Finance Act 2001

Section 76.

SCHEDULE 25 Limited liability partnerships: investment LLPs and property investment LLPs

Meaning of “investment LLP” and “property investment LLP”

1 (1) In Part 19 of the Taxes Act 1988 (supplementary provisions), after section 842A insert—

“842B Meaning of “investment LLP” and “property investment LLP”

(1) In this Act—

(a) an “investment LLP” means a limited liability partnership whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom; and

(b) a “property investment LLP” means a limited liability partnership whose business consists wholly or mainly in the making of investments in land and the principal part of whose income is derived therefrom.

(2) Whether a limited liability partnership is an investment LLP or a property investment LLP is determined for each period of account of the partnership.

A “period of account” means any period for which accounts of the partnership are drawn up.”.

(2) In section 832(1) of that Act (interpretation of the Tax Acts), at the appropriate place insert—

““investment LLP” and “property investment LLP” have the meaning given by section 842B;”.

(3) In section 288(1) of the Taxation of Chargeable Gains Act 1992 (c. 12) (interpretation), at the appropriate place insert—

““property investment LLP” has the meaning given by section 842B of the Taxes Act;”.

Pension funds, &c.: exclusion of exemptions from tax in case of income from property investment LLPs

2 In Chapter 6 of Part 14 of the Taxes Act 1988 (pension schemes, &c.: miscellaneous provisions), after section 659D insert—

“659E Treatment of income from property investment LLP's

(1) The exemptions specified below do not apply to income derived from investments, deposits or other property held as a member of a property investment LLP.

(2) The exemptions are those provided by—

• section 592(2) (exempt approved schemes),

• section 608(2)(a) (former approved superannuation funds),

• section 613(4) (Parliamentary pension funds),

• section 614(3) (certain colonial, &c. pension funds),

• section 614(4) (the Overseas Service Pension Fund),

• section 614(5) (other pension funds for overseas employees),

• section 620(6) (retirement annuity trust schemes), and

• section 643(2) (approved personal pension schemes).

(3) The income to which subsection (1) above applies includes relevant stock lending fees, in relation to any investments, to which any of the provisions listed in subsection (2) above would apply by virtue of section 129B.

(4) Section 659A (treatment of futures and options) applies for the purposes of subsection (1) above.”.

Pension funds, &c.: exclusion of exemption from trusts rate in case of income from property investment LLPs

3 (1) Section 686 of the Taxes Act 1988 (accumulation and discretionary trusts: special rates of tax) is amended as follows.

(2) In subsection (2)(c) (income excluded from trusts rate or Schedule F trusts rate), before the words “income from investments, deposits or other property” (which relate to income of certain pension funds or schemes) insert “, subject to section (6A) below,”.

(3) After subsection (6) insert—

“(6A) The exemptions provided for by subsection (2)(c) above in relation to income from investments, deposits or other property held as mentioned in sub-paragraph (i) or (ii) of that paragraph do not apply to income derived from investments, deposits or other property held as a member of a property investment LLP.”.

Pension funds, &c.: exclusion of exemptions in case of gains from property investment LLPs

4 In section 271 of the Taxation of Chargeable Gains Act 1992 (c. 12) (miscellaneous exemptions), after subsection (11) insert—

“(12) Subsection (1)(b), (c), (d), (g) and (h) and subsection (2) above do not apply to gains accruing to a person from the acquisition and disposal by him of assets held as a member of a property investment LLP.”.

Insurance companies: treatment of income or gains arising from property investment LLP

5 In Chapter 1 of Part 12 of the Taxes Act 1988 (insurance companies, &c.), after section 438A insert—

“438B Income or gains arising from property investment LLP

(1) Where an asset held by an insurance company as an asset of its long term business fund is held by the company as a member of a property investment LLP, the policy holders' share of any income arising from, or chargeable gains accruing on the disposal of, the asset which—

(a) is attributable to the company, and

(b) would otherwise be referable by virtue of section 432A to pension business,

shall be treated for the purposes of the Corporation Tax Acts as referable to basic life assurance and general annuity business.

(2) For the purposes of this section the property business of the insurance company for the purposes of which the asset is held shall be treated as a separate business.

• “Property business” means a Schedule A business or overseas property business.

(3) Where (apart from this subsection) an insurance company would not be carrying on basic life assurance and general annuity business, it shall be treated as carrying on such business if any income or chargeable gains of the company are treated as referable to the business by virtue of subsection (1) above.

(4) A company may be charged to tax by virtue of this section—

(a) notwithstanding section 439A, and

(b) whether or not the income or chargeable gains to which subsection (1) above applies is taken into account in computing the profits of the company for the purposes of any charge to tax in accordance with Case I of Schedule D.

(5) The policy holders' share of income or chargeable gains to which subsection (1) above applies—

(a) shall not be treated as relevant profits for the purposes of section 88 of the Finance Act 1989 (corporation tax on policy holders' fraction of profits), and

(b) shall not be treated as part of the BLAGAB profits for the purposes of section 88A of that Act (lower corporation tax rate on certain profits);

but the whole of the income or gains to which that subsection applies shall be chargeable to tax at the rate provided by section 88 of that Act.

(6) So far as income is brought into account as mentioned in section 83(2) of the Finance Act 1989, sections 432B to 432F (apportionment of receipts brought into account) have effect as if subsection (1) above did not apply.

438C Determination of policy holders' share for purposes of s.438B

(1) For the purposes of section 438B the policy holders' share of any income or chargeable gains to which subsection (1) of that section applies is what remains after deducting the shareholders' share.

(2) The shareholders' share is found by applying to the whole the fraction—

where—

• A is the amount of the profits of the company for the period which are chargeable to tax under section 436; and

• B is an amount equal to the excess of—

  (a)

  the amount taken into account as receipts of the company in computing those profits (apart from premiums and sums received by virtue of a claim under a reinsurance contract), over

  (b)

  the amounts taken into account as expenses in computing those profits.

(3) Where there is no such excess as is mentioned in subsection (2) above, or where the profits are greater than any excess, the whole of the income or gains is treated as the shareholders' share.

(4) Subject to that, where there are no profits none of the income or gains is treated as the shareholders' share.”.

Insurance companies: double taxation relief

6 In section 804B of the Taxes Act 1988 (double taxation relief: company carrying on more than one category of life assurance business: restriction of credit)—

(a) in subsection (2) after “sections 432ZA to 432E” insert “or section 438B”, and

(b) in subsection (4) after “section 432A” insert “or 438B”.

Insurance companies: capital allowances

7 In section 545 of the Capital Allowances Act 2001 (c. 2) (life assurance business: investment assets), for subsection (3) substitute—

“(3) Any allowance under this Act in respect of an investment asset shall be treated as referable to the category or categories of business to which income arising from the asset is or would be referable.

If income so arising is or would be referable to more than one category of business, the allowance shall be apportioned in accordance with sections 432ZA to 432E, or section 438B, of ICTA in the same way as the income.”.

Friendly societies: exclusion of exemptions from tax

8 (1) In section 460 of the Taxes Act 1988 (friendly societies: exemption from tax in respect of life or endowment business), in subsection (2) (restrictions on exemption) after paragraph (ca), and before the word “and” following that paragraph, insert—

“(cb) shall not apply to profits arising from investments, deposits or other property held as a member of a property investment LLP;”.

(2) In section 461 of that Act (registered friendly societies: exemption from tax on other business), after subsection (3) insert—

“(3A) The exemption conferred by subsection (1) above does not apply to profits arising from investments, deposits or other property held as a member of a property investment LLP.”.

(3) In section 461B of that Act (incorporated friendly societies: exemption from tax on other business), after subsection (2) insert—

“(2A) Subsection (1) above shall not apply to any profits arising or accruing to the society from or by reason of its membership of a property investment LLP.”.

Exclusion of relief on loans to buy into investment LLP

9 In section 362(2) of the Taxes Act 1988 (interest relief on loans to buy into partnership: conditions to be met), in paragraph (a) for the words from “otherwise” to “1907” substitute— “otherwise than—

(i) as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907, or

(ii) as a member of an investment LLP;”.