Schedule 8
Finance Bill
6:15 pm
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I beg to move amendment 27, in schedule 8, page 101, line 12, at end insert—
‘(1B) The individual may elect for section 135 or section 136 not to apply in respect of the shares.’.
The amendment is straightforward. It would reinstate reliefs that were there in the first place. It also seeks to address an iniquity in paragraph 9 of schedule 5B to the Tax and Capital Gains Act 1992. The Government propose to apply sections 135 and 136 of the 1992 Act to shares to which deferral relief is attributable. Thus, when an EIS company is acquired in a share-for-share exchange, the gain that arises on the EIS deferral relief shares is not taxed, but held over against the shares received in the exchange. The deferred gain falls back into charge to tax, as would be expected. Previously, sections 135 and 136 of the 1992 Act were excluded from applying, such that an investor would have to pay tax on the deferred gain and the deferral relief shares at a time when they would have received no cash out of which to pay the tax, because they had received shares and not cash on disposal.
However, the changes that the Government propose have the effect of preventing a claim for loss relief, which was previously available, if the deferral relief shares stood at a loss against the subscription price at the time of the share-for-share exchange. That loss could be relieved against the deferral gain, which falls into charge to capital gains tax or against income by making a claim under section 131 of the Income Taxes Act 2007. In general in tax law, it is a principle that the taxpayer should not have to pay tax on a gain at a time when they have no cash to pay the tax. Under the Bill, if amendment 27 is not made, the investor will have a deferred gain falling into charge to tax when they have no cash at their disposal out of which to pay the tax and they will not be able to reduce that liability by any loss on the shares.
I think that I have proposed a fairly straightforward change, to reinstate a relief that existed before the Government proposed their amendments.