Chapter 6: Withdrawal or reduction of CITR
Overview
1010.This Chapter sets out the circumstances in which CITR attributable to an investment for any tax year must be reduced to nil (withdrawn) or reduced proportionately. It is based on Part 6 of Schedule 16 to FA 2002, with the exception of paragraph 27(4) of that Schedule which applies only to investors that are companies.
Section 359: Overview of Chapter
1011.This section provides an overview of the Chapter and contains signposts to its principal provisions. It is new.
1012.Subsection (3) defines the term, “the 6 year period”. This new term replaces the term “the period of restriction” defined in the same way in paragraph 33 of Schedule 16 to FA 2002. The 6 year period is relevant to sections 363 and 364 which deal with receipts of value. As an anti-avoidance measure, receipts of value in the year before the investment date are taken into account, as well as those in the 5 year period, which begins with the investment date. See the commentary on section 338 for the meaning of “the 5 year period” and “the investment date”.
Section 360: Disposal of loan during 5 year period
1013.This section provides that the CITR attributable to a loan must be withdrawn if, within the 5 year period, the investor disposes (otherwise than by receiving repayment) of part of the loan or, unless it is by way of a permitted disposal, of the whole of the loan. It is based on paragraph 28 of Schedule 16 to FA 2002.
1014.A permitted disposal is defined in subsection (2). If the disposal is a permitted disposal, any tax reduction already obtained is not withdrawn, but no further tax reduction may be claimed (see sections 335(6) and 354).
Section 361: Disposal of securities or shares during 5 year period
1015.This section provides for the withdrawal or reduction of CITR attributable to securities or shares, if the investor disposes of the whole or part of the investment in the securities or shares (except upon repayment, redemption or repurchase by the CDFI) within the 5 year period and the CDFI is accredited at the time of the disposal. It is based on paragraph 29 of Schedule 16 to FA 2002.
1016.Subsections (2) and (3) provide for different consequences depending upon whether the disposal is a qualifying disposal.
1017.Subsection (4) defines what is a qualifying disposal. It is based on paragraph 29(4) of Schedule 16 to FA 2002 with the omission of the words “for full consideration” in paragraph (a). See Change 20 in Annex 1.
1018.Subsection (5)provides for circumstances where 5% of the invested amount is greater than the income tax liability of the investor for the tax year.
Section 362: Repayment of loan capital during 5 year period
1019.This section provides for the circumstances in which the CITR attributable to a loan must be withdrawn as a consequence of a repayment other than a “non‑standard” repayment (see subsections (3) to (5)). It is based on paragraph 30 of Schedule 16 to FA 2002.
Section 363: Value received by investor during 6 year period: loans
1020.This section applies if the investment consists of a loan and the investor or a person connected with the investor receives any value, other than an amount of insignificant value (as defined in subsection (5)), from the CDFI or a person connected with the CDFI in the 6 year period. It is based on paragraph 31 of Schedule 16 to FA 2002.
1021.Subsection (2) provides that, if value is so received, the invested amount (see section 337) is adjusted by the amount treated as repaid and the investor is treated as having received a repayment other than a non-standard repayment for the purposes of section 362(see subsection (4)).
Section 364: Value received by investor during 6 year period: securities or shares
1022.This section applies if the investment consists of securities or shares and the investor or a person connected with the investor receives any value, other than an amount of insignificant value (as defined in subsection (4)), from the CDFI or a person connected with the CDFI in the 6 year period. It is based on paragraph 32 of Schedule 16 to FA 2002.
1023.Subsection (2) provides, that if value is so received and its amount wholly or partly exceeds the permitted level (see subsection (3)) by more than an amount of insignificant value, the CITR attributable to the investment must be withdrawn.
Section 365: Receipts of insignificant value to be added together
1024.This section applies at a time when the investor receives value, if the investor has also received value earlier in the 6 year period and the total amount of the value received earlier was of insignificant value. It is based on paragraph 34 of Schedule 16 to FA 2002.
1025.The amount of the receipt in question is to be added to the amounts of value previously received. If the total value of the amounts received is not an amount of insignificant value, the total value is treated as received at that time for the purposes of this Part, including in particular sections 362, 363 and 364.
Section 366: When value is received
1026.This section explains when value is received. It is based on paragraph 35 of Schedule 16 to FA 2002.
Section 367: The amount of value received
1027.This section, which determines the respective values received in relation to the respective transactions listed in section 366(1), is set out in tabular form for clarity. It is based on paragraph 36 of Schedule 16 to FA 2002.
Section 368: Value received if there is more than one investment
1028.This section provides that, if there is more than one investment, any value received is to be apportioned among the investments according to the respective amounts invested and sets out how those amounts are to be calculated. It is based on paragraph 37 of Schedule 16 to FA 2002.
Section 369: Effect of receipt of value on future claims for CITR
1029.This section applies if an investor holding securities or shares receives value (other than an amount of insignificant value) but, because that value is less than the permitted level, the CITR attributable to those securities or shares is not withdrawn under section 364. It is based on paragraph 38 of Schedule 16 to FA 2002.
1030.Subsection (2) reduces the amount invested (see section 337) in respect of which CITR may be claimed for the tax years specified in subsection (3).
Section 370: Receipts of value by or from connected persons
1031.This section extends the meaning of “the investor” and “the CDFI” in sections 363 to 369. It is based on paragraph 39 of Schedule 16 to FA 2002.
1032.This section includes the words “if the context permits”, which do not appear in paragraph 39 of Schedule 16 to FA 2002. The inclusion of these words does not change the law but makes sections 363 to 369 clearer, by stating explicitly what is implicit in the source legislation.
Section 371: CITR subsequently found not to have been due
1033.This section provides the basis for making an assessment under section 372 in cases where a claim for a tax reduction has been incorrectly allowed. It is based on paragraph 27(1) of Schedule 16 to FA 2002.
Section 372: Manner of withdrawal or reduction of CITR
1034.This section authorises the making of assessments to recapture CITR attributable to an investment which has been withdrawn or reduced, except where the event giving rise to the withdrawal or reduction of the CITR occurs after the death of the investor. It is based on paragraph 27 of Schedule 16 to FA 2002.
