Model law

Finance Act 2016 (Climate Investor Relief Amendment) Bill

Gert's Law

Amend the Finance Act 2016 / Taxation of Chargeable Gains Act 1992 to offer enhanced tax relief to investors where a gain is made on disposal of shares in a company that has met its Net Zero Target.

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Why use this?

Investor relief is indiscriminate as to the underlying activity of the trading company in which qualifying shares are held.

With this proposed amendment the existing rules on Investor Relief are not changed and would be applied in the same way to ensure that investment is not discouraged.

A tiered relief and cap are designed to encourage additional investment in companies aligned to the UK’s 2050 Net Zero target.

How it promotes a net zero future

Investors will want to ensure Net Zero targets are achieved by a company to be eligible for the enhanced tax relief and higher relief cap. Investors would drive companies to meet their Net Zero targets.

The law

FINANCE ACT 2016 (CLIMATE INVESTOR RELIEF AMENDMENT) BILL

A

B I L L

TO

Amend the Taxation of Chargeable Gains Act 1992 to provide an additional investor tax relief for qualifying shares held in a company that has achieved its Net Zero target.    

BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

1. Amendment to Part 5 of the Taxation of Chargeable Gains Act 1992 (as amended by Schedule 14 Finance Act 2016) 

(1) In Part 5 of the Taxation of Chargeable Gains Act 1992 (Transfer of Business Assets, Business Asset Disposal Relief, and Investors’ Relief) –

(a) in section 169VB (Qualifying shares, potentially qualifying shares and excluded shares), in subsection (1)(b), remove “or”; 

(b) in subsection (1)(c), at the end of the sentence, remove the full stop and insert “, or”; and 

(c) after subsection (1)(c), insert:

“   (d)  a climate qualifying share.   ”

(2) After section 169VB(4), insert –

“   (4A) The share is a “climate qualifying share” at the relevant time if—

(a) the conditions in subsection (2)(a) to (j) are met; and 

(b) at the time the share was issued, the directors of the company that issued the share detailed a reasonable Net Zero target in their most recent strategic report; and 

(c) the company that issued the share – 

(i) in proportion to the period beginning with the date the share was issued and ending with the date of disposal (which must be at least 3 years from the date the share was issued), the company has offset or reduced its Greenhouse Gas Emissions from all operations (Scope 1-3) to Net Zero, in accordance with the Net Zero target specified for the purposes of 4A(b) above.   ”

(3) In section 169VC (Investors’ relief) –

(a) amend subsection (1)(b) as follows –

“   (b) immediately before that disposal, some or all of the shares in the holding are qualifying shares or climate qualifying shares   ”

(b) amend the final paragraph of subsection (2) as follows:

“   (i) in respect of qualifying shares, the rate of capital gains tax in respect of the relevant gain is 10 per cent. 

  (ii) in respect of climate qualifying shares, the rate of capital gains tax in respect of the relevant gain is 5 per cent   ”

(4) In section 169VD (Disposal where holding consists partly of qualifying shares) –

(a) after subsection (4), insert-

“   (5) This section applies where –

(a) a disposal (“the disposal concerned”) is made as mentioned in section 169VC(1), and 

(b) at the time immediately before the disposal, only some of the shares in the holding are climate qualifying shares. 

(6) Where subsection (5) above applies, this section shall be interpreted as if references to qualifying shares were references to climate qualifying shares.   ”

(5) In section 169VF (Shares treated as disposed of in previous disposal where claim made) –

(a) after subsection (7), insert-

“    (8) This section applies where –

(a) a disposal (“the disposal concerned”) is made as mentioned in section 169VC(1), and 

(b) the disposal concerned is made in respect of climate qualifying shares

(9) Where subsection (8) above applies, this section shall be interpreted as if references to qualifying shares were references to climate qualifying shares.   ”

(6) In section 169VK (Cap on relief for disposal by an individual) –

(a) amend the final paragraph of subsection (1) as follows:

“   (i) in respect of qualifying shares, exceeds £10 million, or  

     (ii) in respect of climate qualifying shares, exceeds £20 million   ”

(b) after subsection (2), insert – 

“   (2A)  The rate in section 169VC(2)(b)(ii) applies only to so much (if any) of the gain in question as, when added to the aggregate of the total amounts mentioned in subsection (1)(b) and (c), does not exceed £20 million.   ”

(7) In section 169VL (Cap on relief for disposal by trustees of a settlement) –

(a) amend the final paragraph of subsection (2) as follows:

“   (i) in respect of qualifying shares, exceeds £10 million, or  

     (ii) in respect of climate qualifying shares, exceeds £20 million   ”

(b) after subsection (3), insert – 

“   (3A)  The rate in section 169VC(2)(b)(ii) applies only to so much (if any) of the gain in question as, when added to the aggregate of the total amounts mentioned in subsection (1)(b) and (c), does not exceed £20 million.   ”

(8) In section 169VY (General definitions) –

(a) after the definition of “holding”, insert-

“   “Greenhouse Gas Emissions” in relation to the company that issues the share   means emissions by the company (including its value and supply chain) of the greenhouse gases listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change, including: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3), each expressed as a total in units of carbon dioxide equivalent (CO2e)   ”

(b) after the definition of “subscribe”, insert – 

“  “Net Zero”, in relation to the company that issues the share, means a reduction of Greenhouse Gas Emissions from all operations (Scope 1-3) to net zero so there is a balance between sources and sinks of Greenhouse Gases.  ”