Annex 1: Minor changes in the law Change 11: Share loss relief, community investment tax relief and the corporate venturing scheme: omit the words “for full consideration”: sections 68 and 244 and Schedule 1(paragraph 46(2)(a) of Schedule 15 to FA 2000)
This change deletes the words “for full consideration” which qualify “by way of a bargain made at arm’s length”. It removes words which are not in practice applied to impose any additional requirement.
There are three places in the Tax Acts where the words “by way of a bargain made at arm’s length” are qualified by the words “for full consideration”. These are:
	section 575(1)(a) of ICTA (relief for losses on unquoted shares in trading companies);
	paragraph 29(4)(a) of Schedule 16 to FA 2002 (community investment tax relief); and
	paragraph 46(2)(a) of Schedule 15 to FA 2000 (the corporate venturing scheme).
Paragraph 46(2)(a) of Schedule 15 to FA 2000 is also applied for the purposes of paragraph 67 of that Schedule by paragraph 67(3).
All these provisions apply for corporation tax purposes only. Prior to ITA, section 575(1)(a) and paragraph 29(4)(a) of Schedule 16 to FA 2002 also applied for income tax purposes.
Section 575(1)(a) of ICTA and paragraph 67 of Schedule 15 to FA 2000 are concerned with the circumstances in which an allowable loss incurred on a disposal of shares may be claimed as a relief in calculating taxable income. The phrase “for full consideration” has not caused practical difficulty in relation to the application of either of those provisions.
Case law (Berry v Warnett (1982), 55 TC 92 HL(9) and Bullivant Holdings Limited v CIR (1998), 71 TC 22 ChD10) confirms that a bargain may be made at arm’s length if a full and fair price is paid. Whether the price is full and fair is to be determined by reference to the circumstances of the disposal and it is clear that the price paid may be full and fair notwithstanding that it is substantially below open market value.
If the words “for full consideration” mean no more than that a full and fair price is paid in the circumstances of the disposal, the words are otiose. If they have independent meaning, this may require that the price paid is not less than market value, if market value is greater than the amount which is a full and fair price in the circumstances of the disposal. But in practice no such requirement is imposed.
Accordingly the words “for full consideration” have been omitted from section 131(3)(a) of ITA rewriting section 575(1)(a) of ICTA for income tax purposes. See Change 20 in Annex 1 to the explanatory notesonITA.
This Act similarly omits those words from section 68(2)(a) of this Act rewriting section 575(1)(a) of ICTA for corporation tax purposes and amends Schedule 15 to FA 2000 so that the words do not apply for the purposes of paragraph 67 of that Schedule (see below).
Paragraph 29 of Schedule 16 to FA 2002 and paragraph 46 of Schedule 15 to FA 2000 are concerned with the withdrawal or reduction of tax relief previously obtained.
These paragraphs contrast with the only other provisions in the Tax Acts dealing with the withdrawal or reduction of investment reliefs, namely:
	section 299(1)(a) and (b) of ICTA and section 209(2) and (3) of ITA (withdrawal or reduction of EIS relief); and
	section 266(2)and (3) of ITA (withdrawal or reduction of VCT relief).
In those provisions, the words “by way of a bargain made at arm’s length” appear without any qualification.
In practice, the provisions for the withdrawal or reduction of CITR are operated on the same basis as the similar provisions relating to EIS relief and VCT relief - see paragraph 7020 of HMRC’s Community Investment Tax Relief Manual (CITM7020).
The words “for full consideration” have accordingly been omitted from section 361(4)(a) in Part 7 of ITA rewriting Schedule 16 to FA 2002 for income tax purposes. See Change 20 in Annex 1 to the explanatory notesonITA.
This Act similarly omits those words from:
	section 244 rewriting paragraph 29(4)(a) of Schedule 16 to FA 2002 for corporation tax purposes and
	paragraph 46(2)(a) of Schedule 15 to FA 2000 (see Schedule 1).
The effect of this change is to conform provisions in each of the venture capital schemes dealing with the same issues, by removing from some of them words which are either otiose or apply a test which in practice is not required to be met.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.