Income Tax Act 2007 section 257QJ

Repayments etc of share capital to other persons

Section 257QJ deals with the withdrawal or reduction of Social Investment (SI) relief when a social enterprise or its subsidiary uses funds to repay, redeem or repurchase share capital belonging to members other than the investor, ensuring that tax-advantaged funds are not used to provide an exit for earlier shareholders rather than funding the enterprise's activities.

• If a social enterprise or its subsidiary repays, redeems or repurchases share capital from other members during the longer applicable period, the investor's SI relief may be reduced or withdrawn entirely.
• The reduction is calculated as A × R, where A is the amount received by the other member and R is the SI rate for the tax year in which the relief was originally given; if the relief exceeds this amount it is reduced by that amount, otherwise it is withdrawn completely.
• Repayments are excluded from this rule where the other member's own SI relief has already been withdrawn or reduced as a consequence of the same repayment, and repayments are ignored to the extent that relief has already been adjusted on their account.
• A subsidiary for these purposes means any company that was a 51% subsidiary of the social enterprise at any point during the longer applicable period, regardless of whether it held that status at the actual time of the repayment.