Finance Act 1986

PART I Customs and Excise and Value Added Tax

CHAPTER I Customs and Excise

The rates of duty

1 Tobacco products

(1) For the Table in Schedule 1 to the [1979 c. 7.] Tobacco Products Duty Act 1979 there shall be substituted—

“TABLE

1. Cigarettes	An amount equal to 21 per cent, of the retail price plus £30.61 per thousand cigarettes.
2. Cigars	£47.05 per kilogram.
3. Hand-rolling tobacco	£49.64 per kilogram.
4. Other smoking tobacco and chewing tobacco	£24.95 per kilogram."”

(2) This section shall be deemed to have come into force on 21st March 1986.

2 Hydrocarbon oil

(1) In section 6(1) of the [1979 c. 5.] Hydrocarbon Oil Duties Act 1979 for "£0.1794" (light oil) and "£0.1515" (heavy oil) there shall be substituted "£0.938" and "£0.1639" respectively.

(2) In subsection (1) of section 11 of that Act (rebate on heavy oil) for paragraphs (a) and (b) there shall be substituted—

“(a) in the case of fuel oil, of £0.0077 a litre less than the rate at which the duty is for the time being chargeable;

(b) in the case of gas oil, of £0.0110 a litre less than the rate at which the duty is for the time being chargeable; and

(c) in the case of heavy oil other than fuel oil and gas oil, equal to the rate at which the duty is for the time being chargeable.”

(3) For subsection (2) of section 11 of that Act (definition of types of heavy oil), there shall be substituted—

“(2) In this section—

• 'fuel oil' means heavy oil which contains in solution an amount of asphaltenes of not less than 0-5 per cent, or which contains less than 0-5 per cent, but not less than 01 per cent, of asphaltenes and has a closed flash point not exceeding 150°C; and

• 'gas oil' means heavy oil of which not more than 50 per cent, by volume distils at a temperature not exceeding 240°C and of which more than 50 per cent, by volume distils at a temperature not exceeding 340°C.”

(4) This section shall be deemed to have come into force at 6 o'clock in the evening of 18th March 1986.

3 Vehicles excise duty

(1) The [1971 c. 10.] Vehicles (Excise) Act 1971 and the [1972 c. 10 (N.I.).] Vehicles (Excise) Act (Northern Ireland) 1972 shall be amended in accordance with this section.

(2) For Part II of Schedule 2 to each of the Acts of 1971 and 1972 (annual rates of duty on hackney carriages) there shall be substituted the provisions set out in Part I of Schedule 1 to this Act.

(3) In Schedule 4 to each of the Acts of 1971 and 1972 (annual rates of duty on goods vehicles)—

(a) in Part I, in sub-paragraph (2) of paragraph 6 (farmer's goods vehicle or showman's goods vehicle having a plated gross weight or a plated train weight) in paragraph (b) (weight exceeding 7-5 tonnes but not exceeding 12 tonnes) for "£135" (which applies to farmers' goods vehicles only) there shall be substituted "£155"; and

(b) in Part II, for Tables A(1), C(1) and D(1) (rates for farmers' goods vehicles having plated weight exceeding 12 tonnes) there shall be substituted the Tables set out in Part II of Schedule 1 to this Act.

(4) In section 16 of the Act of 1971, in subsection (5) (annual rates of duty for trade licences), including that subsection as set out in paragraph 12 of Part I of Schedule 7 to that Act, for "£46" and "£9" there shall be substituted respectively "£70" and "£14".

(5) In section 16 of the Act of 1972, in subsection (6) (annual rates of duty for trade licences), including that subsection as set out in paragraph 12 of Part I of Schedule 9 to that Act, for "£46" and "£9" there shall be substituted respectively "£70" and "£14".

(6) Subsections (2) and (3) above apply in relation to licences taken out after 18th March 1986; and subsections (4) and (5) above apply in relation to licences taken out after 31st December 1986.

(7) The Act of 1971 shall have effect subject to the further amendments in Part I of Schedule 2 to this Act; and the Act of 1972 shall have effect subject to the further amendments in Part II of that Schedule.

(8) The amendments made by paragraphs 4 and 9 of Schedule 2 to this Act shall not come into force until 1st January 1987; and the amendments made by paragraphs 5 and 10 of that Schedule shall not have effect with respect to the surrender of licences taken out before that date.

Other provisions

4 Beer duty: minor amendments

(1) In subsection (2) of section 46 of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (remission or repayment of duty on beer which, having been removed from entered premises, has accidentally become spoilt or otherwise unfit for use)—

(a) the word "accidentally" shall be omitted; and

(b) after the words "subject to" there shall be inserted "subsection (2A) below and to";

and at the end of that subsection there shall be inserted the following subsection—

“(2A) For the purpose of determining the amount of duty to be remitted or repaid under subsection (2) above in respect of any beer, it shall be assumed that, at any material time, the worts of the beer had an original gravity of one degree less than they actually had and that duty on the beer was charged accordingly.”

(2) After section 49 of the Alcoholic Liquor Duties Act 1979 there shall be inserted the following section—

“49A Drawback allowable to brewer for sale.

(1) For the purpose of any claim for drawback by a brewer for sale in respect of duty charged on beer, duty which has been determined in accordance with regulations under section 49(1)(bb) above shall be deemed to be duty which has been paid (whether or not it is in fact paid by the time the claim is made).

(2) Subject to such conditions as the Commissioners see fit to impose, drawback allowable to a brewer for sale in respect of beer may be set against any amount to which the brewer is chargeable under section 38 above and, in relation to a brewer for sale, any reference in this Act or the Management Act to drawback payable shall be construed accordingly.”

5 Warehousing regulations

Schedule 3 to this Act (which contains amendments about warehousing regulations) shall have effect.

6 Betting duties and bingo duty in Northern Ireland

(1) The [1981 c. 63.] Betting and Gaming Duties Act 1981 (in this section referred to as "the 1981 Act") shall have effect subject to the amendments in Part I of Schedule 4 to this Act, being amendments designed to extend to Northern Ireland—

(a) the provisions of the 1981 Act relating to general betting duty and pool betting duty (in place of the provisions of Part III of the [1972 c. 11 (N.I.).] Miscellaneous Transferred Excise Duties Act (Northern Ireland) 1972 relating to those duties); and

(b) the provisions of the 1981 Act relating to bingo duty.

(2) Part II of Schedule 4 to this Act shall have effect for the purpose of making consequential amendments of certain Northern Ireland legislation; and Part III of that Schedule shall have effect for the purpose of extending to Northern Ireland certain subordinate legislation made under the 1981 Act.

(3) Schedule 4 to this Act —

(a) so far as it relates to general betting duty or pool betting duty, shall come into force on the betting commencement date, but shall not have effect in relation to duty in respect of bets made before that date; and

(b) so far as it relates to bingo duty, shall come into force on the bingo commencement date, but shall not impose any charge to duty in respect of bingo played in Northern Ireland before that date.

(4) Part III of the [1972 c. 11 (N.I.).] Miscellaneous Transferred Excise Duties Act (Northern Ireland) 1972 shall cease to have effect on the betting commencement date except in relation to duty in respect of bets made before that date.

(5) In this section and Schedule 4 to this Act—

• "the betting commencement date" means 29th September 1986 or, if later, the day appointed for the coming into operation of Part II (betting) of the [S.I. 1985/1204 (N.I. 11).] Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985; and

• "the bingo commencement date" means 29th September 1986 or, if later, the day appointed for the coming into operation of Chapter II of Part III (gaming on bingo club premises) of that Order.

7 Betting and gaming duties: evidence by certificate, etc.

After section 29 of the [1981 c. 63.] Betting and Gaming Duties Act 1981 there shall be inserted the following section—

“29A Evidence by certificate, etc.

(1) A certificate of the Commissioners—

(a) that any notice required by or under this Act to be given to them had or had not been given at any date, or

(b) that any permit, licence or authority required by or under this Act had or had not been issued at any date, or

(c) that any return required by or under this Act had not been made at any date, or

(d) that any duty shown as due in any return or estimate made in pursuance of this Act had not been paid at any date,

shall be sufficient evidence of that fact until the contrary is proved.

(2) A photograph of any document furnished to the Commissioners for the purposes of this Act and certified by them to be such a photograph shall be admissible in any proceedings, whether civil or criminal, to the same extent as the document itself.

(3) Any document purporting to be a certificate under subsection (1) or (2) above shall be deemed to be such a certificate until the contrary is proved.”

8 Licences under the customs and excise Acts

(1) No excise licence duty shall be chargeable on the grant after 18th March 1986 of an excise licence under any provision of the [1979 c. 4.] Alcoholic Liquor Duties Act 1979 (licensing of various activities relating to the production of alcoholic liquor) or under section 2 of the [1979 c. 6.] Matches and Mechanical Lighters Duties Act 1979 (licensing of manufacture of matches).

(2) The following enactments shall cease to have effect—

(a) sections 12(2), 18(3), 47(3), 48(2) and 75(3) of the Alcoholic Liquor Duties Act 1979 and section 2(2) of the Matches and Mechanical Lighters Duties Act 1979 (which provide for certain excise licences, the duty on which is abolished by subsection (1) above, to expire on a specified date in each year); and

(b) section 81 of the Alcoholic Liquor Duties Act 1979 (under which a licence is required for the keeping or using of a still by any person otherwise than as a distiller, rectifier or compounder).

(3) The holder of a licence under any of the enactments specified in subsection (5) below may surrender the licence to the Commissioners of Customs and Excise at any time.

(4) The Commissioners of Customs and Excise may at any time revoke a licence granted in respect of any premises under any of the enactments specified in subsection (5) below if it appears to them that the holder of the licence has ceased to carry on at those premises the activity in respect of which the licence was granted.

(5) The enactments referred to in subsections (3) and (4) above are—

(a) section 12 of the Alcoholic Liquor Duties Act 1979 (distillers),

(b) section 18 of that Act (rectifiers),

(c) section 47 of that Act (brewers),

(d) section 48 of that Act (persons using premises for adding solutions to beer),

(e) section 54 of that Act (wine producers),

(f) section 55 of that Act (made-wine producers), and

(g) section 2 of the [1979 c. 6.] Matches and Mechanical Lighters Duties Act 1979 (match manufacturers).

(6) Schedule 5 to this Act shall have effect for the purpose of supplementing the provisions of this section.

CHAPTER II Value Added Tax

9 Fuel for private use

(1) The provisions of this section apply where, in any prescribed accounting period beginning after 6th April 1987, fuel which is or has previously been supplied to or imported or manufactured by a taxable person in the course of his business—

(a) is provided or to be provided by the taxable person to an individual for private use in his own vehicle or a vehicle allocated to him and is so provided by reason of that individual's employment; or

(b) where the taxable person is an individual, is appropriated or to be appropriated by him for private use in his own vehicle; or

(c) where the taxable person is a partnership, is provided or to be provided to any of the individual partners for private use in his own vehicle.

(2) For the purposes of this section fuel shall not be regarded as provided to any person for his private use if it is supplied at a price which.—

(a) in the case of fuel supplied to or imported by the taxable person, is not less than the price at which it was so supplied or imported; and

(b) in the case of fuel manufactured by the taxable person, is not less than the aggregate of the cost of the raw material and of manufacturing together with any excise duty thereon.

(3) For the purposes of this section and Schedule 6 to this Act—

(a) "fuel for private use" means fuel which, having been supplied to or imported or manufactured by a taxable person in the course of his business, is or is to be provided or appropriated for private use as mentioned in subsection (1) above;

(b) any reference to an individual's own vehicle shall be construed as including any vehicle of which for the time being he has the use, other than a vehicle allocated to him;

(c) subject to subsection (9) below, a vehicle shall at any time be taken to be allocated to an individual if at that time it is made available (without any transfer of the property in it) either to the individual himself or to any other person, and is so made available by reason of the individual's employment and for private use; and

(d) fuel provided by an employer to an employee and fuel provided to any person for private use in a vehicle which, by virtue of paragraph (c) above, is for the time being taken to be allocated to the employee shall be taken to be provided to the employee by reason of his employment.

(4) Where under section 29 of the principal Act any bodies corporate are treated as members of a group, any provision of fuel by a member of the group to an individual shall be treated for the purposes of this section as provision by the representative member.

(5) In relation to the taxable person, tax on the supply or importation of fuel for private use shall be treated for the purposes of the principal Act as input tax, notwithstanding that the fuel is not used or to be used for the purposes of a business carried on by the taxable person (and, accordingly, no apportionment of tax shall fall to be made under section 14(4) of that Act by reference to fuel for private use).

(6) At the time at which fuel for private use is put into the fuel tank of an individual's own vehicle or of a vehicle allocated to him, the fuel shall be treated for the purposes of the principal Act as supplied to him by the taxable person in the course or furtherance of his business for a consideration determined in accordance with subsection (7) below (and, accordingly, where the fuel is appropriated by the taxable person to his own private use, he shall be treated as supplying it to himself in his private capacity).

(7) In any prescribed accounting period of the taxable person in which, by virtue of subsection (6) above, he is treated as supplying fuel for private use to an individual, the consideration for all the supplies made to that individual in that period in respect of any one vehicle shall be that which, by virtue of Schedule 6 to this Act, is appropriate to a vehicle of that description, and that consideration shall be taken to be inclusive of tax.

(8) In any case where.—

(a) in any prescribed accounting period, fuel for private use is, by virtue of subsection (6) above, treated as supplied to an individual in respect of one vehicle for a part of the period and in respect of another vehicle for another part of the period; and

(b) at the end of that period one of those vehicles neither belongs to him nor is allocated to him,

subsection (7) above shall have effect as if the supplies made to the individual during those parts of the period were in respect of only one vehicle.

(9) In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—

(a) in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and

(b) in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and

(c) it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.

(10) In this section and Schedule 6 to this Act—

• "employment" includes any office; and related expressions shall be construed accordingly;

• "the principal Act" means the [1983 c. 55.] Value Added Tax Act 1983;

• "vehicle" means a mechanically propelled road vehicle other than—

  (a)

  a motor cycle as defined in section 190(4) of the [1972 c. 20.] Road Traffic Act 1972 or, for Northern Ireland, in Article 37(1)(f) of the [S.I. 1981/154 (N.I. 1).] Road Traffic (Northern Ireland) Order 1981, or

  (b)

  an invalid carriage as defined in section 190(5) of that Act or, for Northern Ireland, in Article 37(1)(g) of that Order.

(11) This section and Schedule 6 to this Act shall be construed as one with the principal Act.

10 Registration of two or more persons as one taxable person

(1) In Schedule 1 to the [1983 c. 55.] Value Added Tax Act 1983 (registration) after paragraph 1 there shall be inserted the following paragraph—

“1A (1) Without prejudice to paragraph 1 above, if the Commissioners make a direction under this paragraph, the persons named in the direction shall be treated as a single taxable person carrying on the activities of a business described in the direction and that taxable person shall be liable to be registered with effect from the date of the direction or, if the direction so provides, from such later date as may be specified therein.

(2) The Commissioners shall not make a direction under this paragraph naming any person unless they are satisfied—

(a) that he is making or has made taxable supplies; and

(b) that the activities in the course of which he makes or made those taxable supplies form only part of certain activities which should properly be regarded as those of the business described in the direction, the other activities being carried on concurrently or previously (or both) by one or more other persons; and

(c) that, if all the taxable supplies of that business were taken into account, a person carrying on that business would at the time of the direction be liable to be registered by virtue of paragraph 1 above; and

(d) that the main reason or one of the main reasons for the person concerned carrying on the activities first referred to in paragraph (b) above in the way he does is the avoidance of a liability to be registered (whether that liability would be his, another person's or that of two or more persons jointly).

(3) A direction made under this paragraph shall be served on each of the persons named in it.

(4) Where, after a direction has been given under this paragraph specifying a description of business, it appears to the Commissioners that a person who was not named in that direction is making taxable supplies in the course of activities which should properly be regarded as part of the activities of that business, the Commissioners may make and serve on him a supplementary direction referring to the earlier direction and the description of business specified in it and adding that person's name to those of the persons named in the earlier direction with effect from—

(a) the date on which he began to make those taxable supplies, or

(b) if it was later, the date with effect from which the single taxable person referred to in the earlier direction became liable to be registered.

(5) If, immediately before a direction (including a supplementary direction) is made under this paragraph, any person named in the direction is registered in respect of the taxable supplies made by him as mentioned in sub-paragraph (2) or sub-paragraph (4) above, he shall cease to be liable to be so registered with effect from whichever is the later of—

(a) the date with effect from which the single taxable person concerned became liable to be registered; and

(b) the date of the direction.

(6) In relation to a business specified in a direction under this paragraph, the persons named in the direction, together with any person named in a supplementary direction relating to that business (being the persons who together are to be treated as the taxable person), are in sub-paragraphs (7) and (8) below referred to as "the constituent members".

(7) Where a direction is made under this paragraph then, for the purposes of this Act.—

(a) the taxable person carrying on the business specified in the direction shall be registerable in such name as the persons named in the direction may jointly nominate by notice in writing given to the Commissioners not later than fourteen days after the date of the direction or, in default of such a nomination, in such name as may be specified in the direction;

(b) any supply of goods or services by or to one of the constituent members in the course of the activities of the taxable person shall be treated as a supply by or to that person;

(c) each of the constituent members shall be jointly and severally liable for any tax due from the taxable person;

(d) without prejudice to paragraph (c) above, any failure by the taxable person to comply with any requirement imposed by or under this Act shall be treated as a failure by each of the constituent members severally; and

(e) subject to paragraphs (a) to (d) above, the constituent members shall be treated as a partnership carrying on the business of the taxable person and any question as to the scope of the activities of that business at any time shall be determined accordingly.

(8) If it appears to the Commissioners that any person who is one of the constituent members should no longer be regarded as such for the purposes of paragraphs (c) and (d) of sub-paragraph (7) above and they give notice to that effect, he shall not have any liability by virtue of those paragraphs for anything done after the date specified in that notice and, accordingly, on that date he shall be treated as having ceased to be a member of the partnership referred to in paragraph (e) of that sub-paragraph.”

(2) In section 40 of the [1983 c. 55.] Value Added Tax Act 1983 (appeals), in subsection (1), after paragraph (h) there shall be inserted the following paragraph—

“(hh) any direction or supplementary direction made under paragraph 1A of Schedule 1 to this Act”.

(3) In the said section 40, for the words from the beginning of subsection (3A) to "paragraph (m) above" there shall be substituted—

“(3A) Where there is an appeal against a decision to make such a direction as is mentioned in subsection (1) (hh) above, the tribunal shall not allow the appeal unless it considers that the Commissioners could not reasonably have been satisfied as to the matters in paragraphs (a) to (d) of subparagraph (2) of paragraph 1A of Schedule 1 to this Act or, as the case may be, as to the matters in sub-paragraph (4) of that paragraph.

(3B) Where, on an appeal against a decision with respect to any of the matters mentioned in subsection (1)(m) above”.

11 Long-stay accommodation

(1) In paragraph 9 of Schedule 4 to the [1983 c. 55.] Value Added Tax Act 1983 (reduced value provision applicable to supply of accommodation in hotels etc. for periods exceeding four weeks) for the words preceding paragraph (a) there shall be substituted—

“(1) This paragraph applies where a supply of services consists in the provision of accommodation falling within paragraph (a) of item 1 of Group 1 in Schedule 6 to this Act and—

(a) that provision is made to an individual for a period exceeding four weeks; and

(b) throughout that period the accommodation is provided for the use of the individual either alone or together with one or more other persons who occupy the accommodation with him otherwise than at their own expense (whether incurred directly or indirectly).

(2) Where this paragraph applies”.

(2) This section applies to a supply of services on or after 1st November 1986.

12 Conditions for zero-rating of goods exported etc.

(1) In section 16 of the Value Added Tax Act 1983 (zero-rating) at the end of subsection (6) (goods exported or shipped as stores, etc.) there shall be added the words "and, in either case, if such other conditions, if any, as may be specified in regulations or the Commissioners may impose are fulfilled."

(2) In subsection (9) of that section—

(a) after the words "zero-rated" there shall be inserted "by virtue of subsection (6) above or";

(b) in paragraph (a) after the word "exported" there shall be inserted "or shipped"; and

(c) in paragraph (b) for the word "regulations" there shall be substituted "relevant regulations under subsection (6), (7) or (8) above".

13 Transfer of import relief

In section 19 of the Value Added Tax Act 1983 (relief from tax on importation of goods to give effect to international agreements etc.) after subsection (1) there shall be inserted the following subsection—

“(1A) In any case where—

(a) it is proposed that goods which have been imported by any person (in this subsection referred to as "the original importer") with the benefit of relief under subsection (1) above shall be transferred to another person (in this subsection referred to as "the transferee"), and

(b) on an application made by the transferee, the Commissioners direct that this subsection shall apply,

this Act shall have effect as if, on the date of the transfer of the goods (and in place of the transfer), the goods were exported by the original importer and imported by the transferee and, accordingly, where appropriate, provision made under subsection (1) above shall have effect in relation to the tax chargeable on the importation of the goods by the transferee.”

14 Penalty for tax evasion: liability of directors etc.

(1) Where it appears to the Commissioners—

(a) that a body corporate is liable to a penalty under section 13 of the [1985 c. 54.] Finance Act 1985 (civil penalty for value added tax evasion where conduct involves dishonesty), and

(b) that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (in this section referred to as a "named officer"),

the Commissioners may serve a notice under this section on the body corporate and on the named officer.

(2) A notice under this section shall state—

(a) the amount of the penalty referred to in subsection (1)(a) above (in this section referred to as "the basic penalty"); and

(b) that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.

(3) Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 13 of the [1985 c. 54.] Finance Act 1985 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under section 21 of that Act.

(4) Where a notice is served under this section.—

(a) the amount which, under section 21 of the Finance Act 1985, may be assessed as the amount due by way of penalty from the body corporate shall be only so much (if any) of the basic penalty as is not assessed on and notified to a named officer by virtue of subsection (3) above; and

(b) the body corporate shall be treated as discharged from liability for so much of the basic penalty as is so assessed and notified.

(5) No appeal shall lie against a notice under this section as such but.—

(a) where a body corporate is assessed as mentioned in subsection (4)(a) above, the body corporate may appeal against the Commissioners' decision as to its liability to a penalty and against the amount of the basic penalty as if it were specified in the assessment; and

(b) where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioners' decision that the conduct of the body corporate referred to in subsection (1)(b) above is, in whole or part, attributable to his dishonesty and against their decision as to the portion of the penalty which the Commissioners propose to recover from him.

(6) For the purposes of the [1983 c. 55.] Value Added Tax Act 1983, any appeal brought by virtue of subsection (5) above shall be treated as an appeal under section 40 of that Act; and the reference in subsection (1A) of that section to an amount assessed by way of penalty includes a reference to an amount assessed by virtue of subsection (3) or subsection (4)(a) above.

(7) The provisions that may be included in rules under paragraph 9 of Schedule 8 to the [1983 c. 55.] Value Added Tax Act 1983 (procedure on appeals to value added tax tribunals) include provision with respect to the joinder of appeals brought by different persons where a notice is served under this section and the appeals relate to, or to different portions of, the basic penalty referred to in the notice.

(8) In this section a "managing officer", in relation to a body corporate, means any manager, secretary or other similar officer of the body corporate or any person purporting to act in any such capacity or as a director; and where the affairs of a body corporate are managed by its members, this section shall apply in relation to the conduct of a member in connection with his functions of management as if he were a director of the body corporate.

(9) This section does not apply where the conduct of the body corporate giving rise to the penalty took place before the passing of this Act.

15 Breaches of Treasury orders etc.

(1) In section 17 of the [1985 c. 54.] Finance Act 1985 (civil penalties for breaches of regulatory provisions under the Value Added Tax Act 1983) at the end of paragraph (c) of subsection (1) there shall be inserted “or

(d) any order made by the Treasury under that Act; or

(e) any regulations made under the European Communities Act 1972 and relating to value added tax”.

(2) At the end of subsection (4)(b) of that section (previous failures before the passing of the 1985 Act to be disregarded in determining rate of daily penalty) there shall be added "or, in the case of a requirement falling within paragraph (d) or paragraph (e) of subsection (1) above, before the passing of the Finance Act 1986".

PART II Income Tax, Corporation Tax and Capital Gains Tax

CHAPTER I General

Tax rates and main reliefs

16 Charge of income tax for 1986-87

(1) Income tax for the year 1986-87 shall be charged at the basic rate of 29 per cent.; and in respect of so much of an individual's total income as exceeds the basic rate limit (£17,200) at such higher rates as are specified in the Table below:

TABLE

Higher rate bands	Higher rate per cent.
The first £3,000	40
The next £5,200	45
The next £7,900	50
The next £7,900	55
The remainder	60

and paragraphs (a) and (b) of subsection (1) of section 32 of the [1971 c. 68.] Finance Act 1971 (charge of tax at the basic and higher rates) shall have effect accordingly.

(2) Section 24(4) of the [1980 c. 48.] Finance Act 1980 (indexation of thresholds) shall not, so far as it relates to the higher rate bands, apply for the year 1986—87.

17 Rate of advance corporation tax

(1) For the financial year 1986 and any subsequent financial year, the rate of advance corporation tax shall be fixed by the fraction—

where I is the percentage at which income tax at the basic rate is charged for the year of assessment which begins on 6th April in that financial year; and in the following provisions of this section that percentage is referred to, in relation to a particular financial year, as "the basic rate percentage for the appropriate year of assessment".

(2) If, at the beginning of any financial year, the basic rate percentage for the appropriate year of assessment has not been determined (whether under the [1968 c. 2.] Provisional Collection of Taxes Act 1968 or otherwise), then, subject to subsection (3) below, advance corporation tax in respect of distributions made in that financial year shall be payable under Schedule 14 to the [1972 c. 41.] Finance Act 1972 and may be assessed under that Schedule according to the rate of advance corporation tax fixed for the previous financial year.

(3) Subsection (2) above does not apply with respect to any distribution made in a financial year after—

(a) the date on which is determined the basic rate percentage for the appropriate year of assessment; or

(b) 5th August in that year,

whichever is the earlier.

(4) If a rate of advance corporation tax for any financial year is not fixed, under subsection (1) above or any other enactment, or if advance corporation tax for any financial year is charged otherwise than as it has been paid or assessed, the necessary adjustment shall be made by discharge or repayment of tax or by a further assessment.

(5) In subsection (2) of section 84 of the [1972 c. 41.] Finance Act 1972 (the rate of advance corporation tax) for the words from "for the period" onwards there shall be substituted "for the financial year 1986 and subsequent financial years shall be determined in accordance with section 17 of the Finance Act 1986".

(6) In section 103 of the Finance Act 1972 (charge of advance corporation tax at previous rate until new rate is fixed and change of rate) subsections (1) to (3) shall cease to have effect.

(7) Section 37(2) of the [1974 c. 30.] Finance Act 1974 (tax on company in liquidation to be based on Resolution fixing the rate of advance corporation tax) shall cease to have effect.

18 Corporation tax: small companies

(1) For the financial year 1986 the small companies rate shall be 29 per cent.

(2) For the financial year 1986, the fraction mentioned in section 95(2) of the Finance Act 1972 (marginal relief for small companies) shall be three two-hundreths.

19 Personal reliefs: operative date for PAYE

For the year 1986-87, in subsection (7) of section 24 of the [1980 c. 48.] Finance Act 1980 (which specifies the date from which indexed changes in income tax thresholds and allowances are to be brought into account for the purposes of PAYE) for "5th May" there shall be substituted "18th May".

20 Relief for interest

For the year 1986-87 the qualifying maximum referred to in paragraphs 5(1) and 24(3) of Schedule 1 to the [1974 c. 30.] Finance Act 1974 (limit on relief for interest on certain loans for the purchase or improvement of land) shall be £30,000.

21 Deduction rate for sub-contractors in construction industry

Section 69(4) of the [1975 c. 45.] Finance (No. 2) Act 1975 (which requires deductions to be made from payments to certain subcontractors in the construction industry) shall have effect in relation to payments made on or after 6th November 1986 with the substitution for the words "30 per cent." of the words "29 per cent.".

Employee shareholding

22 Employee share schemes: shares subject to restrictions

(1) In Schedule 9 to the [1978 c. 42.] Finance Act 1978 (approved profit snaring schemes) in paragraph 7 (conditions as to the shares)—

(a) in paragraph (c) after the word "class" there shall be added the words "or a restriction authorised by subparagraph (2) below"; and

(b) at the end there shall be added the sub-paragraphs set out in subsection (4) below followed by the additional sub-paragraph set out in subsection (5) below.

(2) In Schedule 10 to the [1980 c. 48.] Finance Act 1980 (savings-related share option schemes) in paragraph 17 (conditions as to the scheme shares)—

(a) in paragraph (c) after the word "class" there shall be added the words "or a restriction authorised by subparagraph (2) below"; and

(b) at the end there shall be added the sub-paragraphs set out in subsection (4) below.

(3) In Schedule 10 to the [1984 c. 43.] Finance Act 1984 (approved share option schemes) in paragraph 9 (conditions as to scheme shares)

(a) in paragraph (c) after the word "class" there shall be added the words "or a restriction authorised by subparagraph (2) below"; and

(b) at the end there shall be added the sub-paragraphs set out in subsection (4) below.

(4) The sub-paragraphs referred to in subsections (1)(b), (2)(b) and (3)(b) above are—

“(2) Except as provided below, the shares may be subject to a restriction imposed by the company's articles of association

(a) requiring all shares held by directors or employees of the company or of any other company of which it has control to be disposed of on ceasing to be so held; and

(b) requiring all shares acquired, in pursuance of rights or interests obtained by such directors or employees, by persons who are not (or have ceased to be) such directors or employees to be disposed of when they are acquired.

(3) A restriction is not authorised by sub-paragraph (2) above unless—

(a) any disposal required by the restriction will be by way of sale for a consideration in money on terms specified in the articles of association; and

(b) the articles also contain general provisions by virtue of which any person disposing of shares of the same class (whether or not held or acquired as mentioned in sub-paragraph (2) above) may be required to sell them on terms which are the same as those mentioned in paragraph (a) above.”

(5) The additional sub-paragraph referred to in subsection (1)(b) above is—

“(4) Except in the case of redeemable shares in a workers' co-operative, nothing in sub-paragraph (2) above authorises a restriction which would require a person, before the release date, to dispose of his beneficial interest in shares the ownership of which has not been transferred to him.”

23 Employee share schemes: general amendments

(1) In this section—

• "the 1978 Schedule" means Schedule 9 to the [1978 c. 42.] Finance Act 1978 (approved profit sharing schemes);

• "the 1980 Schedule" means Schedule 10 to the [1980 c. 48.] Finance Act 1980 (savings-related share option schemes); and

• "the 1984 Schedule" means Schedule 10 to the [1984 c. 43.] Finance Act 1984 (approved share option schemes).

(2) In each of the following provisions (which govern the eligibility of shares)—

(a) paragraph 8 of the 1978 Schedule,

(b) paragraph 19 of the 1980 Schedule,

(c) paragraph 11 of the 1984 Schedule,

there shall be made the amendments in subsection (3) below.

(3) After the words "of the same class" there shall be inserted "either must be employee-control shares or" and at the end there shall be added the following sub-paragraph—

“(2) For the purposes of this paragraph, shares of a company are employee-control shares if—

(a) the persons holding the shares are, by virtue of their holding, together able to control the company; and

(b) those persons are or have been employees or directors of the company or of another company which is under the control of the company.”

(4) In the following enactments (which exclude from provisions about restrictions attaching to shares provisions which are derived from a Model Code issued by The Stock Exchange in April 1981), namely—

(a) section 41 of the [1982 c. 39.] Finance Act 1982 (which relates to the 1980 Schedule and also to Schedule 8 to the [1973 c. 51.] Finance Act 1973-share option and share incentive schemes), and

(b) paragraph 10(2) of the 1984 Schedule,

for "April 1981" there shall be substituted "November 1984".

(5) For the purpose of bringing the definition of a member of a consortium in the 1978 Schedule and the 1980 Schedule into line with that in the 1984 Schedule

(a) in paragraph 17 of the 1978 Schedule, and

(b) in paragraph 26(5) of the 1980 Schedule,

for the words "not more than five" there shall be substituted "a number of.

(6) In each of the 1978 Schedule, the 1980 Schedule and the 1984 Schedule, "recognised stock exchange" has the same meaning as in the Corporation Tax Acts.

24 Approved profit sharing schemes: workers' co-operatives

(1) In Schedule 9 to the [1978 c. 42.] Finance Act 1978 (profit sharing schemes) at the end of Part V (interpretation) there shall be added the following paragraph—

“18 In this Schedule "workers' co-operative" means a registered industrial and provident society, within the meaning of section 340 of the Taxes Act, which is a co-operative society and the rules of which include provisions which secure—

(a) that the only persons who may be members of it are those who are employed by, or by a subsidiary of, the society and those who are the trustees of its profit sharing scheme; and

(b) that, subject to any provision about qualifications for membership which is from time to time made by the members of the society by reference to age, length of service or other factors of any description, all such persons may be members of the society;

and in this paragraph "co-operative society" has the same meaning as in section 1 of the Industrial and Provident Societies Act 1965 or, as the case may be, the Industrial and Provident Societies Act (Northern Ireland) 1969.”

(2) In paragraph 7 of that Schedule (conditions as to shares) for paragraph (b) there shall be substituted the following paragraph—

“(b) except in the case of shares in a workers' co-operative, not redeemable; and”.

(3) In section 54 of the Finance Act 1978 (the period of retention etc.)—

(a) at the end of subsection (1)(d) there shall be added "or, in the case of redeemable shares in a workers' co-operative, as denned in Schedule 9 to this Act, by redemption"; and

(b) at the end of subsection (4) there shall be added “or

(d) in a case where the participant's shares are redeemable shares in a workers' co-operative, as denned in Schedule 9 to this Act, the date on which the participant ceases to be employed by, or by a subsidiary of, the co-operative.”

(4) Where, for the purpose of securing (and maintaining) approval of its profit sharing scheme in accordance with Part I of Schedule 9 to the Finance Act 1978, the rules of a society which is a workers' co-operative or which is seeking to be registered under the industrial and provident societies legislation as a workers' co-operative contain—

(a) provision for membership of the society by the trustees of the scheme,

(b) provision denying voting rights to those trustees, or

(c) other provisions which appear to the registrar to be reasonably necessary for that purpose,

those provisions shall be disregarded in determining whether the society should be or continue to be registered under the industrial and provident societies legislation as a bona fide co-operative society.

(5) In subsection (4) above "the industrial and provident societies legislation" means—

(a) the [1965 c. 12.] Industrial and Provident Societies Act 1965, or

(b) the Industrial and [1969 c. 24 (N.I.).] Provident Societies Act (Northern Ireland) 1969,

and "registrar" has the same meaning as in each of those Acts and "co-operative society" has the same meaning as in section 1 of those Acts.

25 Savings-related share option schemes

(1) Schedule 10 to the [1980 c. 48.] Finance Act 1980 (savings-related share option schemes) shall be amended in accordance with subsections (2) to (7) below.

(2) Paragraph 2 (schemes may be approved conditionally upon satisfaction as to acquisition price of scheme shares) shall cease to have effect.

(3) In paragraph 8 (provisions as to exercising rights where a person ceases to be eligible to participate in schemes) after the words "may not be exercised at all" there shall be inserted the words "except pursuant to such a provision of the scheme as is specified in paragraph 10(1)(e) below".

(4) At the end of sub-paragraph (1) of paragraph 10 (cases where a scheme may allow options to be exercised after certain events) there shall be added the following paragraph

“(e) if a person ceases to hold an office or employment by virtue of which he is eligible to participate in the scheme by reason only that—

(i) that office or employment is in a company of which the company concerned ceases to have control, or

(ii) that office or employment relates to a business or part of a business which is transferred to a person who is neither an associated company of the company concerned nor a company of which the company concerned has control,

rights under the scheme held by that person may be exercised within six months of his so ceasing”.

(5) In paragraph 12 (supplementary provision as to ceasing to be employed) after the words "paragraph 8" there shall be inserted "or paragraph 10(1)(e)".

(6) In paragraph 21 (eligibility to participate restricted to current directors and employees) after the words "paragraph 8 above" there shall be inserted "or pursuant to such a provision as is referred to in paragraph 10(1)(e) above".

(7) Paragraph 22 (which restricts eligibility to participate in one scheme where, in the same year of assessment, rights have been obtained under another scheme) shall cease to have effect and, accordingly, in paragraph 20 for the words "paragraphs 22 and 23" there shall be substituted "paragraph 23".

(8) Where an existing scheme is altered before 1st August 1988 so as to include such a provision as is specified in paragraph 10(1)(e) of Schedule 10 to the [1980 c. 48.] Finance Act 1980 (as amended by this section), the scheme as altered may by virtue of this section apply that provision to rights obtained under the scheme before the date on which the alteration takes effect, and where that provision is so applied in relation to such rights,

(a) the scheme may permit a person having such rights to take advantage of the provision, notwithstanding that under the scheme he would otherwise be unable to exercise those rights after he has ceased to hold the office or employment in question; and

(b) if, before the date on which the alteration takes effect, a person who held such rights on 18th March 1986 ceases, in either of the circumstances set out in the said paragraph 10(1)(e), to hold an office or employment by virtue of which he was eligible to participate in the scheme, then, so far as concerns the rights so held, the scheme may permit him to take advantage of the provision in question as if the alteration had been made immediately before he ceased to hold that office or employment; and

(c) the application of the provision shall not itself be regarded as the acquisition of a right for the purposes of the said Schedule 10.

(9) In subsection (8) above "an existing scheme" means a scheme approved under Schedule 10 to the [1980 c. 48.] Finance Act 1980 before 1st August 1986; and that subsection has effect subject to paragraph 3(2) of that Schedule (approval of Board required for alteration in scheme).

26 Shares and rights to acquire shares obtained by directors and employees

(1) In section 186 of the Taxes Act (directors and employees granted rights to acquire shares), after subsection (5) there shall be inserted the following subsections—

“(5A) In any case where—

(a) a person has obtained any such right to acquire shares as is mentioned in subsection (1) above (in this subsection referred to as "the first right"), and

(b) as to any of the shares to which the first right relates, he omits or undertakes to omit to exercise the right or grants or undertakes to grant to another a right to acquire the shares or any interest therein, and

(c) in consideration for or otherwise in connection with that omission, grant or undertaking, he receives any benefit in money or money's worth,

he shall be treated for the purposes of this section as realising a gain by the assignment or release of the first right, so far as it relates to the shares in question, for a consideration equal to the amount or value of the benefit referred to in paragraph (c) above.

(5B) Where subsection (5A) above has had effect on any occasion, nothing in that subsection affects the application of this section in relation to a gain realised on a subsequent occasion, except that on that subsequent occasion so much of the consideration given for the grant of the first right as was deducted on the first occasion shall not be deducted again.”

(2) In subsection (11) of that section (notice of certain events relating to right to acquire shares) for the words from "gives any consideration" to "it shall" there shall be substituted

“receives written notice of the assignment of such a right or provides any benefit in money or money's worth—

(a) for the assignment or for the release in whole or in part of such a right, or

(b) for or in connection with an omission or undertaking to omit to exercise such a right, or

(c) for or in connection with the grant or undertaking to grant a right to acquire shares or an interest in shares to which such a right relates,

it shall”.

(3) In section 79 of the [1972 c. 41.] Finance Act 1972 (share incentive schemes) after subsection (5) there shall be inserted the following subsections—

“(5A) Subsection (5B) below applies where—

(a) a person has acquired shares or an interest in shares as mentioned in subsection (1) above (and the shares which he acquires or in which he acquires an interest are in the following provisions of this section, other than subsection (6A), referred to as "the original shares"); and

(b) the circumstances of his acquisition of the original shares are such that the application of subsection (4) above is not excluded; and

(c) by virtue of his holding of the original shares or the interest in them he acquires (whether or not for consideration) additional shares or an interest in additional shares (and the shares which he so acquires or in which he so acquires an interest are in subsection (5B) below referred to as "the additional shares").

(5B) Where this subsection applies—

(a) the additional shares or, as the case may be, the interest in them shall be treated as having been acquired as mentioned in subsection (1) above and in circumstances falling within subsection (5A)(b) above and, for the purpose of subsection (6)(a) below, as having been acquired at the same time as the original shares or the interest in them;

(b) for the purposes of subsections (4) and (5) above, the additional shares and the original shares shall be treated as one holding of shares and the market value of the shares comprised in that holding at any time shall be determined accordingly (the market value of the original shares at the time of acquisition being attributed proportionately to all the shares in the holding); and

(c) for the purposes of those subsections, any consideration given for the acquisition of the additional shares or the interest in them shall be taken to be an increase falling within subsection (5)(a) above in the consideration for the original shares or the interest in them.”

(4) In subsection (6)(c) of the said section 79 (the period at the end of which a charge to tax arises)—

(a) for the words "the shares cease" there shall be substituted "by reason of the shares ceasing"; and

(b) at the end there shall be added the words "either of the conditions in subsection (2)(c) above would be satisfied in relation to the shares if they had been acquired at that time".

(5) After subsection (6) of the said section 79 there shall be inserted the following subsection—

“(6A) If, on a person ceasing to have a beneficial interest in any shares, he acquires other shares or an interest in other shares and the circumstances are such that, for the purposes of sections 78 to 81 of the [1979 c. 15.] Capital Gains Tax Act 1979 (reorganisations etc.) the shares in which he ceases to have a beneficial interest constitute "original shares" and the other shares constitute a "new holding",—

(a) section 78 of that Act (which equates the original shares and the new holding) shall apply for the purposes of this section; and

(b) if any such consideration is given for the new holding as is mentioned in section 79(1) of that Act, it shall be treated for the purposes of this section as an increase falling within subsection (5)(a) above in the consideration for the shares; and

(c) if any such consideration is received for the disposal of the original shares as is mentioned in section 79(2) of that Act, the consideration shall be apportioned among the shares comprised in the new holding and the amount which, apart from this paragraph, would at any subsequent time be the market value of any of those shares shall be taken to be increased by the amount of the consideration apportioned to them;

and in paragraphs (a) to (c) above "the original shares" shall be construed in accordance with the said sections 78 to 81 (and not in accordance with subsection (5A) above).”

(6) In this section—

(a) subsections (1) and (2) above have effect where a benefit is received after 18th March 1986;

(b) subsection (3) above has effect where the acquisition of additional shares or the interest in shares is after that date;

(c) subsection (4) above has effect where the shares cease to be subject to restrictions after that date; and

(d) subsection (5) above has effect where the shares which constitute the new holding are acquired after that date.

Charities

27 Relief for donations under payroll deduction scheme

(1) This section applies where an individual (the employee) is entitled to receive payments from which income tax falls to be deducted by virtue of section 204 of the Taxes Act and regulations under that section (PAYE), and the person liable to make the payments (the employer) withholds sums from them.

(2) If the conditions mentioned in subsections (3) to (7) below are fulfilled the sums shall, in assessing tax under Schedule E, be allowed to be deducted as expenses incurred in the year of assessment in which they are withheld.

(3) The sums must be withheld in accordance with a scheme which is (or is of a kind) approved by the Board at the time they are withheld and which either contains provisions falling within subsection (4)(a) below, or contains provisions falling within subsection (4)(a) below and provisions falling within subsection (4)(b) below.

(4) The provisions are that—

(a) the employer is to pay sums withheld to a person (the agent) who is approved by the Board at the time they are withheld, and the agent is to pay them to a charity or charities; ,

(b) the employer is to pay sums withheld directly to a charity which (or charities each of which) is at the time the sums are withheld approved by the Board as an agent for the purpose of paying sums to other charities.

(5) The sums must be withheld in accordance with a request by the employee that they be paid to a charity or charities in accordance with a scheme approved (or of a kind approved) by the Board.

(6) The sums must constitute gifts by the employee to the charity or charities concerned, must not be paid by the employee under a covenant, and must fulfil any conditions set out in the terms of the scheme concerned.

(7) The sums must not in any year of assessment exceed £100 in the case of any employee (however many offices or employments he holds or has held).

(8) In this section "charity" has the same meaning as in section 360 of the Taxes Act.

(9) This section has effect in relation to sums withheld in the year 1987-88 or any subsequent year of assessment.

28 Payroll deduction scheme: further provisions

(1) The circumstances in which the Board may for the purposes of section 27 above grant or withdraw approval of schemes (or kinds of scheme) or of agents shall be such as are prescribed by the Treasury by regulations.

(2) The circumstances so prescribed (whether relating to the terms of schemes or the qualifications of agents or otherwise) shall be such as the Treasury think fit.

(3) The Treasury may by regulations make provision—

(a) that a participating employer or agent shall comply with any notice which is served on him by the Board and which requires him within a prescribed period to make available for the Board's inspection documents of a prescribed kind or records of a prescribed kind;

(b) that a participating employer or agent shall in prescribed circumstances furnish to the Board information of a prescribed kind;

(c) for, and with respect to, appeals to the Special Commissioners against the Board's refusal to grant, or their withdrawal of, approval of any scheme (or kind of scheme) or agent;

(d) generally for giving effect to section 27 above.

(4) For the purposes of subsection (3) above a person is a participating employer or agent if he is an employer (within the meaning of section 27 above) or agent (within the meaning of that section) who participates, or has at any time participated, in a scheme under that section.

(5) In subsection (3) above "prescribed" means prescribed by the regulations.

(6) The words "Regulations under section 28 of the Finance Act 1986" shall be added at the end of each column in the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties for failure to furnish information etc.).

(7) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

29 Donations by companies to charities etc.

(1) On a claim made by a company which is resident in the United Kingdom and is not a close company, a qualifying donation made by the company shall, subject to the provisions of this section, constitute a charge on the income of the company for the purposes of section 248 of the Taxes Act.

(2) Subject to subsection (3) below, a qualifying donation is a payment made by the company to a charity, other than—

(a) a covenanted payment to charity, as defined in section 434(2) of the Taxes Act; and

(b) a payment which is deductible in computing profits or any description of profits for purposes of corporation tax.

(3) A payment made by a company is not a qualifying donation unless, on the making of it, the company deducts out of it a sum representing the amount of income tax thereon; and in section 55(1) of the Taxes Act (certificates of deduction) after the words "Finance Act 1973" there shall be inserted "or section 29 of the Finance Act 1986".

(4) Where, with a view to securing relief under this section, a company makes a payment subject to such a deduction as is mentioned in subsection (3) above, then, whether or not it proves to be a qualifying donation, the payment—

(a) shall be treated as a "relevant payment" for the purposes of Schedule 20 to the [1972 c. 41.] Finance Act 1972 (collection of income tax on company payments which are not distributions); and

(b) shall in the hands of the recipient (whether a charity or not) be treated for the purposes of the Taxes Act as if it were an annual payment.

(5) In any accounting period of a company, the maximum amount allowable under section 248 of the Taxes Act in accordance with subsection (1) above in respect of qualifying donations made by the company shall be a sum equal to 3 per cent, of the dividends paid on the company's ordinary share capital in that accounting period.

(6) In this section "charity" includes—

(a) the Trustees of the British Museum;

(b) the Trustees of the British Museum (Natural History);

(c) the Trustees of the National Heritage Memorial Fund;

(d) the Historic Buildings and Monuments Commission for England; and

(e) any Association of a description specified in section 362 of the Taxes Act (scientific research associations);

and, subject to paragraphs (a) to (e) above, "charity" has the same meaning as in section 360 of the Taxes Act.

(7) This section applies to payments made on or after 1st April 1986 and, in the case of a company whose accounting period begins before and ends on or after that date, the period beginning on that date and ending at the end of that accounting period shall be deemed to be an accounting period for the purpose of applying the limit in subsection (5) above.

30 Certain payments to charities

(1) Any payment which—

(a) on or after 12th June 1986 is received by a charity from another charity, and

(b) is not made for full consideration in money or money's worth, and

(c) is not chargeable to tax apart from this subsection, and

(d) is not, apart from this subsection, of a description which (on a claim) would be eligible for relief from tax by virtue of any provision of section 360(1) of the Taxes Act,

shall be chargeable to tax under Case III of Schedule D but shall be eligible for relief from tax under section 360(1)(c) of the Taxes Act as if it were an annual payment.

(2) In section 248 of the Taxes Act (allowance of charges on income) after subsection (8) there shall be inserted the following subsection—

“(8A) Notwithstanding anything in any other provision of the Tax Acts, a covenanted donation to charity made by a company after 18th March 1986 shall not be a charge on income for the purposes of this section unless the company—

(a) deducts out of it a sum representing the amount of income tax thereon, and

(b) accounts for that tax in accordance with Schedule 20 to the Finance Act 1972,

and any such payment from which a deduction is made as mentioned in paragraph (a) above shall be treated as a relevant payment for the purposes of the said Schedule 20, whether or not it would otherwise fall to be so treated.”

(3) In this section "charity" has the same meaning as in section 360 of the Taxes Act.

31 Charities: restriction of tax exemptions

(1) If in any chargeable period of a charity—

(a) its relevant income and gains are not less than £10,000 and

(b) its relevant income and gains exceed the amount of its qualifying expenditure, as denned in Part I of Schedule 7 to this Act, and

(c) the charity incurs, or is treated by virtue of any of the following provisions of this section as incurring, nonqualifying expenditure, that is to say, expenditure which is not qualifying expenditure as denned in the said Part I,

relief under the enactments conferring exemption from tax shall not be available for so much of the excess referred to in paragraph (b) above as does not exceed the non-qualifying expenditure incurred in that period.

(2) In relation to a chargeable period of less than twelve months, subsection (1) above shall have effect as if the amount specified in paragraph (a) of that subsection were proportionately reduced.

(3) In this section—

(a) "charity" has the same meaning as in section 360 of the Taxes Act;

(b) "covenanted payment to charity" shall be construed in accordance with section 434(2) of the Taxes Act;

(c) "the enactments conferring exemption from tax" means subsection (1) of the said section 360 (income) and section 145 of the [1979 c. 14.] Capital Gains Tax Act 1979 (gains); and

(d) "relevant income and gains" means—

(i) income which, apart from subsection (1) of the said section 360, would not be exempt from tax, together with any income which is taxable notwithstanding that subsection; and

(ii) gains which, apart from the said section 145, would be chargeable gains, together with any gains which are chargeable gains notwithstanding that section.

(4) If in any chargeable period a charity—

(a) invests any of its funds in an investment which is not a qualifying investment, as denned in Part II of Schedule 7 to this Act, or

(b) makes a loan (not being an investment) which is not a qualifying loan, as denned in Part III of that Schedule,

then, subject to subsection (5) below, the amount so invested or lent in that period shall be treated for the purposes of this section as being an amount of expenditure incurred by the charity and, accordingly, as being non-qualifying expenditure.

(5) If, in any chargeable period, a charity which has in that period made an investment or loan falling within subsection (4) above.—

(a) realises the whole or part of that investment, or

(b) is repaid the whole or part of that loan,

any further investment or lending in that period of the sum realised or repaid shall, to the extent that it does not exceed the sum originally invested or lent, be left out of account in determining the amount which, by virtue of subsection (4) above, is treated as non-qualifying expenditure incurred in that period.

(6) If the aggregate of the qualifying and non-qualifying expenditure incurred by a charity in any chargeable period exceeds the relevant income and gains of that period, Part IV of Schedule 7 to this Act shall have effect to treat, in certain cases, some or all of that excess as non-qualifying expenditure incurred in earlier periods.

(7) Where, by virtue of this section, there is an amount of a charity's relevant income and gains for which relief under the enactments conferring exemption from tax is not available, the charity may, by notice in writing to the Board, specify which items of its relevant income and gains are, in whole or in part, to be attributed to that amount and, for this purpose, all covenanted payments to the charity shall be treated as a single item; and if, within thirty days of being required to do so by the Board, a charity does not give notice under this subsection, the items of its relevant income and gains which are to be attributed to the amount in question shall be such as the Board may determine.

(8) Where it appears to the Board that two or more charities acting in concert are engaged in transactions of which the main purpose or one of the main purposes is the avoidance of tax (whether by the charities or any other person), the Board may by notice in writing given to the charities provide that, for such chargeable periods as may be specified in the notice, subsection (1) above shall have effect in relation to them with the omission of paragraph (a).

(9) An appeal may be brought against a notice under subsection (8) above as if it were notice of the decision of the Board on a claim made by the charities concerned.

(10) Subsections (1) to (9) above have effect for chargeable periods ending after 11th June 1986; but where a chargeable period of a charity begins before and ends after that date, the charity may by notice in writing given to the Board elect that, for the purposes of subsections (1) to (9) above, that chargeable period shall be treated as two separate chargeable periods, the second of which begins on 12th June 1986 and ends at the end of that chargeable period.

(11) In Schedule 7 to this Act "the principal section" means this section and other expressions have the same meaning as in this section.

32 Higher rate relief for covenanted payments

(1) In section 457 of the Taxes Act (settlements made on or after 7th April 1965) in subsection (1A) (which allows higher rate relief for covenanted payments to charities up to £10,000 in any year of assessment)—

(a) at the beginning there shall be inserted the words "Subject to subsection (1B) below"; and

(b) the words "and does not exceed £10,000 in any year of assessment" shall be omitted.

(2) After subsection (1A) of that section there shall be inserted the following subsections—

“(1B) If at least £1,000 of an individual's income for any year of assessment consists of covenanted payments to charity which, in the hands of the charities receiving them, constitute income for which, by virtue of section 31 of the Finance Act 1986, relief under section 360(1) above is not available, so much of the individual's income as consists of those payments shall not be excluded from the operation of subsection (1) above by virtue of subsection (1A) above.

(1C) If, for any chargeable period of a charity,—

(a) the income of the charity includes two or more covenanted payments to charity, and

(b) only a part of the aggregate of those payments constitutes income for which, by virtue of section 31 of the Finance Act 1986, relief under section 360(1) above is not available,

each of the payments which make up the aggregate shall be treated for the purposes of subsection (1B) above as apportioned rateably between the part of the aggregate referred to in paragraph (b) above and the remainder.”

(3) In Schedule 16 to the [1972 c. 41.] Finance Act 1972 (apportionment of income of close companies to participators) in paragraph 5(5A) (effect of covenanted payments to charities) after the words "year of assessment" there shall be inserted "then, except in so far as any such sum is referable to a payment which, if made by the individual, would be treated by virtue of subsection (1) of section 457 of the Taxes Act as the income of the individual for the purposes of excess liability (within the meaning of that subsection)" and for the words from "by whichever is the lesser of to the end of paragraph (b) there shall be substituted "by the amount of that sum or those sums".

(4) This section has effect for the year 1986-87 and subsequent years of assessment.

33 Disclosure of information to Charity Commissioners

At the end of section 9 of the [1960 c. 58.] Charities Act 1960 (exchange of information between the Commissioners of Inland Revenue and the Charity Commissioners etc.) there shall be added the following subsection—

“(3) Without prejudice to subsection (1) above, no obligation as to secrecy or other restriction upon the disclosure of information shall prevent the Commissioners of Inland Revenue from disclosing to the Commissioners information with respect to any institution which has for any purpose been treated as established for charitable purposes but which appears to the Commissioners of Inland Revenue to be or to have been carrying on activities which are not charitable or to be or to have been applying any of its funds for purposes which are not charitable.”

Foreign element: expenses

34 Expenses connected with work abroad

(1) Section 32 of the [1977 c. 36.] Finance Act 1977 (expenses in connection with work done abroad) shall be amended in accordance with subsections (2) to (6) below.

(2) In subsection (2) (travel from UK and back) after the words "travelling from" there shall be inserted "any place in" and for the words "returning to" there shall be substituted "travelling to any place in".

(3) In subsection (6) (journeys to or by spouse or child)—

(a) for the words "between the United Kingdom and the place of performance of those duties" there shall be substituted "between any place in the United Kingdom and the place of performance of any of those duties outside the United Kingdom",

(b) paragraph (b), and in paragraph (c) the words "or (b)", shall be omitted, and

(c) for the words "journeys in each direction" there shall be substituted "outward and two return journeys".

(4) After subsection (6) there shall be inserted—

“(6A) Where a person holds an office or employment the duties of which are performed partly outside the United Kingdom, subsection (7) below applies to any journey by him—

(a) from any place in the United Kingdom to the place of performance of any of those duties outside the United Kingdom;

(b) from the place of performance of any of those duties outside the United Kingdom to any place in the United Kingdom.

(6B) But subsection (7) below does not apply by virtue of subsection (6A) above unless the duties concerned can only be performed outside the United Kingdom and the journey is made wholly and exclusively for the purpose—

(a) where the journey falls within subsection (6A)(a), of performing the duties concerned; or

(b) where the journey falls within subsection (6A)(b), of returning after performing the duties concerned.

(6C) Where a person is absent from the United Kingdom for the purpose of performing the duties of one or more offices or employments, subsection (7) below applies to—

(a) any journey by him from the place of performance of any of those duties outside the United Kingdom to any place in the United Kingdom;

(b) any return journey following a journey of a kind described in paragraph (a) above.

(6D) But subsection (7) below does not apply by virtue of subsection (6C) above unless the duties concerned can only be performed outside the United Kingdom and the absence mentioned in subsection (6C) was occasioned wholly and exclusively for the purpose of performing the duties concerned.”

(5) In subsection (7)(a) for the words "such journey" there shall be substituted "journey to which this subsection applies" and in subsection (7)(b) for the words "such office or employment" there shall be substituted "office or employment mentioned in subsection (6), (6A) or (6C) above".

(6) After subsection (7) there shall be inserted—

“(7A) For the purposes of applying subsections (6) to (7) above in a case where the duties of the office or employment or (as the case may be) any of the offices or employments are performed on a vessel, in section 184(3)(b) of the Taxes Act the words from "or which" to the end (duties on voyage beginning or ending in UK treated as performed in UK) shall be ignored.

(7B) In such a case as is mentioned in subsection (7A) above, subsection (6B) above shall have effect as if "the duties concerned" in paragraphs (a) and (b) read "the duties concerned, or those duties and other duties of the office or employment".

(7C) Where, apart from this subsection, a deduction in respect of any cost or expenses is allowable under a provision of this section and a deduction in respect of the same cost or expenses is also allowable under another provision of this section or of any other enactment, a deduction in respect of the cost or expenses may be made under either, but not both, of those provisions."”

(7) In section 184(3) of the Taxes Act after the words "subject to" there shall be inserted "section 32(7A) of and".

(8) This section has effect for the year 1984-85 and subsequent years of assessment and all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to this section.

35 Expenses connected with foreign trades etc.

(1) This section applies in the case of a trade, profession or vocation carried on wholly outside the United Kingdom by an individual (the taxpayer) who does not satisfy the Board as mentioned in section 122(2)(a) of the Taxes Act; and it is immaterial in the case of a trade or profession whether the taxpayer carries it on solely or in partnership.

(2) Expenses of the taxpayer—

(a) in travelling from any place in the United Kingdom to any place where the trade, profession or vocation is carried on,

(b) in travelling to any place in the United Kingdom from any place where the trade, profession or vocation is carried on, or

(c) on board and lodging for the taxpayer at any place where the trade, profession or vocation is carried on,

shall, subject to subsections (3) and (4) below, be treated for the purposes of section 130(a) of the Taxes Act (deductions) as having been wholly and exclusively expended for the purposes of the trade, profession or vocation.

(3) Subsection (2) above does not apply unless the taxpayer's absence from the United Kingdom is occasioned wholly and exclusively for the purpose of performing the functions of the trade, profession or vocation or of performing those functions and the functions of any other trade, profession or vocation (whether or not one in the case of which this section applies).

(4) Where subsection (2) above applies and more than one trade, profession or vocation in the case of which this section applies is carried on at the place in question, the expenses shall be apportioned on such basis as is reasonable between those trades, professions or vocations, and the expenses so apportioned to a particular trade, profession or vocation shall be treated for the purposes of section 130(a) of the Taxes Act as having been wholly and exclusively expended for the purposes of that trade, profession or vocation.

(5) Where the taxpayer is absent from the United Kingdom for a continuous period of 60 days or more wholly and exclusively for the purpose of performing the functions of one or more trades, professions or vocations in the case of which this section applies, expenses to which subsection (6) below applies shall be treated in accordance with subsection (7) or (8) below (as the case may be).

(6) This subsection applies to the expenses of any journey by the taxpayer's spouse, or any child of his, between any place in the United Kingdom and the place of performance of any of those functions outside the United Kingdom, if the journey—

(a) is made in order to accompany him at the beginning of the period of absence or to visit him during that period, or

(b) is a return journey following a journey falling within paragraph (a) above,

but this subsection does not apply to more than two outward and two return journeys by the same person in any year of assessment.

(7) The expenses shall be treated for the purposes of section 130(a) of the Taxes Act as having been wholly and exclusively expended for the purposes of the trade, profession or vocation concerned (if there is only one).

(8) The expenses shall be apportioned on such basis as is reasonable between the trades, professions or vocations concerned (if there is more than one) and the expenses so apportioned to a particular trade, profession or vocation shall be treated for the purposes of section 130(a) of the Taxes Act as having been wholly and exclusively expended for the purposes of that trade, profession or vocation.

(9) In subsection (6) above "child" includes a stepchild, an adopted child and an illegitimate child but does not include a person who is aged 18 or over at the beginning of the outward journey.

(10) Nothing in this section shall permit the same sum to be deducted for more than one trade, profession or vocation in respect of expenses in computing profits or gains.

(11) This section applies to expenses incurred after 5th April 1984 and all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to this section.

36 Travel between trades etc.

(1) Where a taxpayer, within the meaning of section 35 above, travels between a place where he carries on a trade, profession or vocation in the case of which that section applies and a place outside the United Kingdom where he carries on another trade, profession or vocation (whether or not one in the case of which that section applies) expenses of the taxpayer on such travel shall, subject to subsections (3) to (5) below, be treated for the purposes of section 130(a) of the Taxes Act as having been wholly and exclusively expended for the purposes of the trade, profession or vocation mentioned in subsection (2) below.

(2) The trade, profession or vocation is

(a) the one carried on at the place of the taxpayer's destination, or

(b) if that trade, profession or vocation is not one in the case of which section 35 above applies, the one carried on at the place of his departure.

(3) This section does not apply unless the journey was made

(a) after performing functions of the trade, profession or vocation carried on at the place of departure, and

(b) for the purpose of performing functions of the trade, profession or vocation carried on at the place of destination.

(4) This section does not apply unless the taxpayer's absence from the United Kingdom is occasioned wholly and exclusively for the purpose of performing the functions of both the trades, professions or vocations concerned or of performing those functions and the functions of any other trade, profession or vocation.

(5) Where this section applies and more than one trade, profession or vocation in the case of which section 35 above applies is carried on at the place of the taxpayer's destination or (in a case falling within subsection (2)(b) above) at the place of his departure, the expenses shall be apportioned on such basis as is reasonable between those trades, professions or vocations, and the expenses so apportioned to a particular trade, profession or vocation shall be treated for the purposes of section 130(a) of the Taxes Act as having been wholly and exclusively expended for the purposes of that trade, profession or vocation.

(6) Nothing in this section shall permit the same sum to be deducted for more than one trade, profession or vocation in respect of expenses in computing profits or gains.

(7) This section applies to expenses incurred after 5th April 1984 and all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to this section.

37 Travelling expenses of employees not domiciled in UK

(1) Subject to subsection (2) below, this section applies in the case of an office or employment in respect of which a person (the employee) who is not domiciled in the United Kingdom is in receipt of emoluments for duties performed in the United Kingdom.

(2) This section does not apply unless subsection (3) below is satisfied in respect of a date on which the employee arrives in the United Kingdom to perform duties of the office or employment; and where subsection (3) is so satisfied, this section applies only for a period of five years beginning with that date.

(3) This subsection is satisfied in respect of a date if the employee—

(a) was not resident in the United Kingdom in either of the two years of assessment immediately preceding the year of assessment in which the date falls, or

(b) was not in the United Kingdom for any purpose at any time during the period of two years ending with the day immediately preceding the date.

(4) Where subsection (3) above is satisfied (by virtue of paragraph (a) of that subsection) in respect of more than one date in any year of assessment, only the first of those dates is relevant for the purposes of this section.

(5) Subsection (7) below applies to any journey by the employee—

(a) from his usual place of abode to any place in the United Kingdom in order to perform any duties of the office or employment there, or

(b) to his usual place of abode from any place in the United Kingdom after performing such duties there.

(6) Where the employee is in the United Kingdom for a continuous period of 60 days or more for the purpose of performing the duties of one or more offices or employments in the case of which this section applies, subsection (7) below applies to any journey by his spouse, or any child of his, between his usual place of abode and the place of performance of any of those duties in the United Kingdom, if the journey—

(a) is made to accompany him at the beginning of that period or to visit him during it, or

(b) is a return journey following a journey falling within paragraph (a) above;

but subsection (7) as it applies by virtue of this subsection does not extend to more than two journeys to the United Kingdom and two return journeys by the same person in any year of assessment.

(7) Subject to subsection (8) below, where—

(a) travel facilities are provided for any journey to which this subsection applies and the cost of them is borne by or on behalf of a person who is an employer in respect of any office or employment in the case of which this section applies, or

(b) expenses are incurred out of the emoluments of any office or employment in the case of which this section applies on such a journey and those expenses are reimbursed by or on behalf of the employer,

there shall be allowed, in charging tax under Case I or II of Schedule E on the emoluments from the office or employment concerned, a deduction of an amount equal to so much of that cost or, as the case may be, those expenses as falls to be included in those emoluments.

(8) If a journey is partly for a purpose mentioned in subsection (5) or (6) above and partly for another purpose, only so much of the cost or expenses referred to in subsection (7) above as is properly attributable to the former purpose shall be taken into account in calculating any deduction made under subsection (7) as it applies by virtue of subsection (5) or (as the case may be) (6) .

(9) For the purposes of this section a person's usual place of abode is the country (outside the United Kingdom) in which he normally lives.

(10) In subsection (6) above "child" includes a stepchild, an adopted child and an illegitimate child but does not include a person who is aged 18 or over at the beginning of the journey to the United Kingdom.

(11) References in the Income Tax Acts to section 189 of the Taxes Act and to deductions allowable under Chapter I of Part VIII of that Act shall be construed as including a reference to subsection (7) above and to deductions allowable under it.

(12) Where, apart from this subsection, a deduction in respect of any cost or expenses is allowable under a provision of this section and a deduction in respect of the same cost or expenses is also allowable under another provision of this section or of any other enactment, a deduction in respect of the cost or expenses may be made under either, but not both, of those provisions.

38 Section 37: commencement

(1) Section 37 above shall have effect in accordance with subsections (2) to (4) below.

(2) Where the office or employment is under or with any person, body of persons or partnership resident in the United Kingdom, section 37 shall have effect for the year 1984-85 and subsequent years of assessment.

(3) In any other case, section 37 shall have effect for the year 1984-85 and subsequent years of assessment except that subsections (2) to (4) shall have effect only for the year 1986-87 and subsequent years of assessment.

(4) Where by virtue of subsection (3) above any provision of section 37 applies in the case of an employee at any time during the year 1984-85 or 1985-86, that section shall apply in his case for the years 1986-87 to 1990-91 as if the following were substituted for subsections (2) to (4)—

“(2) This section does not apply after 5th April 1991.”

(5) All such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to section 37 and this section.

Miscellaneous

39 Personal equity plans

Schedule 8 to this Act (which enables the Treasury to make regulations about personal equity plans) shall have effect.

40 Business expansion scheme

(1) Schedule 5 to the [1983 c. 28.] Finance Act 1983 (relief for investment in corporate trades) shall have effect subject to the amendments made by Part I of Schedule 9 to this Act.

(2) In section 26 of the Finance Act 1983 (which, amongst other things, provides for Schedule 5 to that Act to have effect only in relation to shares issued in the year of assessment 1983-84 or in any of the next three years of assessment), for the words "of the next three years" there shall be substituted the words "later year".

(3) The consequential amendments in Part II of Schedule 9 to this Act shall have effect.

41 Enterprise allowance

(1) This section applies to—

(a) payments known as enterprise allowance and made by the Manpower Services Commission in pursuance of arrangements under section 2(2)(d) of the [1973 c. 50.] Employment and Training Act 1973, and

(b) corresponding payments made in Northern Ireland by the Department of Economic Development.

(2) Any such payment which would (apart from this section) be charged to tax under Case I or Case II of Schedule D shall be charged to tax under Case VI of that Schedule.

(3) Nothing in subsection (2) above shall prevent such a payment—

(a) being treated for the purposes of section 226(9)(c) of the Taxes Act (retirement annuities) or section 530(1)(c) of that Act (earned income) as immediately derived from the carrying on or exercise of a trade, profession or vocation, or

(b) being treated for the purposes of paragraph 8 of Schedule 16 to the [1972 c. 41.] Finance Act 1972 (close companies) as trading income.

(4) In consequence of subsection (2) above, the reference in section 9(1) of the [1975 c. 14.] Social Security Act 1975 and in section 9(1) of the [1975 c. 15.] Social Security (Northern Ireland) Act 1975 (Class 4 contributions) to profits or gains chargeable to income tax under Case I or Case II of Schedule D shall be taken to include a reference to profits or gains consisting of a payment of enterprise allowance chargeable to income tax under Case VI of Schedule D.

(5) This section applies to—

(a) any payment made on or after 18th March 1986, and

(b) any payment made before that day as part of a distinct series of payments made to the same person, provided one or more of the payments is made on or after that day.

(6) All such adjustments (whether by assessment to tax, repayment of tax or otherwise) shall be made as are appropriate to give effect to this section.

42 Company reconstructions: restriction of relief

(1) Schedule 10 to this Act (which amends sections 252 and 253 of the Taxes Act) shall have effect.

(2) Subject to subsection (3) below, the amendments made by that Schedule have effect where a company ceases to carry on a trade, or part of a trade, after 18th March 1986.

(3) Where section 252(6) applies (successive company reconstructions) and the later event within the meaning of that subsection falls after 18th March 1986 but the earlier event falls on or before that date, those amendments do not affect the operation of any provision of section 252 or 253 in relation to the earlier event.

43 Loans to participators

(1) In section 286 of the Taxes Act (loans to participators etc.) in subsection (4) (date when assessed tax is due) after the word "Tax" there shall be inserted "shall be assessable by virtue of this section whether or not the whole or any part of the loan or advance in question has been repaid at the time of the assessment and tax".

(2) In subsection (5) of that section (discharge or repayment of tax on repayment of loan or advance) for the words from the beginning to "loan", in the second place where it occurs, there shall be substituted "Where a close company makes a loan or advance which gives rise to a charge to tax on the company under subsection (1) above and the loan".

(3) The amendments made by this section have effect in relation to any loan or advance made after 18th March 1986 and also in any case where there is a repayment after that date of the whole or any part of a loan or advance made on or before that date.

(4) All such adjustments shall be made, whether by the making of assessments or otherwise, as are required in consequence of the preceding provisions of this section.

(5) This section shall be construed as one with section 286 of the Taxes Act.

44 Entertainers and sportsmen

Schedule 11 to this Act (which relates to non-resident entertainers and sportsmen) shall have effect.

45 Payments on retirement or removal from office or employment etc.

(1) Schedule 8 to the Taxes Act (relief as respects tax on payments on retirement etc.) shall have effect subject to the following provisions of this section, and in those provisions that Schedule is referred to as "Schedule 8".

(2) On and after 4th June 1986, paragraph 10 of Schedule 8 (aggregation of two or more payments in respect of the same office etc.) shall have effect with the substitution for the words "paragraph 7" of the words "paragraphs 7 and 7A".

(3) Paragraph 12 of Schedule 8 (which provides that any reference in the Schedule to a payment in respect of which tax is chargeable under section 187 of the Taxes Act is a reference to so much of that payment as is chargeable to tax after deduction of relief) shall not apply to any payment which, under subsection (4) of that section, is treated as income received on or after 4th June 1986 and, accordingly, paragraphs 7 and 7A of Schedule 8 shall apply to every such payment without making any deduction therefrom on account of relief under section 188(3) of that Act.

(4) In any case where—

(a) tax is chargeable under section 187 of the Taxes Act in respect of two or more payments to or in respect of the same person (whether or not in respect of the same office or employment) and is so' chargeable for the same chargeable period, and

(b) under subsection (4) of that section at least one of those payments is treated as income received before 4th June 1986 and at least one of them is treated as income received on or after that date,

then, in the application of paragraphs 7 and 7A of Schedule 8 (in accordance with paragraph 10 or paragraph 11 thereof) in relation to any of those payments which is so treated as income received on or after that date, subsection (3) above shall have effect as if any reference therein to 4th June 1986 were a reference to the first day of the chargeable period referred to in paragraph (a) above.

46 Pension scheme surpluses

Schedule 12 to this Act (which relates to surplus funds in certain pension schemes) shall have effect.

47 Building societies

(1) In section 343 of the Taxes Act (building societies), subsection (1A) (which was inserted by the Finance Act 1985 and enables the Board to make regulations requiring societies to account for amounts representing income tax on certain sums) shall have effect and be deemed always to have had effect with the insertion after the words "in accordance with the regulations" of the words "(including sums paid or credited before the beginning of the year but not previously brought into account under subsection (1) above or this subsection)".

(2) In subsection (2) of that section (treatment of building society payments for purposes of corporation tax)—

(a) in paragraph (a) for the words "the amount" there shall be substituted "any amount"; and

(b) in paragraph (b) after the words "any such dividends or interest" there shall be inserted "in respect of which the society is required to account for and pay an amount in accordance with the regulations".

(3) At the end of subsection (7) of that section (meaning of "dividend") there shall be added the words "but any sum which is paid by a building society by way of dividend and in respect of which the society is not required to account for and pay an amount in accordance with the regulations shall be treated for the purposes of Schedule D as paid by way of interest".

(4) In consequence of the amendments of the said section 343 effected by section 40 of the [1985 c. 54.] Finance Act 1985 (regulations requiring societies to account for amounts representing income tax on certain sums).—

(a) in subsection (5) of section 16 of the [1973 c. 51.] Finance Act 1973 (amounts paid or credited to trustees of certain trusts) for the word "amounts" there shall be substituted "sums" and for the words from "with which" to "that year" there shall be substituted "being sums in respect of which the society is required to account for and pay an amount in accordance with regulations under section 343(1 A) of the Taxes Act"; and

(b) in subsection (1) of section 6 of the [1975 c. 7.] Finance Act 1975 (amounts paid or credited to exempt pension funds) for the words from "among the sums" to "the Taxes Act" there shall be substituted "sums in respect of which a building society is required to account for and pay an amount in accordance with regulations under subsection (1A) of section 343 of the Taxes Act".

(5) Where a building society investment which is a source of income of any person (the "lender") is not a relevant investment but at any time after 6th April 1986 becomes such an investment, section 121 of the Taxes Act (special rules where source of income ceases) shall apply as if the investment were a source of income which the lender ceased to possess immediately before that time.

(6) Where a building society investment which is a source of income of any person ceases at any time after 6th April 1986 to be a relevant investment, section 120(3) of the Taxes Act shall apply as if the investment were a new source of income acquired by him immediately after that time.

(7) Where a building society investment which was a source of income of any person immediately before 6th April 1986 was not on that date a relevant investment, section 120(3) of the Taxes Act shall apply as if the investment were a new source of income acquired by him on that date.

(8) In subsections (5) to (7) above "building society investment" does not include a quoted Eurobond (as defined in section 35(1) of the [1984 c. 43.] Finance Act 1984) but, subject to that, means any shares in, deposit with or loan to a building society (within the meaning of section 343 of the Taxes Act); and for the purposes of those subsections a building society investment is a "relevant investment" if dividends or interest payable in respect of it are sums in respect of which the society is required to account for and pay an amount in accordance with regulations under subsection (1A) of that section.

(9) Subsections (2) to (4) above have effect for the year 1986-87 and subsequent years of assessment.

48 Foreign dividends in recognised clearing system

(1) Paragraph 1 of Schedule C (public revenue dividends payable in UK) shall not apply, in the case of dividends payable out of any public revenue other than the public revenue of the United Kingdom, if the securities in respect of which the dividends are payable are held in a recognised clearing system.

(2) Section 159(2) of the Taxes Act (tax under Schedule D on foreign dividends entrusted to person in UK for payment in UK) shall not apply if the stocks, funds, shares or securities out of or in respect of which the foreign dividends are payable are held in a recognised clearing system.

(3) In this section "recognised clearing system" means any system for the time being designated as a recognised clearing system under section 35 of the [1984 c. 43.] Finance Act 1984 (Eurobonds).

(4) In this section "foreign dividends" has the same meaning as in section 159 of the Taxes Act.

(5) Subsection (1) above has effect in relation to dividends paid after the passing of this Act, and subsection (2) above has effect in relation to foreign dividends paid after the passing of this Act.

49 Double taxation relief: advance corporation tax

(1) With respect to accounting periods beginning on or after 3rd June 1986, section 100 of the [1972 c. 41.] Finance Act 1972 (double taxation relief) shall be amended in accordance with this section.

(2) In subsection (6) (set-off of advance corporation tax against liability to corporation tax on income subject to foreign tax) for paragraphs (b) and (c) there shall be substituted—

“(b) the amount of advance corporation tax which may be set against that liability, so far as it relates to the relevant income, shall not exceed whichever is the lower of the limits specified in subsection (6A) below”;

and in the words following paragraph (c), the words from "if the limit" to "the relevant income and" shall be omitted.

(3) After subsection (6) there shall be inserted the following subsection—

“(6A) In relation to an amount of income in respect of which the company's liability to corporation tax is taken to be reduced as mentioned in paragraph (a) of subsection (6) above, the limits referred to in paragraph (b) of that subsection are—

(a) the limit which would apply under section 85(2) above if that amount of income were the company's only income for the relevant accounting period; and

(b) the amount of corporation tax for which, after taking account of the said reduction, the company is liable in respect of that amount of income.”

50 Offshore funds: conditions for certification

(1) Part II of Schedule 19 to the Finance Act 1984 (offshore funds: modifications of conditions for certification in certain cases) shall have effect subject to the provisions of this section.

(2) In paragraph 11 (which relates to cases of offshore funds with certain wholly-owned subsidiaries) for paragraphs (a) and (b) of sub-paragraph (1) (which restrict the application of the paragraph to wholly-owned subsidiaries which deal in commodities) there shall be substituted the words "which is a company".

(3) At the beginning of sub-paragraph (2) of paragraph 11 (definition of "wholly-owned subsidiary of an offshore fund") there shall be inserted the words "Subject to sub-paragraph (2A) below".

(4) After sub-paragraph (2) of paragraph 11 there shall be inserted the following sub-paragraph—

“(2A) In the case of a company which has only one class of issued share capital, the reference in sub-paragraph (2) above to the whole of the issued share capital shall be construed as a reference to at least 95 per cent, of that share capital.”

(5) In sub-paragraph (3) of paragraph 11 (the modifications applicable in relation to wholly-owned subsidiaries)—

(a) at the beginning of paragraph (a) there shall be inserted the words "that percentage of; and

(b) in paragraph (a) after the word "subsidiary" there shall be inserted "which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in sub-paragraph (2) above".

(6) After paragraph 12 there shall be inserted the following paragraph—

“Disregard of certain investments forming less than 5 per cent, of a fund

12A (1) In any case where—

(a) in any account period of an offshore fund, the assets of the fund include a holding of issued share capital (or any class of issued share capital) of a company, and

(b) that holding is such that, by virtue of section 95(3)(c) of this Act, the fund could not (apart from this paragraph) be certified as a distributing fund in respect of that account period,

then, if the condition in sub-paragraph (3) below is fulfilled, that holding shall be disregarded for the purposes of the said section 95(3)(c).

(2) In this paragraph any holding falling within subparagraph (1) above is referred to as an "excess holding".

(3) The condition referred to in sub-paragraph (1) above is that at no time in the account period in question does that portion of the fund which consists of—

(a) excess holdings, and

(b) interests in other offshore funds which are not qualifying funds,

exceed 5 per cent, by value of all the assets of the fund.”

(7) This section has effect with respect to periods which—

(a) for the purposes of Chapter VII of Part II of the [1984 c. 43.] Finance Act 1984 are account periods of offshore funds; and

(b) end after the passing of this Act.

51 Pensions paid to victims of National-Socialist persecution

(1) For section 377 of the Taxes Act (under which certain annuities payable by way of compensation for National-Socialist persecution are not regarded as income for any income tax purpose) there shall be substituted the following section—

“377 Annuities and pensions payable under any special provision for victims of National-Socialist persecution which is made by the law of the Federal Republic of Germany or any part of it or of Austria shall not be regarded as income for any income tax purpose.”

(2) This section has effect for the year 1986-87 and subsequent years of assessment.

52 Temporary disregard of increases in certain pensions and allowances

(1) So much of any relevant pension or allowance as is attributable to any general increase taking effect in the year 1986-87 shall be left out of account for all the purposes of income tax charged for that year but not for the purpose of furnishing information relating to any person's income for that year.

(2) For the purposes of this section a pension or allowance is a relevant pension or allowance if it is payable under the [1975 c. 14.] Social Security Act 1975, or the [1975 c. 15.] Social Security (Northern Ireland) Act 1975, and (in either case) is one of the following—

(a) a retirement pension;

(b) a widow's allowance;

(c) a widowed mother's allowance;

(d) a widow's pension;

(e) an invalid care allowance;

(f) an industrial death benefit by way of widow's or widower's pension.

53 Tax treatment of VAT penalties etc. and repayment supplement

(1) Where, under Chapter II of Part I of the [1985 c. 54.] Finance Act 1985 (value added tax), a person is liable to make a payment by way of—

(a) penalty under any of sections 13 to 17, or

(b) interest under section 18, or

(c) surcharge under section 19,

the payment shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

(2) A sum paid to any person by way of supplement under section 20 of the [1985 c. 54.] Finance Act 1985 (repayment supplement in respect of certain delayed value added tax payments) shall be disregarded for all purposes of corporation tax and income tax.

54 Associated companies: oil and gas industry

(1) At the end of section 19 of the [1975 c. 22.] Oil Taxation Act 1975 (definitions relating to the corporation tax provisions of that Act) there shall be added the following subsection—

“(4) Without prejudice to subsection (3) above, for the purposes of this Part of this Act, two companies are also associated with one another if one has control of the other or both are under the control of the same person or persons; and in this subsection "control" shall be construed in accordance with section 302 of the Taxes Act.”

(2) This section has effect in relation to any allowance or distribution made, interest paid or other thing done after 18th March 1986.

CHAPTER II Capital Allowances

55 New code of allowances for capital expenditure on mineral extraction

(1) The provisions of Chapter III of Part I of the [1968 c. 3.] Capital Allowances Act 1968 (which relate to allowances for certain capital expenditure incurred in connection with mineral extraction activities and which are in this section referred to as "the old code of allowances") shall cease to have effect on 31st March 1986 except as provided by Schedule 14 to this Act.

(2) The provisions of Parts I to IV of Schedule 13 to this Act have effect to provide for relief in respect of certain new expenditure incurred by persons carrying on a trade of mineral extraction; and the provisions of Schedule 14 to this Act have effect with respect to certain expenditure incurred before 1st April 1987 by persons carrying on such a trade.

(3) Subject to paragraph 2 of Schedule 14 to this Act, for the purposes of the old code of allowances, the following provisions of this section and Schedules 13 and 14 to this Act, as respects any company which on 31st March 1986 was carrying on a trade of mineral extraction, it shall be assumed that, unless the latest accounting period of the company which begins on or before 31st March 1986 in fact ends on that date.—

(a) that accounting period ends on that date; and

(b) a new one begins on 1st April 1986, the new accounting period to end with the end of the true accounting period.

(4) Subject to paragraph 2 of Schedule 14 to this Act, for the purposes of the provisions referred to in subsection (3) above as they apply to a person who on 31st March 1986 was within the charge to income tax in respect of the profits or gains of a trade of mineral extraction carried on by him, it shall be assumed that, unless the latest basis period of his (determined in accordance with section 72 of the [1968 c. 3.] Capital Allowances Act 1968) which begins on or before 31st March 1986 in fact ends on that date.—

(a) that basis period ends on that date; and

(b) a new basis period begins on 1st April 1986, the new basis period to end with the end of the true basis period.

(5) In any case where—

(a) new expenditure is incurred by any person on the provision of machinery or plant for the purposes of mineral exploration and access, as defined in paragraph 1 of Schedule 13 to this Act, and

(b) that expenditure is so incurred before the first day on which that person begins to carry on a trade of mineral extraction, and

(c) on that first day the machinery or plant belongs to him, and does not fall within paragraph 5(1)(d) of Schedule 13 to this Act,

that person shall be treated for the purposes of Chapter I of Part III of the [1971 c. 68.] Finance Act 1971 (the normal code applicable to machinery or plant) and section 57 of the [1985 c. 54.] Finance Act 1985 (short-life assets) as if he had sold the machinery or plant immediately before that first day and had on that first day incurred capital expenditure on the provision of the machinery or plant wholly and exclusively for the purposes of the trade, being expenditure equal to the expenditure incurred (or, where there has been an actual previous sale and re-acquisition, last incurred) as mentioned in paragraph (a) above.

(6) For the purpose of the application of Chapter I of Part III of the [1971 c. 68.] Finance Act 1971—

(a) in relation to expenditure treated by virtue of subsection (5) above as incurred on the first day on which a person begins to carry on a trade of mineral extraction, and

(b) in relation to expenditure actually incurred on or after that day on the provision of machinery or plant for the purposes of mineral exploration and access,

that Chapter shall have effect subject to the amendments in subsection (7) below.

(7) The amendments referred to in subsection (6) above are—

(a) in section 50 of the [1971 c. 68.] Finance Act 1971 (the interpretation provisions applicable to allowances relating to machinery or plant) in subsection (1), after the definition of "income" there shall be inserted—

• “'mineral exploration and access' and 'trade of mineral extraction' have the same meaning as in Schedule 13 to the Finance Act 1986”;

(b) after subsection (7) of that section there shall be inserted the following subsection—

“(7A) For the purposes of this Chapter, where a person is carrying on a trade of mineral extraction, expenditure incurred by him in connection with that trade on the provision of machinery or plant for mineral exploration and access shall be taken to be incurred on the provision of the machinery or plant wholly and exclusively for the purposes of that trade”;

(c) in section 44(5) of that Act (disposal values) at the end of sub-paragraph (ii) of paragraph (c) there shall be added the words "or, in the case of machinery or plant which was in use for mineral exploration and access, he abandons the machinery or plant at the site where it was in use for that purpose"; and

(d) in paragraph 7 of Schedule 8 to that Act (use after user not attracting capital allowances etc.) sub-paragraph (2) (which relates to machinery or plant used for mineral exploration etc.) shall be omitted.

(8) In this section—

• "new expenditure" means, subject to Schedule 14 to this Act, expenditure incurred on or after 1st April 1986;

• "old expenditure" means expenditure which is not new expenditure; and

• "trade of mineral extraction" has the meaning assigned to it by paragraph 1 of Schedule 13 to this Act.

(9) In consequence of and in connection with the provisions of this section and Parts I to IV of Schedule 13, the amendments in Part V of that Schedule shall have effect.

56 Agricultural land and buildings

(1) With respect to capital expenditure incurred on or after 1st April 1986, other than expenditure under existing contracts, the provisions of Schedule 15 to this Act shall have effect in place of section 68 of the [1968 c. 3.] Capital Allowances Act 1968 (allowances for capital expenditure on construction of agricultural buildings and works etc.).

(2) In subsection (1) above "expenditure under existing contracts" means expenditure which—

(a) consists of the payment of sums under a contract entered into on or before 13th March 1984 by the person incurring the expenditure; and

(b) is incurred before 1st April 1987.

(3) The preceding provisions of this section and Schedule 15 to this Act shall be construed as if they were included in Part I of the [1968 c. 3.] Capital Allowances Act 1968.

(4) In section 69 of the Capital Allowances Act 1968—

(a) after the words "section 68 above" there shall be inserted "and Schedule 15 to the Finance Act 1986"; and

(b) at the end of the definition of "agricultural land" after the word "husbandry" there shall be inserted "(as defined below)"; and

(c) at the end of the section there shall be added—

• “'husbandry' includes any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption.”

(5) Where an allowance is or has been made under Schedule 15 to this Act in respect of any capital expenditure, none of that expenditure shall be taken into account in determining qualifying expenditure for the purpose of any allowance or charge under section 44 of the [1971 c. 68.] Finance Act 1971 (machinery and plant); and where such an allowance or charge is or has been made by reference to an amount of qualifying expenditure which took account of a particular amount of capital expenditure, that capital expenditure shall be left out of account for the purposes of Schedule 15 to this Act.

(6) Any reference to Chapter V of Part I of the Capital Allowances Act 1968 in—

(a) section 14 of that Act (exclusion of double allowances), and

(b) section 85 of that Act (allowances in respect of contributions to capital expenditure), and

(c) paragraph 11 of Schedule 12 to the [1982 c. 39.] Finance Act 1982 (capital allowances for dwelling-houses let on assured tenancies),

includes a reference to Schedule 15 to this Act; and the reference to section 68 of the said Act of 1968 in section 75 thereof (writing-down allowances during a period of specified length) includes a reference to that Schedule.

(7) In the following provisions—

(a) sections 155(8), 180(7), 227(4), 252(2) and 352(4) of the Taxes Act,

(b) the definition of "capital allowance" in section 526(5) of the Taxes Act,

(c) section 31(2) of the [1979 c. 14.] Capital Gains Tax Act 1979, and

(d) the definition of "capital allowance" in subsection (4) of section 34 of the said Act of 1979,

any reference to the [1968 c. 3.] Capital Allowances Act 1968 or to Part I thereof includes a reference to Schedule 15 to this Act.

57 New expenditure on leased assets etc.

(1) The provisions of subsections (4) to (8) below and Schedule 16 to this Act (which relate to allowances in respect of expenditure on the provision of machinery or plant for leasing and on the provision of certain vehicles) shall have effect with respect to new expenditure, as defined in subsections (2) and (3) below.

(2) In this section and Schedule 16 to this Act, new expenditure means expenditure incurred on or after 1st April 1986, other than—

(a) expenditure to which, by virtue of sub-paragraph (2) of paragraph 2 of Schedule 12 to the [1984 c. 43.] Finance Act 1984 (expenditure incurred under contracts entered into on or before 13th March 1984), sub-paragraph (1) of that paragraph (progressive withdrawal of first-year allowances) does not apply; and

(b) expenditure to which, by virtue of paragraph 4 of that Schedule (transitional relief for regional projects) Part I of that Schedule does not apply; and

(c) expenditure falling within paragraph 7 of Schedule 12 to the [1980 c. 48.] Finance Act 1980 (television sets, etc); and

(d) expenditure excluded by subsection (3) below;

and any expenditure which, by virtue of paragraph 6 of Schedule 12 to the Finance Act 1984 (spreading of expenditure under certain contracts) is deemed for the purposes of Chapter I of Part III of the [1971 c. 68.] Finance Act 1971 to be incurred on 1st April 1986 shall also be deemed to be incurred on that date for the purposes of this section and Schedule 16 to this Act.

(3) In any case where—

(a) before 1st April 1986 a person (in this subsection referred to as "the original lessor") incurred expenditure on the provision of machinery or plant for leasing, and

(b) on or after that date the machinery or plant ceases to belong to the original lessor on being acquired by an associate or successor of his, and

(c) by virtue of subsection (9) of section 64 of the Finance Act 1980 (connected persons etc.), the machinery or plant is treated for the purposes of subsection (8) of that section (the requisite period) as continuing to belong to the original lessor so long as it belongs to his associate or successor,

expenditure incurred by his associate or successor on the acquisition of the machinery or plant is excluded from new expenditure; and in this subsection "associate or successor" means a person who, in relation to the original lessor, is of a description specified in paragraph (a) or paragraph (b) of the said subsection (9).

(4) Subject to subsection (7) below, the separate pooling provisions which are contained in sections 64 to 68 of the [1980 c. 48.] Finance Act 1980 and which are applicable to expenditure on machinery or plant which is not used for a qualifying purpose shall not apply to new expenditure but, for the purpose of maintaining a separate pool for expenditure falling within section 70 of the [1982 c. 39.] Finance Act 1982 (assets leased outside the United Kingdom) and for excluding from that section certain ships, aircraft and transport containers.—

(a) sections 64 to 68 of the Finance Act 1980 shall have effect as amended by Part I of Schedule 16 to this Act;

(b) section 70 of, and Schedule 11 to, the Finance Act 1982 shall have effect as amended by Part II of that Schedule; and

(c) Part III of that Schedule shall have effect for supplementing the enactments amended by Parts I and II of that Schedule.

(5) In consequence of the preceding provisions of this section, in paragraph 8A of Schedule 8 to the [1971 c. 68.] Finance Act 1971 (writing-down allowances for ships) sub-paragraph (9) shall be omitted.

(6) In consequence of the preceding provisions of this section, but subject to subsection (7) below, in subsection (6)(b) of section 57 of the [1985 c. 54.] Finance Act 1985 (short-life assets: transfer of expenditure on asset beginning to be used otherwise than for a qualifying purpose)—

(a) the words "(as it has effect in accordance with section 65 of the Finance Act 1980)" shall be omitted; and

(b) for the words from "the separate trade" onwards there shall be substituted "his actual trade".

(7) Notwithstanding anything in the preceding provisions of this section, section 44 of the Finance Act 1971 shall continue to apply separately with respect to expenditure on the provision of any vehicle falling within section 69 of the Finance Act 1980 (writing-down allowances for cars) and, accordingly.—

(a) except where such a vehicle is used for the purpose of being leased to such a person as is referred to in paragraphs (a) and (b) of subsection (1) of section 70 of the [1982 c. 39.] Finance Act 1982 and the leasing is not short-term leasing, within the meaning of that section, nothing in Parts I to III of Schedule 16 to this Act applies with respect to any such expenditure; and

(b) the amendments made by subsection (6) above do not apply where the asset in question is a vehicle falling within section 69 of the [1980 c. 48.] Finance Act 1980.

(8) In consequence of the withdrawal of first-year allowances by section 58 of, and Schedule 12 to, the [1984 c. 43.] Finance Act 1984, section 69 of the Finance Act 1980 shall be amended, with respect to new expenditure, in accordance with Part IV of Schedule 16 to this Act.

(9) In section 64 of the Finance Act 1980, as it has effect where-

(a) the expenditure on the provision of machinery or plant referred to in subsection (1) of that section is not new expenditure, but

(b) the notional purchase of the machinery or plant by the lessee which is referred to in subsection (2)(a) of that section would at any time mean the incurring of new expenditure,

after the words "could have been made to the lessee" there shall be inserted "(disregarding for this purpose paragraph 2 of Schedule 12 to the Finance Act 1984)".

(10) In section 56 of the [1985 c. 54.] Finance Act 1985 (time when capital expenditure is incurred) at the end of subsection (1) there shall be added “and

(e) section 57 of the Finance Act 1986”.

CHAPTER III Capital Gains

58 Gifts into dual resident trusts

(1) This section applies where there is or has been a disposal of an asset to the trustees of a settlement in such circumstances that, on a claim for relief, section 79 of the Finance Act 1980 (general relief for gifts) applies, or would but for this section apply, so as to reduce the amounts of the chargeable gain and the consideration referred to in subsection (1) of that section.

(2) In this section-

(a) "a relevant disposal" means such a disposal as is referred to in subsection (1) above; and

(b) "the 1980 provision" means section 79 of the [1980 c. 48.] Finance Act 1980.

(3) Relief under the 1980 provision shall not be available on a relevant disposal occurring on or after 18th March 1986 if—

(a) at the material time the trustees to whom the disposal is made fall to be treated, under section 52 of the [1979 c. 14.] Capital Gains Tax Act 1979, as resident and ordinarily resident in the United Kingdom, although the general administration of the trust is ordinarily carried on outside the United Kingdom; and

(b) on a notional disposal of the asset concerned occurring immediately after the material time, the trustees would be regarded for the purposes of any double taxation relief arrangements—

(i) as resident in a territory outside the United Kingdom; and

(ii) as not liable in the United Kingdom to tax on a gain arising on that disposal.

(4) In subsection (3) above—

(a) "the material time" means the time of the relevant disposal;

(b) a "notional disposal" means a disposal by the trustees of the asset which was the subject of the relevant disposal; and

(c) "double taxation relief arrangements" means arrangements having effect by virtue of section 497 of the Taxes Act (as extended to capital gains tax by section 10 of the [1979 c. 14.] Capital Gains Tax Act 1979).

(5) In any case where—

(a) relief under the 1980 provision has been allowed on a claim relating to a relevant disposal, (whether occurring before, on or after 18th March 1986), and

(b) at a time subsequent to that relevant disposal, but not earlier than 18th March 1986, the circumstances become such that paragraphs (a) and (b) of subsection (3) above would apply if that time were the material time referred to in that subsection, and

(c) section 79 of the [1981 c. 35.] Finance Act 1981 (which provides for the recovery of relief under the 1980 provision in the event of the emigration of the donee) has not had effect in relation to the relevant disposal before that time and would not (apart from this subsection) have effect at that time,

section 79 of the [1981 c. 35.] Finance Act 1981 shall have effect as if, at that time, the trustees had become neither resident nor ordinarily resident in the United Kingdom.

59 Disposals of options and contracts for gilt-edged securities etc.

With respect to disposals occurring on or after 2nd July 1986, for section 67 of the [1979 c. 14.] Capital Gains Tax Act 1979 there shall be substituted the following section—

“67 Exemptions for gilt-edged securities and qualifying corporate bonds etc.

(1) A gain which accrues on the disposal by any person of—

(a) gilt-edged securities or qualifying corporate bonds, or

(b) any option or contract to acquire or dispose of gilt-edged securities or qualifying corporate bonds,

shall not be a chargeable gain.

(2) In subsection (1) above the reference to the disposal of a contract to acquire or dispose of gilt-edged securities or qualifying corporate bonds is a reference to the disposal of the outstanding obligations under such a contract.

(3) Without prejudice to section 72(3) of the Finance Act 1985 (closing out of certain futures contracts dealt in on a recognised futures exchange), where a person who has entered into any such contract as is referred to in subsection (1)(b) above closes out that contract by entering into another contract with obligations which are reciprocal to those of the first-mentioned contract, that transaction shall for the purposes of this section constitute the disposal of an asset, namely, his outstanding obligations under the first-mentioned contract.”

60 Small part disposals

(1) In section 107 of the Capital Gains Tax Act 1979 (small part disposals) in subsection (1) for the words "is small, as compared with" there shall be substituted "does not exceed one-fifth of.

(2) This section applies to disposals on or after 6th April 1986.

CHAPTER IV Securities

61 Stock lending

(1) Subject to subsection (5) below, this section applies where a person (A) has contracted to sell securities and, to enable him to fulfil the contract, he enters into an arrangement under which—

(a) another person (B) is to transfer securities to A or his nominee, and

(b) in return securities of the same kind and amount are to be transferred (whether or not by A or his nominee) to B or his nominee.

(2) Subject to subsection (5) below, this section also applies where, to enable B to make the transfer to A or his nominee, B enters into an arrangement under which—

(a) another person (C) is to transfer securities to B or his nominee, and

(b) in return securities of the same kind and amount are to be transferred (whether or not by B or his nominee) to C or his nominee.

(3) Any transfer made in pursuance of an arrangement mentioned in subsection (1) or (2) above shall not be taken into account for the purposes of the Tax Acts in computing the profits or losses of any trade carried on by the transferor or transferee.

(4) Any disposal and acquisition made in pursuance of an arrangement mentioned in subsection (1) or (2) above shall be disregarded for the purposes of capital gains tax.

(5) The Treasury may provide by regulations that this section, or any provision of it, does not apply unless such conditions as are specified in the regulations are fulfilled; and the conditions may relate to the capacity in which any person involved in any arrangement is acting, the Board's approval of any such person or of the arrangement, the nature of the securities, or otherwise.

(6) This section applies to transfers made after such date as is specified for this purpose by regulations under this section.

(7) In this section "securities" includes stocks and shares.

(8) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

62 Amendments of Finance Act 1985

Schedule 17 to this Act (which contains amendments of provisions of the [1985 c. 54.] Finance Act 1985 about securities) shall have effect.

63 Other provisions

Schedule 18 to this Act (which contains other provisions about securities) shall have effect.

PART III Stamp Duty

Securities

64 Stock or marketable securities: reduction of rate

(1) In section 55 of the [1963 c. 25.] Finance Act 1963 and in section 4 of the [1963 c. 22 (N.I.).] Finance Act (Northern Ireland) 1963 (duty on conveyance or transfer on sale) after subsection (1) there shall be inserted—

“(1A) In relation to duty chargeable under or by reference to the heading mentioned in subsection (1) above as it applies to a conveyance or transfer of stock or marketable securities, that subsection shall have effect as if for the words from "following rates" to the end of paragraph (c) there were substituted the words "rate of 50p for every £100 or part of £100 of the consideration”.

(2) Accordingly—

(a) in subsection (1) of each of those sections for the words "(2) and" there shall be substituted the words "(1A) to";

(b) in subsection (2) of each of those sections for the words from "under" to "by reference to that heading" there shall be substituted the words "by reference to the heading mentioned in subsection (1) above."

(3) This section applies to any instrument executed in pursuance of a contract made on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

65 Bearers: consequential provisions etc.

(1) In the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, in column (2) (duty on certain overseas bearer instruments twice the transfer duty) for the word "twice" there shall be substituted the words "three times".

(2) The following shall be inserted at the end of section 59(3) of the Finance Act 1963 (meaning of "transfer duty" for purposes of "Bearer Instrument" heading)—

“; and the instrument so postulated shall be taken to transfer the stock on the day of issue or transfer (depending on whether section 60(1) or (2) of this Act applies) and to be executed in pursuance of a contract made on that day.”

(3) The following shall be inserted at the end of section 8(3) of the Finance Act (Northern Ireland) 1963 (equivalent provision for Northern Ireland)—

“; and the instrument so postulated shall be taken to transfer the stock on the day of issue or transfer (depending on whether paragraph (a) or (b) of section 9(1) applies) and to be executed in pursuance of a contract made on that day.”

(4) This section applies to any instrument which falls within section 60(1) of the [1963 c. 25.] Finance Act 1963 and is issued on or after the day of The Stock Exchange reforms.

(5) This section applies to any instrument which falls within section 60(2) of that Act if the stock constituted by or transferable by means of it is transferred on or after the day of The Stock Exchange reforms.

(6) In this section "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

(7) In subsection (4) above the reference to section 60(1) of the [1963 c. 22 (N.I.).] Finance Act 1963 includes a reference to section 9(1 )(a) of the Finance Act (Northern Ireland) 1963 and in subsection (5) above the reference to section 60(2) of the former Act includes a reference to section 9(1)(b) of the latter.

66 Company's purchase of own shares

(1) This section applies where a company purchases its own shares under section 162 of the [1985 c. 6.] Companies Act 1985 or Article 47 of the [S.I. 1982/1534 (N.I. 17).] Companies (Northern Ireland) Order 1982.

(2) The return which relates to the shares purchased and is delivered to the registrar of companies under section 169 of that Act or, as the case may be, Article 53 of that Order shall be charged with stamp duty, and treated for all purposes of the [1891 c. 39.] Stamp Act 1891, as if it were an instrument transferring the shares on sale to the company in pursuance of the contract (or contracts) of purchase concerned.

(3) Subject to subsection (4) below, this section applies to any return under section 169 of the Companies Act 1985, or Article 53 of the Companies (Northern Ireland) Order 1982, which is delivered to the registrar of companies on or after the day of The Stock Exchange reforms.

(4) This section does not apply to any return to the extent that the shares to which it relates were purchased under a contract entered into before the day of The Stock Exchange reforms.

(5) In this section "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

Depositary receipts

67 Depositary receipts

(1) Subject to subsection (9) below, subsection (2) or (3) below (as the case may be) applies where an instrument transfers relevant securities of a company incorporated in the United Kingdom to a person who at the time of the transfer falls within subsection (6), (7) or (8) below.

(2) If stamp duty is chargeable on the instrument under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, the rate at which the duty is charged under that heading shall be the rate of £1-50 for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.

(3) If stamp duty is chargeable on the instrument under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule 1 to the Stamp Act 1891, the rate at which the duty is charged under that heading shall (subject to subsections (4) and (5) below) be the rate of £1-50 for every £100 or part of £100 of the value of the securities at the date the instrument is executed.

(4) Subsection (3) above shall have effect as if "£1-50" read "£1" in a case where—

(a) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,

(b) the transfer is made for the purposes of the dealer's business,

(c) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and

(d) the instrument contains a statement that paragraphs (a) to (c) above are fulfilled.

(5) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,

(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,

(c) the transfer to the other person is effected by an instrument in the case of which subsection (3) above applies,

(d) before the execution of the instrument mentioned in paragraph (c) above an instrument is received by a person falling (at the time of the receipt) within subsection (6), (7) or (8) below,

(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and

(f) the instrument mentioned in paragraph (c) above contains a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (3) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.

(6) A person falls within this subsection if his business is exclusively that of holding relevant securities—

(a) as nominee or agent for a person whose business is or includes issuing depositary receipts for relevant securities, and

(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of issuing such depositary receipts (in a case where the business does not consist exclusively of that).

(7) A person falls within this subsection if—

(a) he is specified for the purposes of this subsection by the Treasury by order made by statutory instrument, and

(b) his business is or includes issuing depositary receipts for relevant securities.

(8) A person falls within this subsection if—

(a) he is specified for the purposes of this subsection by the Treasury by order made by statutory instrument,

(b) he does not fall within subsection (6) above but his business includes holding relevant securities as nominee or agent for a person who falls within subsection (7)(b) above at the time of the transfer, and

(c) he holds relevant securities as nominee or agent for such a person, for the purposes of such part of that person's business as consists of issuing depositary receipts for relevant securities (in a case where that business does not consist exclusively of that).

(9) Where an instrument transfers relevant securities of a company incorporated in the United Kingdom—

(a) to a company which at the time of the transfer falls within subsection (6) above and is resident in the United Kingdom, and

(b) from a company which at that time falls within that subsection and is so resident,

subsections (2) to (5) above shall not apply and the maximum stamp duty chargeable on the instrument shall be 50p.

(10) This section applies to any instrument executed on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

68 Depositary receipts: notification

(1) A person whose business is or includes issuing depositary receipts for relevant securities of a company incorporated in the United Kingdom shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which he first issues such depositary receipts.

(2) A person whose business includes (but does not exclusively consist of) holding relevant securities (being securities of a company incorporated in the United Kingdom)—

(a) as nominee or agent for a person whose business is or includes issuing depositary receipts for relevant securities, and

(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of issuing such depositary receipts (in a case where the business does not consist exclusively of that),

shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which he first holds such relevant securities as such a nominee or agent and for such purposes.

(3) A company which is incorporated in the United Kingdom and becomes aware that any shares in the company are held by a person such as is mentioned in subsection (1) or (2) above shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which the company first becomes aware of that fact.

(4) A person who fails to comply with subsection (1) or (2) above shall be liable to a fine not exceeding £1,000.

(5) A company which fails to comply with subsection (3) above shall be liable to a fine not exceeding £100.

(6) Section 121 of the [1891 c. 39.] Stamp Act 1891 (recovery of penalties) shall apply to fines under subsection (4) or (5) above as it applies to fines imposed by that Act.

69 Depositary receipts: supplementary

(1) For the purposes of sections 67 and 68 above a depositary receipt for relevant securities is an instrument acknowledging—

(a) that a person holds relevant securities or evidence of the right to receive them, and

(b) that another person is entitled to rights, whether expressed as units or otherwise, in or in relation to relevant securities of the same kind, including the right to receive such securities (or evidence of the right to receive them) from the person mentioned in paragraph (a) above,

except that for those purposes a depositary receipt for relevant securities does not include an instrument acknowledging rights in or in relation to securities if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.

(2) The Treasury may by regulations provide that for subsection (1) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a depositary receipt for the purposes of sections 67 and 68 above.

(3) References in this section and sections 67 and 68 above to relevant securities, or to relevant securities of a company, are to shares in or stock or marketable securities of any company (which, unless otherwise stated, need not be incorporated in the United Kingdom).

(4) For the purposes of section 67(3) above the value of securities at the date the instrument is executed shall be taken to be the price they might reasonably be expected to fetch on a sale at that time in the open market.

(5) Where section 67(3) above applies, section 15(2) of the [1891 c. 39.] Stamp Act 1891 (stamping of instruments after execution) shall have effect as if the instrument were specified in the first column of the table in paragraph (d) and the transferee were specified (opposite the instrument) in the second.

(6) For the purposes of section 67(4) above a person is a qualified dealer in securities of a particular kind if he deals in securities of that kind and—

(a) is a member of a recognised stock exchange (within the meaning given by section 535 of the Taxes Act), or

(b) is designated a qualified dealer by order made by the Treasury.

(7) For the purposes of section 67(4) above a person is a market maker in securities of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.

(8) The Treasury may by regulations provide that for subsection (7) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of section 67(4) above.

(9) The power to make regulations or an order under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

Clearance services

70 Clearance services

(1) Subject to subsection (9) below, subsection (2) or (3) below (as the case may be) applies where an instrument transfers relevant securities of a company incorporated in the United Kingdom to a person who at the time of the transfer falls within subsection (6), (7) or (8) below.

(2) If stamp duty is chargeable on the instrument under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, the rate at which the duty is charged under that heading shall be the rate of £1.50 for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.

(3) If stamp duty is chargeable on the instrument under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule 1 to the Stamp Act 1891, the rate at which the duty is charged under that heading shall (subject to subsections (4) and (5) below) be the rate of £1.50 for every £100 or part of £100 of the value of the securities at the date the instrument is executed.

(4) Subsection (3) above shall have effect as if "£1.50" read "£1" in a case where—

(a) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,

(b) the transfer is made for the purposes of the dealer's business,

(c) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and

(d) the instrument contains a statement that paragraphs (a) to (c) above are fulfilled.

(5) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,

(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,

(c) the transfer to the other person is effected by an instrument in the case of which subsection (3) above applies,

(d) before the execution of the instrument mentioned in paragraph (c) above an instrument is received by a person falling (at the time of the receipt) within subsection (6), (7) or (8) below,

(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and

(f) the instrument mentioned in paragraph (c) above contains a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (3) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.

(6) A person falls within this subsection if his business is exclusively that of holding relevant securities—

(a) as nominee or agent for a person whose business is or includes the provision of clearance services for the purchase and sale of relevant securities, and

(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of the provision of such clearance services (in a case where the business does not consist exclusively of that).

(7) A person falls within this subsection if—

(a) he is specified for the purposes of this subsection by the Treasury by order made by statutory instrument, and

(b) his business is or includes the provision of clearance services for the purchase and sale of relevant securities.

(8) A person falls within this subsection if—

(a) he is specified for the purposes of this subsection by the Treasury by order made by statutory instrument,

(b) he does not fall within subsection (6) above but his business includes holding relevant securities as nominee or agent for a person who falls within subsection (7)(b) above at the time of the transfer, and

(c) he holds relevant securities as nominee or agent for such a person, for the purposes of such part of that person's business as consists of the provision of clearance services for the purchase and sale of relevant securities (in a case where that business does not consist exclusively of that).

(9) Where an instrument transfers relevant securities of a company incorporated in the United Kingdom—

(a) to a company which at the time of the transfer falls within subsection (6) above and is resident in the United Kingdom, and

(b) from a company which at that time falls within that subsection and is so resident,

subsections (2) to (5) above shall not apply and the maximum stamp duty chargeable on the instrument shall be 50p.

(10) This section applies to any instrument executed on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

71 Clearance services: notification

(1) A person whose business is or includes the provision of clearance services for the purchase and sale of relevant securities of a company incorporated in the United Kingdom shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which he first provides such clearance services.

(2) A person whose business includes (but does not exclusively consist of) holding relevant securities (being securities of a company incorporated in the United Kingdom)—

(a) as nominee or agent for a person whose business is or includes the provision of clearance services for the purchase and sale of relevant securities, and

(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of the provision of such clearance services (in a case where the business does not consist exclusively of that),

shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which he first holds such relevant securities as such a nominee or agent and for such purposes.

(3) A company which is incorporated in the United Kingdom and becomes aware that any shares in the company are held by a person such as is mentioned in subsection (1) or (2) above shall notify the Commissioners of that fact before the end of the period of one month beginning with the date on which the company first becomes aware of that fact.

(4) A person who fails to comply with subsection (1) or (2) above shall be liable to a fine not exceeding £1,000.

(5) A company which fails to comply with subsection (3) above shall be liable to a fine not exceeding £100.

(6) Section 121 of the [1891 c. 39.] Stamp Act 1891 (recovery of penalties) shall apply to fines under subsection (4) or (5) above as it applies to fines imposed by that Act.

72 Clearance services: supplementary

(1) References in sections 70 and 71 above to relevant securities, or to relevant securities of a company, are to shares in or stock or marketable securities of any company (which, unless otherwise stated, need not be incorporated in the United Kingdom).

(2) For the purposes of section 70(3) above the value of securities at the date the instrument is executed shall be taken to be the price they might reasonably be expected to fetch on a sale at that time in the open market.

(3) Where section 70(3) above applies, section 15(2) of the [1891 c. 39.] Stamp Act 1891 (stamping of instruments after execution) shall have effect as if the instrument were specified in the first column of the table in paragraph (d) and the transferee were specified (opposite the instrument) in the second.

(4) For the purposes of section 70(4) above "qualified dealer" and "market maker" have at any particular time the same meanings as they have at that time for the purposes of section 67(4) above.

Reconstructions and acquisitions

73 Reconstructions etc: amendments

(1) In section 55 of the [1927 c. 10.] Finance Act 1927 and in section 4 of the [1928 c. 9 (N.I.).] Finance Act (Northern Ireland) 1928 (reconstructions and amalgamations) in paragraph (B) of subsection (1) for the words "not be chargeable" there shall be substituted the words "be chargeable at the rate mentioned in subsection (9) of this section" and for the words "nor shall any such duty be chargeable" there shall be substituted the word "or".

(2) In consequence, each of those sections shall be further amended as follows—

(a) at the beginning of paragraph (B) of subsection (1) there shall be inserted the words "If a claim is made under this section";

(b) in paragraph (a) of the proviso to subsection (1) the words from "either it" to "liable or" and from "either that" to "duty or" shall be omitted, and in paragraph (c) of that proviso the words "for exemption" shall be omitted;

(c) in subsection (2) for the words "for exemption under paragraph (B) of subsection (1) of there shall be substituted the word "under";

(d) in subsection (5) the words "for exemption" shall be omitted;

(e) in subsection (6), in paragraph (a) the words " for exemption from duty" shall be omitted, in paragraph (c) for the word "exemption" there shall be substituted the word "claim", and in the words following paragraph (c) for the word "exemption" there shall be substituted the word "claim", for the word "remitted" (in the first place where it occurs) there shall be substituted the word "unpaid" and the words from "in the case of duty remitted under paragraph (A)" to "the said subsection" shall be omitted;

(f) in subsection (7) for the words "for exemption from duty under subsection (1) of there shall be substituted the word "under", for the words "such exemption" there shall be substituted the words "such a claim to be allowed" and for the words "have been remitted" there shall be substituted the words "not have been chargeable".

(3) At the end of each of those sections there shall be inserted—

“(9) The rate is the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.”

(4) In paragraph 12 of Schedule 18 to the [1980 c. 48.] Finance Act 1980 (demergers) for sub-paragraph (1) there shall be substituted—

“(1) If a document executed solely for the purpose of effecting an exempt distribution is chargeable with stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, the rate at which the duty is charged under that heading shall be the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the document gives effect.

(1A) If a document executed solely for the purpose of effecting an exempt distribution is chargeable with stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891, it shall not be treated as duly stamped unless it is stamped in accordance with section 12 of the Stamp Act 1891 with a particular stamp denoting that it is duly stamped.”

(5) In paragraph 12(3) of Schedule 18 to the Finance Act 1980 for the words "this paragraph" there shall be substituted the words "sub-paragraph (2) above".

(6) In section 78 of the [1985 c. 54.] Finance Act 1985 (takeovers) the following shall be substituted for subsection (2)—

“(2) If the instrument transferring the shares in company B by way of the exchange is chargeable with stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891, the rate at which the duty is charged under that heading shall be the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.”

(7) In section 79 of the [1985 c. 54.] Finance Act 1985 (voluntary winding-up: transfer of shares) the following shall be substituted for subsection (2)—

“(2) If the instrument transferring the shares in company B to company A is chargeable with stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891, the rate at which the duty is charged under that heading shall be the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.”

(8) In section 78 and in section 79 of the Finance Act 1985—

(a) in subsection (3) for the word "ignored" there shall be substituted the words "treated as reduced by 50 per cent.";

(b) subsection (9) shall be omitted;

(c) in subsection (10) for "(3)" there shall be substituted "(2) or (3)".

(9) This section applies to any instrument which is executed after 24th March 1986 unless—

(a) it is executed in pursuance of an unconditional contract made on or before 18th March 1986, or

(b) it transfers stock or marketable securities and is executed in pursuance of a general offer (for the stock or securities) which became unconditional as to acceptances on or before 18th March 1986.

(10) This section shall be deemed to have come into force on 25th March 1986.

74 Reconstructions etc: repeals

(1) The following provisions shall cease to have effect—

(a) section 55 of the [1927 c. 10.] Finance Act 1927 and section 4 of the [1928 c. 9 (N.I.).] Finance Act (Northern Ireland) 1928 (reconstructions and amalgamations);

(b) paragraph 12(1) and (1A) of Schedule 18 to the [1980 c. 48.] Finance Act 1980 (demergers);

(c) sections 78, 79 and 80 of the Finance Act 1985 (takeovers and winding-up).

(2) In paragraph 12(3) of Schedule 18 to the Finance Act 1980 for the words "sub-paragraph (2) above" there shall be substituted the words "this paragraph".

(3) This section applies to any instrument executed in pursuance of a contract made on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

75 Acquisitions: reliefs

(1) This section applies where a company (the acquiring company) acquires the whole or part of an undertaking of another company (the target company) in pursuance of a scheme for the reconstruction of the target company.

(2) If the first and second conditions (as defined below) are fulfilled, stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 shall not be chargeable on an instrument executed for the purposes of or in connection with the transfer of the undertaking or part.

(3) An instrument on which stamp duty is not chargeable by virtue only of subsection (2) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for that subsection or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty.

(4) The first condition is that the registered office of the acquiring company is in the United Kingdom and that the consideration for the acquisition—

(a) consists of or includes the issue of shares in the acquiring company to all the shareholders of the target company;

(b) includes nothing else (if anything) but the assumption or discharge by the acquiring company of liabilities of the target company.

(5) The second condition is that—

(a) the acquisition is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to stamp duty, income tax, corporation tax or capital gains tax,

(b) after the acquisition has been made, each shareholder of each of the companies is a shareholder of the other, and

(c) after the acquisition has been made, the proportion of shares of one of the companies held by any shareholder is the same as the proportion of shares of the other company held by that shareholder.

(6) This section applies to any instrument which is executed after 24th March 1986 unless it is executed in pursuance of an unconditional contract made on or before 18th March 1986.

(7) This section shall be deemed to have come into force on 25th March 1986.

76 Acquisitions: further provisions about reliefs

(1) This section applies where a company (the acquiring company) acquires the whole or part of an undertaking of another company (the target company).

(2) If the condition mentioned in subsection (3) below is fulfilled, and stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 is chargeable on an instrument executed for the purposes of or in connection with—

(a) the transfer of the undertaking or part, or

(b) the assignment to the acquiring company by a creditor of the target company of any relevant debts (secured or unsecured) owed by the target company,

the rate at which the duty is charged under that heading shall not exceed that mentioned in subsection (4) below.

(3) The condition is that the registered office of the acquiring company is in the United Kingdom and that the consideration for the acquisition—

(a) consists of or includes the issue of shares in the acquiring company to the target company or to all or any of its shareholders;

(b) includes nothing else (if anything) but cash not exceeding 10 per cent, of the nominal value of those shares, or the assumption or discharge by the acquiring company of liabilities of the target company, or both.

(4) The rate is the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.

(5) An instrument on which, by virtue only of subsection (2) above, the rate at which stamp duty is charged is not to exceed that mentioned in subsection (4) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for subsection (2) above or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is duly stamped.

(6) In subsection (2)(b) above "relevant debts" means—

(a) any debt in the case of which the assignor is a bank or trade creditor, and

(b) any other debt incurred not less than two years before the date on which the instrument is executed.

(7) This section applies to any instrument executed on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

77 Acquisition of target company's share capital

(1) Stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 shall not be chargeable on an instrument transferring shares in one company (the target company) to another company (the acquiring company) if the conditions mentioned in subsection (3) below are fulfilled.

(2) An instrument on which stamp duty is not chargeable by virtue only of subsection (1) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for that subsection or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty.

(3) The conditions are that—

(a) the registered office of the acquiring company is in the United Kingdom,

(b) the transfer forms part of an arrangement by which the acquiring company acquires the whole of the issued share capital of the target company,

(c) the acquisition is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to stamp duty, stamp duty reserve tax, income tax, corporation tax or capital gains tax,

(d) the consideration for the acquisition consists only of the issue of shares in the acquiring company to the shareholders of the target company,

(e) after the acquisition has been made, each person who immediately before it was made was a shareholder of the target company is a shareholder of the acquiring company,

(f) after the acquisition has been made, the shares in the acquiring company are of the same classes as were the shares in the target company immediately before the acquisition was made,

(g) after the acquisition has been made, the number of shares of any particular class in the acquiring company bears to all the shares in that company the same proportion as the number of shares of that class in the target company bore to all the shares in that company immediately before the acquisition was made, and

(h) after the acquisition has been made, the proportion of shares of any particular class in the acquiring company held by any particular shareholder is the same as the proportion of shares of that class in the target company held by him immediately before the acquisition was made.

(4) In this section references to shares and to share capital include references to stock.

(5) This section applies to any instrument executed on or after 1st August 1986.

Loan capital, letters of allotment etc.

78 Loan capital

(1) This section (which reproduces the effect of a resolution having statutory effect under section 50 of the [1973 c. 51.] Finance Act 1973 for the period beginning on 25th March 1986 and ending on 6th July 1986) shall be deemed to have had effect during, and only during, that period.

(2) The following provisions shall not apply—

(a) in section 62 of the [1963 c. 25.] Finance Act 1963, subsections (2) and (6) (commonwealth stock);

(b) in section 11 of the [1963 c. 22 (N.I.).] Finance Act (Northern Ireland) 1963, subsections (2) and (5) (commonwealth stock);

(c) section 29 of the [1967 c. 54.] Finance Act 1967 (local authority capital);

(d) section 6 of the [1967 c. 20 (N.I.).] Finance Act (Northern Ireland) 1967 (local authority capital);

(e) section 126 of the [1976 c. 40.] Finance Act 1976 (loan capital).

(3) Stamp duty under the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 shall not be chargeable on the issue of an instrument which relates to loan capital or on the transfer of the loan capital constituted by, or transferable by means of, such an instrument.

(4) Stamp duty shall not be chargeable on an instrument which transfers loan capital issued or raised by—

(a) the financial support fund of the Organisation for Economic Co-operation and Development,

(b) the Inter-American Development Bank, or

(c) an organisation which was a designated international organisation at the time of the transfer (whether or not it was such an organisation at the time the loan capital was issued or raised).

(5) Stamp duty shall not be chargeable on an instrument which transfers short-term loan capital.

(6) Where stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891 is chargeable on an instrument which transfers loan capital, the rate at which the duty is charged under that heading shall be the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.

(7) In this section "loan capital" means—

(a) any debenture stock, corporation stock or funded debt, by whatever name known, issued by a body corporate or other body of persons (which here includes a local authority and any body whether formed or established in the United Kingdom or elsewhere);

(b) any capital raised by such a body if the capital is borrowed or has the character of borrowed money, and whether it is in the form of stock or any other form;

(c) stock or marketable securities issued by the government of any country or territory outside the United Kingdom.

(8) In this section "short-term loan capital" means loan capital the date (or latest date) for the repayment of which is not more than 5 years after the date on which it is issued or raised.

(9) In this section "designated international organisation" means an international organisation designated for the purposes of section 126 of the [1984 c. 43.] Finance Act 1984 by an order made under subsection (1) of that section.

(10) In construing sections 80(3) and 81(3) of the [1985 c. 54.] Finance Act 1985 (definitions by reference to section 126 of the [1976 c. 40.] Finance Act 1976) the effect of this section shall be ignored.

(11) This section applies to any instrument which falls within section 60(1) of the [1963 c. 25.] Finance Act 1963 and is issued after 24th March 1986 and before 7th July 1986.

(12) This section applies to any instrument which falls within section 60(2) of that Act if the loan capital constituted by or transferable by means of it is transferred after 24th March 1986 and before 7th July 1986.

(13) This section applies, in the case of instruments not falling within section 60(1) or (2) of that Act, to any instrument which is executed after 24th March 1986 and before 7th July 1986, unless it is executed in pursuance of a contract made on or before 18th March 1986.

(14) In this section references to section 60(1) of the [1963 c. 25.] Finance Act 1963 include references to section 9(1)(a) of the [1963 c. 22 (N.I.).] Finance Act (Northern Ireland) 1963 and references to section 60(2) of the former Act include references to section 9(1 )(b) of the latter.

79 Loan capital: new provisions

(1) The following provisions shall cease to have effect—

(a) in section 62 of the [1963 c. 25.] Finance Act 1963, subsections (2) and (6) (commonwealth stock);

(b) in section 11 of the [1963 c. 22 (N.I.).] Finance Act (Northern Ireland) 1963, subsections (2) and (5) (commonwealth stock);

(c) section 29 of the [1967 c. 54.] Finance Act 1967 (local authority capital);

(d) section 6 of the [1967 c. 20 (N.I.).] Finance Act (Northern Ireland) 1967 (local authority capital);

(e) section 126 of the [1976 c. 40.] Finance Act 1976 (loan capital).

(2) Stamp duty under the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 shall not be chargeable on the issue of an instrument which relates to loan capital or on the transfer of the loan capital constituted by, or transferable by means of, such an instrument.

(3) Stamp duty shall not be chargeable on an instrument which transfers loan capital issued or raised by—

(a) the financial support fund of the Organisation for Economic Co-operation and Development,

(b) the Inter-American Development Bank, or

(c) an organisation which was a designated international organisation at the time of the transfer (whether or not it was such an organisation at the time the loan capital was issued or raised).

(4) Subject to subsections (5) and (6) below, stamp duty shall not be chargeable on an instrument which transfers any other loan capital.

(5) Subsection (4) above does not apply to an instrument transferring loan capital which, at the time the instrument is executed, carries a right (exercisable then or later) of conversion into shares or other securities, or to the acquisition of shares or other securities, including loan capital of the same description.

(6) Subject to subsection (7) below, subsection (4) above does not apply to an instrument transferring loan capital which, at the time the instrument is executed or any earlier time, carries or has carried—

(a) a right to interest the amount of which exceeds a reasonable commercial return on the nominal amount of the capital,

(b) a right to interest the amount of which falls or has fallen to be determined to any extent by reference to the results of, or of any part of, a business or to the value of any property, or

(c) a right on repayment to an amount which exceeds the nominal amount of the capital and is not reasonably comparable with what is generally repayable (in respect of a similar nominal amount of capital) under the terms of issue of loan capital listed in the Official List of The Stock Exchange.

(7) Subsection (4) above shall not be prevented from applying to an instrument by virtue of subsection (6)(a) or (c) above by reason only that the loan capital concerned carries a right to interest, or (as the case may be) to an amount payable on repayment, determined to any extent by reference to an index showing changes in the general level of prices payable in the United Kingdom over a period substantially corresponding to the period between the issue or raising of the loan capital and its repayment.

(8) Where stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 is chargeable on an instrument which transfers loan capital, the rate at which the duty is charged under that heading shall be the rate of 50p for every £100 or part of £100 of the amount or value of the consideration for the sale to which the instrument gives effect.

(9) This section applies to any instrument which falls within section 60(1) of the [1963 c. 25.] Finance Act 1963 and is issued after 31st July 1986.

(10) This section applies to any instrument which falls within section 60(2) of that Act if the loan capital constituted by or transferable by means of it is transferred after 31st July 1986.

(11) This section applies, in the case of instruments not falling within section 60(1) or (2) of that Act, to any instrument which is executed after 31st July 1986.

(12) Subsections (7), (9), (10) and (14) of section 78 above shall apply as if references to that section included references to this.

80 Bearer letters of allotment etc.

(1) In Schedule 1 to the Stamp Act 1891, in the heading "Bearer Instrument", paragraph 2 of the exemptions (bearer letter of allotment etc. required to be surrendered not later than six months after issue) shall be omitted.

(2) This section applies to any instrument which falls within section 60(1) of the Finance Act 1963 and is issued after 24th March 1986, unless it is issued by a company in pursuance of a general offer for its shares and the offer became unconditional as to acceptances on or before 18th March 1986.

(3) This section applies to any instrument which falls within section 60(2) of that Act if the stock constituted by or transferable by means of it is transferred after 24th March 1986.

(4) In this section the reference to section 60(1) of the [1963 c. 25.] Finance Act 1963 includes a reference to section 9(1)(a) of the [1963 c. 22 (N.I.).] Finance Act (Northern Ireland) 1963 and the reference to section 60(2) of the former Act includes a reference to section 9(1)(b) of the latter.

(5) This section shall be deemed to have come into force on 25th March 1986.

Changes in financial institutions

81 Sales to market makers

(1) Stamp duty shall not be chargeable on an instrument transferring stock on sale to a person or his nominee if it is shown to the satisfaction of the Commissioners that the transaction to which the instrument gives effect was carried out by the person in the ordinary course of his business as a market maker in stock of the kind transferred.

(2) An instrument on which stamp duty is not chargeable by virtue only of subsection (1) above shall not be deemed to be duly stamped unless it has been stamped with a stamp denoting that it is not chargeable with any duty; and notwithstanding anything in section 122(1) of the [1891 c. 39.] Stamp Act 1891, the stamp may be a stamp of such kind as the Commissioners may prescribe.

(3) For the purposes of this section a person is a market maker in stock of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell stock of that kind at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.

(4) Subject to subsection (6) below, this section applies to any instrument giving effect to a transaction carried out on or after the day of The Stock Exchange reforms.

(5) The Treasury may by regulations provide that for subsection (3) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of this section.

(6) Regulations under subsection (5) above shall apply in relation to any instrument giving effect to a transaction carried out on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

(7) The power to make regulations under subsection (5) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

82 Borrowing of stock by market makers

(1) This section applies where a person (A) has contracted to sell stock in the ordinary course of his business as a market maker in stock of that kind and, to enable him to fulfil the contract, he enters into an arrangement under which—

(a) another person (B), who is not a market maker in stock of the kind concerned or a nominee of such a market maker, is to transfer stock to A or his nominee, and

(b) in return stock of the same kind and amount is to be transferred (whether or not by A or his nominee) to B or his nominee.

(2) This section also applies where, to enable B to make the transfer to A or his nominee, B enters into an arrangement under which—

(a) another person (C), who is not a market maker in stock of the kind concerned or a nominee of such a market maker, is to transfer stock to B or his nominee, and

(b) in return stock of the same kind and amount is to be transferred (whether or not by B or his nominee) to C or his nominee.

(3) The maximum stamp duty chargeable on an instrument effecting a transfer to B or his nominee or C or his nominee in pursuance of an arrangement mentioned in subsection (1) or (2) above shall be 50p.

(4) For the purposes of this section a person is a market maker in stock of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell stock of that kind at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.

(5) Subject to subsection (7) below, this section applies to any instrument effecting a transfer in pursuance of an arrangement entered into on or after the day of The Stock Exchange reforms.

(6) The Treasury may by regulations provide that for subsection (3) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of this section.

(7) Regulations under subsection (6) above shall apply in relation to any instrument effecting a transfer in pursuance of an arrangement entered into on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

(8) The power to make regulations under subsection (6) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

83 Composition agreements

(1) In section 33(1) of the [1970 c. 24.] Finance Act 1970 (composition by stock exchanges in respect of transfer duty)—

(a) for the words "any recognised stock exchange" there shall be substituted "any recognised investment exchange or recognised clearing house", and

(b) the following shall be substituted for the words from In this subsection" to the end—

“In this subsection 'recognised investment exchange' and 'recognised clearing house' have the same meanings as in the Financial Services Act 1986.”

(2) The words "recognised investment exchange or recognised clearing house" shall be substituted for the words "stock exchange" in section 33(2)(b), (c) and (d), (4) and (5) of the Finance Act 1970.

(3) This section shall come into force on such day as the Commissioners may appoint by order made by statutory instrument.

84 Miscellaneous exemptions

(1) In section 127(1) of the [1976 c. 40.] Finance Act 1976 (no stamp duty on transfer to stock exchange nominee executed for purposes of a stock exchange transaction) the words "which is executed for the purposes of a stock exchange transaction" shall be omitted.

(2) Stamp duty shall not be chargeable on an instrument effecting a transfer of stock if—

(a) the transferee is a recognised investment exchange or a nominee of a recognised investment exchange, and

(b) an agreement which relates to the stamp duty which would (apart from this subsection) be chargeable on the instrument, and was made between the Commissioners and the investment exchange under section 33 of the Finance Act 1970, is in force at the time of the transfer.

(3) Stamp duty shall not be chargeable on an instrument effecting a transfer of stock if—

(a) the transferee is a recognised clearing house or a nominee of a recognised clearing house, and

(b) an agreement which relates to the stamp duty which would (apart from this subsection) be chargeable on the instrument, and was made between the Commissioners and the clearing house under section 33 of the [1970 c. 24.] Finance Act 1970, is in force at the time of the transfer.

(4) Subsection (1) above applies to any transfer giving effect to a transaction carried out on or after the day of The Stock Exchange reforms.

(5) Subsection (2) above applies to any instrument giving effect to a transaction carried out on or after such day as the Commissioners may appoint by order made by statutory instrument.

(6) Subsection (3) above applies to any instrument giving effect to a transaction carried out on or after such day as the Commissioners may appoint by order made by statutory instrument.

85 Supplementary

(1) Section 42(1) of the [1920 c. 18.] Finance Act 1920 (reduction of duty in case of certain transfers to jobbers or nominees or qualified dealers) shall have effect, in the case of any transfer giving effect to a transaction carried out on or after the day of The Stock Exchange reforms as if the following were omitted—

(a) in that subsection, the words "a jobber or his nominee or to" and in the proviso to it the words "jobber or" (in each place);

(b) in subsection (3) of that section, paragraph (d) of the definition of "qualified dealer" (Stock Exchange brokers).

(2) Section 34 of the [1961 c. 36.] Finance Act 1961 and section 4 of the [1961 c. 10 (N.I.).] Finance Act (Northern Ireland) 1961 (borrowing of stock by jobbers) shall not apply where stock is transferred in discharge of an undertaking given on or after the day of The Stock Exchange reforms.

(3) Section 42(1) of the Finance Act 1920 shall not apply to any transfer giving effect to a transaction carried out on or after such day as is specified for this purpose in regulations made under section 81(5) above; and different days may be so specified for different purposes.

(4) Section 127(2) of the [1976 c. 40.] Finance Act 1976 (transfer otherwise than on sale from stock exchange nominee to jobber) shall not apply to any transfer giving effect to a transaction carried out on or after the day of The Stock Exchange reforms.

(5) In sections 81, 82 and 84 above and this section—

(a) "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished,

(b) references to a recognised investment exchange are to a recognised investment exchange within the meaning of the Financial Services Act 1986,

(c) references to a recognised clearing house are to a recognised clearing house within the meaning of the Financial Services Act 1986, and

(d) "stock" includes marketable security.

PART IV Stamp Duty Reserve Tax

Introduction

86 The tax: introduction

(1) A tax, to be known as stamp duty reserve tax, shall be charged in accordance with this Part of this Act.

(2) The tax shall be under the care and management of the Board.

(3) Section 1 of the [1968 c. 2.] Provisional Collection of Taxes Act 1968 shall apply to the tax; and accordingly in subsection (1) of that section after the words "petroleum revenue tax" there shall be inserted the words "stamp duty reserve tax".

The principal charge

87 The principal charge

(1) This section applies where a person (A) agrees with another person (B) to transfer chargeable securities (whether or not to B) for consideration in money or money's worth.

(2) There shall be a charge to stamp duty reserve tax under this section on the expiry of the period of two months beginning with the relevant day, unless the agreement is to transfer the securities to B or his nominee and the first and second conditions mentioned below have been fulfilled by the time that period expires.

(3) In subsection (2) above "the relevant day" means—

(a) in a case where the agreement is conditional, the day on which the condition is satisfied, and

(b) in any other case, the day on which the agreement is made.

(4) The first condition is that an instrument is (or instruments are) executed in pursuance of the agreement and the instrument transfers (or the instruments between them transfer) to B or, as the case may be, to his nominee all the chargeable securities to which the agreement relates.

(5) The second condition is that the instrument (or each instrument) transferring the chargeable securities to which the agreement relates is duly stamped in accordance with the enactments relating to stamp duty if it is an instrument which, under those enactments, is chargeable with stamp duty or otherwise required to be stamped.

(6) Tax under this section shall be charged at the rate of 50p for every £100 or part of £100 of the amount or value of the consideration mentioned in subsection (1) above.

(7) For the purposes of subsection (6) above the value of any consideration not consisting of money shall be taken to be the price it might reasonably be expected to fetch on a sale in the open market at the time the agreement mentioned in subsection (1) above is made.

(8) In this section "the enactments relating to stamp duty" means the [1891 c. 39.] Stamp Act 1891 and any enactment which amends or is required to be construed together with that Act.

(9) This section applies where the agreement to transfer is made on or after the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

(10) This section has effect subject to sections 88 to 90 below.

88 Section 87: special cases

(1) An instrument on which stamp duty is not chargeable by virtue of—

(a) section 127(1) of the [1976 c. 40.] Finance Act 1976 (transfer to stock exchange nominee), or

(b) section 84(2) or (3) above,

shall be disregarded in construing section 87(4) and (5) above.

(2) Subsection (3) below applies where the chargeable securities mentioned in section 87(1) above are constituted by or transferable by means of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891, which—

(a) is exempt from stamp duty under that heading by virtue of exemption 3 in that heading, or

(b) would be so exempt if it were otherwise chargeable under that heading.

(3) In such a case section 87 above shall have effect as if the following were omitted—

(a) in subsection (2) the words from "unless" to the end;

(b) subsections (4), (5) and (8).

89 Section 87: exceptions for market makers etc.

(1) Section 87 above shall not apply as regards an agreement to transfer securities if the agreement is made by B in the ordinary course of his business as a market maker in securities of the kind concerned.

(2) Section 87 above shall not apply as regards an agreement to transfer securities to B or his nominee if—

(a) the agreement is made by B as principal in the ordinary course of his business as a broker and dealer in relation to securities of the kind concerned, and

(b) before the end of the period of 7 days beginning with the day on which the agreement is made or (in a case where the agreement is conditional) the day on which the condition is satisfied, B enters into an unconditional agreement to sell the securities to another person.

(3) For the purposes of this section, a person is a market maker in securities of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.

(4) For the purposes of this section, a person is a broker and dealer in relation to securities of a particular kind if he is a member of The Stock Exchange who carries on his business in the United Kingdom and is not a market maker in securities of that kind.

(5) The Treasury may by regulations provide that for subsection (3) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of this section.

(6) The Treasury may by regulations provide that for subsection (4) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a broker and dealer for the purposes of this section.

(7) For the purposes of subsection (2) above, if the securities which B sells cannot be identified (apart from this subsection) securities shall be taken as follows—

(a) securities of the same kind acquired in the period of 7 days ending with the day of the sale (and not taken for the purposes of a previous sale by B) shall be taken before securities of that kind acquired outside that period;

(b) securities of that kind acquired earlier in that period (and not taken for the purposes of a previous sale by B) shall be taken before securities of that kind acquired later in that period.

(8) For the purposes of subsection (7) above—

(a) securities are acquired when B enters into an agreement for them to be transferred to B or his nominee or (in a case where the agreement is conditional) when the condition is satisfied;

(b) B sells securities when he enters into an unconditional agreement to sell them to another person.

(9) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

90 Section 87: other exceptions

(1) Section 87 above shall not apply as regards an agreement to transfer a unit under a unit trust scheme to the managers under the scheme.

(2) Section 87 above shall not apply as regards an agreement to transfer a unit under a unit trust scheme if at the time the agreement is made—

(a) all the trustees under the scheme are resident outside the United Kingdom, and

(b) the unit is not registered in a register kept in the United Kingdom by or on behalf of the trustees under the scheme.

(3) Section 87 above shall not apply as regards an agreement to transfer securities constituted by or transferable by means of—

(a) an overseas bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891;

(b) an inland bearer instrument, within the meaning of that heading, which does not fall within exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).

(4) Section 87 above shall not apply as regards an agreement which forms part of an arrangement falling within section 93(1) or 96(1) below.

(5) Section 87 above shall not apply as regards an agreement to transfer securities which the Board are satisfied are held, when the agreement is made, by a person whose business is exclusively that of holding chargeable securities—

(a) as nominee or agent for a person whose business is or includes the provision of clearance services for the purchase and sale of chargeable securities, and

(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of the provision of such clearance services (in a case where the business does not consist exclusively of that).

91 Liability to tax

(1) Where tax is charged under section 87 above as regards an agreement, B shall be liable for the tax.

(2) But where B is acting as nominee for another person, that other person shall be liable for the tax.

92 Repayment or cancellation of tax

(1) If, as regards an agreement to transfer securities to B or his nominee, tax is charged under section 87 above and it is proved to the Board's satisfaction that at a time after the expiry of the period of two months (beginning with the relevant day, as defined in section 87(3)) but before the expiry of the period of six years (so beginning) the conditions mentioned in section 87(4) and (5) have been fulfilled, the following provisions of this section shall apply.

(2) If any of the tax charged has been paid, and a claim for repayment is made within the period of six years mentioned in subsection (1) above, the tax paid shall be repaid; and where the tax paid is not less than £25 it shall be repaid with interest on it at the appropriate rate from the time it was paid.

(3) To the extent that the tax charged has not been paid, the charge shall be cancelled by virtue of this subsection.

(4) In subsection (2) above "the appropriate rate" means 11 per cent, per annum or such other rate as the Treasury may from time to time specify by order.

(5) The power to make an order under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

Other charges

93 Depositary receipts

(1) Subject to subsection (7) below and section 95 below, there shall be a charge to stamp duty reserve tax under this section where in pursuance of an arrangement—

(a) a person falling within subsection (2) below has issued or is to issue a depositary receipt for chargeable securities, and

(b) chargeable securities of the same kind and amount are transferred or issued to a person falling within subsection (3) below, or are appropriated by such a person towards the eventual satisfaction of the entitlement of the receipt's holder to receive chargeable securities.

(2) A person falls within this subsection if his business is or includes issuing depositary receipts for chargeable securities.

(3) A person falls within this subsection if his business is or includes holding chargeable securities as nominee or agent for the person who has issued or is to issue the depositary receipt.

(4) Subject to subsections (5) to (7) below, tax under this section shall be charged at the rate of £1.50 for every £100 or part of £100 of the following—

(a) in a case where the securities are issued, their price when issued;

(b) in a case where the securities are transferred for consideration in money or money's worth, the amount or value of the consideration;

(c) in any other case, the value of the securities.

(5) In a case where the securities are transferred and—

(a) the transfer is effected by an instrument on which stamp duty under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 is chargeable,

(b) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,

(c) the transfer is made for the purposes of the dealer's business,

(d) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and

(e) the instrument contains a statement that paragraphs (b) to (d) above are fulfilled,

subsection (4) above shall have effect as if "£1.50" read "50p" (in a case where the securities are transferred before the day of The Stock Exchange reforms) or "£1" (in any other case).

(6) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,

(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,

(c) subsection (4)(c) above applies in the case of the transfer to the other person,

(d) before the making of the transfer to the other person an instrument is received by a person falling within subsection (3) above,

(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and

(f) the transfer to the other person is effected by an instrument containing a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (4)(c) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.

(7) Where tax is (or would apart from this subsection be) charged under this section in respect of a transfer of securities, and ad valorem stamp duty is chargeable on any instrument effecting the transfer, then—

(a) if the amount of the duty is less than the amount of tax found by virtue of subsections (4) to (6) above, the tax charged under this section shall be the amount so found less the amount of the duty;

(b) in any other case, there shall be no charge to tax under this section in respect of the transfer.

(8) Where tax is charged under the preceding provisions of this section, the person liable for the tax shall (subject to subsection (9) below) be the person who has issued or is to issue the depositary receipt.

(9) Where tax is charged under the preceding provisions of this section in a case where securities are transferred, and at the time of the transfer the person who has issued or is to issue the depositary receipt is not resident in the United Kingdom and has no branch or agency in the United Kingdom, the person liable for the tax shall be the person to whom the securities are transferred.

(10) Where chargeable securities are issued or transferred on sale under terms providing for payment in instalments and for an issue of other chargeable securities, and (apart from this subsection) tax would be charged under this section in respect of that issue, tax shall not be so charged but—

(a) if any of the instalments becomes payable by a person falling within subsection (2) or (3) above, there shall be a charge to stamp duty reserve tax under this section when the instalment becomes payable;

(b) the charge shall be at the rate of £1.50 for every £100 or part of £100 of the instalment payable;

(c) the person liable to pay the instalment shall be liable for the tax.

(11) Subject to subsection (12) below, this section applies where securities are transferred, issued or appropriated after 18th March 1986 (whenever the arrangement was made).

(12) This section does not apply, in the case of securities which are transferred, if the Board are satisfied that they were acquired or appropriated by the transferor on or before 18th March 1986 for or towards the eventual satisfaction of the entitlement of a person to receive securities of the same kind under a depositary receipt (whether issued on or before that date or to be issued after that date).

94 Depositary receipts: supplementary

(1) For the purposes of section 93 above a depositary receipt for chargeable securities is an instrument acknowledging—

(a) that a person holds chargeable securities or evidence of the right to receive them, and

(b) that another person is entitled to rights, whether expressed as units or otherwise, in or in relation to chargeable securities of the same kind, including the right to receive such securities (or evidence of the right to receive them) from the person mentioned in paragraph (a) above,

except that for those purposes a depositary receipt for chargeable securities does not include an instrument acknowledging rights in or in relation to securities if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.

(2) The Treasury may by regulations provide that for subsection (1) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a depositary receipt for the purposes of section 93 above.

(3) For the purposes of section 93(4)(b) above the value of any consideration not consisting of money shall be taken to be the price it might reasonably be expected to fetch on a sale in the open market at the time the securities are transferred.

(4) For the purposes of section 93(4)(c) above the value of the securities shall be taken to be the price they might reasonably be expected to fetch on a sale in the open market at the time they are transferred or appropriated (as the case may be).

(5) For the purposes of section 93(5) above a person is a qualified dealer in securities of a particular kind if he deals in securities of that kind and—

(a) is a member of a recognised stock exchange (within the meaning given by section 535 of the Taxes Act), or

(b) is designated a qualified dealer by order made by the Treasury.

(6) For the purposes of section 93(5) above a person is a market maker in securities of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.

(7) The Treasury may by regulations provide that for subsection (6) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of section 93(5) above.

(8) In section 93(5) above "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

(9) The power to make regulations or an order under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

95 Depositary receipts: exceptions

(1) Where securities are transferred—

(a) to a company which at the time of the transfer falls within subsection (6) of section 67 above and is resident in the United Kingdom, and

(b) from a company which at that time falls within that subsection and is so resident,

there shall be no charge to tax under section 93 above in respect of the transfer.

(2) There shall be no charge to tax under section 93 above in respect of a transfer, issue or appropriation of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, which does not fall within exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).

(3) There shall be no charge to tax under section 93 above in respect of an issue by a company (company X) of securities in exchange for shares in another company (company Y) where company X—

(a) has control of company Y, or

(b) will have such control in consequence of the exchange or of an offer as a result of which the exchange is made.

(4) For the purposes of subsection (3) above company X has control of company Y if company X has power to control company Y's affairs by virtue of holding shares in, or possessing voting power in relation to, company Y or any other body corporate.

96 Clearance services

(1) Subject to subsection (5) below and section 97 below, there shall be a charge to stamp duty reserve tax under this section where—

(a) a person (A) whose business is or includes the provision of clearance services for the purchase and sale of chargeable securities has entered into an arrangement to provide such clearance services for another person, and

(b) in pursuance of the arrangement, chargeable securities are transferred or issued to A or to a person whose business is or includes holding chargeable securities as nominee for A.

(2) Subject to subsections (3) to (5) below, tax under this section shall be charged at the rate of £1.50 for every £100 or part of £100 of the following—

(a) in a case where the securities are issued, their price when issued;

(b) in a case where the securities are transferred for consideration in money or money's worth, the amount or value of the consideration;

(c) in any other case, the value of the securities.

(3) In a case where the securities are transferred and—

(a) the transfer is effected by an instrument on which stamp duty under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891 is chargeable,

(b) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,

(c) the transfer is made for the purposes of the dealer's business,

(d) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and

(e) the instrument contains a statement that paragraphs (b) to (d) above are fulfilled,

subsection (2) above shall have effect as if "£1.50" read "50p" (in a case where the securities are transferred before the day of The Stock Exchange reforms) or "£1" (in any other case).

(4) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,

(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,

(c) subsection (2)(c) above applies in the case of the transfer to the other person,

(d) before the making of the transfer to the other person an instrument is received by A or a person whose business is or includes holding chargeable securities as nominee for A,

(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and

(f) the transfer to the other person is effected by an instrument containing a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (2)(c) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.

(5) Where tax is (or would apart from this subsection be) charged under this section in respect of a transfer of securities and ad valorem stamp duty is chargeable on any instrument effecting the transfer, then—

(a) if the amount of the duty is less than the amount of tax found by virtue of subsections (2) to (4) above, the tax charged under this section shall be the amount so found less the amount of the duty;

(b) in any other case, there shall be no charge to tax under this section in respect of the transfer.

(6) Where tax is charged under the preceding provisions of this section, the person liable for the tax shall (subject to subsection (7) below) be A.

(7) Where tax is charged under the preceding provisions of this section in a case where securities are transferred to a person other than A, and at the time of the transfer A is not resident in the United Kingdom and has no branch or agency in the United Kingdom, the person liable for the tax shall be the person to whom the securities are transferred.

(8) Where chargeable securities are issued or transferred on sale under terms providing for payment in instalments and for an issue of other chargeable securities, and (apart from this subsection) tax would be charged under this section in respect of that issue, tax shall not be so charged but—

(a) if any of the instalments becomes payable by A or by a person whose business is or includes holding chargeable securities as nominee for A, there shall be a charge to stamp duty reserve tax under this section when the instalment becomes payable;

(b) the charge shall be at the rate of £1.50 for every £100 or part of £100 of the instalment payable;

(c) the person liable to pay the instalment shall be liable for the tax.

(9) For the purposes of subsection (2)(b) above the value of any consideration not consisting of money shall be taken to be the price it might reasonably be expected to fetch on a sale in the open market at the time the securities are transferred.

(10) For the purposes of subsection (2)(c) above the value of securities shall be taken to be the price they might reasonably be expected to fetch on a sale in the open market at the time they are transferred.

(11) For the purposes of subsection (3) above "qualified dealer" and "market maker" have at any particular time the same meanings as they have at that time for the purposes of section 93(5) above.

(12) In subsection (3) above "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

(13) Subject to subsection (14) below, this section applies where securities are transferred or issued after 18th March 1986 (whenever the arrangement was made).

(14) This section does not apply, in the case of securities which are transferred, if the Board are satisfied—

(a) that on or before 18th March 1986 the transferor (or, where the transferor transfers as agent, the principal) agreed to sell securities of the same kind and amount to the person (other than A) referred to in subsection (1)(a) above, and

(b) that the transfer is effected in pursuance of that agreement.

97 Clearance services: exceptions

(1) Where securities are transferred—

(a) to a company which at the time of the transfer falls within subsection (6) of section 70 above and is resident in the United Kingdom, and

(b) from a company which at that time falls within that subsection and is so resident,

there shall be no charge to tax under section 96 above in respect of the transfer.

(2) There shall be no charge to tax under section 96 above in respect of a transfer effected by an instrument on which stamp duty is not chargeable by virtue of—

(a) section 127(1) of the [1976 c. 40.] Finance Act 1976 (transfer to stock exchange nominee), or

(b) section 84(2) or (3) above.

(3) There shall be no charge to tax under section 96 above in respect of a transfer or issue of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the [1891 c. 39.] Stamp Act 1891, which does not fall within exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).

(4) There shall be no charge to tax under section 96 above in respect of an issue by a company (company X) of securities in exchange for shares in another company (company Y) where company X—

(a) has control of company Y, or

(b) will have such control in consequence of the exchange or of an offer as a result of which the exchange is made.

(5) For the purposes of subsection (4) above company X has control of company Y if company X has power to control company Y's affairs by virtue of holding shares in, or possessing voting power in relation to, company Y or any other body corporate.

General

98 Administration etc.

(1) The Treasury may make regulations—

(a) providing that provisions of the [1970 c. 9.] Taxes Management Act 1970 specified in the regulations shall apply in relation to stamp duty reserve tax as they apply in relation to a tax within the meaning of that Act, with such modifications (specified in the regulations) as they think fit;

(b) making with regard to stamp duty reserve tax such further provision as they think fit in relation to administration, assessment, collection and recovery.

(2) The power to make regulations under subsection (1) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

99 Interpretation

(1) This section applies for the purposes of this Part of this Act.

(2) "The Board" means the Commissioners of Inland Revenue.

(3) Subject to the following provisions of this section, "chargeable securities" means stocks, shares, loan capital and units under a unit trust scheme.

(4) "Chargeable securities" does not include stocks, shares or loan capital which is (or are) issued or raised by a body corporate not incorporated in the United Kingdom unless the stocks, shares or loan capital is (or are) registered in a register kept in the United Kingdom by or on behalf of the body corporate.

(5) "Chargeable securities" does not include stocks, shares or loan capital the transfer of which is exempt from all stamp duties.

(6) A reference to stocks, shares or loan capital includes a reference to—

(a) an interest in, or in dividends or other rights arising out of, stocks, shares or loan capital the transfer of which is not exempt from all stamp duties;

(b) a right to an allotment of or to subscribe for, or an option to acquire, stocks, shares or loan capital the transfer of which is not exempt from all stamp duties,

except that the reference does not include a reference to an interest in a depositary receipt for stocks or shares.

(7) A depositary receipt for stocks or shares is an instrument acknowledging—

(a) that a person holds stocks or shares or evidence of the right to receive them, and

(b) that another person is entitled to rights, whether expressed as units or otherwise, in or in relation to stocks or shares of the same kind, including the right to receive such stocks or shares (or evidence of the right to receive them) from the person mentioned in paragraph (a) above,

except that a depositary receipt for stocks or shares does not include an instrument acknowledging rights in or in relation to stocks or shares if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.

(8) The Treasury may by regulations provide that for subsection (7) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a depositary receipt; and the power to make regulations under this subsection shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

(9) "Unit" and "unit trust scheme" have the same meanings as in Part VII of the [1946 c. 64.] Finance Act 1946.

(10) In interpreting "chargeable securities" in sections 93, 94 and 96 above—

(a) the words in subsection (4) above from "unless" to the end shall be ignored, and

(b) the effect of paragraph 8 of Schedule 14 to the [1985 c. 6.] Companies Act 1985 (share registered overseas) and of section 118 of the [1960 c. 22 (N.I.).] Companies Act (Northern Ireland) 1960 and paragraph 7 of Schedule 14 to the [S.I. 1986/1032 (N.I. 6).] Companies (Northern Ireland) Order 1986 (equivalent provision for Northern Ireland) shall be ignored for the purposes of subsection (5) above.

PART V Inheritance Tax

100 Capital transfer tax to be known as inheritance tax

(1) On and after the passing of this Act, the tax charged under the Capital Transfer Tax Act 1984 (in this Part of this Act referred to as "the 1984 Act") shall be known as inheritance tax and, accordingly, on and after that passing.—

(a) the 1984 Act may be cited as the [1984 c. 51.] Inheritance Tax Act 1984; and

(b) subject to subsection (2) below, any reference to capital transfer tax in the 1984 Act, in any other enactment passed before or in the same Session as this Act or in any document executed, made, served or issued on or before the passing of this Act or at any time thereafter shall have effect as a reference to inheritance tax.

(2) Subsection (1)(b) above does not apply where the reference to capital transfer tax relates to a liability to tax arising before the passing of this Act.

(3) In the following provisions of this Part of this Act, any reference to tax except where it is a reference to a named tax is a reference to inheritance tax and, in so far as it occurs in a provision which relates to a time before the passing of this Act, includes a reference to capital transfer tax.

101 Lifetime transfers potentially exempt etc.

(1) The 1984 Act shall have effect subject to the amendments in Part I of Schedule 19 to this Act, being amendments—

(a) removing liability for tax on certain transfers of value where the transfer occurs at least seven years before the transferor's death;

(b) providing for one Table of rates of tax;

(c) abolishing exemptions for mutual transfers;

(d) making provision with respect to the amounts of tax to be charged on transfers occurring before the death of the transferor;

(e) making provision with respect to the application of relief under Chapter I (business property) and Chapter II (agricultural property) of Part V of the 1984 Act to such transfers; and

(f) reducing the period during which the values transferred by chargeable transfers are aggregated from ten years to seven;

and amendments making provisions consequential on or incidental to the matters referred to above and to sections 102 and 103 below.

(2) In consequence of the amendments effected by Part I of Schedule 19 to this Act, section 79 of the [1980 c. 48.] Finance Act 1980 (capital gains tax: general relief for gifts) shall be amended as follows—

(a) in subsection (5) after the word "is", in the second place where it occurs, there shall be inserted "(or proves to be)" and at the end there shall be added "and, in the case of a disposal which, being a potentially exempt transfer, proves to be a chargeable transfer, all necessary adjustments shall be made, whether by the discharge or repayment of capital gains tax or otherwise"; and

(b) in subsection (6)(a) for the words "three years" there shall be substituted "seven years".

(3) Part I of Schedule 19 to this Act has effect, subject to Part II of that Schedule, with respect to transfers of value made, and other events occurring, on or after 18th March 1986.

(4) The transitional provisions in Part II of Schedule 19 to this Act shall have effect.

102 Gifts with reservation

(1) Subject to subsections (5) and (6) below, this section applies where, on or after 18th March 1986, an individual disposes of any property by way of gift and either—

(a) possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period; or

(b) at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to .him by contract or otherwise;

and in this section "the relevant period" means a period ending on the date of the donor's death and beginning seven years before that date or, if it is later, on the date of the gift.

(2) If and so long as—

(a) possession and enjoyment of any property is not bona fide assumed as mentioned in subsection (1)(a) above, or

(b) any property is not enjoyed as mentioned in subsection (1)(6) above,

the property is referred to (in relation to the gift and the donor) as property subject to a reservation.

(3) If, immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation then, to the extent that the property would not, apart from this section, form part of the donor's estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death.

(4) If, at a time before the end of the relevant period, any property ceases to be property subject to a reservation, the donor shall be treated for the purposes of the 1984 Act as having at that time made a disposition of the property by a disposition which is a potentially exempt transfer.

(5) This section does not apply if or, as the case may be, to the extent that the disposal of property by way of gift is an exempt transfer by virtue of any of the following provisions of Part II of the 1984 Act—

(a) section 18 (transfers between spouses);

(b) section 20 (small gifts);

(c) section 22 (gifts in consideration of marriage);

(d) section 23 (gifts to charities);

(e) section 24 (gifts to political parties);

(f) section 25 (gifts for national purposes, etc.);

(g) section 26 (gifts for public benefit);

(h) section 27 (maintenance funds for historic buildings); and

(i) section 28 (employee trusts).

(6) This section does not apply if the disposal of property by way of gift is made under the terms of a policy issued in respect of an insurance made before 18th March 1986 unless the policy is varied on or after that date so as to increase the benefits secured or to extend the term of the insurance; and, for this purpose, any change in the terms of the policy which is made in pursuance of an option or other power conferred by the policy shall be deemed to be a variation of the policy.

(7) If a policy issued as mentioned in subsection (6) above confers an option or other power under which benefits and premiums may be increased to take account of increases in the retail prices index (as defined in section 8(3) of the 1984 Act) or any similar index specified in the policy, then, to the extent that the right to exercise that option or power would have been lost if it had not been exercised on or before 1st August 1986, the exercise of that option or power before that date shall be disregarded for the purposes of subsection (6) above.

(8) Schedule 20 to this Act has effect for supplementing this section.

103 Treatment of certain debts and incumbrances

(1) Subject to subsection (2) below, if, in determining the value of a person's estate immediately before his death, account would be taken, apart from this subsection, of a liability consisting of a debt incurred by him or an incumbrance created by a disposition made by him, that liability shall be subject to abatement to an extent proportionate to the value of any of the consideration given for the debt or incumbrance which consisted of—

(a) property derived from the deceased; or

(b) consideration (not being property derived from the deceased) given by any person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased.

(2) If, in a case where the whole or a part of the consideration given for a debt or incumbrance consisted of such consideration as is mentioned in subsection (1)(b) above, it is shown that the value of the consideration given, or of that part thereof, as the case may be, exceeded that which could have been rendered available by application of all the property derived from the deceased, other than such (if any) of that property—

(a) as is included in the consideration given, or

(b) as to which it is shown that the disposition of which it, or the property which it represented, was the subject matter was not made with reference to, or with a view to enabling or facilitating, the giving of the consideration or the recoupment in any manner of the cost thereof,

no abatement shall be made under subsection (1) above in respect of the excess.

(3) In subsections (1) and (2) above "property derived from the deceased" means, subject to subsection (4) below, any property which was the subject matter of a disposition made by the deceased, either by himself alone or in concert or by arrangement with any other person or which represented any of the subject matter of such a disposition, whether directly or indirectly, and whether by virtue of one or more intermediate dispositions.

(4) If the disposition first-mentioned in subsection (3) above was not a transfer of value and it is shown that the disposition was not part of associated operations which included—

(a) a disposition by the deceased, either alone or in concert or by arrangement with any other person, otherwise than for full consideration in money or money's worth paid to the deceased for his own use or benefit; or

(b) a disposition by any other person operating to reduce the value of the property of the deceased,

that first-mentioned disposition shall be left out of account for the purposes of subsections (1) to (3) above.

(5) If, before a person's death but on or after 18th March 1986, money or money's worth is paid or applied by him—

(a) in or towards the satisfaction or discharge of a debt or incumbrance in the case of which subsection (1) above would have effect on his death if the debt or incumbrance had not been satisfied or discharged, or

(b) in reduction of a debt or incumbrance in the case of which that subsection has effect on his death,

the 1984 Act shall have effect as if, at the time of the payment or application, the person concerned had made a transfer of value equal to the money or money's worth and that transfer were a potentially exempt transfer.

(6) Any reference in this section to a debt incurred is a reference to a debt incurred on or after 18th March 1986 and any reference to an incumbrance created by a disposition is a reference to an incumbrance created by a disposition made on or after that date; and in this section "subject matter" includes, in relation to any disposition, any annual or periodical payment made or payable under or by virtue of the disposition.

(7) In determining the value of a person's estate immediately before his death, no account shall be taken (by virtue of section 5 of the 1984 Act) of any liability arising under or in connection with a policy of life insurance issued in respect of an insurance made on or after 1st July 1986 unless the whole of the sums assured under that policy form part of that person's estate immediately before his death.

104 Regulations for avoiding double charges etc.

(1) For the purposes of the 1984 Act the Board may by regulations make such provision as is mentioned in subsection (2) below with respect to transfers of value made, and other events occurring, on or after 18th March 1986 where—

(a) a potentially exempt transfer proves to be a chargeable transfer and, immediately before the death of the transferor, his estate includes property acquired by him from the transferee otherwise than for full consideration in money or money's worth;

(b) an individual disposes of property by a transfer of value which is or proves to be a chargeable transfer and the circumstances are such that subsection (3) or subsection (4) of section 102 above applies to the property as being or having been property subject to a reservation;

(c) in determining the value of a person's estate immediately before his death, a liability of his to any person is abated as mentioned in section 103 above and, before his death, the deceased made a transfer of value by virtue of which the estate of that other person was increased or by virtue of which property becomes comprised in a settlement of which that other person is a trustee; or

(d) the circumstances are such as may be specified in the regulations for the purposes of this subsection, being circumstances appearing to the Board to be similar to those referred to in paragraphs (a) to (c) above.

(2) The provision which may be made by regulations under this section is provision for either or both of the following.—

(a) treating the value transferred by a transfer of value as reduced by reference to the value transferred by another transfer of value; and

(b) treating the whole or any part of the tax paid or payable on the value transferred by a transfer of value as a credit against the tax payable on the value transferred by another transfer of value.

(3) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the Commons House of Parliament.

105 Application of business and agricultural relief where transfer partly exempt

With respect to transfers of value made on or after 18th March 1986, after section 39 of the 1984 Act there shall be inserted the following section—

“39A Operation of sections 38 and 39 in cases of business or agricultural relief.

(1) Where any part of the value transferred by a transfer of value is attributable to—

(a) the value of relevant business property, or

(b) the agricultural value of agricultural property,

then, for the purpose of attributing the value transferred (as reduced in accordance with section 104 or 116 below), to specific gifts and gifts of residue or shares of residue, sections 38 and 39 above shall have effect subject to the following provisions of this section.

(2) The value of any specific gifts of relevant business property or agricultural property shall be taken to be their value as reduced in accordance with section 104 or 116 below.

(3) The value of any specific gifts not falling within subsection (2) above shall be taken to be the appropriate fraction of their value.

(4) In subsection (3) above "the appropriate fraction" means a fraction of which—

(a) the numerator is the difference between the value transferred and the value, reduced as mentioned in subsection (2) above, of any gifts falling within that subsection, and

(b) the denominator is the difference between the unreduced value transferred and the value, before the reduction mentioned in subsection (2) above, of any gifts falling within that subsection;

and in paragraph (b) above "the unreduced value transferred" means the amount which would be the value transferred by the transfer but for the reduction required by sections 104 and 116 below.

(5) If or to the extent that specific gifts fall within paragraphs (a) and (b) of subsection (1) of section 38 above, the amount corresponding to the value of the gifts shall be arrived at in accordance with subsections (3) to (5) of that section by reference to their value reduced as mentioned in subsection (2) or, as the case may be, subsection (3) of this section.

(6) For the purposes of this section the value of a specific gift of relevant business property or agricultural property does not include the value of any other gift payable out of that property; and that other gift shall not itself be treated as a specific gift of relevant business property or agricultural property.

(7) In this section—

• " agricultural property" and "the agricultural value of agricultural property" have the same meaning as in Chapter II of Part V of this Act; and

• "relevant business property" has the same meaning as in Chapter I of that Part. .”

106 Changes in financial institutions: business property

(1) In section 105 of the 1984 Act (relevant business property) the following shall be substituted for subsection (4)(a)—

“(a) does not apply to any property if the business concerned is wholly that of a market maker or is that of a discount house and (in either case) is carried on in the United Kingdom, and”.

(2) At the end of that section there shall be inserted—

“(7) In this section "market maker" means a person who—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities, stocks or shares at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.”

(3) Subsections (1) and (2) above apply in relation to transfers of value made, and other events occurring, on or after the day of The Stock Exchange reforms.

(4) The Board may by regulations provide that section 105(7) of the 1984 Act (as inserted by subsection (2) above) shall have effect—

(a) as if the reference to The Stock Exchange in paragraph (a) were to any recognised investment exchange (within the meaning of the Financial Services Act 1986) or to any of those exchanges specified in the regulations, and

(b) as if the reference to the Council of The Stock Exchange in paragraph (b) were to the investment exchange concerned.

(5) The Board may by regulations amend section 105 of the 1984 Act so as to secure that section 105(3) does not apply to any property if the business concerned is of such a description as is set out in the regulations; and the regulations may include such incidental and consequential provisions as the Board think fit.

(6) Regulations under subsection (4) or (5) above shall apply in relation to transfers of value made, and other events occurring, on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

(7) The power to make regulations under subsection (4) or (5) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the Commons House of Parliament.

(8) In this section "the day of The Stock Exchange reforms" means the day on which the rule of The Stock Exchange that prohibits a person from carrying on business as both a broker and a jobber is abolished.

107 Changes in financial institutions: interest

(1) In section 234 of the 1984 Act (interest on instalments) the following shall be substituted for subsection (3)(c)—

“(c) any company whose business is wholly that of a market maker or is that of a discount house and (in either case) is carried on in the United Kingdom.”

(2) At the end of that section there shall be inserted—

“(4) In this section "market maker" means a person who—

(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities, stocks or shares at a price specified by him, and

(b) is recognised as doing so by the Council of The Stock Exchange.”

(3) Subsections (1) and (2) above apply in relation to chargeable transfers made, and other events occurring, on or after the day of The Stock Exchange reforms.

(4) The Board may by regulations provide that section 234(4) of the 1984 Act (as inserted by subsection (2) above) shall have effect—

(a) as if the reference to The Stock Exchange in paragraph (a) were to any recognised investment exchange (within the meaning of the Financial Services Act 1986) or to any of those exchanges specified in the regulations, and

(b) as if the reference to the Council of The Stock Exchange in paragraph (b) were to the investment exchange concerned.

(5) The Board may by regulations amend section 234 of the 1984 Act so as to secure that companies of a description set out in the regulations fall within section 234(3)(c); and the regulations may include such incidental and consequential provisions as the Board think fit.

(6) Regulations under subsection (4) or (5) above shall apply in relation to chargeable transfers made, and other events occurring, on or after such day, after the day of The Stock Exchange reforms, as is specified in the regulations.

(7) The power to make regulations under subsection (4) or (5) above shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the Commons House of Parliament.

(8) In this section "the day of The Stock Exchange reforms" has the same meaning as in section 106 above.

PART VI Oil Taxation

108 The on-shore/off-shore boundary

(1) For the purposes of the enactments relating to oil taxation, land lying between the landward boundary of the territorial sea and the shoreline of the United Kingdom (as denned below) shall be treated as part of the bed of the territorial sea of the United Kingdom and any reference in those enactments to the territorial sea or the subsoil beneath it shall be construed accordingly.

(2) Any reference to the United Kingdom in the enactments relating to oil taxation, where that reference is a reference to a geographical area, shall be treated as a reference to the United Kingdom exclusive of the land referred to in subsection (1) above and of any waters for the time being covering that land.

(3) In this section—

(a) "the landward boundary of the territorial sea" means the line for the time being ordered by Her Majesty in Council to be the baseline from which the breadth of the territorial sea is measured; and

(b) "the shoreline of the United Kingdom" means, subject to subsection (4) below, the high-water line along the coast, including the coast of all islands comprised in the United Kingdom.

(4) In the case of waters adjacent to a bay, as denned in the Territorial Waters Order in Council 1964, the shoreline means—

(a) if the bay has only one mouth and the distance between the high-water lines of the natural entrance points of the bay does not exceed 5,000 metres, a straight line joining those high-water lines;

(b) if, because of the presence of islands, the bay has more than one mouth and the distances between the high-water lines of the natural entrance points of each mouth added together do not exceed 5,000 metres, a series of straight lines across each of the mouths drawn so as to join those high-water lines; and

(c) if neither paragraph (a) nor paragraph (b) above applies, a straight line 5,000 metres in length drawn from high-water line to high-water line within the bay in such a manner as to enclose the maximum area of water that is possible with a line of that length.

(5) If, by virtue of this section, it becomes necessary at any time to establish the high-water line at any place, it shall be taken to be the line which, on the current Admiralty chart showing that place, is depicted as "the coastline"; and for this purpose.—

(a) an Admiralty chart means a chart published under the superintendence of the Hydrographer of the Navy;

(b) if there are two or more Admiralty charts of different scales showing the place in question and depicting the coastline, account shall be taken only of the largest scale chart; and

(c) subject to paragraph (b) above, the current Admiralty chart at any time is that most recently published before that time.

(6) In this section "the enactments relating to oil taxation" means Part I of the [1975 c. 22.] Oil Taxation Act 1975 and any enactment which is to be construed as one with that Part.

(7) This section shall be deemed to have come into force on 1st April 1986.

109 Alternative valuation of light gases

(1) Where an election is made under this section and accepted by the Board, the market value for the purposes of the Oil Taxation Acts of any light gases to which the election applies shall be determined, not in accordance with paragraphs 2, 2A and 3 of Schedule 3 to the principal Act (value under a notional contract), but by reference to a price formula specified in the election; and, in relation to any such light gases, any reference to market value in any other provision of the Oil Taxation Acts shall be construed accordingly.

(2) No election may be made under this section in respect of light gases which are "ethane" as defined in subsection (6)(a) of section 134 of the [1982 c. 39.] Finance Act 1982 (alternative valuation of ethane used for petrochemical purposes) if the principal purpose for which the gases are being or are to be used is that specified in subsection (2)(b) of the said section 134 (use for petrochemical purposes).

(3) Subject to subsection (4) below, an election under this section applies only to light gases—

(a) which, during the period covered by the election, are either disposed of otherwise than in sales at arm's length or relevantly appropriated; and

(b) which are not subject to fractionation between the time at which they are so disposed of or appropriated and the time at which they are applied or used for the purposes specified in the election.

(4) In any case where.—

(a) at a time during the period covered by an election, a market value falls to be determined for light gases to which subsection (4)(b) or (5)(d) of section 2 of the principal Act applies (oil stocks at the end of chargeable periods), and

(b) after the expiry of the chargeable period in question, the light gases are disposed of or appropriated as mentioned in subsection (3) above,

the market value of those light gases at the time referred to in paragraph (a) above shall be determined as if they were gases to which the election applies.

(5) Schedule 18 to the [1982 c. 39.] Finance Act 1982 (which applies to elections under section 134 of that Act relating to ethane used or to be used for petrochemical purposes) shall have effect for supplementing this section but subject to the modifications in Schedule 21 to this Act (in which "the 1982 Schedule" means the said Schedule 18).

(6) This section shall be construed as one with Part I of the principal Act and in this section—

(a) "light gases" means oil consisting of gas of which the largest component by volume over any chargeable period is methane or ethane or a combination of those gases and which—

(i) results from the fractionation of gas before it is disposed of or appropriated as mentioned in subsection (3)(a) above, or

(ii) before being so disposed of or appropriated, is not subjected to initial treatment or is subjected to initial treatment which does not include fractionation;

(b) "the principal Act" means the [1975 c. 22.] Oil Taxation Act 1975; and

(c) "the Oil Taxation Acts" means Part I of the principal Act and any enactment which is to be construed as one with that Part.

(7) In this section "fractionation" means the treatment of gas in order to separate gas of one or more kinds as mentioned in paragraph 2A(3) of Schedule 3 to the principal Act; and for the purposes of subsection (6)(a) above.—

(a) the proportion of methane, ethane or a combination of the two in any gas shall be determined at a temperature of 15°C and at a pressure of one atmosphere; and

(b) any component other than methane, ethane or liquified petroleum gas shall be disregarded.

110 Attribution of certain receipts and expenditure between oil fields

(1) Section 8 of the [1983 c. 56.] Oil Taxation Act 1983 (qualifying assets) shall have effect, and be deemed always to have had effect, subject to the amendments in subsections (2) and (3) below.

(2) In subsection (3) (which determines the oil field to which are attributable tariff receipts or disposal receipts referable to a qualifying asset) after the word "above", both where it occurs in paragraph (c) and also in the words following paragraph (c), there shall be inserted "and subsection (3A) below".

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

“(3A) If development decisions were first made in relation to two or more oil fields on the same day, then, for the purposes of subsection (3)(c) above, it shall be conclusively presumed that the first of those decisions was made in relation to that one of those fields in connection with which it appeared—

(a) at the time of the decision, or

(b) if it is later, at the time the asset was acquired or brought into existence by the participator in question for use in connection with an oil field,

that the participator in question would make the most use of the asset.”

(4) Paragraph 6 of Schedule 1 to the Oil Taxation Act 1983 (attribution of allowable expenditure) shall have effect and be deemed always to have had effect with the addition of the following sub-paragraph—

“(3) Subsection (3A) of section 8 of this Act applies for the purposes of sub-paragraph (1) above as it applies for the purposes of subsection (3)(c) of that section.”

PART VII Miscellaneous and Supplementary

111 Broadcasting: additional payments by programme contractors

(1) The [1981 c. 68.] Broadcasting Act 1981 shall have effect with respect to additional payments payable by programme contractors under that Act subject to the amendments made by Part I of Schedule 22 to this Act.

(2) The transitional provisions made by Part II of that Schedule shall have effect.

(3) This section shall be deemed to have come into force on 1st April 1986.

112 Limit for local loans

In section 4(1) of the [1968 c. 13.] National Loans Act 1968 (which provides that the aggregate of any commitments of the Public Works Loan Commissioners in respect of undertakings to grant local loans and any amount outstanding in respect of the principal of such loans shall not exceed £28,000 million or such other sum not exceeding £35,000 million as the Treasury may specify by order) for the words "£28,000 million" and "£35,000 million" there shall be substituted respectively "£42,000 million" and "£50,000 million".

113 "Securities" for purposes of Exchange Equalisation Account Act 1979

—At the end of section 3 of the [1979 c. 30.] Exchange Equalisation Account Act 1979 (investment of the funds of the Exchange Equalisation Account) there shall be added the following subsection—

“(4) Without prejudice to the reference in subsection (1)(b) above to special drawing rights, the reference in subsection (3) above to currency of any country includes a reference to units of account defined by reference to more than one currency.”

114 Short title, interpretation, construction and repeals

(1) This Act may be cited as the Finance Act 1986.

(2) In this Act "the Taxes Act" means the [1970 c. 10.] Income and Corporation Taxes Act 1970.

(3) Part II of this Act, so far as it relates to income tax, shall be construed as one with the Income Tax Acts, so far as it relates to corporation tax, shall be construed as one with the Corporation Tax Acts and, so far as it relates to capital gains tax, shall be construed as one with the [1979 c. 14.] Capital Gains Tax Act 1979.

(4) Part III of this Act shall be construed as one with the [1891 c. 39.] Stamp Act 1891.

(5) Part V of this Act, other than section 100, shall be construed as one with the [1984 c. 51.] Capital Transfer Tax Act 1984.

(6) The enactments and Orders specified in Schedule 23 to this Act are hereby repealed to the extent specified in the third column of that Schedule, but subject to any provision at the end of any Part of that Schedule.