ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.
Change 52: EIS: cases where assessment not to be made after disposal of all shares to which EIS relief is attributable: section 238.
This change limits the shares that need to be taken into account in deciding whether an individual is protected from being assessed by reason of events happening after the individual has disposed of all the shares to which EIS relief is attributable.
Section 307(4) of ICTA says:
“Where a person has, by a disposal or disposals to which section 299(1)(b) applies, disposed of all the eligible shares issued to him by a company, no assessment for withdrawing relief in respect of any of those shares shall be made by reason of any subsequent event unless it occurs at a time when he is connected with the company within the meaning of section 291.”
Section 307(4) presents no problems for the majority of cases for which it may be relevant. Those are straightforward cases of an investor whose only connection with a company is a single subscription for shares that are later sold at arm’s length in a single transaction. But issues could arise in less straightforward cases.
First, the reference to “section 299(1)(b) applies” may suggest that all eligible shares issued to the investor must be disposed of before the end of the relevant period related to their issue (section 312(1A)(a) of ICTA). Consider a case where the investor holds one or more of those shares at the end of the relevant period in question. The investor arguably could never benefit from section 307(4) of ICTA in relation to a later issue of shares by the company concerned.
Second, “eligible shares” are referred to but it is not always possible to say at particular times, before the termination date, that a share is an eligible share. That is because section 289(7) of ICTA requires the shares to meet certain conditions over a period of time relating to the date on which the share was issued.
The reference to “eligible shares” might be intended to limit section 307(4) of ICTA to a consideration of just those shares on which it was possible for EIS relief to be claimed by the individual. But eligible shares issued for non-cash consideration would, for instance, not be eligible for EIS relief and could not have EIS relief attributed to them. It would therefore not be possible to dispose of such shares in a way that “section 299(1)(b) applies” to the disposal. It is accordingly not clear what the word “eligible” adds or that it is helpful or necessary.
Section 238(2) of this Act is a change from section 307(4) of ICTA . It ignores any shares for which period A (corresponding to the relevant period in the source legislation) has ended. It also ignores shares to which EIS relief is not attributable (whether it is because they are not eligible shares or for some other reason).