The Enactment of Extra-Statutory Concessions Order 2009

EXPLANATORY NOTE

(This note is not part of the Order)

This Order is made under section 160 of the Finance Act 2008 and enacts a number of existing HMRC extra-statutory concessions.

Article 2 inserts a new section 395A in the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”). This amendment makes statutory provision for a concession that relieves benefits provided by defined schemes from the charge to income tax in section 394 of ITEPA 2003.

Article 3 inserts a new section 57A in the Income Tax (Trading and Other Income) Act 2005.

Generally, subsistence costs associated with business travel are disallowed as having not been incurred wholly and exclusively for the purposes of the trade. Article 3 amends the Income Tax (Trading and Other Income) Act 2005 by inserting a new section 57A which provides that such subsistence costs associated with business travel are deductible where the trader is itinerant or where such costs are incurred in connection with occasional business journeys made outside of their normal pattern of business.

Article 4 amends section 24 of the Taxation of Chargeable Gains Act 1992 (disposals where assets lost or destroyed, or become of negligible value). The amendment makes statutory provision for a concession which permits a negligible value claim in relation to an asset acquired in a no gain/no loss transaction where the asset became of negligible value during the ownership of the person who made the no gain/no loss disposal or the ownership of an earlier owner where there has been an unbroken series of no gain/no loss disposals.

Article 5 amends section 125 of the Taxation of Chargeable Gains Act 1992 (shares in close company transferring assets at an undervalue) to make statutory provision for a concession which disapplies that section in relation to a transfer of assets which is treated as an income or capital distribution or employment income.

Article 6 amends section 158 of the Taxation of Chargeable Gains Act 1992 (roll-over relief: activities other than trades and interpretation) to make statutory provision for a concession which extends roll-over relief on the replacement of business assets to assets held by a company in which an unincorporated company or other body not established for profit has at least a 90% interest in the company’s shares, profits or assets on a winding up.

Articles 7 to 10 make statutory provision for concessions relating to relief from capital gains tax on a disposal of a private residence.

Article 7 amends section 223(3) of the Taxation of Chargeable Gains Act 1992 (private residences: amount of relief) and allows a period of absence due to the work of a spouse or civil partner to be treated as a period in which the dwelling-house was an individual’s only or main residence.

Article 8 amends section 223 of the Taxation of Chargeable Gains Act 1992. In order for a period of absence to be treated as a period in which the dwelling-house was an individual’s only or main residence, an individual must resume residence after the period of absence. This amendment treats this condition as satisfied where residence is not resumed due to the place of employment of the individual or the individual’s spouse or civil partner.

Article 9 inserts a new section 225B (disposals in connection with divorce, etc). This makes provision for a concession where an individual ceases to live with a spouse or civil partner in a dwelling-house which was that individual’s only or main dwelling house. If the dwelling-house continues to be the only or main residence of the spouse or civil partner and the individual has not given notice for another property to be treated as the individual’s only or main residence, the dwelling-house may be treated as the individual’s only or main residence on disposal to the spouse or civil partner in connection with divorce, annulment, dissolution or separation.

Article 10 inserts a new section 225C (sale of private residence under certain agreements with employer, etc). This makes provision for a concession where an individual whose employment is relocating disposes of a dwelling-house which was that individual’s only or main dwelling house to the individual’s employer (or person operating under an agreement with the employer) (“the initial disposal”) and under the terms of an agreement the individual is entitled to a share of the profit when the property is later sold. If the share of the profit is received within three years of the initial disposal it may be treated as attributable to the initial disposal so that it qualifies for private residence relief to the same extent as did the gain on the initial disposal.

Article 11 inserts a new section 239ZA in the Taxation of Chargeable Gains Act 1992. This makes statutory provision for a concession which relieves from capital gains tax, disposals by trustees of employee benefit trusts that give rise to income tax liability on the part of the employee or other person to whom the property is transferred.

Article 12 amends section 258(2) of the Taxation of Chargeable Gains Act 1992 (works of art etc). Section 258(2) provides that a gain on the disposal of an asset is not a chargeable gain if it accrues on a disposal to certain specified bodies or where the asset is accepted in satisfaction of inheritance tax. The amendment removes the requirement and makes provision for a concession that in order to qualify for this exemption the asset disposed of must be the subject of an inheritance tax undertaking, or an undertaking under section 258, to keep the asset in the United Kingdom, preserve and maintain it and allow reasonable public access.

Article 13 amends sections 5(1)(b), 64 and 272 of the Inheritance Tax Act 1984 to give statutory effect to a concession which makes provision for the owner of foreign works of art to be exempt from inheritance tax if, on the death of the owner, the works of art were in the UK for one or more of the purposes of public display, cleaning, and restoration and for no other purpose.

Article 14 amends section 6 of the Inheritance Tax Act 1984 (excluded property) so as to make provision for a concession that treats for inheritance tax purposes as excluded property any decoration or other award for valour or gallant conduct if there has never been a disposition of the decoration or award for consideration in money or money’s worth relating to the decoration or award.

Article 15 amends section 8 of the Oil Taxation Act 1975 (oil allowance). Section 8 provides a volume based relief against Petroleum Revenue Tax known as oil allowance. For each return period section 8(3) provides that each participator will be entitled to a cash equivalent of oil allowance (subject to a maximum upper limit) using the formula AxB/C. In the formula A is the participator’s gross profit for the period, B is the participator’s share of oil allowance for the field. C is the participator’s share of oil won from the field.

Section 8(4) calculates the total oil allowance by aggregating relief against sales of oil (excluding gas) (for which see section 8(4)(a)) with relief (if available) against sales of gas (for which see section 8(4)(b)).

Section 8(4) works by modifying the A x B/C formula in section 8(3). The intention is to modify the formula in such a way that the allowance is available first in relation to profits from oil (paragraph (a)) and then, if there is an allowance left, in relation to profits from gas (paragraph (b)). However, as it stands, section 8(4) is not quite right. In particular, it does not make the necessary modification of C. The amendment makes provision for a concession which modifies C.

The amendment at article 15 restricts the C factor in cases where subsection (4)(a) applies (by new subparagraph (i)) to the participator’s share of oil won and saved by excluding gas. This is then repeated in cases where subsection (4)(b) applies (by new subparagraph (ii)) to the participator’s share of oil won and saved by excluding by oil (excluding gas).

Article 16 inserts a new section 5A into Alcoholic Liquor Duties Act 1979 (“ALDA”). It exempts from excise duty spirits contained in flavourings imported into the United Kingdom or used in the production of flavourings provided the flavourings are for use in the preparation of food for human consumption or the preparation of beverages with an alcoholic strength not exceeding 1.2 per cent.

Flavourings is defined as meaning any products falling within CN Code 3302 of the Combined Nomenclature established by Council Regulation (EEC) No 2658/87(1) on the tariff and statistical nomenclature and on the Common Customs Tariff as amended by Commission Regulation (EC) No 1832/2002(2).

Article 17 amends paragraph (b) of section 21(6D) of the Value Added Tax Act 1994 (disapplication of subsection (4)) and makes provision for a concession which limits the temporal condition for the disapplication of subsection (4) (reduced value to be applied to certain goods on importation) to circumstances where a taxpayer has effected the arrangements in order to obtain the benefit of the reduced valuation provided for in that subsection.

An impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.

(1)

OJ No L256, 7.9.87, p.1.

(2)

OJ No L 290, 28.10.2002, p.1; Annex 1 to Council Regulation (EEC) No 2658/87 is replaced by the Annex set out in this Regulation; Ch 33 of the Annex classifies products within CN Code 3302 as “Mixtures of odoriferous substances and mixtures (including alcohol solutions) with a basis of one or more of these substances, of a kind used as raw materials in industry; other preparations based on odoriferous substances, of a kind used for the manufacture of beverages”.