Finance Act 1987

Section 58.

SCHEDULE 8 Securities, Other Business Property and Agricultural Property

1 In section 10 of the 1984 Act (dispositions not intended to confer gratuitous benefit) in subsection (2) for the words from "shares" to "stock exchange" there shall be substituted "unquoted shares or unquoted debentures".

2 In section 98 of the 1984 Act (effect of alterations of capital, etc.) in subsection (1)—

(a) in paragraph (a) for the words from "shares" onwards there shall be substituted "quoted shares or quoted securities";

(b) in paragraph (b) for the words from "shares" onwards there shall be substituted "unquoted shares in or unquoted debentures of a close company"; and

(c) for the words "shares or debentures not so quoted" there shall be substituted "unquoted shares or unquoted debentures".

3 In section 100 of the 1984 Act (alterations of capital where participators are trustees) in subsection (1)(c) for the words from "shares" onwards there shall be substituted "unquoted shares in or unquoted securities of the close company".

4 In section 104 of the 1984 Act (relief for business property) in subsection (1)(a) for the words "or (b)" there shall be substituted "(b) or (bb)".

5 (1) Section 105 of the 1984 Act (relevant business property) shall be amended as follows.

(2) In subsection (1) after the words "sections 106,108," there shall be inserted "109A" and for paragraph (c) there shall be substituted the following paragraphs—

“(bb) unquoted shares in a company which do not fall within paragraph (b) above and which immediately before the transfer satisfied the condition specified in subsection (1 A) below;

(c) unquoted shares in a company which do not fall within paragraph (b) or paragraph (bb) above”.

(3) After subsection (1) there shall be inserted the following subsections—

“(1A) The condition referred to in subsection (1)(bb) above is that the shares (either by themselves or together with other shares or securities owned by the transferor) gave the transferor control of powers of voting on all questions affecting the company as a whole which if exercised would have yielded more than 25 per cent. of the votes capable of being exercised on them; and shares shall be taken to satisfy this condition if, together with any shares which are related property within the meaning of section 161 below, they would have been sufficient to give the transferor such control.

(1B) Subsections (3) and (4) of section 269 below have effect in relation to subsection (1 A) above as they have effect in relation to subsection (1) of that section.”

(4) After subsection (2) there shall be inserted the following subsection—

“(2A) Shares of a company do not fall within subsection (1)(bb) above if—

(a) they would not have been sufficient, without other property, to satisfy the condition specified in subsection (1A) above immediately before the transfer; and

(b) their value is taken by virtue of section 176 below to be less than the value previously determined.”

6 In section 107 of the 1984 Act (replacements) in subsection (4)—

(a) for the words "section 105(1 )(c)" there shall be substituted "section 105(1)(bb) or (c)"; and

(b) after the words "section 106 above" there shall be inserted "and section 109A below".

7 After section 109 of the 1984 Act there shall be inserted the following section—

“109A Additional requirement in case of minority shareholdings.

Shares in a company do not fall within subsection (1)(bb) of section 105 above unless the condition specified in subsection (1 A) of that section was satisfied—

(a) throughout the two years immediately preceding the transfer, or

(b) where section 108 or section 109 above applies and the transferor owned the shares for a period of less than two years immediately preceding the transfer, throughout that lesser period.”

8 (1) In section 113A of the 1984 Act (application of relief for business property to transfers made within seven years before death of transferor) in subsection (3) at the beginning of paragraph (b) there shall be inserted the words "except to the extent that the original property consists of shares or securities to which subsection (3A) below applies".

(2) After subsection (3) of that section there shall be inserted the following subsection—

“(3A) This subsection applies to shares or securities—

(a) which were quoted at the time of the chargeable transfer referred to in subsection (1) or subsection (2) above; or

(b) which fell within paragraph (b) of section 105(1) above in relation to that transfer and were unquoted throughout the period referred to in subsection (3)(a) above.”

9 In section 124A of the 1984 Act (application of agricultural relief to transfers within seven years before death of transferor) in subsection (b) for the words following paragraph (b) there shall be substituted "his period of ownership of the original property shall be treated as including his period of ownership of the shares."

10 In section 136 of the 1984 Act (transactions of close companies) in subsection (1)(b) for the words "shares quoted on a recognised stock exchange" there shall be substituted "quoted shares" and for the words "shares in or debentures of the company which are not so quoted" there shall be substituted "unquoted shares in or unquoted debentures of the company".

11 In section 140(2) of the 1984 Act (market value for purposes of Chapter IV of Part IV) in paragraph (b) for the words from "shares" to "exchange" there shall be substituted "unquoted shares".

12 (1) In section 168 of the 1984 Act (unquoted shares and securities) in subsection (1) before the word "securities" where it first occurs, there shall be inserted "unquoted".

(2) Subsection (2) of that section shall be omitted.

13 (1) In section 178 of the 1984 Act (sale of shares etc. from deceased's estate) in subsection (1), in the definition of "qualifying investments", for the words from "at the date" to "exchange" there shall be substituted "are quoted at the date of the death in question".

(2) In subsection (2) of that section—

(a) after the words "quotation on a recognised stock exchange" there shall be inserted "or dealing on the Unlisted Securities Market"; and

(b) the words "on a recognised stock exchange", in the second place where they occur, shall be omitted.

14 In section 180 of the 1984 Act (effect of purchases) in subsection (3) after the word "exchange" there shall be inserted "or separately dealt in on the Unlisted Securities Market".

15 (1) In section 227 of the 1984 Act (payment by instalments) for subsection (1A) there shall be substituted the following subsection—

“(1A) Subsection (1) above does not apply to—

(a) tax payable on the value transferred by a potentially exempt transfer which proves to be a chargeable transfer, or

(b) additional tax becoming payable on the value transferred by any chargeable transfer by reason of the transferor's death within seven years of the transfer,

except to the extent that the tax is attributable to the value of property which satisfies one of the conditions specified in subsection (1C) below and, in the case of property consisting of unquoted shares or unquoted securities, the further condition specified in section 228(3A) below.”

(2) In subsection (1B) of that section for the words "subsection (1A) above" there shall be substituted "this section".

(3) After subsection (1B) of that section there shall be inserted the following subsection—

“(1C) The conditions referred to in subsection (1A) above are—

(a) that the property was owned by the transferee throughout the period beginning with the date of the chargeable transfer and ending with the death of the transferor (or, if earlier, the death of the transferee), or

(b) that for the purposes of determining the tax, or additional tax, due by reason of the death of the transferor, the value of the property is reduced in accordance with the provisions of Chapter I or Chapter II of Part V of this Act by virtue of section 113B or section 124B above.”

16 (1) In section 228 of the 1984 Act (shares etc. within section 227) in subsection (1) for the words "not falling under paragraph (a) above and not quoted on a recognised stock exchange", in each place where they occur, there shall be substituted "which do not fall under paragraph (a) above and are unquoted".

(2) After subsection (3) of that section there shall be inserted the following subsection—

“(3A) The further condition referred to in section 227(1 A) above is that the shares or securities remained unquoted throughout the period beginning with the date of the chargeable transfer and ending with the death of the transferor (or, if earlier, the death of the transferee).”

17 In section 272 of the 1984 Act (general interpretation) after the definition of "purchaser" there shall be inserted—

• “"quoted", in relation to any shares or securities, means quoted on a recognised stock exchange or dealt in on the Unlisted Securities Market and "unquoted", in relation to any shares or securities, means neither so quoted nor so dealt in”.

18 (1) In Schedule 20 to the [1986 c. 41.] Finance Act 1986 (gifts with reservation) paragraph 8 (agricultural and business property) shall be amended as follows.

(2) In sub-paragraph (1) for the word "Where" there shall be substituted "This paragraph applies where" and the words from "then" onwards shall be omitted.

(3) After sub-paragraph (1) there shall be inserted the following sub-paragraph—

“(1A) Where this paragraph applies—

(a) any question whether, on the material transfer of value, any shares or securities fall within paragraph (b) or paragraph (bb) of section 105(1) of the 1984 Act (which specify shares and securities qualifying for 50 per cent. relief) shall be determined, subject to the following provisions of this paragraph, as if the shares or securities were owned by the donor and had been owned by him since the disposal by way of gift; and

(b) subject to paragraph (a) above, any question whether, on the material transfer of value, relief is available by virtue of Chapter I or Chapter II of Part V of the 1984 Act and, if relief is available by virtue of Chapter II, what is the appropriate percentage for that relief, shall be determined, subject to the following provisions of this paragraph, as if, so far as it is attributable to the property comprised in the gift, that transfer were a transfer of value by the donee.”

(4) In sub-paragraph (2) for the words "sub-paragraph (1)" there shall be substituted "sub-paragraph (lA)(b)".

(5) In sub-paragraph (3)—

(a) for the words "that sub-paragraph shall not apply" there shall be substituted "relief shall not be available by virtue of Chapter II of Part V of the 1984 Act on the material transfer of value"; and

(b) for the words "by virtue of sub-paragraph (1) above" there shall be substituted "by virtue of sub-paragraph (1 A)(b) above".