498 Replacement capital

Summary

This section is designed to prevent company funds being used directly or indirectly to acquire assets from an individual in return for his/her subscribing for shares. Where this occurs the relief available under this Part must be entirely withdrawn.

Details

(1) “subsidiary” is a subsidiary which a qualifying company may have by virtue of section 505.

“trade” includes any business, profession or vocation, and a reference to a trade previously carried on include a reference to a part of such a trade.

(2) Relief in respect of shares in a company is denied to an individual to which this section applies where during the period (in this note and the section referred to as the relevant period) —

• beginning with the incorporation of the company and ending 3 years after the issue of the shares, or
• if the company was incorporated more than 2 years before the shares were issued, beginning 2 years before that date and ending 3 years after that date,

the company, or one of its subsidiaries, either takes over a trade which was previously carried on by some other person or acquires all, or nearly all, of the assets used for the purposes of such a trade.

(3) The individuals or groups of individuals who are denied relief in accordance with this section are individuals or groups of individuals who during the relevant period have an interest amounting to more than a half share in both the trade which was previously carried on and the trade as carried on by the company or one of its subsidiaries, or control both the company which previously carried on the trade and the company whose shares would otherwise be the subject of a relief claim and which, or one of the subsidiaries of which, currently carries on the trade.

(4) Relief in respect of shares in a company is denied to an individual who is one of a group which at any time in the relevant period controls the company if the company acquires all the share capital of another company which at any time in that period the individual or that group also controlled.

(5) Subsections (1)(a) and (b), (2) and (3) of section 400 are to be applied when determining the identity of the person to whom a trade belongs. Any interest, rights or powers of a person who is an associate of another person are to be treated as those of that other person.

Relevant Date: Finance Act 2019