Income and Corporation Taxes Act 1988

289 The relief

(1) This Chapter has effect for affording relief from income tax where an individual who qualifies for the relief subscribes for eligible shares in a qualifying company, and either—

(a) those shares are issued to him after 5th April 1983 for the purpose of raising money for a qualifying trade which is being carried on by the company or which it intends to carry on; or

(b) those shares are issued to him after 18th March 1986 for the purpose of raising money—

(i) for research and development which is being carried on by the company or by any subsidiary of the company on the date on which the shares are issued, or begins so to be carried on immediately thereafter, and from which it is intended that a qualifying trade (to be so carried on) will be derived; or

(ii) both for any such research and development and the resulting trade; or

(c) those shares are issued to him after 5th April 1985 and before 19th March 1986 for the purpose of raising money—

(i) for research and development which is being carried on at the time when the shares are issued, or begins immediately thereafter, and from which the company intends to derive a qualifying trade which will be carried on by it; or

(ii) both for any such research and development and the resulting trade; or

(d) those shares are issued to him after the passing of the [1986 c. 41.] Finance Act 1986 (25th July 1986) for the purpose of raising money for oil exploration which—

(i) is being carried on by the company, or by any subsidiary of the company, on the date on which the shares are issued; or

(ii) begins so to be carried on immediately thereafter;

and from which it is intended that a qualifying trade (to be so carried on) will be derived.

(2) Subsection (1)(d) above shall not apply unless—

(a) throughout the period of three years beginning with the date on which the shares were issued the company, or any subsidiary of the company, holds an exploration licence which was granted to it, or to another such subsidiary;

(b) the exploration is carried out solely within the area to which the licence applies; and

(c) on the date on which the shares are issued, neither the company nor any subsidiary of the company holds an appraisal licence or a development licence relating to that area or any part of that area.

(3) Where, at any time after the issue of the shares but before the end of the period mentioned in subsection (2)(a) above, the company, or any subsidiary of the company, comes to hold an appraisal licence or development licence which relates to the area, or any part of the area, to which the exploration licence relates, the exploration licence and that other licence shall be treated for the purposes of subsection (2)(a) above as a single exploration licence.

(4) In this Chapter “eligible shares” means new ordinary shares which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future preferential right to be redeemed.

(5) Subject to subsection (6) below, the relief in respect of the amount subscribed by an individual for any eligible shares shall be given as a deduction of that amount from his total income for the year of assessment in which the shares are issued, and references in this Chapter to the amount of the relief are references to the amount of that deduction.

(6) If—

(a) the shares are issued before 6th October in a year of assessment; and

(b) the claimant so requests in his claim for relief;

the relief shall be given partly by way of deduction from the claimant’s total income for the year of assessment in which the shares are issued and partly by way of deduction from his total income for the preceding year of assessment.

(7) A deduction from the claimant’s total income for the year of assessment preceding that in which the shares are issued shall be of such amount as may be specified in the claim; but

(a) that amount shall not exceed one half of the total relief in respect of the shares; and

(b) the aggregate of that amount and the amounts of any other deductions made by virtue of subsection (6) above from the claimant’s total income for the year of assessment preceding that in which the shares are issued shall not exceed £5,000.

(8) The relief shall be given on a claim and shall not be allowed—

(a) in a case falling within subsection (1)(a)—

(i) unless and until the company has carried on the trade for four months; and

(ii) if the company is not carrying on that trade at the time when the shares are issued, unless the company begins to carry it on within two years after that time;

(b) in a case falling within subsection (1)(b) or (c) unless and until the company or (as the case may be) the subsidiary has carried on the research and development for four months;

(c) in a case falling within subsection (1)(d) unless and until the company has carried on the exploration for four months.

(9) A claim for relief may be allowed—

(a) under subsection (1)(a), (c) or (d) at any time after the trade, the research and development or the exploration (as the case may be) has been carried on by the company for four months;

(b) under subsection (1)(b) at any time after the research and development has been carried on for four months;

if the conditions for the relief are then satisfied.

(10) In the case of a claim allowed before the end of the relevant period, the relief shall be withdrawn if by reason of any subsequent event it appears that the claimant was not entitled to the relief allowed.

(11) An individual is not entitled to relief in respect of any shares unless the shares are subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose, or one of the main purposes of which, is the avoidance of tax.

(12) In this Chapter “the relevant period”, in relation to relief in respect of any eligible shares issued by a company, means—

(a) as respects sections 291, 299, 300, 302 and 303, the period beginning with the incorporation of the company (or, if the company was incorporated more than two years before the date on which the shares were issued, beginning two years before that date) and ending five years after the issue of the shares; and

(b) as respects sections 293, 294, 297, 308 and 309, the period beginning with the date on which the shares were issued and ending either—

(i) three years after that date; or

(ii) in a case falling within subsection (1)(a), where the company was not at that date carrying on a qualifying trade, three years after the date on which it subsequently began to carry on such a trade.

(13) Where by reason of its being wound up, or dissolved without winding up, the company carries on the qualifying trade for a period shorter than four months, subsection (8)(a) above shall have effect as if it referred to that shorter period but only if it is shown that the winding up or dissolution was for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax.

(14) The relief shall be treated for the purposes of section 835(5) as a deduction to be made under Chapter I of this Part after all other deductions under that Chapter and shall be disregarded for the purposes of calculating relief under section 550(2), paragraph 3 of Schedule 2 and paragraphs 4 and 16 of Schedule 11 where an election has effect under paragraph 12 of that Schedule.

(15) Where effect is given to a claim for relief by repayment of tax, section 824 shall have effect in relation to the repayment as if the time from which the 12 months mentioned in subsections (1)(b) and (3)(a) of that section are to be calculated were the end of the year of assessment in which the shares are issued or, if the period mentioned in subsection (8)(a) above ends in a later year, the end of that later year.