Finance Act 1988

Charges to tax U.K.

78 Charge where restrictions removed etc. U.K.

(1) The person acquiring the shares or interest in shares shall be chargeable to tax if—

(a) a chargeable event occurs in relation to the shares at a time when he has not ceased to have a beneficial interest in them, and

(b) the shares are shares in a company which was not a dependent subsidiary at the time of the acquisition and is not a dependent subsidiary at the time of the chargeable event.

(2) Subject to subsections (4) and (5) below, any of the following events is a chargeable event in relation to shares in a company for the purposes of this section if it increases, or but for the occurrence of some other event would increase, the value of the shares —

(a) the removal or variation of a restriction to which the shares are subject;

(b) the creation or variation of a right relating to the shares;

(c) the imposition of a restriction on other shares in the company or the variation of a restriction to which such other shares are subject;

(d) the removal or variation of a right relating to other shares in the company.

(3) A charge by virtue of this section shall be a charge under Schedule E, for the year of assessment in which the chargeable event occurs, on the amount by which the value of the shares is increased by the chargeable event or the amount by which it would be increased but for the occurrence of some other event (or, if the interest of the person chargeable is less than full beneficial ownership, on an appropriate part of that amount).

(4) An event is not a chargeable event in relation to shares in a company for the purposes of this section unless the person who acquired the shares or interest has been a director or employee of —

(a) that company, or

(b) (if it is different) the company as a director or employee of which he acquired the shares or interest, or

(c) an associated company of a company within paragraph (a) or (b) above,

at some time during the period of seven years ending with the date on which the event occurs.

(5) An event is not a chargeable event for the purposes of this section if it consists of—

(a) the removal of a restriction to which all shares of a class are subject from all those shares,

(b) the variation of such a restriction in the case of all those shares,

(c) the creation of a right relating to all shares of a class,

(d) the variation of such a right in the case of all those shares,

(e) the imposition of a restriction on all shares of a class, or

(f) the removal of a right relating to all shares of a class from all those shares,

and any of the conditions in subsection (6) below is satisfied.

(6) The conditions referred to in subsection (5) above are—

(a) that at the time of the event the majority of the company’s shares of the same class as those which, or an interest in which, the person acquired are held otherwise than by or for the benefit of—

(i) directors or employees of the company,

(ii) an associated company of the company, or

(iii) directors or employees of any such associated company;

(b) that at the time of the event the company is employee-controlled by virtue of holdings of shares of that class;

(c) that at the time of the event the company is a subsidiary which is not a dependent subsidiary and its shares are of a single class.

(7) References in this section to restrictions to which shares are subject, or to rights relating to shares, include references to restrictions imposed or rights conferred by any contract or arrangement or in any other way.

Modifications etc. (not altering text)

C1 S. 78 excluded (28.7.2000) by 2000 c. 17, s. 47, Sch. 8 Pt. X para. 80(1)(b)(2)

79 Charge for shares in dependent subsidiaries. U.K.

(1) The person acquiring the shares or interest in shares shall be chargeable to tax if the shares are shares in a company which—

(a) was a dependent subsidiary at the time of the acquisition, or

(b) was not a dependent subsidiary at that time but becomes a dependent subsidiary before the person making the acquisition ceases to have any beneficial interest in the shares,

and there is a chargeable increase in the value of the shares.

(2) There is a chargeable increase in the value of shares in a case within subsection (1)(a) above if the value of the shares at the earlier of—

(a) the expiration of seven years from the time of the acquisition, and

(b) the time when the person making the acquisition ceases to have any beneficial interest in the shares,

exceeds their value at the time of the acquisition.

(3) Subject to subsection (7) below, there is a chargeable increase in the value of shares in a case within subsection (1)(b) above if the value of the shares at the earlier or earliest of—

(a) the expiration of seven years from the time when the company becomes a dependent subsidiary, and

(b) the time when the person making the acquisition ceases to have any beneficial interest in the shares, and

(c) if the company ceases to be a dependent subsidiary, the time when it does so,

exceeds their value at the time when the company becomes a dependent subsidiary.

(4) A charge by virtue of this section shall be a charge under Schedule E, for the year of assessment which includes the end of the period for which the chargeable increase is determined, on an amount equal to that increase (or, if the interest of the person chargeable is less than full beneficial ownership, on an appropriate part of that amount).

(5) Where, in accordance with the terms on which the acquisition was made, the consideration for the acquisition is subsequently increased, the amount chargeable to tax by virtue of this section shall be reduced by an amount equal to the increase in the consideration.

(6) Where, in accordance with those terms, the person making the acquisition subsequently ceases to have a beneficial interest in the shares by a disposal made for a consideration which is less than the value of the shares or his interest in them at the time of the disposal, the amount on which tax is chargeable by virtue of this section shall be reduced so as to be equal to the excess of that consideration over the value of the shares or interest at the time of the acquisition.

[F1 (6A) If, before the time by reference to which the chargeable increase is determined, an event occurs by virtue of which the person making the acquisition becomes chargeable to tax under section 140A(4) of the Taxes Act 1988 (employee’s interest in shares ceasing to be only conditional) on any amount (“the charged amount") in respect of the shares, the amount on which tax is chargeable by virtue of this section shall be reduced by the charged amount.]

[F2 (6B) If, before the time by reference to which the chargeable increase is determined, an event occurs by virtue of which the person making the acquisition becomes chargeable to tax under section 140D(3) of the Taxes Act 1988 (charge on conversion of convertible shares) on any amount (“the charged amount") in respect of the shares, the amount on which tax is chargeable by virtue of this section shall be reduced by the charged amount.]

(7) In a case within subsection (1)(b) above there is no chargeable increase in the value of shares in a company unless the person who acquired the shares or interest has been a director or employee of—

(a) that company, or

(b) (if it is different) the company as a director or employee of which he acquired the shares or interest, or

(c) an associated company of a company within paragraph (a) or (b) above,

at some time during the period of seven years ending with the time when the company becomes a dependent subsidiary.

Textual Amendments

F1 S. 79(6A) inserted (with application in accordance with s. 50(4) of the amending Act) by Finance Act 1998 (c. 36), s. 50(3)

F2 S. 79(6B) inserted (with application in accordance with s. 51(3) of the amending Act) by Finance Act 1998 (c. 36), s. 51(2)

Modifications etc. (not altering text)

C2 S. 79 excluded (28.7.2000) by 2000 c. 17, s. 47, Sch. 8 Pt. X para. 80(3)

80 Charge on special benefits. U.K.

(1) Subject to subsections (5) and (6) below, the person acquiring the shares or interest in shares shall be chargeable to tax if he receives a special benefit by virtue of his ownership of or interest in the shares.

[F3 (1A) If when a benefit is received the company is a dependent subsidiary and its shares are of a single class, the benefit is a special benefit for the purposes of subsection (1) above.

(2) A benefit which does not fall within subsection (1A) above is a special benefit for the purposes of subsection (1) above unless—

(a) when it becomes available it is available to at least ninety per cent. of the persons who then hold shares of the same class as those which, or an interest in which, the person acquired, and

(b) any of the conditions in subsection (3) below is satisfied.]

(3) The conditions referred to in subsection (2) above are—

(a) that when the benefit is received the majority of the company’s shares [F4 in respect of which the benefit is received] are held otherwise than by or for the benefit of—

(i) directors or employees of the company,

(ii) an associated company of the company, or

(iii) directors or employees of any such associated company;

(b) that when the benefit is received the company is employee-controlled by virtue of holdings of shares of the class concerned;

(c) that when the benefit is received the company is a subsidiary which is not a dependent subsidiary and [F5 the majority of its shares in respect of which the benefit is received are held otherwise than by or for the benefit of—.

(i) directors or employees of the company,

(ii) a company which is an associated company of the company but is not its parent company, or

(iii) directors or employees of a company which is an associated company of the company]

[F6 (3A) For the purposes of subsection (3)(c)(ii) above a company is another company’s parent company if the second company is a subsidiary of the first.]

(4) A charge by virtue of this section shall be a charge under Schedule E, for the year of assessment in which the benefit is received, on an amount equal to the value of the benefit.

(5) Subsection (1) above shall apply only if the person receiving the benefit has been a director or employee of—

(a) the company referred to in that subsection, or

(b) (if it is different) the company as a director or employee of which he acquired the shares or interest, or

(c) an associated company of a company within paragraph (a) or (b) above,

at some time during the period of seven years ending with the date on which the benefit is received.

(6) A benefit shall not be chargeable by virtue of this section if it is chargeable to income tax apart from this section.

Textual Amendments

F3 S. 80(1A)(2) substituted (16.7.1992) for subsection (2) by Finance (No. 2) Act 1992 (c. 48), s. 37(2)(6)

F4 Words in s. 80(3)(a) substituted (16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 37(3)(6)

F5 Words in s. 80(3)(c) substituted (16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 37(4)(6)

F6 S. 80(3A) inserted (16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 37(5)(6)