Chapter 3: Qualifying investments
Overview
980.This Chapter sets out the conditions which must be met if an investment is to be a qualifying investment.
Section 344: Qualifying investments: introduction
981.This section introduces:
the respective conditions which apply to loans (section 345), to securities (section 346) and to shares (section 347); and
the provisions which apply to all kinds of investment (sections 348 and 349).
It is based on paragraph 8 of Schedule 16 to FA 2002.
Section 345: Conditions to be met in relation to loans
982.This section sets out the three conditions applicable to loans. It is based on paragraph 9 of Schedule 16 to FA 2002.
Section 346: Conditions to be met in relation to securities
983.This section sets out the two conditions applicable to securities. It is based on paragraph 10 of Schedule 16 to FA 2002.
984.Condition A (subsection (1)) requires that securities must be subscribed for wholly in cash and fully paid for on the investment date. It is in similar terms to section 347(1) which sets out identical requirements in relation to shares.
985.Section 347(3) (based on paragraph 11(1) of Schedule 16 to FA 2002) provides that shares are not fully paid up for the purposes of section 347(1) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the shares. The effect of this is to distinguish the meaning of “paid up” for that purpose from the meaning of those words for the purposes of the Companies Act 1985. Section 738(2) of that Act provides that a share is deemed paid up in cash, or allotted for cash, if the consideration for the allotment or payment up is an undertaking to pay cash to the company at a future date.
986.There is no similar provision in the Companies Act 1985 applicable to the issue of securities, but the position in relation to securities has been made explicit by the inclusion of subsection (3), equivalent to section 347(3). This clarification is not a change in either law or practice.
Section 347: Conditions to be met in relation to shares
987.This section sets out the two conditions applicable to shares. It is based on paragraph 11 of Schedule 16 to FA 2002.
Section 348: Tax relief certificates
988.This section sets limits on the value of investments in respect of which a CDFI may issue tax relief certificates in an accreditation period (as defined in section 342). It is based on paragraph 12 of Schedule 16 to FA 2002. Without a tax relief certificate, an investor may not claim CITR (see section 335(5)(b)).
989.Subsections (2) and (3) provide that the limit applies to the total value of investments in the CDFI made in the accreditation period by individuals under this Part and by companies under Schedule 16 to FA 2002.
990.Subsection (4) provides different limits for retail and wholesale CDFIs. See the commentary on section 340.
991.In subsection (8), the words “wholly or partly”, which appear before “in contravention” in paragraph 12(6) of Schedule 16 to FA 2002, have been omitted as being unnecessary.
Section 349: No pre-arranged protection against risks
992.This section is an anti-avoidance provision concerned with ensuring that the investor is subject to all usual investment risks and is not protected from their effect by insurance, indemnity, guarantee or other means. It is based on paragraph 13 of Schedule 16 to FA 2002.
