Finance Act 1988

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)