Finance Act 2002

Discounted securities of close companies

34 (1) Paragraph 18 of Schedule 9 is amended as follows.

(2) In sub-paragraph (1) (accounting periods to which the paragraph applies)—

(a) after “any accounting period” insert “(“the relevant period”)”;

(b) in paragraph (a), after “a close company” insert “(“the issuing company”)”; and

(c) omit the word “and” immediately preceding paragraph (b).

(3) In paragraph (b) of that sub-paragraph, for the words preceding sub-paragraph (i) (which relate to beneficial ownership at any time in or before the accounting period in question) substitute—

“(b) at any time in that period there is a person who stands in the position of a creditor as respects that security and who at that time is—”.

(4) At the end of paragraph (b) of that sub-paragraph add “; and

(c) the debt is not one that is owed to, or to persons acting for, a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000.”.

(5) After sub-paragraph (1) insert—

“(1A) But for any such accounting period this paragraph shall not apply in relation to that debtor relationship if—

(a) at all times in the period when there is such a person as is described in sub-paragraph (1)(b) above, that person is a company; and

(b) credits representing the full amount of the discount that is referable to the period are brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.”.

(6) For sub-paragraph (2) (debits not to be brought into account by the issuing company for any accounting period before that in which the security is redeemed) substitute—

“(2) The debits falling in the case of the issuing company to be brought into account for the purposes of this Chapter in respect of the loan relationship shall be adjusted so that every debit relating to the amount of the discount that is referable to the relevant period (“the relevant debits”) is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period.

This sub-paragraph does not apply where the relevant period is the accounting period in which the security is redeemed.

(2A) Where at some (but not all) times in the relevant period there is such a person as is described in sub-paragraph (1)(b) above—

(a) part only of the relevant debits shall be brought into account in accordance with sub-paragraph (2) above; and

(b) that part is the part which bears to the whole of the relevant debits the proportion which the part of the relevant period for which there is such a person bears to the whole of that period.”.

(7) After sub-paragraph (2A) insert—

“(2B) References in this paragraph to the amount of the discount that is referable to an accounting period are references to the amount relating to the difference between—

(a) the issue price of the security, and

(b) the amount payable on redemption,

which (apart from sub-paragraphs (2) and (2A) above) would for that accounting period be brought into account for the purposes of this Chapter in the case of the issuing company.”.

(8) After sub-paragraph (2B) insert—

“(2C) Any reference in this paragraph to a person who stands in the position of a creditor as respects a relevant discounted security includes a reference to a person who indirectly stands in that position by reference to a series of relevant discounted securities.

(2D) Where this paragraph applies by virtue of sub-paragraph (2C) above, the reference to the corresponding creditor relationship in sub-paragraph (1A)(c) above is a reference to the creditor relationship of the person who indirectly stands in the position of a creditor as respects the relevant discounted security.”.

(9) After sub-paragraph (3) insert—

“(3A) For the purposes of this paragraph there is a connection between one company and another for an accounting period if—

(a) there is a time in that period when one of the companies has had control of the other, or

(b) there is a time in that period when both the companies have been under the control of the same person.

(3B) In this paragraph “control”, in relation to a company, has the same meaning as in section 87 of this Act (see section 87A).”.

(10) In sub-paragraph (4) (definitions) omit the definition of “control”.

(11) In that sub-paragraph, in the definition of “participator”—

(a) after ““participator”” insert “, in relation to a company,”; and

(b) for the words from “by virtue only” to the end of the definition substitute “by reason only that he is a loan creditor of the company.”.