Chapter 2: Qualifying investments
Overview
830.This Chapter sets out the conditions which must be met if an investment is to be a qualifying investment.
Section 225: Qualifying investments: introduction
831.This section introduces:
the respective conditions which apply to loans (section 226), to securities (section 227) and to shares (section 228), and
the provisions which apply to all kinds of investment (sections 229 and 230).
It is based on paragraph 8 of Schedule 16 to FA 2002.
Section 226: Conditions to be met in relation to loans
832.This section sets out the three conditions applicable to loans. It is based on paragraph 9 of Schedule 16 to FA 2002.
Section 227: Conditions to be met in relation to securities
833.This section sets out the two conditions applicable to securities. It is based on paragraph 10 of Schedule 16 to FA 2002.
834.Condition A (subsection (1)) requires that securities must be subscribed for wholly in cash and fully paid for on the investment date. It is in similar terms to section 228(1) which sets out identical requirements in relation to shares.
835.Section 228(3) (based on paragraph 11(1) of Schedule 16 to FA 2002) provides that shares are not fully paid up for the purposes of section 228(1) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the shares. The effect of this is to distinguish the meaning of “paid up” for that purpose from the meaning of those words for the purposes of the Companies Acts in section 583 of the Companies Act 2006 which provides that a share is deemed paid up in cash, or allotted for cash, if the consideration for the allotment or payment up is an undertaking to pay cash to the company at a future date.
836.There is no similar provision in the Companies Acts applicable to the issue of securities, but the position in relation to securities has been made explicit by the inclusion of subsection (3), equivalent to section 228(3). This clarification is not a change in either law or practice.
Section 228: Conditions to be met in relation to shares
837.This section sets out the two conditions applicable to shares. It is based on paragraph 11 of Schedule 16 to FA 2002.
Section 229: Tax relief certificates
838.This section sets limits on the value of investments in respect of which a CDFI may issue tax relief certificates in an accreditation period. It is based on paragraph 4(3) and 12 of Schedule 16 to FA 2002. Without a tax relief certificate, an investor may not claim CITR (see section 220(5)(b)).
839.Subsections (2) and (3) provide that the limit applies to the total value of investments in the CDFI made in the accreditation period by companies under this Part and by individuals under Part 7 of ITA.
840.Subsection (4) provides different amounts for the limits for retail and wholesale CDFIs. See the commentary on section 219.
841.Subsections (6) and (7) provide for the substitution of different amounts by Treasury order for the amounts in subsection (4). Subsection (7) is based on paragraph 12(5) of Schedule 16 to FA 2002 which provides that:
“Any such substitution shall have effect in relation to such accreditation periods as may be specified in the order; and those periods may, if the substitution increases the amount for the time being specified in sub-paragraph (2), include periods beginning before the order takes effect.”
842.Subsection (7) corrects two infelicities in the source legislation. For “the amount” it substitutes “an amount” to avoid any doubt that the power to apply an increase retrospectively can be exercised if one only of the amounts in subsection (4) is increased. For “the order takes effect” it substitutes “the order comes into force”. The wording in the source legislation could be misconstrued as referring to the time when the order is itself made. The substituted wording clarifies that the intended meaning is the time when the provisions of the order come into force.
843.In subsection (8), the words “wholly or partly”, which appear before “in contravention” in paragraph 12(6) of Schedule 16 to FA 2002, have been omitted as being unnecessary.
Section 230: No pre-arranged protection against risks
844.This section is an anti-avoidance provision concerned with ensuring that the investor is subject to all usual investment risks and is not protected from their effect by insurance, indemnity, guarantee or other means. It is based on paragraph 13 of Schedule 16 to FA 2002.
