Revenue Note for Guidance
This section ensures that the subscription price received by a company from an individual for the issue of eligible shares is not effectively used to make capital repayments to some other member of the company. Otherwise the aim of the relief, to increase the capital of the company, would be thwarted even though the relief would have been given.
Capital repayments by the company to some other person other than the individual claiming relief or another individual whose relief would thereby be reduced under section 508P will result in the amount of relief otherwise available to that individual being reduced or eliminated entirely.
Capital repayment by the company to some other person other than the individual however, may not be reduced or eliminated entirely if certain conditions regarding the raising of qualifying investments are adhered to.
(1)(a) A reduction in the relief available to an individual under this Part occurs, if during the period (in the section referred to as “the compliance period”)-
the company repays, redeems or repurchases any of its share capital which belongs to any member other than -
or the company makes any payment to any such member for giving up their member’s right to any of the company’ s share capital on its cancellation or extinguishment, or if during the period a company in the RICT group acquires any of the share capital in the qualifying company from any member other than -
or the company makes any payment to any such member for giving up such member’s right to any of the qualifying company’s share capital on its cancellation or extinguishment.
(2) The relief available to the individual is to be reduced by the amount received by the member in question or, if greater, the nominal value of the share capital which has been redeemed, etc. Where 2 or more individuals would have been entitled to the relief reduction is to be made in proportion to the amounts of relief to which they would otherwise have been entitled.
(3) Where during the compliance period a member of a company receives value from the company, then, for the purposes of section 500(5) the amount of the company’s issued ordinary share capital and the amounts held by each person (which includes shares which an individual directly or indirectly possesses or is entitled to acquire) are treated as reduced. For this purpose the nominal value of the ordinary shares of the claimant is reduced in proportion which the amount of value he/she has received bears to the amount subscribed for those shares by the claimant and the total nominal value of the ordinary shares held by all members is the sum of the individual holdings after adjustments for value received.
(6) The receipt of value means the situations described within paragraph (d), (e), (f), (g) or (h) of section 508P(3), except that payments made for full consideration are not included in paragraph (h).
(7) A person is treated as entitled to receive anything which he/she is entitled to receive at a future date or which he/she will at a future date be entitled to receive (for example, by exercising an option).
(8) Any relief to be withdrawn under this section from an individual who has received eligible shares in the company at different times is to be withdrawn in respect of those issued earlier rather than those issued later.
(9) Where during the compliance period of a qualifying investment, the company redeems shares or purchases shares (referred to as the “redemption”) of any member that is not that individual investor within the compliance period, then notwithstanding subsection (1)(a), the relief that the individual investor within the compliance period (other than pursuant to section 503 or 507), will not be reduced where the most recent qualifying investment in respect of which relief under this Part is made, in a company in the RICT group was more than 18 months before the redemption took place, and where there is no further qualifying investment in respect of which relief under this Part is made, in any company in the RICT group within 12 months after the redemption.
Relevant Date: Finance Act 2021