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HMRC internal manual

Venture Capital Schemes Manual

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Share Loss Relief: definitions: ‘shares’

What follows is written in terms of individual claimants, and references are to ITA 2007. The meaning for company claimants is virtually the same, and there is a table at the end giving the equivalent sections in CTA 2010 and their precursors in ICTA 1988.

The term ‘shares’ includes stock but does not include shares or stock which do not form part of a company’s ordinary share capital. The meaning of ‘ordinary share capital’ is given at ITA07/S989: it means all of a company’s issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company’s profits. Thus fixed-rate preference shares, for instance, are not part of a company’s ordinary share capital and are not ‘shares’ for the purpose of Share Loss Relief. Guidance on the meaning of ‘ordinary share capital’ can be found at Appendix 11 to the Capital Gains manual at CG/APP11.

‘Stock’ is another form of share capital; but the term does not include ‘loan stock’ or any form of loan capital. Subject to this, and to the exceptions given below, the terms ‘stock’ and ‘shares’ used in connection with a limited company are interchangeable for the purposes of Share Loss Relief. For more information, see CG50235.

This definition of ‘shares’ is modified or disapplied altogether for certain specific purposes so that the Share Loss Relief regime is aligned with corresponding provisions of the Enterprise Investment Scheme. The modifications etc are at ITA07/S151(3) to (6).

For the purposes of determining whether a disposal of part of certain mixed holdings includes qualifying shares, or which qualifying shares such a disposal relates to, the term ‘shares’ does not include stock. This modification does not apply to all mixed holdings, but only to those which include either

  • shares issued before 1 January 1994 in respect of which relief has been given under the Business Expansion Scheme (BES) and not withdrawn, or
  • shares to which EIS relief is attributable, or
  • shares to which deferral relief is attributable under Schedule 5B to TCGA 1992.

(This modification is at section 151(3), and it refers to the identification rules at ITA07/S148(3)(b) and (6).)

For the purposes of deciding whether a company is an ‘excluded company’ the definition of shares includes stock (as above) but shares or stock not forming part of the company’s ordinary share capital are not excluded. Hence the scope of the term ‘shares’ is broadened for this purpose. (This modification is at section 151(4) and it refers to the definition of excluded company at section 151(1))

The meaning of ‘shares’ is similarly broadened when considering whether Share Loss Relief can be claimed after a share-for-share exchange (section 151(4) refers also to section 145(1) to (4)), and when considering whether the amount of Share Loss Relief should be restricted to mitigate the averaging effect of the share pooling rules in the TCGA 1992 (section 151(4) refers also to section 147(3) to (6), (8) and (9).) However, in the context of share-for-share exchanges, ‘shares’ in the phrase ‘shares to which EIS relief is not attributable’ at section 145(1) still excludes shares or stock which do not form part of a company’s ordinary share capital.

The definition of shares in section 151 does not apply when, for the purposes of determining whether a company is a qualifying trading company, you are considering the business activities of a group of companies and specifically considering whether to ignore the holding of ‘shares in … a qualifying subsidiary of the parent company’. (Section 151(6) disapplies the definition for the purposes of section 137(5)(a).)

The definition of shares in section 151 does not apply when, for the purposes of determining whether a company is a qualifying trading company, you are considering whether it met the gross assets requirement around the time of the share issue. Specifically, it does not apply when identifying the gross assets of each member of a group of companies, for which purpose you ignore ‘shares in … another member of the group’. (Section 151(6) disapplies the definition for the purposes of section 142(3).)

The definition of shares in section 151 does not apply when, for the purposes of determining whether a company is a qualifying trading company, you are considering whether it met the unquoted status requirement. Specifically, it does not apply when you are considering whether there exist arrangements for the company to become a subsidiary of another company ‘by virtue of an exchange of shares, or shares and securities,…’. (Section 151(6) disapplies the definition for the purposes of section 143(1)(c) and (2).)

The above is written in terms of individual claimants and with references to ITA 2007. The following table shows corresponding references in CTA 2010 and ICTA 1988 which apply to claims to Share Loss Relief by companies.

###   ITA 2007 CTA 2010 ICTA 1988
       
Shares: general definition S151(1) S90(1) S576L(1)
Exclusion of ‘stock’ from definition for some share identification purposes S151(3) No equivalent No equivalent
Exclusion of ‘stock’ for most purposes of the excluded company definition S151(4) & (5) S90(3) & (4) S576L(2) & (3)
This definition not applied for purposes of the trading requirement (in part); the unquoted status requirement, and the gross assets requirement S151(6) S90(5) S576L(4)
Bonus shares & corresponding bonus shares: definition S151(1) S90(1) Not defined
Share of the same class (Note 1) S151(2) S90(2) Not defined*
Ordinary share capital: definition S989 S1119 S832(1)
  • These definitions apply for the purpose of the definition of ‘corresponding bonus shares’. There is a definition of shares of the same class in ICTA, at section 576(1D), but it applies only for the purposes of determining which shares together constitute a holding of shares