The Enactment of Extra-Statutory Concessions (No. 2) Order 2009

EXPLANATORY NOTE

(This note is not part of the Order)

This Order is made under section 160 Finance Act 2008 (c. 9) and enacts a number of existing HM Revenue and Customs extra-statutory concessions.

Article 2 amends section 218(1) of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (“ITEPA 2003”) so as to exclude from the concept of “exempt income” any amounts within the new sections 290A and 290B that are inserted by paragraph (3). This means that the new exemptions cannot influence whether a person is in “lower-paid employment”, which is a condition of the exemptions. Article 2(3) inserts new sections 290A and 290B in ITEPA 2003. These relieve from income tax expenses paid for or reimbursed to ministers of religion in respect of heating, lighting, cleaning and gardening in connection with living accommodation provided with the employment. Similar relief is given in respect of allowances paid to ministers and used by them for the purpose of meeting such expenses.

Similar relief for Class 1 National Insurance contributions is being given by a separate instrument amending the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004).

Article 3 amends Chapter 7 of Part 9 of the Income Tax Act 2007 (c. 3) (“ITA 2007”) by making legislative provision for a claim for repayment of income tax where the trustees of certain discretionary trusts pay amounts that, in the recipient’s hands, are employment income (but not exempt income within the meaning of section 8 of ITEPA 2003). The amendments bring the tax consequences of discretionary payments of (non-exempt) employment income within the Self Assessment regime.

New sections 496A and 496B of ITA 2007 (article 3(3)) make provision for trustees making discretionary payments of employment income to be able to claim repayment after the end of a tax year of an amount of income tax not exceeding the lesser of the tax pool for that year, and a notional amount of tax derived by applying the trust rate in force for that year to the amount of such discretionary payments made in that tax year. Article 3(5) amends the method of calculation of “the tax pool” at section 497(1) of ITA 2007 to take into account the new section 496B relief. Article 3(6) adds new section 496B to the provisions listed in section 504(5) of ITA 2007 (treatment of unauthorised unit trusts) that do not apply in relation to payments made by trustees of unauthorised unit trusts. Articles 3(7) to 3(9) make provision about when the different paragraphs of article 3 take effect. Article 3(10) makes provision about the effect of an agreement made under former Extra-Statutory Concession A68, first published in an Inland Revenue press release dated 22 June 1988, in relation to the tax pool.

Article 4(1) makes provision for repayments made by virtue of the new section 496A of ITA 2007 to attract repayment supplement; article 4(2) makes a consequential amendment in that respect to the Finance Act 2009 (c. 10).

Article 5 inserts section 339(3BA) and (3BB) into the Income and Corporation Taxes Act 1988 (c. 1) (“ICTA 1988”) to provide that where a charity-owned company makes an estimated gift aid donation to its parent charity, for the purpose of reducing to nil the company’s total profits for the accounting period in which the donation is made, the estimate is excessive, and a repayment is made within 12 months solely for adjustment purposes, the donation was not made “subject to a condition as to repayment” and the repayment is not treated as non-charitable expenditure for corporation tax or income tax purposes.

Article 6 inserts new sections 508A and 508B into ICTA 1988 to provide for a share of a qualifying contemplative religious community’s corporation tax profits (equal in amount to the annual income tax personal allowance for persons under 65) to be treated as the income of each qualifying member (broadly, permanent members who have covenanted their assets or income to the community or its parent body). If the community does not have sufficient corporation tax profits to be fully apportioned in accordance with section 508A, a balancing amount of its chargeable gains can be attributed to qualifying members under section 508B.

Article 7 amends section 55 of the Taxation of Chargeable Gains Act 1992 (c. 12) (“TCGA 1992”) and inserts a new paragraph 1A into Schedule 3 to that Act. The effect of these changes is to make provision where a company disposes of shares or securities which it acquired from another member of its group. In such a case the gain on the disposal may fall to be computed as if the company had owned the shares or securities on 31st March 1982. The effect of the amendment is that the company may make a claim to value the shares or securities at 31st March 1982 as though they were part of the largest holding in which any of them were comprised at that date. This can give a higher value than would be the case if the shares or securities were valued as part of a smaller holding. As the value at 31st March 1982 is deducted in computing the gain on the company’s disposal, a higher value results in the chargeable gain from the disposal being reduced.

Article 8 inserts sections 248A to 248E into TCGA 1992 to make provision where there is an exchange of interests in land. Section 248A and 248B apply to an exchange of interests in land where before the exchange the holdings of land are held jointly and after the exchange the holdings are solely owned. A gain accruing on the disposal on the interest may be rolled-over where the consideration for the disposal does not exceed the value of the interest acquired in exchange or where the consideration exceeds the value of the interest received but does not exceed the gain on the interest disposed of. This relief does not apply to “excluded land”. Section 248C defines excluded land, essentially, this is land the disposal of which would be exempt from capital gains tax as a private residence. Section 248D applies section 248A with modifications to exchanges of milk quotas associated with land to which that section applies. Section 248E makes provision for certain exchanges of interests in private residences to be no gain/no loss disposals.

Article 9 inserts a new section 268B into TCGA 1992 (compensation for deprivation of foreign asset) to relieve from capital gains tax and from corporation tax on chargeable gains the receipt of certain sums paid by way of compensation for the deprivation of foreign assets.

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