Finance Act, 1994
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Reduced rate of capital gains tax on certain disposals of shares by individuals. |
66.—(1) In this section— | |
“disposal” does not include a relevant disposal within the meaning of section 36 (1) of the Finance Act, 1982 ; | ||
“ordinary share capital”, in relation to a company, has the meaning assigned to it in section 155 of the Corporation Tax Act, 1976 ; | ||
“ordinary shares” means shares forming part of a company's ordinary share capital; | ||
“period of ownership”, in relation to an individual making a disposal of qualifying shares, means the individual's period of continuous ownership of the shares, in the same capacity, ending with the date of such disposal and, for the purposes of this definition, where the shares were acquired by the individual on the death of that individual's spouse so that the individual's period of ownership would, apart from this definition, be treated as having commenced on the date of that death, the individual's period of ownership shall be deemed to be extended to include the individual's spouse's period of ownership ending on that date; | ||
“qualifying company” shall be construed in accordance with subsection (2); | ||
“qualifying shares”, in relation to a company, means ordinary shares of the company which are fully paid up and which carry no present or future preferential rights to dividends or to the company's assets on its winding up and no present or future preferential right to be redeemed; | ||
“qualifying trade” shall be construed in accordance with subsection (4); | ||
“qualifying trading operations”, in relation to a trade, means all the operations of the trade excluding those of dealing in shares, securities, land, currencies, futures or traded options; | ||
“the specified period”, in relation to the disposal of qualifying shares, means the period of 5 years immediately preceding the date of the disposal of those shares; | ||
“trade” includes a profession and “qualifying trade” and “qualifying trading operations” shall be construed accordingly; | ||
“unquoted company” means a company none of whose shares, stocks or debentures are listed in the official list of a stock exchange or dealt in on an unlisted securities market. | ||
(2) For the purposes of this section a company shall be a qualifying company in relation to the disposal of qualifying shares where— | ||
(a) at the date of acquisition of those shares, it is an unquoted company which is resident in the State and not resident elsewhere and which has an issued share capital the market value of which is not more than £25,000,000, and | ||
(b) throughout the specified period, it is a company which is resident in the State and not resident elsewhere and— | ||
(i) which exists wholly or mainly for the purposes of the carrying on of one or more qualifying trades, or | ||
(ii) the business of which consists— | ||
(I) wholly or mainly of the holding of shares in one or more connected companies, or | ||
(II) wholly or mainly of both the holding of such shares and the carrying on of one or more qualifying trades. | ||
(3) (a) A company shall be regarded as having satisfied the condition referred to in subparagraph (i) of paragraph (b) of subsection (2) if, but only if, throughout the specified period, not less than 75 per cent. of the market value of all the issued share capital of the company derives from the carrying on by the company of one or more qualifying trades. | ||
(b) A company shall be regarded as having satisfied the condition referred to in clause (I) or (II), as the case may be, of subparagraph (ii) of paragraph (b) of subsection (2) if, but only if, throughout the specified period, not less than 75 per cent. of the market value of all the issued share capital of the company derives from the carrying on of one or more qualifying trades by the connected companies or, as the case may be, by the company and the connected companies. | ||
(c) In a case where a connected company (hereafter in this paragraph referred to as “the first-mentioned company”) is a company whose business consists of the holding of shares in one or more companies, references in paragraph (b) to the connected companies shall be construed as including references to the companies which are connected with the first-mentioned company. | ||
(4) For the purposes of this section a trade shall be a qualifying trade if, throughout the specified period, it consists of qualifying trading operations and where, during that period, a trade consists partly of qualifying trading operations and partly of other trading operations, the part of the trade which consists of other trading operations shall be treated as a separate trade. | ||
(5) For the purposes of this section where a company (hereafter in this subsection referred to as “the first-mentioned company”) holds shares in another company that other company shall be regarded as connected with the first-mentioned company if— | ||
(a) at the date of the acquisition of those shares by the first-mentioned company, it was an unquoted company, | ||
(b) it is resident in the State and not resident elsewhere, and | ||
(c) the voting rights in the company are exercisable by the first-mentioned company as respects not less than 20 per cent. of the total voting rights. | ||
(6) As respects chargeable gains accruing to an individual on the disposal of qualifying shares in a qualifying company in a case where the individual's period of ownership of those shares is not less than 5 years, subsection (3) (inserted by section 60 of the Finance Act, 1992 ) of section 3 of the Capital Gains Tax Act, 1975 , shall apply and have effect as if the reference therein to 40 per cent. were a reference to 27 per cent. | ||
(7) (a) In this subsection and in subsection (8) “original shares” and “new holding” have, respectively, the meanings assigned to them in paragraph 2 of Schedule 2 to the Capital Gains Tax Act, 1975 . | ||
(b) If the time when an individual acquires qualifying shares would be determined under any of the provisions of Schedule 2 to the Capital Gains Tax Act, 1975 , it shall be determined in the same way for the purposes of this section where the following conditions are satisfied, that is to say: | ||
(i) both the original shares and the new holding constitute qualifying shares, and | ||
(ii) the individual is not treated under subparagraph (3) of paragraph 2 of the said Schedule as giving or becoming liable to give any consideration, other than the original shares, for the acquisition of the new holding. | ||
(8) (a) In a case where paragraph (b) of subsection (7) applies and has effect and the new holding is held for a period which is not less than 5 years, subsection (2) shall apply— | ||
(i) as if the reference in paragraph (a) of subsection (2) to “at the date of acquisition of those shares” were a reference to “at the date of acquisition of the original shares”, | ||
(ii) where the company in which the new holding subsists is not the company in which the original shares subsisted, as if the reference in paragraph (a) of subsection (2) to “it is” were a reference to “the company in which the original shares subsisted is”, and | ||
(iii) as if the reference in paragraph (b) of subsection (2) to “it is” were a reference to “the company in which the new holding subsists is”. | ||
(b) In a case where paragraph (b) of subsection (7) applies and has effect and the new holding is held for a period which is less than 5 years, subsection (2) shall apply— | ||
(i) as if the reference in paragraph (a) of subsection (2) to “at the date of acquisition of those shares” were a reference to “at the date of acquisition of the original shares”, and | ||
(ii) where the company in which the new holding subsists is not the company in which the original shares subsisted— | ||
(I) as if the reference in paragraph (a) of subsection (2) to “it is” were a reference to “the company in which the original shares subsisted is”, | ||
(II) as if the reference in paragraph (b) of subsection (2) to “throughout the specified period, it is” were a reference to “throughout that part of the specified period commencing on the date of the acquisition of the new holding, the company in which the new holding subsists is”, and | ||
(III) as if the conditions referred to in paragraph (b) of subsection (2) applied also to the company in which the original shares subsisted but only in relation to the part of the specified period which does not include the part of that period mentioned in clause (II). | ||
(9) This section shall apply and have effect as respects disposals made on or after the 6th day of April, 1994. |