Annex 1: Minor changes in the law Change 21: Share loss relief: investment company: omission of reference to savings bank and bank for savings: section 90, Schedule 1 (section 151 of ITA) and Part 5 of Schedule 2 (interpretation of Chapter 5 of Part 4)
This change results in certain savings banks and banks for savings no longer falling within the definition of “investment company” for the purposes of share loss relief in Chapter 5 of Part 4 of this Act and Chapter 6 of Part 4 of ITA.
Section 576L(1) of ICTA and section 151(1) of ITA apply the definition of investment company in section 130 of ICTA, with modification, for the purposes of share loss relief under section 573 of ICTA and Chapter 6 of Part 4 of ITA.
The definition of “investment company” in section 130 of ICTA, which applies for the purposes of Part 4 of ICTA, is as follows:
““investment company”, means any company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom, but includes any savings bank or other bank for savings except any which, for the purposes of the Trustee Savings Bank Act1985 is a successor or a further successor to a trustee savings bank”
The principal use of the term in Part 4 of ICTA was for the purposes of section 75 of ICTA (expenses of management: investment companies). FA 2004 repealed that section in relation to accounting periods beginning on or after 1 April 2004 and replaced it with the current provisions in sections 75 to 75B of ICTA (rewritten in Part 16 of CTA 2009). The current provisions apply to “companies with investment business” as defined in section 130 of ICTA (rewritten in section 1218(1) of CTA 2009) That definition was inserted in section 130 of ICTA by FA 2004 and is as follows:
““company with investment business” means any company whose business consists wholly or partly in the making of investments.”
The notes on clauses to the Finance Bill 2004 state in relation to that definition that:
“the reference to savings banks has now been removed on the grounds that it is obsolete.”
The definition of “investment company” was retained in section 130 of ICTA for the reasons given in the notes on clauses to Finance Bill 2004:
“26The current definition of an “investment company” has not been repealed. The definition of an “investment company” will remain relevant for the purposes of:section 573 ICTA (where it helps identify the companies entitled to relief against income in respect of losses on unquoted shares in trading companies); andthe transitional rules in Clause 43.”
This change replaces the cross-reference to and modification of the definition of “investment company” in section 576L(1) of ICTA and section 151(1) of ITA by a stand alone definition in section 90(1) of this Act and section 151(1) of ITA in the following terms:
““investment company” means a company—(a)whose business consists wholly or mainly in the making of investments, and(b)which derives the principal part of its income from the making of investments,but does not include the holding company of a trading group.”
This wording omits reference to “any savings bank or other bank for savings except any which, for the purposes of the Trustee Savings Bank Act 1985 is a successor or a further successor to a trustee savings bank”. The omission applies, for corporation tax purposes, only in relation to the disposal on or after 1 April 2010 of shares issued on or after that date and, for income tax purposes, only in relation to the disposal on or after 6 April 2010 of shares issued on or after that date. See Part 5 of Schedule 2 (interpretation of Chapter) which preserves the effect of the source legislation in relation to shares issued before the relevant date. The omission has two effects.
First, no such savings bank or bank for savings is eligible for share loss relief under section 68 of this Act on such a disposal as it no longer meets the requirement that the investor is an investment company.
This is potentially adverse to taxpayers in principle and in practice, but no such bank is known to carry on business in the United Kingdom which includes the making of investments in shares in companies capable of being qualifying trading companies.
Second, the requirements in section 78(2)(b) and (3)(b) of this Act and section 134(2)(b) and (3)(b) of ITA, that to be a qualifying trading company the company must not be an investment company at the times mentioned, can be met by a company that is such a savings bank or bank for savings in relation to a disposal to which the new definition applies.
This is potentially favourable to taxpayers in principle but has no effect in practice, as it is also a requirement of section 78(2)(b) and (3)(b) of this Act and section 134(2)(b) and (3)(b) of ITA that the company is not at those times a trading company (as defined in section 90(1) of this Act and section 151(1) of ITA). Such a bank is a trading company within that definition, notwithstanding that it may be a mutual trader and the profits of its trade are not within the charge to tax on trade profits.
This change has an effect which is adverse to some taxpayers in principle and in practice. But the numbers affected and the amounts involved are likely to be small. It also has an effect which is in taxpayers’ favour in principle but whichis not expected in practice to alter the position for taxpayers.