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Amendment of section 817 (schemes to avoid liability to tax under Schedule F) of Principal Act.
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39.—(1) Section 817 of the Principal Act is amended in subsection (1) by inserting the following after paragraph (c)—
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“(ca) For the purposes of this section, following a disposal of shares in a close company by a shareholder or the carrying out of a scheme or arrangement of which the disposal is a part, the interest of the shareholder in any trade or business which was carried on by the close company shall be deemed—
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(i) to include the interest, or interests as the case may be, in that trade or business of one or more persons connected with the shareholder, if increasing that interest of the shareholder by such interest, or interests as the case may be, would result in the interest of the shareholder in the trade or business not having been significantly reduced,
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(ii) notwithstanding paragraph (c), not to have been significantly reduced where—
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(I) the business carried on by the close company, taking account of any trade carried on by that company, consisted wholly or mainly of the holding of shares in another company carrying on a trade or business or in more than one such other company, and
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(II) the interest of the shareholder in any such trade or business last-mentioned in clause (I), whether or not that trade or business continues to be carried on by such other company after the disposal, is not significantly reduced,
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(iii) notwithstanding paragraph (c), not to have been significantly reduced where the gain realised by the shareholder on that disposal is wholly or mainly attributable to payments or other transfers of value from another company or companies, which is or are controlled by that shareholder or by that shareholder and persons connected with him or her, to the close company, and
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(iv) not to have been significantly reduced where—
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(I) it would not have been so reduced if the shareholder were to be treated as beneficially entitled to any shares to which he or she could, at any time, become so entitled by the exercise of a discretion by trustees,
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(II) the acquisition of those shares by the trustees was directly or indirectly related to a disposal, including a prior or subsequent disposal, of such shares by the shareholder, and
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(III) the shares were acquired by the trustees with the direct or indirect financial assistance of a company or companies, which is or are controlled by the shareholder or by the shareholder and persons connected with the shareholder.”.
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(2) This section applies and has effect as respects any disposal of shares (within the meaning of section 817 of the Principal Act) on or after 1 March 2005.
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