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Finance Act 2006 is up to date with all changes known to be in force on or before 16 December 2018. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations. Help about Changes to Legislation

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SCHEDULES

Section 27

SCHEDULE 1E+W+S+N.I.Group relief where surrendering company not resident in UK

F1Part 1E+W+S+N.I.Amendments of Chapter 4 of Part 10 of ICTA

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Amendments (Textual)

F1Sch. 1 Pt. 1 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

Part 2E+W+S+N.I.Amendments of other enactments

Claims for group reliefE+W+S+N.I.

8After paragraph 77 of Schedule 18 to FA 1998 (joint amended returns) insert—

Claims in respect of overseas losses of non-resident companiesE+W+S+N.I.

77A(1)This paragraph applies if a claim for group relief is made in respect of any loss or other amount as a result of the condition in section 402(2A) of the Taxes Act 1988 being satisfied (relief in respect of overseas losses of non-resident companies).

(2)In relation to the surrendering company, this Part of this Schedule applies as if—

(a)references to the relief being surrendered were to the EEA amount and to the relief being claimed, and

(b)references to its accounting period were to its deemed accounting period under Part 2 of Schedule 18A to the Taxes Act 1988.

(3)Notice of consent of the surrendering company—

(a)is to be given to the officer of the Board under paragraph 70(3)(b) by the claimant company (and not by the surrendering company), and

(b)is to be given to the officer to whom the claimant company makes its company tax returns.

(4)If the surrendering company is not within the charge to income or corporation tax, the requirement under paragraph 71(1)(e) for notice of consent by the surrendering company to contain details of its tax district reference is not to apply.

(5)If notice of consent is withdrawn under paragraph 71, the notice of the withdrawal is to be given to the officer of the Board by the claimant company (and not by the surrendering company).

(6)If notice of consent is withdrawn under paragraph 75—

(a)the notice of withdrawal, and any copy of any new notice of consent, is to be sent to an officer of Revenue and Customs by the claimant company (and not by the surrendering company), and

(b)any notice containing directions by an officer of Revenue and Customs under sub-paragraph (4) of that paragraph is to be given to the claimant company (and not to the surrendering company).

(7)The remaining provisions of that paragraph, and the rest of this Part of this Schedule, are, accordingly, to be read with the appropriate modifications (so that, in particular, it is the claimant company (and not the surrendering company) which can bring an appeal under paragraph 75(7)).

(8)A notice under paragraph 27 (notice to produce documents etc for purposes of an enquiry) given to the claimant company may require the claimant company—

(a)to explain why the EEA amount meets the conditions mentioned in subsection (2)(a) to (d) of section 403F of the Taxes Act 1988 and is not prevented from being surrendered by section 403G of that Act, and

(b)to provide details of the recalculation required under Part 2 of Schedule 18A to that Act in relation to the EEA amount.

(9)Except where expressly indicated, requirements imposed under this paragraph are in addition to those imposed apart from this paragraph.

(10)In this paragraph “the EEA amount” has the same meaning as in Part 2 of Schedule 18A to the Taxes Act 1988..

Part 3E+W+S+N.I.Commencement

CommencementE+W+S+N.I.

9(1)The amendments made by this Schedule, other than those made by paragraphs 4(2) and 5, have effect—E+W+S+N.I.

(a)in relation to any accounting period of a claimant company beginning on or after 1st April 2006, and

(b)in relation to any period (“the loss period”) beginning on or after 1st April 2006 in which any loss or other amount arises to a non-resident company.

(2)If an accounting period (a “straddling period”) of a claimant company begins before 1st April 2006 and ends on or after that date—

(a)so much of the straddling period as falls before 1st April 2006, and

(b)so much of the straddling period as falls on or after that date,

are to be treated as separate accounting periods for the purposes of the amendments made by this Schedule other than those made by paragraphs 4(2) and 5.

(3)The amount of the claimant company's profits for the straddling period is to be attributed, on an apportionment in accordance with this paragraph, to those separate accounting periods.

(4)If the loss period of the non-resident company begins before 1st April 2006 and ends on or after that date—

(a)so much of the loss period as falls before 1st April 2006, and

(b)so much of the loss period as falls on or after that date,

are to be treated as separate periods for the purposes of the amendments made by this Schedule other than those made by paragraphs 4(2) and 5.

(5)The amount of the loss or other amount of the non-resident company for the loss period is to be attributed, on an apportionment in accordance with this paragraph, to those separate periods.

(6)Any apportionment under this paragraph is to be made on a just and reasonable basis.

Section 28

F2SCHEDULE 2E+W+S+N.I.Relief for research and development: subjects of clinical trials

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Amendments (Textual)

F2Sch. 2 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Section 29

SCHEDULE 3E+W+S+N.I.Claims for relief for research and development

IntroductoryE+W+S+N.I.

1Schedule 18 to FA 1998 (company tax returns, assessments and related matters) is amended as follows.

Claims to be included in returnE+W+S+N.I.

2(1)Paragraph 10 (other claims and elections to be included in return) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2) (claims to which Part 8, 9 or 9A of Schedule 18 applies) for “R&D tax credit” substitute “ R&D tax relief ”.

F3(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F3Sch. 3 para. 2(3) (4) repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Claims for R&D tax reliefE+W+S+N.I.

3In paragraph 83A (Part 9A: introduction) for “claims for R&D tax credits” substitute “ claims for R&D tax relief ”.

4In each of the following provisions for “claim for an R&D tax credit” substitute “ claim to which this Part of this Schedule applies ”

(a)paragraph 83B(1) (claim to be included in company tax return);

(b)paragraph 83C (content of claim);

(c)paragraph 83D (amendment or withdrawal of a claim);

(d)paragraph 83E(1) (time limit for claims).

5In the title of Part 9A, “R&D tax credit” becomes “ R&D tax relief ”.

Claims for relief under Schedule 12 to FA 2002E+W+S+N.I.

F46. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F4Sch. 3 paras. 6-9 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Claims for relief under Schedule 13 to FA 2002E+W+S+N.I.

F47. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F4Sch. 3 paras. 6-9 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

F48. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F4Sch. 3 paras. 6-9 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

F49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F4Sch. 3 paras. 6-9 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Commencement and transitional provisionE+W+S+N.I.

10The amendments made by paragraphs 2 to 9 have effect in relation to accounting periods ending on or after 31st March 2006.

11(1)This paragraph applies where a company is entitled to relief under Schedule 20 to FA 2000 or Schedule 12 or 13 to FA 2002 for any accounting period of the company falling within sub-paragraph (2).E+W+S+N.I.

(2)An accounting period of a company falls within this sub-paragraph if it ends on a day falling after 31st March 2002 but before 31st March 2006.

(3)Sub-paragraphs (4) and (5) apply to any claim by the company for such relief for an accounting period falling within sub-paragraph (2), other than a claim by the company for—

(a)an R&D tax credit under Schedule 20 to FA 2000, or

(b)a tax credit under Schedule 13 to FA 2002.

(4)A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at any time up to and including 31st March 2008.

(5)A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at a later date if an officer of Revenue and Customs allows it.

Section 37

F5SCHEDULE 4E+W+S+N.I.Taxation of activities of film production company

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Amendments (Textual)

F5Sch. 4 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 693, Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Section 42

SCHEDULE 5E+W+S+N.I.Film tax relief: further provisions

F6...E+W+S+N.I.

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Amendments (Textual)

F6Sch. 5 Pt. 1 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 694(a), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Part 2E+W+S+N.I.Certification of British films for purposes of film tax relief

15For section 6 of the Films Act 1985 (c. 21) (certification of master negatives, tapes and discs for purposes of section 72 of FA 1982) substitute)—

6Certification of British films

Schedule 1 to this Act has effect with respect to the certification by the Secretary of State of a film as a British film for the purposes of film tax relief..

16For the heading to Schedule 1 to that Act substitute “ Certification of British films for purposes of film tax relief ”.

17For paragraph 1 of that Schedule substitute—

PreliminaryE+W+S+N.I.

1(1)In this Schedule—

  • 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;

  • film production company” has the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006 (see section 32 of that Act).

(2)For the purposes of this Schedule 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 Schedule to a film include the film soundtrack.

(4)For the purposes of this Schedule 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..

18For paragraph 2 of that Schedule substitute—

Applications for certificationE+W+S+N.I.

2(1)The film production company may apply to the Secretary of State for the certification of a film as a British film.

(2)The application may be for an interim or final certificate.

(3)An interim certificate is a certificate granted before the film is completed that the film, if completed in accordance with the proposals set out in the application, will be a British film.

(4)A final certificate is a certificate granted after the film is completed that the film is a British film.

(5)The applicant must—

(a)produce to the Secretary of State such books or other documents relating to the application, and

(b)provide the Secretary of State with such other information with respect to it,

as the Secretary of State may require for the purposes of determining the application.

(6)The Secretary of State may require information provided for the purposes of the application to be accompanied by a statutory declaration, by the person providing it, as to the truth of the information..

19For paragraph 3 of that Schedule substitute—

Certification and withdrawal of certificationE+W+S+N.I.

3(1)If the Secretary of State is satisfied that the requirements are met for interim or final certification of a film as a British film, he shall certify the film accordingly.

(2)If the Secretary of State is not satisfied that those requirements are met, he shall refuse the application.

(3)An interim certificate—

(a)may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met;

(b)may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period; and

(c)ceases to have effect when a final certificate is issued.

(4)If it appears to the Secretary of State that a film certified by him under this Schedule ought not to have been certified, he shall revoke its certification.

Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect..

20In paragraph 4 of that Schedule (British films for purposes of the Schedule), for sub-paragraphs (1) to (3) substitute—

(1)A film is a British film for the purposes of this Schedule if it passes the relevant cultural test (see paragraph 4A, 4B or 4C)..

21(1)Paragraph 5 of that Schedule (excluded films) is amended as follows.E+W+S+N.I.

(2)For sub-paragraph (1) substitute—

(1)A film must not be certified as a British film for the purposes of this Schedule if parts of the film whose playing time exceeds 10% of the total playing time of the film are derived from a previous film, unless—

(a)the two films have the same film production company or producer, and

(b)the previous film has not been certified under this Schedule..

(3)After sub-paragraph (2) insert—

(3)For the purposes of this paragraph—

(a)the film soundtrack shall be left out of account;

(b)producer” means the person by whom the arrangements necessary for the making of the film are undertaken;

(c)in relation to certification before the commencement of Chapter 3 of Part 3 of the Finance Act 2006, references to certification of a film shall be read as references to certification of the master negative, tape or disc of the film..

22In paragraph 9 of that Schedule (determination of disputes) for the words from “any decision of the Secretary of State” to “may” substitute “ any decision of the Secretary of State under paragraph 3 may ”.

23In paragraph 10 of that Schedule (regulations and orders)—

(a)in sub-paragraph (1)(c), for “2(4)” substitute “ 2(6); ”

(b)in sub-paragraph (2), for “4 to 8” substitute “ 4 to 5 ”.

Confidentiality of informationE+W+S+N.I.

F724. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F7Sch. 5 para. 24 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 694(b), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Wrongful disclosureE+W+S+N.I.

F825. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F8Sch. 5 para. 25 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 694(b), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Part 3E+W+S+N.I.Consequential amendments

InterestE+W+S+N.I.

26(1)Section 826 of ICTA (interest on tax overpaid etc) is amended as follows.E+W+S+N.I.

(2)In subsection (1) (payments that carry interest) after paragraph (e) insert— ; or

(f)a payment of film tax credit falls to be made to a company..

(3)After subsection (3B) insert—

(3C)In relation to a payment of film tax credit the material date is whichever is the later of—

(a)the filing date for the company's company tax return for the accounting period for which the tax credit is payable, and

(b)the date on which the company tax return or amended company tax return containing the claim for payment is delivered to an officer of Revenue and Customs.

For this purpose “the filing date”, in relation to a company tax return, has the same meaning as in Schedule 18 to the Finance Act 1998..

(4)In subsection (8A) (recovery of overpaid amounts)—

(a)in paragraph (a), for “or (e)” substitute “ , (e) or (f) ”;

(b)in paragraph (b)(ii) after “life assurance company tax credit” insert “ or film tax credit ”.

(5)In subsection (8B) after “life assurance company tax credit” (twice) insert “ or film tax credit ”.

Claim to be made in tax returnE+W+S+N.I.

27In Schedule 18 to FA 1998 (company tax returns), in paragraph 10 (other claims etc to be included in return), after sub-paragraph (3) insert—

(4)A claim to which Part 9D of this Schedule applies (claims for film tax relief) can only be made by being included in a company tax return (see paragraph 83T)..

Recovery of excessive film tax creditE+W+S+N.I.

28In paragraph 52 of that Schedule (recovery of excessive repayments etc)—

(a)in sub-paragraph (2) (excessive repayments etc to which paragraphs 41 to 48 apply), after paragraph (bc) insert—

(bd)film tax credit,;

(b)in sub-paragraph (5) (connection of assessment for excessive payment to an accounting period), after paragraph (ad) insert—

(ae)an amount of film tax credit paid to a company for an accounting period,;

(c)in the closing words of that sub-paragraph, after “(ad)” insert “ , (ae) ”.

Claims for film tax creditsE+W+S+N.I.

29After Part 9C of that Schedule insert—

Part 9DE+W+S+N.I.Claims for film tax relief
Introduction

83SThis Part of this Schedule applies to claims for film tax relief.

Claim to be included in company tax return

83T(1)A claim to which this Part of this Schedule applies must be made by being included in the claimant company's tax return for the accounting period for which the claim is made.

(2)It may be included in the return originally made or by amendment.

Content of claim

83UA claim to which this Part of this Schedule applies must specify the amount of the relief claimed, which must be an amount quantified at the time the claim is made.

Amendment or withdrawal of claim

83VA claim to which this Part of this Schedule applies may be amended or withdrawn by the claimant company only by amending its company tax return.

Time limits for claim

83W(1)A claim to which this part of this Schedule applies may be made, amended or withdrawn at any time up to the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made.

(2)The claim may be made, amended or withdrawn at a later date if an officer of Revenue and Customs allows it.

Penalty

83X(3)The company is liable to a penalty where it—

(a)fraudulently or negligently makes a claim for a film tax credit that is incorrect, or

(b)discovers that a claim for a film tax credit made by it (neither fraudulently nor negligently) is incorrect and does not remedy the error without unreasonable delay.

(4)The penalty is an amount not exceeding the excess film tax credit claimed, that is, the difference between—

(a)the amount (if any) of the film tax credit to which the company is entitled for the accounting period to which the claim relates, and

(b)the amount of the film tax credit claimed by the company for that period..

F9...E+W+S+N.I.

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Amendments (Textual)

F9Sch. 5 Pt. 4 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 694(c), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

E+W+S+N.I.

F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E+W+S+N.I.

F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E+W+S+N.I.

F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E+W+S+N.I.

F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E+W+S+N.I.

F9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 76

SCHEDULE 6E+W+S+N.I.Avoidance involving financial arrangements

Repeal of rent factoring provisionsE+W+S+N.I.

1(1)Sections 43A to 43G of ICTA (rent factoring) shall cease to have effect.E+W+S+N.I.

(2)The amendment made by this paragraph has effect in relation to transactions entered into on or after 6th June 2006.

Dividend stripping: subsequent sales etc of rights to receive dividends etcE+W+S+N.I.

2(1)Section 730 of ICTA (transfers of rights to receive distributions in respect of shares) is amended as follows.E+W+S+N.I.

(2)Omit subsection (3) (proceeds of subsequent sales etc of rights to receive distributions not to be regarded as income of the seller etc).

(3)The amendment made by this paragraph has effect in relation to sales or other realisations on or after 20th January 2006.

Deemed interest: cash collateral under stock lending arrangementsE+W+S+N.I.

F103. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F10Sch. 6 para. 3 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 9(d), 12

Quasi-stock lending arrangements and quasi-cash collateralE+W+S+N.I.

F114. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F11Sch. 6 para. 4 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 9(d), 12

Multiple holders of securities subject to sale and repurchase agreement: no relief for deemed manufactured paymentsE+W+S+N.I.

5F12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F12Sch. 6 para. 5 repealed (with effect in accordance with s. 47 of the amending Act) by Finance Act 2007 (c. 11), s. 114, {Sch. 27 Pt. 2(14) Note}

Structured finance arrangements: factoring of income receipts etcE+W+S+N.I.

F136. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F13Sch. 6 para. 6 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 2 (with Sch. 2) and repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 10 (with Sch. 9 paras. 1-9, 22)

Rent factoring of leases of plant or machineryE+W+S+N.I.

F147. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F14Sch. 6 para. 7 omitted (with effect in accordance with Sch. 25 para. 10 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 25 para. 9(3)(g)

Transactions associated with loans or creditE+W+S+N.I.

F158. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F15Sch. 6 para. 8 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 2 (with Sch. 2) and repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 10 (with Sch. 9 paras. 1-9, 22)

Structured finance arrangements: chargeable gains treatment of acquisitions and disposalsE+W+S+N.I.

9(1)After section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) insert—E+W+S+N.I.

263EStructured finance arrangements

(1)This section applies if—

(a)section 774B of the Taxes Act (disregard of intended effects of arrangement involving disposals of assets) applies in relation to a structured finance arrangement,

(b)the borrower or a person connected with the borrower makes a disposal of any security at any time under the arrangement to or for the benefit of the lender or a person connected with the lender, and

(c)condition A or B is met.

(2)Condition A is that the person making the disposal subsequently acquires under the arrangement the asset disposed of by that disposal.

(3)Condition B is that—

(a)the asset disposed of by that disposal subsequently ceases to exist at any time, and

(b)that asset was held by the lender, or a person connected with the lender, from the time of the disposal until that time.

(4)The disposal of the security by the borrower or a person connected with the borrower is to be disregarded for the purposes of this Act.

(5)Any subsequent acquisition by the person making the disposal of the asset disposed of by that disposal is to be disregarded for the purposes of this Act.

(6)In this section—

  • the borrower”, in relation to a structured finance arrangement, means the person who is the borrower under the arrangement for the purposes of section 774A of the Taxes Act,

  • the lender”, in relation to a structured finance arrangement, means the person who is the lender under the arrangement for the purposes of that section,

  • security” means any such asset as is mentioned in subsection (2)(c) and (d) of that section.

(7)For the purposes of this section—

(a)references to a person connected with the borrower do not include the lender, and

(b)references to a person connected with the lender do not include the borrower..

(2)The amendment made by this paragraph has effect in relation to disposals made on or after 6th June 2006.

(3)The amendment made by this paragraph also has effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.

Loan relationships: mandatory convertiblesE+W+S+N.I.

10F16(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E+W+S+N.I.

F16(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F16(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)The following provisions of this paragraph apply for the purposes of TCGA 1992 if—

(a)a company is a party to a relationship on 22nd March 2006,

(b)the relationship becomes a loan relationship on that date for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of the amendments made by this paragraph,

(c)the relationship is a creditor relationship of the company, and

(d)immediately before that date the asset representing the relationship was a chargeable asset in relation to the company.

(5)The company is treated as if—

(a)it had made a disposal of the asset representing the relationship immediately before 22nd March 2006, and

(b)the disposal had been for a consideration equal to the fair value of the asset at that time (within the meaning given by section 103(1) of FA 1996).

(6)Any chargeable gain or loss accruing to the company on the disposal is treated as accruing to the company when it ceases to be a party to the relationship.

(7)For the purposes of this paragraph an asset is a chargeable asset in relation to the company at any time if any gain accruing to it on the disposal of the asset at that time would be a chargeable gain for the purposes of TCGA 1992.

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Amendments (Textual)

F16Sch. 6 para. 10(1)-(3) repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: computation in accordance with generally accepted accounting practiceE+W+S+N.I.

F1711. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: amounts not fully recognised for accounting purposesE+W+S+N.I.

F1712. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Shares treated as loan relationships: shares subject to outstanding third party obligationsE+W+S+N.I.

F1713. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Shares treated as loan relationships: application of rules to non-qualifying sharesE+W+S+N.I.

F1714. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Shares treated as loan relationships: redeemable shares E+W+S+N.I.

F1715. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Creditor relationships and benefit derived by connected personsE+W+S+N.I.

F1716. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: money debts etc not arising from the lending of moneyE+W+S+N.I.

F1717. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: meaning of “fair value” in Chapter 2 of Part 4 of FA 1996E+W+S+N.I.

F1718. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: continuity of treatment of groups etcE+W+S+N.I.

F1719. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F17Sch. 6 paras. 11-19 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Loan relationships: repo and stock-lending arrangementsE+W+S+N.I.

20F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F18Sch. 6 para. 20 repealed (with effect in accordance with s. 47 of the amending Act) by Finance Act 2007 (c. 11), s. 114, {Sch. 27 Pt. 2(14) Note}

Derivative contracts: computation in accordance with generally accepted accounting practiceE+W+S+N.I.

F1921. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F19Sch. 6 paras. 21-24 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Derivative contracts: transactions within groupsE+W+S+N.I.

F1922. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F19Sch. 6 paras. 21-24 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Derivative contracts: transactions within groups (fair value accounting)E+W+S+N.I.

F1923. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F19Sch. 6 paras. 21-24 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Derivative contracts: meaning of “fair value” in Schedule 26 to FA 2002E+W+S+N.I.

F1924. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F19Sch. 6 paras. 21-24 repealed (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 3 Pt. 1 (with Sch. 2 Pts. 1, 2)

Section 79

SCHEDULE 7E+W+S+N.I.Transfer of assets abroad

Income and Corporation Taxes Act 1988E+W+S+N.I.

Amendments of ICTA: introductoryE+W+S+N.I.

1F20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F20Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Section 741: application subject to sections 741B and 741CE+W+S+N.I.

2F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F21Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Exemption from sections 739 and 740: new provisionE+W+S+N.I.

3F22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F22Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Application of sections 741 and 741AE+W+S+N.I.

4F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F23Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Just and reasonable apportionment in certain casesE+W+S+N.I.

5F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F24Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Section 742: interpretation of the ChapterE+W+S+N.I.

6F25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F25Sch. 7 paras. 1-6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

ITTOIA 2005E+W+S+N.I.

Gains from contracts for life insurance etcE+W+S+N.I.

7(1)In ITTOIA 2005, section 468 (gains from contracts of life insurance etc: non-UK resident trustees and foreign institutions) is amended as follows.E+W+S+N.I.

(2)In subsection (2) (section 740 of ICTA to apply with the modifications in subsection (3) or (4))—

(a)for “Section 740” substitute “ Sections 739 and 740 ”,

(b)for “prevents” substitute “ prevent ”,

(c)for “applies” substitute “ apply ”.

(3)In subsection (3) (cases within subsection (1)(a)) for “section 740 applies” substitute “ sections 739 and 740 apply ”.

(4)In subsection (4) (cases within subsection (1)(b)) for “section 740 applies” substitute “ sections 739 and 740 apply ”.

(5)The amendments made by this paragraph apply in relation to gains treated as arising on or after 5th December 2005.

Section 81

SCHEDULE 8E+W+S+N.I.Long funding leases of plant or machinery

Part 1E+W+S+N.I.Capital allowances

IntroductoryE+W+S+N.I.

1CAA 2001 is amended as follows.

Use for other qualifying activity of plant or machinery previously used for long funding leasingE+W+S+N.I.

2After section 13 (use for qualifying activity of plant or machinery provided for other purposes) insert—

13AUse for other purposes of plant or machinery previously used for long funding leasing

(1)This section applies if a person who has been using plant or machinery for the purpose of leasing it under a long funding lease (see Chapter 6A)—

(a)ceases to use the plant or machinery for that purpose without ceasing to use it for the purposes of a qualifying activity carried on by him, and

(b)on the date of the cessation, owns the plant or machinery as a result of having incurred capital expenditure on its provision for the purposes of the qualifying activity.

(2)The person is to be treated—

(a)as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the qualifying activity on the day after the cessation,

(b)as owning the plant or machinery as a result of having incurred that expenditure, and

(c)as if the plant or machinery on and after that day were different plant or machinery from the plant or machinery before that day.

(3)The amount of the notional expenditure is an amount equal to the termination amount, determined in accordance with section 70YG, in the case of the long funding lease under which the plant or machinery was last leased before the cessation..

Expenditure on plant or machinery for long funding leasing not to be qualifying expenditureE+W+S+N.I.

3After section 34 insert—

34AExpenditure on plant or machinery for long funding leasing not qualifying expenditure

Expenditure is not qualifying expenditure if it is incurred on the provision of plant or machinery for leasing under a long funding lease (see Chapter 6A)..

General exclusions applying to certain sectionsE+W+S+N.I.

4(1)Section 46 is amended as follows.E+W+S+N.I.

(2)In subsection (2) (the general exclusions) in general exclusion 8—

(a)for “Either” substitute Any

(b)after the entry relating to section 13 insert— “ section 13A (use for other purposes of plant or machinery provided for long funding leasing); ”.

Commencement of leasing under long funding lease: disposal events and disposal valuesE+W+S+N.I.

5(1)Section 61 (disposal events and disposal values) is amended as follows.E+W+S+N.I.

(2)In subsection (1) (disposal events) after paragraph (e) insert—

(ee)the plant or machinery begins to be leased under a long funding lease (see Chapter 6A);.

(3)In subsection (2) (disposal values) in the Table (disposal event, disposal value) after item 5 insert—

5A. Commencement of the term of a long funding finance lease of the plant or machinery.An amount equal to that which would fall to be recognised as the lessor's net investment in the lease if accounts were prepared in accordance with generally accepted accounting practice on the date on which the lessor's net investment in the lease is first recognised in the books or other financial records of the lessor.
5B. Commencement of the term of a long funding operating lease of the plant or machinery.An amount equal to the market value of the plant or machinery at the commencement of the term of the lease..

(4)In item 6 in that Table (which refers to the occurrence of an event within items 1 to 5) for “5” substitute “ 5B ”.

Lessee under long funding lease: capital allowances, disposal events and disposal valuesE+W+S+N.I.

6In Chapter 6 of Part 2 (hire-purchase etc and plant or machinery provided by lessee) after section 70 insert—

Lessees under long funding leasesE+W+S+N.I.
70AEntitlement to capital allowances

(1)This section applies if a person carrying on a qualifying activity incurs expenditure (whether or not of a capital nature) on the provision of plant or machinery for the purposes of the qualifying activity under a long funding lease.

(2)In the application of this Part in the case of that person, the plant or machinery is to be treated as owned by him at any time when he is the lessee under the long funding lease.

That is so whether or not the lease also falls to be regarded as a long funding lease in the application of this Part in the case of the lessor.

(3)The person is to be treated for the purposes of this Part as having incurred capital expenditure on the provision of the plant or machinery as follows.

(4)The capital expenditure is to be treated as incurred at the commencement of the term of the long funding lease.

(5)The amount of the capital expenditure varies, according to whether the long funding lease is—

(a)a long funding operating lease (subsection (6)), or

(b)a long funding finance lease (subsection (7)).

(6)If the long funding lease is a long funding operating lease, the amount of the capital expenditure is to be found in accordance with section 70B.

(7)If the long funding lease is a long funding finance lease, the amount of the capital expenditure is to be found in accordance with section 70C.

(8)See Chapter 6A for interpretation of this section.

70BLong funding operating lease: amount of capital expenditure

(1)This section applies by virtue of section 70A(6).

(2)If the long funding lease is a long funding operating lease, the amount of the capital expenditure is the market value of the plant or machinery at the later of—

(a)the commencement of the term of the lease;

(b)the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(3)This section is to be construed as one with section 70A.

70CLong funding finance lease: amount of capital expenditure

(1)This section has effect by virtue of section 70A(7) for the purpose of determining the amount of the capital expenditure in the case of a long funding finance lease.

(2)If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3)The amount of the capital expenditure is the total of—

(a)commencement PVMLP (see subsection (4)), and

(b)if subsection (6) applies, the unrelievable pre-commencement rentals (“UPR”),

but subject, in a case falling within subsection (7), to the restriction imposed by subsection (8).

(4)Commencement PVMLP is the amount that would fall to be recognised as the present value, at the appropriate date, of the minimum lease payments (see section 70YE) if appropriate accounts were prepared by the person.

(5)For the purposes of subsection (4)—

  • “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date on which that amount is first recognised in the books or other financial records of the person;

  • “the appropriate date” is the later of—

    (a)

    the commencement of the term of the lease;

    (b)

    the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity.

(6)This subsection applies if—

(a)the person has paid rentals under the lease before the commencement of the term of the lease, and

(b)in the case of some or all of those rentals, relief otherwise than by virtue of this subsection—

(i)is not available, and

(ii)if the case is one where the plant or machinery was not used for the purposes of a qualifying activity in the period before the commencement of the term of the lease, would not have been available had the plant or machinery been used in that period for the purposes of a qualifying activity,

and in any such case UPR is the amount of the rentals for which relief is not, and (in a case falling within paragraph (b)(ii)) would not have been, so available.

(7)Subsection (8) applies if the main purpose, or one of the main purposes, of entering into—

(a)the lease,

(b)a series of transactions of which the lease is one, or

(c)any of the transactions in such a series,

is to obtain allowances under this Part in respect of an amount of capital expenditure that materially exceeds the market value of the leased asset at the commencement of the term of the lease.

(8)In any such case, the amount of the capital expenditure described in subsection (3) is to be restricted to an amount equal to the market value of the asset at the commencement of the term of the lease.

(9)In this section “relief” means relief by way of—

(a)an allowance under this Act,

(b)a deduction in computing profits for the purposes of income tax or corporation tax,

(c)a deduction from total profits or total income for the purposes of either of those taxes.

(10)This section is to be construed as one with section 70A.

70DLong funding finance lease: additional expenditure: allowances for lessee

(1)This section applies where the following conditions are met—

(a)a person is the lessee of plant or machinery under a long funding finance lease,

(b)as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

(c)the lessor incurs expenditure in relation to the plant or machinery,

(d)as a result of the lessor incurring the expenditure, there is in the case of the lessee an increase (the “relevant increase”) in the present value of the minimum lease payments.

(2)If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, this section applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

(3)The person is to be treated for the purposes of this Part as having incurred further capital expenditure on the provision of the plant or machinery as follows.

(4)The person is to be treated as having incurred the expenditure on the date of first recognition.

(5)The amount of the expenditure is the amount that would fall to be recognised as the amount of the relevant increase if appropriate accounts were prepared by the person.

(6)For that purpose, “appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice on the date of first recognition.

(7)For the purposes of this section, the “date of first recognition” is the date on which the relevant increase is first recognised in the books or other financial records of the person.

(8)This section is to be construed as one with section 70A.

70EDisposal events and disposal values

(1)This section applies where—

(a)a person is the lessee of plant or machinery under a long funding lease,

(b)as a result of section 70A, the person falls to be regarded as having incurred qualifying expenditure on the provision of the plant or machinery, and

(c)the lease terminates.

(2)In the case of that person—

(a)the termination of the lease is a disposal event, and

(b)the person is required to bring into account a disposal value for the chargeable period in which that disposal event occurs.

(3)The amount of the disposal value varies according to whether the lease is—

(a)a long funding operating lease (see subsections (4) to (6)), or

(b)a long funding finance lease (see subsections (7) and (8)).

(4)If the lease is a long funding operating lease, the disposal value is the sum of—

(a)element A (see subsection (5)), and

(b)element B (see subsection (6)).

(5)Element A is the amount (if any) by which—

(a)the market value of the plant or machinery at the later of—

(i)the commencement of the term of the lease,

(ii)the date on which the plant or machinery is first brought into use for the purposes of the qualifying activity,

exceeds

(b)the aggregate amount of the reductions that fell to be made under section 502K of ICTA or 148I of ITTOIA 2005 for periods of account in which the person was the lessee.

(6)Element B is the sum of any amounts payable to the person which are calculated by reference to the termination value.

(7)If, in the case of the person, the lease is a long funding finance lease, the amount of the disposal value is found by first finding the sum of—

(a)any amounts payable to the person which are calculated by reference to the termination value, and

(b)if the lease terminates before the end of the term, the amount that would fall to be recognised as the present value, immediately before the termination, of the balance of the minimum lease payments (see subsection (8)) if appropriate accounts were prepared by the person,

and then reducing that sum (but not below nil) by subtracting from it any amount payable by the person to the lessor for or in consequence of the termination.

(8)For the purposes of subsection (7)(b)—

(a)the balance of the minimum lease payments is the amount by which MLP exceeds TMLP, where—

  • MLP is the amount of the minimum lease payments, and

  • TMLP is the amount that would have been the minimum lease payments if the term of the lease had been such as to expire on the day of the termination, and

(b)“appropriate accounts” are accounts prepared in accordance with generally accepted accounting practice immediately before the termination of the lease.

(9)If the termination of the lease gives rise to a disposal event in the case of the person apart from this section, that disposal event is to be ignored.

(10)This section is to be construed as one with section 70A..

Interpretation of provisions relating to long funding leasesE+W+S+N.I.

7In Part 2, after Chapter 6 insert—

Chapter 6AE+W+S+N.I.Interpretation of provisions about long funding leases
IntroductoryE+W+S+N.I.
70FIntroductory

This Chapter makes provision for the interpretation of this Part so far as relating to long funding leases.

Meaning of “long funding lease” etcE+W+S+N.I.
70G“Long funding lease”

(1)A “long funding lease” is a funding lease (see section 70J) which meets the following conditions—

(a)it is not a short lease (see section 70I),

(b)it is not an excluded lease of background plant or machinery for a building (see section 70R),

(c)it not excluded by section 70U (plant or machinery leased with land: low percentage value).

(2)Where, at the commencement of the term of a plant or machinery lease, the plant or machinery—

(a)is not being used for the purposes of a qualifying activity carried on by the person concerned, but

(b)subsequently begins to be used for the purposes of a qualifying activity carried on by that person,

the plant or machinery lease is a long funding lease if the condition in subsection (3) is met.

(3)The condition is that (apart from section 70H) the plant or machinery lease would have been a long funding lease at its inception had the plant or machinery been used at that time for the purposes of a qualifying activity carried on by the person concerned.

(4)This section is subject, in the case of the lessee, to—

(a)section 70H (requirement for tax return treating lease as long funding lease);

(b)section 70Q (leases excluded by right of lessor etc to claim capital allowances).

(5)See also paragraph 91A of Schedule 22 to the Finance Act 2000 (tonnage tax: certain leases to be treated as not being long funding leases).

70HLessee: requirement for tax return treating lease as long funding lease

(1)A lease is not a long funding lease in the case of the lessee unless he makes a tax return for the initial period on the basis that he falls to be taxed in respect of the lease in accordance with the provisions of—

(a)Chapter 5A of Part 12 of ICTA (long funding leases: corporation tax), or

(b)Chapter 10A of Part 2 of ITTOIA 2005 (long funding leases: income tax).

(2)Where, in the case of a lease, a person has made a tax return for the initial period—

(a)on the basis that he falls to be taxed in respect of the lease in accordance with those provisions, or

(b)on the basis that he does not fall to be so taxed,

he may not make a claim for relief under the error or mistake provisions in respect of the tax return having been made on that basis.

(3)In this section—

  • the error or mistake provisions” means—

    (a)

    section 33 of the Taxes Management Act 1970; or

    (b)

    paragraph 51 of Schedule 18 to the Finance Act 1998;

  • “the initial period” is the first accounting period or, as the case may be, tax year in which there is a difference in the amount of the profits or losses falling to be shown in the return, according to whether the lease is a long funding lease or not;

  • tax return” means—

    (a)

    a company tax return under paragraph 3 of Schedule 18 to the Finance Act 1998, or

    (b)

    a return under section 8 of the Taxes Management Act 1970 (income tax: personal return).

70I“Short lease”

(1)Construe “short lease” in accordance with this section.

(2)A lease whose term is 5 years or less is a short lease.

(3)Where the term of a lease is—

(a)longer than 5 years, but

(b)not longer than 7 years,

the lease is a short lease if Conditions A, B and C are met.

(4)Condition A is that the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a finance lease.

(5)Condition B is that—

(a)the residual value of the plant or machinery which is implied in the terms of the lease,

is not more than

(b)5% of the market value of the plant or machinery at the commencement of the term of the lease, as estimated at the inception of the lease.

(6)Condition C is that under the terms of the lease—

(a)the total rentals falling due in the first reference year, if less than the total rentals falling due in the second reference year, are no more than 10% less than those rentals, and

(b)the total rentals falling due in the final year or in any reference year after the second reference year, if greater than the total rentals falling due in the second reference year, are no more than 10% greater than those rentals.

(7)For the purposes of Condition C—

(a)the first reference year is the period of 12 months beginning with the day next after the commencement of the term of the lease;

(b)the other reference years are successive periods of 12 months each beginning on an anniversary of that day and ending before the last day of the term of the lease;

(c)the final year is the period of 12 months ending with the last day of the term of the lease;

(d)any part of the final year, other than the last day, may accordingly also be part of a reference year.

(8)In determining whether Condition C is met, exclude any variation in the rentals that results from changes in a standard published base rate for interest.

(9)Where—

(a)a person leases an asset to another (“S”) under a lease that would, apart from this subsection, be a short lease,

(b)the inception of that lease is on or after 7th April 2006,

(c)at or about the time of the inception of that lease, arrangements are entered into for the asset to be leased to one or more other persons under one or more other leases, and

(d)in the aggregate, the term of the lease to S and the terms of the leases to such of those other persons as are connected with S exceed 5 years,

the lease to S is not a short lease.

70J“Funding lease”

(1)A “funding lease” is a plant or machinery lease (see section 70K) which at its inception meets one or more of the following tests—

(a)the finance lease test (see section 70N),

(b)the lease payments test (see section 70O),

(c)the useful economic life test (see section 70P).

(2)Subsection (1) is subject to the following provisions of this section.

(3)A plant or machinery lease is not a funding lease if—

(a)section 67 applies (plant or machinery treated as owned by person entitled to benefit of contract, etc), and

(b)the lease is the contract mentioned in that section.

(4)A plant or machinery lease is not a funding lease if—

(a)before the commencement of the term of the lease, the lessor has leased the plant or machinery under one or more other plant or machinery leases,

(b)in the aggregate, the terms of those other leases exceed 65% of the remaining useful economic life of the plant or machinery at the commencement of the term of the earliest of them, and

(c)none of those earlier leases was a funding lease.

(5)For the purposes of subsection (4), all persons who were lessors of the plant or machinery before 1st April 2006 are to be treated as if they were the same person as the first lessor of the plant or machinery on or after that date.

(6)A plant or machinery lease is not a funding lease in the case of the lessor if—

(a)before 1st April 2006, the plant or machinery had, for a period or periods totalling at least 10 years, been the subject of one or more leases, and

(b)the lessor under the plant or machinery lease was also lessor of the plant or machinery on the last day before 1st April 2006 on which the plant or machinery was the subject of a lease.

Meaning of “plant or machinery lease”E+W+S+N.I.
70K“Plant or machinery lease”

(1)A “plant or machinery lease” is any of the following—

(a)any agreement or arrangement to which subsection (2) applies,

(b)any other agreement or arrangement, to the extent that subsection (3) applies to it,

(c)where plant or machinery is the subject of a sale and finance leaseback, as defined in section 221, the finance lease mentioned in subsection (1)(c) of that section,

and “lease”, “lessor”, “lessee” and other related expressions are to be construed accordingly.

(2)This subsection applies to an agreement or arrangement—

(a)under which a person grants to another person the right to use plant or machinery for a period, and

(b)which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease.

(3)This subsection applies to an agreement or arrangement to the extent that—

(a)in accordance with generally accepted accounting practice, it falls (or would fall) to be treated as a lease, and

(b)it meets the conditions in subsection (4).

(4)The conditions are that, for the purposes of generally accepted accounting practice,—

(a)the agreement or arrangement conveys, or falls (or would fall) to be regarded as conveying, the right to use an asset, and

(b)the asset is plant or machinery.

(5)In the case of an agreement or arrangement that falls (or would fall) within subsection (2) or (3) immediately after the commencement of the term of the lease, the condition in subsection (2)(b) or (3)(a) (as the case may be) is to be taken to be met as respects any time in the pre-commencement period.

(6)For the purposes of subsection (5), the “pre-commencement period” is the period that—

(a)begins with the inception of the lease, and

(b)ends with the commencement of the term of the lease.

70LPlant or machinery leased with other assets: separate derived leases

(1)This section applies in any case where an agreement or arrangement (the “mixed lease”) at any time relates, or is to relate, or has come to relate, to both—

(a)plant or machinery of any particular description (the “relevant plant or machinery”), and

(b)other assets (whether or not also plant or machinery).

(2)A mixed lease is an “eligible mixed lease” if—

(a)under generally accepted accounting practice, it falls (or would fall) to be treated as a lease, or

(b)the relevant plant or machinery is the subject of a sale and finance leaseback, as defined in section 221, and the mixed lease is or includes the finance lease mentioned in subsection (1)(c) of that section.

(3)In the case of an agreement or arrangement that falls (or would fall) within paragraph (a) of subsection (2) immediately after the commencement of the term of the lease, the condition in that paragraph is to be taken to be met as respects any time in the pre-commencement period.

(4)For the purposes of subsection (3), the “pre-commencement period” is the period that—

(a)begins with the inception of the lease, and

(b)ends with the commencement of the term of the lease.

(5)Where this section applies—

(a)the eligible mixed lease, so far as relating to the relevant plant or machinery, and

(b)the eligible mixed lease, so far as relating to other assets,

shall be treated for the purposes of this Part (other than this section) as if they were separate agreements or arrangements.

(6)Any such notional separate agreement or arrangement is referred to in this Part as a “derived lease”.

(7)Section 70M makes further provision with respect to derived leases of plant or machinery.

70MDerived leases of plant or machinery: term and rentals

(1)This section has effect in any case where, as a result of applying section 70L, there is a derived lease of the relevant plant or machinery.

(2)This section makes provision with respect to—

(a)determining whether the derived lease is a plant or machinery lease (see subsection (3)),

(b)the term of the derived lease (see subsection (4)),

(c)the rentals to be regarded as payable under the derived lease (see subsections (5) to (7)).

(3)Any question whether the derived lease—

(a)is a plant or machinery lease, or

(b)if it is such a lease, whether it is also a long funding lease,

is to be determined in accordance with the provisions of this Part.

(4)The term of the derived lease—

(a)is limited to the remaining useful economic life of the relevant plant or machinery at the commencement of the term of the derived lease, but

(b)subject to that, is to be determined in accordance with section 70YF (the “term” of a lease).

(5)The rentals that are to be regarded as payable under the derived lease shall be such rentals (the “deemed rentals”) as are just and reasonable in all the circumstances of the case.

(6)It shall be assumed that rentals under the derived lease are payable in equal instalments throughout the term of the lease, unless it is reasonable to draw a different conclusion from all the circumstances of the case.

(7)In determining the amount of any deemed rentals, regard shall be had to—

(a)all the provisions of the eligible mixed lease,

(b)the nature of the relevant plant or machinery,

(c)the value of the relevant plant or machinery at the commencement of the term of the derived lease,

(d)the amount which, at the commencement of the term of the derived lease, is expected to be the market value of the relevant plant or machinery at the end of the term of the derived lease,

(e)the remaining useful economic life of the relevant plant or machinery at the commencement of the term of the derived lease;

(f)the term of the derived lease.

(8)Expressions used in section 70L have the same meaning in this section.

The tests for being a funding leaseE+W+S+N.I.
70NThe finance lease test

(1)A lease meets the finance lease test in the case of any person if the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a finance lease or a loan in the accounts—

(a)of that person, or

(b)where that person is the lessor, of any person connected with him.

(2)In this section “accounts”, in relation to a company, includes any accounts which—

(a)relate to two or more companies of which that company is one, and

(b)are drawn up in accordance with generally accepted accounting practice.

(3)Where for any period—

(a)a person is not within the charge to income tax or corporation tax by reason of not being resident in the United Kingdom, and

(b)accounts are not prepared in accordance with international accounting standards or UK generally accepted accounting practice,

any question relating to generally accepted accounting practice is to be determined for the purposes of this section by reference to generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards.

70OThe lease payments test

(1)A lease meets the lease payments test if—

(a)the present value of the minimum lease payments (see section 70YE),

is equal to

(b)80% or more of the fair value of the leased plant or machinery.

(2)The present value of the minimum lease payments is to be calculated by using the interest rate implicit in the lease.

(3)In this section “fair value” means—

(a)the market value of the leased plant or machinery,

less

(b)any grants receivable towards the purchase or use of that plant or machinery.

(4)For the purposes of this section—

(a)the interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable), but

(b)if the interest rate implicit in the lease cannot be determined in accordance with paragraph (a), it is the temporal discount rate for the purposes of section 70 of the Finance Act 2005 (companies: film relief: valuation of “rights to guaranteed income” and “disposed rights”).

70PThe useful economic life test

A lease meets the useful economic life test if the term of the lease is more than 65% of the remaining useful economic life of the leased plant or machinery.

Leases excluded by right of lessor etc to claim capital allowancesE+W+S+N.I.
70QLeases excluded by right of lessor etc to claim capital allowances

(1)A lease is not a long funding lease in the case of the lessee if it is excluded by virtue of subsection (2) (but see also subsection (5)).

(2)A lease is excluded if the lessor, or any superior lessor (see subsections (7) to (9)),—

(a)is entitled, at the commencement of the term of the lease, to claim a relevant allowance (see subsection (6)),

(b)would have been so entitled at that time, but for section 70V (tax avoidance involving international leasing),

(c)has at any earlier time been entitled to claim such an allowance, but has not been required to bring a disposal value into account in accordance with section 61(1)(ee), or

(d)would fall within any one or more of paragraphs (a) to (c), if he had been within the charge to income tax or corporation tax at the inception of the lease and any earlier times.

(3)Where for any period the lessor, or any superior lessor, is a person—

(a)who is not within the charge to income tax or corporation tax by reason of not being resident in the United Kingdom, and

(b)who does not prepare accounts in accordance with international accounting standards or UK generally accepted accounting practice,

subsection (4) applies.

(4)In determining whether the condition in subsection (2)(d) is met in any such case, any question relating to generally accepted accounting practice in relation to that person and that period is to be determined by reference to generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards.

(5)A lease is not excluded by virtue of subsection (2) if—

(a)the inception of the lease is before 28th June 2006, and

(b)by virtue only of section 70J(6), the lease is not a funding lease in the case of the lessor.

(6)A “relevant allowance” is an allowance under this Act in respect of the leased plant or machinery.

(7)There is a “superior lessor” only if the leased plant or machinery is the subject of a chain of superior leases.

(8)Leased plant or machinery is the subject of a chain of superior leases if—

(a)the lessor has his interest in relation to the plant or machinery under or by virtue of a lease from a third person (P), or

(b)the circumstances are as in paragraph (a), but P has his interest in relation to the plant or machinery under or by virtue of a lease from a fourth person (Q), or

(c)the circumstances are as in paragraph (b), but Q has his interest in relation to the plant or machinery under or by virtue of a lease from a fifth person (R),

and so on, where there is more than a fifth person involved.

(9)Where any leased plant or machinery is the subject of a chain of superior leases, the superior lessors are the persons described in subsection (8) as P, Q, R, and so on.

(10)Subsections (6) to (9) have effect for the interpretation of this section.

Excluded leases of background plant or machinery for a buildingE+W+S+N.I.
70RExcluded leases of background plant or machinery for a building

(1)Construe references to an excluded lease of background plant or machinery for a building in accordance with this section.

(2)This section applies where—

(a)plant or machinery is affixed to, or otherwise installed in or on, any land which consists of or includes a building,

(b)the plant or machinery is background plant or machinery for the building (see subsections (4) and (5)),

(c)the plant or machinery is leased with the land under a mixed lease, and

(d)none of the disqualifications set out in section 70S applies.

(3)In any such case, the derived lease of the plant or machinery is an excluded lease of background plant or machinery for a building.

(4)The background plant or machinery for a building is any plant or machinery—

(a)which is of such a description that plant or machinery of that description might reasonably be expected to be installed in, or in or on the sites of, a variety of buildings of different descriptions, and

(b)whose sole or main purpose is to contribute to the functionality of the building or its site as an environment within which activities can be carried on.

(5)Subsection (4) has effect subject to the provisions of any order under section 70T.

70SThe disqualifications

(1)This section sets out the disqualifications mentioned in subsection (2)(d) of section 70R and is to be construed as one with that section.

(2)Disqualification A is that the amounts payable—

(a)under the mixed lease, or

(b)under any other arrangement,

vary, or may be varied, by reference to the value from time to time to the lessor of allowances under this Act in respect of expenditure incurred by him in the provision of the background plant or machinery for the building.

(3)Disqualification B is that the main purpose, or one of the main purposes, of entering into—

(a)the mixed lease,

(b)a series of transactions of which the mixed lease is one, or

(c)any of the transactions in such a series,

is to secure that allowances under this Act are available to the lessor in respect of expenditure incurred in the provision of background plant or machinery for a building.

70TOrders relating to background plant or machinery for a building

(1)This section supplements section 70R and is to be construed as one with it.

(2)The Treasury may by order prescribe—

(a)descriptions of plant or machinery to be used as examples of the kinds of plant or machinery that may be regarded as falling within the definition of background plant or machinery for a building in determining whether any particular plant or machinery does or does not fall within that definition;

(b)descriptions of plant or machinery to be deemed to be background plant or machinery for a building;

(c)descriptions of plant or machinery to be deemed not to be background plant or machinery for a building.

(3)An order under this section—

(a)may make different provision for different cases (including different descriptions of building),

(b)may contain incidental, consequential, supplemental, or transitional provision or savings.

(4)The first order made under this section may include provisions having effect in relation to times before the making of the order (but not times earlier than 1st April 2006).

Exclusion for certain plant or machinery leased with landE+W+S+N.I.
70UPlant or machinery leased with land: low percentage value

(1)This section applies where—

(a)any plant or machinery (the “relevant plant or machinery”) is affixed to, or otherwise installed, in or on any land,

(b)the plant or machinery is not background plant or machinery for any building situated in or on the land,

(c)the plant or machinery is leased with the land under a mixed lease, and

(d)none of the relevant disqualifications applies.

(2)For the purposes of this section the “relevant disqualifications” are the disqualifications set out in section 70S, but for this purpose—

(a)take the reference in subsection (1) of that section to subsection (2)(d) of section 70R as a reference to this subsection (and, accordingly, construe the second reference to that section as a reference to this section), and

(b)take references in section 70S to background plant or machinery for a building as references to relevant plant or machinery.

(3)Where this section applies, the derived lease of the relevant plant or machinery is excluded by this section if the condition in subsection (4) is met at the commencement of the term of that lease.

(4)The condition is that AMV does not exceed both—

(a)10% of BMV; and

(b)5% of LMV.

(5)For that purpose—

  • AMV is the aggregate of—

    (a)

    the market value of the relevant plant or machinery, and

    (b)

    the market value of any other plant or machinery that falls within subsection (1) in the case of the leased land;

  • BMV is the aggregate market value of all the background plant or machinery leased with the land;

  • LMV is the market value of the land (including buildings and fixtures).

(6)For this purpose the market value of any land at any time is to be determined on the assumption of a sale by an absolute owner of the land free from all leases and other encumbrances.

AvoidanceE+W+S+N.I.
70VTax avoidance involving international leasing

(1)This section applies where matters are so arranged that there are plant or machinery leases such that—

(a)under a lease by a non-resident, an asset is provided directly or indirectly to a resident,

(b)the direct provision of the asset to the resident is by a lease which, in the case of the resident, is a long funding lease or a lease to which section 67 (hire purchase etc) applies,

(c)the asset is used by the resident for the purpose of leasing it under a lease (the “relevant lease”) that would not (apart from this section) be a long funding lease in the case of the resident, and

(d)under the relevant lease, the asset is provided directly or indirectly (but by a lease) to a non-resident.

(2)Subsection (3) applies if the sole or main purpose of arranging matters in that way is to obtain a tax advantage by securing that allowances under this Part are available to a resident by virtue of—

(a)section 67 (hire purchase), or

(b)section 70A (long funding leases).

(3)In any such case, the relevant lease is deemed to be a long funding lease in the case of the resident who is the lessor under it.

(4)The reference in this section to a person obtaining a tax advantage (see section 577(4)) also includes a reference to a person obtaining a tax advantage within the meaning of Chapter 1 of Part 17 of ICTA (see section 709 of that Act).

(5)In this section—

  • non-resident” means a person who—

    (a)

    is not resident in the United Kingdom, and

    (b)

    does not use the plant or machinery exclusively for earning profits chargeable to tax;

  • resident” means a person who—

    (a)

    is resident in the United Kingdom, or

    (b)

    uses the plant or machinery exclusively for earning profits chargeable to tax.

Transfers, assignments, novations, leaseback, variations etcE+W+S+N.I.
70WTransfers, assignments etc by lessor

(1)This section applies in any case where the following conditions are met—

(a)a person (the “old lessor”) is lessor of plant or machinery under a plant or machinery lease (the “old lease”),

(b)during the term of the lease, the old lessor transfers the plant or machinery to another person (the “new lessor”),

(c)the transfer is not the grant of a plant or machinery lease by the old lessor,

(d)immediately after the transfer, the new lessor is the lessor of the plant or machinery under a lease (“the new lease”) (whether or not the same lease as the old lease).

(2)If it is not otherwise the case,—

(a)the old lessor is to be treated as if the old lease terminated immediately before the transfer, and

(b)the new lessor is to be treated as if the new lease had been entered into immediately after the transfer.

(3)The new lessor is also to be treated as if the date of the transfer were the date of both—

(a)the inception of the new lease, and

(b)the commencement of the term of the new lease,

if it is not otherwise the case.

(4)If, immediately before the transfer, the old lease was (or was treated by virtue of this subsection as being) in the case of the old lessor a lease of either of the following descriptions—

(a)a long funding lease, or

(b)a lease which is not a long funding lease,

the new lease is to be treated in the case of the new lessor as being a lease of the same description, if the conditions in subsection (5) are met.

(5)The conditions are that—

(a)the term of the new lease is the unexpired portion of the term of the old lease, and

(b)the amounts receivable under the new lease are the same as would have been receivable under the old lease, assuming it to have continued in effect.

(6)If—

(a)it is not otherwise the case, and

(b)the conditions in subsection (5) are met,

the lessee is to be treated as if the old lease and the new lease were the same continuing lease.

(7)Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a)any kind of disposal of, or of the person's interest in, the plant or machinery,

(b)any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes lessor of the plant or machinery,

(c)in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70XTransfers, assignments etc by lessee

(1)This section applies in any case where the following conditions are met—

(a)a person (the “old lessee”) is lessee of plant or machinery under a plant or machinery lease (the “old lease”),

(b)during the term of the lease, the old lessee transfers the plant or machinery to another person (the “new lessee”),

(c)the transfer is not the grant of a plant or machinery lease by the old lessee,

(d)immediately after the transfer, the new lessee is the lessee of the plant or machinery under a lease (“the new lease”) (whether or not the same lease as the old lease).

(2)If it is not otherwise the case,—

(a)the old lessee is to be treated as if the old lease terminated immediately before the transfer, and

(b)the new lessee is to be treated as if the new lease had been entered into immediately after the transfer.

(3)The new lessee is also to be treated as if the date of the transfer were the date of both—

(a)the inception of the new lease, and

(b)the commencement of the term of the new lease,

if it is not otherwise the case.

(4)If, immediately before the transfer, the old lease was (or was treated by virtue of this subsection as being) in the case of the old lessee a lease of one of the following descriptions—

(a)a long funding lease, or

(b)a lease which is not a long funding lease,

the new lease is to be treated in the case of the new lessee as being a lease of the same description, if the conditions in subsection (5) are met.

(5)The conditions are that—

(a)the term of the new lease is the unexpired portion of the term of the old lease, and

(b)the amounts payable under the new lease are the same as would have been payable under the old lease, assuming it to have continued in effect.

(6)If—

(a)it is not otherwise the case, and

(b)the conditions in subsection (5) are met,

the lessor is to be treated as if the old lease and the new lease were the same continuing lease.

(7)Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a)any kind of disposal of, or of the person's interest in, the plant or machinery,

(b)any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes lessee of the plant or machinery,

(c)in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70YSale and leaseback, lease and leaseback etc: lessors

(1)Where—

(a)a person (B) transfers plant or machinery to another person (A),

(b)the plant or machinery is directly or indirectly leased back to B, and

(c)immediately before the commencement of the term of the lease back to B, B is the lessor of the plant or machinery to another person under a lease which is, in B's case, a long funding lease,

the lease back to B is, in the case of both A and B, a long funding lease.

(2)If, in any such case, the plant or machinery is leased back from A to B indirectly, any leases by means of which the indirect lease back from A to B is effected are also long funding leases in the case of each of the parties to them.

(3)Any reference in this section to a transfer of plant or machinery by a person includes a reference to—

(a)any kind of disposal of, or of the person's interest in, the plant or machinery (including the grant of a lease),

(b)any arrangements under which the person's interest in the plant or machinery is terminated and another person becomes entitled to, or to an interest in, the plant or machinery,

(c)in a case where the plant or machinery is a fixture and the person is treated under section 176 as the owner, any cessation of ownership under section 188, 190, 191, 192 or 192A.

70YAChange in accountancy classification of long funding lease

(1)This section applies in any case where—

(a)a person is lessor or lessee under a long funding lease, and

(b)at any time after the inception of the lease, the accountancy classification of the lease as a finance lease or an operating lease changes in the relevant accounts.

(2)The person is to be treated as if—

(a)the lease had terminated immediately before the time of the change,

(b)another lease (the “new lease”) had been entered into immediately after the time of the change, and

(c)the new lease were a long funding lease in the case of the lessor.

(3)The person is also to be treated as if the date on which the change occurs were the date of both—

(a)the inception of the new lease, and

(b)the commencement of the term of the new lease.

(4)The cases where the accountancy classification of a long funding lease as a finance lease or an operating lease changes at any time (the “relevant time”) in the relevant accounts are those set out in subsections (5) and (6).

(5)Case 1 is where—

(a)immediately before the relevant time, the lease is one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as a finance lease for accounting purposes, and

(b)at the relevant time the lease becomes one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as not being a finance lease for accounting purposes.

(6)Case 2 is where—

(a)immediately before the relevant time, the lease is one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as not being a finance lease for accounting purposes, and

(b)at the relevant time the lease becomes one that falls (or would fall) to be treated in the relevant accounts in accordance with generally accepted accounting practice as a finance lease for accounting purposes.

(7)The Treasury may by regulations make provision for or in connection with restricting the application or operation of this section.

(8)In this section, any reference to a finance lease includes a reference to a loan.

(9)In the application of this section in relation to any person, the “relevant accounts” are the accounts—

(a)of that person, or

(b)where that person is the lessor, of any person connected with that person,

but only to the extent that the treatment of the lease in those accounts as a finance lease or otherwise falls (or would fall) to be determined by reference to that person as the lessor or lessee under the lease.

(10)Subsections (2) and (3) of section 70N (finance lease test: group accounts, and generally accepted accounting practice for persons outside the charge to tax) also apply for the purposes of this section.

70YBLong funding operating lease: extension of term of lease

(1)This section applies in any case where—

(a)a person is lessor or lessee under a long funding operating lease (the “existing lease”),

(b)an event occurs which has the effect of extending the term of the lease (whether by variation of the provisions of the lease, the grant or exercise of an option or in any other way), and

(c)the event is not one by reason of which, within the meaning of section 70YA, the accountancy classification of the lease as an operating lease changes in the relevant accounts.

(2)For this purpose an event has the effect of extending the term of the lease if it meets any of the following conditions—

(a)it has the effect of making a further period a non-cancellable period;

(b)it is the grant of an option to the lessee to continue to lease the plant or machinery for a further period, where it is reasonably certain at the time the option is granted that the lessee will exercise it;

(c)it is the exercise by the lessee of an option to continue to lease the plant or machinery for a further period;

(d)it does not fall within the preceding paragraphs, but it has the effect that the lessee will continue, or is reasonably certain to continue, to lease the plant or machinery for a further period.

For this purpose “further period” means a period falling wholly or partly after the end of the pre-existing term.

(3)The person is to be treated as if—

(a)the existing lease terminated at the end of the day before the effective date,

(b)another lease (the “new lease”) were entered into on the effective date, and

(c)the term of the new lease were the unexpired portion of the term of the existing lease, as extended.

(4)The person is also to be treated as if the effective date were the date of both—

(a)the inception of the new lease, and

(b)the commencement of the term of the new lease.

(5)The new lease is to be taken to be a long funding operating lease.

(6)For the purposes of this section the “effective date” is the earlier of—

(a)the day after the end of the pre-existing term of the existing lease;

(b)if the rentals payable are varied as a result of or otherwise in connection with the event, the date on which the variation takes effect.

(7)In this section—

  • non-cancellable period” has the same meaning as in section 70YF (the “term” of a lease);

  • pre-existing term”, in relation to a lease, means the term of the lease apart from the extension in question.

70YCExtension of term of lease that is not a long funding lease

(1)This section applies where—

(a)a person is lessor under a plant or machinery lease (the “existing lease”) that is not a long funding lease, and

(b)an event occurs which has the effect of extending the term of the lease (whether by variation of the provisions of the lease, the grant or exercise of an option or in any other way).

(2)Subsection (2) of section 70YB (events having the effect of extending the term of a lease) also has effect for the purposes of this section.

(3)Make the following assumptions—

(a)the existing lease terminates immediately before the effective date,

(b)another lease (the “new lease”) is entered into on the effective date,

(c)the term of the new lease is the portion of the term of the existing lease, as extended, that remains unexpired as at the effective date;

(d)the effective date is the date of both—

(i)the inception of the new lease, and

(ii)the commencement of the term of the new lease.

(4)If, on those assumptions, the new lease would be a long funding lease, the person is to be treated on those assumptions.

(5)If subsection (4) does not apply, then, for the purposes of any subsequent application of this section or section 70YD in the case of the existing lease, the term of the existing lease is to be taken to be the term as extended (or further extended).

(6)For the purposes of this section the “effective date” is the earlier of—

(a)the day after the end of the pre-existing term of the existing lease;

(b)if the rentals payable are varied as a result of or otherwise in connection with the event, the date on which the variation takes effect.

(7)In this section “pre-existing term”, in relation to a lease, means the term of the lease apart from the extension in question.

70YDIncrease in proportion of residual amount guaranteed: review of status

(1)This section applies where—

(a)a person is lessor under a lease (the “existing lease”) that is not a long funding lease,

(b)the person enters into an arrangement which meets, or arrangements which (taken together) meet, the conditions in subsection (2).

(2)The conditions are that—

(a)as a result of the arrangement or arrangements, there is an increase, after the inception of the lease, in the proportion of the residual amount that is guaranteed as mentioned in section 70YE(1)(b), and

(b)had the arrangement or arrangements been entered into before the inception of the lease, the lease would have been a long funding lease.

(3)The person is to be treated as if—

(a)the existing lease had terminated immediately before the time of the relevant transaction,

(b)another lease (the “new lease”) had been entered into immediately after the time of the relevant transaction,

(c)the term of the new lease were the portion of the term of the existing lease that remains unexpired as at the date of the relevant transaction;

(d)the date of the relevant transaction were the date of both—

(i)the inception of the new lease, and

(ii)the commencement of the term of the new lease.

(4)For the purposes of this section, the “relevant transaction” is the arrangement or, where two or more arrangements have been entered into, the latest of them.

(5)The Treasury may by regulations make provision for or in connection with restricting the application or operation of this section.

InterpretationE+W+S+N.I.
70YE“Minimum lease payments”

(1)In the case of any lease, the minimum lease payments are the minimum payments under the lease over the term of the lease (including any initial payment) together with—

(a)in the case of the lessee, so much of any residual amount as is guaranteed by him or a person connected with him, or

(b)in the case of the lessor, so much of any residual amount as is guaranteed by the lessee or a person who is not connected with the lessor.

(2)In determining the minimum payments, exclude so much of any payment as represents—

(a)charges for services, or

(b)qualifying UK or foreign tax to be paid by the lessor.

(3)In this section—

  • qualifying UK or foreign tax” means any tax or duty chargeable under the law of any part of the United Kingdom, or under the law of any foreign country, other than—

    (a)

    income tax,

    (b)

    corporation tax,

    (c)

    any tax chargeable under the law of a foreign country which is similar to income tax or corporation tax,

    and here “foreign country” means any territory outside the United Kingdom;

  • residual amount” means so much of the fair value of the plant or machinery subject to the lease as cannot reasonably be expected to be recovered by the lessor from the payments under the lease.

(4)In the definition of “residual amount” in subsection (3), “fair value” means—

(a)the market value of the leased plant or machinery,

less

(b)any grants receivable towards the purchase or use of that plant or machinery.

70YFThe “term” of a lease

(1)The term of a lease is the period comprising—

(a)so much of the post-commencement period as is a non-cancellable period, and

(b)any subsequent periods which meet the conditions in subsection (2).

(2)The conditions are that—

(a)the lessee has an option to continue to lease the asset for the period (whether with or without further payment), and

(b)it is reasonably certain, at the inception of the lease, that the lessee will exercise that option.

(3)The “post-commencement period” is so much of the period of the lease as begins with the commencement of the term of the lease.

(4)A “non-cancellable period” is any period during which the lessee may terminate the lease only—

(a)upon the occurrence of some remote contingency, or

(b)upon payment by the lessee of such an additional amount that, at the inception of the lease, continuation of the lease is reasonably certain.

(5)If, at the commencement of the term of the lease,—

(a)the market value of the asset exceeds £1 million, and

(b)the estimated market value of the asset 5 years after the commencement of the term of the lease is more than half of the market value of the asset at the commencement of the term of the lease,

subsection (6) applies.

(6)If, in any such case, the term of the lease (apart from this subsection) would be 5 years or less, but—

(a)the lessee has one or more options to continue to lease the asset,

(b)on the assumption that it is reasonably certain, at the inception of the lease, that the lessee will exercise those options, the term of the lease would exceed 7 years, and

(c)on failing to exercise any one of those options, the lessee may be required to make a payment to the lessor,

it is to be assumed for the purposes of this section that any option to continue to lease the asset will be exercised, unless it is reasonably certain, at the inception of the lease, that the option will not be exercised.

(7)Subsection (6) does not apply if, leaving out of account any options that would, by virtue of that subsection, result in the term of the lease exceeding 7 years, Conditions A, B and C in section 70I (meaning of “short lease”) are met.

(8)See also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease).

70YG“Termination amount”

(1)This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2)Construe “termination amount”, in the case of a long funding lease, in accordance with the following provisions of this section.

(3)If—

(a)the lease terminates as a result of a plant or machinery disposal event, or

(b)a plant or machinery disposal event occurs as a result of, or otherwise in connection with, the termination of the lease,

the termination amount is the disposal value that would have fallen to be brought into account by the lessor by reason of the plant or machinery disposal event on the assumptions in subsection (4).

(4)Those assumptions are—

(a)that section 34A (which prevents the lessor's expenditure for long funding leasing from being qualifying expenditure) did not apply in the case of the lessor, and

(b)that the lessor had claimed all the capital allowances that would in consequence have been available to him.

(5)If—

(a)subsection (3) does not apply, and

(b)the lease is a long funding finance lease,

the termination amount is the value at which, immediately after the termination of the lease, the plant or machinery is recognised in the books or other financial records of the lessor.

(6)If—

(a)subsection (3) does not apply, and

(b)the lease is a long funding operating lease,

the termination amount is the market value of the plant or machinery immediately after the termination of the lease.

(7)For the purposes of this section a “plant or machinery disposal event” is an event that would have been a disposal event in relation to the plant or machinery in the case of the lessor on the assumptions in subsection (4).

70YH“Termination value”

(1)This section applies where plant or machinery is or has been, or is to be, leased under a long funding lease.

(2)Construe “termination value” in accordance with the following provisions of this section.

(3)The general rule is that the termination value of any plant or machinery is the value of the plant or machinery at or about the time when the lease terminates.

(4)Any reference to calculation by reference to the termination value includes a reference to calculation by reference to any one or more of—

(a)the proceeds of sale, if the plant or machinery is sold after the lease comes to an end,

(b)any insurance proceeds, compensation or similar sums in respect of the plant or machinery,

(c)an estimate of the market value of the plant or machinery.

(5)Any reference to calculation by reference to the termination value also includes a reference to—

(a)determination in a way which, or by reference to factors or criteria which, might reasonably be expected to produce a broadly similar result to calculation by reference to the termination value, or

(b)any other form of calculation indirectly by reference to the termination value.

70YIGeneral definitions

(1)Construe these expressions as follows—

  • “absolute owner”, in the application of this Chapter in relation to Scotland, means the owner;

  • arrangement” includes any transaction or series of transactions;

  • background plant or machinery for a building” is to be construed in accordance with sections 70R to 70T;

  • building” includes a reference to—

    (a)

    a structure,

    (b)

    part of a building or structure;

  • commencement”, in relation to the term of a lease, means the date on and after which the lessee is entitled to exercise his right to use the complete leased asset under the lease;

for this purpose an asset is to be regarded as complete if its construction is substantially complete;

  • derived lease” is to be construed in accordance with section 70L;

  • the finance lease test” means the finance lease test in section 70N;

  • “fixture”—

    (a)

    means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and

    (b)

    includes any boiler or water-filled radiator installed in a building as part of a space or water heating system;

  • funding lease” has the meaning given by section 70J;

  • inception”, in relation to a plant or machinery lease, means the earliest date on which the following conditions are met—

    (a)

    there is a contract in writing for the lease between the lessor and the lessee,

    (b)

    either—

    (i)

    the contract is unconditional, or

    (ii)

    if it is conditional, the conditions have been met,

    (c)

    no terms remain to be agreed;

  • “initial payment”, in the case of a plant or machinery lease, means a payment by the lessee—

    (a)

    at or before the time when the lease is entered into, and

    (b)

    in respect of the plant or machinery which is the subject of the lease;

  • lease” includes any agreement or arrangement which is or includes a plant or machinery lease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

  • lease”, in relation to land, includes—

    (a)

    an underlease, sublease or any tenancy,

    (b)

    in England and Wales or Northern Ireland, an agreement for a lease, underlease, sublease, or tenancy,

    (c)

    in Scotland, an agreement (including missives of let not constituting a lease) under which a lease, sublease or tenancy is to be executed,

    (d)

    in the case of land situated outside the United Kingdom, any interest corresponding to a lease as so defined,

    and “lessor”, “lessee” and other related expressions are to be construed accordingly;

  • lease”, in relation to plant or machinery, includes a sublease (and “lessor”, “lessee” and other related expressions are to be construed accordingly);

  • lessee”, in relation to a lease, includes any person entitled to the lessee's interest under the lease;

  • lessor”, in relation to a lease, includes any person entitled to the lessor's interest under the lease;

  • long funding lease” has the meaning given by section 70G;

  • long funding finance lease” means a long funding lease that meets the finance lease test by virtue of section 70N(1)(a);

  • long funding operating lease” means a long funding lease which is not a long funding finance lease;

  • market value”, in relation to plant or machinery, is to be construed in accordance with subsection (2);

  • minimum lease payments” has the meaning given by section 70YE;

  • mixed lease” is to be construed in accordance with section 70L;

  • plant or machinery lease” has the meaning given by section 70K (and see also sections 70L and 70M);

  • “remaining useful economic life”, in the case of any leased plant or machinery, is the period—

    (a)

    beginning with the commencement of the term of the lease, and

    (b)

    ending when the asset is no longer used, and no longer likely to be used, by any person for any purpose as a fixed asset of a business;

  • short lease” is to be construed in accordance with section 70I;

  • the term”, in relation to a lease, is to be construed in accordance with section 70YF (but see also section 70YC(5) (extension, for certain purposes, of term of lease that is not a long funding lease));

  • termination”, in relation to a lease,—

    (a)

    means the coming to an end of the lease, whether by effluxion of time or in any other way, and

    (b)

    includes in particular the bringing to an end of the lease by any person or by operation of law,

    and related expressions are to be construed accordingly;

  • termination amount” is to be construed in accordance with section 70YG;

  • termination value” is to be construed in accordance with section 70YH.

(2)The market value of any plant or machinery at any time is to be determined on the assumption of a disposal by an absolute owner free from all leases and other encumbrances.

(3)In relation to a lease, any reference to plant or machinery includes a reference to fixtures.

(4)Section 839 of ICTA (connected persons) applies.

(5)Any necessary apportionments under or by virtue of this Chapter are to be made on a just and reasonable basis.

70YJPower to vary the meaning of certain expressions

(1)The Treasury may by regulations make provision amending this Chapter so as to vary—

(a)the meaning of “plant or machinery lease”, or

(b)the finance lease test.

(2)A statutory instrument containing regulations under this section is not to be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons..

Cases in which short-life asset treatment is ruled outE+W+S+N.I.

8(1)The Table in section 84 is amended as follows.E+W+S+N.I.

(2)In paragraph 1 after sub-paragraph (a) insert—

(aa)section 13A (use for other purposes of plant or machinery provided for long funding leasing), or 

FixturesE+W+S+N.I.

9(1)In section 172 (scope of Chapter 14 of Part 2 (fixtures)) after subsection (2) insert—E+W+S+N.I.

(2A)Subsections (1) and (2) are subject to section 172A..

(2)After section 172 insert—

172ALong funding leases etc: cases where this Chapter does not apply.

(1)This section applies where plant or machinery that is or becomes a fixture is the subject of a long funding lease (see Chapter 6A).

(2)This section also applies if, in any such case,—

(a)the lessee under the long funding lease is or becomes the lessor of some or all of the plant or machinery under a further lease, and

(b)the further lease is not itself a long funding lease within subsection (1).

(3)This Chapter does not apply to determine the entitlement of the lessor or the lessee (under either lease) to allowances under this Part in respect of expenditure on the plant or machinery.

(4)This Chapter does not apply to determine whether the lessor or the lessee (under either lease) is to be treated as the owner of the plant or machinery..

Part 2E+W+S+N.I.Corporation tax

IntroductoryE+W+S+N.I.

F2610. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F26Sch. 8 paras. 10, 11 repealed (1.4.2010) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

Special rules for long funding leasesE+W+S+N.I.

F2611. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations: Help about Annotation
Close

Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F26Sch. 8 paras. 10, 11 repealed (1.4.2010) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

Part 3E+W+S+N.I.Income tax

IntroductoryE+W+S+N.I.

12ITTOIA 2005 is amended as follows.

Special rules for long funding leasesE+W+S+N.I.

13In Part 2 (trading income) after Chapter 10 insert the following Chapter—

Chapter 10AE+W+S+N.I.Leases of plant or machinery: special rules for long funding leases
Lessors under long funding finance leasesE+W+S+N.I.
148ALessor under long funding finance lease: rental earnings

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account in which he is the lessor of any plant or machinery under a long funding finance lease.

(2)The amount to be brought into account as the lessor's taxable income from the lease for the period of account is the amount of the rental earnings in respect of the lease for the period of account.

(3)The “rental earnings” for any period is the amount which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment for that period in respect of the long funding lease where it meets the finance lease test.

(4)If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan in the accounts in question, so much of the rentals under the lease as fall (or would fall) to be treated as interest are to be treated for the purposes of this section as rental earnings.

148BLessor under long funding finance lease: exceptional items

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account if he is or has been the lessor under a long funding finance lease.

(2)This section has effect where a profit or loss (whether of an income or capital nature)—

(a)arises to the person in connection with the lease, and

(b)in accordance with generally accepted accounting practice falls to be recognised for accounting purposes in a period of account, but

(c)would not, apart from this section, be brought into account in calculating the profits of the person.

(3)The profit or loss is to be treated—

(a)in the case of a profit, as income of the person that is attributable to the lease,

(b)in the case of a loss, as a revenue expense incurred by the person in connection with the lease.

(4)Any reference in this section to an amount falling to be recognised for accounting purposes in a period of account is a reference to an amount falling to be recognised for accounting purposes—

(a)in the person's profit and loss account or income statement,

(b)in the person's statement of recognised gains and losses or statement of changes in equity, or

(c)in any other statement of items brought into account in computing the person's profits or losses for that period.

148CLessor under long funding finance lease making termination payment

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account if he is or has been the lessor under a long funding finance lease.

(2)Where—

(a)the lease terminates, and

(b)a sum calculated by reference to the termination value is paid to the lessee,

no deduction in respect of the sum paid to the lessee is allowed in calculating the profits of the person.

(3)This section does not prevent a deduction in respect of a sum to the extent that the sum is brought into account in determining the person's rental earnings.

Lessors under long funding operating leasesE+W+S+N.I.
148DLessor under long funding operating lease: periodic deduction

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade in a period of account—

(a)for the whole of which, or

(b)for any part of which,

the person is the lessor of any plant or machinery under a long funding operating lease.

(2)A deduction is allowed in calculating the profits of the person for the period of account.

(3)The amount of the deduction for any period of account is determined as follows.

(4)First, find the “relevant value” for the purposes of subsection (6)(a), which is—

(a)if the only use of the plant or machinery by the lessor has been the leasing of it under the long funding operating lease as a qualifying activity, cost;

(b)if the last previous use of the plant or machinery by the lessor was the leasing of it under another long funding operating lease as a qualifying activity, market value;

(c)if the last previous use of the plant or machinery by the lessor was the leasing of it under a long funding finance lease as a qualifying activity, the recognised value;

(d)if the last previous use of the plant or machinery by the lessor was for the purposes of a qualifying activity other than leasing under a long funding lease, the lower of cost and market value;

(e)if the lessor owns the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity, but—

(i)the plant or machinery is brought into use by the lessor for the purposes of a qualifying activity on or after 1st April 2006, and

(ii)that qualifying activity is the leasing of the plant or machinery under the long funding lease,

the relevant value is the lower of first use market value and first use amortised value.

(5)In subsection (4)—

  • cost” means the amount of the expenditure incurred by the lessor on the provision of the plant or machinery;

  • first use amortised value” means the value that the plant or machinery would have at the time when it is first brought into use for the purposes of the qualifying activity, on the assumption that—

    (a)

    the cost of acquiring the plant or machinery had been written off on a straight line basis over the remaining useful economic life of the plant or machinery, and

    (b)

    any further capital expenditure incurred had been written off on a straight line basis over so much of the remaining economic life of the plant or machinery as remains at the time when the expenditure is incurred;

  • first use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity;

  • market value” means the market value of the plant or machinery at the commencement of the term of the long funding operating lease;

  • recognised value” means the value at which the plant or machinery is recognised in the books or other financial records of the lessor at the commencement of the long funding operating lease.

(6)From—

(a)the relevant value determined in accordance with subsection (4),

subtract

(b)the amount which, at the commencement of the term of the lease, is (or, in a case falling within subsection (4)(e), would have been) expected to be the residual value of the plant or machinery,

to find the expected gross reduction in value over the term of the lease.

(7)Apportion the amount of that expected gross reduction in value to each period of account in which any part of the term of the lease falls.

(8)The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each period of account.

(9)The amount of the deduction for any period of account is the amount so apportioned to that period.

148ELong funding operating lease: lessor's additional expenditure

(1)This section applies if, in a period of account,—

(a)a person carrying on a trade is the lessor of any plant or machinery under a long funding operating lease,

(b)the person incurs capital expenditure in relation to the plant or machinery, and

(c)that capital expenditure (the “additional expenditure”) is not reflected in the market value of the plant or machinery at the commencement of the term of the lease.

(2)In a case falling within section 148D(4)(e), subsection (1)(c) has effect as if the reference to the commencement of the term of the lease were a reference to the time when the plant or machinery is first brought into use by the lessor for the purposes of the qualifying activity.

(3)Where this section applies, an additional deduction is allowed in calculating the profits of the person for each post-expenditure period of account in which the person is the lessor of the plant or machinery under the lease.

(4)The amount of the deduction for any such period of account is to be determined as follows.

(5)Find ARV, CRV, PRV and TRV where—

  • “ARV” is the amount which, at the time when the additional expenditure is incurred, is expected to be the residual value of the plant or machinery;

  • “CRV” is the amount which, at the commencement of the term of the lease, is expected to be the residual value of the plant or machinery;

  • “PRV” is the sum of any amounts that fell to be taken into account as RRV (see subsection (6)) in the application of this section in relation to any previous additional expenditure incurred by the person in relation to the leased plant or machinery;

  • “TRV” is the total of CRV and PRV.

(6)Find RRV, where—

(a)if ARV exceeds CRV, RRV is the portion of the excess that is a result of the additional expenditure, but

(b)if ARV does not exceed CRV, RRV is nil.

(7)From—

(a)the amount of the additional expenditure,

subtract

(b)RRV,

to find the expected partial reduction in value over the remainder of the term of the lease.

(8)Apportion the amount of that expected partial reduction in value to each post-expenditure period of account in which any part of the term of the lease falls.

(9)The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each post-expenditure period of account.

(10)The amount of the additional deduction for any period of account is the amount so apportioned to that period.

(11)In this section “post-expenditure period of account” means any period of account ending after the incurring of the additional expenditure.

148FLessor under long funding operating lease: termination of lease

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade in a period of account if—

(a)a long funding operating lease terminates in that period of account, and

(b)the person is the lessor under that lease immediately before the termination.

(2)Step 1 is to find—

(a)the termination amount (TA);

(b)the total of any sums paid to the lessee that are calculated by reference to the termination value (LP).

(3)Step 2 is to find—

(a)the relevant value for the purposes of section 148D(6)(a) (RV);

(b)the total of the deductions allowable under section 148D for periods of account for the whole or part of which the person was the lessor before the termination of the lease (TD1);

(c)the amount, if any, (ERV) by which RV exceeds TD1.

(4)Step 3 is to find—

(a)the total of any amounts of capital expenditure incurred by the person which constitute additional expenditure for the purposes of section 148E in the case of the lease (TAE);

(b)the total of any deductions allowable under section 148E for periods of account for the whole or part of which the person was the lessor before the termination of the lease (TD2);

(c)the amount, if any, (EAE) by which TAE exceeds TD2.

(5)Step 4 is to find the total of ERV and EAE (T).

(6)If (TA – LP) exceeds T, treat a profit of an amount equal to the excess as arising to the person in the period of account in which the lease terminates.

(7)If T exceeds (TA – LP), treat a loss of an amount equal to the excess as arising to the person in that period of account.

(8)A profit or loss treated as arising to the person under subsection (6) or (7) is to be treated—

(a)in the case of a profit, as income of the person attributable to the lease,

(b)in the case of a loss, as a revenue expense incurred by the person in connection with the lease.

(9)In calculating the profits of the person for the period, no deduction is allowed in respect of any sums paid to the lessee that are calculated by reference to the termination value.

Lessees under long funding finance leasesE+W+S+N.I.
148GLessee under long funding finance lease: limit on deductions

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade, profession or vocation for a period of account in which the person is the lessee of any plant or machinery under a long funding finance lease.

(2)In calculating the person's profits for the period of account,—

(a)the amount deducted in respect of amounts payable under the lease,

must not exceed

(b)the amounts which, in accordance with generally accepted accounting practice, fall (or would fall) to be shown in the person's accounts as finance charges in respect of the lease.

(3)If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, subsection (2) applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

148HLessee under long funding finance lease: termination

(1)This section applies where—

(a)a person carrying on a trade, profession or vocation is or has been the lessee under a long funding finance lease, and

(b)in connection with the termination of the lease, a payment calculated by reference to the termination value falls to be made to the person.

(2)The payment is not to be brought into account in calculating the profits of the person for any period of account.

(3)Subsection (2) does not affect the amount of any disposal value that falls to be brought into account by the person under CAA 2001.

Lessees under long funding operating leasesE+W+S+N.I.
148ILessee under long funding operating lease

(1)This section applies for the purpose of calculating the profits of a person carrying on a trade, profession or vocation for a period of account in which the person is the lessee of any plant or machinery under a long funding operating lease.

(2)The deductions that may be allowed in calculating the profits of the person for the period of account are to be reduced in accordance with the following provisions of this section.

(3)The amount of the reduction for any period of account is to be determined as follows.

(4)First, find the “relevant value” for the purposes of subsection (6)(a), which is—

(a)the market value of the plant or machinery at the commencement of the term of the lease, unless paragraph (b) applies;

(b)if the lessee—

(i)owns the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity, but

(ii)brings the plant or machinery into use for the purposes of a qualifying activity on or after 1st April 2006,

the lower of first use market value and first use amortised market value.

(5)In subsection (4)—

  • first use amortised market value” means the value that the plant or machinery would have—

    (a)

    at the time when it is first brought into use for the purposes of the qualifying activity, but

    (b)

    on the assumption that the market value of the plant or machinery at the commencement of the term of the lease had been written off on a straight line basis over the remaining useful economic life of the plant or machinery;

  • first use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity.

(6)From—

(a)the relevant value determined in accordance with subsection (4),

subtract

(b)the amount which, at the commencement of the term of the lease, is (or, in a case falling within subsection (4)(b), would have been) expected to be the market value of the plant or machinery at the end of the term of the lease,

to find the expected gross reduction over the term of the lease.

(7)Apportion the amount of that expected gross reduction to each period of account in which any part of the term of the lease falls.

(8)The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each period of account.

(9)The amount of the reduction for any period of account is the amount so apportioned to that period.

Interpretation of this ChapterE+W+S+N.I.
148JInterpretation of Chapter 10A

(1)This section has effect for the interpretation of this Chapter.

(2)In this Chapter—

  • qualifying activity” has the same meaning as in Part 2 of CAA 2001;

  • residual value”, in relation to any plant or machinery leased under a long funding operating lease, means—

    (a)

    the estimated market value of the plant or machinery on a disposal at the end of the term of the lease,

    less

    (b)

    the estimated costs of that disposal.

(3)Any reference in this Chapter to a sum being written off on a straight line basis over a period of time (the “writing-off period”) is a reference to—

(a)the sum being apportioned between each of the periods of account in which any part of the writing-off period falls,

(b)that apportionment being made on a time basis, according to the proportion of the writing-off period that falls in each of the periods of account, and

(c)the sum being written off accordingly.

(4)Chapter 6A of Part 2 of CAA 2001 (interpretation of that Part so far as relating to long funding leases) also applies for the purposes of this Chapter..

Application of Chapter 10A for calculating the profits of a property businessE+W+S+N.I.

14(1)Section 272 is amended as follows.E+W+S+N.I.

(2)In the Table in subsection (2), insert at the appropriate place—

In Chapter 10A (long funding leases)—
Sections 148A to 148JLeases of plant or machinery: special rules for long funding leases

Part 4E+W+S+N.I.Commencement and transitional provisions

CommencementE+W+S+N.I.

15(1)The amendments made by this Schedule have effect in the case of a lease if—E+W+S+N.I.

(a)Condition A is met, or

(b)if Condition A is not met, Condition B is met,

unless the lease was finalised (see paragraph 23) before 21st July 2005 and on 17th May 2006 the lessor was within the charge to tax.

As respects any time before 18th May 2006, this sub-paragraph has effect with the omission of the words “and on 17th May 2006 the lessor was within the charge to tax”.

This sub-paragraph is subject to sub-paragraphs (5) and (6).

(2)Condition A is that—

(a)the lease is finalised on or after 1st April 2006, or

(b)the commencement of the term of the lease is on or after that date,

and the lease is not an excepted lease (see paragraph 17).

(3)Condition B is that—

(a)the commencement of the term of the lease was before 1st April 2006, but

(b)the plant or machinery is on or after that date brought into use for the purposes of a qualifying activity carried on by the person concerned.

(4)The amendments made by this Schedule also have effect in relation to a lease, in the case of the lessor, if—

(a)an election under paragraph 16 is in force in the case of the lease, and

(b)the election has effect in the case of the lessor.

(5)Where the amendments made by this Schedule do not have effect in relation to a lease in the case of the lessor but—

(a)there is a transfer of plant or machinery,

(b)immediately before the transfer, the lessor is within the charge to tax, and

(c)the transfer is in circumstances such that, if the amendments made by this Schedule did apply in relation to the lease, section 70W(4)(b) of CAA 2001 (transfers, assignments etc by lessor) would have effect in relation to the new lessor to treat the new lease as a lease which is not a long funding lease,

the amendments made by this Schedule do not have effect in relation to the new lease in the case of the new lessor.

In this sub-paragraph—

  • the new lease” means the lease that would be the new lease for the purposes of section 70W of CAA 2001, if that section applied;

  • the new lessor” means the person who would be the new lessor for the purposes of that section, if that section applied;

and section 70W(7) of CAA 2001 (construction of references to transfer of plant or machinery) also has effect for the purposes of this sub-paragraph.

(6)Where the amendments made by this Schedule do not have effect in relation to a lease in the case of the lessee but—

(a)there is a transfer of plant or machinery,

(b)immediately before the transfer, the lessee is within the charge to tax, and

(c)the transfer is in circumstances such that, if the amendments made by this Schedule did apply in relation to the lease, section 70X(4)(b) of CAA 2001 (transfers, assignments etc by lessee) would have effect in relation to the new lessee to treat the new lease as a lease which is not a long funding lease,

the amendments made by this Schedule do not have effect in relation to the new lease in the case of the new lessee.

In this sub-paragraph—

  • the new lease” means the lease that would be the new lease for the purposes of section 70X of CAA 2001, if that section applied;

  • the new lessee” means the person who would be the new lessee for the purposes of that section, if that section applied;

and section 70X(7) of CAA 2001 (construction of references to transfer of plant or machinery) also has effect for the purposes of this sub-paragraph.

(7)In the application of section 70W(4)(b) or 70X(4)(b) of CAA 2001 for the purposes of sub-paragraph (5) or (6), the lease mentioned in the opening words of the sub-paragraph in question is to be regarded as a lease which is not a long funding lease.

Election for lease to be treated as long funding lease for tax purposesE+W+S+N.I.

16(1)The Treasury may by regulations make provision enabling a person of a prescribed description who is, or is to be, the lessor under a plant or machinery lease of a prescribed description to make an election for the lease to be treated in his case as a long funding lease.E+W+S+N.I.

(2)The power to make regulations under this paragraph includes power to make provision for or in connection with any of the following—

(a)any conditions that must be met if an election is, or is to be, made;

(b)whether an election is irrevocable;

(c)the date on and after which an election has effect;

(d)the manner in which an election is to be made.

(3)The power to make regulations under this paragraph includes—

(a)power to make provision having effect in relation to times before the making of the regulations (but not before 1st April 2006),

(b)power to make different provision for different cases,

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

(4)In this paragraph—

  • election” means an election under this paragraph;

  • long funding lease” means a lease which is a long funding lease for the purposes of Part 2 of CAA 2001;

  • prescribed” means specified in, or determined in accordance with, regulations under this paragraph.

Excepted leasesE+W+S+N.I.

17(1)A lease is an excepted lease if the following conditions are met.E+W+S+N.I.

(2)Condition 1 is that before 21st July 2005 there was evidence in writing that there was agreement, or a common understanding, between the lessor's side and the lessee's side as to the principal terms of the lease (the “pre-existing heads of agreement”).

The definitions of “the lessor's side”, “the lessee's side” and “the principal terms” are in paragraph 27.

(3)Condition 2 is that the leased plant or machinery was under construction (see paragraph 24) before 1st April 2006.

(4)Condition 3 is that the lease has been finalised before 1st April 2007 (but see sub-paragraph (8)).

(5)Condition 4 is that the commencement of the term of the lease is before 1st April 2007 (but see sub-paragraph (8)).

(6)Condition 5 is that the lessee is the particular person or persons identified as such in the pre-existing heads of agreement.

(7)Condition 6 is that the principal terms of the lease are not (or, apart from section 70M of CAA 2001, would not be) materially different from those in the pre-existing heads of agreement.

(8)Sub-paragraphs (4) and (5) have effect with the substitution of “ 2009 ” for “2007” if the additional conditions in paragraph 18 are met.

Extended time limit: the additional conditionsE+W+S+N.I.

18(1)The additional conditions mentioned in paragraph 17(8) are as follows.E+W+S+N.I.

(2)Condition A is that the commencement of the term of the lease is before 1st April 2009.

(3)Condition B is that, at the latest, the commencement of the term of the lease is as soon as is reasonably practicable after construction of the asset is substantially complete.

(4)Condition C is that construction of the asset proceeded continuously on and after 1st April 2006.

(5)Condition D is that construction of the asset proceeded at the normal pace for an asset of its type.

For this purpose, “normal pace” is the pace required to construct the asset in a reasonable time without delays or interruptions and consistent with normal business practice.

(6)This paragraph is supplemented by paragraph 19.

Events beyond the control of the parties etcE+W+S+N.I.

19(1)Condition B, C or D in paragraph 18 is not failed by reason only of breaches due to events that meet the conditions in sub-paragraph (2).E+W+S+N.I.

(2)The conditions are that—

(a)the event is abnormal or unusual,

(b)the event is unforeseen, and could not reasonably have been foreseen, at the date when the main contract for the construction of the leased asset is entered into,

(c)the event is beyond the control of each of the principal parties,

(d)as respects the Condition in question, the consequences of the event could not have been avoided by the exercise of all due care, or the taking of all reasonable steps, by the principal parties or any of them.

(3)In this paragraph “the principal parties” are—

(a)the lessor's side,

(b)the lessee's side,

(c)the main constructor (see the definition in paragraph 27).

Pre-existing heads of agreement relating to two or more assetsE+W+S+N.I.

20(1)This paragraph has effect for the purposes of this Part in any case where the pre-existing heads of agreement relates to two or more assets.E+W+S+N.I.

(2)The treatment of any of the assets varies according to whether the asset—

(a)is for use individually (see sub-paragraph (3)), or

(b)is a constituent asset of a combined asset (see sub-paragraph (4)).

(3)Where any of the assets is for use individually, this Part has effect in relation to that asset separately, as if it were the subject of—

(a)its own separate pre-existing heads of agreement, and

(b)if there is a finalised lease, its own separate finalised lease.

See sub-paragraph (5) for the method of determining the terms.

(4)Where any of the assets are constituent assets of a combined asset—

(a)the combined asset is to be regarded as a single asset, and

(b)the constituent assets are to be regarded as if they were instead component parts of that single asset,

and sub-paragraph (3) applies accordingly.

(5)For the purposes of sub-paragraph (3), the principles in sections 70L and 70M of CAA 2001 are to be applied, with any necessary modifications, for the purpose of determining the terms of—

(a)the deemed separate pre-existing heads of agreement, and

(b)the deemed separate finalised lease (if any).

Expenditure incurred before passing of this Act where lease is not an excepted leaseE+W+S+N.I.

21(1)This paragraph applies where the following conditions are met—E+W+S+N.I.

(a)a person incurs expenditure on the provision of plant or machinery for leasing under a long funding lease,

(b)some or all of that expenditure was incurred before the day on which this Act is passed,

(c)the long funding lease is not an excepted lease,

(d)before 21st July 2005 there was a pre-existing heads of agreement in the case of the long funding lease.

(2)In this paragraph—

(a)the old expenditure” means so much of the expenditure as is expenditure incurred before the day on which this Act is passed, and

(b)the new expenditure” means so much of the expenditure as is expenditure incurred on or after that day.

(3)Treat the old expenditure—

(a)as if it had been incurred on the provision of a separate asset for leasing under a separate long funding lease, and

(b)as if that separate long funding lease were an excepted lease.

(4)Treat the new expenditure as if it had been incurred on the provision of a separate asset for leasing under a separate long funding lease in relation to which the amendments made by this Schedule have effect.

That is without prejudice to the application of any provisions of this Part which treat that deemed separate long funding lease as if it were two or more leases.

(5)The rentals under the actual long funding lease are to be apportioned between the two deemed leases in such manner as is just and reasonable.

(6)This paragraph has effect for the purpose of determining liability to income tax or corporation tax in the case of any person who is or has been the lessor or the lessee under the actual long funding lease.

(7)Paragraph 22 has effect for determining when an amount of expenditure is to be treated for the purposes of this paragraph as incurred by the person mentioned in sub-paragraph (1).

When expenditure is incurred for the purposes of paragraph 21E+W+S+N.I.

22(1)This paragraph has effect for determining, for the purposes of paragraph 21, when an amount of expenditure is to be treated as incurred by the person mentioned in sub-paragraph (1) of that paragraph.E+W+S+N.I.

(2)The general rule is that an amount of expenditure is to be treated as incurred as soon as there is an unconditional obligation to pay it.

(3)The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.

(4)There are the following exceptions to the general rule.

(5)If, under an agreement,—

(a)an unconditional obligation to pay an amount of expenditure comes into being as a result of the giving of a certificate or any other event, and

(b)the giving of the certificate, or other event, occurs before the day that falls one month after the passing of this Act,

the expenditure is to be treated as incurred on the day before the passing of this Act.

(6)If, under an agreement,—

(a)there is an unconditional obligation to pay an amount of expenditure on a date earlier than accords with normal commercial usage, and

(b)the sole or main benefit which might have been expected to be obtained thereby is that the amount would be treated, under the general rule, as incurred at an earlier time,

the amount is to be treated as incurred on the date on or before which it is required to be paid.

(7)If the terms of an agreement are varied on or after 22nd March 2006 with respect to the times for payment and—

(a)apart from the variation, an unconditional obligation to pay an amount of expenditure would have come into being on or after the day on which this Act is passed, but

(b)as a result of the variation, the unconditional obligation to pay the amount comes into being before that day,

the amount is to be treated as incurred on the date on which it would have been treated as incurred apart from the variation.

(8)Sub-paragraph (7) does not apply if the long funding lease mentioned in paragraph 21 was finalised before 22nd March 2006.

When a lease is “finalised”E+W+S+N.I.

23(1)For the purposes of this Part, a lease is “finalised” on the earliest day on which the following conditions are met.E+W+S+N.I.

(2)Condition 1 is that there is a contract in writing for the lease between the lessor and the lessee.

(3)Condition 2 is that either—

(a)the contract is unconditional, or

(b)if it is conditional, the conditions have been met.

(4)Condition 3 is that no terms remain to be agreed.

When an asset is “under construction”E+W+S+N.I.

24(1)An asset is “under construction” at any time in the period which—E+W+S+N.I.

(a)begins when construction of the asset begins, and

(b)ends when construction of the asset is completed.

(2)An asset consisting of two or more component parts is to be taken to be under construction at any time after the start of construction of any of those component parts which meets the condition in subsection (3).

(3)The condition is that the component part has been identified as a component part of the particular asset before construction of the component part begins.

(4)Sub-paragraphs (1) and (2) are subject to sub-paragraph (5).

(5)The leased asset is not to be regarded as under construction at any time after the commencement of the term of the lease.

(6)This paragraph has effect for the purposes of this Part.

Combined assets and constituent assetsE+W+S+N.I.

25(1)A “combined asset” is an asset which meets the conditions in sub-paragraph (2).E+W+S+N.I.

(2)The conditions are that—

(a)the asset is for use individually,

(b)it consists of two or more items of plant or machinery (“constituent assets”),

(c)each of the constituent assets is constructed with a view to its use in conjunction with the others as a single asset (namely, the combined asset).

(3)Plant or machinery that can be used individually is not a constituent asset just because—

(a)it is one of a number of assets of the same or a similar description,

(b)each of those assets is intended for use individually, and

(c)the use individually of those assets is to be co-ordinated to any extent.

(4)This paragraph has effect for the purposes of this Part.

Mixed leasesE+W+S+N.I.

26(1)This paragraph applies in any case where there is a mixed lease (see section 70L of CAA 2001).E+W+S+N.I.

(2)In any such case, determine whether the mixed lease is an excepted lease.

(3)If the mixed lease is an excepted lease, section 70L of CAA 2001 and the amendments made by this Schedule accordingly do not have effect in relation to it.

(4)If the mixed lease is not an excepted lease, then apply sections 70L and 70M of CAA 2001 and determine separately in the case of each derived lease whether that derived lease is an excepted lease.

Interpretation of this PartE+W+S+N.I.

27(1)In this Part—E+W+S+N.I.

  • combined asset” is to be construed in accordance with paragraph 25;

  • constituent asset” is to be construed in accordance with paragraph 25;

  • finalise”, in relation to a lease, is to be construed in accordance with paragraph 23;

  • lease” includes—

    (a)

    a plant or machinery lease, and

    (b)

    a mixed lease,

    and “lessor”, “lessee” and other related expressions are to be construed accordingly;

  • the lessee's side” means any of the following—

    (a)

    the lessee,

    (b)

    a person who controls (or is to control) the lessee,

    (c)

    any two or more persons who together control (or are to control) the lessee,

    and for this purpose “control” has the meaning given by [F27section 574 of CAA 2001] ;

  • the lessor's side” means any of the following—

    (a)

    the lessor,

    (b)

    a person who controls (or is to control) the lessor,

    (c)

    any two or more persons who together control (or are to control) the lessor,

    and for this purpose “control” has the meaning given by [F27section 574 of CAA 2001] ;

  • the main constructor” means the contractor under the main contract for the construction of the plant or machinery;

  • pre-existing heads of agreement” is to be construed in accordance with paragraph 17(2);

  • the principal terms”, in relation to a lease, are the following—

    (a)

    the identity of the lessee;

    (b)

    the identity or description of the asset to be leased;

    (c)

    particulars, or a description, of the rentals payable under the lease;

    (d)

    particulars, or a description, of the term of the lease;

  • qualifying activity” has the same meaning as in Part 2 of CAA 2001;

  • “under construction”, in the case of an asset, is to be construed in accordance with paragraph 24.

(2)Chapter 6A of Part 2 of CAA 2001 (interpretation of that Part so far as relating to long funding leases) also applies for the purposes of this Part.

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Amendments (Textual)

F27Words in Sch. 8 para. 27(1) substituted (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1027, Sch. 1 para. 624 (with transitional provisions and savings in Sch. 2)

Section 81

SCHEDULE 9E+W+S+N.I.Leases of plant or machinery: miscellaneous amendments

Income and Corporation Taxes Act 1988E+W+S+N.I.

Petroleum extraction activities: sale and leasebackE+W+S+N.I.

F281. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F28Sch. 9 paras. 1, 2 repealed (1.4.2010) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

Supplementary charge in respect of ring fence tradesE+W+S+N.I.

F282. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F28Sch. 9 paras. 1, 2 repealed (1.4.2010) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

Leased assets: special casesE+W+S+N.I.

F293. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F29Sch. 9 para. 3 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 2 (with Sch. 2) and repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 9 (with Sch. 9 paras. 1-9, 22)

Taxation of Chargeable Gains Act 1992E+W+S+N.I.

Long funding leases: deemed disposals and re-acquisitionsE+W+S+N.I.

4(1)After section 25 of TCGA 1992 (non-residents: deemed disposals) insert—E+W+S+N.I.

25ALong funding leases of plant or machinery: deemed disposals

(1)This section applies where plant or machinery is used for the purpose of leasing under a long funding lease.

(2)The lessor shall be deemed for all purposes of this Act—

(a)to have disposed of the plant or machinery at the commencement of the term of the lease at the value described in subsection (4)(a) or (b), and

(b)to have immediately reacquired it at the same value.

(3)The lessor shall also be deemed for all purposes of this Act—

(a)to have disposed of the plant or machinery on the termination of the lease for a consideration equal to the termination amount, and

(b)to have immediately reacquired it for the same consideration.

(4)The value mentioned in subsection (2)(a) is—

(a)where the lease is a long funding finance lease, an amount equal to that which would fall to be recognised as the lessor's net investment in the lease if accounts were prepared in accordance with generally accepted accounting practice on the date on which the lessor's net investment in the lease is first recognised in the books or other financial records of the lessor, or

(b)where the lease is a long funding operating lease, an amount equal to the market value of the plant or machinery at the commencement of the term of the lease.

(5)For the purposes of this section, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act (interpretation of provisions about long funding leases)—

  • commencement”, in relation to the term of a lease,

  • “lessor”,

  • “long funding lease”,

  • “long funding finance lease”,

  • “long funding operating lease”,

  • “market value”,

  • the term”, in relation to a lease,

  • “termination”,

  • “termination amount”.

(2)The amendment made by this paragraph has effect where the commencement of the term of the lease is on or after 1st April 2006.

Restriction of losses: long funding leases of plant or machineryE+W+S+N.I.

5(1)After section 41 of TCGA 1992 (restriction of losses by reference to capital allowances and renewals allowances) insert—E+W+S+N.I.

41ARestriction of losses: long funding leases of plant or machinery

(1)This section applies where a person disposes of an asset—

(a)which includes plant or machinery which is a fixture for the purposes of Chapter 6A of Part 2 of the Capital Allowances Act, and

(b)which he has used for the purpose of leasing under one or more long funding leases.

(2)In the computation of the amount of a loss accruing to the person on the disposal there shall be excluded from the sums allowable as a deduction by virtue of section 38(1)(a) and (b) (acquisition and enhancement costs) an amount determined in accordance with subsection (3) or (4).

(3)Where the person has used the plant or machinery for the purpose of leasing under one long funding lease, the amount is equal to the fall in value of the plant or machinery during the period of the lease.

(4)Where the person has used the plant or machinery for the purpose of leasing under more than one long funding lease, the amount is equal to the sum of the fall in value of the plant or machinery during the period of each lease.

(5)In this section, references to the fall in value of plant or machinery during the period of a lease are references to the amount (if any) by which—

(a)the market value of the plant or machinery at the commencement of the term of the lease,

exceeds

(b)its market value at the termination of the lease.

(6)For the purposes of this section, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act (interpretation of provisions about long funding leases)—

  • commencement”, in relation to the term of a lease,

  • “long funding lease”,

  • “market value”,

  • the term”, in relation to a lease,

  • “termination”.

(2)The amendment made by this paragraph has effect in relation to disposals on or after 1st April 2006.

Definition of market valueE+W+S+N.I.

6(1)Section 272 of TCGA 1992 (valuation: general) is amended as follows.E+W+S+N.I.

(2)In subsection (6) (subjection to other provisions) after “subject to” insert “ sections 25A and 41A and ”.

Finance Act 1997E+W+S+N.I.

Leasing arrangementsE+W+S+N.I.

F307. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F30Sch. 9 para. 7 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 2 (with Sch. 2) and repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 8 (with Sch. 9 paras. 1-9, 22)

Finance Act 2000E+W+S+N.I.

Tonnage tax: introductoryE+W+S+N.I.

8Schedule 22 to FA 2000 (tonnage tax) is amended as follows.

Meaning of “finance costs”E+W+S+N.I.

9(1)In Part 7 (the ring fence: general provisions) paragraph 63 (meaning of finance costs) is amended as follows.E+W+S+N.I.

(2)In sub-paragraph (2), for the word “and” at the end of paragraph (d) substitute the following paragraph—

(dd)where the tonnage tax company is the lessee under a long funding operating lease, the amount deductible (or the total amount that could, if there were no tonnage tax election, be deductible) in respect of payments under the lease in computing the profits of the lessee for the purposes of corporation tax (after first making against any such amount any reductions falling to be made by virtue of section 502K of the Taxes Act 1988); and.

(3)At the end of the paragraph insert—

(4)In this paragraph “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of the Capital Allowances Act (see section 70YI(1) of that Act)..

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

Capital allowances: ship leasingE+W+S+N.I.

10(1)Part 10 (the ring fence: capital allowances: ship leasing) is amended as follows.E+W+S+N.I.

(2)In paragraph 89 (introduction), in sub-paragraph (1), after the paragraph relating to paragraphs 90 and 91 (defeased leasing) insert— “ paragraphs 91A to 91F (long funding leases), ”.

(3)After paragraph 91 (defeased leasing: excepted forms of security) insert—

Long funding leases: conditions for alternative treatmentE+W+S+N.I.

91A(1)This paragraph applies if the lease would fall to be regarded as a long funding lease for the purposes of Part 2 of the Capital Allowances Act 2001, apart from this paragraph.

(2)The lease is to be treated for tax purposes as not being a long funding lease at any time when the lease—

(a)meets the conditions in sub-paragraph (3), or

(b)is expected to meet those conditions when the ship is first brought into use under the lease,

but this is subject to the qualification in sub-paragraph (4) and the exception in sub-paragraph (5).

(3)The conditions are—

(a)that the lease falls within paragraph 91B (lease to tonnage tax company or group),

(b)that the lease falls within paragraph 91C (tonnage tax company to operate and manage qualifying ship),

(c)that the lease falls within paragraph 91D (period and rate of sublease of qualifying ship).

(4)The condition in paragraph (c) of sub-paragraph (3) has to be met, or be expected to be met, only at times when the company within tonnage tax is leasing the ship to a company not within tonnage tax.

(5)The conditions in paragraphs (b) and (c) of sub-paragraph (3) do not have to be met, or be expected to be met, if the lease was finalised (within the meaning of Part 4 of Schedule 8 to the Finance Act 2006) before 1st April 2006.

(6)Sub-paragraph (2) is subject to paragraph 91E (anti-avoidance).

Lease to tonnage tax company or groupE+W+S+N.I.

91B(1)A lease falls within this paragraph if—

(a)it is a lease of a qualifying ship provided directly to a company within tonnage tax, or

(b)it is a lease of a qualifying ship provided indirectly to a company within tonnage tax (“T”) and sub-paragraph (2) applies.

(2)This sub-paragraph applies where—

(a)the owner of the qualifying ship provides it directly to a company (“C”) under a lease,

(b)C provides the qualifying ship directly to T under a lease, and

(c)C and T are in the same group.

Tonnage tax company to operate and manage qualifying shipE+W+S+N.I.

91C(1)A lease of a qualifying ship provided, directly or indirectly, to a company within tonnage tax (“T”) falls within this paragraph if T is responsible—

(a)for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, and

(b)for defraying all expenses in connection with the ship, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during any period for which the ship is leased by T to another person.

(2)For the purposes of this paragraph, T is “responsible” if—

(a)he is responsible as principal, or

(b)he appoints another person (“P”) to be responsible in his place and the condition in sub-paragraph (3) is met.

(3)The condition is that—

(a)P is not a person to whom the ship is leased by T and is not connected with such a person, or

(b)P is a company within tonnage tax.

(4)Any reference in this paragraph to a lease by T includes a reference to a contract of affreightment entered into by T that provides for the carriage of goods by the qualifying ship.

(5)Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.

Period and rate of sublease of qualifying shipE+W+S+N.I.

91D(1)A lease of a qualifying ship provided, directly or indirectly, to a company within tonnage tax (“T”) falls within this paragraph if each lease of the ship by T (a “sublease”) to a company not within tonnage tax meets the conditions in sub-paragraph (2).

(2)The conditions are—

(a)that the amount payable under the sublease is the market rate, and

(b)that the period of the sublease does not exceed 7 years.

(3)For the purposes of this paragraph the market rate is the rate at which the qualifying ship could reasonably be expected to be leased, taking into account all the circumstances of the lease including the period of the lease, the date at which the lease commences and the size and description of the qualifying ship.

(4)For the purposes of this paragraph the period of a sublease is the period comprising—

(a)the term specified in the sublease, and

(b)any subsequent periods which meet the conditions in sub-paragraph (5).

(5)The conditions are that—

(a)there is an option to continue the sublease for that period, and

(b)the amount payable under the sublease for that period is not the market rate applicable at the start of that period.

(6)Where—

(a)an option to continue a sublease for a period is exercised, and

(b)the amount payable under the sublease for that period is the market rate applicable at the start of that period,

the parties to the sublease are to be treated for the purposes of this paragraph as if the sublease had terminated immediately before the commencement of the period and a new sublease had immediately been entered into.

(7)Where a sublease is for an indefinite period, the period of the sublease is to be taken for the purposes of this paragraph to be a period of more than 7 years, unless the condition in sub-paragraph (8) is met.

(8)The condition is that—

(a)the amount payable under the sublease must be reviewed at least once every 7 years, and

(b)if the amount payable under the sublease is found on such a review not to be the market rate applicable at the time of the review, it must be changed to the market rate applicable at that time.

(9)Where there is an option to continue a sublease for an indefinite period, the period of the sublease is to be taken for the purposes of this paragraph to be a period of more than 7 years, unless the condition in sub-paragraph (10) is met.

(10)The condition is that the amount payable under the sublease for any period for which the option may be exercised is the market rate applicable at the start of that period, except that—

(a)the amount for the time being payable under the sublease may subsequently be changed at any time to the market rate applicable at that time,

(b)the amount payable under the sublease must be reviewed at least once every 7 years, and

(c)if the amount payable under the sublease is found on such a review not to be the market rate applicable at the time of the review, it must be changed to the market rate applicable at that time.

(11)Any reference in this paragraph to a lease by T includes a reference to a contract of affreightment entered into by T that provides for the carriage of goods by the qualifying ship.

Anti-avoidanceE+W+S+N.I.

91EParagraph 91A(2) does not have effect in the case of the lease if the main purpose, or one of the main purposes—

(a)of the leasing of the ship,

(b)of a series of transactions of which the leasing of the ship is one, or

(c)of any of the transactions in such a series,

was to obtain a writing down allowance determined without regard to any of paragraphs 90, 92 and 94 to 102 in respect of expenditure incurred by any person on the provision of the ship.

Consequences of paragraph 91A(2) ceasing to have effectE+W+S+N.I.

91F(1)This paragraph applies if sub-paragraph (2) of paragraph 91A ceases to have effect in relation to a lease (the “existing lease”) because one or more of the conditions in sub-paragraph (3) of that paragraph cease to be met.

(2)In any such case it is to be assumed for tax purposes that—

(a)the existing lease terminates at the time of the cessation;

(b)another lease (the “new lease”) is entered into immediately after the cessation;

(c)the term of the new lease is the portion of the term of the existing lease that remains unexpired at the time of the cessation;

(d)the date on which the cessation occurs is the date of both—

(i)the inception of the new lease, and

(ii)the commencement of the term of the new lease.

(3)Where this paragraph applies, subsection (4) of section 70X of the Capital Allowances Act 2001 (transfers, assignments etc by lessee) does not.

(4)For the purposes of this paragraph, the following expressions have the meaning given in Chapter 6A of Part 2 of the Capital Allowances Act 2001 (interpretation of provisions about long funding leases)—

  • commencement”, in relation to the term of a lease;

  • inception”, in relation to a lease;

  • term”, in relation to a lease;

  • “terminate”..

(4)In paragraph 93 (certificates required to support claim by lessor), in sub-paragraph (1)(b) after “in relation to the lease” insert “ and, if the lease is one that would (apart from paragraph 91A) fall to be regarded as a long funding lease for the purposes of Part 2 of the Capital Allowances Act 2001, that paragraph 91A(2) has effect in relation to the lease. ”

(5)Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the amendments made by this paragraph.

Capital Allowances Act 2001E+W+S+N.I.

Withdrawal of first year allowances for lessors of certain plant or machineryE+W+S+N.I.

11(1)Section 46 of CAA 2001 (general exclusions applying to certain sections) is amended as follows.E+W+S+N.I.

(2)For subsection (5) (exception of sections 45A, 45D, 45E and 45H from general exclusion 6 (leasing)) substitute—

(5)General exclusion 6 does not prevent expenditure being first-year qualifying expenditure under any of the following provisions—

  • section 45A, if the condition in subsection (6) is met,

  • section 45D,

  • section 45H, if the condition in subsection (6) is met.

(6)The condition is that the plant or machinery is provided for leasing under an excluded lease of background plant or machinery for a building, within the meaning given by section 70R..

(3)The amendment made by this paragraph has effect in relation to expenditure incurred on or after 1st April 2006.

Plant or machinery treated as owned by person entitled to benefit of contract etcE+W+S+N.I.

12(1)Section 67 of CAA 2001 is amended as follows.E+W+S+N.I.

(2)After “qualifying activity”, in each place where those words occur in the section, insert “ or corresponding overseas activity ”.

(3)In subsection (2), insert at the end— “ This subsection has effect subject to, and in accordance with, subsections (2A) to (2C). ”.

(4)After subsection (2) insert—

(2A)If the contract is one which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as a lease, subsection (2B) applies.

(2B)Where that is the case, the plant or machinery is to be treated under subsection (2) as owned by the person at any time only if the contract falls (or would fall) to be treated by that person in accordance with generally accepted accounting practice as a finance lease.

(2C)Where at any time the plant or machinery—

(a)is not treated under subsection (2) as owned by the person, but

(b)would be treated under that subsection as owned by the person, but for subsection (2B),

the plant or machinery is nevertheless to be treated under subsection (2) as not owned by any other person at that time..

(5)Renumber subsection (5) as subsection (7).

(6)Before that subsection, as so renumbered, insert—

(6)If—

(a)a person enters into two or more agreements, and

(b)those agreements are such that, if they together constituted a single contract, the condition in subsection (1)(b) would be met in relation to that person and that contract,

the agreements are to be treated for the purposes of this section as parts of a single contract.

In this subsection, any reference to an agreement includes a reference to an undertaking, whether or not legally enforceable..

(7)At the end of the section insert—

(8)In this section “corresponding overseas activity” means an activity that would be a qualifying activity if the person carrying it on were resident in the United Kingdom..

(8)The amendments made by this paragraph have effect in relation to contracts that are finalised (within the meaning of Part 4 of Schedule 8) on or after 1st April 2006.

Phasing out of overseas leasing rulesE+W+S+N.I.

13(1)Section 105 of CAA 2001 (basic terms: “leasing”, “overseas leasing” etc) is amended as follows.E+W+S+N.I.

(2)After subsection (2) (“overseas leasing”) insert—

(2A)In determining whether plant or machinery is used for overseas leasing, no account shall be taken of any lease finalised, within the meaning of Part 4 of Schedule 8 to the Finance Act 2006, on or after 1st April 2006..

Anti-avoidance: meaning of “finance lease”E+W+S+N.I.

14(1)Section 219 of CAA 2001 (meaning of “finance lease” in Chapter 17 of Part 2) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(b), after sub-paragraph (ii) insert— “ and which are not a long funding lease in the case of the lessor. ”.

(3)Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the amendment made by this paragraph.

Capital allowances: allocation of expenditure to a chargeable periodE+W+S+N.I.

15(1)Section 220 of CAA 2001 is amended as follows.E+W+S+N.I.

(2)Before subsection (1) insert—

(A1)Subsection (1) applies to a company for a chargeable period if—

(a)at the end of the ICTA period of account which is the basis period for the chargeable period, the company is a member of a group, and

(b)the last day of that ICTA period of account is not also the last day of an ICTA period of account of the principal company of the group..

(3)In subsection (1)—

(a)for “a person” substitute “ the company ”,

(b)for “a chargeable period” substitute “ the chargeable period ”,

(c)after “under a finance lease” insert “ or under a qualifying operating lease (see subsection (4)) ”, and

(d)for “person's”, in both places, substitute “ company's ”.

(4)After subsection (2) insert—

(3)The following provisions have effect for the interpretation of this section.

(4)A “qualifying operating lease” is a plant or machinery lease that meets the following conditions—

(a)it is not a finance lease,

(b)it is a funding lease,

(c)its term is longer than 4 years but not longer than 5 years.

(5)An ICTA period of account is the basis period for a chargeable period if the chargeable period coincides with, or falls within, the ICTA period of account.

(6)An “ICTA period of account” is a period of account as defined in section 832(1) of ICTA.

(7)The provisions of section 170(3) to (6) of TCGA 1992 apply to determine for the purposes of this section—

(a)whether a company is member of a group, and

(b)which company is the principal company of the group.

(8)But, in applying those provisions for the purposes of this section, a company (“the subsidiary company”) that does not have ordinary share capital is to be treated as being a qualifying 75% subsidiary of another company (“the parent company”) if the parent company—

(a)has control of the subsidiary company, within the meaning of section 840 of ICTA, and

(b)is beneficially entitled to the appropriate proportion of profits and assets.

(9)The parent company is beneficially entitled to the appropriate proportion of profits and assets if (and only if) it—

(a)is beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company, and

(b)would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.

(10)The provisions of Schedule 18 to ICTA (equity holders and profits or assets etc) also apply for the purposes of this section.

(11)In this section, the following expressions have the same meaning as in Chapter 6A of Part 2 (interpretation of provisions about long funding leases)—

  • “funding lease”,

  • “plant or machinery lease”,

  • term”, in relation to a lease..

(5)In consequence of the amendments made by this paragraph, the italic cross-heading preceding section 219 becomes “ Finance leases and certain operating leases ”.

(6)The amendments made by this paragraph have effect in relation to expenditure incurred on or after 1st April 2006.

Section 82

F31SCHEDULE 10E+W+S+N.I.Sale etc of lessor companies etc

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F31Sch. 10 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 484, Sch. 3 Pt. 1 (with Sch. 2)

Section 86

F32SCHEDULE 11E+W+S+N.I.Insurance companies

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

Section 88

SCHEDULE 12E+W+S+N.I.Settlements: amendment of TCGA 1992 etc

Part 1E+W+S+N.I.Settlors, trustees and settlements

Basic trust conceptsE+W+S+N.I.

1(1)In section 68 of TCGA 1992 for the definition of “settled property” substitute “ “settled property” means any property held in trust other than property to which section 60 applies (and references, however expressed, to property comprised in a settlement are references to settled property). ”E+W+S+N.I.

(2)After section 68 of TCGA 1992 insert—

68AMeaning of “settlor”

(1)In this Act, unless the context otherwise requires—

(a)settlor” in relation to a settlement means the person, or any of the persons, who has made, or is treated for the purposes of this Act as having made, the settlement, and

(b)a person is a settlor of property which—

(i)is settled property by reason of his having made the settlement (or by reason of an event which causes him to be treated under this Act as having made the settlement), or

(ii)derives from property to which sub-paragraph (i) applies.

(2)A person is treated for the purposes of this Act as having made a settlement if—

(a)he has made or entered into the settlement, directly or indirectly, or

(b)the settled property, or property from which the settled property is derived, is or includes property of which he was competent to dispose immediately before his death, and the settlement arose on his death, whether by will, on his intestacy, or otherwise.

(3)A person is, in particular, treated for the purposes of this Act as having made a settlement if—

(a)he has provided property directly or indirectly for the purposes of the settlement, or

(b)he has undertaken to provide property directly or indirectly for the purposes of the settlement.

(4)Where one person (A) makes or enters into a settlement in accordance with reciprocal arrangements with another person (B), for the purposes of this Act—

(a)B shall be treated as having made the settlement, and

(b)A shall not be treated as having made the settlement by reason only of the reciprocal arrangements.

(5)In subsection (2)(b) “property of which he was competent to dispose immediately before his death” shall be construed in accordance with section 62(10) (reading each reference to “assets” as a reference to “property”).

(6)A person who has been a settlor in relation to a settlement shall be treated for the purposes of this Act as having ceased to be a settlor in relation to the settlement if—

(a)no property of which he is a settlor is comprised in the settlement,

(b)he has not undertaken to provide property directly or indirectly for the purposes of the settlement in the future, and

(c)he has not made reciprocal arrangements with another person for that other person to enter into the settlement in the future.

(7)For the purpose of this section and sections 68B and 68C property is derived from other property—

(a)if it derives (directly or indirectly and wholly or partly) from that property or any part of it, and

(b)in particular, if it derives (directly or indirectly and wholly or partly) from income from that property or any part of it.

(8)In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

68BTransfer between settlements: identification of settlor

(1)This section applies in relation to a transfer of property from the trustees of one settlement (“Settlement 1”) to the trustees of another (“Settlement 2”) otherwise than—

(a)for full consideration, or

(b)by way of a bargain made at arm's length.

(2)In this section “transfer of property” means—

(a)a disposal of property by the trustees of Settlement 1, and

(b)the acquisition by the trustees of Settlement 2 of—

(i)property disposed of by the trustees of Settlement 1, or

(ii)property created by the disposal;

and a reference to transferred property is a reference to property acquired by the trustees of Settlement 2 on the disposal.

(3)For the purposes of this Act, except where the context otherwise requires—

(a)the settlor (or each settlor) of the property disposed of by the trustees of Settlement 1 shall be treated from the time of the disposal as having made Settlement 2, and

(b)if there is more than one settlor of the property disposed of by the trustees of Settlement 1, each settlor shall be treated in relation to Settlement 2 as the settlor of a proportionate part of the transferred property.

(4)For the purposes of this Act, except where the context otherwise requires, if and to the extent that the property disposed of by the trustees of Settlement 1 was provided for the purposes of Settlement 1, or is derived from property provided for the purposes of Settlement 1, the transferred property shall be treated from the time of the disposal as having been provided for the purposes of Settlement 2.

(5)If transferred property is treated by virtue of subsection (4) as having been provided for the purposes of Settlement 2 —

(a)the person who provided the property disposed of by the trustees of Settlement 1, or property from which it was derived, for the purposes of Settlement 1 shall be treated as having provided the transferred property, and

(b)if more than one person provided the property disposed of by the trustees of Settlement 1, or property from which it was derived, for the purposes of Settlement 1, each of them shall be treated as having provided a proportionate part of the transferred property.

(6)But subsections (3) and (4) do not apply in relation to a transfer of property—

(a)which occurs by reason only of the assignment or assignation by a beneficiary under Settlement 1 of an interest in that settlement to the trustees of Settlement 2,

(b)which occurs by reason only of the exercise of a general power of appointment, or

(c)to which section 68C(6) applies.

(7)In determining whether this section applies in relation to a transfer of property between settlements, section 18(2) shall be disregarded.

68CVariation of will or intestacy, etc: identification of settlor

(1)This section applies where—

(a)a disposition of property following a person's death is varied, and

(b)section 62(6) applies in respect of the variation.

(2)Where property becomes settled property in consequence of the variation (and would not, but for the variation, have become settled property), a person mentioned in subsection (3) shall be treated for the purposes of this Act, except where the context otherwise requires—

(a)as having made the settlement, and

(b)as having provided the property for the purposes of the settlement.

(3)Those persons are—

(a)a person who immediately before the variation was entitled to the property, or to property from which it derives, absolutely as legatee,

(b)a person who would have become entitled to the property, or to property from which it derives, absolutely as legatee but for the variation,

(c)a person who immediately before the variation would have been entitled to the property, or to property from which it derives, absolutely as legatee but for being an infant or other person under a disability, and

(d)a person who would, but for the variation, have become entitled to the property, or to property from which it derives, absolutely as legatee if he had not been an infant or other person under a disability.

(4)In subsection (3) references to a person being entitled to property absolutely as legatee shall be construed in accordance with section 64(3) (reading the references to “an asset” and “any asset” as references to “property”).

(5)Where—

(a)property would have become comprised in a settlement—

(i)which arose on the deceased person's death (whether in accordance with his will, on his intestacy or otherwise), or

(ii)which was already in existence on the deceased person's death (whether or not the deceased person was a settlor in relation to that settlement), but

(b)in consequence of the variation the property, or property derived from it, becomes comprised in another settlement,

the deceased person shall be treated for the purposes of this Act, except where the context otherwise requires, as having made the other settlement.

(6)Where—

(a)immediately before the variation property is comprised in a settlement and is property of which the deceased person is a settlor, and

(b)immediately after the variation the property, or property derived from it, becomes comprised in another settlement,

the deceased person shall be treated for the purposes of this Act, except where the context otherwise requires, as having made the other settlement.

(7)If a person is treated as having made a settlement under subsection (5) or (6), for the purposes of this Act he shall be treated as having made the settlement immediately before his death.

(8)But subsection (7) does not apply in relation to a settlement which arose on the person's death.

(3)The amendment of section 68 made by sub-paragraph (1) shall come into force on 6th April 2006 (in relation to settlements whenever created).

(4)Sections 68A and 68B (as inserted by sub-paragraph (2)) shall come into force on 6th April 2006 (in relation to settlements whenever created).

(5)Section 68C (as inserted by sub-paragraph (2)) shall have effect in respect of variations occurring on or after 6th April 2006 (irrespective of the date on which the deceased person died).

2(1)For section 69(1) and (2) of TCGA 1992 (residence of trustees, etc) substitute—E+W+S+N.I.

(1)For the purposes of this Act the trustees of a settlement shall, unless the context otherwise requires, together be treated as if they were a single person (distinct from the persons who are trustees of the settlement from time to time).

(2)The deemed person referred to in subsection (1) shall be treated for the purposes of this Act as resident and ordinarily resident in the United Kingdom at any time when a condition in subsection (2A) or (2B) is satisfied.

(2A)Condition 1 is that all the trustees are resident in the United Kingdom.

(2B)Condition 2 is that—

(a)at least one trustee is resident in the United Kingdom,

(b)at least one is not resident in the United Kingdom, and

(c)a settlor in relation to the settlement was resident, ordinarily resident or domiciled in the United Kingdom at a time which is a relevant time in relation to him.

(2C)In subsection (2B)(c) “relevant time” in relation to a settlor—

(a)means, where the settlement arose on the settlor's death (whether by will, intestacy or otherwise), the time immediately before his death, and

(b)in any other case, means a time when the settlor made the settlement (or was treated for the purposes of this Act as making the settlement);

and, in the case of a transfer of property from Settlement 1 to Settlement 2 in relation to which section 68B applies, “relevant time” in relation to a settlor of the transferred property in respect of Settlement 2 includes any time which, immediately before the time of the disposal by the trustees of Settlement 1, was a relevant time in relation to that settlor in respect of Settlement 1.

(2D)A trustee who is not resident in the United Kingdom shall be treated for the purposes of subsections (2A) and (2B) as if he were resident in the United Kingdom at any time when he acts as trustee in the course of a business which he carries on in the United Kingdom through a branch, agency or permanent establishment there.

(2E)If the deemed person referred to in subsection (1) is not treated for the purposes of this Act as resident and ordinarily resident in the United Kingdom, then for the purposes of this Act it shall be treated as neither resident nor ordinarily resident in the United Kingdom.

(2)This paragraph shall have effect—

(a)for the purposes of determining the residence status of the trustees of a settlement (whenever created), from 6th April 2007, and

(b)for any other purpose (in relation to settlements whenever created), from 6th April 2006.

Interests in settlementsE+W+S+N.I.

F333. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F33Sch. 12 para. 3 omitted (with effect in accordance with Sch. 2 para. 22 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 21(j)

4(1)In section 169F of TCGA 1992 (meaning of “interest in a settlement” for purposes of sections 169B to 169D)—E+W+S+N.I.

(a)in subsection (1) for “or (3)” substitute “ , (3) or (3A) ”,

(b)in subsection (2)(a) after “any property which” insert “ is or ”,

(c)after subsection (3) insert—

(3A)This subsection applies if—

(a)any property which is or may at any time be comprised in the settlement, or any derived property, is, or will or may become, payable to or applicable for the benefit of a child of the individual, at a time when that child is a dependent child of his, in any circumstances whatsoever, or

(b)a dependent child of the individual enjoys a benefit deriving directly or indirectly from any property which is comprised in the settlement or any derived property., and

(d)after subsection (4) insert—

(4A)In this section—

(a)dependent child” means a child who—

(i)is under the age of 18 years,

(ii)is unmarried, and

(iii)does not have a civil partner, and

(b)child” includes a stepchild.

(4B)For the purposes of subsection (3A) above no account shall be taken of a term of a settlement relating to dependent children of an individual in respect of any time at which he has no dependent child.

(2)Sub-paragraph (1) shall have effect for the purpose of determining whether for the purposes of sections 169B to 169D and 169F an individual is to be regarded as having an interest in a settlement (whenever created) on or after 6th April 2006.

(3)But sub-paragraph (1) shall not have effect in relation to section 169C if the relevant disposal (within the meaning of section 169C(1)) is made on or before 5th April 2006.

5(1)In paragraph 7(5) of Schedule 4A to TCGA 1992 (disposal of interest in settled property)—E+W+S+N.I.

(a)leave out “or” at the end of paragraph (a), and

(b)after paragraph (b) insert— , or

(c)in a case where the settlor is regarded as having an interest in a settlement by reason only of—

(i)the fact that property is, or will or may become, payable to or applicable for the benefit of a dependent child of his, or

(ii)the fact that a benefit is enjoyed by such a child,

where the settlor ceases during the year to have (and does not in that year subsequently come to have) any dependent child in relation to whom section 77(2A)(a) or (b) applies.

(2)Sub-paragraph (1) shall have effect for the purpose of determining whether a settlor is regarded as having an interest in a settlement (whenever created) for the purposes of Schedule 4A to TCGA 1992 on or after 6th April 2006.

Part 2E+W+S+N.I.Sub-fund settlements

6(1)After section 69 of TCGA 1992 insert—E+W+S+N.I.

69ASub-fund settlements

Schedule 4ZA (which makes provision about sub-fund settlements) shall have effect.

(2)After Schedule 4 to TCGA 1992 insert—

SCHEDULE 4ZAE+W+S+N.I.Sub-fund settlements

Making a sub-fund electionE+W+S+N.I.

1The trustees of a settlement (the “principal settlement”) may elect that a fund or other specified portion of the settled property (the “sub-fund”) be treated, unless the context otherwise requires, as a separate settlement (the “sub-fund settlement”) for the purposes of this Act, and the election shall have effect.

2(1)An election under paragraph 1 (a “sub-fund election”) must specify the date on which it is to be treated as having taken effect, which must not be later than the date on which it is made.

(2)The election shall be treated as having taken effect—

(a)at the beginning of the specified date, or

(b)if there is a deemed disposal of an asset by the trustees of the principal settlement under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)), on the specified date immediately after the deemed disposal.

3Trustees may make a sub-fund election only if—

(a)Conditions 1 to 4 are satisfied when the election is made, and

(b)Conditions 2 to 4 were satisfied throughout the period beginning with the time when the election is to be treated as having taken effect and ending immediately before the election is made.

4Condition 1 is that the principal settlement is not itself a sub-fund settlement.

5Condition 2 is that the sub-fund is not the whole of the property comprised in the principal settlement.

6Condition 3 is that, if the sub-fund election had taken effect, the sub-fund settlement would not consist of or include an interest in an asset any other interest in which would be comprised in the principal settlement.

7For the purpose of Condition 3—

(a)sections 104(1) and 109(2)(a) shall not have effect, and

(b)interest”, in relation to any asset, means an interest as a co-owner of the asset (whether the asset is owned jointly or in common and whether or not the interests of the co-owners are equal).

8Condition 4 is that, if the sub-fund election had taken effect, no person would be a beneficiary under both the sub-fund settlement and the principal settlement.

9(1)For the purpose of Condition 4 a person is a beneficiary under a settlement—

(a)if—

(i)any property which is or may at any time be comprised in the settlement, or

(ii)any derived property,

is, or will or may become, payable to him or applicable for his benefit in any circumstances whatsoever, or

(b)if he enjoys a benefit deriving directly or indirectly from—

(i)any property which is comprised in the settlement, or

(ii)any derived property.

(2)But for the purpose of Condition 4 a person is not to be regarded as a beneficiary under a settlement if property comprised in the settlement, or any derived property, will or may become payable to him or applicable for his benefit by reason only of—

(a)his marrying, or entering into a civil partnership with, a beneficiary under the settlement,

(b)the death of a beneficiary under the settlement,

(c)the exercise by the trustees of the settlement of—

(i)a power conferred by section 32 of the Trustee Act 1925 (c. 19) or section 33 of the Trustee Act (Northern Ireland) 1958 (c. 23 (N.I.)) (powers of advancement),

(ii)a power conferred by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in sub-paragraph (i), or

(iii)a power of advancement which is conferred by the instrument creating the principal settlement, or by another instrument made in accordance with the terms of the principal settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925, or

(d)the failure or determination of trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts).

(3)In this paragraph “derived property”, in relation to any property, means—

(a)income from that property,

(b)property directly or indirectly representing—

(i)proceeds of that property, or

(ii)proceeds of income from that property, or

(c)income from property which is derived property by virtue of paragraph (b).

Sub-fund elections: procedureE+W+S+N.I.

10A sub-fund election must be made—

(a)by notice to an officer of Revenue and Customs, and

(b)in such form as the Commissioners for Her Majesty's Revenue and Customs may require.

11A sub-fund election may not be made after the second 31st January after the year of assessment in which the date on which the election is to be treated as having taken effect falls.

12A sub-fund election must contain—

(a)a declaration by each trustee of the principal settlement that he consents to the election,

(b)a statement by the trustees of the principal settlement that the requirement in paragraph 3 is satisfied,

(c)such information as the Commissioners for Her Majesty's Revenue and Customs may require in relation to the principal settlement (which may, in particular, include information relating to the trustees, the trusts, property which is or has been comprised in the settlement, the settlors or the beneficiaries),

(d)a declaration by the trustees of the principal settlement that the information given in the election is correct, to the best of their knowledge and belief, and

(e)such other declarations as the Commissioners for Her Majesty's Revenue and Customs may require.

13A sub-fund election may not be revoked.

Power to make enquiriesE+W+S+N.I.

14Where a sub-fund election has been made, an officer of Revenue and Customs may by notice require a person specified in paragraph 16 to supply information for the purposes of determining whether paragraph 3 was satisfied.

15The notice shall specify a period of not less than 60 days within which the information must be supplied.

16(1)The persons mentioned in paragraph 14 are—

(a)a person who is or has been a trustee of a relevant settlement;

(b)a person who is or has been a beneficiary under a relevant settlement;

(c)a person who is or has been a settlor in relation to a relevant settlement.

(2)For the purposes of sub-paragraph (1) a settlement is a relevant settlement if it is—

(a)the sub-fund settlement, or

(b)the principal settlement.

Consequences of a sub-fund electionE+W+S+N.I.

17The sub-fund settlement shall be treated, for the purposes of this Act, as having been created at the time when the sub-fund election is treated as having taken effect.

18(1)Each trustee of the trusts on which the property comprised in the sub-fund settlement is held shall be treated as a trustee of the sub-fund settlement for the purposes of this Act.

(2)A person who is a trustee of the sub-fund settlement shall be treated for the purposes of this Act, from the time when the election is treated as having taken effect, as having ceased to be a trustee of the principal settlement unless he is also a trustee of trusts on which property comprised in the principal settlement is held.

(3)A person who is a trustee of the principal settlement shall not be treated for the purposes of this Act as a trustee of the sub-fund settlement unless he is also a trustee of trusts on which property comprised in the sub-fund settlement is held.

19The trustees of the sub-fund settlement shall be treated for the purposes of this Act as having become absolutely entitled, at the time when the sub-fund election is treated as having taken effect, to the property comprised in that settlement as against the trustees of the principal settlement.

20(1)A deemed disposal by the trustees of the principal settlement of an asset under section 71(1) (by virtue of paragraph 19) or section 80(2) (by virtue of paragraph 18(2)) shall be treated as having been made at the beginning of the date on which the sub-fund election is treated as having taken effect.

(2)If the trustees of the sub-fund settlement have acquired an asset of which the trustees of the principal settlement are deemed to have disposed under section 71(1) (by virtue of paragraph 19), they shall be deemed to have acquired it at the time when the election is treated as having taken effect.

(3)The trustees of the principal settlement shall not be treated as having disposed of an asset under section 80(2) by virtue of paragraph 18(2) if they are treated as having disposed of the same asset under section 71(1) by virtue of paragraph 19.

21If the trustees of the sub-fund settlement are treated by virtue of paragraph 19 as having become absolutely entitled to money expressed in sterling, for the purposes of this Act—

(a)the trustees of the principal settlement shall be treated as having disposed of the money at the beginning of the day on which the sub-fund election is treated as having taken effect, and

(b)the trustees of the sub-fund settlement shall be treated as having acquired the money at the time when the election is treated as having taken effect.

22(1)If the trustees of the principal settlement are deemed to have disposed of an asset under section 71(1) (by virtue of paragraph 19), the trustees of the principal settlement shall be treated for the purposes of sections 90 and 94 as having transferred the asset to the trustees of the sub-fund settlement.

(2)Sub-paragraph (1) also applies where the trustees of the principal settlement would be deemed to have disposed of money expressed in sterling under subsection (1) of section 71 if in that subsection—

(a)the reference to “assets” were a reference to “property”, and

(b)for “their” there were substituted “ its ”.

(3)This paragraph shall have effect in relation to years of assessment beginning on or after 6th April 2006 (but a sub-fund election may not be treated as having taken effect before 6th April 2006).

Part 3E+W+S+N.I.Consequential and minor amendments

IntroductionE+W+S+N.I.

7Paragraphs 8 to 45 amend TCGA 1992.

GeneralE+W+S+N.I.

8(1)In section 13(10) (participators in non-resident companies) for “trustees who are participators” substitute “ the trustees of a settlement who are participators ”.E+W+S+N.I.

(2)This paragraph shall have effect in relation to gains accruing on or after 6th April 2006.

9For section 21(1)(b) (definition of “asset”) substitute—

(b)currency, with the exception (subject to express provision to the contrary) of sterling,.

10(1)In section 60(1) (nominees and bare trustees) in each place for “assets” substitute “ property ”.E+W+S+N.I.

(2)In section 60(2) (interpretation: property held for person absolutely entitled) in each place for “asset” substitute “ property ”.

(3)This paragraph shall have effect from 6th April 2006.

11(1)In section 63 (death: application of law in Scotland)—E+W+S+N.I.

(a)in subsection (1) omit the words “an heir of entail in possession of any property in Scotland subject to an entail, whether sui juris or not, or of”, and

(b)in subsection (2)—

(i)omit the words “For the purposes of this Act,”,

(ii)omit the words “heir or” before “liferenter”, and

(iii)omit the words “the heir of entail next entitled to the entailed property under the entail or, as the case may be,”.

(2)After section 63 insert—

63ADeath: application of law in Northern Ireland

(1)The provisions of this Act, so far as relating to the consequences of the death of a person to whom property in Northern Ireland stands limited for life (“the deceased”), shall have effect subject to the provisions of this section.

(2)A person who acquires property in fee simple absolute or fee tail in possession as a consequence of the deceased's death shall be deemed to have acquired all the assets forming part of the property at the date of the deceased's death for a consideration equal to their market value at that date.

(3)The provisions of this paragraph shall have effect in relation to a death occurring on or after 6th April 2006.

12(1)In section 64(1) (expenses in administration)—E+W+S+N.I.

(a)for the words from “an asset” to the beginning of paragraph (a) substitute “ an asset held by another person as trustee, or as a personal representative of a deceased person, to which he became absolutely entitled as legatee or as against the trustee ”, and

(b)in paragraphs (a) and (b) for “personal representatives or trustees” substitute “ personal representative or trustee ”.

(2)This paragraph shall have effect in relation to disposals made on or after 6th April 2006.

F3413. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F34Sch. 12 para. 13 omitted (with effect in accordance with Sch. 2 para. 22 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 paras. 21(j), 55(h)

14(1)In section 79B(1) (attribution to trustees of gains of non-resident company) before “trustees of a settlement” insert “ the ”.E+W+S+N.I.

(2)This paragraph shall have effect in relation to gains accruing on or after 6th April 2006.

15(1)In section 97(7) (supplementary provisions for offshore settlements: interpretation)—E+W+S+N.I.

(a)omit “the preceding provisions of”,

(b)for the definition of “settlement” and “settlor” substitute—

settlement” has the meaning given by section 620 of ITTOIA 2005, and

“settled property” and references (however expressed) to property comprised in a settlement shall be construed accordingly.

(2)After section 97(7) insert—

(7A)In this section, sections 86A to 96 and Schedule 4C “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this subsection, means any person in whom the settled property or its management is for the time being vested (and a person who is treated as a trustee of the settlement by virtue of this subsection shall be treated as a trustee of the settlement for the purposes of section 69).

(3)This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

16(1)In section 98(2) (information: application of section 745 of ICTA)—E+W+S+N.I.

(a)for “(2) to (5)” substitute “ (2) to (6) ”,

(b)omit “and” at the end of paragraph (a), and

(c)omit paragraph (b).

(2)This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

17(1)In section 104(1) (share pooling) after “for the purposes of this Act” insert “ (subject to express provision to the contrary) ”.E+W+S+N.I.

(2)This paragraph shall come into force on 6th April 2006.

18(1)In section 109(2)(a) (share pooling: pre-1982 holdings) after “for the purposes of this Act” insert “ (subject to express provision to the contrary) ”.E+W+S+N.I.

(2)This paragraph shall come into force on 6th April 2006.

19(1)In section 169D(5) after “(3)” insert “ and to an individual's dependent child in section 169F(2A) ”.E+W+S+N.I.

(2)This paragraph shall come into force on 6th April 2006.

20(1)In section 217 (building societies: successor companies)—E+W+S+N.I.

(a)in subsection (3)(a)—

(i)for “trustees” substitute “ the trustees of a settlement ”, and

(ii)omit the word “and” at the end of the paragraph,

(b)omit subsection (3)(b), and

(c)in subsection (5) for “arising” substitute “ accruing ”.

(2)This paragraph shall have effect in relation to a transfer falling within section 216(1) which is effected on or after 6th April 2006.

21(1)In section 227(2) (employee share ownership trusts: conditions for roll-over relief) for “the trustees of a trust” substitute “ the trustees of a settlement ”.E+W+S+N.I.

(2)This paragraph shall have effect in relation to disposals made on or after 6th April 2006.

22(1)In section 228(5)(b) (employee share ownership trusts: unauthorised arrangement) for “a beneficiary under the trust” substitute “ a beneficiary under the settlement ”.E+W+S+N.I.

(2)In section 228(7) (qualifying employee share ownership trust) for “whether a trust is” substitute “ whether a settlement is ”.

(3)Sub-paragraph (1) shall have effect in relation to arrangements which allow an acquisition to be made on or after 6th April 2006 (irrespective of when the arrangements were made).

(4)Sub-paragraph (2) shall have effect for the purposes of determining what constitutes a qualifying share ownership trust for the purpose of section 227 on or after 6th April 2006.

23(1)In section 251(5) (debts: trustee creditors)—E+W+S+N.I.

(a)for “Where the original creditor is a trustee and the debt, when created, is settled property” substitute “ Where the trustees of a settlement are the original creditor ”, and

(b)for “as against the trustee” substitute “ as against the trustees ”.

(2)This paragraph shall have effect in relation to debts created on or after 6th April 2006.

24(1)In section 283(4) (repayment supplements)—E+W+S+N.I.

(a)for “a trust or,” substitute “ the trustees of a settlement or ”, and

(b)omit “as such (within the meaning of section 701(4) of that Act)”.

(2)Sub-paragraph (1)(a) shall have effect in relation to a repayment made on or after 6th April 2006.

(3)Sub-paragraph (1)(b) shall have effect in relation to a repayment made on or after 6th April 2006 (irrespective of the date on which the deceased person died).

25(1)In section 286(3) (connected persons: trustees) omit the words following paragraph (c).E+W+S+N.I.

(2)After section 286(3) insert—

(3ZA)For the purpose of subsection (3) above—

(a)settlement” has the same meaning as in section 620 of ITTOIA 2005, and

(b)trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.

(3)This paragraph shall come into force (in relation to settlements whenever created) on 6th April 2006.

26(1)In section 288(8) (interpretation) at the appropriate places insert—E+W+S+N.I.

“Principal settlement”... ...Sch.4ZA para. 1,
“Settlor” ... ... ... ... ...S.68A,
“Settlor of property”... ...S.68A,
“Sub-fund”... ... ... ...Sch.4ZA para. 1,
“Sub-fund election”... ...Sch.4ZA para. 2,
“Sub-fund settlement” ...Sch.4ZA para. 1.

(2)This paragraph shall come into force on 6th April 2006 (in relation to settlements whenever created).

F3527. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F35Sch. 12 para. 27 omitted (with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 55(h)

28(1)In paragraph 1(6) of Schedule 1 (exempt amount: interpretation) for the words “ “settlor” and “excluded settlement” have the same meanings” substitute “ “excluded settlement” has the same meaning ”.E+W+S+N.I.

(2)In paragraph 2(7) of that Schedule (meaning of “settlor” and “excluded settlement”) omit the words from “settlor” to “intestate and”.

(3)This paragraph shall have effect for the purposes of determining, for the purposes of Schedule 1, whether a person is a settlor in relation to a settlement (whenever created) on or after 6th April 2006.

F3629. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F36Sch. 12 para. 29 omitted (with effect in accordance with Sch. 2 para. 22 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 21(j)

Residence of trusteesE+W+S+N.I.

30(1)In each of the provisions set out in sub-paragraph (2) for “not resident or ordinarily resident in the United Kingdom” substitute “ neither resident nor ordinarily resident in the United Kingdom ”.E+W+S+N.I.

(2)Those provisions are—

(a)section 76(1B)(a) (disposal of interest in settled property),

(b)section 86(2)(a) (attribution of gains to settlors: residence condition), and

(c)paragraphs 2(1)(c), 3(1)(a) and 4(1)(a) of Schedule 5A (settlements with foreign element).

(3)In paragraph (2)(1)(d) of Schedule 5A for “resident or ordinarily resident” substitute “ resident and ordinarily resident ”.

(4)The amendments to sections 76(1B)(a) and 86(2)(a) shall come into force on 6th April 2007 (in relation to settlements whenever created).

(5)The amendments to paragraph 2(1)(c) and (d) of Schedule 5A shall have effect in relation to transfers of property made on or after 6th April 2007 (in relation to settlements whenever created).

(6)The amendments to paragraphs 3(1)(a) and 4(1)(a) of Schedule 5A shall have effect in relation to settlements created on or after 6th April 2007.

F3731. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F37Sch. 12 para. 31 omitted (with effect in accordance with Sch. 2 para. 22 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 21(j)

32In section 83A(3) (trustee residence: split years)—

(a)in paragraph (a)—

(i)after “resident” insert “ and ordinarily resident ”, and

(ii)at the end omit “or”, and

(b)omit paragraph (b).

33Paragraphs 31 and 32 shall come into force on 6th April 2007 (in relation to settlements whenever created).

34(1)In each of the provisions set out in sub-paragraph (2) for “resident or ordinarily resident in the United Kingdom” substitute “ resident and ordinarily resident in the United Kingdom ”.E+W+S+N.I.

(2)Those provisions are—

(a)section 83A(4)(b) (trustees to be treated as non-resident),

(b)section 85A(3) (attribution of gains to beneficiaries on transfer of value to trustees),

(c)section 86(3) (assumption as to residence),

F38(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e)paragraph 5(2) of Schedule 4A (dual resident trustees),

(f)paragraphs 4(2) and 10(1) and (3) of Schedule 4C (trustees: chargeable amount and residence), and

(g)paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A (settlement with foreign element: information).

(3)The amendments to sections 83A(4)(b), 85A(3), 86(3) and 87(2), paragraph 5(2) of Schedule 4A and paragraphs 4(2) and 10(1) and (3) of Schedule 4C shall come into force on 6th April 2007 (in relation to settlements whenever created).

(4)The amendments to paragraphs 3(1)(b) and 4(1)(b) of Schedule 5A shall have effect in relation to settlements created on or after 6th April 2007.

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Amendments (Textual)

F38Sch. 12 para. 34(2)(d) omitted (with effect in accordance with Sch. 7 para. 115 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 7 para. 114(d)

35(1)In each of the provisions set out in sub-paragraph (2)—E+W+S+N.I.

(a)for “resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year” substitute “ resident and ordinarily resident in the United Kingdom during any part of the year ”, and

(b)for “such residence or ordinary residence” substitute “ such residence and ordinary residence ”.

(2)Those provisions are—

(a)section 86(2)(b) (trustees resident outside United Kingdom),

(b)section 88(1) (gains of dual resident settlements), and

(c)paragraph 5(1) of Schedule 4C (chargeable amount: dual resident settlement).

(3)Sub-paragraph (2)(c) shall have effect in relation to a transfer of value made on or after 6th April 2007 (in relation to settlements whenever created).

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Commencement Information

I1Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

36(1)In each of the provisions set out in sub-paragraph (2) for “at no time resident or ordinarily resident in the United Kingdom” substitute “ at no time resident and ordinarily resident in the United Kingdom ”.E+W+S+N.I.

(2)Those provisions are—

F39(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)paragraph 4(1) of Schedule 4C (chargeable amount: non-resident settlement).

(3)Sub-paragraph (2)(b) shall have effect in relation to a transfer of value made on or after 6th April 2007 (in relation to settlements whenever created).

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Amendments (Textual)

F39Sch. 12 para. 36(2)(a) omitted (with effect in accordance with Sch. 7 para. 115 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 7 para. 114(d)

Commencement Information

I2Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

37(1)In section 169(3)(a) (availability of hold-over relief)—E+W+S+N.I.

(a)for “fall to be treated, under section 69, as” substitute “ are ”, and

(b)omit the words from “, although” to the end of the paragraph.

(2)In section 169(3)(b)(ii) (notional disposal) for “arising” substitute “ accruing ”.

(3)This paragraph shall have effect in relation to relevant disposals (within the meaning given by section 169(2)) made on or after 6th April 2007 (in relation to settlements whenever created).

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Commencement Information

I3Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

38In paragraph 2(7)(a) of Schedule 1 (meaning of “excluded settlement”) omit “treated under section 69(1) as”.

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Commencement Information

I4Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

39In paragraph 5(1) of Schedule 4A (residence of trustees) for the words from “either” to the end of the sub-paragraph substitute “ resident and ordinarily resident in the United Kingdom during any part of the year ”.

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Commencement Information

I5Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

40In paragraph 10(2) of Schedule 4C (capital payments received by beneficiaries when trustees resident in United Kingdom) for paragraphs (a) and (b) substitute “ during the whole of which the trustees are resident and ordinarily resident in the United Kingdom ”.

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Commencement Information

I6Sch. 12 paras. 35-40 in force at 6.4.2007 unless otherwise expressly provided see Sch. 12 para. 41

41Paragraphs 35 to 40 shall, unless otherwise expressly provided, come into force on 6th April 2007 (in relation to settlements whenever created).

Sub-fund settlementsE+W+S+N.I.

42After section 73(1) of TCGA 1992 (death of life tenant: exclusion of chargeable gain) insert—

(1A)Subsection (1)(b) above shall be treated as having effect in relation to a sub-fund settlement if the property does not revert to the trustees of the principal settlement in relation to that sub-fund settlement by reason only that—

(a)a sub-fund election is or has been made in respect of another sub-fund of the principal settlement, and

(b)the property becomes comprised in that other sub-fund settlement on the death of the person entitled to the interest in possession.

43In section 286(3) of TCGA 1992 (connected persons: trustees)—

(a)omit “and” at the end of paragraph (b), and

(b)after paragraph (c) insert—

(d)if the settlement is the principal settlement in relation to one or more sub-fund settlements, the trustees of the sub-fund settlements, and

(e)if the settlement is a sub-fund settlement in relation to a principal settlement, the trustees of any other sub-fund settlements in relation to the principal settlement.

44(1)At the beginning of Schedule 1 to TCGA 1992 (trustees: exempt amount, etc) insert—E+W+S+N.I.

A1(1)In determining the exempt amount available to the trustees of a settlement in relation to a year of assessment—

(a)a principal settlement and its sub-fund settlements shall be treated, for the purposes of paragraphs 1 and 2 below, as if no sub-fund elections had been made, and

(b)paragraph 3 below shall apply for the purposes of determining the exempt amount available to each member of the class consisting of a principal settlement and its sub-fund settlements.

(2)The reference in sub-paragraph (1) above to a principal settlement and its sub-fund settlements means a principal settlement in respect of which one or more sub-fund elections are treated as having taken effect.

(2)After paragraph 2 of Schedule 1 to TCGA 1992 insert—

3(1)The exempt amount available in relation to a year of assessment to the trustees of each settlement in the class consisting of a principal settlement and its sub-fund settlements shall be the exempt amount available to the trustees of the principal settlement in relation to the year, determined in accordance with paragraph 1 or 2 above as if no sub-fund elections had been made.

(2)But if there are two or more non-excluded settlements in the class consisting of a principal settlement and its sub-fund settlements, the exempt amount available to the trustees of each settlement in the class in relation to the year shall be the amount specified in sub-paragraph (1) above divided by the number of non-excluded settlements in the class.

(3)In this paragraph—

  • excluded settlement” has the meaning given by paragraph 2(7) above, and

  • references to a settlement having sub-fund settlements, and similar expressions, are references to a settlement being the principal settlement in respect of which one or more sub-fund elections are treated as having taken effect.

45Paragraphs 42 to 44 shall have effect in relation to years of assessment beginning on or after 6th April 2006.

Amendments of other ActsE+W+S+N.I.

46F40(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E+W+S+N.I.

(2)In the second column of the table in section 98 of TMA 1970 insert at the appropriate place— “ paragraph 12 of Schedule 4ZA to the 1992 Act ”.

(3)This paragraph shall come into force on 6th April 2006.

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Amendments (Textual)

F4147. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F41Sch. 12 para. 47 repealed (with effect in accordance with art. 1(2)(3) Sch. 1 of the amending S.I.) by The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), reg. 1(1), Sch. 2

48F42(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E+W+S+N.I.

(2)In section 34(3) of that Act (disabled persons) for the words from “the powers” to the end of the subsection substitute

(a)a power conferred on the trustees by section 32 of the Trustee Act 1925 or section 33 of the Trustee Act (Northern Ireland) 1958) (powers of advancement),

(b)a power conferred on the trustees by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in paragraph (a), or

(c)a power of advancement which is conferred on the trustees by the instrument creating the settlement, or by another instrument made in accordance with the terms of the settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925 (c. 19).

(3)In section 35(4) of that Act (relevant minors) for the words from “the powers” to the end of the subsection substitute

(a)a power conferred on the trustees by section 32 of the Trustee Act 1925 or section 33 of the Trustee Act (Northern Ireland) 1958) (powers of advancement),

(b)a power conferred on the trustees by the law of a jurisdiction other than England and Wales or Northern Ireland which makes provision similar to the provisions specified in paragraph (a), or

(c)a power of advancement which is conferred on the trustees by the instrument creating the settlement, or by another instrument made in accordance with the terms of the settlement, and which is subject to the same restrictions as those specified in section 32(1)(a) and (c) of the Trustee Act 1925 (c. 19).

(4)After section 37(6) of that Act (vulnerable person election) insert—

(7)Where—

(a)a vulnerable person election has effect in relation to qualifying trusts,

(b)the property held on those trusts is treated for the purposes of TCGA 1992 and of the Tax Acts as comprised in a sub-fund settlement, and

(c)the vulnerable person election was not made by the trustees of the sub-fund settlement,

the vulnerable person election shall have effect, in relation to the trusts mentioned in paragraph (a), in respect of matters arising at or after the time when the sub-fund election is treated as having taken effect, as if it had been made by the trustees of the sub-fund settlement and the vulnerable person.

(8)In relation to matters arising before the time when the sub-fund election is treated as having taken effect, nothing in subsection (7)—

(a)relieves the trustees of the settlement which is the principal settlement in relation to the sub-fund settlement of their obligation under subsection (6), or

(b)prevents a notice from being given to those trustees under section 40(1) or (3).

(9)In this section—

(a)principal settlement” has the meaning given by paragraph 1 of Schedule 4ZA to TCGA 1992,

(b)sub-fund election” has the meaning given by paragraph 2 of that Schedule,

(c)sub-fund settlement” has the meaning given by paragraph 1 of that Schedule, and

(d)the time when a sub-fund election is treated as having taken effect shall be the time when it is treated as having taken effect under paragraph 2 of that Schedule.

(5)This paragraph shall come into force on 6th April 2006 (in relation to vulnerable person elections whenever made).

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F42Sch. 12 para. 48(1) omitted (with effect in accordance with Sch. 2 para. 22 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 21(j)

Section 89

SCHEDULE 13E+W+S+N.I.Settlements: amendments to ICTA and ITTOIA 2005 etc

Part 1E+W+S+N.I.Principal amendments

1F43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F43Sch. 13 para. 1 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

2F44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F44Sch. 13 para. 2 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

3F45. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F45Sch. 13 para. 3 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

4F46. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F46Sch. 13 para. 4 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

5(1)For section 619(2) to (4) of ITTOIA 2005 (charge to tax on settlor) substitute—E+W+S+N.I.

(2)For the purposes of sections 1 to 1B of ICTA, where income of another person is treated as income of the settlor and is charged to tax under subsection (1)(a) or (b) above, it shall be charged in accordance with whichever provisions of the Tax Acts would have been applied in charging it if it had arisen directly to the settlor.

(2)This paragraph shall have effect—

(a)in relation to income which arises or is treated as arising on or after 6th April 2006, and

(b)in relation to income which is paid to a minor child of the settlor, where the child is unmarried and is not in a civil partnership, on or after 6th April 2006 and in relation to which section 631 of ITTOIA 2005 applies (irrespective of when the income arose).

6(1)After section 685 of ITTOIA 2005 insert—E+W+S+N.I.

685ASettlor-interested settlements

(1)This section applies if—

(a)a person receives an annual payment in respect of income from the trustees of a settlement,

(b)the payment is made in the exercise of a discretion (whether of the trustees of the settlement or any other person), and

(c)a settlor is charged to tax under section 619(1) on the income arising to the trustees of the settlement (whether in the current year of assessment or in a previous year of assessment) out of which the annual payment is made.

(2)This section applies only in respect of that proportion of the annual payment which corresponds to the proportion of the total income arising to the trustees of the settlement in respect of which a settlor is chargeable to tax under section 619(1).

(3)If and in so far as this section applies, the recipient of the annual payment shall be treated for the purposes of this Chapter as having paid income tax at the higher rate in respect of the annual payment.

(4)But—

(a)tax which the recipient is treated by virtue of this section as having paid is not repayable,

(b)tax which the recipient is treated by virtue of this section as having paid may not be taken into account in relation to a tax liability of the recipient in respect of any other income of his, and

(c)the annual payment shall be treated for the purposes of sections 348 and 349(1) of ICTA as payable wholly out of profits or gains not brought into charge to income tax.

(5)If the recipient of the annual payment is a settlor in relation to the settlement, if and in so far as this section applies the annual payment shall not be treated as his income for the purposes of the Income Tax Acts (and subsection (3) does not apply).

(6)Section 687 of ICTA shall not apply in relation to an annual payment if and in so far as this section applies.

(2)This paragraph shall have effect for payments in respect of income made on or after 6th April 2006.

Part 2E+W+S+N.I.Minor and consequential amendments

7Paragraphs 8 to 26 amend ICTA.

8Section 220(2) shall cease to have effect.

F479. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F47Sch. 13 para. 9 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

F4810. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F48Sch. 13 para. 10 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

11F49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F49Sch. 13 para. 11 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

F5012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F50Sch. 13 para. 12 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

F5113. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F51Sch. 13 para. 13 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

14F52. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F52Sch. 13 para. 14 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

15F53. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F53Sch. 13 para. 15 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

16F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F54Sch. 13 para. 16 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

17F55. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F55Sch. 13 para. 17 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

F5618. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F56Sch. 13 para. 18 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

19F57. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F57Sch. 13 para. 19 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

F5820. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F58Sch. 13 para. 20 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

21F59. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F59Sch. 13 para. 21 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

22F60. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F60Sch. 13 para. 22 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

23Section 764 shall cease to have effect.

F6124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F61Sch. 13 para. 24 repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 1 (with Sch. 9 paras. 1-9, 22)

F6225. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F62Sch. 13 para. 25 repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 3 Pt. 1 (with Sch. 2)

F6326. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F63Sch. 13 para. 26 repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 2 (with Sch. 9 paras. 1-9, 22)

27(1)Paragraph 7 and paragraphs 9 to 26 shall come into force on 6th April 2006 (in relation to settlements whenever created).E+W+S+N.I.

(2)Paragraph 8 shall come into force on 6th April 2007 (in relation to settlements whenever created).

28(1)FA 1989 shall be amended as follows.E+W+S+N.I.

(2)The following provisions shall cease to have effect—

(a)section 68(2)(c),

(b)section 71(4)(c), and

(c)section 110.

(3)In section 68(2)—

(a)after paragraph (ba) insert “ , and ”, and

(b)after paragraph (bb) omit “, and”.

(4)In section 71(4)—

(a)after paragraph (ba) insert “ , and ”, and

(b)after paragraph (bb) omit “, and”.

(5)Sub-paragraph (2)(a) and (b) shall have effect in relation to payments made on or after 6th April 2006.

(6)Sub-paragraph (2)(c) shall have effect from 6th April 2007 (in relation to settlements whenever created).

(7)Sub-paragraphs (3) and (4) shall come into force on 6th April 2006.

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Commencement Information

I7Sch. 13 para. 28 wholly in force; para. 28(3)(4) in force at 6.4.2006 and para. 28 otherwise in force at Royal Assent (para. 28(2)(c) having effect from 6.4.2007) see para. 28(5)-(7)

F6429. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F64Sch. 13 para. 29 repealed (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 10 Pt. 12 (with Sch. 9 paras. 1-9, 22)

30(1)In section 25(9)(b) of FA 1990—E+W+S+N.I.

(a)after sub-paragraph (iii) omit “or”, and

(b)F65. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)This paragraph shall have effect for payments in respect of income made on or after 6th April 2006.

Annotations: Help about Annotation
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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F65Sch. 13 para. 30(1)(b) repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

31(1)In ITTOIA 2005—E+W+S+N.I.

(a)for “trustees of trusts” in each place in sections 417(2) and 420 substitute “ trustees of settlements ”,

(b)in section 420(1)(a) and (c) for “trust” substitute “ settlement ”,

(c)in the title of section 420 for “trust” substitute “ settlement ”.

(2)For section 623 of ITTOIA 2005 (calculation of income) substitute—

623Calculation of income

For the purpose of calculating liability to tax under this Chapter (but for no other purpose), a settlor shall be allowed the same deductions and reliefs as if any amount treated under this Chapter as income of the settlor had actually been received by the settlor.

(3)This paragraph shall come into force on 6th April 2006 in respect of settlements whenever created, and in respect of loans or advances whenever made.

32(1)The following provisions of ITTOIA 2005 shall cease to have effect—E+W+S+N.I.

(a)section 457(4), and

(b)section 568(5).

(2)In section 457(5) of ITTOIA 2005 for “(2) to (4)” substitute “ (2) and (3) ”.

(3)In section 467(7) of that Act for paragraph (b) substitute—

(b)at the rate applicable by virtue of section 686A of ICTA (payments treated as income) in any other case.

(4)This paragraph shall have effect in relation to payments made on or after 6th April 2006 to the trustees of a settlement (whenever created).

33(1)In sections 628 and 630 of ITTOIA 2005 for “UK trust” in each place substitute “ UK settlement ”.E+W+S+N.I.

(2)In section 628(6) of that Act for the definition of “UK trust” substitute—

UK settlement” means a settlement the trustees of which are resident and ordinarily resident in the United Kingdom.

(3)In section 630(1)(b) of that Act for “terms of the trust” substitute “ terms of the settlement ”.

(4)In section 631(5)(e)(ii) of that Act for “provisions of the trust” substitute “ terms of the settlement ”.

(5)This paragraph shall come into force on 6th April 2006.

34(1)After section 629(7) of ITTOIA 2005 insert—E+W+S+N.I.

(8)Subsection (1) is subject to section 28A of FA 2005.

(2)This paragraph shall have effect in relation to payments made on or after 6th April 2004.

35(1)FA 2005 shall be amended as follows.E+W+S+N.I.

(2)In the following provisions for “trustees” substitute “ the trustees of a settlement ”

(a)section 23(1)(a) and (b) (vulnerable persons: introduction),

(b)section 24(1) (vulnerable persons: claims),

(c)section 25(1)(a) (qualifying trusts: income tax), and

(d)section 37(1) (vulnerable person election).

(3)In section 25(3)—

(a)for “section 660G(1) and (2) of ICTA” substitute “ section 620(1) of ITTOIA 2005 ”, and

(b)for “section 660A of that Act” substitute “ sections 624 and 625 of that Act. ”.

(4)In section 27(2)(b) (qualifying expenses) for “total income” substitute “ income ”.

(5)Section 42(5)(b) shall cease to have effect.

(6)In section 43(4) (penalties) for the first reference to “trustees” substitute “ the trustees of a settlement ”.

(7)This paragraph shall come into force on 6th April 2006.

36(1)After section 28 of FA 2005 insert—E+W+S+N.I.

28ADisapplication of section 629 of ITTOIA 2005

(1)In a case where this section applies, section 629(1) of ITTOIA 2005 shall not apply in respect of a payment by the trustees of a settlement to a beneficiary under the settlement.

(2)This section applies if in a year of assessment—

(a)the trustees make a payment to a vulnerable person,

(b)the payment is made out of qualifying trusts income,

(c)the vulnerable person is a relevant child (within the meaning given by section 629 of ITTOIA 2005) of a settlor in relation to the settlement, and

(d)the trustees have made a successful claim for special income tax treatment under section 25.

(2)This paragraph shall have effect in relation to payments made on or after 6th April 2004.

37F66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F66Sch. 13 para. 37 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss. 1027, 1031, Sch. 1 para. 625, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Section 91

SCHEDULE 14E+W+S+N.I.Investment reliefs: venture capital schemes

Part 1E+W+S+N.I.Limits on gross assets of issuers of shares or securities

Enterprise investment schemeE+W+S+N.I.

1F67. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F67Sch. 14 para. 1 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 2 (with transitional provisions and savings in Sch. 2)

Venture capital trustsE+W+S+N.I.

2F68. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F68Sch. 14 para. 2 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Corporate venturing schemeE+W+S+N.I.

3(1)In paragraph 22(1) and (2) of Schedule 15 to FA 2000 (corporate venturing scheme: limits on value of gross assets of share-issuing company or its group)—E+W+S+N.I.

(a)in paragraph (a) (value must not exceed £15 million immediately before issue of relevant shares), for “£15 million” substitute “ £7 million ”, and

(b)in paragraph (b) (value must not exceed £16 million immediately after issue of relevant shares), for “£16 million” substitute “ £8 million ”.

(2)Sub-paragraph (1) has effect in relation to shares issued on or after 6th April 2006, subject to sub-paragraph (3).

(3)Sub-paragraph (1) does not have effect in relation to shares issued on or after 6th April 2006 to a person who subscribed for them before 22nd March 2006.

Part 2E+W+S+N.I.Rate of relief for investments in venture capital trusts

4F69. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F69Sch. 14 para. 4 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Part 3E+W+S+N.I.Enterprise investment scheme: maximum subscriptions and carry-back of relief

5F70. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F70Sch. 14 para. 5 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 2 (with transitional provisions and savings in Sch. 2)

6F71. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F71Sch. 14 para. 6 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 2 (with transitional provisions and savings in Sch. 2)

Part 4E+W+S+N.I.Lengthening of periods applicable to venture capital trusts

7F72. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F72Sch. 14 para. 7 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Part 5E+W+S+N.I.Venture capital trusts: meaning of “investments”

8F73. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations: Help about Annotation
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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F73Sch. 14 para. 8 repealed (6.4.2007 with effect as mentioned in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), s. 1031, Sch. 3 Pt. 1 (with transitional provisions and savings in Sch. 2)

Section 102

SCHEDULE 15E+W+S+N.I.Accountancy change: spreading of adjustment

Part 1E+W+S+N.I.Income tax

Application of this Part of this ScheduleE+W+S+N.I.

1(1)This Part of this Schedule applies where—E+W+S+N.I.

(a)there is a change of accounting approach from one period of account to the next in calculating the profits of a business for income tax purposes,

(b)the later period of account ends on or after 22nd June 2005 and the basis on which the profits for that period are calculated is in accordance with UK GAAP (including SSAP 9 and Application Note G as interpreted by UITF 40), and

(c)the earlier period of account ended before that date and the basis on which profits for that period were calculated was in accordance with UK GAAP (including SSAP 9 and Application Note G, but not as interpreted by UITF 40),

and has effect in relation to any adjustment income under Chapter 17 of Part 2 of ITTIOIA 2005 attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

(2)In relation to a period for which accounts are drawn up in accordance with international accounting standards, the references in sub-paragraph (1) to requirements of UK GAAP shall be read as references to the corresponding requirements of international accounting standards.

(3)In sub-paragraph (1)—

  • SSAP 9” means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;

  • Application Note G” means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;

  • UITF 40” means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

(4)Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

(5)To determine the amount of adjustment income attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

Spreading of adjustment incomeE+W+S+N.I.

2(1)The adjustment income shall be spread in accordance with the following rules.E+W+S+N.I.

(2)In each of the first three tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to whichever is the less of—

(a)one-third of the original amount of the adjustment income, and

(b)one-sixth of the profits of the business for that tax year,

is treated as arising and charged to tax.

(3)In the fourth and fifth tax years, if the whole of the adjustment income has not been charged to tax in previous tax years, an amount equal to whichever is the least of—

(a)the amount remaining untaxed,

(b)one-third of the original amount of the adjustment income, and

(c)one-sixth of the profits of the business for that tax year,

is treated as arising and charged to tax.

(4)In the sixth tax year so much (if any) of the adjustment income as has not previously been charged to tax is treated as arising and is charged to tax.

(5)For the purposes of this paragraph “the profits of the business” means the profits of the business as calculated for income tax purposes leaving out of account—

(a)any adjustment expenses under Chapter 17 of Part 2 of ITTIOIA 2005, and

(b)any allowances or charges under CAA 2001.

(6)This paragraph has effect subject to—

(a)paragraph 3 (effect of cessation of business), and

(b)paragraph 4 (election to accelerate charge).

Effect of cessation of businessE+W+S+N.I.

3If before the whole of the adjustment income has been charged to tax the person permanently ceases to carry on the business in question, paragraph 2 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

Election to accelerate chargeE+W+S+N.I.

4(1)A person who under paragraph 2 is liable to tax for a tax year [F74(Year 1)] on an amount of adjustment income may elect for an additional amount to be treated as arising in that tax year.E+W+S+N.I.

(2)The election must be made on or before the first anniversary of the [F7531st January of Year 2.]

(3)The election must specify the amount to be treated as income arising in the tax year (which may be any amount up to the whole of the adjustment income not previously charged to tax).

(4)If an election is made, paragraph 2 applies in relation to any subsequent tax year as if the original amount of adjustment income (as reduced by the previous application of this sub-paragraph) were reduced by the additional amount treated as arising in the tax year for which the election is made.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F74Words in Sch. 15 para. 4(1) inserted (with effect as mentioned in s. 92 of the amending Act) by Finance Act 2007 (c. 11), s. 91(10)(a)

F75Words in Sch. 15 para. 4(2) substituted (with effect as mentioned in s. 92 of the amending Act) by Finance Act 2007 (c. 11), s. 91(10)(b)

Liability of personal representativesE+W+S+N.I.

5(1)This paragraph applies in the case of the death of a person who would otherwise have been liable to tax under this Part of this Schedule on adjustment income.E+W+S+N.I.

(2)The tax under this Part of this Schedule for which the person would otherwise have been liable—

(a)shall be assessed and charged on the personal representatives, and

(b)is a debt due from and payable out of the deceased's estate.

(3)The personal representatives may make any election under this Part of this Schedule that the deceased might have made.

Meaning of “business”E+W+S+N.I.

6In this Part of this Schedule “business” means—

(a)a trade, profession or vocation, or

(b)a UK property business or overseas property business.

Application of provisions to partnershipsE+W+S+N.I.

7(1)This paragraph applies where the business is carried on by the person in partnership.E+W+S+N.I.

(2)The amounts chargeable to tax under this Part of this Schedule for any tax year are calculated as if the partnership were an individual resident in the United Kingdom.

(3)The person's share of the amount charged to tax is determined—

(a)for the first tax year, according to the profit-sharing arrangements for the twelve months ending immediately before the date on which the change of accounting practice was adopted;

(b)for any subsequent tax year, according to the profit-sharing arrangements for the twelve months immediately following the twelve months used to determine the person's share for the previous year.

An election under paragraph 4 (election to accelerate charge) in relation to a tax year must be made jointly by all the persons who have been members of the partnership in the relevant twelve month period and are chargeable to income tax.

(4)If paragraph 3 applies (effect of cessation of business), each partner's share of any amount charged to tax on or after the cessation is determined as follows—

(a)if the cessation occurs on the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the twelve months ending immediately before that date;

(b)if the cessation occurs after that date, but on or before the first anniversary of that date, according to the profit-sharing arrangements for the period between that date and the date of cessation;

(c)if the cessation occurs after the first anniversary of the date on which the change of accounting approach was adopted, according to the profit-sharing arrangements for the period between the immediately preceding anniversary of that date and the date of cessation.

An election under paragraph 4 after the cessation must be made by each former partner separately.

(5)For the purposes of this paragraph “profit-sharing arrangements” means the rights of the partners to share in the profits of the business for the period in question.

(6)In the case of a business carried on by a limited liability partnership the operation of this Part of this Schedule is not affected by the partnership's ceasing to be one carrying on a trade, profession or other business with a view to profit.

Cases where spreading already availableE+W+S+N.I.

8This Part of this Schedule does not apply to adjustment income to which section 238 of that Act applies (spreading on ending of special provision for barristers and advocates in early years of practice).

Part 2E+W+S+N.I.Corporation tax

Application of this Part of this ScheduleE+W+S+N.I.

9(1)This Part of this Schedule applies where—E+W+S+N.I.

(a)there is a change of accounting approach from one period of account to the next in calculating the profits of a business for corporation tax purposes,

(b)the later period of account ends on or after 22nd June 2005 and the basis on which the profits for that period are calculated is in accordance with UK GAAP (including SSAP 9 and Application Note G as interpreted by UITF 40), and

(c)the earlier period of account ended before that date and the basis on which profits for that period were calculated was in accordance with UK GAAP (including SSAP 9 and Application Note G, but not as interpreted by UITF 40),

and has effect in relation to any positive adjustment under [F76Chapter 14 of Part 3 of or section 262 of CTA 2009] attributable to the change of basis from that mentioned in paragraph (c) to that mentioned in paragraph (b).

(2)In relation to a period for which accounts are drawn up in accordance with international accounting standards, the references in sub-paragraph (1) to requirements of UK GAAP shall be read as references to the corresponding requirements of international accounting standards.

(3)In this paragraph—

  • SSAP 9” means Statement of Standard Accounting Practice No.9 on Long-term contracts, issued by the Accounting Standards Board;

  • Application Note G” means Application Note G to Financial Reporting Standard 5 issued by the Accounting Standards Board in November 2003;

  • UITF 40” means Abstract No.40 on Revenue recognition and service contracts, issued by the Urgent Issues Task Force of the Accounting Standards Board on 10th March 2005.

(4)Any reference in this Part of this Schedule to the date on which the change of accounting approach was adopted is to the first day of the first period of account for which it was adopted.

(5)To determine the amount of positive adjustment attributable to the change of basis mentioned in the closing words of sub-paragraph (1), assume that there was no other change of accounting approach.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F76Words in Sch. 15 para. 9(1) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 696(2) (with Sch. 2 Pts. 1, 2)

Spreading of adjustmentE+W+S+N.I.

10(1)The adjustment shall be spread in accordance with the following rules.E+W+S+N.I.

(2)In each of the first three accounting periods beginning with that in which the whole of the adjustment would otherwise be charged to tax, an amount equal to whichever is the less of—

(a)one-third of the amount of the original adjustment, and

(b)one-sixth of the profits of the business for that period,

is treated as arising and charged to tax.

(3)In the fourth and fifth accounting periods, if the whole of the adjustment has not been charged to tax in the previous periods, an amount equal to whichever is the least of—

(a)the amount remaining untaxed,

(b)one-third of the amount of the original adjustment, and

(c)one-sixth of the profits of the business for that period,

is treated as arising and charged to tax.

(4)In the sixth accounting period so much (if any) of the adjustment as has not previously been charged to tax is treated as arising and is charged to tax.

(5)For the purposes of this paragraph “the profits of the business” means the profits of the business as calculated for corporation tax purposes leaving out of account—

(a)any adjustment under [F77Chapter 14 of Part 3 of or section 262 of CTA 2009], and

(b)any allowances or charges under CAA 2001.

(6)This paragraph has effect subject to—

(a)paragraph 11 (accounting periods of less than twelve months),

(b)paragraph 12 (effect of other events bringing accounting period to an end), and

(c)paragraph 13 (election to accelerate charge).

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F77Words in Sch. 15 para. 10(5)(a) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 696(3) (with Sch. 2 Pts. 1, 2)

Accounting periods of less than twelve monthsE+W+S+N.I.

11(1)This paragraph applies where by reason of—E+W+S+N.I.

(a)a change of accounting date,

(b)the company entering administration (see [F78section 10 of CTA 2009]), or

(c)an insurance business transfer scheme (see section 12(7A) and (7B) of that Act),

an accounting period to which paragraph 10 applies is a period of less than twelve months (a “short period”).

(2)In relation to a short period the references in that paragraph to one-third of the amount of the original adjustment shall be read as references to the proportion of that amount that the period bears to twelve months.

(3)Where any of the accounting periods of the company falling within the period of six years following the change of accounting approach is a short period—

(a)the rule in paragraph 10(3) applies in relation to every accounting period after the third and before that in which the sixth anniversary of the change of accounting approach falls, and

(b)the rule in paragraph 10(4) applies in relation to the accounting period in which that anniversary falls.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F78Words in Sch. 15 para. 11(1)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 696(4) (with Sch. 2 Pts. 1, 2)

Effect of other events bringing accounting period to an endE+W+S+N.I.

12(1)If before the whole of the adjustment has been charged to tax an accounting period of the company ends by reason of—E+W+S+N.I.

(a)the company ceasing to be within the charge to corporation tax,

(b)the commencement of winding-up proceedings in respect of the company (see [F79section 12 of CTA 2009]),

the rule in paragraph 10(4) applies in relation to that accounting period.

(2)If the company permanently ceases to carry on the business in question (without there being any event within sub-paragraph (1) above), paragraph 10 continues to apply but with the omission of the alternative limit in sub-paragraph (2)(b) and (3)(c) referring to the profits of the business.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F79Words in Sch. 15 para. 12(1)(b) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 696(5) (with Sch. 2 Pts. 1, 2)

Election to accelerate chargeE+W+S+N.I.

13(1)A company that under paragraph 10 is liable to tax for an accounting period on any amount may elect for an additional amount to be treated as arising in that period.