502 Assessments for withdrawing relief

Summary

Where an event occurs which results in the withdrawal of relief already granted, the withdrawal is to be made by means of a Schedule D Case IV assessment for the tax year for which the relief has been given. Assessments withdrawing relief may be made up to 4 years after the end of the tax year in which the event giving rise to the withdrawal occurs, although extended time limits apply in the case of fraud or neglect. However, no assessment withdrawing relief is to be made by reason of a event occurring after the individual’s death.

Details

(1) If an event occurs which results in the withdrawal of relief which has been given, the withdrawal is to be achieved by the making of an assessment under Case IV of Schedule D for the year of assessment in which the relief was given (and not for the year in which the event leading to the withdrawal occurred).

(2) Where a husband and wife/civil partners cease to be jointly assessed to tax, any assessment for withdrawing relief which arises on a disposal of shares is to be made on the person who made the disposal. The amount of the assessment will comprise the reduction flowing from the relief granted disregarding both the allocation of that relief between the spouses/civil partners under separate assessment. and any repayment of tax under the year of marriage/registration of civil partnership provisions. In other words, the relief is to be recovered from the individual making the disposal irrespective of where in the pool of a family’s finances the tax flowing from the relief has gone.

(3) An assessment which is required because of an event occurring after the date of the claim may be made within 4 years after the end of the year of assessment in which that event occurred.

(4) No assessment is to be raised by reason of an event occurring after the subscriber’s death. This is to apply despite the fact that this event takes place within the appropriate relevant period following the issue of shares. This provision would not, however, preclude the withdrawal of relief where an event occurs before the death or disposal but only comes to light subsequently, or when it is later shown that there was a scheme or arrangement for the avoidance of tax within the meaning of section 500.

(5) Where the claimant disposes of all ordinary shares issued to him/her by a company, and the relief has been reduced under section 496(1)(b), there is to be no further withdrawal of relief by reason of events taking place subsequent to the disposal date, unless the event occurs at a time when the individual is connected with the company (as defined in section 492). This connection would entail total denial or withdrawal of relief.

(This provision has no application where the disposal of shares was not made on an arm’s length basis, as a transaction of this nature will be sufficient, again under section 496, to eliminate all relief previously granted).

(6) Section 959AD applies so as to secure that where an act of fraud or neglect has been committed an assessment within the meaning of this section can be raised at any time rather than within the time limit provided for in subsection (3).

(7) Specific rules apply for determining the date from which interest on overdue tax (charged under section 1080) starts to run where a Case IV assessment is made to withdraw relief by reason of an event occurring after the date of a claim. Such interest is to be charged from —

• the date of the event giving rise to the withdrawal, where the withdrawal is made by virtue of —
  • the individual ceasing to qualify for relief (section 492),
  • the company ceasing to be a qualifying company (section 494),
  • a trade ceasing to be a relevant trading activity (section 494),
  • the company replacing capital (section 498), and
  • any value is received by non-qualifying individuals (section 499(1)),
• the disposal date, where eligible shares are disposed of (section 496(1)),
• the date the qualifying individual receives any value from the company (section 497),
• the date the relief was granted, where it is determined that the subscription was part of a tax avoidance scheme or arrangement (section 500) (however, where the relief was granted to an individual, who is taxed under PAYE, the withdrawal will take effect from the 31st December in the tax year in which the relief was granted),
• the date a SURE investor fails or ceases to hold full time employment in the SURE company or where a SURE investor ceases to be a qualifying individual for the purpose of the scheme.

(8) The date on which relief is granted is the date on which the claimant received a repayment of tax or the date on which the inspector issued a notice to the claimant showing that his/her tax liability has been reduced by the relief, as appropriate.

Relevant Date: Finance Act 2019