Share Loss Relief: definitions: A to R
It is a condition for Share Loss Relief to be available to a corporate claimant that the investment company disposing of the shares was not associated or grouped with the company whose shares it disposed of at any time when it owned the shares (CTA10/S69(4)).
Companies are associated with one another if one controls the other, or if both are under the control of the same person or persons. Control is defined as for close companies, see CTM60200 onwards. You should follow the guidance at CTM03710 in deciding whether one company is associated with another.
Bonus shares are shares which are issued otherwise than for payment (whether in cash or otherwise).
The term is used to refer to one of two civil partners who are living together.
Corresponding bonus shares
in relation to any shares, corresponding bonus shares are bonus shares which
- are issued in respect of those shares, and
- are in the same company, are of the same class, and carry the same rights, as those shares
(Shares are not treated as being of the same class unless they would be so treated if dealt with on a recognised stock exchange, see ITA07/S151(2) and CTA10/S90(2).)
Enterprise Investment Scheme (EIS) relief
See VCM10000 onwards.
If a company has been an ‘excluded company’ at certain times then it is prevented from meeting the conditions necessary for it to be qualifying trading company. This is central to the purpose of Share Loss Relief, which is to encourage certain types of commercial, trading, businesses.
An excluded company is a company which—
- has a trade which consists wholly or mainly of dealing in land, in commodities or futures, or in shares, securities or other financial instruments (but see below for shares issued before 6 April 1998), or
- has a trade which is not carried on a commercial basis and in such a way that profits in the trade can reasonably be expected to be realised, or
- is a holding company of a group other than a trading group, or
- is a building society or a registered industrial and provident society.
For shares issued before 6 April 1998, the condition in (a) is that the trade ‘consists wholly or mainly of dealing in shares, securities, land, trades or commodity futures’.
‘Group’ means a company which has one or more 51% subsidiaries, together with that or those subsidiaries.
This definition does not apply for the purposes of the trading or gross assets requirements of a qualifying trading company (ITA07/S137 and S142, and CTA10/S79 and S84, see VCM74610 and VCM75100): for those purposes ‘group’ means a parent company and its qualifying subsidiaries.
‘Holding company’ means a company whose business consists wholly or mainly in the holding of shares or securities of companies which are its 51% subsidiaries.
‘Investment company’ means a company whose business consists wholly or mainly in the making of investments and which derives the principal part of its income from the making of investments.
For the purposes of claims by companies, this does not include the holding company of a trading group. For years up to and including 2009-10 (but not later years) the definition relevant to individual claimants also excluded holding companies of trading groups.
Before CTA 2010 came into effect, the definition for both types of claimant prayed intoICTA88/S130and excluded the holding company of a trading group.
In the context of claimants to Share Loss Relief, authorised unit trusts and approved investment trusts, whose gains are not chargeable gains, are not investment companies.
Guidance on this is in the Company Taxation Manual at CTM08040.
A holding of shares of the same class and in the same company, some of which are not capable of being qualifying shares
In order for Share Loss Relief to be available to an individual, an allowable loss must arise on a disposal of qualifying shares. Shares are qualifying shares if EIS relief is attributable to them or if they are shares in a qualifying trading company which the individual subscribed for.
A subsidiary company is a ‘qualifying subsidiary’ of another company (the relevant company) if it is a 51% subsidiary of the relevant company and no person other than the relevant company or another of the relevant company’s subsidiaries controls it. There must be no arrangements by virtue of which these conditions would cease to be met.
The conditions do not cease to be met on account only of a company being wound up or dissolved for genuine commercial reasons and not as part of a scheme or arrangements whose main purpose (or one of the main purposes of which) is the avoidance of tax.
Nor do the conditions cease to be met if there are arrangements for the relevant company or another subsidiary to dispose of all its interest in the qualifying subsidiary for genuine commercial reasons and not as part of a scheme or arrangements whose main purpose (or one of the main purposes of which) is the avoidance of tax.
This definition is at ITA07/S191. It was previously at ICTA88/S308, where it formed part of the EIS rules. For more detailed guidance, see VCM74930+.
Qualifying trading company
In the context of claims by individuals, the allowable loss must arise on a disposal either of shares in a qualifying trading company or of shares to which EIS relief is attributable (‘qualifying shares’). In order to be a qualifying trading company, a company must meet each of four conditions (A to D) at ITA07/S134 and each of these conditions is divided into subsidiary requirements. The conditions and requirements have changed from time to time and details of the current conditions and the principal changes are at VCM74500 onwards.
Research and development
In the context of claims by individuals the definition is at ITA07/S1006. In the context of claims by companies it is at CTA10/S1138. Both definitions are founded on ‘activities that fall to be treated as research and development in accordance with generally accepted accountancy practice’ and both exclude oil and gas exploration and appraisal unless otherwise expressly provided.
ITA07/S1006 allows the Treasury to make regulations which specify activities which are to be treated as being ‘research and development’ or not so treated. CTA10/S1138 grants no such power, but provides that regulations made under the ITA power have a similar effect for the CTA definition.
Registered industrial and provident society
‘Registered industrial and provident society’ means a society registered or treated as registered under the Industrial and Provident Societies Act 1965 or the Industrial and Provident Societies (Northern Ireland) Act 1969. Guidance on this is in the Company Taxation Manual at CTM40505.