499 Value received by persons other than claimants

Summary

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 person other than the individual claiming relief or another individual whose relief would thereby be reduced under section 497 will result in the amount of relief otherwise available to that individual being reduced or eliminated entirely.

Details

(1) A reduction in the relief available to an individual under this Part occurs, if during the period (in the note and in 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 repays, redeems or repurchases any of its share capital which belongs to any member other than —

• (1)(a) the individual claiming relief (which situation is already dealt with in section 497(3)), or
• (1)(b) another member whose relief is reduced by reason of section 497(3) (which deals with the receipt of value by a claimant from the company).

(1)(b) The reduction in relief also applies if the company makes any payment to any member, other than such a member for giving up his/her right to any of the company’s share capital on its cancellation or extinguishment.

(2) The reduction in relief does not apply in relation to the redemption of share capital where the redemption date was fixed before 26 January, 1984.

(3) The reduction in relief does not apply in the case of the redemption of share capital within 12 months of its issue which is share capital issued after 5 April, 1984 and which is of nominal value equal to the authorised minimum required for a public company to do business by section 6 of the Companies (Amendment) Act, 1983, and after the Registrar of Companies has issued the company with a certificate under that section the company issues eligible shares.

(4) 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.

(5)(6)(7) Where during the relevant period a member of a company receives value from the company, then, for the purposes of the “30 per cent” rule in section 492(4) the amount of the company’s issued ordinary share capital and the amounts held by each person (which includes shares which the individual directly or indirectly possesses or entitled to acquire) are treated as reduced. For this purpose the nominal value of the ordinary shares of the claimant is reduced in the 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.

(8) The receipt of value means the situations described within paragraphs (d), (e), (f), (g) or (h) of section 497(3), except that payments made for full consideration are not included in paragraph (h).

(9) 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).

(10) 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.

Relevant Date: Finance Act 2019