ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 30: Share loss relief: identification of shares disposed of where shares acquired on the same day include approved‑scheme shares: section 149
This change ensures that the identification rules for the purposes of share loss relief follow the identification rules for the purposes of capital gains tax in cases to which section 105A of TCGA applies.
On a disposal of shares forming part of a mixed holding which includes shares to which EIS income tax relief, EIS deferral relief or BES relief is attributable, section 576(1B)(b) of ICTA applies the rules in section 299(6) to (6D) of that Act to determine whether and if so to what extent the shares disposed of are qualifying shares. These provisions have been rewritten in section 148(3)(b) and (6) of this Act as described in Change 29. Section 148(6)(b) and (c) apply the rules relating to holdings including shares to which EIS relief is attributable in section 299(6) to (6D) of ICTA and in section 246 of this Act which rewrites those subsections of ICTA in relation to shares issued on or after 6 April 2007.
Section 150A of TCGA applies where EIS income tax relief is attributable to any shares disposed of. Subsection (4) provides that:
“Any question as to⎯(a)which of any shares acquired by an individual at different times a disposal relates to, being shares to which relief is attributable, or(b)whether a disposal relates to shares to which relief is attributable or to other shares,shall for the purposes of capital gains tax be determined as for the purposes of section 299 of [ICTA]…”
Section 299(6A) of ICTA provides that:
“Where shares of any class in a company have been acquired by an individual on the same day, any of those shares disposed of by him shall be treated for the purposes of this section as disposed of in the following order, namely—(a)first any to which neither relief under this Chapter nor deferral relief is attributable;(b)next any to which deferral relief, but not relief under this Chapter, is attributable;(c)next any to which relief under this Chapter, but not deferral relief, is attributable; and(d)finally any to which both relief under this Chapter and deferral relief are attributable;and in this subsection and subsection (6C) below “deferral relief” has the same meaning as in Schedule 5B to the 1992 Act.”
Section 105A(4)(b) of TCGA modifies section 299 of ICTA for the purposes of section 150A(4) of TCGA where an individual acquires shares of the same class, on the same day and in the same capacity (“relevant shares”) and:
	some of the relevant shares are “approved‑scheme shares” (as defined in section 105A(1)(b) of TCGA) and
	the relevant shares include shares to which EIS income tax relief or deferral relief is attributable.
The modification permits the individual to make an election, the principal effect of which is that the approved‑scheme shares falling with any of paragraphs (a) to (d) of section 299(6A) of ICTA are treated for capital gains tax purposes as disposed of after the other relevant shares falling within the same paragraph.
The modification is not made to section 299 of ICTA for all purposes, as it is not necessary for the purpose of determining the amount of relief to be withdrawn or reduced.
By applying the rules in section 299(6) to (6D) of ICTA without applying the modification where appropriate, there may be cases where the shares identified as disposed of for the purposes of share loss relief are not, in whole or in part, the shares identified as disposed of for the purposes of capital gains tax. In that event, share loss relief will not be available in respect of any shares which are not treated as disposed of for capital gains tax purposes, as no allowable loss will have arisen in relation to those shares.
In order to avoid this mismatch and ensure that the identification rules for the purposes of share loss relief follow the identification rules for the purposes of capital gains tax, section 149(1) applies section 299 of ICTA and section 246 of this Act with the modification made by section 105A(4) of TCGA in a case falling within section 105A of that Act.