction of
EIS relief obtained by the individual in respect of those shares at any such time.
(8) In the case of requirements that cannot be met until a future date, references in this Part
to requirements being met for the time being are to nothing having occurred to prevent
their being met.
PART 6
VENTURE CAPITAL TRUSTS
CHAPTER 1
INTRODUCTION
258 Overview of Part
In this Part—
(a) Chapter 2 provides for VCT income tax relief (“VCT relief”), that is,
entitlement to tax reductions in respect of amounts subscribed by individuals
for shares issued to them by venture capital trusts,
(b) Chapter 3 provides for VCT approvals,
(c) Chapter 4 makes provision as to the meaning of “qualifying holding” for the
purposes of Chapter 3,
(d) Chapter 5 confers power for regulations to make provision in relation to the
winding up and merger of venture capital trusts, and
(e) Chapter 6 makes supplementary and general provision.
259 Venture capital trusts and VCT approvals
(1) In this Part “venture capital trust” means a company which—
(a) is not a close company, and
(b) is for the time being approved for the purposes of this Part by the
Commissioners for Her Majesty's Revenue and Customs (see Chapter 3),
and “VCT” means a venture capital trust.
(2) In this Part “VCT approval” means an approval of a company for the purposes of this
Part.
260 Other tax reliefs relating to VCTs
(1) Chapter 5 of Part 6 of ITTOIA 2005 (venture capital trust dividends) provides that,
if conditions are met, no liability to income tax arises in respect of dividends paid in
respect of shares in a VCT.
(2) Section 100 of TCGA 1992 (exemption for venture capital trusts etc) provides that gains
accruing to a VCT are not to be chargeable gains.

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(3) Section 151A of TCGA 1992 (venture capital trusts: reliefs) provides that a gain or loss
accruing to an individual on a qualifying disposal of any ordinary shares in a company
which—
(a) was a VCT at the time when the individual acquired the shares, and
(b) is still a VCT at the time of the disposal,
is not to be a chargeable gain or, as the case may be, an allowable loss.
(4) Schedule 5C to TCGA 1992 (venture capital trusts: deferred charge on re-investment,
but only in relation to shares issued before 6 April 2004) provides that, if conditions
are met, an individual's unused qualifying expenditure on shares in a VCT may be set
against what would otherwise be chargeable gains.
CHAPTER 2
VCT RELIEF
Entitlement to relief
261 Eligibility for relief
(1) An individual (“A”) is eligible for VCT relief for a tax year if—
(a) a VCT issues eligible shares to A in that year,
(b) the VCT issues the shares for raising money, and
(c) A subscribes for the shares on A's own behalf.
(2) The amount in respect of which A is eligible for VCT relief for the tax year by reference
to any shares is the amount subscribed by A for the shares.
(3) A is eligible for VCT relief by reference to any shares only if—
(a) the shares are both subscribed for and issued—
(i) for genuine commercial reasons, and
(ii) not as part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax, and
(b) A is at least 18 years old when the shares are issued.
(4) A is not eligible for VCT relief by reference to any shares if they are treated as issued
to A by virtue of section 195(8) of FA 2003 (tax treatment of disposal by company of
its own shares).
See section 271(4) for provision requiring the giving of notices about the effect of this
subsection.
262 Entitlement to claim relief
(1) An individual (“A”) who is eligible for VCT relief by reference to shares issued in a
tax year is entitled to claim VCT relief for that year.
(2) A is entitled to claim VCT relief in respect of the amount on which A is eligible for
VCT relief by reference to all or some of the shares.
This is subject to subsection (3).

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(3) A is not entitled to claim VCT relief for any tax year on an amount of more than
£200,000.
263 Form and amount of relief
(1) An individual who—
(a) is entitled to claim VCT relief for a tax year, and
(b) claims such relief for the year on any amount,
is entitled to a tax reduction for the year.
(2) The tax reduction is equal to 30% of the amount in respect of which the claim is made.
(3) The tax reduction is given effect at Step 6 of the calculation in section 23.
264 No entitlement to relief if there is a linked loan
(1) An individual is not entitled to VCT relief by reference to any shares (“the relevant
shares”) if a linked loan is made by any person, at any time in the relevant period, to
the individual or an associate of the individual.
(2) References in this section to the making by any person of a loan to an individual or any
associate of the individual include references—
(a) to the giving by that person of any credit to the individual or any associate of
the individual, and
(b) to the assignment to that person of any debt due from the individual or any
associate of the individual.
(3) In this section—
“linked loan” means a loan which—
(a) would not have been made, or
(b) would not have been made on the same terms,
if the individual had not subscribed for the relevant shares or had not been
proposing to do so,
“the relevant period”, in relation to VCT relief in respect of any shares in a
company which is a VCT, means the period—
(a) beginning with—
(i) the incorporation of the company, or
(ii) if later, the date two years before the issue of the shares, and
(b) ending immediately before the fifth anniversary of that issue.
265 No entitlement to relief which would have been lost if it had already been obtained
An individual is not entitled to VCT relief by reference to any shares if circumstances
have arisen which would have resulted in the withdrawal or reduction of the relief, if
that relief had already been obtained.

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Loss of relief
266 Loss of relief if shares disposed of within 5 years
(1) This section applies, subject to section 267 (spouses or civil partners), if an individual—
(a) obtains VCT relief in respect of eligible shares in a VCT, and
(b) makes a disposal of those shares within 5 years of their issue to the individual.
(2) In the case of a disposal that is made otherwise than by way of a bargain made at arm's
length, any VCT relief obtained by reference to the shares which are disposed of is to
be withdrawn.
(3) In the case of a disposal that is made by way of a bargain made at arm's length, any
VCT relief obtained by reference to the shares disposed of must—
(a) if it is greater than A, be reduced by A, and
(b) in any other case, be withdrawn.
(4) A is 30% of the amount or value of the consideration which the individual receives for
the shares.
(5) The rules in subsections (6) and (7) are for determining which eligible shares of any
class are treated as disposed of for the purposes of—
(a) this section, and
(b) section 267,
if a person disposes of some but not all of the eligible shares of that class which the
person holds in a company.
(6) Shares acquired on an earlier day are treated as disposed of before shares acquired on
a later day.
(7) Shares acquired on the same day are treated as disposed of in the following order—
(a) shares by reference to which VCT relief has not been obtained, and
(b) shares by reference to which VCT relief has been obtained.
267 Transfers of shares between spouses or civil partners
(1) Section 266 does not apply in the case of any disposal of shares made by an individual
to the individual's spouse or civil partner, if it is made at a time when they are living
together.
(2) Subsection (3) applies if any eligible shares which—
(a) have been issued to any individual (“the transferor”), and
(b) are shares by reference to which any VCT relief has been obtained,
are transferred to the transferor's spouse or civil partner (“the transferee”) by a disposal
such as is mentioned in subsection (1).
(3) If this subsection applies, section 266 and subsection (2) have effect, in relation to any
subsequent disposal or other event, as if—
(a) the transferee were the person who had subscribed for the shares,
(b) the shares had been issued to the transferee at the time when they were issued
to the transferor,

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(c) there had been, in relation to the transferred shares, such a reduction by way
of VCT relief in the transferee's liability to income tax as is equal to the actual
reduction in respect of those shares of the transferor's liability, and
(d) that deemed reduction were (despite the transfer) to be treated for the purposes
of section 266 as an amount of VCT relief obtained by reference to the shares
transferred.
(4) Any assessment for withdrawing or reducing VCT relief because of a disposal or other
event falling within subsection (3) is to be made on the transferee.
268 Loss of relief if VCT approval withdrawn
(1) This section applies if—
(a) the approval of any company as a VCT is withdrawn, and
(b) the withdrawal of the approval is not one to which section 281(3) (VCT
approval treated as never having been given) applies.
(2) Any person who, at the time when the withdrawal takes effect, is holding any shares
issued by the company by reference to which VCT relief has been obtained is treated
for the purposes of section 266 as having disposed of those shares—
(a) immediately before that time, and
(b) otherwise than by way of a bargain made at arm's length.
269 Loss of relief which is subsequently found not to have been due
Any VCT relief obtained which is subsequently found not to have been due is to be
withdrawn.
270 Assessment on withdrawal or reduction of relief
(1) An assessment for withdrawing or reducing VCT relief under any of sections 266 to
269 must be made for the tax year for which the relief was obtained.
(2) No assessment for withdrawing or reducing VCT relief obtained by reference to
shares issued to any individual may be made because of any event occurring after the
individual's death.
Supplementary
271 Provision of information
(1) If an event occurs that results in any VCT relief falling to be withdrawn or reduced, the
individual by whom the relief was obtained must, within 60 days of coming to know
of the event, give notice to an officer of Revenue and Customs containing particulars
of the event.
(2) If an officer of Revenue and Customs has reason to believe that a person has not given
a notice which the person is required to give under subsection (1), the officer may by
notice require the person to provide the officer, within such time as may be specified
in the notice, with such information relating to the event as the officer may reasonably
require for the purposes of the provisions of this Chapter.

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(3) The period specified in a notice under subsection (2) must be at least 60 days.
(4) If a company which is a VCT issues to any individual eligible shares to which
section 261(4) applies, it must—
(a) at the time of the issue of those shares, give the individual a notice stating that
the individual is not eligible for VCT relief by reference to those shares, and
(b) not later than 3 months after the issue of those shares, give a copy of that notice
to an officer of Revenue and Customs.
(5) No obligation as to secrecy imposed by statute or otherwise prevents an officer of
Revenue and Customs from disclosing to a VCT that VCT relief has been obtained by
reference to a particular number or proportion of its shares.
272 Regulations as to procedure etc
(1) This section applies to VCT relief and relief for which the following provide—
(a) section 151A of TCGA 1992 (VCTs: reliefs),
(b) Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment),
(c) Chapter 5 of Part 6 of ITTOIA 2005 (VCT dividends), and
(d) regulations under Chapter 5 of this Part.
(2) The Treasury may by regulations make such provision as they consider appropriate for

(a) giving effect to relief to which this section applies, and
(b) preventing such relief from being given unless a claim is made in accordance
with the regulations and such other requirements as may be imposed by the
regulations have been met.
(3) Regulations under this section may make provision as to the manner in which, and the
persons by whom, relief to which this section applies is to be claimed.
273 Interpretation of Chapter
(1) In this Chapter “eligible shares”, in relation to a company which is a VCT, means
ordinary shares in the VCT which, throughout the period of 5 years beginning on the
date on which they are issued, carry—
(a) no present or future preferential right to dividends or to a company's assets on
its winding up, and
(b) no present or future right to be redeemed.
(2) In this Chapter references to a disposal of shares include references to a disposal of an
interest or right in or over shares.

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CHAPTER 3
VCT APPROVALS
Giving of approval
274 Requirements for the giving of approval
(1) Subject to section 275, the Commissioners for Her Majesty's Revenue and Customs
must not approve a company for the purposes of this Part unless it is shown to their
satisfaction that the conditions mentioned in subsection (2)—
(a) are met in relation to the most recent complete accounting period of the
company, and
(b) will be met in relation to the accounting period of the company which is current
when the application for approval is made.
(2) The conditions applied by subsection (1) (which are also applied by section 275(1)
and other provisions of this Chapter) are set out in column 2 of the following table
together with, in column 1 of the table, the descriptions by which they are referred to.
In each of those conditions “the relevant period” means the accounting period that is
relevant for the purposes of the particular provision by which the condition is applied.
DescriptionConditionThe listing conditionThe shares making up the company's
ordinary share capital (or, if there are
such shares of more than one class, those
of each class) have been or will be listed
throughout the relevant period in the
Official List of the Stock Exchange
The nature of income conditionThe company's income in the relevant
period has been or will be derived wholly
or mainly from shares or securities
The income retention conditionThe company has not retained or will
not retain an amount which is greater
than 15% of the income it derived or will
derive in the relevant period from shares
or securities
The 15% holding limit conditionNo holding in any company, other than
a VCT or a company that would qualify
as a VCT but for the listing condition,
has represented or will represent at any
time during the relevant period more
than 15% by value of the company's
investments
The 70% qualifying holdings conditionAt least 70% by value of the company's
investments has been or will be
represented throughout the relevant
period by shares or securities included in
qualifying holdings of the company

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The 30% eligible shares conditionAt least 30% by value of the company's
qualifying holdings has been or will
be represented throughout the relevant
period by holdings of eligible shares
(3) The conditions mentioned in subsection (2) are supplemented as follows—
(a) the nature of income condition and the income retention condition by
section 276,
(b) the 15% holding limit condition by section 277,
(c) the 15% holding limit condition, the 70% qualifying holdings condition and the
30% eligible shares condition by sections 278 and 279, and
(d) the 70% qualifying holdings condition and the 30% eligible shares condition
by section 280.
275 Alternative requirements for the giving of approval
(1) This section applies if one or more of the conditions mentioned in section 274(2) are not
met with respect to a company in relation to its most recent complete accounting period.
(2) The Commissioners for Her Majesty's Revenue and Customs may still approve the
company for the purposes of this Part if they are satisfied that the condition or conditions
in question—
(a) will be met in relation to the period mentioned in subsection (3), and
(b) will continue to be met in relation to accounting periods following that period.
(3) The period is—
(a) in relation to the listing condition, the nature of income condition, the income
retention condition and the 15% holding limit condition, the accounting period
of the company which is current when the application for approval is made, or
its next accounting period,
(b) in relation to the 70% qualifying holdings condition and the 30% eligible shares
condition, an accounting period of the company beginning no more than 3 years
after the time when the approval is given or, if earlier, when the approval takes
effect.
276 Conditions relating to income
(1) Subsections (2) and (3) apply in determining for the purposes of the nature of income
condition and the income retention condition—
(a) the amount of a company's income, or
(b) the amount of income which a company derives from shares or securities.
(2) The amounts to be brought into account under Chapter 2 of Part 4 of FA 1996 in respect
of the company's loan relationships are to be determined without reference to any debtor
relationship of the company.
(3) The excess of any relevant credits over any relevant debits is to be treated as income
which the company derives from shares or securities.
In this subsection “relevant credits” and “relevant debits” are credits and debits brought
into account by virtue of paragraph 14(3) of Schedule 26 to FA 2002 as if they were
non-trading credits or non-trading debits.

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(4) The income retention condition does not apply as regards an accounting period if
the amount which the company would be required to distribute in order to meet that
condition is less than—
(a) £10,000, or
(b) if the period is shorter than 12 months, a proportionately reduced amount.
(5) The income retention condition does not apply as regards an accounting period if—
(a) the company is required to retain income in respect of the period by virtue of
a restriction imposed by law, and
(b) the amount of income which the company is so required to retain in respect of
the period exceeds an amount equal to 15% of the income the company derives
from shares or securities.
(6) Subsection (5) does not apply if—
(a) the amount of income the company retains in respect of the accounting period
exceeds the amount of income it is required, by virtue of a restriction imposed
by law, to retain in respect of the period, and
(b) the sum of the excess and any amount of income the company distributes in
respect of the period is at least—
(i) £10,000, or
(ii) if the period is shorter than 12 months, a proportionately reduced
amount.
277 The 15% holding limit condition
(1) If the 15% holding limit condition was met when a holding in a company was acquired
or last added to, the condition is treated as continuing to be met until an addition is
next made to it.
(2) “Holding in a company” means the shares or securities (whether of one class or more
than one class) held in any one company.
(3) An addition is made to a holding in a company whenever the company whose holding
it is—
(a) acquires further shares or securities in the company, but
(b) does not do so by being allotted shares or securities without becoming liable
to give any consideration.
(4) For the purposes of this section—
(a) holdings in companies which—
(i) are members of a group, whether or not including the company whose
holdings they are (“company A”), and
(ii) are not excluded from the 15% holding limit condition,
are to be treated as holdings in a single company, and
(b) if company A is a member of a group, money owed to it by another member
of the group is to be treated—
(i) as a security of the latter held by company A, and
(ii) accordingly as, or as part of, the holding of company A in the company
owing the money.

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For the purposes of this subsection “group” means a company and all companies which
are its 51% subsidiaries.
(5) Subsection (6) applies if, in connection with a scheme of reconstruction—
(a) a company issues shares or securities,
(b) the shares or securities are issued to persons holding shares or securities in a
second company in respect of and in proportion to (or as nearly as may be in
proportion to) their holdings in the second company, and
(c) those persons do not become liable to give any consideration for the shares or
securities.
In this subsection “scheme of reconstruction” has the same meaning as in section 136
of TCGA 1992.
(6) For the purposes of this section—
(a) a holding of the shares or securities in the second company, and
(b) a corresponding holding of the shares or securities issued by the company,
are to be regarded as the same holding.
278 Conditions relating to value of investments: general
(1) This section and section 279 apply for the purposes of the 15% holding limit condition,
the 70% qualifying holdings condition and the 30% eligible shares condition (“the
relevant conditions”).
(2) The value of a holding of investments of any description is to be taken, unless
subsection (3) applies, to be its value when acquired.
(3) If, in the case of a holding of investments of any description—
(a) the holding is added to by a further holding of investments of that description, or
(b) any payment is made in discharge, in whole or in part, of any obligation attached
to the holding that (by discharging the whole or any part of the obligation)
increases the value of the holding,
the value of the holding is to be taken to be its value immediately after the most recent
addition or payment.
(4) For the purposes of this section an addition is made to a holding of investments of any
description whenever the company whose holding it is—
(a) acquires further investments of that description, but
(b) does not do so by being allotted shares or securities in a company without
becoming liable to give any consideration.
(5) Subsection (6) applies if, in connection with a scheme of reconstruction—
(a) a company issues shares or securities,
(b) the shares or securities are issued to persons holding shares or securities in a
second company in respect of and in proportion to (or as nearly as may be in
proportion to) their holdings in the second company, and
(c) those persons do not become liable to give any consideration for the shares or
securities.
In this subsection “scheme of reconstruction” has the same meaning as in section 136
of TCGA 1992.

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(6) For the purposes of this section—
(a) a holding of the shares or securities of any description in the second company,
and
(b) a corresponding holding of the shares or securities issued by the company,
are to be regarded as the same holding.
279 Conditions relating to value of investments: qualifying holdings
(1) If—
(a) any shares (“new shares”) are exchanged for other shares (“old shares”) under
arrangements in relation to which section 326 (restructuring arrangements)
applies, and
(b) those arrangements have not ceased by virtue of section 326(5) to be
arrangements by reference to which requirements of Chapter 4 are treated as
met,
the value of the new shares is taken to be the same as the value, when last valued in
accordance with subsection (2) or (3) of section 278, of the old shares for which they
are exchanged.
(2) In subsection (1)—
(a) references to shares in a company include references to any securities of that
company, and
(b) the reference to the value of the new shares includes references to the value of
those shares both—
(i) at the time of their acquisition, and
(ii) immediately after any subsequent addition to a holding of the new
shares that is made under the arrangements.
(3) If—
(a) shares (“new shares”) are issued to a company as a result of the exercise by that
company of any right of conversion attached to other shares, or securities, held
by that company (“convertibles”), and
(b) section 329 (conversion of convertible shares and securities) applies in relation
to the issue of the new shares,
the value of the new shares at the time of their acquisition is taken to be the same as
the value, when last valued in accordance with subsection (2) or (3) of section 278, of
the convertibles for which they are exchanged.
(4) Regulations under section 330 may make provision for securing that if—
(a) there is an exchange of shares to which regulations under section 330 apply, and
(b) the new shares are treated by virtue of the regulations as meeting the
requirements of Chapter 4,
the value of the holding of the new shares, and of any original shares that are retained
under the exchange, is taken to be an amount such that the requirements of the relevant
conditions do not cease to be met because of the exchange.
(5) In subsection (4)—
(a) “shares” includes securities, and
(b) “exchange of shares”, “new shares” and “original shares” have the same
meaning as in section 330.

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280 Conditions relating to qualifying holdings and eligible shares
(1) Subsection (2) applies, subject to any regulations under subsection (3), if—
(a) there has been an issue of ordinary share capital of a company (“the first issue”),
(b) a VCT approval of that company has taken effect on or before the day of the
making of the first issue, and
(c) a further issue of ordinary share capital of that company has been made since
the making of the first issue.
(2) If this subsection applies, the use to which the money raised by the further issue is put,
and the use of any money deriving from that use, are ignored in determining whether
either or both of the 70% qualifying holdings condition and the 30% eligible shares
condition are, have been or will be met in relation to—
(a) the accounting period in which the further issue is made, or
(b) any later accounting period ending no more than 3 years after the making of
the further issue.
(3) The Treasury may by regulations make provision for subsection (2)—
(a) not to apply, or to be treated as not having applied, in specified cases, or
(b) to apply, or to be treated as having applied, in specified cases—
(i) only to a specified extent, or
(ii) only if specified conditions (including conditions requiring approvals
to be obtained) are met.
(4) Provision made by regulations under subsection (3) may (but need not) be made so that,
in any particular case, subsection (2)—
(a) does not apply, or is treated as not having applied, at prescribed times or with
effect from a prescribed time, or
(b) applies, or is treated as having applied, in accordance with provision made
under subsection (3)(b) at prescribed times or with effect from a prescribed
time.
(5) In subsection (3) “specified” means specified by regulations and in subsection (4)
“prescribed” means specified by, or determined under, regulations.
(6) Section 324 applies in relation to—
(a) regulations under subsection (3), and
(b) any power conferred by that subsection,
as it applies in relation to regulations under Chapter 5 and a power conferred by any
provision of that Chapter.
Withdrawal of approval
281 Withdrawal of VCT approval of a company
(1) The Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”)
may withdraw the VCT approval of a company if at any time it appears to them that
there are reasonable grounds for believing—
(a) that the conditions for the approval of the company were not met at the time
of the approval,

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(b) in a case where the Commissioners were satisfied for the purposes of
section 274(1)(b) or 275(2) that any of the conditions mentioned in
section 274(2) would be met in relation to any period, that the condition is one
which will not be, or has not been, met in relation to that period,
(c) in the case of a company approved under subsection (2) of section 275 (read
with paragraph (b) of subsection (3) of that section), that the company has not
met such other conditions as may be prescribed by regulations made by the
Commissioners in relation to—
(i) the period of 3 years mentioned in that paragraph, or
(ii) any part of that period,
(d) in a case where the use of any money falls to be ignored for any accounting
period in accordance with section 280(2), that—
(i) the first accounting period of the company for which the use of that
money will not be ignored will be a period in relation to which any of
the conditions mentioned in section 274(2) will fail to be met, or
(ii) the company has not met such other conditions as may be prescribed
by regulations made by the Commissioners in relation to, or to any part
of, an accounting period for which the use of that money falls to be
ignored, or
(e) that—
(i) the company's most recent complete accounting period or its current
one is a period in relation to which there has been or will be a failure
of any of the conditions mentioned in section 274(2) to be met, and
(ii) the failure was not or will not be one which, at the time of the approval,
was allowed for in relation to that period by virtue of section 275(2).
(2) Subject to subsections (3) and (4), the withdrawal of the approval of a company for
the purposes of this Part has effect as from the time when notice of the withdrawal is
given to the company.
(3) If, in the case of a company approved as a VCT in the exercise of the power conferred
by section 275(2), the approval is withdrawn at a time before all of the conditions
mentioned in section 274(2) have been met with respect to the company concerned—
(a) in relation to a complete accounting period of 12 months, or
(b) in relation to successive complete accounting periods constituting a continuous
period of at least 12 months,
the withdrawal of the approval has the effect that the approval is for all purposes treated
as never having been given.
(4) A notice withdrawing the approval of a company for the purposes of this Part may
specify a time falling before the time mentioned in subsection (2) as the time from
which the withdrawal is to be treated as having effect for the purposes of section 100
of TCGA 1992 (exemption for venture capital trusts etc).
But the time so specified must be no earlier than the beginning of the accounting period
in relation to which it appears to the Commissioners that the condition by reference to
which the approval is withdrawn has not been, or will not be, met.
(5) Despite any limitation on the time for making assessments, an assessment to any tax
chargeable in consequence of the withdrawal of any VCT approval may be made at any
time before the end of the period of 3 years beginning with the time when the notice
of withdrawal is given.

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282 Withdrawal of VCT approval in cases for which provision made under
section 280(3)
(1) The Treasury may by regulations make provision for withdrawal of VCT approval of
a company to be treated—
(a) in a case where the withdrawal is by reference to a condition for approval that
would have been, or would be, met but for provision made under section 280(3),
and
(b) for the purposes of enactments specified by regulations,
as having taken effect as from a time specified in the notice of withdrawal that is earlier
than the time when the notice is given to the company.
(2) Provision made under subsection (1) has effect subject to the provisions of
section 281(4) (retrospective effect of notices of withdrawal of VCT approval) as to
the earliest time that may be specified by such a notice.
(3) Section 324 applies in relation to—
(a) regulations under subsection (1), and
(b) any power conferred by that subsection,
as it applies in relation to regulations under Chapter 5 and a power conferred by any
provision of that Chapter.
Supplementary
283 Time as from which VCT approval has effect
(1) A VCT approval has effect as from the time specified in the approval.
(2) That time, if it falls before the time when the VCT approval is given, must be no earlier
than the time when the application was made.
(3) If the Commissioners for Her Majesty's Revenue and Customs give a VCT approval,
they may stipulate that the approval is to have effect as from the time when the
application for the approval was made or any subsequent time.
284 Power to make regulations as to procedure
Regulations under section 272 may make provision—
(a) as to the making of applications for VCT approvals and otherwise as to the
procedure to be followed in relation to any such applications and the giving of
such approvals,
(b) as to the procedure to be followed in connection with the withdrawal of VCT
approvals,
(c) as to the obligations of a company which is a VCT if it should appear to the
company that the conditions for its VCT approval to continue in force are no
longer met,
(d) as to the accounts, records, returns and other information to be kept, and
provided or otherwise made available to the Commissioners for Her Majesty's
Revenue and Customs, by companies which are or have been VCTs and by
persons who hold or have held shares in such companies, and
(e) as to the persons liable to account for any tax becoming due where a VCT
approval is withdrawn.

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285 Interpretation of Chapter
(1) Chapter 4 has effect for interpreting references in this Chapter to a “qualifying holding”.
(2) In this Chapter and the following Chapters of this Part “securities”, in relation to a
company, includes any liability of the company in respect of a loan (whether secured
or not), except that it does not include—
(a) any liability of the company in respect of a loan which has been made to the
company on terms which allow any person to require—
(i) the loan to be repaid, or
(ii) any stock or security relating to the loan to be re-purchased or
redeemed,
within the period of 5 years from the making of the loan or, as the case may be,
the issue of the stock or security, or
(b) any stock or security relating to a loan which has been made to the company
on terms which allow any person to require the loan to be repaid, or the stock
or security to be re-purchased or redeemed, within that period.
But see sections 317(4) and 328(2).
(3) In this Chapter “eligible shares”, in relation to a company, means ordinary shares in
the company which carry—
(a) no present or future preferential right to dividends or to the company's assets
on its winding up, and
(b) no present or future right to be redeemed.
(4) Any reference in this Chapter to a company's investments is taken to include, so far as
it would not otherwise do so—
(a) money in the company's possession, and
(b) any sum owed to the company by another person if the company has account-
holder's rights over that sum.
(5) For the purposes of subsection (4)(b) a company has “account-holder's rights” over a
sum owed to the company if—
(a) the company has a right (whether or not the exercise of the right is subject to
conditions) to require the other person to pay out the sum, or amounts out of
the sum, to the company or at the company's direction, and
(b) the sum is owed to the company—
(i) as a result of amounts having been paid to the other person by or for
the company, or
(ii) as a result of the other person having identified a sum in respect of
which the company may exercise such a right.
(6) Subsection (5) does not have effect to cause a company's investments to be taken to
include anything to which the company is not beneficially entitled, but for this purpose
a company is taken to be beneficially entitled to—
(a) sums subscribed for shares issued by it, and
(b) anything to which it is entitled that (directly or indirectly) represents such sums.

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CHAPTER 4
QUALIFYING HOLDINGS
Introduction
286 Qualifying holdings: introduction
(1) If any shares in or securities of any company (“the relevant company”) are at any
time held by another company (“the investing company”), this Chapter applies for
determining whether and to what extent those shares or securities (“the relevant
holding”) are, for the purposes of Chapter 3, to be regarded as at that time comprised
in the investing company's qualifying holdings.
(2) The relevant holding is to be regarded as comprised in the investing company's
qualifying holding at any time if—
(a) all the following requirements of this Chapter are met at that time in relation to
the relevant company and the relevant holding, and
(b) the relevant holding consists of shares or securities which were first issued
by the relevant company to the investing company and have been held by the
investing company ever since.
(3) The requirements are those imposed as to—
(a) maximum qualifying investment (see section 287),
(b) no guaranteed loan (see section 288),
(c) proportion of eligible shares (see section 289),
(d) trading (see section 290),
(e) the carrying on of a qualifying activity (see section 291),
(f) use of the money raised (see section 293),
(g) the relevant company carrying on the relevant qualifying activity (see
section 294),
(h) unquoted status (see section 295),
(i) control and independence (see section 296),
(j) gross assets (see section 297),
(k) qualifying subsidiaries (see section 298), and
(l) property managing subsidiaries (see section 299).
(4) Subject to section 293(7), subsection (5) applies if—
(a) the requirements of section 287, 293 or 294 would be met as to only part of the
money raised by the issue of the relevant holding, and
(b) that holding is not otherwise capable of being treated as comprising separate
holdings.
(5) If this subsection applies, this Chapter has effect in relation to the relevant holding as
if it were two separate holdings consisting of—
(a) a holding from which the part of the money mentioned in subsection (4)(a) was
raised, and
(b) a holding from which the remainder was raised.
Chapter 3 has effect as if the value of the relevant holding were to be apportioned
between the two holdings treated as subsisting by this subsection.

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The requirements
287 The maximum qualifying investment requirement
(1) The requirement of this section is that the relevant holding did not, when it was
issued, represent an investment in excess of the maximum qualifying investment for
the relevant period.
(2) Subject to subsection (7), the maximum qualifying investment for any period is
exceeded so far as the total amount of money which—
(a) is raised in that period, and
(b) is so raised by the issue to the investing company during that period of shares
in or securities of the relevant company,
exceeds £1 million.
(3) If the relevant holding represented, when issued, an investment in excess of the
maximum qualifying investment for the relevant period—
(a) the shares or securities which represented the excess are not to be regarded as
part of the relevant holding, and
(b) the amount of money raised by those shares or securities is to be ignored for
the purposes of any subsequent application of subsection (2).
(4) For the purposes of this section, if there is any question as to whether any shares in or
securities of the relevant company which are for the time being held by the investing
company represent an investment in excess of the maximum qualifying investment
for any period, that question is determined on the following assumption in relation to
disposals by the investing company.
(5) The assumption is that, as between shares or securities of the same description, those
which represent the whole or any part of the excess are disposed of before those which
do not.
(6) Subsection (7) applies if—
(a) at the time of the issue of the relevant holding the relevant company or any of
its qualifying subsidiaries was a member of a partnership or a party to a joint
venture,
(b) the trade which meets the requirement of section 291 was at that time being
carried on, or to be carried on, by those partners in partnership or by the parties
to the joint venture, and
(c) the other partners or parties to the joint venture include at least one other
company.
(7) If this subsection applies, this section has effect in relation to the relevant company as
if the sum of money for the time being specified in subsection (2) were to be divided
by the number of companies (including the relevant company) which, at the time when
the relevant holding was issued, were members of the partnership or, as the case may
be, parties to the joint venture.
(8) For the purposes of this section “the relevant period” is the period beginning with
whichever is the earlier of—
(a) the time 6 months before the issue of the relevant holding, and
(b) the beginning of the tax year in which the issue of that holding took place,
and (in either case) ending with the issue of that holding.

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288 The no guaranteed loan requirement
(1) The requirement of this section is that there are no securities relating to a guaranteed
loan in the relevant holding.
(2) For the purposes of this section, a security relates to a guaranteed loan if (and only if)
there are arrangements for the investing company to be or to become entitled to receive
anything (whether directly or indirectly) from a third party in the event of the failure
by any person to comply with—
(a) the terms of the loan to which the security relates, or
(b) the terms of the security.
(3) For the purposes of subsection (2) it does not matter whether the arrangements apply
in all cases of a failure to comply or only in some such cases.
(4) For the purposes of this section “third party” means any person except—
(a) the relevant company, and
(b) if the relevant company is a parent company that meets the trading requirement
in section 290(1)(b), the subsidiaries of that company.
289 The proportion of eligible shares requirement
(1) The requirement of this section is that eligible shares represent at least 10% by value of
the totality of the shares in or securities of the relevant company (including the relevant
holding) which are held by the investing company.
(2) For the purposes of this section the value at any time of any shares in or securities of a
company is taken (subject to subsection (4)) to be their value immediately after—
(a) any relevant event occurring at that time, or
(b) if no relevant event occurs at that time, the last relevant event to occur before
that time.
(3) In subsection (2) “the relevant event”, in relation to any shares in or securities of the
relevant company, means—
(a) the acquisition by the investing company of those shares or securities,
(b) the acquisition by the investing company of any other shares in or securities of
the relevant company which—
(i) are of the same description as those shares or securities, and
(ii) are acquired by the investing company otherwise than by being
allotted to the investing company without its being liable to give any
consideration, or
(c) the making of any such payment in discharge, in whole or in part, of any
obligation attached to any shares in or securities of the relevant company held
by the investing company as (by discharging that obligation) increases the value
of any such shares or securities.
(4) If at any time the value of any shares or securities held by the investing company is less
than the consideration given by the investing company for those shares or securities, it
is to be assumed for the purposes of this section that the value of the shares or securities
at that time is equal to the amount of that consideration.
(5) In this section “eligible shares” has the same meaning as in Chapter 3 (see
section 285(3)).

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290 The trading requirement
(1) The requirement of this section is that—
(a) the relevant company, ignoring any incidental purposes, exists wholly for the
purpose of carrying on one or more qualifying trades, or
(b) the relevant company is a parent company and the business of the group does
not consist wholly or as to a substantial part in the carrying on of non-qualifying
activities.
(2) If the relevant company intends that one or more other companies should become its
qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
(a) the relevant company is treated as a parent company for the purposes of
subsection (1)(b), and
(b) the reference in subsection (1)(b) to the group includes the relevant company
and any existing or future company that will be its qualifying subsidiary after
the intention in question is carried into effect.
This subsection does not apply at any time after the abandonment of that intention.
(3) For the purposes of subsection (1)(b) the business of the group means what would be
the business of the group if the activities of the group companies taken together were
regarded as one business.
(4) For the purpose of determining the business of a group, activities are ignored so far as
they are carried on by a mainly trading subsidiary otherwise than for its main purpose.
(5) For the purpose of determining the business of a group, activities of a group company
are ignored so far as they consist in—
(a) the holding of shares in or securities of a qualifying subsidiary of the parent
company,
(b) the making of loans to another group company, or
(c) the holding and managing of property used by a group company for the purpose
of one or more qualifying trades carried on by a group company, or
(d) the holding and managing of property used by a group company for the purpose
of research and development from which it is intended—
(i) that a qualifying trade to be carried on by a group company will be
derived, or
(ii) that a qualifying trade carried on or to be carried on by a group company
will benefit.
(6) Any reference in sub-paragraph (i) or (ii) of subsection (5)(d) to a group company
includes a reference to any existing or future company which will be a group company
at any future time.
(7) In this section—
“incidental purposes” means purposes having no significant effect (other
than in relation to incidental matters) on the extent of the activities of the
company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from
incidental purposes, exists wholly for the purpose of carrying on one or more
qualifying trades, and any reference to the main purpose of such a subsidiary
is to be read accordingly,
“non-qualifying activities” means—

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(a) excluded activities, and
(b) activities carried on otherwise than in the course of a trade.
(8) This section is supplemented by section 300 (meaning of “qualifying trade”) and
sections 303 to 310 (excluded activities).
291 The carrying on of a qualifying activity requirement
(1) The requirement of this section, at any time on or after the issue of the relevant holding,
is that a qualifying company (whether or not the same such company at every such
time) must have been carrying on a qualifying activity at all times from the issue of the
holding to the time in question.
(2) A qualifying trade carried on wholly or mainly in the United Kingdom is a qualifying
activity.
(3) Preparing to carry on a qualifying trade is a qualifying activity if, at the time when the
relevant holding was issued, the trade was intended to be carried on wholly or mainly
in the United Kingdom by a qualifying company.
This is subject to subsections (4) and (5).
(4) The requirement of this section is not capable of being met by virtue of subsection (3) at
any time after the end of the period of two years beginning with the issue of the relevant
holding unless—
(a) the intended trade was begun to be carried on by a qualifying company before
the end of that period, and
(b) at all times since the end of that period, a qualifying company (whether or not
the same such company at every such time) has been carrying on a qualifying
trade wholly or mainly in the United Kingdom.
(5) The requirement of this section is also not capable of being met by virtue of
subsection (3) at any time after the abandonment, within the period mentioned in
subsection (4), of the intention in question.
(6) In determining for the purposes of subsection (4)(a) when the intended trade was begun
to be carried on by a qualifying company which is a qualifying 90% subsidiary of the
relevant company, any carrying on by it of the trade before it became such a subsidiary
of the relevant company is ignored.
(7) In this section “qualifying company” means the relevant company or any qualifying
90% subsidiary of that company.
(8) The reference in subsection (7) to a qualifying company which is a qualifying 90%
subsidiary of the relevant company includes, in its application to subsection (3), a
reference to any existing or future qualifying company which will be a qualifying 90%
subsidiary of the relevant company at any future time.
292 Ceasing to meet requirements because of administration or receivership
(1) A company is not regarded as ceasing to meet the requirement of section 290 or 291
merely because of anything done in consequence of its being in administration or
receivership.
(2) Subsection (1) applies only if—

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(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company being in administration or
receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
293 The use of the money raised requirement
(1) The requirement of this section at any time on or after the issue of the relevant holding
is that—
(a) if that time is not more than 12 months after the trading time, any of conditions
A, B and C is met,
(b) if that time is more than 12 months but not more than 24 months after the trading
time, either of conditions B and C is met, and
(c) in any other case, condition C is met.
(2) Condition A is that at least 80% of the money raised by the issue of the relevant holding
has been or is intended to be employed wholly for the purposes of a relevant qualifying
activity.
(3) Condition B is that at least 80% of the money raised by the issue of the relevant holding
has been employed wholly for the purposes of the activity.
(4) Condition C is that all of the money raised by the issue of the relevant holding has been
employed wholly for the purposes of the activity.
(5) In subsection (1) “the trading time” means whichever is applicable of the following—
(a) in a case where the requirement of section 291 was met in relation to the time
when the relevant holding was issued and the relevant qualifying activity falls
within subsection (2) of that section, the time when the relevant holding was
issued, and
(b) in a case where that requirement was met in relation to that time and the relevant
qualifying activity falls within subsection (3) of that section, the time when the
condition in subsection (4)(a) of that section was met by a qualifying company
beginning to carry on the intended trade.
(6) For the purposes of this section money is not to be treated as employed otherwise than
wholly for the purposes of a relevant qualifying activity if the only amount employed
for other purposes is an amount which is not a significant amount.
(7) Nothing in section 286(5) requires any money whose use is ignored by virtue of
subsection (6) to be treated as raised by a different holding.
(8) In this section—
“qualifying activity” and “qualifying company” have the same meaning as
in section 291, and
a qualifying activity is a “relevant qualifying activity” if—
(a) it was also a qualifying activity at the time when the relevant holding was
issued, or
(b) it is a qualifying trade and preparing to carry it on was a qualifying activity
at that time.

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294 The relevant company to carry on the relevant qualifying activity requirement
(1) The requirement of this section is met if, at no time after the issue of the relevant holding,
has the relevant qualifying activity in question been carried on by a person other than—
(a) the relevant company, or
(b) a qualifying 90% subsidiary of that company.
In this subsection “the relevant qualifying activity in question” means the relevant
qualifying activity by reference to which the requirement of section 293 is met.
(2) The requirement of this section is not to be regarded as failing to be met merely because
of the carrying on of the trade in question by a person other than the relevant company,
or a qualifying subsidiary of that company, at any time—
(a) after the issue of the relevant holding, and
(b) before the relevant company, or any qualifying 90% subsidiary of that company,
carries on that trade.
(3) The requirement of this section is not to be regarded as failing to be met merely because
of the carrying on of the trade in question—
(a) by the partners in a partnership of which the relevant company, or a qualifying
90% subsidiary of that company, is a member, or
(b) by the parties to a joint venture to which the relevant company, or a qualifying
90% subsidiary of that company, is a party.
(4) The requirement of this section is not to be regarded as failing to be met if—
(a) merely because of anything done as a consequence of the relevant company or
any other company being in administration or receivership, or
(b) merely because of the relevant company or any other company being wound
up or dissolved without winding up,
the trade in question ceases to be carried on by the relevant company or a qualifying
90% subsidiary of that company and is subsequently carried on by a person who has
not been connected, at any time after the date which is 12 months before the issue of
the relevant holding, with the relevant company.
(5) Subsection (4) applies only if—
(a) the entry into administration or receivership and everything done in
consequence of the company concerned being in administration or receivership,
or
(b) the winding up or dissolution,
is for genuine commercial reasons and is not part of a scheme or arrangement the
purpose or one of the main purposes of which is the avoidance of tax.
(6) In this section “the trade in question” means so much of the relevant qualifying activity
mentioned in subsection (1) as consists of—
(a) a trade which was being carried on at the time when the relevant holding was
issued, or
(b) a trade for the carrying on of which preparations were being made at that time.
(7) The definition of “relevant qualifying activity” in subsection (8) of section 293 applies
for the purposes of this section as it applies for the purposes of that section.

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295 The unquoted status requirement
(1) The requirement of this section is that the relevant company must be an unquoted
company.
(2) In this section “unquoted company” means a company none of whose shares, stocks,
debentures or other securities are marketed to the general public.
(3) For the purposes of subsection (2), shares, stocks, debentures or other securities are
marketed to the general public if they are—
(a) listed on the Stock Exchange or a stock exchange that is a recognised stock
exchange by virtue of an order made under section 1005,
(b) listed on a designated exchange in a country outside the United Kingdom, or
(c) dealt in on the Unlisted Securities Market or dealt in outside the United
Kingdom by such means as may be designated.
(4) In subsection (3)(b) and (c) “designated” means designated by an order made by
the Commissioners for Her Majesty's Revenue and Customs for the purposes of that
provision.
(5) An order made for the purposes of subsection (3)(b) may designate an exchange by
name, or by reference to any class or description of exchanges, including a class or
description framed by reference to any authority or approval given in a country outside
the United Kingdom.
(6) If—
(a) any shares in or securities of a company are included in the qualifying holdings
of the investing company, and
(b) that company ceases to be an unquoted company at any time while the investing
company is approved as a VCT,
the requirements of this section are to be treated, in relation to shares or securities
acquired before that time, as continuing to be met for a period of 5 years after that time.
296 The control and independence requirement
(1) The control element of the requirement is that—
(a) the relevant company must not control (whether on its own or together with any
person connected with it) any company which is not a qualifying subsidiary of
the relevant company, and
(b) no arrangements must be in existence by virtue of which the relevant company
could fail to meet paragraph (a).
(2) The independence element of the requirement is that—
(a) the relevant company must not be under the control of another company (or of
another company and any other person connected with that other company), and
(b) no arrangements must be in existence by virtue of which the relevant company
could fail to meet paragraph (a).
(3) This section is subject to section 327(7) (exchange of shares).

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297 The gross assets requirement
(1) The requirement of this section in the case of a relevant company that is a single
company is that the value of the company's gross assets—
(a) did not exceed £7 million immediately before the issue of the relevant holding,
and
(b) did not exceed £8 million immediately afterwards.
(2) The requirement of this section in the case of a relevant company that is a parent
company is that the value of the group assets—
(a) did not exceed £7 million immediately before the issue of the relevant holding,
and
(b) did not exceed £8 million immediately afterwards.
(3) The value of the group assets means the sum of the values of the gross assets of each
of the members of the group, ignoring any that consist in rights against, or shares in or
securities of, another member of the group.
298 The qualifying subsidiaries requirement
Any subsidiary that the relevant company has must be a qualifying subsidiary of the
company.
299 The property managing subsidiaries requirement
(1) Any property managing subsidiary that the relevant company has must be a qualifying
90% subsidiary of the company.
(2) “Property managing subsidiary” means a subsidiary of the relevant company whose
business consists wholly or mainly in the holding or managing of land or any property
deriving its value from land.
(3) In subsection (2) references to property deriving its value from land include—
(a) any shareholding in a company deriving its value directly or indirectly from
land,
(b) any partnership interest deriving its value directly or indirectly from land,
(c) any interest in settled property deriving its value directly or indirectly from
land, and
(d) any option, consent or embargo affecting the disposition of land.
Definitions
300 Meaning of “qualifying trade”
(1) For the purposes of this Chapter, a trade is a qualifying trade if—
(a) it is conducted on a commercial basis and with a view to the realisation of
profits, and
(b) it does not consist wholly or as to a substantial part in the carrying on of
excluded activities (see sections 303 to 310).
(2) The carrying on of any activities of research and development from which it is intended

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(a) that a trade will be derived which—
(i) will be a qualifying trade, and
(ii) will be carried on wholly or mainly in the United Kingdom, or
(b) that a trade will benefit which—
(i) is or will be a qualifying trade, and
(ii) is or will be carried on wholly or mainly in the United Kingdom,
is to be treated as the carrying on of a qualifying trade.
(3) But preparing to carry on such activities does not count as preparing to carry on a
qualifying trade.
(4) References in this section to a trade are to be read without regard to the definition of
“trade” in section 989.
301 Meaning of “qualifying 90% subsidiary”
(1) For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying 90%
subsidiary of the relevant company at any time when the following conditions are met—
(a) the relevant company possesses at least 90% of the issued share capital of, and
at least 90% of the voting power in, the subsidiary,
(b) the relevant company would—
(i) in the event of a winding up of the subsidiary, or
(ii) in any other circumstances,
be beneficially entitled to receive at least 90% of the assets of the subsidiary
which would then be available for distribution to equity holders of the
subsidiary,
(c) the relevant company is beneficially entitled to receive at least 90% of any
profits of the subsidiary which are available for distribution to equity holders
of the subsidiary,
(d) no person other than the relevant company has control of the subsidiary, and
(e) no arrangements are in existence by virtue of which any of the conditions in
paragraphs (a) to (d) would cease to be met.
(2) Subsections (3), (4) and (5) of section 302 apply in relation to the conditions in
subsection (1)—
(a) as they apply in relation to the conditions in subsection (2) of that section, but
(b) with the omission from subsection (5) of “or (as the case may be) by another
subsidiary of that company”.
(3) For the purposes of subsection (1)—
(a) the persons who are equity holders of the subsidiary, and
(b) the percentage of the assets of the subsidiary to which an equity holder would
be entitled,
are to be determined in accordance with paragraphs 1 and 3 of Schedule 18 to ICTA.
(4) In making that determination—
(a) references in paragraph 3 of that Schedule to the first company are to be read
as references to an equity holder, and

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(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 subsidiary are
available for distribution to its equity holders.
302 Meaning of “qualifying subsidiary”
(1) For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying subsidiary
of the relevant company if the following conditions are met.
(2) The conditions are that—
(a) the subsidiary is a 51% subsidiary of the relevant company,
(b) no person other than the relevant company, or another of its subsidiaries, has
control of the subsidiary, and
(c) no arrangements are in existence by virtue of which either of the conditions in
paragraphs (a) and (b) would cease to be met.
(3) The conditions do not cease to be met merely because the subsidiary or any other
company is wound up, if the winding up—
(a) is for genuine commercial reasons, and
(b) is not part of a scheme or arrangement the main purpose or one of the main
purposes of which is the avoidance of tax.
(4) The conditions do not cease to be met merely because of anything done as a consequence
of the subsidiary or any other company being in administration or receivership, if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company concerned being in
administration or receivership,
is for genuine commercial reasons, and is not part of a scheme or arrangement the main
purpose or one of the main purposes of which is the avoidance of tax.
(5) The conditions do not cease to be met merely because arrangements are in existence for
the disposal by the relevant company or (as the case may be) by another subsidiary of
that company of all its interest in the subsidiary, if the disposal—
(a) is to be for genuine commercial reasons, and
(b) is not to be part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax.
Excluded activities
303 Meaning of “excluded activities”
(1) The following are excluded activities for the purposes of sections 290 and 300—
(a) dealing in land, in commodities or futures or in shares, securities or other
financial instruments,
(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale
or retail distribution,
(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or
other financial activities,
(d) leasing (including letting ships on charter or other assets on hire),
(e) receiving royalties or licence fees,

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(f) providing legal or accountancy services,
(g) property development,
(h) farming or market gardening,
(i) holding, managing or occupying woodlands, any other forestry activities or
timber production,
(j) operating or managing hotels or comparable establishments or managing
property used as an hotel or comparable establishment,
(k) operating or managing nursing homes or residential care homes or managing
property used as a nursing home or residential care home, and
(l) any activities which are excluded activities under section 310 (provision of
services or facilities for another business).
(2) Subsection (1) is supplemented by the following provisions—
(a) section 304 (wholesale and retail distribution),
(b) section 305 (leasing of ships),
(c) section 306 (receipt of royalties and licence fees),
(d) section 307 (property development),
(e) section 308 (hotels and comparable establishments), and
(f) section 309 (nursing homes and residential care homes).
304 Excluded activities: wholesale and retail distribution
(1) This section supplements section 303(1)(b).
(2) In this section—
(a) subsections (3) and (4) are for determining whether a trade is a trade of
wholesale or retail distribution, and
(b) subsections (5) and (6) are for determining whether a trade of wholesale or
retail distribution is an ordinary trade of wholesale or retail distribution.
(3) A trade of wholesale distribution is one in which goods are offered for sale and sold
to persons for resale by them, or for processing and resale by them, to members of the
general public for their use or consumption.
(4) A trade of retail distribution is one in which goods are offered or exposed for sale and
sold to members of the general public for their use or consumption.
(5) A trade of wholesale or retail distribution is not an ordinary trade of wholesale or retail
distribution if—
(a) it consists to a substantial extent—
(i) in dealing in goods of a kind which are collected or held as an
investment, or
(ii) in that activity and any other excluded activity taken together, and
(b) a substantial proportion of those goods are held for a period which is
significantly longer than the period for which the trader would reasonably be
expected to hold them while trying to dispose of them at their market value.
(6) In determining whether a trade of wholesale or retail distribution is an ordinary trade
of wholesale or retail distribution regard is to be had to the extent to which it has the
following features—

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(a) the goods are bought by the trader in quantities larger than those in which the
trader sells them,
(b) the goods are bought and sold by the trader in different markets,
(c) the trader employs staff and incurs expenses in the trade in addition to the cost
of the goods and, in the case of a trade carried on by a company, in addition to
any remuneration paid to any person connected with it,
(d) there are purchases or sales from or to persons who are connected with the
trader,
(e) purchases are matched with forward sales or vice versa,
(f) the goods are held by the trader for longer than is normal for goods of the kind
in question,
(g) the trade is carried on otherwise than at a place or places commonly used for
wholesale or retail trade, and
(h) the trader does not take physical possession of the goods.
(7) In subsection (6)—
(a) the features in paragraphs (a) to (c) are regarded as indications that the trade is
an ordinary trade of wholesale or retail distribution, and
(b) those in paragraphs (d) to (h) are regarded as indications to the contrary.
305 Excluded activities: leasing of ships
(1) This section supplements section 303(1)(d) so far as it relates to the leasing of ships
other than offshore installations or pleasure craft.
(2) In the following provisions “ship” accordingly means a ship other than an offshore
installation or a pleasure craft.
(3) If the requirements of subsection (4) are met, a trade is not to be regarded as consisting
in the carrying on of excluded activities within section 303(1)(d) as a result only of its
consisting in letting ships on charter.
(4) The requirements of this subsection are that—
(a) every ship let on charter by the company carrying on the trade is beneficially
owned by the company,
(b) every ship beneficially owned by the company is registered in the United
Kingdom,
(c) the company is solely responsible for arranging the marketing of the services
of its ships, and
(d) the conditions mentioned in subsection (5) are met in relation to every letting
on charter by the company.
(5) The conditions referred to in subsection (4)(d) are—
(a) the letting is for a period not exceeding 12 months and no provision is made
at any time (whether in the charterparty or otherwise) for extending it beyond
that period otherwise than at the option of the charterer,
(b) no provision for the grant of a new letting to end more than 12 months after the
provision is made (whether in the charterparty or otherwise) is in force during
the period of the letting otherwise than at the option of the charterer,
(c) the letting is by way of a bargain at arm's length between the company and a
person who is not connected with it,

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(d) under the terms of the charter the company is responsible as principal—
(i) for taking, throughout the period of the charter, management decisions
in relation to the ship, other than those of a kind generally regarded
by persons engaged in trade of the kind in question as matters of
husbandry, and
(ii) for defraying all expenses in connection with the ship throughout that
period, or substantially all such expenses, other than those directly
incidental to a particular voyage or to the employment of the ship
during that period, and
(e) no arrangements exist by virtue of which a person other than the company may
be appointed to be responsible for the matters mentioned in paragraph (d) on
behalf of the company.
(6) If in the case of the company carrying on the trade (“the letting company”) the charterer
is also a company and—
(a) the charterer is a qualifying subsidiary of the letting company, or
(b) the letting company is a qualifying subsidiary of the charterer, or
(c) both companies are qualifying subsidiaries of a third company,
subsection (5) has effect with the omission of paragraph (c).
(7) If any of the requirements of subsection (4) is not met in relation to any lettings of ships,
the trade is not, as a result, to be treated as consisting in the carrying on of excluded
activities if—
(a) those lettings, and
(b) any other excluded activities
do not, taken together, amount to a substantial part of the trade.
(8) In this section “pleasure craft” means any ship of a kind primarily used for sport or
recreation.
306 Excluded activities: receipt of royalties and licence fees
(1) This section supplements section 303(1)(e) (receipt of royalties and licence fees).
(2) If the requirement of subsection (3) is met, a trade is not to be regarded as consisting
in the carrying on of excluded activities within section 303(1)(e) as a result only of its
consisting to a substantial extent in the receiving of royalties or licence fees.
(3) The requirement of this subsection is that the royalties or licence fees (or all but for a
part that is not a substantial part in terms of value) are attributable to the exploitation
of relevant intangible assets.
(4) For this purpose an intangible asset is a “relevant intangible asset” if the whole or
greater part (in terms of value) of it has been created—
(a) by the company carrying on the trade, or
(b) by a company which at all times during which it created the intangible asset
was—
(i) the holding company of the company carrying on the trade, or
(ii) a company which, if that holding company were the relevant company,
would be a qualifying subsidiary of that company.

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(5) In the case of an intangible asset that is intellectual property, references to the creation
of an asset by a company are to its creation in circumstances in which the right to exploit
it vests in the company (whether alone or jointly with others).
(6) In this section—
“holding company” means a company that—
(a) has one or more 51% subsidiaries, but
(b) is not itself a 51% subsidiary of another company,
“intangible asset” means any asset which falls to be treated as an intangible
asset in accordance with generally accepted accountancy practice, and
“intellectual property” means—
(a) any patent, trade mark, registered design, copyright, design right,
performer's right or plant breeder's right, or
(b) any rights under the law of a country or territory outside the United
Kingdom which correspond or are similar to those falling within
paragraph (a).
307 Excluded activities: property development
(1) This section supplements section 303(1)(g).
(2) “Property development” means the development of land—
(a) by a company which has, or at any time has had, an interest in the land, and
(b) with the sole or main object of realising a gain from the disposal of an interest
in the land when it is developed.
(3) For this purpose “interest in land” means, subject to subsection (4)—
(a) any estate, interest or right in or over land, including any right affecting the use
or disposition of land, or
(b) any right to obtain such an estate, interest or right from another which is
conditional on the other's ability to grant it.
(4) References in this section to an interest in land do not include—
(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose
debt is secured by way of mortgage, an agreement for a mortgage or a charge
of any kind over land, or
(b) in the case of land in Scotland, the interest of a creditor in a charge or security
of any kind over land.
308 Excluded activities: hotels and comparable establishments
(1) This section supplements section 303(1)(j).
(2) The reference to a comparable establishment is to a guest house, hostel or other
establishment the main purpose of maintaining which is the provision of facilities for
overnight accommodation (with or without catering services).
(3) The activities of a person are not to be taken to fall within section 303(1)(j) unless
that person has an estate or interest in, or is in occupation of, the hotel or comparable
establishment in question.

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309 Excluded activities: nursing homes and residential care homes
(1) This section supplements section 303(1)(k).
(2) “Nursing home” means any establishment which exists wholly or mainly for the
provision of nursing care—
(a) for persons suffering from sickness, injury or infirmity, or
(b) for women who are pregnant or have given birth.
(3) “Residential care home” means any establishment which exists wholly or mainly for
the provision of residential accommodation, together with board and personal care, for
persons in need of personal care because of—
(a) old age,
(b) mental or physical disability,
(c) past or present dependence on alcohol or drugs,
(d) any past illnesses, or
(e) past or present mental disorder.
(4) The activities of a person are not to be taken to fall within section 303(1)(k) unless that
person has an estate or interest in, or is in occupation of, the nursing home or residential
care home in question.
310 Excluded activities: provision of services or facilities for another business
(1) Providing services or facilities for a business carried on by another person (other than
a company of which the provider of the services or facilities is a qualifying subsidiary)
is an excluded activity if—
(a) the business consists wholly or as to a substantial part of activities falling within
any of paragraphs (a) to (k) of section 303(1), and
(b) a controlling interest in the business is held by a person who also has a
controlling interest in the business carried on by the provider of the services
or facilities.
(2) Subsections (3) to (5) explain what is meant by a controlling interest in a business for
the purposes of subsection (1)(b).
(3) In the case of a business carried on by a company, a person (“A”) has a controlling
interest in the business if—
(a) A controls the company,
(b) the company is a close company and A or an associate of A, being a director
of the company, either—
(i) is the beneficial owner of more than 30% of the ordinary share capital
of the company, or
(ii) is able, directly or through the medium of other companies or by any
other indirect means, to control more than 30% of that share capital, or
(c) at least half the business could, in accordance with section 344(2) of ICTA
(persons to whom company's trade may be treated as belonging), be regarded
as belonging to A for the purposes of section 343 of that Act (company
reconstructions without a change of ownership).
(4) In any other case, a person has a controlling interest in a business if the person is entitled
to at least half the assets used for, or of the income arising from, the business.

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(5) For the purposes of this section—
(a) any rights or powers of a person who is an associate of another are to be
attributed to that other person, and
(b) “business” includes any trade, profession or vocation.
Supplementary
311 Power to amend Chapter
The Treasury may by order amend this Chapter—
(a) to make such modifications of sections 290, 291, 298 and 300, sections 303 to
310 and section 313(3) as they consider appropriate, and
(b) to substitute different sums for the sums of money for the time being specified
in sections 287(2) and 297.
312 Winding up of the relevant company
None of the requirements of this Chapter is to be regarded, at a time when the relevant
company is being wound up, as being, on that account, a requirement that is not met
in relation to that company if—
(a) the requirements of this Chapter would be met in relation to that company apart
from the winding up, and
(b) the winding up is for genuine commercial reasons, and is not part of a scheme
or arrangement the main purpose or one of the main purposes of which is the
avoidance of tax.
313 Interpretation of Chapter
(1) In this Chapter —
“the investing company” has the meaning given by section 286(1),
“the relevant company” has the meaning given by section 286(1), and
“the relevant holding” has the meaning given by section 286(1).
(2) References in this Chapter to the issue of any securities, in relation to any security
consisting in a liability in respect of an unsecured loan, have effect as references to the
making of the loan.
(3) References in sections 303 to 309 to a trade are to be read without regard to the definition
of “trade” in section 989 (see also section 300(4)).
(4) For the purposes of sections 296 and 310(3) and (4), the question whether a person
controls a company is to be determined in accordance with section 416(2) to (6) of
ICTA with the modification given by subsection (6).
(5) For the purposes of this Chapter, section 993 (meaning of “connected persons”)
applies as if references to “control” in that section were to be read in accordance with
section 416 of ICTA with the modification given by subsection (6).
(6) The modification is that, in determining whether a person controls a company, the
following are to be ignored—

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(a) any person's possession of, or entitlement to acquire, fixed-rate preference
shares in the company that do not carry voting rights, and
(b) any person's possession of, or entitlement to acquire, rights as a loan creditor
of the company.
(7) In subsection (6) “fixed-rate preference shares” means shares which—
(a) were issued wholly for new consideration,
(b) do not carry any right either to conversion into shares or securities of any other
description or to the acquisition of any additional shares or securities, and
(c) do not carry any right to dividends other than dividends which—
(i) are of a fixed amount or at a fixed rate per cent of the nominal value
of the shares, and
(ii) together with any sum paid on redemption, represent no more than a
reasonable commercial return on the consideration for which the shares
were issued,
and in paragraph (a) “new consideration” has the meaning given by section 254 of
ICTA.
CHAPTER 5
POWERS : WINDING UP AND MERGERS OF VCT S
Winding up
314 Power to treat VCT-in-liquidation as VCT
(1) Regulations may make provision for tax enactments specified by the regulations to have
effect as if—
(a) a VCT-in-liquidation that is not a VCT were, or were during any prescribed
period of its winding up, a VCT,
(b) VCT approval withdrawn from a company—
(i) at any time during the period when it is a VCT-in-liquidation, or
(ii) at any time during a prescribed part of that period,
were withdrawn at a prescribed time (and not at the time when it is actually
withdrawn).
(2) In this section “prescribed” means specified by, or determined under, regulations.
315 Power to treat conditions for VCT approval as met with respect to VCT-in-
liquidation
(1) Regulations may make provision for conditions mentioned in section 274(2) (conditions
for approval as a VCT) to be treated for the purposes of section 274(1) as met, or as
conditions that will be met, with respect to a VCT-in-liquidation.
(2) Provision under subsection (1) may be made so as to apply in relation to a VCT-in-
liquidation—
(a) throughout its winding up, or
(b) during prescribed periods of its winding up.

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(3) Regulations may, for purposes of tax enactments specified by the regulations, make
provision for VCT approval to be treated as having been withdrawn, with effect from a
time specified by or determined under the regulations, from a VCT-in-liquidation from
which the Commissioners for Her Majesty's Revenue and Customs would have power
to withdraw such approval but for provision made under subsection (1).
316 Power to make provision about distributions by VCT-in-liquidation
(1) Regulations may make provision for tax enactments specified by the regulations—
(a) to apply in relation to distributions from a VCT-in-liquidation (including, in
particular, distributions in the course of dissolving it or winding it up),
(b) not to apply in relation to such distributions,
(c) to apply in relation to such distributions with modifications specified by the
regulations.
(2) Provision under subsection (1) may be made so as to apply in relation to distributions
from a VCT-in-liquidation made—
(a) at any time during its winding up, or
(b) during periods of its winding up specified by, or determined under, regulations.
317 Power to facilitate disposal to VCT by VCT-in-liquidation
(1) Regulations may make provision authorised by subsection (2) for cases where shares
in or securities of a company are acquired by a VCT from a VCT-in-liquidation.
(2) The provision that may be made under subsection (1) for such a case is—
(a) provision for conditions mentioned in section 274(2) (conditions for approval
as a VCT) to be treated for the purposes of section 274(1) as met, or as
conditions that will be met, with respect to the VCT in relation to periods ending
after the acquisition,
(b) provision for the shares or securities acquired to be treated, at times after the
acquisition when they are held by the VCT, as meeting the requirements of
Chapter 4 (provisions for determining whether shares or securities form part of
qualifying holdings), and
(c) provision for shares in the VCT issued in connection with the acquisition of the
shares or securities from the VCT-in-liquidation and either—
(i) issued to a person who is a member of the VCT-in-liquidation, or
(ii) issued to the VCT-in-liquidation and distributed by it in the course of
its winding up or dissolution to a person who is one of its members,
to be treated, for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred
charge on re-investment), as representing shares in the VCT-in-liquidation held
by that person.
(3) Provision under subsection (1) may be made so as to apply in relation to shares or
securities acquired from a VCT-in-liquidation—
(a) at any time during its winding up, or
(b) during periods of its winding up specified by, or determined under, regulations.
(4) In this section “securities” means any securities and includes any liability that is a
security in relation to a company because of section 285(2) (securities).

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318 Power in respect of periods before and after winding up
(1) Any power under sections 314 to 317 to make provision in relation to a VCT-in-
liquidation includes power to make corresponding or similar provision in relation to—
(a) a company for whose winding up an application has been made to a court
and which is not a VCT-in-liquidation but would be if, at the time that the
application was made, the court had ordered the company's winding up to
commence at that time, or
(b) a company that has been a VCT-in-liquidation but no longer is a VCT-in-
liquidation because it has been wound up.
(2) For the purposes of making provision in reliance on subsection (1), references in
sections 314 to 317 (however expressed) to a VCT-in-liquidation's winding up, or
the commencement or ending of its winding up, may be taken to be references to,
or to the commencement or ending of, the extension period for a company to which
subsection (1) applies.
(3) In this section—
“the extension period”—
(a) in relation to a company to which subsection (1)(a) applies, means the
period beginning with the making of the application and ending with the
earlier of its final determination and the company becoming a company
that is being wound up, and
(b) in relation to a company to which subsection (1)(b) applies, means the
period between the end of the company's winding up and the company's
dissolution, and
“prescribed” means specified by, or determined under, regulations.
319 Sections 314 to 318: supplementary
(1) Provision made by regulations under sections 314 to 318 applies in cases, and subject
to conditions, specified by regulations.
(2) Such provision may (but need not) be made so as to have effect in a particular case only
for such period as may be specified by, or determined under, regulations.
(3) References in sections 314 to 318 to things done by a VCT-in-liquidation include things
done by a liquidator of a VCT-in-liquidation.
320 Meaning of “VCT-in-liquidation”
(1) In this Chapter “VCT-in-liquidation” means a company—
(a) that is being wound up (whether or not under the law of a part of the United
Kingdom and whether under the law of one, or more than one, territory),
(b) that was a VCT immediately before the commencement of its winding up, and
(c) whose winding up is for genuine commercial reasons and is not part of a scheme
or arrangement the main purpose or one of the main purposes of which is the
avoidance of tax.
(2) Regulations may, for purposes of this Chapter, make provision as to when a company's
winding up is to be treated as commencing or ending in a case where it is wound up
otherwise than under the law of a part of the United Kingdom or otherwise than under
the law of a single territory.

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Mergers
321 Power to facilitate mergers of VCTs
(1) Regulations may make provision authorised by section 322 for cases where—
(a) there is a merger of two or more companies each of which is a VCT immediately
before the merger begins to be effected, and
(b) the merger is for genuine commercial reasons and is not part of a scheme or
arrangement the main purpose or one of the main purposes of which is the
avoidance of tax.
(2) Provision made by regulations under subsection (1) applies—
(a) in cases, and
(b) subject to conditions (including conditions requiring approvals to be obtained),
specified by the regulations.
322 Provision that may be made by regulations under section 321
(1) The provision that may be made under section 321(1) for a case where there is a merger
of two or more companies (“the merging companies”) is as follows.
(2) Provision for the successor company, or any of the merging companies, to be treated
(whether at times before, during or after the merger) as a VCT for purposes of tax
enactments specified by regulations.
(3) Provision for section 266 (loss of relief on disposal of VCT shares within 5 years of
their issue) not to apply in the case of disposals of shares in a merging company made
in the course of effecting the merger.
(4) Provision for such disposals not to be chargeable events for the purposes of Schedule 5C
to TCGA 1992 (VCTs: deferred charge on re-investment).
(5) Provision for conditions mentioned in section 274(2) (conditions for approval as a
VCT) to be treated (whether at times before, during or after the merger) for purposes
of section 274(1) as met, or as conditions that will be met, with respect to the successor
company or any of the merging companies.
(6) Provision for shares in or securities of a company that are acquired (whether at times
before, during or after the merger) by the successor company from a merging company
to be treated, at times after the acquisition when they are held by the successor company,
as meeting requirements of Chapter 4 (provisions for determining whether shares or
securities held by a VCT form part of its qualifying holdings).
(7) Provision for tax enactments specified by regulations to apply, with or without
adaptations, in relation to the merger or transactions taking place (whether before,
during or after the merger) in connection with the merger.
(8) Provision authorising disclosure for tax purposes connected with the merger—
(a) by Her Majesty's Revenue and Customs,
(b) to any of the merging companies or the successor company,
(c) of any information provided to Her Majesty's Revenue and Customs by or on
behalf of any of the merging companies or the successor company.

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323 Meaning of “merger” and “successor company”
(1) For the purposes of this Chapter there is a merger of two or more companies (“the
merging companies”) if—
(a) shares in one of the merging companies (“company A”) are issued to members
of the other merging company or companies, and
(b) the shares issued to members of the other merging company or, in the case of
each of the other merging companies, the shares issued to members of that other
company, are issued—
(i) in exchange for their shares in that other company, or
(ii) by way of consideration for a transfer to company A of the whole or
part of the business of that other company.
(2) For the purposes of this Chapter there is also a merger of two or more companies (“the
merging companies”) if—
(a) shares in a company (“company B”) that is not one of the merging companies
are issued to members of the merging companies, and
(b) in the case of each of the merging companies, the shares issued to members of
that company are issued—
(i) in exchange for their shares in that company, or
(ii) by way of consideration for a transfer to company B of the whole or
part of the business of that company.
(3) In this Chapter “the successor company”—
(a) in relation to a merger such as is described in subsection (1), means the company
that performs the role of company A, and
(b) in relation to a merger such as is described in subsection (2), means the company
that performs the role of company B.
Supplementary
324 Regulations under Chapter
(1) Regulations under this Chapter may—
(a) contain such administrative provisions (including provision for advance
clearance and provision for the withdrawal of clearances) as appear to the
Treasury to be necessary or appropriate,
(b) authorise the Commissioners for Her Majesty's Revenue and Customs to
give notice to any person requiring that person to provide such information,
specified in the notice, as they may reasonably require in order to determine
whether any conditions imposed by regulations under this Chapter are met,
(c) make different provision for different cases,
(d) contain incidental, supplemental, consequential and transitional provision and
savings, and
(e) include provision having retrospective effect.
(2) Without prejudice to any specific provision of this Chapter, a power conferred by
any provision of this Chapter to make regulations includes power to provide for Her
Majesty's Revenue and Customs to exercise a discretion in dealing with any matter.

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325 Interpretation of Chapter
In this Chapter—
“regulations” means regulations made by the Treasury, and
“tax enactments” means provisions of or made under—
(a) the Tax Acts,
(b) TCGA 1992 or any other enactment relating to capital gains tax, or
(c) TMA 1970.
CHAPTER 6
SUPPLEMENTARY AND GENERAL
Acquisitions for restructuring purposes
326 Restructuring to which section 327 applies
(1) Section 327 applies if—
(a) arrangements are made for a company (“the new company”) to acquire all the
shares (“old shares”) in another company (“the old company”),
(b) the acquisition provided for by the arrangements falls within subsection (2), and
(c) the Commissioners for Her Majesty's Revenue and Customs have, before any
exchange of shares takes place under the arrangements, given an approval
notification.
(2) An acquisition of shares falls within this subsection if—
(a) the consideration for the old shares consists wholly of the issue of shares (“new
shares”) in the new company,
(b) new shares are issued in consideration of old shares only at times when there
are no issued shares in the new company other than subscriber shares and new
shares previously issued in consideration of old shares,
(c) the consideration for new shares of each description consists wholly of old
shares of the corresponding description, and
(d) new shares of each description are issued to the holders of old shares of the
corresponding description in respect of, and in proportion to, their holdings.
(3) For the purposes of subsection (1)(c) an approval notification is one which, on the
application of either the old company or the new company, is given to the applicant
company and states that the Commissioners for Her Majesty's Revenue and Customs
are satisfied that the exchange of shares under the arrangements—
(a) will be effected for genuine commercial reasons, and
(b) will not form part of any such scheme or arrangements as are mentioned in
section 137(1) of TCGA 1992 (schemes with avoidance purposes).
(4) Nothing in section 327 treats any of the requirements of Chapter 4 as being met in
relation to any new shares unless the matching old shares were first issued to the
company holding them and have been held by that company from the time when they
were issued until they are acquired by the new company.

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(5) If, at any time after the arrangements first came into existence and before the new
company acquired all the old shares, the arrangements—
(a) cease to be arrangements for the acquisition of all the old shares by the new
company, or
(b) cease to be arrangements for an acquisition falling within subsection (2),
section 327 does not treat any requirement of Chapter 4 as being met, and subsection (8)
of that section does not apply, in the case of any new shares at any time after the
arrangements have so ceased.
327 Certain requirements of Chapter 4 to be treated as met
(1) If this section applies, subsections (2) to (8) have effect to determine the extent to which,
and the times for which, the requirements of the following provisions of Chapter 4 are
met in relation to the new shares—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 290 (the trading requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 293 (the use of the money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying activity
requirement),
section 296 (the control and independence requirement), and
section 297 (the gross assets requirement).
(2) If the requirements of sections 290 and 291 were met in relation to the old company
and any old shares immediately before the beginning of the period for giving effect to
the arrangements, then (so far as it would not otherwise be the case) those requirements
are treated as being met in relation to the new company and the matching new shares
at all times which—
(a) fall in that period, and
(b) do not fall after a time when (apart from the arrangements) those requirements
would have ceased by virtue of—
(i) section 291(4) or (5), or
(ii) any cessation of a trade by any company,
to be met in relation to the old company and the matching old shares.
(3) For the purposes of section 291, the period of two years mentioned in subsection (4)
of that section is treated, in the case of any new shares, as expiring at the same time
as it would have expired (or by virtue of this subsection would have been treated as
expiring) in the case of the matching old shares.
(4) Subject to subsection (5), if—
(a) there is an exchange under the arrangements of any new shares for any old
shares, and
(b) those old shares are shares in relation to which the requirements of sections
293, 294 and 297 were (or were treated as being) met to any extent immediately
before the exchange,
those requirements are to be treated, at all times after that time, as met to the same extent
in relation to the matching new shares.

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(5) If there is a time following any exchange under the arrangements of any new shares
for any old shares when (apart from the arrangements) the requirement of section 293
would have ceased under—
(a) subsection (1) of that section, or
(b) this subsection,
to be met in relation to those old shares, that requirement ceases at that time to be met
in relation to the matching new shares.
(6) For the purposes of section 287, any new shares acquired under the arrangements are
to be treated as representing an investment which—
(a) raised the same amount of money as was raised (or, by virtue of this subsection,
is treated as having been raised) by the issue of the matching old shares, and
(b) raised that amount by an issue of shares in the new company made at the time
when the issue of the matching old shares took place (or, as the case may be,
is treated as having taken place).
(7) In determining whether the requirements of section 296 are met in relation to the
old company or the new company at a time in the period for giving effect to the
arrangements, ignore both—
(a) the arrangements themselves, and
(b) any exchange of new shares for old shares that has already taken place under
the arrangements.
(8) For the purposes of section 289, the value of the new shares, both—
(a) immediately after the time of their acquisition, and
(b) immediately after the time of any subsequent relevant event occurring by virtue
of the arrangements,
is to be taken to be the same as the value, when last valued in accordance with that
section, of the old shares for which they are exchanged.
328 Supplementary
(1) Subject to subsection (2), references in sections 326 and 327 and this section, except in
the expression “subscriber shares”, to shares in a company include references to any
securities of that company.
(2) For the purposes of subsection (1) a relevant security of the old company is not to be
treated as a security of the old company if—
(a) the arrangements do not provide for the acquisition of the security by the new
company, or
(b) such treatment prevents section 326(1)(b) from being met in connection with
the arrangements.
(3) In subsection (2) “relevant security” means an instrument which is a security for the
purposes of Chapter 4 merely because of section 285(2).
(4) References in section 327 to the period for giving effect to the arrangements are
references to the period which—
(a) begins with the time when the arrangements first came into existence, and
(b) ends with the time when the new company completes its acquisition under the
arrangements of all the old shares.

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(5) For the purposes of sections 326 and 327 and this section—
(a) old shares and new shares are of a corresponding description if, were they
shares in the same company, they would be of the same description, and
(b) old shares and new shares are matching shares in relation to each other if the
old shares are the shares for which the new shares are exchanged under the
arrangements.
Conversion of shares etc and company reorganisations
329 Conversion of convertible shares and securities
(1) This section applies if—
(a) shares have been issued to a company (“the investing company”) by the
exercise by it of any right of conversion attached to other shares or securities
held by it (“the convertibles”),
(b) the shares so issued are in the same company as the convertibles to which the
right was attached,
(c) the convertibles to which the right was attached were first issued to the investing
company and were held by it from the time they were issued until converted,
and
(d) the right was attached to the convertibles when they were first so issued and
was not varied before it was exercised.
(2) If this section applies, subsections (3) and (4) have effect to determine the extent to
which, and the times for which, the requirements of the following provisions of Chapter
4 are met in relation to the shares issued to the investing company by the exercise by
it of the right of conversion—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 293 (the use of the money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying activity
requirement), and
section 297 (the gross assets requirement).
(3) Subsections (3) to (6) of section 327 apply in relation to the exchange of convertibles
for shares by virtue of the exercise of the right of conversion as if—
(a) that exchange were an exchange, under any arrangements to which that section
applies, of new shares for old shares, and
(b) the references in those subsections and section 328(5)(b) to the arrangements
were references to the provision conferring the right of conversion.
(4) For the purposes of section 289 the value of the new shares immediately after the time
of their acquisition by the investing company is to be taken as the same as the value,
when last valued in accordance with that section, of the convertibles for which they
are exchanged.
330 Power to facilitate company reorganisations etc involving exchange of shares
(1) The Treasury may by regulations make provision for cases where—

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(a) a holding of shares or securities that meets the requirements of Chapter 4 is
exchanged for other shares or securities,
(b) the exchange is made for genuine commercial reasons and does not form part
of a scheme or arrangement the main purpose or one of the main purposes of
which is the avoidance of tax, and
(c) the new shares or securities do not meet some or all of the requirements of
Chapter 4,
providing that the new shares or securities are to be treated as meeting those
requirements.
(2) The references in subsection (1) to an exchange of shares or securities include any form
of company reorganisation or other arrangement which involves a holder of shares in
or securities of a company receiving other shares or securities—
(a) whether the original shares or securities are transferred, cancelled or retained,
and
(b) whether the new shares or securities are in or of the same or another company.
(3) The regulations must specify—
(a) the cases in which, and conditions subject to which, they apply,
(b) which requirements of Chapter 4 are to be treated as met, and
(c) the period for which those requirements are to be treated as met.
(4) The regulations may contain such administrative provisions (including provision for
advance clearances) as appear to the Treasury to be necessary or appropriate.
(5) The regulations may authorise the Commissioners for Her Majesty's Revenue and
Customs to give notice to any person requiring that person to provide such information,
specified in the notice, as they may reasonably require in order to determine whether
any conditions imposed by the regulations are met.
(6) Regulations under this section —
(a) may make different provision for different cases,
(b) may contain incidental, supplemental, consequential and transitional provision
and savings, and
(c) may include provision having retrospective effect.
Supplementary
331 Meaning of a company being “in administration” or “in receivership”
(1) References in this Part to a company being “in administration” or “in receivership”
are to be read as follows.
(2) A company is “in administration” if—
(a) it is in administration within the meaning of Schedule B1 to the Insolvency Act
1986 (c. 45) or Schedule B1 to the Insolvency (Northern Ireland) Order 1989
(S.I. 1989/2405 (N.I. 19)), or
(b) there is in force in relation to it under the law of a country or territory outside
the United Kingdom any appointment corresponding to an appointment of an
administrator under either of those Schedules.
(3) A company is “in receivership” if there is in force in relation to it—

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(a) an order for the appointment of an administrative receiver, a receiver and
manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986
or Part 4 of the Insolvency (Northern Ireland) Order 1989, or
(b) any corresponding order under the law of a country or territory outside the
United Kingdom.
332 Minor definitions etc
In this Part—
“associate” has the meaning given by section 253,
“company” includes any body corporate or unincorporated association but
does not include a partnership, and is to be read in accordance with section 99
of TCGA 1992 (unit trust schemes),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any
of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company's ordinary share
capital,
“parent company” means a company that has one or more qualifying
subsidiaries and “single company” means a company that does not,
“research and development” has the meaning given by section 1006, and
“shares” includes stock.
PART 7
COMMUNITY INVESTMENT TAX RELIEF
CHAPTER 1
INTRODUCTION
CITR
333 Meaning of “CITR”
This Part provides for community investment tax relief (“CITR”), that is, entitlement to
tax reductions in respect of amounts invested by individuals in community development
finance institutions.
334 Eligibility for CITR
(1) An individual (“the investor”) who makes an investment (“the investment”) in a body
is eligible for CITR in respect of the investment if—
(a) that body is accredited as a community development finance institution under
Chapter 2 at the time the investment is made,
(b) the investment is a qualifying investment (see Chapter 3), and

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(c) the general conditions of Chapter 4 are met.
(2) In this Part references to “the CDFI” are to the body in which the investment is made.
335 Form and amount of CITR
(1) If the investor is eligible for CITR in respect of the investment, the investor may make
a claim in respect of the investment for any one or more of the relevant tax years.
(2) If the investor makes a claim for a relevant tax year, the investor is entitled to a tax
reduction for that year of 5% of the invested amount in respect of the investment for
the year.
(3) For this purpose the “relevant” tax years are—
(a) the tax year in which the investment date falls, and
(b) each of the 4 subsequent tax years.
(4) The tax reduction is given effect at Step 6 of the calculation in section 23.
(5) The investor is entitled to make a claim for CITR for a relevant tax year if—
(a) the investor considers that the conditions for the CITR are for the time being
met, and
(b) the investor has received a tax relief certificate (see section 348) relating to the
investment from the CDFI,
but no claim may be made before the end of the tax year to which it relates.
(6) Subsection (5) is subject to the following provisions—
(a) section 354 (loans: no claim after disposal or excessive repayments or receipts
of value),
(b) section 355 (securities or shares: no claim after disposal or excessive receipts
of value), and
(c) section 356 (no claim after loss of accreditation by CDFI).
Miscellaneous
336 Meaning of “making an investment”
(1) For the purposes of this Part, an individual makes an investment in a body at any time
when—
(a) the individual makes a loan (whether secured or unsecured) to the body, or
(b) an issue of securities of or shares in the body, for which the individual has
subscribed, is made to the individual.
(2) The following provisions of this section apply for the purposes of subsection (1)(a).
(3) An individual does not make a loan to a body if—
(a) the body uses overdraft facilities provided by the individual, or
(b) the individual subscribes for or otherwise acquires securities of the body.
(4) If the loan agreement authorises the body to draw down amounts of the loan over a
period of time, the loan is treated as made at the time when the first amount is drawn
down.

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337 Determination of “the invested amount”
(1) This section applies for the purpose of determining “the invested amount” in respect
of any loan, securities or shares included in the investment.
This is subject to sections 363(2) and 369 (which adjust “the invested amount” in
certain cases where value is received).
(2) In the case of a loan, the invested amount is—
(a) for the tax year in which the investment date falls, the average capital balance
for the first year of the 5 year period,
(b) for the next tax year, the average capital balance for the second year of the 5
year period, and
(c) for any subsequent tax year—
(i) the average capital balance for the period of 12 months beginning with
the anniversary of the investment date falling in the tax year concerned,
or
(ii) if less, the average capital balance for the period of 6 months beginning
18 months after the investment date.
(3) In the case of securities or shares, the invested amount for a tax year is the amount
subscribed by the investor for the securities or shares.
(4) For the purposes of this section, the average capital balance of the loan for a period is
the mean of the daily balances of capital outstanding during the period.
338 Meaning of “the 5 year period” and “the investment date”
In this Part—
“the 5 year period” means the period of 5 years beginning with the investment
date, and
“the investment date” means the day the investment is made.
339 Overview of other Chapters of Part
In this Part—
(a) Chapter 5 provides for the making of claims for CITR and the attribution of
CITR to investments,
(b) Chapter 6 provides for CITR to be withdrawn or reduced in the circumstances
mentioned in that Chapter, and
(c) Chapter 7 contains supplementary and general provision.
CHAPTER 2
ACCREDITED COMMUNITY DEVELOPMENT FINANCE INSTITUTIONS
340 Application and criteria for accreditation
(1) Applications for accreditation as a community development finance institution must be
made to the Secretary of State in the form and manner specified by the Secretary of
State.

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(2) The Secretary of State is to accredit a body if (and only if) the Secretary of State is
satisfied—
(a) that the body's principal objective is to provide (directly or indirectly)—
(i) finance, or
(ii) finance and access to business advice,
for enterprises for disadvantaged communities, and
(b) that the body meets any other criteria specified in regulations made by the
Treasury.
(3) For the purposes of this section “enterprises for disadvantaged communities” include—
(a) enterprises located in disadvantaged areas, and
(b) enterprises owned or operated by, or designed to serve, members of
disadvantaged groups.
(4) The criteria mentioned in paragraph (b) of subsection (2) may include criteria relating
to the enterprises to which the body provides or proposes to provide finance or access
to business advice.
(5) Regulations under that paragraph may make the provision authorised by that paragraph
by reference to any material published by, or on behalf of, the Secretary of State
(whether before or after the coming into force of this section).
(6) Regulations under that paragraph—
(a) may make different provision for different cases or circumstances or in relation
to different areas, and
(b) may, in particular, make different provision in the case of bodies whose
principal objective in providing finance as mentioned in subsection (2)(a) is to
invest directly in enterprises that meet the conditions of subsection (7).
(7) An enterprise meets the conditions of this subsection if it uses the money invested in it
for the purposes of its business and either—
(a) that business does not include the provision of finance for other enterprises, or
(b) if it does, the nature and extent of such provision meets any conditions
prescribed by regulations made by the Treasury.
(8) If the Secretary of State accredits a body of a kind mentioned in subsection (6)(b), the
Secretary of State must specify in the accreditation that the body is accredited as a retail
community development finance institution.
341 Terms and conditions of accreditation
(1) An accreditation under this Chapter must—
(a) be made on—
(i) any terms required by regulations, and
(ii) any other terms the Secretary of State considers appropriate, and
(b) be made conditional on compliance with—
(i) any requirements imposed by regulations, and
(ii) any other requirements the Secretary of State considers appropriate.
(2) The requirements that may be imposed by virtue of subsection (1)(b) include
requirements relating to the provision of information.

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(3) Regulations may—
(a) make provision for appeals to the Special Commissioners against refusals to
grant accreditation under this Chapter,
(b) make provision about the consequences of a failure to comply with any
requirement of an accreditation, including—
(i) provision for the withdrawal of the accreditation with effect from the
time of the failure or a later time, and
(ii) provision for the imposition of penalties,
(c) make provision for the making of decisions by the Secretary of State as to any
matter required to be decided for the purposes of the regulations,
(d) make different provision for different cases or circumstances or in relation to
different areas, and
(e) contain incidental, supplemental, consequential and transitional provision and
savings.
(4) In this section “regulations” means regulations made by the Treasury.
342 Period of accreditation
(1) An accreditation has effect for a period (an “accreditation period”) of 3 years beginning
on the day specified in the accreditation.
(2) Subject to subsection (4), the accreditation must not specify a day which is earlier than

(a) if the body is not accredited under this Chapter at the time the application is
made, the day the accreditation is granted, and
(b) if the body is so accredited, the time the body's current accreditation expires.
(3) Subsection (4) applies if—
(a) the body is accredited at the time the application is made, and
(b) it makes a request under this subsection.
(4) The new accreditation may specify that the existing accreditation is to be treated for the
purposes of this Part (including subsection (2)(b)) as expiring immediately before the
grant of the new accreditation (if it would otherwise expire at a later time).
(5) This section has effect subject to section 341(3)(b) (power to provide for the withdrawal
of accreditation).
343 Delegation of Secretary of State's functions
The Secretary of State may delegate any functions conferred on the Secretary of State
by or under this Chapter.

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CHAPTER 3
QUALIFYING INVESTMENTS
344 Qualifying investments: introduction
For the purposes of this Part the investment is a “qualifying investment” in the CDFI
if—
(a) the investment consists of—
(i) a loan in relation to which the conditions of section 345 are met,
(ii) securities in relation to which the conditions of section 346 are met, or
(iii) shares in relation to which the conditions of section 347 are met,
(b) the investor receives from the CDFI a valid tax relief certificate in relation to
the investment (see section 348), and
(c) the requirements of section 349 (no pre-arranged protection against risks) are
met.
345 Conditions to be met in relation to loans
(1) Condition A of this section is that either—
(a) the CDFI receives from the investor, on the investment date, the full amount
of the loan, or
(b) if the loan agreement authorises the CDFI to draw down amounts of the loan
over a period of time, the end of that period is not later than 18 months after
the investment date.
(2) Condition B is that the loan must not carry any present or future right to be converted
into or exchanged for a loan which is, or securities, shares or other rights which are,
redeemable within the 5 year period.
(3) Condition C is that the loan must not have been made on terms that allow any person
to require—
(a) the repayment during the first two years of the 5 year period of any of the loan
capital advanced in those two years,
(b) the repayment during the third year of that period of more than 25% of the loan
capital outstanding at the end of those two years,
(c) the repayment before the end of the fourth year of that period of more than 50%
of that loan capital, or
(d) the repayment before the end of that period of more than 75% of that loan
capital.
(4) Subsection (3) does not apply if the CDFI is required to make the repayment as a result
of its failure to meet any obligation of the loan agreement which—
(a) is imposed merely because of the commercial risks to which the investor is
exposed as lender under that agreement, and
(b) is no more likely to be breached than any obligation that might reasonably have
been agreed in respect of the loan in the absence of this Part.
(5) The Treasury may by order substitute any other percentage for any percentage for the
time being specified in subsection (3).

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(6) Any such substitution is to have effect in relation to loans made by an individual on or
after the date specified in the order.
346 Conditions to be met in relation to securities
(1) Condition A of this section is that the securities must be—
(a) subscribed for wholly in cash, and
(b) fully paid for on the investment date.
(2) Condition B is that the securities must not carry—
(a) any present or future right to be redeemed within the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which
is, or securities, shares or other rights which are, redeemable within that period.
(3) Securities are not fully paid for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the acquisition
of the securities.
347 Conditions to be met in relation to shares
(1) Condition A of this section is that the shares must be—
(a) subscribed for wholly in cash, and
(b) fully paid up on the investment date.
(2) Condition B is that the shares must not carry—
(a) any present or future right to be redeemed during the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which
is, or securities, shares or other rights which are, redeemable within that period.
(3) Shares are not fully paid up for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the acquisition
of the shares.
348 Tax relief certificates
(1) A “tax relief certificate” means a certificate issued by the CDFI in respect of the
investment which is in the form specified by the Commissioners for Her Majesty's
Revenue and Customs.
(2) The CDFI must not issue tax relief certificates under this section in respect of
investments made in the CDFI in an accreditation period if the total value of—
(a) those investments, and
(b) any investments to which subsection (3) applies,
will exceed the limit for that period.
(3) This subsection applies to investments which—
(a) have been made in the CDFI in the accreditation period, and
(b) in respect of which the CDFI has issued tax relief certificates under paragraph
12 of Schedule 16 to FA 2002 (which makes in relation to corporation tax
provision corresponding to that made by this section).
(4) The limit for an accreditation period is—

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(a) £10 million if the CDFI is accredited for the period as a retail community
development finance institution (see section 340(8)), and
(b) £20 million in any other case.
(5) For the purposes of subsection (2) the value of an investment made in the CDFI is—
(a) if the investment consists of a loan—
(i) the amount of the loan, or
(ii) if the loan agreement authorises the CDFI to draw down amounts of
the loan over a period of time, the amount committed under the loan
agreement, and
(b) if the investment consists of securities or shares, the amount subscribed for
them.
(6) The Treasury may by order substitute any other amount for any amount for the time
being specified in subsection (4).
(7) Any such substitution is to have effect in relation to such accreditation periods as may
be specified in the order; and those periods may, if the substitution increases the amount
for the time being specified in subsection (4), include periods beginning before the order
takes effect.
(8) Any tax relief certificate issued in contravention of subsection (2) is invalid.
(9) A body is liable to a penalty of not more than £3,000 if it issues a tax relief certificate
which is made fraudulently or negligently.
349 No pre-arranged protection against risks
(1) Any arrangements—
(a) under which the investment is made, or
(b) made, before the investor makes the investment, in relation to or in connection
with the making of the investment,
must not include excluded arrangements.
(2) For the purposes of subsection (1) “excluded arrangements”—
(a) means arrangements the main purpose or one of the main purposes of which is
(by means of any insurance, indemnity or guarantee or otherwise) to provide
partial or complete protection for the investor against what would otherwise be
the risks attached to making the investment, but
(b) does not include any arrangements which are confined to the provision for
the investor of any protection against those risks which might reasonably be
expected to be provided for commercial reasons if the investment were made
in the course of a business of banking.
(3) For the purposes of this section “arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.

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CHAPTER 4
GENERAL CONDITIONS
350 No control of CDFI by investor
(1) The investor must not control the CDFI at any time during the 5 year period.
(2) In this section references to the investor include any person connected with the investor.
(3) If the CDFI is a body corporate, the question whether the investor controls the CDFI is,
for the purposes of this section, determined in accordance with section 995.
This is subject to subsection (6).
(4) In any other case the investor is treated, for those purposes, as having control of the
CDFI if the investor has power to secure, as a result of—
(a) the possession of voting power in the CDFI, or
(b) any powers conferred by the constitution of, or any other document regulating,
the CDFI,
that the affairs of the body are conducted in accordance with the investor's wishes.
This is subject to subsections (5) and (6).
(5) If—
(a) the CDFI is a partnership, and
(b) the investor is a member of that partnership,
for the purposes of determining in accordance with this section whether the investor
controls the CDFI, the other members of that partnership are not, as a result of their
membership of the CDFI, treated as partners of the investor.
(6) In determining whether the investor controls the CDFI there are attributed to the investor
(so far as it would not otherwise be the case)—
(a) any rights or powers that the investor is entitled to acquire at a future date or
will, at a future date, become entitled to acquire, and
(b) any rights or powers which another person holds on behalf of the investor or
may be required to exercise, by direction, on the investor's behalf.
351 Investor must have beneficial ownership
(1) The investor must be the sole beneficial owner of the investment when it is made.
(2) If the investment consists of a loan, the person beneficially entitled to repayment of the
loan is treated as the beneficial owner of the loan for the purposes of this Part.
352 No acquisition of share in partnership
(1) If the CDFI is a partnership, the investment must not consist of or include any amount
of capital contributed by the investor on becoming a member of the partnership.
(2) For this purpose the amount of capital contributed by the investor on becoming a
member of the partnership includes any amount which—
(a) purports to be provided by the investor by way of loan capital, and

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(b) is accounted for as partners' capital in the accounts of the partnership.
353 No tax avoidance purpose
The investment must not be made as part of a scheme or arrangement the main purpose
or one of the main purposes of which is the avoidance of tax.
CHAPTER 5
CLAIMS FOR AND ATTRIBUTION OF CITR
Claims
354 Loans: no claim after disposal or excessive repayments or receipts of value
(1) If the investment consists of a loan, no claim may be made in respect of a tax year if—
(a) the investor disposes of the whole or any part of the loan before the qualifying
date relating to that year,
(b) at any time after the investment is made but before that qualifying date, the
amount of the capital outstanding on the loan is reduced to nil, or
(c) before that qualifying date, paragraphs (a) and (b) of section 362(1)
(repayments of loan in 5 year period exceeding permitted limits) apply in
relation to the investment (whether by virtue of section 363 (receipts of value
treated as repayments) or otherwise).
(2) For the purposes of subsection (1)(a) any repayment of the loan is to be ignored.
(3) For the purposes of this section the qualifying date relating to a tax year is the next
anniversary of the investment date to occur after the end of that year.
355 Securities or shares: no claim after disposal or excessive receipts of value
(1) If the investment consists of securities or shares, a claim made in respect of a tax year
must relate only to those securities or shares held by the investor, as sole beneficial
owner, continuously throughout the period—
(a) beginning when the investment is made, and
(b) ending immediately before the qualifying date relating to the tax year.
(2) No claim for CITR may be made in relation to a tax year if before the qualifying date
relating to that year paragraphs (a) to (d) of section 364(1) (receipts of value in the 5 year
period exceeding permitted limits) apply in relation to the investment or any part of it.
(3) For the purposes of this section the qualifying date relating to a tax year is the next
anniversary of the investment date to occur after the end of that year.
356 No claim after loss of accreditation by the CDFI
(1) If the CDFI ceases to be accredited under Chapter 2 with effect from a time (“the
relevant time”) within the 5 year period, no claim for CITR relating to the investment
may be made by the investor—
(a) for the relevant tax year, or

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(b) for any later tax year.
(2) For the purposes of subsection (1) the relevant tax year is—
(a) if the relevant time falls within the first year of the 5 year period, the tax year
in which the investment date fell, and
(b) in any other case, the year in which fell the last anniversary of that date before
the relevant time (or, if the relevant time itself falls on an anniversary of the
investment date, the year in which that anniversary falls).
Attribution
357 Attribution: general
(1) In this Part references to the CITR attributable to any loan, securities or shares in respect
of a tax year are read as references to the reduction which—
(a) is made in the investor's liability to income tax for that year, and
(b) is attributed to that loan, or those securities or shares, in accordance with this
section and section 358.
This is subject to the provisions of Chapter 6 for the withdrawal or reduction of CITR.
(2) Subsections (3) and (4) apply if the investor's liability to income tax is reduced for a
tax year under this Part.
(3) If the reduction is obtained because of one loan, or securities or shares included in one
issue, the amount of the tax reduction is attributed to that loan or those securities or
shares.
(4) If the reduction is obtained because of a loan or loans, securities or shares included in
two or more investments, the reduction—
(a) is apportioned between the loan or loans, securities or shares in each of those
investments in the same proportions as the invested amounts in respect of the
loan or loans, securities or shares for the year, and
(b) is attributed to that loan or those loans, securities or shares accordingly.
(5) If under this section an amount of any reduction of income tax is attributed to any
securities in the same issue, a proportionate part of that amount is attributed to each
security.
(6) If under this section an amount of any reduction of income tax is attributed to any shares
in the same issue, a proportionate part of that amount is attributed to each of those shares.
(7) If CITR attributable to a loan or any securities or shares falls to be withdrawn under
Chapter 6, the CITR attributable to that loan or each of those securities or shares is
reduced to nil.
(8) If CITR attributable to any securities or shares falls to be reduced under that Chapter
by any amount, the CITR attributable to each of those securities or shares is reduced
by a proportionate part of that amount.
358 Attribution: bonus shares
(1) This section applies if—

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(a) corresponding bonus shares are issued to the investor in respect of any shares
(“the original shares”) included in the investment, and
(b) the original shares have been continuously held by the investor, as sole
beneficial owner, from the time they were issued until the issue of the bonus
shares.
(2) A proportionate part of any amount attributed to the original shares, in respect of a tax
year, immediately before the bonus shares are issued is attributed to each of the shares in
the holding consisting of the original shares and the bonus shares, in respect of that year.
(3) After the issue of the bonus shares this Part applies as if—
(a) the original issue had included the bonus shares, and
(b) the bonus shares had been held by the investor, as sole beneficial owner,
continuously from the time the original shares were issued until the bonus
shares were issued.
(4) In this section—
“corresponding bonus shares” means bonus shares that are in the same
company, are of the same class, and carry the same rights as the original shares,
“original issue” means the issue of shares forming the investment.
CHAPTER 6
W ITHDRAWAL OR REDUCTION OF CITR
Introduction
359 Overview of Chapter
(1) This Chapter provides for CITR to be withdrawn or reduced under—
(a) section 360 (disposal of loan during 5 year period),
(b) section 361 (disposal of securities or shares during 5 year period),
(c) section 362 (repayment of loan capital during 5 year period),
(d) section 363 (value received by investor during 6 year period: loans),
(e) section 364 (value received by investor during 6 year period: securities or
shares),
(f) section 371 (CITR subsequently found not to have been due).
(2) This Chapter also provides for the manner in which CITR is to be withdrawn or reduced
(see section 372).
(3) In this Chapter “the 6 year period” in relation to the investment is the period of 6 years
beginning 12 months before the investment date.
Disposals
360 Disposal of loan during 5 year period
(1) If the investment consists of a loan and within the 5 year period—

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(a) the investor disposes of the whole of the investment, otherwise than by way of
a permitted disposal, or
(b) the investor disposes of a part of the investment,
any CITR attributable to the investment in respect of any tax year must be withdrawn.
(2) For the purposes of this section—
(a) a disposal is “permitted” if—
(i) it is by way of a distribution in the course of dissolving or winding up
the CDFI,
(ii) it is a disposal within section 24(1) of TCGA 1992 (entire loss,
destruction, dissipation or extinction of asset),
(iii) it is a deemed disposal under section 24(2) of that Act (claim that value
of asset has become negligible), or
(iv) it is made after the CDFI has ceased to be accredited under this Part,
and
(b) a full or partial repayment of the loan is not treated as giving rise to a disposal.
361 Disposal of securities or shares during 5 year period
(1) This section applies if the investment consists of securities or shares and—
(a) the investor disposes of the whole or any part of the investment (“the former
investment”) within the 5 year period,
(b) the CDFI has not ceased to be accredited before the disposal, and
(c) the disposal does not arise as a result of an event within section 366(1)(a)
(repayment, redemption or repurchase of securities or shares included in the
investment).
(2) If the disposal is not a qualifying disposal, any CITR attributable to the former
investment in respect of any tax year must be withdrawn.
(3) If the disposal is a qualifying disposal, any CITR attributable to the former investment
for a tax year must—
(a) if it is greater than A, be reduced by A, and
(b) in any other case, be withdrawn.
For this purpose “A” is an amount equal to 5% of the amount or value of the
consideration (if any) which the investor receives for the former investment.
(4) For the purposes of this section “qualifying disposal” means a disposal that is—
(a) by way of a bargain made at arm's length, or
(b) a permitted disposal (within the meaning of section 360).
(5) If for any tax year—
(a) the amount of CITR attributable to the former investment (“B”) is less than
(b) the amount (“C”) which is equal to 5% of the invested amount in respect of the
former investment for that year,
subsection (3)(a) has effect in relation to that year as if the amount or value referred to
in subsection (3) were reduced by multiplying it by the fraction—

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(6) If the amount of CITR attributable to the former investment in respect of a tax year has
been reduced before the CITR is obtained, the amount referred to in subsection (5) as
B is to be treated for the purposes of that subsection as the amount it would have been
without that reduction.
(7) Subsection (6) does not apply to a reduction by virtue of section 358 (attribution: bonus
shares).
Repayment of loans
362 Repayment of loan capital during 5 year period
(1) If the investment consists of a loan and—
(a) the average capital balance of the loan for the third, fourth or final year of the
5 year period is less than the permitted balance for the year in question, and
(b) the difference between those balances is not an amount of insignificant value,
any CITR attributable to the investment in respect of any tax year must be withdrawn.
(2) For the purposes of this section—
“the average capital balance” of the loan for a period is the mean of the daily
balances of capital outstanding during that period, ignoring any non-standard
repayments of the loan made in that period or at any earlier time, and
“the permitted balance” of the loan is—
(a) for the third year of the 5 year period, 75% of the average capital balance
for the period of 6 months beginning 18 months after the investment date,
(b) for the fourth year of that period, 50% of that balance, and
(c) for the final year of that period, 25% of that balance.
(3) For the purposes of subsection (2) a repayment of the loan is a non-standard repayment
if subsection (4) or (5) applies.
(4) This subsection applies if the repayment is made at the choice or discretion of the CDFI,
and not as a direct or indirect consequence of any obligation provided for under the
terms of the loan agreement.
(5) This subsection applies if the repayment is made as a result of the failure of the CDFI
to meet any obligation of the loan agreement which—
(a) is imposed merely because of the commercial risks to which the investor is
exposed as lender under that agreement, and
(b) is no more likely to be breached than any obligation that might reasonably have
been agreed in respect of the loan in the absence of this Part.

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(6) For the purposes of this section “an amount of insignificant value” means an amount
which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 5 year period in question.
Receipts of value
363 Value received by investor during 6 year period: loans
(1) This section applies if the investment consists of a loan and the investor receives any
value (other than an amount of insignificant value) from the CDFI during the 6 year
period.
(2) The investor is treated for the purposes of—
(a) section 337 (determination of “invested amount”), and
(b) section 362 (repayments of loan capital),
as having received a repayment of the loan of an amount equal to the amount of the
value received.
(3) For those purposes the repayment is treated as made—
(a) if the value is received in the first or second year of the 6 year period, at the
beginning of that second year, and
(b) if the value is received in a later year of that period, at the beginning of the
year in question.
(4) For the purposes of section 362 the repayment is treated as a repayment other than a
non-standard repayment (within the meaning of that section).
(5) For the purposes of this section “an amount of insignificant value” means an amount
which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the average capital
balance of the loan for the year of the 6 year period in which the value is
received.
(6) For the purposes of subsection (5)(b)—
(a) “the average capital balance” of the loan for a year is the mean of the daily
balances of capital outstanding during the year (ignoring the receipt of value
in question), and
(b) any value received in the first year of the 6 year period is treated as received at
the beginning of the second year of that period.
(7) This section is subject to section 368 (value received if there is more than one
investment).
(8) Value received is ignored, for the purposes of this section, so far as the CITR attributable
to any loan, securities or shares in respect of any one or more tax years has already been
reduced or withdrawn on its account.

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364 Value received by investor during 6 year period: securities or shares
(1) This section applies if the investment consists of securities or shares and—
(a) the investor receives any value (other than an amount of insignificant value)
from the CDFI during the 6 year period,
(b) the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing investment”),
(c) the receipt is wholly or partly in excess of the permitted level of receipts in
respect of the continuing investment, and
(d) the amount of that excess (“the excess”) is not an amount of insignificant value.
(2) Any CITR attributable to the continuing investment in respect of any tax year must be
withdrawn.
(3) For the purposes of subsection (1) the permitted level of receipts is exceeded if—
(a) any amount of value is received by the investor (ignoring any amounts of
insignificant value) in the first 3 years of the 6 year period, or
(b) the total amount of value received by the investor (ignoring any amounts of
insignificant value)—
(i) before the beginning of the fifth year of that period, exceeds 25% of
the invested capital,
(ii) before the beginning of the final year of that period, exceeds 50% of
the invested capital, or
(iii) before the end of that period, exceeds 75% of the invested capital.
(4) In this section—
“the invested capital”, in relation to the continuing investment, means the
amount subscribed for the securities or shares concerned, and
“an amount of insignificant value” means an amount of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the amount
subscribed by the investor for the securities or shares included in the
continuing investment.
(5) This section is subject to section 368 (value received if there is more than one
investment).
(6) Value received is ignored, for the purposes of this section, so far as CITR attributable to
any loan, securities or shares in respect of any one or more tax years has already been
reduced or withdrawn on its account.
365 Receipts of insignificant value to be added together
(1) This section applies if—
(a) value is received (“the relevant receipt”) by the investor from the CDFI at any
time during the 6 year period relating to the investment,
(b) the investor has received from the CDFI one or more receipts of insignificant
value at a time or times—
(i) during that period, but
(ii) not later than the time of the relevant receipt, and

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(c) the total amount of the value of the receipts within paragraph (a) and (b) is not
an amount of insignificant value.
(2) The investor is treated for the purposes of this Part as if the relevant receipt had been a
receipt of an amount of value equal to that total amount.
(3) A receipt does not fall within subsection (1)(b) if the whole or any part of it has
previously formed part of a total amount falling within subsection (1)(c).
(4) For the purposes of this section “an amount of insignificant value” means an amount
of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the relevant amount.
(5) If the investment consists of a loan, the relevant amount for the purposes of
subsection (4) is—
(a) if the relevant receipt is received in the first or second year of the 6 year period,
the average capital balance of the loan for the second year of that period, and
(b) if the relevant receipt is received in a later year, the average capital balance of
the loan for the year in question.
(6) For the purposes of subsection (5)—
(a) the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
(b) the relevant receipt and any receipts within subsection (1)(b) are ignored when
calculating the average capital balance for the year in question.
(7) If the investment consists of securities or shares, the relevant amount for the purposes
of subsection (4) is—
(a) if the relevant receipt is received in the first year of the 6 year period, the amount
subscribed for the securities or shares, and
(b) in any other case, the amount subscribed for such of the securities or shares as—
(i) are held by the investor at the time the relevant receipt is received, and
(ii) have been held by the investor, as sole beneficial owner, continuously
since the investment was made.
366 When value is received
(1) For the purposes of this Chapter the investor receives value from the CDFI at any time
when the CDFI—
(a) repays, redeems or repurchases any securities or shares included in the
investment,
(b) releases or waives any liability of the investor to the CDFI or discharges, or
undertakes to discharge, any liability of the investor to a third person,
(c) makes a loan or advance to the investor which has not been repaid in full before
the investment is made,
(d) provides a benefit or facility for the investor or any associate of the investor,
(e) disposes of an asset to the investor for no consideration or for a consideration
of an amount or value which is less than the market value of the asset,
(f) acquires an asset from the investor for a consideration of an amount or value
which is more than the market value of the asset, or
(g) makes a payment to the investor other than a qualifying payment.

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(2) For the purposes of subsection (1)(b) the CDFI is treated as having released or waived
a liability if the liability is not discharged within 12 months of the time when it ought
to have been discharged.
(3) For the purposes of subsection (1)(c) the following are treated as loans made by the
CDFI to the investor—
(a) the amount of any debt due from the investor to the CDFI (other than an
ordinary trade debt), and
(b) the amount of any debt due from the investor to a third person which has been
assigned to the CDFI.
(4) For the purposes of this section—
(a) references to a debt or liability do not, in relation to a person, include references
to any debt or liability which would be discharged by the making by that person
of a qualifying payment,
(b) references to a benefit or facility do not include references to any benefit or
facility provided in circumstances such that, if a payment had been made of an
amount equal to its value, that payment would have been a qualifying payment,
and
(c) any reference to a payment or disposal to a person includes a reference to a
payment or disposal made to that person indirectly or to that person's order or
for that person's benefit.
(5) In subsection (4) references to “a person” include references to any other person who,
at any time in the 6 year period, is connected with that person, whether or not the other
person is so connected at the material time.
(6) In this section—
“qualifying payment” means—
(a) any payment by any person for any goods, services or facilities provided
by the investor (in the course of the investor's trade or otherwise) which
is reasonable in relation to the market value of those goods, services or
facilities,
(b) the payment by any person of any interest which represents no more than
a reasonable commercial return on money lent to that person,
(c) the payment by any company of any dividend or other distribution which
does not exceed a normal return on any investment in shares in or
securities of that company,
(d) any payment for the acquisition of an asset which does not exceed its
market value,
(e) the payment by any person, as rent for any property occupied by the
person, of an amount which is not more than a reasonable and commercial
rent for the property, and
(f) a payment in discharge of an ordinary trade debt, and
“ordinary trade debt” means any debt for goods or services supplied in the
ordinary course of a trade or business if any credit given—
(a) is for not more than 6 months, and
(b) is not longer than that normally given to customers of the person carrying
on the trade or business.

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367 The amount of value received
In a case falling within a provision listed in column 1 of the following table, the amount
of value received for the purposes of this Chapter is given by the corresponding entry
in column 2 of the table.
ProvisionThe amount of value receivedSection 366(1)(a)The amount received by the investorSection 366(1)(b)The amount of the liabilitySection 366(1)(c)The amount of the loan or advance, less
the amount of any repayment made before
the investment is made
Section 366(1)(d)The cost to the CDFI of providing the
benefit or facility, less any consideration
given for it by the investor or any
associate of the investor
Section 366(1)(e) or (f)The difference between the market value
of the asset and the consideration (if any)
received for it
Section 366(1)(g)The amount of the payment
368 Value received if there is more than one investment
(1) This section applies if—
(a) the investor makes two or more investments in the CDFI,
(b) the investor is eligible for and claims CITR in respect of those investments, and
(c) the investor receives value (other than value within section 366(1)(a)) which
falls within the 6 year periods relating to two or more of those investments.
(2) Sections 363, 364, 365 and 369 have effect in relation to each investment referred to
in subsection (1)(c) as if the amount of the value received were reduced by multiplying
it by the fraction—
where—
(a) A is the appropriate amount in respect of the investment in question, and
(b) B is the sum of that amount and the appropriate amount or amounts in respect of
the other investment or investments.

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(3) If the investment consists of a loan, the appropriate amount for the purposes of
subsection (2) is—
(a) if the value is received in the first or second year of the 6 year period, the
average capital balance of the loan for the second year of that period, and
(b) if the value is received in a later year, the average capital balance of the loan
for the year in question.
(4) For the purposes of subsection (3)—
(a) the average capital balance of the loan for a year is the mean of the daily
balances of capital outstanding during the year, and
(b) the receipt of value is ignored when calculating the average capital balance for
the year in question.
(5) If the investment consists of securities or shares, the appropriate amount for the
purposes of subsection (2) is—
(a) if the value is received in the first year of the 6 year period, the amount
subscribed for the securities or shares, and
(b) in any other case, the amount subscribed for such of the securities or shares as—
(i) are held by the investor at the time the value is received, and
(ii) have been held by the investor, as sole beneficial owner, continuously
since the investment was made.
369 Effect of receipt of value on future claims for CITR
(1) This section applies if the investment consists of securities or shares and—
(a) the investor receives any value (other than an amount of insignificant value)
from the CDFI during the 6 year period, and
(b) the investment or a part of it is held by the investor at the time the value
is received and has been held by the investor, as sole beneficial owner,
continuously since the investment was made (“the continuing investment”),
but no CITR attributable to the continuing investment is withdrawn under section 364
as a result of the receipt.
(2) For the purposes of calculating any CITR in respect of any securities or shares included
in the continuing investment for any relevant tax year, the amount subscribed for the
securities or shares included in the continuing investment is treated as reduced by the
amount of the value received.
(3) For this purpose the “relevant” tax years are—
(a) any tax year ending on or after the anniversary of the investment date
immediately before the receipt of value, or
(b) if the value was received on an anniversary of the investment date, any tax year
ending on or after that anniversary.
(4) For the purposes of this section “an amount of insignificant value” means an amount
of value which—
(a) is not more than £1,000, or
(b) if it is more than £1,000, is insignificant in relation to the amount subscribed by
the investor for the securities or shares included in the continuing investment.

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370 Receipts of value by or from connected persons
In sections 363 to 369, if the context permits, references to the investor or the CDFI
include references to any person who at any time in the 6 year period relating to the
investment is connected with the investor or, as the case may be, the CDFI, whether or
not the person is connected at the material time.
CITR not due
371 CITR subsequently found not to have been due
If any CITR has been obtained which is subsequently found not to have been due, the
CITR must be withdrawn.
Manner of withdrawal or reduction
372 Manner of withdrawal or reduction of CITR
(1) This section applies if any CITR has been obtained which falls to be withdrawn or
reduced under this Chapter.
(2) The CITR must be withdrawn or reduced by making an assessment to income tax for
the tax year for which the CITR was obtained.
(3) No assessment may be made under subsection (2) because of any event occurring after
the death of the investor.
CHAPTER 7
SUPPLEMENTARY AND GENERAL
Miscellaneous
373 Information to be provided by the investor
(1) If—
(a) the investor has obtained CITR in respect of the investment, and
(b) an event occurs because of which CITR attributable to the investment for any
tax year falls to be withdrawn or reduced by virtue of section 360, 361, 362
or 364,
the investor must give an officer of Revenue and Customs a notice containing particulars
of the event.
(2) Subject to subsection (3), a notice under subsection (1) must be given not later than the
normal self-assessment filing date for the tax year in which the event occurred.
(3) If—
(a) the investor is required to give a notice as a result of the receipt of value by a
person connected with the investor (see section 370), and
(b) the end of the period of 60 days beginning when the investor comes to know
of that event is later than the final notice date under subsection (2),

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the notice must be given before the end of that 60 day period.
374 Disclosure
(1) No obligation as to secrecy or other restriction on the disclosure of information imposed
by statute or otherwise prevents the disclosure of information—
(a) by the Secretary of State to an officer of Revenue and Customs for the purpose
of assisting Her Majesty's Revenue and Customs to discharge their functions
under the Income Tax Acts so far as relating to matters arising under this Part, or
(b) by an officer of Revenue and Customs to the Secretary of State for the purpose
of assisting the Secretary of State to discharge the Secretary of State's functions
under this Part.
(2) Information obtained by such disclosure is not to be further disclosed except for the
purposes of legal proceedings arising out of the functions referred to.
375 Nominees
(1) For the purposes of this Part—
(a) loans made by or to, or disposed of by, a nominee for a person are treated as
made by or to, or disposed of by, that person, and
(b) securities or shares subscribed for by, issued to, acquired or held by or disposed
of by a nominee for a person are treated as subscribed for by, issued to, acquired
or held by or disposed of by that person.
(2) For the purposes of subsection (1) references to things done by or to a nominee for a
person include things done by or to a bare trustee for a person.
376 Application for postponement of tax pending appeal
No application may be made under section 55(3) or (4) of TMA 1970 (application for
postponement of payment of tax pending appeal) on the ground that an individual is
eligible for CITR unless a claim for the CITR has been duly made by the individual
under this Part.
377 Identification of securities or shares on a disposal
(1) This section applies for the purpose of identifying the securities or shares disposed of
in any case where—
(a) the investor disposes of part of a holding of securities or shares (“the holding”),
and
(b) the holding includes securities or shares to which CITR is attributable in respect
of one or more tax years that have been held continuously by the investor from
the time they were issued until the disposal.
(2) Any disposal by the investor of securities or shares included in the holding which have
been acquired by the investor on different days is treated as relating to those acquired
on an earlier day rather than to those acquired on a later day.
(3) If there is a disposal by the investor of securities or shares included in the holding which
have been acquired by the investor on the same day, any of those securities or shares—
(a) to which CITR is attributable, and

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(b) which have been held by the investor continuously from the time they were
issued until the time of disposal,
are treated as disposed of after any other securities or shares included in the holding
which were acquired by the investor on that day.
(4) For the purposes of this section a holding of securities is any number of securities of
a company which—
(a) carry the same rights,
(b) were issued under the same terms, and
(c) are held by the investor in the same capacity.
It does not matter for this purpose that the number of the securities grows or diminishes
as securities carrying those rights and issued under those terms are acquired or disposed
of.
(5) For the purposes of this section a holding of shares is any number of shares in a company
which—
(a) are of the same class, and
(b) are held by the investor in the same capacity.
It does not matter for this purpose that the number of the shares grows or diminishes as
shares of that class are acquired or disposed of.
(6) In a case to which section 127 of TCGA 1992 (equation of original shares and new
holding) applies, shares comprised in the new holding are to be treated for the purposes
of subsections (2) and (3) as acquired when the original shares were acquired.
(7) In subsection (6)—
(a) the reference to section 127 of TCGA 1992 includes a reference to that section
as it is applied by virtue of any enactment relating to chargeable gains, and
(b) “original shares” and “new holding” have the same meaning as in section 127
of TCGA 1992 or (as the case may be) that section as applied by virtue of the
enactment in question.
Definitions
378 Meaning of “issue of securities or shares”
(1) In this Part—
(a) references (however expressed) to an issue of securities of any body are to such
securities of that body as carry the same rights and are issued under the same
terms and on the same day, and
(b) references (however expressed) to an issue of shares in any body are to such
shares in that body as are of the same class and issued on the same day.
(2) In this Part references (however expressed) to an issue of securities of or shares in a
body to an individual are to such of the securities or shares in an issue of securities of
or shares in that body as are issued to that individual in one capacity.

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379 Meaning of “disposal”
(1) Subject to subsection (2), in this Part “disposal” is read in accordance with TCGA
1992, and related expressions are read accordingly.
(2) An investor is treated as disposing of any securities or shares which but for
section 151BC(1) of TCGA 1992 the investor—
(a) would be treated as exchanging for other securities or shares by virtue of
section 136 of that Act, or
(b) would be so treated but for section 137(1) of that Act (which restricts
section 136 to genuine reconstructions).
380 Construction of references to being “held continuously”
(1) This section applies if for the purposes of this Part it becomes necessary to determine
whether the investor has held the investment (or any part of it) continuously throughout
any period.
(2) The investor is not treated as having held the investment (or any part of it) continuously
throughout a period if the investor—
(a) is treated, under any provision of TCGA 1992, as having disposed of and
immediately re-acquired the investment (or part) at any time during the period,
or
(b) is treated as having disposed of the investment (or part) at any such time, by
virtue of section 379(2).
381 Meaning of “associate”
(1) In this Part “associate”, in relation to a person, means—
(a) any relative or partner of that person,
(b) the trustee or trustees of any settlement in relation to which that person, or any
relative of that person (living or dead), is or was a settlor, and
(c) if that person has an interest in any shares or obligations of a company which
are subject to any trust or are part of the estate of a deceased person—
(i) the trustee or trustees of the settlement concerned or, as the case may
be, the personal representatives of the deceased, and
(ii) if that person is a company, any other company which has an interest
in those shares or obligations.
(2) In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal
descendant.
(3) In subsection (1)(b) “settlor” and “settlement” have the same meaning as in Chapter
5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).
382 Minor definitions etc
(1) In this Part—
“body” includes an unincorporated association, and
“bonus shares” means shares which are issued otherwise than for payment
(whether in cash or otherwise).

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(2) For the purposes of this Part shares in a company are not treated as being of the same
class unless they would be so treated if dealt in on the Stock Exchange.
(3) For the purposes of this Part the market value at any time of any asset is the price which
it might reasonably be expected to fetch on a sale at that time in the open market free
from any interest or right which exists by way of security in or over it.
(4) In this Part—
(a) references to CITR obtained by the investor in respect of any investment (or
part of an investment) include references to CITR obtained by the investor in
respect of that investment (or part) at any time after the investor has disposed
of it, and
(b) references to the withdrawal or reduction of CITR obtained by the investor in
respect of the investment (or any part of it) include references to the withdrawal
or reduction of CITR obtained in respect of that investment (or part) at any
such time.
(5) In the case of any condition that cannot be met until a future date—
(a) references in this Part to a condition being met for the time being are to nothing
having occurred to prevent its being met, and
(b) references to its continuing to be met are to nothing occurring to prevent its
being met.
PART 8
OTHER RELIEFS
CHAPTER 1
INTEREST PAYMENTS
The relief: introduction
383 Relief for interest payments
(1) A person who pays interest in a tax year is entitled to relief for the tax year for the
interest if—
(a) the loan on which the interest is payable is a loan to which a provision specified
in subsection (2) applies,
(b) the interest is eligible for relief in accordance with this Chapter, and
(c) the person makes a claim.
(2) The provisions are—
(a) section 388 (loan to buy plant or machinery for partnership use),
(b) section 390 (loan to buy plant or machinery for employment use),
(c) section 392 (loan to buy interest in close company),
(d) section 396 (loan to buy interest in employee-controlled company),
(e) section 398 (loan to invest in partnership),
(f) section 401 (loan to invest in co-operative), and

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(g) section 403 (loan to pay inheritance tax).
(3) The amount of the relief given under subsection (1) is equal to the amount of the interest
eligible for relief.
(4) The relief is given by deducting that amount in calculating the person's net income for
the tax year in which the interest is paid (see Step 2 of the calculation in section 23).
(5) This section is subject to—
(a) section 384 (general restrictions on relief under this Chapter),
(b) section 385 (general provisions about loans),
(c) section 386 (loans partly meeting requirements),
(d) section 387 (exclusion of double relief etc), and
(e) section 405 (carry back and forward of relief for interest on loans within
section 403).
(6) See also section 51(2) of FA 2005 (under which this Chapter applies as if arrangements
falling within section 47 of that Act were loans and alternative finance return were
interest).
384 General restrictions on relief under Chapter
(1) Relief is not to be given under this Chapter for interest on a debt incurred—
(a) by overdrawing an account, or
(b) by debiting the account of any person as the holder of a credit card or under
similar arrangements.
(2) If interest is paid at a rate in excess of a reasonable commercial rate, relief is not to be
given under this Chapter for so much of the interest as represents the excess.
385 General provisions about loans
(1) References in this Chapter to a loan being used or used in any way—
(a) are references to the money lent being applied or, as the case may be, applied
in that way, and
(b) except in section 403 include references to a loan being used to meet
expenditure already incurred or, as the case may be, already incurred on such
a use.
(2) Sections 392, 396, 398, 401 and 403 apply to a loan only if it is made—
(a) in connection with the use of money, and
(b) on the occasion of its use or within what is in the circumstances a reasonable
time from its use.
(3) Those sections apply to a loan only if the loan is used as mentioned in those sections
without first having been used for another purpose.
(4) For the purposes of this Chapter the giving of credit for any money due from the
purchaser under a sale is treated as the making of a loan used by the purchaser in making
the purchase.

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386 Loans partly meeting requirements
(1) If, at the time a loan (“the mixed loan”) is used, only part of the mixed loan is a loan
to which any of the provisions specified in section 383(2) apply, for the purposes of
this Chapter that part (“the qualifying part”) is treated as a loan to which the provision
in question applies.
(2) Accordingly, the corresponding proportion of the interest on the mixed loan is eligible
for relief.
(3) If a mixed loan is partly repaid, for the purposes of this Chapter the corresponding
proportion of the repayment is treated as repaying the qualifying part (but see
section 406(5)).
(4) In this section “the corresponding proportion” means the proportion that the qualifying
part bears to the whole of the mixed loan at the time the mixed loan is used.
387 Exclusion of double relief etc
(1) Interest for which relief is given under this Chapter is not allowable as a deduction for
any other income tax purposes.
(2) No relief is given under this Chapter for any tax year for the payment of any interest
taken into account in calculating the profits of—
(a) any trade, profession or vocation,
(b) any UK property business, or
(c) any overseas property business.
(3) If interest is so taken into account, no relief is given under this Chapter for any relevant
tax year for other interest on the same debt or liability.
(4) A tax year is a relevant one if the interest has been taken into account in calculating the
profits of the trade, profession, vocation or business of the tax year.
(5) For the purposes of subsection (3) all interest which—
(a) is capable of being taken into account in calculating the profits of a trade,
profession, vocation or business, and
(b) is payable by the same person on money advanced to the person on current
account,
is treated as interest on the same debt.
(6) It does not matter whether the money is advanced—
(a) on one or more accounts, or
(b) by the same or separate banks or other persons.
(7) The reference in subsections (2) to (4) to interest taken into account is a reference to
interest allowed as a deduction in an assessment which can no longer be varied (whether
on appeal or otherwise).

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Loans for plant or machinery
388 Loan to buy plant or machinery for partnership use
(1) This section applies to a loan that is used for capital expenditure on the provision of
plant or machinery to which subsection (2) applies.
(2) This subsection applies to plant or machinery if—
(a) it is in use for the purposes of a trade, profession or ordinary property business
carried on by a partnership, and
(b) the partnership is entitled to a capital allowance or liable to a balancing charge
in respect of it under section 264 of CAA 2001 (partnership using property of
a partner) for the period of account in which the interest is paid.
(3) A partnership is treated as entitled to a capital allowance or liable to a balancing charge
in respect of plant or machinery for a period of account (“the later period”) for the
purposes of subsection (2)(b) if—
(a) it has been so entitled or liable for a previous period of account, and
(b) no disposal value has been brought into account in respect of it in the later
period or any earlier period of account.
(4) In this section and sections 389 and 390—
“capital expenditure” has the meaning given in section 4 of CAA 2001,
“period of account” has the same meaning as in that Act (see section 6(2)
to (6) of that Act), and
“ordinary property business” has the same meaning as in Part 2 of that Act
(see section 16 of that Act).
389 Eligibility requirements for interest on loans within section 388
(1) Interest on a loan within section 388(1) is eligible for relief if conditions A and B are
met.
(2) Condition A is that the interest is paid by an individual who is a member of the
partnership referred to in section 388(2).
(3) Condition B is that the interest falls due and payable not later than 3 years after the end
of the period of account in which the loan was made.
(4) If the machinery or plant is in use partly for the purposes of the trade, profession or
ordinary property business carried on by the partnership referred to in section 388(2)
(“trade purposes”) and partly for other purposes, only part of the interest is eligible for
relief.
(5) That part is such part as it is just and reasonable to attribute to trade purposes, having
regard to all the relevant circumstances and, in particular, to the extent of the use for
other purposes.
390 Loan to buy plant or machinery for employment use
(1) This section applies to a loan that is used for capital expenditure on the provision of
plant or machinery to which subsection (2) applies.
(2) This subsection applies to plant or machinery if—

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(a) it is in use for the purposes of an office or employment held by an individual
in the tax year,
(b) the plant or machinery belongs to the individual, and
(c) the individual is entitled to a capital allowance or liable to a balancing charge
in respect of it under Part 2 of CAA 2001 for the tax year.
(3) An individual is treated as entitled to a capital allowance or liable to a balancing charge
in respect of plant or machinery for a tax year (“the later year”) for the purposes of
subsection (2)(c) if—
(a) the individual has been so entitled or liable for a previous tax year, and
(b) no disposal value has been brought into account in respect of it in the later year
or any earlier year.
(4) An individual is also treated as so entitled or liable for the purposes of this section if the
individual would be so entitled or liable but for a contribution made by the individual's
employer.
391 Eligibility requirements for interest on loans within section 390
(1) Interest on a loan within section 390(1) is eligible for relief if conditions A and B are
met.
(2) Condition A is that the interest is paid by the individual referred to in section 390(2).
(3) Condition B is that the interest falls due and payable not later than 3 years after the end
of the tax year in which the loan was made.
(4) If the machinery or plant is in use partly for the purposes of the office or employment
referred to in section 390(2) (“employment purposes”) and partly for other purposes,
only part of the interest is eligible for relief.
(5) That part is such part as it is just and reasonable to attribute to employment purposes
having regard to all the relevant circumstances and, in particular, to the extent of the
use for other purposes.
Loans for interests in close companies
392 Loan to buy interest in close company
(1) This section applies to a loan to an individual that is used in one or more of the ways
specified in subsection (2).
(2) The ways are—
(a) acquiring any part of the ordinary share capital of a close company that is not
a close investment-holding company,
(b) lending to such a company money which is used wholly and exclusively—
(i) for the purposes of the business of the company, or
(ii) for the purposes of the business of any associated company of the
company which is also a close company that is not a close investment-
holding company, or
(c) repaying another loan to which this section applies.

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(3) Subsection (2)(a) does not apply if at any time the individual by whom the shares are
acquired or that individual's spouse or civil partner—
(a) makes a claim for relief in respect of them under Part 5 of this Act or, in the case
of shares issued before 6 April 2007, Chapter 3 of Part 7 of ICTA (enterprise
investment scheme), or
(b) makes a claim in respect of them under Schedule 5B to TCGA 1992 (enterprise
investment scheme: reinvestment).
(4) In this section and section 393—
“close investment-holding company” has the meaning given by
section 13A(1) of ICTA (companies not qualifying for small companies' relief),
and
“associated company” has the meaning given by section 416 of ICTA.
(5) This section is subject to section 411 (ineligibility of interest where business is
occupation of commercial woodlands).
393 Eligibility requirements for interest on loans within section 392
(1) Interest on a loan within section 392(1) to an individual is eligible for relief only if—
(a) when the interest is paid the company is not a close investment-holding
company, and
(b) the capital recovery condition and either the full-time working conditions or
the material interest conditions are met.
(2) The capital recovery condition is that in the period from the use of the loan to the
payment of the interest the individual has not recovered any capital from the company,
apart from any amount taken into account under section 406(2) (recovered capital that
is treated as a repayment of the loan).
(3) The full-time working conditions are that—
(a) when the interest is paid the individual holds part of the ordinary share capital
of the company, and
(b) in the period from the use of the loan to the payment of the interest the greater
part of the individual's time has been spent in the actual management or conduct
of the company or of an associated company of the company.
(4) The material interest conditions are that—
(a) when the interest is paid the individual has a material interest in the company
(see section 394), and
(b) if the company exists wholly or mainly for the purpose of holding investments
or other property, either—
(i) the condition in subsection (3)(b) is met, or
(ii) no property held by the company is used as a residence by the
individual.
394 Meaning of “material interest” in section 393
(1) For the purposes of section 393(4)(a) an individual has a material interest in a company
if a relevant person meets condition A or B.
(2) In this section “relevant person” means—

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(a) the individual, either alone or with one or more associates (see section 395), or
(b) any associate of the individual with or without such other associates.
(3) Condition A is that the relevant person is the beneficial owner of, or able directly or
indirectly to control, more than 5% of the ordinary share capital of the company.
(4) Condition B is that the relevant person possesses, or is entitled to acquire, such rights
as would, in the event of the winding up of the company or in any other circumstances,
give an entitlement to receive more than 5% of the assets which would then be available
for distribution among the participators.
(5) In this section—
“control” has the meaning given by section 416(2) to (6) of ICTA, and
“participator” has the meaning given by section 417(1) of ICTA.
395 Meaning of “associate” in section 394
(1) For the purposes of determining under section 394 whether an individual has a material
interest in a company, in that section “associate”, in relation to that individual and
company, means—
(a) a relative or partner of the individual,
(b) the trustees of a settlement in relation to which—
(i) the individual is a settlor, or
(ii) a relative of the individual (living or dead) is or was a settlor,
(c) if the individual is interested in any shares or obligations of the company which
are subject to a trust, the trustees of the settlement, and
(d) if the individual is interested in any shares or obligations of the company which
are part of the estate of a deceased person, the personal representatives.
(2) But, despite subsection (1)(c), the trustees of an employee benefit trust are not regarded
for the purposes of section 394 as the associates of an individual merely because the
individual has an interest in shares or obligations of the company as a beneficiary of
the trust, unless subsection (3) applies.
(3) This subsection applies if at any time after 26 July 1989 the individual, alone or with
associates, or an associate of the individual, alone or with other such associates—
(a) has been the beneficial owner of more than 5% of the ordinary share capital
of the company, or
(b) has been able directly or indirectly to control more than 5% of that share capital.
(4) In subsection (3) “associate” has the meaning given by section 549(4) of ITEPA 2003.
(5) Sections 552 to 554 of ITEPA 2003 (attribution of interests in company) apply for the
purposes of subsection (3) in relation to the individual as they apply for the purposes
of the provisions listed in section 549(2) of that Act in relation to an employee.
(6) In this section—
“control” has the meaning given by section 416(2) to (6) of ICTA,
“employee benefit trust” has the meaning given by section 550 of ITEPA
2003 except that the reference in section 550(3) of that Act to 13 March 1989
is to be read as a reference to 26 July 1989, and
“relative” means spouse or civil partner, ancestor or lineal descendant or
brother or sister.

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Loans for interests in employee-controlled companies
396 Loan to buy interest in employee-controlled company
(1) This section applies to a loan to an individual that is used in one or more of the ways
specified in subsection (2).
(2) The ways are—
(a) acquiring part of the ordinary share capital of a company that—
(i) first becomes an employee-controlled company after the acquisition, or
(ii) first became such a company not later than 12 months before the
acquisition, and
(b) repaying another loan to which this section applies.
(3) For the purposes of this section and section 397, a company is employee-controlled at
any time when—
(a) more than 50% of the issued ordinary share capital of the company is owned
beneficially by persons who are full-time employees of the company, and
(b) more than 50% of the voting power in the company is so owned.
(4) If an individual owns beneficially more than 10% of the issued ordinary share capital of,
or voting power in, a company, for the purposes of subsection (3) the excess is treated
as being owned by an individual who is not a full-time employee of the company.
(5) In this section and section 397 “full-time employee”, in relation to a company, means
an individual the greater part of whose time is spent working as an employee or director
of the company or of a 51% subsidiary of the company.
(6) This section is subject to section 411 (ineligibility of interest where business is
occupation of commercial woodlands).
397 Eligibility requirements for interest on loans within section 396
(1) Interest on a loan within section 396 to an individual is eligible for relief only if
conditions A to D are met.
(2) Condition A is that the company is, throughout the period beginning with the date on
which the shares are acquired and ending with the date on which the interest is paid
(“the payment date”)—
(a) an unquoted company that is UK resident and is not resident outside the United
Kingdom, and
(b) a trading company or the holding company of a trading group.
(3) Condition B is that during the tax year in which the interest is paid the company either—
(a) first becomes an employee-controlled company, or
(b) is such a company throughout a period of at least 9 months.
(4) Condition C is that—
(a) the individual is a full-time employee of the company throughout the period
beginning with the date on which the loan is used (“the use date”) and ending
with the payment date, or
(b) the individual ceased to be such an employee not more than 12 months before
the payment date and was such an employee throughout the period beginning

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with the use date and ending with the date the individual ceased to be such an
employee.
(5) Condition D is that in the period from the use of the loan to the payment of the interest
the individual has not recovered any capital from the company, apart from any amount
taken into account under section 406(2) (recovered capital that is treated as a repayment
of the loan).
(6) In this section—
“holding company” means a company whose business (ignoring any trade
carried on by it) consists wholly or mainly of the holding of shares or securities
of one or more companies which are its 75% subsidiaries,
“trading company” means a company whose business consists wholly or
mainly of the carrying on of a trade or trades,
“trading group” means a group the business of whose members taken
together consists wholly or mainly of the carrying on of a trade or trades (taking
a group to consist of a company with one or more 75% subsidiaries and those
subsidiaries), and
“unquoted company” means a company none of whose shares is listed in the
Official List of the Stock Exchange.
Loans for investing in partnerships
398 Loan to invest in partnership
(1) This section applies to a loan to an individual that is used in one or more of the ways
specified in subsection (2).
(2) The ways are—
(a) purchasing a share in a partnership,
(b) contributing money to a partnership, by way of capital or premium, that is used
wholly for the purposes of the trade or profession carried on by the partnership,
(c) advancing money to a partnership that is so used, and
(d) repaying another loan to which this section applies.
(3) This section is subject to section 411 (ineligibility of interest where business is
occupation of commercial woodlands).
399 Eligibility requirements for interest on loans within section 398
(1) Interest on a loan within section 398 to an individual is eligible for relief only if
conditions A and B are met.
(2) Condition A is that throughout the period from the use of the loan until the interest is
paid the individual has been a member of the partnership otherwise than—
(a) as a limited partner in a limited partnership registered under the Limited
Partnerships Act 1907 (c. 24), or
(b) as a member of an investment LLP.
(3) Condition B is that in that period the individual has not recovered any capital from the
partnership, apart from any amount taken into account under section 406(2) (recovered
capital that is treated as a repayment of the loan).

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(4) If section 400 (film partnerships) applies in a tax year, only 40% of the interest that
would otherwise be eligible for relief for that year is eligible.
(5) For the purposes of subsection (2) an individual who is not a member of a partnership
is treated as such a member if—
(a) the partnership carries on a profession,
(b) the individual is employed by the partnership in a senior capacity, and
(c) the individual is allowed—
(i) to act independently in dealing with clients of the partnership, and
(ii) to act generally in such a way as to be indistinguishable from the
partners in relations with those clients.
(6) For the purposes of subsection (2) “investment LLP” means a limited liability
partnership—
(a) whose business consists wholly or mainly of the making of investments, and
(b) the principal part of whose income is derived from investments,
and whether a limited liability partnership is an investment LLP is determined for each
period of account of the partnership.
400 Film partnerships
(1) This section applies in a tax year if—
(a) the partnership (“the film partnership”) carries on a trade,
(b) the profits or losses of the trade are calculated in accordance with Chapter 9 of
Part 2 of ITTOIA 2005 (films etc),
(c) the loan is secured on an asset or activity of another partnership (“the
investment partnership”),
(d) the individual to whom the loan is made (“A”) is or has been a member of the
investment partnership, and
(e) at any time in the year the proportion of the profits of the investment partnership
to which A is entitled is less than the proportion of that partnership's capital
contributed by A at that time.
(2) For the purposes of subsection (1)(c), a loan is secured on an asset or activity of a
partnership if there is an arrangement—
(a) under which such an asset may be used or relied upon wholly or partly to
guarantee repayment of any part of the loan, or
(b) because of which any part of the loan is expected to be repaid directly or
indirectly out of assets held by or income accruing to the partnership.
(3) In subsection (1)(e)—
“profits” excludes any amount that would not be taken into account as, or
for the purposes of calculating, income for income tax purposes, and
“partnership's capital” means—
(a) anything that is, or in accordance with generally accepted accounting
practice would be, accounted for as partners' capital or partners' equity,
and
(b) amounts lent to the partnership by partners or persons connected with
partners.

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(4) So far as the investment partnership's capital includes at any time any of the following
amounts, they are treated as amounts contributed by A—
(a) any amount A paid to acquire any interest in the partnership, so far as A retains
the interest at that time,
(b) any amount made available by A directly or indirectly to another person, so far
as that person retains any interest in the partnership at that time,
(c) any amount A lent to the partnership, so far as it has not been repaid at that time,
(d) any amount A made available directly or indirectly to another person, so far
as any amount that person lent to the partnership has not been repaid at that
time, and
(e) an amount made available in any other way prescribed by regulations made by
the Commissioners for Her Majesty's Revenue and Customs.
(5) Regulations under subsection (4)(e)—
(a) may make provision having retrospective effect,
(b) may make provision generally or only in relation to specified cases or
circumstances,
(c) may make different provision for different cases or circumstances,
(d) may make transitional, consequential or incidental provision, and
(e) may be made only if a draft of them has been laid before and approved by a
resolution of the House of Commons.
(6) In this section a reference to A includes a reference to a person connected with A.
(7) Section 993 (meaning of “connected” persons) applies for the purposes of this section
with the omission of subsections (3) to (7).
Loans for investing in co-operatives
401 Loan to invest in co-operative
(1) This section applies to a loan to an individual that is used in one or more of the ways
specified in subsection (2).
(2) The ways are—
(a) acquiring shares in a body which is a co-operative,
(b) lending money to any such body which is used wholly and exclusively for the
purposes of the business of that body or of a subsidiary of that body, and
(c) repaying another loan to which this section applies.
(3) In this Chapter—
“co-operative” means a common ownership enterprise or a co-operative
enterprise as defined in section 2 of the Industrial Common Ownership Act
1976 (c. 78), and
“subsidiary”, in relation to a co-operative, has the same meaning as for the
purposes of section 2 of that Act.

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402 Eligibility requirements for interest on loans within section 401
(1) Interest on a loan within section 401 to an individual is eligible for relief only if
conditions A to C are met.
(2) Condition A is that when the interest is paid the body continues to be a co-operative.
(3) Condition B is that in the period from the use of the loan to the payment of the interest
the greater part of the individual's time has been spent working as an employee of the
body or of a subsidiary of the body.
(4) Condition C is that in that period the individual has not recovered any capital from the
body, apart from any taken into account under section 406(2) (recovered capital that is
treated as a repayment of the loan).
Loans for paying inheritance tax
403 Loan to pay inheritance tax
(1) This section applies to a loan to the personal representatives of a deceased person if
the loan is used—
(a) in paying inheritance tax that meets the condition specified in subsection (2), or
(b) in repaying another loan to which this section applies.
(2) The condition is that the personal representatives are obliged to pay the tax under
section 226(2) of IHTA 1984 (obligation of personal representatives to pay tax on
delivery of their account).
(3) A written statement appearing to be from an officer of Revenue and Customs is
sufficient evidence—
(a) of the amount of inheritance tax that meets the condition specified in
subsection (2), and
(b) of any statements relevant to its calculation.
(4) In this section references to inheritance tax include interest payable on that tax.
404 Eligibility requirements for interest on loans within section 403
Interest on a loan within section 403(1) is eligible for relief only so far as it is paid
in respect of a period ending within 12 months from the making of the loan used as
mentioned in section 403(1)(a).
405 Carry back and forward of relief for interest on loans within section 403
(1) This section applies if relief for any interest on a loan within section 403(1) that is
eligible for relief cannot be given for the tax year in which the interest is paid because
there is not enough income in that year.
(2) The person paying the interest is entitled to relief for that interest—
(a) for the preceding tax year, or
(b) if there is not enough income in that year, for the tax year preceding it,
and so on.
(3) If relief cannot be given under subsection (2), it may instead be given—

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(a) for the tax year following that in which the interest is paid, or
(b) if there is not enough income in that year, for the tax year following it,
and so on.
General and supplementary
406 Effect of recovery of capital in the case of some loans
(1) This section applies if the individual to whom a loan is made to which section 392, 396,
398 or 401 applies recovers any amount of capital from the company, partnership or co-
operative concerned at any time after the loan is used.
(2) The individual is treated for the purposes of this Chapter as having repaid that amount
out of the loan at that time, whether or not such a repayment occurred.
(3) Accordingly, only part of the interest that, apart from any such repayment, would be
payable on the loan for any period after that time and eligible for relief is so eligible.
(4) That part is so much of that interest as is attributable to the amount of the loan after
the repayment.
(5) In the case of a loan to which section 386 applies (loans partly meeting requirements),
subsection (3) applies instead of section 386(3) (under which repayments are
apportioned between the qualifying and non-qualifying parts of such loans).
(6) The cases in which an individual is treated as having recovered an amount of capital
for the purposes of this section are set out in section 407(1) to (3).
407 Events counting as recovery of capital for section 406
(1) An individual is treated as having recovered an amount of capital from a company for
the purposes of section 406 if—
(a) the individual receives consideration of that amount or value—
(i) for the sale, exchange or assignment of part of the ordinary share capital
of the company,
(ii) by way of repayment of part of that ordinary share capital, or
(iii) for assigning a debt due to the individual from the company, or
(b) the company repays that amount of a loan or advance from the individual.
(2) An individual is treated as having recovered an amount of capital from a partnership
for those purposes if—
(a) the individual receives consideration of that amount or value—
(i) for the sale, exchange or assignment of part of the individual's interest
in the partnership, or
(ii) for assigning a debt due to the individual from the partnership, or
(b) the partnership repays that amount of a loan or advance from the individual, or
(c) the partnership returns that amount of capital to the individual.
(3) An individual is treated as having recovered an amount of capital from a co-operative
for those purposes if—
(a) the individual receives consideration of that amount or value—

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(i) for the sale, exchange or assignment of part of the individual's shares
in the co-operative,
(ii) by way of repayment of part of the individual's shares in the co-
operative, or
(iii) for assigning a debt due to the individual from the co-operative, or
(b) the co-operative repays that amount of a loan or advance from the individual.
(4) A sale or assignment that is not a bargain made at arm's length is treated for the purposes
of this section as being made for a consideration of an amount equal to the market value
of what is disposed of.
408 Replacement loans
(1) This section applies to a replacement loan.
(2) In subsection (1) “replacement loan” means a loan to which section 392, 396, 398 or
401 applies because the loan is used in repaying another loan (“the replaced loan”) to
which that section applies.
(3) This Chapter, except for sections 385 and 386, applies to the replacement loan as if that
loan and the replaced loan were a single loan (subject to subsection (5)).
(4) Accordingly, any restriction under section 406 (effect of recovery of capital in the case
of some loans) which applies to the replaced loan applies to the replacement loan.
(5) But this Chapter, except for sections 385 and 386, applies as if references to the use of
the loan were references to the use of the original loan.
409 Business successions between partnerships
(1) This section applies if—
(a) a loan to which section 398 applies is made to an individual,
(b) the partnership in question (“the old partnership”) is dissolved,
(c) on its dissolution another partnership of which the individual is a member (“the
new partnership”) is formed to carry on the whole or part of the undertaking
carried on by the old partnership, and
(d) interest payable on the loan for the period ending with the dissolution of the old
partnership was eligible for relief (or would have been had any been payable).
(2) This Chapter applies as if the old partnership and the new partnership were the same
partnership.
(3) Section 399(5) (salaried partners etc treated as partners) applies for the purposes of
subsection (1)(c) as it applies for the purposes of section 399(2).
410 Other business successions and reorganisations
(1) This subsection applies if—
(a) a loan to which one of the business loan provisions or section 398 (loan to invest
in partnership) applies is made to an individual (“the original loan”),
(b) the company, partnership or co-operative in question is involved in a transaction
as a result of which the individual acquires shares in or makes a loan to another
company or a body that is a co-operative,

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(c) interest payable on the original loan for the period ending with the time of the
transaction was eligible for relief (or would have been had any been payable),
and
(d) had the original loan been made at the time of the transaction and applied in
acquiring the shares in or making the loan to the other company or the co-
operative, the original loan would have fallen within one of the business loan
provisions.
(2) If subsection (1) applies, from the time of the transaction referred to in subsection (1)
(b) the original loan is treated as if it had been made and applied as mentioned in
subsection (1)(d).
(3) In this section “the business loan provisions” means—
(a) section 392 (loan to buy interest in close company),
(b) section 396 (loan to buy interest in employee-controlled company), and
(c) section 401 (loan to invest in co-operative).
411 Ineligibility of interest where business is occupation of commercial woodlands
(1) Interest that would be eligible for relief under this Chapter apart from this section is
not eligible if—
(a) the interest is on a loan to which section 392, 396 or 398 applies, and
(b) the business carried on by the close company, employee-controlled company
or partnership concerned consists of the occupation of commercial woodlands.
(2) If only part of the business consists in such occupation, only part of the interest is
ineligible for the relief.
(3) That part is such part of the interest as it is just and reasonable to attribute to that part
of the business having regard to all the relevant circumstances and, in particular, to the
extent of the other part of the business.
(4) For the purposes of this section two or more businesses carried on by a company or
partnership are to be regarded as a single business.
(5) In this section “commercial woodlands” means woodlands in the United Kingdom
which are managed on a commercial basis and with a view to the realisation of profits.
412 Information
(1) A person (“the payer”) who claims relief under this Chapter for a payment of interest
made in a tax year is entitled to request the person to whom the interest is paid to give
the payer a statement in writing about that interest containing the information specified
in subsection (3).
(2) That request must be in writing.
(3) The information is—
(a) the date when the debt was incurred,
(b) the amount of the debt when incurred,
(c) the interest paid in the tax year, and
(d) the name and address of the debtor.

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(4) The person to whom the interest is paid has a duty to comply with a request under
subsection (1) and that duty is enforceable by the payer.
(5) This section does not apply if the interest is paid to a building society or to a local
authority.
CHAPTER 2
GIFT AID
The relief
413 Overview of Chapter
(1) This Chapter gives relief for some gifts of money to charities by individuals.
(2) The relief is set out in section 414.
(3) The Chapter contains provisions under which, in some circumstances—
(a) the individual's entitlement to some other reliefs may be restricted (see
section 423), and
(b) the individual may be charged to income tax (see section 424).
(4) See section 430 for bodies that are treated as charities for the purposes of this Chapter.
(5) For related reliefs for charities see Part 10 of this Act, section 25(10) of FA 1990 and
section 505 of ICTA.
414 Relief for gifts to charity
(1) An individual who makes a gift to a charity which is a qualifying donation is entitled
to the relief set out in subsection (2).
(2) The Income Tax Acts have effect in their application to the individual for the tax year
in which the gift is made as if—
(a) the gift had been made after deduction of income tax at the basic rate, and
(b) the basic rate limit (see section 20) were increased by an amount equal to the
grossed up amount of the gift.
(3) See subsection (7) of section 535 of ITTOIA 2005 (gains from contracts for life
insurance etc: top slicing relief) for provision about how relief under this Chapter is to
be ignored for the purpose of calculating relief under that section.
415 Meaning of “grossed up amount”
In this Chapter references to the grossed up amount of a gift are to the amount of the
gift grossed up by reference to the basic rate for the tax year in which the gift is made.
416 Meaning of “qualifying donation”
(1) A gift made to a charity by an individual is a qualifying donation for the purposes of
this Chapter if—

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(a) conditions A to G are met, and
(b) the individual gives the charity a gift aid declaration relating to the gift (see
section 428).
(2) Condition A is that the gift takes the form of a payment of a sum of money.
(3) Condition B is that the payment is not subject to any condition as to repayment.
(4) Condition C is that the payment is not a sum falling within section 713(3) of ITEPA
2003 (payroll deduction scheme).
(5) Condition D is that the payment is not deductible in calculating the individual's income
from any source.
(6) Condition E is that the payment is not conditional on, associated with or part of an
arrangement involving, the acquisition of property by the charity from the individual
or a person connected with the individual.
An acquisition by way of gift is ignored for the purposes of this condition.
(7) Condition F is that—
(a) there are no benefits associated with the gift, or
(b) there are benefits associated with the gift but the restrictions on those benefits
are not breached.
See sections 417 to 421 for provision about benefits associated with gifts.
(8) Condition G is that the gift is not a disqualified overseas gift (see section 422).
417 Meaning of “benefits associated with a gift”
A benefit is associated with a gift for the purposes of this Chapter if it is received
by the individual who makes the gift, or a person connected with the individual, in
consequence of making the gift.
Restrictions on associated benefits
418 Restrictions on associated benefits
(1) For the purposes of section 416(7), the restrictions on benefits associated with a gift are
breached if condition A or B is met.
(2) Condition A is that the total value of the benefits associated with the gift exceeds the
variable limit, which is—
(a) 25% of the amount of the gift, if the amount of the gift is £100 or less,
(b) £25, if the amount of the gift is more than £100 but not more than £1,000,
(c) 2.5% of the amount of the gift, if the amount of the gift is more than £1,000.
(3) Condition B is that the sum of—
(a) the total value of the benefits associated with the gift, and
(b) the total value of the benefits (if any) associated with each relevant prior gift,
is more than £250.
(4) “Relevant prior gift” means a gift—

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(a) which has already been made by the individual to the charity in the tax year, and
(b) which is a qualifying donation.
(5) This section needs to be read with sections 419 to 421.
419 Gifts and benefits linked to periods of less than 12 months
(1) This section modifies the application of section 418(2) in relation to a gift if condition
A, B, C or D is met.
(2) Condition A is that a benefit associated with the gift relates to a period of less than 12
months.
(3) Condition B is that a benefit associated with the gift consists of a right to receive benefits
at intervals over a period of less than 12 months.
(4) Condition C is that a benefit associated with the gift is one of a series of benefits which
are—
(a) received at intervals, and
(b) associated with a series of gifts made at intervals of less than 12 months.
(5) Condition D is that—
(a) a benefit associated with the gift is not one of a series of benefits received at
intervals, and
(b) the gift is one of a series of gifts made at intervals of less than 12 months.
(6) If condition A, B or C is met, then for the purposes of section 418(2)—
(a) the value of the benefit is taken to be the annual equivalent of its actual value,
and
(b) the amount of the gift is taken to be the annual equivalent of its actual amount.
(7) If condition D is met, the amount of the gift is taken for the purposes of section 418(2)
to be the annual equivalent of its actual amount.
(8) The annual equivalent of the value of a benefit, or of the amount of a gift, is calculated
as follows.
Step 1
Multiply the value or amount by 365.
Step 2
If condition A or B is met in relation to the benefit (and neither condition C nor condition
D is met in relation to it), divide the result by the number of days in the period of less
than 12 months referred to in subsection (2) or (as the case may be) subsection (3).
If condition C or D is met in relation to the benefit, divide the result by the average
number of days in the intervals of less than 12 months referred to in subsection (4)(b)
or (as the case may be) subsection (5)(b).

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Admission rights
420 Disregard of certain admission rights
(1) A benefit associated with a gift is ignored for the purposes of this Chapter if the benefit
consists of a relevant right of admission.
(2) “Right of admission” means a right which—
(a) benefits the individual who makes the gift or that individual and one or more
members of that individual's family (whether or not the right must be exercised
by all of them at the same time),
(b) authorises admission to premises or property to which the public are admitted
on payment of an admission fee, and
(c) authorises admission to those premises or that property without payment of the
admission fee or on payment of a reduced fee.
(3) A right of admission is a relevant right of admission if—
(a) conditions A and B are met in relation to it, and
(b) either condition C or condition D is met in relation to it.
(4) Condition A is that the opportunity to make a gift and to receive the right of admission
in consequence is available to the public.
(5) Condition B is that the right of admission is a right granted by the charity for the purpose
of viewing property preserved, maintained, kept or created by a charity for its charitable
purposes.
(6) The property mentioned in subsection (5) includes, in particular—
(a) buildings,
(b) grounds or other land,
(c) plants,
(d) animals,
(e) works of art (but not performances),
(f) artefacts, and
(g) property of a scientific nature.
(7) Condition C is that the right of admission applies, during a period of at least 12 months,
at all times at which the public can obtain admission.
(8) Condition D is that—
(a) a member of the public could purchase the same right of admission, and
(b) the amount of the gift is greater by at least 10% than the amount the member
of the public would have to pay.
(9) This section needs to be read with section 421.
421 Admission rights: supplementary
(1) This section applies for the purposes of section 420.
(2) Condition C is to be treated as met even if the right does not apply on days which are
specified by the charity as event days, provided no more than 5 days are so specified
in relation to the applicable period.

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(3) The applicable period is—
(a) the period during which the right applies, in the case of a right which applies
for a period of 12 months, or
(b) each calendar year during all or part of which the right applies, in the case of a
right which applies for a period of more than 12 months.
(4) An “event day” is a day on which an event is to take place on the premises to which
the right relates.
(5) In condition D the “same right of admission” means a right relating to the same property,
classes of persons and periods of time as the right received in consequence of the gift.
Disqualified overseas gifts
422 Disqualified overseas gifts
(1) This section applies for the purposes of section 416(8).
(2) A gift is an “overseas gift” if—
(a) it is made by an individual to a charity at a time when the individual is neither
UK resident nor in Crown employment, and
(b) ignoring condition G in section 416(8), it is a qualifying donation.
(3) An overseas gift made by an individual in a tax year is a “disqualified overseas gift”
if, as a result of the gift, the overseas gifts total is more than the individual's charged
amount (see section 427).
(4) In subsection (3) “overseas gifts total” means the sum of the grossed up amounts of all
overseas gifts made by the individual in the tax year.
(5) In this section “Crown employment” means employment under the Crown—
(a) which is of a public nature, and
(b) the earnings from which are payable out of the public revenue of the United
Kingdom or of Northern Ireland.
Measures to ensure donor's liability not less than tax treated as deducted
423 Restriction of certain reliefs
(1) This section applies if—
(a) an individual makes one or more gifts to charities in a tax year which are
qualifying donations, and
(b) amount A is greater than amount B.
(2) In this section—
“amount A” means the total amount of the tax treated as deducted from the
gifts under section 414, and
“amount B” means the total amount of income tax and capital gains tax to
which the individual is charged for the tax year (before applying this section).
(3) For the purposes of this section, the total amount of income tax to which the individual
is charged for the tax year is the amount calculated in accordance with section 425.

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(4) The individual's entitlement to the reliefs mentioned in subsection (5) is extinguished,
so far as is necessary to ensure that the total amount of income tax and capital gains tax
to which the individual is charged for the tax year (after applying this section)—
(a) is equal to amount A, or
(b) if that is not possible, falls short of amount A by as little as possible.
(5) The reliefs are—
(a) an allowance under Chapter 2 of Part 3 of this Act or section 257 or 265 of
ICTA (personal allowance and blind person's allowance),
(b) a tax reduction under Chapter 3 of Part 3 of this Act or section 257A, 257AB,
257BA or 257BB of ICTA (tax reductions for married couples and civil
partners),
(c) relief under section 457 or 458 of this Act or section 266(7) of ICTA (payments
to trade unions and police organisations), and
(d) a tax reduction under section 459 of this Act or section 273 of ICTA (payments
for benefit of family members).
424 Charge to tax
(1) Income tax is charged under this section if—
(a) an individual makes one or more gifts to charity in a tax year which are
qualifying donations, and
(b) amount A is greater than amount C.
(2) In this section—
“amount A” means the total amount of the tax treated as deducted from the
gifts under section 414, and
“amount C” means the sum of—
(a) the amount of income tax to which the individual is charged for the tax
year, and
(b) the amount of capital gains tax to which the individual is charged for the
tax year.
(3) For the purposes of this section, the total amount of income tax to which the individual
is charged for the tax year is the amount calculated in accordance with section 425, after
taking into account any restriction of relief under section 423.
(4) The amount of the tax charged under this section is equal to the difference between
amount A and amount C.
(5) Tax charged under this section is charged for the tax year in which the gift or gifts are
made.
(6) The person liable for any tax charged under this section is the individual.
425 Total amount of income tax to which individual charged for a tax year
(1) For the purposes of sections 423 and 424, the total amount of income tax to which an
individual is charged for a tax year is the amount calculated as follows.
(2) Calculate the individual's liability to income tax for the tax year in accordance with
section 23, as modified by subsection (3).

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(3) In applying section 23—
(a) at Step 6, ignore any tax reductions to which the individual is entitled for the
tax year under a provision listed in subsection (4), and
(b) ignore Step 7.
(4) The tax reductions to be ignored are tax reductions under—
(a) section 453 (qualifying maintenance payments),
(b) section 788 of ICTA (double taxation arrangements: relief by agreement), or
(c) section 790(1) of ICTA (relief for foreign tax where no double taxation
arrangements).
(5) From the amount calculated in accordance with subsections (2) to (4) deduct—
(a) any tax treated as having been paid under—
(i) section 399(2) or 400(2) of ITTOIA 2005 (distributions from UK
resident companies etc on which there is no tax credit),
(ii) section 414(1) of that Act (stock dividend income),
(iii) section 421(1) of that Act (release of loan to participator in close
company),
(iv) section 530(1) of that Act (gains from contracts for life insurance), or
(v) section 685A(3) of that Act (settlor-interested settlements), and
(b) any tax treated as deducted from estate income under section 656(3) or 657(4)
of ITTOIA 2005, so far as that income is treated under section 679 of that Act
as paid from sums within section 680(3)(b) or (4) of that Act.
(6) For the purposes of this section a person is treated as being entitled to a tax reduction
under section 788 of ICTA if the person is entitled to credit against income tax under
double taxation arrangements.
Election to carry back relief
426 Election by donor: gift treated as made in previous tax year
(1) If—
(a) an individual makes a gift to a charity that is a qualifying donation, and
(b) the condition in subsection (2) is met,
the individual may elect to be treated as if the gift had been made in the previous tax
year (“year P”).
(2) The condition is that the individual's charged amount for year P (see section 427) is at
least equal to the increased total of gifts.
(3) If an election is made, sections 414 and 423 to 425 have effect in relation to the
individual as if the gift were a qualifying donation made by the individual in year P.
(4) The increased total of gifts is the sum of—
(a) the grossed up amount of the gift, and of any gifts that are the subject of the
same election or an election made at the same time,
(b) the sum of the grossed up amounts of any gifts to charities made by the
individual in year P which—
(i) are qualifying donations, and

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(ii) are not themselves treated as made in the tax year before year P because
of an election under this section, and
(c) the sum of the grossed up amounts of any gifts which, as a result of an earlier
election under this section, are treated as made in year P.
(5) The grossed up amount of the gifts mentioned in paragraphs (a) and (c) of subsection (4)
is to be determined as if the gifts were made in year P.
(6) An election must be made—
(a) on or before the date on which the individual delivers a return for year P under
section 8 of TMA 1970 (personal return), and
(b) not later than the normal self-assessment filing date for year P.
(7) An election does not affect the position of the recipient of the gift (see section 520 (gifts
to charitable trusts: income tax treated as paid) and section 25(10) of FA 1990 (gifts to
charitable companies)).
(8) This section does not apply to gifts which are treated as qualifying donations under
section 429 (giving through self-assessment return).
Supplementary
427 Meaning of “charged amount”
(1) For the purposes of this Chapter, an individual's charged amount is the amount
calculated as follows.
(2) Calculate the amount of the individual's modified net income for year X (see
section 1025).
(3) Calculate the amount on which the individual is chargeable to capital gains tax for year
X.
(4) Add together the amounts calculated under subsections (2) and (3).
The result is the individual's charged amount for year X.
428 Meaning of “gift aid declaration”
(1) In this Chapter “gift aid declaration” means a declaration which—
(a) is given in the manner specified by regulations made by the Commissioners for
Her Majesty's Revenue and Customs, and
(b) contains any information and any statements required by the regulations.
(2) The regulations may provide for declarations—
(a) to have effect,
(b) to cease to have effect, or
(c) to be treated as never having had effect,
in any circumstances and for any purposes specified by the regulations.
(3) The regulations may—
(a) require charities to keep records with respect to declarations received from
individuals, and

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(b) make different provision for declarations made in a different manner.
429 Giving through self-assessment return
(1) This section applies if—
(a) as a result of a personal return for a tax year being made by an individual, a tax
repayment for one or more tax years falls to be made to the individual, and
(b) conditions A and B are met.
(2) Condition A is that the personal return contains a single direction, in the form specified
in the return, requiring—
(a) the whole of the tax repayment, or so much of it as does not exceed a specified
amount, to be paid on the individual's behalf as a gift to a single listed charity
which is specified in the return, and
(b) the gift to be treated as a qualifying donation for the purposes of this Chapter.
(3) Condition B is that the gift meets Conditions A to G mentioned in section 416.
(4) The gift is to be treated for the purposes of this Chapter as a qualifying donation made
by the individual at the time the payment is received by the charity.
(5) In this section—
“listed charity” means a charity which, at the time the personal return is
made, is included (at the request of the charity) in a list maintained for the
purposes of this section by the Commissioners for Her Majesty's Revenue and
Customs,
“personal return” means a return under section 8 of TMA 1970,
“tax repayment” means a repayment (after any set-off that falls to be made
against the individual's liabilities) of either or both of—
(a) income tax or amounts paid on account of income tax, and
(b) capital gains tax,
and, for the purposes of subsection (2)(a), includes any repayment
supplement (within the meaning of section 824 of ICTA or section 283 of
TCGA 1992).
430 “Charity” to include exempt bodies
(1) In this Chapter “charity” includes—
(a) the Trustees of the National Heritage Memorial Fund,
(b) the Historic Buildings and Monuments Commission for England,
(c) the National Endowment for Science, Technology and the Arts, and
(d) a club that is registered as a community amateur sports club for the purposes
of Schedule 18 to FA 2002.
(2) For the purposes of the application of section 414(1) in relation to clubs that are charities
as a result of subsection (1)(d) of this section, membership fees are not gifts.

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CHAPTER 3
GIFTS OF SHARES , SECURITIES AND REAL PROPERTY TO CHARITIES ETC
Entitlement to relief
431 Relief for gifts of shares, securities and real property to charities etc
(1) An individual who disposes of the whole of the beneficial interest in a qualifying
investment (see section 432) to a charity is entitled to relief if—
(a) the disposal is otherwise than by way of a bargain made at arm's length, and
(b) the individual makes a claim.
(2) The relief is given by deducting the relievable amount in calculating the individual's
net income for the tax year in which the disposal is made (see Step 2 of the calculation
in section 23).
(3) For the calculation of the relievable amount, see section 434.
(4) If the qualifying investment is a qualifying interest in land (see section 433), this section
is subject to—
section 441 (certificates),
section 442 (qualifying interests in land held jointly),
section 443 (calculation of relievable amount where joint disposal), and
section 444 (disqualifying events).
(5) See section 446 for bodies that are treated as charities for the purposes of this Chapter.
(6) See subsection (7) of section 535 of ITTOIA 2005 (top slicing relief) for provision
about how relief under this Chapter is to be ignored for the purpose of calculating relief
under that section.
432 Meaning of “qualifying investment”
(1) In this Chapter “qualifying investment” means—
(a) shares or securities which are listed or dealt in on a recognised stock exchange,
(b) units in an authorised unit trust,
(c) shares in an open-ended investment company,
(d) an interest in an offshore fund, and
(e) a qualifying interest in land.
(2) In this section—
“offshore fund” has the same meaning as in Chapter 5 of Part 17 of ICTA
(see sections 756A to 756C of that Act), and
“open-ended investment company” is to be read in accordance with
section 468A(2) to (4) of ICTA.
433 Meaning of “qualifying interest in land”
(1) In this Chapter “qualifying interest in land” means—
(a) a freehold interest in land in the United Kingdom, or

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(b) a leasehold interest in land in the United Kingdom which is a term of years
absolute.
This is subject to subsections (2) to (5).
(2) Subsection (3) applies if an individual with a beneficial interest in a freehold or
leasehold interest mentioned in subsection (1)(a) or (b) makes a disposal to a charity
of—
(a) the whole of the beneficial interest, and
(b) an easement, servitude, right or privilege so far as benefiting the land in
question.
(3) The disposal mentioned in subsection (2)(b) is regarded for the purposes of this Chapter
as a disposal by the individual of the whole of the individual's beneficial interest in a
qualifying interest in land separate from the disposal mentioned in subsection (2)(a).
(4) If an individual who has a freehold or leasehold interest in land in the United Kingdom
grants a lease for a term of years absolute to a charity of the whole or part of that land,
the grant of the lease is regarded for the purposes of this Chapter as a disposal by the
individual of the whole of the beneficial interest in the leasehold interest so granted.
(5) Neither an agreement to acquire a freehold interest nor an agreement for a lease is a
qualifying interest in land.
(6) In the application of this section to Scotland—
(a) references to a freehold interest in land are to the interest of the owner,
(b) references to a leasehold interest in land which is a term of years absolute are
to a tenant's right over or interest in a property subject to a lease,
(c) references to an agreement for a lease do not include missives of let that
constitute an actual lease, and
(d) in subsection (4) the reference to granting a lease for a term of years absolute
is to granting a lease.
Amount of relief
434 The relievable amount
(1) If the disposal is a gift, the relievable amount is given by the formula—
where—
V is the value of the net benefit to the charity at, or immediately after, the time when
the disposal is made, whichever is less,
IC is the amount of the incidental costs of making the disposal to the individual making
it, and

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B is the total value of any benefits received in consequence of making the disposal by
the individual making the disposal or a person connected with the individual.
(2) If the disposal is at an undervalue, the relievable amount is given by the formula—
where—
E is the amount (if any) by which V (as defined in subsection (1)) exceeds the amount
or value of the consideration for the disposal,
C is given by subsection (4), and
B is as defined in subsection (1).
(3) But if the amount given by the formula in subsection (1) or (2) is a negative amount,
the relievable amount is nil.
(4) C is found by taking the following steps.
Step 1
Calculate the consideration for which the disposal is treated as made for the purposes
of TCGA 1992 as a result of section 257(2)(a) of that Act (in case of disposal to charity
etc, consideration to be such that no gain or loss accrues).
Step 2
Find the excess (if any) of the amount calculated at Step 1 over the amount or value of
the consideration for the disposal.
If there is such an excess, C is the amount of that excess or, if less, the amount of the
incidental costs of making the disposal to the individual making it.
If there is no such excess, C is nil.
(5) This section needs to be read with—
(a) section 435 (incidental costs of making disposal),
(b) section 436 (consideration), and
(c) sections 437 to 440 (value of net benefit to charity).
435 Incidental costs of making disposal
References in section 434 to the incidental costs of making the disposal to the individual
making it are to—
(a) fees, commission or remuneration paid for the professional services of a
surveyor, valuer, auctioneer, accountant, agent or legal adviser which are
wholly and exclusively incurred by the individual for the purposes of the
disposal,

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(b) costs of transfer or conveyance wholly and exclusively incurred by the
individual for the purposes of the disposal,
(c) costs of advertising to find a buyer, and
(d) costs reasonably incurred in making any valuation or apportionment required
for the purposes of this Chapter.
436 Consideration
(1) For the purposes of the formula in section 434(2) consideration for the disposal is
brought into account—
(a) without any discount for postponement of the right to receive any part of it,
(b) in the first instance, without regard to a risk of any part of it being irrecoverable,
and
(c) in the first instance, without regard to the right to receive any part of it being
contingent.
(2) If—
(a) any part of the consideration so brought into account subsequently proves to
be irrecoverable, and
(b) a claim is made,
such adjustment as is required in consequence must be made.
(3) An adjustment under subsection (2) may be made by way of discharge or repayment
of tax or otherwise.
Value of net benefit to charity
437 Value of net benefit to charity
(1) For the purposes of this Chapter the value of the net benefit to a charity is—
(a) the market value of the qualifying investment, or
(b) if the charity is, or becomes, subject to a disposal-related obligation, the market
value of the qualifying investment reduced by the total amount of the disposal-
related liabilities of the charity.
(2) This section is supplemented by—
section 438 (market value of qualifying investments),
section 439 (meaning of “disposal-related obligation”), and
section 440 (meaning and amount of “disposal-related liability”).
438 Market value of qualifying investments
(1) The market value of a qualifying investment for the purposes of this Chapter is
determined in accordance with sections 272 to 274 of TCGA 1992 (subject to Part 1
of Schedule 11 to that Act).
(2) But, in the case of an interest in an offshore fund for which separate buying and selling
prices are published regularly by the managers of the fund, the market value for the
purposes of this Chapter is equal to the buying price (that is the lower price) published
on—
(a) the day of the disposal, or

Income Tax Act 2007 (c. 3)Part 8 – Other reliefsChapter 3 – Gifts of shares, securities and real property to charities etcDocument Generated: 2011-04-02
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(b) if none were published on that day, on the latest day on which the prices were
published before that day.
439 Meaning of “disposal-related obligation”
(1) In this Chapter an obligation is a “disposal-related obligation”, in relation to a
qualifying investment, if condition A or condition B is met in relation to it.
(2) The obligation may be to any person (whether or not the individual making the disposal
or a person connected with the individual).
(3) Condition A is that it is reasonable to suppose that the disposal of the qualifying
investment to the charity would not have been made in the absence of the obligation.
(4) Condition B is that the obligation (whether in whole or in part) relates to, is framed by
reference to, or is conditional on the charity receiving, the qualifying investment or a
disposal-related investment.
(5) In applying condition A, all the circumstances must be taken into account (including,
in particular, the difference in the value of the net benefit to the charity calculated under
section 437(1)(a) and that value calculated under section 437(1)(b)).
(6) In subsection (4) “disposal-related investment” means any of the following—
(a) an asset of the same class or description as the qualifying investment
(irrespective of size, quantity or amount),
(b) an asset derived from, or representing, the qualifying investment, whether in
whole or in part and whether directly or indirectly, and
(c) an asset from which the qualifying investment is derived, or which the
qualifying investment represents, whether in whole or in part and whether
directly or indirectly.
(7) In this Chapter “obligation” includes a reference to each of the following—
(a) a scheme, arrangement or understanding of any kind, whether or not legally
enforceable, and
(b) a series of obligations (whether or not between the same parties).
440 Meaning and amount of “disposal-related liability”
(1) In this Chapter a liability is a “disposal-related liability” in the case of a qualifying
investment if it is a liability of the charity under a disposal-related obligation in relation
to the qualifying investment.
(2) If the disposal-related obligation is contingent, the amount to be brought into account
for the purposes of section 437 at any time in respect of the disposal-related liability,
so far as contingent, is—
(a) if the contingency occurs, the amount or value of the liability actually incurred
in consequence of the occurrence of the contingency, or
(b) if the contingency does not occur, nil.

236 Income Tax Act 2007 (c. 3) Part 8 – Other reliefs Chapter 3 – Gifts of shares, securities and real property to charities etc Document Generated: 2011-04-02
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Special provisions about qualifying interests in land
441 Certificate required from charity
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) No individual may make a claim for relief under this Chapter unless the individual has
received a certificate given by or on behalf of the charity.
(3) The certificate must—
(a) describe the qualifying interest in land,
(b) specify the date of the disposal, and
(c) state that the charity has acquired the qualifying interest in land.
442 Qualifying interests in land held jointly
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) It applies if two or more persons (“the owners”)—
(a) are jointly beneficially entitled to the qualifying interest in land, or
(b) are, taken together, beneficially entitled in common to the qualifying interest
in land.
(3) Relief under this Chapter is available if—
(a) at least one of the owners is an individual, and
(b) all the owners dispose of the whole of their beneficial interests in the qualifying
interest in land to the charity.
(4) Relief under this Chapter is available to each of the owners who is an individual.
(5) The amount of relief under this Chapter to be given to an individual is such share of
the relievable amount as is allocated to the individual by an agreement made between
those owners who are—
(a) individuals, or
(b) qualifying companies.
(6) A company is a qualifying company if—
(a) it is not itself a charity, and
(b) it is not within section 587B(8)(a) of ICTA.
(7) If one or more of the owners is not an individual—
(a) for the purpose of determining whether the owners' beneficial interests are
disposed of as mentioned in subsection (3)(b) of this section, subsections (2) to
(4) of section 433 apply as if references to an individual included a reference
to a person who is not an individual, and
(b) the total amount of relief given under this Chapter and section 587B of ICTA
as a result of the disposal of the qualifying interest in land is not to exceed the
relievable amount.
443 Calculation of relievable amount where joint disposal of interest in land
(1) This section applies for the purpose of calculating the relievable amount in a case where
relief under this Chapter is available as a result of section 442(3).

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(2) Calculate the relievable amount as if—
(a) the owners were a single individual, and
(b) the disposals of the owners' beneficial interests were a single disposal by that
single individual of the whole of the beneficial interest in the qualifying interest
in land.
(3) In particular, calculate the consideration mentioned at Step 1 in section 434(4) by—
(a) calculating, for each owner, the consideration for which the disposal of the
owner's beneficial interest is treated as made for the purposes of TCGA 1992
as a result of section 257(2)(a) of that Act, and
(b) adding together all the consideration calculated under paragraph (a).
(4) Subsection (5) applies if one or more of the owners is neither—
(a) an individual, nor
(b) a qualifying company (see section 442(6)).
(5) In calculating the relievable amount make just and reasonable adjustments to reduce
the relievable amount to reflect the fact that relief under this Chapter or section 587B
of ICTA is not available to that owner or to those owners.
(6) If one or more of the owners is a company within paragraph (b) of section 587B(8)
of ICTA, in calculating the relievable amount make just and reasonable adjustments to
reduce the relievable amount to reflect the requirements of sub-paragraph (ii) of that
paragraph.
444 Disqualifying events
(1) This section applies if the qualifying investment is a qualifying interest in land.
(2) If a disqualifying event occurs at any time in the provisional period, the following
are treated as never having been entitled to relief under this Chapter in respect of the
disposal of the qualifying interest in land—
(a) in a case to which section 442 does not apply, the individual who made the
disposal, or
(b) in a case to which section 442 applies, each individual who is an owner.
(3) All such assessments and adjustments of assessments are to be made as are necessary
to give effect to subsection (2).
(4) A disqualifying event occurs if a person mentioned in subsection (5) becomes,
otherwise than for full consideration in money or money's worth—
(a) entitled to an interest or right in relation to all or part of the land to which the
disposal relates, or
(b) party to an arrangement under which the person enjoys some right in relation
to all or part of that land.
(5) The persons are—
(a) in a case to which section 442 does not apply—
(i) the individual who made the disposal, or
(ii) a person connected with that individual, and
(b) in a case to which section 442 applies—
(i) a person who is an owner, or

238 Income Tax Act 2007 (c. 3) Part 8 – Other reliefs Chapter 4 – Annual payments and patent royalties Document Generated: 2011-04-02
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(ii) a person connected with such a person.
(6) A disqualifying event does not occur if a person becomes entitled to an interest or
right as mentioned in subsection (4)(a) as a result of a disposition of property on
death (whether the disposition is effected by will, under the law relating to intestacy
or otherwise).
(7) “The provisional period” is the period beginning with the date of the disposal of the
qualifying interest in land and ending with the fifth anniversary of the normal self-
assessment filing date for the tax year in which the disposal was made.
Supplementary
445 Prohibition against double relief
(1) If a claim is made for relief under this Chapter in respect of a disposal—
(a) section 108 of ITTOIA 2005 (gifts of trading stock to charities etc) does
not apply in relation to the disposal, and
(b) no relief in respect of the disposal is allowable under any other provision of
the Income Tax Acts.
(2) For the effect on capital gains tax or corporation tax on chargeable gains where an
individual is entitled to relief under this Chapter, see section 257(2A) to (2C) of TCGA
1992 (gifts to charities etc).
446 “Charity” to include exempt bodies
In this Chapter “charity” includes—
(a) the Trustees of the National Heritage Memorial Fund,
(b) the Historic Buildings and Monuments Commission for England, and
(c) the National Endowment for Science, Technology and the Arts.
CHAPTER 4
ANNUAL PAYMENTS AND PATENT ROYALTIES
447 Overview of Chapter
(1) This Chapter gives relief for some of the payments from which sums representing
income tax must be deducted under Chapter 6 of Part 15 (deduction from annual
payments and patent royalties).
(2) For the payments which attract relief, see sections 448 and 449.
448 Relief for individuals
(1) This section applies to a payment made in a tax year if—
(a) the person who makes it is an individual,
(b) a sum representing income tax is required by section 900(2) or 903(5)
(deduction from annual payments and patent royalties) to be deducted from it,
and

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(c) the payment is not deductible in calculating the individual's income from any
source.
(2) The individual is entitled to relief for the tax year equal to the gross amount of the
payment.
(3) But this is subject to the restrictions in subsection (4) and section 451.
(4) The total amount of relief given under this section to an individual for a tax year cannot
be greater than the amount of the individual's modified net income for the tax year (see
section 1025).
(5) The relief is given by deducting the amount of the relief in calculating the individual's
net income for the tax year (see Step 2 of the calculation in section 23).
449 Relief for other persons
(1) This section applies to a payment made in a tax year if—
(a) the person who makes it is not an individual,
(b) a sum representing income tax is required by section 901(3) or 903(6)
(deduction from annual payments and patent royalties) to be deducted from it,
and
(c) the payment is not deductible in calculating the person's income from any
source.
(2) The person who makes the payment is entitled to relief for the tax year equal to the
gross amount of the payment.
(3) But this is subject to the restrictions in subsections (4) and (5) and section 451.
(4) Relief is not given for the payment so far as it is ineligible for relief (see section 450).
(5) The total amount of relief given under this section to a person for a tax year cannot
be greater than the amount of the person's modified net income for the tax year (see
section 1025).
(6) The relief is given by deducting the amount of the relief in calculating the person's net
income for the tax year (see Step 2 of the calculation in section 23).
450 Other persons: payments ineligible for relief
(1) This section sets out the circumstances in which a payment to which section 449 applies,
or part of it, is ineligible for relief.
(2) The payment is ineligible for relief if, or so far as, it can lawfully be made only out of—
(a) capital, or
(b) income that is exempt from income tax.
(3) If the payment or any part of it is charged to capital, the payment or that part is ineligible
for relief.
(4) If—
(a) the person who makes the payment treats it or any part of it as made out of
income that is exempt from income tax, and

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(b) the rights or obligations of any person are or may in the future be different from
what they would have been if the payment or part had not been so treated,
the payment, or the part concerned, is ineligible for relief.
(5) If the payment or a part of it is not ultimately borne by the person who makes it, the
payment or the part concerned is ineligible for relief.
(6) But subsection (5) does not apply to a payment or part of a payment if—
(a) the person who makes the payment is liable to income tax on an amount, and
(b) it is because the person receives that amount or benefits from it in some other
way that the payment or the part concerned is not ultimately borne by that
person.
451 Special rule for persons affected by section 733 of ICTA
(1) This section applies if—
(a) interest payable to a person in respect of securities (“the affected income”) is
attributable to a tax year,
(b) because of section 733(1) of ICTA (dividend buying etc: persons entitled to
exemptions), some part of the affected income is not exempt from income tax,
and
(c) the person makes one or more relievable payments in the tax year which are
qualifying annual payments.
(2) Relief under this Chapter for those payments is given only for—
(a) the sum of the gross amounts of the payments, or
(b) if less, the amount of the person's non-affected income.
(3) The person's non-affected income is—
(a) the person's modified net income for the tax year (see section 1025), less
(b) the affected income.
(4) Apply this section before working out the result of section 448(4) or 449(5).
(5) In this section—
“interest” and “securities” are to be read in accordance with section 731(9) of
ICTA,
“relievable payment” means a payment to which section 448 or 449 applies, and
“qualifying annual payment” has the same meaning as in Chapter 6 of Part 15
(see section 899).
452 The gross amount of a payment
References in this Chapter to the gross amount of a payment are to the amount of the
payment before deduction of the sum representing income tax deductible from it under
Chapter 6 of Part 15 (deduction from annual payments and patent royalties).

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CHAPTER 5
QUALIFYING MAINTENANCE PAYMENTS
453 Tax reduction for qualifying maintenance payments
(1) An individual who makes a claim is entitled to a tax reduction for a tax year in which
any qualifying maintenance payments made by the individual fall due.
(2) The amount of the tax reduction is 10% of—
(a) the total amount of qualifying maintenance payments made by the individual
which fall due in the tax year, or
(b) if less, the amount specified in section 43 (tax reductions for married couples
and civil partners: meaning of “the minimum amount”).
(3) The tax reduction is given effect at Step 6 of the calculation in section 23.
454 Meaning of “qualifying maintenance payment”
(1) For the purposes of section 453 a payment is a “qualifying maintenance payment” if
conditions A to E are met.
(2) Condition A is that the payment is a periodical payment made by—
(a) one of the parties to a marriage or civil partnership (including a marriage or
civil partnership which has been dissolved or annulled) to or for the benefit of
the other party and for the maintenance of the other party, or
(b) one parent of a child to the child's other parent for the maintenance of the child
by the other parent or by one person to another for the maintenance by the other
of a relevant child of theirs.
(3) Condition B is that—
(a) in a case falling within subsection (2)(a), either of the parties to the marriage
or civil partnership was born before 6 April 1935, and
(b) in a case falling within subsection (2)(b), either the person who made the
payment, or the person to whom it is made, was born before that date.
(4) Condition C is that the payment is made—
(a) under an order made by a court in a member State, or
(b) under a written agreement the law applicable to which is the law of a member
State or of a part of a member State.
(5) Condition D is that the payment is due at a time when—
(a) in a case falling within subsection (2)(a)—
(i) the two parties are not a married couple, or civil partners of each other,
living together (see section 1011), and
(ii) the party to whom or for whose benefit the payment is made has not
entered into a new marriage or a new civil partnership, and
(b) in a case falling within subsection (2)(b), the person making the payment and
the person to whom the payment is made are not living together.
(6) Condition E is that relief from tax in respect of the payment is not available to the person
making it under any provision of the Income Tax Acts other than section 453.

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(7) In subsection (4) the reference to an order made by a court in a member State includes
a reference to a maintenance calculation.
(8) “Maintenance calculation” means—
(a) a maintenance calculation made under the Child Support Act 1991 (c. 48), or
(b) a maintenance assessment made under the Child Support (Northern Ireland)
Order 1991 (S.I. 1991/2628 (N.I. 23)).
(9) In this section—
“child” means a person under 21 years of age,
“periodical payment” does not include an instalment of a lump sum, and
“relevant child”, in relation to any two persons, means a child who (not being
a child who has been boarded out with them by a public authority or voluntary
organisation) has been treated by both of them as a child of their family.
455 Child support maintenance payments
(1) Condition A in section 454(2) is treated as met in relation to a payment if—
(a) it is a periodical payment made under a maintenance calculation by any person,
(b) another person is, for the purposes of the Child Support Act 1991 or (as the
case may be) the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628
(N.I. 23)), a parent of the child or children with respect to whom the calculation
has effect,
(c) the calculation was not made under section 7 of the Child Support Act 1991
(right of child in Scotland to apply for maintenance calculation), and
(d) any of the conditions mentioned in subsection (2) is met.
(2) The conditions are that—
(a) the payment is made to the Secretary of State in accordance with regulations
made under section 29 of the Child Support Act 1991 by virtue of subsection (3)
(a)(ii) of that section (collection of child support maintenance: payment to or
through Secretary of State),
(b) the payment is retained by the Secretary of State in accordance with regulations
made under section 41 of that Act (arrears of child support maintenance),
(c) the payment is made to the Department of Health, Social Services and Public
Safety for Northern Ireland in accordance with regulations made under Article
29 of the Child Support (Northern Ireland) Order 1991 (S.I. 1991/2628 (N.I.
23)), by virtue of paragraph (3)(a)(ii) of that Article (collection of child support
maintenance: payment to or through Department), or
(d) the payment is retained by the Department of Health, Social Services and Public
Safety for Northern Ireland in accordance with regulations made under Article
38 of that Order (arrears of child support maintenance).
(3) “Maintenance calculation” and “periodical payment” have the meanings given in
section 454(8) and (9).
456 Payments under orders for recovery of benefit etc
(1) Condition A in section 454(2) is treated as met in relation to a payment made by any
person if—

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(a) it is a periodical payment made to the Secretary of State or to the Department
of Health, Social Services and Public Safety for Northern Ireland, and
(b) it is made under a recovery of benefit order.
(2) A “recovery of benefit order” is—
(a) one made under section 106 of the Social Security Administration Act 1992
(c. 5) or section 101 of the Social Security Administration (Northern Ireland)
Act 1992 (c. 8) (recovery of expenditure on benefit from person liable for
maintenance) in respect of income support claimed by any other person, or
(b) one made by virtue of section 23 of the Jobseekers Act 1995 (c. 18) or Article
25 of the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/2705 (N.I. 15))
(recovery of sums in respect of maintenance), in respect of an income-based
jobseeker's allowance claimed by any other person.
(3) In subsection (2) “income-based jobseeker's allowance” has the same meaning as in—
(a) the Jobseekers Act 1995, or
(b) for Northern Ireland, the Jobseekers (Northern Ireland) Order 1995 (S.I.
1995/2705 (N.I. 15)).
(4) “Periodical payment” has the meaning given in section 454(9).
CHAPTER 6
MISCELLANEOUS OTHER RELIEFS
Payments for life insurance etc
457 Payments to trade unions
(1) An individual who makes a payment to a trade union in a tax year is entitled to relief
for the tax year if—
(a) part of the payment (the “qualifying amount”) is attributable to the provision
of superannuation, life insurance or funeral benefits,
(b) the individual meets the requirements of section 460 (residence etc), and
(c) the individual makes a claim.
(2) The amount of the relief is equal to half the qualifying amount.
(3) But the maximum amount of relief under this section to which an individual is entitled
for a tax year is £100.
(4) The relief is given by deducting the amount of the relief in calculating the individual's
net income for the tax year (see Step 2 of the calculation in section 23).
(5) “Trade union” has the meaning given by section 1 of the Trade Union and Labour
Relations (Consolidation) Act 1992 (c. 52).
458 Payments to police organisations
(1) An individual who makes a payment to a police organisation in a tax year is entitled
to relief for the tax year if—

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(a) part of the payment (the “qualifying amount”) is attributable to the provision
of superannuation, life insurance or funeral benefits,
(b) the sum of the qualifying amounts for all the payments which the individual
makes in the tax year is at least £20,
(c) the individual meets the requirements of section 460 (residence etc), and
(d) the individual makes a claim.
(2) The amount of the relief is equal to half the qualifying amount.
(3) But the maximum amount of relief under this section to which an individual is entitled
for a tax year is £100.
(4) The relief is given by deducting the amount of the relief in calculating the individual's
net income for the tax year (see Step 2 of the calculation in section 23).
(5) “Police organisation” means an organisation of persons in police service.
459 Payments for benefit of family members
(1) An individual who pays a sum, or from whose earnings a sum is deducted, in a tax year
is entitled to a tax reduction for the tax year if—
(a) the sum is paid or deducted under an Act or the individual's terms and conditions
of employment,
(b) the sum is for the purpose of—
(i) securing a deferred annuity after the individual's death for the
individual's surviving spouse or civil partner, or
(ii) making provision after the individual's death for the individual's
children,
(c) the individual meets the requirements of section 460 (residence etc), and
(d) the individual makes a claim.
(2) The amount of the tax reduction is equal to income tax at the basic rate on the total of
all the sums paid or deducted in the tax year.
(3) But the maximum amount of the tax reduction under this section to which an individual
is entitled for a tax year is equal to income tax at the basic rate on £100.
(4) A tax reduction under this section is given effect at Step 6 of the calculation in
section 23.
(5) There is no entitlement to a tax reduction under this section in respect of a contribution
paid by any person under—
(a) Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or
(b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act
1992 (c. 7).
(6) This section is also subject to sections 192 to 194 of FA 2004 (relief for pension
contributions).
(7) In this section “earnings” has the meaning given by section 62 of ITEPA 2003.
460 Residence etc of claimants
(1) This section applies in relation to an individual who claims—

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(a) relief under section 457 or 458 (payments to trade unions and police
organisations) for a tax year, or
(b) a tax reduction under section 459 (payments for benefit of family members)
for a tax year.
(2) The individual meets the requirements of this section if the individual—
(a) is UK resident for the tax year, or
(b) meets the condition in subsection (3).
(3) An individual meets the condition in this subsection if, at any time in the tax year, the
individual—
(a) is resident in the Isle of Man or the Channel Islands,
(b) has previously resided in the United Kingdom and is resident abroad for the
sake of the health of—
(i) the individual, or
(ii) a member of the individual's family who is resident with the individual,
(c) is a person who is or has been employed in the service of the Crown,
(d) is employed in the service of any territory under Her Majesty's protection,
(e) is employed in the service of a missionary society, or
(f) is a person whose late spouse or late civil partner was employed in the service
of the Crown.
Patent royalty receipts
461 Spreading of patent royalty receipts
(1) A person who makes a claim is entitled to a tax reduction for a tax year in which the
person receives a payment of a royalty or other sum if—
(a) the payment is in respect of the use of a patent,
(b) the use of the patent has extended over a period of two years or more, and
(c) the payment is one from which a sum representing income tax is required to
be deducted under section 903.
(2) The amount of the tax reduction is the difference between—
(a) the amount of income tax payable by the person in respect of the payment, and
(b) the total amount of income tax which would have been payable by the person
in respect of the payment on the assumptions in subsection (3).
(3) Those assumptions are that—
(a) the payment was made in a number of equal instalments at yearly intervals,
(b) the last instalment was paid on the date on which the payment was in fact made,
and
(c) the number of instalments was the same as the number of complete years in the
period over which the use of the patent extended, but subject to a maximum of 6.
(4) The tax reduction is given effect at Step 6 of the calculation in section 23.

246 Income Tax Act 2007 (c. 3) Part 9 – Special rules about settlements and trustees Chapter 1 – Introduction Document Generated: 2011-04-02
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PART 9
SPECIAL RULES ABOUT SETTLEMENTS AND TRUSTEES
CHAPTER 1
INTRODUCTION
462 Overview of Part
(1) This Part sets out special rules about settlements and trustees.
(2) Chapter 2 contains general provision about settlements and trustees, for example,
definitions of expressions relating to settlements.
(3) Chapter 3 provides for income tax to be charged at the dividend trust rate or at the trust
rate on certain amounts included in the net income of the trustees of a settlement.
(4) Chapter 4 provides—
(a) for expenses of the trustees of a settlement to be set against the trustees' trust
rate income (see section 463(2)), and
(b) consequentially, for the amount of the trust rate income to be reduced.
(5) Chapter 5 qualifies section 479 (which is in Chapter 3) in the case of the trustees of an
approved share incentive plan.
(6) Chapter 6 provides that the first slice of the trust rate income of the trustees of a
settlement is not to be charged at the dividend trust rate or at the trust rate.
(7) Chapter 7 deals with the treatment of payments made by the trustees of a settlement in
the exercise of a discretion.
This affects the way the trustees and the recipients of such payments are taxed.
(8) Chapter 8 deals with the treatment of expenses of the trustees of a settlement where
income arising to the trustees is, before being distributed, the income of a person other
than the trustees themselves.
This affects the way that other person is taxed on that income.
(9) Chapter 9 deals with unauthorised unit trusts.
(10) Chapter 10 deals with heritage maintenance settlements.
(11) See also Part 10 for special rules about charitable trusts.
(12) See also Chapter 4 of Part 2 of FA 2005 for provision about trusts with vulnerable
beneficiaries.
463 Interpretation of Part
(1) In this Part—
“other income” means income which is neither dividend income nor savings
income, and
“the trustees of a settlement” does not include personal representatives.

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(2) References in this Part to the trust rate income for a tax year of the trustees of a
settlement are references to the trustees' net income for the tax year so far as it includes
amounts on which income tax is charged at the dividend trust rate or at the trust rate
(ignoring Chapters 4 and 6).
464 Scottish trusts
(1) This section applies if—
(a) income arises to trustees under a trust having effect under the law of Scotland,
(b) the trustees are UK resident, and
(c) a beneficiary under the trust (“B”) would have an equitable right in possession
to the income if the trust had effect under the law of England and Wales.
(2) B is treated for income tax purposes as having an equitable right in possession to the
income (even though B has no such right under the law of Scotland).
CHAPTER 2
GENERAL PROVISION ABOUT SETTLEMENTS AND TRUSTEES
Overview
465 Overview of Chapter and interpretation
(1) This Chapter contains general provision about settlements and trustees.
(2) Section 466 explains what is meant by references to settled property.
(3) Sections 467 to 473 explain what is meant by references to a settlor in relation to a
settlement.
(4) Sections 474 to 476 treat the trustees of a settlement as a single and distinct person and
set out rules in relation to the residence and ordinary residence of that person.
(5) Section 477 relates to sub-fund elections under paragraph 1 of Schedule 4ZA to TCGA
1992.
(6) Section 478 is about references to settled property etc in regulations.
(7) For the purposes of this Chapter property is derived from other property if—
(a) it derives (directly or indirectly and wholly or partly) from that other property
or any part of that other property, and
(b) in particular, if it derives (directly or indirectly and wholly or partly) from
income from that other property or any part of that other property.
(8) In this Chapter “arrangements” includes any scheme, agreement or understanding,
whether or not legally enforceable.

248 Income Tax Act 2007 (c. 3) Part 9 – Special rules about settlements and trustees Chapter 2 – General provision about settlements and trustees Document Generated: 2011-04-02
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Settled property
466 Meaning of “settled property” etc
(1) This section applies for the purposes of the Income Tax Acts, except so far as, in those
Acts, the context otherwise requires.
(2) “Settled property” means any property held in trust other than property excluded by
subsection (3).
(3) Property is excluded for the purposes of subsection (2) if—
(a) it is held by a person as nominee for another person,
(b) it is held by a person as trustee for another person who is absolutely entitled to
the property as against the trustee, or
(c) it is held by a person as trustee for another person who would be absolutely
entitled to the property as against the trustee if that other person were not an
infant or otherwise lacking legal capacity.
(4) References, however expressed, to property comprised in a settlement are references
to settled property.
(5) A person is absolutely entitled to property as against a trustee if the person has the
exclusive right to direct how the property is to be dealt with (subject to the trustees'
right to use the property for the payment of duty, taxes, costs or other outgoings).
(6) References to a person who is or would be so entitled include references to two or more
persons who are or would be jointly absolutely entitled as against the trustee.
Settlors
467 Meaning of “settlor” etc
(1) In the Income Tax Acts (except where the context otherwise requires) “settlor”, in
relation to a settlement, means the person, or any of the persons, who has made the
settlement.
(2) In the Income Tax Acts (except where the context otherwise requires) a person is a
settlor of property if—
(a) the property is settled property because of—
(i) the person's having made the settlement, or
(ii) an event which leads to the person being treated by this Chapter as
having made the settlement, or
(b) the property derives from settled property within paragraph (a).
(3) A person (“S”) is treated for the purposes of the Income Tax Acts as having made a
settlement if—
(a) S has made or entered into the settlement (directly or indirectly), or
(b) the settled property, or property from which the settled property derives, is or
includes property within subsection (4).
(4) Property is within this subsection if—
(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any
other way), and

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(b) immediately before S's death, the property was property of S—
(i) which was disposable property (see section 468), or
(ii) which represented S's severable share in any property to which S was
beneficially entitled as joint tenant.
(5) In particular, S is treated for the purposes of the Income Tax Acts as having made a
settlement if—
(a) S has provided property for the purposes of the settlement (directly or
indirectly), or
(b) S has undertaken to do that.
(6) If a person (“A”) makes or enters into a settlement in accordance with reciprocal
arrangements with another person (“B”)—
(a) B is treated for the purposes of the Income Tax Acts as having made the
settlement, and
(b) A is not to be treated for the purposes of the Income Tax Acts as having made
the settlement just because of the reciprocal arrangements.
(7) This section needs to be read with sections 469 to 473.
(8) This section and sections 469 to 473 do not apply for the purposes of Chapter 5 of Part
5 of ITTOIA 2005 (amounts treated as income of settlors).
468 Meaning of “disposable property”
(1) This section applies for the purposes of section 467(4)(b)(i).
(2) Property is disposable if S could have disposed of it by S's will.
(3) In working out whether any property could have been so disposed of—
(a) make the assumptions mentioned in subsection (4), and
(b) ignore the powers mentioned in subsection (5).
(4) Assume that—
(a) S is of full age and capacity,
(b) the property is situated in England and Wales, and
(c) if S is not domiciled in the United Kingdom, S is domiciled in England and
Wales.
(5) The powers to be ignored are—
(a) any power of appointment giving S the right to dispose of the property, and
(b) any testamentary power conferred by statute to dispose of entailed interests.
469 Person ceasing to be a settlor
(1) A person (“S”) who is a settlor in relation to a settlement ceases to be so when the
following condition is met.
(2) The condition is that—
(a) no property of which S is the settlor is comprised in the settlement,
(b) S has not undertaken to provide property (directly or indirectly) for the purposes
of the settlement in the future, and

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(c) S has not made reciprocal arrangements with another person for that other
person to enter into the settlement in the future.
470 Transfers between settlements
(1) Section 471 applies in relation to a transfer of property from the trustees of one
settlement (“settlement 1”) to the trustees of another settlement (“settlement 2”) if the
transfer—
(a) is not for full consideration,
(b) is not by way of a bargain made at arm's length, and
(c) is not excluded by subsection (2).
(2) A transfer of property is excluded for the purposes of subsection (1) if—
(a) it occurs only because of the assignment by a beneficiary under settlement 1 of
an interest in that settlement to the trustees of settlement 2,
(b) it occurs only because of the exercise of a general power of appointment, or
(c) section 473(4) applies in relation to it.
(3) In this section “transfer of property” means—
(a) a disposal of property by the trustees of settlement 1, and
(b) the acquisition by the trustees of settlement 2 of—
(i) property disposed of by the trustees of settlement 1, or
(ii) property created by the disposal.
(4) For the purposes of subsection (3) there is an acquisition or disposal of property if there
would be an acquisition or disposal of property for the purposes of TCGA 1992.
471 Identification of settlor following transfer covered by section 470
(1) If there is a transfer of property in relation to which this section applies, then the
following subsections apply for the purposes of the Income Tax Acts, except so far as,
in those Acts, the context otherwise requires.
(2) The settlor (or each settlor) of the property disposed of by the trustees of settlement
1 (“the disposed property”) is treated from the time of the disposal as having made
settlement 2.
(3) If there is more than one settlor of the disposed property, each of them is treated in
relation to settlement 2 as the settlor of a proportionate part of the property acquired by
the trustees of settlement 2 on the disposal.
(4) So far as the disposed property—
(a) was provided for the purposes of settlement 1, or
(b) was derived from property so provided,
the property acquired by the trustees of settlement 2 on the disposal is treated from the
time of the disposal as having been provided for the purposes of settlement 2.
(5) If as a result of subsection (4), property (“the transferred property”) is treated as having
been provided for the purposes of settlement 2—
(a) the person who provided the disposed property, or the property from which it
was derived, for the purposes of settlement 1 is treated as having provided the
transferred property for the purposes of settlement 2, and

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(b) if more than one person provided the disposed property, or the property from
which it was derived, for the purposes of settlement 1, each of them is treated as
having provided a proportionate part of the transferred property for the purposes
of settlement 2.
472 Settlor where property becomes settled because of variation of will etc
(1) This section applies if—
(a) a disposition of property following a person's death is varied, and
(b) section 62(6) of TCGA 1992 applies in relation to the variation.
(2) If property becomes settled property because of the variation (and would not, but for the
variation, have become settled property), a person within subsection (3) is treated for
the purposes of the Income Tax Acts (except where the context otherwise requires)—
(a) as having made the settlement, and
(b) as having provided the property for the purposes of the settlement.
(3) The persons within this subsection are—
(a) a person who immediately before the variation was entitled to the property, or
to property from which it derived, absolutely as legatee,
(b) a person who immediately before the variation would have been so entitled if
that person had not been an infant or otherwise lacking legal capacity,
(c) a person who, but for the variation, would have become so entitled, and
(d) a person who, but for the variation, would have become so entitled if that person
had not been an infant or otherwise lacking legal capacity.
(4) For the purposes of subsection (3)—
(a) “legatee” includes a person taking property—
(i) under a testamentary disposition or on an intestacy or partial intestacy,
whether beneficially or as trustee, or
(ii) under a donatio mortis causa, and
(b) a person who is a legatee as a result of paragraph (a)(ii) is treated as acquiring
the property when the donor dies.
(5) For the purposes of subsection (4)(a) property taken under a testamentary disposition or
on an intestacy or partial intestacy includes any property appropriated by the personal
representatives in or towards satisfaction of—
(a) a pecuniary legacy, or
(b) any other interest or share in the property devolving under the disposition or
intestacy.
473 Deceased person as settlor where variation of will etc
(1) This section applies if—
(a) a disposition of property following the death of a person (“D”) is varied, and
(b) section 62(6) of TCGA 1992 applies in relation to the variation.
(2) If—
(a) property would have become comprised in a settlement within subsection (3),
but

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(b) as a result of the variation, the property, or property derived from it, becomes
comprised in another settlement,
D is treated for the purposes of the Income Tax Acts (except where the context otherwise
requires) as having made the other settlement.
(3) A settlement is within this subsection if—
(a) it arose on D's death (whether by D's will or on D's intestacy or in any other
way), or
(b) it was in existence immediately before D's death (whether or not D was a settlor
in relation to it).
(4) If—
(a) immediately before the variation property is comprised in a settlement and is
property of which D is a settlor, and
(b) immediately after the variation the property, or property derived from it,
becomes comprised in another settlement,
D is treated for the purposes of the Income Tax Acts (except where the context otherwise
requires) as having made the other settlement.
(5) A settlement treated as made by D as a result of this section is treated for the purposes
of the Income Tax Acts as made by D immediately before D's death.
(6) But subsection (5) does not apply in relation to a settlement which arose on D's death.
Trustees
474 Trustees of settlement to be treated as a single and distinct person
(1) For the purposes of the Income Tax Acts (except where the context otherwise requires),
the trustees of a settlement are together treated as if they were a single person (distinct
from the persons who are the trustees of the settlement from time to time).
(2) If different parts of the settled property in relation to a settlement are vested in different
bodies of trustees, subsection (1) and sections 475 and 476 apply in relation to the
different bodies as if they were all one body.
(3) The cases covered by subsection (2) include cases where settled land (within the
meaning of the Settled Land Act 1925 (c. 18)) is vested in the tenant for life and
investments representing capital money are vested in the trustees of the settlement.
475 Residence of trustees
(1) This section applies for income tax purposes and explains how to work out, in relation
to the trustees of a settlement—
(a) whether or not the single person mentioned in section 474(1) is UK resident,
and
(b) whether or not that person is ordinarily UK resident.
(2) If at a time either condition A or condition B is met, then at that time the single person
is both UK resident and ordinarily UK resident.
(3) If at a time neither condition A nor condition B is met, then at that time the single person
is both non-UK resident and not ordinarily UK resident.

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(4) Condition A is met at a time if, at that time, all the persons who are trustees of the
settlement are UK resident.
(5) Condition B is met at a time if at that time—
(a) at least one person who is a trustee of the settlement is UK resident and at least
one such person is non-UK resident, and
(b) a settlor in relation to the settlement meets condition C (see section 476).
(6) If at a time a person (“T”) who is a trustee of the settlement acts as trustee in the course
of a business which T carries on in the United Kingdom through a branch, agency or
permanent establishment there, then for the purposes of subsections (4) and (5) assume
that T is UK resident at that time.
476 How to work out whether settlor meets condition C
(1) This section applies for the purpose of working out whether a settlor (“S”) in relation
to a settlement meets condition C at a time.
(2) If—
(a) the settlement arose on S's death (whether by S's will, on S's intestacy or in any
other way), and
(b) immediately before S's death, S was UK resident, ordinarily UK resident or
domiciled in the United Kingdom,
then S meets condition C from the time of S's death until S ceases to be a settlor in
relation to the settlement.
(3) If—
(a) the settlement is not within subsection (2)(a), and
(b) at a time when S made the settlement (or is treated for the purposes of the
Income Tax Acts as making the settlement), S was UK resident, ordinarily UK
resident or domiciled in the United Kingdom,
then S meets condition C from that time until S ceases to be a settlor in relation to the
settlement.
(4) Further, if—
(a) there is a transfer of property in relation to which section 471 applies,
(b) S is a settlor in relation to settlement 2 as a result of that section, and
(c) immediately before the disposal by the trustees of settlement 1, S meets
condition C as a settlor in relation to settlement 1 as a result of subsection (2)
or (3) or this subsection,
then S meets condition C as a settlor in relation to settlement 2 from the time S becomes
such a settlor until S ceases to be such a settlor.
(5) “Settlement 1” and “settlement 2” are to be read in accordance with section 470(1).

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Sub-funds
477 Sub-fund elections under Schedule 4ZA to TCGA 1992
(1) This section applies for the purposes of the Income Tax Acts (except so far as, in those
Acts, the context otherwise requires) if the trustees of a settlement have made a sub-
fund election under paragraph 1 of Schedule 4ZA to TCGA 1992.
(2) The sub-fund settlement is treated as a settlement that is created at the relevant time.
(3) Each trustee of the trusts on which property comprised in the sub-fund settlement is
held is treated as a trustee of the sub-fund settlement.
(4) A person (“T”) who is a trustee of the sub-fund settlement is treated, from the relevant
time, as having ceased to be a trustee of the principal settlement unless T is also a trustee
of trusts on which property comprised in the principal settlement is held.
(5) A person (“T”) who is a trustee of the principal settlement is not to be treated as a
trustee of the sub-fund settlement unless T is also a trustee of trusts on which property
comprised in the sub-fund settlement is held.
(6) The trustees of the sub-fund settlement are treated as having become, at the relevant
time, absolutely entitled to the property comprised in that settlement as against the
trustees of the principal settlement.
(7) In this section—
“principal settlement” has the meaning given by paragraph 1 of
Schedule 4ZA to TCGA 1992,
“the relevant time” means the time when the sub-fund election is treated as
having taken effect under paragraph 2 of that Schedule,
“sub-fund election” has the meaning given by paragraph 2 of that Schedule,
and
“sub-fund settlement” has the meaning given by paragraph 1 of that
Schedule.
Regulations
478 References to settled property etc in regulations
For the purposes of regulations (whenever made) made under a provision of the Income
Tax Acts—
(a) references to settled property, a settlor or trustees are to be read in accordance
with this Chapter, and
(b) references to the trustees of a trust are to be read as references to the trustees
of a settlement.

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CHAPTER 3
SPECIAL RATES FOR TRUSTEES ' INCOME
479 Trustees' accumulated or discretionary income to be charged at special rates
(1) This section applies if—
(a) accumulated or discretionary income arises to the trustees of a settlement, and
(b) the income does not arise under a trust established for charitable purposes only.
(2) Income tax is charged on the income at the rates referred to in this section instead of
at the rates which would otherwise apply (for which see Chapter 2 of Part 2 (rates at
which income tax is charged)).
(3) Income tax is charged on the income at the dividend trust rate so far as the income is
dividend income.
(4) Otherwise, income tax is charged on the income at the trust rate.
(5) Section 488 disapplies this section in cases relating to approved share incentive plans.
480 Meaning of “accumulated or discretionary income”
(1) Income is accumulated or discretionary income so far as—
(a) it must be accumulated, or
(b) it is payable at the discretion of the trustees or any other person,
and it is not excluded by subsection (3).
(2) The cases covered by subsection (1)(b) include cases where the trustees have, or any
other person has, any discretion over one or more of the following matters—
(a) whether, or the extent to which, the income is to be accumulated,
(b) the persons to whom the income is to be paid, and
(c) how much of the income is to be paid to any person.
(3) Income is excluded for the purposes of subsection (1) so far as—
(a) before being distributed, it is the income of any person other than the trustees,
(b) it is income from property within subsection (4), or
(c) it is income from service charges (as defined in section 18(1) of the Landlord
and Tenant Act 1985 (c. 70)) held on trust by a relevant housing body (see
subsection (5)).
(4) Property is within this subsection if it—
(a) is held for the purposes of a superannuation fund to which section 615(3) of
ICTA (superannuation funds relating to undertakings outside the UK) applies,
but
(b) is not held as a member of a property investment LLP.
(5) “Relevant housing body” means—
(a) a local authority,
(b) a registered social landlord,
(c) a Northern Ireland housing association,
(d) a charitable housing association,

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(e) a charitable housing trust,
(f) a housing action trust established under Part 3 of the Housing Act 1988 (c. 50),
(g) the Housing Corporation, and
(h) the Northern Ireland Housing Executive.
(6) In subsection (5)—
“charitable housing association” means a society, body or company which—
(a) meets the conditions in section 5(1)(a) and (b) of the Housing Act 1985
(c. 68), and
(b) is registered in a register kept under section 3 of the Charities Act 1993
(c. 10) or section 3 of the Charities and Trustee Investment (Scotland) Act
2005 (asp. 10),
“charitable housing trust” means a corporation or body which—
(a) meets the condition in section 6(a) or (b) of the Housing Act 1985, and
(b) is registered in a register kept under section 3 of the Charities Act 1993
or section 3 of the Charities and Trustee Investment (Scotland) Act 2005
(asp. 10),
“Northern Ireland housing association” means a body registered in the
register maintained under Article 14 of the Housing (Northern Ireland) Order
1992 (S.I. 1992/1725 (N.I. 15)), and
“registered social landlord” means a body registered in a register maintained
under section 1 of the Housing Act 1996 (c. 52) or section 57 of the Housing
(Scotland) Act 2001 (asp. 10).
481 Other amounts to be charged at special rates for trustees
(1) This section applies if—
(a) the trustees of a settlement are liable for income tax on an amount of a type
set out in section 482,
(b) the trustees are not trustees of a unit trust scheme, and
(c) the amount is not income arising under a trust established for charitable
purposes only.
(2) Income tax is charged on the amount at one of the rates referred to in this section instead
of at the rate which would otherwise apply (for which see Chapter 2 of Part 2 (rates at
which income tax is charged)).
This is subject to subsection (5).
(3) If the amount is within Type 1 as set out in section 482, income tax is charged on the
amount at the dividend trust rate.
(4) Otherwise, income tax is charged on the amount at the trust rate.
(5) Income tax is not to be charged as mentioned in subsection (2) so far as the amount—
(a) is accumulated or discretionary income,
(b) would be accumulated or discretionary income apart from section 480(3)(a) or
(c), or
(c) is income from property within subsection (6).

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(6) Property is within this subsection if it is held for the purposes of a superannuation fund
to which section 615(3) of ICTA (superannuation funds relating to undertakings outside
the UK) applies.
482 Types of amount to be charged at special rates for trustees
The types of amount referred to in section 481 are as follows. Type 1
A payment—
(a) which is made to the trustees or to which the trustees are entitled, and
(b) which is made by a company on the redemption, repayment or purchase of
shares in the company or on the purchase of rights to acquire such shares.
Type 2
Accrued income profits treated as made by the trustees under section 628(5) or 630(2).
Type 3
Income treated as arising to the trustees under section 761(1) of ICTA (offshore income
gains).
Type 4
Income which the trustees are treated as receiving under section 68(2) or 71(4) of FA
1989 (which relate to employee share ownership trusts).
Type 5
A sum to which Chapter 4 of Part 3 of ITTOIA 2005 (which provides for certain
amounts to be treated as receipts of a property business) applies.
Type 6
A profit in relation to which the trustees are liable for income tax under section 429 of
ITTOIA 2005 (profits from deeply discounted securities).
Type 7
A gain in relation to which the trustees are liable for income tax under section 467 of
ITTOIA 2005 (gains from contracts for life insurance etc), other than a gain to which
subsection (7) of that section applies.
Type 8
A profit or gain in relation to which the trustees are liable for income tax under
section 554 of ITTOIA 2005 (transactions in deposits).
Type 9
A profit or gain—
(a) in relation to which the trustees are liable for income tax under section 557 of
ITTOIA 2005 (disposals of futures and options), and
(b) which does not meet any of conditions A to C in section 568 of ITTOIA 2005.
Type 10

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Proceeds in relation to which the trustees are liable for income tax under section 573 of
ITTOIA 2005 (sales of foreign dividend coupons).
Type 11
Income treated as arising to the trustees under Chapter 3 of Part 13 of this Act (tax
avoidance: transactions in land).
483 Sums paid by personal representatives to trustees
(1) This section applies if, during or at the end of the administration period for an estate—
(a) the personal representatives pay the trustees of a settlement a sum representing
income of the personal representatives, and
(b) if this Chapter had applied to personal representatives, income tax would have
been charged on that income at the dividend trust rate or at the trust rate.
(2) The sum is treated as—
(a) being paid as income, and
(b) having borne income tax at the applicable rate.
(3) In this section—
“administration period” has the meaning given by section 653 of ITTOIA
2005, and
“the applicable rate” means the rate referred to in section 663(1) of ITTOIA
2005 (the applicable rate for grossing up basic amounts of estate income).
CHAPTER 4
TRUSTEES ' EXPENSES AND SPECIAL RATES FOR TRUSTEES
484 Trustees' expenses to be set against trustees' trust rate income
(1) This section applies if the trustees of a settlement incur allowable expenses in a tax year
(“the current tax year”).
(2) The allowable expenses are to be set against the trustees' trust rate income for the current
tax year in accordance with section 486.
(3) That is to be done before working out whether section 491 applies in relation to the
trustees for the current tax year.
(4) So far as any of the trustees' trust rate income has an amount set against it in accordance
with section 486, income tax is charged on it at the rate or rates which would apply
apart from Chapter 3 (see Chapter 2 of Part 2).
(5) Expenses are allowable for the purposes of this Chapter only so far as—
(a) they are expenses of the trustees, and
(b) they are properly chargeable to income, ignoring the express terms of the
settlement.

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(6) Expenses are not allowable for the purposes of this Chapter if they are expenses which
(apart from this section) have fallen, or may fall, to be taken into account for the purpose
of calculating the trustees' liability to income tax for any tax year.
485 Carry forward of unused expenses
(1) This section applies if (apart from this section) the trustees incur an allowable expense
in a tax year prior to the current tax year (“the earlier tax year”).
(2) For the purposes of this Chapter the trustees are treated as having incurred the allowable
expense in the current tax year so far as conditions A and B are met in relation to the
expense.
(3) Condition A is that the allowable expense could not be set against the trustees' trust
rate income for the earlier tax year only because the trustees' trust rate income was
insufficient or they had no trust rate income.
(4) Condition B is that the allowable expense has not been set against the trustees' trust rate
income for a tax year prior to the current tax year as a result of this section.
486 How allowable expenses are to be set against trust rate income
(1) Take the following steps to determine how the allowable expenses are to be set against
the trustees' trust rate income for the current tax year.
Step 1
Reduce the allowable expenses by the proportion of those expenses (if any) which is
excluded in accordance with section 487.
References at Steps 3 to 6 below to the allowable expenses are references to the expenses
as so reduced.
Step 2
Identify the type or types of income which make up the trust rate income.
The possible types are dividend income, savings income and other income.
Step 3
If there is dividend income within subsection (2)—
(a) gross up by reference to the dividend ordinary rate so much of the allowable
expenses as is necessary to give a result equal to the amount of that income, or
(b) if there are not enough allowable expenses to give that result, gross them all
up by reference to that rate.
The grossed up amount is set against the dividend income within subsection (2).
Step 4
If there are remaining expenses and there is dividend income not within subsection (2)

(a) gross up by reference to the dividend ordinary rate so much of the remaining
expenses as is necessary to give a result equal to the amount of that income, or

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(b) if there are not enough remaining expenses to give that result, gross them all
up by reference to that rate.
The grossed up amount is set against the dividend income not within subsection (2).
For the purposes of this step “the remaining expenses” are the allowable expenses so
far as they have not been grossed up at Step 3.
Step 5
If there are remaining expenses and there is savings income—
(a) gross up by reference to the savings rate so much of the remaining expenses as
is necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all
up by reference to that rate.
The grossed up amount is set against the savings income.
For the purposes of this step “the remaining expenses” are the allowable expenses so
far as they have not been grossed up at Step 3 or 4.
Step 6
If there are remaining expenses and there is other income—
(a) gross up by reference to the basic rate so much of the remaining expenses as is
necessary to give a result equal to the amount of that income, or
(b) if there are not enough remaining expenses to give that result, gross them all
up by reference to that rate.
The grossed up amount is set against the other income.
For the purposes of this step “the remaining expenses” are the allowable expenses so
far as they have not been grossed up at Step 3, 4 or 5.
(2) Income is within this subsection so far as it is—
(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK
resident companies),
(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident
companies), or
(c) chargeable under Chapter 6 of that Part (release of loan to participator in close
company).
(3) If income tax would, apart from Chapter 3, be charged on any income mentioned at
Steps 3 to 6 at a rate different to the rate mentioned at the step in question, for the
purpose of setting any expenses against that income, gross up the expenses by reference
to the different rate instead of at the rate mentioned.
487 Non-UK resident trustees
(1) This section applies if a proportion of the income arising to the trustees in the current
tax year is untaxed income.
(2) A proportion of the allowable expenses is excluded for the purposes of section 486.
(3) That proportion is the same as the proportion of the income arising to the trustees which
is untaxed income.

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(4) For the purposes of this section the income arising to the trustees is untaxed income so
far as they are not liable to income tax on it wholly or partly because they—
(a) have been non-UK resident, or
(b) have been treated as resident in a territory outside the United Kingdom under
double taxation arrangements.
(5) If the income tax charged on the income arising to the trustees is limited under
Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents), the
untaxed income includes so much of the income so arising which is disregarded income
(within the meaning of that Chapter) except so far as the disregarded income is within
subsection (6).
(6) The disregarded income is within this subsection so far as—
(a) sums representing income tax have been deducted from the income,
(b) sums representing income tax have been treated as deducted from or paid in
respect of the income, or
(c) there are tax credits in respect of the income.
CHAPTER 5
SHARE INCENTIVE PLANS
488 Application of section 479 to trustees of approved share incentive plans
(1) This section applies if—
(a) income arises to the trustees of an approved share incentive plan, and
(b) the income consists of dividends or other distributions in respect of shares held
by the trustees in relation to which the requirements of Part 4 of Schedule 2
to ITEPA 2003 (approved share incentive plans: types of shares that may be
awarded) are met.
(2) Section 479 applies in relation to the income only if and when condition A or condition
B has been met.
(3) Condition A is that—
(a) the applicable period in relation to the shares has ended, and
(b) that period came to an end without the shares being awarded to a participant
in accordance with the plan.
(4) Condition B is that the trustees disposed of the shares before the end of the applicable
period in relation to the shares.
(5) For the purpose of determining whether shares are awarded to a participant within the
applicable period in relation to them, shares acquired by the trustees at an earlier time
are taken to be awarded to a participant before shares of the same class acquired by the
trustees at a later time.
(6) References in this section to shares being awarded to a participant include references
to the shares being acquired on behalf of the participant as dividend shares.

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489 “The applicable period” in relation to shares
(1) This section sets out how the applicable period in relation to any shares (“the relevant
shares”) is determined for the purposes of section 488.
(2) The length of the applicable period depends on whether any shares in the relevant
company were readily convertible assets at the time the relevant shares were acquired
by the trustees.
(3) If any were, the applicable period is the period of two years beginning with the
acquisition date.
(4) If none were, the applicable period is—
(a) the period of 5 years beginning with the acquisition date, or
(b) if within that period any shares in the relevant company become readily
convertible assets, the period of two years beginning with the date on which
they did so,
whichever ends first.
(5) Subsections (2) to (4) are subject to subsection (6).
(6) If the relevant shares were acquired by the trustees by virtue of a payment in respect of
which a deduction is allowed under paragraph 9 of Schedule 4AA to ICTA (deduction
for contribution to plan trust), the applicable period is the period of 10 years beginning
with the acquisition date.
(7) In this section—
“the acquisition date” means the date on which the trustees acquired the
relevant shares,
“readily convertible assets” has, subject to subsection (8), the meaning given
by sections 701 and 702 of ITEPA 2003, and
“the relevant company” means the company in which the relevant shares are
shares.
(8) In determining for the purposes of this section whether shares are readily convertible
assets, ignore any market for the shares that—
(a) is created by virtue of the trustees acquiring shares for the purposes of the
approved share incentive plan, and
(b) exists solely for the purposes of that plan.
490 Interpretation of Chapter
(1) This Chapter forms part of the SIP code (see section 488 of ITEPA 2003 (approved
share incentive plans)).
(2) Therefore expressions used in this Chapter and contained in the index at the end of
Schedule 2 to ITEPA 2003 have the meaning indicated by that index.
(3) For the purposes of this Chapter shares which are subject to provision for forfeiture are
treated as acquired by the trustees if and when the forfeiture occurs.

Income Tax Act 2007 (c. 3)Part 9 – Special rules about settlements and trusteesChapter 6 – Trustees' first slice of trust rate incomeDocument Generated: 2011-04-02
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CHAPTER 6
TRUSTEES ' FIRST SLICE OF TRUST RATE INCOME
491 Special rates not to apply to first slice of trustees' trust rate income
(1) If the trust rate income for a tax year of the trustees of a settlement is £1,000 or less,
income tax is not charged on it at the dividend trust rate or at the trust rate.
(2) If the trustees' trust rate income is more than £1,000, income tax is not charged on the
first £1,000 of it at the dividend trust rate or at the trust rate.
(3) Instead, income tax is charged on the trustees' trust rate income or the first £1,000 of it
(as the case may be) at the rate or rates which would apply apart from Chapter 3 (see
Chapter 2 of Part 2).
(4) For the purposes of subsection (2) apply the following rules in determining the type or
types of income that make up the first £1,000 of the trustees' trust rate income.
Rule 1
If the trustees' trust rate income includes amounts on which income tax would be
charged at the basic rate apart from Chapter 3, treat those amounts as the lowest part
of the trust rate income.
Rule 2
If the trustees' trust rate income includes amounts on which income tax would be
charged at the dividend ordinary rate apart from Chapter 3, treat those amounts as the
highest part of the trust rate income.
(5) For the purposes of this section gains chargeable under Chapter 9 of Part 4 of ITTOIA
2005 (gains from contracts for life assurance etc) are treated as if they were savings
income.
(6) Amounts on which income tax is not to be charged at the dividend trust rate or at the
trust rate as a result of Chapter 4 are excluded from the trustees' trust rate income for
the purposes of this section.
492 Cases where settlor has made more than one settlement
(1) The application of section 491 in relation to the trustees of a settlement (“the relevant
settlement”) for a tax year is modified in accordance with subsection (2) if the settlor
in relation to the relevant settlement has made one or more other current settlements.
(2) References to £1,000 are to be read as references to—
(a) £200, or
(b) if greater, the settlor's threshold amount.
(3) The settlor's threshold amount is the amount calculated by dividing £1,000 by the
number of current settlements (including the relevant settlement) made by the settlor.
(4) If there is more than one settlor in relation to the relevant settlement—
(a) calculate the threshold amount of each of them, and
(b) use the lowest of those threshold amounts for the purposes of subsection (2)(b).

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(5) A settlement is current if it is in existence at a time during the tax year.
CHAPTER 7
DISCRETIONARY PAYMENTS
493 Discretionary payments by trustees
(1) Sections 494 and 495 apply for income tax purposes if—
(a) in a tax year the trustees of a settlement make an annual payment to a person
(“the beneficiary”) in the exercise of a discretion (whether exercisable by the
trustees or any other person),
(b) the trustees are UK resident for the tax year, and
(c) condition A or condition B is met.
(2) Condition A is that what is paid to the beneficiary is, only because of the payment,
income of the beneficiary for income tax or corporation tax purposes.
“Income” does not include employment income.
(3) Condition B is that the payment is treated for income tax purposes as the income of a
settlor under section 629 of ITTOIA 2005 (income paid to relevant children of settlor).
“Settlor” is to be read in accordance with section 620 of ITTOIA 2005.
(4) The payment is referred to in sections 494 and 495 as “the discretionary payment”.
(5) In this Chapter “payment” includes payment in money's worth.
494 Grossing up of discretionary payment and payment of income tax
(1) The discretionary payment is treated as if it were made after the deduction of a sum
representing income tax at the trust rate on the grossed up amount of the discretionary
payment.
(2) The grossed up amount of the discretionary payment is the actual amount of the
discretionary payment grossed up by reference to the trust rate.
(3) The person mentioned in subsection (4) is treated as having paid income tax of an
amount equal to the sum deducted as mentioned in subsection (1).
(4) That person is—
(a) if condition A in section 493 is met, the beneficiary, and
(b) if condition B in section 493 is met, the settlor.
495 Statement about deduction of income tax
(1) If the person who is treated as having paid income tax requests it in writing, the trustees
must provide that person with a statement showing—
(a) the grossed up amount of the discretionary payment,
(b) the sum deducted as mentioned in section 494(1), and
(c) the actual amount of the discretionary payment.
(2) A statement under this section must be in writing.

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(3) The duty to comply with a request under this section is enforceable by the person who
made it.
496 Income tax charged on trustees
(1) Income tax is charged for a tax year if—
(a) in the tax year the trustees of a settlement make payments as a result of which
income tax is treated as having been paid under section 494, and
(b) amount A is greater than amount B.
(2) Amount A is the total amount of the income tax treated under section 494 as having
been paid.
(3) Amount B is the amount of the trustees' tax pool available for the tax year (see
section 497).
(4) The amount of the tax charged under this section is equal to the difference between
amounts A and B.
(5) The trustees are liable for the tax.
497 Calculation of trustees' tax pool
(1) Take the following steps to calculate the amount of the trustees' tax pool available for
a tax year (“the current tax year”).
This is subject to subsections (2) and (3).
Step 1
Take the amount of the trustees' tax pool available for the previous tax year and deduct
from that amount (but not so that it goes below nil) the total amount of income tax
treated under section 494 as having been paid as a result of payments made by the
trustees in the previous tax year.
Step 2
Add together all amounts of income tax for which the trustees are liable for the current
tax year and which are of a type set out in section 498.
Step 3
Add the sum calculated at Step 2 to the amount resulting from Step 1.
(2) If the trustees were non-UK resident for the previous tax year, references in
subsection (1) to the previous tax year are to be read as references to the last tax year
prior to the current tax year for which the trustees were UK resident.
(3) If—
(a) the current tax year is the tax year during which the settlement is established, or
(b) the trustees have been UK resident for no tax year prior to the current tax year,
ignore Steps 1 and 3 and, accordingly, the trustees' tax pool available for the current tax
year is the sum calculated at Step 2.

266 Income Tax Act 2007 (c. 3) Part 9 – Special rules about settlements and trustees Chapter 8 – Trustees' expenses and beneficiary's income Document Generated: 2011-04-02
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498 Types of income tax for the purposes of section 497
(1) The types of amount referred to at Step 2 in section 497 are as follows.
Type 1
The amount of any tax on income (other than income of a kind mentioned below in
relation to Type 2 or 3) charged at the dividend trust rate or at the trust rate.
Type 2
The amount of tax at the nominal rate on any income which is—
(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK
resident companies),
(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident
companies), or
(c) chargeable under Chapter 6 of that Part (release of loan to participator in close
company),
and on which tax is charged at the dividend trust rate as a result of section 479.
Type 3
The amount of tax at the nominal rate on any income on which tax is charged at the
dividend trust rate as a result of section 481.
Type 4
The amount of any tax on income on which tax is charged at the basic rate or at the
savings rate as a result of section 491.
Type 5
The amount of tax on any income determined in accordance with section 26 of FA 2005
(special tax treatment for trusts for the benefit of vulnerable persons).
(2) In relation to Types 2 and 3, references to the nominal rate are references to a rate equal
to the difference between the dividend trust rate and the dividend ordinary rate.
(3) In relation to Types 1 to 4, references to income do not include income the tax on which
is reduced in accordance with section 26 of FA 2005.
CHAPTER 8
TRUSTEES ' EXPENSES AND BENEFICIARY 'S INCOME
499 Application of Chapter
(1) This Chapter applies if—
(a) in a tax year (“the current tax year”) income arises to the trustees of a settlement,
and
(b) before being distributed, some or all of that income is income of another person
(“the beneficiary”).

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(2) It contains provision about how the beneficiary's income mentioned in subsection (1)
(b) (“the beneficiary's income”) can be reduced for income tax purposes by reference
to expenses of the trustees.
500 Restrictions on use of trustees' expenses to reduce the beneficiary's income
(1) Expenses of the trustees can be used to reduce the beneficiary's income for income tax
purposes only so far as—
(a) the expenses are incurred by the trustees in the current tax year or in an earlier
tax year, and
(b) as a result of the expenses being chargeable to income as mentioned in
subsection (2) or (3), the beneficiary's entitlement to the beneficiary's income
is reduced by reference to the expenses.
(2) Expenses are chargeable to income for the purposes of subsection (1)(b) if they are
chargeable to income by the trustees under a term of the settlement (subject to any
overriding law which prevents the expenses from being so chargeable).
(3) Expenses are also chargeable to income for the purposes of subsection (1)(b) if they—
(a) are not chargeable to income by the trustees under a term of the settlement, but
(b) are chargeable to income by the trustees in accordance with any law (subject to
any overriding term of the settlement which prevents the expenses from being
so chargeable).
(4) Expenses cannot be used to reduce the beneficiary's income for income tax purposes so
far as they are expenses which have fallen, or may fall, to be taken into account for the
purpose of calculating the trustees' liability to income tax for any tax year.
501 Non-UK resident beneficiaries
(1) This section applies if—
(a) expenses of the trustees are to be used to reduce the beneficiary's income for
income tax purposes, and
(b) a proportion of the beneficiary's income is untaxed income (see section 502).
(2) A proportion of those expenses is not to be so used.
(3) That proportion is the same as the proportion of the beneficiary's income which is
untaxed income.
(4) In subsection (3) the references to the beneficiary's income and untaxed income do not,
in either case, include so much (if any) of that income as is equal to the amount of
income tax, or of any foreign tax, for which the trustees are liable on that income.
(5) “Foreign tax” means any tax which—
(a) is of a similar character to income tax, and
(b) is imposed by the laws of a territory outside the United Kingdom.
502 Meaning of “untaxed income” in section 501
(1) For the purposes of section 501 the beneficiary's income is untaxed income so far as the
beneficiary is not liable to income tax on it wholly or partly because the beneficiary—

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(a) has been non-UK resident, or
(b) has been treated as resident in a territory outside the United Kingdom under
double taxation arrangements.
(2) If the income tax charged on the beneficiary for the beneficiary's income is limited
under Chapter 1 of Part 14 (limits on liability to income tax of non-UK residents),
the untaxed income includes so much of the beneficiary's income which is disregarded
income (within the meaning of that Chapter) except so far as the disregarded income
is within subsection (3).
(3) The disregarded income is within this subsection so far as—
(a) sums representing income tax have been deducted from the income,
(b) sums representing income tax have been treated as deducted from or paid in
respect of the income, or
(c) there are tax credits in respect of the income.
503 How beneficiary's income is reduced
(1) This section applies if the beneficiary's income is to be reduced for income tax purposes
by expenses of the trustees.
(2) The beneficiary's income is to be reduced in the following order—
first, reduce dividend income within subsection (3) (if any),
second, reduce dividend income not within that subsection (if any),
third, reduce savings income (if any), and
fourth, reduce other income (if any).
(3) Income is within this subsection so far as it is—
(a) chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK
resident companies),
(b) chargeable under Chapter 5 of that Part (stock dividends from UK resident
companies), or
(c) chargeable under Chapter 6 of that Part (release of loan to participator in close
company).
(4) If the trustees are liable for income tax charged on a component of the beneficiary's
income at a particular rate, then any reduction of that component is to be made in
accordance with the steps set out in subsection (5).
(5) Here are the steps.
Step 1
Deduct from the component the amount of income tax charged on it at the particular
rate for which the trustees are liable.
Step 2
Take the result from Step 1 and reduce it (but not below nil) by the amount of the
trustees' expenses so far as they have not already been used to reduce other components
of the beneficiary's income.
Step 3
Take the result from Step 2 and gross it up by reference to the particular rate.

Income Tax Act 2007 (c. 3)Part 9 – Special rules about settlements and trusteesChapter 9 – Unauthorised unit trustsDocument Generated: 2011-04-02
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The result is the reduced amount of the component of the beneficiary's income.
CHAPTER 9
UNAUTHORISED UNIT TRUSTS
504 Treatment of income of unauthorised unit trust
(1) This section applies for income tax purposes in relation to an unauthorised unit trust if
the trustees are UK resident.
(2) If income arises to the trustees, the income is treated as the income of the trustees and
not of the unit holders.
(3) If income tax on any part of the income would apart from this subsection be charged at
the dividend ordinary rate or at the savings rate, income tax on that part of the income
is charged at the basic rate instead.
(4) None of the following applies in relation to the income—
(a) section 479,
(b) section 397(1) of ITTOIA 2005 (tax credits for qualifying distributions),
(c) section 399(2) and (6) of ITTOIA 2005 (person not entitled to tax credit treated
as having paid income tax), and
(d) section 400(2) and (3) of ITTOIA 2005 (person whose income includes
non-qualifying distribution treated as having paid income tax).
(5) Sections 494 and 495 do not apply in relation to payments made by the trustees.
505 Relief for trustees of unauthorised unit trust
(1) This section applies if in a tax year the trustees of an unauthorised unit trust are treated
as making a deemed payment.
(2) The trustees are entitled to a relief for the tax year equal to the gross amount of the
payment.
(3) The relief is given by deducting that gross amount in calculating the trustees' net income
for the tax year (see Step 2 of the calculation in section 23).
(4) But this is subject to subsections (5) to (7) and section 506.
(5) Relief is not to be given for the payment so far as it is ineligible for relief.
(6) For the purpose of determining the extent to which the payment is ineligible for relief
(if at all) section 450 applies in relation to the payment as that section applies in relation
to a payment to which section 449 applies.
(7) The total amount of the reliefs given under this section to the trustees for the tax year
cannot be greater than the amount of the trustees' modified net income for the tax year
(see section 1025).
(8) In this section and in section 506 “deemed payment” and “the gross amount” have the
meanings given by section 941(6).

270 Income Tax Act 2007 (c. 3) Part 9 – Special rules about settlements and trustees Chapter 10 – Heritage maintenance settlements Document Generated: 2011-04-02
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506 Special rules for trustees affected by section 733 of ICTA
(1) This section applies if—
(a) interest payable to the trustees of an unauthorised unit trust in respect of
securities (“the affected income”) is attributable to a tax year,
(b) because of section 733(1) of ICTA (dividend buying etc: persons entitled to
exemptions), some part of the affected income is not exempt from income tax,
and
(c) the trustees are treated as making deemed payments in the tax year.
(2) For the purposes of section 505(7) the trustees' modified net income for the tax year is
reduced by the amount of the affected income.
(3) In this section “interest” and “securities” are to be read in accordance with
section 731(9) of ICTA.
CHAPTER 10
HERITAGE MAINTENANCE SETTLEMENTS
Introduction
507 Overview of Chapter
(1) This Chapter makes provision about income arising from heritage maintenance property
comprised in a heritage maintenance settlement.
(2) In this Chapter—
“heritage body” means a body or charity of a kind mentioned in paragraph
3(1)(a)(ii) of Schedule 4 to IHTA 1984 (maintenance funds for historic
buildings etc),
“heritage direction” means a direction under paragraph 1 of that Schedule,
“heritage maintenance property” means any property in respect of which a
heritage direction has effect,
“heritage maintenance settlement” means a settlement which comprises
heritage maintenance property, and
“property maintenance purpose” means any of the purposes mentioned in
paragraph 3(1)(a)(i) of that Schedule.
(3) If a settlement comprises both heritage maintenance property and other property, the
heritage maintenance property and the other property are treated as comprised in
separate settlements for the purposes of Chapters 2 to 8 of this Part and the following
provisions—
(a) sections 64 to 66 and sections 75 to 79 (trade loss relief against general income),
(b) sections 83 to 88 (carry-forward trade loss relief), and
(c) Chapter 5 of Part 5 of ITTOIA 2005.

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Trustees' election in respect of income etc
508 Election by trustees
(1) The trustees of a heritage maintenance settlement may elect for this section to have
effect for a tax year.
(2) If an election under subsection (1) has effect for a tax year, the rules in subsections (3)
and (4) apply.
(3) Income arising in the year from the heritage maintenance property comprised in the
settlement, which would otherwise be treated as income of the settlor under Chapter 5
of Part 5 of ITTOIA 2005, is not to be so treated.
(4) Any sum applied out of the heritage maintenance property in the year for a property
maintenance purpose, which would otherwise be treated for income tax purposes as the
income of a person—
(a) because of the person's interest in (or occupation of) the property in respect of
which the sum is applied, or
(b) under section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of
settlement),
is not to be so treated.
(5) An election under subsection (1) must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year to which it relates.
509 Change of circumstances during a tax year
(1) If a change of circumstances arises during a tax year—
(a) the part of the year before the change and the part of the year after the change are
to be treated as separate tax years for the purposes of section 508, this section
and section 510, and
(b) separate elections under section 508(1) may be made for each part.
(2) A change of circumstances arises if conditions A and B are met.
(3) Condition A is that for any part of the tax year—
(a) a heritage direction has effect, and
(b) income arising from the heritage maintenance property comprised in the
settlement is treated as income of the settlor under Chapter 5 of Part 5 of
ITTOIA 2005.
(4) Condition B is that for the remaining part of the year one or both of the following
paragraphs applies—
(a) no heritage direction has effect, and
(b) no income arising from property comprised in the settlement is treated as
income of the settlor under Chapter 5 of Part 5 of ITTOIA 2005.
Absence of election and income treated as income of settlor: special rules
510 Sums applied for property maintenance purposes
(1) This section applies if—

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(a) income arises from the heritage maintenance property comprised in a heritage
maintenance settlement in a tax year in respect of which no election is made
under section 508,
(b) the income is treated under Chapter 5 of Part 5 of ITTOIA 2005 as income of
the settlor, and
(c) a sum in excess of the income is applied for a property maintenance purpose
in the year.
(2) Any such sum which is so applied in that year, which would otherwise be treated for
income tax purposes as the income of a person—
(a) because of the person's interest in (or occupation of) the property in respect of
which the sum is applied, or
(b) under section 633 of ITTOIA 2005 (capital sums paid to settlor by trustees of
settlement),
is not to be so treated.
511 Prevention of double taxation: reimbursement of settlor
(1) This section applies to income arising from heritage maintenance property if—
(a) the income is treated under Chapter 5 of Part 5 of ITTOIA 2005 as income of
the settlor,
(b) the income is applied in reimbursing the settlor for expenditure incurred by the
settlor for a property maintenance purpose, and
(c) the expenditure is deductible in calculating the profits of—
(i) a trade, or
(ii) a UK property business,
carried on by the settlor.
(2) Any such income—
(a) is not to be brought into account as a receipt in calculating the profits of that
trade or business, and
(b) is not to be treated as income of the settlor otherwise than under Chapter 5 of
Part 5 of ITTOIA 2005.
Application of property for non-heritage purposes: charge to tax
512 Charge to tax on some settlements
(1) Income tax is charged in respect of a heritage maintenance settlement on any of the
occasions described in cases A to D, subject to sections 516 and 517.
(2) Case A is where any of the property comprised in the settlement (whether capital or
income) is applied otherwise than—
(a) for a property maintenance purpose, or
(b) as respects income not so applied and not accumulated, for the benefit of a
heritage body.
(3) Case B is where any of that property, on ceasing to be comprised in the settlement,
devolves otherwise than on a heritage body.
(4) Case C is where the heritage direction ceases to have effect in respect of the settlement.

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(5) Case D is where any of the property comprised in the settlement, on ceasing at any time
to be comprised in the settlement—
(a) devolves on a heritage body, and
(b) at or before that time an interest under the settlement is or has been acquired
for a consideration in money or money's worth by that or another such body.
(6) For the purposes of subsection (5)(b) any acquisition from another such body is to be
ignored.
513 Income charged
(1) Tax is charged under section 512 on the whole of the income—
(a) which has arisen in the relevant period from the property comprised in the
settlement, and
(b) which has not been applied (whether or not it has been first accumulated) for a
property maintenance purpose or for the benefit of a heritage body.
(2) In this section “relevant period” means—
(a) if tax has become chargeable under section 512 in respect of the settlement on
a previous occasion, the period since the last occasion, and
(b) in any other case, the period since the settlement took effect.
(3) Tax charged under section 512 is in addition to any tax otherwise chargeable.
(4) All the provisions of the Income Tax Acts relating to assessments and to the collection
and recovery of income tax (so far as applicable) are to apply to that charge.
514 Persons liable
The persons liable for any tax charged under section 512 are the trustees of the
settlement.
515 Rate of tax
Tax is charged under section 512 at the rate found by—
(a) taking the higher rate for the tax year during which the charge arises, and
(b) reducing it by the trust rate for that year.
516 Transfer of property between settlements
(1) This section applies if the whole of the property comprised in a settlement becomes
comprised in another settlement because of a tax-free transfer.
(2) The occasion of charge under section 512, which would otherwise occur at the time of
transfer, occurs when tax first becomes chargeable under that section in respect of any
settlement comprising the transferred property (“the chargeable settlement”).
(3) For the purposes of section 513(1) as it applies to the chargeable settlement, the relevant
period is adjusted so that it begins—
(a) on the occasion when tax last became chargeable under section 512 in respect
of any previous settlement from which the property was transferred, or

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(b) if there has been no such occasion, when such previous settlement (or the first
of them) took effect.
(4) In this section “tax-free transfer” means a transfer of property from one settlement into
another in either of the following cases—
(a) where paragraph 9(1) of Schedule 4 to IHTA 1984 provides (or, but for
paragraph 9(4) of that Schedule, would provide) an exception from charge in
respect of the property, or
(b) where, both immediately before and immediately after the transfer, the property
is heritage maintenance property.
517 Exemption for income treated as income of settlor
(1) Tax is not chargeable under section 512 in respect of income which is treated under
section 624 or 629 of ITTOIA 2005 as income of the settlor.
(2) If such income arises in a tax year, any sums applied in the year—
(a) for a property maintenance purpose, or
(b) for the benefit of a heritage body,
are to be treated as paid first out of that income and, so far as there is any excess, out
of income that does not fall within subsection (1).
PART 10
SPECIAL RULES ABOUT CHARITABLE TRUSTS ETC
Introduction
518 Overview of Part
(1) This Part makes provision about some gifts and payments made to charitable trusts,
including provision imposing charges to income tax and conferring exemptions from
those charges (see sections 520 to 523).
(2) This Part also provides for some of the income of charitable trusts and others to be
exempt from charges to income tax (see sections 524 to 537).
(3) In the provisions of this Part containing exemptions, references to total income of a
charitable trust are to the total income of the trustees of the charitable trust concerned.
(4) See section 538 for provision about making claims for the exemptions under this Part.
(5) In the case of a charitable trust which has a non-exempt amount for a tax year (see
section 540), the exemptions under this Part are subject to restrictions (see section 539).
(6) The non-exempt amount for a tax year depends on the charitable trust's attributable
income and gains for the tax year and its non-charitable expenditure for the tax year
(see sections 540 and 543 to 564).
519 Meaning of “charitable trust”
In this Part “charitable trust” means a trust established for charitable purposes only.

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Gifts and other payments
520 Gifts entitling donor to gift aid relief: income tax treated as paid
(1) This section applies if a gift is made to a charitable trust by an individual and the gift is
a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid).
(2) The charitable trust is treated as receiving, under deduction of income tax at the basic
rate for the tax year in which the gift is made, a gift of an amount equal to the grossed
up amount of the gift.
(3) The grossed up amount of the gift is the amount of the gift grossed up by reference to
the basic rate for the tax year in which the gift is made.
(4) The income tax treated as deducted is treated as income tax paid by the trustees of the
charitable trust.
521 Gifts entitling donor to gift aid relief: income tax liability and exemption
(1) This section applies if gifts are made to charitable trusts by individuals and the gifts are
qualifying donations for the purposes of Chapter 2 of Part 8 (gift aid).
(2) Income tax is charged on the gifts under this section.
(3) It is charged on the grossed up amount of the gifts arising in the tax year.
(4) But a gift is not taken into account in calculating total income so far as it is applied to
charitable purposes only.
(5) The grossed up amount of a gift is the amount of the gift grossed up by reference to the
basic rate for the tax year in which the gift is made.
(6) The trustees of the charitable trust are liable for any tax charged under this section.
522 Gifts of money from companies: income tax liability and exemption
(1) This section applies if gifts of sums of money are made to charitable trusts by
companies.
(2) But this section does not apply to a gift of a sum of money made by a company that
is itself a charity (see section 523).
(3) Income tax is charged on the gifts under this section.
(4) It is charged on the full amount of the gifts arising in the tax year.
(5) But a gift is not taken into account in calculating total income so far as it is applied to
charitable purposes only.
(6) The trustees of the charitable trust are liable for any tax charged under this section.
523 Payments from other charities: income tax liability and exemption
(1) This section applies to payments which—
(a) are received by charitable trusts from other charities,
(b) are not made for full consideration in money or money's worth,

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(c) are not charged to income tax, apart from this section, and
(d) are not of a description which (on a claim) would be exempt from income tax
under any of the exemptions conferred by this Part.
(2) This section does not apply to a payment which arises from a source outside the United
Kingdom.
(3) Income tax is charged under this section on the payments.
(4) It is charged on the full amount of the payments arising in the tax year.
(5) But a payment is not taken into account in calculating total income so far as it is applied
to charitable purposes only.
(6) The amount charged under this section in the case of certain payments made by the
trustees of a charitable trust in the exercise of a discretion is subject to section 494
(grossing up of discretionary payments from trusts).
(7) The trustees of the charitable trust are liable for any tax charged under this section.
Other exemptions
524 Exemption for profits etc of charitable trades
(1) The income mentioned in subsection (2) is not taken into account in calculating total
income if conditions A and B are met.
(2) The income referred to in subsection (1) is—
(a) the profits of a trade carried on by a charitable trust,
(b) amounts treated as adjustment income of a charitable trust under section 228
of ITTOIA 2005 in respect of a trade carried on by the trust, and
(c) post-cessation receipts arising from a trade carried on by a charitable trust
which are received by the trustees of the trust or to which they are entitled.
(3) Condition A is—
(a) in the case of the profits of a trade, that the profits are profits of a tax year in
relation to which the trade is a charitable trade,
(b) in the case of an amount treated as adjustment income, that the amount arises
in a tax year in relation to which the trade is a charitable trade, and
(c) in the case of a post-cessation receipt, that the trade was a charitable trade in
relation to the tax year in which the cessation occurred.
See section 525 as to when a trade is a charitable trade in relation to a tax year.
(4) Condition B is that the profits are, or the amount or post-cessation receipt is, (as the
case may be) applied to the purposes of the charitable trust only.
(5) Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income is
treated as arising) apply for the purposes of subsection (3) as they apply for the purposes
of Chapter 17 of Part 2 of that Act.
(6) In this section “post-cessation receipt” means an amount that is a post-cessation receipt
for the purposes of Chapter 18 of Part 2 of ITTOIA 2005 (post-cessation receipts) (see
sections 246 to 253 of that Act).

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525 Meaning of “charitable trade”
(1) For the purposes of this Part a trade carried on by a charitable trust is a charitable trade
in relation to a tax year if throughout the basis period for the tax year—
(a) the trade is exercised in the course of carrying out a primary purpose of the
charitable trust, or
(b) the work in connection with the trade is mainly carried out by beneficiaries of
the charitable trust.
(2) For the purposes of subsection (1)(a), if a trade is exercised partly in the course of
carrying out a primary purpose of the charitable trust and partly otherwise, each part is
to be treated as a separate trade.
(3) For the purposes of subsection (1)(b), if work in connection with a trade is carried out
partly but not mainly by beneficiaries, the part in connection with which work is carried
out by beneficiaries and the other part are to be treated as separate trades.
(4) If different parts of a trade are treated as separate trades under subsection (2) or (3), a
just and reasonable apportionment is to be made for that purpose of—
(a) expenses and receipts of the trade, and
(b) any amounts which are treated as adjustment income under section 228 of
ITTOIA 2005 in respect of the trade, or which are post-cessation receipts arising
from the trade for the purposes of Chapter 18 of Part 2 of that Act.
(5) For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
526 Exemption for profits etc of small-scale trades
(1) The income mentioned in subsection (2) is not taken into account in calculating total
income if conditions A and B are met.
(2) The income referred to in subsection (1) is—
(a) the profits of a trade carried on by a charitable trust,
(b) amounts treated as adjustment income of a charitable trust under section 228
of ITTOIA 2005 in respect of a trade carried on by the trust, and
(c) post-cessation receipts arising from a trade carried on by a charitable trust
which are received by the trustees of the trust or to which they are entitled.
(3) Subsection (1) does not apply in respect of—
(a) profits of a trade that are, apart from this section, exempt from income tax
chargeable under Part 2 of ITTOIA 2005,
(b) amounts treated as adjustment income that are, apart from this section, exempt
from income tax chargeable under Chapter 17 of Part 2 of that Act, or
(c) post-cessation receipts that are, apart from this section, exempt from income
tax chargeable under Chapter 18 of Part 2 of that Act.
(4) Condition A is—
(a) in the case of the profits of a trade, that the profits are profits of a tax year in
relation to which the condition specified in section 528 (condition as to trading
and miscellaneous incoming resources) is met,
(b) in the case of an amount treated as adjustment income, that the amount arises
in such a tax year, and
(c) in the case of a post-cessation receipt, that it is received in such a tax year.

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(5) Condition B is that the profits are, or the amount or post-cessation receipt is, (as the
case may be) applied to the purposes of the charitable trust only.
(6) Sections 232(1) and (2), 235 and 236 of ITTOIA 2005 (when adjustment income is
treated as arising) apply for the purposes of subsection (4) as they apply for the purposes
of Chapter 17 of Part 2 of that Act.
(7) In this section “post-cessation receipt” means an amount that is a post-cessation receipt
for the purposes of Chapter 18 of Part 2 of that Act (post-cessation receipts) (see
sections 246 to 253 of that Act).
527 Exemption from charges under provisions to which section 1016 applies
(1) Any income or gains of a charitable trust that is or are chargeable to income tax under
or by virtue of any provision to which section 1016 applies is not or are not taken into
account in calculating total income if conditions A and B are met.
(2) Subsection (1) does not apply in respect of any income or gains chargeable to income
tax by virtue of any of—
(a) section 214 of ICTA (chargeable payments connected with exempt
distributions),
(b) section 804 of that Act (double taxation relief),
(c) Chapter 9 of Part 4 of ITTOIA 2005 (gains from contracts for life insurance etc),
(d) Chapter 5 of Part 5 of that Act (settlements: amounts treated as income of
settlor),
(e) section 755 (transactions in land), and
(f) any other enactment specified in an order made by the Treasury.
(3) Subsection (1) does not apply in respect of any income that is, or gains that are,
apart from this section, exempt from income tax chargeable under or by virtue of any
provision to which section 1016 applies.
(4) Condition A is that the income is, or the gains are, for a tax year in relation to which
the condition specified in section 528 is met.
(5) Condition B is that the income is, or the gains are, applied to the purposes of the
charitable trust only.
528 Condition as to trading and miscellaneous incoming resources
(1) The condition in this section is met in relation to a tax year if—
(a) the sum of the charitable trust's trading incoming resources and miscellaneous
incoming resources for the tax year does not exceed the requisite limit for the
tax year, or
(b) the trustees of the charitable trust had, at the beginning of the tax year, a
reasonable expectation that it would not do so.
(2) The charitable trust's “trading incoming resources” for the tax year are—
(a) the incoming resources which are required to be taken into account in
calculating the profits of, or losses made in, the basis period for the tax year of
any non-exempt trade carried on by the charitable trust, and

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(b) the incoming resources which are treated as adjustment income under
section 228 of ITTOIA 2005 in respect of such a trade, or which are post-
cessation receipts arising from such a trade.
“Post-cessation receipt” has the meaning given by section 526(7).
(3) For the purposes of subsection (2) a trade is a “non-exempt trade” if any profits of the
trade would not, apart from section 526, be exempt from income tax chargeable under
Part 2 of ITTOIA 2005.
(4) The charitable trust's “miscellaneous incoming resources” for the tax year are the
incoming resources which are required to be taken into account in calculating non-
exempt miscellaneous income or non-exempt miscellaneous losses for the tax year.
(5) In this section—
“non-exempt miscellaneous income” means income or gains chargeable to
income tax under or by virtue of any provision to which section 1016 applies
that is not, or are not, apart from section 526 or 527, exempt from income tax
chargeable under or by virtue of that provision, and
“non-exempt miscellaneous losses” means losses arising from a transaction
which is of such a nature that if income or gains had arisen from it the income
would have been non-exempt miscellaneous income.
(6) The requisite limit—
(a) is 25% of the charitable trust's total incoming resources for the tax year, but
(b) must not be less than £5,000 or more than £50,000.
529 Exemption for profits from fund-raising events
(1) The profits of a trade carried on by a charitable trust are not taken into account in
calculating total income so far as they arise from a VAT-exempt event.
(2) Subsection (1) applies so far as the profits are applied to the purposes of the charitable
trust only.
(3) An event is a VAT-exempt event if the supply of goods and services by the charitable
trust in connection with the event would be exempt from value added tax under Group
12 of Schedule 9 to the Value Added Tax Act 1994 (c. 23) (fund-raising events by
charities and other qualifying bodies).
530 Exemption for profits from lotteries
(1) The profits accruing to a charitable trust from a lottery are not taken into account in
calculating total income if conditions A and B are met.
(2) Condition A is that—
(a) the lottery is promoted and conducted in accordance with section 3 or 5 of the
Lotteries and Amusements Act 1976 (c. 32), or
(b) the lottery is promoted and conducted in accordance with Article 133 or 135
of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order
1985 (S.I. 1985/1204 (N.I. 11)).
(3) Condition B is that the profits are applied to the purposes of the charitable trust only.

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531 Exemption for property income etc
(1) Income which is chargeable to income tax under Part 2 of ITTOIA 2005 (trading
income) as a result of section 261 of that Act is not taken into account in calculating
total income so far as—
(a) it arises in respect of rents or other receipts from an estate, interest or right in
or over land, and
(b) the estate, interest or right is vested in any person in trust for a charitable trust
or for charitable purposes.
(2) Income which is chargeable to income tax under Part 3 of ITTOIA 2005 (property
income) is not taken into account in calculating total income so far as—
(a) it arises in respect of an estate, interest or right in or over land, and
(b) the estate, interest or right is vested in any person in trust for a charitable trust
or for charitable purposes.
(3) Subsection (1) and (2) apply so far as the income is applied to charitable purposes only.
532 Exemption for savings and investment income
(1) The income mentioned in subsection (2) is not taken into account in calculating total
income if—
(a) it is income of a charitable trust, or
(b) it is required, under an Act, court judgment, charter, trust deed or will, to be
applied to charitable purposes only.
(2) The income referred to in subsection (1) is—
(a) interest,
(b) a dividend or other distribution of a UK resident company,
(c) a dividend of a non-UK resident company,
(d) an annuity payment under a purchased life annuity,
(e) profits on the disposal of deeply discounted securities, or
(f) income treated for the purposes of Chapter 10 of Part 4 of ITTOIA 2005
(distributions from unauthorised unit trusts) as received by a unit holder from
a scheme to which section 547 of that Act applies (unauthorised unit trust
schemes).
(3) Subsection (1) applies only so far as the income falls within, and is dealt with under,
Part 4 of ITTOIA 2005 (see section 366 of that Act as to provisions given priority over
Part 4).
(4) Subsection (1) applies so far as the income is applied to charitable purposes only.
(5) In this section—
“deeply discounted security” has the same meaning as in Chapter 8 of Part
4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 430
of that Act),
“disposal”, in relation to a deeply discounted security, has the same meaning
as in Chapter 8 of Part 4 of that Act (see section 437(1) of that Act),
“dividend”, in relation to a UK resident company, has the same meaning as
in Chapter 3 of Part 4 of that Act (dividends etc from UK resident companies
etc) (see section 382(4) of that Act),

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“interest” includes anything treated as interest for the purposes of Chapter 2
of Part 4 of that Act (interest), and
“purchased life annuity” has the same meaning as in Chapter 7 of Part 4 of
that Act (purchased life annuity payments) (see section 423 of that Act).
533 Exemption for public revenue dividends
(1) Public revenue dividends on securities which are in the name of trustees are not taken
into account in calculating total income so far as the dividends are applicable and
applied only for the repair of—
(a) a cathedral, college, church or chapel, or
(b) a building used only for the purposes of divine worship.
(2) In this section “public revenue dividends” means—
(a) income from securities which is payable out of the public revenue of the United
Kingdom or Northern Ireland, or
(b) income from securities issued by or on behalf of a government or a public or
local authority in a country outside the United Kingdom.
534 Exemption for transactions in deposits
(1) Profits or gains arising to a charitable trust from the disposal of exempt deposit rights
are not taken into account in calculating total income.
(2) Subsection (1) applies so far as the profits or gains are applied to charitable purposes
only.
(3) For the purposes of this section, the exercise of an exempt deposit right is a disposal of
it, except so far as the right is a right to receive interest.
(4) In this section “exempt deposit rights” means—
(a) a right to receive, with or without interest, a principal amount stated in, or
determined in accordance with, the current terms of issue of an eligible debt
security, where in accordance with those terms the issue of uncertificated units
of the eligible debt security corresponds to the issue of a certificate of deposit,
(b) a right to receive the principal amount stated in a certificate of deposit, with
or without interest, and
(c) an uncertificated right to receive a principal amount, with or without interest,
as a result of a deposit of money.
(5) In this section—
“eligible debt security” has the meaning given in regulation 3(1) of the
Uncertificated Securities Regulations 2001 (S.I. 2001/3755),
“uncertificated”, in relation to a unit, has the meaning given in
regulation 3(1) of the Uncertificated Securities Regulations 2001,
“uncertificated right” means a right in respect of which no certificate of
deposit has been issued, although the person for the time being entitled to it is
entitled to call for the issue of such a certificate, and
“unit” has the meaning given in regulation 3(1) of the Uncertificated
Securities Regulations 2001.

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535 Exemption for offshore income gains
(1) Offshore income gains accruing to a charitable trust are not taken into account in
calculating total income.
(2) Subsection (1) applies if the gain is applicable and applied to charitable purposes only.
(3) In this section “offshore income gain” has the same meaning as in Chapter 5 of Part 17
of ICTA (offshore funds) (see section 758 of, and Schedule 28 to, that Act).
(4) See section 761(6B) of ICTA, which—
(a) applies where property held on charitable trusts ceases to be subject to
charitable trusts, and
(b) provides for any gain accruing under that subsection to be treated as an offshore
income gain not accruing to a charity.
536 Exemption for certain miscellaneous income
(1) The income mentioned in subsection (3) is not taken into account in calculating total
income if—
(a) it is income of a charitable trust, or
(b) it is required, under an Act, court judgment, charter, trust deed or will, to be
applied to charitable purposes only.
(2) Subsection (1) applies so far as the income is applied to charitable purposes only.
(3) The income referred to in subsection (1) is—
(a) royalties and other income from intellectual property that do not fall within
Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),
(b) income derived from a relevant telecommunication right that is not income
falling within Chapter 2 of Part 2 of ITTOIA 2005 (receipts of a trade etc),
(c) annual payments charged to tax under Chapter 7 of Part 5 of ITTOIA 2005, and
(d) relevant foreign distributions.
(4) In this section—
“intellectual property” has the same meaning as in section 579 of ITTOIA
2005,
“relevant foreign distribution” means a distribution of a non-UK resident
company which—
(a) is not chargeable to tax under Chapter 4 of Part 4 of ITTOIA 2005
(dividends from non-UK resident companies), but
(b) would be chargeable to tax under Chapter 3 of that Part of that Act
(dividends etc from UK resident companies etc) if the company were a
UK resident company, and
“relevant telecommunication right” has the same meaning as in Chapter 10
of Part 2 of that Act (trade profits: certain telecommunications rights) (see
section 146 of that Act).
537 Exemption for income from estates in administration
(1) If the person liable under section 659 of ITTOIA 2005 for any income tax charged under
section 649 of that Act (charge to tax on estate income) is the trustee of a charitable
trust, the estate income is not taken into account in calculating total income.

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(2) Subsection (1) applies so far as the estate income is applied to the purposes of the
charitable trust only.
(3) In this section “estate income” has the same meaning as in Chapter 6 of Part 5 of
ITTOIA 2005 (beneficiaries' income from estates in administration) (see section 649(2)
of that Act).
Claims
538 Requirement to make claim
(1) The exemptions under this Part require a claim.
(2) Subsection (1) does not apply to an exemption under—
(a) section 534 (exemption for transactions in deposits), or
(b) section 535 (exemption for offshore income gains).
(3) The trustees of a charitable trust are treated as having made a claim for any exemption to
which they may be entitled under section 521 (gifts entitling donor to gift aid relief) if—
(a) the charitable trust receives a gift as a result of a direction under section 429(2)
(giving through self-assessment return), and
(b) as a result of section 429(4), the gift is treated as a qualifying donation for the
purposes of Chapter 2 of Part 8 (gift aid).
(4) See section 46C of TMA 1970 and paragraph 10 of Schedule 1A to that Act for provision
about the jurisdiction of Special Commissioners over appeals concerning claims for
exemption under this Part.
Restrictions on exemptions
539 Restrictions on exemptions
(1) This section applies if a charitable trust has a non-exempt amount for a tax year (see
section 540).
(2) The exemptions under this Part do not apply, and are treated as never having applied,
to so much of any income of the charitable trust for the tax year as is attributed under
section 541 to the non-exempt amount.
(3) Section 256(4) of TCGA 1992 contains corresponding restrictions which apply in
relation to section 256(1) of that Act (gains accruing to charities not to be chargeable
gains).
540 The non-exempt amount
(1) A charitable trust has a non-exempt amount for a tax year if it has—
(a) non-charitable expenditure for the tax year (amount A), and
(b) attributable income and gains for the tax year (amount B).
(2) The non-exempt amount for the tax year is—
(a) amount A, or
(b) if less, amount B.

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(3) For the purposes of this Part—
(a) a charitable trust's “attributable income” for a tax year is the charitable trust's
income for the tax year that is exempt from income tax as a result of any of the
exemptions under this Part,
(b) a charitable trust's “attributable gains” for a tax year are any gains accruing to
the charitable trust in the tax year that as a result of section 261 of TCGA 1992,
are not chargeable gains, and
(c) a charitable trust's “attributable income and gains” for a tax year is the sum of
its attributable income for the tax year and its attributable gains for the tax year.
(4) In applying subsection (3)(a) ignore any restrictions on the exemptions under this Part
which result from section 539(2).
(5) In applying subsection (3)(b) ignore any restriction on the exemption under
section 256(1) of TCGA 1992 which results from section 256(4) of that Act.
541 Attributing income to the non-exempt amount
(1) This section applies if a charitable trust has a non-exempt amount for a tax year.
(2) Attributable income of the charitable trust for the tax year may be attributed to the non-
exempt amount but only so far as the non-exempt amount has not been used up.
(3) The non-exempt amount can be used up (in whole or in part) by—
(a) attributable income being attributed to it under this section, or
(b) attributable gains being attributed to it under section 256A of TCGA 1992.
(4) The whole of the non-exempt amount must be used up by—
(a) attributable income being attributed to the whole of it under this section,
(b) attributable gains being attributed to the whole of it under section 256A of
TCGA 1992, or
(c) a combination of attributable income being attributed to some of it under
this section and attributable gains being attributed to the rest of it under
section 256A of TCGA 1992.
(5) See section 542 for the way in which income is to be attributed to the non-exempt
amount under this section.
542 How income is attributed to the non-exempt amount
(1) This section is about the ways in which attributable income can be attributed to a non-
exempt amount under section 541.
(2) The trustees of the charitable trust may specify the attributable income that is to be
attributed to the non-exempt amount.
(3) A specification under subsection (2) is made by notice to an officer of Revenue and
Customs.
(4) Subsection (6) applies if—
(a) an officer of Revenue and Customs requires the trustees of a charitable trust to
make a specification under this section, and

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(b) the trustees have not given notice under subsection (3) of the specification
before the end of the required period.
(5) The required period is 30 days beginning with the day on which the officer made the
requirement.
(6) An officer of Revenue and Customs may determine the attributable income that is to
be attributed to the non-exempt amount.
Non-charitable expenditure
543 Meaning of “non-charitable expenditure”
(1) For the purposes of this Part a charitable trust's non-charitable expenditure for a tax
year is—
(a) any loss made in the tax year in a trade carried on by the charitable trust unless

(i) the trade is a charitable trade in relation to the tax year, or
(ii) the trade is not a charitable trade in relation to the tax year but profits
of the trade arising in the tax year would be exempt from income tax
as a result of one of the exemptions in sections 526, 529 or 530,
(b) any payment made in the tax year by the charitable trust in connection with a
trade in circumstances where relief is available under section 96 (post-cessation
trade relief) unless—
(i) the trade was a charitable trade in relation to the tax year in which the
cessation occurred, or
(ii) the trade was not a charitable trade in relation to that tax year but profits
of the trade arising immediately before the cessation would have been
exempt from income tax as a result of one of the exemptions in sections
526, 529 or 530,
(c) any loss made in the tax year in a trade, or in a UK property business or an
overseas property business, carried on by the charitable trust, if—
(i) the loss relates to land, and
(ii) profits of the trade, or income of the business, generated from the land
in the tax year would not be exempt from income tax as a result of the
exemptions in section 531,
(d) any payment made in the tax year by the charitable trust in connection with a
trade or UK property business in circumstances where relief is available under
section 96 or 125 (post-cessation trade or property relief), if—
(i) the payment relates to land, and
(ii) profits of the trade, or income of the business, generated from the land
immediately before the cessation would not have been exempt from
income tax as a result of the exemptions in section 531,
(e) any loss made in the tax year in a miscellaneous transaction entered into by the
charitable trust otherwise than in the course of carrying out a charitable purpose,
(f) any expenditure incurred by the charitable trust in the tax year, not falling within
paragraphs (b) or (d), which is not incurred for charitable purposes only and is
not required to be taken into account in calculating—
(i) the profits of, or losses made in, any trade, UK property business or
overseas property business carried on by the charitable trust, or

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(ii) the profit or loss made in any miscellaneous transaction entered into
by the charitable trust,
(g) any payment made in the tax year by the charitable trust to a substantial donor
which is treated under section 551(1) or (5) as non-charitable expenditure,
(h) any non-charitable expenditure treated as incurred under section 551(2) as a
result of a transaction between the charitable trust and a substantial donor,
(i) the amount of any of the charitable trust's funds that is invested in the tax year in
an investment which is not an approved charitable investment (see section 558),
and
(j) any amount lent in the tax year by the charitable trust, if the loan is neither an
investment nor an approved charitable loan (see section 561).
But anything which falls within more than one of the above paragraphs counts as non-
charitable expenditure only once.
(2) An amount may also be non-charitable expenditure for a tax year as a result of
section 562 (excess expenditure treated as non-charitable expenditure of earlier years).
(3) This section needs to be read with—
section 525 (meaning of “charitable trade”),
sections 544 to 548 (supplementary provision in relation to this section, in
particular in relation to subsection (1)(f), (i) and (j)),
sections 549 to 557 (transactions with substantial donors),
section 558 (approved charitable investments), and
section 561 (approved charitable loans).
544 Section 543: supplementary
(1) This section applies for the purposes of section 543.
(2) For rules about the calculation of losses, see—
(a) section 26 of ITTOIA 2005 (losses of a trade calculated on same basis as
profits),
(b) section 272 of that Act (which applies section 26 of that Act, so that losses of a
UK property business or overseas property business are calculated on the same
basis as profits), and
(c) section 872 of that Act (losses from miscellaneous transactions calculated on
same basis as miscellaneous income).
(3) A transaction is a miscellaneous transaction if it is of such a nature that, if income or
gains had arisen from it—
(a) ignoring section 527 (exemption from charges under provisions to which
section 1016 applies), it would have been charged to income tax under or by
virtue of any provision to which section 1016 applies, and
(b) the trustees of the charitable trust would have been liable for any tax so
chargeable.
(4) References to a charitable trust making a loss in a trade in a tax year are to the charitable
trust making a loss in the trade in the basis period for the tax year.

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545 Section 543(1)(f): meaning of expenditure
(1) For the purposes of section 543(1)(f) “expenditure” includes expenditure of a capital
nature.
(2) None of the following is “expenditure” for those purposes—
(a) the investment of any of the charitable trust's funds,
(b) the making of a loan by the charitable trust, or
(c) the repayment by the charitable trust of the whole or a part of a loan made to it.
546 Section 543(1)(f): tax year in which certain expenditure treated as incurred
(1) This section applies for the purposes of section 543(1)(f).
(2) Subsection (3) applies to expenditure which is referable to commitments (whether or
not of a contractual nature) that the charitable trust has entered into before or during
a tax year.
(3) The expenditure is treated as incurred in the tax year if, had the charitable trust been
required to draw up accounts that met the requirements mentioned in subsection (4),
the expenditure would have been required to be taken into account in preparing those
accounts.
(4) The requirements referred to in subsection (3) are—
(a) that the accounts are drawn up for the tax year, and
(b) that UK generally accepted accounting practice applies with respect to them.
547 Section 543(1)(f): payment to body outside the UK
A payment made, or to be made, to a body situated outside the United Kingdom is non-
charitable expenditure under section 543(1)(f) if—
(a) it is incurred for charitable purposes only, but
(b) the trustees of the charitable trust have not taken such steps as are reasonable
in the circumstances to ensure that the payment will be applied for charitable
purposes.
548 Section 543(1)(i) and (j): investments and loans
(1) Subsection (2) applies if in a tax year a charitable trust—
(a) realises the whole or part of an investment which was made in the tax year and
is not an approved charitable investment (see section 558), or
(b) is repaid the whole or part of a loan which was made in the tax year and is
neither an investment nor an approved charitable loan (see section 561).
(2) Any further investment or lending in the tax year of the sum realised or repaid, so far as
it does not exceed the sum originally invested or lent, is not non-charitable expenditure
as a result of section 543(1)(i) or (j).

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Substantial donor transactions
549 Transactions with substantial donors
(1) For the purposes of this section and sections 551 to 553, “substantial donor transaction”
means any of the following—
(a) the sale or letting of property by a charitable trust to a substantial donor,
(b) the sale or letting of property to a charitable trust by a substantial donor,
(c) the provision of services by a charitable trust to a substantial donor,
(d) the provision of services to a charitable trust by a substantial donor,
(e) an exchange of property between a charitable trust and a substantial donor,
(f) the provision of financial assistance by a charitable trust to a substantial donor,
(g) the provision of financial assistance to a charitable trust by a substantial donor,
and
(h) investment by a charitable trust in the business of a substantial donor.
(2) For the purposes of this section and sections 551 to 553, a person is a substantial donor
to a charitable trust for a tax year if—
(a) the charitable trust receives relievable gifts of at least £25,000 from the person
in a period of 12 months in which the tax year wholly or partly falls, or
(b) the charitable trust receives relievable gifts of at least £100,000 from the person
in a period of six years in which the tax year wholly or partly falls.
(3) If a person is a substantial donor to a charitable trust for a tax year as a result of
subsection (2)(a) or (b), the person is a substantial donor to the charitable trust for each
of the following five tax years.
(4) A transaction entered into in a tax year with a person who is a substantial donor for that
year may be a substantial donor transaction, even if it was not until after the transaction
was entered into that the person first met the definition of “substantial donor” for the
tax year.
550 Meaning of “relievable gift”
A gift is a “relievable gift” for the purposes of section 549(2) if relief is available in
respect of it under—
(a) section 83A of ICTA (gifts in kind),
(b) section 339 of ICTA (donations by companies),
(c) sections 587B and 587C of ICTA (gifts of shares, securities and real property),
(d) section 257 of TCGA 1992 (gifts of chargeable assets),
(e) section 63 of CAA 2001 (gifts of plant and machinery),
(f) sections 713 to 715 of ITEPA 2003 (payroll giving),
(g) section 108 of ITTOIA 2005 (gifts of trading stock),
(h) sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts), or
(i) Chapters 2 or 3 of Part 8 of this Act (gift aid and gifts of shares, securities and
real property).

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551 Non-charitable expenditure in substantial donor transactions
(1) A payment made by a charitable trust to a substantial donor in the course of, or for the
purposes of, a substantial donor transaction is treated for the purposes of section 543
as non-charitable expenditure.
(2) If the terms of a substantial donor transaction are less beneficial to the charitable trust
than terms which might be expected in a transaction at arm's length, the charitable trust
is treated for the purposes of section 543 as incurring non-charitable expenditure.
(3) The amount of the non-charitable expenditure that the charitable trust is treated as
incurring under subsection (2) is equal to the amount which an officer of Revenue and
Customs determines as the cost to the charitable trust of the difference in terms.
(4) A charity is treated as incurring non-charitable expenditure under subsection (2) at such
time (or times) as an officer of Revenue and Customs may determine.
(5) A payment by a charitable trust of remuneration to a substantial donor is treated for
the purposes of section 543 as non-charitable expenditure unless it is remuneration, for
services as a trustee, which is approved by—
(a) the Charity Commission,
(b) another body with responsibility for regulating charities by virtue of legislation
having effect in respect of any part of the United Kingdom, or
(c) a court.
(6) If remuneration is paid otherwise than in money, subsection (5) applies as if it had
been paid in money of an amount that would, under Part 3 of ITEPA 2003, be the cash
equivalent of the remuneration as a benefit.
552 Adjustment if section 551(1) and (2) applied to single transaction
(1) Either or both of subsections (1) and (2) of section 551 may be applied to a single
transaction between a charitable trust and a substantial donor.
(2) But if they are both applied, the amount of non-charitable expenditure that the charitable
trust would, apart from this subsection, be treated as incurring under section 551(2) in
respect of the transaction, is reduced by the section 551(1) amount (but is not to be
reduced below nil).
(3) The “section 551(1) amount” means the amount of any payment made by the charitable
trust, in the course of, or for the purposes of, the transaction, that is treated as non-
charitable expenditure under section 551(1).
553 Section 551: certain payments and benefits to be ignored
(1) In the application of section 551, payments by a charitable trust, or benefits arising to
a substantial donor from a transaction, are to be ignored so far as—
(a) they relate to a donation by the donor, and
(b) either condition A or condition B is met.
(2) Condition A is that—
(a) the donation is made by an individual, and

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(b) the payments or benefits do not prevent the donation being a qualifying
donation for the purposes of section 416 because of subsection (7)(b) of that
section (restrictions on associated benefits).
(3) Condition B is that—
(a) the donation is made by a company, and
(b) the payments or benefits do not prevent the donation being a qualifying
donation for the purposes of section 339 of ICTA because of subsection (3B)
(b) of that section (restrictions on associated benefits).
554 Transactions: exceptions
(1) A transaction within section 549(1)(b) or (d) is not a substantial donor transaction if an
officer of Revenue and Customs determines that the transaction—
(a) takes place in the course of a business carried on by the substantial donor,
(b) is on terms which are no less beneficial to the charitable trust than those which
might be expected in a transaction at arm's length, and
(c) is not part of an arrangement for the avoidance of any tax.
(2) The provision of services to a substantial donor is not a substantial donor transaction if
an officer of Revenue and Customs determines that those services are provided—
(a) in the course of carrying out a primary purpose of the charitable trust, and
(b) on terms which are no more beneficial to the substantial donor than those on
which services are provided to others.
(3) The provision of financial assistance to a charitable trust by a substantial donor is not
a substantial donor transaction if an officer of Revenue and Customs determines that
the assistance—
(a) is on terms which are no less beneficial to the charitable trust than those which
might be expected in a transaction at arm's length, and
(b) is not part of an arrangement for the avoidance of any tax.
(4) Investment by a charitable trust in the business of a substantial donor is not a substantial
donor transaction if the investment takes the form of the purchase of shares or securities
listed on a recognised stock exchange.
(5) The following are not substantial donor transactions—
(a) a disposal at an undervalue in respect of which relief is available under
section 431 or section 587B of ICTA (gifts of shares, securities and real
property), or
(b) a disposal at an undervalue to which section 257(2) of TCGA 1992 (gifts of
chargeable assets) applies,
but such disposals may be taken into account in the application of section 549(2).
555 Donors: exceptions
(1) A company which is wholly owned by a charity within the meaning of section 339(7AB)
of ICTA is not a substantial donor in relation to a charitable trust which owns it (or
which owns any part of it).
(2) A registered social landlord or housing association is not a substantial donor in relation
to a charitable trust with which it is connected.

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(3) “Registered social landlord or housing association” means a body entered on a register
maintained under—
(a) section 1 of the Housing Act 1996 (c. 52),
(b) section 57 of the Housing (Scotland) Act 2001 (asp. 10), or
(c) Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1725 (N.I. 15)).
(4) For the purposes of subsection (2), a body and a charity are connected if (and only if)—
(a) one is wholly owned, or subject to control, by the other, or
(b) both are wholly owned, or subject to control, by the same person.
556 Connected charities
(1) A charitable trust and any other charities with which it is connected are to be treated as
a single charitable trust for the purposes of section 549 to 555.
(2) For this purpose “connected” means connected in a matter relating to the structure,
administration or control of a charity.
557 Substantial donor transactions: supplementary
(1) In sections 549 to 555—
(a) a reference to a substantial donor or other person includes a reference to a
person connected with the donor or other person,
(b) “financial assistance” includes, in particular—
(i) the provision of a loan, guarantee or indemnity, and
(ii) entering into alternative finance arrangements within the meaning of
section 46 of FA 2005, and
(c) a reference to a gift of a specified amount includes a reference to a non-
monetary gift of that value.
(2) On an appeal against an assessment the Special Commissioners may affirm or replace
a decision of an officer of Revenue and Customs under section 551 or 554.
(3) The Treasury may by regulations vary a sum, or a period of time, specified in
section 549(2).
Approved charitable investments and loans
558 Approved charitable investments
An investment is an approved charitable investment for the purposes of section 543
(meaning of “non-charitable expenditure”) if it is an investment of any of the following
types. Type 1
An investment to which section 559 applies.
Type 2
An investment in a common investment fund established under—
(a) section 22 of the Charities Act 1960 (c. 58),
(b) section 24 of the Charities Act 1993 (c. 10), or

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(c) section 25 of the Charities Act (Northern Ireland) 1964.
Type 3
An investment in a common deposit fund established under—
(a) section 22A of the Charities Act 1960, or
(b) section 25 of the Charities Act 1993.
Type 4
An investment in a fund which—
(a) is similar to a fund mentioned in relation to Type 2 or 3, and
(b) is established for the exclusive benefit of charities by or under a provision
relating to any particular charities or class of charities contained in an Act.
Type 5
An interest in land, other than an interest held as security for a debt.
Type 6
Any of the following issued by Her Majesty's Government in the United Kingdom—
(a) bills,
(b) Certificates of Tax Deposit,
(c) Savings Certificates, and
(d) Tax Reserve Certificates.
Type 7
Northern Ireland Treasury Bills.
Type 8
Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in a
recognised scheme (as defined in section 237(3) of FISMA 2000).
“Units” is defined in section 237(2) of FISMA 2000.
Type 9
A deposit with a bank (as defined in section 991)—
(a) in respect of which interest is payable at a commercial rate, and
(b) which is not made as part of an arrangement under which a loan is made by the
bank to some other person.
Type 10
A deposit with—
(a) the National Savings Bank,
(b) a building society, or
(c) a credit institution which operates on mutual principles and which is authorised
by an appropriate governmental body in the territory in which the deposit is
taken.
Type 11

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Certificates of deposit (including uncertificated eligible debt security units as defined
in section 986(3)).
Type 12
A loan or other investment as to which an officer of Revenue and Customs is satisfied,
on a claim, that it is made for the benefit of the charitable trust and not for the avoidance
of tax (whether by the trust or any other person).
559 Securities which are approved charitable investments
(1) The investments to which this section applies are investments in securities—
(a) issued or guaranteed by the government of a member State of the European
Union,
(b) issued or guaranteed by the government or a governmental body of any territory
or part of a territory,
(c) issued by an international entity listed in the Annex to Council Directive
2003/48/EC (directive on taxation of interest payments),
(d) issued by an entity meeting the four criteria set out at the end of that Annex,
(e) issued by a building society,
(f) issued by a credit institution which operates on mutual principles and which is
authorised by an appropriate governmental body in the territory in which the
securities are issued,
(g) issued by an open-ended investment company,
(h) issued by a company and listed on a recognised stock exchange, or
(i) issued by a company but not listed on a recognised stock exchange.
(2) Subsection (1) is subject to section 560.
(3) In this section and in section 560—
“debentures” includes—
(a) debenture stock and bonds (whether constituting a charge on assets or
not), and
(b) loan stock or notes,
“open-ended investment company” is to be read in accordance with
section 468A(2) to (4) of ICTA,
“securities” includes shares and debentures, and
“shares” includes stocks.
560 Conditions to be met for some securities
(1) Section 559 does not apply to an investment by virtue of subsection (1)(b), (c) or (d)
of that section unless—
(a) condition A is met in relation to the securities, and
(b) if the securities are shares or debenture stock, condition B is met in relation to
the securities.
But see subsection (3) of this section.

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(2) In the case of an investment in securities issued by a company which is incorporated,
section 559 does not apply to the investment by virtue of subsection (1)(i) of that section
unless—
(a) condition A is met in relation to the securities,
(b) if the securities are shares or debenture stock, condition B is met in relation to
the securities, and
(c) condition C is met in relation to the company.
But see subsection (3) of this section.
(3) Conditions A and B need not be met if the securities are traded or quoted on a money
market supervised by the government or a governmental body of any territory or part
of a territory.
(4) Condition A is that the securities are traded or quoted on—
(a) a recognised investment exchange (as defined in section 285(1) of FISMA
2000), or
(b) an investment exchange which constitutes the principal or only market
established in a territory on which securities admitted to official listing are dealt
in or traded.
(5) Condition B is that—
(a) the securities are fully paid up,
(b) the terms of the issue of the securities require them to be fully paid up within
the period of 9 months beginning with the day after the day on which they are
issued, or
(c) the securities are shares issued with no nominal value.
(6) Condition C is that—
(a) throughout the last business day before the investment day, the company has
total issued and paid up share capital of at least £1,000,000 (or the equivalent
of £1,000,000 in some other currency), and
(b) in each of the five years immediately before the calendar year in which the
investment day falls, the company paid a dividend on all the shares issued by
the company (excluding any shares issued after the dividend was declared and
any shares which by their terms of issue did not rank for dividend for that year).
(7) For the purposes of the words in brackets in subsection (6)(a) use the exchange rate
prevailing in the United Kingdom at the close of business on the last business day before
the investment day.
(8) For the purposes of subsection (6)(b) a company formed—
(a) to take over the business of another company or other companies, or
(b) to acquire the securities of, or control of, another company or other companies,
is treated as having paid a dividend in any year in which a dividend has been paid by
the other company or all of the other companies (as the case may be).
(9) It is irrelevant that the company is formed for other purposes in addition to those
mentioned in paragraph (a) or (b) of subsection (8).
(10) In this section—
“business day” means, in relation to an investment, a business day in the
place where the investment is made, and

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“the investment day” means, in relation to an investment, the day on which
the investment is made.
561 Approved charitable loans
(1) A loan is an approved charitable loan for the purposes of section 543 (meaning of “non-
charitable expenditure”) if it meets conditions A and B.
(2) Condition A is that the loan is not made by way of investment.
(3) Condition B is that either—
(a) the loan is made to another charity for charitable purposes only,
(b) it is made to a beneficiary of the charitable trust in the course of carrying out
the purposes of the charitable trust,
(c) it consists of money placed on current account with a bank otherwise than as
part of an arrangement under which a loan is made by a bank to some other
person, or
(d) an officer of Revenue and Customs is satisfied, on a claim, that the loan is made
for the benefit of the charitable trust and not for the avoidance of tax (whether
by the charitable trust or by some other person).
(4) In this section “bank” has the meaning given by section 991.
Carry back of excess non-charitable expenditure
562 Excess expenditure treated as non-charitable expenditure of earlier years
(1) This section applies if a charitable trust's non-charitable expenditure for a tax year
exceeds its available income and gains for the tax year.
(2) The excess is the charitable trust's “excess expenditure” for the tax year.
(3) The charitable trust's excess expenditure for the tax year is treated for the purposes of
this Part as non-charitable expenditure for earlier tax years so far as it can be attributed
to earlier tax years under section 563.
(4) For the purposes of this Part a charitable trust's “available income and gains” for a tax
year is the sum of—
(a) the charitable trust's total income for the tax year (ignoring any restrictions on
the exemptions under this Part which result from sections 539(2) and 541),
(b) any chargeable gains accruing to the charitable trust in the tax year (ignoring
any restriction on the exemption under section 256(1) of TCGA 1992 which
results from section 256(4) of that Act),
(c) the charitable trust's attributable income and gains for the tax year (see
section 540), and
(d) any non-taxable sums received by the charitable trust in the tax year.
(5) In subsection (4) “non-taxable sums” means donations, legacies and other sums of a
similar nature which, ignoring exemptions from income tax under this Part and from
capital gains tax under section 256 of TCGA 1992, are not liable to income tax or capital
gains tax.

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563 Rules for attributing excess expenditure to earlier years
(1) The rules in this section apply for attributing a charitable trust's excess expenditure for
a tax year to earlier tax years under section 562.
(2) The excess expenditure for a tax year may be attributed to an earlier tax year if—
(a) the earlier tax year ends not more than 6 years before the end of the tax year
in question, and
(b) the charitable trust's available income and gains for the earlier tax year exceed
its non-charitable expenditure for the earlier tax year.
(3) If the conditions in subsection (2) are met in the case of more than one earlier tax year,
the excess expenditure is to be attributed to a later tax year in priority to an earlier tax
year.
(4) The amount of excess expenditure that is to be attributed to an earlier tax year must not
be greater than the amount by which the charitable trust's available income and gains
for the earlier tax year exceed its non-charitable expenditure for the earlier tax year.
(5) For the purposes of subsections (2)(b) and (4) the charitable trust's non-charitable
expenditure for the earlier tax year includes any excess expenditure attributed to the
earlier tax year as a result of a previous operation of this section, but ignores the
attribution in question.
564 Adjustments in consequence of section 562
Such adjustments must be made (whether by way of the making of assessments or
otherwise) as may be required in consequence of section 562.
PART 11
MANUFACTURED PAYMENTS AND REPOS
CHAPTER 1
INTRODUCTION
565 Overview of Part
(1) This Part is about the income tax treatment of some arrangements for the transfer of
securities.
(2) Chapter 2 deals with arrangements for the transfer of securities under which provision
is made for the payment of amounts representative of dividends or interest in respect
of the securities.
(3) Chapter 3 prevents parties to stock lending arrangements (see section 568) and repos
(see section 569) from being entitled to tax credits in some circumstances.
(4) Chapter 4 brings within the rules in Chapters 2 and 3—
(a) some stock lending arrangements under which the dividends or interest in
respect of the transferred securities are paid to a person other than the lender,
and

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(b) some repos where the original owner is not entitled to the dividends or interest
in respect of the transferred securities.
(5) Chapter 5 deals with differences between the sale and repurchase price under repos.
(6) Chapter 6 contains powers to modify some of the provisions about repos.
566 Meaning of “UK shares” and “UK securities”
(1) This section applies for the purposes of this Part.
(2) “UK shares” means shares in a UK resident company.
(3) “UK securities” means securities of—
(a) the government of the United Kingdom,
(b) a local authority in the United Kingdom,
(c) another public authority in the United Kingdom, or
(d) a UK resident company or other UK resident body.
(4) But “UK securities” does not include UK shares.
(5) In this section “securities” includes loan stock or any similar security.
567 Meaning of “overseas securities” and “overseas dividend”
(1) This section applies for the purposes of this Part.
(2) “Overseas securities” means shares, stock or other securities issued by—
(a) a government, local authority or other public authority of a territory outside the
United Kingdom, or
(b) another non-UK resident body of persons.
(3) “Overseas dividend” means any interest, dividend or other annual payment payable in
respect of overseas securities.
(4) In this section “securities” includes loan stock or any similar security.
568 Meaning of “stock lending arrangement”
(1) For the purposes of this Part there is a stock lending arrangement in respect of securities
if—
(a) a person (“the lender”) has transferred the securities to another person (“the
borrower”) otherwise than by way of sale,
(b) the securities are UK shares, UK securities or overseas securities,
(c) the transfer is under an arrangement between the lender and the borrower, and
(d) under the arrangement, the borrower is required to transfer the securities back
to the lender otherwise than by way of sale.
(2) The reference in subsection (1)(d) to the transfer of the securities back to the lender
includes a reference to—
(a) a transfer within subsection (3), and
(b) a payment within subsection (5).

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(3) A transfer is within this subsection if it is a transfer to the lender of securities of the
same description as the securities—
(a) in accordance with a requirement to do so, or
(b) in exercise of a power to substitute securities of the same description for the
securities that are required to be transferred back.
(4) For the purposes of subsection (3), securities are taken to be of the same description as
other securities if (and only if) they—
(a) are in the same quantities,
(b) give the same rights against the same persons, and
(c) are of the same type and nominal value,
as the other securities.
(5) A payment is within this subsection if it is a payment to the lender, in pursuance of a
redemption obligation, of an amount equal to the amount of the entitlement under the
redemption obligation.
(6) A redemption obligation is an obligation that arises on a person's becoming entitled to
receive an amount in respect of the redemption of the securities.
569 Meaning of “repo”
(1) For the purposes of this Part there is a repo in respect of securities if conditions A, B
and C are met.
(2) Condition A is that a person (“the original owner”) has agreed to sell the securities to
another person (“the interim holder”).
(3) Condition B is that the securities are UK shares, UK securities or overseas securities.
(4) Condition C is that the original owner or a person connected with the original owner—
(a) is required to buy back the securities by the agreement or a related agreement,
(b) is required to buy back the securities as a result of the exercise of an option
acquired under the agreement or a related agreement, or
(c) exercises an option to buy back the securities which was acquired under the
agreement or a related agreement.
570 Meaning of “buying back” securities etc
(1) This section applies for the purposes of this Part, in the context of a repo.
(2) References to buying back securities include references to—
(a) buying similar securities, and
(b) in the case of a person connected with the person who is the original owner
under the repo, buying the securities sold by the original owner or similar
securities.
(3) Subsection (2) applies even if the person buying the securities has not held them before.
(4) References to repurchase or a repurchaser are to be read accordingly.
(5) For the purposes of subsection (2) securities are similar if they give their holders—

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(a) the same rights against the same persons as to capital and distributions, interest
and dividends, and
(b) the same remedies to enforce those rights.
(6) Subsection (5) applies even if there is a difference in—
(a) the total nominal amounts of the securities,
(b) the form in which they are held, or
(c) the manner in which they can be transferred.
571 Meaning of “related” agreements
Agreements are related for the purposes of this Part if they are entered into in pursuance
of the same arrangement (regardless of the date on which either agreement is entered
into).
CHAPTER 2
MANUFACTURED PAYMENTS
Introduction
572 Overview of Chapter
This Chapter is about the situation where a person—
(a) pays another person an amount which is representative of—
(i) dividends on UK shares,
(ii) periodical payments of interest on UK securities, or
(iii) overseas dividends on overseas securities, and
(b) does so under a requirement of an arrangement between them for the transfer
of the UK shares, UK securities or overseas securities concerned.
Manufactured dividends on UK shares
573 Manufactured dividends on UK shares
(1) This section applies if a person—
(a) pays another person an amount (a “manufactured dividend”) which is
representative of a dividend on UK shares, and
(b) does so under a requirement of an arrangement between them for the transfer
of the shares.
(2) The Income Tax Acts apply in relation to the recipient, and persons claiming title
through or under the recipient, as if the manufactured dividend were a dividend on the
shares.
(3) If the payer is a UK resident company, the Income Tax Acts apply in relation to the
payer as if the manufactured dividend were a dividend of the company.
(4) If the payer is UK resident and is not a company, the Income Tax Acts apply in relation
to the payer subject to sections 574 and 575 (allowable deductions).

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(5) This section is subject to—
(a) section 576 (manufactured dividends on UK shares: Real Estate Investment
Trusts),
(b) section 583 (manufactured payments exceeding underlying payments), and
(c) section 585 (power to deal with other special cases).
574 Allowable deductions: matching
(1) This section applies if a person who pays a manufactured dividend as mentioned in
section 573(1) is UK resident and is not a company.
(2) An amount equal to the lesser of—
(a) the amount of the manufactured dividend, and
(b) the amount of the dividend of which the manufactured dividend is
representative,
is allowable as a deduction for income tax purposes, subject to subsection (3).
(3) It is allowable only so far as—
(a) it is not otherwise deductible, and
(b) it falls within subsection (4) or (7).
(4) An amount falls within this subsection so far as the payer—
(a) receives either the dividend which is represented by the manufactured dividend
or a payment which is representative of that dividend, and
(b) is chargeable to income tax on the dividend or payment received.
(5) An amount falls within subsection (4) only if the amount of the dividend or payment
received is received by the payer in—
(a) the tax year in which the payer pays the manufactured dividend, or
(b) the tax year immediately before, or immediately after, that year.
(6) An amount which falls within subsection (4) is allowable as a deduction only from the
amount of the dividend or payment received on which the payer is chargeable to income
tax.
(7) An amount falls within this subsection so far as the payer—
(a) is treated under section 607 (treatment of price differences under repos) as
receiving a payment of interest in respect of the shares, and
(b) is chargeable to income tax on the payment.
(8) An amount which falls within subsection (7) is allowable as a deduction in calculating
the net income of the payer (see Step 2 of the calculation in section 23).
(9) See section 575 for a further qualification to the rule in subsection (2).
(10) For the purposes of subsection (3)(a) an amount is deductible if it is—
(a) deductible in calculating any of the payer's profits or gains for income tax
purposes, or
(b) deductible for those purposes in calculating the net income of the payer.

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575 Allowable deductions: restriction on double-counting
(1) This section applies if an amount has been allowed as a deduction under section 574(2)
by reference to the whole or part of—
(a) the dividend or payment mentioned in section 574(4)(a), or
(b) the deemed payment of interest mentioned in section 574(7)(a).
(2) No further deduction is allowable by reference to all or part of the matched portion of
the dividend, payment or deemed payment.
(3) The “matched portion” of the dividend, payment or deemed payment means—
(a) the whole of it, if the amount has been allowed as a deduction by reference to
the whole of it, or
(b) the part of it by reference to which the amount has been allowed as a deduction,
in any other case.
576 Manufactured dividends on UK shares: Real Estate Investment Trusts
(1) This section applies (instead of section 573(2) and (3)) if—
(a) a person pays a manufactured dividend as mentioned in section 573(1), and
(b) the manufactured dividend is representative of a dividend which is—
(i) paid by a company to which Part 4 of FA 2006 applies (Real Estate
Investment Trusts) in respect of profits of C (tax-exempt), or
(ii) paid by the principal company of a group to which that Part applies in
respect of profits of G (property rental business).
(2) This section applies only so far as the manufactured dividend is representative of such
a dividend.
(3) The Income Tax Acts apply in relation to the recipient, and persons claiming title
through or under the recipient, as if the manufactured dividend were a dividend to which
section 121 of FA 2006 applied (distributions treated as UK property business profits).
(4) This section is subject to—
(a) section 583 (manufactured payments exceeding underlying payments), and
(b) section 585 (power to deal with other special cases).
577 Statements about manufactured dividends
(1) Subsections (3) to (7) apply to a person who—
(a) pays a manufactured dividend as mentioned in section 573(1), and
(b) is not within the charge to corporation tax.
(2) But those subsections do not apply so far as the manufactured dividend is representative
of a dividend which is—
(a) paid by a company to which Part 4 of FA 2006 applies (Real Estate Investment
Trusts) in respect of profits of C (tax-exempt), or
(b) paid by the principal company of a group to which that Part applies in respect
of profits of G (property rental business).
(3) The person must, at the same time as paying the manufactured dividend, give the
recipient a statement.

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(4) The statement must set out—
(a) the amount of the manufactured dividend,
(b) the date of its payment, and
(c) the amount of associated tax credit.
(5) The statement must be in writing.
(6) The amount of associated tax credit is the amount of tax credit to which the recipient,
or a person claiming title through or under the recipient—
(a) is entitled in respect of the manufactured dividend as a result of section 573(2)
of this Act or paragraph 2(3)(b) of Schedule 23A to ICTA (manufactured
dividend treated as dividend), or
(b) would be so entitled if all the conditions for a tax credit had been met in the
case of the deemed dividend and the recipient or that person.
(7) The duty under subsection (3) to give a statement is enforceable by the recipient.
(8) For provisions corresponding to subsections (3) to (7) which apply if the payer of a
manufactured dividend is within the charge to corporation tax see—
(a) section 234A of ICTA (by virtue of paragraph 2(2)(b) of Schedule 23A to
ICTA), if the payer is a UK resident company, and
(b) paragraph 2(6) to (8) of Schedule 23A to ICTA, if the payer is a non-UK resident
company within the charge to corporation tax.
(9) For a power for regulations to make provision corresponding to subsections (3) to (7)
for a case within subsection (2), see section 973 as applied by section 918(3) (and in
particular section 974(1)(k)).
Manufactured interest on UK securities
578 Manufactured interest on UK securities
(1) This section applies if a person—
(a) pays another person an amount (“manufactured interest”) which is
representative of a periodical payment of interest on UK securities, and
(b) does so under a requirement of an arrangement between them for the transfer
of the securities.
(2) The Income Tax Acts apply in relation to the recipient, and persons claiming title
through or under the recipient, as if—
(a) the manufactured interest were a periodical payment of interest on the
securities, and
(b) the gross amount of the deemed interest payment were equal to the gross
amount of the interest of which the manufactured interest is representative.
(3) If the payer is UK resident, or a person acting in the course of a trade carried on in the
United Kingdom through a branch or agency, the Income Tax Acts apply in relation to
the payer subject to sections 579 and 580 (allowable deductions).
(4) See also—
section 919 (manufactured interest payments by UK residents etc: deduction of
income tax at source), and

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section 920 (foreign payers of manufactured interest: the reverse charge).
(5) This section is subject to—
section 583 (manufactured payments exceeding underlying payments),
section 584 (manufactured payments less than underlying payments), and
section 585 (power to deal with other special cases).
579 Allowable deductions: matching
(1) This section applies to a person who pays manufactured interest as mentioned in
section 578(1).
(2) The gross amount of the manufactured interest is allowable for income tax purposes
as a deduction in calculating the net income of the payer (see Step 2 of the calculation
in section 23).
This is subject to subsection (3).
(3) It is allowable only so far as—
(a) it is not otherwise deductible, and
(b) it falls within subsection (4), (6) or (7).
(4) An amount falls within this subsection so far as the payer—
(a) receives either the periodical payment of interest which is represented by the
manufactured interest or a payment which is representative of the periodical
payment of interest, and
(b) is chargeable to income tax on the payment received.
(5) See section 679 (interest on securities involving accrued income losses: general) for the
amount chargeable to income tax in a case where that section applies.
(6) An amount falls within this subsection so far as—
(a) the payer is, by virtue of Chapter 2 of Part 12 (accrued income profits),
chargeable to income tax on qualifying accrued income profits in respect of
transfers of securities, and
(b) the transfers are subject to the arrangement giving rise to the payment of
manufactured interest.
(7) An amount falls within this subsection so far as the payer—
(a) is treated under section 607 (treatment of price differences under repos) as
receiving a payment of interest in respect of the securities, and
(b) is chargeable to income tax on the payment.
(8) See section 580 for a further qualification to the rule in subsection (2).
(9) For the purposes of subsection (3)(a) an amount is deductible if it is—
(a) deductible in calculating any of the payer's profits or gains for income tax
purposes, or
(b) deductible for those purposes in calculating the net income of the payer.
(10) In this section “qualifying accrued income profits” means accrued income profits which
are treated as made—
(a) under section 628(5), or
(b) under section 630(2) in respect of a transfer of variable rate securities.

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580 Allowable deductions: restriction on double counting
(1) This section applies if an amount has been allowed as a deduction under section 579(2)
by reference to the whole or part of—
(a) the periodical payment of interest, or other payment, mentioned in
section 579(4)(a),
(b) the sum mentioned in section 579(6)(a), or
(c) the deemed payment of interest mentioned in section 579(7)(a).
(2) No further deduction is allowable by reference to all or part of the matched portion of
the payment, sum or deemed payment.
(3) The “matched portion” of the payment, sum or deemed payment means—
(a) the whole of it, if the amount has been allowed as a deduction by reference to
the whole of it, or
(b) the part of it by reference to which the amount has been allowed as a deduction,
in any other case.
Manufactured overseas dividends
581 Manufactured overseas dividends
(1) This section applies if—
(a) a person (“the payer”) pays another person an amount (a “manufactured
overseas dividend”) which is representative of an overseas dividend on
overseas securities,
(b) the payer does so under a requirement of an arrangement between them for the
transfer of the securities, and
(c) the condition in subsection (2) is met.
(2) The condition is that—
(a) in a case within section 922(1) (manufactured overseas dividends: payments by
UK residents etc), the amount required to be deducted as a result of that section
has been deducted, or
(b) in a case within section 923(1) (foreign payers of manufactured overseas
dividends: the reverse charge), the amount of income tax required to be
accounted for and paid as a result of that section has been accounted for and
paid.
(3) Subsections (4) and (5) apply in relation to the recipient, and all persons claiming title
through or under the recipient, for all relevant income tax purposes.
(4) The manufactured overseas dividend is treated as if it were—
(a) an overseas dividend of an amount equal to the gross amount of the
manufactured overseas dividend, but
(b) paid after the withholding from it, on account of overseas tax, of the amount
deducted as a result of section 922 or (as the case may be) accounted for and
paid as a result of section 923.
(5) The amount deducted or accounted for and paid is accordingly to be treated as an amount
withheld on account of overseas tax instead of as an amount on account of income tax.

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(6) In this section “relevant income tax purposes” means the purposes of the Income Tax
Acts as they apply in relation to—
(a) UK residents, and
(b) persons carrying on business through a branch or agency in the United
Kingdom.
582 Powers about manufactured overseas dividends
(1) The Treasury may by regulations make provision as mentioned in subsections (2) and
(3) about prescribed cases where a person—
(a) pays or receives a manufactured overseas dividend as mentioned in
section 581(1), or
(b) is treated as doing so for any purposes of this Chapter or regulations made
under it.
(2) The regulations may provide for removing or reducing any right of the person to claim
relief under Part 18 of ICTA (double taxation relief).
(3) The regulations may provide for adjusting a relevant amount by reference to a provision
which has effect under the law of a territory outside the United Kingdom.
(4) A “relevant amount” is an amount which is treated for prescribed income tax purposes
as the amount paid or payable to a person in respect of a relevant transaction.
(5) A “relevant transaction” is a sale, repurchase or other transfer of the overseas securities
to which the manufactured overseas dividend relates.
Special cases
583 Manufactured payments exceeding underlying payments
(1) This section applies if—
(a) an amount paid by way of manufactured dividend would otherwise exceed the
amount of the dividend of which it is representative, or
(b) the sum of—
(i) an amount paid by way of manufactured interest or manufactured
overseas dividend, and
(ii) the income tax required to be accounted for and paid in connection with
the making of the payment,
would otherwise exceed the gross amount of the interest or overseas dividend
of which it is representative.
(2) The payment, to the extent of an amount equal to the excess, is treated for the purposes
of this Chapter and Chapter 9 of Part 15 as not made under the requirement mentioned
in section 573(1)(b), 578(1)(b) or 581(1)(b) (criteria for application of provisions about
manufactured payments).
(3) Instead it is treated, to that extent, for income tax purposes as a separate fee for entering
into the arrangement under which it was made.
(4) Subsection (3) applies despite anything in—
(a) sections 572 to 582 (main rules about manufactured payments), or

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(b) Chapter 9 of Part 15 (deduction of income tax at source: manufactured
payments).
584 Manufactured payments less than underlying payments
(1) This section applies if the sum of—
(a) an amount paid by way of manufactured interest or manufactured overseas
dividend, and
(b) the income tax required to be accounted for and paid in connection with the
making of the payment,
is less than the gross amount of the interest or overseas dividend of which it is
representative.
(2) For the purpose of giving relief under the Income Tax Acts in a case to which section 578
or 581 applies (manufactured interest and manufactured overseas dividends), the gross
amount of the manufactured interest or manufactured overseas dividend is treated as
being an amount equal to the sum of the amounts mentioned in paragraphs (a) and (b)
of subsection (1).
(3) Subsection (2) applies despite anything in—
(a) sections 578 to 582 (main rules about manufactured interest and manufactured
overseas dividends), and
(b) section 589(3) (meaning of “gross amount” of manufactured overseas
dividend).
(4) In this section “relief” means relief by way of—
(a) deduction in calculating profits or gains, or
(b) deduction or set off against income.
585 Power to deal with other special cases
(1) The Treasury may by regulations make provision about—
(a) such manufactured dividends, manufactured interest or manufactured overseas
dividends as may be prescribed,
(b) such persons who receive, or become entitled to receive, manufactured
dividends, manufactured interest or manufactured overseas dividends as may
be prescribed, or
(c) such payers of manufactured dividends, manufactured interest or manufactured
overseas dividends as may be prescribed.
(2) The provision which may be made is for any prescribed manufactured dividend,
manufactured interest, manufactured overseas dividend or person to be treated, in
prescribed circumstances, otherwise than as mentioned in—
(a) sections 572 to 582 (main rules about manufactured payments), or
(b) Chapter 9 of Part 15 (deduction of income tax at source: manufactured
payments),
for any prescribed income tax purposes.

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General regulation-making powers
586 Powers about administrative provisions
(1) The Treasury may by regulations make provision about—
(a) the accounts and other records which are to be kept,
(b) the vouchers which are to be issued or produced,
(c) the returns which are to be made, and
(d) the manner in which amounts required to be deducted, or accounted for and
paid, on account of income tax as a result of this Chapter or Chapter 9 of Part
15 are to be accounted for and paid,
by payers or recipients of manufactured dividends, manufactured interest or
manufactured overseas dividends.
(2) Regulations under this Chapter or Chapter 9 of Part 15 about any liability to account
for income tax may contain any of the following—
(a) provision for calculating the amounts to be accounted for,
(b) provision, in relation to deciding the amount to be paid on any occasion, for
setting other amounts against the amounts to be accounted for,
(c) provision as to the liabilities against which amounts accounted for are, or are
not, to be set for income tax purposes or corporation tax purposes,
(d) provision modifying, or applying (with or without modifications), any
enactments contained in the Tax Acts.
(3) The Treasury may by regulations provide for prescribed provisions of TMA 1970 to
apply for income tax purposes in relation to—
(a) manufactured dividends,
(b) manufactured interest, or
(c) manufactured overseas dividends,
with such modifications, specified in the regulations, as the Treasury consider
appropriate.
(4) The Treasury may by regulations make further provision about the administration,
assessment, collection and recovery of amounts required to be deducted, or accounted
for and paid, on account of income tax as a result of—
(a) this Chapter, or
(b) Chapter 9 of Part 15.
587 Power for manufactured payments to be eligible for relief
(1) The Treasury may by regulations provide for any—
(a) manufactured dividend,
(b) manufactured interest, or
(c) manufactured overseas dividend,
paid to any person to be treated, in such circumstances and to such extent as may be
prescribed in the regulations, as exempt pension income of the recipient.
(2) “Exempt pension income” means income which is eligible for relief from income tax
as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section 186 of FA 2004
(exemptions about pensions and annuities).

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588 Regulation-making powers: general
Regulations under this Chapter may make different provision for different cases.
Interpretation
589 Meaning of “gross amount”: interest and manufactured overseas dividends
(1) This section applies for the purposes of this Chapter.
(2) The gross amount of any interest or payment is the amount of the interest or payment
before the making of any deduction of income tax that is required to be deducted from
it on its being paid or made.
(3) The gross amount of a manufactured overseas dividend is an amount equal to the
gross amount of the overseas dividend of which the manufactured overseas dividend
is representative.
(4) The gross amount of an overseas dividend is the sum of—
(a) so much of the overseas dividend as remains after the deduction of any overseas
tax chargeable on it,
(b) the amount of any overseas tax so deducted, and
(c) the amount of any overseas tax credit in respect of the overseas dividend.
590 Meaning of “relevant withholding tax”
(1) This section applies for the purposes of this Chapter.
(2) “Relevant withholding tax”, in relation to the gross amount of a manufactured overseas
dividend, means an amount of income tax representative of the sum of—
(a) any amount that would have been deducted by way of overseas tax from an
overseas dividend on the overseas securities of the same gross amount as the
manufactured overseas dividend, and
(b) the amount of any overseas tax credit in respect of such an overseas dividend.
(3) The Treasury may by regulations make provision about the rates of relevant withholding
tax which are to apply in relation to manufactured overseas dividends in relation to
different overseas territories.
(4) The Treasury must, in prescribing these rates, have regard to—
(a) the rates at which overseas tax would have fallen to be deducted, and
(b) the rates of overseas tax credits,
in overseas territories, or in the particular overseas territory, in respect of payments of
overseas dividends on overseas securities.
591 Interpretation of other terms used in Chapter
(1) In this Chapter—
“C (tax-exempt)” has the meaning given by section 105(3) of FA 2006,
“G (property rental business)” has the meaning given by paragraph 2 of
Schedule 17 to FA 2006,

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“group” and “principal company” have the meanings given by section 134
of FA 2006,
“overseas tax” means tax under the law of a territory outside the United
Kingdom,
“overseas tax credit” means any credit under the law of a territory outside the
United Kingdom in respect of overseas tax which corresponds to a tax credit,
“prescribed” means prescribed in regulations under this Chapter, and
“transfer” includes a sale or other disposal.
(2) References in this Chapter to a trade carried on through a branch or agency are to be
read, in relation to a company, as references to a trade carried on through a permanent
establishment.
CHAPTER 3
TAX CREDITS : STOCK LENDING ARRANGEMENTS AND REPOS
Stock lending arrangements
592 No tax credits for borrower under stock lending arrangement
(1) This section applies if—
(a) there is a stock lending arrangement in respect of UK shares,
(b) a qualifying distribution is made to the person who is the borrower under the
arrangement,
(c) the qualifying distribution is, or is a payment representative of, a dividend in
respect of the UK shares, and
(d) a manufactured dividend representative of the dividend is paid by the borrower
in respect of any UK shares in respect of which the arrangement is made.
(2) The borrower is not entitled to a tax credit under section 397(1) of ITTOIA 2005 (tax
credits for qualifying distributions) in respect of the distribution.
(3) If the borrower is UK resident, section 399(2) of ITTOIA 2005 (recipients of qualifying
distributions treated as having paid income tax at dividend ordinary rate on them) does
not apply in respect of the distribution.
Repos
593 No tax credits for interim holder under repo
(1) This section applies if—
(a) there is a repo in respect of UK shares,
(b) under the repo, the original owner has transferred the UK shares to the interim
holder,
(c) a qualifying distribution is made to the interim holder,
(d) the qualifying distribution is, or is a payment representative of, a dividend in
respect of the UK shares, and

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(e) a manufactured dividend representative of the dividend is paid by the interim
holder in respect of any UK shares in respect of which the repo is made.
(2) The interim holder is not entitled to a tax credit under section 397(1) of ITTOIA 2005
(tax credits for qualifying distributions) in respect of the distribution.
(3) If the interim holder is UK resident, section 399(2) of ITTOIA 2005 (recipients of
qualifying distributions treated as having paid income tax at dividend ordinary rate on
them) does not apply in respect of the distribution.
594 No tax credits for original owner under repo
(1) This section applies if—
(a) there is a repo in respect of UK shares,
(b) under the repo, the original owner has transferred the UK shares to the interim
holder,
(c) a qualifying distribution is made,
(d) the qualifying distribution is a manufactured dividend paid under the repo in
respect of the UK shares by the interim holder to the original owner, and
(e) the repo is not such that the actual dividend which the manufactured dividend
represents is receivable by a person other than the original owner.
(2) The original owner is not entitled to a tax credit under section 397(1) of ITTOIA 2005
(tax credits for qualifying distributions) in respect of the distribution.
(3) If the original owner is UK resident, section 399(2) of ITTOIA 2005 (recipients of
qualifying distributions treated as having paid income tax at dividend ordinary rate on
them) does not apply in respect of the distribution.
Interpretation
595 Meaning of “manufactured dividend”
In this Chapter “manufactured dividend” has the same meaning as in Chapter 2 (see
section 573(1)(a)).
CHAPTER 4
DEEMED MANUFACTURED PAYMENTS
Stock lending arrangements
596 Deemed manufactured payments: stock lending arrangements
(1) This section applies if—
(a) there is a stock lending arrangement in respect of securities,
(b) a dividend or interest on the securities is paid, as a result of the arrangement,
to a person other than the person who is the lender under the arrangement, and
(c) no provision is made for securing that the lender receives payments
representative of the dividend or interest.

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(2) The rules about manufactured payments apply as if the person who is the borrower
under the arrangement—
(a) were required, under the arrangement, to pay the lender an amount
representative of the dividend or interest, and
(b) discharged the requirement when the dividend or interest was paid.
(3) But the borrower is not entitled (whether as a result of the rules about manufactured
payments or otherwise) to an income deduction in respect of the deemed requirement
to pay or the deemed payment.
(4) “Income deduction” means—
(a) a deduction in calculating profits or gains for income tax purposes, or
(b) a deduction in calculating net income.
(5) For the purposes of this section, a quasi-stock lending arrangement is treated as if it
were a stock lending arrangement.
597 Deemed interest: cash collateral under stock lending arrangements
(1) This section applies if—
(a) the borrower under a stock lending arrangement is treated under section 596(2)
as paying under the arrangement an amount representative of a dividend or
interest on any securities (“the relevant securities”),
(b) an amount of money (“cash collateral”) is payable to or for the benefit of the
lender for the purpose of securing the discharge of the requirement to transfer
the relevant securities back to the lender,
(c) the stock lending arrangement is designed to produce a return to the borrower
which equates, in substance, to the return on an investment of money at interest,
and
(d) the main purpose, or one of the main purposes, of the stock lending arrangement
is the obtaining of a tax advantage (within the meaning given by section 840ZA
of ICTA).
(2) If this section applies—
(a) the Income Tax Acts apply as if the borrower receives an amount of interest
payable in respect of the cash collateral, and
(b) the amount of the interest is calculated in accordance with subsections (3) to (7).
(3) The interest is treated for the purposes of the Income Tax Acts as if it were received
on the date (“the return date”) on which the borrower transfers the relevant securities
back to the lender.
(4) The interest is treated for the purposes of the Income Tax Acts as if it were payable in
respect of the period (“the interest period”)—
(a) beginning with the date on which the lender transfers the relevant securities to
the borrower, and
(b) ending with the return date.
(5) The rate of interest payable in respect of the cash collateral is a rate that is reasonably
comparable to the rate that the borrower could obtain by placing the cash collateral on
deposit for the interest period.

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(6) For the purposes of this section, the amount of the cash collateral on which the interest
is payable is taken to be—
(a) in any case where the amount of the cash collateral varies at any time on or
before the return date, the highest amount of the cash collateral at any time on
or before the return date, and
(b) in any other case, the amount of the cash collateral as at the return date.
(7) The amount of the interest which the borrower is treated as receiving in respect of the
cash collateral for the interest period is reduced (but not below nil) by any interest which
the borrower actually receives in respect of that collateral for that period.
(8) This section needs to be read with sections 598 and 599.
598 Cash collateral under stock lending arrangements: supplementary
(1) This section supplements section 597.
(2) The interest which the borrower is treated as receiving under section 597 is charged to
income tax under Chapter 2 of Part 4 of ITTOIA 2005 (interest).
(3) The fact that the borrower is treated as receiving an amount of interest under section 597
does not imply that the interest is payable by the lender or any other person.
(4) For the purposes of section 597—
(a) any reference in that section to the transfer of securities back has the same
meaning as the reference in section 568(1)(d) (see subsections (2) to (6) of
section 568), but
(b) if it becomes apparent that the borrower will not comply with the requirement
to transfer any securities back, the borrower is treated as transferring them back
on the date on which it becomes so apparent.
(5) For the purposes of section 597 it does not matter—
(a) whether the cash collateral is payable by the borrower or by any other person,
(b) whether the cash collateral is payable under the stock lending arrangement or
under any other arrangement, or
(c) whether collateral in another form is also provided in connection with the stock
lending arrangement.
(6) See section 599—
(a) for provision treating some arrangements as stock lending arrangements for the
purposes of section 597 and this section, and
(b) for provision treating some amounts as cash collateral for those purposes.
599 Sections 597 and 598: quasi-stock lending arrangements and quasi-cash collateral
(1) For the purposes of sections 597 and 598, a quasi-stock lending arrangement is treated
as if it were a stock lending arrangement.
(2) For the purposes of sections 597 and 598, in relation to a stock lending arrangement or
quasi-stock lending arrangement—
(a) quasi-cash collateral is treated as if it were cash collateral, and

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(b) the amount of that cash collateral is taken to be the amount of the quasi-cash
collateral in relation to the stock lending arrangement or quasi-stock lending
arrangement.
(3) If—
(a) section 597 applies in relation to a quasi-stock lending arrangement, and
(b) the person for whom the tax advantage was designed to be obtained is a person
(“the other person”) other than the borrower under the arrangement,
that section and section 598 have effect as if the other person were the person who
receives the amount of interest mentioned in that section.
(4) If section 597 applies in relation to a quasi-stock lending arrangement—
(a) any reference in that section to cash collateral being payable to or for the
benefit of the lender includes its being payable to or for the benefit of a person
connected with the lender,
(b) the reference in subsection (1)(c) of that section to a return to the borrower
includes a return to any other person, and
(c) any reference in that section and section 598 to the transfer back of the relevant
securities by the borrower to the lender includes the transfer back of any or
all of the securities, or any other property, by any person to the lender or any
other person.
(5) In subsection (4)(c) “property” means property in any form.
600 Meaning of “quasi-stock lending arrangements” and “quasi-cash collateral”
(1) This section applies for the purposes of sections 596 to 599.
(2) “Quasi-stock lending arrangement” means so much of any arrangements between two
or more persons as are not stock lending arrangements, but are arrangements under
which—
(a) a person (“the lender”) transfers securities to another person (“the borrower”)
otherwise than by way of sale, and
(b) a requirement is imposed on a person to transfer any or all of the securities, or
any other property, back to the lender or any other person otherwise than by
way of sale.
(3) For the purposes of subsection (2) it does not matter whether the person on whom the
requirement is imposed is the borrower or any other person.
(4) “Quasi-cash collateral”, in relation to a stock lending arrangement or quasi-stock
lending arrangement, means—
(a) any money which is payable for a relevant purpose, and
(b) any other property which is transferable for a relevant purpose.
(5) Money or other property is payable or transferable for a relevant purpose if it is payable
or transferable to or for the benefit of—
(a) the lender under the stock lending arrangement or quasi-stock lending
arrangement, or
(b) a person connected with the lender,
for the purpose of securing the discharge of the requirement mentioned in subsection (2)
(b).

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(6) If any property other than money is transferable for a relevant purpose, the amount of
the quasi-cash collateral so far as relating to that property is determined by reference
to its market value.
(7) In this section “property” means property in any form.
Repos
601 Repo cases in which deeming rules apply
(1) Section 602 applies if—
(a) there is a repo in respect of securities,
(b) a distribution becomes payable in respect of the securities, and
(c) each of the conditions in the first or second set of relevant conditions is met.
(2) This is the first set of relevant conditions—
Condition 1.1
As a result of the repo, the distribution is receivable otherwise than by the person who
is the original owner under the repo.
Condition 1.2
There is no requirement under the sale agreement or the related agreement (if any) for
a person to pay to the original owner, on or before the date when the repurchase price
of the securities becomes due, an amount representative of the distribution.
Condition 1.3
It is reasonable to assume that, in deciding the repurchase price of the securities, account
was taken of the fact that the distribution is receivable otherwise than by the original
owner.
(3) This is the second set of relevant conditions—
Condition 2.1
The distribution is receivable otherwise than by the person who is the original owner
under the repo.
Condition 2.2
There is no requirement under the sale agreement or the related agreement (if any) for
a person to pay to the original owner, on or before the date when the repurchase price
of the securities becomes due, an amount representative of the distribution.
Condition 2.3
The original owner or a person connected with the original owner is required under the
sale agreement or the related agreement (if any) to pay an amount representative of the
distribution.
Condition 2.4
It is reasonable to assume that, in deciding the repurchase price of the securities, account
was taken of the circumstances mentioned in Conditions 2.1 to 2.3.

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602 Deemed manufactured payments: repos
(1) If this section applies, the rules about manufactured payments apply as if the person
from whom the securities are to be repurchased (“A”)—
(a) were required, under the repo, to pay the repurchaser an amount representative
of the distribution, and
(b) discharged the requirement when the repurchase price of the securities became
due.
(2) The amount mentioned in subsection (1)(a) is—
(a) in the case of a dividend on UK shares (other than one within paragraph (b)),
the amount of the dividend,
(b) in the case of a dividend on UK shares so far as—
(i) paid by a company to which Part 4 of FA 2006 applies in respect of
profits of C (tax-exempt), or
(ii) paid by a group to which that Part applies in respect of profits of G
(property rental business),
the gross amount of the dividend,
(c) in the case of a periodical payment of interest on UK securities, the gross
amount of the periodical payment of interest, and
(d) in the case of an overseas dividend on overseas securities, the gross amount of
the overseas dividend.
(3) But if A is not the person to whom the original owner agreed to sell the securities, A is
not entitled (whether as a result of the rules about manufactured payments or otherwise)
to an income deduction as a result of subsection (1).
(4) “Income deduction” means—
(a) a deduction in calculating profits or gains for income tax purposes, or
(b) a deduction in calculating net income.
603 Deemed deductions of tax
(1) This section applies if—
(a) an amount is treated as paid under section 602(1)(b) (deemed manufactured
payments), and
(b) as a result, one of these sections applies—
(i) section 918 (deduction of income tax at source: manufactured
dividends on UK shares: Real Estate Investment Trusts),
(ii) section 919 (deduction of income tax at source: manufactured interest
on UK securities),
(iii) section 922 (deduction of income tax at source: manufactured overseas
dividends).
(2) So far as the deemed payment is representative of a dividend on UK shares—
(a) paid by a company to which Part 4 of FA 2006 applies in respect of profits of
C (tax-exempt), or
(b) paid by a group to which that Part applies in respect of profits of G (property
rental business),
any deduction which (as a result of section 918) is required to be made out of the gross
amount of the payment is treated as made.

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(3) If the deemed payment is representative of a periodical payment of interest on UK
securities, any deduction which (as a result of section 919) is required to be made out
of the gross amount of the payment is treated as made.
(4) If the deemed payment is representative of an overseas dividend on overseas securities,
any deduction which (as a result of section 922) is required to be made out of the gross
amount of the payment is treated as made.
604 Deemed increase in repurchase price: price differences under repos
(1) This section applies if—
(a) an amount is treated as paid under section 602(1)(b) (deemed manufactured
payments), and
(b) as a result, one of these sections applies—
(i) section 573 (manufactured dividends on UK shares),
(ii) section 576 (manufactured dividends on UK shares: Real Estate
Investment Trusts),
(iii) section 578 (manufactured interest on UK securities),
(iv) section 581 (manufactured overseas dividends).
(2) If the deemed payment is representative of a dividend on UK shares (other than one
falling within subsection (3)), the repurchase price of the UK shares is treated for the
purposes of section 607 (treatment of price differences under repos) as increased by an
amount equal to the amount of the dividend.
(3) So far as the deemed payment is representative of a dividend on UK shares—
(a) paid by a company to which Part 4 of FA 2006 applies in respect of profits of
C (tax-exempt), or
(b) paid by a group to which that Part applies in respect of profits of G (property
rental business),
the repurchase price of the UK shares is treated for the purposes of section 607 as
increased by the gross amount of the dividend.
(4) If the deemed payment is representative of a periodical payment of interest on UK
securities, the repurchase price of the UK securities is treated for the purposes of
section 607 as increased by the gross amount of the periodical payment of interest.
(5) If the deemed payment is representative of an overseas dividend on overseas securities,
the repurchase price of the overseas securities is treated for the purposes of section 607
as increased by the gross amount of the overseas dividend.
605 Deemed increase in repurchase price: other income tax purposes
(1) The deemed increase in the repurchase price which is made by section 604(2), (4) or (5)
for the purposes of section 607 also has effect for all other income tax purposes (except
sections 601, 602, 604 and this section), if condition A or B is met.
(2) Condition A is that, as a result of the increase, there is no difference for the purposes
of section 607 between the sale price and the repurchase price.
(3) Condition B is that, as a result of either of the exceptions in section 608, section 607
does not apply.

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(4) For the effect of the deemed increase of the repurchase price for capital gains tax
purposes see section 261F of TCGA 1992.
Interpretation
606 Interpretation of Chapter
(1) This section applies for the purposes of this Chapter.
(2) “C (tax-exempt)” has the meaning given by section 105(3) of FA 2006.
(3) “Distribution” means—
(a) in the case of UK shares, a dividend,
(b) in the case of UK securities, a periodical payment of interest, and
(c) in the case of overseas securities, an overseas dividend.
(4) “G (property rental business)” has the meaning given by paragraph 2 of Schedule 17
to FA 2006.
(5) “Group” has the meaning given by section 134 of FA 2006.
(6) “Manufactured dividend” has the same meaning as in Chapter 2 (see section 573(1)(a)).
(7) “The repurchase price of the securities” means the amount which, under the sale
agreement or the related agreement (if any), the original owner or connected person is
to pay for the securities bought back.
(8) “The rules about manufactured payments” means—
(a) Chapter 2 of this Part and regulations made under it,
(b) Chapter 3 of this Part,
(c) Chapter 9 of Part 15 and regulations made under it, and
(d) regulations made under section 973, so far as they apply to a person who pays
a manufactured dividend.
(9) Section 589 (meaning of “gross amount” of interest, manufactured overseas dividends
and overseas dividends for purposes of Chapter 2) also applies for the purposes of this
Chapter.
(10) Section 918(7) (meaning of “gross amount” of manufactured dividend in Real Estate
Investment Trust case) also applies for the purposes of this Chapter.
CHAPTER 5
PRICE DIFFERENCES UNDER REPOS
Main tax treatment
607 Treatment of price differences under repos
(1) This section applies if—
(a) there is a repo in respect of securities, and

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(b) under the repo, the original owner has transferred the securities to the interim
holder.
(2) Any difference between the sale price of the securities and the repurchase price of the
securities is treated for income tax purposes as follows.
(3) If the repurchase price is more than the sale price, the difference is treated as a payment
of interest made by the repurchaser on a deemed loan from the interim holder of an
amount equal to the sale price.
(4) If the sale price is more than the repurchase price, the difference is treated as a payment
of interest made by the interim holder on a deemed loan from the repurchaser of an
amount equal to the repurchase price.
(5) In either case, the payment of interest is treated for income tax purposes as—
(a) becoming due when the repurchase price becomes due, and
(b) paid when that price is paid.
(6) Subsection (7) applies in calculating the sale price for the purposes of this section if the
repo involves the exercise of an option (see section 569(4)(b) and (c)).
(7) The amount of any consideration given for the option is—
(a) in a case falling within section 569(4)(b), added to what would otherwise be
the price, and
(b) in a case falling within section 569(4)(c), subtracted from what would otherwise
be the price.
(8) This section is subject to section 608 (exceptions) and Chapter 6 (powers to modify
repo provisions: non-standard repo cases and redemption arrangements).
608 Exceptions to section 607
(1) Section 607 does not apply in a case within subsection (2) or (3).
(2) A case is within this subsection if the agreement or agreements for sale and repurchase
are not what one would expect of persons dealing at arm's length.
(3) A case is within this subsection if the interim holder has all the benefits and risks from
fluctuations in the market value of the securities between their sale and repurchase.
(4) This section is subject to any regulations under—
(a) section 611 (power to modify Chapter 5 in non-arm's length case), and
(b) sections 612 to 614 (powers to modify repo provisions: non-standard repo cases
and redemption arrangements).
Additional tax treatment
609 Additional income tax consequences of price differences
(1) Subsections (2) and (3) apply if an amount is treated under section 607 as a payment
of interest.
(2) If the repurchase price is more than the sale price, the repurchase price is treated for
other income tax purposes as reduced by the amount of the payment of interest.

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(3) If the sale price is more than the repurchase price, the repurchase price is treated for
other income tax purposes as increased by the amount of the payment of interest.
(4) “Other income tax purposes” means income tax purposes other than the purposes of—
(a) sections 601 to 605 (deemed manufactured payments: repos), and
(b) this Chapter.
(5) The Treasury may by regulations provide for any amount which is treated under
section 607 as received as a payment of interest to be treated, in such circumstances
and so far as may be described in the regulations, as exempt pension income.
(6) “Exempt pension income” means income which is eligible for relief from income tax
as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section 186 of FA 2004
(exemptions about pensions and annuities).
(7) Section 261G of TCGA 1992 deals with the effect on the repurchase price for capital
gains tax purposes of an amount being treated under section 607 as a payment of interest.
Interpretation
610 Repurchase price in deemed manufactured payment case
(1) This section applies if section 602 (deemed manufactured payments: repos) applies to
a case in which section 607 applies.
(2) References in sections 607 to 609 to the repurchase price are to be read as references to
the repurchase price which is applicable as a result of section 604(2), (4) or (5).
Power to modify
611 Power to modify Chapter in non-arm's length case
(1) The Treasury may by regulations provide for—
(a) sections 607 to 610 (price differences under repos), or
(b) any of those sections,
to apply with modifications if the exception in section 608(2) (agreement not at arm's
length) would otherwise prevent section 607 from applying.
(2) Regulations under this section may make different provision for different cases.
(3) Regulations under this section may contain incidental, supplemental, consequential and
transitional provision and savings.
(4) The incidental, supplemental and consequential provision may include modifications
of—
(a) section 604 (deemed increase in repurchase price: price differences under
repos), and
(b) section 605 (deemed increase in repurchase price: other income tax purposes).
(5) In this section “modifications” includes exceptions and omissions.
(6) Accordingly, the power in subsection (1) includes power to provide for any of sections
607 to 610 not to apply in relation to the case mentioned in that subsection.

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CHAPTER 6
POWERS TO MODIFY REPO PROVISIONS
612 Non-standard repo cases
(1) The Treasury may by regulations provide for—
(a) sections 601 to 606 (deemed manufactured payments: repos),
(b) sections 607 to 610 (treatment of price differences under repos), or
(c) any of those sections,
to apply with modifications in relation to non-standard repo cases.
(2) A case is a non-standard repo case if—
(a) there is a repo in respect of securities,
(b) under the repo, there has been a sale (“the original sale”) of the securities by
the original owner to the interim holder, and
(c) any of conditions A to E is met in relation to the repo.
(3) Condition A is that—
(a) the obligation to buy back the securities is not performed, or
(b) the option to buy them back is not exercised.
(4) Condition B is that provision is made by or under an agreement for different or
additional UK shares, UK securities or overseas securities to be treated as (or as
included with) representative securities.
(5) Condition C is that provision is made by or under an agreement for any UK shares,
UK securities or overseas securities to be treated as not included with representative
securities.
(6) Condition D is that provision is made by or under an agreement for the sale price or
repurchase price to be decided or varied wholly or partly by reference to post-agreement
fluctuations.
(7) Condition E is that provision is made by or under an agreement for a person to be
required, in a case where there are post-agreement fluctuations, to make a payment in
the period—
(a) beginning immediately after the making of the agreement for the original sale,
and
(b) ending when the repurchase price becomes due.
(8) “Post-agreement fluctuations” are fluctuations in the value of —
(a) securities transferred in pursuance of the original sale, or
(b) representative securities,
which occur in the period after the making of the agreement for the original sale.
(9) “Representative securities” are UK shares, UK securities or overseas securities which,
for the purposes of the repurchase, are to represent securities transferred in pursuance
of the original sale.
613 Redemption arrangements
(1) The Treasury may by regulations provide for—

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(a) sections 601 to 606 (deemed manufactured payments: repos),
(b) sections 607 to 610 (treatment of price differences under repos), or
(c) any of those sections,
to apply with modifications in relation to cases involving redemption arrangements.
(2) A case involves redemption arrangements if—
(a) arrangements, corresponding to those made in cases where there is a repo,
are made by an agreement, or one or more related agreements, in relation to
securities that are to be redeemed in the period after their sale,
(b) the securities are UK shares, UK securities or overseas securities, and
(c) the arrangements are such that the seller or a person connected with the seller
(instead of being required to repurchase the securities or acquiring an option
to do so) is granted rights in respect of the benefits that will result from the
redemption.
614 Sections 612 and 613: supplementary
(1) Regulations under section 612 or 613 may make different provision for different cases.
(2) Regulations under either section may contain incidental, supplemental, consequential
and transitional provision and savings.
(3) The incidental, supplemental and consequential provision may, in the case of
regulations about sections 607 to 610, include modifications of—
(a) section 604 (deemed increase in repurchase price: price differences under
repos), and
(b) section 605 (deemed increase in repurchase price: other income tax purposes).
(4) In this section and sections 612 and 613 “modifications” includes exceptions and
omissions.
(5) Accordingly, a power in sections 612 and 613 to provide for a provision to apply with
modifications in relation to a particular case includes power to provide for the provision
not to apply in relation to that case.
PART 12
ACCRUED INCOME PROFITS
CHAPTER 1
INTRODUCTION
615 Overview of Part
(1) This Part makes provision about—
(a) accrued income profits and losses, and
(b) exemptions which apply where there is interest on securities.
(2) In this Part “accrued income profits” means profits which under Chapter 2 are treated
as made where securities which carry or have carried interest are transferred.

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(3) See sections 628, 630 and 670(2) and (3) for when such profits are treated as made.
(4) In this Part “accrued income losses” means losses which under Chapter 2 are treated
as made where securities which carry or have carried interest are transferred.
(5) See section 628 for when such losses are treated as made.
(6) For the meaning of “securities”, “transfer” and “interest”, see sections 619, 620 and
671 respectively.
CHAPTER 2
ACCRUED INCOME PROFITS AND LOSSES
Charge to tax
616 Charge to tax on accrued income profits
Income tax is charged on accrued income profits.
617 Income charged
(1) Tax is charged under this Chapter on the full amount of the accrued income profits
treated as made in the tax year.
(2) Accrued income profits within section 628(5) (profits treated as made where the
settlement day falls within an interest period) are treated as made in the tax year in
which the last day of the interest period in which the profits are treated as made falls.
(3) Accrued income profits within section 630(2) (profits treated as made where the
settlement day falls after the end of the securities' last interest period) are treated as
made in the tax year in which the settlement day for the transfer falls.
(4) Accrued income profits within section 670(2) or (3) (withdrawal of relief for
unremittable transfer proceeds) are treated as made in the tax year in which the proceeds
cease to be unremittable.
(5) Section 668(5) (when proceeds are unremittable) applies for the purposes of
subsection (4) as it applies for the purposes mentioned in section 668(5).
(6) For the meaning of “interest period” and “the settlement day”, see sections 673 and
674 respectively.
618 Person liable
(1) The person liable for any tax charged under this Chapter is the person treated as making
the accrued income profits.
(2) But see section 666 (under which nominees and trustees may be disregarded).

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Securities to which Chapter applies
619 Meaning of “securities” and when securities are of the same kind
(1) In this Chapter “securities” includes—
(a) any loan stock or similar security other than an excluded security, and
(b) shares in a building society which are qualifying shares for the purposes of
section 117(4) of TCGA 1992 (qualifying corporate bonds),
but (subject to paragraph (b)) it does not include any shares in a company.
(2) For the purposes of subsection (1)(a), it does not matter—
(a) whether the security is of the government of the United Kingdom, any other
government, any public or local authority in the United Kingdom or elsewhere,
or any company or other body,
(b) whether or not the security is secured,
(c) whether or not the security carries a right to interest of a fixed amount or at a
fixed rate percentage of the nominal value of the security, or
(d) whether or not the security is in bearer form.
(3) In this section “excluded securities” means—
(a) national savings certificates (including Ulster Savings Certificates as defined
in section 693(7) of ITTOIA 2005),
(b) war savings certificates,
(c) uncertificated eligible debt security units as defined in section 986,
(d) certificates of deposit (see section 1019),
(e) a security which is a right falling within section 552(1)(c) of ITTOIA 2005 at
the time of the transfer in question,
(f) a security that meets the redemption conditions (see subsection (5)), and
(g) a security that is a deeply discounted security within the meaning of Chapter
8 of Part 4 of ITTOIA 2005.
(4) But subsection (3)(g) does not include a security if, on its transfer, Chapter 8 of Part
4 of ITTOIA 2005 would apply subject to the rules in sections 454 to 456 of that Act
(listed securities held since 26 March 2003).
(5) The redemption conditions are that—
(a) the security is redeemable,
(b) the amount payable on its redemption exceeds its issue price, and
(c) no return other than the amount of that excess is payable on it.
(6) Securities are treated as being of the same kind for the purposes of this Chapter if they—
(a) are treated as being of the same kind by the practice of a recognised stock
exchange, or
(b) would be so treated if dealt in on such an exchange.
Transfers to which Chapter applies
620 Transactions which are transfers: general
(1) References in this Chapter to the transfer of securities are—

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(a) to the transfer of securities by way of sale, exchange, gift or otherwise,
(b) to the conversion of securities in any case where there is no transfer of the
securities within paragraph (a),
(c) to the redemption of variable rate securities, or
(d) to a transaction or event treated as a transfer under—
(i) section 648(1) or (3) (strips of gilt-edged securities),
(ii) section 649(4) (new securities issued with extra return),
(iii) section 650(2), (4) or (6) (trading stock appropriations etc),
(iv) section 651(2) (owner becoming entitled to securities as trustee), or
(v) section 652(2) (securities ceasing to be held on charitable trusts).
(2) But subsection (1)(a) does not include—
(a) the vesting of securities in personal representatives on death, or
(b) the transfer of a security to which Chapter 8 of Part 4 of ITTOIA 2005 applies
subject to the rules in sections 454 to 456 of that Act.
(3) For the purposes of this Chapter—
(a) a transfer of securities under an agreement takes place when the agreement is
made, and
(b) the person to whom they are to be transferred under the agreement becomes
entitled to them at that time.
(4) But in the case of a conversion of securities within subsection (1)(b), the transfer takes
place on the day of the conversion.
(5) And in the case of a redemption of securities within subsection (1)(c), the transfer takes
place on the day of the redemption.
(6) Subsection (1) is subject to—
section 648(7) (transactions forming part of exchanges concerning strips of gilt-
edged securities),
section 653 (stock lending), and
section 655 (transfers under sale and repurchase arrangements).
(7) In this Chapter “conversion”, in relation to securities, has the meaning given by
section 132 of TCGA 1992.
621 Transferors and transferees
(1) In this Chapter “transferor” and “transferee” are to be read in accordance with
section 620 (but this is subject to subsections (2) to (4)).
(2) In the case of a conversion of securities within section 620(1)(b)—
(a) the person who was entitled to the securities immediately before the conversion
is treated as the transferor, but
(b) no one is treated as the transferee.
(3) In the case of a redemption of securities within section 620(1)(c)—
(a) the person who was entitled to the securities immediately before the redemption
is treated as the transferor, but
(b) no one is treated as the transferee.

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(4) The following provisions also contain rules about who is the transferor or the transferee
for certain transfers—
section 648(1) to (4) (strips of gilt-edged securities),
section 649(4) and (5) (new securities issued with extra return),
section 650 (trading stock appropriations etc),
section 651(2) and (3) (owner becoming entitled to securities as trustee),
section 652(2) and (3) (securities ceasing to be held on charitable trusts), and
section 666 (certain transfers by or to nominees or trustees treated as made by or
to others).
(5) See also sections 638 to 647 (excluded transferors and transferees).
622 Application of Chapter to different kinds of transfer
(1) Different rules apply under this Chapter for the different kinds of transfer specified in
subsection (2).
(2) The transfers are—
(a) transfers with accrued interest (see section 623),
(b) transfers without accrued interest (see section 624),
(c) transfers with unrealised interest (see section 625), and
(d) transfers of variable rate securities (see section 626).
(3) If a transfer is both a transfer with unrealised interest and a transfer of a kind specified in
subsection (2)(a), (b) or (d), both the provisions of this Chapter applicable to transfers
with unrealised interest and the provisions applicable to the other kind of transfer apply
to the transfer.
623 Transfers with accrued interest
(1) The general rule is that securities are transferred with accrued interest for the purposes
of this Chapter if they are transferred with the right to receive interest payable—
(a) in a case where the settlement day is an interest payment day, on the settlement
day, and
(b) in any other case, on the first interest payment day after the settlement day.
(2) But, in the case of the transfers specified in subsection (3), subsection (4) applies instead
of subsection (1).
(3) The transfers are those treated as made under—
(a) section 620(1)(b) (conversion),
(b) section 650 (trading stock appropriations etc),
(c) section 651 (owner becoming entitled to securities as trustee), and
(d) section 652 (securities ceasing to be