What does paragraph 40 of Schedule 2 to the Income Tax Act 2007 do?

Paragraph 40 of Schedule 2 provides transitional modifications to the trading requirement under section 137 for share loss relief. It applies different rules depending on when shares were issued, with simplified or disapplied requirements for shares issued before 6 April 2007, 6 April 2000, or 6 April 1998 respectively.

How does the trading requirement apply to shares issued before 6 April 2007?

For shares issued before 6 April 2007, the trading requirement under section 137 still applies but in a simplified form. Subsection (2), subsection (6), and paragraph (d)(ii) of subsection (5) together with the preceding 'or' are all disapplied, meaning fewer conditions must be satisfied to meet the requirement.

What is the narrower definition of research and development for shares issued before 6 April 2000?

For shares issued before 6 April 2000, research and development is defined as any activity intended to result in a patentable invention under the Patents Act 1977 or in a computer program. This replaces the broader definition in section 137(7) and is more restrictive than the version applying to later share issues.

Does the trading requirement apply to shares issued before 6 April 1998?

No. For shares issued before 6 April 1998, the trading requirement in section 137 does not apply at all. This reflects the fact that this requirement was not part of the legislation when those shares were originally issued, so it would be unfair to apply it retrospectively.

Income Tax Act 2007 Schedule 2 paragraph 40

The trading requirement

Paragraph 40 of Schedule 2 modifies the trading requirement under section 137 for share loss relief depending on when the shares were originally issued, with different rules applying to shares issued before 6 April 2007, before 6 April 2000, and before 6 April 1998.

For shares issued before 6 April 2007, certain parts of section 137 are disapplied, including subsection (2), part of subsection (5), and subsection (6).
For shares issued before 6 April 2000, a narrower definition of "research and development" applies, limited to activities intended to produce a patentable invention or a computer program.
The trading requirement in section 137 does not apply at all to shares issued before 6 April 1998.
These transitional provisions ensure that shares issued under earlier rules are not retrospectively subjected to requirements that did not exist when they were issued.

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