Finance Act 2013

Key amendments to Part 4 of ITTOIA 2005 U.K.

1 U.K. Part 4 of ITTOIA 2005 (savings and investment income) is amended in accordance with paragraphs 2 and 3.

2 U.K. In section 365(1) (overview of Part 4)—

(a) after paragraph (a) insert—

“(aa) Chapter 2A (disguised interest),”, and

(b) omit paragraph (k).

3 U.K. After Chapter 2 insert—

“CHAPTER 2A U.K. Disguised interest

381A Charge to tax on disguised interest

(1) This Chapter applies where a person is party to an arrangement which produces for the person a return in relation to any amount which is economically equivalent to interest.

(2) Income tax is charged on the return if the return is not charged to income tax under or as a result of any other provision of this Act or any other Act.

(3) Subsection (2) does not apply to a return that would be charged to income tax under or as a result of another provision but for an exemption.

(4) For the purposes of this Chapter a return produced for a person by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)—

(a) it is reasonable to assume that it is a return by reference to the time value of that amount of money,

(b) it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and

(c) at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it.

(5) In subsection (4)(c) “the relevant time” means the time when the person becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the person.

(6) In this Chapter “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

381B Income charged

Tax is charged under this Chapter on the full amount of the return, or any part of the return, arising in the tax year.

381C Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the return or the part of the return.

381D Avoidance of double taxation

(1) This section applies if at any time a tax other than income tax (“the other tax”) is charged in relation to a return on which income tax is charged under this Chapter.

(2) In order to avoid a double charge to tax in respect of the return, a person may make a claim for one or more consequential adjustments to be made in respect of the other tax.

(3) On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.

(4) Consequential adjustments may be made—

(a) in respect of any period,

(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and

(c) despite any time limit imposed by or under any enactment.

381E Exception for returns from certain shares

(1) This Chapter does not apply in relation to an arrangement that produces a return for a person, in relation to an amount, which is economically equivalent to interest where—

(a) the arrangement involves only excluded shares, and

(b) no relevant arrangement has been made (by any person) in relation to those excluded shares.

(2) For the purposes of this section shares are excluded shares if they are admitted to trading on a regulated market and—

(a) they were issued before 6 April 2013, or

(b) if issued on or after that date, at the time of issue no arrangements involving only the shares would produce a return, in relation to an amount, which is economically equivalent to interest.

(3) In subsection (2) “regulated market” has the same meaning as in Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (see Article 4.1(14)).

(4) For the purposes of this section an arrangement is relevant, in relation to excluded shares, where—

(a) the arrangement is made on or after 6 April 2013, and

(b) it is reasonable to assume that the main purpose, or one of the main purposes, of the arrangement is to secure that arrangements involving only the shares produce a return, in relation to an amount, which is economically equivalent to interest.”