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Finance Act 2006

Status:

This is the original version (as it was originally enacted).

Part 1Excise duties

Tobacco products duty

1Rates of tobacco products duty

(1)For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 (c. 7) substitute—

Table
1. CigarettesAn amount equal to 22 per cent of the retail price plus £105.10 per thousand cigarettes.
2. Cigars£153.07 per kilogram.
3. Hand-rolling tobacco£110.02 per kilogram.
4. Other smoking tobacco and chewing tobacco£67.30 per kilogram.

(2)This section shall be deemed to have come into force at 6 o'clock in the evening of 22nd March 2006.

2Tobacco products duty: evasion

(1)After section 7 of the Tobacco Products Duty Act 1979 (c. 7) (regulations for management of duty) insert—

7ADuty not to facilitate smuggling

(1)A manufacturer of cigarettes or hand-rolling tobacco shall so far as is reasonably practicable avoid—

(a)supplying cigarettes or hand-rolling tobacco to persons who are likely to smuggle them into the United Kingdom,

(b)supplying cigarettes or hand-rolling tobacco where the nature or circumstances of the supply makes it likely that they will be resupplied to persons who are likely to smuggle them into the United Kingdom, or

(c)otherwise facilitating the smuggling into the United Kingdom of cigarettes or hand-rolling tobacco.

(2)In particular, a manufacturer—

(a)in supplying cigarettes or hand-rolling tobacco to persons carrying on business in or in relation to a country other than the United Kingdom, shall consider whether the size or nature of the supply suggests that the products may be required for smuggling into the United Kingdom,

(b)shall maintain a written policy about steps to be taken for the purpose of complying with the duty under subsection (1), and

(c)shall provide a copy of the policy to the Commissioners on request.

(3)In this section a reference to smuggling products into the United Kingdom is a reference to importing them into the United Kingdom without payment of duty which is—

(a)chargeable under section 2, and

(b)payable by virtue of section 1(1) of the Finance (No. 2) Act 1992 (c. 48) (power to fix excise duty point).

(4)The Commissioners may notify a manufacturer in writing that they think the risk of smuggling into the United Kingdom is particularly great in relation to—

(a)products marketed under a specified brand name;

(b)products supplied to persons carrying on business in or in relation to a specified country or place.

(5)The Commissioners may by notice in writing require a manufacturer of cigarettes or hand-rolling tobacco to provide, within a specified period of time, specified information about—

(a)supply of products marketed under a brand name specified under subsection (4)(a);

(b)supply to persons carrying on business in or in relation to a country or place specified under subsection (4)(b);

(c)demand for cigarettes or hand-rolling tobacco in a country or place specified under subsection (4)(b).

(6)The Commissioners may issue guidance about the content of policies under subsection (2)(b).

(7)The Commissioners may make regulations—

(a)under which they are required to notify manufacturers of cigarettes or hand-rolling tobacco where products of a kind specified in the regulations are seized under section 139 of the Customs and Excise Management Act 1979 (c. 2) in circumstances specified in the regulations,

(b)specifying the procedure for notification,

(c)including provision about access to seized products for the purpose of determining who manufactured them, and

(d)requiring manufacturers to provide the Commissioners with information or documents, of a kind specified in the regulations or determined by the Commissioners, in relation to notified seizures.

7BPenalty for facilitating smuggling: initial notice

(1)Where the Commissioners think that a manufacturer has without reasonable excuse failed to comply with the duty under section 7A(1) they may give him written notice that they are considering requiring him to pay a penalty.

(2)In determining whether to give notice to a manufacturer under subsection (1) the Commissioners shall have regard to—

(a)the content of the manufacturer’s policy under section 7A(2)(b),

(b)compliance with that policy,

(c)action taken pursuant to any notice under section 7A(4),

(d)compliance by the manufacturer with any notice under section 7A(5),

(e)the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

(f)compliance by the manufacturer with any requirement by virtue of section 7A(7)(d),

(g)evidence about the level of demand for the manufacturer’s products for consumption outside the United Kingdom, and

(h)any other matter that they think relevant.

(3)A notice must specify the matters to which the Commissioners have had regard in determining to give it.

(4)After the end of the period of six months beginning with the date on which a notice is given to a manufacturer, the Commissioners shall give him notice in writing either—

(a)that they require payment of a penalty, or

(b)that they do not require payment of a penalty.

(5)The Commissioners shall comply with subsection (4) during the period of 45 days beginning with the end of the period specified in that subsection; and for that purpose they shall consider—

(a)any representations made by the manufacturer during that period in such form and manner as the Commissioners may direct, and

(b)action taken by the manufacturer during that period.

7CPenalty for facilitating evasion: penalty notice

(1)A notice under section 7B(4)(a) (a “penalty notice”) must—

(a)specify the amount of the penalty which the manufacturer is required to pay, and

(b)state the grounds on which the Commissioners think that the manufacturer has failed to comply with the duty under section 7A(1).

(2)The amount specified under subsection (1)(a) must not exceed £5 million; and in determining the amount to specify the Commissioners shall have regard to—

(a)the nature or extent of the manufacturer’s failure to comply with the duty under section 7A(1),

(b)action taken by the manufacturer to secure compliance with that duty,

(c)the content of the manufacturer’s policy under section 7A(2)(b),

(d)compliance with that policy,

(e)action taken pursuant to any notice under section 7A(4),

(f)compliance by the manufacturer with any notice under section 7A(5),

(g)the number, size and nature of seizures of which the manufacturer has been given notice by virtue of section 7A(7)(a),

(h)the loss of revenue by way of duty under section 2, or VAT, in respect of the products seized, and

(i)any other matter that they think relevant.

(3)A manufacturer who is given a penalty notice may require the Commissioners to review the decision to issue the notice; and—

(a)a requirement must be imposed by notice in writing given to the Commissioners before the end of the period of 45 days beginning with the date of the penalty notice,

(b)the Commissioners shall comply with a requirement given in accordance with paragraph (a),

(c)the Commissioners shall confirm, vary or withdraw the penalty notice, and

(d)the Commissioners shall be taken to have confirmed the penalty notice unless, within the period of 45 days beginning with the date of the requirement to conduct the review, they have varied or withdrawn it by notice in writing to the manufacturer.

(4)If following a requirement under subsection (3) the Commissioners confirm or vary the notice (or are taken to have confirmed it) the manufacturer may appeal to a VAT and duties tribunal.

(5)The tribunal may—

(a)cancel the penalty notice,

(b)reduce the penalty, or

(c)confirm the penalty notice.

7DSections 7A to 7C: supplemental

(1)Payment of a penalty imposed under section 7B(4)(a) shall not be allowed as a deduction in computing income, profits or losses for purposes of income tax or corporation tax.

(2)A penalty may be enforced as a debt due to the Commissioners.

(3)In sections 7A to 7C and this section a reference to a manufacturer of cigarettes or hand-rolling tobacco includes a reference to a person who, in the opinion of the Commissioners—

(a)arranges to have cigarettes or hand-rolling tobacco manufactured, and

(b)is wholly or partly responsible for the initial supply of the products after manufacture.

(4)Where a manufacturer is a parent undertaking or a subsidiary undertaking (within the meaning of section 258 of the Companies Act 1985 (c. 6)) the Commissioners may—

(a)treat the parent and its subsidiaries as a single undertaking for the purpose of sections 7A to 7C and this section, and

(b)in particular, enforce a penalty imposed on the single undertaking as a debt owed by—

(i)the single undertaking,

(ii)the parent, or

(iii)any of the subsidiaries.

(5)A notice or guidance under section 7A(4) to (6)—

(a)may be issued to manufacturers generally or to one or more manufacturers or classes of manufacturer,

(b)may be expressed to apply to or in respect of manufacturers generally or only to or in respect of one or more specified manufacturers or classes of manufacturer,

(c)may make provision generally or only in relation to specified cases or circumstances,

(d)may make different provision in relation to different cases or circumstances, and

(e)may be varied, replaced or revoked.

(6)The Treasury may by order—

(a)amend the list in section 7B(2) or 7C(2) so as to—

(i)add an entry,

(ii)remove an entry, or

(iii)amend an entry;

(b)amend sections 7A to 7C and this section so as to alter the class of tobacco products in relation to which they apply.

(7)An order under subsection (6)—

(a)may include transitional, consequential or incidental provision,

(b)shall be made by statutory instrument,

(c)shall be laid before the House of Commons, and

(d)shall cease to have effect unless approved by resolution of the House of Commons within the period of 28 days beginning with the date on which it is laid (disregarding any period of dissolution or prorogation or of adjournment for more than four days).

(2)At the end of section 9 of the Tobacco Products Duty Act 1979 (c. 7) (regulations) (which becomes subsection (1)) add—

(2)Regulations under this Act—

(a)may enable the Commissioners to dispense with compliance with a provision of the regulations (whether absolutely or conditionally),

(b)may make provision generally or only in relation to specified cases or circumstances,

(c)may make different provision in relation to different cases or circumstances, and

(d)may include transitional, consequential or incidental provision.

(3)This section shall come into force in accordance with provision made by the Treasury by order.

(4)An order under subsection (3)—

(a)may include transitional, consequential or incidental provision, and

(b)shall be made by statutory instrument.

Alcoholic liquor duties

3Rate of duty on beer

(1)In section 36(1AA)(a) of ALDA 1979 (rate of duty on beer) for “£12.92” substitute “£13.26”.

(2)This section shall be deemed to have come into force at midnight on 26th March 2006.

4Rates of duty on wine and made-wine

(1)For Part 1 of the Table of rates of duty in Schedule 1 to ALDA 1979 (rates of duty on wine and made-wine) substitute—

Part 1Wine and made-wine of a strength not exceeding 22 per cent
Description of wine or made-wineRates of duty per hectolitre
£
Wine or made-wine of a strength not exceeding 4 per cent53.06
Wine or made-wine of a strength exceeding 4 per cent but not exceeding 5.5 per cent72.95
Wine or made-wine of a strength exceeding 5.5 per cent but not exceeding 15 per cent and not sparkling172.17
Sparkling wine or sparkling made-wine of a strength exceeding 5.5 per cent but less than 8.5 per cent166.70
Sparkling wine or sparkling made-wine of a strength of 8.5 per cent or of a strength exceeding 8.5 per cent but not exceeding 15 per cent220.54
Wine or made-wine of a strength exceeding 15 per cent but not exceeding 22 per cent229.55

(2)This section shall be deemed to have come into force at midnight on 26th March 2006.

5Repeal of provisions of ALDA 1979 of no practical utility etc

(1)The following provisions of ALDA 1979 shall cease to have effect—

(a)section 12(4) (power to refuse or revoke distiller’s licence where premises near to premises of a rectifier, registered brewer or vinegar-maker);

(b)section 14 (duty on spirits – attenuation charge);

(c)section 15(4) (provision of accommodation in distiller’s warehouse);

(d)section 18(5) (power to refuse licence as a rectifier where premises near to premises of a distillery);

(e)section 21 (restrictions relating to rectifiers);

(f)section 24 (restriction on carrying on of other trades by distiller or rectifier);

(g)section 26 (importation and exportation of spirits);

(h)section 32 (restriction on transfer of British spirits in warehouses);

(i)section 35 (returns as to importation, manufacture, sale or use of alcohols);

(j)section 55A (wine and made-wine of a strength not exceeding 5.5%);

(k)section 67 (power to regulate keeping of dutiable alcoholic liquors by wholesalers and retailers);

(l)section 69 (miscellaneous provisions as to wholesalers and retailers of spirits);

(m)section 71 (penalty for mis-describing liquor as spirits);

(n)section 74 (liquor to be deemed wine or spirits); and

(o)section 82 (power to make regulations with respect to stills).

(2)In consequence of the repeal of section 55A of ALDA 1979, that Act is amended as follows.

(3)In section 54 (wine: charge of excise duty), in subsection (4A), for “wine to which section 55A below applies” substitute “wine of a strength not exceeding 5.5 per cent”.

(4)In section 55 (made-wine: charge of excise duty), in subsections (4A) and (5)(d), for “made-wine to which section 55A below applies” substitute “made-wine of a strength not exceeding 5.5 per cent”.

Hydrocarbon oil duties

6Rates until 1st September 2006

(1)HODA 1979 is amended as follows.

(2)In section 6(1A) (hydrocarbon oil: rates of duty)—

(a)in paragraph (a) (ultra low sulphur petrol) for “£0.4832” substitute “£0.4710”,

(b)in paragraph (aa) (sulphur-free petrol) for “£0.4832” substitute “£0.4710”,

(c)in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol) for “£0.5766” substitute “£0.5620”,

(d)in paragraph (c) (ultra low sulphur diesel) for “£0.4832” substitute “£0.4710”,

(e)in paragraph (ca) (sulphur-free diesel) for “£0.4832” substitute “£0.4710”, and

(f)in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel) for “£0.5465” substitute “£0.5327”.

(3)In section 6AA(3) (biodiesel) for “£0.2832” substitute “£0.2710”.

(4)In section 6AD(3) (bioethanol) for “£0.2832” substitute “£0.2710”.

(5)In section 8(3) (road fuel gas)—

(a)in paragraph (a) for “£0.1080” substitute “£0.0900”, and

(b)in paragraph (b) for “£0.1270” substitute “£0.0900”.

(6)In section 13A(1) (rebate on unleaded petrol) for “£0.0617” substitute “£0.0601”.

(7)The following statutory instruments shall cease to have effect—

(a)the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) Order 2005 (S.I. 2005/1978),

(b)the Excise Duties (Road Fuel Gases) (Reliefs) Regulations 2005 (S.I. 2005/1979), and

(c)the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Amendment) Order 2005 (S.I. 2005/3330).

7Rates from 1st September 2006

(1)HODA 1979 is amended as follows.

(2)In section 6(1A) (hydrocarbon oil: rates of duty)—

(a)in paragraph (a) (ultra low sulphur petrol) for “£0.4710” substitute “£0.4835”,

(b)in paragraph (aa) (sulphur-free petrol) for “£0.4710” substitute “£0.4835”,

(c)in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol) for “£0.5620” substitute “£0.5768”,

(d)in paragraph (c) (ultra low sulphur diesel) for “£0.4710” substitute “£0.4835”,

(e)in paragraph (ca) (sulphur-free diesel) for “£0.4710” substitute “£0.4835 and

(f)in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel) for “£0.5327” substitute “£0.5468”.

(3)In section 6AA(3) (biodiesel) for “£0.2710” substitute “£0.2835”.

(4)In section 6AD(3) (bioethanol) for “£0.2710” substitute “£0.2835”.

(5)In section 8(3) (road fuel gas)—

(a)in paragraph (a) for “£0.0900” substitute “£0.1081”, and

(b)in paragraph (b) for “£0.0900” substitute “£0.1221”.

(6)In section 11(1) (rebate on heavy oil)—

(a)in paragraph (a) for “£0.0604” substitute“£0.0729”,

(b)in paragraph (b) for “£0.0644” substitute “£0.0769”, and

(c)in paragraph (ba) for “£0.0644” substitute “£0.0769”.

(7)In section 13A(1) (rebate on unleaded petrol) for “£0.0601”substitute “£0.0617”.

(8)In section 14(1) (rebate on light oil for use as furnace oil) for “£0.0604” substitute “£0.0729”.

(9)This section comes into force on 1st September 2006.

8Road vehicles

After section 27(1A) of HODA 1979 (interpretation) insert—

(1B)The Treasury may by order made by statutory instrument amend Schedule 1 to this Act so as to—

(a)add a class of excepted vehicle,

(b)remove a class of excepted vehicle, or

(c)redefine a class of excepted vehicle.

(1C)Section 2A(2) and (3) above shall apply to an order under subsection (1B).

Betting and gaming duties

9General betting duty: gaming machines

(1)In section 2(2) of the Betting and Gaming Duties Act 1981 (c. 63) (general betting duty: exemptions) after paragraph (c) add— , or

(d)a bet made using a gaming machine, within the meaning of section 23 of the Value Added Tax Act 1994.

(2)This section shall have effect in respect of anything done on or after 6th December 2005 (with the reference to section 23 of the Value Added Tax Act 1994 being a reference to that definition as it is treated as having effect in relation to things done on or after that date by virtue of section 16(6) and (7) below).

10Rates of gaming duty

(1)For the Table in section 11(2) of FA 1997 (rates of gaming duty) substitute—

Table
Part of gross gaming yieldRate
The first £546,5002.5 per cent.
The next £1,212,50012.5 per cent.
The next £1,212,50020 per cent.
The next £2,124,00030 per cent.
The remainder40 per cent.

(2)This section has effect in relation to accounting periods beginning on or after 1st April 2006.

Amusement machine licence duty

11Definition of “gaming machine”

(1)For section 25(1) to (1B) of the Betting and Gaming Duties Act 1981 (c. 63) (amusement machine licence duty: definition of “amusement machine”) substitute—

(1)A machine is an amusement machine for the purposes of this Act if it is—

(a)a gaming machine, and

(b)a prize machine.

(1A)In this Act “gaming machine” means a machine that is a gaming machine for the purposes of section 23 of the Value Added Tax Act 1994 (c. 23).

(2)In section 25(1C) of the Betting and Gaming Duties Act 1981 (“prize machine”) for “an amusement machine is a prize machine” substitute “a machine is a prize machine”.

(3)In Schedule 3 to the Betting and Gaming Duties Act 1981 (bingo duty) omit paragraph 6 (machine bingo).

(4)Subsections (1) and (2) shall have effect in relation to the provision of a machine on or after 1st August 2006.

(5)Subsection (3) shall have effect in relation to accounting periods beginning on or after 1st August 2006.

12Classes of machine and rates of duty

(1)For section 21(3AA) to (3E) of the Betting and Gaming Duties Act 1981 (c. 63) (special licences and excepted machines) substitute—

(4)A special amusement machine licence shall be granted only—

(a)for a small prize machine,

(b)if conditions prescribed by the Commissioners by regulations are satisfied in relation to the application for the licence, the applicant and the machine, and

(c)for a period of twelve months.

(5)The following are excepted machines—

(a)machines that are not gaming machines,

(b)a gaming machine in respect of which—

(i)the cost of a single game does not exceed 30p,

(ii)the maximum value of the prize for winning a single game does not exceed £8, and

(iii)the maximum cash component of the prize for winning a single game does not exceed £5,

(c)a gaming machine in respect of which—

(i)the cost of a single game does not exceed 10p, and

(ii)the maximum value of the prize for winning a single game does not exceed £5, and

(d)two-penny machines.

(2)In section 22(2) of that Act (gaming machines) paragraph (b) shall cease to have effect.

(3)For section 23(2) and (3) of that Act (rates) substitute—

(2)The appropriate amount for each machine shall be determined in accordance with the following Table by reference to—

(a)the period for which the licence is granted, and

(b)the machine’s category determined in accordance with subsection (3).

(1)(2)(3)(4)(5)(6)(7)
Months for which licence grantedCategory ACategory B1Category B2Category B3Category B4Category C
1£435£220£170£170£155£65
2£875£435£345£345£310£130
3£1310£655£515£515£465£195
4£1750£875£690£690£625£255
5£2185£1095£860£860£780£320
6£2625£1310£1030£1030£935£385
7£3060£1530£1205£1205£1090£450
8£3500£1750£1375£1375£1245£515
9£3935£1970£1545£1545£1400£580
10£4375£2185£1720£1720£1555£645
11£4810£2405£1890£1890£1715£705
12£5000£2500£1965£1965£1780£735

(3)The categories of gaming machine are as follows—

  • Category A – a gaming machine which is not within another category.

  • Category B1 – a gaming machine which is not within a lower category and in respect of which—

    (i)

    the cost of a single game does not exceed £2, and

    (ii)

    the maximum value of the prize for winning a single game does not exceed £4,000.

  • Category B2 – a gaming machine which is not within a lower category and in respect of which—

    (i)

    the cost of a single game does not exceed £100, and

    (ii)

    the maximum value of the prize for winning a single game does not exceed £500.

  • Category B3 – a gaming machine which is not within a lower category and in respect of which—

    (i)

    the cost of a single game does not exceed £1, and

    (ii)

    the maximum value of the prize for winning a single game does not exceed £500.

  • Category B4 – a gaming machine which is not within a lower category and in respect of which—

    (i)

    the cost of a single game does not exceed £1, and

    (ii)

    the maximum value of the prize for winning a single game does not exceed £250.

  • Category C—

    (i)

    a gaming machine in respect of which the cost of a single game does not exceed 5p, and

    (ii)

    a gaming machine in respect of which—

    (a)

    the cost of a single game does not exceed 50p, and

    (b)

    the maximum value of the prize for winning a single game does not exceed £25.

(4)Where a machine offers more than one class of game, it falls within a category only if it satisfies the requirements of that category in respect of each class.

(5)Where a prize is anything other than money its value for the purposes of this section is—

(a)in the case of a voucher or token that may be exchanged for, or used in place of, an amount of money, that amount,

(b)in the case of a voucher or token that does not fall within paragraph (a) and that may be exchanged for something other than money, the cost that the person providing the machine would incur in obtaining that thing from a person not connected with him (within the meaning of section 839 of the Income and Corporation Taxes Act 1988), and

(c)in any other case, the cost that the person providing the machine would incur in obtaining the prize from a person not connected with him (within that meaning).

(6)For the purposes of subsection (3) Category A is the highest category and Category C is the lowest.

(4)For section 25(4) to (7) of the Betting and Gaming Duties Act 1981 (c. 63) substitute—

(4)A machine which has a number of individual playing positions allowing persons to play simultaneously (whether or not participating in the same game) shall be treated for the purposes of sections 21 to 24 as that number of separate machines.

(5)Section 25A of that Act (power to modify definitions) shall cease to have effect.

(6)In section 26(2) of that Act (supplemental) the following shall cease to have effect—

(a)the definition of “video machine”, and

(b)in the definition of “two-penny machine”, the words from “and “five-penny machine”” to the end.

(7)Paragraphs 2 and 3 of Schedule 4 to that Act (exemptions) shall cease to have effect.

(8)Subsections (1) to (7) shall have effect in relation to the grant of an amusement machine licence on or after 1st August 2006.

(9)An amusement machine licence granted before that time shall continue to have effect (for which purpose the Betting and Gaming Duties Act 1981 shall have effect without the amendments effected by this section).

(10)But subsection (9) shall not apply in relation to machines which become gaming machines by virtue of section 11 of this Act.

(11)For the purpose of the application of Schedule 4A to that Act (default licences) in respect of a period before 1st August 2006 no account shall be taken of an amendment effected by subsections (1) to (7) above or by section 11 above.

Vehicle excise duty

13Rates

(1)Schedule 1 to VERA 1994 (annual rates of duty) is amended as follows.

(2)In paragraph 1(2) (general rate of duty), for “£170” substitute “£175”.

(3)For paragraph 1B (rates for light passenger vehicles) substitute—

1BThe annual rate of vehicle excise duty applicable to a vehicle to which this Part of this Schedule applies shall be determined in accordance with Table A, where the vehicle is first registered before 23rd March 2006, or Table B, where the vehicle is first registered on or after that date, by reference to—

(a)the applicable CO2 emissions figure, and

(b)whether the vehicle qualifies for the reduced rate of duty, or is liable to the standard rate or the premium rate of duty.

Table A: Vehicles first registered before 23rd March 2006
CO2 emissions figureRate
(1)(2)(3)(4)(5)
ExceedingNot exceedingReduced rateStandard ratePremium rate
g/kmg/km£££
100120304050
12015090100110
150165115125135
165185140150160
185180190195
Table B: Vehicles first registered on or after 23rd March 2006
CO2 emissions figureRate
(1)(2)(3)(4)(5)
ExceedingNot exceedingReduced rateStandard ratePremium rate
g/kmg/km£££
100120304050
12015090100110
150165115125135
165185140150160
185225180190195
225200210215

(4)In paragraph 1C (reduced rate for light passenger vehicles)—

(a)for sub-paragraph (2) substitute—

(2)Condition A is that the vehicle—

(a)is constructed—

(i)so as to be propelled by a relevant type of fuel, or

(ii)so as to be capable of being propelled by any of a number of relevant types of fuel, or

(b)is constructed or modified—

(i)so as to be propelled by a prescribed type of fuel, or

(ii)so as to be capable of being propelled by any of a number of prescribed types of fuel,

and complies with any other requirements prescribed for the purposes of this condition., and

(b)after sub-paragraph (5) insert—

(6)In this paragraph—

  • “bioethanol” has the meaning given in section 2AB of the Hydrocarbon Oil Duties Act 1979,

  • “relevant type of fuel” means—

    (a)

    bioethanol, or

    (b)

    a mixture of bioethanol and unleaded petrol, if the proportion of bioethanol by volume is at least 85%, and

  • “unleaded petrol” has the meaning given in section 1(3C) of the Hydrocarbon Oil Duties Act 1979.

(7)The Secretary of State may, with the consent of the Treasury, by regulations amend sub-paragraph (6).

(5)In paragraph 1J(a) (rates for light goods vehicles), for “£165” substitute “£170”.

(6)In paragraph 1K(a) (lower-emission vans), after “1st March 2003” insert “and before 1st January 2007”.

(7)In paragraph 2(1) (rates for motorcycles)—

(a)in paragraph (b), for “£30” substitute “£31”,

(b)in paragraph (c), for “£45” substitute “£46”, and

(c)in paragraph (d), for “£60” substitute “£62”.

(8)In Schedule 2 to VERA 1994 (exempt vehicles), after paragraph 24 insert—

Light passenger vehicles with low CO2 emissions

25A vehicle is an exempt vehicle if—

(a)it is a vehicle to which Part 1A of Schedule 1 applies, and

(b)the applicable CO2 emissions figure (as defined in paragraph 1A(3) and (4) of that Schedule) for the vehicle does not exceed 100 g/km.

(9)Subsection (8) comes into force on 23rd March 2006; but nothing in that subsection has the effect that a nil licence is required to be in force in respect of a vehicle while a vehicle licence is in force in respect of it.

(10)The rest of this section has effect in relation to licences taken out on or after that date.

14Reduced pollution certificates

In section 61B of VERA 1994 (reduced pollution certificates), for subsection (2) substitute—

(2)For the purposes of this Act, the reduced pollution requirements are satisfied with respect to a vehicle at any time if, at that time, prescribed requirements relating to the vehicle’s emissions are satisfied as a result of—

(a)the design, construction or equipment of the vehicle as manufactured; or

(b)adaptations of a prescribed description having been made to the vehicle after a prescribed date.

(2A)Different requirements may be prescribed under subsection (2) for vehicles first registered at different times.

15Late renewal supplement

In VERA 1994, after section 7B insert—

7CRecovery of section 7A supplements: Scotland

(1)The Secretary of State may by regulations provide for the recovery of supplement that has become payable under section 7A by diligence authorised by summary warrant.

(2)Regulations under subsection (1) may, in particular, provide—

(a)for such summary warrants—

(i)to be granted by the sheriff on the application of the Secretary of State; and

(ii)to authorise any of the diligences mentioned in subsection (3);

(b)for such applications to be accompanied by a certificate mentioned in subsection (4); and

(c)for the fees and outlays of sheriff officers incurred in executing such summary warrants to be chargeable against the debtor.

(3)The diligences referred to in subsection (2)(a)(ii) are—

(a)an attachment;

(b)an earnings arrestment;

(c)an arrestment and action of furthcoming or sale.

(4)The certificate referred to in subsection (2)(b) is a certificate by the Secretary of State —

(a)stating that none of the persons specified in the application has paid the supplement due;

(b)stating that payment of the amount due from each such person has been demanded from him;

(c)stating whether in response to that demand any such person disputes liability to pay; and

(d)specifying the amount due from and unpaid by each such person.

(5)No fee shall be chargeable by the sheriff officer against the debtor for—

(a)collecting; or

(b)accounting to the Secretary of State for,

sums paid to him by the debtor in respect of the amount owing.

(6)No summary warrant for recovery of supplement payable under section 7A may be granted against a person if—

(a)he disputes liability to pay; or

(b)an action for payment to recover such supplement from him has already been raised.

(7)Failure to respond to a demand to pay shall not be taken to mean liability to pay is disputed.

(8)An action for payment to recover supplement payable under section 7A may be raised against a person notwithstanding that a summary warrant has already been granted for recovery of such supplement from him but only if none of the diligences mentioned in subsection (3) has been executed against him.

(9)Where such an action is raised, the summary warrant shall cease to have effect in relation to such person.

(10)This section extends to Scotland only.

Part 2Value added tax

Gaming machines

16Gaming machines

(1)Section 23 of VATA 1994 (gaming machines) shall be amended as follows.

(2)In subsection (1)—

(a)for “plays a game of chance” substitute “gambles”, and

(b)omit “to play”.

(3)In subsection (2) for “playing” substitute “gambling”.

(4)In subsection (3)—

(a)for “playing” substitute “gambling”, and

(b)for “to play” substitute “to use”.

(5)For subsection (4) substitute—

(4)In this section “gaming machine” means a machine which is designed or adapted for use by individuals to gamble (whether or not it can also be used for other purposes).

(5)But—

(a)a machine is not a gaming machine to the extent that it is designed or adapted for use to bet on future real events,

(b)a machine is not a gaming machine to the extent that—

(i)it is designed or adapted for the playing of bingo, and

(ii)bingo duty is charged under section 17 of the Betting and Gaming Duties Act 1981 (c. 63) on the playing of that bingo, or would be charged but for paragraphs 1 to 5 of Schedule 3 to that Act, and

(c)a machine is not a gaming machine to the extent that—

(i)it is designed or adapted for the playing of a real game of chance, and

(ii)the playing of the game is dutiable gaming for the purposes of section 10 of the Finance Act 1997 (c. 16), or would be dutiable gaming but for subsections (3) and (4) of that section.

(6)In this section—

(a)a reference to gambling is a reference to—

(i)gaming within the meaning of section 6 of the Gambling Act 2005 (c. 19), and

(ii)betting within the meaning of section 9 of that Act,

(b)a reference to a machine is a reference to any apparatus which uses or applies mechanical power, electrical power or both,

(c)a reference to a machine being designed or adapted for a purpose includes a reference to a machine to which anything has been done as a result of which it can reasonably be expected to be used for that purpose,

(d)a reference to a machine being adapted includes a reference to computer software being installed on it,

(e)“real” has the meaning given by section 353(1) of that Act,

(f)“game of chance” has such meaning as may be prescribed by the Treasury by order,

(g)“bingo” means any version of that game, irrespective of by what name it is described.

(7)The Treasury may by order amend subsections (4) to (6).

(6)This section shall have effect in relation to anything done on or after 6th December 2005.

(7)In the application of section 23(5)(c) of VATA 1994 as substituted by this section in relation to anything done before 1st November 2006, “game of chance” shall have the same meaning as in the Gaming Act 1968 (c. 65).

Land

17Buildings and land

(1)The Treasury may by order—

(a)make provision for substituting Schedule 10 to VATA 1994 (buildings and land) for the purpose of rewriting that Schedule with amendments;

(b)make provision amending sections 83 and 84 of that Act (appeals) in connection with any provision of that Schedule as so rewritten.

(2)The Treasury may by order make provision repealing—

(a)paragraph (b) of item 1 in Group 1 of Schedule 9 to VATA 1994 (exempt supplies of land not to include supplies made pursuant to a developmental tenancy, developmental lease or developmental licence), and

(b)Note (7) in that Group (meaning of developmental tenancy, developmental lease or developmental licence).

The power conferred by this subsection is not to be regarded as affecting in any way the power to vary Schedule 9 to that Act conferred by section 31(2) of that Act.

(3)The Treasury may by order make provision repealing—

(a)section 26 of FA 1995 (co-owners etc of buildings and land), and

(b)the enactments inserted by that section (section 51A of VATA 1994 and paragraph 8(2) and (3) of Schedule 10 to that Act).

(4)Any power to make an order under this section includes power—

(a)to make any provision that might be made by an Act, and

(b)to make incidental, consequential, supplemental, or transitional provision or savings.

(5)The consequential provision that may be made under subsection (4)(b) includes provision amending any Act or any instrument made under any Act.

(6)Any order under this section—

(a)is to be made by statutory instrument,

(b)must be laid before the House of Commons, and

(c)unless approved by that House before the end of the period of 28 days beginning with the date on which it is made, ceases to have effect at the end of that period.

(7)But, if an order so ceases to have effect, this does not affect—

(a)anything previously done under the order, or

(b)the making of a new order.

(8)In reckoning the period of 28 days no account is to be taken of any time—

(a)during which Parliament is dissolved or prorogued, or

(b)during which the House of Commons is adjourned for more than 4 days.

Imported works of art etc

18Value of imported works of art etc: auctioneer’s commission

(1)Section 21 of VATA 1994 (value of imported goods) is amended as follows.

(2)In subsection (2) (value of imported goods to include taxes and expenses), after “shall” insert “(subject to subsection (2A) below)”.

(3)After subsection (2) insert—

(2A)Where—

(a)any goods falling within subsection (5) below are sold by auction at a time when they are subject to the procedure specified in subsection (2B) below, and

(b)arrangements made by or on behalf of the purchaser of the goods following the sale by auction result in the importation of the goods from a place outside the member States,

the value of the goods shall not be taken for the purposes of this Act to include, in relation to that importation, any commission or premium payable to the auctioneer in connection with the sale of the goods.

(2B)That procedure is the customs procedure for temporary importation with total relief from import duties provided for in Articles 137 to 141 of Council Regulation 2913/92/EEC establishing the Community Customs Code.

(4)Subsections (1) to (3) come into force on such day as the Treasury may by order made by statutory instrument appoint.

Avoidance and fraud

19Missing trader intra-community fraud

(1)After section 55 of VATA 1994 (customers to account for tax on supplies of gold etc) insert—

55ACustomers to account for tax on supplies of goods of a kind used in missing trader intra-community fraud

(1)Subsection (3) applies if—

(a)a taxable (but not a zero-rated) supply of goods (“the relevant supply”) is made to a person (“the recipient”),

(b)the relevant supply is of goods to which this section applies (see subsection (9)),

(c)the relevant supply is not an excepted supply (see subsection (10)), and

(d)the total value of the relevant supply, and of corresponding supplies made to the recipient in the month in which the relevant supply is made, exceeds £1,000 (“the disregarded amount”).

(2)For this purpose a “corresponding supply” means a taxable (but not a zero-rated) supply of goods which—

(a)is a supply of goods to which this section applies, and

(b)is not an excepted supply.

(3)The relevant supply, and the corresponding supplies made to the recipient in the month in which the relevant supply is made, are to be treated for the purposes of Schedule 1—

(a)as taxable supplies of the recipient (as well as taxable supplies of the person making them), and

(b)in so far as the recipient is supplied in connection with the carrying on by him of any business, as supplies made by him in the course or furtherance of that business,

but the relevant supply, and those corresponding supplies, are to be so treated only in so far as their total value exceeds the disregarded amount.

(4)Nothing in subsection (3)(b) requires any supply to be disregarded for the purposes of Schedule 1 on the grounds that it is a supply of capital assets of the recipient’s business.

(5)For the purposes of subsections (1) and (3), the value of a supply is determined on the basis that no VAT is chargeable on the supply.

(6)If—

(a)a taxable person makes a supply of goods to a person (“the recipient”) at any time,

(b)the supply is of goods to which this section applies and is not an excepted supply, and

(c)the recipient is a taxable person at that time and is supplied in connection with the carrying on by him of any business,

it is for the recipient, on the supplier’s behalf, to account for and pay tax on the supply and not for the supplier.

(7)The relevant enforcement provisions apply for the purposes of this section, in relation to any person required under subsection (6) to account for and pay any VAT, as if that VAT were VAT on a supply made by him.

(8)For this purpose “the relevant enforcement provisions” means so much of—

(a)this Act and any other enactment, and

(b)any subordinate legislation,

as has effect for the purposes of, or in connection with the enforcement of, any obligation to account for and pay VAT.

(9)For the purposes of this section, goods are goods to which this section applies if they are of a description specified in an order made by the Treasury.

(10)For the purposes of this section, an “excepted supply” means a supply which is of a description specified in, or determined in accordance with, provision contained in an order made by the Treasury.

(11)Any order made under subsection (10) may describe a supply of goods by reference to—

(a)the use which has been made of the goods, or

(b)other matters unrelated to the characteristics of the goods themselves.

(12)The Treasury may by order substitute for the sum for the time being specified in subsection (1)(d) such greater sum as they think fit.

(13)The Treasury may by order make such amendments of any provision of this Act as they consider necessary or expedient for the purposes of this section or in connection with this section.

An order under this subsection may confer power on the Commissioners to make regulations or exercise any other function, but no order may be made under this subsection on or after 22nd March 2009.

(14)Any order made under this section (other than one under subsection (12)) may—

(a)make different provision for different cases, and

(b)contain supplementary, incidental, consequential or transitional provisions..

(2)After section 26A of VATA 1994 (disallowance of input tax where consideration not paid) insert—

26ABAdjustment of output tax in respect of supplies under section 55A

(1)This section applies if—

(a)a person is, as a result of section 26A, taken not to have been entitled to any credit for input tax in respect of any supply, and

(b)the supply is one in respect of which the person is required under section 55A(6) to account for and pay VAT.

(2)The person is entitled to make an adjustment to the amount of VAT which he is so required to account for and pay.

(3)The amount of the adjustment is to be equal to the amount of the credit for the input tax to which the person is taken not to be entitled.

(4)Regulations may make such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section.

(5)Regulations under this section may in particular—

(a)make provision for the manner in which, and the period for which, the adjustment is to be given effect,

(b)require the adjustment to be evidenced and quantified by reference to such records and other documents as may be specified by or under the regulations,

(c)require the person entitled to the adjustment to keep, for such period and in such form and manner as may be so specified, those records and documents,

(d)make provision for readjustments if any credit for input tax is restored under section 26A.

(6)Regulations under this section may make different provision for different circumstances..

(3)In section 65 of VATA 1994 (inaccuracies in EC sales statements)—

(a)at the end insert—

(7)This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement., and

(b)in consequence of the amendment made by paragraph (a) the heading becomes “Inaccuracies in EC sales statements or in statements relating to section 55A”.

(4)In section 66 of VATA 1994 (failure to submit EC sales statements)—

(a)at the end insert—

(10)This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement., and

(b)in consequence of the amendment made by paragraph (a) the heading becomes “Failure to submit EC sales statement or statement relating to section 55A”.

(5)In section 69 of VATA 1994 (breaches of regulatory provisions), in subsection (1) (failure to comply with a requirement imposed under provisions mentioned in the paragraphs in that subsection), after paragraph (b) insert—

(ba)paragraph 2(3B) of Schedule 11; or.

(6)In section 97 of VATA 1994 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (e) insert—

(ea)an order under section 55A(13);.

(7)In Schedule 11 to VATA 1994 (administration, collection and enforcement), in paragraph 2 (accounting for VAT and payment of VAT), after sub-paragraph (3) insert—

(3A)Regulations under this paragraph may require the submission to the Commissioners by taxable persons, at such times and intervals, in such cases and in such form and manner as may be—

(a)specified in the regulations, or

(b)determined by the Commissioners in accordance with powers conferred by the regulations,

of statements containing such particulars of supplies to which section 55A(6) applies in which the taxable persons are concerned, and of the persons concerned in those supplies, as may be prescribed.

(3B)Regulations under this paragraph may make provision, in relation to the first occasion on which a person makes a supply of goods to which section 55A(6) applies, for requiring the person to give to the Commissioners such notification of the supply at such time and in such form and manner as may be specified in the regulations..

(8)The amendments made by this section have effect in relation to supplies made on or after such day as the Treasury may by order made by statutory instrument appoint.

But no order may be made under this subsection on or after 22nd March 2009.

(9)An order under subsection (8) may contain transitional provision and savings.

20Power to inspect goods

(1)In Schedule 11 to VATA 1994 (administration, collection and enforcement), paragraph 10 (entry and search of premises and persons) is amended as follows.

(2)After sub-paragraph (2) (power to inspect premises and goods found on them) insert—

(2A)The power under sub-paragraph (2) above to inspect any goods includes, in particular,—

(a)power to mark the goods, or anything containing the goods, for the purpose of indicating that they have been inspected, and

(b)power to record any information (which may be obtained by electronic or any other means) relating to the goods that have been inspected..

21Directions to keep records where belief VAT might not be paid

(1)VATA 1994 is amended as follows.

(2)After section 69A (breach of record-keeping requirements etc in relation to transactions in gold) insert—

69BBreach of record-keeping requirements imposed by directions

(1)If any person fails to comply with a requirement imposed under paragraph 6A(1) of Schedule 11, the person is liable to a penalty.

(2)The amount of the penalty is equal to £200 multiplied by the number of days on which the failure continues (up to a maximum of 30 days).

(3)If any person fails to comply with a requirement to preserve records imposed under paragraph 6A(6) of Schedule 11, the person is liable to a penalty of £500.

(4)If it appears to the Treasury that there has been a change in the value of money since—

(a)the day on which the Finance Act 2006 is passed, or

(b)(if later) the last occasion when the power conferred by this subsection was exercised,

they may by order substitute for the sums for the time being specified in subsections (2) and (3) such other sums as appear to them to be justified by the change.

(5)But any such order does not apply to a failure which began before the date on which the order comes into force.

(6)A failure by any person to comply with any requirement mentioned in subsection (1) or (3) does not give rise to a liability to a penalty under this section if the person concerned satisfies—

(a)the Commissioners, or

(b)on appeal, a tribunal,

that there is a reasonable excuse for the failure.

(7)If by reason of conduct falling within subsection (1) or (3) a person—

(a)is assessed to a penalty under section 60, or

(b)is convicted of an offence (whether under this Act or otherwise),

that conduct does not also give rise to a penalty under this section..

(3)In section 76(1) (assessment of amounts due by way of penalty, interest or surcharge) for “69A”, in both places, substitute “69B”.

(4)In section 83 (appeals)—

(a)in paragraph (n) (penalties or surcharges by virtue of any of sections 59 to 69A) for “69A” substitute “69B”, and

(b)after paragraph (z) (conditions imposed by virtue of paragraph 2B(2)(c) or 3(1) of Schedule 11) insert—

(zza)a direction under paragraph 6A of Schedule 11;.

(5)In section 84 (further provision relating to appeals) after subsection (7A) (appeals against directions mentioned in section 83(wa)) insert—

(7B)Where there is an appeal against a decision to make such a direction as is mentioned in section 83(zza)—

(a)the tribunal shall not allow the appeal unless it considers that the Commissioners could not reasonably have been satisfied that there were grounds for making the direction;

(b)the direction shall have effect pending the determination of the appeal..

(6)In Schedule 11 (administration, collection and enforcement), after paragraph 6 (duty to keep records) insert—

6A(1)The Commissioners may direct any taxable person named in the direction to keep such records as they specify in the direction in relation to such goods as they so specify.

(2)A direction under this paragraph may require the records to be compiled by reference to VAT invoices or any other matter.

(3)The Commissioners may not make a direction under this paragraph unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying taxable supplies in respect of which the VAT chargeable might not be paid.

(4)The taxable supplies in question may be supplies made by—

(a)the person named in the direction, or

(b)any other person.

(5)A direction under this paragraph—

(a)must be given by notice in writing to the person named in it,

(b)must warn that person of the consequences under section 69B of failing to comply with it, and

(c)remains in force until it is revoked or replaced by a further direction.

(6)The Commissioners may require any records kept in pursuance of this paragraph to be preserved for such period not exceeding 6 years as they may require.

(7)Sub-paragraphs (4) to (6) of paragraph 6 (preservation of information by means approved by the Commissioners) apply for the purposes of this paragraph as they apply for the purposes of that paragraph.

(8)This paragraph is without prejudice to the power conferred by paragraph 6(1) to make regulations requiring records to be kept.

(9)Any records required to be kept by virtue of this paragraph are in addition to any records required to be kept by virtue of paragraph 6..

22Treatment of credit vouchers

(1)VATA 1994 is amended as follows.

(2)In section 97 (orders, rules and regulations), in subsection (4) (orders which cease to have effect unless approved by House of Commons), after paragraph (f) insert—

(fa)an order under paragraph 3(4) of Schedule 10A;.

(3)In paragraph 3 of Schedule 10A (treatment of credit vouchers), after sub-paragraph (3) (circumstances in which consideration for supply of credit voucher not to be disregarded under sub-paragraph (2) for the purposes of Act) insert—

(4)The Treasury may by order specify other circumstances in which sub-paragraph (2) above does not apply..

Part 3Income tax, corporation tax and capital gains tax

Chapter 1Income tax and corporation tax: charge and rate bands

Income tax

23Charge and rates for 2006-07

Income tax shall be charged for the year 2006-07, and for that year—

(a)the starting rate shall be 10%;

(b)the basic rate shall be 22%;

(c)the higher rate shall be 40%.

Corporation tax

24Charge and main rate for financial year 2007

Corporation tax shall be charged for the financial year 2007 at the rate of 30%.

25Small companies' rate and fraction for financial year 2006

For the financial year 2006—

(a)the small companies' rate shall be 19%, and

(b)the fraction mentioned in section 13(2) of ICTA (marginal relief for small companies) shall be 11/400ths.

26Abolition of corporation tax starting rate and non-corporate distribution rate

(1)Section 13AA of ICTA (corporation tax starting rate) shall cease to have effect.

(2)Section 13AB of ICTA (the non-corporate distribution rate), and Schedule A2 to that Act (supplementary provisions in relation to that rate), shall cease to have effect.

(3)In section 13A of ICTA (close investment-holding companies), in subsection (1) (meaning of “close investment-holding company” for purposes of sections 13(1) and 13AA(8)), omit “or 13AA(8)”.

(4)In section 468 of ICTA (authorised unit trusts), in subsection (1A) (rate of corporation tax in relation to such trusts), for “and sections 13, 13AA and 13AB shall not apply” substitute “and section 13 shall not apply”.

(5)In section 468A of ICTA (open-ended investment companies), in subsection (1) (rate of corporation tax in relation to such companies), for “(and sections 13, 13AA and 13AB shall not apply)” substitute “(and section 13 shall not apply)”.

(6)In paragraph 1(a) of Schedule 12 to FA 1989 (provision of information for the purposes of close companies provisions), for “13 to 13A” substitute “13, 13ZA, 13A”.

(7)In paragraph 8(1) of Schedule 18 to FA 1998 (tax calculation in company tax return), in the second step, omit “or 13AA(2)”.

(8)The amendments made by this section have effect for the financial year 2006 and subsequent financial years (but see also subsections (9) to (11)).

(9)In the case of an accounting period (a “straddling period”)—

(a)beginning before 1st April 2006, and

(b)ending on or after that date,

sections 13AA and 13AB of, and Schedule A2 to, ICTA (“the repealed provisions”) apply as if the different parts of the straddling period falling in the different financial years were separate accounting periods.

(10)Where the rate of corporation tax charged on a company’s basic profits for any such separate accounting period ending with 31st March 2006 is determined in accordance with any of the repealed provisions, section 13 of ICTA (small companies' relief) also so applies.

(11)For the purpose of treating different parts of the straddling period as separate accounting periods in accordance with subsections (9) and (10), the profits and basic profits of the straddling period are to be apportioned between those separate accounting periods.

Chapter 2Reliefs for business

Group relief

27Group relief where surrendering company not resident in UK

Schedule 1 (which makes provision in relation to group relief where the surrendering company is not resident in the United Kingdom) has effect.

Research and development

28Relief for research and development: subjects of clinical trials

(1)Schedule 2 (which amends Schedule 20 to FA 2000 and Schedules 12 and 13 to FA 2002 so as to make provision relating to payments to subjects of clinical trials) has effect.

(2)The amendments made by paragraph 2 of Schedule 2 to Schedule 12 to FA 2002 (large companies etc) have effect in relation to expenditure incurred on or after 1st April 2006.

(3)Except as provided by subsection (4), the amendments made by Schedule 2 to—

(a)Schedule 20 to FA 2000 (small or medium-sized enterprises),

(b)Schedule 13 to FA 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.

(4)The amendment made by paragraph 1(3) of Schedule 2 (insertion of paragraph 6A of Schedule 20 to FA 2000), in its application for the purposes of Schedule 12 to FA 2002 by virtue of the amendments made to Schedule 12 by paragraph 2 of Schedule 2, has effect in relation to expenditure incurred on or after 1st April 2006.

(5)“The appointed day” means such day as the Treasury may by order appoint; and different days may be so appointed for different provisions or different purposes.

(6)The days that may be appointed by an order under this section include days earlier than the day on which this Act is passed, but not days earlier than 1st April 2006.

29Claims for relief for research and development

Schedule 3 (which amends Schedule 18 to FA 1998 in connection with claims for tax relief for expenditure on research and development) has effect.

Capital allowances

30Temporary increase in amount of first-year allowances for small enterprises

(1)The amount of a first-year allowance under section 44 of CAA 2001 (expenditure incurred by small or medium-sized enterprises) shall be determined, in the case of expenditure to which this subsection applies, as if the percentage specified in the entry relating to that section in the Table in section 52(3) of that Act were 50%.

(2)Subsection (1) applies to expenditure incurred by a small enterprise (within the meaning of section 44 of that Act) in the period of 12 months beginning with—

(a)1st April 2006, if the small enterprise is within the charge to corporation tax, or

(b)6th April 2006, if the small enterprise is within the charge to income tax.

(3)Accordingly, in section 52(3) of CAA 2001, for the sentence following the Table substitute—

In the case of expenditure qualifying under section 44, see also—

(a)section 142 of the Finance Act 2004 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2004-05 or financial year 2004);

(b)section 30 of the Finance Act 2006 (substitution of 50% in the case of expenditure incurred by a small enterprise in 2006-07 or financial year 2006)..

Chapter 3Films and sound recordings

Introductory

31Meaning of “film” and related expressions

(1)In this Chapter “film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture.

(2)For the purposes of this Chapter each part of a series of films is treated as a separate film, unless—

(a)the films form a series with not more than 26 parts,

(b)the combined playing time is not more than 26 hours, and

(c)the series constitutes a self-contained work or is a series of documentaries with a common theme,

in which case the films are treated as a single film.

(3)References in this Chapter to a film include the film soundtrack.

(4)For the purposes of this Chapter a film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.

32Meaning of “film production company”

(1)The following provisions have effect for the purposes of this Chapter as regards the meaning of “film production company”.

(2)There cannot be more than one film production company in relation to a film.

(3)A company that (otherwise than in partnership)—

(a)is responsible—

(i)for pre-production, principal photography and post production of the film, and

(ii)for delivery of the completed film,

(b)is actively engaged in production planning and decision-making during pre-production, principal photography and post production, and

(c)directly negotiates, contracts and pays for rights, goods and services in relation to the film,

is the film production company in relation to the film.

(4)In relation to a qualifying co-production, a company that (otherwise than in partnership)—

(a)is a co-producer, and

(b)makes an effective creative, technical and artistic contribution to the film,

is the film production company in relation to the film.

(5)If there is more than one company meeting the description in subsection (3) or (4), the company that is most directly engaged in the activities referred to in that subsection is the film production company in relation to the film.

(6)If there is no company meeting the description in subsection (3) or (4), there is no film production company in relation to the film.

33Meaning of “film-making activities” etc

(1)In this Chapter “film-making activities”, in relation to a film, means the activities involved in development, pre-production, principal photography and post production of the film.

(2)If all or any of the images in a film are generated by computer, references in this Chapter to principal photography shall be read as references to, or as including, the generation of those images.

(3)The Treasury may by regulations—

(a)amend subsections (1) and (2);

(b)provide that specified activities are or are not to be regarded for the purposes of this Chapter as film-making activities or as film-making activities of a particular description;

(c)provide that, in relation to a specified description of film, references in this Chapter to film-making activities of a particular description are to be read as references to such activities as may be specified.

  • “Specified” here means specified in the regulations.

(4)No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

34Meaning of “production expenditure” and related expressions

(1)In this Chapter, in relation to a film—

  • “production expenditure” means expenditure on film-making activities in connection with the film, and

  • “core expenditure” means production expenditure on pre-production, principal photography and post production.

(2)For the purposes of this Chapter a “limited-budget film” means a film whose core expenditure is £20 million or less.

(3)In determining whether a film is a limited-budget film, any core expenditure that—

(a)is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

(b)might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length,

is treated as having been of an amount equal to the arm’s length amount.

(4)Section 839 of ICTA (connected persons) applies for the purposes of subsection (3).

35Meaning of “UK expenditure”

(1)For the purposes of this Chapter “UK expenditure”, in relation to a film, means expenditure on goods or services that are used or consumed in the United Kingdom.

(2)Any apportionment of expenditure for the purposes of this Chapter as between UK expenditure and non-UK expenditure shall be made on a fair and reasonable basis.

(3)The Treasury may by regulations amend subsection (1).

(4)No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

36Meaning of “qualifying co-production” and “co-producer”

In this Chapter—

(a)“qualifying co-production” means a film that falls to be treated as a national film in the United Kingdom by virtue of an agreement between Her Majesty’s Government in the United Kingdom and any other government, international organisation or authority,

(b)“co-producer” means a person who is a co-producer for the purposes of the agreement.

Taxation of activities of film production company

37Taxation of activities of film production company

Schedule 4 to this Act (taxation of activities of film production company) has effect for the purposes of corporation tax.

Film tax relief

38Films qualifying for film tax relief

A film qualifies for film tax relief if the conditions specified in the following sections are met—

(a)section 39 (intended theatrical release),

(b)section 40 (British film), and

(c)section 41 (UK expenditure).

39Conditions of relief: intended theatrical release

(1)The film must be intended for theatrical release.

(2)For this purpose—

(a)“theatrical release” means exhibition to the paying public at the commercial cinema;

(b)a film is not regarded as intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by such exhibition.

(3)Whether this condition is met is determined for each accounting period of the film production company during which film-making activities are carried on in relation to the film, in accordance with the following rules.

(4)If at the end of an accounting period the film is intended for theatrical release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

(5)If at the end of an accounting period the film is not intended for theatrical release, the condition—

(a)is treated as having been not met throughout that period, and

(b)cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.

40Conditions of relief: British film

The film must be certified by the Secretary of State as a British film under Schedule 1 to the Films Act 1985 (c. 21).

41Conditions of relief: UK expenditure

(1)Not less than 25% of the core expenditure on the film incurred—

(a)in the case of a British film other than a qualifying co-production, by the film production company,

(b)in the case of a qualifying co-production, by the co-producers,

must be UK expenditure.

(2)The Treasury may by regulations amend the percentage specified in subsection (1).

(3)No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

42Film tax relief: further provisions

(1)Schedule 5 to this Act contains further provisions about film tax relief.

(2)In that Schedule—

  • Part 1 deals with entitlement to the relief;

  • Part 2 provides for the certification of British films for the purposes of the relief;

  • Part 3 makes provision for claims for the relief;

  • Part 4 is about provisional entitlement to relief.

Film losses

43Films: restriction on use of losses while film in production

(1)This section applies to restrict the use that may be made of a film production company’s trading loss for an accounting period before—

(a)that in which the film is completed, or

(b)where the company does not complete the film, that in which it abandons film-making activities in relation to the film.

(2)A trading loss for such a period is not available for loss relief except to the extent that it may be carried forward under section 393(1) of ICTA to be set against profits of the same trade in a later period.

(3)In this section “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the film production company, or any other person, is chargeable to tax.

44Films: use of losses in later periods

(1)This section applies—

(a)to the accounting period—

(i)in which the film is completed, or

(ii)if the film production company does not complete the film, in which it abandons film-making activities in relation to the film, and

(b)to any subsequent accounting period during which the trade continues.

(2)Where a trading loss is carried forward to any such period under section 393(1) of ICTA from an earlier period in relation to which section 43 applied (restriction on use of losses while film is in production), so much (if any) of the loss as is not attributable to film tax relief may be treated for the purposes of loss relief as if it were a loss incurred in the period to which it is carried forward.

(3)The amount of the trading loss for an accounting period to which this section applies that may be—

(a)set against other profits of the same or an earlier period under section 393A of ICTA, or

(b)surrendered as group relief under section 403 of that Act,

is restricted to the amount (if any) that is not attributable to film tax relief.

(4)For the purposes of this section the amount of a trading loss in any period that is attributable to film tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Schedule 5 in that or any earlier period.

(5)In this section “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the film production company, or any other person, is chargeable to tax.

(6)This section does not apply to a loss to the extent that it is carried forward or surrendered under section 45 (terminal losses).

45Films: terminal losses

(1)This section applies where—

(a)a film production company (“company A”) ceases to carry on a trade in relation to a qualifying film, and

(b)if the company had not ceased to carry on the trade, it could have carried forward an amount under section 393(1) of ICTA 1988 to be set against profits of the same trade in a later period (the “terminal loss”).

(2)If on cessation of the trade company A is carrying on a trade in relation to another qualifying film, it may on making a claim elect that the terminal loss or a part of it shall be treated as if it were a loss brought forward under section 393(1) to be set against profits of that other trade in the accounting period following that at the end of which the cessation takes place.

(3)If on cessation of the trade carried on by company A there is another film production company (“company B”) which—

(a)is carrying on a trade in relation to a qualifying film (its “qualifying trade”), and

(b)is in the same group as company A for the purposes of Chapter 4 of Part 10 of ICTA (group relief),

the whole or part of the terminal loss may be surrendered by company A to company B.

(4)On the making of a claim by company B the amount surrendered shall be treated as if it were a loss brought forward by that company under section 393(1) to be set against the profits of its qualifying trade for the accounting period of that company following that in which or at the end of which the cessation takes place of the qualifying trade carried on by company A.

(5)The Treasury may, in relation to the surrender of a loss under subsection (3) and the resulting claim under subsection (4), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief).

(6)In this section—

(a)references to the trade carried on by a film production company in relation to a film are to the trade that it is treated as carrying on under Schedule 4, and

(b)references to a qualifying film are to a film that meets the conditions for film tax relief (see section 38).

Films: withdrawal of existing reliefs

46Films: withdrawal of existing reliefs (corporation tax)

(1)Sections 40A to 40D of F(No.2)A 1992 (treatment of expenditure on production or acquisition of film) do not apply—

(a)to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b)to acquisition expenditure—

(i)on a film that commences principal photography on or after 1st April 2006, or

(ii)that is incurred on or after 1st October 2007 on a film (whenever made).

(2)Section 41 of that Act (preliminary expenditure) does not apply to expenditure incurred after the date on which this Act is passed.

(3)Section 42 of that Act and section 48 of F(No.2)A 1997 (special reliefs for British films) do not apply—

(a)to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b)to acquisition expenditure—

(i)on a film that commences principal photography on or after 1st April 2006, or

(ii)that is incurred on or after 1st October 2007.

(4)References in this section to expenditure on the acquisition of a film, or to sums received from the disposal of a film, are to expenditure on the acquisition of, or sums received from the disposal of, the original master version of the film.

(5)For this purpose—

(a)“original master version” means the original negative, tape or disc;

(b)references to the original master version of a film include the original master version of the film soundtrack (if any);

(c)references to the original master version include any rights in the original master version that are held or acquired with it.

47Films: withdrawal of existing reliefs (income tax)

(1)Sections 134 and 135 of ITTOIA 2005 (treatment of expenditure on production or acquisition of film) do not apply—

(a)to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b)to acquisition expenditure—

(i)on a film that commences principal photography on or after 1st April 2006, or

(ii)that is incurred on or after 1st October 2007 on a film (whenever made).

(2)Section 137 of that Act (preliminary expenditure) does not apply to expenditure incurred after the date on which this Act is passed.

(3)Sections 138 to 144 of that Act (special reliefs for British films) do not apply—

(a)to production expenditure on a film that commences principal photography on or after 1st April 2006;

(b)to acquisition expenditure—

(i)on a film that commences principal photography on or after 1st April 2006, or

(ii)that is incurred on or after 1st October 2007.

(4)References in this section to expenditure on the acquisition of a film, or to sums received from the disposal of a film, are to expenditure on the acquisition of, or sums received from the disposal of, the original master version of the film.

(5)For this purpose—

(a)“original master version” means the original negative, tape or disc;

(b)references to the original master version of a film include the original master version of the film soundtrack (if any);

(c)references to the original master version include any rights in the original master version that are held or acquired with it.

Corporation tax treatment of sound recordings

48Sound recordings: revenue nature of expenditure

(1)If a company carrying on a trade incurs expenditure on the production or acquisition of the original master version of a sound recording, the expenditure is treated for corporation tax purposes as expenditure of a revenue nature.

(2)If expenditure is treated under this section as revenue in nature, sums received by the company from the disposal of the original master version of the sound recording—

(a)are treated for corporation tax purposes as receipts of a revenue nature, and

(b)are brought into account in calculating the profits of the relevant period in which they are received.

(3)For this purpose sums received from the disposal of the original master version include—

(a)sums received from the disposal of any interest or right in or over the original master version (including an interest or right created by the disposal), and

(b)insurance, compensation or similar money derived from the original master version.

49Sound recordings: allocation of expenditure

(1)This section applies in calculating for the purposes of corporation tax the profits or losses of a company from a trade where—

(a)the trade consists of or includes the exploitation of original master versions of sound recordings, and

(b)the original master versions do not constitute trading stock of the trade as defined by section 100(2) of ICTA.

(2)Expenditure that is—

(a)incurred on the production or acquisition of the original master version of a sound recording, and

(b)expenditure of a revenue nature (whether as a result of section 48 or otherwise),

must be allocated to relevant periods in accordance with this section.

(3)The company must allocate to a relevant period so much of the expenditure as is just and reasonable having regard to—

(a)the amount of the expenditure that remains unallocated at the beginning of the period,

(b)the proportion that the estimated value of the original master version of the sound recording that is realised in that period (whether by way of income or otherwise) bears to the aggregate of the value so realised and the estimated remaining value of the original master version at the end of the period, and

(c)the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

(4)The company may also allocate to a relevant period a further amount, so long as the total amount allocated does not exceed the value of the original master version of the sound recording realised in that period (whether by way of income or otherwise).

50Sound recordings: interpretation

For the purposes of sections 48 and 49 (corporation tax treatment of sound recordings)—

(a)“sound recording” does not include a film soundtrack;

(b)“original master version” means the master tape or master audio disc of the recording;

(c)references to the original master version of a sound recording include any rights in the original master version that are held or acquired with it; and

(d)“relevant period” means—

(i)a period for which accounts of the trade are made up, or

(ii)if no accounts of the trade are made up for a period, an accounting period of the company.

Supplementary provisions

51Corporation tax: films and sound recordings as intangible fixed assets

(1)In Schedule 29 to FA 2002 (corporation tax: gains and losses from intangible fixed assets), for paragraph 80 (exclusion of films and sound recordings) substitute—

Assets excluded: certain films

80A(1)This Schedule does not apply to an intangible fixed asset held by a film production company to the extent that it represents production expenditure on a film to which Schedule 4 of the Finance Act 2006 applies.

Expressions used in this sub-paragraph have the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006.

(2)Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company—

(a)on the production of the original master version of a film that commenced principal photography before 1st April 2006;

(b)on the acquisition before 1st October 2007 of the original master version of a film that commenced principal photography before 1st April 2006.

(3)In sub-paragraph (2)—

(a)“film” has the same meaning as in Chapter 3 Part 3 of the Finance Act 2006;

(b)“original master version” means the original negative, tape or disc;

(c)references to the original master version of a film include the original master version of the film soundtrack (if any);

(d)references to the original master version include any rights in the original master version that are held or acquired with it.

Assets excluded except as regards royalties: sound recordings

80B(1)Except as regards royalties, this Schedule does not apply to an intangible fixed asset held by a company to the extent that it represents expenditure by the company on the production or acquisition of the master version of a sound recording.

(2)For this purpose—

(a)“sound recording” does not include a film soundtrack;

(b)“master version” means master tape or master audio disc of the recording;

(c)references to the master version include any rights in the master version that are held or acquired with it..

(2)In determining for the purposes of that Schedule whether an asset representing production expenditure on a film was created before or after 1st April 2002, the asset shall be treated as created when the film was completed.

52Films: application of provisions to certain films already in production

(1)The Treasury may make provision by regulations for the application of the provisions of this Chapter, and of any enactment amended by this Chapter, in relation to films that commenced principal photography before 1st April 2006 but are not completed before 1st January 2007.

(2)The regulations may provide for such adaptations and modifications of the provisions of this Chapter, of any enactment amended by this Chapter and of any other provision of the Corporation Tax Acts, as appear to the Treasury appropriate for that purpose.

(3)The regulations may—

(a)provide that the provisions of this Chapter (or any specified provisions of this Chapter) shall have effect as if they had been in force at all material times;

(b)require or authorise the making or amendment of returns, or the making of assessments, in relation to past accounting periods or tax years (whether before or after the commencement of this Chapter);

(c)authorise the making of any such return, amendment or assessment notwithstanding any limitation on the time within which a return, amendment or assessment may normally be made.

(4)No regulations shall be made under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.

53Films and sound recordings: commencement and power to alter dates

(1)The provisions of this Chapter come into force on such day as the Treasury may appoint by order.

(2)The Treasury may by order amend any provision of this Chapter that refers to 1st April 2006, the date on which this Act is passed or 1st October 2007 so as to substitute a reference to a later date.

Chapter 4Charities

54Transactions with substantial donors

(1)After section 506 of ICTA insert—

506ATransactions with substantial donors

(1)This section applies to the following transactions—

(a)the sale or letting of property by a charity to a substantial donor,

(b)the sale or letting of property to a charity by a substantial donor,

(c)the provision of services by a charity to a substantial donor,

(d)the provision of services to a charity by a substantial donor,

(e)an exchange of property between a charity and a substantial donor,

(f)the provision of financial assistance by a charity to a substantial donor,

(g)the provision of financial assistance to a charity by a substantial donor, and

(h)investment by a charity in the business of a substantial donor.

(2)For the purposes of this section a person is a substantial donor to a charity in respect of a chargeable period if—

(a)the charity receives relievable gifts of at least £25,000 from him in a period of 12 months in which the chargeable period wholly or partly falls, or

(b)the charity receives relievable gifts of at least £100,000 from him in a period of six years in which the chargeable period wholly or partly falls;

and if a person is a substantial donor to a charity in respect of a chargeable period by virtue of paragraph (a) or (b), he is a substantial donor to the charity in respect of the following five chargeable periods.

(3)A payment made by a charity to a substantial donor in the course of or for the purposes of a transaction to which this section applies shall be treated for the purposes of section 505 as non-charitable expenditure.

(4)If the terms of a transaction to which this section applies are less beneficial to the charity than terms which might be expected in a transaction at arm’s length, the charity shall be treated for the purposes of section 505 as incurring non-charitable expenditure equal to that amount which the Commissioners for Her Majesty’s Revenue and Customs determine as the cost to the charity of the difference in terms.

(5)A payment by a charity of remuneration to a substantial donor shall be treated for the purposes of section 505 as non-charitable expenditure unless it is remuneration, for services as a trustee, which is approved by—

(a)the Charity Commission,

(b)another body with responsibility for regulating charities by virtue of legislation having effect in respect of any Part of the United Kingdom, or

(c)a court.

506BSection 506A: exceptions

(1)Section 506A shall not apply to a transaction within section 506A(1)(b) or (d) if the Commissioners for Her Majesty’s Revenue and Customs determine that the transaction—

(a)takes place in the course of a business carried on by the substantial donor,

(b)is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

(c)is not part of an arrangement for the avoidance of any tax.

(2)Section 506A shall not apply to the provision of services to a substantial donor if the Commissioners determine that the services are provided—

(a)in the course of the actual carrying out of a primary purpose of the charity, and

(b)on terms which are no more beneficial to the substantial donor than those on which services are provided to others.

(3)Section 506A shall not apply to the provision of financial assistance to a charity by a substantial donor if the Commissioners determine that the assistance—

(a)is on terms which are no less beneficial to the charity than those which might be expected in a transaction at arm’s length, and

(b)is not part of an arrangement for the avoidance of any tax.

(4)Section 506A shall not apply to investment by a charity in the business of a substantial donor where the investment takes the form of the purchase of shares or securities listed on a recognised stock exchange.

(5)A disposal at an undervalue to which section 587B applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(6)A disposal at an undervalue to which section 257(2) of the 1992 Act (gifts of chargeable assets) applies shall not be a transaction to which section 506A applies (but may be taken into account in the application of section 506A(2)).

(7)In the application of section 506A payments by a charity, or benefits arising to a substantial donor from a transaction, shall be disregarded in so far as they—

(a)relate to a donation by the donor, and

(b)do not exceed the relevant limit in relation to the donation for the purposes of section 339 or section 25 of the Finance Act 1990.

(8)A company which is wholly owned by a charity within the meaning of section 339(7AB) shall not be treated as a substantial donor in relation to the charity which owns it (or any of the charities which own it).

(9)A registered social landlord or housing association shall not be treated as a substantial donor in relation to a charity with which it is connected; and for that purpose—

(a)“registered social landlord or housing association” means a body entered on a register maintained under—

(i)section 1 of the Housing Act 1996,

(ii)section 57 of the Housing (Scotland) Act 2001, or

(iii)Article 14 of the Housing (Northern Ireland) Order 1992, and

(b)a body and a charity are connected if (and only if)—

(i)the one is wholly owned, or subject to control, by the other, or

(ii)both are wholly owned, or subject to control, by the same person.

506CSections 506A and 506B: supplemental

(1)A gift is “relievable” for the purposes of section 506A(2) if relief is available in respect of it under—

(a)section 83A,

(b)section 339,

(c)sections 587B and 587C,

(d)section 25 of the Finance Act 1990 (individual gift aid),

(e)section 257 of the 1992 Act (gifts of chargeable assets),

(f)section 63 of the Capital Allowances Act (gifts of plant and machinery),

(g)sections 713 to 715 of ITEPA 2003 (payroll giving),

(h)section 108 of ITTOIA 2005 (gifts of trading stock), or

(i)sections 628 and 630 of ITTOIA 2005 (gifts from settlor-interested trusts).

(2)A charity is treated as incurring expenditure in accordance with section 506A(4) at such time (or times) as the Commissioners determine.

(3)Section 506A applies to a transaction entered into in a chargeable period with a person who is a substantial donor in respect of that period, even if it was not until after the transaction was entered into that he first satisfied the definition of “substantial donor” in respect of that period.

(4)Either or both of subsections (3) and (4) of section 506A may be applied to a single transaction; but any amount of non-charitable expenditure which a charity is treated as incurring under section 506A(3) in respect of a transaction shall be deducted from any amount which it would otherwise be treated as incurring under section 506A(4) in respect of the transaction.

(5)Two or more connected charities shall be treated as a single charity for the purposes of section 506A and 506B and this section; and for this purpose “connected” means connected in a matter relating to the structure, administration or control of a charity.

(6)Where remuneration is paid otherwise than in money, section 506A(5) shall apply as to a payment in money of the amount that would, under Part 3 of ITEPA 2003, be the cash equivalent of the remuneration as a benefit.

(7)In sections 506A and 506B and this section—

(a)a reference to a substantial donor or other person includes a reference to a person connected with him within the meaning of section 839,

(b)“financial assistance” includes, in particular—

(i)the provision of a loan, guarantee or indemnity, and

(ii)entering into alternative finance arrangements within the meaning of section 46 of the Finance Act 2005, and

(c)a reference to a gift of a specified amount includes a reference to a non-monetary gift of that value.

(8)On an appeal against an assessment the Special Commissioners may review a decision of the Commissioners in connection with section 506A.

(9)The Treasury may by regulations vary a sum, or a period of time, specified in section 506A(2).

(2)This section shall have effect in relation to transactions occurring on or after 22nd March 2006; and for that purpose a person may satisfy the definition of “substantial donor” by reference to gifts made at any time.

(3)But this section shall not have effect in relation to a transaction entered into in pursuance of a contract made before 22nd March 2006 (otherwise than in pursuance of a variation on or after that date).

55Non-charitable expenditure

(1)For section 505(3) to (8) of ICTA (charities: exemption: non-qualifying expenditure) substitute—

(3)In subsections (4) to (7)—

(a)“charitable expenditure” has the meaning given by section 506,

(b)“relief” means relief or exemption under—

(i)subsection (1) above,

(ii)section 56(3)(c) above,

(iii)section 761(6) below,

(iv)section 256 of the 1992 Act (charities), or

(v)section 46 of the Finance Act 2000 (small trades),

(c)“relievable income and gains” means income and gains which would be eligible for relief or exemption under any of those provisions (disregarding subsections (4) to (6)), and

(d)“total income and gains” means the aggregate of—

(i)relievable income and gains,

(ii)income and gains, other than relievable income and gains, chargeable to tax, and

(iii)donations, legacies and other similar receipts that are not chargeable to tax.

(4)If a charity incurs (or is treated as incurring) non-charitable expenditure in a chargeable period, relief shall be disallowed in respect of such amount of relievable income and gains as equals the amount of the non-charitable expenditure.

(5)If in a chargeable period a charity’s non-charitable expenditure exceeds its total income and gains the excess shall be treated as non-charitable expenditure of the previous period for the purposes of subsection (4); and any necessary adjustments shall be made, whether by making assessments or otherwise.

(6)Subsection (5) may apply to a chargeable period wholly or partly as a result of the application of that subsection in respect of a later period; but no excess of non-charitable expenditure shall be treated as non-charitable expenditure of a chargeable period which ended more than six years before the end of the period in which the expenditure was actually incurred.

(7)Where an amount of a charity’s relievable income and gains is disallowed for relief by subsection (4) (whether or not as a result of the application of subsection (5))—

(a)the charity may by notice to the Board specify which items of income or gains are to be disallowed, but

(b)if the Board requires the charity to give a notice under paragraph (a) and the charity fails to comply within the period of 30 days beginning with the date on which the requirement is imposed, the Board shall determine which items to disallow.

(2)In section 506 of ICTA (section 505: supplemental)—

(a)in subsection (1) for the definitions of “qualifying expenditure” and “non-qualifying expenditure” substitute—

“charitable expenditure” means (subject to subsections (3) to (5) below) expenditure which is exclusively for charitable purposes.,

(b)in subsection (2) omit “and subsection (1) above,”

(c)in subsection (3) for “qualifying expenditure” substitute “charitable expenditure”,

(d)in subsection (4) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

(e)in subsection (5) for “non-qualifying expenditure” substitute “non-charitable expenditure”,

(f)omit subsection (6), and

(g)for the heading, substitute “Charitable and non-charitable expenditure”.

(3)Part III of Schedule 20 to ICTA (apportionment of non-qualifying expenditure to earlier chargeable periods) shall cease to have effect.

(4)In section 256(1) of TCGA 1992 (charities) for “section 505(3)” substitute “section 505(4)”.

(5)This section shall have effect in relation to chargeable periods beginning on or after 22nd March 2006; and—

(a)section 505(5) and (6) of ICTA as substituted by subsection (1) above may cause an amount to be treated as non-charitable expenditure of a chargeable period beginning before that date, but

(b)the amount of relief or exemption to be disallowed in respect of a chargeable period beginning before that date shall not exceed the amount which would have been disallowed in respect of that period if sections 505 and 506 of ICTA (and Part III of Schedule 20) had not been amended by this section.

56Trade profits

(1)In section 505 of ICTA (charities: exemptions) after subsection (1A) insert—

(1B)For the purpose of subsection (1)(e)—

(a)where a trade is exercised partly in the course of the actual carrying out of a primary purpose of the charity and partly otherwise, each part shall be treated as a separate trade (for which purpose reasonable apportionment of expenses and receipts shall be made), and

(b)where the work in connection with the trade is carried out partly but not mainly by beneficiaries, the part in connection with which work is carried on by beneficiaries and the other part shall be treated as separate trades (for which purpose reasonable apportionment of expenses and receipts shall be made).

(2)Subsection (1) shall have effect in respect of chargeable periods beginning on or after 22nd March 2006.

57Gift aid relief for companies wholly owned by one or more charities

(1)Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

(2)In subsection (1)(a) (distributions, other than those within section 209(4), not qualifying donations) after “distribution” insert “(but see subsections (1A) and (1B) below)”.

(3)After subsection (1) insert—

(1A)In determining whether a payment is to be regarded as a distribution for the purposes of subsection (1)(a) above, the words in section 209(5) from “; and any amount” to the end are to be disregarded.

(1B)A payment (other than a dividend) made by a company which is wholly owned by a charity is not to be regarded as a distribution for the purposes of subsection (1)(a) above..

(4)The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

58Extension of restrictions on gift aid payments by close companies

(1)Section 339 of ICTA (charges on income: donations to charity) is amended as follows.

(2)In subsection (3B) (payment made by a close company not qualifying donation if subject to repayment etc) for “close company” substitute “company”.

(3)In subsection (3E) (payment made by a close company not qualifying donation if it involves acquisition of property by charity, otherwise than by way of gift, from the company or a connected person) for “close company” substitute “company”.

(4)The amendments made by this section have effect in relation to payments made on or after 1st April 2006.

Chapter 5Personal taxation

Cars

59Cars with a CO2 emissions figure

(1)Section 139 of ITEPA 2003 (car with a CO2 emissions figure: the appropriate percentage) is amended as follows.

(2)In subsection (1) (appropriate percentage dependent on whether emissions figure exceeds lower threshold) for the words from “whether” to the end of the subsection substitute whether—

(a)the car is a qualifying low emissions car for that year, or

(b)the car’s CO2 emissions figure exceeds the lower threshold for that year.

(3)After subsection (1) insert—

(1A)A car is a qualifying low emissions car for any year if—

(a)it has a low CO2 emissions figure for that year, and

(b)it is not an electrically propelled vehicle, within the meaning of section 140.

(1B)If the car is a qualifying low emissions car for the year, the appropriate percentage is 10%..

(4)For subsection (2) (emissions figure does not exceed lower threshold) substitute—

(2)If—

(a)the car is not a qualifying low emissions car for the year, but

(b)its CO2 emissions figure does not exceed the lower threshold for the year,

the appropriate percentage for the year is 15% (“the basic percentage”)..

(5)After subsection (3) insert—

(3A)A car has a low CO2 emissions figure for a year if its CO2 emissions figure does not exceed the limit for that year in the following Table—

Table
Tax yearLimit (in g/km)
2008-09 and subsequent tax years120.

(6)In the Table in subsection (4) (the lower threshold)—

(a)in the entry relating to 2005-06 and subsequent tax years, for “and subsequent tax years” substitute “, 2006-07 or 2007-08”, and

(b)after that entry insert—

2008-09 and subsequent tax years135.

(7)After subsection (5) (rounding down of emissions figures to nearest multiple of 5) insert—

(5A)Subsection (5) does not apply for the purpose of determining whether a car has a low CO2 emissions figure for a year..

(8)In section 170 of ITEPA 2003 (orders etc relating to the Chapter) before subsection (3) (order varying lower threshold) insert—

(2A)The Treasury may by order provide for a limit different from that specified in the Table in section 139(3A) (car with a low CO2 emissions figure) to apply for tax years beginning on or after 6th April 2009 or such later date as may be specified in the order..

(9)If a qualifying low emissions car is a car which, within the meaning of regulations under section 170(4) of ITEPA 2003,—

(a)is capable of being propelled by petrol and road fuel gas,

(b)is capable of being propelled by electricity and petrol, or

(c)is propelled solely by road fuel gas,

no reduction in the appropriate percentage is to be made by virtue of any such regulations made before 22nd March 2006.

(10)Subsections (2) to (5) and (7) to (9) have effect for the tax year 2008-09 and subsequent tax years.

Mobile telephones and computers

60Mobile telephones

(1)In section 266(2) of ITEPA 2003 (exemption of non-cash vouchers for exempt benefits), insert at the end or

(d)section 319 (mobile telephones).

(2)In section 267(2) of that Act (exemption of credit-tokens used for exempt benefits), after paragraph (f) insert—

(g)section 319 (mobile telephones).

(3)For section 319 of that Act (employment income: exemption for mobile telephones) substitute—

319Mobile telephones

(1)No liability to income tax arises by virtue of section 62 (general definition of earnings) or Chapter 10 of Part 3 (taxable benefits: residual liability to charge) in respect of the provision of one mobile telephone for an employee without any transfer of property in it.

(2)In this section “mobile telephone” means telephone apparatus which—

(a)is not physically connected to a land-line, and

(b)is not used only as a wireless extension to a telephone which is physically connected to a land-line,

or any thing which may be used in such apparatus for the purpose of gaining access to, or using, a public electronic communications service.

(3)In this section the reference to the provision of a mobile telephone includes a reference to the provision, together with the mobile telephone provided, of access to, or the use of, a public electronic communications service by means of one mobile telephone number.

(4)For the purposes of subsection (2) “telephone apparatus” means wireless telegraphy apparatus designed or adapted for the primary purpose of transmitting and receiving spoken messages and used in connection with a public electronic communications service.

(4)This section has effect for the year 2006-07 and subsequent years of assessment.

(5)But the amendment made by subsection (3) does not cause any liability to income tax to arise in respect of the provision of a mobile telephone for an employee, or a member of an employee’s family or household, if the mobile telephone was first provided to him before 6th April 2006.

61Computer equipment

(1)Omit section 320 of ITEPA 2003 (employment income: limited exemption for computer equipment).

(2)This section has effect for the year 2006-07 and subsequent years of assessment.

(3)But it does not cause any liability to income tax to arise in respect of the provision of computer equipment by making it available to an employee, or a member of an employee’s family or household, if the computer equipment was first made available to him before 6th April 2006.

Eye care

62Exemption for employees' eye tests and special glasses

(1)Part 4 of ITEPA 2003 (employment income: exemptions) is amended as follows.

(2)In Chapter 11 (miscellaneous exemptions), before section 321 (and the cross-heading “Awards and gifts”) insert—

Eye tests and special corrective appliances
320AEye tests and special corrective appliances

(1)No liability to income tax arises in respect of the provision for an employee of—

(a)an eye and eyesight test, or

(b)special corrective appliances that an eye and eyesight test shows are necessary,

if conditions A and B are met.

(2)Condition A is that the provision of the test or appliances is required by regulations made under the Health and Safety at Work etc. Act 1974.

(3)Condition B is that tests and appliances of the kind mentioned in subsection (1) are made available generally to those employees of the employer in question for whom they are required to be provided by the regulations.

(3)In section 266 (exemption of non-cash vouchers for exempt benefits), at the end of subsection (3) insert , or

(f)section 320A (eye tests and special corrective appliances).

(4)In section 267 (exemption of credit-tokens used for exempt benefits), at the end of subsection (2) insert , and

(h)section 320A (eye tests and special corrective appliances).

(5)This section has effect for the year 2006-07 and subsequent years of assessment.

Vouchers and tokens

63Power to exempt use of vouchers or tokens to obtain exempt benefits

In Chapter 4 of Part 3 of ITEPA 2003 (taxable benefits: vouchers and credit-tokens), after section 96 insert—

96APower to exempt use of non-cash vouchers or credit-tokens to obtain exempt benefits

(1)The Treasury may by regulations provide for exemption from any liability that would otherwise arise by virtue of this Chapter in respect of—

(a)non-cash vouchers which are or can be used to obtain specified exempt benefits, or which evidence an employee’s entitlement to specified exempt benefits;

(b)credit-tokens which are used to obtain specified exempt benefits.

(2)In this section—

  • “exempt benefit” means a benefit the direct provision of which is exempted from liability to income tax by a provision of Part 4 (employment income: exemptions), and

  • “specified” means specified in the regulations.

(3)Regulations under this section may operate by amending section 266 (exemption of non-cash vouchers for exempt benefits) or section 267 (exemption of credit-tokens used for exempt benefits).

Holocaust victims

64Payments to or in respect of victims of National-Socialist persecution

(1)In section 369 of ITTOIA 2005 (charge to tax on interest), in subsection (3) (non-exhaustive list of exemptions), in paragraph (e) (exemptions under sections 749 to 756)—

(a)for “756” substitute “756A”, and

(b)for “and interest on certain foreign currency securities)” substitute “, certain foreign currency securities and interest on certain deposits of victims of National-Socialist persecution)”.

(2)After section 756 of ITTOIA 2005 (which securities and loans are foreign currency ones for section 755) insert—

756AInterest on certain deposits of victims of National-Socialist persecution

(1)No liability to income tax arises in respect of interest which is paid—

(a)to or in respect of a victim of National-Socialist persecution,

(b)under a qualifying compensation scheme, and

(c)for a qualifying purpose in respect of a qualifying deposit of the victim.

(2)A scheme is a qualifying compensation scheme if—

(a)it is constituted (whether under the law of any part of the United Kingdom or elsewhere) by an instrument in writing, and

(b)the purpose of the scheme, or one of its purposes, is to make payments of interest to or in respect of victims of National-Socialist persecution for qualifying purposes in respect of qualifying deposits.

(3)Interest is paid for a qualifying purpose in respect of a deposit if—

(a)it is paid for meeting a liability in respect of interest on the deposit, or

(b)it is paid for compensating for the effects of inflation on the deposit.

(4)In relation to a victim of National-Socialist persecution, a deposit is a qualifying deposit if it was made—

(a)by, or on behalf of, the victim, and

(b)on or before 5th June 1945.

(5)In this section “deposit” has the meaning given by section 481(3) of ICTA..

(3)In section 783 of ITTOIA 2005 (general disregard of exempt income for income tax purposes)—

(a)for subsection (2) (exception to general disregard) substitute—

(2)There are exceptions to this in the following cases.

(2A)Interest on deposits in ordinary accounts with the National Savings Bank which is exempt under this Part from every charge to income tax is not to be ignored for the purpose of providing information.

(2B)Interest paid to or in respect of victims of National-Socialist persecution which is so exempt is not to be ignored for the purposes of sections 17 and 18 of TMA 1970 (information provisions relating to interest)., and

(b)in subsection (3) (subsection (2) without prejudice to other exceptions) for “This express exception to subsection (1) is” substitute “These express exceptions to subsection (1) are”.

(4)After section 268 of TCGA 1992 (decorations for valour or gallant conduct) insert—

268AVictims of National-Socialist persecution

(1)A gain accruing on a disposal is not a chargeable gain if it accrues on—

(a)a disposal of the right to receive the whole or any part of a qualifying payment in respect of National-Socialist persecution, or

(b)a disposal of an interest in any such right.

(2)A payment is a qualifying payment in respect of National-Socialist persecution if it is payable as mentioned in paragraphs (a) to (c) of section 756A(1) of ITTOIA 2005 (income tax exemption for payments to or in respect of victims of National-Socialist persecution).

(3)In this section “interest”, in relation to any right, means an interest as a co-owner of the right.

(4)It does not matter—

(a)whether the right is owned jointly or in common, or

(b)whether or not the interests of the co-owners are equal..

(5)If at any time before claims could have been made under any qualifying compensation scheme—

(a)a person beneficially entitled to a qualifying deposit has died, and

(b)no information in respect of that deposit was contained in any account relating to that deceased person under any provision of IHTA 1984,

that deposit is to be ignored for all purposes of IHTA 1984.

(6)For this purpose “qualifying compensation scheme” and “qualifying deposit” have the same meaning as in section 756A of ITTOIA 2005.

(7)Subsection (2) has effect (and is deemed always to have had effect)—

(a)for the year 1996-97, and

(b)subsequent years of assessment.

(8)Subsection (4) has effect (and is deemed always to have had effect) in relation to disposals made on or after 6th April 1996; but no loss accruing on a disposal made before 6th April 2006 is, as a result of that subsection, to cease to be an allowable loss.

(9)In relation to any time before 6th April 2005 (the commencement of ITTOIA 2005)—

(a)the section inserted by subsection (2) is to be treated as if it were inserted into ICTA (and as if, in subsection (5) of that section, “of ICTA” were omitted), and

(b)any reference to that section in any enactment is to be read accordingly.

(10)In relation to the year 2005-06 or any earlier year of assessment, all such adjustments are to be made as are required to give effect to the exemptions conferred as a result of this section.

(11)But the adjustments are to be made only if the person entitled to the exemption makes a claim for the exemption on or before 31st January 2012.

(12)The adjustments may be made by discharge or repayment of tax, the making of an assessment or otherwise.

Chapter 6The London Olympic Games and Paralympic Games

65London Organising Committee

(1)In this section “LOCOG” means the private company limited by guarantee incorporated on 22nd October 2004 with the Company Number 05267819 and with the name The London Organising Committee of the Olympic Games Limited.

(2)LOCOG shall be exempt from corporation tax.

(3)Section 349(1) of ICTA (annual payments: deductions of tax) shall not apply to payments to LOCOG.

(4)A claim may be made for any repayment of income tax required as a result of an exemption conferred by this section.

(5)The Treasury may by regulations provide for subsections (2) to (4) to apply to a wholly-owned subsidiary of LOCOG (within the meaning of section 736 of the Companies Act 1985 (c. 6)) as they apply to LOCOG.

(6)Subsection (7) applies if it appears to the Treasury—

(a)that LOCOG has been or may have been, or is or may be, directly or indirectly connected with another person, or

(b)has been or may have been, or is or may be, acting in association or co-operation with another person (whether by virtue of part-ownership, partnership, membership of a group or consortium or in any other way).

(7)The Treasury may make regulations—

(a)restricting the application of a provision of this section to a specified extent;

(b)removing or restricting an exemption or relief under an enactment relating to corporation tax, income tax or capital gains tax;

(c)preventing a loss or expense of a specified kind from being used or treated in a specified way for purposes of corporation tax, income tax or capital gains tax;

(d)wholly or to a specified extent preventing an allowance from being claimed for purposes of corporation tax, income tax or capital gains tax;

(e)providing for a transfer of property to be disregarded, or treated in a specified way, for purposes of corporation tax, income tax or capital gains tax;

(f)providing for specified action taken by LOCOG or the other person to have, or not to have, a specified effect for purposes of corporation tax, income tax or capital gains tax;

(g)providing for an enactment relating to the treatment of groups of companies for purposes of corporation tax, income tax or capital gains tax to be wholly or partly disapplied or to be applied with modifications;

(h)making any other provision which appears to the Treasury to be expedient for the purpose of preventing this section from being used or relied upon otherwise than in connection with the functions of LOCOG under the Host City Contract;

and provision made under any of paragraphs (b) to (h) may relate to LOCOG or to the other person mentioned in subsection (6).

(8)If it appears to the Treasury that LOCOG has undertaken, is undertaking or may undertake activities other than in pursuance of the Host City Contract, the Treasury may make regulations restricting the application of a provision of this section to a specified extent.

(9)Regulations under subsection (5) may include provision of a kind similar to that which may be made under subsection (7) or (8).

66Section 65: supplementary

(1)Regulations under section 65(5) to (8)—

(a)may make provision which applies generally or only in specified cases or circumstances,

(b)may make different provision for different cases or circumstances,

(c)may have retrospective effect, and

(d)may include incidental, consequential or transitional provision.

(2)Regulations under section 65 shall be made by statutory instrument.

(3)Regulations under section 65(5)—

(a)shall be subject to annulment in pursuance of a resolution of the House of Commons, or

(b)if they include provision by virtue of section 65(9), may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(4)Regulations under section 65(7) or (8) may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(5)In section 65 “the Host City Contract” has the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

(6)Section 65 shall be treated as having come into force on 22nd October 2004.

(7)The Treasury may by order made by statutory instrument repeal section 65 and this section.

67International Olympic Committee

(1)The Treasury may make regulations—

(a)providing for the International Olympic Committee to be treated for the purposes of corporation tax as not having a permanent establishment in the United Kingdom;

(b)providing for the International Olympic Committee not to be chargeable to income tax or capital gains tax;

(c)disapplying section 349(1) and (2) of ICTA (annual payments: deductions of tax) to payments to the International Olympic Committee.

(2)The Treasury may make regulations—

(a)providing for a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee to be treated for the purposes of corporation tax as not having a permanent establishment in the United Kingdom;

(b)providing for a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee not to be chargeable to income tax or capital gains tax;

(c)disapplying section 349(1) and (2) of ICTA to payments to a specified person or class of person appearing to the Treasury to be owned or controlled by the International Olympic Committee.

(3)Regulations under this section—

(a)may make provision which applies generally or only in specified cases or circumstances,

(b)may make different provision for different cases or circumstances,

(c)may have retrospective effect, and

(d)may include incidental, consequential or transitional provision.

(4)Regulations under this section—

(a)shall be made by statutory instrument, and

(b)shall be subject to annulment in pursuance of a resolution of the House of Commons.

(5)A claim may be made for any repayment of income tax required as a result of an exemption conferred under this section.

68Competitors and staff

(1)The Treasury may make regulations—

(a)exempting specified classes of person from income tax in respect of specified classes of income arising from participation in London Olympic events;

(b)providing for specified classes of activity undertaken in connection with London Olympic events to be disregarded for purposes of corporation tax, income tax or capital gains tax;

(c)providing for specified classes of activity in connection with London Olympic events to be disregarded in determining for fiscal purposes whether a person has a permanent establishment in the United Kingdom;

(d)disapplying section 349(1) of ICTA (annual payments: deductions of tax) in consequence of provision made under paragraphs (a) to (c) above.

(2)The regulations may specify classes of person wholly or partly by reference to—

(a)residence outside the United Kingdom, determined in such manner as the regulations may provide;

(b)documents issued or authority given by such persons exercising functions in connection with the London Olympics as the regulations may provide.

(3)Regulations under this section—

(a)may make provision which applies generally or only in specified cases or circumstances,

(b)may make different provision for different cases or circumstances, and

(c)may include incidental, consequential or transitional provision.

(4)Regulations under this section—

(a)shall be made by statutory instrument, and

(b)shall be subject to annulment in pursuance of a resolution of the House of Commons.

(5)In this section “London Olympic event” and “the London Olympics” have the meaning given by section 1 of the London Olympic Games and Paralympic Games Act 2006.

Chapter 7Chargeable gains

Capital losses

69Restriction on a company’s allowable losses

(1)Section 8 of TCGA 1992 (company’s total profits to include chargeable gains) is amended as follows.

(2)In subsection (2) (exclusion of loss as allowable loss)—

(a)for “does not include a loss” substitute does not include—

(a)a loss, and

(b)at the end insert , or

(b)a loss accruing to a company in disqualifying circumstances (see subsection (2A)).

(3)After subsection (2) insert—

(2A)For the purposes of subsection (2)(b), a loss accrues to a company in disqualifying circumstances if—

(a)it accrues to the company directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b)the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.

(2B)For the purposes of subsection (2A)—

  • “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

  • “tax advantage” has the meaning given by section 184D.

(2C)For the purposes of subsection (2A) it does not matter—

(a)whether the loss accrues at a time when there are no chargeable gains from which it could otherwise have been deducted, or

(b)whether the tax advantage is secured for the company or for any other company..

(4)In section 834(1) of ICTA (interpretation of the Corporation Tax Acts), in the definition of “allowable loss”, at the end insert “or a loss accruing to a company in disqualifying circumstances (within the meaning of section 8(2)(b) of the 1992 Act)”.

(5)The amendments made by this section have effect in relation to any loss accruing on any disposal that is made on or after 5th December 2005.

70Restrictions on companies buying losses or gains

(1)TCGA 1992 is amended as follows.

(2)After section 184 insert—

Restrictions on buying losses or gains etc
184ARestrictions on buying losses: tax avoidance schemes

(1)This section applies for the purposes of corporation tax in respect of chargeable gains if—

(a)at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

(b)a loss (a “qualifying loss”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

(c)the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage (see section 184D), and

(d)the advantage involves the deduction of a qualifying loss from any chargeable gains (whether or not it also involves anything else).

(2)A qualifying loss accruing to a company is not to be deductible from chargeable gains accruing to the company unless the gains accrue to the company on a disposal of a pre-change asset.

(3)In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

(4)In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(5)For the purposes of this section it does not matter—

(a)whether a qualifying loss accrues before, after or at the relevant time,

(b)whether a qualifying loss accrues at a time when there are no chargeable gains from which it could be deducted (or could otherwise have been deducted), or

(c)whether the tax advantage is secured for the company to which a qualifying loss accrues or for any other company.

184BRestrictions on buying gains: tax avoidance schemes

(1)This section applies for the purposes of corporation tax in respect of chargeable gains if—

(a)at any time (“the relevant time”) there is a qualifying change of ownership in relation to a company (“the relevant company”) (see section 184C),

(b)a gain (a “qualifying gain”) accrues to the relevant company or any other company on a disposal of a pre-change asset (see subsection (3)),

(c)the change of ownership occurs directly or indirectly in consequence of, or otherwise in connection with, any arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage, and

(d)the advantage involves the deduction of a loss from a qualifying gain (whether or not it also involves anything else).

(2)In the case of a qualifying gain accruing to a company, a loss accruing to the company is not to be deductible from the gain unless the loss accrues to the company on a disposal of a pre-change asset.

(3)In this section a “pre-change asset” means an asset which was held by the relevant company before the relevant time (but see also sections 184E and 184F).

(4)In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(5)For the purposes of this section it does not matter—

(a)whether a qualifying gain accrues before, after or at the relevant time,

(b)whether a qualifying gain accrues at a time when there are no losses which could be deducted (or could otherwise have been deducted) from the gain, or

(c)whether the tax advantage is secured for the company to which a qualifying gain accrues or for any other company.

184CSections 184A and 184B: meaning of “qualifying change of ownership”

(1)For the purposes of sections 184A and 184B, there is a qualifying change of ownership in relation to a company at any time if any one or more of the following occur at that time—

(a)the company joins a group of companies (see subsections (2) to (5)),

(b)the company ceases to be a member of a group of companies,

(c)the company becomes subject to different control (see subsections (6) to (9)).

(2)Whether a company is a member of a group of companies at any time is determined in accordance with section 170.

(3)But, apart from in the excepted case, nothing in section 170(10) or (10A) is to prevent all the companies of one group from being regarded as joining another group when the principal company of the first group becomes a member of the other group at any time.

(4)The excepted case is the case where—

(a)the persons owning the shares of the principal company of the first group immediately before that time are the same as the persons owning the shares of the principal company of the other group immediately after that time,

(b)the principal company of the other group was not the principal company of any group immediately before that time, and

(c)immediately after that time the principal company of the other group had assets consisting entirely (or almost entirely) of shares of the principal company of the first group.

(5)For this purpose, references to shares of a company are to the shares comprised in the issued share capital of the company.

(6)The general rule is that a company becomes subject to different control at any time if any one or more of the following occur—

(a)a person has control of the company at that time (whether alone or together with one or more others) and the person did not previously have control of the company,

(b)a person has control of the company at that time together with one or more others and the person previously had control of the company alone,

(c)a person ceases to have control of the company at that time (whether the person had control alone or together with one or more others).

(7)The general rule is subject to the following exceptions.

(8)A company does not become subject to different control in any case where it joins a group of companies and the case is the excepted case mentioned above.

(9)A company (“the subsidiary”) does not become subject to different control at any time in any case where—

(a)immediately before that time the subsidiary is the 75 per cent. subsidiary of another company, and

(b)(although there is a change in the direct ownership of the subsidiary) that other company continues immediately after that time to own it as a 75 per cent. subsidiary.

184DSections 184A and 184B: meaning of “tax advantage”

For the purposes of sections 184A and 184B, “tax advantage” means—

(a)relief or increased relief from corporation tax,

(b)repayment or increased repayment of corporation tax,

(c)the avoidance or reduction of a charge to corporation tax or an assessment to corporation tax, or

(d)the avoidance of a possible assessment to corporation tax.

184ESections 184A and 184B: “pre-change assets”: basic rules

(1)If—

(a)a company other than the relevant company makes a disposal of an asset, and

(b)the asset has been disposed of at any time after the relevant time by a disposal to which section 171(1) does not apply (a “non-section 171(1) transfer”),

the asset ceases to be regarded as a pre-change asset for the purposes of sections 184A and 184B (but see also subsections (10) and (11)).

(2)But (without affecting the generality of the provision made by the following subsection) if, on a non-section 171(1) transfer,—

(a)an asset would cease to be regarded as a pre-change asset as a result of subsection (1), and

(b)the company making the non-section 171(1) transfer retains any interest in or over the asset,

that interest is to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(3)If—

(a)the relevant company or any other company holds an asset (“the new asset”) at or after the relevant time,

(b)the value of the new asset derives in whole or in part from a pre-change asset, and

(c)the new asset is not acquired by the company concerned as a result of a non-section 171(1) transfer,

the new asset is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(4)For this purpose the cases in which the value of an asset may be derived from any other asset include any case where—

(a)assets have been merged or divided,

(b)assets have changed their nature, or

(c)rights or interests in or over assets have been created or extinguished.

(5)If a pre-change asset is “the old asset” for the purposes of section 116 (reorganisations, conversions and reconstructions), “the new asset” for the purposes of that section is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(6)If a pre-change asset is the “original shares” for the purposes of sections 127 to 131 (reorganisation or reduction of share capital), the “new holding” for the purposes of those sections is also to be regarded as a pre-change asset for the purposes of sections 184A and 184B.

(7)The following subsection applies if, as a result of the application of a relevant deferral provision in the case of a disposal of a pre-change asset (“the original disposal”),—

(a)a gain or loss that would otherwise accrue to a company does not so accrue, or

(b)any part of any such gain is treated as forming part of a single chargeable gain which does not accrue to the company on the original disposal,

and a gain or loss does, wholly or partly in consequence of the application of that provision in the case of the original disposal, accrue to the company or any other company on a subsequent occasion.

(8)So much of the gain or loss accruing on the subsequent occasion as accrues in consequence of the application of the relevant deferral provision in the case of the original disposal is to be regarded for the purposes of sections 184A and 184B as accruing on a disposal of a pre-change asset (so far as it would not otherwise be so regarded).

(9)A “relevant deferral provision” means any of the following—

(a)section 139 (reconstruction involving transfer of business),

(b)section 140 (postponement of charge on transfer of assets to non-resident company),

(c)section 140A (transfer of a UK trade),

(d)section 140E (merger leaving assets within UK tax charge),

(e)sections 152 and 153 (replacement of business assets),

(f)section 187 (postponement of charge on deemed disposal under section 185).

(10)If—

(a)a pre-change asset of the relevant company is transferred to another company (“the transferee company”),

(b)any of sections 139, 140A and 140E apply to the companies in the case of the asset, and

(c)the transfer of the asset is made directly or indirectly in consequence of, or otherwise in connection with, the arrangements mentioned in section 184A or 184B,

the asset is to be regarded as a “pre-change asset” in the hands of the transferee company for the purposes of sections 184A and 184B.

(11)In such a case, subsection (1) applies as if the reference in paragraph (a) of that subsection to the relevant company were to the transferee company.

184FSections 184A and 184B: “pre-change assets”: pooling rules

(1)This section applies, in the case of any pre-change asset of the relevant company or any pre-change asset of any company which is acquired on a disposal to which section 171(1) applies, if—

(a)the pre-change asset consists of a holding of securities which falls as a result of any provision of Chapter 1 of Part 4 to be regarded as a single asset (“the pre-change pooled asset”), and

(b)as a result of any disposal or acquisition at any time after the relevant time, any securities (“the other securities”) would (but for this section) be regarded as forming part of the pre-change pooled asset.

(2)None of the other securities are to be regarded for the purposes of this Act as forming part of the pre-change pooled asset.

(3)But this does not prevent the other securities from being regarded, as a result of any provision of that Chapter, as forming part of or constituting a different, single asset (“the other pooled asset”).

(4)Securities of the same class as the other securities which are disposed of at or after the relevant time—

(a)are to be identified first with the other securities or securities forming part of the other pooled asset,

(b)are to be identified next with securities forming part of the pre-change pooled asset (if the number of securities disposed of exceeds the number identified in accordance with paragraph (a)), and

(c)subject to paragraphs (a) and (b), are to be identified in accordance with the provisions applicable apart from those paragraphs.

(5)The above identification rules apply even if some or all of the securities disposed of are otherwise identified—

(a)by the disposal, or

(b)by a transfer or delivery giving effect to it;

but where a company disposes of securities in one capacity, they are not to be identified with securities which it holds, or can dispose of, only in some other capacity.

(6)Chapter 1 of Part 4 has effect subject to this section.

(7)In this section—

  • “pre-change asset” means an asset which is pre-change asset for the purposes of section 184A or 184B,

  • “securities” does not include relevant securities as defined in section 108 but, subject to that, means—

    (a)

    shares or securities of a company, and

    (b)

    any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired.

(8)For the purposes of this section, shares or securities of a company are not to be treated as being of the same class unless—

(a)they are so treated by the practice of a recognised stock exchange, or

(b)they would be so treated if dealt with on a recognised stock exchange..

(3)In Schedule 7A (restriction on set-off of pre-entry losses), in paragraph 1(1) (application of Schedule), at the end insert “, but this Schedule shall have no effect in any case where section 184A (restrictions on buying losses: tax avoidance schemes) has effect in relation to those losses”.

(4)Section 177B and Schedule 7AA (restrictions on setting losses against pre-entry gains) shall cease to have effect.

(5)In section 213 (insurance companies: spreading of gains and losses under section 212)—

(a)in subsection (8H) for “that the net amount is” to the end substitute “that the net amount would still arise even if losses accruing after the date on which the company or transferee joined the group of companies were disregarded”, and

(b)in subsection (8I) for “paragraph 1” to the end substitute “section 184C as if those references were contained in that section; and in subsection (8A)(b) above “group” has the same meaning as in that section”.

The amendments made by this subsection have effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period ending on or after 5th December 2005.

(6)The amendments made by this section, other than subsection (5), have effect for calculating the amount to be included in respect of chargeable gains in a company’s total profits for any accounting period ending on or after 5th December 2005.

(7)But, in respect of any such accounting period, those amendments do not have effect in relation to the deduction of any loss from chargeable gains that accrue on any disposal made before 5th December 2005 unless that loss accrues on a disposal made on or after that date.

(8)For the purposes of those amendments, it does not matter whether a qualifying change of ownership in relation to a company occurs—

(a)before 5th December 2005, or

(b)on or after that date.

(9)The following subsection applies so long as each of the following conditions is met—

(a)at any time (“the relevant time”) before 5th December 2005 there is a qualifying change of ownership in relation to a company (“the relevant company”) for the purposes of section 184A or 184B of TCGA 1992,

(b)the change of ownership occurs because the relevant company ceases to be a member of a group of companies at the relevant time (whether or not it also occurs for any other reason),

(c)the principal company of that group has control of the relevant company at the relevant time and at all subsequent times,

(d)the principal company of that group does not, at or after the relevant time, join another group otherwise than in the excepted case, and

(e)a qualifying loss for the purposes of section 184A of TCGA 1992, or a qualifying gain for the purposes of section 184B of that Act, accrues to the relevant company or any other company on a disposal made before 5th December 2005.

(10)Section 184A or 184B of TCGA 1992 applies in relation to that qualifying loss or gain as if, for the purposes of that section, a “pre-change asset” included an asset held before the relevant time by any company which, immediately before the relevant time, was a member of the same group of companies as the relevant company.

(11)Subsections (9) and (10) are to be read as if contained in section 184C of TCGA 1992.

71Other avoidance involving losses accruing to companies

(1)After section 184F of TCGA 1992 (as inserted by section 70 above) insert—

184GAvoidance involving losses: schemes converting income to capital

(1)This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

(2)Condition A is that—

(a)any receipt arises to a company (“the relevant company”) on a disposal of an asset, and

(b)the receipt arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements.

(3)Condition B is that—

(a)a chargeable gain (the “relevant gain”) accrues to the relevant company on the disposal, and

(b)losses accrue (or have accrued) to the relevant company on any other disposal of any asset (whether before or after or as part of the arrangements).

(4)Condition C is that, but for the arrangements, an amount would have fallen to be taken into account wholly or partly instead of the receipt in calculating the income chargeable to corporation tax—

(a)of the relevant company, or

(b)of a company which, at any qualifying time, is a member of the same group as the relevant company.

(5)Condition D is that—

(a)the main purpose of the arrangements, or

(b)one of the main purposes of the arrangements,

is to secure a tax advantage that involves the deduction of any of the losses from the relevant gain (whether or not it also involves anything else).

(6)If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the relevant company a notice in respect of the arrangements (but see also section 184I).

(7)If, when the notice is given, conditions A to D are satisfied, no loss accruing to the relevant company at any time is to be deductible from the relevant gain.

(8)A notice under this section must—

(a)specify the arrangements,

(b)specify the accounting period in which the relevant gain accrues, and

(c)inform the relevant company of the effect of this section.

(9)If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10)In this section—

  • “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

  • “group”, in relation to companies, means a group determined in accordance with section 170,

  • “qualifying time”, in relation to any arrangements, means any time which falls in the period—

    (a)

    beginning with the time at which the arrangements are made, and

    (b)

    ending with the time at which the matters (other than any tax advantage) intended to be secured by the arrangements are secured,

  • “tax advantage” has the meaning given by section 184D.

184HAvoidance involving losses: schemes securing deductions

(1)This section applies for the purposes of corporation tax in respect of chargeable gains if conditions A to D are satisfied.

(2)Condition A is that—

(a)a chargeable gain (the “relevant gain”) accrues to a company (“the relevant company”) directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b)losses accrue (or have accrued) to the relevant company on any disposal of any asset (whether before or after or as part of the arrangements).

(3)Condition B is that the relevant company, or a company connected with the relevant company, incurs any expenditure—

(a)which is allowable as a deduction in calculating its total profits chargeable to corporation tax but which is not allowable as a deduction in computing its gains under section 38, and

(b)which is incurred directly or indirectly in consequence of, or otherwise in connection with, the arrangements.

(4)Condition C is that the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage that involves both—

(a)the deduction of the expenditure in calculating total profits, and

(b)the deduction of any of the losses from the relevant gain,

whether or not it also involves anything else.

(5)Condition D is that the arrangements are not excluded arrangements.

For this purpose arrangements are excluded arrangements if—

(a)the arrangements are made in respect of land or any estate or interest in land,

(b)the arrangements fall within section 779(1) or (2) of the Taxes Act (sale and lease-back: limitation on tax reliefs),

(c)the person to whom the payment mentioned in that subsection is payable is not a company connected with the relevant company, and

(d)the arrangements are made between persons dealing at arm’s length.

(6)If the Board consider, on reasonable grounds, that conditions A to D are or may be satisfied, they may give the company a notice in respect of the arrangements (but see also section 184I).

(7)If, when the notice is given, conditions A to D are satisfied, no loss accruing to the company at any time is to be deductible from the relevant gain.

(8)A notice under this section must—

(a)specify the arrangements,

(b)specify the accounting period in which the relevant gain accrues, and

(c)inform the relevant company of the effect of this section.

(9)If relevant gains accrue in more than one accounting period, a single notice under this section may specify all the accounting periods concerned.

(10)In this section—

  • “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),

  • “tax advantage” has the meaning given by section 184D.

(11)For the purposes of this section it does not matter whether the tax advantage is secured for the relevant company or for any other company.

184INotices under sections 184G and 184H

(1)Subsection (2) applies if—

(a)the Board give a notice under section 184G or 184H (a “relevant notice”) to a company that specifies an accounting period, and

(b)the notice is given before the company has made its company tax return for that accounting period.

(2)If the company makes its return for that period before the end of the applicable 90 day period (see subsection (12)), it may—

(a)make a return that disregards the notice, and

(b)at any time after making the return and before the end of the applicable 90 day period, amend the return for the purpose of complying with the provision referred to in the notice.

(3)If a company has made a company tax return for an accounting period, the Board may give the company a relevant notice in relation to that period only if a notice of enquiry has been given to the company in respect of its return for that period.

(4)After any enquiries into the return for that period have been completed, the Board may give the company a relevant notice only if requirements A and B are met.

(5)Requirement A is that at the time the enquiries into the return were completed, the Board could not have been reasonably expected, on the basis of information made available—

(a)to them before that time, or

(b)to an officer of theirs before that time,

to have been aware that the circumstances were such that a relevant notice could have been given to the company in relation to that period.

(6)For the purposes of requirement A, paragraph 44(2) and (3) of Schedule 18 to the Finance Act 1998 (information made available) applies as it applies for the purposes of paragraph 44(1).

(7)Requirement B is that—

(a)the company or any other person was requested to produce or provide information during an enquiry into the return for that period, and

(b)if the request had been duly complied with, the Board could reasonably have been expected to give the company a relevant notice in relation to that period.

(8)If—

(a)a company makes a company tax return for an accounting period, and

(b)the company is subsequently given a relevant notice that specifies that period,

it may amend the return for the purpose of complying with the provision referred to in the notice at any time before the end of the applicable 90 day period.

(9)If the relevant notice is given to the company after it has been given a notice of enquiry in respect of its return for the period, no closure notice may be given in relation to its company tax return until—

(a)the end of the applicable 90 day period, or

(b)the earlier amendment of its company tax return for the purpose of complying with the provision referred to in the notice.

(10)If the relevant notice is given to the company after any enquiries into the return for the period are completed, no discovery assessment may be made as regards the chargeable gain to which the notice relates until—

(a)the end of the applicable 90 day period, or

(b)the earlier amendment of the company tax return for the purpose of complying with the provision referred to in the notice.

(11)Subsections (2)(b) and (8) do not prevent a company tax return for a period becoming incorrect if—

(a)a relevant notice is given to the company in relation to that period,

(b)the return is not amended in accordance with subsection (2)(b) or (8) for the purpose of complying with the provision referred to in the notice, and

(c)the return ought to have been so amended.

(12)In this section—

  • “the applicable 90 day period”, in relation to a relevant notice, means the period of 90 days beginning with the day on which the notice is given,

  • “closure notice” means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998,

  • “company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of that Schedule, as read with paragraph 4 of that Schedule,

  • “discovery assessment” means an assessment under paragraph 41 of that Schedule,

  • “notice of enquiry” means a notice under paragraph 24 of that Schedule..

(2)In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in paragraph 25(1) (scope of enquiry), after “relief)” insert “or a notice under section 184G or 184H of the Taxation of Chargeable Gains Act 1992 (avoidance involving capital losses)”.

(3)In paragraph 42 of that Schedule (restrictions on power to make discovery assessment etc), in sub-paragraph (2A), after “1988” insert “or section 184G or 184H of the Taxation of Chargeable Gains Act 1992”.

(4)The amendments made by this section have effect in relation to chargeable gains accruing on any disposal that is made on or after 5th December 2005.

72Repeal of s.106 of TCGA 1992

(1)Section 106 of TCGA 1992 (disposal of shares and securities by company within prescribed period of acquisition) shall cease to have effect.

(2)In consequence of that repeal—

(a)in section 104(2)(b) of TCGA 1992 (share pooling: general interpretative provisions) omit “, 106”,

(b)in section 105 of that Act (disposal on or before day of acquisition of shares and other unidentified assets)—

(i)in subsection (2)(b) for “any of the provisions of section 106 or” substitute “section”, and

(ii)in subsection (2)(c) omit “106,”,

(c)in section 108(8) of that Act (identification of relevant securities) omit “shall have effect subject to section 106 but”,

(d)in section 110(1)(b) of that Act (section 104 holdings: indexation allowance) for “sections 105 and 106” substitute “section 105”, and

(e)in Schedule 15 to FA 2000 (corporate venture scheme), in paragraph 93(6) (identification of shares on a disposal), for “Sections 104 to 106” substitute “Sections 104, 105”.

(3)The amendments made by this section have effect in relation to any disposal that is made on or after 5th December 2005.

Insurance policies and annuities

73Policies of insurance and non-deferred annuities

(1)TCGA 1992 is amended as follows.

(2)For section 204 (policies of insurance) substitute—

204Policies of insurance and non-deferred annuities

(1)A gain accruing on a disposal of, or of an interest in, the rights conferred by a non-life policy of insurance is not a chargeable gain (but see subsection (2)).

(2)If a disposal is of, or of an interest in, the rights conferred by a non-life policy of insurance of the risk of—

(a)any kind of damage to assets, or

(b)the loss or depreciation of assets,

the exemption under subsection (1) does not apply so far as those rights relate to chargeable assets.

(3)For this purpose “chargeable assets” means assets on the disposal of which a chargeable gain—

(a)may accrue, or

(b)might have accrued.

(4)Nothing in subsections (1) and (2) prevents sums received under a non-life policy of insurance of the risk of—

(a)any kind of damage to assets, or

(b)the loss or depreciation of assets,

from being sums derived from the assets for the purposes of this Act (and, in particular, for the purposes of section 22).

(5)A gain accruing on a disposal of, or of an interest in, the rights conferred by a contract for an annuity is not a chargeable gain if the annuity is—

(a)a non-deferred annuity, or

(b)an annuity granted (or deemed to be granted) under the Government Annuities Act 1929.

(6)If any investments or other assets are, in accordance with a policy issued in the course of life assurance business carried on by an insurance company, transferred to the policy holder—

(a)the policy holder’s acquisition of the assets, and

(b)the disposal of the assets to the policy holder,

are to be taken for the purposes of this Act to be for a consideration equal to the market value of the assets.

(7)In this section “interest”, in relation to any rights, means an interest as a co-owner of the rights.

(8)It does not matter—

(a)whether the rights are owned jointly or in common, or

(b)whether or not the interests of the co-owners are equal.

(9)In this section a “non-deferred annuity” means an annuity—

(a)which is not granted under a contract for a deferred annuity, and

(b)which is granted in the ordinary course of a business of granting annuities on the life of any person,

and it does not matter whether the annuity includes instalments of capital.

(10)In this section a “non-life policy of insurance” means—

(a)a contract made in the course of a capital redemption business, as defined in section 458(3) of the Taxes Act, and

(b)any other policy of insurance which is not a policy of insurance on the life of any person..

(3)In section 237 (superannuation funds, annuities and annual payments)—

(a)at the end of paragraph (a), insert “or”, and

(b)omit paragraph (b) (exemption for disposals of non-deferred annuities etc).

(4)The amendments made by this section have effect in relation to disposals made on or after 5th December 2005.

Capital gains tax

74Exception to “bed and breakfasting” rules etc

(1)TCGA 1992 is amended as follows.

(2)In section 106A (identification of securities: general rules for capital gains tax), after subsection (5) (acquisition of securities within 30 days after disposing of securities of same class) insert—

(5A)Subsection (5) above shall not require securities to be identified with securities which the person making the disposal acquires at a time when—

(a)he is neither resident nor ordinarily resident in the United Kingdom, or

(b)he is resident or ordinarily resident in the United Kingdom but is Treaty non-resident..

(3)In section 288 (interpretation), after subsection (7A) (meaning of “surrender” in application of Act to Scotland) insert—

(7B)For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief arrangements having effect at that time..

(4)In consequence of the amendment made by subsection (3)—

(a)in section 10A (temporary non-residents), omit subsection (9A) (meaning of “Treaty non-resident”), and

(b)in section 83A (trustees both resident and non-resident in a year of assessment), omit subsection (5) (meaning of “Treaty non-resident”).

(5)The amendment made by subsection (2) has effect in relation to any acquisition made at any time on or after 22nd March 2006.

(6)The amendments made by subsections (3) and (4) have effect in relation to any time on or after 22nd March 2006.

Chapter 8Avoidance: miscellaneous

Film partnerships

75Interest relief: film partnership

(1)The amount of interest on a loan in respect of which an individual (“the borrower”) is eligible for relief for a year of assessment under sections 353 and 362 of ICTA (interest on loan to buy into partnership) shall, where this section applies, be restricted to 40% of the interest that would otherwise be eligible for relief.

(2)This section applies where—

(a)the partnership (“the film partnership”) carries on a trade,

(b)the profits or losses of the trade are computed in accordance with Chapter 9 of Part 2 of ITTOIA 2005 (films, etc),

(c)the loan is secured on an asset or activity of another partnership (“the investment partnership”),

(d)the borrower is or has been a member of the investment partnership, and

(e)at a time in the year of assessment the proportion of the profits of the investment partnership to which the borrower is entitled is less than the proportion of the partnership’s capital contributed by him at that time.

(3)For the purposes of subsection (2)(c) a loan is secured on an asset or activity of a partnership if there is any arrangement—

(a)under which an asset of the partnership may be used or relied upon wholly or partly to guarantee repayment of any part of the loan, or

(b)by virtue of which any part of the loan is expected to be repaid (directly or indirectly) out of assets or income held by or accruing to the partnership.

(4)For the purposes of subsection (2)(e) the reference to profits excludes any amount that would not be taken into account as, or for the purpose of calculating, income for the purposes of the Tax Acts.

(5)In subsection (2)(e) the reference to the partnership’s capital is a reference to—

(a)anything that is, or in accordance with generally accepted accounting practice would be, accounted for as partners' capital or partners' equity, and

(b)amounts lent to the partnership by the partners.

(6)For the purposes of subsection (2)(e) the reference to the proportion of the partnership’s capital contributed by the borrower includes, in particular, a reference to—

(a)any amount paid by the borrower to acquire an interest in the investment partnership if or in so far as the borrower retains the interest at that time,

(b)any amount made available by the borrower (directly or indirectly) to another person who acquires an interest in the investment partnership if or in so far as that other person retains the interest at that time,

(c)any amount lent by the borrower to the investment partnership,

(d)any amount made available by the borrower (directly or indirectly) to another person who lends it to the investment partnership, and

(e)an amount made available in any other way prescribed by regulations made by the Commissioners for Her Majesty’s Revenue and Customs.

(7)Regulations under subsection (6)(e)—

(a)may make provision having retrospective effect,

(b)may make provision generally or only in relation to specified cases or circumstances,

(c)may make different provision for different cases or circumstances,

(d)may make transitional, consequential or incidental provision,

(e)shall be made by statutory instrument, and

(f)shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(8)In subsections (2) to (6) a reference to the borrower or another partner includes a reference to a person connected with him within the meaning of section 839(2) of ICTA.

(9)This section shall have effect in relation to the payment of interest accruing on or after 10th March 2006.

Financial instruments

76Avoidance involving financial arrangements

Schedule 6 (which makes provision in relation to tax avoidance involving financial arrangements) has effect.

Intangible fixed assets

77Treating assets as “existing assets” etc

(1)Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed assets) is amended as follows.

(2)In paragraph 13 (credits in respect of intangible fixed assets: introduction), in sub-paragraph (1) (credits brought into account under Part 3), after paragraph (a) (receipts recognised in determining profit or loss), insert—

(aa)receipts in respect of royalties so far as the receipts do not give rise to a credit under paragraph 14 (see paragraph 14A),.

(3)After paragraph 14 (receipts recognised as they accrue) insert—

Receipts in respect of royalties so far as not dealt with under paragraph 14

14A(1)So far as a receipt in respect of any royalty does not give rise to a credit under paragraph 14 (whether in the period of account in which it is received or in a subsequent period of account), a credit shall be brought into account for tax purposes.

(2)The amount of the credit to be brought into account for tax purposes is equal to so much of the amount of the receipt as does not give rise to a credit under paragraph 14.

(3)The credit shall be brought into account for tax purposes in the accounting period in which the receipt is recognised for accounting purposes..

(4)In paragraph 82 (assets excluded to extent specified: research and development), in sub-paragraph (2) (provisions of Schedule not applying to asset so far as representing expenditure on research and development)—

(a)in paragraph (a) (Part 2 not to apply subject to exception relating to paragraph 14), at the end insert “or 14A (receipts in respect of royalties so far as not dealt with under paragraph 14)”, and

(b)in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for “paragraph 14” substitute “paragraphs 14 and 14A”.

(5)In paragraph 83 (assets excluded to extent specified: election to exclude capital expenditure on computer software), in sub-paragraph (3) (effect of election)—

(a)in paragraph (a) (Part 2 not to apply subject to exception relating to paragraph 14), at the end insert “or 14A (receipts in respect of royalties so far as not dealt with under paragraph 14)”, and

(b)in paragraph (b) (Part 3 not to apply subject to exception for paragraph 14), for “paragraph 14” substitute “paragraphs 14 and 14A”.

(6)In paragraph 118 (application of Schedule to assets created or acquired after commencement, that is to say, on or after 1st April 2002)—

(a)in sub-paragraph (4) (application of sub-paragraph (1) subject to other paragraphs), at the end insert and

(c)paragraph 127A (assets whose value derives from existing assets treated as existing assets), and

(d)paragraph 127B (assets acquired in connection with disposals of existing assets treated as existing assets)., and

(b)in sub-paragraph (6) (nothing in paragraph 118 restricts application of Schedule in accordance with paragraph 119), at the end insert “, but see sub-paragraph (5) of that paragraph.”.

(7)In paragraph 119 (application of Schedule to royalties), at the end insert—

(5)Nothing in this paragraph shall be read as authorising or requiring an amount to be brought into account in connection with the realisation of an existing asset within the meaning of Part 4..

(8)After paragraph 127 (certain assets acquired on transfer of business treated as existing assets) insert—

Assets whose value derives from existing assets treated as existing assets

127A(1)This paragraph applies where—

(a)a company acquires an intangible fixed asset (“the acquired asset”) after commencement from a person (“the transferor”) who at the time of the acquisition is a related party in relation to the company,

(b)the acquired asset is created, whether by the transferor or any other person, after commencement,

(c)the value of the acquired asset derives in whole or in part from any other asset (“the other asset”),

(d)the other asset has not at any time on or after 5th December 2005 been a chargeable intangible asset in the hands of the company or a related party in relation to the company or the transferor, and

(e)the existing asset condition is met.

(2)The existing asset condition is that, after commencement,—

(a)the other asset has been an existing asset in the hands of the transferor at a time when the transferor was a related party in relation to the company, or

(b)the other asset has been an existing asset in the hands of any other person at a time when the other person was a related party in relation to the company or the transferor.

(3)Where this paragraph applies the acquired asset shall be treated for the purposes of this Schedule as an existing asset in the hands of the company, but only so far as its value derives from the other asset.

(4)If only part of the value of the acquired asset so derives—

(a)this Schedule has effect as if there were a separate asset representing the part of the value not so derived, and

(b)the enactments that apply where this Schedule does not apply have effect as if there were a separate asset representing the part of the value so derived.

Any apportionment necessary for this purpose shall be made on a just and reasonable basis.

(5)For the purposes of this paragraph the cases in which the value of an asset may be derived from any other asset include any case where—

(a)assets have been merged or divided,

(b)assets have changed their nature, or

(c)rights or interests in or over assets have been created or extinguished.

(6)For the purposes of this paragraph the time at which an asset is created or acquired is the time at which it would be regarded as created or acquired for the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement).

Assets acquired in connection with disposals of existing assets treated as existing assets

127B(1)This paragraph applies where—

(a)a person disposes of an asset which, at the time of the disposal, is an existing asset in the hands of the person,

(b)a company which at the time of the disposal is a related party in relation to the person acquires an intangible fixed asset directly or indirectly in consequence of, or otherwise in connection with, the disposal, and

(c)the intangible fixed asset that is acquired would, apart from this paragraph, at the time of the acquisition be a chargeable intangible asset in the hands of the company.

(2)Where this paragraph applies the intangible fixed asset that is acquired shall be treated for the purposes of this Schedule as an existing asset in the hands of the company.

(3)For the purposes of this paragraph—

(a)“asset”, in relation to any disposal, means any asset for the purposes of the Taxation of Chargeable Gains Act 1992,

(b)a person “disposes of” an asset if, for the purposes of that Act, the person makes a part disposal of the asset or any other disposal of the asset,

(c)the time at which a disposal of an asset is made is the time at which it is made for the purposes of that Act.

(4)For the purposes of this paragraph it does not matter—

(a)whether the asset that the person disposes of is the same asset as the one that the company acquires,

(b)whether the asset that is acquired is acquired at the time of the disposal or at any other time, or

(c)whether the asset that is acquired is acquired by merging two or more assets or is acquired in any other way..

(9)In paragraph 143 (index of defined expressions), in the entry relating to existing asset, in the second column, for “paragraph 127” substitute “paragraphs 127 to 127B”.

(10)The amendments made by this section have effect in relation to the debits or credits to be brought into account for any accounting period beginning on or after 5th December 2005 (and, in relation to the debits or credits to be brought into account for any such period, shall be deemed always to have had effect).

(11)For this purpose an accounting period beginning before, and ending on or after, that date is treated as if—

(a)so much of that period as falls before that date, and

(b)so much of that period as falls on or after that date,

were separate accounting periods.

International matters

78Controlled foreign companies and treaty non-resident companies

(1)Section 90 of FA 2002 (controlled foreign companies and treaty non-resident companies) is amended as follows.

(2)In subsection (2) (application of subsection (1), which inserted section 747(1B) of ICTA (disregard of section 249 of FA 1994 for most purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies))), for paragraph (b) (exclusion for companies which were non-resident immediately before 1st April 2002) substitute—

(b)does not apply to a company (“the non-resident company”) that—

(i)by virtue of section 249 of the Finance Act 1994 was treated as resident outside the United Kingdom, and not resident in the United Kingdom, immediately before that date, and

(ii)has not subsequently ceased to be so treated,

unless condition A or B is met in relation to the non-resident company at any time on or after 22nd March 2006..

(3)After that subsection insert—

(3)Condition A is met in relation to the non-resident company at any time on or after 22nd March 2006 if—

(a)immediately before 22nd March 2006 the non-resident company does not own directly or indirectly any company as a subsidiary company, and

(b)at any time on or after that date the non-resident company becomes the direct or indirect owner of a UK resident company as a subsidiary company.

(4)Condition B is met in relation to the non-resident company at any time on or after 22nd March 2006 if—

(a)immediately before 22nd March 2006 the non-resident company owns directly or indirectly any company as a subsidiary company (which may be a UK resident company),

(b)at any time (“the relevant time”) on or after that date the non-resident company becomes the direct or indirect owner of any UK resident company as a subsidiary company (or, as the case may be, another UK resident company), and

(c)directly or indirectly in consequence of, or otherwise in connection with, the ownership mentioned in paragraph (b) there is a qualifying change in activities.

(5)There is a qualifying change in activities if, at the relevant time or any subsequent time,—

(a)there is a major change in the nature, conduct or scale of the non-resident company’s activities, or

(b)there is a major change in the nature, conduct or scale of the activities of the group of companies of which the non-resident company is a member.

(6)In this section references to directly or indirectly owning a company are references to owning it—

(a)directly or through another company or companies, or

(b)partly directly and partly through another company or companies.

(7)In this section references to ownership are to be read as references to beneficial ownership.

(8)In this section “UK resident company”, in relation to any time, means any company which is resident in the United Kingdom at that time..

79Transfer of assets abroad

Schedule 7 (which makes amendments of, or relating to, Chapter 3 of Part 17 of ICTA (transfer of assets abroad)) has effect.

Pre-owned assets

80Restriction of exemption from charge to income tax

(1)Schedule 15 to FA 2004 (charge to income tax on benefits received by former owner of property) is amended as follows.

(2)In paragraph 11 (exemptions from charge)—

(a)in sub-paragraph (9) (meaning of “the relevant property”) for “sub-paragraphs (1) to (8)” substitute “this paragraph”, and

(b)at the end insert—

(11)Sub-paragraph (12) applies where at any time—

(a)the relevant property has ceased to be comprised in a person’s estate for the purposes of IHTA 1984, or

(b)he has directly or indirectly provided any consideration for the acquisition of the relevant property,

and at any subsequent time the relevant property or any derived property is comprised in his estate for the purposes of IHTA 1984 as a result of section 49(1) of that Act (treatment of interests in possession).

(12)Where this sub-paragraph applies, the relevant property and any derived property—

(a)are not to be treated for the purposes of sub-paragraphs (1) and (2) as comprised in his estate at that subsequent time, and

(b)are not to be treated as falling within sub-paragraph (5) in relation to him at that subsequent time.

(13)For the purposes of sub-paragraphs (11) and (12) references, in relation to the relevant property, to any derived property are to other property—

(a)which derives its value from the relevant property, and

(b)whose value, so far as attributable to the relevant property, is not substantially less than the value of the relevant property..

(3)In paragraph 21 (election for application of inheritance tax provisions where paragraph 3 (land) or 6 (chattels) would otherwise apply)—

(a)in sub-paragraph (2)(b) (application of the gifts with reservation rules), in sub-paragraph (i) at the end insert “, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property”,

(b)in sub-paragraph (2)(b) for sub-paragraph (ii) and the “and” before it substitute—

(ii)section 102(3) and (4) of that Act shall apply, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property, and

(iii)if the chargeable person is beneficially entitled to an interest in possession in the property, sections 53(3) and (4) and 54 of IHTA 1984 (which deal with cases of property reverting to the settlor etc) shall not apply in relation to the chargeable proportion of the property., and

(c)in sub-paragraph (3) (meaning of “the chargeable proportion”), after paragraph (a)(ii) insert—

(iii)in the case of property in which the chargeable person is beneficially entitled to an interest in possession, to the date of his death or (if his interest comes to an end on an earlier date) that earlier date, and.

(4)In paragraph 22 (election for application of inheritance tax provisions where paragraph 8 (intangible property) would otherwise apply), in sub-paragraph (2)(b) (application of the gifts with reservation rules)—

(a)in sub-paragraph (i) at the end insert “, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property concerned”, and

(b)for sub-paragraph (ii) and the “and” before it substitute—

(ii)section 102(3) and (4) of that Act shall apply, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property concerned, and

(iii)if the chargeable person is beneficially entitled to an interest in possession in the property concerned, sections 53(3) and (4) and 54 of IHTA 1984 (which deal with cases of property reverting to the settlor etc) shall not apply in relation to that property..

(5)The amendments made by this section have effect—

(a)for the part of the year 2005-06 beginning with 5th December 2005, and

(b)for the year 2006-07 and subsequent years of assessment.

(6)If—

(a)paragraph 11 of Schedule 15 to FA 2004 ceases, in consequence of the amendments made by this section, to apply to a person in relation to any property, and

(b)that person dies before the day on which this Act is passed without making an election under paragraph 21 or 22 of that Schedule in relation to that property,

his personal representatives (within the meaning of IHTA 1984) may make any election under paragraph 21 or 22 of that Schedule that he might have made.

(7)If—

(a)in consequence of the amendments made by this section a person makes an election under paragraph 21 or 22 of Schedule 15 to FA 2004,

(b)that person dies before the day on which this Act is passed, and

(c)an amount of inheritance tax would (but for this subsection) fall due before that day,

that amount is to be treated instead as falling due at the end of the period of 14 days beginning with that day.

(8)This section is deemed to have come into force on 5th December 2005.

Chapter 9Miscellaneous provisions

Leasing of plant or machinery

81Leases of plant or machinery

(1)Schedule 8 (which makes provision in relation to leases of plant or machinery) has effect.

(2)Schedule 9 (which makes miscellaneous amendments relating to such leases) has effect.

Sale of lessors

82Sale etc of lessor companies etc

Schedule 10 (which makes provision about the sale etc of lessor companies etc) has effect.

83Restrictions on use of losses etc: leasing partnerships

(1)In section 403 of ICTA (amounts which may be surrendered by way of group relief), in subsection (4) (section 403 subject to certain exceptions), at the end insert and

section 785ZA (restrictions on use of losses: leasing partnerships).

(2)After section 785 of ICTA (meaning of expressions for purposes of sections 781 to 784 (assets leased to traders and others)) insert—

785ZARestrictions on use of losses: leasing partnerships

(1)This section applies for corporation tax purposes if—

(a)a company carries on a business in respect of which the company is within the charge to corporation tax,

(b)the company carries on the business in partnership with other persons in an accounting period of the partnership,

(c)the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

(d)the company incurs a loss in its notional business in any accounting period comprised (wholly or partly) in the accounting period of the partnership, and

(e)the interest of the company in the leasing business during the accounting period of the partnership is not determined on an allowable basis (see subsections (2) to (4)).

(2)The interest of the company in the leasing business during the accounting period of the partnership is determined on an allowable basis if (and only if) the following condition is met.

(3)The condition is met if, for the purposes of section 114(2),—

(a)the company’s share in the profits or loss of the leasing business for that period is determined wholly by reference to a single percentage, and

(b)the company’s share in any relevant capital allowances for that period is determined wholly by reference to the same percentage.

(4)For the purposes of this condition “profits” does not include chargeable gains.

(5)The following restrictions apply in respect of so much of the loss incurred by the company in its notional business as derives from any relevant capital allowances (“the restricted part of the loss”).

(6)Apart from by way of set off against any relevant leasing income, relief is not to be given to the company under any relevant loss relief provision in respect of the restricted part of the loss.

(7)If the leasing business is a trade, relief is not to be given to the company under section 393A(1) in respect of the restricted part of the loss.

(8)The restricted part of the loss is not available for set off by way of group relief in accordance with section 403.

(9)For the purpose of determining how much of a loss derives from any relevant capital allowances, the loss is to be calculated on the basis that any relevant capital allowances are the final amounts to be deducted.

785ZBSection 785ZA: definitions

(1)This section applies for the purposes of section 785ZA.

(2)“Business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to the Finance Act 2006 (sale etc of lessor companies etc).

(3)“Lease” has the same meaning as in section 785A.

(4)“Notional business”, in relation to a company, means the business—

(a)from which the company’s share in the profits or loss of the leasing business is treated under section 114(2) as deriving for the purposes of the charge to corporation tax, and

(b)which is treated under that provision as carried on alone by the company for those purposes.

(5)“Plant or machinery” has the same meaning as in Part 2 of the Capital Allowances Act.

(6)“Relevant capital allowance” means an allowance under Part 2 of the Capital Allowances Act in respect of expenditure incurred on the provision of plant or machinery wholly or partly for the purposes of the leasing business.

(7)“Relevant leasing income” means any income of the company’s notional business deriving from any lease—

(a)which is a lease of plant or machinery, and

(b)which was entered into before the end of the accounting period of the company in which the loss in its notional business was incurred.

(8)“Relevant loss relief provision” means any of the following provisions—

(a)section 392A (Schedule A losses),

(b)section 392B (losses from overseas property businesses),

(c)section 393 (trade losses),

(d)section 396 (Case VI losses)..

(3)After section 261 of CAA 2001 (special leasing: life assurance business) insert—

261ASpecial leasing: leasing partnerships

(1)This section applies for corporation tax purposes if—

(a)a company carries on a business in partnership with other persons in a chargeable period of the partnership,

(b)the business (“the leasing business”) is, on any day in that period, a business of leasing plant or machinery,

(c)the company is entitled to an allowance under section 19 (special leasing of plant or machinery) for any chargeable period comprised (wholly or partly) in the chargeable period of the partnership, and

(d)the interest of the company in the leasing business during the chargeable period of the partnership is not determined on an allowable basis.

(2)Subsections (3) to (6) of section 260 do not apply in relation to the allowance.

(3)For the purposes of this section—

(a)“business of leasing plant or machinery” has the same meaning as in Part 3 of Schedule 10 to FA 2006 (sale etc of lessor companies etc), and

(b)section 785ZA of ICTA applies for determining whether the interest of the company in the leasing business during the chargeable period of the partnership is determined on an allowable basis..

(4)The amendments made by this section have effect in relation to any business carried on by a company in partnership in any accounting period of the partnership ending on or after 5th December 2005.

(5)But, in relation to any accounting period of the partnership beginning before 5th December 2005 and ending on or after that date, those amendments have effect only if—

(a)the company starts to carry on the business in partnership on or after that date, or

(b)a relevant change in the interest of the company in the business occurs on or after that date.

(6)A relevant change in the interest of the company in the business occurs at any time if—

(a)immediately before that time its interest in the business during any accounting period of the partnership is determined on an allowable basis (within the meaning given by section 785ZA of ICTA), and

(b)immediately after that time its interest in the business during that period is not so determined.

84Disposal of plant or machinery subject to lease where income retained

(1)CAA 2001 is amended as follows.

(2)In section 66 (list of provisions outside Chapter 5 of Part 2 about disposal values), after the entry relating to section 222 of CAA 2001, insert—

sections 228K to 228MDisposal of plant or machinery subject to lease where income retained.

(3)After section 228J (plant or machinery subject to further operating lease) insert—

Disposal of plant or machinery subject to lease where income retained
228KDisposal of plant or machinery subject to lease where income retained

(1)This section applies for corporation tax purposes if—

(a)on any day (“the relevant day”) a person (“the lessor”) carries on a business of leasing plant or machinery (the “leasing business”),

(b)on the relevant day the lessor sells or otherwise disposes of any relevant plant or machinery subject to a lease to another person,

(c)the lessor remains entitled immediately after the disposal to some or all of the rentals under the lease in respect of the plant or machinery which are payable on or after the relevant day, and

(d)the lessor is required to bring a disposal value of the plant or machinery into account under this Part.

(2)The disposal value to be brought into account is determined as follows.

(3)If the amount or value of the consideration for the disposal exceeds the limit that would otherwise be imposed on the amount of the disposal value by section 62 (general limit) or 239 (limit on disposal value where additional VAT rebate)—

(a)that limit is not to apply, and

(b)the whole of the amount or value of the consideration for the disposal is to be the disposal value to be brought into account.

(4)In any other case, the disposal value to be brought into account is the sum of—

(a)the amount or value of the consideration for the disposal, and

(b)the value of the rentals under the lease in respect of the plant or machinery (see subsections (7) and (8)) which are payable on or after the relevant day and to which the lessor remains entitled immediately after the disposal,

but subject to the limit imposed on the amount of the disposal value by section 62 or 239.

(5)If—

(a)any of the rentals under the lease are receivable by the lessor on or after the relevant day, and

(b)the value of any of those rentals is represented in the amount of the disposal value under subsection (4)(b),

the amount of those rentals that is equal to their value as so represented is left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

(6)If, in determining under subsection (5) the amount of any rental to be so left out of account, it is necessary to apportion the amount of the rental, the apportionment is to be made on a just and reasonable basis.

(7)For the purposes of this section, the value of any rentals under the lease in respect of the plant or machinery is taken to be the amount of the net present value of the rentals (see section 228L).

(8)If any land or other asset which is not plant or machinery is subject to the lease, the value of any rentals under the lease in respect of the plant or machinery is taken to be so much of the amount of the net present value of the rentals as, on a just and reasonable basis, relates to the plant or machinery.

(9)This section is supplemented by—

(a)section 228L (which provides rules for determining the net present value of the rentals), and

(b)section 228M (which defines other expressions used in this section).

228LDetermining the net present value of the rentals for purposes of s.228K

(1)For the purposes of section 228K, the amount of the net present value of the rentals is calculated as follows—

  • Step 1

    Find the amount (“RI”) of each rental payment—

    (a)

    which is payable at any time during the term of the lease, and

    (b)

    which is payable on or after the relevant day.

  • Step 2

    For each rental payment find the day (“the payment day”) on which it becomes payable.

  • Step 3

    For each rental payment find the number of days in the period (“P”) which—

    (a)

    begins with the relevant day, and

    (b)

    ends with the payment day.

  • Step 4

    Calculate the net present value of each payment (“NPVRI”) by applying the following formula—

    Formula - RI divided by (1 plus T) to the power of i

    where—

    • T is the temporal discount rate, and

    • i is the number of days in P divided by 365.

  • Step 5

    Add together each amount of NPVRI determined under step 4.

(2)For the purposes of this section the “term” of a lease has the meaning given in Chapter 6A of this Part.

(3)For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.

(4)The regulations may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).

(5)Subsection (5) of that section (power of Commissioners to specify rate by order in certain circumstances) applies in relation to regulations under this section as it applies in relation to regulations under that section.

228MOther definitions for the purposes of s.228K

(1)This section applies for the purposes of section 228K.

(2)“Business of leasing plant or machinery”—

(a)has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

(b)has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).

(3)“Lease” includes—

(a)an underlease, sublease, tenancy or licence, and

(b)an agreement for any of those things.

(4)“Relevant plant or machinery”, in relation to a business of leasing plant or machinery, means plant or machinery on whose provision expenditure is incurred wholly or partly for the purposes of the business..

(4)In Schedule 1 (abbreviations and defined expressions), in Part 1 (abbreviations), insert at the end—

FA 2006The Finance Act 2006 (c. 25).

(5)The amendments made by this section have effect in relation to any disposal made on or after 5th December 2005.

(6)But any rentals that are receivable by the lessor before 22nd March 2006 are to be left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.

85Restrictions on effect of elections under section 266 of CAA 2001

(1)CAA 2001 is amended as follows.

(2)In section 266 (election where predecessor and successor are connected persons), in subsection (7) (sections 104, 108 and 265 not to apply if election is made), at the end insert “(but see section 267A)”.

(3)In section 267 (effect of election), at the end insert—

(6)This section is subject to section 267A..

(4)After that section insert—

267ARestriction on effect of election

(1)This section applies for corporation tax purposes if—

(a)on any day (“the relevant day”) a person (“the predecessor”) carries on a business of leasing plant or machinery,

(b)on the relevant day another person (“the successor”) succeeds to the business, and

(c)the predecessor and the successor make an election under section 266.

(2)Neither—

(a)section 266(7), nor

(b)the provisions of section 267,

have effect in relation to any plant or machinery which, in determining whether the business is a business of leasing plant or machinery on the relevant day, is qualifying leased plant or machinery.

(3)In this section “business of leasing plant or machinery”—

(a)has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or

(b)has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership)..

(5)The amendments made by this section have effect in relation to any succession occurring on or after 5th December 2005.

Insurance companies and policyholders

86Insurance companies

Schedule 11 (which makes provision about insurance companies) has effect.

87Qualifying policies: altering method for calculating benefits

(1)Schedule 15 to ICTA (provisions for determining whether an insurance policy is a “qualifying policy” for the purposes of the Tax Acts) is amended as follows.

(2)In paragraph 18 (variations), in sub-paragraph (3) (paragraph does not apply by reason of certain variations), at the end insert , or

(d)any variation which alters the method for calculating the benefits secured by the policy..

(3)In paragraph 22 (certificates from body issuing policy), in sub-paragraph (3) (sub-paragraph (2) does not apply by reason of certain variations), at the end insert ; or

(c)any variation which alters the method for calculating the benefits secured by the policy..

(4)In the case of a variation effected as part of, or in connection with, an insurance business transfer scheme, the amendments made by this section are deemed always to have had effect.

(5)In any other case, the amendments made by this section have effect in relation to variations effected on or after 7th October 2005.

(6)In this section an “insurance business transfer scheme” means—

(a)a scheme falling within section 105 of the Financial Services and Markets Act 2000 (c. 8),

(b)a scheme sanctioned by a court under Part 1 of Schedule 2C to the Insurance Companies Act 1982 (c. 50), or

(c)a scheme sanctioned by a court under section 49 of that Act or under any earlier enactment corresponding to that section,

and for the purposes of this subsection any reference to an enactment is a reference to the enactment as it had effect from time to time.

Settlements

88Settlements, etc: chargeable gains

Schedule 12 (which amends TCGA 1992 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.

89Settlements, etc: income

Schedule 13 (which amends ICTA and ITTOIA 2005 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.

90Special trusts tax rates not to apply to social landlords' service charge income

(1)Section 686 of ICTA (accumulation and discretionary trusts: special rates of tax) is amended as follows.

(2)In subsection (2), after paragraph (b) insert—

(ba)is not income from service charges held on trust (or, in Scotland, held in trust) by a relevant housing body; and.

(3)After subsection (6) insert—

(6ZA)In this section—

  • “relevant housing body” means—

    (a)

    a local authority,

    (b)

    a registered social landlord,

    (c)

    a Northern Ireland housing association,

    (d)

    a charitable housing association,

    (e)

    a charitable housing trust,

    (f)

    a housing action trust established under Part 3 of the Housing Act 1988,

    (g)

    the Housing Corporation, or

    (h)

    the Northern Ireland Housing Executive; and

  • “service charge” has the meaning given by section 18(1) of the Landlord and Tenant Act 1985.

(6ZB)In subsection (6ZA)—

  • “charitable housing association” means a society, body or company which—

    (a)

    satisfies the conditions in section 5(1)(a) and (b) of the Housing Act 1985, and

    (b)

    is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;

  • “charitable housing trust” means a corporation or body which—

    (a)

    satisfies the condition in section 6(a) or (b) of the Housing Act 1985, and

    (b)

    is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;

  • “Northern Ireland housing association” means a body which is registered in the register maintained under Article 14 of the Housing (Northern Ireland) Order 1992; and

  • “registered social landlord” means a body which is registered in a register maintained under section 1 of the Housing Act 1996 or section 57 of the Housing (Scotland) Act 2001.

(4)This section has effect for the year 2006-07 and subsequent years of assessment.

Investment reliefs

91Venture capital schemes

(1)Schedule 14 contains amendments of the provisions relating to—

  • the enterprise investment scheme,

  • venture capital trusts, and

  • the corporate venturing scheme.

(2)Those amendments have effect as mentioned in that Schedule.

Employment-related securities

92Avoidance using options etc

(1)Section 420 of ITEPA 2003 (meaning of securities etc) is amended as follows.

(2)In subsection (1)(f), insert at the beginning “options and”.

(3)In subsection (5)(e), insert at the beginning “securities”.

(4)In subsection (8), in the definition of “securities option”, after “acquire securities” insert “other than a right to acquire securities which is acquired pursuant to a right or opportunity made available under arrangements the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions”.

(5)This section has effect in relation to options acquired on or after 2nd December 2004; but subsection (4) also has effect in relation to an option acquired before that date where something is done on or after that date as part of the arrangements under which it was made available.

93Corporation tax relief for shares acquired under EMI option

(1)Schedule 23 to FA 2003 (corporation tax relief for employee share acquisition) is amended as follows.

(2)In paragraph 21 (amount of relief in case of restricted shares), after sub-paragraph (4) insert—

(4A)But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—

(a)the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the acquisition apart from the EMI code, and

(b)the amount (if any) that in fact counts as such income in accordance with the EMI code.

(3)In paragraph 22C (amount of relief in case of convertible shares), after sub-paragraph (4) insert—

(4ZA)But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—

(a)the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition apart from the EMI code, and

(b)the amount (if any) that in fact counts as such income in accordance with the EMI code.

(4)In paragraph 30 (minor definitions) insert at the appropriate places—

“the EMI code” has the meaning given by section 527(3) of the Income Tax (Earnings and Pensions) Act 2003;, and

“qualifying option” has the same meaning as in the EMI code (see section 527(4) of the Income Tax (Earnings and Pensions) Act 2003);.

(5)In paragraph 31 (index of defined expressions) insert at the appropriate places—

the EMI codeparagraph 30, and
qualifying optionparagraph 30.

(6)This section applies in relation to an acquisition of shares made on or after 1st September 2003 (and for this purpose shares are acquired when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred).

PAYE

94PAYE: retrospective notional payments

(1)ITEPA 2003 is amended as follows.

(2)In section 222 (payments by employer on account of tax where deduction not possible)—

(a)in subsection (1)(c), for “date on which the employer is treated as making the notional payment” substitute “relevant date”,

(b)in subsection (2), for “date mentioned in subsection (1)(c)” substitute “relevant date”, and

(c)after subsection (3) insert—

(4)In this section “the relevant date” means—

(a)if the employer is treated by virtue of any Act as making the notional payment before the date on which the Act is passed, that date, and

(b)in any other case, the date on which the employer is treated as making the notional payment.

(3)In section 684(2) (PAYE regulations), in item 1—

(a)for “time of the payment” substitute “relevant time”, and

(b)after paragraph (b) insert—

“The relevant time” is—

(a)if the payment is a notional payment for the purposes of section 710 and the person is treated by virtue of any Act as making it at a time before the date on which the Act is passed, that date, and

(b)in any other case, the time when the payment is made.

(4)In section 710 (notional payments: accounting for tax)—

(a)in subsection (7), after “means” insert “(subject to subsection (7A))”, and

(b)after that subsection insert—

(7A)In a case where the notional payment is treated by virtue of any Act as made before the date on which the Act is passed—

(a)the reference in sub-paragraph (i) of paragraph (a) of subsection (7) to the time when the notional payment is made is to the date on which the Act is passed,

(b)the reference in sub-paragraph (ii) of that paragraph to any occasion falling within the same income tax period is to any occasion falling before the end of the income tax period next after that in which that date falls, and

(c)the reference in paragraph (b) of that subsection to the income tax period in which the notional payment was made is to the income tax period next after that in which that date falls.

(5)The provisions of ITEPA 2003 amended by this section have effect in relation to notional payments treated by virtue of this Act as made before the date on which this Act is passed as if for the references to the date on which the Act is passed in—

(a)section 222(4)(a),

(b)paragraph (a) of the definition of “the relevant time” in section 684(2), and

(c)section 710(7A)(a), (b) and (c),

there were substituted references to such date as the Commissioners for Her Majesty’s Revenue and Customs may by order made by statutory instrument appoint.

Alternative finance arrangements

95Profit share agency

(1)In section 46(1) of FA 2005 (alternative finance arrangements: definition) for “or 49.” substitute “, 49 or 49A.”

(2)In section 49 of FA 2005 (profit share return)—

(a)for subsection (2) substitute—

(2)Amounts paid or credited as mentioned in subsection (1)(c) by a financial institution under arrangements falling within this section are profit share return for the purposes of this Chapter., and

(b)in the heading for “profit share return” substitute “deposit”.

(3)After section 49 of FA 2005 insert—

49AAlternative finance arrangements: profit share agency

(1)Subject to section 52, arrangements fall within this section if they are arrangements under which—

(a)a person (“the principal”) appoints a financial institution as his agent,

(b)the agent uses money provided by the principal with a view to producing a profit,

(c)the principal is entitled, to a specified extent, to profits resulting from the use of the money,

(d)the agent is entitled to any additional profits resulting from the use of the money (and may also be entitled to a fee to be paid by the principal), and

(e)payments in pursuance of the entitlement specified in paragraph (c) equate, in substance, to the return on an investment of the money at interest.

(2)Amounts paid or credited by a financial institution in accordance with an entitlement of the kind specified in subsection (1)(c) are profit share return for the purposes of this Chapter.

(3)The principal shall not be treated for the purposes of the Tax Acts as entitled to profits to which the agent is entitled in accordance with subsection (1)(d).

(4)After section 50(2) of FA 2005 (treatment of alternative finance arrangements: companies) insert—

(2A)Where a company is a party to arrangements falling within section 49A, Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to the arrangements as if—

(a)the arrangements were a loan relationship to which the company is a party,

(b)the amount provided under the arrangements were—

(i)in relation to a company which is the principal under the arrangements, the amount of a loan made by the company to the agent, and

(ii)in relation to a company which is the agent under the arrangements, the amount of a loan made to it by the principal, and

(c)profit share return payable to or by the company under the arrangements were interest payable under that loan relationship.

(5)In section 52 of FA 2005 (provision not at arm’s length)—

(a)in subsection (1)(a) for “or section 49,” substitute “, 49 or 49A,”

(b)in subsection (3) for “or section 49.” substitute “, 49 or 49A.”, and

(c)in subsection (5) for “49,” substitute “49 or 49A,”.

(6)In the heading to section 54 of FA 2005 “Section 49” becomes “Sections 49 and 49A”.

(7)In the definition of “profit share return” in section 57 of FA 2005 for “section 49(2)” substitute “sections 49(2) and 49A(2)”.

(8)In paragraph 1(b) of Schedule 2 to FA 2005 after “49” insert “or 49A”.

(9)In section 148 of FA 2003 (meaning of “permanent establishment”) after subsection (5A) insert—

(5B)Where profit share return is paid, in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), to a company that is not resident in the United Kingdom, the company is not regarded as having a permanent establishment in the United Kingdom merely by virtue of anything done for the purposes of the arrangements by the other party to the arrangements or by any other person acting for the company in relation to the arrangements.

(10)In section 127(1) of FA 1995 (persons not treated as UK representatives) renumber paragraph (cc) as paragraph (ca) and insert after it—

(cb)where the income consists of profit share return in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), the other party to the arrangements or any other person acting for the non-resident in relation to the arrangements;.

(11)Section 56 of FA 2005 (commencement and transitional) shall have effect in relation to the commencement of this section—

(a)as if references to Chapter 5 of Part 2 of that Act were references to this section,

(b)as if references to 6th April 2005 were references to—

(i)1st April 2006 in relation to corporation tax, and

(ii)6th April 2006 in relation to income tax, and

(c)as if references to section 49 were references to section 49A.

96Diminishing shared ownership

(1)In section 46(1) of FA 2005 (alternative finance arrangements: definition) after “47” insert “, 47A,”.

(2)In section 47 of FA 2005 (alternative finance return)—

(a)omit subsection (5),

(b)in subsections (6) and (7) after “is to be taken” insert “for the purposes of this Chapter”, and

(c)in the heading for “alternative finance return” substitute “purchase and re-sale”.

(3)After section 47 of FA 2005 insert—

47AAlternative finance arrangements: diminishing shared ownership

(1)Subject to section 52, arrangements fall within this section if under them—

(a)a financial institution acquires a beneficial interest in an asset, and

(b)another person (“the eventual owner”)—

(i)also acquires a beneficial interest in the asset,

(ii)is to make payments to the financial institution amounting in aggregate to the consideration paid for the acquisition of its beneficial interest,

(iii)is to acquire the financial institution’s beneficial interest (whether or not in stages) as a result of those payments,

(iv)is to make other payments to the financial institution (whether in pursuance of a lease forming part of the arrangements, or otherwise),

(v)has the exclusive right to occupy or otherwise use the asset,

(vi)is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, any increase in the asset’s value).

(2)For the purposes of subsection (1)(a) it is immaterial—

(a)whether or not the financial institution acquires its beneficial interest from the eventual owner,

(b)whether the eventual owner or another person other than the financial institution also has a beneficial interest in the asset, and

(c)whether or not the financial institution also has a legal interest in the asset.

(3)Subsection (1)(b)(v) does not prevent the eventual owner from granting an interest or right in relation to the asset to someone other than—

(a)the financial institution,

(b)a person controlled by the financial institution within the meaning of section 840 of ICTA, and

(c)a person controlled by a person who also controls the financial institution, in each case within the meaning of section 840 of ICTA;

provided that the grant is not required by the financial institution or by arrangements to which the financial institution is party.

(4)Subsection (1)(b)(vi) does not prevent the financial institution from having responsibility for, or a share in any loss arising out of, any reduction in the asset’s value (and subsection (1)(b)(ii) is subject to this subsection).

(5)Payments by the eventual owner under arrangements to which this section applies are alternative finance return for the purposes of this Chapter except in so far as they amount to—

(a)payments of the kind described in subsection (1)(b)(ii), or

(b)payments in respect of any arrangement fee or legal or other costs or expenses which the eventual owner is required under the arrangements to pay.

(6)Arrangements to which this section applies shall not be treated as a partnership for the purposes of the Taxes Acts (within the meaning of the Taxes Management Act 1970).

(4)In section 50 of FA 2005 (treatment of alternative finance arrangements: companies)—

(a)in subsection (1) after “section 47” insert “or 47A”,

(b)at the beginning of subsection (1)(b) add “in the case of arrangements within section 47,”, and

(c)after subsection (1)(b) insert—

(ba)in the case of arrangements within section 47A, the consideration paid by the financial institution for the acquisition of its beneficial interest were the amount of a loan made (as the case requires) to the company by, or by the company to, the other party to the arrangements,.

(5)In section 52 of FA 2005 (provision not at arm’s length)—

(a)in subsection (1)(a) after “47” insert “, 47A”,

(b)in subsection (3) after “47” insert “, 47A”, and

(c)in subsection (4) for “47,” substitute “47 or 47A,”.

(6)In section 53 of FA 2005 (sale and purchase of asset)—

(a)in subsection (1) after “47” insert “or 47A”,

(b)after subsection (2) add—

(3)In the application of this section to section 47A a reference to the effective return is a reference to the alternative finance return., and

(c)in the heading after “47” insert “or 47A”.

(7)In the definition of “alternative finance return” in section 57 of FA 2005 for “section 47(5)” substitute “sections 47(6) and (7) and 47A(5)”.

(8)This section shall have effect in relation to alternative finance arrangements entered into on or after—

(a)1st April 2006 in relation to corporation tax, and

(b)6th April 2006 in relation to income tax.

97Beneficial loans to employees

(1)For the purposes of Chapter 7 of Part 3 of ITEPA 2003 (taxable benefits: loans) a reference to a loan includes a reference to an arrangement which—

(a)is an alternative finance arrangement to which section 47 or 47A FA 2005 applies, or

(b)would be an alternative finance arrangement to which one of those sections applied if one of the parties were a financial institution.

(2)In the application of that Chapter by virtue of subsection (1)—

(a)a reference to interest shall be treated as including a reference to alternative finance return, and

(b)a reference to the amount outstanding shall be taken to be—

(i)in the case of arrangements to which section 47 applies, a reference to the purchase price minus such part of the aggregate payments made as does not represent alternative finance return, and

(ii)in the case of arrangements to which section 47A applies, a reference to the amount of the financial institution’s original beneficial interest minus such part of the aggregate payments made as does not represent alternative finance return.

(3)This section shall have effect in relation to arrangements entered into on or after 22nd March 2006.

98Regulations

(1)The Treasury may by order amend Chapter 5 of Part 2 to FA 2005 (alternative finance arrangements) so as to introduce provision relating to arrangements which in the Treasury’s opinion—

(a)equate in substance to a loan, deposit or other transaction of a kind that generally involves the payment of interest, but

(b)achieve a similar effect without including provision for the payment of interest.

(2)An order under subsection (1) may, in particular—

(a)include provision of a kind similar to provision already made by Chapter 5 of Part 2;

(b)make other provision about the treatment for the purposes of the Tax Acts of arrangements to which the order applies;

(c)make provision generally or only in relation to specified cases or circumstances;

(d)make different provision for different cases or circumstances;

(e)include consequential provision (which may include provision amending a provision of the Tax Acts);

(f)include incidental or transitional provision.

(3)An order under subsection (1)—

(a)shall be made by statutory instrument, and

(b)shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.

Nuclear decommissioning

99Amendment of section 29 of the Energy Act 2004

(1)Section 29 of the Energy Act 2004 (c. 20) (disregard for tax purposes of cancellation etc of decommissioning provisions) is amended as follows.

(2)In subsection (1)—

(a)in paragraph (a), for “relevant company” substitute “BNFL company”;

(b)for paragraphs (b) and (c) substitute—

(b)that provision—

(i)relates to decommissioning or cleaning-up which the NDA acquires or has acquired responsibility for securing by virtue of a direction under section 3, but

(ii)is not provision recognised in order to reflect the terms or effect of a management contract between the company and the NDA;

and

(c)the responsibility referred to in paragraph (b)(i)—

(i)includes the financial responsibility under section 21, or

(ii)would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement.

(3)For subsections (3) and (4) substitute—

(3)This subsection applies to a credit or debit if it arises from—

(a)the recognition in the accounts of the company for a relevant period beginning on or after 1st April 2005 of—

(i)the relevant provision, or

(ii)an asset that, in accordance with generally accepted accounting practice, is recognised in connection with the relevant provision in order to reflect the acquisition of financial responsibility referred to in subsection (1) (a “matching asset”);

(b)an adjustment made in the accounts of the company for such a period of—

(i)the relevant provision, or

(ii)a matching asset;

or

(c)the removal from the accounts of the company for such a period of—

(i)the relevant provision,

(ii)a matching asset, or

(iii)an asset or liability recognised in order to reflect the terms or effect of a contract falling within subsection (3A).

(3A)A contract falls within this subsection if—

(a)it is a contract made before 1st April 2005 and having effect between two or more BNFL companies under which a party to the contract assumed responsibility for securing decommissioning or cleaning-up; and

(b)the rights and obligations under the contract are extinguished by reason of a transfer made under a nuclear transfer scheme.

(4)In subsection (5)—

(a)for the definition of “BNFL company” substitute—

“BNFL company” means—

(a)BNFL,

(b)a company that immediately before 1st April 2005 was a wholly-owned subsidiary of BNFL, or

(c)a wholly-owned subsidiary of a company falling within paragraph (b);;

(b)after that definition insert—

“capping agreement” means an agreement under subsection (9) of section 21, entered into on 1st April 2005, the sole or main effect of which is to impose a limit on the NDA’s financial responsibility under that section;

“management contract” has the same meaning as in section 27;;

(c)for the definition of “relevant company” substitute—

“relevant period”, in relation to a company, means an accounting period during the whole of which the company is publicly owned;.

(5)After that subsection insert—

(5A)Where a company ceases to be publicly owned otherwise than at the end of an accounting period—

(a)the accounting period during which it ceases to be publicly owned is treated for the purposes of corporation tax as ending when it so ceases; and

(b)its profits and losses are to be computed accordingly for those purposes.

(6)The amendments made by this section have effect in relation to accounting periods of a BNFL company ending on or after 22nd March 2006.

  • “BNFL company” has the same meaning as in section 29 of the Energy Act 2004 (c. 20) as amended by this section.

100Amendment of section 30 of the Energy Act 2004

(1)Section 30 of the Energy Act 2004 (disregard for tax purposes of decommissioning provisions recognised by Nuclear Decommissioning Authority) is amended as follows.

(2)In subsection (1)—

(a)for paragraph (b) substitute—

(b)that responsibility—

(i)includes the financial responsibility under section 21, or

(ii)would do so but for the fact that the amount of the financial responsibility is for the time being subject to a limit imposed by a capping agreement;;

(b)in paragraph (c) omit “on the coming into force of the direction mentioned in paragraph (a),”;

(c)at the end of that paragraph insert ; and

(d)the provision is recognised—

(i)in order to reflect the coming into force of the direction mentioned in paragraph (a), or

(ii)in consequence of the variation or removal of a limit on the NDA’s financial responsibility under section 21 imposed by a capping agreement.

(3)For subsection (3) substitute—

(3)In computing the profits, gains or losses of the NDA for the purposes of corporation tax, no amount shall be brought into account in connection with—

(a)the recognition made in the accounts of the NDA of—

(i)the relevant provision, or

(ii)an asset that, in accordance with generally accepted accounting practice, is recognised in order to reflect a limit on the NDA’s financial responsibility under section 21 imposed by a capping agreement;

(b)any adjustment made in those accounts (including the removal from the accounts of an asset falling within paragraph (a)(ii)) in consequence of a variation or removal of the limit mentioned in paragraph (a)(ii).

(4)In subsection (4), for the words after “in connection with” substitute “an adjustment not falling within paragraph (b) of that subsection”.

(5)In subsection (5), after the definition of “BNFL company” insert—

“capping agreement” has the same meaning as in section 29;.

(6)The amendments made by this section have effect in relation to accounting periods of the Nuclear Decommissioning Authority ending on or after 22nd March 2006.

Accounting practice

101Securitisation companies

(1)Section 83 of FA 2005 (application of accounting standards to securitisation companies) is amended as follows.

(2)In subsection (1)(b) (periods of account in relation to which old UK GAAP is to apply) for “1st January 2007” substitute “1st January 2008”.

(3)In subsection (3) (meaning of “note-issuing company”)—

(a)omit “and” at the end of paragraph (c);

(b)after paragraph (d) insert— , and

(e)if it has any business apart from the activity mentioned in paragraph (a) (and any incidental activities) it consists in one or both of the following—

(i)acquiring, holding and managing assets forming the whole or part of the security for the capital market arrangement;

(ii)acting as guarantor in respect of loan relationships, derivative contracts, finance leases or other liabilities of other companies where the whole, or substantially the whole, of the company’s rights in respect of the guarantee (including any right of subrogation) form the whole or part of the security for the capital market arrangement..

(4)In subsection (5) (meaning of “intermediate borrowing company”)—

(a)in paragraph (a) after “asset-holding company”, and

(b)in paragraph (b) after “note-issuing company”,

insert “(or another intermediate borrowing company)”.

(5)In section 84 of that Act (power to make provision as to application of Corporation Tax Acts in relation to securitisation companies)—

(a)in subsection (3)(d)—

(i)at the end of sub-paragraph (i) insert “, and”, and

(ii)omit sub-paragraph (ii) and the word “and” following it;

(b)in subsection (5), omit paragraph (a).

(6)The amendments in this section shall be deemed always to have had effect, subject as follows.

(7)A company that would have been a securitisation company for the purposes of section 83 of FA 2005 if the amendments in this section had not been made, being either—

(a)a note-issuing company that—

(i)had become party as debtor to the capital market investment before 22nd March 2006, or

(ii)had before that date entered into a binding arrangement to become a party as debtor to the capital market investment, or

(b)another description of securitisation company by virtue of its connection with a company within paragraph (a),

may elect to be taxed as if the amendments in subsection (3) had not been made.

(8)Any such election must be made not later than 31st March 2007 and has effect for all relevant periods of account.

102Accountancy change: spreading of adjustment

(1)Schedule 15 to this Act (accountancy change: spreading of adjustment) has effect.

(2)In that Schedule—

  • Part 1 makes provision for income tax purposes, and

  • Part 2 makes provision for corporation tax purposes.

(3)In section 21B of ICTA (corporation tax: application to Schedule A business of other rules applicable to Case 1 of Schedule D) for “section 44 of and Schedule 6 to the Finance Act 1998” substitute “section 64 of and Schedule 22 to the Finance Act 2002”.

Part 4Real Estate Investment Trusts

Introduction

103Real Estate Investment Trusts

(1)This Part enables a company which carries on property rental business (within the meaning of section 104) and which satisfies the requirements of sections 106 to 108 to opt to—

(a)benefit from exemptions from corporation tax on profits and gains in accordance with sections 119 and 124, and

(b)have liabilities to tax imposed on the company and the recipients of distributions made by the company in accordance with sections 112, 121 and 122.

(2)This Part makes similar provision in relation to groups of companies (sections 134 to 136 and Schedule 17).

(3)A company or group to which this Part applies may be referred to as a Real Estate Investment Trust.

104Property rental business

(1)In this Part “property rental business” means business that is or forms part of—

(a)a Schedule A business (within the meaning of section 832(1) of ICTA), or

(b)an overseas property business (within the meaning of section 70A(4) of ICTA).

(2)But—

(a)business of a kind listed in Part 1 of Schedule 16 is not property rental business, and

(b)business is not property rental business if or in so far as it gives rise to income or profits of a kind listed in Part 2 of that Schedule.

105Other key concepts

(1)In this Part “entry” means the time when this Part begins to apply to a company.

(2)In this Part “cessation” means the time when this Part ceases to apply to a company.

(3)In this Part, in relation to a company—

(a)“C (pre-entry)” means the company before this Part begins to apply to it,

(b)“C (tax-exempt)” means the company in so far as it carries on tax-exempt business (within the meaning of section 107(2)) while this Part applies to it,

(c)“C (residual)” means the company in so far as it carries on non-tax-exempt business while this Part applies to it, and

(d)“C (post-cessation)” means the company after this Part has ceased to apply to it.

106Conditions for company

(1)A company may give notice for this Part to apply to it in accordance with section 109 only if it satisfies Conditions 1 to 3 below.

(2)In order for this Part to apply to a company in respect of an accounting period, Conditions 1 to 6 below must be satisfied in relation to the company throughout the accounting period.

(3)Condition 1 is that the company—

(a)is resident in the United Kingdom, and

(b)is not resident in another place in accordance with the law of that place relating to taxation.

(4)Condition 2 is that section 236 of the Financial Services and Markets Act 2000 Financial Services and Markets Act 2000 (c. 8) (open-ended investment companies) does not apply to the company.

(5)Condition 3 is that the shares forming the company’s ordinary share capital are listed on a recognised stock exchange.

(6)Condition 4 is that the company—

(a)is not a close company (within the meaning of section 414 of ICTA), or

(b)is a close company only by virtue of having as a participator (within the meaning of section 417 of ICTA) a limited partnership which is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000;

and for the purposes of paragraph (a) a company shall be treated as a close company if it is prevented from being a close company only by section 414(5) or 415(4)(a) of ICTA.

(7)Condition 5 is that—

(a)each share issued by the company either—

(i)forms part of the company’s ordinary share capital, or

(ii)is a non-voting fixed-rate preference share (within the meaning of paragraph 2 of Schedule 25 to ICTA (acceptable distribution policy)), and

(b)there is no more than one class of ordinary share issued by the company.

(8)Condition 6 is that in the case of any loan to which the company is party—

(a)the loan creditor is not entitled to an amount by way of interest which depends to any extent on the results of all or part of the company’s business or on the value of any of the company’s assets,

(b)the loan creditor is not entitled to an amount by way of interest which exceeds a reasonable commercial return on the consideration lent, and

(c)the loan creditor is entitled on repayment to an amount which either does not exceed the consideration lent or is reasonably comparable with the amount generally repayable (in respect of an equal amount of consideration) under the terms of issue of securities listed on a recognised stock exchange.

107Conditions for tax-exempt business

(1)In order to be a company to which this Part applies in respect of an accounting period—

(a)the company must throughout the accounting period have a property rental business in respect of which Conditions 1 to 3 below are satisfied (whether or not it also has other business), and

(b)Condition 4 below must be satisfied in relation to that property rental business in respect of that accounting period.

(2)Property rental business of a company is “tax-exempt business” for the purposes of this Part in respect of an accounting period if—

(a)Conditions 1 to 3 are satisfied throughout the accounting period in relation to the business, and

(b)Condition 4 is satisfied in respect of the accounting period in relation to the business.

(3)Condition 1 is that the property rental business involves at least three properties.

(4)Condition 2 is that no one property represents more than 40% of the total value of the properties involved in the property rental business.

(5)Condition 3 is that the property rental business must not involve property that would fall in accordance with generally accepted accounting practice to be described as owner-occupied.

(6)For the purposes of Conditions 1 to 3—

(a)a reference to a property involved in a business is a reference to an estate, interest or right by the exploitation of which the business is conducted,

(b)a property is a single property if it is designed, fitted or equipped for the purpose of being rented, and it is rented or available for rent, as a commercial or residential unit (separate from any other commercial or residential unit),

(c)assets must be valued in accordance with international accounting standards (within the meaning of section 50(2) of FA 2004),

(d)where international accounting standards offer a choice of valuation between cost basis and fair value, fair value must be used, and

(e)no account shall be taken of liabilities secured against or otherwise relating to assets (whether generally or specifically).

(7)For the purpose of Condition 3—

(a)no account shall be taken of the fact that a property may fall to be described as owner-occupied by reason only of the provision by the company of services to an occupant who is in exclusive occupation of the property and is not connected with the company (within the meaning given by section 839 of ICTA),

(b)if the shares of one company are stapled to the shares of another, the two shall be treated as a single company, and

(c)for this purpose shares of one company are stapled to shares of another if in consequence of the nature of the rights attaching to the shares of the one company (including any terms or conditions attaching to the right to transfer the shares) it is necessary or advantageous for a person who has, disposes of or acquires shares of that company also to have, to dispose of or to acquire a holding of shares of the other company.

(8)Condition 4 is that at least 90% of the profits of the property rental business arising in the accounting period are distributed—

(a)by way of dividend, and

(b)on or before the filing date for the company’s tax return for the accounting period (see paragraph 14 of Schedule 18 to FA 1998).

(9)But—

(a)Condition 4 shall be disregarded if and in so far as compliance with it would be unlawful by virtue of—

(i)an enactment (including Northern Ireland legislation and an Act of the Scottish Parliament), or

(ii)an enactment of a jurisdiction outside the United Kingdom where the enactment is prescribed, or is of a kind prescribed, for the purposes of this paragraph in regulations made by the Commissioners for Her Majesty’s Revenue and Customs, and

(b)a distribution that is withheld in order to prevent or reduce a charge to tax arising under regulations under section 114 shall be treated for the purposes of Condition 4 as having been made.

108Conditions for balance of business

(1)In order to be a company to which this Part applies in respect of an accounting period Conditions 1 and 2 below must be satisfied in respect of the company.

(2)Condition 1 is that in the accounting period the profits arising from tax-exempt business are at least 75% of the company’s total profits; and for that purpose—

(a)“total profits” means profits arising from tax-exempt business plus profits arising from non-tax-exempt business, and

(b)“profits” means profits before deduction of tax and excluding realised and unrealised gains and losses on the disposal of property, calculated in accordance with international accounting standards.

(3)Condition 2 is that at the beginning of the accounting period the value of the assets involved in tax-exempt business is at least 75% of the total value of assets held by the company; and for that purpose—

(a)an asset is involved in tax-exempt business if it is property involved in the relevant property rental business within the meaning given by section 107(6)(a),

(b)assets must be valued in accordance with international accounting standards,

(c)where international accounting standards offer a choice of valuation between cost basis and fair value, fair value must be used, and

(d)no account shall be taken of liabilities secured against or otherwise relating to assets (whether generally or specifically).

Entering Real Estate Investment Trust Regime

109Notice

(1)If a company (which satisfies the requirement in section 106(1)) gives a notice under this section specifying an accounting period from the beginning of which this Part is to apply to the company, this Part shall apply to the company from the beginning of that accounting period.

(2)A notice—

(a)must be given in writing to the Commissioners for Her Majesty’s Revenue and Customs,

(b)must be given before the beginning of the specified accounting period,

(c)must be accompanied by a statement by the company that Conditions 1 to 6 in section 106 are reasonably expected to be satisfied in respect of the company throughout the specified accounting period, and

(d)must contain such other information, and be accompanied by such other documents, as may be prescribed by regulations made by the Commissioners for Her Majesty’s Revenue and Customs.

110Duration

Once this Part has begun to apply to a company, it shall continue to apply unless and until it ceases to apply in accordance with any of sections 128 to 130.

111Effects of entry

(1)Property rental business of C (pre-entry) shall be treated for the purposes of corporation tax as ceasing at entry.

(2)Assets which immediately before entry are involved in property rental business of C (pre-entry) shall be treated for the purposes of corporation tax as being sold by C (pre-entry) immediately before entry and re-acquired by C (tax-exempt) immediately after entry.

(3)The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the assets.

(4)For the purposes of CAA 2001—

(a)the sale and re-acquisition deemed under subsection (2)—

(i)shall not give rise to allowances or charges, and

(ii)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

(b)subsection (3) above shall not apply, and

(c)anything done by or to C (pre-entry) before entry in relation to an asset which is deemed under subsection (2) to be sold and re-acquired shall be treated after entry as having been done by or to C (tax-exempt).

(5)For the purposes of corporation tax, on entry one accounting period of the company shall end and another shall begin.

(6)For the purposes of subsection (2) an asset is involved in property rental business if it is property involved in the business within the meaning given by section 107(6)(a).

(7)A gain accruing by reason of this section shall not be a chargeable gain.

112Entry charge

(1)A company to which this Part applies shall be chargeable to corporation tax under Case VI of Schedule D on an amount of notional income calculated in accordance with subsection (3).

(2)The notional income shall be treated as arising to C (residual) on entry.

(3)The notional income is—

Formula - (Market Value divided by Tax rate) multiplied by 2%

where—

(a)

arket Value means the aggregate market value of assets treated as sold and re-acquired under section 111(2) (ignoring any asset of negative market value), and

(b)

Tax Rate means the percentage rate at which C (residual) is chargeable to tax on profits.

(4)No loss, deficit, expense or allowance may be set off against notional income or tax arising under this section.

(5)The company may elect to have the notional income treated as arising in four instalments, the first on the date of entry and the other three on the first three anniversaries of that date; and for this purpose subsection (3) shall apply as if the percentage referred to were—

(a)0.50% for the first instalment,

(b)0.53% for the second instalment,

(c)0.56% for the third instalment, and

(d)0.60% for the fourth instalment.

(6)If a company makes an election under subsection (5)—

(a)notice of the election must be given to the Commissioners for Her Majesty’s Revenue and Customs with the notice under section 109,

(b)the election is irrevocable, and

(c)if this Part ceases to apply to a company before the third anniversary of entry, any remaining instalments shall become chargeable immediately.

(7)The Treasury may by regulations amend a percentage specified in subsection (5) in order to reflect a change in interest rates; but regulations under this subsection shall not have effect in relation to elections made before the regulations come into force.

Assets etc

113Ring-fencing of tax-exempt business

(1)For the purposes of corporation tax, the business of C (tax-exempt) shall be treated as a separate business (distinct from—

(a)any business carried on by C (pre-entry),

(b)any business carried on by C (residual), and

(c)any business carried on by C (post-cessation)).

(2)For the purposes of corporation tax C (tax-exempt) shall be treated as a separate company (distinct from—

(a)C (pre-entry),

(b)C (residual), and

(c)C (post-cessation)).

(3)In particular—

(a)a loss incurred by C (tax-exempt) may not be set off against profits of C (residual),

(b)a loss incurred in respect of C (residual) may not be set off against profits of C (tax-exempt),

(c)a loss incurred in respect of C (pre-entry) may not be set off against profits of C (tax-exempt) (but this section does not prevent a loss of that kind from being set off against profits of C (residual)),

(d)a loss incurred by C (tax-exempt) may not be set off against profits arising to C (post-cessation) (in respect of business of any kind), and

(e)receipts accruing after entry but relating to business of C (pre-entry) shall not be treated as receipts of C (tax-exempt).

(4)In subsection (3) a reference to a loss includes a reference to a deficit, expense, charge or allowance.

(5)Section 392B of ICTA (ring-fencing of losses from overseas property business) shall not apply to business of C (tax-exempt).

(6)Paragraphs 5B and 5C of Schedule 28AA to ICTA (transfer pricing: exemption for small and medium enterprises) shall not apply to a company to which this Part applies (whether to C (tax-exempt) or to C (residual)).

114Maximum shareholding

(1)The Treasury may make regulations that apply to a company to which this Part applies if it makes a distribution to or in respect of a person who—

(a)is beneficially entitled (directly or indirectly) to 10% or more of the dividends paid by the company,

(b)is beneficially entitled (directly or indirectly) to 10% or more of the company’s share capital, or

(c)controls (directly or indirectly) 10% or more of the voting rights in the company.

(2)The regulations may, in particular—

(a)cause a sum to be charged to tax, in accordance with the regulations, (whether by reference to a person’s interest, to a rate of tax or otherwise);

(b)provide that a charge does not arise, or is reduced, if the company takes or does not take action of a specified kind.

115Profit: financing-cost ratio

(1)The Treasury may make regulations that apply to a company to which this Part applies where the result of the sum specified in subsection (2) is less than 1.25 in respect of an accounting period.

(2)That sum is—

Formula - (Profits plus Financing costs) divided by Financing Costs

where—

(a)

Profits means the amount of the profits of C (tax-exempt) arising in the accounting period (before the offset of capital allowances), and

(b)

Financing Costs means the amount of the financing costs incurred in that period in respect of the business of C (tax-exempt).

(3)The regulations may cause a sum to be charged to tax, in accordance with the regulations, by reference to that part of the financing costs as a result of which the result of the sum specified in subsection (2) is less than 1.25.

(4)In subsections (2)(b) and (3) “financing costs” means the cost of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—

(a)costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),

(b)any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,

(c)any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,

(d)the financing cost implicit in a payment under a finance lease, and

(e)any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.

116Minor or inadvertent breach

(1)The Treasury may make regulations about the application of this Part to a company if a requirement in section 106(5) or (6), 107 or 108 is not satisfied (whether generally or in respect of an accounting period).

(2)A company which gave a notice under section 109 shall notify the Commissioners for Her Majesty’s Revenue and Customs as soon as reasonably practicable if a requirement in section 106(5) or (6), 107 or 108 ceases to be satisfied in relation to the company.

(3)The regulations may, in particular—

(a)provide for this Part to cease to apply to a company at a time specified by or determined in accordance with the regulations (which may be before the breach of a requirement);

(b)provide for this Part to continue to apply to a company with specified modifications;

(c)provide for sums to be charged to tax, or otherwise treated, in accordance with the regulations;

(d)make provision by reference to the extent of a failure to satisfy a requirement;

(e)make provision by reference to the number of requirements not satisfied;

(f)limit the number of occasions on which a provision of the regulations may be relied upon by a company in respect of a specified period;

(g)include other provision for preventing tax avoidance;

(h)confer a discretion on the Commissioners.

(4)This section is subject to section 129.

117Cancellation of tax advantage

(1)This section applies if the Commissioners for Her Majesty’s Revenue and Customs think that a company to which this Part applies has tried to obtain a tax advantage for itself or another person.

(2)The Commissioners may give a notice to the company specifying the tax advantage.

(3)If the Commissioners give a notice to the company under subsection (2)—

(a)a tax advantage obtained by the company shall be counteracted, in accordance with the notice, by an adjustment by way of—

(i)an assessment;

(ii)the cancellation of a right of repayment;

(iii)a requirement to return a repayment already made;

(iv)the computation or recomputation of profits or gains, or liability to tax, on a basis specified by the Commissioners in the notice, and

(b)the Commissioners may (in addition to the adjustment under paragraph (a)) assess the company to such additional amount of corporation tax under Case VI of Schedule D as they think is equivalent to the value of the tax advantage.

(4)For the purposes of this section “tax advantage” has the meaning given by section 709 of ICTA (and includes, in particular, entering into arrangements the sole or main purpose of which is to avoid or reduce a charge to tax under section 112).

(5)But a company does not obtain a tax advantage by reason only of this Part applying to it, unless it does anything (whether before or during the application of this Part) which in the Commissioners' opinion is wholly or principally designed—

(a)to create or inflate or apply a loss, deduction or expense (whether or not suffered or incurred by the company), or

(b)to have another effect of a kind specified for the purposes of this subsection by regulations made by the Treasury.

(6)Where a notice is given to a company under subsection (2), the company may appeal to the Special Commissioners.

(7)An appeal must be instituted by notice given in writing to the Commissioners for Her Majesty’s Revenue and Customs during the period of 30 days beginning with the date on which the notice under subsection (2) is given to the company.

118Funds awaiting re-investment

(1)This section applies where a company to which this Part applies—

(a)disposes of an asset used wholly and exclusively for the purposes of tax-exempt business, and

(b)holds the proceeds in cash.

(2)Profits or losses arising from a loan relationship entered into in connection with the proceeds—

(a)shall be disregarded for the purposes of section 120, and

(b)shall be treated for all tax purposes as arising from a loan relationship entered into in connection with business of C (residual).

(3)For the purposes of section 108—

(a)the proceeds shall, during the period of 24 months beginning with the date of the disposal, be treated for the purposes of Condition 2 as assets held in connection with the tax-exempt business, but

(b)any income derived from the proceeds is income from non-tax-exempt business.

(4)For the purposes of this section proceeds are held in cash if—

(a)held on deposit (whether or not in sterling),

(b)invested in stocks or bonds of any of the descriptions included in Part 1 of Schedule 11 to FA 1942 (gilts), or

(c)held or invested in such other form as the Commissioners for Her Majesty’s Revenue and Customs may specify for the purposes of this section in regulations.

(5)In the case of the disposal of an asset which for one or more periods of at least a year has been used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of C (residual), this section shall apply to such part of the proceeds as may reasonably be attributed to the tax-exempt business (having regard to the extent to which, and the length of the periods during which, the asset was used for the different purposes).

Profits

119Corporation tax

(1)Profits arising from the business of C (tax-exempt) shall not be charged to corporation tax.

(2)Profits arising from the business of C (residual) which are charged to corporation tax shall be charged at a rate determined without reference to section 13 of ICTA (small companies rate).

120Calculation of profits

(1)This section provides for the calculation of profits for the purposes of sections 107(8), 115(2), 119(1) and 123(c).

(2)Section 21A of ICTA (calculation of profits of Schedule A business) shall apply (to profits of any kind).

(3)Paragraph 2(3) of section 15(1) ICTA (Schedule A: disregard of credits and debits from loan relationships and derivative contracts) shall not apply in respect of—

(a)a loan relationship if or in so far as it relates to tax-exempt business,

(b)a hedging derivative contract if or in so far as it relates to tax-exempt business, or

(c)embedded derivatives if or in so far as the host contract is entered into for the purposes of tax-exempt business.

(4)For the purposes of subsection (3)—

(a)a derivative contract is hedging in relation to a company if or in so far as it is acquired as a hedge of risk in relation to an asset,

(b)a designation of a contract as wholly or partly hedging for the purposes of a company’s accounts shall be conclusive, and

(c)“embedded derivatives” and “host contract” have the meanings given by paragraph 2(3) of Schedule 26 to FA 2002 (derivative contracts).

(5)Profits shall be computed without regard to items giving rise to credits or debits which would be within Schedule 26 to FA 2002 (derivative contracts) but for paragraph 4(2)(b) (exclusion of share-based and unit-trust-based contracts).

(6)Income and expenditure relating partly to tax-exempt business and partly to non-tax-exempt business shall be apportioned reasonably.

(7)Section 3(1) of CAA 2001 (claims for capital allowances) shall not apply; and any allowance which the company could claim under that section shall be made automatically and reflected in the calculation of profits.

121Distributions: liability to tax

(1)A distribution received by a shareholder of a company to which this Part applies in respect of profits of C (tax-exempt) shall be treated—

(a)in the case of a shareholder within the charge to corporation tax, as profits of a Schedule A business, and

(b)in the case of a shareholder within the charge to income tax, as the profits of a UK property business (within the meaning of section 264 of ITTOIA 2005).

(2)A distribution received by a shareholder who is not resident in the United Kingdom—

(a)if the shareholder is a company within the charge to corporation tax, shall be chargeable to tax as profits of a Schedule A business,

(b)if the shareholder is a person other than a company within the charge to corporation tax, shall be chargeable to tax as profits of a UK property business (within the meaning of section 264 of ITTOIA 2005), and

(c)in either case, shall not be chargeable to tax by virtue of section 42A of ICTA (non-resident landlords).

(3)Subsection (1) shall not apply in relation to a shareholder if and in so far as he—

(a)is a dealer in respect of distributions (within the meaning of section 95 of ICTA),

(b)is a dealer in securities who is charged to tax under Part 2 of ITTOIA 2005 (trading income) in respect of distributions made by companies,

(c)is an individual member of Lloyd’s (within the meaning given by section 184(1) of FA 1993) and the distribution is made in respect of assets forming part of—

(i)a premium trust fund of his (within the meaning given by section 174 of FA 1993), or

(ii)an ancillary trust fund of his (within the meaning given by section 176 of FA 1993), or

(d)is a corporate member of Lloyd’s (within the meaning given by section 230(1) of FA 1994) and the distribution is made in respect of assets forming part of—

(i)a premiums trust fund belonging to it (within the meaning given by section 222 of FA 1994), or

(ii)an ancillary trust fund belonging to it (within the meaning given by section 223 of FA 1994).

(4)Section 114(1)(a) of ICTA (partnerships with companies as members) does not disapply subsection (1) above.

(5)Sections 231 of ICTA and 397 of ITTOIA 2005 (tax credits in respect of qualifying distributions) shall not apply to distributions made by a company to which this Part applies in respect of profits of C (tax-exempt).

(6)Distributions from companies to which this Part applies and distributions from principal companies of groups to which this Part applies shall be treated, for the purposes of subsection (1), as the profits of a single business (irrespective of whether the shareholder receives different distributions in different capacities) which is separate from—

(a)any other Schedule A business carried on by the shareholder,

(b)any other UK property business (within the meaning of section 264 of ITTOIA 2005) carried on by the shareholder,

(c)any overseas property business (within the meaning of section 70A(4) of ICTA) carried on by the shareholder, and

(d)any overseas property business (within the meaning of section 265 of ITTOIA 2005) carried on by the shareholder.

(7)In the case of a shareholder which is a partnership, subsection (6) applies to receipts by a partner of a share of any distribution as it applies to receipts by a shareholder.

(8)In subsection (1)—

(a)the reference to a company to which this Part applies includes a reference to C (post-cessation), and

(b)“profits” includes gains.

122Distributions: deduction of tax

(1)The Treasury may make regulations providing for the assessment, collection and recovery of tax where—

(a)a company to which this Part applies makes a distribution of profits of C (tax-exempt), and

(b)tax is or may become chargeable in respect of the distribution (whether by virtue of section 121(1) or otherwise).

(2)Regulations under this section may, in particular—

(a)require a company to deduct tax at the basic rate before payment of distributions;

(b)specify classes of shareholder to whom distributions may be made without deduction of tax;

(c)make provision about the calculation of payments of tax to be made by a company;

(d)require a company to account for tax deducted;

(e)apply an enactment (with or without modification) in respect of cases where tax is deducted or treated as deducted from income;

(f)specify the time at which a distribution is to be treated as made by a company;

(g)specify periods in respect of which payments of tax are to be made;

(h)specify times at which payments of tax are to be made;

(i)make provision about the making of claims and determinations in respect of over-payment or under-payment (which may include provision for appeals);

(j)include provision requiring the payment of interest in respect of late payments of tax (which may—

(i)provide for payment without deduction of tax;

(ii)allow interest paid as a deduction from profits of the company’s tax-exempt business);

(k)require a company to provide a shareholder with a certificate containing specified information;

(l)make provision about the repayment to a shareholder of sums deducted and paid to the Commissioners in respect of tax;

(m)make provision for the payment of interest in respect of repayments under paragraph (l);

(n)require notices to be given by or to a company;

(o)require a company to make returns;

(p)require a company to make records available to the Commissioners for inspection.

(3)A reference in subsection (2) to a distribution in respect of profits of tax-exempt business includes a distribution made after this Part has ceased to apply to a company.

(4)A distribution which is treated as having been made by virtue of section 107(9)(b) shall also be treated as having been made for the purposes of regulations under this section.

(5)In this section “profits” includes gains.

123Attribution of distributions

Distributions made by a company to which this Part applies shall be attributed—

(a)first, to payments in satisfaction of Condition 4 of section 107,

(b)secondly, if or in so far as the company determines, to distribution of amounts which derive from activities of a kind in respect of which corporation tax is chargeable in relation to income,

(c)thirdly, to distribution of profits of the property rental business,

(d)fourthly, to distribution of gains accruing to C (tax-exempt) which by virtue of section 124 are not chargeable gains, and

(e)fifthly, to other distributions.

Capital gains

124Corporation tax

(1)A gain accruing to a company to which this Part applies on the disposal of an asset shall not be a chargeable gain if—

(a)the asset was used wholly and exclusively for the purposes of the business of C (tax-exempt), or

(b)the asset was used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of the business of C (residual) during one or more periods of (in aggregate) less than a year, but was otherwise used wholly and exclusively for the purposes of the business of C (tax-exempt).

(2)Where a gain accrues to a company to which this Part applies on the disposal of an asset which for one or more periods of (in aggregate) at least a year has been used partly for the purposes of the business of C (tax-exempt) and partly for the purposes of the business of C (residual), such part of the gain as may reasonably be attributed to the business of C (tax-exempt) (having regard to the extent to which, and the length of the periods during which, the asset was used for the different purposes) shall not be a chargeable gain.

(3)Corporation tax shall be charged in respect of gains accruing to C (residual) at a rate determined without reference to section 13 of ICTA (small companies rate).

125Movement of assets out of ring-fence

(1)Subsection (2) applies when an asset which has been used wholly and exclusively for the purposes of the business of C (tax-exempt) begins to be used (otherwise than by being disposed of in the course of trade) wholly and exclusively for the purposes of the business of C (residual).

(2)The asset shall be treated as having been at that time—

(a)disposed of by C (tax-exempt), and

(b)immediately re-acquired by C (residual).

(3)The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.

(4)For the purposes of CAA 2001—

(a)the sale and re-acquisition deemed under subsection (2)—

(i)shall not give rise to allowances or charges, and

(ii)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

(b)subsection (3) above shall not apply, and

(c)anything done by or to C (tax-exempt) before the deemed sale and re-acquisition shall be treated after the deemed sale and re-acquisition as having been done by or to C (residual).

(5)Subsection (6) applies when an asset which has been used wholly and exclusively for the purposes of the business of C (tax-exempt) is disposed of in the course of trade for the purposes of the business of C (residual).

(6)Where this subsection applies—

(a)the deemed sale and re-acquisition under section 111(2) shall be disregarded, and

(b)the asset shall be treated as having been disposed of in the course of the business of C (residual).

(7)Subsection (6) shall be taken to apply, in particular, where—

(a)a property acquired by a company to which this Part applies has been developed since acquisition,

(b)the cost of the development exceeds 30% of the fair value of the property (determined in accordance with international accounting standards) at entry or at acquisition, whichever is the later, and

(c)the company disposes of the property within the period of three years beginning with the completion of the development.

(8)Where subsection (6) applies in relation to an asset held at entry, the company may make a claim for repayment of a proportion of the tax paid under section 112 calculated as follows—

Formula - (Asset Market Value divided by Aggregate Market Value) multiplied by Tax Paid

where—

(a)

Asset Market Value means market value of the asset at entry,

(b)

Aggregate Market Value means the aggregate market value of assets treated as sold and re-acquired under section 111(2) (ignoring any asset of negative market value), and

(c)

Tax Paid means tax paid under section 112.

126Movement of assets into ring-fence

(1)This section applies where an asset which has been used wholly and exclusively for the purposes of the business of C (residual) begins to be used wholly and exclusively for the purposes of the business of C (tax-exempt).

(2)The asset shall be treated as having been—

(a)disposed of by C (residual), and

(b)immediately re-acquired by C (tax-exempt).

(3)The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.

(4)For the purposes of CAA 2001—

(a)the sale and re-acquisition deemed under subsection (2)—

(i)shall not give rise to allowances or charges, and

(ii)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

(b)subsection (3) above shall not apply, and

(c)anything done by or to C (residual) before the deemed sale and re-acquisition shall be treated after the deemed sale and re-acquisition as having been done by or to C (tax-exempt).

127Interpretation

Sections 124 to 126 shall be construed as one with TCGA 1992.

Leaving Real Estate Investment Trust Regime

128Termination by notice: company

(1)If a company to which this Part applies gives a notice under this section specifying a date at the end of which this Part is to cease to apply to the company, this Part shall cease to apply to the company at the end of that date.

(2)A notice must be given in writing to the Commissioners for Her Majesty’s Revenue and Customs.

(3)The date specified under subsection (1) must be after the date on which the Commissioners receive the notice.

129Termination by notice: Commissioners

(1)If the Commissioners for Her Majesty’s Revenue and Customs give a company to which this Part applies a notice in writing under this subsection, this Part shall cease to apply to the company.

(2)The Commissioners may give a company a notice only if—

(a)the company has relied on a provision of regulations under section 116 on a specified number of occasions in a specified period,

(b)the company has been given a specified number of notices under section 117 in a specified period, or

(c)the Commissioners think that a breach of a requirement in section 107 or 108, or an attempt by the company to obtain a tax advantage, is so serious that this Part should cease to apply to it.

(3)In subsection (2) “specified” means specified in regulations made by the Treasury.

(4)A notice under subsection (1) must state the reason for it.

(5)Where a notice is given to a company, this Part shall be taken to have ceased to apply to the company at the end of the accounting period before the accounting period during which the event occurs (or the last event occurs) which caused the Commissioners to give the notice.

(6)Where a notice is given to a company, the company may appeal to the Special Commissioners.

(7)An appeal must be instituted by notice given in writing to the Commissioners for Her Majesty’s Revenue and Customs during the period of 30 days beginning with the date on which the notice is given to the company.

130Automatic termination for breach of requirement

(1)Where Condition 1, 2, 5 or 6 of section 106 is not satisfied in respect of an accounting period of a company to which this Part applies, this Part shall be taken to have ceased to apply to the company at the end of the previous accounting period.

(2)A company which gave a notice under section 109 shall notify the Commissioners for Her Majesty’s Revenue and Customs as soon as is reasonably practicable if Condition 1, 2, 5 or 6 of section 106 ceases to be satisfied in relation to the company.

131Effects of cessation

(1)The business of C (tax-exempt) shall be treated for the purposes of corporation tax as ceasing immediately before cessation.

(2)Assets which immediately before cessation are involved in the business of C (tax-exempt) shall be treated for the purposes of corporation tax as being sold by C (tax-exempt) immediately before cessation and re-acquired immediately after cessation by C (post-cessation).

(3)The sale and re-acquisition deemed under subsection (2) shall be treated as being for a consideration equal to the market value of the asset.

(4)For the purposes of CAA 2001—

(a)the sale and re-acquisition deemed under subsection (2)—

(i)shall not give rise to allowances or charges, and

(ii)shall not make it possible to make an election under section 198 or 199 of that Act (apportionment),

(b)subsection (3) above shall not apply, and

(c)anything done by or to C (tax-exempt) before cessation in relation to an asset which is deemed to be sold and re-acquired shall be treated after cessation as having been done by or to C (post-cessation).

(5)For the purposes of corporation tax, on cessation an accounting period of C (residual) shall end and an accounting period of C (post-cessation) shall begin.

(6)For the purposes of subsection (2) an asset is involved in the business of C (tax-exempt) if it is property involved in the business within the meaning given by section 107(6)(a).

132Early exit by notice

(1)This section applies where this Part—

(a)ceases to apply to a company by reason of section 128, and

(b)had applied to the company for a continuous period immediately before cessation of less than ten years.

(2)If the company disposes of a tax-exempt asset during the post-cessation period, liability to corporation tax shall be determined without regard to—

(a)any deemed disposal under section 111(2) that resulted in a gain,

(b)any deemed disposal under section 131(3), or

(c)any deemed disposal under section 125(2).

(3)In subsection (2)—

(a)“tax-exempt asset” means an asset that was involved (within the meaning of section 107(6)(a)) in the business of C (tax-exempt), and

(b)“the post-cessation period” means the period of two years beginning with the date of cessation.

133Early exit

(1)This section applies where this Part—

(a)ceases to apply to a company by reason of section 129 or 130, and

(b)had applied to the company for a continuous period immediately before cessation of less than ten years.

(2)The Commissioners for Her Majesty’s Revenue and Customs may direct—

(a)that a provision of this Part shall have effect in relation to the company with a specified modification, or

(b)that a provision of an enactment relating to corporation tax shall apply, not apply or apply with modifications in relation to the company.

(3)A direction under subsection (2)(a) may, in particular—

(a)alter the time at which this Part is taken to cease to apply to the company in accordance with section 129 or 130;

(b)disapply or alter the effect of section 119(1) or 124(1)).

(4)A direction under subsection (2)(b) may, in particular, prevent all or a specified part of a loss, deficit or expense from being set off or otherwise used at all or in a specified manner.

(5)A company in respect of which a direction is given under this section may appeal to the Special Commissioners.

Groups

134Group Real Estate Investment Trusts

(1)A group of companies may become a group to which this Part applies; and for that purpose the provisions of this Part apply to a group of companies in the same way as to a company, subject to the modifications set out in Schedule 17.

(2)For the purposes of this Part a company (“the principal company”) and all its 75% subsidiaries form a group; and if any of those subsidiaries have 75% subsidiaries the group includes them and their 75% subsidiaries, and so on.

(3)But a group does not include—

(a)a company (other than the principal company) which is not an effective 51% subsidiary of the principal company,

(b)an insurance company,

(c)an insurance subsidiary, or

(d)an open-ended investment company.

(4)In this section—

(a)“effective 51% subsidiary” has the meaning given by section 170 of TCGA 1992 (groups of companies),

(b)“75% subsidiary” has the meaning given by section 838 of ICTA (subsidiaries),

(c)“insurance company” has the meaning given by section 431(2) of ICTA, and

(d)“insurance subsidiary” means a company in which 75% or more of the ordinary shares are held by one or more insurance companies.

(5)A company cannot be a member of more than one group; and if a company would be a member of more than one group, section 170(6) of TCGA 1992 (capital gains tax: groups) shall apply to determine the group of which it is a member.

(6)Subsection (5) is subject to section 138.

135Transfer within group

After section 171(2)(d) of TCGA 1992 (transfer within a group: exclusions) insert— ; or

(da)a disposal by or to a company to which Part 4 of the Finance Act 2006 applies (Real Estate Investment Trusts);.

136Availability of group reliefs

(1)In the application of a provision specified in subsection (2) to a group to which this Part applies G (property rental business) shall be treated as a separate group (distinct from—

(a)G (pre-entry),

(b)G (residual), and

(c)G (post-cessation)).

(2)The provisions mentioned in subsection (1) are—

(a)sections 171 and 171A of TCGA 1992 (actual or notional transfer of assets within group),

(b)sections 179A and 179B of TCGA 1992 (reallocation or roll-over of gain within a group),

(c)Chapter 4 of Part X of ICTA (corporation tax: group relief),

(d)Schedule 9 to FA 1996 (loan relationships),

(e)Schedule 26 to FA 2002 (derivative contracts), and

(f)Schedule 29 to FA 2002 (intangible assets).

Miscellaneous

137Insurance companies

In section 212(1) of TCGA 1992 (annual deemed disposal of holdings of certain assets) after paragraph (b) insert— , or

(c)shares in a company to which Part 4 of the Finance Act 2006 applies (Real Estate Investment Trusts),.

138Joint ventures

(1)The Treasury may by regulations provide for this Part to apply in relation to property rental business (“the joint venture”) carried on—

(a)jointly by a company to which this Part applies and another person, or

(b)by a person in which a company to which this Part applies has an interest.

(2)The regulations may, in particular, modify or disapply a provision of this Part in its application—

(a)by virtue of this section, or

(b)in relation to a company to which this Part applies where the company also carries on business in relation to which this Part applies by virtue of this section.

(3)The regulations may, in particular, make application of this Part conditional on—

(a)a company to which this Part applies having a minimum percentage interest of a specified kind in the joint venture;

(b)an election by a company to which this Part applies.

139Manufactured dividends

(1)This section applies to a manufactured dividend if and to the extent that it is representative of a dividend paid by a company to which this Part applies in respect of profits of C (tax-exempt).

(2)Schedule 23A to ICTA shall have effect with the substitution of the following for paragraph 2(2)—

(2)Sub-paragraphs (2A) to (2C) apply if and to the extent that a manufactured dividend is representative of a dividend in respect of profits of the tax-exempt business of a company to which Part 4 of the Finance Act 2006 applies.

(2A)The Tax Acts shall have effect in relation to the recipient, and persons claiming title through or under him, as if the manufactured dividend were a dividend to which section 121 of that Act applied.

(2B)In relation to the dividend manufacturer—

(a)if the dividend manufacturer is a company and the manufactured dividend is paid in the course of a trade carried on in the United Kingdom, it shall be treated as an expense of the trade;

(b)if the manufactured dividend is paid in connection with investment business, it shall be treated for the purposes of section 75 of this Act as expenses of management;

(c)in the case of a company carrying on life assurance business, in so far as the manufactured dividend is referable to basic life assurance and general annuity business (or is or would be, if received by the company, be treated as referable to business of that kind by virtue of section 432A) it shall be treated for the purposes of section 76 as if it were an expense payable falling to be brought into account at Step 3 of section 76(7);

(d)regulations under section 122 of FA 2006 shall apply (with any necessary modifications) to the dividend manufacturer (whether or not a company) as if he were a company to which Part 4 of the Finance Act 2006 applied, unless—

(i)the dividend manufacturer is not resident in the United Kingdom, and

(ii)the manufactured dividend is paid otherwise than in the course of a trade carried on through a branch or agency in the United Kingdom.

(2C)The Treasury may by regulations provide, in a case where sub-paragraph (2B)(d)(i) and (ii) above apply, for a United Kingdom recipient of the manufactured dividend (within the meaning of paragraph 4(3A) below) to be liable to account for tax which the dividend manufacturer would have been required to deduct in accordance with regulations under section 122 of the Finance Act 2006.

(2D)Sub-paragraph (2E) shall apply for the purposes of—

(a)this paragraph, and

(b)regulations under section 122 of the Finance Act 2006.

(2E)The gross amount of a manufactured dividend to which sub-paragraphs (2A) and (2B) apply shall be taken to be equal to the gross amount of the dividend of which it is representative and which is paid by the company to which Part 4 of the Finance Act 2006 applies.

(3)For the purposes of sections 736B of ICTA (deemed manufactured payments: stock lending), regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as if they were regulations made under Schedule 23A.

(4)For the purposes of section 737A of ICTA (deemed manufactured payments: sale and repurchase of securities) regulations under section 122 shall be treated, in so far as they apply to a dividend manufacturer, as dividend manufacturing regulations (within the meaning of section 737A(6)).

(5)After section 737C(3) of ICTA (amount of deemed manufactured dividend) insert—

(3A)But if and to the extent that the dividend mentioned in section 737A(2)(a) or (2A)(a) is a dividend paid by a company to which Part 4 of the Finance Act 2006 applies in respect of profits of its tax-exempt business—

(a)the amount of the deemed manufactured dividend shall be taken to be an amount equal to the gross amount of the dividend mentioned in section 737A(2)(a) or (2A)(a);

(b)any deduction which, by virtue of paragraph 2 of Schedule 23A (as amended by section 139 of the Finance Act 2006), is required to be made out of the gross amount of the manufactured dividend shall be deemed to have been made;

(c)the repurchase price of the securities shall be treated, for the purposes of section 730A, as increased by the gross amount of the deemed manufactured dividend.

(6)In section 737D(2) of ICTA (manufactured payments: relief) after “any” insert “manufactured dividend,”.

(7)In this section “dividend manufacturer” and “manufactured dividend” have the meaning given by Schedule 23A to ICTA.

140Penalties for failure to give notice, etc

At the end of the second column of the Table in section 98(5) of TMA 1970 (penalties) add—

  • Section 106 of FA 2006 as modified by Schedule 17 to that Act.

  • Section 116 of FA 2006.

  • Regulations under section 116 of FA 2006.

  • Regulations under section 122 of FA 2006.

  • Section 130 of FA 2006.

141Effect of deemed disposal and re-acquisition

A deemed disposal and re-acquisition of an asset under this Part shall have effect for the purposes of any subsequent disposal of the asset (whether actual or deemed).

142Interpretation

In this Part—

(a)a reference to an asset includes a reference to—

(i)part of an asset, and

(ii)an interest in, or right in relation to, an asset,

(b)a reference to assets used in business of a company includes a reference to assets—

(i)which were acquired for the purpose of that business and which are not being used in another business,

(ii)which are available for use in that business, or

(iii)which are in any other way held in respect of, or associated or connected with, that business,

(c)“company” has the meaning given by section 170(9) of TCGA 1992,

(d)“international accounting standards” has the meaning given by section 50(2) of FA 2004,

(e)“market value” has the same meaning as in TCGA 1992 (see sections 272 and 273 and Schedule 11), and

(f)“profits” means income (except where the context otherwise requires).

143Housing investment trusts: repeal

Section 160 of, and Schedule 30 to, FA 1996 (housing investment trusts) shall cease to have effect (and accordingly—

(a)sections 508A and 508B of ICTA shall cease to have effect,

(b)the amendments of section 842(1)(a) and (e) of ICTA effected by paragraph 2(2) of Schedule 30 shall cease to have effect, and

(c)section 842(1AA) of ICTA shall cease to have effect).

General

144Regulations

Regulations under this Part—

(a)may make provision which applies generally or only in specified cases or circumstances,

(b)may make different provision for different cases or circumstances, and

(c)may include incidental, consequential or transitional provision.

145Commencement

(1)A notice under section 109 may be given in respect of an accounting period beginning on or after 1st January 2007.

(2)Section 143 shall have effect in relation to accounting periods beginning on or after the day on which this Act is passed.

Part 5Oil

New basis for determining market value

146New basis for determining the market value of oil

(1)In OTA 1975, in Schedule 3 (petroleum revenue tax: miscellaneous provisions) before paragraph 2 (definition of market value of oil) insert—

Determination of market value: the notional delivery day for a quantity of oil

1A(1)This paragraph has effect for determining, for the purposes of this Schedule, the day which is the “notional delivery day” in the case of any particular quantity of oil of any particular kind whose market value falls to be determined in accordance with the provisions of this Schedule in the case of any chargeable period.

(2)The notional delivery day need not be a day in the chargeable period.

(3)In the case of a quantity of oil which, at the end of the chargeable period,—

(a)has neither been disposed of nor relevantly appropriated in the period, or

(b)has been disposed of but not delivered in the period,

the notional delivery day is the last business day of the chargeable period.

(4)In the case of—

(a)a quantity of oil won and disposed of which is delivered on a day in the chargeable period, or

(b)a quantity of oil—

(i)relevantly appropriated on a day in the chargeable period, but

(ii)not disposed of in the chargeable period,

the notional delivery day is to be determined in accordance with sub-paragraphs (5) to (7) below.

(5)If that oil is—

(a)oil transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, or

(b)oil transported by pipeline to a place in the United Kingdom and loaded on to a ship there,

and there is a loading slot for it (see sub-paragraph (8)), the notional delivery day is the middle day of the loading slot.

(6)If sub-paragraph (5) above does not apply to that oil, then—

(a)if it is oil delivered on a day in the chargeable period, the notional delivery day is the date of the delivery, or

(b)if it is oil relevantly appropriated on a day in the chargeable period, the notional delivery day is the date of the appropriation.

(7)The Treasury may by regulations make provision for or in connection with substituting as the notional delivery day in such circumstances as may be prescribed—

(a)in the case of oil transported by ship from the place of extraction to a place in the United Kingdom or elsewhere, the date of completion of load, or

(b)in the case of oil transported by pipeline to a place in the United Kingdom and loaded on to a ship there, the date of the bill of lading.

(8)The “loading slot” for any oil is the period of three days within which the loading of the oil on to the ship is or was to take place—

(a)as duly published by the operator of the facility at which that loading is or was to take place (unless paragraph (b) below applies), or

(b)as subsequently finally duly varied to give effect to any modifications duly notified to that operator by the participator concerned.

(9)In sub-paragraph (8) above, “duly” means in accordance with the arrangements for the time being governing the time and manner of—

(a)publication, or variation, of the final loading schedule for the calendar month in which loading is or was to take place, or

(b)notification of modifications to that schedule,

and, in any case, before the end of the calendar month immediately preceding that in which loading is to take place.

(10)If the Treasury consider that, for the purpose of defining “loading slot”, any period of days for the time being specified by or under this Act as the period of days within which loading of oil on to a ship is to take place is, or is to be, no longer appropriate, they may by regulations make provision for, or in connection with,—

(a)varying the number of days in the period,

(b)determining the day that is to be the notional delivery day if the number, as varied, is an even number.

The power conferred by this sub-paragraph includes power to make amendments to, or modifications of, this Schedule..

(2)Paragraph 2 of that Schedule (definition of market value of oil) is amended as follows.

(3)In sub-paragraph (1) (market value of oil in any calendar month to be determined in accordance with the paragraph) for “any oil in any calendar month” substitute “any particular quantity of oil of any kind on any day”.

(4)After sub-paragraph (1) insert—

(1A)This paragraph makes different provision according to whether the oil is—

(a)Category 1 oil of any kind, or

(b)Category 2 oil of any kind.

(1B)For the purposes of this Act—

(a)Category 1 oil is oil of any of one or more kinds specified as such in regulations made for the purpose by the Board;

(b)Category 2 oil is oil of any other kind.

(1C)The Board may specify oil of any particular kind as Category 1 oil only if they are satisfied that reports of prices for sales of oil of that kind are published and widely available (whether or not on payment of a fee)..

(5)For sub-paragraph (2) substitute—

(2)The market value of any particular quantity of Category 1 oil of any kind is the price for which that quantity of oil of that kind might reasonably have been expected to be sold under a contract of sale that meets the following conditions—

(a)the contract is for the sale of the oil at arm’s length to a willing buyer;

(b)the contract is for delivery of a single standard cargo of the oil;

(c)the contract specifies a period of three days within which loading of the oil is to take place and that period includes the notional delivery day for the actual oil;

(d)the contract requires the oil to have been subjected to appropriate initial treatment before delivery;

(e)the contract requires the oil to be delivered—

(i)in the case of oil extracted in the United Kingdom, at the place of extraction; or

(ii)in the case of oil extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom or another country at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.

The terms as to payment which are to be implied in the contract are those which are customarily contained in contracts for the sale at arm’s length of oil of the kind in question.

(2AA)The market value of any particular quantity of Category 2 oil of any kind is the price for which that quantity of oil of that kind might reasonably have been expected to be sold under a contract of sale that meets the following conditions—

(a)the contract is for the sale of the oil at arm’s length to a willing buyer;

(b)the contract provides for delivery of the oil on the notional delivery day for the actual oil or within such period that includes that day as is normal under a contract at arm’s length for the sale of oil of that kind (or, if there is more than one such period, the shortest of them);

(c)the contract is made on a date such that the period between that date and the notional delivery day for the actual oil is the normal period between contract and delivery in the case of a contract at arm’s length for the sale of oil of that kind (or, if there is more than one such period, the shortest of them);

(d)the contract requires the oil to have been subjected to appropriate initial treatment before delivery;

(e)the contract requires the oil to be delivered—

(i)in the case of oil extracted in the United Kingdom, at the place of extraction; or

(ii)in the case of oil extracted from strata in the sea bed and subsoil of the territorial sea of the United Kingdom or of a designated area, at the place in the United Kingdom or another country at which the seller could reasonably be expected to deliver it or, if there is more than one such place, the one nearest to the place of extraction.

The terms as to payment which are to be implied in the contract are those which are customarily contained in contracts for the sale at arm’s length of oil of the kind in question..

(6)For sub-paragraphs (2A) to (2D) substitute—

(2E)For the purposes of sub-paragraph (2) or (2AA) above, the price of any quantity of Category 1 or Category 2 oil of any kind shall be determined in such manner, on the basis of such information, and by reference to such factors, as may be prescribed for oil of that Category and kind in regulations made by the Board.

(2F)The provision that may be made by regulations under subsection (2E) above includes provision for or in connection with any or all of the following—

(a)determining the price by reference to prices, or an average of prices, for sales of oil (whether or not oil of the Category or kind in question, and whether the prices are prices under actual contracts, prices that are published and widely available (whether on payment of a fee or otherwise) or prices ascertained or determined in some other way);

(b)the prices to be taken into account;

(c)the descriptions of contracts to be taken into account;

(d)the method to be used for determining an average of prices;

(e)the day or days, or period or periods, by reference to which prices, or any average of prices, is to be determined;

(f)the application of a prescribed price differential, in cases where the price of oil of one kind falls to be determined in whole or in part by reference to prices for oil of some other kind.

(2G)Sub-paragraph (2I) below has effect if, or in so far as, the Board are satisfied that it is impracticable or inappropriate to determine for the purposes of sub-paragraph (2) or (2AA) above the price of any oil in accordance with the provisions of regulations for the time being in force under sub-paragraph (2E) above.

(2H)For that purpose it is immaterial whether the impracticability or inappropriateness is by virtue of—

(a)an insufficiency of contracts or published prices that satisfy the conditions,

(b)an insufficiency of information relating to such contracts or published prices, or

(c)the nature of the market for oil of the kind in question,

or for any other reason.

(2I)Where this sub-paragraph has effect, the price is to be determined—

(a)so far as it is practicable and appropriate to do so by reference to other contracts or published prices (whether or not relating to oil of the same kind) and in accordance with the principles set out in the regulations for determining an average of prices; and

(b)so far as it is not practicable or appropriate to determine it as mentioned in paragraph (a) above, in such other manner as appears to the Board to be appropriate in the circumstances..

(7)Omit sub-paragraph (3) (which relates to the market value of disposals in a calendar month).

(8)In sub-paragraph (3A) (oil that has been subjected to initial treatment)—

(a)for “sub-paragraphs (1) and (2) above” substitute “sub-paragraph (1) and sub-paragraph (2) or (2AA) above”, and

(b)for “sub-paragraph (2)(a) above” substitute “sub-paragraph (2)(d) or (2AA)(d) above”.

(9)In sub-paragraph (4) (application of sub-paragraphs (2) and (3) in relation to paragraph 2(2) of Schedule 2) for “sub-paragraphs (2) and (3)” substitute “sub-paragraphs (2) and (2AA)”.

(10)After paragraph (4) insert—

(5)In this paragraph “prescribed” means specified in, or determined in accordance with, regulations..

(11)Schedule 18 (which makes minor and consequential amendments) has effect.

147Section 146: commencement and transitional provisions

(1)The amendments made by section 146 and Schedule 18 have effect in relation to oil delivered or appropriated on or after 1st July 2006 (disregarding section 12A of that Act).

(2)Those amendments also have effect for the purpose of determining for any chargeable period ending on or after 31st December 2006—

(a)the value to be brought into account under section 2(4)(b) of OTA 1975 by reference to a previous chargeable period ending on or after 30th June 2006, and

(b)the value to be brought into account under section 2(5)(d) of that Act.

(3)Subsections (1) and (2) are subject to any express provision in Schedule 18 as to the commencement or application of any provision of that Schedule.

(4)In the following provisions of this section—

(a)“the last old period” means the chargeable period that ends on 30th June 2006, and

(b)“the first new period” means the chargeable period that ends on 31st December 2006.

(5)Subsection (6) applies in relation to oil which was won from an oil field before 1st July 2006 and which—

(a)was loaded on to a ship before 1st July 2006 and transported from the place of extraction to a place in the United Kingdom or elsewhere, or

(b)was transported by pipeline from the place of extraction to a place in the United Kingdom and there loaded on to a ship before that date.

(6)If the oil is or was disposed of crude by a participator in sales otherwise than at arm’s length, but the market value of the oil—

(a)does not fall to be brought into account for the purposes of section 2(5)(b) of OTA 1975 for the last old period by reason only that the oil was not delivered in that period, and

(b)would not (apart from this subsection) fall to be brought into account for the purposes of that provision in the first new period by reason only that the date on which the oil is to be regarded by virtue of section 12A of that Act as delivered falls in the last old period,

the date on which the oil is to be taken for the purposes of section 2(5)(b) of that Act to have been delivered is instead to be the first business day of the first new period.

(7)Any power to make regulations that is conferred under or by virtue of any of the amendments made by section 146 or Schedule 18 includes power to make regulations having effect for, or in relation to,—

(a)the first new period, or

(b)for the purpose mentioned in subsection (2), the last old period,

notwithstanding that the period in question has begun or ended before the making of the regulations.

(8)Any regulations made by virtue of subsection (7) must be made before 31st December 2006.

Attribution of blended crude oil

148Crude oil: power to make regulations

(1)In section 2(5) of OTA 1975 (profits from oil field) for “subsection (5A)” substitute “subsections (5A) and (5B)”.

(2)After section 2(5A) of that Act insert—

(5B)The Board may by regulations make provision for the purposes of subsection (5)(a) to (c) for determining to which fields and in what proportions blended oil to which subsection (5C) applies is attributable.

(5C)This subsection applies to blended oil within the meaning of section 63(1A) of the Finance Act 1987 (other than light gases) which—

(a)is not gaseous at a temperature of 15 degrees Centigrade and a pressure of one atmosphere, and

(b)is not normally disposed of crude by deliveries in quantities of 25,000 metric tonnes or less.

(5D)Regulations under subsection (5B)—

(a)may apply generally or only to specified cases or circumstances,

(b)may make different provision for different cases or circumstances,

(c)may make incidental, consequential, or transitional provision,

(d)shall be made by statutory instrument, and

(e)may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(3)Regulations under section 2(5B) of OTA 1975 (inserted by subsection (2) above) may have effect for the purpose of calculating profits in relation to a chargeable period ending at any time on or after 1st July 2006.

Nomination scheme

149Nomination scheme

(1)Section 61 of FA 1987 (oil taxation: nominations) shall be amended as follows.

(2)In subsection (1) omit “, supplies and appropriations”.

(3)For subsections (3) and (4) substitute—

(3)If the market value of a relevant delivery ascertained in accordance with Schedule 3 to the principal Act exceeds a participator’s delivery proceeds of a relevant delivery (within the meaning given by Schedule 10), the excess shall be brought into account by him in accordance with section 2(5)(e) of the principal Act.

(4)If a relevant delivery is a delivery of blended oil within the meaning of section 63, regulations under section 2(5B) of the principal Act shall apply for the purposes of determining the proportion of the excess attributable to a field.

(4A)For each month in which a participator makes a relevant delivery, his monthly excess is the sum of his excesses (if any) calculated in accordance with subsection (3).

(4B)For each chargeable period of an oil field “the excess of nominated proceeds for the period” means, in relation to a participator in the oil field, that proportion of the sum of his monthly excesses for the chargeable period (if any) which is attributable to the field.

(4)Subsections (6) and (7) shall cease to have effect.

(5)In subsection (8) for “9th February 1987” substitute “1st July 2006”.

(6)In subsection (9)—

(a)omit “subsection (7) or”, and

(b)after “shall” insert “(unless otherwise expressly provided)”.

(7)This section shall have effect in relation to chargeable periods ending on or after 1st July 2006.

150Amendment of Schedule 10 to FA 1987

(1)Schedule 10 to FA 1987 (oil taxation: nominations) shall be amended as follows.

(2)In paragraph 1—

(a)in sub-paragraph (1)—

(i)omit “, “proposed supply” and “proposed appropriation””,

(ii)for “paragraph 3 below” substitute “paragraph 12A below”, and

(iii)for “paragraphs (a) to (c)” substitute “paragraph (a)”, and

(b)omit sub-paragraph (2).

(3)In paragraph 2 omit—

(a)sub-paragraph (1)(b), (c) and (d), and

(b)the words following sub-paragraph (1)(d).

(4)Omit paragraph 3.

(5)In paragraph 4—

(a)for sub-paragraph (1) substitute—

(1)If a nomination is made during business hours it shall be effective only if—

(a)it is made within the period of two hours beginning with the transaction base time, and

(b)it satisfies the requirements of paragraph 5.

(1A)If a nomination is made outside business hours it shall be effective only if—

(a)it is made within the period of two hours beginning with the transaction base time, and

(b)it satisfies the requirements of paragraph 5 or 5A.

(1B)For the purposes of this paragraph—

(a)the transaction base time of a proposed transaction is such time on such date as the Board shall prescribe by regulations, and

(b)“business hours” means the period beginning with 09.00 and ending with 17.00 (UK time) on a business day (within the meaning of the Bills of Exchange Act 1882 (c. 61)).,

(b)omit sub-paragraphs (2) and (2A),

(c)in sub-paragraph (3)—

(i)for “transaction base date” substitute “transaction base time”, and

(ii)for “date” in each place substitute “time”, and

(d)omit sub-paragraph (4).

(6)In paragraph 5—

(a)in sub-paragraph (1) for “A nomination of a proposed transaction shall not be effective unless it specifies, in respect to that transaction” substitute “The requirements of this paragraph for a nomination in respect of a proposed transaction are”,

(b)in sub-paragraph (1)(b) omit “in the case of a proposed sale”,

(c)in sub-paragraph (1)(c) and (d) omit “or relevantly appropriated”,

(d)in sub-paragraph (1)(d) for “supplied” substitute “delivered”,

(e)for sub-paragraph (1)(g) substitute—

(g)the transaction base time; and,

(f)in sub-paragraph (2) after “A nomination” insert “made under this paragraph”, and

(g)in sub-paragraph (3) after “a nomination” insert “made under this paragraph”.

(7)After paragraph 5 insert—

5A(1)The requirements of this paragraph for a nomination in respect of a proposed transaction are—

(a)the name of the participator or of the group of which the participator is a member;

(b)the name of the person to whom the oil is to be sold, or the name of the group of which that person is a member;

(c)the blend or grade of oil to be delivered;

(d)the nominated price of the oil to be delivered;

(e)the nominal volume of the oil;

(f)the proposed delivery month;

(g)the transaction base time; and

(h)such other information as may be prescribed by the Board.

(2)In sub-paragraph (1) “group” has the meaning given by section 53 of the Companies Act 1989.

5B(1)A nomination of a transaction shall not be effective unless oil is delivered pursuant to a contract at arm’s length the terms of which incorporate the information specified in the nomination in accordance with paragraph 5(1) or 5A(1).

(2)But—

(a)a contract need not refer to the transaction base time, and

(b)the nomination shall be effective whether or not delivery takes place in the proposed delivery month specified in the nomination and the contract.

(8)In paragraph 6—

(a)in sub-paragraph (1) omit “Subject to sub-paragraph (3) below,”, and

(b)omit sub-paragraphs (2) and (3).

(9)Omit paragraph 7(2) and (5).

(10)After paragraph 7(5) insert—

(6)The Board may by regulations prescribe that in specified circumstances the nominal volume in relation to a delivery shall be treated as greater or less than the nominal volume ascertained in accordance with the preceding provisions of this paragraph.

(7)Regulations under sub-paragraph (6)—

(a)shall be made by statutory instrument, and

(b)may not be made unless a draft has been laid before and approved by resolution of the House of Commons.

(11)Omit paragraphs 8 to 11.

(12)In paragraph 12(1) omit “, supply or appropriation”.

(13)After paragraph 12 insert—

Interpretation

12AFor the purposes of section 61 and this Schedule—

(a)a reference to the proposed delivery month in relation to a proposed transaction is a reference to the month in which delivery is to take place,

(b)“relevant delivery” means a delivery of oil under a contract made at arm’s length in respect of which there has been no effective nomination, and

(c)“delivery proceeds” means the price received for a relevant delivery.

(14)This section shall have effect in relation to a transaction whenever proposed, but shall not have effect in relation to a proposed transaction with a transaction base date (within the meaning given by regulations under paragraph 4 of Schedule 10 to FA 1987) on or before 30th June 2006.

(15)Regulations under paragraph 4(1B) of Schedule 10 to FA 1987 (inserted by subsection (5) above) may have retrospective effect.

151Nomination excesses and corporation tax

(1)After section 493(1) of ICTA (valuation of oil disposed of or appropriated) insert—

(1A)Where an excess of nominated proceeds in a chargeable period (within the meaning given by section 61 of the Finance Act 1987) is taken into account in computing a person’s profits under section 2(5)(e) of the 1975 Act (or would be taken into account if the person were chargeable to tax under that Act in respect of a field)—

(a)for the purposes of subsection (1) the amount of the excess shall be added to the consideration which the person is deemed to have received in respect of oil disposed of by him in the period, and

(b)for the purposes of corporation tax, that amount shall be available to the person as a deduction in computing the profits of any trade to which section 492(1) does not apply.

(2)This section shall have effect in relation to deliveries of oil made on or after 1st July 2006.

Ring fence trades

152Increase in rate of supplementary charge

(1)In section 501A of ICTA (supplementary charge in respect of ring fence trades), in subsection (1) (charge of 10 per cent on adjusted ring fence profits), for “10 per cent” substitute “20 per cent”.

(2)The amendment made by subsection (1) has effect in relation to any accounting period beginning on or after 1st January 2006 (but see also subsection (3)).

(3)For the purpose of calculating the amount of the supplementary charge on a company for an accounting period (a “straddling period”) beginning before 1st January 2006 and ending on or after that date—

(a)so much of the straddling period as falls before 1st January 2006, and so much of the straddling period as falls on or after that date, are treated as separate accounting periods, and

(b)the company’s adjusted ring fence profits for the straddling period are apportioned to the two separate accounting periods in proportion to the number of days in those periods.

(4)The amount of the supplementary charge on the company for the straddling period is the sum of the amounts of supplementary charge that would, in accordance with subsection (3), be chargeable on the company for those separate accounting periods.

(5)In the case of a company’s straddling period—

(a)the Instalment Payments Regulations apply as if the amendment made by subsection (1) had not been made, but

(b)those Regulations also apply separately, in accordance with the following subsection, in relation to the increase in the amount of any supplementary charge on the company for that period that arises as a result of that amendment.

(6)In that separate application of those Regulations as mentioned in subsection (5)(b), those Regulations have effect as if, for the purposes of those Regulations,—

(a)the straddling period were an accounting period beginning on 1st January 2006,

(b)supplementary charge were chargeable on the company for that period, and

(c)the amount of that charge were equal to the increase in the amount of the supplementary charge for the straddling period that arises as a result of the amendment made by subsection (1).

(7)Any reference in the Instalment Payments Regulations to the total liability of a company is, accordingly, to be read—

(a)in their application as a result of subsection (5)(a), as a reference to the amount that would be the company’s total liability for the straddling period if the amendment made by subsection (1) had not been made, and

(b)in their application as a result of subsection (5)(b), as a reference to the amount of the supplementary charge on the company for the deemed accounting period under subsection (6)(a).

(8)For the purposes of the Instalment Payments Regulations—

(a)a company is to be regarded as a large company as respects the deemed accounting period under subsection (6)(a) if (and only if) it is a large company for those purposes as respects the straddling period, and

(b)any question whether a company is a large company as respects the straddling period is to be determined as it would have been determined if the amendment made by subsection (1) had not been made.

(9)If the Instalment Payments Regulations—

(a)apply in relation to a company’s liability to supplementary charge for the deemed accounting period under subsection (6)(a), and

(b)would (but for this subsection) treat any instalment payment in respect of that liability as being due and payable on a date falling on or before 22nd March 2006,

those Regulations have effect as if the payment were due and payable instead at the end of the period of 14 days beginning with that date.

(10)In this section—

153Election to defer capital allowances

(1)This section applies if—

(a)a company carries on a ring fence trade in an accounting period beginning on or after 1st January 2006,

(b)relevant expenditure is incurred for the purposes of or in relation to the ring fence trade (see subsections (4) to (7)), and

(c)the relevant expenditure would (but for this section) be treated as incurred for the purposes of CAA 2001 in the period of 12 months ending with 31st December 2005.

(2)The company may elect for the relevant expenditure to be treated instead as if it were incurred on the first day of the company’s first accounting period beginning on or after 1st January 2006.

(3)The election—

(a)has effect for the purposes of CAA 2001 other than those of section 45G (expenditure not first-year qualifying expenditure under section 45F if plant or machinery used for less than 5 years in a ring fence trade), and

(b)must be made by notice given to an officer of Revenue and Customs on or before 31st December 2007.

(4)Expenditure is relevant expenditure if it falls within any of Cases A to C.

(5)Expenditure falls within Case A if—

(a)it is first-year qualifying expenditure on the provision of plant or machinery under section 45F of CAA 2001 (expenditure on plant and machinery for use wholly in a ring fence trade), and

(b)no disposal event (see subsection (8)) in relation to the plant or machinery occurs in the relevant period.

(6)Expenditure falls within Case B—

(a)if it is first-year qualifying expenditure under section 416B of CAA 2001 (mineral extraction allowances: expenditure incurred by a company for purposes of a ring fence trade),

(b)if no disposal event in relation to any asset representing the expenditure occurs in the relevant period,

(c)if (or so far as) it is expenditure to which no part of any capital sum received by the company in the relevant period is reasonably attributable under section 425(2) of CAA 2001, and

(d)if no entitlement to a balancing allowance for a chargeable period in respect of the expenditure arises under any of sections 426 to 431 of CAA 2001 as a result of an event that occurs in the relevant period (as well as in that chargeable period).

The reference in paragraph (b) to any asset representing the expenditure is to be read in accordance with section 416B(4) of CAA 2001.

(7)Expenditure falls within Case C if—

(a)it is qualifying expenditure on research and development under Part 6 of CAA 2001 where the ring fence trade is the trade by reference to which the expenditure is qualifying expenditure, and

(b)no disposal event in relation to any asset representing the expenditure occurs in the relevant period.

(8)In this section—

  • “disposal event”—

    (a)

    in relation to first-year qualifying expenditure under section 45F of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under Part 2 of that Act (whether under section 61(1) or otherwise),

    (b)

    in relation to first-year qualifying expenditure under section 416B of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under section 421 or 422 of that Act,

    (c)

    in relation to qualifying expenditure on research and development under Part 6 of CAA 2001, means an event of a kind that requires a disposal value to be brought into account under section 443(1) of that Act,

  • “the relevant period”, in relation to any expenditure for the purposes of or in relation to a company’s ring fence trade, means the period—

    (a)

    beginning with the day on which the expenditure would (but for this section) be treated as incurred for the purposes of CAA 2001, and

    (b)

    ending with the first day of the company’s first accounting period beginning on or after 1st January 2006,

  • “ring fence trade” means a ring fence trade in respect of which tax is chargeable under section 501A of ICTA (supplementary charge in respect of ring fence trades).

154Ring fence expenditure supplement

(1)Chapter 5 of Part 12 of ICTA (petroleum extraction activities) is amended as follows.

(2)After section 496A (exploration expenditure supplement) insert—

496BRing fence expenditure supplement

Schedule 19C to this Act (ring fence expenditure supplement) shall have effect..

(3)Schedule 19B (petroleum extraction activities: exploration expenditure supplement) is amended as follows.

(4)In paragraph 1 (about the Schedule)—

(a)in sub-paragraph (1) (entitlement of company to supplement), in the opening words, after “2004” insert “but before 1st January 2006”,

(b)in sub-paragraph (2) (condition that expenditure incurred on or after 1st January 2004), after “2004” insert “but before 1st January 2006”.

(5)In paragraph 3 (accounting periods)—

(a)in sub-paragraph (1), in the definition of “post-commencement period”, after “2004” insert “but before 1st January 2006”,

(b)in sub-paragraph (1), in the definition of “pre-commencement period”, after “2004” insert “but before 1st January 2006”,

(c)at the end insert—

(3)In the case of an accounting period (a “straddling period”) of any qualifying company beginning before 1st January 2006 and ending on or after that date—

(a)so much of the straddling period as falls before 1st January 2006, and

(b)so much of the straddling period as falls on or after that date,

are treated as separate accounting periods for the purposes of this Schedule.

(4)Special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 16, 18A and 22)..

(6)In paragraph 6 (qualifying E&A expenditure), in sub-paragraph (2) (condition that expenditure incurred on or after 1st January 2004), after “2004” insert “but before 1st January 2006”.

(7)In paragraph 15 (supplement in respect of a post-commencement period), in sub-paragraph (2) (supplement to be treated as a loss for the purposes of Corporation Tax Acts), for “this Schedule)” substitute “this Schedule or Part 4 of Schedule 19C)”.

(8)In paragraph 16 (amount of post-commencement supplement for a post-commencement period), after sub-paragraph (2) (proportionate reduction of supplement if post-commencement period less than 12 months) insert—

(2A)But, if the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006, sub-paragraph (2) has no effect in relation to the amount of the supplement for that period..

(9)After paragraph 18 (ring fence losses and non-qualifying losses) insert—

Special rule for straddling periods

18A(1)This paragraph applies in any case where the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) ending before 1st January 2006.

(2)The following assumption shall be made for the purpose of calculating the amount of the qualifying E&A loss and the amount of the non-qualifying loss.

(3)The assumption is that the loss made in the trade is taken to be the loss incurred in the accounting period beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3)).

(4)The amount of the non-qualifying loss (found in accordance with that assumption) is then reduced (but not below nil) by the following amount.

(5)The amount is the amount of the ring fence loss in the deemed accounting period beginning on 1st January 2006 determined under paragraph 18 of Schedule 19C for the purposes of Part 4 of that Schedule..

(10)In paragraph 22 (reductions in respect of utilised ring fence profits), at the end insert—

(4)If the post-commencement period is the deemed accounting period under paragraph 3(3) ending before 1st January 2006 (“the deemed accounting period”), the amount of the profits of the deemed accounting period is determined as follows.

(5)The amount of the profits of the straddling period is apportioned to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.

(6)The apportioned amount is taken for the purposes of this paragraph to be the amount of the profits of the deemed accounting period.

(7)In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company beginning before 1st January 2006 and ending on or after that date (disregarding paragraph 3(3))..

(11)After Schedule 19B insert the Schedule 19C set out in Schedule 19 to this Act.

Part 6Inheritance tax

Future rates and bands

155Rates and rate bands for 2008-09 and 2009-10

(1)For the Table in Schedule 1 to IHTA 1984 (rates and rate bands), as it has effect in relation to chargeable transfers made on or after 6th April 2008, there shall be successively substituted—

(a)the 2008-09 Table, which shall apply to any chargeable transfer made on or after 6th April 2008 (but before 6th April 2009), and

(b)the 2009-10 Table, which shall apply to any chargeable transfer made on or after 6th April 2009.

(2)Subsection (1)(b) is without prejudice to the application of section 8 of IHTA 1984 (indexation) by virtue of the difference between the retail prices index for the month of September in 2008 or any later year and that for the month of September in the following year.

(3)The 2008-09 Table is—

Table of Rates of Tax
Portion of valueRate of tax
Lower limit (£)Upper limit (£)Per cent.
0312,000Nil
312,00040

(4)The 2009-10 Table is—

Table of Rates of Tax
Portion of valueRate of tax
Lower limit (£)Upper limit (£)Per cent.
0325,000Nil
325,00040

(5)Section 8(1) of IHTA 1984 (indexation of rate bands) shall not have effect as respects any difference between the retail prices index—

(a)for the month of September 2006 and that for the month of September 2007, or

(b)for the month of September 2007 and that for the month of September 2008.

Trusts

156Rules for trusts etc

(1)Schedule 20 contains—

(a)amendments of provisions of IHTA 1984 relating to settled property,

(b)amendments of provisions relating to property that, for purposes of that Act, is property subject to a reservation, and

(c)related amendments of provisions relating to chargeable gains.

(2)Those amendments have effect as mentioned in that Schedule.

157Purchase of interests in foreign trusts

(1)Section 48 of IHTA 1984 (settled property: excluded property) is amended as follows.

(2)In subsection (3) (circumstances in which settled property situated outside the United Kingdom is excluded property), after paragraph (b) insert—

; but this subsection is subject to subsection (3B) below..

(3)In subsection (3A) (circumstances in which a holding in an authorised unit trust or a share in an open-ended investment company comprised in settled property is excluded property), after paragraph (b) insert—

; but this subsection is subject to subsection (3B) below..

(4)After subsection (3A) insert—

(3B)Property is not excluded property by virtue of subsection (3) or (3A) above if—

(a)a person is, or has been, beneficially entitled to an interest in possession in the property at any time,

(b)the person is, or was, at that time an individual domiciled in the United Kingdom, and

(c)the entitlement arose directly or indirectly as a result of a disposition made on or after 5th December 2005 for a consideration in money or money’s worth.

(3C)For the purposes of subsection (3B) above—

(a)it is immaterial whether the consideration was given by the person or by anyone else, and

(b)the cases in which an entitlement arose indirectly as a result of a disposition include any case where the entitlement arose under a will or the law relating to intestacy..

(5)If, in consequence of the amendments made by this section, an amount of inheritance tax would (but for this subsection) fall due before the day on which this Act is passed, that amount is to be treated instead as falling due at the end of the period of 14 days beginning with that day.

(6)This section is deemed to have come into force on 5th December 2005.

Part 7Pensions

158Taxable property held by investment-regulated pension schemes

(1)Schedule 21 (taxable property held by investment-regulated pension schemes) has effect.

(2)This section and that Schedule are deemed to have come into force on 6th April 2006.

159Recycling of lump sums

(1)In Schedule 29 to FA 2004 (authorised lump sums), after paragraph 3 insert—

3A(1)Where this paragraph applies in relation to a pension commencement lump sum paid to the member, the pension scheme is to be treated as making to the member an unauthorised payment of the appropriate amount.

(2)Subject to sub-paragraphs (3) and (4), this paragraph applies in relation to a pension commencement lump sum if—

(a)because of the lump sum, the amount of the contributions paid by or on behalf of, or in respect of, the member to the pension scheme, or to any other registered pension scheme, is significantly greater than it otherwise would be, and

(b)the member envisaged at the relevant time that that would be so.

(3)This paragraph does not apply in relation to any lump sum paid to the member on any day if the amount of the lump sum, when added to any other pension commencement lump sum paid to the member within the period of 12 months ending with that day, does not exceed 1% of the standard lifetime allowance on that day.

(4)This paragraph does not apply if the amount by which the contributions paid as mentioned in sub-paragraph (2)(a) is greater than it otherwise would be because of the lump sum does not exceed 30% of the amount of the lump sum.

(5)“The appropriate amount” is so much of—

(a)the amount crystallised by the benefit crystallisation event constituted by the payment of the lump sum, as does not exceed

(b)the amount of the member’s lifetime allowance which is available on it.

(6)“The relevant time” is—

(a)if paragraph (a) of sub-paragraph (2) is satisfied before the lump sum is paid, the time when that paragraph is first satisfied, and

(b)otherwise, the time when the lump sum is paid.

(2)This section is deemed to have come into force on 6th April 2006.

160Inheritance tax

(1)Schedule 22 (provisions about inheritance tax in relation to registered pension schemes) has effect.

(2)This section and that Schedule are deemed to have come into force on 6th April 2006.

161Miscellaneous

(1)Schedule 23 (miscellaneous amendments relating to pension schemes etc) has effect.

(2)This section and that Schedule are deemed to have come into force on 6th April 2006.

Part 8Stamp taxes

Stamp duty and stamp duty land tax: thresholds

162Raising of thresholds

(1)In section 55 of FA 2003 (amount of stamp duty land tax chargeable: general) in subsection (2) (calculation of percentage of chargeable consideration), in Table A (bands and percentages for residential property), for “£120,000”, in both places, substitute “£125,000”.

(2)In Schedule 5 to FA 2003 (stamp duty land tax: amount of tax chargeable: rent), in paragraph 2(3) (calculation of tax chargeable in respect of rent), in Table A (bands and percentages for residential property), for “£120,000”, in both places, substitute “£125,000”.

(3)In Schedule 13 to FA 1999 (stamp duty: instruments chargeable and rates of duty), in paragraph 4 (bands and percentages for conveyance or transfer on sale of property other than stock or marketable securities), for “£120,000”, in both places, substitute “£125,000”.

(4)The amendments made by subsections (1) and (2) have effect in relation to any transaction of which the effective date (within the meaning of Part 4 of FA 2003) is after 22nd March 2006.

(5)The amendment made by subsection (3) has effect in relation to instruments executed after 22nd March 2006.

Stamp duty land tax

163Partnerships

Schedule 24 (amendments of Schedule 15 to FA 2003) has effect.

164Leases

(1)In section 77 of FA 2003 (notifiable transactions), for subsection (2A) substitute—

(2A)The assignment of a lease is notifiable if there is chargeable consideration for the assignment and either—

(a)the lease is for a term of seven years or more, or

(b)the consideration for the assignment is chargeable at a rate of 1% or higher, or would be so chargeable but for a relief.

(2)In Schedule 5 to FA 2003 (amount of tax chargeable: rent), in paragraph 3 (net present value of rent payable over term of lease), for “in year i” substitute “in respect of year i”.

(3)Subsection (1) has effect in relation to any assignment of which the effective date (within the meaning of Part 4 of FA 2003) is on or after the day on which this Act is passed.

(4)Subsection (2) has effect in relation to any lease granted or treated as granted on or after that day.

(5)Schedule 25 (amendments of Schedule 17A to FA 2003) has effect.

165Reallocation of trust property as between beneficiaries

(1)In Schedule 16 to FA 2003 (trusts and powers), after paragraph 7 insert—

Reallocation of trust property as between beneficiaries

8Where—

(a)the trustees of a settlement reallocate trust property in such a way that a beneficiary acquires an interest in certain trust property and ceases to have an interest in other trust property, and

(b)the beneficiary consents to ceasing to have an interest in that other property,

the fact that he gives consent does not mean that there is chargeable consideration for the acquisition.

(2)Subsection (1) has effect in relation to any acquisition of which the effective date (within the meaning of Part 4 of FA 2003) is on or after the day on which this Act is passed.

166Unit trust schemes

(1)Part 4 of FA 2003 (stamp duty land tax) is amended as follows.

(2)Omit section 64A (initial transfer of assets to trustees of unit trust scheme).

(3)In section 101 (unit trust schemes)—

(a)in subsection (1) (application of Part (except for provisions mentioned in subsection (7)) to unit trust schemes) for “provisions” substitute “provision”, and

(b)in subsection (7) (provisions for the purposes of which unit trust schemes not to be treated as companies) omit from “section 53” to “companies), or”.

(4)This section has effect in relation to any land transaction of which the effective date is, or is after, 22nd March 2006 (but see subsections (5) and (6)).

(5)This section does not have effect in relation to—

(a)any land transaction which is effected in pursuance of a contract entered into and substantially performed before 2 p.m. on 22nd March 2006 (“the relevant time”), or

(b)any other land transaction which is effected in pursuance of a contract entered into before the relevant time and which is not an excluded transaction.

(6)For this purpose, a land transaction effected in pursuance of a contract is an excluded transaction if—

(a)any provision of the contract has effect by reference to a unit trust scheme and the scheme is not established before the relevant time,

(b)at or after the relevant time the contract is varied in a way that significantly affects the land transaction (see subsection (7)),

(c)the subject-matter of the land transaction is not identified in the contract in a way that would have enabled its acquisition before the relevant time,

(d)rights under the contract are assigned at or after the relevant time,

(e)the land transaction is effected in consequence of the exercise, at or after the relevant time, of any option, right of pre-emption or similar right, or

(f)at or after the relevant time there is an assignment, subsale or other transaction (relating to the whole or part of the contract’s subject-matter) as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him.

(7)For the purposes of subsection (6)(b) the contract is varied in a way that significantly affects the land transaction if (and only if)—

(a)it is varied so as to substitute a different purchaser in relation to the land transaction,

(b)it is varied so as to alter the subject-matter of the land transaction, or

(c)it is varied so as to alter the consideration for the land transaction.

(8)Expressions which are used in Part 4 of FA 2003 and in this section have the same meaning in this section as in that Part.

167Demutualisation of insurance companies

(1)Schedule 7 to FA 2003 (stamp duty land tax: group relief etc) is amended as follows.

(2)In paragraph 2 (restrictions on availability of group relief) in sub-paragraph (1) (no relief if arrangements by virtue of which a person has or could have control of purchaser but not vendor) at the end insert—

For another exception to this, see sub-paragraph (3A)..

(3)In that paragraph after sub-paragraph (3) (arrangements which are within sub-paragraph (2)(a)) insert—

(3A)Sub-paragraphs (1) and (2)(b) do not apply to arrangements in so far as they are for the purpose of facilitating a transfer of the whole or part of the business of a company to another company in relation to which—

(a)section 96 of the Finance Act 1997 is intended to apply (stamp duty relief: demutualisation of insurance companies), and

(b)the conditions for relief under that section are intended to be met..

(4)In paragraph 4 (cases in which group relief not withdrawn under paragraph 3)—

(a)after sub-paragraph (6) (the third case where the relief not withdrawn) insert—

(6A)The fourth case is where—

(a)the purchaser ceases to be a member of the same group as the vendor as a result of the transfer of the whole or part of the vendor’s business to another company (“the acquiring company”) in relation to which—

(i)section 96 of the Finance Act 1997 applies (stamp duty relief: demutualisation of insurance companies), and

(ii)the conditions for relief under that section are met, and

(b)the purchaser is immediately after that transfer a member of the same group as the acquiring company., and

(b)in sub-paragraph (7) (re-imposition of the withdrawal of the relief), in the opening words, after “in a case within sub-paragraph (6)” insert “or (6A)”.

(5)The amendments made by this section have effect in relation to any transfer which takes place, or is intended to take place, after 22nd March 2006.

168Alternative finance

(1)In sections 71A to 73 of FA 2003 (alternative property finance) for “individual” substitute “person” (and for “an individual” substitute “a person”).

(2)Sections 71A(6), 72(6), 72A(6) and 73(4) shall cease to have effect.

(3)In section 73(3) after “chargeable” insert “on a chargeable consideration that is not less than the market value of the interest and, in the case of the grant of a lease at a rent, the rent.”

(4)After section 73 insert—

73ASections 71A to 73: supplemental

Sections 71A to 73 do not apply to arrangements in which the first transaction is exempt from charge by virtue of Schedule 7.

(5)This section shall have effect in relation to arrangements in which the effective date of the first transaction (within the meaning of sections 71A to 73 of FA 2003) is on or after the date on which this Act is passed; and section 119(1) of FA 2003 shall have effect for determining the effective date for the purposes of this subsection.

Stamp duty

169Reliefs for certain company acquisitions

(1)Part 3 of FA 1986 (stamp duty) is amended as follows.

(2)In section 75 (relief for acquisition of target company’s undertaking in pursuance of reconstruction scheme)—

(a)in subsection (4) (condition as to registered office etc) omit “that the registered office of the acquiring company is in the United Kingdom and”, and

(b)in subsection (5)(c) (condition that any shareholder holds the same proportion of shares in the companies) after “the same” insert “, or as nearly as may be the same,”.

(3)In section 76 (other relief for acquisition of target company’s undertaking), in subsection (3) (condition as to registered office etc) omit “that the registered office of the acquiring company is in the United Kingdom and”.

(4)In section 77 (relief for acquisition of target company’s share capital), in subsection (3) (conditions for relief),—

(a)omit paragraph (a) (condition as to registered office),

(b)in paragraph (g) (condition that the number of shares of any particular class bear to all the shares the same proportion) after “the same proportion” insert “, or as nearly as may be the same proportion,”, and

(c)in paragraph (h) (condition that proportion of shares of any particular class held by any shareholder be the same) after “the same” insert “, or as nearly as may be the same,”.

(5)The amendments made by this section have effect in relation to instruments executed after the day on which this Act is passed.

Part 9Miscellaneous provisions

Landfill tax

170Rate of landfill tax

(1)In section 42 of FA 1996 (amount of landfill tax) for the amount specified in subsection (1)(a), and the corresponding amount specified in subsection (2), substitute “£21”.

(2)The amendments made by this section have effect in relation to taxable disposals made, or treated as made, on or after 1st April 2006.

Climate change levy

171Climate change levy: rates

(1)In Schedule 6 to FA 2000 (climate change levy) for the Table in paragraph 42(1) (amount payable by way of levy) substitute—

TABLE
Taxable commodity suppliedRate at which levy payable if supply is neither a half-rate supply nor a reduced-rate supply
Electricity£0.00441 per kilowatt hour
Gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility£0.00154 per kilowatt hour
Any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state£0.00985 per kilogram
Any other taxable commodity£0.01201 per kilogram

(2)This section has effect in relation to supplies treated as taking place on or after 1st April 2007.

172Abolition of half-rate supplies etc

(1)For the purposes of climate change levy, no supply made on or after 1st April 2006 is a half-rate supply.

(2)Subsections (3) to (6) have effect for determining when a supply is to be regarded as made for the purposes of subsection (1).

(3)A supply—

(a)of electricity, or

(b)of gas that is in a gaseous state and is of a kind supplied by a gas utility,

is to be regarded as made at the time when the electricity or gas is actually supplied.

(4)In the case of a supply of a taxable commodity not falling within subsection (3) by a person who is resident in the United Kingdom—

(a)if the commodity is to be removed, the supply is to be regarded as made at the time of the removal,

(b)if the commodity is not to be removed, the supply is to be regarded as made when the commodity is made available to the person to whom it is supplied.

This subsection does not apply if subsection (6) (deemed self-supply) applies in the case of the supply.

(5)In the case of a supply of a taxable commodity not falling within subsection (3) by a person who is not resident in the United Kingdom, the supply is to be regarded as made—

(a)when the commodity is delivered to the person to whom it is supplied, or

(b)if earlier, when it is made available in the United Kingdom to that person.

This subsection does not apply if subsection (6) (deemed self-supply) applies in the case of the supply.

(6)In any case where, by virtue of paragraph 23(3) of Schedule 6 to FA 2000, a person is, for the purposes of that Schedule, deemed to make a supply to himself of a quantity of a taxable commodity—

(a)which he has produced, and

(b)which does not fall within subsection (3),

the supply is to be regarded as made at the time when he produced that particular quantity of the taxable commodity.

(7)In paragraph 34 of Schedule 6 to FA 2000 (deemed supplies of commodities other than electricity and certain gas), in sub-paragraph (2) omit the words “(or, in the case of electricity, consumed)” (which are unnecessary, because the paragraph does not apply in the case of electricity).

(8)In consequence of subsection (1), Schedule 6 to FA 2000 (climate change levy) is amended as follows.

(9)In paragraph 37 (supplies of electricity or gas spanning change of rate etc) in sub-paragraph (1)(c) omit “half-rate supplies or”.

(10)In paragraph 38 (other supplies spanning change of rate etc) in sub-paragraph (1)(c) omit “half-rate supplies or”.

(11)In paragraph 42(1) (amount payable by way of levy)—

(a)in paragraph (a), for “neither a half-rate supply nor” substitute “not”;

(b)omit paragraph (b);

(c)in paragraph (c), for “neither a half-rate supply nor” substitute “not”;

(d)in the Table (and in the Table substituted for it by section 171 of this Act), in the heading to column (2), for “neither a half-rate supply nor” substitute “not”.

(12)Paragraph 43 (half-rate for supplies to horticultural producers) shall cease to have effect.

(13)In paragraph 62 (tax credits) in subsection (1)—

(a)in paragraph (c)—

(i)for “neither a half-rate supply nor” substitute “not”;

(ii)omit “half-rate or”;

(b)omit paragraph (d).

(14)In paragraph 101 (civil penalties: incorrect notifications) in sub-paragraph (2)(a)—

(a)at the end of sub-paragraph (ii) insert “or”;

(b)omit sub-paragraph (iii).

(15)In paragraph 147 (interpretation: general) omit the definition of “half-rate supply”.

(16)Subsections (8) to (15) come into force on such day as the Treasury may by order made by statutory instrument appoint.

(17)The power to make an order under subsection (16)—

(a)may be exercised so as to bring a provision into force only in such cases as may be described in the order,

(b)may be exercised so as to make different provision for different cases or descriptions of case,

(c)includes power to make incidental, consequential, supplemental or transitional provision or savings.

International tax arrangements

173International tax enforcement arrangements

(1)If Her Majesty by Order in Council declares that—

(a)arrangements relating to international tax enforcement which are specified in the Order have been made in relation to any territory or territories outside the United Kingdom, and

(b)it is expedient that those arrangements have effect,

those arrangements have effect (and do so in spite of anything in any enactment or instrument).

(2)For the purposes of subsection (1) arrangements relate to international tax enforcement if they relate to any or all of the following—

(a)the exchange of information foreseeably relevant to the administration, enforcement or recovery of any UK tax or foreign tax;

(b)the recovery of debts relating to any UK tax or foreign tax;

(c)the service of documents relating to any UK tax or foreign tax.

(3)In this section—

  • “UK tax” means any tax or duty imposed under the domestic law of the United Kingdom, and

  • “foreign tax” means any tax or duty imposed under the law of the territory, or any of the territories, in relation to which the arrangements have been made.

(4)Where any arrangements have effect by virtue of this section, no obligation of secrecy (whether imposed by statute or otherwise)—

(a)prevents any Minister of the Crown, or person with responsibilities in any government department, from disclosing to the Commissioners for Her Majesty’s Revenue and Customs or any authorised Revenue and Customs official any information which is authorised to be disclosed in accordance with the arrangements to any authorised officer of the authorities of the territory, or any of the territories, in relation to which the arrangements have been made, or