Income and Corporation Taxes Act 1988

[F1 Relief for losses on unquoted shares in trading companies] U.K.

Textual Amendments

F1 Pt. 13 Ch. 5A created (6.4.2007 with effect in accordance with s. 1034(1) of the affecting Act) by virtue of Income Tax Act 2007 (c. 3), Sch. 1 para. 117(3) (with Sch. 2)

573 Relief for companies. U.K.

(1) M1 Subsection (2) below has effect where a company which has subscribed for shares in a qualifying trading company incurs an allowable loss (for the purpose of corporation tax on chargeable gains) on the disposal of the shares in any accounting period and the company disposing of the shares—

(a) is an investment company on the date of the disposal and either—

(i) has been an investment company for a continuous period of six years ending on that date; or

(ii) has been an investment company for a shorter continuous period ending on that date and has not before the beginning of that period been a trading company or an excluded company; and

(b) was not associated with, or a member of the same group as, the qualifying trading company at any time in the period beginning with the date when it subscribed for the shares and ending with the date of the disposal.

(2) The company disposing of the shares may, within two years after the end of the accounting period in which the loss was incurred, make a claim requiring that the loss be set off for the purposes of corporation tax against income—

(a) of that accounting period; and

(b) if the company was then an investment company and the claim so requires, of preceding accounting periods ending within the time specified in subsection (3) below;

and, subject to any relief for an earlier loss, the income of any of those periods shall then be treated as reduced by the amount of the loss or by so much of it as cannot be relieved under this subsection against income of a later accounting period.

(3) The time referred to in subsection (2) above is the period of 12 months ending immediately before the accounting period in which the loss is incurred; but the amount of the reduction which may be made under that subsection in the income of an accounting period falling partly before that time shall not exceed a part of that income proportionate to the part of the accounting period falling within that time.

(4) [F2 Where relief is claimed under subsection (2) above, it must be claimed before any deduction is made for] charges on income, expenses of management or other amounts which can be deducted from or set against or treated as reducing profits of any description; F3 . . . .

[F4 This subsection is subject to subsection (4A) below.]

[F5 (4A) Paragraph 70 of Schedule 15 to the Finance Act 2000 (priority of loss relief) provides that where relief under Part VII of that Schedule (relief for losses on disposals of shares to which investment relief is attributable) is claimed it must be claimed in priority to relief under subsection (2) above.]

(5) For the purposes of subsection (1)(b) above companies are associated with each other if one controls the other or both are under the control of the same person or persons; and section 416(2) to (6) shall apply for the purposes of this subsection.

(6) M2 For the purposes of this section a company subscribes for shares in another company if they are issued to it by that other company in consideration of money or money’s worth.

Textual Amendments

F2 Words in s. 573(4) substituted (with effect in accordance with s. 63(3)(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 3(2)(a)(i)

F3 Words in s. 573(4) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 117(2), Sch. 3 Pt. 1 (with Sch. 2)

F4 Words in s. 573(4) inserted (with effect in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 3(2)(a)(iv)

F5 S. 573(4A) inserted (with effect in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 3(2)(b)

Modifications etc. (not altering text)

C1 S. 573 transposed from Pt. 13 Ch. 6 to Pt. 13 Ch. 5A (6.4.2007 with effect in accordance with s. 1034(1) of the affecting Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 117(3) (with Sch. 2)

C2 S. 573(2) restricted (with effect in accordance with s. 63(4) of the affecting Act) by Finance Act 2000, Sch. 15 para. 70(2)

Marginal Citations

M1 Source-1981 s.36(1)-(5)

M2 Source-1981 s.36(6); 1980 s.37(3)

575 Exclusion of relief under section 573 F6 . . . in certain cases. U.K.

M3 (1) [F7 Section 573 does] not apply unless the disposal is—

(a) by way of a bargain made at arm’s length for full consideration; or

(b) by way of a distribution in the course of dissolving or winding up the company; or

[F8 (ba) a disposal within section 24(1) of the 1992 Act (entire loss, destruction, dissipation or extinction of asset); or]

(c) a deemed disposal under section [F9 24(2) of the 1992 Act] (claim that value of asset has become negligible).

(2) Where a [F10 company] disposes of shares (“the new shares”) which by virtue of section [F11 127 of the 1992 Act] (reorganisation etc. treated as not involving disposal) are identified with other shares (“the old shares”) previously held by [F12 it], relief shall not be given under section 573 F13 . . . on the disposal of the new shares unless—

(a) relief under section 573 F13 . . . could (or if this section had been in force could) have been given on a disposal of the old shares if [F12 it] had incurred an allowable loss in disposing of them as mentioned in subsection (1)(a) above on the occasion of the disposal that would have occurred but for section [F11 127 of the 1992 Act]; or

(b) [F12 it] gave new consideration for the new shares;

but in a case within paragraph (b) above the amount of relief under section 573 F13 . . . on the disposal of the new shares shall not exceed the amount or value of the new consideration taken into account as a deduction in computing the loss incurred on their disposal.

(3) Where the shares are the subject of an exchange or arrangement of the kind mentioned in section [F14 135 or 136 of the 1992 Act] (company reconstructions etc.) which by reason of section [F14 137] of that Act involves a disposal of the shares, section 573 F15 . . . shall not apply to any allowable loss incurred on the disposal.

[F16 (4) In this section “new consideration” means consideration in money or money's worth other than consideration of the kind excluded by paragraph (a) or (b) of section 128(2) of the 1992 Act.]

Textual Amendments

F6 Words in s. 575 sidenote repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(2), Sch. 3 Pt. 1 (with Sch. 2)

F7 Words in s. 575(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(3) (with Sch. 2)

F8 S. 575(1)(ba) inserted (with effect in accordance with s. 63(3)(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 3(3)

F9 Words in s. 575(1)(c) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation and Chargeable Gains Act 1992 (c. 12), ss. 289, 290, Sch. 10 para. 14(34)(a) (with ss. 60, 101(1), 171, 201(3))

F10 Word in s. 575(2) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(4)(a) (with Sch. 2)

F11 Words in s. 575(2) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation and Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(34)(b) (with ss. 60, 101(1), 171, 201(3))

F12 Words in s. 575(2) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(4)(b) (with Sch. 2)

F13 Words in s. 575(2) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(4)(c), Sch. 3 Pt. 1 (with Sch. 2)

F14 Words in s. 575(3) substituted (6.3.1992 with effect as mentioned in s. 289(1)(2) of the amending Act) by Taxation and Chargeable Gains Act 1992 (c. 12), ss. 289, 290(1), Sch. 10 para. 14(34)(c) (with ss. 60, 101(1), 171, 201(3))

F15 Words in s. 575(3) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(5), Sch. 3 Pt. 1 (with Sch. 2)

F16 S. 575(4) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(6) (with Sch. 2)

Modifications etc. (not altering text)

C3 Ss. 574-576 applied (with effect in accordance with s. 93(11) of the affecting Act) by Finance Act 1994 (c. 9), Sch. 12 para. 3(3)

C4 S. 575 transposed from Pt. 13 Ch. 6 to Pt. 13 Ch. 5A (6.4.2007 with effect in accordance with s. 1034(1) of the affecting Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 119(7) (with Sch. 2)

Marginal Citations

M3 Source-1980 s.37(6)-(8); 1981 s.36(6)

576 Provisions supplementary to [F17 sections 573 and 575]. U.K.

(1) [F18 Subject to [F19 subsection (1C)] below,] where [F20 a company] holds shares in [F21 another company] which constitute a holding and comprise—

(a) shares for which [F22 it] has subscribed (“qualifying shares”); and

(b) shares which [F22 it] has acquired otherwise than by subscription,

any question whether a disposal by [F22 it] of shares forming part of the holding is of qualifying shares shall be determined by treating that and any previous disposal by [F22 it] out of the holding as relating to shares acquired later rather than earlier; and if a disposal by [F22 it] is of qualifying shares forming part of a holding and [F22 it] makes a claim under section 573 F23 . . . in respect of a loss incurred on their disposal, the amount of relief under that section on the disposal shall not exceed the sums that would be allowed as deductions in computing the loss if the shares had not been part of the holding.

[F24 (1A) F25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1B) F25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

[F26 (1C) Where the holding mentioned in subsection (1) above comprises any shares—

(a) to which investment relief is attributable under Schedule 15 to the Finance Act 2000 (corporate venturing scheme), and

(b) which have been held continuously (within the meaning of paragraph 97 of that Schedule) from the time they were issued until the disposal,

any such question as is mentioned in that subsection shall not be determined as provided by that subsection, but shall be determined instead as provided by paragraph 93 of that Schedule (identification of shares on a disposal of part of a holding where investment relief is attributable to any shares in the holding held continuously by the disposing company).

For this purpose paragraph 93 of that Schedule shall have effect as if the references in it to a disposal had the same meaning as in subsection (1) above.]

[F27 (1D) In this section “holding” means any number of shares of the same class held by one company in one 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 the 1992 Act applies as it applies for the purposes of subsection (1) of that section.]

(2) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F29 (4) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4A) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4B) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(5) F28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F17 Words in s. 576 sidenote substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(2) (with Sch. 2)

F18 Words in s. 576(1) inserted (with effect in accordance with s. 80(5)(a) of the amending Act) by Finance Act 1998 (c. 36), s. 80(1)

F19 Words in s. 576(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(3)(a) (with Sch. 2)

F20 Words in s. 576(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(3)(b) (with Sch. 2)

F21 Words in s. 576(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(3)(c) (with Sch. 2)

F22 Words in s. 576(1) substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(3)(d) (with Sch. 2)

F23 Words in s. 576(1) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(2)(e), Sch. 3 Pt. 1 (with Sch. 2)

F24 S. 576(1A)(1B) inserted (with effect in accordance with s. 80(5)(a) of the amending Act) by Finance Act 1998 (c. 36), s. 80(2)

F25 S. 576(1A)(1B) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(4), Sch. 3 Pt. 1 (with Sch. 2)

F26 S. 576(1C) inserted (with application in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 16 para. 3(4)(b)

F27 S. 576(1D) inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(5) (with Sch. 2)

F28 S. 576(2)-(5) repealed (6.4.2007 with effect in accordance with s. 1034(1) of the repealing Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(6), Sch. 3 Pt. 1 (with Sch. 2)

F29 S. 576(4)-(4B) substituted for s. 576(4) (with effect in accordance with s. 80(5)(b) of the amending Act) by Finance Act 1998 (c. 36), s. 80(3)

Modifications etc. (not altering text)

C5 Ss. 574-576 applied (with effect in accordance with s. 93(11) of the affecting Act) by Finance Act 1994 (c. 9), Sch. 12 para. 3(3)

C6 S. 576 transposed from Pt. 13 Ch. 6 to Pt. 13 Ch. 5A (6.4.2007 with effect in accordance with s. 1034(1) of the affecting Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 120(7) (with Sch. 2)

[F30 576A Qualifying trading companies U.K.

(1) For the purposes of this Chapter 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 576B),

(ii) the control and independence requirement (see section 576D),

(iii) the qualifying subsidiaries requirement (see section 576E), and

(iv) the property managing subsidiaries requirement (see section 576F), 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 576G) both immediately before and immediately after the issue of the shares in respect of which the relief is claimed under this Chapter, and

(b) met the unquoted status requirement (see section 576H) 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.]

Textual Amendments

F30 S. 576A inserted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 121 (with Sch. 2)