ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle and in practice. But the numbers affected and the amounts involved are likely to be small. Change 27: Share loss relief: meaning of a mixed holding: section 148
This change substitutes for the meaning of a mixed holding in section 576(1) of ICTA a new definition of a mixed holding.
Section 576(1) of ICTA contains a rule for identifying shares disposed of by a person out of a holding which comprises:
“(a)shares for which he has subscribed (“qualifying shares”); and(b)shares which he has acquired otherwise than by subscription.”
This distinction has remained unchanged since the introduction of this provision by section 37 of FA 1980. At that time and at the time of its consolidation in 1988 as section 576(1) of ICTA, the wording was adequate to distinguish between shares which would qualify for share loss relief and those which would not.
Following the changes to the definition of qualifying trading company made by FA 1998 and FA 2001, the fact that this is the distinction made by section 576(1) of ICTA has become less evident.
At the time of a disposal of shares to which EIS relief is not attributable from a holding, those or other shares in the holding may be known to be incapable of ever being qualifying shares, even though they were subscribed for. This can be because:
	the company failed to meet either the gross assets requirement or the unquoted status requirement at the time of issue of the shares; or
	the company has failed to meet the condition that it has carried on its business wholly or mainly in the United Kingdom in relation to the shares. If the failure in relation to those shares was only during a period that ended more than 12 months before other shares in the holding were issued, it will not cause the other shares to be incapable of being qualifying shares.
Section 148(1), accordingly, provides that a mixed holding is one which, at the time of the disposal in question, includes shares that are not capable of being qualifying shares and “other shares”, that is shares which at that time may or may not qualify for relief on their disposal. Shares to which EIS relief is attributable will always be capable of being qualifying shares and so, for the purpose of determining whether there is a mixed holding, fall into the category of “other shares”.
Shares that are not capable of being qualifying shares are defined in section 147(8) as not only shares to which EIS relief is not attributable acquired otherwise than by subscription, but also such shares in relation to which the gross assets requirement or the unquoted status requirement or the requirement as to the carrying on of business wholly or mainly in the United Kingdom has not been met.