Finance (No.2) Act 1987

SCHEDULES

Section 7 etc.

SCHEDULE 1 Profit-Related Pay Schemes: Conditions for Registration

Form.

1 The terms of the scheme must be set out in writing.

Employer and employment unit.

2 The scheme must identify the scheme employer.

3 If the scheme employer does not pay the emoluments of all the employees to whom the scheme relates, the scheme must identify each of the persons who pays the emoluments of any of those employees.

4 (1) The scheme must identify the undertaking to which the scheme relates, and that undertaking must be one which is carried on with a view to profit.

(2) The references in sub-paragraph (1) above to an undertaking include references to part of an undertaking; and the provisions of a scheme identifying part of an undertaking must do so in such a way as to distinguish it, otherwise than by name only, from other parts of the undertaking.

Employees.

5 The scheme must contain provisions by reference to which the employees to whom the scheme relates may be identified.

6 The scheme must contain provisions ensuring that no payments are made under it by reference to a profit period if the employees to whom the scheme relates constitute less than 80 per cent. of all the employees in the employment unit at the beginning of that profit period; but for this purpose any person who is at that time within paragraph 7 or 8 below shall not be counted.

7 (1) The scheme must contain provisions ensuring that no payments are made under it to any person who is employed in the employment unit by a company and who has, or is an associate of a person who has, a material interest in the company.

(2) For the purposes of this paragraph a person shall be treated as having a material interest in a company—

(a) if he, either on his own or with any one or more of his associates, or if any associate of his with or without such other associates, is the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25 per cent. of the ordinary share capital of the company, or

(b) if, in the case of a close company, on an amount equal to the whole distributable income of the company falling to be apportioned under Chapter III of Part XI of the Taxes Act for the purpose of computing total income, more than 25 per cent. of that amount could be apportioned to him together with his associates (if any), or to any associate of his, or to any such associates taken together.

(3) In this paragraph “associate” has the same meaning as in section 303(3) of the Taxes Act and “control” has the meaning given by section 534 of that Act; and the definition of “control” in section 534 applies (with the necessary modifications) in relation to a company which is an unincorporated association as it applies in relation to one that is not.

8 (1) The persons within this paragraph are any of the following employees who are excluded by the scheme from receiving any payment of profit-related pay—

(a) those who are not required, under the terms of their employment, to work in the employment unit for twenty hours or more a week;

(b) those who have not been employed by a relevant employer for a minimum period (of not more than three years) specified in the scheme;

and for this purpose “relevant employer” means the scheme employer or any person who pays the emoluments of any of the employees to whom the scheme relates.

Profit periods.

9 The scheme must identify the accounting period or periods by reference to which any profit-related pay is to be calculated.

10 (1) Subject to sub-paragraphs (2) and (3) below, any such accounting period must be a period of twelve months.

(2) If the scheme is a replacement scheme, the first of two profit periods may be a period of less than twelve months, but the scheme may not provide for more than two profit periods.

(3) The scheme may make provision for a profit period to be abbreviated where registration of the scheme is cancelled with effect from a day after the beginning of the period; and a scheme making such provision may exclude the operation of all or any of the provisions of paragraph 13(4) and (5) or (as the case may be) paragraph 14(3)(b), (4) and (5) below in relation to the determination of the distributable pool for an abbreviated period.

(4) For the purposes of this paragraph, a scheme is a replacement scheme if—

(a) it succeeds another scheme (or two or more other schemes) registration of which was cancelled under section 10(1)(a) of this Act on the ground of a change in the employment unit or in the circumstances relating to the scheme, and

(b) that change occurred not more than three months before the beginning of the first (or only) profit period of the new scheme, and the Board are satisfied that it was not brought about with a view to the registration of the new scheme or in circumstances satisfying the conditions in section 9(1)(a), (b) and (c) of this Act, and

(c) not less than one half of the employees to whom the new scheme relates were employees to whom the previous scheme (or any of the previous schemes) related at the time of that change.

Distributable pool.

11 The scheme must contain provisions by reference to which the aggregate sum that may be paid to employees in respect of a profit period (“the distributable pool”) may be determined.

12 Except where the scheme is a replacement scheme (within the meaning of paragraph 10 above), the provisions for the determination of the distributable pool must employ either the method specified in paragraph 13 below (“method A”) or the method specified in paragraph 14 below (“method B”).

13 (1) Method A is that the distributable pool is equal to a fixed percentage of the profits of the employment unit in the profit period.

(2) That percentage must be such that, on the assumption as to profits mentioned in sub-paragraph (3) below, it will produce a distributable pool equal to not less than 5 per cent. of the standard pay of the employment unit.

(3) The assumption referred to in sub-paragraph (2) above is that the profits in the profit period are the same as those in a base year specified in the scheme; and that base year must be a period of twelve months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit periods, to which the scheme relates.

(4) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of—

(a) if the profit period is the first or only period to which the scheme relates, the profits for the base year referred to in sub-paragraph (3) above;

(b) in any other case, the profits for the previous profit period.

(5) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.

(6) The references in this paragraph to the standard pay of the employment unit are references to the amount which the scheme employer, at the time when he applies for registration of the scheme, reasonably estimates will be the annual equivalent of the pay, at the beginning of the profit period or first profit period, of the employees to whom the scheme will then relate; and for this purpose an estimate shall (in the absence of evidence to the contrary) be taken to be a reasonable one if it is based on the most recent information available to the employer as to the monthly or annual pay of the relevant employees.

14 (1) Method B is that the distributable pool is—

(a) if the profit period is the first or only profit period to which the scheme relates, a percentage of a notional pool of an amount specified in the scheme;

(b) in any other case, a percentage of the distributable pool for the previous profit period.

(2) The amount of the notional pool referred to in sub-paragraph (1) above must not be less than 5 per cent. of the standard pay of the employment unit.

(3) The percentage referred to in sub-paragraph (1) above must be either—

(a) that arrived at by expressing the profits in the profit period as a percentage of the profits in the preceding period of twelve months, or

(b) the percentage mentioned in paragraph (a) above reduced (if it is more than 100) or increased (if it is less than 100) by a specified fraction of the difference between it and 100;

and the reference in paragraph (b) above to a specified fraction is a reference to a fraction of not more than one half specified in the scheme.

(4) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of the profits in the preceding period of twelve months.

(5) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.

(6) Where by virtue of a provision of the kind described in sub-paragraph (5) above there is no distributable pool for a profit period, any comparison required in accordance with sub-paragraph (1)(b) to be made with the distributable pool for that period shall be made with what would have been the pool but for sub-paragraph (5).

(7) In this paragraph “standard pay of the employment unit” has the same meaning as it has in paragraph 13 above.

15 If the scheme is a replacement scheme (within the meaning of paragraph 10 above), it must provide for the distributable pool for a profit period to be equal to a specified percentage of the profits for the period.

Payments from distributable pool, etc.

16 The scheme must provide for the whole of the distributable pool to be paid to employees in the employment unit.

17 The scheme must make provision as to when payments will be made to employees.

18 (1) The provisions of the scheme must be such that employees participate in the scheme on similar terms.

(2) For the purposes of sub-paragraph (1) above, the fact that the payments to employees vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they do not participate on similar terms.

Ascertainment of profits.

19 (1) The scheme must provide for the preparation of a profit and loss account in respect of—

(a) each profit period of the employment unit, and

(b) any other period the profits for which must be ascertained for the purposes of this Chapter.

(2) The profit and loss account must give a true and fair view of the profit or loss of the employment unit for the period to which it relates.

(3) Subject to sub-paragraph (2) above, the requirements of Schedule 4 to the [1985 c. 6.] Companies Act 1985 shall apply (with any necessary modifications) to a profit and loss account prepared for the purposes of the scheme as they apply to a profit and loss account of a company for a financial year.

(4) Notwithstanding the preceding provisions of this paragraph, a profit and loss account prepared for the purposes of the scheme must not make any deduction, in arriving at the profits or losses of the employment unit, for the remuneration of any person excluded from the scheme by virtue of paragraph 7 above.

(5) Notwithstanding the preceding provisions of this paragraph, if the scheme so provides in relation to any of the items listed in sub-paragraph (6) below, a profit and loss account prepared for the purposes of the scheme may, in arriving at the profits or losses of the employment unit,—

(a) leave the item out of account notwithstanding that Schedule 4 to the [1985 c. 6.] Companies Act 1985 requires it to be taken into account, or

(b) take the item into account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be left out of account.

(6) The items referred to in sub-paragraph (5) above are—

(a) interest receivable and similar income;

(b) interest payable and similar charges;

(c) goodwill;

(d) tax on profit or loss on ordinary activities (but not any penalty under the Taxes Acts);

(e) research and development costs;

(f) profit-related pay payable under the scheme;

(g) extraordinary income;

(h) extraordinary charges;

(i) extraordinary profit or loss;

(j) tax on extraordinary profit or loss.

(7) References in this paragraph to Schedule 4 to the Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986.

20 (1) The scheme must provide that, in preparing a profit and loss account for the purposes of this Schedule, no changes may be made from the accounting policies used in preparing accounts for any earlier period relevant for those purposes, or in the methods of applying those policies, if the effect of the changes (either singly or taken together) would be that the amount of profits (or losses) differed by more than 5 per cent. from what would be that amount if no changes were made.

(2) Sub-paragraph (1) above has effect subject to paragraph 19(2) above.

Section 57.

SCHEDULE 2 Personal Pension Schemes Etc.

1 In section 226(13) of the Taxes Act, after “means” there shall be inserted “(a)”, and at the end there shall be added— “and

(b) annuities or lump sums under approved personal pension arrangements within the meaning of Chapter II of Part I of the Finance (No. 2) Act 1987”.

2 (1) In section 332(2) of the Taxes Act (exceptions to registered friendly societies' exemption from income tax and corporation tax), after paragraph (a) and before the word “and” which follows it there shall be inserted—

“(aa) shall not apply to profits arising from pension business,”.

(2) In section 337 of the Taxes Act (interpretation of Chapter III of Part XII of that Act etc.)—

(a) in subsection (2), after the words “the [1974 c. 46.] Friendly Societies Act 1974” there shall be inserted the words “, any pension business”,

(b) paragraph (b) of subsection (2) shall be omitted, and

(c) in subsection (3), after the definition of “tax exempt life or endowment business” there shall be inserted—

• ““pension business” shall be construed in accordance with section 323 above,”.

3 In section 14(1) of the [1973 c. 51.] Finance Act 1973 (lump sum benefits on retirement not chargeable under Schedule E), at the end there shall be added “; or

(c) it is paid under approved personal pension arrangements (within the meaning of Chapter II of Part I of the Finance (No. 2) Act 1987)”.

4 (1) In section 26 of the [1978 c. 42.] Finance Act 1978 (open market option for retirement annuities) in subsection (1), for the words from “may require” to the end there shall be substituted—

“(a) may agree with the person with whom it is made that a sum representing the value of the individual’s accrued rights under it should be applied as the premium or other consideration either under another annuity contract made between them and approved by the Board under section 226 of the Taxes Act, or under personal pension arrangements made between them and approved by the Board under Chapter II of Part I of the Finance (No. 2) Act 1987, or

(b) may require the person with whom it is made to pay such a sum to such other person as the individual may specify, to be applied by that other person as the premium or other consideration either under an annuity contract made between the individual and him and approved by the Board under section 226 of the Taxes Act, or under personal pension arrangements made between the individual and him and approved by the Board under Chapter II of Part I of the Finance (No. 2) Act 1987.”.

(2) This paragraph shall be deemed to have come into force on 6th April 1987.

5 In section 45(2) of the [1984 c. 43.] Finance Act 1984, after paragraph (c) there shall be added—

“(d) subsections (1) and (2) of section 39 of the Finance (No. 2) Act 1987”.

6 In paragraph 1 of Schedule 11 to the Finance Act 1984 (treatment of lettings as a trade for the purposes of certain provisions), at the end of sub-paragraph (2) there shall be added—

“(k) subsection (2)(c) of section 35 of the Finance (No. 2) Act 1987 (personal pension schemes).”.

Section 58.

SCHEDULE 3 Occupational Pension Schemes

PART I [1970 c. 24.] Amendments of Finance Act 1970 Etc.

The Finance Act 1970.

1 (1) In subsection (2A) of section 19 of the Finance Act 1970 (mandatory approval of schemes) in paragraph (d), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”; and after that subsection there shall be inserted—

“(2B) In subsection (2A) above “the permitted maximum” means £100,000 or such other sum as may for the time being be specified in an order made by the Treasury; and an order under this subsection shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.”

(2) This paragraph shall be deemed to have come into force on 17th March 1987.

2 (1) In subsection (3) of section 19 (withdrawal of approval) after the words “such date” there shall be inserted the words “(which shall not be earlier than the date when those facts first ceased to warrant the continuance of their approval)”.

(2) This paragraph shall be deemed to have come into force on 17th March 1987, but shall not authorise the withdrawal of an approval from a day before that day.

3 (1) Section 20 (discretionary approval) shall be amended as follows.

(2) At the end of subsection (1) there shall be added the words “; but this subsection has effect subject to subsection (4) below.”.

(3) For paragraph (g) of subsection (2), there shall be substituted—

“(g) which provides in certain contingencies for securing relevant benefits (but no other benefits) by means of an annuity contract approved by the Board and made with an insurance company of the employee’s choice,”.

(4) After paragraph (g) of subsection (2) there shall be added— “or

(h) to which the employer is not a contributor and which provides benefits additional to those provided by a scheme to which he is a contributor.”.

(5) At the end of the section there shall be added—

“(4) The Board shall not approve a scheme by virtue of this section if to do so would be inconsistent with regulations made for the purposes of this section.

(5) Regulations made for the purposes of this section may restrict the Board’s discretion to approve a scheme by reference to the benefits provided by the scheme, the investments held for the purposes of the scheme, the manner in which the scheme is administered, or any other circumstances whatever.

(6) The power to make regulations for the purposes of this section shall be exercisable by the Board by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.”.

4 (1) In subsection (4) of section 21 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted; and after that subsection there shall be inserted—

“(4A) The amount allowed to be deducted by virtue of subsection (4) above in respect of contributions paid by an employee in a year of assessment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent., or such higher percentage as the Board may in a particular case prescribe, of his remuneration for that year.”.

(2) This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.

5 After subsection (7) of section 21 there shall be inserted—

“(7A) Subsection (2) of section 354 and subsection (3) of section 354A of the Taxes Act (which treat unit holders under unit trust schemes as receiving certain payments) shall not apply to any authorised unit trust which is also an exempt approved scheme if the employer is not a contributor to the exempt approved scheme and that scheme provides benefits additional to those provided by another exempt approved scheme to which he is a contributor.

(7B) A gain accruing to a unit holder on his disposal of units in an authorised unit trust to which subsection (7A) above applies shall not be a chargeable gain for the purposes of capital gains tax.”

6 (1) In subsection (2) of section 22 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted, and for the words “chargeable period” there shall be substituted the words “year of assessment”; and after that subsection there shall be inserted—

“(2A) The amount allowed to be deducted by virtue of subsection (2) above in respect of contributions paid by a person in a year of assessment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent., or such higher percentage as the Board may in a particular case prescribe, of his remuneration for that year.”.

(2) This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.

7 (1) Section 26 (1) shall be amended as follows.

(2) After the definition of “pension” there shall be inserted—

• ““the permitted maximum” has the meaning given by section 19(2B) above;”.

(3) After the definition of “relevant benefits” there shall be inserted—

• ““remuneration” does not include—

  (a)

  anything in respect of which tax is chargeable under Schedule E and which arises from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares, or

  (b)

  anything in respect of which tax is chargeable by virtue of section 187 of the Taxes Act (payments on termination of employment, etc.);”.

8 In section 26(2), after the words “the employer” there shall be inserted the words “or the employee”, and at the end there shall be added the words “; and any reference to pensions or contributions paid, or payments made, under a scheme includes a reference to pensions or contributions paid, or payments made, under such a contract entered into for the purposes of the scheme”.

9 (1) In Schedule 5 to the [1970 c. 24.] Finance Act 1970, in paragraph 3(1)(i), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”.

(2) This paragraph applies to any payments made on or after 17th March 1987 except payments made under schemes approved or established before that date to employees who became members before that date.

10 In paragraph 3 of that Schedule, at the end there shall be added—

“(7) Where the pension has been secured by means of an annuity contract with an insurance company and the sum receivable is payable under that contract by the insurance company, the references to the administrator of the scheme in sub-paragraph (2) above and paragraph 2(2) and (4) above as applied by sub-paragraph (2) are to be read as references to the insurance company.

(8) In sub-paragaph (7) above “insurance company” means—

(a) a person authorised under section 3 or 4 of the [1982 c. 50.] Insurance Companies Act 1982 to carry on long term business and acting through a branch or agency in the United Kingdom, or

(b) a society registered as a friendly society under the [1974 c. 46.] Friendly Societies Act 1974 or the [1970 c. 31 (N.I.).] Friendly Societies Act (Northern Ireland) 1970.”

11 In paragraph 6 (which shall become paragraph 6(1)) of that Schedule, for the word “supported” there shall be substituted the word “accompanied”; and at the end there shall be added—

“(2) The form in which an application for approval is to be made, or in which any information is to be given, in pursuance of this paragraph may be prescribed by the Board.”.

12 After paragraph 6 of that Schedule there shall be inserted—

“Relief by deduction from contributions.

6A (1) Relief under section 21(4) of this Act shall be given in accordance with sub-paragraphs (2) and (3) below in such cases and subject to such conditions as the Board may prescribe by regulations under paragraph 10 below in respect of schemes—

(a) to which employees, but not their employers, are contributors, and

(b) which provide benefits additional to benefits provided by schemes to which their employers are contributors.

(2) An employee who is entitled to relief under section 21(4) in respect of a contribution may deduct from the contribution when he pays it, and may retain, an amount equal to income tax at the basic rate on the contribution.

(3) The administrator of the scheme—

(a) shall accept the amount paid after the deduction in discharge of the employee’s liability to the same extent as if the deduction had not been made, and

(b) may recover an amount equal to the deduction from the Board.

(4) Regulations under paragraph 10 below may, without prejudice to the generality of that paragraph,—

(a) provide for the manner in which claims for the recovery of a sum under sub-paragraph (3)(b) above may be made;

(b) provide for the giving of such information, in such form, as may be prescribed by or under the regulations;

(c) provide for the inspection by persons authorised by the Board of books, documents and other records.”

13 In paragraph 7 (which shall become paragraph 7(1)) of that Schedule, at the end there shall be added—

“(2) Where benefits provided for an employee under an approved scheme or a statutory scheme have been secured by means of an annuity contract with an insurance company (within the meaning given by paragraph 3 above), the insurance company shall, within thirty days from the date of a notice from the inspector requiring it to do so, prepare and deliver to the inspector a return containing particulars of—

(a) any payments under the contract by way of commutation of, or in lieu of, a pension, or any other lump sum payments under the contract, and

(b) any payments made under the contract to the employer.”.

14 In paragraph 8(2)(a) of that Schedule, after the words “such scheme” there shall be inserted the words “to which he contributes”.

15 In paragraph 9 of that Schedule, after sub-paragraph (1) there shall be inserted—

“(1A) Sub-paragraph (1) above does not apply if the employer is not a contributor to the scheme.”.

The Taxes Act.

16 In section 323(4) of the Taxes Act (insurance companies: interpretation of “pension business”), after paragraph (ab) there shall be inserted—

“(ac) any annuity contract entered into for the purposes of—

(i) a scheme which is approved or is being considered for approval under Chapter II of Part II of the [1970 c. 24.] Finance Act 1970,

(ii) a statutory scheme as defined in section 26 of that Act, or

(iii) a fund to which section 36 of the [1980 c. 48.] Finance Act 1980 applies,

being a contract which is approved by the Board and made with the persons having the management of the scheme or fund (or those persons and a member of or contributor to the scheme or fund) and by means of which relevant benefits as defined in section 26 of the [1970 c. 24.] Finance Act 1970 (but no other benefits) are secured,

(ad) any annuity contract approved by the Board which is entered into in substitution for a contract within paragraph (ac) above,”.

The [1970 c. 9.] Taxes Management Act 1970.

17 In both columns in the Table in section 98 of the Taxes Management Act 1970, after the reference to provisions of Schedule 5 to the Finance Act 1970 there shall be inserted—

“Regulations under paragraph 10 of that Part of that Schedule”.

PART II Schemes Approved before the Passing of this Act

Preliminary.

18 (1) This Part of this Schedule shall be deemed to have come into force on 17th March 1987 and, subject to sub-paragraphs (2) and (3) below, applies in relation to any retirement benefits scheme approved by the Board before the passing of this Act.

(2) The Board may by regulations provide that this Part of this Schedule, or any provision of it, shall not apply in relation to a scheme or to an employee—

(a) in circumstances prescribed in the regulations;

(b) in any case where in the opinion of the Board the facts are such that it would be appropriate for this Part of this Schedule, or the provision in question, not to apply;

and regulations under this sub-paragraph shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.

(3) This Part of this Schedule shall not apply to a retirement benefits scheme if, before the end of 1987, the administrator of the scheme gives written notice to the Board that it is not to apply.

(4) Where a notice is given to the Board under sub-paragraph (3) above, the scheme shall, with effect from 17th March 1987 or (if later) the date with effect from which it was approved, cease to be approved.

Accelerated accrual.

19 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

(2) Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20.

20 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme allows him to commute his pension or part of it for a lump sum or sums.

(2) If the employee’s full pension (that is, the pension before any commutation) is equal to or less than a basic rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all a basic rate lump sum.

(3) If the employee’s full pension is greater than a basic rate commutable pension but less than a maximum rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all the aggregate of—

(a) a basic rate lump sum, and

(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

(4) In this paragraph, as it applies in relation to an employee—

(a) a “basic rate commutable pension” means a pension of one-sixtieth of his relevant annual remuneration for each year of service up to a maximum of 40;

(b) a “maximum rate commutable pension” means a pension of one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20;

(c) a “basic rate lump sum” means a lump sum of three-eightieths of his relevant annual remuneration for each year of service up to a maximum of 40;

(d) a “maximum rate lump sum” means a lump sum of such amount as may be determined by or under regulations made by the Board for the purposes of this paragraph and paragraph 21 below;

(e) “the relevant percentage” means the difference between a basic rate commutable pension and the employee’s full pension expressed as a percentage of the difference between a basic rate commutable pension and a maximum rate commutable pension.

(5) Regulations under this paragraph shall be made by statutory instrument.

21 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme provides a lump sum or sums for him otherwise than by commutation of his pension or part of it.

(2) If the employee’s pension is equal to or less than a basic rate non-commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all a basic rate lump sum.

(3) If the employee’s pension is greater than a basic rate non-commutable pension but less than a maximum rate non-commutable pension the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all the aggregate of—

(a) a basic rate lump sum, and

(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

(4) In this paragraph, as it applies in relation to an employee—

(a) a “basic rate non-commutable pension” means a pension of one-eightieth of his relevant annual remuneration for each year of service up to a maximum of 40;

(b) a “maximum rate non-commutable pension” means a pension of one-fortieth of his relevant annual remuneration for each year of service up to a maximum of 20;

(c) “basic rate lump sum” and “maximum rate lump sum” have the same meanings as in paragraph 20 above; and

(d) “the relevant percentage” means the difference between a basic rate non-commutable pension and the employee’s actual pension expressed as a percentage of the difference between a basic rate non-commutable pension and a maximum rate non-commutable pension.

Final remuneration.

22 (1) This paragraph applies where an employee who is a member of the scheme retires on or after 17th March 1987.

(2) The rules of the scheme shall have effect as if they provided that in determining the employee’s relevant annual remuneration for the purpose of calculating benefits, no account should be taken of anything excluded from the definition of “remuneration” in section 26(1) of the [1970 c. 24.] Finance Act 1970.

(3) In the case of an employee—

(a) whose employer is a company and who at any time in the last ten years of his service is a controlling director of the company, or

(b) whose relevant annual remuneration for the purpose of calculating benefits, so far as the remuneration is ascertained by reference to years beginning on or after 6th April 1987, would (apart from this Schedule) exceed the permitted maximum,

the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed his highest average annual remuneration for any period of three or more years ending within the period of ten years which ends with the date on which his service ends.

(4) In the case of an employee within paragraph (b) of sub-paragraph (3) above who retires before 6th April 1991, the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed the higher of—

(a) the average annual remuneration referred to in that sub-paragraph, and

(b) his remuneration (within the meaning given in section 26(1) of the Finance Act 1970) assessable to income tax under Schedule E for the year of assessment 1986–87.

(5) For the purposes of this paragraph a person is a controlling director of a company if—

(a) he is a director as defined in section 26 of the Finance Act 1970, and

(b) he is within paragraph (c) of section 303(5) of the Taxes Act,

in relation to the company.

Lump sums.

23 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

(2) If the rules of the scheme allow the employee to obtain (by commutation of his pension or otherwise) a lump sum or sums calculated by reference to his relevant annual remuneration, they shall have effect as if they included a rule that in calculating a lump sum any excess of that remuneration over the permitted maximum should be disregarded.

Additional voluntary contributions.

24 (1) This paragraph applies where—

(a) the rules of the scheme make provision for the payment by employees of voluntary contributions, and

(b) on or after 8th April 1987 an employee enters into arrangements to pay such contributions.

(2) Notwithstanding anything in the rules of the scheme, they shall have effect as if they did not allow the payment to the employee of a lump sum in commutation of a pension if or to the extent that the pension is secured by the voluntary contributions.

25 (1) This paragraph applies where an employee who is a member of the scheme (“the main scheme”) is also a member of an approved scheme (“the voluntary scheme”) which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his.

(2) Any rules of the main scheme imposing a limit on the amount of a benefit provided for the employee shall have effect (notwithstanding anything in them to the contrary) as if they provided for the limit to be reduced by the amount of any like benefit provided for the employee by the voluntary scheme.

Supplementary.

26 (1) In this Part of this Schedule “relevant annual remuneration” means final remuneration or, if the scheme provides for benefits to be calculated by reference to some other annual remuneration, that other annual remuneration.

(2) Expressions used in this Part of this Schedule and in Chapter II of Part II of the [1970 c. 24.] Finance Act 1970 have the same meanings in this Part as they have in that Chapter.

Section 63.

SCHEDULE 4 Dual Resident Investing Companies

PART I Division of Accounting Periods Covering 1st April 1987.

1 (1) This Part of this Schedule has effect in the circumstances set out in subsection (3)(a) of the principal section.

(2) In this Part of this Schedule—

(a) “the principal section” means section 63 of this Act;

(b) “the straddling period” means the accounting period of the dual resident investing company which begins before and ends on or after 1st April 1987; and

(c) “dual resident investing company” has the same meaning as in the principal section.

(3) It shall be assumed for the purposes of subsections (1) and (2) of the principal section, the enactments relating to group relief and Part II of this Schedule,—

(a) that an accounting period of the company ends on 31st March 1987; and

(b) that a new accounting period begins on 1st April 1987, the new accounting period to end with the end of the straddling period.

(4) In this Part of this Schedule “the component accounting periods” means the two accounting periods referred to in sub-paragraph (3) above.

2 Subject to paragraph 5 below, for the purposes referred to in paragraph 1(3) above, the losses and other amounts of the straddling period of a dual resident investing company, excluding any such excess of charges on income as is referred to in section 259(6) of the Taxes Act, shall be apportioned to the component accounting periods on a time basis according to their lengths.

3 If, in the straddling period of a dual resident investing company, the company has paid any amount by way of charges on income, then, for the purposes referred to in paragraph 1(3) above, the excess of that amount referred to in section 259(6) of the Taxes Act shall be apportioned to the component accounting periods—

(a) according to the dates on which, subject to paragraph 6 below, the interest or other payments giving rise to those charges were paid (or were treated as paid for the purposes of section 248 of that Act); and

(b) in proportion to the amounts of interest or other payments paid (or treated as paid) on those dates.

PART II Early Payments of Interest Etc and Charges on Income

Interpretation.

4 In this Part of this Schedule—

(a) “the principal section” means section 63 of this Act;

(b) a “1986 accounting period” means an accounting period which begins or ends (or begins and ends) in the financial year 1986,

(c) a “post-1986 accounting period” means an accounting period which begins on or after 1st April 1987, and

(d) “dual resident investing company” has the same meaning as in the principal section.

Early payment of interest etc.

5 (1) If the conditions in sub-paragraph (2) or sub-paragraph (3) below are fulfilled and if the Board so direct, this paragraph applies in relation to a 1986 accounting period of a dual resident investing company.

(2) The conditions in this sub-paragraph are applicable only if the company is carrying on a trade in the 1986 accounting period, and those conditions are—

(a) that in that accounting period the company has incurred a loss, computed as for the purposes of section 177(2) of the Taxes Act, in carrying on that trade; and

(b) that in that period the company has made a payment falling within subsection (6)(a)(iii) of the principal section; and

(c) that the payment referred to in paragraph (b) above either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.

(3) The conditions in this sub-paragraph are applicable only if the company is an investment company in the 1986 accounting period, and those conditions are—

(a) that for that accounting period the company has (apart from this paragraph) such an excess as is referred to in section 259(3) of the Taxes Act (excess of management expenses over profits); and

(b) that one or more of the sums which for that accounting period may be deducted as expenses of management under section 304(1) of the Taxes Act either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.

(4) The Board shall not give a direction under this paragraph with respect to a 1986 accounting period of a dual resident investing company unless it appears to the Board that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from this paragraph) the company would, for that period, have an amount or, as the case may be, a larger amount available for surrender by way of group relief.

(5) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is carrying on a trade then, for the purposes of the enactments relating to group relief and, where appropriate, any apportionment under paragraph 2 above,—

(a) the loss (if any) of the company for that period shall be computed (as mentioned in section 259(1) of the Taxes Act) as if any payment falling within sub-paragraph (2)(b) above had not been made in that period; and

(b) the loss (if any) of the company for its first post-1986 accounting period shall be computed as if any such payment were made in that period.

(6) If this paragraph applies in relation to a 1986 accounting period of a dual resident investing company which is an investment company, then, for the purposes referred to in sub-paragraph (5) above,—

(a) the amount which may be deducted as expenses of management for that period, as mentioned in section 259(3) of the Taxes Act, shall be computed as if any sum falling within sub-paragraph (3)(b) above had not been disbursed; and

(b) the amount which may be so deducted as expenses of management for the first of the company’s post-1986 accounting periods shall be computed as if any such sum were disbursed in that period.

Early payment of charges on income.

6 (1) If, in the case of a dual resident investing company, either of the following conditions is fulfilled,—

(a) that any interest or other payment which is, or is treated as, a charge on income falls due in a post-1986 accounting period but is paid (or treated for the purposes of section 248 of the Taxes Act as paid) in a 1986 accounting period, or

(b) that, on or after 5th December 1986, arrangements have been made such that any such interest or other payment which, but for the arrangements, would have fallen due in a post-1986 accounting period, fell due in a 1986 accounting period,

the interest or other payment shall, if the Board so direct, be treated for the purposes of the enactments relating to group relief and, where appropriate, paragraph 3 above as paid in the post-1986 accounting period referred to in paragraph (a) or, as the case may be, paragraph (b) above.

(2) The Board shall not give a direction under this paragraph unless it appears to them that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, from the arrangements was that (apart from the direction) the interest or other payment would be attributed or apportioned to a 1986 accounting period rather than a post-1986 accounting period, so that, for the 1986 accounting period, the dual resident investing company would have an amount or, as the case may be, a larger amount available for surrender by way of group relief.

Appeals.

7 Notice of the giving of a direction under paragraph 5 or paragraph 6 above shall be given to the dual resident investing company concerned; and any company to which such a notice is given may, by giving notice of appeal in writing to the Board within sixty days of the date of the notice given to the company, appeal to the Special Commissioners against the direction on either or both of the following grounds,—

(a) that the conditions applicable to the company under sub-paragraph (2) or sub-paragraph (3) of paragraph 5 above are not fulfilled or, as the case may be, that neither of the conditions in paragraph 6(1) above is fulfilled;

(b) that the sole or main benefit that might be expected to accrue from the early payment or, as the case may be, the arrangements was not that stated in paragraph 5(4) or, as the case may be, paragraph 6(2) above.

General.

8 The preceding provisions of this Schedule have effect in priority to section 262 of the Taxes Act (companies joining or leaving group or consortium) and, accordingly, each of the component accounting periods resulting from the operation of Part I of this Schedule shall be regarded as true accounting periods for the purposes of that section.

Sections 74 to 76.

SCHEDULE 5 Companies' Chargeable Gains: Transitional Provisions

PART I General Rules

Interpretation.

1 In this Part of this Schedule—

(a) a “straddling period” means an accounting period of a company which begins before and ends on or after the 1987 date;

(b) “the principal section” means section 74 of this Act;

(c) “the 1987 date” means 17th March 1987;

(d) references to “section 85”, “section 93” and “section 95” are references to those sections of the [1972 c. 41.] Finance Act 1972.

Chargeable gains comprised in profits.

2 (1) It shall be assumed for the purposes of this paragraph that the straddling period of the company consists of two separate accounting periods—

(a) the first beginning at the beginning of the straddling period and ending immediately before the 1987 date; and

(b) the second beginning on the 1987 date and ending at the end of the straddling period.

(2) In this Part of this Schedule those two notional accounting periods are referred to as “component periods”.

(3) A separate computation shall be made under section 265 of the Taxes Act (computation of company’s chargeable gains) for each of the component periods and, by virtue of subsection (3) of the principal section, only the amount (if any) computed for the first component period shall be reduced under section 93.

(4) If, in accordance with sub-paragraph (3) above,—

(a) a positive amount is computed for the first component period, and

(b) the amount computed for the second component period is nil,

any excess for the second component period of allowable losses over chargeable gains shall be treated for the purposes of this paragraph as an allowable loss of the first component period and the amount originally computed for that period shall be recalculated accordingly.

(5) The amount which is to be included in respect of chargeable gains in the company’s total profits for the straddling period—

(a) shall be the sum of the amounts computed as mentioned above for the two component periods; and

(b) shall not itself be subject to any reduction under section 93.

(6) The preceding provisions of this paragraph have effect in place of any provision of section 93 under which the amount to be included in respect of chargeable gains in the company’s total profits for the straddling period would fall to be apportioned between different parts of that period.

Advance corporation tax and liability of small companies.

3 (1) This paragraph has effect to determine for the purposes of section 85 the income of the company charged to corporation tax for the straddling period and, accordingly (by virtue of subsection (8) of section 95), the income of the company for that period for the purposes of section 95.

(2) For the straddling period, subsection (6) of section 85 (meaning of the income of the company charged to tax for any period) shall have effect as if—

(a) the reference to the part of the profits attributable to chargeable gains were a reference only to the part of the profits attributable to chargeable gains of the first component period; and

(b) the reference to the amount brought into the company’s profits for that period for the purposes of corporation tax in respect of chargeable gains were a reference to the amount computed for the first component period under paragraph 2(3) above.

(3) As it applies to the straddling period, the reference in subsection (8) of section 95 to subsection (6) of section 85 shall be construed as a reference to that subsection as it has effect by virtue of sub-paragraph (2) above.

Other references to the income of a company charged to corporation tax.

4 For the straddling period, any reference in any enactment, other than sections 85 and 95, to subsection (6) of section 85 shall be construed as a reference to that subsection as it has effect by virtue of paragraph 3(2) above.

PART II Special Cases

Interpretation.

5 In this Part of this Schedule “straddling period” has the meaning assigned to it by paragraph 1(a) above and sub-paragraphs (1) and (2) of paragraph 2 above apply for the purposes of this Part.

Life assurance companies.

6 (1) Subject to the following provisions of this paragraph, where an accounting period of an insurance company carrying on life assurance business is a straddling period, section 26 of the [1974 c. 30.] Finance Act 1974 (life assurance gains etc.) shall apply separately in relation to each of the component periods and—

(a) for the first component period, section 26 shall have effect without regard to subsections (2) and (3) of section 75 of this Act; and

(b) for the second component period, section 26 shall have effect as amended by those subsections.

(2) For the purposes of the separate application of section 26 in accordance with sub-paragraph (1) above, the relevant reliefs (within the meaning of that section) of the straddling period shall be apportioned to the two component periods on a time basis according to their lengths.

(3) If, on a computation under section 26 in accordance with sub-paragraphs (1) and (2) above,—

(a) the policy holders' share of the life assurance gains for one of the component periods exceeds the relevant reliefs apportioned to that period, and

(b) the relevant reliefs apportioned to the other component period exceed the policy holders' share of the life assurance gains of that period,

the excess for the component period referred to in paragraph (a) above shall be treated for the purposes of this paragraph as reduced or, as the case may be, extinguished by deducting from that excess so much of the excess referred to in paragraph (b) above as does not exceed it.

(4) Section 26 of the Finance Act 1974 shall not apply to the straddling period taken as a whole.

7 (1) For a straddling period of an insurance company carrying on life assurance business, sub-paragraph (4) of paragraph 2 of Schedule 18 to the [1972 c. 41.] Finance Act 1972 shall have effect as if the amount of the reduction provided for by that sub-paragraph were increased by the policy holders' share of the life assurance gains of the second component period (determined under section 26 of the Finance Act 1974, as applied to that period by paragraph 6 above).

(2) Sub-paragraph (1) above is without prejudice to the operation of paragraph 4 above in relation to the said sub-paragraph (4).

Companies carrying on oil extraction activities etc.

8 (1) Subject to the following provisions of this paragraph, a separate computation shall be made under subsections (3) and (7) of section 79 of the [1984 c. 43.] Finance Act 1984 (gains on certain disposals related to oil fields) for each of the component periods.

(2) If, by virtue of paragraph (a) of subsection (7) of section 79 of the Finance Act 1984, a loss which accrues on a material disposal to a connected person is excluded from those which are taken into account in the computation under subsection (3) of that section for the second component period, then—

(a) for the purposes of the application of section 62 of the [1979 c. 14.] Capital Gains Tax Act 1979, as modified by paragraph (b) of the said subsection (7), in relation to that loss, the first component period shall be treated as if it were subsequent to the second (so as to permit the loss to be set against an appropriate chargeable gain of the first component period); and

(b) paragraph (c) of subsection (7) of the said section 79 shall apply accordingly in relation to the gains which are taken into account in the computation under subsection (3) of that section for the first component period.

(3) If, on the initial computation in accordance with sub-paragraphs (1) and (2) above, there would be an aggregate gain for one of the component periods and an aggregate loss for the other, then, for the purposes of this paragraph, that aggregate loss shall be set against that aggregate gain so as to produce—

(a) for one of the component periods neither an aggregate gain nor an aggregate loss; and

(b) for the other component period either an aggregate gain or an aggregate loss (according as the original aggregate gain was greater or smaller than the original aggregate loss);

or, if the original aggregate gain was equal to the original aggregate loss, neither an aggregate gain nor an aggregate loss for either component period.

(4) Section 93 of the [1972 c. 41.] Finance Act 1972 (corporation tax liability in respect of chargeable gains) shall not apply to either component period.

(5) The amounts computed for the two component periods in accordance with sub-paragraphs (1) to (4) above shall themselves be aggregated to give an aggregate gain or aggregate loss for the straddling period as a whole and that aggregate gain or loss shall not itself be subject to any reduction under section 93 of the Finance Act 1972 except in accordance with sub-paragraph (7) below.

(6) Subsections (4) and (5) of section 79 of the Finance Act 1984 shall apply in relation to the aggregate gain or aggregate loss of the straddling period as a whole (as determined under sub-paragraph (5) above) as if it were the aggregate gain or loss referred to in (and derived from) subsection (3) of that section.

(7) If there is an aggregate gain of the straddling period as a whole, only so much (if any) of that gain as does not exceed the aggregate gain of the first component period shall be reduced under section 93 of the Finance Act 1972, and the reference in subsection (5) of section 79 of the Finance Act 1984 to reduction in accordance with the said section 93 shall be construed accordingly.

(8) As respects the straddling period, for the purposes of—

(a) section 16 of the [1975 c. 22.] Oil Taxation Act 1975 (restriction on setting advance corporation tax against income from oil extraction activities),

(b) section 44 of the [1987 c. 16.] Finance Act 1987 (limited right to carry back surrendered advance corporation tax), and

(c) section 45(4) of the [1987 c. 16.] Finance Act 1987 (surrender of advance corporation tax where oil extraction company etc. owned by a consortium),

any reference to income arising from oil extraction activities or from oil rights shall be taken to include a reference to the aggregate gain (if any) of the second component period, as determined under sub-paragraphs (1) to (4) above.

Section 95.

SCHEDULE 6 Management Provisions: Supplementary and Consequential Provisions

Companies' capital gains.

1 (1) With respect to chargeable gains accruing in accounting periods ending after the appointed day, section 266 of the Taxes Act (corporation tax attributable to chargeable gains: recovery from shareholder) shall be amended as follows.

(2) In subsection (2) for the words “the date when it becomes payable by the company” there shall be substituted “the date determined under subsection (2A) below”.

(3) After subsection (2) there shall be inserted the following subsection—

“(2A) The date referred to in subsection (2) above is whichever is the later of—

(a) the date when the tax becomes due and payable by the company; and

(b) the date when the assessment was made on the company.”

(4) In subsection (3) for the words from “a sum” onwards there shall be substituted “from the company a sum equal to that amount together with any interest paid by him under section 87A of the [1970 c. 9.] Taxes Management Act 1970 on that amount”.

2 With respect to chargeable gains accruing in accounting periods ending after the appointed day, in subsection (3C) of section 267 of the Taxes Act (company reconstruction or amalgamation: transfer of assets)—

(a) for the words “when it is payable” there shall be substituted “when it is due and payable or, if later, the date when the assessment is made on the company”;

(b) for the words “the time when the tax became payable” there shall be substituted “the later of those dates”; and

(c) for the words from “a sum” onwards there shall be substituted “from the chargeable company a sum equal to that amount together with any interest paid by him under section 87A of the Taxes Management Act 1970 on that amount”.

3 (1) With respect to chargeable gains accruing in accounting periods ending after the appointed day, section 277 of the Taxes Act (tax on company recoverable from other members of group) shall be amended as follows.

(2) In subsection (1) for the words “the date when it becomes payable by the company” there shall be substituted “the date determined under subsection (1A) below” and for the words “the time when the tax became payable” there shall be substituted “the date determined under subsection (1A) below”.

(3) After subsection (1) there shall be inserted the following subsection—

“(1A) The date referred to in subsection (1) above is whichever is the later of—

(a) the date when the tax becomes due and payable by the company; and

(b) the date when the assessment is made on the company.”

(4) After subsection (2) there shall inserted the following subsection—

“(2A) Any reference in subsection (2) above to an amount of tax includes a reference to any interest paid under section 87A of the [1970 c. 9.] Taxes Management Act 1970 on that amount.”

4 (1) Section 278 of the Taxes Act (company ceasing to be member of a group) shall be amended as follows.

(2) In subsection (3) at the beginning of the words following paragraph (b) there shall be inserted “then, subject to subsection (3A) below”, and after that subsection there shall be inserted the following subsection—

“(3A) Any chargeable gain or allowable loss which, apart from this subsection, would accrue to the chargeable company on the sale referred to in subsection (3) above shall be treated as accruing to the chargeable company as follows—

(a) for the purposes for which the assumptions in section 262(2) of this Act apply, it shall be assumed to accrue in the notional or actual accounting period which ends when the company ceases to be a member of the group; and

(b) subject to paragraph (a) above, it shall be treated as accruing immediately before the company ceases to be a member of the group.”

(3) In subsection (5)—

(a) the words “of the”, in the first place where they occur, shall be omitted;

(b) for the words “the date when it becomes payable” there shall be substituted “the date determined under subsection (5A) below”;

(c) for the words “the time when the tax became payable” there shall be substituted “the said date”; and

(d) for the words “a sum” onwards there shall be substituted “from the chargeable company a sum equal to that amount together with any interest paid by the company concerned under section 87A of the Taxes Management Act 1970 on that amount”.

(4) After subsection (5) there shall be inserted the following subsection—

“(5A) The date referred to in subsection (5) above is whichever is the later of—

(a) the date when the tax becomes due and payable by the company; and

(b) the date when the assessment was made on the chargeable company.”

(5) In subsection (6) the words from the beginning to “group, and” shall be omitted.

(6) This paragraph has effect where the accounting period in which the chargeable company ceases to be a member of the group ends after the appointed day.

5 (1) With respect to chargeable gains accruing in chargeable periods ending after the appointed day, section 87 of the [1979 c. 14.] Capital Gains Tax Act 1979 (restriction on application of sections 85 and 86 of that Act) shall be amended as follows.

(2) In subsection (4)—

(a) for the words “the date when it is payable” there shall be substituted “the date determined under subsection (4A) below”;

(b) for the words “the time when the tax became payable” there shall be substituted “that date”; and

(c) for the words from “a sum” onwards there shall be substituted “from the chargeable person a sum equal to that amount together with any interest paid by him under section 87A of the [1970 c. 9.] Taxes Management Act 1970 on that amount”.

(3) After subsection (4) there shall be inserted the following subsection—

“(4A) The date referred to in subsection (4) above is whichever is the later of—

(a) the date when the tax becomes due and payable by the chargeable person; and

(b) the date when the assessment was made on the chargeable person.”

Relief for unremittable income.

6 (1) Section 418 of the Taxes Act (relief for unremittable income) shall be amended as follows.

(2) At the beginning of subsection (2) there shall be inserted the words “Subject to subsection (2A) below”.

(3) After subsection (2) there shall be inserted the following subsections—

“(2A) Where the tax chargeable is corporation tax, subsection (2) above shall have effect as if—

(a) for the word “assessed”, in the second place where it occurs, there were substituted “assessable”;

(b) for the words from “on the Board ceasing” to “take account” there were substituted “on the said conditions ceasing to be satisfied as respects any part of the income, it shall be treated as income arising on the date when those conditions cease to be satisfied with respect to it and account shall be taken”; and

(c) for the words from “the date” onwards there were substituted “that date”.

(2B) Where a company becomes chargeable to corporation tax in respect of income from any source by virtue of subsections (2) and (2A) above after it has ceased to possess that source of income, the income shall be chargeable under Case VI of Schedule D.”

(4) In subsection (5) for the words “subsection (2)” there shall be substituted “subsections (2) and (2A)”.

(5) This paragraph has effect where the accounting period in which the conditions in subsection (2) of section 418 cease to be satisfied in relation to any income ends after the appointed day.

Charges on non-residents.

7 With respect to tax in respect of accounting periods ending after the appointed day and interest on such tax, at the end of section 85 of the Management Act (application to corporation tax of provisions of Part VIII of that Act) there shall be added the following subsection—

“(2) Subsection (2) of section 83 above shall apply—

(a) to corporation tax to which a person is chargeable in respect of a non-resident company and which has become due and payable without the making of an assessment; and

(b) to interest to which he is chargeable on such tax under section 87A below,

as it applies (by virtue of subsection (1) above) to corporation tax which has been assessed on him in respect of such a company.”

Lloyd’s underwriting agents.

8 (1) The Treasury may by regulations made by statutory instrument modify any of the provisions specified in sub-paragraph (2) below in their application to companies permitted by the Council of Lloyd’s to act as underwriting agents at Lloyd's.

(2) The provisions referred to in subsection (1) above are—

(a) section 11 of the Management Act (return of profits);

(b) section 87A of that Act (interest on overdue corporation tax); and

(c) section 243(4) of the Taxes Act (date for payment of corporation tax).

(3) A statutory instrument made under this paragraph shall be subject to annulment in pursuance of a resolution of the House of Commons.

(4) This paragraph has effect with respect to accounting periods ending after the appointed day.

Section 96.

SCHEDULE 7 Inheritance Tax: Interests in Possession

1 After section 54 of the [1984 c. 51.] Inheritance Tax Act 1984 (in this Schedule referred to as“the 1984 Act”) there shall be inserted the following sections—

“54A Special rate of charge where settled property affected by potentially exempt transfer.

(1) If the circumstances fall within subsection (2) below, this section applies to any chargeable transfer made—

(a) under section 52 above, on the coming to an end of an interest in possession in settled property during the life of the person beneficially entitled to it, or

(b) on the death of a person beneficially entitled to an interest in possession in settled property;

and in the following provisions of this section the interest in possession mentioned in paragraph (a) or paragraph (b) above is referred to as“the relevant interest”.

(2) The circumstances referred to in subsection (1) above are—

(a) that the whole or part of the value transferred by the transfer is attributable to property in which the relevant interest subsisted and which became settled property in which there subsisted an interest in possession (whether the relevant interest or any previous interest) on the making by the settlor of a potentially exempt transfer at any time on or after 17th March 1987 and within the period of seven years ending with the date of the chargeable transfer; and

(b) that the settlor is alive at the time when the relevant interest comes to an end; and

(c) that, on the coming to an end of the relevant interest, any of the property in which that interest subsisted becomes settled property in which no qualifying interest in possession (as defined in section 59 below) subsists, other than property to which section 71 below applies; and

(d) that, within six months of the coming to an end of the relevant interest, any of the property in which that interest subsisted has neither—

(i) become settled property in which a qualifying interest in possession subsists or to which section 71 below applies, nor

(ii) become property to which an individual is beneficially entitled.

(3) In the following provisions of this section“the special rate property”, in relation to a chargeable transfer to which this section applies, means the property in which the relevant interest subsisted or, in a case where—

(a) any part of that property does not fall within subsection (2)(a) above, or

(b) any part of that property does not become settled property of the kind mentioned in subsection (2)(c) above,

so much of that property as appears to the Board or, on appeal, to the Special Commissioners to be just and reasonable.

(4) Where this section applies to a chargeable transfer (in this section referred to as“the relevant transfer”), the tax chargeable on the value transferred by the transfer shall be whichever is the greater of the tax that would have been chargeable apart from this section and the tax determined in accordance with subsection (5) below.

(5) The tax determined in accordance with this subsection is the aggregate of—

(a) the tax that would be chargeable on a chargeable transfer of the description specified in subsection (6) below, and

(b) so much (if any) of the tax that would, apart from this section, have been chargeable on the value transferred by the relevant transfer as is attributable to the value of property other than the special rate property.

(6) The chargeable transfer postulated in subsection (5)(a) above is one—

(a) the value transferred by which is equal to the value transferred by the relevant transfer or, where only part of that value is attributable to the special rate property, that part of that value;

(b) which is made at the time of the relevant transfer by a transferor who has in the preceding seven years made chargeable transfers having an aggregate value equal to the aggregate of the values transferred by any chargeable transfers made by the settlor in the period of seven years ending with the date of the potentially exempt transfer; and

(c) for which the applicable rate or rates are one-half of the rate or rates referred to in section 7(1) above.

(7) This section has effect subject to section 54B below.

54B Provisions supplementary to section 54A.

(1) The death of the settlor, at any time after a chargeable transfer to which section 54A above applies, shall not increase the tax chargeable on the value transferred by the transfer unless, at the time of the transfer, the tax determined in accordance with subsection (5) of that section is greater than the tax that would be chargeable apart from that section.

(2) The death of the person who was beneficially entitled to the relevant interest, at any time after a chargeable transfer to which section 54A above applies, shall not increase the tax chargeable on the value transferred by the transfer unless, at the time of the transfer, the tax that would be chargeable apart from that section is greater than the tax determined in accordance with subsection (5) of that section.

(3) Where the tax chargeable on the value transferred by a chargeable transfer to which section 54A above applies falls to be determined in accordance with subsection (5) of that section, the amount referred to in paragraph (a) of that subsection shall be treated for the purposes of this Act as tax attributable to the value of the property in which the relevant interest subsisted.

(4) Subsection (5) below shall apply if—

(a) during the period of seven years preceding the date on which a chargeable transfer to which section 54A above applies (“the current transfer”) is made, there has been another chargeable transfer to which that section applied, and

(b) the person who is for the purposes of the current transfer the settlor mentioned in subsection (2)(a) of that section is the settlor for the purposes of the other transfer (whether or not the settlements are the same);

and in subsections (5) and (6) below the other transfer is referred to as the“previous transfer”.

(5) Where this subsection applies, the appropriate amount in relation to the previous transfer (or, if there has been more than one previous transfer, the aggregate of the appropriate amounts in relation to each) shall, for the purposes of calculating the tax chargeable on the current transfer, be taken to be the value transferred by a chargeable transfer made by the settlor immediately before the potentially exempt transfer was made.

(6) In subsection (5) above“the appropriate amount”, in relation to a previous transfer, means so much of the value transferred by the previous transfer as was attributable to the value of property which was the special rate property in relation to that transfer.

(7) In this section—

• “the relevant interest” has the meaning given by subsection (1) of section 54A above; and

• “the special rate property” has the meaning given by subsection (3) of that section.”.

2 In section 56 of the 1984 Act (exclusion of certain exemptions) in subsection (5) after the word “disposition” there shall be inserted “for such consideration”.

3 (1) Section 201 of the 1984 Act (liability for tax relating to settled property) shall be amended as follows.

(2) In subsection (2) after the word “death” there shall be inserted “but is not a potentially exempt transfer”.

(3) After subsection (3) there shall be inserted the following subsection—

“(3A) Subsection (1)(d) above shall not apply in relation to the tax chargeable on the value transferred by a potentially exempt transfer which proves to be a chargeable transfer in a case where the settlement was made before 17th March 1987 if the trustees were resident in the United Kingdom when the settlement was made, but have not been resident there at any time between 16th March 1987 and the death of the transferor.”

4 (1) Section 216 of the 1984 Act (delivery of accounts) shall be amended as follows.

(2) In subsection (1) after paragraph (bc) there shall be inserted the following paragraph—

“(bd) is liable under section 201(1)(b), (c) or (d) above for tax on the value transferred by a potentially exempt transfer which is made under section 52 above and which proves to be a chargeable transfer, or would be so liable if tax were chargeable on that value, or”

(3) In subsection (6)(aa) of that section after the words “subsection (1)(bb)” there shall be inserted “or (bd)”.

5 In section 265 of the 1984 Act (chargeable transfers affecting more than one property) after the words “subject to” there shall be inserted “section 54B(3) above and to”.

Section 101.

SCHEDULE 8 Amendments of Schedule 10 to [1987 c. 16.] Finance Act 1987

1 At the end of paragraph 1 (interpretation) there shall be added the following sub-paragraph—

“(3) Where an amount of oil is required to be delivered to the Secretary of State pursuant to a notice served by him, any oil which is inadvertently delivered to him in excess of the amount required shall be treated for the purposes of sub-paragraph (2) above as delivered pursuant to the notice.”.

2 (1) In paragraph 5 (content of nomination) in sub-paragraph (1)(b)—

(a) for the words “except in the case of a proposed appropriation” there shall be substituted “in the case of a proposed sale”; and

(b) for the word “delivered” there shall be substituted “sold”.

(2) At the end of sub-paragraph (3) of paragraph 5 (penalty for fraudulent or negligent furnishing of information etc. in connection with a nomination) there shall be added the words “and the nomination shall not be effective”.

3 (1) In paragraph 8 (revision of nominations) after sub-paragraph (2) there shall be inserted the following sub-paragraphs—

“(2A) If a participator who has made a nomination of a proposed supply, proposed appropriation or a proposed transaction falling within paragraph 2(1)(d) above fails, in whole or in part, to supply, to appropriate or otherwise to complete the proposed transaction by the delivery or appropriation of oil forming part of his equity production for the proposed delivery month, then, in accordance with regulations made by the Board, he may amend or withdraw the nomination as mentioned in sub-paragraph (2B) below.

(2B) The circumstances in which, in a case falling within sub-paragraph (2A) above, a participator may amend or withdraw a nomination are,—

(a) in the case of a nomination of a proposed supply or proposed appropriation, if the participator is of the opinion that the failure referred to in that sub-paragraph was caused by circumstances over which neither he nor any person connected or associated with him had control; or

(b) in the case of a nomination of a proposed transaction falling within paragraph 2(1)(d) above, in such circumstances as may be prescribed by regulations made by the Board; or

(c) in any case where the nomination is of a proposed supply or proposed appropriation and the participator is either the field operator or the operator of a relevant system, if the participator is of the opinion that the failure referred to in sub-paragraph (2A) above was caused by action necessarily taken by him in the interests of safety or the prevention of pollution or in accordance with good oil field practice.

(2C) In relation to such a nomination as is referred to in sub-paragraph (2B)(c) above,—

(a) a participator is the field operator if, in relation to the field specified in the nomination, he is the person having the function of organising or supervising operations for searching or boring for or getting oil in pursuance of a licence; and

(b) the expression “relevant system” is applicable only where the oil to which the nomination relates is blended oil and is a reference to any system by which blended oil (in relation to which the field specified in the nomination is one of the originating fields) is transported, treated or stored prior to its disposal or relevant appropriation; and

(c) a participator in an oil field is an operator of a relevant system, as defined above, if he is the person charged, or principally charged, with the operation of the system;

and expressions used in paragraph (b) above have the same meaning as in section 63 of this Act.”

(2) In sub-paragraph (3) of paragraph 8—

(a) for the words “sub-paragraph (2)”, in the first place where they occur, there shall be substituted “the preceding provisions of this paragraph”;

(b) in paragraph (a) after the word “above” there shall be inserted “or, where sub-paragraph (2B) above applies, that the failure was caused as mentioned in paragraph (a) or paragraph (c) of that sub-paragraph or that the circumstances prescribed for the purposes of paragraph (b) of that sub-paragraph exist”; and

(c) in paragraph (b), for the words “if sub-paragraph (2)(a)” there shall be substituted “except where sub-paragraph (2)(b) or sub-paragraph (2B)(a)”.

(3) In sub-paragraph (4) of paragraph 8 after the words “sub-paragraph (2)(b)” there shall be inserted “and sub-paragraph (2B)”.

(4) In sub-paragraph (5) of paragraph 8 for the words “preceding provisions of this Schedule” there shall be substituted “provisions of this Schedule (other than this paragraph)”.

4 In paragraph 9 (effective volume for nominated transactions) for sub-paragraph (4) there shall be substituted the following sub-paragraphs—

“(4) In relation to a proposed supply or proposed appropriation where the nominal volume is expressed as mentioned in paragraph 7(5) above and oil is in fact supplied or, as the case may be, relevantly appropriated as proposed in the nomination, the effective volume is whichever is the greater of—

(a) the minimum nominal volume; and

(b) so much of the total volume of oil supplied or relevantly appropriated as does not exceed the maximum nominal volume.

(5) In relation to a proposed supply or proposed appropriation which does not fall within sub-paragraph (4) above, the effective volume is the nominal volume.”

5 (1) In paragraph 11 (which defines the aggregate nominated proceeds for a month) at the beginning of paragraph (b) of sub-paragraph (1) (market value of excess of equity production over proceeds of nominated transactions) there shall be inserted the words “subject to sub-paragraph (1A) below” and at the end of that sub-paragraph there shall be inserted the following sub-paragraph—

“(1A) If for any month—

(a) a participator has made a nomination of a proposed sale, and

(b) he has an excess falling within sub-paragraph (3) below,

then for that month the reference in sub-paragraph (1)(b) above to the market value of the excess shall be construed as a reference to the market value multiplied by the designated fraction for that month.”

(2) At the beginning of sub-paragraph (2) of paragraph 11 there shall be inserted “Subject to sub-paragraph (2A) below” and at the end of that sub-paragraph there shall be inserted the following sub-paragraph—

“(2A) In the case of a nominated transaction consisting of a proposed supply or proposed appropriation, the proceeds of the transaction shall not have the meaning assigned by sub-paragraph (2) above unless the participator satisfies the Board—

(a) that the whole of the effective volume of oil has been or is to be used for refining as mentioned in paragraph 2(1)(b) above or, as the case may be, has been or is to be relevantly appropriated; or

(b) that, in so far as any of the effective volume of oil has not been or is not to be so used or appropriated, that is occasioned by circumstances over which neither the participator nor any company associated with him, as mentioned in paragraph 2(1) above, has (or had at any material time) control;

and if the Board are not so satisfied with respect to any such nominated transaction, the proceeds of that transaction means the market value (determined in accordance with Schedule 3 to the principal Act) of the effective volume of oil, multiplied by the designated fraction for the month in question.”

(3) At the end of paragraph 11 there shall be inserted the following sub-paragraphs—

“(5) For any month the designated fraction is such fraction as may be specified for the purposes of that month by order made by the Treasury.

(6) An order under sub-paragraph (5) above—

(a) shall not specify a fraction smaller than unity or greater than 3/2;

(b) may be made to have effect for any month in the chargeable period in which falls the date on which the order is made (whether that month begins before, on or after that date);

(c) if it has effect for a month earlier than the date on which it is made, may contain such transitional provisions as the Treasury consider appropriate; and

(d) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons.”

6 In paragraph 12 (nominations of blended oil by a participator in two or more fields )—

(a) for the words from the beginning to “this Act” there shall be substituted

“(1) If a person is a participator in two or more oil fields which, in relation to any blended oil, are or are included among the originating fields, then, in accordance with regulations made by the Board, he may make a nomination, having effect with respect to all the originating fields in which he is a participator, of a proposed sale, supply or appropriation of the blended oil”; and

(b) at the end there shall be added—

“(2) In sub-paragraph (1) above “blended oil” and “the originating fields” have the same meaning as in section 63 of this Act.”

Section 104.

SCHEDULE 9 Repeals

PART I Income Tax and Corporation Tax: General

Chapter	Short title	Extent of repeal
1. The repeals in sections 21 and 22 of the Finance Act 1970 have effect in relation to contributions made on or after 6th April 1987. 2. The repeal in section 65 of the Finance Act 1982 has effect in accordance with section 67(6) of this Act.
1970 c. 10.	The Income and Corporation Taxes Act 1970.	In section 337(2), paragraph (b).
1970 c. 24.	The Finance Act 1970.	In section 21(4), the words “ordinary annual”.
		In section 22(2), the words “ordinary annual”.
1982 c. 39.	The Finance Act 1982.	In section 65(1)(a), the words “in a territory”.
1987 c. 16.	The Finance Act 1987.	In Schedule 4, paragraphs 1(2) and 2(2).

PART II Capital Gains

Chapter	Short title	Extent of repeal
1. The repeals of section 84(2) to (4) of the Finance Act 1980, section 65 of the Finance Act 1984 and section 72(5) of the Finance Act 1985 come into force on the day appointed under section 81(8) of this Act. 2. The remaining repeals have effect with respect to accounting periods beginning on or after 17th March 1987.
1972 c. 41.	The Finance Act 1972.	In section 85(6) the words from “exclusive” onwards.
		Section 93.
1974 c. 30.	The Finance Act 1974.	In section 26(3), in paragraph (a), the words “so much of” and the words from “as remains” to “1972” and, in paragraph (b), the words “as so reduced”.
1975 c. 22.	The Oil Taxation Act 1975.	In section 16(1), the words “on its income”.
1980 c. 48.	The Finance Act 1980.	Section 84(2) to (4).
1984 c. 43.	The Finance Act 1984.	Section 18(6).
		Section 65.
		In section 79(5), the words from “(reduced” to “Finance Act 1972)”.
1985 c. 54.	The Finance Act 1985.	Section 72(5).

PART III Inheritance Tax

Chapter	Short title	Extent of repeal
These repeals have effect in relation to transfers of value made, and other events occuring, on or after 17th March 1987.
1984 c. 51.	The Inheritance Tax Act 1984.	In section 3A, in subsection (2), in paragraph (a) the words “otherwise than as settled property” and in paragraph (b) the words from “otherwise” onwards.
		Section 49(3).
		In section 55(2), the words “and such a disposition is not a potentially exempt transfer”.
1986 c. 41.	The Finance Act 1986.	In Schedule 19, paragraphs 14 and 15.

PART IV Stamp Duty Reserve Tax

Chapter	Short title	Extent of repeal
This repeal has effect in accordance with section 100(2) of this Act.
1986 c. 41.	The Finance Act 1986.	Section 91(2).

PART V Oil Taxation

Chapter	Short title	Extent of repeal
This repeal has effect for chargeable periods ending after 1st January 1987.
1987 c. 16.	The Finance Act 1987.	In section 63(1), the words from “and in” onwards.