Income Tax (Trading and Other Income) Act 2005 (c. 5)

SCHEDULES

Valid from 06/04/2005

SCHEDULE 1 U.K. Consequential amendments

Part 2 U.K. Other enactments

Taxation of Chargeable Gains Act 1992 (c. 12) U.K.

426 U.K. The Taxation of Chargeable Gains Act 1992 is amended as follows.

427 U.K. In section 4(2) and (3) (rates of capital gains tax) for “Schedule F” substitute “ dividend ”.

428 (1) Amend section 6 (rates of capital gains tax: special cases) as follows. U.K.

(2) In subsection (2)—

(a) in paragraph (a)—

(i) for “549(2) of the Taxes Act (gains under life policy or life annuity contract)” substitute “ 539 of ITTOIA 2005 (gains from contracts for life insurance etc) ”, and

(ii) for “excess” substitute “ extra ”, and

(b) in paragraph (c), for “699(1) of that Act (income accruing before death)” substitute “ 669(1) and (2) of ITTOIA 2005 (reduction in residuary income: inheritance tax on accrued income) ”.

(3) In subsection (3)—

(a) for “547(1)(a) of the Taxes Act (gains from insurance policies etc)” substitute “ 465 of ITTOIA 2005 (gains from contracts for life insurance etc) ”,

(b) in paragraph (a) for “appropriate fraction within the meaning of section 550(3)” substitute “ annual equivalent within the meaning of section 536(1) of that Act or (as the case may be) the total annual equivalent within the meaning of section 537 ”, and

(c) in paragraph (b)—

(i) for “550” substitute “ 535 ”,

(ii) for “required by section 550(2)(b)” substitute “ under section 536(1) of that Act or (as the case may be) section 537 of that Act ”, and

(iii) for “Schedule F” substitute “ dividend ”.

429 U.K. In section 12(2) (foreign assets of person with foreign domicile) for the words from “, and subsections (6) to (9)” to the end substitute “ , and sections 833 and 834 of ITTOIA 2005 shall apply as they would apply for the purposes of section 832 of that Act (remittance basis) if the gain were relevant foreign income. ”

430 U.K. In section 41(4) (restriction of losses by reference to capital allowances and renewals allowances)—

(a) in paragraph (b) after “Taxes Act” insert “ or any deduction under section 315 of ITTOIA 2005 ”, and

(b) in paragraph (c) after “Taxes Act” insert “ or section 170 of ITTOIA 2005 ”.

431 (1) Amend section 59 (partnerships) as follows. U.K.

(2) Renumber the existing text as subsection (1).

(3) After that subsection insert—

“(2) Subsection (3) applies if—

(a) a person resident in the United Kingdom (“the resident partner”) is a member of a partnership which resides outside the United Kingdom or which carries on any trade, profession or business the control and management of which is situated outside the United Kingdom, and

(b) by virtue of any arrangements falling within section 788 of the Taxes Act (“the arrangements”) any of the capital gains of the partnership are relieved from capital gains tax in the United Kingdom.

(3) The arrangements do not affect any liability to capital gains tax in respect of the resident partner's share of any capital gains of the partnership.”

432 U.K. In section 97(7) (supplementary provisions) for “section 660G(1) and (2) of the Taxes Act” substitute “ section 620 of ITTOIA 2005 ”.

433 (1) Amend section 117 (meaning of qualifying corporate bond) as follows. U.K.

(2) In subsection (2AA) for “relevant discounted security for the purposes of Schedule 13 to the Finance Act 1996” substitute “ deeply discounted security for the purposes of Chapter 8 of Part 4 of ITTOIA 2005 (see section 430) ”.

(3) In subsection (6C) for “Schedule 13 to the Finance Act 1996 (relevant discounted securities)” substitute “ Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see section 433) ”.

434 (1) Amend section 142 (capital gains on stock dividends) as follows. U.K.

(2) In subsection (1) for the words from “section 249” to “that section” substitute “ section 410(2), (3) or (4) of ITTOIA 2005 applies ”.

(3) In subsection (3) for “the appropriate amount in cash (within the meaning of section 251(2) to (4) of the Taxes Act)” substitute “ the cash equivalent of the share capital in accordance with section 412 of ITTOIA 2005 ”.

435 U.K. After section 148 insert—

“148A Futures and options involving guaranteed returns

(1) Profits and gains that are chargeable under Chapter 12 of Part 4 of ITTOIA 2005 are not to be brought into account for the purposes of capital gains tax, except where section 148B applies.

(2) Where—

(a) losses are sustained by a person from a disposal, and

(b) had profits or gains arisen to the person from the disposal, they would be chargeable under that Chapter,

the losses are not to be brought into account for the purposes of capital gains tax, except where section 148C applies.

148B Deemed disposals at a gain under section 564(4) of ITTOIA 2005

(1) This section deals with how this Act applies where profits or gains arising to a person from such a disposal as is referred to in section 564(4) of ITTOIA 2005 (“the deemed disposal”) are chargeable to tax under Chapter 12 of Part 4 of that Act.

(2) Amounts taken into account or allowable as deductions in calculating the profits or gains are not to be excluded from any calculation made for the purposes of this Act as a result of section 37 or 39.

(3) For the purposes of this Act the amount of the consideration for the acquisition by the person of any asset the person disposes of by the future running to delivery or the exercise of the option is increased by the amount of the profits or gains chargeable under Chapter 12 of Part 4 of ITTOIA 2005.

(4) Any increase made as a result of subsection (3) is to be disregarded in calculating any indexation allowance.

(5) For the purposes of this Act the amount of the consideration for the acquisition of any asset acquired by the person by means of the future running to delivery or the exercise of the option is increased by the amount of the profits or gains chargeable under Chapter 12 of Part 4 of ITTOIA 2005.

(6) If the deemed disposal is a disposal of an option by the grantor, for the purposes of subsections (3) to (5) any determination—

(a) whether profits or gains arose to the grantor from that disposal, and

(b) of the amount of those profits or gains,

is to be made as if the deemed disposal and the disposal by which the option was granted were a single transaction.

(7) Section 565 of ITTOIA 2005 (interpretation of section 564 of that Act) applies for the purposes of this section as it applies for the purposes of section 564 of that Act.

148C Deemed disposals at a loss under section 564(4) of ITTOIA 2005

(1) This section deals with how this Act applies where a loss sustained by a person from such a disposal as is referred to in section 564(4) of ITTOIA 2005 (“the deemed disposal”) is brought into account for the purposes of section 392 of ICTA (losses).

(2) Amounts taken into account or allowable as deductions in calculating that loss are not to be excluded from any calculation made for the purposes of this Act as a result of section 37 or 39.

(3) If the deemed disposal is a disposal of an option by the grantor, for the purposes of subsections (4) and (5) any determination—

(a) whether the grantor sustained a loss from that disposal, and

(b) of the amount of that loss,

is to be made as if the deemed disposal and the disposal by which the option was granted were a single transaction.

(4) If the loss from the deemed disposal equals or is less than—

(a) the amount of the consideration for the acquisition of any asset acquired by the person sustaining the loss by means of the future running to delivery or the exercise of the option, or

(b) the amount of the consideration for the acquisition by that person of any asset the person disposes of by the future running to delivery or the exercise of the option,

for the purposes of this Act the amount of that consideration is reduced by the amount of the loss.

(5) If the loss from the deemed disposal exceeds the amount of that consideration—

(a) that consideration is reduced to nil, and

(b) an amount equal to the excess is treated for the purposes of this Act as a chargeable gain accruing to the person sustaining the loss on the appropriate occasion.

(6) In a case where the consideration mentioned in subsection (4)(a) is reduced under subsection (5)(a), the appropriate occasion is the first occasion after the acquisition mentioned in subsection (4)(a) when there is a disposal of the asset in question.

(7) In a case where the consideration mentioned in subsection (4)(b) is so reduced, the appropriate occasion is the disposal the person sustaining the loss makes by the future running to delivery or the exercise of the option, as the case may be.

(8) In subsection (6) the reference to a disposal of the asset in question includes a reference to anything that would be such a disposal but for section 116(10) or 127.

(9) In subsections (6) and (7) the references to a disposal include references to a disposal which, in accordance with this Act, would (apart from subsection (5)(b)) be a disposal on which neither a gain nor a loss accrues.

(10) Section 565 of ITTOIA 2005 (interpretation of section 564) applies for the purposes of this section as it applies for the purposes of section 564.”

436 U.K. In section 151 (personal equity plans) for subsections (2) and (2A) substitute—

“(2) The provisions of Chapter 3 of Part 6 of ITTOIA 2005 (income from individual investment plans), except section 694(1) and (2), shall apply in relation to regulations made under subsection (1) as they apply to regulations made under section 694(1), but with the substitution for any reference to income tax of a reference to capital gains tax.”

437 U.K. In section 151A(6) (venture capital trusts: reliefs) for the words from “in accordance” to the end of the subsection substitute “ as references to shares not acquired within the limit in section 709(4) of ITTOIA 2005; and the question whether shares are acquired within that limit shall be determined as it is for the purposes of Chapter 5 of Part 6 of that Act. ”

438 U.K. After section 151B insert—

“151C Strips: manipulation of price: associated payment giving rise to loss

(1) This section applies if—

(a) as a result of any scheme or arrangement which has an unallowable purpose, the circumstances are, or might have been, as mentioned in paragraph (a), (b) or (c) of section 449(2) of ITTOIA 2005,

(b) under the scheme or arrangement, a payment falls to be made otherwise than in respect of the acquisition or disposal of a strip, and

(c) as a result of that payment or the circumstances in which it is made, a loss accrues to any person.

(2) The loss shall not be an allowable loss.

(3) For the purposes of this section a scheme or arrangement has an unallowable purpose if the main benefit, or one of the main benefits that might have been expected to result from, or from any provision of, the scheme or arrangement (apart from section 449 of ITTOIA 2005 and this section) is—

(a) the obtaining of a tax advantage by any person, or

(b) the accrual to any person of an allowable loss.

(4) The reference in subsection (1)(b) to the acquisition or disposal of a strip shall be construed as if it were in Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) (see, in particular, sections 437 and 445 of that Act for the meaning of “disposal” and “acquisition” and section 444 of that Act for the meaning of “strip”).

(5) In subsection (3)(a) “tax advantage” has the meaning given by section 709(1) of the Taxes Act.

(6) This section applies to losses accruing on or after 17th March 2004.”

439 U.K. In section 156(4) (assets of Class 1) after “Taxes Act” insert “ or section 19 of ITTOIA 2005 ”.

440 U.K. In section 198(5)(b) (replacement of business assets used in connection with oil fields) after “the Taxes Act” insert “ or defined as “oil-related activities” in section 16(2) of ITTOIA 2005 ”.

441 (1) Amend section 241 (furnished holiday lettings) as follows. U.K.

(2) For subsection (2) substitute—

“(2) For the purposes of this section as it applies to capital gains tax the “commercial letting of furnished holiday accommodation” has the same meaning as it has for the purposes of Chapter 6 of Part 3 of ITTOIA 2005.

For the purposes of this section as it applies to corporation tax in respect of chargeable gains the “commercial letting of furnished holiday accommodation” has the meaning given by section 504 of the Taxes Act.”

(3) In subsection (3)(a) for the words from “Schedule A business” to “Kingdom” substitute “ UK property business (within the meaning of the Taxes Act), or any Schedule A business (within the meaning of that Act), which consists of, or so far as it consists of, the commercial letting of furnished holiday accommodation ”.

442 U.K. In section 251(8)(b) (general provisions concerning debts) for “relevant discounted security for the purposes of Schedule 13 to that Act if paragraph 3(2)(c) of that Schedule” substitute “ deeply discounted security for the purposes of Chapter 8 of Part 4 of ITTOIA 2005 if section 432(2) of that Act ”.

443 U.K. In section 254(1)(c) (definition of “a qualifying loan” for relief for debts on qualifying corporate bonds) for “relevant” and “Schedule 13 to the Finance Act 1996” substitute respectively “ deeply ” and “ Chapter 8 of Part 4 of ITTOIA 2005 ”.

444 U.K. After section 261 insert—

“Know-how U.K.

261A Disposal of know-how as part of disposal of all or part of a trade

(1) This section applies if—

(a) a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade, and

(b) the know-how is disposed of as part of the disposal of all or part of the trade.

(2) If, as a result of section 194 of ITTOIA 2005, the consideration is treated for income tax purposes as—

(a) a capital receipt for goodwill (in relation to the person disposing of the know-how), or

(b) a capital payment for goodwill (in relation to the person acquiring the know-how),

the consideration is treated for capital gains tax purposes in the same way.

(3) This section has effect as if it were contained in Chapter 14 of Part 2 of ITTOIA 2005.”

445 (1) Amend section 271 (miscellaneous exemptions) as follows. U.K.

(2) In subsection (1)(f) for “section 322 of the Taxes Act” substitute “ section 771 of ITTOIA 2005 ”.

(3) In subsection (4)—

(a) for “bonus”, in both places, substitute “ interest ”,

(b) for “section 326 or 326A of the Taxes Act (certified contractual savings schemes and tax-exempt special savings accounts)” substitute “ section 702 of ITTOIA 2005 (certified SAYE savings arrangements) ”,

(c) for “savings scheme”, in the first place where it occurs, substitute “ savings arrangement ”,

(d) for “certified contractual savings scheme” substitute “ certified SAYE savings arrangement ”,

(e) for “scheme”, in the last place where it occurs, substitute “ arrangement ”, and

(f) at end insert—

“In this subsection “certified SAYE savings arrangement” has the meaning given by section 703 of ITTOIA 2005.”

446 U.K. In section 286(3) (connected persons: interpretation) for “Chapter 1A of Part XV of the Taxes Act (see section 660G(1) and (2) of that Act)” substitute “ Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act) ”.

447 (1) Amend section 288 (interpretation) as follows. U.K.

(2) In subsection (1) after the definition of “ITEPA 2003” insert—

““ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005;”.

(3) After subsection (7) insert—

“(7A) In the application of this Act to Scotland “surrender” includes renunciation.”

448 U.K. In Schedule A1 (application of taper relief), in paragraph 17(6), for “section 660G(1) and (2) of the Taxes Act” substitute “ section 620 of ITTOIA 2005 ”.

449 U.K. In Schedule 1 (application of exempt amount and reporting limits in cases involving settled property), in paragraph 2(7), for “section 660G(1) and (2) of the Taxes Act” substitute “ section 620 of ITTOIA 2005 ”.

450 U.K. In paragraph 13(7)(h) of Schedule 5B (enterprise investment scheme: re-investment)—

(a) in sub-paragraph (i) after “trade or profession” insert “ carried on wholly or partly in the United Kingdom ”, and

(b) in sub-paragraph (ii) for the words from “in computing” to the end substitute “ in calculating for tax purposes the profits of that trade or profession ”.

451 (1) Amend Schedule 8 (leases) as follows. U.K.

(2) In paragraph 5—

(a) in sub-paragraph (1) after “that Act)” insert “ or by virtue of any of sections 277 to 281 of ITTOIA 2005 as a receipt of a UK property business (within the meaning of that Act) ”,

(b) in sub-paragraph (2) after “that Act)” insert “ or by virtue of any of sections 277 to 281 of ITTOIA 2005 as a receipt of a UK property business (within the meaning of that Act) ”,

(c) in sub-paragraph (3) after “that Act)” insert “ or by virtue of section 284 or 285 of ITTOIA 2005 (sale of land with right to reconveyance or leaseback) as a receipt of a UK property business (within the meaning of that Act), ” and

(d) for sub-paragraph (5) substitute—

“(5) References in sub-paragraphs (1) and (2) above to a premium include references to—

(a) a premium deemed to have been received under subsection (4) or (5) of section 34 of the Taxes Act (which correspond to paragraph 3(2) and (3) of this Schedule),

(b) a sum that becomes payable by the tenant under the terms subject to which a lease is granted in lieu of the whole or a part of the rent for any period,

(c) a sum that becomes payable by the tenant under the terms subject to which a lease is granted as consideration for the surrender of the lease, and

(d) a sum that becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of any of the terms of a lease.”

(3) In paragraph 6—

(a) for sub-paragraph (1) substitute—

“(1) If—

(a) under section 37(4) of the Taxes Act (allowance where, by the grant of a sublease, a lessee has converted a capital amount into a right to income) a person is to be treated as paying additional rent in consequence of having granted a sublease, or

(b) under section 292 of ITTOIA 2005 a person is to be treated as incurring expenses in consequence of having granted a sublease,

the amount of any loss accruing to the person on the disposal by way of the grant of the sublease shall be reduced by the total amount of rent which the person is thereby treated as paying, or the total amount of expenses which the person is thereby treated as incurring, over the term of the sublease (and without regard to whether relief is thereby effectively given over the term of the sublease), but not so as to convert the loss into a gain, or to increase any gain.”,

(b) in sub-paragraph (2) at the end insert “ or by virtue of section 282 of ITTOIA 2005 (assignments for profit of lease granted at undervalue) as a receipt of a UK property business (within the meaning of that Act) ”, and

(c) in sub-paragraph (3) after “that paragraph” insert “ or under section 301 or 302 of ITTOIA 2005 on a claim under that section, ”.

(4) For paragraph 7 substitute—

“7 If—

(a) under section 34(2) and (3) of the Taxes Act any amount is brought into account by virtue of section 34(2) and (3) of the Taxes Act as a receipt of a Schedule A business (within the meaning of that Act) which is or is treated as carried on by any person, or

(b) under section 277 of ITTOIA 2005 any amount is brought into account by virtue of section 278 of that Act as a receipt of a UK property business (within the meaning of that Act) which is carried on by any person,

that person shall be treated for the purposes of the computation of any gain accruing to him as having incurred at the time the lease was granted expenditure of that amount (in addition to any other expenditure) attributable to the asset under section 38(1)(b).”

(5) In paragraph 7A after “Schedule A business” insert “ or UK property business ”.