Annex 1: Minor changes in the law Change 14: Share loss relief: meaning of a mixed holding: section 76
This change substitutes for the meaning of a mixed holding in section 576(1) of ICTA a new definition of a mixed holding.
This change is the same as that made in section 148(1) of ITA for the purposes of relief against income tax. See Change 27 in Annex 1 to the explanatory notes on ITA.
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 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 does not cause the other shares to be incapable of being qualifying shares.
Section 76(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 that are not capable of being qualifying shares are defined in section 75(8) as not only shares acquired otherwise than by subscription, but also 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.
The effect in principle of this change depends on whether the rule as amended results in different shares being identified as disposed of by the taxpayer from those identified under the rule in the source legislation. Identification of different shares may in principle result in the amount of share loss relief available on the disposal in question being less, more or the same and may also affect the relief available on a subsequent disposal. But in practice mixed holdings are treated as including all holdings of shares in a company some of which qualify for share loss relief and some of which do not qualify (see paragraph 47010 of HMRC’s Venture Capital Schemes Manual).
This change is in principle adverse to some taxpayers and favourable to others. But it is expected to have no practical effect as it is in line with generally accepted practice.