Introduction Details of Schedule 12
201.Paragraphs 1 and 2 insert new sections 255A to 255E into the Taxation of Chargeable Gains Act 1992 (‘TCGA’). Section 255A directs the reader to new Schedule 8B TCGA where the details of the capital gains tax relief are found.
202.New section 255B provides for special treatment of capital gains and losses which accrue on disposals of assets to which SI relief is attributable.
203.Subsection (1) applies where there would be a loss on a disposal of an asset to which SI relief is attributable. The consideration given for the asset is treated as reduced by the amount of SI relief, so the loss is reduced or eliminated, or becomes a gain.
204.Subsection (2) provides that where an asset to which SI relief is attributable is disposed of three years or more after acquisition, any gain which accrues on the disposal is not a chargeable gain for TCGA purposes. This rule is subject to the effect of section 255C.
205.Subsection (3) disapplies the rule in TCGA which means that a loss is not an allowable loss if, in similar circumstances, a gain would not be a chargeable gain. So although a gain on an asset to which SI relief is attributable is not a chargeable gain, a loss may still be an allowable loss for capital gains tax purposes.
206.Subsection (4) applies the asset identification rules contained in the SI relief provisions for the purposes of deciding which assets have been disposed of from within a holding of social investments, and whether relief is attributable to the assets disposed of.
207.Subsection (5) gives priority to the identification rules in subsection (4) over the normal rules in TCGA.
208.Subsection (6) disapplies the normal asset ‘pooling’ and identification rules in the TCGA from assets to which SI relief is attributable.
209.Subsection (7) allows HMRC to adjust the capital gains tax due or repayable as necessary when SI relief has been allowed or withdrawn.
210.Subsection (8) defines ‘SI relief’ as the income tax relief for investments in social enterprises.
211.Subsection (9) states that Part 5B of the Income Tax Act 2007 (income tax relief for investments in social enterprises) applies to determine whether SI relief is attributable to any asset, and the amount of relief so attributable.
212.New section 255C modifies the tax exemption conferred by section 255B(2) in some circumstances. Where the maximum possible SI relief has not been given in respect of the investment in the assets disposed of (other than because the claimant did not have sufficient income tax payable to absorb the maximum relief), the total gain is apportioned and only an amount attributable to the assets on which SI relief was given is exempt from capital gains tax.
213.New section 255D modifies the tax exemption conferred by section 255B(2) where the SI relief originally given has been reduced eg because the investor has received value from the social enterprise or because the investment has been repaid, redeemed or repurchased.
214.Subsection (2) applies where the SI relief has been reduced but the maximum available relief was originally allowed. In these cases, the exemption only applies to a fraction of the total gain corresponding to the fraction of the original relief which has not been withdrawn by reduction.
215.Subsection (3) applies where the SI relief has been reduced and the relief originally given was less than the maximum available, that is to say where section 255C applies. In these cases, the restriction at subsection (2) applies to the reduced gain determined under section 255C.
216.Subsection (4) requires that the reduction in SI relief used in subsection (2) is the total of all reductions which have applied to SI relief in respect of the assets disposed of.
217.Subsection (5) requires that, when apportioning the total gain under subsection (2), the original SI relief is the relief allowed before any reductions.
218.Section 255E contains special rules which apply when shares to which SI relief is attributable are involved in transactions such as reorganisations of the issuer’s share capital, share-for-share takeovers and company reconstructions.
219.Subsections (1) and (2) mean that where a person has a holding of shares the normal TCGA rules which apply eg on a reorganisation of share capital will apply to shares in that holding which have:
	Both SI relief and hold-over relief under Schedule 8B attributed to them.
	Have SI relief but not hold-over relief attributed to them.
	Have neither relief attributed to them.
as if those shares were in separate holdings.
220.Subsection (4) is a rule which applies when shares which are involved in a rights issue by the company which issued the shares. If after the rights issue SI relief is attributable either to the existing shares or to the new shares allotted then the normal TCGA treatment of the existing holding and the new shares will not apply: they will not be treated as the same asset, but rather actual disposals and acquisitions will be recognised for tax purposes.
221.Subsection (5) means that, except in the circumstances described by subsection (6), the normal TCGA rules which apply when shares are involved in a share-for-share takeover or a company reconstruction will not apply when SI relief is attributable to those shares. The new holding and the original shares they correspond to will not be treated as the same asset, but rather the actual disposals and acquisitions will be recognised for tax purposes.
222.Subsection (6) specifies the circumstances in which, exceptionally, the normal TCGA rules which apply when shares are involved in a share-for-share takeover or a company reconstruction will apply, notwithstanding subsection (5). Broadly,
	The company which issues new shares must have previously issued shares which met the conditions for SI relief to be attributable to them.
	That company must have issued compliance certificates to subscribers for those shares.
	The takeover or reconstruction must occur more than three years after the investor acquired the original shares, and
	the shares which represent the original shares after the transaction must be new shares which meet the conditions for SI relief to be attributable to them.
223.Paragraph 3 of Schedule 12 inserts new Schedule 8B into the TCGA. Paragraph 1(1) of Schedule 8B applies the Schedule if an individual (the investor) has a chargeable gain and acquires specific assets known as ‘the social holding’, providing the investor is eligible for SI relief on the consideration paid for those assets. Five further conditions (A, B, C, D and E) must also be met. Where the Schedule applies, the individual may claim for the gain to be reduced as provided for in paragraph (4).
224.Paragraph 1(2) of Schedule 8B sets out the first of the five further conditions: condition A. This is that the gain must either accrue either
	On the disposal of an asset, or
	under the entrepreneurs’ relief provisions in section 169N TCGA, or
	when a chargeable event occurs in relation to an asset which is, or forms part of, a social holding (see new paragraph (6)(1), paragraph 228 below).
	But if entrepreneurs’ relief is claimed then only so much of the gain which exceeds the ‘lifetime limit’ for that relief is eligible for hold-over relief.
225.Paragraph 1(3) of Schedule 8B sets out the second of the five further conditions: condition B. This is that the gain must accrue on or after 6 April 2014 and before 6 April 2019. The Treasury may substitute a later date for the end of this period by means of a Treasury order (paragraph (1)(7)).
226.Paragraph 1(4) of Schedule 8B sets out the third of the five further conditions: condition C. This is that the investor must be resident in the United Kingdom both when the gain accrues and when the social holding is acquired.
227.Paragraph 1(5) of Schedule 8B sets out the fourth of the five further conditions: condition D. This is that the investor must be acting on his or her own behalf and not in any other capacity in making the investment. For instance, condition D will not be met if the individual makes the investment as a partner for the purposes of the Partnership Act 1890 or the Limited Partnership Act 1907, as a member of a Limited Liability Partnership, as a trustee or as a personal representative of a deceased person.
228.Paragraph 1(6) of Schedule 8B sets out the last of the five further conditions: condition E. This is that the investment must be made either in the three years beginning on the day the gain accrues or in the year ending at the beginning of that day.
229.Paragraph 1(7) of Schedule 8B ensures that entrepreneurs’ relief and hold-over relief may not both be claimed in respect of the same gain.
230.Paragraph 2 of Schedule 8B specifies a second, alternative set of conditions, under which the Schedule applies. The effect is that a claim may be made for a chargeable gain which has been deferred, and is attributed to an asset within a social holding, to be further deferred if the asset is replaced by a second social holding issued by the same enterprise, even if no cash is given for the second holding. Without this paragraph the investor could not further defer the gain because he would not be eligible for SI relief on the amount invested in the second holding - section 257LA ITA 2007 and paragraph 1(1)(c) of Schedule 8B TCGA.
231.Paragraph 2(1) of Schedule 8B sets down the circumstances in which this continuing deferral is allowed. They are that:
	The social enterprise which issued the first asset must reacquire it from the investor, or must cancel, redeem, extinguish or repay it, so that the deferred gain accrues.
	The investor must receive from the social enterprise assets in respect of which he would be eligible for SI relief but for the ‘cash investment rule’ at section 257LA ITA 2007.
	The investor gives nothing for his new assets other than the first asset, or suffers no loss other than the value of the first asset.
	This subparagraph also applies four conditions which correspond to conditions B - E in paragraph 1 (see above).
232.Paragraph 2(2) to 2(5) of Schedule 8B specify the four conditions F, G, H and J which must be met for the Schedule to apply by virtue of paragraph 2. These correspond to conditions B, C, D and E in paragraph 1 (see paragraphs 213 - 216 of this Note).
233.Paragraph 3 of Schedule 8B defines certain terms used in the Schedule.
234.Paragraph 4(1) and 4(2) of Schedule 8B permit the investor to make a claim for the original chargeable gain to be reduced. Where paragraph 1 applies, the gain may be reduced by an amount specified in the claim, up to a sum equal to the amount invested in the social holding, but not by any excess over the amount of the gain (or over the gain net of reductions allowed under the provisions listed at paragraph 4(4)). Where paragraph 2 applies, the gain is reduced by the amount specified in the claim, regardless of the amount ‘invested’ in the second social holding, but again not by any excess over the amount of the gain (or over the gain net of reductions allowed under the provisions listed at paragraph 4(4)).
235.Where paragraph 1 applies, paragraph 4(3) of Schedule 8B prevents the amount invested or any part of it being used more than once to generate relief under any of the provisions listed at paragraph 4(4).
236.Paragraph 4(4) of Schedule 8B lists the provisions mentioned in paragraph 4(3). These are the hold-over relief under this Schedule 8B, enterprise investment scheme (EIS) deferral relief under Schedule 5B TCGA and seed enterprise investment scheme (SEIS) deferral relief under Schedule 5BB TCGA.
237.Paragraph 4(5) of Schedule 8B imposes an upper limit of £1 million on the gains which may be relieved under this Schedule by an individual in any tax year. This is not the same as the limit which applies to the total amount which a single enterprise may receive under EU State aid rules (see paragraph 40 of this Note).
238.Paragraph 4(6) of Schedule 8B explains that when a gain is reduced in this way, the relief represented by the amount of the reduction is ‘attributable to’ the asset or assets which form the social holding. It also provides that when the person holding an asset dies, or a chargeable event occurs in relation to that asset, the relief ceases to be attributable to it. Paragraph (6)(1) explains what is meant by a ‘chargeable event’.
239.Paragraph 5 of Schedule 8B provides for a gain equal to all or part of the reduction made under paragraph 4(1) to accrue and be taxable when a chargeable event occurs in relation to the social holding. If the chargeable event relates only to part of the social holding then a corresponding part of the gain accrues. The total gains which can accrue in relation to a social holding cannot exceed the total amount of the reduction.
240.Paragraph 6(1) of Schedule 8B lists the chargeable events which cause a relieved gain to accrue when they occur. These are:
	The investor disposing of an asset forming all or part of his social holding (but this does not include disposals to their spouse or civil partner).
	The disposal of an asset forming all or part of a social holding by a person who acquired it from their spouse or civil partner (but this does not include disposals back to the investor).
	An asset forming all or part of the holding being cancelled, extinguished, redeemed or repaid.
	Any of the conditions for eligibility to SI relief in Chapters 3 and 4 of Part 5B of the Income Tax Act 2007 failing to be met.
241.Paragraph 6(2) of Schedule 8B means that the death of the investor, or of a person who acquired the social holding or any part of it from the investor as their spouse or civil partner, will not cause a deferred gain to accrue in relation to the assets in the social holding. Furthermore, nothing which happens at or after the time of death will be a chargeable event, so deferred gains will not accrue.
242.Paragraph 6(3) of Schedule 8B gives rules for identifying assets disposed of out of a holding of fungible assets (such as shares) some of which have one or more reliefs attributable to them. These rules are necessary because in many cases the TCGA 'pools' holdings of assets of the same class and treats them collectively as a single asset. Where some of those assets have relief attributable to them, and their disposal would have particular tax consequences, special rules are needed to identify which assets are disposed of from out of a 'pool'. Under paragraph 4(3)(a) the assets disposed of are identified with assets of the same class on a 'first-in, first-out' basis, taking the acquisitions on a daily basis. Assets acquired on the same day are treated as being disposed of in the following order:
	Firstly, assets to which neither hold-over relief under this Schedule 8B nor SI relief under Part 5B of the Income Tax Act 2007 is attributable.
	Secondly, assets to which hold-over relief but not SI relief is attributable.
	Thirdly, assets to which SI relief but not hold-over relief is attributable.
	Finally, assets to which both hold-over relief and SI relief are attributable.
	Paragraph 6(4) explains what is meant by relief being attributable to an asset
243.Paragraph 6(4) of Schedule 8B ensures that when an asset to which hold-over relief under this Schedule (and not SI relief) is attributable is held by a person who received it as the spouse or civil partner of the investor, the identification rules in paragraph 6(3) apply as though he or she acquired the assets when the investor acquired them.
244.Paragraph 6(5) of Schedule 8B ensures that an asset to which SI relief is attributable is held by a person who received it as the spouse or civil partner of the investor, the identification rules in paragraph 6(3) apply as though he or she acquired the assets when the investor acquired them.
245.Paragraph 6(6) and 6(7) of Schedule 8B provides for the main asset identification rules in the TCGA to be subject to the special rules in paragraph 6, and for the asset pooling and identification rules in sections 104, 105 and 106A not to apply to assets to which hold-over relief and not SI relief is attributable.
246.Paragraph 6(8), 6(9) and 6(10) of Schedule 8B provide rules for attributing the held-over chargeable gain to assets which are treated for tax purposes as representing, or being the same asset as, an asset in a social holding. The original gain, less any gains treated as accruing under paragraph 5, is to be apportioned between the assets which represent the social holding on a just and reasonable basis, and the asset identification rules in paragraph 6 apply to the latter assets as they would apply to the assets which comprised the social holding.
247.Paragraph 7 of Schedule 8B specifies to whom gains are treated as accruing when there is a chargeable event of one of the types given in paragraph 6(1).
248.Paragraph 8 of Schedule 8B specifies the procedure for making claims to hold-over relief under the Schedule. The procedure and requirements for claiming SI relief in ITA 2007 will apply, with the necessary adaptations, to claims to hold-over relief also. If the SI relief procedure is amended (as permitted by the ITA) by secondary legislation, the procedure for hold-over relief claims will be amended in the same way.