Schedule 1: Minor and consequential amendments
Overview
3149.This Schedule makes consequential amendments.
3150.The commentary on this Schedule makes specific points about certain of the amendments made.
Part 1: Income and Corporation Taxes Act 1988
Section 9
3151.The amendments ensure that section 9 will not operate on the provisions in this Act to convert them into provisions of the Corporation Tax Acts. They mirror parallel amendments made by ITTOIA.
Section 118
3152.Section 118 of ICTA has been substantially amended to incorporate definitions formerly included in section 117 of ICTA. Section 117 sets out the rules for the restriction of certain loss relief for individuals who carry on a trade as a limited partner while section 118 sets out similar rules for companies. Section 117 has been rewritten (see sections 104 to 106 of this Act) and repealed, so various definitions from that section need to be incorporated directly into section 118.
Section 256
3153.The amendments to this section, and other provisions of Chapter 1 of Part 7 of ICTA, have the effect that entitlement to personal reliefs for individuals who, under the source legislation, were able to claim the reliefs only by virtue of meeting the condition in section 278(2)(a) of ICTA is provided for by these provisions, as amended, rather than by the provisions of Part 3 of this Act. See the overview commentary on Part 3.
3154.Subsection (3) is repealed because that rule is now in Part 2 of this Act.
Section 256A
3155.This new section corresponds to section 58 of this Act. The same oversight corrected there is corrected here also. See Change 8 in Annex 1.
Section 256B
3156.This new section corresponds to section 43 of this Act.
Sections 257BA, 257BB, 257C and 265
3157.One effect of these amendments is that transfers of blind person’s allowances or married couple’s allowances claimed under these provisions can be made only to other individuals whose entitlement to those allowances arises under these provisions, rather than under the provisions in Part 3 of this Act. See Change 7 in Annex 1.
Section 266
3158.Section 266(6) and (6A) of ICTA are repealed, as they are obsolete. The Association of Friendly Societies have confirmed that no such policies have been written for many years and that all such existing policies have been converted to “paid-up”. They agree that the provision is no longer needed.
Section 278
3159.This section will now govern entitlement to personal reliefs for a non-UK resident individual who is a Commonwealth citizen or an EEA national and does not meet the requirements of section 56(2) of this Act. It also applies to all individuals who are entitled to mainstream life insurance relief under section 266 of ICTA.
Section 312(2A)
3160.Section 1034(3) of this Act provides that the enterprise investment scheme (EIS) sections in Part 5 of this Act do not have effect in relation to shares issued before 6 April 2007. Since it is helpful to apply Change 56 in Annex 1 to such shares when this Act comes into effect, there is a consequential amendment to section 312(2A) of ICTA. This applies the new interpretation of an administration reflected in section 252(2) of this Act to shares issued before 6 April 2007. The amendment will have effect where the administration commences on or after 6 April 2007 in accordance with the commencement provision in section 1034(1).
Section 349(3A) and (4)
3161.References to qualifying deposit right in sections 349(3A) and (4) of ICTA have not been rewritten as they are obsolete. See Change 133 in Annex 1.
Section 353
3162.The only interest relief remaining in ICTA is for interest payments on a loan to buy a life annuity by virtue of section 365 of ICTA. The relief is given under section 353 and the amendment makes clear that relief is given as a tax reduction.
Section 368
3163.Section 368 is not being retained. It is very unlikely that interest would qualify for relief by virtue both of section 365 of ICTA and of some other provision. See Change 155 in Annex 1.
Sections 459 to 461B
3164.Before the introduction of corporation tax in 1965, friendly societies were within the scope of the charge to income tax and were provided with an exemption from income tax. Since 1965 they have been within the scope of the charge to corporation tax and are not within the charge to income tax and so an exemption from income tax is not needed.
3165.Sections 459 to 466 provide exemptions for friendly societies. These provisions have their origin in FA 1966 (one year after the introduction of corporation tax) which provided for the taxation of profits of registered friendly societies above the exemption limit as if the society were a mutual insurance company (see section 463).
3166.Section 459 exempts unregistered societies from income and corporation tax if their income does not exceed £160. The low exemption for unregistered societies was maintained.
3167.Section 460(1) provides a similar exemption from income tax and corporation tax for registered friendly societies.
3168.Section 461 is concerned with exemption from profits, other than those arising from life or endowment business principally for societies registered before 1 June 1973. Accordingly, redundant references to income tax have been removed.
3169.Section 461B is concerned with exemption from profits, other than those arising from life or endowment business for qualifying societies and contains similar redundant references to income tax in subsections (1) and (5). Accordingly these have been removed.
Section 467
3170.Section 467(1) provides tax exemptions for trade unions and employers’ associations. It contains a reference to income tax which is redundant and which has therefore been removed.
3171.Before the introduction of corporation tax in 1965, trade unions and employers associations were within the scope of the charge to income tax and were provided with an exemption from income tax. Since 1965 they have been within the scope of the charge to corporation tax.
Section 469
3172.This section’s application to the trustees of an unauthorised unit trust is rewritten in this Act. Some provisions have been retained and new provisions inserted to set out the treatment of payments to unit holders liable to corporation tax.
Section 477A
3173.References to a qualifying deposit right in section 477A(1A) and (10) of ICTA have not been rewritten as they are obsolete. See Change 133 in Annex 1.
Section 481(5A)
3174.Section 481(5A) of ICTA (deposit rights) has not been rewritten as it is obsolete. See Change 133 in Annex 1.
Section 515
3175.The International Maritime Satellite Organisation (INMARSAT) have confirmed that the exemptions provided have become otiose. The opportunity has been taken to repeal the income tax and corporation tax exemptions at the same time.
Section 519A
3176.The references to income tax have been removed from section 519A of ICTA. These are not needed because, were it not for the exemption, all health service bodies would be subject to corporation tax, rather than income tax.
Section 556
3177.Following the House of Lords decision in Agassi v Robinson [2006 UKHL 23](15), section 556 of ICTA has been amended to make clear that when a payment or transfer of the type referred to in section 555 of ICTA is made, no liability to corporation tax will arise regardless of whether there is a duty to deduct income tax under section 555 of ICTA. See Change 156 in Annex 1.
Section 571
3178.New subsection (1A) ensures that the amount charged forms part of “total income” in Step 1 of section 23 of this Act.
Section 573
3179.This section provides relief for an investment company which incurs an allowable loss for the purposes of corporation tax on chargeable gains on the disposal of shares in a qualifying trading company. If the conditions of the section are met, the amount of the allowable loss may be set off against income for the purposes of corporation tax. This section is supplemented by sections 575 and 576 of ICTA.
3180.Section 573(4) provides in part that, if relief for an allowable loss is obtained by a company under the section by set off against income for corporation tax purposes, no deduction is to be made for the loss for the purposes of corporation tax on chargeable gains.
3181.This amendment omits that provision. The equivalent provision in section 574(1) of ICTA has not been included in Chapter 6 of Part 4. Instead section 125A(1) of TCGA, introduced by this Schedule, contains both provisions.
Section 575
3182.This amendment inserts a new subsection (4) defining “new consideration”. This definition was formerly in section 576(5) of ICTA which is repealed.
Section 576
3183.This section supplements sections 573 to 575 of ICTA. The provisions of section 576(1) to (1B) and (4) to (5) are included in Chapter 6 of Part 4 so far as they supplement sections 574 and 575 of ICTA, but in the case of section 575 only so far as that section applies for the purposes of section 574.
3184.Section 576(1) and (1C) continue in force with necessary amendments so far as they supplement section 573 of ICTA.
3185.This amendment inserts a new subsection (1D) defining “holding”. This definition was formerly in subsection (5) which is repealed.
3186.Section 576(2) and (3) have effect for the purposes of corporation tax on chargeable gains where relief is obtained against income for corporation tax purposes under section 573 of ICTA and for the purposes of capital gains tax where share loss relief is obtained under section 574 of that Act. Those subsections have been omitted and their provisions are contained for both purposes in section 125A(2) and (3) of TCGA introduced by this Schedule.
3187.Section 576(4) defines a “qualifying trading company” in terms of its being an “eligible trading company” and having been such for a specified continuous period. Section 576(4A) defines an “eligible trading company” by applying the requirements of section 293 and other provisions of Chapter 7 of Part 3 of ICTA (enterprise investment scheme) with modifications. Section 134 of this Act avoids the double layer of definition in section 576(4) and omits the concept of an “eligible trading company”.
3188.The same approach has been taken in making consequential amendments to section 576(4) to (4B) for corporation tax purposes. Those subsections have been omitted and replaced by new sections 576A to 576K of ICTA, which, together with sections 573, 575, 576 and 576L, form new Chapter 5A of Part 13 of ICTA.
3189.Section 576(5) has been omitted and the terms defined in it which are relevant for corporation tax purposes are to be found in sections 575(4), 576(1D), and 576L of ICTA.
Section 576A
3190.This new section of ICTA mirrors section 134 of this Act. It replaces section 576(4) of ICTA.
Section 576B
3191.This new section of ICTA mirrors section 137 of this Act, which corresponds to section 181 with modifications.
3192.Subsection (2) corresponds to section 181(3) and subsection (6) corresponds to section 181(7). For the reason for the introduction of subsections (3) and (7) of section 181 see Change 42 in Annex 1 and the commentary on section 181.
3193.Subsection (5) corresponds to section 181(6), including the change made in section 181(6)(d) by Change 41 in Annex 1.
3194.The definition of “non-qualifying activities” in subsection (7) includes the change affecting the definition of that term for the purposes of section 181(8) made by Change 43 in Annex 1.
Section 576C
3195.This new section of ICTA mirrors section 138 of this Act.
Section 576D
3196.This new section of ICTA mirrors section 139 of this Act, which corresponds to section 185 with modifications. Change 44 in Annex 1 made to section 185(1)(a) is replicated in subsection (1)(a).
Section 576E to 576I
3197.These new sections of ICTA mirror sections 140, 141, 142, 143 and 144 of this Act respectively.
Section 576J
3198.This new section of ICTA mirrors section 145 of this Act. See Change 25 in Annex 1 and the commentary on section 145(1).
3199.It does not, however, include in subsection (3) any cross-reference to section 575(2) of ICTA as it is beyond the scope of this Act to make an amendment to section 575(2) of ICTA for corporation tax purposes corresponding to the amendment to the provisions of that subsection made for income tax purposes in section 136(2) of this Act. See Change 24 in Annex 1.
Section 576K
3200.This new section of ICTA mirrors section 146 of this Act.
Section 576L
3201.This new section of ICTA contains definitions formerly in section 576(5) of ICTA. Subsections (2) to (4) contain provisions to reflect that, in the new sections 576B to 576K of ICTA, the definition of “shares” in most cases either applies in a modified form or does not apply at all.
Sections 587B, 587BA and 587C
3202.The amendments to sections 587B and 587C of ICTA mean that they deal only with relief given to companies subject to corporation tax.
3203.The amendment to the definition of “charity” in section 587B(9) removes redundant references to the British Museum and the Natural History Museum. See Change 79 in Annex 1 and the commentary on section 430.
3204.A new section 587BA replaces, for corporation tax, section 587C(2) and (3) of ICTA. The new section clarifies that, in cases where land is held by owners as joint tenants or as tenants in common, the fact that one or more owners may not be eligible for relief under section 587B of ICTA does not deny relief to other eligible owners. See Change 80 in Annex 1.
Sections 710 to 727ASection 728
3205.The repeal of sections 710 to 727A of ICTA (together with the repeal of words in section 728(2) of ICTA) also omits the transitional corporation tax application of the provisions in those sections by section 710(1A) of ICTA. That transitional application of corporation tax is redundant. The provisions of Chapter 2 of Part 4 of FA 1996 (loan relationships) apply for corporation tax to such transfers as are dealt with for income tax by sections 710 to 727A of ICTA.
Section 737E
3206.The omission of the references to section 727A of ICTA removes what would otherwise have been the only income tax application of section 737E of ICTA. The income tax application of that section has been rewritten in Part 12 of this Act. See in particular sections 654 to 658.
Section 742
3207.Section 742(9)(c) of ICTA, which defines “benefit” for the purposes of sections 739 to 741, is redundant. It is repealed without replacement.
Section 746
3208.Section 746 of ICTA (persons resident in the Republic of Ireland) is obsolete. It is repealed without replacement.
Section 780
3209.New subsection (3C) ensures that the amount charged forms part of “total income” in Step 1 of section 23 of this Act.
Section 781
3210.New subsection (1A) ensures that the amount charged forms part of “total income” in Step 1 of section 23 of this Act.
Section 789
3211.The amendments clarify how references to surtax in old double taxation arrangements are to be treated in relation to dividend income. See Change 157 in Annex 1.
Section 798C
3212.This section is being amended to make it clear that relief is given in computing income from the relevant source (in the same way as relief under section 811 of ICTA) rather than as a deduction from total income.
Section 804
3213.This section is amended so that the clawback of excess double taxation relief operates in terms of tax rather than by reference to an amount of income. See Change 158 in Annex 1.
Section 807
3214.In addition to substituting equivalent references to terms and provisions in Part 12 of this Act for the references to terms and provisions in sections 710 to 727A of ICTA, this amendment also omits redundant corporation tax references for the reasons given in the commentary on the amendments made by this Schedule to sections 710 to 728 of ICTA.
Section 823
3215.This section is being repealed without being rewritten, as it is unnecessary.
3216.This provision was enacted in 1927 on the introduction of surtax and was intended to meet the situation where deductions were allowed at different times and impacted on other reliefs (especially earned income relief). With today’s mechanisms for tax compliance and Self Assessment procedures, this provision is unnecessary.
Section 832
3217.Section 832(5) is repealed as it has been overtaken by the Adoption and Children Act 2002 (if it was not redundant before). See Change 151 in Annex 1 and the commentary on section 989.
Sections 835 and 836
3218.Some provisions of these sections are not being rewritten.
3219.Section 835(2) and section 836 are obsolete in the context of Self Assessment.
3220.Section 835(6)(b) concerned charges on income, and has been replaced by rules providing that the relevant payments are deductions from income (if appropriate) in the year in which they are paid. See Change 138 in Annex 1.
3221.Section 835(7)(b) and (8) are unnecessary now that the structure of the tax calculation has been made more explicit.
Section 840A
3222.The inclusion of the European Investment Bank follows the approach in section 991 of this Act. See Change 135 in Annex 1 and the commentary on section 991.
Schedule 16
Paragraph 8
3223.Paragraph 8 of Schedule 16 to ICTA has not been rewritten as it is obsolete following the abolition of Advance Corporation Tax (ACT) in April 1999.
3224.Prior to April 1999, paragraph 8 of Schedule 16 applied only to payments which “should have been included in a return under Schedule 13” (ie ACT payments). Following the abolition of ACT, section 91 of FA 1999 (which amended paragraph 8 of Schedule 16), did not simply repeal paragraph 8 of Schedule 16 but instead amended it to apply whenever a payment was included when it “should not have been so included”. This goes beyond the original intention of paragraph 8 and is unnecessary.
Paragraph 10(2)
3225.Assessments made under Chapter 15 of Part 15 of this Act will always be due on the date mentioned in section 951 of this Act (ie either 14 days after the return period or 14 days after the date of payment, in accordance with sections 949 and 950). So the reference in paragraph 10(2) of Schedule 16 to ICTA to payments being “due within 14 days after the issue of the notice of assessment” has not been rewritten.
3226.The background is as follows.
3227.Paragraph 10(2) had its origin in paragraph 10(2) of Schedule 20 to FA 1972. Both paragraphs were identically written as follows:
“Income tax assessed on a company under this Schedule shall be due within 14 days after the issue of the notice of assessment (unless due earlier under paragraph 4(1) or 9 above).”
3228.The opening words of paragraph 4(1) of Schedule 20 to FA 1972 stated that paragraph 4(1) was subject to paragraph 4(4) of that Schedule.
3229.Paragraph 4(4) stated that where a payment was erroneously included on a return under Schedule 14 to FA 1972 (advance corporation tax (ACT)) and should have been included on a return under Schedule 20 (later Schedule 16 to ICTA), the Inland Revenue would raise an assessment. Under paragraph 10(2), the due date for such a payment was 14 days after the issue of the notice of assessment, this being an assessment other than one raised under either paragraph 4(1) or 9.
3230.Since the abolition of ACT by FA 1998 and the repeal of paragraph 4(3) of Schedule 16 to ICTA (paragraph 4(4) of Schedule 20 to FA 1972) by FA 1999 it is no longer possible to raise such an assessment. So all assessments raised under the source legislation will be due at the time the return is due under either paragraph 4(1) or 9.
Part 2: Other enactments.
Taxes Management Act 1970
Section 17
3231.The amendments made to section 17 of TMA effectively enact regulation 12(1) of the building society regulations (SI 1990/2231) so that references to building societies are explicitly included in section 17. See Change 126 in Annex 1.
3232.The enactment of regulation 12(1) ensures that the legislation which deals with deduction of income tax in respect of building societies is split between primary and secondary legislation in the same way as for deposit-takers.
Section 37A
3233.The amendments made to section 37A of TMA extend it to civil partners. See Change 159 in Annex 1.
Section 55(1)(c)
3234.Assessments made under Chapter 15 of Part 15 of this Act will always be due on the date mentioned in section 951 (ie either 14 days after the return period or 14 days after the date of payment, in accordance with sections 949 and 950). So the reference in section 55(1)(c) of TMA to assessments other than those due under paragraphs 4(1) or 9 of Schedule 16 to ICTA is unnecessary since there can be no such assessments. See the commentary on paragraph 10(2) of Schedule 16 to ICTA above.
Section 87
3235.Section 87 has been replaced with a new section as part of the consequential amendments made in conjunction with Chapter 15 of Part 15 of this Act.
Section 98
3236.Under section 1034(3), Part 5 of this Act which deals with the enterprise investment scheme (EIS) does not have effect in relation to shares issued before 6 April 2007. Instead the EIS provisions in ICTA continue to have effect for these shares.
3237.The consequential amendments to the Table in section 98 include the addition of references to the applicable provisions in Part 5 of this Act. At the end of the Table a sentence is inserted explaining that these references are to provisions that apply only in relation to shares issued after 5 April 2007.
Section 99B
3238.New section 99B imposes a penalty of up to £3,000 where a person fraudulently or negligently gives an incorrect non-UK resident declaration under any of sections 858 to 861 of this Act. It is based on section 98(2) of TMA and the reference to section 482(2) of ICTA in the second column of the Table in section 98 of TMA.
3239.The reference to section 482(2) is omitted from the second column of the Table in section 98 of TMA and is not being replaced with a reference to sections 858 to 861 (which rewrite sections 481(5)(k), 482(2) and (2A) of ICTA and regulation 4(1)(a) to (c) of the Income Tax (Building Societies) (Dividends and Interest) Regulations 1990 (SI 1990/2231)).
3240.The reason for not replacing the reference to section 482(2) is that it will not be possible to raise a penalty under section 98(1) of TMA in respect of sections 858 to 861. This is because Change 130 in Annex 1 means that all non-UK resident declarations will have to be in a prescribed or authorised format in order for a gross payment to be made. If the declaration is not in the prescribed or authorised format the payment will be made under deduction of tax.
3241.But this new section ensures that fraudulent or negligent non-UK resident declarations will continue to be subject to a penalty, as is currently the case under section 98(2) of TMA.
Finance Act 1988
Section 130
3242.Section 130(7)(a) of FA 1988 has been amended to refer to section 684 of ITEPA 2003 and a specific provision has been included in section 130(9A) of FA 1988 to cover PAYE regulations made under ICTA. (When section 203 of ICTA was repealed by section 722 of, and paragraph 30 of Schedule 6 to, ITEPA, section 130(7)(a) of FA 1988 should have been amended.)
3243.Section 130(7)(b) of FA 1988 has been amended to refer to section 946 of this Act. And now that section 130(7)(b) covers tax which a company is liable to pay in respect of payments to which Chapter 15 of Part 15 of this Act applies, section 130(7)(c)(i) and (ii) will be repealed.
3244.Section 130(7)(c)(i) and (ii) referred to sections 476(1) and 479 of ICTA. But these references should have been replaced with references to sections 477A and 480A of ICTA (rewritten in Chapter 15 of Part 15 of this Act) when sections 476 and 479 were repealed. The amendments made by this Act update the legislation accordingly.
Finance Act 1989
Section 151
3245.As a result of the amendment made by this Schedule to section 467 of ITTOIA, any gain arising to trustees under Chapter 9 of Part 4 of ITTOIA is treated as income of the trustees. It follows that it is not necessary to provide separately for such gains in section 151(2)(b) of FA 1989. Accordingly section 151(2)(a) is amended and section 151(2)(b) is omitted.
Finance Act 1991
Section 53
3246.Section 53 has not been rewritten as it is redundant. It was originally enacted to validate an ultra vires transitional provision in the Income Tax (Building Societies) Regulations 1986 (SI 1986/482). This provision purported to require deduction in respect of sums paid or credited before 6 April 1986, the date of commencement of the regulations. SI 1986/482 was revoked with effect from 1991-92 following the repeal of section 476 ICTA by FA 1990. So section 53 is no longer necessary.
Taxation of Chargeable Gains Act 1992
Sections 4 and 6
3247.The amendments to references to “total income” operate by reference to “Step 3 income”, defined by reference to section 23 of this Act, to reflect the standardised meaning of the phrase “total income”. See the commentary on that section.
Section 11
3248.This new section replaces the former section 11 of TCGA.
3249.New subsection (1) replaces section 11(1) of TCGA and corresponds to section 833 of this Act relating to the residence status of visiting forces and others for income tax purposes.
3250.Section 833 is based on section 323(2) of ICTA which refers to “a period during which a member of a visiting force to whom section 303(1) of ITEPA 2003…applies”. Section 11(1) of TCGA makes the same reference. Section 833 avoids the reference to section 303(1) of ITEPA and includes a full description of the persons to whom it applies.
3251.The new section 11(1) of TCGA, accordingly, links directly to section 833 of this Act and applies to the persons to whom section 833 applies.
3252.New subsections (2) and (3) replace section 11(3) and (4) of TCGA and correspond to the income tax exemption in section 841 of this Act. As explained in the commentary on section 841, the income tax exemption for Agents-General in section 320(1) of ICTA is repealed as it duplicates an exemption given elsewhere. For the same reason, the capital gains tax exemption in section 11(2) of TCGA is omitted.
Section 105A
3253.Under section 1034(3), Part 5 of this Act which deals with the enterprise investment scheme (EIS) does not have effect in relation to shares issued before 6 April 2007. Instead the EIS provisions in ICTA continue to have effect for these shares.
3254.The consequential amendments which relate to the EIS scheme in TCGA provide that there are alternative references to the applicable provisions in ICTA and to the applicable provisions in Part 5 of this Act.
3255.Where it may not be clear which of the provisions apply, the amendment includes an explanation that references to Part 5 of this Act or any provision of that Part are to a Part or provision that applies only in relation to shares issued after 5 April 2007. In the case of the amendments to section 105A, this explanation is included in a new subsection (9).
Section 119
3256.This section excludes from the computation of a capital gain or loss on the disposal of securities the amounts taken into account under the accrued income scheme. It deploys provisions from sections 710 to 727A of ICTA for this purpose.
3257.The extensive amendments are necessary to ensure that section 119 of TCGA continues to apply by reference to terms and provisions in Part 12 of this Act exactly as it does by reference to terms and provisions in sections 710 to 727A of ICTA.
3258.See also Change 101 in Annex 1.
Section 125A
3259.This new section of TCGA is based on the provisions of sections 573(4), 574(1) and 576(2) and (3) of ICTA which have effect for the purposes only of capital gains tax or corporation tax on chargeable gains.
3260.Subsections (1) and (3) make clear that relief can only be obtained once for the loss, either by way of share loss relief or as a deduction in computing chargeable gains.
Sections 150A and 150B
3261.See the commentary on section 105A of TCGA about the consequential amendments which relate to the EIS scheme in TCGA. The amendment to section 150A inserts a new subsection (13) which explains the references to Part 5 of this Act. This is applied to section 150B by the amendment to section 150B(6).
Sections 151BA to 151BC
3262.These three new sections of TCGA are based on those provisions of Schedule 16 to FA 2002 (community investment tax relief - CITR) which have effect for the purposes of capital gains tax or corporation tax on chargeable gains.
Section 151BA
3263.This new section of TCGA sets out the special rules for identifying securities and shares disposed of where a holding includes securities or shares to which CITR is attributable. It is based on paragraph 47 of Schedule 16 to FA 2002.
3264.Subsections (1) to (5), (8) and (9) replace sub-paragraphs (1) to (4), (7) and (8) of that paragraph so far as they have effect for the purposes of capital gains tax or corporation tax on chargeable gains. Those sub-paragraphs continue to apply for the purposes of relief against corporation tax for companies. Section 377 of this Act, based on those sub-paragraphs, applies for the purposes of relief against income tax for individuals.
3265.Subsections (6) and (7) replace sub-paragraphs (5) and (6) of paragraph 47 of Schedule 16 to FA 2002, which have effect only for the purposes of capital gains tax or corporation tax on chargeable gains.
Section 151BB
3266.This new section of TCGA disapplies the no disposal treatment in sections 116(10) and 127 to 130 of that Act in the case of rights issues and other reorganisations in respect of shares to which CITR is attributable. It is based on paragraph 40 of Schedule 16 to FA 2002.
Section 151BC
3267.This new section of TCGA disapplies the no disposal treatment in sections 135 and 136 of that Act in relation to a reconstruction or amalgamation affecting a holding of shares or debentures to which CITR is attributable. It is based on paragraphs 41 and 48(2) of Schedule 16 to FA 2002.
3268.Subsections (1) to (4) correspond to and replace each of the sub-paragraphs of paragraph 41 of Schedule 16 to FA 2002 which has effect only for the purposes of capital gains tax or corporation tax on chargeable gains.
3269.Subsection (5) is based on paragraph 48(2) of Schedule 16 to FA 2002 and replaces it so far as it has effect for the purposes of capital gains tax or corporation tax on chargeable gains. That sub-paragraph continues to apply for the purposes of relief against corporation tax for companies. Section 379(2) of this Act, based on that sub-paragraph, applies for the purposes of relief against income tax for individuals.
Section 231
3270.The amendments to section 231(1) and (3) of TCGA add a reference to Part 5 of this Act (EIS). Although relief under section 229 of TCGA is not available for disposals after 5 April 2001 (section 54 of FA 2000), section 231 of TCGA could still have some application where there is an unconditional contract to acquire a replacement asset under section 227(5) of TCGA.
Sections 256 to 256B
3271.The amendment to section 256 and new sections 256A and 256B are based on section 505(4) and (7) of ICTA and result from the need to separate the capital gains tax aspects of those provisions from the income tax aspects rewritten in this Act in sections 541 and 542. In the same way as in section 542 of this Act, new section 256B of TCGA refers to officers of Revenue and Customs, rather than the Board. See Change 5 and the commentary on section 542.
Section 257
3272.The amendment to section 257 of TCGA is based on section 587B(3) of ICTA. This material is located within section 257 of TCGA because section 587B(3) of ICTA deals only with the capital gains base cost to the charity receiving the gift; it does not apply to the relief available to the person making the gift. The amendment applies only if relief is available to a company under section 587B or to an individual under Chapter 3 of Part 8 of this Act. See also the commentary on section 434.
3273.New subsection (2B)(c) deals with the case where a qualifying interest in land is disposed of by persons with a joint tenancy or with tenancies in common. See the commentary on section 442.
Sections 261B and 261C
3274.These sections replace section 72 of FA 1991 with a rewritten version of the rules for claiming to treat losses of a trade etc as allowable losses for the purposes of capital gains tax.
3275.The unused part of the loss (which extends to the whole of it if none of it has been used) may be used for capital gains tax purposes even if no claim for trade loss relief has been made. This could arise in circumstances where the person has no income in respect of which to make a claim. This reflects HMRC practice. See Change 160 in Annex 1 and the commentary on section 71.
Sections 261D to 261E
3276.These sections replace section 90(4) and (5) of FA 1995 with a rewritten version of the rules for claiming to treat post-cessation expenditure of a trade etc as allowable losses for the purposes of capital gains tax.
3277.The unused part of the expenditure (which extends to the whole of it if none of it has been used) may be used for capital gains tax purposes even if no claim for trade loss relief has been made. This could arise in circumstances where the person has no income in respect of which to make a claim. This reflects HMRC practice. See Change 160 in Annex 1 and the commentary on section 101 of this Act.
Section 263ZA
3278.This section concerns a claim made to treat a deduction which cannot be allowed under section 555 of ITEPA because of an insufficiency of income as an allowable loss for capital gains tax purposes. The amendments clarify the meaning of “total income” in section 263ZA(1) and (2) and explain how the excess deduction is calculated when there are other deductions which may be due under Step 2 of the calculation in section 23 of this Act.
Section 271
3279.New subsections (7A), (7B) and (7C) rewrite the exemption in section 516 of ICTA to the extent that it relates to capital gains tax.
Section 285A
3280.This new section rewrites section 510A of ICTA to the extent that it relates to capital gains tax.
Schedule 5B
Paragraph 13C
3281.The substituted sub-paragraph (4) has the effect of combining part of the provision in this paragraph with material from section 300A(10) of ICTA. This is also noted in the commentary on section 223 of this Act.
Paragraph 19
3282.See the commentary on section 105A of TCGA about the consequential amendments which relate to the enterprise investment scheme (EIS) in TCGA. The amendment to paragraph 19(3) of Schedule 5B to TCGA inserts a new paragraph (d) which explains the references to Part 5 of this Act in Schedule 5B.
Schedule 5C
Paragraph 3
3283.Part 2 of Schedule 19 to FA 2004 provides that postponement of chargeable gains cannot be made under Schedule 5C to TCGA (venture capital trusts: deferred charge on re-investment) by reference to shares issued after 5 April 2004. There is therefore no need to make a consequential amendment to the reference in paragraph 3(1)(g) of Schedule 5C to relief having been given under Part 1 of Schedule 15B to ICTA.
3284.But, as withdrawal of approval of a venture capital trust may take place after 5 April 2007, the reference in paragraph 3(1)(f) to “section 842AA(8) of the Taxes Act” is replaced with a reference to the corresponding provision in this Act.
Finance Act 1994
Schedule 20
Paragraph 11
3285.This provision has been amended so that the clawback of excess double taxation relief operates in terms of tax rather than by reference to an amount of income. See Change 158 in Annex 1.
Finance Act 1998
Section 161
3286.This amendment substitutes equivalent references to terms and provisions in Part 12 of this Act for the references to terms and provisions in sections 710 to 727A of ICTA. See also Change 101 in Annex 1.
Finance Act 2000
Section 44
3287.This section requires the apportionment of trustees’ expenses in a case where any income of a trust would be treated as the income of a settlor but for the fact that it is given to or arises to a charity. The amended section 44 of FA 2000 applies to the calculation of a beneficiary’s income for corporation tax purposes. New section 646A of ITTOIA makes corresponding provision for income tax.
Schedule 15
3288.Under section 1034(3), Part 5 of this Act which deals with the enterprise investment scheme (EIS) does not have effect in relation to shares issued before 6 April 2007. Instead the EIS provisions in ICTA continue to have effect for these shares.
3289.The consequential amendments to the corporate venturing scheme provide that there are alternative references to the applicable provisions in ICTA and to the applicable provisions in Part 5 of this Act.
3290.In case it is not clear which of the provisions apply, the amendment inserts a new sub-paragraph (9) in paragraph 102 of Schedule 15 explaining that references to Part 5 of this Act or any provision of that Part are to a Part or provision that applies only in relation to shares issued after 5 April 2007.
Capital Allowances Act 2001
Section 570B
3291.This section is inserted as a consequence of section 1014.
Sections 575 and 575A
3292.These sections set out the definition of “connected” in full in place of the cross-reference to section 839 of ICTA. See the commentary on section 993.
Finance Act 2002
Schedule 16
3293.Part 7 of this Act, based on Schedule 16 to FA 2002, provides for individuals to obtain income tax reductions for investments in community development finance institutions (CDFIs). That Schedule continues in force so far as it provides for companies to obtain relief against corporation tax for such investments. The relief is referred to as CITR.
Paragraphs 4 to 7
3294.This amendment substitutes for paragraphs 4 to 7 a new paragraph 4 applying Chapter 2 (accredited community development finance institutions) of Part 7 of this Act for the purposes of Schedule 16 to FA 2002. This amendment ensures that accreditation in accordance with that Chapter applies for the purposes of both CITR for individuals under Part 7 of this Act and CITR for companies under Schedule 16 to FA 2002.
Paragraph 12
3295.This amendment substitutes for paragraph 12(2) new sub-paragraphs (2), (2A) and (2B). These new sub-paragraphs ensure that the limit on the value of investments made in the CDFI in any accreditation period in respect of which it may issue tax relief certificates applies to the aggregate value of investments made by companies under Schedule 16 to FA 2002 and of investments made by individuals under Part 7 of this Act.
Paragraphs 40 and 41
3296.This amendment omits paragraphs 40 and 41 which have effect only for the purposes of capital gains tax or corporation tax on chargeable gains. Sections 151BB and 151BC(1) to (4) of TCGA, introduced by this Schedule, are based on those paragraphs. See the commentary on those new sections of TCGA.
Paragraph 47
3297.There are two amendments to paragraph 47.
3298.The first omits the references to capital gains tax and corporation tax on chargeable gains in paragraph 47(3) and (4). Section 151BA(2) and (3) of TCGA, introduced by this Schedule, are based on those sub-paragraphs so far as they have effect for those purposes (see the commentary on that new section of TCGA). Those sub-paragraphs continue to apply for the purposes of CITR for companies. Section 377(2) and (3), based on those sub-paragraphs, apply for the purposes of CITR for individuals.
3299.The second omits paragraph 47(5) and (6). Those sub-paragraphs have effect only for the purposes of capital gains tax or corporation tax on chargeable gains. Section 151BA(6) and (7) of TCGA, introduced by this Schedule, are based on those sub-paragraphs. See the commentary on that new section of TCGA.
Paragraph 48
3300.This amendment omits the reference to capital gains tax and corporation tax on chargeable gains in paragraph 48(2). Section 151BC(5) of TCGA, introduced by this Schedule, is based on that sub-paragraph so far as it has effect for those purposes (see the commentary on that new section of TCGA). That sub-paragraph continues to apply for the purposes of CITR for companies. Section 379(2), based on that sub-paragraph, applies for the purposes of CITR for individuals.
Proceeds of Crime Act 2002
Schedule 10
Paragraph 4
3301.This amendment substitutes equivalent references to terms and provisions in Part 12 of this Act for the references to terms and provisions in sections 710 to 727A of ICTA. In particular, the indirect disapplication of those provisions by references to sections 713 and 716 of ICTA has been replaced by a direct disapplication of the whole of Part 12 to the transfer in question. This has the same net effect.
Income Tax (Earnings and Pensions) Act 2003
Section 48
3302.Section 48(2)(b) of ITEPA excludes payments subject to deduction under section 555 of ICTA (payments to non-UK resident entertainers and sportsmen) from the scope of Chapter 8 of Part 2 of ITEPA. This section has been extended to exclude transfers as well as payments. See Change 161 in Annex 1.
Section 404A
3303.This new section in ITEPA specifies that an amount counting as employment income under section 403 of that Act is treated as the highest part of total income. It is based on section 833(3) of ICTA. See also the commentary on section 1012 of this Act.
Section 476
3304.New subsection (5A) ensures that the amount charged forms part of “total income” in Step 1 of section 23 of this Act.
Schedule 5
Paragraph 11(10)
3305.From 2007-08 it is the definition of a company in administration or receivership in Part 5 of this Act rather than the definition in section 312(2A) of ICTA which applies in relation to enterprise management incentives (EMI). This includes the reference to the Northern Ireland legislation as amended by the Insolvency (Northern Ireland) Order 2005. See Change 56 in Annex 1.
3306.Unlike other consequential amendments that stem from the rewrite of the enterprise investment scheme (EIS), the impact of this amendment is not affected by when the EIS shares in question are issued.
Finance Act 2004
Section 102
3307.Section 102 of FA 2004 provides that where a payee has suffered deduction on a payment that was in fact exempt under section 758 of ITTOIA, a claim for relief can be made to the Board. This provision has not been rewritten. As a result such claims will be made to an officer of Revenue and Customs. See Change 5 in Annex 1.
Section 189
3308.Section 189(2) of FA 2004 defines “relevant UK earnings” for the purpose of determining the maximum amount of relief for certain pension contributions. The source definition includes income within section 833(5B) of ICTA (certain patent income). As section 833 is being repealed, this amendment expressly includes patent income in section 189(2) through a new subsection (2A). Furthermore, as a simplification measure, the revised provision does not reproduce the restrictions to section 833(5B) in section 833(5C) and (5E) of ICTA. See Change 125 in Annex 1.
3309.The amendment also directly incorporates income from a UK furnished holiday lettings business in the definition of UK relevant earnings. That part of the amendment is based on section 504A(2)(c) of ICTA.
Income Tax (Trading and Other Income) Act 2005
Section 13
3310.Following the House of Lords decision in Agassi v Robinson [2006 UKHL 23](16), section 13 of ITTOIA has been amended to make clear that when a payment or transfer of the type referred to in section 555 of ICTA is made, a liability to income tax will arise regardless of whether there is a duty to deduct income tax under section 555 of ICTA. See Change 156 in Annex 1.
Section 51
3311.Section 51 of ITTOIA is repealed under the new approach to charges on income and patent royalties. See Change 81 in Annex 1.
Section 108
3312.This amendment removes redundant references to the British Museum and the Natural History Museum. See Change 79 in Annex 1 and the commentary on section 430 of this Act.
Section 272
3313.This section is consequentially amended as a result of the repeal of section 51 of ITTOIA. See Change 81 in Annex 1.
Section 457
3314.Subsection (3) is repealed as it is no longer necessary. It deemed the profit on the disposal of deeply discounted securities to be income of the trustees for the purposes of applying the trust rate. It is already income of the trustees for other purposes by virtue of sections 429 and 437 of ITTOIA. And the liability of the trustees at the trust rate is now provided for directly by sections 481 and 482 of this Act (see Type 6).
3315.The substituted subsection (5) makes more explicit the requirement that the scheme’s accounts show the amount as income available for payment to unit holders or for investment. It also continues to ensure that the effect of section 3 of ICTA is preserved in the case of unauthorised unit trusts (UUTs). If the income referred to in subsection (1) is treated as income in the trust’s accounts, it is then treated as being paid out to unit holders (see section 469(3) of ICTA and section 547(2) of ITTOIA). So the trustees of the UUT are charged at the basic rate of income tax rather than the trust rate. See the commentary on section 504 of this Act.
Section 465A
3316.This new section specifies that an amount taxed under Chapter 9 of Part 4 of ITTOIA is treated as the highest part of total income. It is based on section 833(3) of ICTA. See also the commentary on section 1012 of this Act.
Section 467
3317.New subsection (1A) ensures that the amount charged forms part of “total income” of trustees in Step 1 of section 23 of this Act. This was expressly stated to be the case prior to ITTOIA (see section 547(9) of ICTA as it applied until 5 April 2005) and the position is now made explicit in line with the similar rule for individuals (section 465(5) of ITTOIA) and personal representatives (section 466(1) of ITTOIA).
3318.The amendment to subsection (7) omits the rule that the amount is charged at the trust rate (except for charitable trusts). It is unnecessary because gains within section 467 of ITTOIA are included in the list in section 482 of this Act (see Type 7).
Section 535
3319.This amendment addresses the provisions relating to chargeable event gains within Chapter 9 of Part 4 of ITTOIA. Relief under Chapters 2 (gift aid) and 3 (gifts of shares etc to charities) of Part 8 of this Act is not taken into account in computing top slicing relief. In the source legislation these provisions were in section 25(6) of FA 1990 (gift aid) and section 587B(2) of ICTA (gifts of assets etc). They are now located with the top slicing provisions themselves.
Section 539
3320.This section has been rewritten to clarify that relief for a deficiency is given as a tax reduction. A formal claims requirement has also been introduced. See Change 3 in Annex 1.
Section 619A
3321.This new section in ITTOIA replaces section 660C(3) of ICTA. It ensures that income under section 619(1)(a) and (b) of ITTOIA is treated as the highest part of the settlor’s income for the purposes of Chapter 2 of Part 2 of this Act.
Section 620
3322.This amendment removes redundant references to the British Museum and the Natural History Museum. See Change 79 in Annex 1 and the commentary on section 430.
Section 624
3323.New subsection (1A) makes it explicit that trustees’ expenses are not taken into account in measuring the income of a settlor under section 624 of ITTOIA. This follows from the fact that it is the income arising that is deemed to be the settlor’s and the income arising is the gross amount out of which the trustees may pay expenses.
Section 628
3324.This amendment removes redundant references to the British Museum and the Natural History Museum. See Change 79 in Annex 1 and the commentary on section 430 of this Act.
Section 646A
3325.This new section in ITTOIA is based on section 44 of FA 2000. It requires the apportionment of trustees’ expenses in a case where any income of a settlement would be treated as the income of a settlor but for the fact that it is given to or arises to a charity. Expenses are allocated rateably between charitable income and other income. The rule applies both in cases where expenses affect the amount of income liable at the special trust rates, and in cases where expenses affect the amount of income of a beneficiary liable to income tax. Section 44 of FA 2000 is being amended to provide for the position of a beneficiary within the charge to corporation tax. For the treatment of expenses generally see Change 91 in Annex 1.
Section 680A
3326.This new section is based on section 698A of ICTA. It ensures that payments by personal representatives to beneficiaries out of income retain the character of the underlying income. The opportunity has been taken to clarify a point of doubt in the source legislation. See Change 162 in Annex 1.
3327.It may be noted that section 698A(1) and (2) of ICTA apply only where income is treated under “this Part” in a particular way. In fact, following ITTOIA, the income tax cases to which “this Part” previously applied are now in Chapter 6 of Part 5 of ITTOIA. But paragraph 5 of Schedule 2 to ITTOIA enables the reference to “this Part” to be read as embracing the ITTOIA provisions now in Chapter 6 of Part 5 of ITTOIA.
Section 682
3328.New subsection (4A) ensures that the amount charged forms part of “total income” in Step 1 of section 23 of this Act. If exceptionally the relief being recovered under section 682(4)(b) was a relief given as a tax reduction, then the recovery is a charge to an amount of income tax instead (see section 32 of this Act).
Schedule 2
Paragraph 109
3329.Amendment to this transitional provision is necessary because section 539 of ITTOIA has been rewritten. See the commentary on Schedule 1 (section 539 of ITTOIA). Relief for a deficiency within this provision is given as a deduction from total income instead of as a tax reduction.
Finance Act 2005
Schedule 2
3330.As part of the alignment of the building society and deposit-taker regimes on deduction of tax, paragraphs 5 and 6 of Schedule 2 to FA 2005 have been replaced with a new paragraph, paragraph 11, of Schedule 2 to FA 2005.
3331.In respect of qualifying time deposits (see section 866 of this Act) there was some doubt about whether relevant arrangements (as defined in paragraph 1 of Schedule 2 to FA 2005) with deposit-takers would be paid gross. This was because, under the source legislation, paragraph 6 of Schedule 2 to FA 2005 treats relevant arrangements as if they are deposits rather than deposits made by way of loan. (For building societies, paragraph 5 of Schedule 2 to FA 2005 treats relevant arrangements as a deposit or loan.)
3332.But it was clearly the intention that all the deposit-taker rules applied to relevant arrangements. New paragraph 11(b) treats relevant arrangements as if they were deposits consisting of a loan in order to put the matter beyond doubt.
3333.As part of Change 126 in Annex 1 (enactment of regulations) regulation 2(4) of the Income Tax (Building Societies) (Dividends and Interest) Regulations 1990 (SI 1990/2231) (as amended by SI 2005/3474) has been enacted so that references to interest in Chapter 2 of Part 15 of this Act include returns on relevant arrangements (as defined in paragraph 1 of Schedule 2 to FA 2005).
Finance (No 2) Act 2005
Section 7
3334.The amendments to references to “total income” operate by reference to “Step 3 income”, defined by reference to section 23 of this Act. See the commentary on that section.
Part 3: Amendments having effect in relation to shares issued after 5 April 2007 Income and Corporation Taxes Act 1988
Chapter 3 of Part 7
3335.Under section 1034(2), Part 5 of this Act does not have effect in relation to shares issued before 6 April 2007. Instead the ICTA provisions dealing with the enterprise investment scheme (EIS) on which Part 5 of this Act is based continue to have effect for these shares.
3336.So this paragraph provides that the omission of Chapter 3 of Part 7 of ICTA (except for section 305A) only has effect in relation to shares issued after 5 April 2007.
[2006] STC 1056
[2006] STC 1056
