Finance Act 1996

18 (1) This paragraph applies for any accounting period [F1 (“the relevant period”)] where— U.K.

(a) a debtor relationship of a close company [F2 (“the issuing company”)] is represented by a [F3 deeply] discounted security issued by the company; F4 ...

F5 (aa) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F6 (b) at any time in that period there is a person who stands in the position of a creditor as respects that security and who at that time is—]

(i) a participator in the company [F7 or a person who controls a company which is such a participator];

(ii) an associate of [F8 a person who is, or who controls a company which is,] such a participator; or

[F9 (iii) a company controlled by such a participator or by a person who controls a company which is such a participator.] F10 ...

F11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F12 (1ZA) But for any such accounting period this paragraph shall not apply in relation to that debtor relationship if any of the following exceptions applies.]

[F13 (1A) [F14 The first exception applies where—]

(a) at all times in the period when there is such a person as is described in sub-paragraph (1)(b) above, that person is a company; and

(b) credits representing the full amount of the discount that is referable to the period are brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.]

[F15 (1B) The second exception applies where—

(a) the issuing company is a CIS-based close company;

(b) at all times in the period when there is such a person as is described in sub-paragraph (1)(b) above, that person is not resident in a non-qualifying territory; and

(c) the issuing company is a small or medium-sized enterprise for the period.

(1C) The third exception applies where—

(a) the debt is one that is owed to, or to persons acting for, a CIS limited partnership;

(b) no member of that partnership is resident in a non-qualifying territory at any time in the period when there is such a person as is described in sub-paragraph (1)(b) above;

(c) the debtor company has received written notice from the partnership containing information from which it appears that the condition in paragraph (b) above is satisfied; and

(d) the issuing company is a small or medium-sized enterprise for the period.]

[F16 (2) The debits falling in the case of the issuing company to be brought into account for the purposes of this Chapter in respect of the loan relationship shall be adjusted so that every debit relating to the amount of the discount that is referable to the relevant period (“the relevant debits”) is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period.

This sub-paragraph does not apply where the relevant period is the accounting period in which the security is redeemed.

(2A) Where at some (but not all) times in the relevant period there is such a person as is described in sub-paragraph (1)(b) above—

(a) part only of the relevant debits shall be brought into account in accordance with sub-paragraph (2) above; and

(b) that part is the part which bears to the whole of the relevant debits the proportion which the part of the relevant period for which there is such a person bears to the whole of that period.]

[F17 (2B) References in this paragraph to the amount of the discount that is referable to an accounting period are references to the amount relating to the difference between—

(a) the issue price of the security, and

(b) the amount payable on redemption,

which (apart from sub-paragraphs (2) and (2A) above) would for that accounting period be brought into account for the purposes of this Chapter in the case of the issuing company.]

[F18 (2C) Any reference in this paragraph to a person who stands in the position of a creditor as respects a [F19 deeply] discounted security [F20 includes a reference to a person who indirectly stands in that position by reference to a series of loan relationships or money debts which would be loan relationships if a company directly stood in the position of creditor or debtor].

(2D) Where this paragraph applies by virtue of sub-paragraph (2C) above, the reference to the corresponding creditor relationship in sub-paragraph (1A)(c) above is a reference to the creditor relationship of the person who indirectly stands in the position of a creditor as respects the [F21 deeply] discounted security.]

[F22 (3) In this paragraph “deeply discounted security” has the same meaning as in Chapter 8 of Part 4 of the Income Tax (Trading and Other Income) Act 2005 (see section 430); and the provisions of that Chapter shall apply for the purposes of this paragraph for determining the difference between the issue price of a security and the amount payable on redemption as they apply for the purposes of section 430 of that Act.]

F23 [F24 (3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3B) In this paragraph “control”, in relation to a company, has the same meaning as in section 87 of this Act (see section 87A).]

[F25 (3C) A person who is a participator in a company which controls another company shall be treated for the purposes of this paragraph as also being a participator in that other company.]

(4) In this paragraph—

• “associate” has the meaning given in section 417(3) and (4) of the Taxes Act 1988;

• [F26 “CIS-based close company” and “CIS limited partnership” have the meaning given by paragraph 2(6) above;]

• [F26 “non-qualifying territory” has the meaning given by paragraph 5E of Schedule 28AA to the Taxes Act 1988;]

• F27 ... F28 ...

• “participator” [F29 , in relation to a company,] means a person who, by virtue of section 417 of that Act, is a participator in the company for the purposes of Part XI of that Act, other than a person who is a participator for those purposes [F30 by reason only that he is a loan creditor of the company.]

• [F26 “resident” has the meaning given by paragraph 5B(6) of Schedule 28AA to that Act;]

• [F26 “small or medium-sized enterprise” has the meaning given by paragraph 5D of that Schedule.]

(5) In determining whether a person who carries on a business of banking is a participator in a company for the purposes of this paragraph, there shall be disregarded any securities of the company acquired by him in the ordinary course of his business.

Textual Amendments

F1 Words in Sch. 9 para. 18(1) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(2)(a)

F2 Words in Sch. 9 para. 18(1)(a) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(2)(b)

F3 Word in Sch. 9 para. 18(1)(a) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 489(7) (with Sch. 2)

F4 Word in Sch. 9 para. 18(1) repealed (24.7.2002 with effect as mentioned in s. 82(2) of the repealing Act) by Finance Act 2002 (c. 23), ss. 82(1), 141, Sch. 25 Pt. 1 para. 34(2)(c), Sch. 40 Pt. 3(12)

F5 Sch. 9 para. 18(1)(aa) repealed (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(2), Sch. 11 Pt. 2(9)

F6 Words in Sch. 9 para. 18(1)(b) substituted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(3)

F7 Words in Sch. 9 para. 18(1)(b)(i) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(3)(a)

F8 Words in Sch. 9 para. 18(1)(b)(ii) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(3)(b)

F9 Sch. 9 para. 18(1)(b)(iii) substituted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(3)(c)

F10 Word in Sch. 9 para. 18(1) repealed (with effect in accordance with Sch. 11 Pt. 2(9) Note of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 11 Pt. 2(9)

F11 Sch. 9 para. 18(1)(c) repealed (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(2), Sch. 11 Pt. 2(9)

F12 Sch. 9 para. 18(1ZA) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(4)

F13 Sch. 9 para. 18(1A) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(5)

F14 Words in Sch. 9 para. 18(1A) substituted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(5)

F15 Sch. 9 para. 18(1B)(1C) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(6)

F16 Sch. 9 para. 18(2)(2A) substituted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) for Sch. 9 para. 18(2) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(6) (with Sch. 25 Pt. 3 para. 63)

F17 Sch. 9 para. 18(2B) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(7)

F18 Sch. 9 para. 18(2C)(2D) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(8)

F19 Word in Sch. 9 para. 18(2C) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 489(7) (with Sch. 2)

F20 Words in Sch. 9 para. 18(2C) substituted (with effect in accordance with Sch. 37 para. 5(4)(5) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 5(2)

F21 Word in Sch. 9 para. 18(2D) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 489(7) (with Sch. 2)

F22 Sch. 9 para. 18(3) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 489(8) (with Sch. 2)

F23 Sch. 9 para. 18(3A) repealed (with effect in accordance with Sch. 8 para. 6(5) of the amending Act) by Finance Act 2004 (c. 12), Sch. 8 para. 6(4), Sch. 42 Pt. 2(4)

F24 Sch. 9 para. 18(3A)(3B) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(9)

F25 Sch. 9 para. 18(3C) inserted (with effect in accordance with Sch. 37 para. 5(4)(5) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 5(3)

F26 Words in Sch. 9 para. 18(4) inserted (20.7.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 8 para. 3(7)

F27 In Sch. 9 para. 18(4) definition of "control" repealed (24.7.2002 with effect as mentioned in s. 82(2) of the repealing Act) by Finance Act 2002 (c. 23), ss. 82(1), 141, Sch. 25 Pt. 1 para. 34(10), Sch. 40 Pt. 3(12)

F28 Word in Sch. 9 para. 18(4) repealed (with effect in accordance with Sch. 11 Pt. 2(9) Note of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 11 Pt. 2(9)

F29 In Sch. 9 para. 18(4) words in definition of "participator" inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(11)(a)

F30 In Sch. 9 para. 18(4) words in definition of "participator" substituted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 34(11)(b)

Modifications etc. (not altering text)

C1 Sch. 9 para. 18 modified (27.7.1999) by 1999 c. 16, s. 81(10)

C2 Sch. 9 para. 18 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Taxation of Insurance Securitisation Companies Regulations 2007 (S.I. 2007/3402), regs. 1(1), 10(2)(d)