Finance Act 1996

Part IV Income Tax, Corporation Tax and Capital Gains Tax

Chapter I Principal provisions

Income tax charge, rates and reliefs

72 Charge and rates of income tax for 1996-97

(1) Income tax shall be charged for the year 1996-97, and for that year—

(a) the lower rate shall be 20 per cent.;

(b) the basic rate shall be 24 per cent.; and

(c) the higher rate shall be 40 per cent.

(2) For the year 1996-97 section 1(2) of the Taxes Act 1988 shall apply—

(a) as if the amount specified in paragraph (aa) (the lower rate limit) were £3,900; and

(b) as if the amount specified in paragraph (b) (the basic rate limit) were £25,500;

and, accordingly, section 1(4) of that Act (indexation) shall not apply for the year 1996-97.

(3) Section 559(4) of the Taxes Act 1988 (deductions from payments to sub-contractors in the construction industry) shall have effect—

(a) in relation to payments made on or after 1st July 1996 and before the appointed day (within the meaning of section 139 of the [1995 c. 4.] Finance Act 1995), with “24 per cent.” substituted for “25 per cent.”; and

(b) in relation to payments made on or after that appointed day, as if the substitution for which section 139(1) of the [1995 c. 4.] Finance Act 1995 provided were a substitution of “the relevant percentage” for “24 per cent.”

73 Application of lower rate to income from savings

(1) After section 1 of the Taxes Act 1988 there shall be inserted the following section—

“1A Application of lower rate to income from savings and distributions

(1) Subject to sections 469(2) and 686, so much of any person’s total income for any year of assessment as—

(a) comprises income to which this section applies, and

(b) in the case of an individual, is not income falling within section 1(2)(b),

shall, by virtue of this section, be charged for that year at the lower rate, instead of at the rate otherwise applicable to it in accordance with section 1(2)(aa) and (a).

(2) Subject to subsection (4) below, this section applies to the following income—

(a) any income chargeable under Case III of Schedule D other than—

(i) relevant annuities and other annual payments that are not interest; and

(ii) amounts so chargeable by virtue of section 119 or 120;

(b) any income chargeable under Schedule F; and

(c) subject to subsection (4) below, any equivalent foreign income.

(3) The income which is equivalent foreign income for the purposes of this section is any income chargeable under Case IV or V of Schedule D which—

(a) is equivalent to a description of income falling within subsection (2)(a) above but arises from securities or other possessions out of the United Kingdom; or

(b) consists in any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable under Schedule F if the company were resident in the United Kingdom.

(4) This section does not apply to—

(a) any income chargeable to tax under Case IV or V of Schedule D which is such that section 65(5)(a) or (b) provides for the tax to be computed on the full amount of sums received in the United Kingdom; or

(b) any amounts deemed by virtue of section 695(4)(b) or 696(6) to be income chargeable under Case IV of Schedule D.

(5) So much of any person’s income as comprises income to which this section applies shall be treated for the purposes of subsection (1)(b) above and any other provisions of the Income Tax Acts as the highest part of his income.

(6) Subsection (5) above shall have effect subject to section 833(3) but shall otherwise have effect notwithstanding any provision requiring income of any description to be treated for the purposes of the Income Tax Acts (other than section 550) as the highest part of a person’s income.

(7) In this section “relevant annuity” means any annuity other than a purchased life annuity to which section 656 applies or to which that section would apply but for section 657(2)(a).”

(2) In section 4 of that Act (construction of references to deduction of tax), after subsection (1) there shall be inserted the following subsection—

“(1A) As respects deductions from, and tax treated as paid on, any such amounts as constitute or (but for the person whose income they are) would constitute income to which section 1A applies, subsection (1) above shall have effect with a reference to the lower rate in force for the relevant year of assessment substituted for the reference to the basic rate in force for that year.”

(3) Subsection (1) above has effect in relation to the year 1996-97 and subsequent years of assessment and subsection (2) above has effect in relation to payments on or after 6th April 1996.

(4) Schedule 6 to this Act (which makes further amendments in connection with the charge at the lower rate on income from savings etc.) shall have effect.

(5) Where any subordinate legislation (within the meaning of the [1978 c. 30.] Interpretation Act 1978) falls to be construed in accordance with section 4 of the Taxes Act 1988, that legislation (whenever it was made) shall be construed, in relation to payments on or after 6th April 1996, subject to subsection (1A) of that section.

74 Personal allowances for 1996-97

(1) For the year 1996-97 the amounts specified in the provisions mentioned in subsection (2) below shall be taken to be as set out in that subsection; and, accordingly, section 257C(1) of the Taxes Act 1988 (indexation), so far as it relates to the amounts so specified, shall not apply for the year 1996-97.

(2) In section 257 of that Act (personal allowance)—

(a) the amount in subsection (1) (basic allowance) shall be £3,765;

(b) the amount in subsection (2) (allowance for persons aged 65 or more but not aged 75 or more) shall be £4,910; and

(c) the amount in subsection (3) (allowance for persons aged 75 or more) shall be £5,090.

75 Blind person’s allowance

(1) In section 265(1) of the Taxes Act 1988 (blind person’s allowance), for “£1,200” there shall be substituted “£1,250”.

(2) This section shall apply for the year 1996-97 and subsequent years of assessment.

76 Limit on relief for interest

For the year 1996-97 the qualifying maximum defined in section 367(5) of the Taxes Act 1988 (limit on relief for interest on certain loans) shall be £30,000.

Corporation tax charge and rate

77 Charge and rate of corporation tax for 1996

Corporation tax shall be charged for the financial year 1996 at the rate of 33 per cent.

78 Small companies

For the financial year 1996—

(a) the small companies' rate shall be 24 per cent.; and

(b) the fraction mentioned in section 13(2) of the Taxes Act 1988 (marginal relief for small companies) shall be nine four-hundredths.

Abolition of Schedule C charge etc.

79 Abolition of Schedule C charge etc

(1) The charge to tax under Schedule C is abolished—

(a) for the purposes of income tax, for the year 1996-97 and subsequent years of assessment;

(b) for the purposes of corporation tax, for accounting periods ending after 31st March 1996.

(2) Schedule 7 to this Act (which, together with Chapter II of this Part of this Act, makes provision for imposing a charge under Schedule D on descriptions of income previously charged under Schedule C, and makes connected amendments) shall have effect.

Chapter II Loan relationships

Introductory provisions

80 Taxation of loan relationships

(1) For the purposes of corporation tax all profits and gains arising to a company from its loan relationships shall be chargeable to tax as income in accordance with this Chapter.

(2) To the extent that a company is a party to a loan relationship for the purposes of a trade carried on by the company, profits and gains arising from the relationship shall be brought into account in computing the profits and gains of the trade.

(3) Profits and gains arising from a loan relationship of a company that are not brought into account under subsection (2) above shall be brought into account as profits and gains chargeable to tax under Case III of Schedule D.

(4) This Chapter shall also have effect for the purposes of corporation tax for determining how any deficit on a company’s loan relationships is to be brought into account in any case, including a case where none of the company’s loan relationships falls by virtue of this Chapter to be regarded as a source of income.

(5) Subject to any express provision to the contrary, the amounts which in the case of any company are brought into account in accordance with this Chapter as respects any matter shall be the only amounts brought into account for the purposes of corporation tax as respects that matter.

81 Meaning of “loan relationship” etc

(1) Subject to the following provisions of this section, a company has a loan relationship for the purposes of the Corporation Tax Acts wherever—

(a) the company stands (whether by reference to a security or otherwise) in the position of a creditor or debtor as respects any money debt; and

(b) that debt is one arising from a transaction for the lending of money;

and references to a loan relationship and to a company’s being a party to a loan relationship shall be construed accordingly.

(2) For the purposes of this Chapter a money debt is a debt which falls to be settled—

(a) by the payment of money; or

(b) by the transfer of a right to settlement under a debt which is itself a money debt.

(3) Subject to subsection (4) below, where an instrument is issued by any person for the purpose of representing security for, or the rights of a creditor in respect of, any money debt, then (whatever the circumstances of the issue of the instrument) that debt shall be taken for the purposes of this Chapter to be a debt arising from a transaction for the lending of money.

(4) For the purposes of this Chapter a debt shall not be taken to arise from a transaction for the lending of money to the extent that it is a debt arising from rights conferred by shares in a company.

(5) For the purposes of this Chapter—

(a) references to payments or interest under a loan relationship are references to payments or interest made or payable in pursuance of any of the rights or liabilities under that relationship; and

(b) references to rights or liabilities under a loan relationship are references to any of the rights or liabilities under the agreement or arrangements by virtue of which that relationship subsists;

and those rights or liabilities shall be taken to include the rights or liabilities attached to any security which, being a security issued in relation to the money debt in question, is a security representing that relationship.

(6) In this Chapter “money” includes money expressed in a currency other than sterling.

Taxation of profits and gains and relief for deficits

82 Method of bringing amounts into account

(1) For the purposes of corporation tax—

(a) the profits and gains arising from the loan relationships of a company, and

(b) any deficit on a company’s loan relationships,

shall be computed in accordance with this section using the credits and debits given for the accounting period in question by the following provisions of this Chapter.

(2) To the extent that, in any accounting period, a loan relationship of a company is one to which it is a party for the purposes of a trade carried on by it, the credits and debits given in respect of that relationship for that period shall be treated (according to whether they are credits or debits) either—

(a) as receipts of that trade falling to be brought into account in computing the profits and gains of that trade for that period; or

(b) as expenses of that trade which are deductible in computing those profits and gains.

(3) Where for any accounting period there are, in respect of the loan relationships of a company, both—

(a) credits that are not brought into account under subsection (2) above (“non-trading credits”), and

(b) debits that are not so brought into account (“non-trading debits”),

the aggregate of the non-trading debits shall be subtracted from the aggregate of the non-trading credits to give the amount to be brought into account under subsection (4) below.

(4) That amount is the amount which for any accounting period is to be taken (according to whether the aggregate of the non-trading credits or the aggregate of the non-trading debits is the greater) to be either—

(a) the amount of the company’s profits and gains for that period that are chargeable under Case III of Schedule D as profits and gains arising from the company’s loan relationships; or

(b) the amount of the company’s non-trading deficit for that period on its loan relationships.

(5) Where for any accounting period a company has non-trading credits but no non-trading debits in respect of its loan relationships, the aggregate amount of the credits shall be the amount of the company’s profits and gains for that period that are chargeable under Case III of Schedule D as profits and gains arising from those relationships.

(6) Where for any accounting period a company has non-trading debits but no non-trading credits in respect of its loan relationships, that company shall have a non-trading deficit on its loan relationships for that period equal to the aggregate of the debits.

(7) Subsection (2) above, so far as it provides for any amount to be deductible as mentioned in paragraph (b) of that subsection, shall have effect notwithstanding anything in section 74 of the Taxes Act 1988 (allowable deductions).

83 Non-trading deficit on loan relationships

(1) This section applies for the purposes of corporation tax where for any accounting period (“the deficit period”) there is a non-trading deficit on a company’s loan relationships.

(2) The company may make a claim for the whole or any part of the deficit to be treated in any of the following ways, that is to say—

(a) to be set off against any profits of the company (of whatever description) for the deficit period;

(b) to be treated as eligible for group relief;

(c) to be carried back to be set off against profits for earlier accounting periods; or

(d) to be carried forward and set against non-trading profits for the next accounting period.

(3) So much of the deficit for the deficit period as is not the subject of a claim under subsection (2) above shall be carried forward so as to be brought into account for the purposes of this Chapter as a non-trading debit (“a carried-forward debit”) for the accounting period immediately following the deficit period.

(4) No claim shall be made under subsection (2)(a) to (c) above in respect of so much (if any) of the non-trading deficit of a company for any accounting period as is equal to the amount by which that deficit is greater than it would have been if any carried-forward debit for that period had been disregarded.

(5) No part of any non-trading deficit of a company established for charitable purposes only shall be set off against the profits of that or any other company in pursuance of a claim under subsection (2) above.

(6) A claim under subsection (2) above must be made within the period of two years immediately following the end of the relevant period, or within such further period as the Board may allow.

(7) In subsection (6) above “the relevant period”—

(a) in relation to a claim under subsection (2)(a), (b) or (c) above, means the deficit period; and

(b) in relation to a claim under subsection (2)(d) above, means the accounting period immediately following the deficit period.

(8) Different claims may be made under subsection (2) above as respects different parts of a non-trading deficit for any period, but no claim may be made as respects any part of a deficit to which another claim made under that subsection relates.

(9) Schedule 8 to this Act (which makes provision about what happens where a claim is made under subsection (2) above) shall have effect.

Computational provisions etc.

84 Debits and credits brought into account

(1) The credits and debits to be brought into account in the case of any company in respect of its loan relationships shall be the sums which, in accordance with an authorised accounting method and when taken together, fairly represent, for the accounting period in question—

(a) all profits, gains and losses of the company, including those of a capital nature, which (disregarding interest and any charges or expenses) arise to the company from its loan relationships and related transactions; and

(b) all interest under the company’s loan relationship and all charges and expenses incurred by the company under or for the purposes of its loan relationships and related transactions.

(2) The reference in subsection (1) above to the profits, gains and losses arising to a company—

(a) does not include a reference to any amounts required to be transferred to the company’s share premium account; but

(b) does include a reference to any profits, gains or losses which, in accordance with normal accountancy practice, are carried to or sustained by any other reserve maintained by the company.

(3) The reference in subsection (1)(b) above to charges and expenses incurred for the purposes of a company’s loan relationships and related transactions does not include a reference to any charges or expenses other than those incurred directly—

(a) in bringing any of those relationships into existence;

(b) in entering into or giving effect to any of those transactions;

(c) in making payments under any of those relationships or in pursuance of any of those transactions; or

(d) in taking steps for ensuring the receipt of payments under any of those relationships or in accordance with any of those transactions.

(4) Where—

(a) any charges or expenses are incurred by a company for purposes connected—

(i) with entering into a loan relationship or related transaction, or

(ii) with giving effect to any obligation that might arise under a loan relationship or related transaction,

(b) at the time when the charges or expenses are incurred, the relationship or transaction is one into which the company may enter but has not entered, and

(c) if that relationship or transaction had been entered into by that company, the charges or expenses would be charges or expenses incurred as mentioned in subsection (3) above,

those charges or expenses shall be treated for the purposes of this Chapter as charges or expenses in relation to which debits may be brought into account in accordance with subsection (1)(b) above to the same extent as if the relationship or transaction had been entered into.

(5) In this section “related transaction”, in relation to a loan relationship, means any disposal or acquisition (in whole or in part) of rights or liabilities under that relationship.

(6) The cases where there shall be taken for the purposes of this section to be a disposal and acquisition of rights or liabilities under a loan relationship shall include those where such rights or liabilities are transferred or extinguished by any sale, gift, exchange, surrender, redemption or release.

(7) This section has effect subject to Schedule 9 to this Act (which contains provision disallowing certain debits and credits for the purposes of this Chapter and making assumptions about how an authorised accounting method is to be applied in certain cases).

85 Authorised accounting methods

(1) Subject to the following provisions of this Chapter, the alternative accounting methods that are authorised for the purposes of this Chapter are—

(a) an accruals basis of accounting; and

(b) a mark to market basis of accounting under which any loan relationship to which that basis is applied is brought into account in each accounting period at a fair value.

(2) An accounting method applied in any case shall be treated as authorised for the purposes of this Chapter only if—

(a) it conforms (subject to paragraphs (b) and (c) below) to normal accountancy practice, as followed in cases where such practice allows the use of that method;

(b) it contains proper provision for allocating payments under a loan relationship to accounting periods; and

(c) where it is an accruals basis of accounting, it does not contain any provision (other than provision comprised in authorised arrangements for bad debt) that gives debits by reference to the valuation at different times of any asset representing a loan relationship.

(3) In the case of an accruals basis of accounting, proper provision for allocating payments under a loan relationship to accounting periods is provision which—

(a) allocates payments to the period to which they relate, without regard to the periods in which they are made or received or in which they become due and payable;

(b) includes provision which, where payments relate to two or more periods, apportions them on a just and reasonable basis between the different periods;

(c) assumes, subject to authorised arrangements for bad debt, that, so far as any company in the position of a creditor is concerned, every amount payable under the relationship will be paid in full as it becomes due;

(d) secures the making of the adjustments required in the case of the relationship by authorised arrangements for bad debt; and

(e) provides, subject to authorised arrangements for bad debt and for writing off government investments, that, where there is a release of any liability under the relationship, the appropriate amount in respect of the release is credited to the debtor in the accounting period in which the release takes place.

(4) In the case of a mark to market basis of accounting, proper provision for allocating payments under a loan relationship to accounting periods is provision which allocates payments to the accounting period in which they become due and payable.

(5) In this section—

(a) the references to authorised arrangements for bad debt are references to accounting arrangements under which debits and credits are brought into account in conformity with the provisions of paragraph 5 of Schedule 9 to this Act; and

(b) the reference to authorised arrangements for writing off government investments is a reference to accounting arrangements that give effect to paragraph 7 of that Schedule.

(6) In this section “fair value”, in relation to any loan relationship of a company, means the amount which, at the time as at which the value falls to be determined, is the amount that the company would obtain from or, as the case may be, would have to pay to an independent person for—

(a) the transfer of all the company’s rights under the relationship in respect of amounts which at that time are not yet due and payable; and

(b) the release of all the company’s liabilities under the relationship in respect of amounts which at that time are not yet due and payable.

86 Application of accounting methods

(1) This section has effect, subject to the following provisions of this Chapter, for the determination of which of the alternative authorised accounting methods that are available by virtue of section 85 above is to be used as respects the loan relationships of a company.

(2) Different methods may be used as respects different relationships or, as respects the same relationship, for different accounting periods or for different parts of the same accounting period.

(3) If a basis of accounting which is or equates with an authorised accounting method is used as respects any loan relationship of a company in a company’s statutory accounts, then the method which is to be used for the purposes of this Chapter as respects that relationship for the accounting period, or part of a period, for which that basis is used in those accounts shall be—

(a) where the basis used in those accounts is an authorised accounting method, that method; and

(b) where it is not, the authorised accounting method with which it equates.

(4) For any period or part of a period for which the authorised accounting method to be used as respects a loan relationship of a company is not determined under subsection (3) above, an authorised accruals basis of accounting shall be used for the purposes of this Chapter as respects that loan relationship.

(5) For the purposes of this section (but subject to subsection (6) below)—

(a) a basis of accounting equates with an authorised accruals basis of accounting if it purports to allocate payments under a loan relationship to accounting periods according to when they are taken to accrue; and

(b) a basis of accounting equates with an authorised mark to market basis of accounting if (without equating with an authorised accruals basis of accounting) it purports in respect of a loan relationship—

(i) to produce credits or debits computed by reference to the determination, as at different times in an accounting period, of a fair value; and

(ii) to produce credits or debits relating to payments under that relationship according to when they become due and payable.

(6) An accounting method which purports to make any such allocation of payments under a loan relationship as is mentioned in subsection (5)(a) above shall be taken for the purposes of this section to equate with an authorised mark to market basis of accounting (rather than with an authorised accruals basis of accounting) if—

(a) it purports to bring that relationship into account in each accounting period at a value which would be a fair value if the valuation were made on the basis that interest under the relationship were to be disregarded to the extent that it has already accrued; and

(b) the credits and debits produced in the case of that relationship by that method (when it is properly applied) correspond, for all practical purposes, to the credits and debits produced in the case of that relationship, and for the same accounting period, by an authorised mark to market basis of accounting.

(7) In this section “fair value” has the same meaning as in section 85 above.

(8) In this section “statutory accounts”, in relation to a company, means—

(a) any accounts relating to that company that are drawn up in accordance with any requirements of the [1985 c. 6.] Companies Act 1985 or the [S.I. 1986/1032 (N.I.6).] Companies (Northern Ireland) Order 1986 that apply in relation to that company;

(b) any accounts relating to that company that are drawn up in accordance with any requirements of regulations under section 70 of the [1992 c. 40.] Friendly Societies Act 1992 that apply in relation to that company;

(c) any accounts relating to that company which are accounts to which Part I of Schedule 21C to the [1985 c. 6.] Companies Act 1985 or Part I of Schedule 21D to that Act (companies with UK branches) applies;

(d) in the case of a company which—

(i) is not subject to any such requirements as are mentioned in paragraphs (a) or (b) above, and

(ii) is a company in whose case there are no accounts for the period in question that fall within paragraph (c) above,

any accounts relating to the company drawn up in accordance with requirements imposed in relation to that company under the law of its home State; and

(e) in the case of a company which—

(i) is not subject to any such requirements as are mentioned in paragraphs (a), (b) or (d) above, and

(ii) is a company in whose case there are no accounts for the period in question that fall within paragraph (c) above,

the accounts relating to the company that most closely correspond to the accounts which, in the case of a company formed and registered under the Companies Act 1985, are required under that Act.

(9) For the purposes of subsection (8) above the home State of a company is the country or territory under whose law the company is incorporated.

87 Accounting method where parties have a connection

(1) This section applies in the case of a loan relationship of a company where for any accounting period there is a connection between the company and—

(a) in the case of a debtor relationship of the company, a person standing in the position of a creditor as respects the debt in question; or

(b) in the case of a creditor relationship of the company, a person standing in the position of a debtor as respects that debt.

(2) The only accounting method authorised for the purposes of this Chapter for use by the company as respects the loan relationship shall be an authorised accruals basis of accounting.

(3) For the purposes of this section there is a connection between a company and another person for an accounting period if (subject to subsection (4) and section 88 below)—

(a) the other person is a company and there is a time in that period, or in the two years before the beginning of that period, when one of the companies has had control of the other;

(b) the other person is a company and there is a time in that period, or in those two years, when both the companies have been under the control of the same person; or

(c) there is a time in that accounting period, or in those two years, when the company was a close company and the other person was a participator in that company or the associate of a person who was such a participator at that time.

(4) Two companies which have at any time been under the control of the same person shall not, by virtue of that fact, be taken for the purposes of this section to be companies between whom there is a connection if the person was the Crown, a Minister of the Crown, a government department, a Northern Ireland department, a foreign sovereign power or an international organisation.

(5) The references in subsection (1) above to a person who stands in the position of a creditor or debtor as respects a loan relationship include references to a person who indirectly stands in that position by reference to a series of loan relationships.

(6) Subsections (2) to (6) of section 416 of the Taxes Act 1988 (meaning of “control”) shall apply for the purposes of this section as they apply for the purposes of Part XI of that Act.

(7) Subject to subsection (8) below, in this section “participator” and “associate” have the meanings given for the purposes of Part XI of the Taxes Act 1988 by section 417 of that Act.

(8) A person shall not for the purposes of this section be regarded as a participator in relation to a company by reason only that he is a loan creditor of the company.

88 Exemption from section 87 in certain cases

(1) Subject to subsection (5) below, where a creditor relationship of a company is one to which that company is a party in any accounting period in exempt circumstances, any connection for that accounting period between the company and a person who stands in the position of a debtor as respects the debt shall be disregarded for the purposes of section 87 above.

(2) A company having a creditor relationship in any accounting period shall, for that period, be taken for the purposes of this section to be a party to that relationship in exempt circumstances if—

(a) the company, in the course of carrying on any activities forming an integral part of a trade carried on by that company in that period, disposes of or acquires assets representing creditor relationships;

(b) that period is one for which the company uses an authorised mark to market basis of accounting as respects all the creditor relationships represented by assets acquired in the course of those activities;

(c) the asset representing the creditor relationship in question was acquired in the course of those activities;

(d) that asset is either—

(i) listed on a recognised stock exchange at the end of that period; or

(ii) a security the redemption of which must occur within twelve months of its issue;

(e) there is a time in that period when assets of the same kind as the asset representing the loan relationship in question are in the beneficial ownership of persons other than the company; and

(f) there is not more than three months, in aggregate, in that accounting period during which the equivalent of 30 per cent. or more of the assets of that kind is in the beneficial ownership of connected persons.

(3) An insurance company carrying on basic life assurance and general annuity business and having a creditor relationship in any accounting period shall, for that period, be taken for the purposes of this section to be a party to that relationship in exempt circumstances if—

(a) assets of the company representing any of its creditor relationships are linked for that period to its basic life assurance and general annuity business;

(b) that period is one for which the company uses an authorised mark to market basis of accounting as respects all the creditor relationships of the company represented by assets that are so linked;

(c) the asset representing the creditor relationship in question is so linked;

(d) that asset is either—

(i) listed on a recognised stock exchange at the end of that period; or

(ii) a security the redemption of which must occur within twelve months of its issue;

(e) there is a time in that period when assets of the same kind as the asset representing the creditor relationship in question are in the beneficial ownership of persons other than the company; and

(f) there is not more than three months, in aggregate, in that accounting period during which the equivalent of 30 per cent. or more of the assets of that kind is in the beneficial ownership of connected persons.

(4) For the purposes of subsections (2) and (3) above—

(a) assets shall be taken to be of the same kind where they are treated as being of the same kind by the practice of any recognised stock exchange, or would be so treated if dealt with on such a stock exchange; and

(b) a connected person has the beneficial ownership of an asset wherever there is, or (apart from this section) would be, a connection (within the meaning of section 87 above) between—

(i) the person who has the beneficial ownership of the asset, and

(ii) a person who stands in the position of a debtor as respects the money debt by reference to which any loan relationship represented by that asset subsists.

(5) Where for any accounting period—

(a) subsection (1) above has effect in the case of a creditor relationship of a company, and

(b) the person who stands in the position of a debtor as respects the debt in question is also a company,

that subsection shall not apply for determining, for the purposes of so much of section 87 above as relates to the corresponding debtor relationship, whether there is a connection between the two companies.

(6) Subsection (5) of section 87 above shall apply for the purposes of this section as it applies for the purposes of that section.

(7) In this section “basic life assurance and general annuity business” and “insurance company” have the same meanings as in Chapter I of Part XII of the Taxes Act 1988, and section 432ZA of that Act (linked assets) shall apply for the purposes of this section as it applies for the purposes of that Chapter.

89 Inconsistent application of accounting methods

(1) Where there is any inconsistency or other material difference between the way in which any authorised accounting method is applied as respects the same loan relationship in successive accounting periods, a balancing credit or balancing debit shall be brought into account in the second of those periods (“the second period”).

(2) The amount of the balancing credit or debit shall be computed as respects the relationship in question by—

(a) taking the amount given by subsection (3) below and the amount given by subsection (4) below; and

(b) then aggregating those amounts (treating any debit as a negative amount) to produce a net credit or net debit.

(3) The amount given by this subsection is whichever of the following is applicable—

(a) a debit equal to the amount (if any) by which the first of the following amounts exceeds the second, that is to say—

(i) the aggregate of the credits actually brought into account for all previous periods in which the accounting method was used; and

(ii) the aggregate of the credits that would have been brought into account if that method had been applied in those periods in the same way as it was applied in the second period;

(b) a credit equal to the amount (if any) by which the second aggregate mentioned in paragraph (a) above exceeds the first; or

(c) if both those aggregates are the same, nil.

(4) The amount given by this subsection is whichever of the following is applicable—

(a) a credit equal to the amount (if any) by which the first of the following amounts exceeds the second, that is to say—

(i) the aggregate of the debits actually brought into account for all previous periods in which the accounting method was used; and

(ii) the aggregate of the debits that would have been brought into account if that method had been applied in those periods in the same way as it was applied in the second period;

(b) a debit equal to the amount (if any) by which the second aggregate mentioned in paragraph (a) above exceeds the first; or

(c) if both those aggregates are the same, nil.

(5) In this section “previous period” means any accounting period before the second period.

90 Changes of accounting method

(1) This section applies where different authorised accounting methods are used for the purposes of this Chapter as respects the same loan relationship for different parts of the same accounting period or for successive accounting periods.

(2) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded in the course of any accounting period by the use of another—

(a) the assumptions specified in subsection (4) below shall be made;

(b) each method shall be applied on those assumptions as respects the part of the period for which it is used; and

(c) the credits and debits given by the application of those methods on those assumptions shall be brought into account in the accounting period in which the change of method takes effect.

(3) Where, in the case of any loan relationship, the use of any authorised accounting method is superseded as from the beginning of an accounting period by the use of another—

(a) a net credit or debit shall be computed (treating any debit used in the computation as a negative amount) by—

(i) aggregating the credits and debits which, on the assumptions specified in subsection (4) below, would have been given in respect of that relationship for the successive accounting periods by the use for each period of the accounting method actually used for that period;

(ii) aggregating the credits and debits so given without the making of those assumptions; and

(iii) subtracting the second aggregate from the first;

and

(b) the net credit or debit shall be brought into account for the purposes of this Chapter in the accounting period as from the beginning of which the change of method takes effect.

(4) The assumptions mentioned in subsections (2) and (3) above are—

(a) that the company ceased to be a party to the relationship immediately before the end of the period, or part of a period, for which the superseded method is used;

(b) that the company again became a party to that relationship as from the beginning of the period or, as the case may be, part of a period for which the other authorised accounting method is used;

(c) that the relationship to which the company is deemed to have become a party is separate and distinct from the one to which it is deemed to have ceased to be a party;

(d) that the amount payable under the transaction comprised in each of the assumptions specified in paragraphs (a) and (b) above was equal to the fair value of the relationship; and

(e) so far as relevant, that that amount became due at the time when the company is deemed to have ceased to be a party to the relationship or, as the case may be, to have again become a party to it.

(5) Where—

(a) a mark to market basis of accounting is superseded by an accruals basis of accounting in the case of any loan relationship, and

(b) the amount which would have accrued in respect of that relationship in the period or part of a period for which the accruals basis of accounting is used falls to be determined for the purposes of this section in accordance with the assumptions mentioned in subsection (4) above,

that amount shall be taken for those purposes to be equal to the amount resulting from the subtraction of the amount given by subsection (6)(a) below from the amount given by subsection (6)(b) below.

(6) Those amounts are—

(a) the amount which by virtue of the assumptions mentioned in subsection (4) above is given as an opening value for the period or part of a period; and

(b) the amount equal to whatever, in the computation in accordance with an authorised accruals basis of accounting of the amount accruing in that period or part of a period, would have been taken to be the closing value applicable as at the end of that period or part of a period if such a basis of accounting had always been used as respects the relationship.

(7) In this section “fair value” has the same meaning as in section 85 above.

91 Payments subject to deduction of tax

(1) This section applies where—

(a) any company receives a payment of interest on which it bears income tax by deduction; and

(b) in the case of that company, a credit relating to that interest has been brought into account for the purposes of this Chapter for an accounting period ending more than two years before the receipt of the payment.

(2) On a claim made by the company to an officer of the Board, section 7(2) or, as the case may be, 11(3) of the Taxes Act 1988 (deducted income tax to be set against liability to corporation tax) shall have effect in relation to the income tax on the payment as if the interest had fallen to be taken into account for the purposes of corporation tax in the accounting period in which the payment of that interest is received.

(3) In determining for the purposes of this section which accounting period is the accounting period for which a credit relating to interest paid subsequently was brought into account, every payment of interest to a company under a loan relationship of that company shall be assumed to be a payment in discharge of the earliest outstanding liability to that company in respect of interest payable under the relationship.

(4) For the purposes of this section, the earliest outstanding liability to interest payable under a loan relationship of a company shall be identified, in relation to any payment of such interest, according to the authorised accounting method most recently used as respects that relationship, so that—

(a) if that method is an authorised accruals basis of accounting, it shall be determined by reference to the time when the interest accrued; and

(b) if that method is an authorised mark to market basis of accounting, it shall be determined by reference to the time when the interest became due and payable.

(5) In subsection (4) above the reference, in relation to a payment of interest made to a company in any accounting period, to the authorised accounting method most recently used as respects that relationship is a reference to the authorised accounting method which, in the case of that company, has been used as respects that relationship for the accounting period which, when the payment is made, is the most recent for which amounts in respect of that relationship have been brought into account for the purposes of this Chapter.

(6) A claim under this section shall not be made in respect of any payment of interest at any time after the later of the following, that is to say—

(a) the time two years after the end of the accounting period in which the payment is received; and

(b) the time six years after the end of the accounting period for which the credit in respect of the interest was brought into account for the purposes of this Chapter.

(7) Where—

(a) there is a payment of interest to a company under a loan relationship of that company, and

(b) the company is prevented by virtue of subsection (6) above from making any claim under this section in respect of that payment,

the company shall not be entitled to make any claim under paragraph 5 of Schedule 16 to the Taxes Act 1988 (set off of income tax borne against income tax payable) in respect of that payment.

Special cases

92 Convertible securities etc

(1) This section applies to an asset if—

(a) the asset represents a creditor relationship of a company;

(b) the rights attached to the asset include provision by virtue of which the company is or may become entitled to acquire (whether by conversion or exchange or otherwise) any shares in a company;

(c) the extent to which shares may be acquired under that provision is not determined using a cash value which is specified in that provision or which is or will be ascertainable by reference to the terms of that provision;

(d) the asset is not a relevant discounted security within the meaning of Schedule 13 to this Act;

(e) at the time when the asset came into existence there was a more than negligible likelihood that the right to acquire shares in a company would in due course be exercised to a significant extent; and

(f) the asset is not one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of a creditor relationship represented by an asset to which this section applies shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

(4) Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 had effect in relation to any asset to which this section applies as it has effect in relation to an asset that does not represent a loan relationship.

(5) For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—

(a) falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and

(b) in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.

(6) In subsection (5) above the references to a disposal, in relation to an asset, are references to anything which—

(a) is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or

(b) would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);

and the references to the acquisition of an asset shall be construed accordingly.

93 Relationships linked to the value of chargeable assets

(1) This section applies in the case of any loan relationship of a company that is linked to the value of chargeable assets unless it is one the disposal of which by the company would fall to be treated as a disposal in the course of activities forming an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of the relationship shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

(4) Amounts shall be brought into account in computing the profits of the company for the purposes of corporation tax as if the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 had effect in relation to the asset representing the relationship as it has effect in relation to an asset that does not represent a loan relationship.

(5) For the purposes of that Act the amount or value of the consideration for any disposal or acquisition of the asset shall be treated as adjusted so as to exclude so much of it as, on a just and reasonable apportionment, relates to any interest which—

(a) falls to be brought into account under subsections (2) and (3) above as accruing to any company at any time; and

(b) in consequence of, or of the terms of, the disposal or acquisition, is not paid or payable to the company to which it is treated for the purposes of this Chapter as accruing.

(6) For the purposes of this section a loan relationship is linked to the value of chargeable assets if, in pursuance of any provision having effect for the purposes of that relationship, the amount that must be paid to discharge the money debt (whether on redemption of a security issued in relation to that debt or otherwise) is equal to the amount determined by applying a relevant percentage change in the value of chargeable assets to the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan from which the money debt arises.

(7) In subsection (6) above the reference to a relevant percentage change in the value of chargeable assets is a reference to the amount of the percentage change (if any) over the relevant period in the value of chargeable assets of any particular description or in any index of the value of any such assets.

(8) In subsection (7) above “the relevant period” means—

(a) the period between the time of the original loan and the discharge of the money debt; or

(b) any other period in which almost all of that period is comprised and which differs from that period exclusively for purposes connected with giving effect to a valuation in relation to rights or liabilities under the loan relationship.

(9) If—

(a) there is a provision which, in the case of any loan relationship, falls within subsection (6) above,

(b) that provision is made subject to any other provision applying to the determination of the amount payable to discharge the money debt,

(c) that other provision is to the effect only that the amount so payable must not be less than a specified percentage of the amount falling for the purposes of this Chapter to be regarded as the amount of the original loan, and

(d) the specified percentage is not more than 10 per cent.,

that other provision shall be disregarded in determining for the purposes of this section whether the relationship is linked to the value of chargeable assets.

(10) For the purposes of this section an asset is a chargeable asset, in relation to a loan relationship of a company, if any gain accruing on the disposal of the asset by the company on or after 1st April 1996 would, on the assumptions specified in subsection (11) below, be a chargeable gain for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992.

(11) Those assumptions are—

(a) where it is not otherwise the case, that the asset is an asset of the company;

(b) that the asset is not one the disposal of which by the company would fall to be treated for the purposes of corporation tax as a disposal in the course of a trade carried on by the company; and

(c) that chargeable gains that might accrue under section 116(10) of that Act (postponed charges) are to be disregarded.

(12) In subsection (5) above references to a disposal, in relation to an asset, are references to anything which—

(a) is a disposal of that asset (within the meaning of the Taxation of Chargeable Gains Act 1992); or

(b) would be such a disposal but for section 127 or 116(10) of that Act (reorganisations etc.);

and the references to the acquisition of an asset shall be construed accordingly.

(13) For the purposes of this section neither—

(a) the retail prices index, nor

(b) any similar general index of prices published by the government of any territory or by the agent of any such government,

shall be taken to be an index of the value of chargeable assets.

94 Indexed gilt-edged securities

(1) In the case of any loan relationship represented by an index-linked gilt-edged security, the adjustment for which this section provides shall be made in computing the credits and debits which fall, for any accounting period, to be brought into account for the purposes of this Chapter in respect of that relationship as non-trading credits or non-trading debits.

(2) The adjustment shall be made wherever—

(a) the authorised accounting method applied as respects the index-linked gilt-edged security gives credits or debits by reference to the value of the security at two different times, and

(b) there is any change in the retail prices index between those times.

(3) Subject to subsection (4) below, the adjustment is such an adjustment of the amount which would otherwise be taken for the purposes of that accounting method to be the value of the security at the earlier time (“the opening value”) as results in the amount in fact so taken being equal to the opening value increased or, as the case may be, reduced by the same percentage as the percentage increase or reduction in the retail prices index between the earlier and the later time.

(4) The Treasury may, in relation to any description of index-linked gilt-edged securities, by order provide that—

(a) there are to be no adjustments under this section; or

(b) that an adjustment specified in the order (instead of the adjustment specified in subsection (3) above) is to be the adjustment for which this section provides.

(5) An order under subsection (4) above—

(a) shall not have effect in relation to any gilt-edged security issued before the making of the order; but

(b) may make different provision for different descriptions of securities.

(6) For the purposes of this section the percentage increase or reduction in the retail prices index between any two times shall be determined by reference to the difference between—

(a) that index for the month in which the earlier time falls; and

(b) that index for the month in which the later time falls.

(7) In this section “index-linked gilt-edged securities” means any gilt-edged securities the amounts of the payments under which are determined wholly or partly by reference to the retail prices index.

95 Gilt strips

(1) This section has effect for the purposes of the application of an authorised accruals basis of accounting as respects a loan relationship represented by a gilt-edged security or a strip of a gilt-edged security.

(2) Where a gilt-edged security is exchanged by any person for strips of that security—

(a) the security shall be deemed to have been redeemed at the time of the exchange by the payment to that person of its market value; and

(b) that person shall be deemed to have acquired each strip for the amount which bears the same proportion to that market value as is borne by the market value of the strip to the aggregate of the market values of all the strips received in exchange for the security.

(3) Where strips of a gilt-edged security are consolidated into a single gilt-edged security by being exchanged by any person for that security—

(a) each of the strips shall be deemed to have been redeemed at the time of the exchange by the payment to that person of the amount equal to its market value; and

(b) that person shall be deemed to have acquired the security received in the exchange for the amount equal to the aggregate of the market values of the strips given in exchange for the security.

(4) References in this section to the market value of a security given or received in exchange for another are references to its market value at the time of the exchange.

(5) Without prejudice to the generality of any power conferred by section 202 below, the Treasury may by regulations make provision for the purposes of this section as to the manner of determining the market value at any time of any gilt-edged security (including any strip).

(6) Regulations under subsection (5) above may—

(a) make different provision for different cases; and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury may think fit.

(7) In this section “strip” means anything which, within the meaning of section 47 of the [1942 c. 21.] Finance Act 1942, is a strip of a gilt-edged security.

96 Special rules for certain other gilts

(1) This section applies as respects any loan relationship of a company if—

(a) it is represented by a security of any of the following descriptions—

(i) 3½% Funding Stock 1999-2004; or

(ii) 5½% Treasury Stock 2008-2012;

and

(b) it is one to which the company is a party otherwise than in the course of activities that form an integral part of a trade carried on by the company.

(2) The amounts falling for any accounting period to be brought into account for the purposes of this Chapter in respect of a loan relationship to which this section applies shall be confined to amounts relating to interest.

(3) Only an authorised accruals basis of accounting shall be used for ascertaining those amounts.

97 Manufactured interest

(1) This section applies where—

(a) any amount (“manufactured interest”) is payable by or on behalf of, or to, any company under any contract or arrangements relating to the transfer of an asset representing a loan relationship; and

(b) that amount is, or (when paid) will fall to be treated as, representative of interest under that relationship (“the real interest”).

(2) In relation to that company the manufactured interest shall be treated for the purposes of this Chapter—

(a) as if it were interest under a loan relationship to which the company is a party; and

(b) where that company is the company to which the manufactured interest is payable, as if that relationship were the one under which the real interest is payable.

(3) Any question whether debits or credits falling to be brought into account in the case of any company by virtue of this section—

(a) are to be brought into account under section 82(2) above, or

(b) are to be treated as non-trading debits or non-trading credits,

shall be determined according to the extent (if any) to which the manufactured interest is paid for the purposes of a trade carried on by the company or is received in the course of activities forming an integral part of such a trade.

(4) Where section 737A(5) of the Taxes Act 1988 (deemed manufactured payments) has effect in relation to a transaction relating to an asset representing a loan relationship so as, for the purposes of section 737 of, or Schedule 23A to, that Act, to deem there to have been a payment representative of interest under that relationship, this section shall apply as it would have applied if such a representative payment had in fact been made.

(5) This section does not apply where the manufactured interest is treated by virtue of paragraph 5(2)(c) or (4)(c) of Schedule 23A to the Taxes Act 1988 (manufactured interest passing through the market) as not being income of the person who receives it.

98 Collective investment schemes

The provisions of this Chapter have effect subject to the provisions of Schedule 10 to this Act (which makes special provision in relation to certain collective investment schemes).

99 Insurance companies

The preceding provisions of this Chapter have effect subject to Schedule 11 to this Act (which makes special provision in relation to certain insurance companies and in relation to corporate members of Lloyd's).

Miscellaneous other provisions

100 Interest on judgments, imputed interest, etc

(1) This Chapter shall have effect in accordance with subsection (2) below where—

(a) interest on a money debt is payable to or by any company;

(b) that debt is one as respects which it stands, or has stood, in the position of a creditor or debtor; and

(c) that debt did not arise from a loan relationship.

(2) It shall be assumed for the purposes of this Chapter—

(a) that the interest is interest payable under a loan relationship to which the company is a party; but

(b) that the only credits or debits to be brought into account for those purposes in respect of that relationship are those relating to the interest.

(3) References in this section to interest payable on a money debt include references to any amount which, in pursuance of sections 770 to 772 of the Taxes Act 1988 (transactions at an undervalue or overvalue), as those sections have effect by virtue of section 773(4) of that Act, falls to be treated in pursuance of those sections as—

(a) interest on a money debt; or

(b) interest on an amount which is treated as a money debt.

(4) Any question whether debits or credits falling to be brought into account in accordance with this section in relation to any company—

(a) are to be brought into account under section 82(2) above, or

(b) are to be treated as non-trading debits or non-trading credits,

shall be determined according to the extent (if any) to which the interest in question is paid for the purposes of a trade carried on by the company or is received in the course of activities forming an integral part of such a trade, or (in the case of deemed interest) would be deemed to be so paid or received.

(5) This section has effect subject to the provisions of Schedules 9 and 11 to this Act.

101 Financial instruments

(1) Chapter II of Part IV of the [1994 c. 9.] Finance Act 1994 (provisions relating to certain financial instruments) shall not apply to any profit or loss which, in accordance with that Chapter, accrues to a company for any accounting period on a qualifying contract by virtue of which the company is a party to any loan relationship if—

(a) an amount representing that profit or loss, or

(b) an amount representing the profit or loss accruing to that company on that contract,

is brought into account for that period for the purposes of this Chapter.

(2) After section 147 of that Act (qualifying contracts) there shall be inserted the following section—

“147A Debt contracts and options to be qualifying contracts

(1) For the purposes of this Chapter a debt contract or option is a qualifying contract as regards a qualifying company if the company becomes entitled to rights, or subject to duties, under the contract or option at any time on or after 1st April 1996.

(2) For the purposes of this Chapter a qualifying company which is entitled to rights, or subject to duties, under a debt contract or option both immediately before and on 1st April 1996 shall be deemed to have become entitled or subject to those rights or duties on that date.

(3) This section has effect subject to paragraph 25 of Schedule 15 to the Finance Act 1996 (transitional provisions).”

(3) After section 150 of that Act (qualifying contracts) there shall be inserted the section set out in Schedule 12 to this Act (which defines debt contracts and options by reference to contracts and options conferring rights and duties to participate in loan relationships).

(4) In section 151 of that Act (provisions that may be included in contracts and options), for the words “or a currency contract or option,”, in each place where they occur, there shall be substituted “a currency contract or option or a debt contract or option”.

(5) In section 152(1) of that Act (disregard of provisions for relatively small payments in contracts and options), after “150” there shall be inserted “or 150A”.

(6) In section 153(1) of that Act (qualifying payments), for the word “and” at the end of paragraph (c) there shall be substituted—

“(ca) in relation to a qualifying contract which is a debt contract, a payment falling within section 150A(5) or (6) above; and”.

102 Discounted securities: income tax provisions

Schedule 13 to this Act (which, in connection with the provisions of this Chapter relating to corporation tax, makes provision for income tax purposes about discounted securities) shall have effect.

Supplemental

103 Interpretation of Chapter

(1) In this Chapter—

• “authorised accounting method”, “authorised accruals basis of accounting” and “authorised mark to market basis of accounting” shall be construed in accordance with section 85 above;

• “creditor relationship”, in relation to a company, means any loan relationship of that company in the case of which it stands in the position of a creditor as respects the debt in question;

• “debt” includes a debt the amount of which falls to be ascertained by reference to matters which vary from time to time;

• “debtor relationship”, in relation to a company, means any loan relationship of that company in the case of which it stands in the position of a debtor as respects the debt in question;

• “gilt-edged securities” means any securities which—

  (a)

  are gilt-edged securities for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992; or

  (b)

  will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they are issued;

• “an independent person” means a knowledgeable and willing party dealing at arm’s length;

• “international organisation” means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members;

• “loan” includes any advance of money, and cognate expressions shall be construed accordingly;

• “money” shall be construed in accordance with section 81(6) above and subsection (5) below;

• “money debt” shall be construed in accordance with section 81(2) above;

• “non-trading credit” and “non-trading debit” shall be construed in accordance with section 82(3) above;

• “retail prices index” has the same meaning as it has, by virtue of section 833(2) of the Taxes Act 1988, in the Income Tax Acts;

• “share”, in relation to a company, means any share in the company under which an entitlement to receive distributions may arise.

(2) For the purposes of this Chapter a company shall be taken to be a party to a creditor relationship for the purposes of a trade carried on by that company only if it is a party to that relationship in the course of activities forming an integral part of that trade.

(3) For the purposes of this Chapter, and of so much of any other enactment as contains provision by reference to which amounts fall to be brought into account for the purposes of this Chapter, activities carried on by a company in the course of—

(a) any mutual trading, or

(b) any mutual insurance or other mutual business which is not life assurance business (within the meaning of Chapter I of Part XII of the Taxes Act 1988),

shall be deemed not to constitute the whole or any part of a trade.

(4) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of any provision of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact.

(5) For the purposes of this Chapter the European currency unit (as for the time being defined in Council Regulation No. 3180/78/EEC or in any Community instrument replacing it) shall be taken to be a currency other than sterling.

104 Minor and consequential amendments

Schedule 14 to this Act (which, for the purposes of both corporation tax and income tax, makes certain minor and consequential amendments in connection with the provisions of this Chapter) shall have effect.

105 Commencement and transitional provisions

(1) Subject to Schedule 15 to this Act, this Chapter has effect—

(a) for the purposes of corporation tax, in relation to accounting periods ending after 31st March 1996; and

(b) so far as it makes provision for the purposes of income tax, in relation to the year 1996-97 and subsequent years of assessment.

(2) Schedule 15 to this Act (which contains transitional provisions and savings in connection with the coming into force of this Chapter) shall have effect.

Chapter III Provisions relating to the Schedule E charge

106 Living accommodation provided for employees

(1) In subsection (1) of section 145 of the Taxes Act 1988 (living accommodation provided for employees), the words “and is not otherwise made the subject of any charge to him by way of income tax” shall be omitted.

(2) After section 146 of that Act there shall be inserted the following section—

“146A Priority of rules applying to living accommodation

(1) This section applies where, within the meaning of section 145, living accommodation is provided in any period for any person by reason of his employment.

(2) The question whether the employee is to be treated under section 145 or 146 as in receipt of emoluments in respect of the provision of the accommodation shall be determined before any other question whether there is an amount falling to be treated in respect of the provision of that accommodation as emoluments.

(3) Tax under Schedule E in respect of the provision of the accommodation shall be chargeable on the employee otherwise than in pursuance of sections 145 and 146 to the extent only that the amount on which it is chargeable by virtue of those sections is exceeded by the amount on which it would be chargeable apart from those sections.”

(3) This section applies for the year 1996-97 and subsequent years of assessment.

107 Beneficial loans

(1) For section 160(1B) of the Taxes Act 1988 (aggregation of loans) there shall be substituted the following subsections—

“(1B) Where, in relation to any year—

(a) there are loans between the same lender and borrower which are aggregable with each other,

(b) the lender elects, by notice given to the inspector, for aggregation to apply in the case of that borrower, and

(c) that notice is given before the end of the period of 92 days after the end of that year,

all the loans between that lender and that borrower which are aggregable with each other shall be treated for the purposes of subsections (1) and (1A) above and Part II of Schedule 7 as a single loan.

(1BA) For the purposes of subsection (1B) above loans are aggregable with each other for any year where—

(a) in the case of each of the loans, there is a time in that year, while the loan is outstanding as to any amount, when the lender is a close company and the borrower a director of that company;

(b) the benefit of each of the loans is obtained by reason of the borrower’s employment;

(c) in the case of each of the loans, there is no time in that year when a rate of interest is applied to the loan which is equal to or more than whatever is the official rate at that time;

(d) the loans are loans made in the same currency; and

(e) none of the loans is a qualifying loan.”

(2) In paragraph 5 of Schedule 7 to that Act (alternative method of calculation)—

(a) in sub-paragraph (1)(a), for the words from “for the purpose” to “appeal)” there shall be substituted “at a time allowed by sub-paragraph (2) below”; and

(b) in sub-paragraph (1)(b), for “within the time allowed by sub-paragraph (2) below” there shall be substituted “at such a time”.

(3) For sub-paragraph (2) of that paragraph there shall be substituted the following sub-paragraph—

“(2) A notice containing a requirement or election for the purposes of sub-paragraph (1) above is allowed to be given at any time before the end of the period of 12 months beginning with the 31st January next following the relevant year.”

(4) This section has effect for the year 1996-97 and subsequent years of assessment and applies to loans whenever made.

108 Incidental benefits for holders of certain offices etc

(1) After section 200 of the Taxes Act 1988 (expenses of Members of Parliament) there shall be inserted the following section—

“200AA Incidental benefits for holders of certain offices etc

(1) A person holding any of the offices mentioned in subsection (2) below shall not be charged to tax under Schedule E in respect of—

(a) any transport or subsistence provided or made available by or on behalf of the Crown to the office-holder or any member of his family or household; or

(b) the payment or reimbursement by or on behalf of the Crown of any expenses incurred in connection with the provision of transport or subsistence to the office-holder or any member of his family or household.

(2) Those offices are—

(a) any office in Her Majesty’s Government in the United Kingdom, and

(b) any other office which is one of the offices and positions in respect of which salaries are payable under section 1 of the [1975 c. 27.] Ministerial and other Salaries Act 1975 (whether or not the person holding it is a person to whom a salary is paid or payable under the Act).

(3) Nothing in this section shall prevent a person from being chargeable to tax under Schedule E in respect of the benefit of a mobile telephone (within the meaning of section 159A).

(4) References in this section to a member of the family or household of an office-holder shall be construed in accordance with section 168(4).

(5) References in this section to the provision of transport to any person include references to the following—

(a) the provision or making available to that person of any car (whether with or without a driver);

(b) the provision of any fuel for a car provided or made available to that person;

(c) the provision of any other benefit in connection with a car provided or made available to that person.

(6) In this section—

• “car” means any mechanically propelled road vehicle; and

• “subsistence” includes food and drink and temporary living accommodation.”

(2) This section has effect for the year 1996–97 and subsequent years of assessment.

109 Charitable donations: payroll deduction schemes

(1) In section 202(7) of the Taxes Act 1988 (which limits to £900 the deductions attracting relief), for “£900” there shall be substituted “£1,200”.

(2) This section has effect for the year 1996-97 and subsequent years of assessment.

110 PAYE settlement agreements

After section 206 of the Taxes Act 1988 there shall be inserted the following section—

“206A PAYE settlement agreements

(1) PAYE regulations may make provision falling within subsection (2) below about the sums which, as sums in respect of income tax under Schedule E on emoluments of a person’s employees, are to be the sums for which the employer is to be accountable to the Board from time to time.

(2) That provision is provision under which the accountability of the employer, and the sums for which he is to be accountable, are to be determined, to such extent as may be prescribed, in accordance with an agreement between the Board and the employer (“a PAYE settlement agreement”), instead of under PAYE regulations made otherwise than by virtue of this section.

(3) PAYE regulations may provide for a PAYE settlement agreement to allow sums for which an employer is to be accountable to the Board in accordance with the agreement—

(a) to be computed, in cases where there are two or more persons holding employments to which the agreement relates, by reference to a number of those persons all taken together;

(b) to include sums representing income tax on an estimated amount taken, in accordance with the agreement, to be the aggregate of the cash equivalents and other amounts chargeable to tax in respect of—

(i) taxable benefits provided or made available by reason of the employments to which the agreement relates; and

(ii) expenses paid to the persons holding those employments;

and

(c) to be computed in a manner under which the sums for which the employer is accountable do not necessarily represent an amount of income tax payable in respect of income which (apart from the regulations) is assessable under Schedule E on persons holding employments to which the agreement relates.

(4) PAYE regulations may provide—

(a) for an employer who is accountable to the Board under a PAYE settlement agreement for any sum to be so accountable without that sum, or any other sum, being treated for any prescribed purpose as tax deducted from emoluments;

(b) for an employee to have no right to be treated as having paid tax in respect of sums for which his employer is accountable under such an agreement;

(c) for an employee to be treated, except—

(i) for the purposes of the obligations imposed on his employer by such an agreement, and

(ii) to such further extent as may be prescribed,

as relieved from any prescribed obligations of his under the Income Tax Acts in respect of emoluments from an employment to which the agreement relates; and

(d) for such emoluments to be treated as excluded from the employee’s income for such further purposes of the Income Tax Acts, and to such extent, as may be prescribed.

(5) For the purposes of any PAYE regulations made by virtue of this section it shall be immaterial that any agreement to which they relate was entered into before the coming into force of the regulations.

(6) PAYE regulations made by virtue of this section may—

(a) make different provision for different cases; and

(b) contain such incidental, supplemental, consequential and transitional provision as the Board may think fit.

(7) Without prejudice to the generality of subsection (6) above, the transitional provision that may be made by virtue of that subsection includes transitional provision for any year of assessment which—

(a) for the purposes of the regulations, treats sums accounted for in that year before the coming into force of the regulations as accounted for in accordance with an agreement as respects which the regulations have effect after they come into force; and

(b) provides, by reference to any provision made by virtue of paragraph (a) above, for income arising in that year before the coming into force of the regulations to be treated as income in relation to which modifications of the Income Tax Acts contained in the regulations apply.

(8) Without prejudice to the generality of subsection (6) above, any power of the Board to make PAYE regulations with respect to sums falling to be accounted for under such regulations shall include power to make the corresponding provision with respect to sums falling, by virtue of this section, to be accounted for in accordance with a PAYE settlement agreement.

(9) In this section—

• “employment” means any office or employment the emoluments from which are (or, apart from any regulations made by virtue of this section, would be) assessable to tax under Schedule E, and cognate expressions shall be construed accordingly;

• “PAYE regulations” means regulations under section 203;

• “prescribed” means prescribed by PAYE regulations;

• “taxable benefit”, in relation to an employee, means any benefit provided or made available, otherwise than in the form of a payment of money, to the employee or to a person who is, for the purposes of Chapter II of this Part, a member of his family or household;

and references in this section to a time before the coming into force of any regulations include references to a time before the commencement of section 110 of the Finance Act 1996 (by virtue of which this section was inserted in this Act).”

Chapter IV Share Options, Profit Sharing and Employee Share Ownership

Share options

111 Amount or value of consideration for option

(1) Section 149A of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (consideration for grant of option under approved share option schemes not to be deemed to be equal to market value of option) shall be amended as follows.

(2) In subsection (1)(b) (restriction to approved share option schemes) for “as mentioned in section 185(1) of the Taxes Act (approved share option schemes)” there shall be substituted “by an individual by reason of his office or employment as a director or employee of that or any other body corporate”.

(3) In subsection (2) (grantor to be treated as if the amount or value of the consideration was its actual amount or value) for “The grantor of the option” there shall be substituted “Both the grantor of the option and the person to whom the option is granted”.

(4) Subsection (4) (section not to affect treatment under that Act of person to whom option granted) shall cease to have effect.

(5) For the side-note to that section there shall be substituted “Share option schemes.”

(6) This section has effect in relation to any right to acquire shares in a body corporate obtained on or after 28th November 1995 by an individual by reason of his office or employment as a director or employee of a body corporate.

112 Release and replacement

(1) After section 237 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 there shall be inserted—

“237A Share option schemes: release and replacement of options

(1) This section applies in any case where a right to acquire shares in a body corporate (“the old right”) which was obtained by an individual by reason of his office or employment as a director or employee of that or any other body corporate is released in whole or in part for a consideration which consists of or includes the grant to that individual of another right (“the new right”) to acquire shares in that or any other body corporate.

(2) As respects the person to whom the new right is granted—

(a) without prejudice to subsection (1) above, the new right shall not be regarded for the purposes of capital gains tax as consideration for the release of the old right;

(b) the amount or value of the consideration given by him or on his behalf for the acquisition of the new right shall be taken for the purposes of section 38(1) to be the amount or value of the consideration given by him or on his behalf for the old right; and

(c) any consideration paid for the acquisition of the new right shall be taken to be expenditure falling within section 38(1)(b).

(3) As respects the grantor of the new right, in determining for the purposes of this Act the amount or value of the consideration received for the new right, the release of the old right shall be disregarded.”

(2) Section 238(4) of that Act (which provides that the release of an option under an approved share option scheme in exchange for another option, in connection with a company take-over, is not to involve a disposal, and which is superseded by subsection (1) above) shall cease to have effect.

(3) This section has effect in relation to transactions effected on or after 28th November 1995.

Savings-related share option schemes

113 Exercise of rights by employees of non-participating companies

(1) In paragraph 21 of Schedule 9 to the Taxes Act 1988 (provisions which an approved savings-related share option scheme may make with respect to the exercise of rights under the scheme) in sub-paragraph (1), the word “and” immediately preceding paragraph (e) shall be omitted and after that paragraph there shall be inserted “and

(f) if, at the bonus date, a person who has obtained rights under the scheme holds an office or employment in a company which is not a participating company but which is—

(i) an associated company of the grantor, or

(ii) a company of which the grantor has control,

those rights may be exercised within six months of that date.”

(2) After sub-paragraph (3) of that paragraph there shall be inserted—

“(4) Where a scheme approved before the date of the passing of the Finance Act 1996 is altered before 5th May 1998 so as to include such a provision as is specified in sub-paragraph (1)(f) above, the scheme may apply the provision to rights obtained under the scheme before the alteration takes effect, whether the bonus date in relation to the rights occurred before or after the passing of that Act; and where the provision is applied to such rights by virtue of this sub-paragraph, its application to such rights shall not itself be regarded as the acquisition of a right for the purposes of this Schedule.

This sub-paragraph has effect subject to paragraph 4 above.”

(3) In paragraph 26(3) of that Schedule (only directors or employees of grantor or participating company to be eligible to participate, except as provided by paragraph 19 or pursuant to such a provision as is referred to in paragraph 21(1)(e)) after “21(1)(e)” there shall be inserted “or (f)”.

Other share option schemes

114 Requirements to be satisfied by approved schemes

(1) Part IV of Schedule 9 to the Taxes Act 1988 (requirements applicable to approved share option schemes which are not savings-related) shall be amended in accordance with subsections (2) and (3) below.

(2) In paragraph 28 (scheme must impose limit on aggregate market value of shares which may be acquired in pursuance of rights obtained under the scheme or certain related schemes)—

(a) in sub-paragraph (1) (aggregate market value of shares not to exceed the appropriate limit) for “the appropriate limit” there shall be substituted “£30,000”; and

(b) sub-paragraphs (2) and (4) (meaning of the appropriate limit and, for the purposes of that definition, the relevant emoluments) shall cease to have effect.

(3) In paragraph 29 (price at which shares may be acquired to be stated and to be not manifestly less than the market value, or, in certain circumstances, 85 per cent. of the market value, of shares of the same class) for sub-paragraphs (1) to (6) there shall be substituted—

“(1) The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme—

(a) must be stated at the time the right is obtained, and

(b) must not be manifestly less than the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or times as may be provided in the agreement.”

(4) Section 185 of the Taxes Act 1988 (approved share option schemes) shall be amended in accordance with subsections (5) to (7) below.

(5) In subsection (2), for “Subject to subsections (6) to (6B) below” there shall be substituted “Subject to subsection (6) below”.

(6) For subsections (6) to (6B) there shall be substituted—

“(6) Where, in the case of a right obtained by a person under a scheme which is not a savings-related share option scheme, the aggregate of—

(a) the amount or value of any consideration given by him for obtaining the right, and

(b) the price at which he may acquire the shares by exercising the right,

is less than the market value, at the time he obtains the right, of the same quantity of issued shares of the same class, he shall be chargeable to tax under Schedule E for the year of assessment in which he obtains the right on the amount of the difference; and the amount so chargeable shall be treated as earned income, whether or not it would otherwise fall to be so treated.”

(7) In subsections (7) and (8) for “(6A)” there shall be substituted “(6)”.

(8) In section 120 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (increase in expenditure by reference to tax charged in relation to shares etc) in subsection (6) (which defines the applicable provision) for paragraph (b) (which refers to subsection (6A) of section 185 of the Taxes Act 1988) there shall be substituted—

“(b) subsection (6A) of that section (as that subsection has effect in relation to rights obtained before the day on which the Finance Act 1996 was passed), or

(c) subsection (6) of that section (as that subsection has effect in relation to rights obtained on or after that day).”

(9) Schedule 16 to this Act, which makes provision with respect to share option schemes approved before the day on which this Act is passed, shall have effect.

(10) Subsections (3) to (7) above have effect in relation to rights obtained on or after the day on which this Act is passed.

115 Transitional provisions

(1) If, during the period—

(a) beginning with 17th July 1995, and

(b) ending with the day preceding the passing of this Act,

any rights have been obtained by a person under an approved share option scheme in circumstances falling within subsection (2) below, the rights shall be treated for the purposes of sections 185 to 187 of, and Schedule 9 to, the Taxes Act 1988 as being rights obtained otherwise than in accordance with the provisions of an approved share option scheme.

(2) The circumstances mentioned in subsection (1) above are circumstances such that, on the assumptions in subsection (3) below, there would, by virtue of paragraph 28 or 29 of Schedule 9 to the Taxes Act 1988 (limit on what may be obtained and requirements with respect to price), have been, with respect to the operation of the scheme, a contravention of any of the relevant requirements or of the scheme itself.

(3) The assumptions mentioned in subsection (2) above are—

(a) that the amendments made by subsection (2) of section 114 above had effect at all times on and after 17th July 1995;

(b) that the amendments made by subsections (3) to (7) of that section had effect in relation to rights obtained at any time on or after that date; and

(c) that the provisions of paragraphs 1(1) and 2 to 5 of Schedule 16 to this Act had effect at all times on and after 17th July 1995, but with the substitution for references to the day on which this Act is passed of references to that date.

(4) For the purposes of this section, rights obtained by a person on or after 17th July 1995 shall be treated as having been obtained by him before that date if—

(a) the scheme in question is one approved before that date;

(b) an offer of the rights or an invitation to apply for them was made in writing to that person before that date; and

(c) he obtained the rights within the period of thirty days beginning with the day on which the offer or invitation was made.

(5) In this section—

• “approved share option scheme” means an approved share option scheme, within the meaning of section 185 of the Taxes Act 1988, other than a savings-related share option scheme;

• “relevant requirements” has the meaning given in paragraph 1(1) of Schedule 9 to the Taxes Act 1988;

• “savings-related share option scheme” has the meaning given by Schedule 9 to the Taxes Act 1988.

Profit sharing schemes

116 The release date

(1) In section 187(2) of the Taxes Act 1988 (interpretation of sections 185 and 186 of, and Schedules 9 and 10 to, that Act) in the definition of “release date” (the fifth anniversary of the date on which shares were appropriated to a participant in a profit sharing scheme) for “fifth” there shall be substituted “third”.

(2) The amendment made by subsection (1) above shall have effect in relation to shares of a participant in a profit sharing scheme if the third anniversary of the appropriation of the shares to the participant occurs on or after the day on which this Act is passed.

(3) If the third anniversary of the appropriation of any shares to a participant in a profit sharing scheme has occurred, but the fifth anniversary of their appropriation to him has not occurred, before the passing of this Act, then, in the application of sections 186 and 187 of, and Schedules 9 and 10 to, the Taxes Act 1988 in relation to those shares, the release date shall be the day on which this Act is passed.

117 The appropriate percentage

(1) In Schedule 10 to the Taxes Act 1988 (further provisions relating to profit sharing schemes) for paragraph 3 (the appropriate percentage) there shall be substituted—

“3 (1) For the purposes of any of the relevant provisions charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares, the “appropriate percentage” in relation to those shares is 100 per cent., unless sub-paragraph (2) below applies.

(2) Where the individual—

(a) ceases to be a director or employee of the grantor or, in the case of a group scheme, a participating company as mentioned in paragraph 2(a) above, or

(b) reaches the relevant age,

before the event occurs, the “appropriate percentage” is 50 per cent., unless paragraph 6(4) below applies.”

(2) In section 187(8) of that Act (determination of certain values and percentages where shares are appropriated to a participant at different times) paragraph (b) (which relates to the appropriate percentage), and the word “and” immediately preceding it, shall cease to have effect.

(3) Subsections (1) and (2) above have effect in relation to the occurrence, on or after the day on which this Act is passed, of events by reason of whose occurrence any provision of section 186 or 187 of, or Schedule 9 or 10 to, the Taxes Act 1988 charges an individual to income tax under Schedule E.

118 The appropriate allowance

(1) In section 186(12) of the Taxes Act 1988 (determination of the appropriate allowance for the purposes of the charge to tax on capital receipts by a participant in an approved profit sharing scheme)—

(a) for “£100” there shall be substituted “£60”; and

(b) for “five years” there shall be substituted “three years”.

(2) Subsection (1) above has effect for the year 1997-98 and subsequent years of assessment.

Employee share ownership trusts

119 Removal of requirement for at least one year’s service

(1) In Schedule 5 to the [1989 c. 26.] Finance Act 1989 (employee share ownership trusts) in paragraph 4(5)(a) (for a trust to be a qualifying ESOT, its beneficiaries must have been employees or directors of the company for at least one year) the words “not less than one year and” shall cease to have effect.

(2) This section applies to trusts established on or after the day on which this Act is passed.

120 Grant and exercise of share options

(1) In Schedule 5 to the [1989 c. 26.] Finance Act 1989 (employee share ownership trusts), in paragraph 4 (the trust deed must contain provision as to the beneficiaries) after sub-paragraph (2) there shall be inserted—

“(2A) The trust deed may provide that a person is a beneficiary at a given time if at that time he is eligible to participate in a savings-related share option scheme within the meaning of Schedule 9 to the Taxes Act 1988—

(a) which was established by a company within the founding company’s group, and

(b) which is approved under that Schedule.

(2B) Where a trust deed contains a rule conforming with sub-paragraph (2A) above it must provide that the only powers and duties which the trustees may exercise in relation to persons who are beneficiaries by virtue only of that rule are those which may be exercised in accordance with the provisions of a scheme such as is mentioned in that sub-paragraph.”

(2) In consequence of the amendment made by subsection (1) above, section 69 of, and Schedule 5 to, the [1989 c. 26.] Finance Act 1989 (which respectively make provision about chargeable events in relation to the trustees of qualifying employee share ownership trusts and the requirements to be satisfied by such trusts) shall be amended in accordance with the following provisions of this section.

(3) In subsection (4) of that section (meaning of “qualifying terms” for the purposes of the provision that the transfer of securities to beneficiaries is a chargeable event if it is not on qualifying terms)—

(a) in paragraph (a) (securities which are transferred at the same time must be transferred on similar terms) after “time” there shall be inserted “other than those transferred on a transfer such as is mentioned in subsection (4ZA) below”;

(b) in paragraph (b) (securities must have been offered to all the persons who are beneficiaries), after “trust deed” there shall be inserted “by virtue of a rule which conforms with paragraph 4(2), (3) or (4) of Schedule 5 to this Act”; and

(c) in paragraph (c) (securities must be transferred to all such beneficiaries who have accepted the offer) for “beneficiaries” there shall be substituted “persons”.

(4) After subsection (4) of that section there shall be inserted—

“(4ZA) For the purposes of subsection (1)(b) above a transfer of securities is also made on qualifying terms if—

(a) it is made to a person exercising a right to acquire shares, and

(b) that right was obtained in accordance with the provisions of a savings-related share option scheme within the meaning of Schedule 9 to the Taxes Act 1988—

(i) which was established by, or by a company controlled by, the company which established the trust, and

(ii) which is approved under that Schedule, and

(c) that right is being exercised in accordance with the provisions of that scheme, and

(d) the consideration for the transfer is payable to the trustees.”

(5) In sub-paragraph (4) of paragraph 4 of that Schedule (trust deed may provide for charity to be beneficiary if there are no beneficiaries falling within a rule conforming with sub-paragraph (2) or (3)) after “sub-paragraph (2)” there shall be inserted “, (2A)”.

(6) In sub-paragraph (7) of that paragraph (trust deed must not provide for a person to be a beneficiary unless he falls within a rule conforming with sub-paragraph (2), (3) or (4)) after “sub-paragraph (2)” there shall be inserted “, (2A)”.

(7) In sub-paragraph (8) of that paragraph (trust deed must provide that person with material interest in founding company cannot be a beneficiary) after “at a particular time (the relevant time)” there shall be inserted “by virtue of a rule which conforms with sub-paragraph (2), (3) or (4) above”.

(8) In paragraph 5(2) of that Schedule (trust deed must be so expressed that it is apparent that the general functions of the trustees are as mentioned in paragraphs (a) to (e)) after paragraph (c) there shall be inserted—

“(cc) to grant rights to acquire shares to persons who are beneficiaries under the terms of the trust deed;”.

(9) In paragraph 9 of that Schedule (trust deed must provide that transfers of securities to beneficiaries must be on qualifying terms and within the qualifying period) in sub-paragraph (2) (meaning of qualifying terms)—

(a) in paragraph (a) (securities which are transferred at the same time must be transferred on similar terms) after “time” there shall be inserted “other than those transferred on a transfer such as is mentioned in sub-paragraph (2ZA) below”;

(b) in paragraph (b) (securities must have been offered to all the persons who are beneficiaries) after “trust deed” there shall be inserted “by virtue of a rule which conforms with paragraph 4(2), (3) or (4) above”; and

(c) in paragraph (c) (securities must be transferred to all such beneficiaries who have accepted the offer) for “beneficiaries” there shall be substituted “persons”.

(10) After sub-paragraph (2) of that paragraph there shall be inserted—

“(2ZA) For the purposes of sub-paragraph (1) above a transfer of securities is also made on qualifying terms if—

(a) it is made to a person exercising a right to acquire shares, and

(b) that right was obtained in accordance with the provisions of a savings-related share option scheme within the meaning of Schedule 9 to the Taxes Act 1988—

(i) which was established by, or by a company controlled by, the founding company, and

(ii) which is approved under that Schedule, and

(c) that right is being exercised in accordance with the provisions of that scheme, and

(d) the consideration for the transfer is payable to the trustees.”

(11) In paragraph 10 of that Schedule (trust deed must not contain features not essential or reasonably incidental to purposes mentioned in that paragraph)—

(a) after “acquiring sums and securities,” there shall be inserted “granting rights to acquire shares to persons who are eligible to participate in savings-related share option schemes approved under Schedule 9 to the Taxes Act 1988, transferring shares to such persons,”; and

(b) for “Schedule 9 to the Taxes Act 1988” there shall be substituted “that Schedule”.

(12) This section has effect in relation to trusts established on or after the day on which this Act is passed.

Chapter V Self Assessment, General Management etc.

General

121 Returns and self assessment

(1) In subsection (1) of section 8 of the [1970 c. 9.] Taxes Management Act 1970 (personal return), and in subsection (1) of section 8A of that Act (trustee’s return), after the words “year of assessment,” there shall be inserted the words “and the amount payable by him by way of income tax for that year,”.

(2) In subsection (1A) of each of those sections, the words from “and the amounts referred to” to the end shall cease to have effect.

(3) After that subsection of each of those sections there shall be inserted the following subsection—

“(1AA) For the purposes of subsection (1) above—

(a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return; and

(b) the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies.”

(4) For subsection (1) of section 9 of that Act (returns to include self-assessment) there shall be substituted the following subsection—

“(1) Subject to subsection (2) below, every return under section 8 or 8A of this Act shall include a self-assessment, that is to say—

(a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and

(b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies.”

(5) In subsection (1)(b) of section 11AA of that Act (return of profits to include self-assessment), for the words “, allowance or repayment of tax” there shall be substituted the words “or allowance”.

(6) In subsection (1)(a) of section 12AA of that Act (partnership return), after the words “so chargeable” there shall be inserted the words “and the amount payable by way of income tax by each such partner”.

(7) For subsection (1A) of that section there shall be substituted the following subsection—

“(1A) For the purposes of subsection (1) above—

(a) the amount in which a partner is chargeable to income tax or corporation tax is a net amount, that is to say, an amount which takes into account any relief or allowance for which a claim is made; and

(b) the amount payable by a partner by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies.”

(8) This section and sections 122, 123, 125 to 127 and 141 below—

(a) so far as they relate to income tax and capital gains tax, have effect as respects the year 1996-97 and subsequent years of assessment, and

(b) so far as they relate to corporation tax, have effect as respects accounting periods ending on or after the appointed day for the purposes of Chapter III of Part IV of the [1994 c. 9.] Finance Act 1994.

122 Notional tax deductions and payments

(1) At the end of subsection (1) of section 9 of the [1970 c. 9.] Taxes Management Act 1970 (as substituted by section 121(4) above) there shall be inserted the words “but nothing in this subsection shall enable a self-assessment to show as repayable any income tax treated as deducted or paid by virtue of section 233(1), 246D(1), 249(4), 421(1), 547(5) or 599A(5) of the principal Act.”

(2) At the end of subsection (1) of section 59B of that Act (payment of income tax and capital gains tax) there shall be inserted the words “but nothing in this subsection shall require the repayment of any income tax treated as deducted or paid by virtue of section 233(1), 246D(1), 249(4), 421(1), 547(5) or 599A(5) of the principal Act.”

(3) In subsection (1) of section 233 of the Taxes Act 1988 (taxation of certain recipients of distributions), for paragraphs (a) and (b) there shall be substituted the following paragraphs—

“(a) that person shall be treated as having paid income tax at the lower rate on the amount or value of the distribution;

(b) no repayment shall be made of any income tax treated by virtue of paragraph (a) above as having been paid;”.

(4) In paragraph (a) of subsection (1A) of that section—

(a) for sub-paragraph (i) there shall be substituted the following sub-paragraph—

“(i) income on which that person falls to be treated as having paid income tax at the lower rate by virtue of paragraph (a) of subsection (1) above, or”; and

(b) for the words “that assessment” there shall be substituted the words “that subsection”.

(5) In the following enactments, namely—

(a) subsection (2)(a) of section 246D of that Act (individuals etc.); and

(b) subsection (4)(a) of section 249 of that Act (stock dividends treated as income),

for the words from “no assessment” to “on it” there shall be substituted the words “the individual shall be treated as having paid income tax at the lower rate on that income”.

(6) In subsection (1)(b) of section 421 of that Act (taxation of borrower when loan released), for the words “no assessment shall be made on him in respect of” there shall be substituted the words “he shall not be liable to pay”.

(7) The following shall cease to have effect, namely—

(a) in subsection (5)(a) of section 547 of that Act (method of charging to tax), the words from “no assessment” to “but”;

(b) in subsection (6) of section 599A of that Act (charge to tax: payments out of surplus funds), the words from “subject” to “and”; and

(c) subsection (7) of that section.

123 Liability of partners

(1) In subsection (2) of section 12AA of the [1970 c. 9.] Taxes Management Act 1970 (partnership return) after the words “with the notice” there shall be inserted the words “or a successor of his”.

(2) In subsection (3) of that section after the words “the partner” there shall be inserted the words “or a successor of his”.

(3) In subsection (7)(a) of that section, the words “any part of” shall cease to have effect.

(4) At the end of that section there shall be inserted the following subsections—

“(11) In this Act “successor”, in relation to a person who is required to make and deliver, or has made and delivered, a return in pursuance of a notice under subsection (2) or (3) above, but is no longer available, means—

(a) where a partner is for the time being nominated for the purposes of this subsection by a majority of the relevant partners, that partner; and

(b) where no partner is for the time being so nominated, such partner as—

(i) in the case of a notice under subsection (2) above, is identified in accordance with rules given with that notice; or

(ii) in the case of a notice under subsection (3) above, is nominated for the purposes of this subsection by an officer of the Board;

and “predecessor” and “successor”, in relation to a person so nominated or identified, shall be construed accordingly.

(12) For the purposes of subsection (11) above a nomination under paragraph (a) of that subsection, and a revocation of such a nomination, shall not have effect in relation to any time before notice of the nomination or revocation is given to an officer of the Board.

(13) In this section “relevant partner” means a person who was a partner at any time during the period for which the return was made or is required, or the personal representatives of such a person.”

(5) In subsection (1) of section 12AB of that Act (partnership return to include partnership statement)—

(a) in paragraph (a), for the words “each period of account ending within the period in respect of which the return is made” there shall be substituted the words “the period in respect of which the return is made and each period of account ending within that period”;

(b) in sub-paragraph (i) of that paragraph, for the words “that period” there shall be substituted the words “the period in question”;

(c) after that sub-paragraph there shall be inserted the following sub-paragraph—

“(ia) the amount of the consideration which, on that basis, has accrued to the partnership in respect of each disposal of partnership property during that period,”;

and

(d) in paragraph (b), after the words “such period” there shall be inserted the words “as is mentioned in paragraph (a) above” and after the word “loss,” there shall be inserted the word “consideration,”.

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

(a) in paragraph (a) after the words “to that person” there shall be inserted the words “or a successor”; and

(b) in paragraph (b) for the words from “partnership statement” to “he” there shall be substituted the words “or a predecessor’s partnership statement as to give effect to any amendments to the return in which it is included which he or a predecessor”.

(7) In section 12AC of that Act (power to enquire into partnership return)—

(a) in subsection (1)(b), after the word “person” there shall be inserted the words “or a successor of that person”; and

(b) subsection (6) (which is superseded by subsection (4) above) shall cease to have effect.

(8) In subsection (1)(b) of section 93A of that Act (failure to make partnership return), after the word “he” there shall be inserted the words “or a successor of his”.

(9) In subsections (3) and (4) of that section, after the words “the representative partner” there shall be inserted the words “or a successor of his”.

(10) In subsection (6) of that section—

(a) after the words “the representative partner” there shall be inserted the words “or a successor of his”; and

(b) after the words “that partner”, in both places where they occur, there shall be inserted the words “or successor”.

(11) In subsection (7) of that section, for the words “the representative partner had a reasonable excuse for not delivering the return” there shall be substituted the words “the person for the time being required to deliver the return (whether the representative partner or a successor of his) had a reasonable excuse for not delivering it”.

(12) In subsection (1)(a)(ii) of section 95A of that Act (incorrect partnership return or accounts), for the words “such a return” there shall be substituted the words “a return of such a kind”.

(13) In subsection (3) of that section—

(a) after the words “the representative partner” there shall be inserted the words “or a successor of his”; and

(b) after the words “that partner”, in both places where they occur, there shall be inserted the words “or successor”.

(14) In subsection (1) of section 118 of that Act (interpretation), for the definition of “successor” there shall be substituted the following definition—

““successor”, in relation to a person who is required to make and deliver, or has made and delivered, a return under section 12AA of this Act, and “predecessor” and “successor”, in relation to the successor of such a person, shall be construed in accordance with section 12AA(11) of this Act;”.

124 Retention of original records

(1) The [1970 c. 9.] Taxes Management Act 1970, as it has effect—

(a) for the purposes of income tax and capital gains tax, as respects the year 1996-97 and subsequent years of assessment, and

(b) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions),

shall be amended in accordance with the following provisions of this section.

(2) In section 12B (records to be kept for purposes of returns) in subsection (4) (which permits the duty to preserve records to be discharged by the preservation of the information contained in them, and provides for the admissibility in evidence of copy documents) at the beginning there shall be inserted the words “Except in the case of records falling within subsection (4A) below,”.

(3) After that subsection there shall be inserted—

“(4A) The records which fall within this subsection are—

(a) any statement in writing such as is mentioned in—

(i) subsection (1) of section 234 of the principal Act (amount of qualifying distribution and tax credit), or

(ii) subsection (1) of section 352 of that Act (gross amount, tax deducted, and actual amount paid, in certain cases where payments are made under deduction of tax),

which is furnished by the company or person there mentioned, whether after the making of a request or otherwise;

(b) any certificate or other record (however described) which is required by regulations under section 566(1) of the principal Act to be given to a sub-contractor (within the meaning of Chapter IV of Part XIII of that Act) on the making of a payment to which section 559 of that Act (deductions on account of tax) applies;

(c) any such record as may be requisite for making a correct and complete claim in respect of, or otherwise requisite for making a correct and complete return so far as relating to, an amount of tax—

(i) which has been paid under the laws of a territory outside the United Kingdom, or

(ii) which would have been payable under the law of such a territory but for a relief to which section 788(5) of the principal Act (relief for promoting development and relief contemplated by double taxation arrangements) applies.”

(4) In subsection (5) of that section (penalty for failure to comply with section 12B(1) or (2A)) for “Subject to subsection (5A)” there shall be substituted “Subject to subsections (5A) and (5B)”.

(5) After subsection (5A) of that section there shall be inserted—

“(5B) Subsection (5) above also does not apply where—

(a) the records which the person fails to keep or preserve are records falling within paragraph (a) of subsection (4A) above; and

(b) an officer of the Board is satisfied that any facts which he reasonably requires to be proved, and which would have been proved by the records, are proved by other documentary evidence furnished to him.”

(6) In Schedule 1A (claims etc not included in returns) in paragraph 2A (keeping and preserving of records) in sub-paragraph (3) (which makes corresponding provision to section 12B(4)) at the beginning there shall be inserted “Except in the case of records falling within section 12B(4A) of this Act,”.

(7) In sub-paragraph (4) of that paragraph (penalty for failure to comply with paragraph 2A(1)) at the beginning there shall be inserted “Subject to sub-paragraph (5) below,”.

(8) After that sub-paragraph there shall be inserted—

“(5) Sub-paragraph (4) above does not apply where—

(a) the records which the person fails to keep or preserve are records falling within paragraph (a) of section 12B(4A) of this Act; and

(b) an officer of the Board is satisfied that any facts which he reasonably requires to be proved, and which would have been proved by the records, are proved by other documentary evidence furnished to him.”

(9) The amendments made by this section shall not have effect in relation to—

(a) any time before this Act is passed, or

(b) any records which a person fails to preserve before this Act is passed.

125 Determination of tax where no return delivered

(1) For subsection (1) of section 28C of the [1970 c. 9.] Taxes Management Act 1970 (determination of tax where no return delivered) there shall be substituted the following subsections—

“(1) This section applies where—

(a) a notice has been given to any person under section 8 or 8A of this Act (the relevant section), and

(b) the required return is not delivered on or before the filing date.

(1A) An officer of the Board may make a determination of the following amounts, to the best of his information and belief, namely—

(a) the amounts in which the person who should have made the return is chargeable to income tax and capital gains tax for the year of assessment; and

(b) the amount which is payable by him by way of income tax for that year;

and subsection (1AA) of section 8 or, as the case may be, section 8A of this Act applies for the purposes of this subsection as it applies for the purposes of subsection (1) of that section.”

(2) In subsection (3) of that section the words “or 11AA” shall cease to have effect.

(3) In subsection (6) of that section for the words “, section 8A(1A) or, as the case may be, section 11(4)” there shall be substituted the words “or, as the case may be, section 8A(1A)”.

(4) After subsection (5) of section 59B of that Act (payment of income tax and capital gains tax) there shall be inserted the following subsection—

“(5A) Where a determination under section 28C of this Act which has effect as a person’s self-assessment is superseded by his self-assessment under section 9 of this Act, any amount of tax which is payable or repayable by virtue of the supersession shall be payable or (as the case may be) repayable on or before the day given by subsection (3) or (4) above.”

126 PAYE regulations

(1) After subsection (9) of section 59A of the Taxes Management Act 1970 (payments on account of income tax) there shall be inserted the following subsection—

“(10) Regulations under section 203 of the principal Act (PAYE) may provide that, for the purpose of determining the amount of any such excess as is mentioned in subsection (1) above, any necessary adjustments in respect of matters prescribed by the regulations shall be made to the amount of tax deducted at source under that section.”

(2) After subsection (7) of section 59B of that Act (payment of income tax and capital gains tax) there shall be inserted the following subsection—

“(8) Regulations under section 203 of the principal Act (PAYE) may provide that, for the purpose of determining the amount of the difference mentioned in subsection (1) above, any necessary adjustments in respect of matters prescribed by the regulations shall be made to the amount of tax deducted at source under that section.”

127 Repayment postponed pending completion of enquiries

After subsection (4) of section 59B of the [1970 c. 9.] Taxes Management Act 1970 (payment of income tax and capital gains tax) there shall be inserted the following subsection—

“(4A) Where in the case of a repayment the return on the basis of which the person’s self-assessment was made under section 9 of this Act is enquired into by an officer of the Board—

(a) nothing in subsection (3) or (4) above shall require the repayment to be made before the day on which, by virtue of section 28A(5) of this Act, the officer’s enquiries are treated as completed; but

(b) the officer may at any time before that day make the repayment, on a provisional basis, to such extent as he thinks fit.”

128 Claims for reliefs involving two or more years

(1) In section 42 of the Taxes Management Act 1970 (procedure for making claims etc.)—

(a) subsections (3A) and (3B) (which are superseded by subsection (2) below) shall cease to have effect;

(b) in subsection (7)(a), the words “534, 535, 537A, 538” shall cease to have effect; and

(c) after subsection (11) there shall be inserted the following subsection—

“(11A) Schedule 1B to this Act shall have effect as respects certain claims for relief involving two or more years of assessment.”

(2) After Schedule 1A to that Act there shall be inserted, as Schedule 1B, the provisions set out in Schedule 17 to this Act (claims for reliefs involving two or more years).

(3) For subsection (9) of section 96 of the Taxes Act 1988 (relief for fluctuating profits of farming etc.) there shall be substituted the following subsection—

“(9) Where a person makes a claim under this section, any claim by him for relief under any other provision of the Income Tax Acts for either of the two years of assessment—

(a) shall not be out of time if made before the end of the period during which the claim under this section is capable of being revoked; and

(b) if already made, may be amended or revoked before the end of that period;

and, in relation to a claim made by being included in a return, any reference in this subsection to amending or revoking the claim is a reference to amending the return by amending or, as the case may be, omitting the claim.”

(4) In section 108 of that Act (election for carry-back)—

(a) for the words “the inspector within two years after” there shall be substituted the words “an officer of the Board within one year from the 31st January next following”; and

(b) the words from “and, in any such case” to the end shall cease to have effect.

(5) For subsection (5) of section 534 of that Act (relief for copyright payments) there shall be substituted the following subsections—

“(5) A claim under this section with respect to any payment to which it applies by virtue only of subsection (4)(b) above—

(a) shall have effect as a claim with respect to all qualifying payments, that is to say, all such payments in respect of the copyright in the same work which are receivable by the claimant, whether before or after the claim; and

(b) where qualifying payments are so receivable in two or more years of assessment, shall be treated for the purposes of the Management Act as if it were two or more separate claims, each in respect of the qualifying payments receivable in one of those years.

(5A) A claim under this section may be made at any time within one year from the 31st January next following—

(a) in the case of such a claim as is mentioned in subsection (5) above, the latest year of assessment in which a qualifying payment is receivable; and

(b) in the case of any other claim, the year of assessment in which the payment in question is receivable.

(5B) For the purposes of subsections (5) and (5A) above, a payment shall be regarded as receivable in the year of assessment in computing the amount of the profits or gains of which it would, but for this section, be included.”

(6) After subsection (6) of that section there shall be inserted the following subsection—

“(6A) In the case of persons carrying on a trade, profession or business in partnership, no claim may be made under any of the following provisions, namely—

(a) this section and section 535;

(b) section 537 as it has effect in relation to this section and section 535; and

(c) section 537A and section 538,

in respect of any payment or sum receivable on or after 6th April 1996; and nothing in any of those provisions shall be construed as applying to profits chargeable to corporation tax.”

(7) In section 535 of that Act (relief where copyright sold after ten years or more), the following shall cease to have effect, namely—

(a) in subsection (4), the words “Subject to subsection (5) below”;

(b) subsections (5) and (7); and

(c) in subsection (6), the words from “unless the author” to the end.

(8) After subsection (8) of that section there shall be inserted the following subsection—

“(8A) No claim for relief made under subsection (1) above shall be allowed unless it is made within one year from the 31st January next following the year of assessment in which the payment is receivable; and for the purposes of this subsection a payment shall be regarded as receivable in the year of assessment in computing the amount of the profits or gains of which it would, but for this section, be included.”

(9) For subsection (5) of section 537A of that Act (relief for payments in respect of designs) there shall be substituted the following subsections—

“(5) A claim under this section with respect to any payment to which it applies by virtue only of subsection (4)(b) above—

(a) shall have effect as a claim with respect to all qualifying payments, that is to say, all such payments in respect of rights in the design in question which are receivable by the claimant, whether before or after the claim; and

(b) where qualifying payments are so receivable in two or more years of assessment, shall be treated for the purposes of the Management Act as if it were two or more separate claims, each in respect of the qualifying payments receivable in one of those years.

(5A) A claim under this section may be made at any time within one year from the 31st January next following—

(a) in the case of such a claim as is mentioned in subsection (5) above, the latest year of assessment in which a qualifying payment is receivable; and

(b) in the case of any other claim, the year of assessment in which the payment in question is receivable.

(5B) For the purposes of subsections (5) and (5A) above, a payment shall be regarded as receivable in the year of assessment in computing the amount of the profits or gains of which it would, but for this section, be included.”

(10) After subsection (3) of section 538 of that Act (relief for painters, sculptors and other artists) there shall be inserted the following subsection—

“(4) No claim for relief made under subsection (1) above shall be allowed unless it is made within one year from the 31st January next following the year of assessment in which the payment is receivable; and for the purposes of this subsection a payment shall be regarded as receivable in the year of assessment in computing the amount of the profits or gains of which it would, but for this section, be included.”

(11) This section (except subsections (1)(b) and (6) above) and Schedule 17 to this Act have effect as respects claims made (or deemed to be made) in relation to the year 1996-97 or later years of assessment.

(12) Subsection (1)(b) above has effect as respects claims made in relation to the year 1997-98 or later years of assessment.

129 Claims for medical insurance and vocational training relief

(1) Nothing in section 42 of the [1970 c. 9.] Taxes Management Act 1970 (procedure for making claims etc.), or Schedule 1A to that Act (claims etc. not included in returns), shall apply in relation to—

(a) any claim under subsection (6)(b) of section 54 (medical insurance relief) of the [1989 c. 26.] Finance Act 1989 (“the 1989 Act”); or

(b) any claim under subsection (5)(b) of section 32 (vocational training relief) of the [1991 c. 31.] Finance Act 1991 (“the 1991 Act”).

(2) In section 54(6)(b) of the 1989 Act and section 32(5)(b) of the 1991 Act, after the words “on making a claim” there shall be inserted the words “in accordance with regulations”.

(3) In section 57(1) of the 1989 Act (medical insurance relief: supplementary), after paragraph (a) there shall be inserted the following paragraph—

“(aa) make provision for and with respect to appeals against a decision of an officer of the Board or the Board with respect to a claim under section 54(6)(b) above;”.

(4) In section 33(1) of the 1991 Act (vocational training relief: supplementary), after paragraph (a) there shall be inserted the following paragraph—

“(aa) make provision for and with respect to appeals against a decision of an officer of the Board or the Board with respect to a claim under section 32(5)(b) above;”.

(5) Subsection (1)(a) above shall not apply in relation to claims made before the coming into force of regulations made by virtue of section 57(1)(aa) of the 1989 Act.

(6) Subsection (1)(b) above shall not apply in relation to claims made before the coming into force of regulations made by virtue of section 33(1)(aa) of the 1991 Act.

130 Procedure for giving notices

(1) Section 42 of, and Schedule 1A to, the Taxes Management Act 1970, as they have effect—

(a) for the purposes of income tax and capital gains tax, as respects the year 1996-97 and subsequent years of assessment, and

(b) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions),

shall be amended in accordance with the following provisions of this section.

(2) In subsection (7) of section 42 (which contains a list of provisions, claims under which must be made in accordance with subsection (6)) the following words shall cease to have effect, that is to say—

(a) in paragraph (a), “62A,” and “401,”; and

(b) in paragraph (c), “30,”, “33,”, “48, 49,” and “124A,”.

(3) In subsection (10) of that section (section 42 to apply in relation to elections and notices as it applies in relation to claims) the words “and notices” shall cease to have effect.

(4) In subsection (11) of that section (Schedule 1A to apply as respects any claim, election or notice made otherwise than in a return under section 8 etc) for the words “, election or notice” there shall be substituted “or election”.

(5) In paragraph 1 of Schedule 1A (claims etc. not included in returns), in the definition of “claim”, for the words “means a claim, election or notice” there shall be substituted “means a claim or election”.

131 Interest on overdue tax

(1) Section 110 of the [1995 c. 4.] Finance Act 1995 (interest on overdue tax) shall be deemed to have been enacted with the insertion after subsection (3) of the following subsection—

“(4) So far as it relates to partnerships whose trades, professions or businesses were set up and commenced before 6th April 1994, subsection (1) above has effect as respects the year 1997-98 and subsequent years of assessment.”

(2) In subsection (3) of section 86 of the [1970 c. 9.] Taxes Management Act 1970 (which was substituted by the said section 110), for the words “section 93” there shall be substituted the words “section 92”.

(3) In Schedule 19 to the [1994 c. 9.] Finance Act 1994, paragraph 23 (which is superseded by the said section 110) shall cease to have effect.

132 Overdue tax and excessive payments by the Board

Schedule 18 to this Act (which amends enactments relating to overdue tax or excessive payments by the Board) shall have effect.

133 Claims and enquiries

Schedule 19 to this Act (which, for purposes connected with self-assessment, further amends provisions relating to claims and enquiries) shall have effect.

134 Discretions exercisable by the Board etc

(1) Schedule 20 to this Act (which in connection with self-assessment modifies enactments by virtue of which a decision or other action affecting an assessment may be or is required to be taken by the Board, or one of their officers, before the making of the assessment) shall have effect.

(2) Subject to subsection (3) below, the amendments made by that Schedule shall have effect—

(a) for the purposes of income tax and capital gains tax, as respects the year 1996-97 and subsequent years of assessment; and

(b) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

(3) Paragraphs 22 and 23 of that Schedule shall have effect in relation to shares issued on or after 6th April 1996.

135 Time limits for claims etc

(1) Schedule 21 to this Act (which in connection with self-assessment modifies enactments which impose time limits on the making of claims, elections, adjustments and assessments and the giving of notices, and enactments which provide for the giving of notice to the inspector) shall have effect.

(2) Subject to subsections (3) to (5) below, the amendments made by that Schedule shall have effect—

(a) for the purposes of income tax and capital gains tax, as respects the year 1996-97 and subsequent years of assessment; and

(b) for the purposes of corporation tax, as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

(3) The amendments made to the [1990 c. 1.] Capital Allowances Act 1990 and the Finance Act 1994 by that Schedule, in their application to trades, professions or vocations set up and commenced before 6th April 1994, shall (so far as relating to income tax) have effect as respects the year 1997-98 and subsequent years of assessment.

(4) The Capital Allowances Act 1990, as it has effect for the year 1996-97 in relation to trades, professions or vocations set up and commenced before 6th April 1994, shall (so far as relating to income tax) have effect as respects that year with the following modifications, that is to say, as if—

(a) in sections 25(3)(c), 30(1), 31(3) and 33(1) and (4), for “two years after the end of” there were substituted “the first anniversary of the 31st January next following”;

(b) in section 37(2)(c), for “more than two years after the end of the chargeable period or its basis period” there were substituted “later than the first anniversary of the 31st January next following the year of assessment in which ends the basis period”;

(c) in section 53(2), for “before the expiry of the period of two years beginning at the end of” there were substituted “on or before the first anniversary of the 31st January next following”;

(d) in section 68(5), for “two years after the end of that period” there were substituted “the first anniversary of the 31st January next following the year of assessment in which the relevant period ends”;

(e) in section 68(9A)(b), for “two years after the end of” there were substituted “the first anniversary of the 31st January next following the year of assessment in which ends”;

(f) in section 129(2), for “not more than two years after the end of” there were substituted “on or before the first anniversary of the 31st January next following”;

(g) in section 141(3), for “the inspector not later than two years after the end of” there were substituted “an officer of the Board on or before the first anniversary of the 31st January next following”.

(5) Section 118 of the [1994 c. 9.] Finance Act 1994, as it has effect for the year 1996-97 in relation to trades, professions or vocations set up and commenced before 6th April 1994, shall (so far as relating to income tax) have effect as respects that year as if, in subsection (3), for “two years after the end of” there were substituted “the first anniversary of the 31st January next following”.

136 Appeals

Schedule 22 to this Act (which makes provision, in connection with self-assessment, about appeals) shall have effect.

Companies

137 Schedules 13 and 16 to the Taxes Act 1988

(1) Schedule 23 to this Act shall have effect.

(2) The amendments made by that Schedule shall have effect as respects return periods ending on or after the appointed day for the purposes of Chapter III of Part IV of the [1994 c. 9.] Finance Act 1994.

(3) In subsection (2) above “return period” means—

(a) so far as relating to Schedule 13 to the Taxes Act 1988, a period for which a return is required to be made under paragraph 1 of that Schedule; and

(b) so far as relating to Schedule 16 to that Act, a period for which a return is required to be made under paragraph 2 of that Schedule.

138 Accounting periods

Schedule 24 to this Act (which makes provision, in connection with self-assessment, in relation to accounting periods) shall have effect.

139 Surrenders of advance corporation tax

Schedule 25 to this Act (which makes provision, in connection with self-assessment, about surrenders of advance corporation tax) shall have effect.

Chargeable gains

140 Transfer of company’s assets to investment trust

(1) In section 101 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (transfer of company’s assets to investment trust) after subsection (1) there shall be inserted—

“(1A) Any chargeable gain or allowable loss which, apart from this subsection, would accrue to the company on the sale referred to in subsection (1) above shall be treated as accruing to the company immediately before the end of the last accounting period to end before the beginning of the accounting period mentioned in that subsection.”

(2) This section shall have effect as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

141 Roll-over relief

(1) In subsection (4) of section 152 of the Taxation of Chargeable Gains Act 1992 (roll-over relief)—

(a) after the word “making” there shall be inserted the words “or amending”; and

(b) after the word “assessments”, in the second place where it occurs, there shall be inserted the words “or amendments”.

(2) After section 153 of that Act there shall be inserted the following section—

“153A Provisional application of sections 152 and 153

(1) This section applies where a person carrying on a trade who for a consideration disposes of, or of his interest in, any assets (“the old assets”) declares, in his return for the chargeable period in which the disposal takes place—

(a) that the whole or any specified part of the consideration will be applied in the acquisition of, or of an interest in, other assets (“the new assets”) which on the acquisition will be taken into use, and used only, for the purposes of the trade;

(b) that the acquisition will take place as mentioned in subsection (3) of section 152; and

(c) that the new assets will be within the classes listed in section 155.

(2) Until the declaration ceases to have effect, section 152 or, as the case may be, section 153 shall apply as if the acquisition had taken place and the person had made a claim under that section.

(3) The declaration shall cease to have effect as follows—

(a) if and to the extent that it is withdrawn before the relevant day, or is superseded before that day by a valid claim made under section 152 or 153, on the day on which it is so withdrawn or superseded; and

(b) if and to the extent that it is not so withdrawn or superseded, on the relevant day.

(4) On the declaration ceasing to have effect in whole or in part, all necessary adjustments—

(a) shall be made by making or amending assessments or by repayment or discharge of tax; and

(b) shall be so made notwithstanding any limitation on the time within which assessments or amendments may be made.

(5) In this section “the relevant day” means—

(a) in relation to capital gains tax, the third anniversary of the 31st January next following the year of assessment in which the disposal of, or of the interest in, the old assets took place;

(b) in relation to corporation tax, the fourth anniversary of the last day of the accounting period in which that disposal took place.

(6) Subsections (6), (8), (10) and (11) of section 152 shall apply for the purposes of this section as they apply for the purposes of that section.”

(3) In section 175 of that Act (replacement of business assets by members of a group)—

(a) in subsections (2A) and (2B), after the words “Section 152” there shall be inserted the words “or 153”; and

(b) in subsection (2C), for the words “Section 152 shall not” there shall be substituted the words “Neither section 152 nor section 153 shall”.

(4) In section 246 of that Act (time of disposal or acquisition), the words from “or, if earlier” to the end shall cease to have effect.

(5) In subsection (5)(b) of section 247 of that Act (roll-over relief on compulsory acquisition), for the words “subsection (3)” there shall be substituted the words “subsections (3) and (4)”.

(6) After that section there shall be inserted the following section—

“247A Provisional application of section 247

(1) This section applies where a person who disposes of land (“the old land”) to an authority exercising or having compulsory powers declares, in his return for the chargeable period in which the disposal takes place—

(a) that the whole or any specified part of the consideration for the disposal will be applied in the acquisition of other land (“the new land”);

(b) that the acquisition will take place as mentioned in subsection (3) of section 152; and

(c) that the new land will not be land excluded from section 247(1)(c) by section 248.

(2) Until the declaration ceases to have effect, section 247 shall apply as if the acquisition had taken place and the person had made a claim under that section.

(3) For the purposes of this section, subsections (3) to (5) of section 153A shall apply as if the reference to section 152 or 153 were a reference to section 247 and the reference to the old assets were a reference to the old land.

(4) In this section “land” and “authority exercising or having compulsory powers” have the same meaning as in section 247.”

142 Premiums for leases

(1) Paragraph 3 of Schedule 8 to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (premiums for leases) shall be amended as follows.

(2) In sub-paragraph (2), for the words “for the period” to the end there shall be substituted the words “, being a premium which—

(a) is due when the sum is payable by the tenant; and

(b) where the sum is payable in lieu of rent, is in respect of the period in relation to which the sum is payable.”

(3) In sub-paragraph (3), for the words “for the period” to the end there shall be substituted the words “, being a premium which—

(a) is due when the sum is payable by the tenant; and

(b) is in respect of the period from the time when the variation or waiver takes effect to the time when it ceases to have effect.”

(4) For sub-paragraphs (4) to (6) there shall be substituted the following sub-paragraphs—

“(4) Where under sub-paragraph (2) or (3) above a premium is deemed to have been received by the landlord, that shall not be the occasion of any recomputation of the gain accruing on the receipt of any other premium, and the premium shall be regarded—

(a) in the case of a premium deemed to have been received for the surrender of a lease, as consideration for a separate transaction which is effected when the premium is deemed to be due and consists of the disposal by the landlord of his interest in the lease; and

(b) in any other case, as consideration for a separate transaction which is effected when the premium is deemed to be due and consists of a further part disposal of the freehold or other asset out of which the lease is granted.

(5) If under sub-paragraph (2) or (3) above a premium is deemed to have been received by the landlord, otherwise than as consideration for the surrender of the lease, and the landlord is a tenant under a lease the duration of which does not exceed 50 years, this Schedule shall apply—

(a) as if an amount equal to the amount of that premium deemed to have been received had been given by way of consideration for the grant of the part of the sublease covered by the period in respect of which the premium is deemed to have been paid; and

(b) as if that consideration were expenditure incurred by the sublessee and attributable to that part of the sublease under section 38(1)(b).”

(5) This section has effect as respects sums payable on or after 6th April 1996.

Chapter VI Miscellaneous provisions

Reliefs

143 Annual payments under certain insurance policies

(1) After section 580 of the Taxes Act 1988 there shall be inserted the following sections—

“580A Relief from tax on annual payments under certain insurance policies

(1) This section applies (subject to subsection (7)(b) below) in the case of any such annual payment under an insurance policy as—

(a) apart from this section, would be brought into charge under Case III of Schedule D; or

(b) is equivalent to a description of payment brought into charge under Case III of that Schedule but (apart from this section) would be brought into charge under Case V of that Schedule.

(2) Subject to the following provisions of this section, the annual payment shall be exempt from income tax if—

(a) it constitutes a benefit provided under so much of an insurance policy as provides insurance against a qualifying risk;

(b) the provisions of the policy by which insurance is provided against that risk are self-contained (within the meaning of section 580B);

(c) the only annual payments relating to that risk for which provision is made by that policy are payments in respect of a period throughout which the relevant conditions of payment are satisfied; and

(d) at all times while the policy has contained provisions relating to that risk, those provisions have been of a qualifying type.

(3) For the purposes of this section and section 580B a qualifying risk is any risk falling within either of the following descriptions, that is to say—

(a) a risk that the insured will (or will in any specified way) become subject to, or to any deterioration in a condition resulting from, any physical or mental illness, disability, infirmity or defect;

(b) a risk that circumstances will arise as a result of which the insured will cease to be employed or will cease to carry on any trade, profession or vocation carried on by him.

(4) For the purposes of this section the relevant conditions of payment are satisfied in relation to payments under an insurance policy for so long as any of the following continues, that is to say—

(a) an illness, disability, infirmity or defect which is insured against by the relevant part of the policy, and any related period of convalescence or rehabilitation;

(b) any period during which the insured is, in circumstances insured against by the relevant part of the policy, either unemployed or not carrying on a trade, profession or vocation;

(c) any period during which the income of the insured (apart from any benefits under the policy) is less, in circumstances so insured against, than it would have been if those circumstances had not arisen; or

(d) any period immediately following the end, as a result of the death of the insured, of any period falling within any of paragraphs (a) to (c) above;

and in this subsection “the relevant part of the policy” means so much of it as relates to insurance against one or more risks mentioned in subsection (3) above.

(5) For the purposes of subsection (2)(d) above provisions relating to a qualifying risk are of a qualifying type if they are of such a description that their inclusion in any policy of insurance containing provisions relating only to a comparable risk would (apart from any reinsurance) involve the possibility for the insurer that a significant loss might be sustained on the amounts payable by way of premiums in respect of the risk, taken together with any return on the investment of those amounts.

(6) An annual payment shall not be exempt from income tax under this section if it is paid in accordance with a contract the whole or any part of any premiums under which have qualified for relief for the purposes of income tax by being deductible either—

(a) in the computation of the insured’s income from any source; or

(b) from the insured’s income.

(7) Where a person takes out any insurance policy wholly or partly for the benefit of another and that other person pays or contributes to the payment of the premiums under that policy, then to the extent only that the benefits under the policy are attributable, on a just and reasonable apportionment, to the payments or contributions made by that other person—

(a) that other person shall be treated for the purposes of this section and section 580B as the insured in relation to that policy;

(b) this section shall have effect in relation to those benefits, so far as comprised in payments to that other person or his spouse, as if the reference in subsection (1)(a) above to Case III of Schedule D included a reference to Schedule E; and

(c) subsection (6) above shall have effect as if the references to the premiums under the policy were references only to the payments or contributions made by that other person in respect of the premiums.

(8) Where—

(a) payments are made to or in respect of any person (“the beneficiary”) under any insurance policy (“the individual policy”),

(b) the rights under the individual policy in accordance with which the payments are made superseded, with effect from the time when another policy ((“the employer’s policy”) ceased to apply to that person, any rights conferred under that other policy,

(c) the employer’s policy is or was a policy entered into wholly or partly for the benefit of persons holding office or employment under any person (“the employer”) against risks falling within subsection (3)(a) above,

(d) the individual policy is one entered into in pursuance of, or in accordance with, any provisions contained in the employer’s policy, and

(e) the beneficiary has ceased to hold office or employment under the employer as a consequence of the occurrence of anything insured against by so much of the employer’s policy as related to risks falling within subsection (3)(a) above,

this section shall have effect as if the employer’s policy and the individual policy were one policy.

(9) In the preceding provisions of this section references to the insured, in relation to any insurance policy, include references to—

(a) the insured’s spouse; and

(b) in the case of a policy entered into wholly or partly for purposes connected with the meeting of liabilities arising from an actual or proposed transaction identified in the policy, any person on whom any of those liabilities will fall jointly with the insured or his spouse.

(10) References in this section and section 580B to insurance against a risk include references to any insurance for the provision (otherwise than by way of indemnity) of any benefits against that risk, and references to what is insured against by a policy shall be construed accordingly.

580B Meaning of “self-contained” for the purposes of s.580A

(1) For the purposes of section 580A the provisions of an insurance policy by which insurance is provided against a qualifying risk are self-contained unless subsection (2) or (3) below applies to the provisions of that policy so far as they relate to that risk; but, in determining whether either of those subsections so applies, regard shall be had to all the persons for whose benefit insurance is provided by that policy against that risk.

(2) This subsection applies to the provisions of an insurance policy so far as they relate to a qualifying risk if—

(a) that insurance policy contains provision for the payment of benefits other than those relating to that risk;

(b) the terms of the policy so far as they relate to that risk, or the manner in which effect is given to those terms, would have been significantly different if the only benefits under the policy had been those relating to that risk; and

(c) that difference is not one relating exclusively to the fact that the amount of benefits receivable by or in respect of any person under the policy is applied for reducing the amount of other benefits payable to or in respect of that person under the policy.

(3) This subsection applies to the provisions of an insurance policy (“the relevant policy”) so far as they relate to a qualifying risk if—

(a) the insured under that policy is, or has been, the insured under one or more other policies;

(b) that other policy, or each of those other policies, is in force or has been in force at a time when the relevant policy was in force or at the time immediately before the relevant policy was entered into;

(c) the terms of the relevant policy so far as relating to that risk, or the manner in which effect is given to those terms, would have been significantly different if the other policy or policies had not been entered into; and

(d) that difference is not one relating exclusively to the fact that the amount of benefits receivable by or in respect of any person under the other policy, or any of the other policies, is applied for reducing the amount of benefits payable to or in respect of that person under the relevant policy.

(4) In subsections (2)(b) and (3)(c) above the references to the terms of a policy so far as they relate to a risk include references to the terms fixing any amount payable by way of premium or otherwise in respect of insurance against that risk.”

(2) This section has effect for the year 1996-97 and subsequent years of assessment in relation to—

(a) any payment which under the policy in question falls to be paid at any time on or after 6th April 1996; and

(b) any payment not falling within paragraph (a) above in relation to which the conditions mentioned in subsection (3)(a) and (b) below are satisfied.

(3) This section shall also be deemed to have had effect for earlier years of assessment in relation to any payment in relation to which the following conditions are satisfied, that is to say—

(a) the payment was made under a policy in relation to which the requirements of subsection (4) below were fulfilled; and

(b) the policy in question provided for the right to annual payments under the policy to cease when all the liabilities in question were discharged.

(4) The requirements of this subsection are fulfilled in relation to any policy if—

(a) the only or main purpose of the insurance under the policy was to secure that the insured would be able to meet (in whole or in part) liabilities that would or might arise from any transaction;

(b) the policy expressly identified the transaction or, as the case may be, all the transactions (whether actual or proposed) by reference to which the insurance was taken out; and

(c) none of the transactions which would or might give rise to the liabilities mentioned in paragraph (a) above could be one entered into after any of the circumstances insured against arose.

(5) In subsection (4) above “transaction” includes any arrangements for the provision of credit or for the supply of services to residential premises.

144 Vocational training

(1) Section 32 of the [1991 c. 31.] Finance Act 1991 (vocational training relief) shall be amended in accordance with the following provisions of this section.

(2) In subsection (1) (application of section) for paragraph (ca) (individual has attained school leaving age etc at time of paying for the course) there shall be substituted—

“(ca) at the time the payment is made, the individual—

(i) in a case where the qualifying course of vocational training is such a course by virtue only of paragraph (b) of subsection (10) below, has attained the age of thirty, or

(ii) in any other case, has attained school-leaving age and, if under the age of nineteen, is not a person who is being provided with full-time education at a school,”.

(3) For subsection (10) (meaning of “qualifying course of vocational training”) there shall be substituted—

“(10) In this section “qualifying course of vocational training” means—

(a) any programme of activity capable of counting towards a qualification—

(i) accredited as a National Vocational Qualification by the National Council for Vocational Qualifications; or

(ii) accredited as a Scottish Vocational Qualification by the Scottish Vocational Education Council; or

(b) any course of training which—

(i) satisfies the conditions set out in the paragraphs of section 589(1) of the Taxes Act 1988 (qualifying courses of training etc),

(ii) requires participation on a full-time or substantially full-time basis, and

(iii) extends for a period which consists of or includes four consecutive weeks,

but treating any time devoted to study in connection with the course as time devoted to the practical application of skills or knowledge.”

(4) This section applies to payments made on or after 6th May 1996.

145 Personal reliefs for non-resident EEA nationals

(1) In section 278(2)(a) of the Taxes Act 1988 (exclusion of non-residents from entitlement to personal reliefs not to apply to Commonwealth citizens or citizens of the Republic of Ireland), for “a citizen of the Republic of Ireland” there shall be substituted “an EEA national”.

(2) After subsection (8) of that section (claims to be made to the Board) there shall be added the following subsection—

“(9) In this section “EEA national” means a national of any State, other than the United Kingdom, which is a Contracting Party to the Agreement on the European Economic Area signed at Oporto on 2nd May 1992, as adjusted by the Protocol signed at Brussels on 17th March 1993.”

(3) This section has effect for the year 1996-97 and subsequent years of assessment.

146 Exemptions for charities

(1) Section 505(1) of the Taxes Act 1988 (exemptions for charities) shall be amended as follows.

(2) For paragraph (a) (rents etc.) there shall be substituted the following paragraph—

“(a) exemption from tax under Schedules A and D in respect of any profits or gains arising in respect of rents or other receipts from an estate, interest or right in or over any land (whether situated in the United Kingdom or elsewhere) to the extent that the profits or gains—

(i) arise in respect of rents or receipts from an estate, interest or right vested in any person for charitable purposes; and

(ii) are applied to charitable purposes only;”.

(3) For sub-paragraph (ii) of paragraph (c) (yearly interest and annual payments) there shall be substituted the following sub-paragraphs—

“(ii) from tax under Case III of Schedule D,

(iia) from tax under Case IV or V of Schedule D in respect of income equivalent to income chargeable under Case III of that Schedule but arising from securities or other possessions outside the United Kingdom,

(iib) from tax under Case V of Schedule D in respect of income consisting in any such dividend or other distribution of a company not resident in the United Kingdom as would be chargeable to tax under Schedule F if the company were so resident, and”.

(4) In paragraph (e) (trading profits), after “by a charity” there shall be inserted “(whether in the United Kingdom or elsewhere)”.

(5) This section has effect—

(a) for the purposes of income tax, for the year 1996-97 and subsequent years of assessment; and

(b) for the purposes of corporation tax, in relation to accounting periods ending after 31st March 1996.

147 Withdrawal of relief for Class 4 contributions

(1) In section 617 of the Taxes Act 1988 (social security benefits and contributions), subsection (5) (relief for Class 4 contributions) shall cease to have effect.

(2) In consequence of the provision made by subsection (1) above, in paragraph 3(2) of Schedule 2 to—

(a) the [1992 c. 4.] Social Security Contributions and Benefits Act 1992, and

(b) the [1992 c. 7.] Social Security Contributions and Benefits (Northern Ireland) Act 1992,

the words “(e) section 617(5) (relief for Class 4 contributions);” shall be omitted.

(3) This section shall have effect in relation to the year 1996-97 and subsequent years of assessment.

148 Mis-sold personal pensions etc

(1) Income tax shall not be chargeable on any payment falling within subsection (3) or (5) below.

(2) Receipt of a payment falling within subsection (3) below shall not be regarded for the purposes of capital gains tax as the disposal of an asset.

(3) A payment falls within this subsection if it is a capital sum by way of compensation for loss suffered, or reasonably likely to be suffered, by a person in a case where that person, or some other person, acting in reliance on bad investment advice at least some of which was given during the period beginning with 29th April 1988 and ending with 30th June 1994,—

(a) has, while eligible, or reasonably likely to become eligible, to be a member of an occupational pension scheme, instead become a member of a personal pension scheme or entered into a retirement annuity contract;

(b) has ceased to be a member of, or to pay contributions to, an occupational pension scheme and has instead become a member of a personal pension scheme or entered into a retirement annuity contract;

(c) has transferred to a personal pension scheme accrued rights of his under an occupational pension scheme; or

(d) has ceased to be a member of an occupational pension scheme and has instead (by virtue of such a provision as is mentioned in section 591(2)(g) of the Taxes Act 1988) entered into arrangements for securing relevant benefits by means of an annuity contract.

(4) A payment chargeable to income tax apart from subsection (1) above may nevertheless be regarded as a capital sum for the purpose of determining whether it falls within subsection (3) above.

(5) A payment falls within this subsection if and to the extent that it is a payment of interest, on the whole or any part of a capital sum such as is mentioned in subsection (3) above, for a period ending on or before the earliest date on which a determination (whether or not subsequently varied on an appeal or in any other proceedings) of the amount of the particular capital sum in question is made, whether by agreement or by a decision of—

(a) a court, tribunal or commissioner,

(b) an arbitrator or (in Scotland) arbiter, or

(c) any other person appointed for the purpose.

(6) In this section—

• “bad investment advice” means investment advice in respect of which an action against the person who gave it has been, or may be, brought—

  (a)

  in or for negligence;

  (b)

  for breach of contract;

  (c)

  by reason of a breach of a fiduciary obligation; or

  (d)

  by reason of a contravention which is actionable under section 62 of the [1986 c. 60.] Financial Services Act 1986;

• “investment advice” means advice such as is mentioned in paragraph 15 of Schedule 1 to the [1986 c. 60.] Financial Services Act 1986;

• “occupational pension scheme” means—

  (a)

  a scheme approved, or being considered for approval, under Chapter I of Part XIV of the Taxes Act 1988 (retirement benefit schemes);

  (b)

  a relevant statutory scheme, as defined in section 611A(1) of that Act; or

  (c)

  a fund to which section 608 of that Act applies (superannuation funds approved before 6th April 1980 etc);

• “personal pension scheme” has the meaning given by section 630(1) of the Taxes Act 1988;

• “relevant benefits” has the meaning given by section 612(1) of the Taxes Act 1988;

• “retirement annuity contract” means a contract made before 1st July 1988 and approved by the Board under or by virtue of any provision of Chapter III of Part XIV of the Taxes Act 1988.

(7) This section shall have effect, and be taken always to have had effect, in relation to any payment falling within subsection (3) or (5) above, whether made before or after the passing of this Act.

149 Annual payments in residuary cases

(1) Section 347A of the Taxes Act 1988 (annual payments not a charge on the income of a payer) shall apply to any payment made on or after 6th April 1996—

(a) in pursuance of any obligation which falls within section 36(4)(a) of the [1988 c. 39.] Finance Act 1988 (existing obligations under certain court orders), and

(b) for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 before 6th April 1994,

as if that obligation were not an existing obligation within the definition contained in section 36(4) of the Finance Act 1988.

(2) Subsection (1) above does not apply to any payment to which section 38 of the Finance Act 1988 (treatment of certain maintenance payments under existing obligations) applies.

150 Income tax exemption for periodical payments of damages and compensation for personal injury

(1) The sections set out in Schedule 26 to this Act shall be inserted after section 329 of the [1995 c. 4.] Taxes Act 1988.

(2) The first of those sections supersedes sections 329A and 329B inserted by the Finance Act 1995 and applies to payments received after the passing of this Act irrespective of when the agreement or order referred to in that section was made or took effect.

(3) Subsections (1) and (2) of the second of those sections supersede section 329C inserted by the [1995 c. 53.] Criminal Injuries Compensation Act 1995 and apply to payments received after the passing of that Act.

(4) The repeal of sections 329A and 329B does not affect the operation of those sections in relation to payments received before the passing of this Act.

Taxation of benefits

151 Benefits under pilot schemes

(1) The Treasury may by order make provision for the Income Tax Acts to have effect in relation to any amount of benefit payable by virtue of a Government pilot scheme as if it was, as they think fit, either—

(a) wholly or partly exempt from income tax and, accordingly, to be disregarded in computing the amount of any receipts brought into account for income tax purposes; or

(b) to the extent specified in the order, to be brought into account for the purposes of income tax as income of a description so specified or as a receipt of a description so specified.

(2) The Treasury may by order provide for any amount of benefit payable by virtue of a Government pilot scheme to be left out of account, to the extent specified in the order, in the determination for the purposes of section 153 of the [1990 c. 1.] Capital Allowances Act 1990 (subsidies etc.) of how far any expenditure has been or is to be met directly or indirectly by the Crown or by an authority or person other than the person actually incurring it.

(3) In this section “Government pilot scheme” means any arrangements (whether or not contained in a scheme) which—

(a) are made, under any enactment or otherwise, by the Secretary of State or any Northern Ireland department;

(b) make provision for or about the payment of amounts of benefit either—

(i) for purposes that are similar to those for which any social security or comparable benefit is payable; or

(ii) for purposes connected with the carrying out of any functions of the Secretary of State or any such department in relation to employment or training for employment;

(c) are arrangements relating to a temporary experimental period; and

(d) are made wholly or partly for the purpose of facilitating a decision as to whether, or to what extent, it is desirable for provision to be made on a permanent basis for or in relation to any benefit.

(4) In subsection (3)(b) above the reference to making provision for or about the payment of amounts of benefit for purposes that are similar to those for which any social security or comparable benefit is payable shall include a reference to making provision by virtue of which there is a modification of the conditions of entitlement to, or the conditions for the payment of, an existing social security or comparable benefit.

(5) An order under this section may—

(a) make different provision for different cases, and

(b) contain such incidental, supplemental, consequential and transitional provision (including provision modifying provision made by or under the Income Tax Acts) as the Treasury may think fit.

(6) In this section “benefit” includes any allowance, grant or other amount the whole or any part of which is payable directly or indirectly out of public funds.

(7) The power to make an order under this section—

(a) shall be exercisable for the year 1996-97 and subsequent years of assessment; and

(b) so far as exercisable for the year 1996-97, shall be exercisable in relation to benefits, allowances and other amounts paid at times on or after 6th April 1996 but before the making of the order.

(8) The Treasury shall not make an order under this section containing any such provision as is mentioned in subsection (1)(b) above unless a draft of the order has been laid before, and approved by a resolution of, the House of Commons.

152 Jobfinder’s grant

(1) The Income Tax Acts shall have effect, and be deemed always to have had effect, as if jobfinder’s grant were exempt from income tax and, accordingly, were to be disregarded in computing the amount of any receipts brought into account for income tax purposes.

(2) In this section “jobfinder’s grant” means grant paid under that name by virtue of arrangements made in pursuance of section 2 of the [1973 c. 50.] Employment and Training Act 1973 or section 1 of the [1950 c. 29 (N.I.).] Employment and Training Act (Northern Ireland) 1950 (arrangements for assisting persons to select, train for, obtain or retain employment).

Investments

153 Foreign income dividends

Schedule 27 to this Act (which makes provision relating to foreign income dividends) shall have effect.

154 FOTRA securities

(1) The modifications which, under section 60 of the [1940 c. 29.] Finance Act 1940, may be made for the purposes of any issue of securities to the conditions about tax exemption specified in section 22 of the [1931 c. 49.] Finance (No. 2) Act 1931 shall include a modification by virtue of which the tax exemption contained in any condition of the issue applies, as respects capital, irrespective of where the person with the beneficial ownership of the securities is domiciled.

(2) Subject to subsections (3) to (5) below, nothing in the Tax Acts shall impose any charge to tax on any person in respect of so much of any profits or gains arising from a FOTRA security, or from any loan relationship represented by a FOTRA security, as is expressed to be exempt from tax in the tax exemption condition applying to that security.

(3) Exemption from tax shall not be conferred by virtue of subsection (2) above in relation to any security unless the requirements imposed as respects that exemption by the conditions with which the security is issued (including any requirement as to the making of a claim) are complied with.

(4) The tax exemption condition of a FOTRA security shall not be taken to confer any exemption from any charge to tax imposed by virtue of the provisions of Chapter IA of Part XV or Chapter III of Part XVII of the Taxes Act 1988 (anti-avoidance provisions for residents etc.)

(5) Nothing in this section shall entitle any person to any repayment of tax which he has not claimed within the time limit which would be applicable under the Tax Acts (apart from this section) to a claim for the repayment of that tax.

(6) A person with the beneficial ownership of a FOTRA security who would, by virtue of this section, be exempt from tax in respect of some or all of the profits and gains arising from that security, or from any loan relationship represented by it, shall not be entitled for the purposes of income tax or corporation tax to bring into account any amount—

(a) in respect of changes in the value of that security;

(b) as expenses or disbursements incurred in, or in connection with, the holding of the security or any transaction relating to the security; or

(c) as a debit given, in respect of any loan relationship represented by that security, by any provision of Chapter II of this Part of this Act in respect of such a relationship.

(7) Schedule 28 to this Act (which contains amendments consequential on the provisions of this section) shall have effect.

(8) References in this section to a FOTRA security are references to—

(a) any security issued with such a condition about exemption from taxation as is authorised in relation to its issue by virtue of section 22 of the [1931 c. 49.] Finance (No. 2) Act 1931; or

(b) any 3½% War Loan 1952 Or After which was issued with a condition authorised by virtue of section 47 of the [1915 c. 89.] Finance (No. 2) Act 1915;

and references, in relation to such a security, to the tax exemption condition shall be construed accordingly.

(9) This section and Schedule 28 to this Act shall have effect—

(a) for the purposes of income tax, for the year 1996-97 and subsequent years of assessment; and

(b) for the purposes of corporation tax, for accounting periods ending after 31st March 1996.

155 Directions for payment without deduction of tax

After section 51 of the Taxes Act 1988 there shall be inserted the following section—

“51AA Commencement of direction under section 50 or 51

A direction under section 50 or 51 that any security shall be deemed to have been issued subject to the condition that the interest thereon shall be paid without deduction of tax may provide that the direction is to have effect in relation only to payments of interest made on or after such date as may be specified in the direction.”

156 Paying and collecting agents etc

Schedule 29 to this Act (which amends the rules relating to paying and collecting agents) shall have effect.

157 Stock lending fees

(1) After section 129A of the Taxes Act 1988 (interest on cash collateral paid in connection with stock lending arrangements) there shall be inserted the following section—

“129B Stock lending fees

(1) The income which, as income deriving from investments of a description specified in any of the relevant provisions, is eligible for relief from tax by virtue of that provision shall be taken to include any relevant stock lending fee.

(2) For the purposes of this section the relevant provisions are sections 592(2), 608(2)(a), 613(4), 614(3), 620(6) and 643(2).

(3) In this section “relevant stock lending fee”, in relation to investments of any description, means any amount, in the nature of a fee, which is payable in connection with an approved stock lending arrangement relating to investments which, but for any transfer under the arrangement, would be investments of that description.

(4) In this section “approved stock lending arrangement” has the same meaning as in Schedule 5A.”

(2) This section has effect in relation to any arrangements entered into on or after 2nd January 1996.

158 Transfers on death under the accrued income scheme

(1) In section 710(5) of the Taxes Act 1988 (meaning of “transfer” in sections 711 to 728), after “or otherwise” there shall be inserted “, but—

(a) does not include the vesting of securities in a person’s personal representatives on his death; and”.

(2) Subsection (1) of section 721 of that Act (transfer of securities on death) shall cease to have effect.

(3) For subsection (2) of that section (transfers by personal representatives to legatees) there shall be substituted—

“(2) Where—

(a) an individual who is entitled to securities dies, and

(b) in the interest period in which the individual died, the securities are transferred by his personal representatives to a legatee,

section 713 shall not apply to the transfer.”

(4) Subsection (4) of that section (interest period treated as ending with death) shall cease to have effect.

(5) This section has effect as respects deaths on or after 6th April 1996.

159 Manufactured payments, repos, etc

(1) Sections 729, 737A(2)(b) and 786(4) of the Taxes Act 1988 (provisions applying to sale and repurchase agreements) shall cease to have effect except in relation to cases where the initial agreement to sell or transfer the securities or other property was made before the appointed day.

(2) In section 737 of that Act—

(a) in subsection (5) (manufactured dividends paid to UK residents by non-residents), for the words from “a person resident in the United Kingdom” to “the United Kingdom recipient shall” there shall be substituted “a United Kingdom recipient, that recipient shall”; and

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

“(5AAA) For the purposes of subsection (5) above a person who receives a manufactured dividend is a United Kingdom recipient if—

(a) he is resident in the United Kingdom; or

(b) he is not so resident but receives that dividend for the purposes of a trade carried on through a branch or agency in the United Kingdom.”

(3) In section 737C of that Act (deemed manufactured payments), the following subsection shall be inserted after subsection (11A) in relation to cases where the initial agreement to sell the securities is made on or after the appointed day, that is to say—

“(11B) The preceding provisions of this section shall have effect in cases where paragraph 2, 3 or 4 of Schedule 23A would apply by virtue of section 737A(5) but for paragraph 5 of that Schedule as they have effect in a case where the paragraph in question is not disapplied by paragraph 5; and where—

(a) the gross amount of the deemed manufactured interest, or

(b) the gross amount of the deemed manufactured overseas dividend,

falls to be calculated in such a case under subsection (8) or (11) above, it shall be so calculated by reference to the provisions of paragraph 3 or 4 of Schedule 23A that would have applied but for paragraph 5 of that Schedule.”

(4) In sub-paragraph (3) of paragraph 4 of Schedule 23A to that Act (manufactured overseas dividends paid to UK residents by non-residents), for the words from “a person resident in the United Kingdom” to “the United Kingdom recipient shall” there shall be substituted “a United Kingdom recipient, that recipient shall”.

(5) After that sub-paragraph there shall be inserted the following sub-paragraphs—

“(3A) For the purposes of sub-paragraph (3) above a person who receives a manufactured overseas dividend is a United Kingdom recipient if—

(a) he is resident in the United Kingdom; or

(b) he is not so resident but receives that dividend for the purposes of a trade carried on through a branch or agency in the United Kingdom.

(3B) Dividend manufacturing regulations may make provision, in relation to cases falling within sub-paragraph (3) above, for the amount of tax required under that sub-paragraph to be taken to be reduced, to such extent and for such purposes as may be determined under the regulations, by reference to amounts of overseas tax charged on, or in respect of—

(a) the making of the manufactured overseas dividend; or

(b) the overseas dividend of which the manufactured overseas dividend is representative.”

(6) In sub-paragraph (7) of paragraph 4 of that Schedule (regulations for off-setting), for the words from “against” to “and account” in the words after paragraph (b) there shall be substituted “in accordance with the regulations and to the prescribed extent, amounts falling within paragraph (a) of sub-paragraph (7AA) below against the sums falling within paragraph (b) of that sub-paragraph, and to account”; and after that sub-paragraph there shall be inserted the following sub-paragraph—

“(7AA) Those amounts and sums are—

(a) amounts of overseas tax in respect of overseas dividends received by him in that chargeable period, amounts of overseas tax charged on, or in respect of, the making of manufactured overseas dividends so received by him and amounts deducted under sub-paragraph (2) above from any such manufactured overseas dividends; and

(b) the sums due from him on account of the amounts deducted by him under sub-paragraph (2) above from the manufactured overseas dividends paid by him in that chargeable period.”

(7) In sub-paragraph (1) of paragraph 8 of that Schedule (power to modify provisions of Schedule)—

(a) before the “or” at the end of paragraph (a) there shall be inserted—

“(aa) such persons who receive, or become entitled to receive, manufactured dividends, manufactured interest or manufactured overseas dividends as may be prescribed,”

and

(b) in the words after paragraph (b), for “paragraph 2, 3 or 4 above” there shall be substituted “paragraphs 2 to 5 above”.

(8) After sub-paragraph (1) of paragraph 8 of that Schedule there shall be inserted the following sub-paragraph—

“(1A) Dividend manufacturing regulations may provide, in relation to prescribed cases where a person makes or receives the payment of any amount representative of an overseas dividend, or is treated for any purposes of this Schedule or such regulations as a person making or receiving such a payment—

(a) for any entitlement of that person to claim relief under Part XVIII to be extinguished or reduced to such extent as may be found under the regulations; and

(b) for the adjustment, by reference to any provision having effect under the law of a territory outside the United Kingdom, of any amount falling to be taken, for any prescribed purposes of the Tax Acts or the 1992 Act, to be the amount paid or payable by or to any person in respect of any sale, repurchase or other transfer of the overseas securities to which the payment relates.”

(9) Subsections (2), (4) and (5) above have effect—

(a) for the purposes of corporation tax, in relation to accounting periods ending after 31st March 1996; and

(b) for the purposes of income tax, in relation to the year 1996-97 and subsequent years of assessment.

(10) In this section “the appointed day” means such day as the Treasury may by order appoint, and different days may be appointed under this subsection for different purposes.

160 Investments in housing

Schedule 30 to this Act (which makes provision conferring relief from corporation tax on companies that invest in housing) shall have effect.

161 Venture capital trusts: control of companies etc

(1) Schedule 28B to the Taxes Act 1988 (venture capital trusts: meaning of qualifying holdings) shall have effect, and be deemed always to have had effect, subject to the amendments in subsections (2) and (3) below.

(2) In paragraph 9 (requirements as to subsidiaries etc. of the relevant company), the following shall be omitted—

(a) in sub-paragraph (1), the words “subject to sub-paragraph (2) below”; and

(b) sub-paragraph (2).

(3) In paragraph 13 (interpretation), for sub-paragraphs (2) and (3) (“connected” and “control” to be construed in accordance with sections 839 and 416(2) to (6)) there shall be substituted the following sub-paragraphs—

“(2) For the purposes of paragraphs 5(2) and 9 above, the question whether a person controls a company shall be determined in accordance with subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) below.

(3) The modification is that, in determining whether a person controls a company, there shall be disregarded—

(a) his or any other person’s possession of, or entitlement to acquire, relevant fixed-rate preference shares of the company; and

(b) his or any other person’s possession of, or entitlement to acquire, rights as a loan creditor of the company.

(4) Section 839 shall apply for the purposes of this Schedule, but as if the reference in subsection (8) to section 416 were a reference to subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) above.

(5) For the purposes of sub-paragraph (3) above—

(a) relevant fixed-rate preference shares are fixed-rate preference shares that do not for the time being carry voting rights; and

(b) “fixed-rate preference shares” has the same meaning as in section 95.”

Insurance policies

162 Qualifying life insurance policies: certification

(1) Section 55 of the [1995 c. 4.] Finance Act 1995 (removal of certification requirements for qualifying policies with respect to any time on or after 5th May 1996 etc) shall have effect—

(a) with the substitution for “5th May 1996”, wherever occurring, of “the appointed date”; and

(b) with the addition of the following subsection after subsection (8)—

“(9) In this section “the appointed date” means such date as may be specified for the purpose in an order made by the Board.”

(2) In Schedule 15 to the Taxes Act 1988 (qualifying policies) paragraphs 24(2A) and 25(2) shall have effect with the substitution for “5th May 1996” of “the appointed date for the purposes of section 55 of the Finance Act 1995 (removal of certification requirements)”.

Insurance companies

163 Life assurance business losses

Schedule 31 to this Act, which makes provision about losses arising to insurance companies in the carrying on of life assurance business, shall have effect.

164 Limits on relief for expenses

(1) For subsections (2) to (5) of section 76 of the Taxes Act 1988 there shall be substituted the following subsections—

“(2) Where, in the case of any such company, the amount mentioned in paragraph (a) of subsection (2A) below exceeds for any accounting period the amount mentioned in paragraph (b) of that subsection, the amount which by virtue of this section is to be deductible by way of management expenses for that period shall be equal to the basic deduction for that period reduced by the amount of the excess.

(2A) Those amounts are—

(a) the amount which would be the profits of the company’s life assurance business for that period if computed in accordance with the provisions applicable to Case I of Schedule D and adjusted in respect of losses; and

(b) the amount (including any negative amount) produced by deducting the following aggregate amount from the company’s relevant income for that period from its life assurance business, that is to say, the aggregate of—

(i) the basic deduction,

(ii) any non-trading deficit on the company’s loan relationships which is produced for that period in relation to that business by a separate computation under paragraph 2 of Schedule 11 to the Finance Act 1996,

(iii) any amount which in pursuance of a claim under paragraph 4(3) of that Schedule is carried back to that period and (in accordance with paragraph 4(5) of that Schedule) applied in reducing profits of the company for that period, and

(iv) any charges on income for that period so far as they consist in annuities or other annual payments that are referable to the company’s life assurance business and, if they are not annuities, are payable by the company wholly or partly in satisfaction of claims under insurance policies.

(2B) For the purposes of subsection (2A) above a company’s relevant income for any accounting period from its life assurance business is the sum of the following—

(a) the income and gains of the company’s life assurance business for that accounting period; and

(b) the relevant franked investment income of the company for that period so far as it arises from assets held for the purposes of that business and is not included in the income and gains mentioned in paragraph (a) above.

(2C) The adjustment in respect of losses that is to be made for any accounting period under paragraph (a) of subsection (2A) above is a deduction of the amount equal to the unused part of the sum which—

(a) by reference to computations made in respect of the company’s life assurance business in accordance with the provisions applicable to Case I of Schedule D, and

(b) disregarding section 434A(2),

would fall, in the case of the company, to be set off under section 393 against the company’s income for that period.

(2D) For the purposes of subsection (2C) above, an amount is unused to the extent that it has not been taken into account for any previous accounting period in determining the amount by reference to which the following question was answered, namely, the question whether, and by how much, the amount deductible by virtue of this section by way of management expenses was less than the basic deduction.

(5) Subject to paragraph 4(11) to (13) of Schedule 11 to the Finance Act 1996, where the basic deduction for any period exceeds the amount which for that period is to be deductible by virtue of this section by way of management expenses, the amount to be carried forward by virtue of section 75(3) (including the amount to be so carried forward for the purpose of computing the amount of the basic deduction for any period) shall be increased by the amount of the excess.”

(2) In subsection (8) of that section—

(a) after the definition of “authorised person” there shall be inserted the following definition—

““basic deduction”, in relation to an accounting period of an insurance company, means the amount which, by virtue of this section, would be deductible by way of management expenses for that period but for subsection (2) above;”

and

(b) after the definition of “recognised self-regulating organisation” there shall be inserted the following definition—

““relevant franked investment income”, in relation to any insurance company, means any franked investment income of the company in so far as it is not income the tax credits comprised in which may be claimed by the company under section 438(4) or 441A(7);”.

(3) In paragraph 5 of Schedule 19AC to the Taxes Act 1988 (modification of section 76)—

(a) in sub-paragraph (1), in the subsection (6B) treated as inserted in section 76, for “their” there shall be substituted “its” and the words “and subsections (2) and (3)(b) above” shall be omitted; and

(b) after that sub-paragraph there shall be inserted the following sub-paragraph—

“(1A) In section 76 references to franked investment income shall be treated as being references to UK distribution income within the meaning of paragraph 5B of this Schedule.”

(4) In section 56(4) of the Taxes Act 1988 (which contains a reference to the computation required by section 76(2) of that Act), for “by” there shall be substituted “for the purposes of”.

(5) Subject to subsection (6) below, this section has effect in relation to accounting periods beginning on or after 1st January 1996.

(6) Notwithstanding anything in the previous provisions of this section, section 76 of the Taxes Act 1988 has effect in relation to accounting periods beginning on or after 1st January 1996—

(a) as if the reference in subsection (2D) of that section to a previous accounting period included a reference to an accounting period beginning before that date, and

(b) in relation to such a previous accounting period, as if the references—

(i) to the amount deductible by virtue of this section, and

(ii) to the basic deduction,

were to be construed by reference to whatever provisions had effect in relation to that previous period for purposes corresponding to those of that section as amended by this section.

165 Annual payments under insurance policies: deductions

(1) In section 337 of the Taxes Act 1988 (deductions in computing income), the following subsections shall be inserted after subsection (2)—

“(2A) In computing any profits or losses of a company in accordance with the provisions of this Act applicable to Case I of Schedule D, subsection (2)(b) above shall not prevent the deduction of any annuity or other annual payment which is payable by a company wholly or partly in satisfaction of any claim under an insurance policy in relation to which the company is the insurer.

(2B) The reference in subsection (2A) above to an annuity payable wholly or partly in satisfaction of a claim under an insurance policy shall be taken, in relation to an insurance company (within the meaning of Chapter I of Part XII), to include a reference to every annuity payable by that company; and the references in sections 338(2) and 434B(2) to an annuity paid wholly or partly as mentioned in subsection (2A) above shall be construed accordingly.”

(2) In section 338(2) of that Act, in the words after paragraph (b) (payments which are not charges on income), after “corporation tax” there shall be inserted “nor any annuity or other annual payment which (without being so deductible) is paid wholly or partly as mentioned in section 337(2A)”.

(3) In section 434B of that Act (treatment of interest and annuities in the case of insurance companies), subsection (1) shall cease to have effect; and in subsection (2), for the words from the beginning to “mentioned in subsection (1) above” there shall be substituted—

“(2) Nothing in section 337(2A) or 338(2) shall be construed as preventing any annuity or other annual payment which is paid wholly or partly as mentioned in section 337(2A)”.

(4) Subject to subsection (5) below, this section has effect in relation to accounting periods beginning on or after 1st January 1996.

(5) In relation to any accounting period beginning on or after 1st January 1996 but ending before 1st April 1996, this section shall have effect as if any reference in provisions inserted by this section to an annuity payable or paid by an insurance company included a reference to any such interest as was mentioned in section 434B(1) of the Taxes Act 1988 before its repeal by virtue of this section.

166 Equalisation reserves

Schedule 32 to this Act (which makes provision about the tax treatment of equalisation reserves maintained by insurance companies) shall have effect.

167 Industrial assurance business

(1) In section 432 of the Taxes Act 1988, subsection (2) (industrial assurance business treated as separate business for the purposes of Chapter I of Part XII) shall cease to have effect.

(2) In section 432A(2) of the Taxes Act 1988, for paragraphs (d) and (e) (different categories of basic life assurance and general annuity business, including and not including industrial assurance business), there shall be substituted the following paragraph—

“(d) basic life assurance and general annuity business; and”.

(3) In section 86 of the [1989 c. 26.] Finance Act 1989 (spreading of relief for acquisition expenses)—

(a) in subsection (1)(a), for “in respect of industrial life assurance business carried on by the company” there shall be substituted “for persons who collect premiums from house to house”; and

(b) in subsection (2), for “in respect of industrial life assurance business” there shall be substituted “for persons who collect premiums from house to house”.

(4) In section 832 of the Taxes Act 1988 (interpretation), in the definition of “industrial assurance business” for “has” there shall be substituted “means any such business carried on before the day appointed for the coming into force of section 167(4) of the Finance Act 1996 as was industrial assurance business within”.

(5) In Schedule 14 to the Taxes Act 1988 (ancillary provisions about relief in respect of life assurance premiums), in paragraph 8, at the beginning of sub-paragraph (4) (policy which is varied so as to increase benefits, etc. to be treated as issued after 13th March 1984) there shall be inserted “Subject to sub-paragraph (8) below,”.

(6) After sub-paragraph (7) of that paragraph there shall be inserted the following sub-paragraph—

“(8) Sub-paragraph (4) above does not apply in the case of a variation so as to increase the benefits secured, if the variation is made—

(a) on or after such day as the Board may by order appoint, and

(b) in consideration of a change in the method of payment of premiums from collection by a person collecting premiums from house to house to payment by a different method.”

(7) In Schedule 15 to the Taxes Act 1988 (qualifying policies)—

(a) in paragraph 1(6) (calculation of amount included in premiums of whole life and term insurances in respect of their payment otherwise than annually), for “and if the policy is issued in the course of an industrial assurance business,” there shall be substituted “and if the policy provides for payment otherwise than annually without providing for the amount of the premiums if they are paid annually,”; and

(b) in paragraph 2(2) (the equivalent calculation for endowment assurances), for “issued in the course of an industrial assurance business” there shall be substituted “that provides for the payment of premiums otherwise than annually without providing for the amount of the premiums if they are paid annually,”.

(8) After paragraph 8 of that Schedule there shall be inserted the following paragraph—

“8A(1) Paragraphs 7 and 8 above shall have effect in relation to any policy issued on or after the appointed day as if the references to the issue of a policy in the course of an industrial assurance business were references to the issue of a policy by any company in a case in which—

(a) the company, before that day and in the course of such a business, issued any policy which was a qualifying policy by virtue of either of those paragraphs; and

(b) the policies which on 28th November 1995 were being offered by the company as available to be issued included policies of the same description as the policy issued on or after the appointed day.

(2) In this paragraph “the appointed day” means such day as the Board may by order appoint.”

(9) In paragraph 18(3) of that Schedule (certain variations of a policy not to affect whether policy is a qualifying policy), after paragraph (b) there shall be inserted “or

(c) any variation so as to increase the benefits secured or reduce the premiums payable which is effected—

(i) on or after such day as the Board may by order appoint, and

(ii) in consideration of a change in the method of payment of premiums from collection by a person collecting premiums from house to house to payment by a different method.”

(10) Subsections (1) to (3) above have effect in relation to accounting periods beginning on or after 1st January 1996.

(11) Subsection (4) above shall come into force on such day as the Board may by order appoint.

(12) Subsection (7) above shall have effect in relation to policies issued on or after such day as the Board may by order appoint.

168 Capital redemption business

(1) For subsection (3) of section 458 of the Taxes Act 1988 (meaning of capital redemption business) there shall be substituted the following subsection—

“(3) In this section “capital redemption business” means any business in so far as it—

(a) is insurance business for the purposes of the [1982 c. 50.] Insurance Companies Act 1982, but not life assurance business; and

(b) consists in effecting on the basis of actuarial calculations, and carrying out, contracts under which, in return for one or more fixed payments, a sum or series of sums of a specified amount become payable at a future time or over a period.”

(2) Schedule 33 to this Act (which makes provision for the application of the I minus E basis of charging tax to companies carrying on capital redemption business) shall have effect.

(3) In Chapter I of Part XII of the Taxes Act 1988, after section 458 (capital redemption business) there shall be inserted the following section—

“458A Capital redemption business: power to apply life assurance provisions

(1) The Treasury may by regulations provide for the life assurance provisions of the Corporation Tax Acts to have effect in relation to companies carrying on capital redemption business as if capital redemption business were, or were a category of, life assurance business.

(2) Regulations under this section may provide that the provisions applied by the regulations are to have effect as respects capital redemption business with such modifications and exceptions as may be provided for in the regulations.

(3) Regulations under this section may—

(a) make different provision for different cases;

(b) include such incidental, supplemental, consequential and transitional provision (including provision modifying provisions of the Corporation Tax Acts other than the life assurance provisions) as the Treasury consider appropriate; and

(c) include retrospective provision.

(4) In this section references to the life assurance provisions of the Corporation Tax Acts are references to the following—

(a) the provisions of this Chapter so far as they relate to life assurance business or companies carrying on such business; and

(b) any other provisions of the Corporation Tax Acts making separate provision by reference to whether or not the business of a company is or includes life assurance business or any category of insurance business that includes life assurance business.

(5) In this section “capital redemption business” has the same meaning as in section 458.”

(4) In section 539(3) of that Act, in the definition of “capital redemption policy” for “insurance” there shall be substituted “contract”.

(5) In section 553(10) of that Act, in paragraph (a) of the definition of “new offshore capital redemption policy”, for “an insurance” there shall be substituted “a contract”.

(6) Subsection (1) above shall have effect as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions), and subsections (4) and (5) above shall have effect as respects contracts effected on or after that day.

169 Provisional repayments in connection with pension business

(1) Schedule 19AB to the Taxes Act 1988 (pension business: payments on account of tax credits and deducted tax) shall be amended in accordance with the provisions of Part I of Schedule 34 to this Act.

(2) Schedule 19AC to the Taxes Act 1988 (modification of that Act in relation to overseas life insurance companies) shall be amended in accordance with the provisions of Part II of Schedule 34 to this Act.

(3) The amendments made by Schedule 34 to this Act shall have effect in relation to provisional repayment periods, within the meaning of Schedule 19AB to the [1994 c. 9.] Taxes Act 1988, falling in accounting periods ending on or after the day appointed under section 199 of the Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

170 Time for amending and enquiring into returns

(1) After section 11AB of the [1970 c. 9.] Taxes Management Act 1970 there shall be inserted the following sections—

“11AC Modifications of sections 11AA and 11AB in relation to non-annual accounting of general insurance business

(1) This section applies in any case where a company carrying on insurance business in any period delivers a return for that period under section 11 of this Act which is based wholly or partly on accounts which the company is required or permitted to draw up using the method described in paragraph 52 of Schedule 9A to the [1985 c. 6.] Companies Act 1985 (accounting for general insurance business on a non-annual basis).

(2) Where this section applies, section 11AA(2) of this Act shall have effect as if after paragraph (b) there were added “and

(c1) where a company has delivered a return which is based wholly or partly on accounts drawn up as mentioned in section 11AC(1) of this Act, then, at any time before the end of the period of twelve months beginning with the date on which any particular technical provision constituted in the case of those accounts as described in paragraph 52 of Schedule 9A to the [1985 c. 6.] Companies Act 1985 is replaced as described in sub-paragraph (4) of that paragraph, the company may by notice to an officer of the Board so amend its self-assessment as to give effect to any amendments to the return—

(i) which arise from the replacement of that technical provision, and

(ii) which the company has notified to such an officer.”

(3) Where this section applies, section 11AB of this Act shall have effect—

(a) as if in subsection (1)(b) after “subsection (2)(b)” there were inserted “or (c1)”; and

(b) as if in subsection (2) for the words from “is” to the end of paragraph (b) there were substituted—

“(a1) in the case of a return (whenever delivered) which is based wholly or partly on accounts drawn up as mentioned in section 11AC(1) of this Act, is whichever of the following periods ends the later, that is to say—

(i) the period of two years beginning with the date (or, if there is more than one such date, the latest date) on which any technical provision constituted in the case of those accounts as described in paragraph 52 of Schedule 9A to the Companies Act 1985 is replaced as mentioned in sub-paragraph (4) of that paragraph; or

(ii) the period ending with the quarter day next following the first anniversary of the day on which the return was delivered; and

(b1) in the case of an amendment of such a return—

(i) if the amendment is made on or before the filing date, is the period of twelve months beginning with that date; or

(ii) if the amendment is made after that date, is the period ending with the quarter day next following the first anniversary of the day on which the amendment was made;”.

11AD Modifications of sections 11AA and 11AB for insurance companies with non-annual actuarial investigations

(1) This section applies in any case where a return under section 11 of this Act is delivered by an insurance company which is permitted by an order under section 68 of the [1982 c. 50.] Insurance Companies Act 1982 to cause investigations to be made into its financial condition less frequently than is required by section 18 of that Act.

(2) Where this section applies, section 11AA(2) of this Act shall have effect as if, after paragraph (b), there were added “and

(c2) where a company falling within section 11AD(1) of this Act has delivered a return for any period, then, at any time before the end of the period of twelve months beginning with the date as at which the relevant investigation is carried out, that is to say—

(i) if the return is for a period as at the end of which there is carried out an investigation under section 18 of the [1982 c. 50.] Insurance Companies Act 1982 into the financial condition of the company, that investigation, or

(ii) if the return is not for such a period, the first such investigation to be made into the financial condition of the company as at the end of a subsequent period,

the company may by notice to an officer of the Board so amend its self-assessment as to give effect to any amendments to its return which arise from that investigation and which the company has notified to such an officer.”

(3) Where this section applies, section 11AB of this Act shall have effect—

(a) as if in subsection (1)(b) after “subsection (2)(b)” there were inserted “or (c2)”; and

(b) as if in subsection (2) for the words from “is” to the end of paragraph (b) there were substituted—

“(a2) in the case of a return delivered at any time by a company falling within section 11AD(1) of this Act, is the period of two years beginning with the date as at which the relevant investigation, as defined in section 11AA(2)(c2) of this Act, is carried out; and

(b2) in the case of an amendment of such a return—

(i) if the amendment is made on or before the filing date, is the period of twelve months beginning with that date; or

(ii) if the amendment is made after that date, is the period ending with the quarter day next following the first anniversary of the day on which the amendment was made;”.

11AE Modifications of sections 11AA and 11AB for friendly societies with non-annual actuarial investigations

(1) This section applies in any case where a return under section 11 of this Act is delivered by a friendly society which is required by section 47 of the [1992 c. 40.] Friendly Societies Act 1992 to cause an investigation to be made into its financial condition at least once in every period of three years.

(2) Where this section applies, section 11AA(2) of this Act shall have effect as if, after paragraph (b), there were added “and

(c3) where a friendly society falling within section 11AE(1) of this Act has delivered a return for any period, then, at any time before the end of the period of fifteen months beginning with the date as at which the relevant investigation is carried out, that is to say—

(i) if the return is for a period as at the end of which there is carried out an investigation under section 47 of the [1992 c. 40.] Friendly Societies Act 1992 into the financial condition of the society, that investigation, or

(ii) if the return is not for such a period, the first such investigation to be made into the financial condition of the society as at the end of a subsequent period,

the society may by notice to an officer of the Board so amend its self-assessment as to give effect to any amendments to its return which arise from that investigation and which the society has notified to such an officer.”

(3) Where this section applies, section 11AB of this Act shall have effect—

(a) as if in subsection (1)(b) after “subsection (2)(b)” there were inserted “or (c3)”; and

(b) as if in subsection (2) for the words from “is” to the end of paragraph (b) there were substituted—

“(a3) in the case of a return delivered at any time by a friendly society falling within section 11AE(1) of this Act, is the period of twenty seven months beginning with the date as at which the relevant investigation, as defined in section 11AA(2)(c3) of this Act, is carried out; and

(b3) in the case of an amendment of such a return—

(i) if the amendment is made on or before the filing date, is the period of twelve months beginning with that date; or

(ii) if the amendment is made after that date, is the period ending with the quarter day next following the first anniversary of the day on which the amendment was made;”.”

(2) The amendment made by subsection (1) above shall have effect as respects accounting periods ending on or after the day appointed under section 199 of the [1994 c. 9.] Finance Act 1994 for the purposes of Chapter III of Part IV of that Act (self-assessment management provisions).

Friendly societies

171 Life or endowment business

(1) In section 466 of the Taxes Act 1988 (interpretation of Chapter II of Part XII) for subsection (1) (meaning of “life or endowment business”) there shall be substituted—

“(1) In this Chapter “life or endowment business” means, subject to subsections (1A) and (1B) below,—

(a) any business within Class I, II or III of Head A of Schedule 2 to the [1992 c. 40.] Friendly Societies Act 1992;

(b) pension business;

(c) any other life assurance business;

(d) any business within Class IV of Head A of that Schedule, if—

(i) the contract is one made before 1st September 1996; or

(ii) the contract is one made on or after 1st September 1996 and the effecting and carrying out of the contract also constitutes business within Class I, II or III of Head A of that Schedule.

(1A) Life or endowment business does not include the issue, in respect of a contract made before 1st September 1996, of a policy affording provision for sickness or other infirmity (whether bodily or mental), unless—

(a) the policy also affords assurance for a gross sum independent of sickness or other infirmity;

(b) not less than 60 per cent. of the amount of the premiums is attributable to the provision afforded during sickness or other infirmity; and

(c) there is no bonus or addition which may be declared or accrue upon the assurance of the gross sum.

(1B) Life or endowment business does not include the assurance of any annuity the consideration for which consists of sums obtainable on the maturity, or on the surrender, of any other policy of assurance issued by the friendly society, being a policy of assurance forming part of the tax exempt life or endowment business of the friendly society.”

(2) In subsection (2) of that section (other definitions) there shall be inserted at the appropriate places—

“(a) “insurance company” shall be construed in accordance with section 431;”; and

“(b) “long term business” shall be construed in accordance with section 431;”.

(3) In section 266 of that Act (life assurance premium relief) in subsection (6) (deduction from total income where relief given for part of certain payments to friendly societies) after paragraph (b) there shall be inserted “and

(c) the insurance or contract is not excluded by subsection (6A) below,”.

(4) After that subsection there shall be inserted—

“(6A) For the purposes of subsection (6)(c) above, an insurance or contract is excluded by this subsection if it is made on or after 1st September 1996 and affords provision for sickness or other infirmity (whether bodily or mental), unless—

(a) it also affords assurance for a gross sum independent of sickness or other infirmity;

(b) not less than 60 per cent. of the amount of the premiums is attributable to the provision afforded during sickness or other infirmity; and

(c) there is no bonus or addition which may be declared or accrue upon the assurance of the gross sum.”

(5) In section 463(1) of that Act (Corporation Tax Acts to apply to friendly societies' life or endowment business as they apply to insurance companies' mutual life assurance business) after “mutual life assurance business” there shall be inserted “(or other long term business)”.

(6) The amendment made by subsection (5) above shall have effect in relation to accounting periods ending on or after 1st September 1996.

Personal pension schemes

172 Return of contributions on or after death of member

(1) In section 633(1) of the Taxes Act 1988 (Board not to approve a personal pension scheme which makes provision for any benefit other than those specified in paragraphs (a) to (e)) in paragraph (e) (payment on or after the death of a member of a lump sum satisfying the conditions in section 637A) for the words following “a lump sum” there shall be substituted “with respect to which the conditions in section 637A (return of contributions) are satisfied”.

(2) For section 637A of that Act (return of contributions on or after death of member) there shall be substituted—

“637A Return of contributions on or after death of member

(1) The lump sum payable under the arrangements in question (or, where two or more lump sums are so payable, those lump sums taken together) must represent no more than the return of contributions together with reasonable interest on contributions or bonuses out of profits, after allowing for—

(a) any income withdrawals, and

(b) any purchases of annuities such as are mentioned in section 636.

To the extent that contributions are invested in units under a unit trust scheme, the lump sum (or lump sums) may represent the sale or redemption price of the units.

(2) A lump sum must be payable only if, in the case of the arrangements in question,—

(a) no such annuity as is mentioned in section 634 has been purchased by the member;

(b) no such annuity as is mentioned in section 636 has been purchased in respect of the relevant interest; and

(c) no election in accordance with subsection (5)(a) of section 636 has been made in respect of the relevant interest.

(3) Where the member’s death occurs after the date which is his pension date in relation to the arrangements in question, a lump sum must not be payable more than two years after the death unless, in the case of that lump sum, the person entitled to such an annuity as is mentioned in section 636 in respect of the relevant interest—

(a) has elected in accordance with section 636A to defer the purchase of an annuity; and

(b) has died during the period of deferral.

(4) In this section “the relevant interest” means the interest, under the arrangements in question, of the person to whom or at whose direction the payment in question is made, except where there are two or more such interests, in which case it means that one of them in respect of which the payment is made.

(5) Where, under the arrangements in question, there is a succession of interests, any reference in subsection (2) or (3) above to the relevant interest includes a reference to any interest (other than that of the member) in relation to which the relevant interest is a successive interest.”

(3) This section—

(a) has effect in relation to approvals, of schemes or amendments, given under Chapter IV of Part XIV of the Taxes Act 1988 (personal pension schemes) after the passing of this Act; and

(b) does not affect any approval previously given.

Participators in close companies

173 Loans to participators etc

(1) Section 419 of the Taxes Act 1988 (loans to participators etc.) shall be amended in accordance with subsections (2) to (4) below.

(2) For subsection (3) (time when tax becomes due) there shall be substituted the following subsection—

“(3) Tax due by virtue of this section in relation to any loan or advance shall be due and payable on the day following the expiry of nine months from the end of the accounting period in which the loan or advance was made.”

(3) After subsection (4) (relief in respect of repayment) there shall be inserted the following subsection—

“(4A) Where the repayment of the whole or any part of a loan or advance occurs on or after the day on which tax by virtue of this section becomes due in relation to that loan or advance, relief in respect of the repayment shall not be given under subsection (4) above at any time before the expiry of nine months from the end of the accounting period in which the repayment occurred.”

(4) In subsection (6) (application to loans and advances to certain companies who are participators etc.), the words “and to a company not resident in the United Kingdom” shall be omitted.

(5) In section 826(4) of that Act (interest on repayment of tax by virtue of section 419), for paragraph (a) there shall be substituted the following paragraph—

“(a) the date when the entitlement to relief in respect of the repayment accrued, that is to say—

(i) where the repayment of the loan or advance (or part thereof) occurred on or after the day mentioned in section 419(4A), the date nine months after the end of that accounting period; and

(ii) in any other case, the date nine months after the end of the accounting period in which the loan or advance was made;

or”.

(6) This section has effect in relation to any loan or advance made in an accounting period ending on or after 31st March 1996.

174 Attribution of gains to participators in non-resident companies

(1) Section 13 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (attribution of gains to members of non-resident companies) shall be amended in accordance with subsections (2) to (9) below.

(2) In subsection (2) (persons subject to charge on gain to company), for “holds shares” there shall be substituted “is a participator”.

(3) For subsections (3) and (4) (part of gain attributed to person subject to charge) there shall be substituted the following subsections—

“(3) That part shall be equal to the proportion of the gain that corresponds to the extent of the participator’s interest as a participator in the company.

(4) Subsection (2) above shall not apply in the case of any participator in the company to which the gain accrues where the aggregate amount falling under that subsection to be apportioned to him and to persons connected with him does not exceed one twentieth of the gain.”

(4) In subsection (5), paragraph (a) (section not to apply where gain distributed within two years) shall be omitted; and after that subsection there shall be inserted the following subsection—

“(5A) Where—

(a) any amount of capital gains tax is paid by a person in pursuance of subsection (2) above, and

(b) an amount in respect of the chargeable gain is distributed (either by way of dividend or distribution of capital or on the dissolution of the company) within 2 years from the time when the chargeable gain accrued to the company,

that amount of tax (so far as neither reimbursed by the company nor applied as a deduction under subsection (7) below) shall be applied for reducing or extinguishing any liability of that person to income tax in respect of the distribution or (in the case of a distribution falling to be treated as a disposal on which a chargeable gain accrues to that person) to any capital gains tax in respect of the distribution.”

(5) In subsection (7) (deduction of tax paid in computing gain on shares in the company)—

(a) for “not reimbursed by the company)” there shall be inserted “neither reimbursed by the company nor applied under subsection (5A) above for reducing any liability to tax)”; and

(b) for “the shares by reference to which the tax was paid” there shall be substituted “any asset representing his interest as a participator in the company.”

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

“(7A) In ascertaining for the purposes of subsection (5A) or (7) above the amount of capital gains tax or income tax chargeable on any person for any year on or in respect of any chargeable gain or distribution—

(a) any such distribution as is mentioned in subsection (5A)(b) above and falls to be treated as income of that person for that year shall be regarded as forming the highest part of the income on which he is chargeable to tax for the year;

(b) any gain accruing in that year on the disposal by that person of any asset representing his interest as a participator in the company shall be regarded as forming the highest part of the gains on which he is chargeable to tax for that year;

(c) where any such distribution as is mentioned in subsection (5A)(b) above falls to be treated as a disposal on which a gain accrues on which that person is so chargeable, that gain shall be regarded as forming the next highest part of the gains on which he is so chargeable, after any gains falling within paragraph (b) above; and

(d) any gain treated as accruing to that person in that year by virtue of subsection (2) above shall be regarded as the next highest part of the gains on which he is so chargeable, after any gains falling within paragraph (c) above.”

(7) In subsection (9) (cases where person charged is a company)—

(a) for “the person owning any of the shares in the company” there shall be substituted “a person who is a participator in the company”; and

(b) for the words from “to the shares” onwards there shall be substituted “to the participating company’s interest as a participator in the company to which the gain accrues shall be further apportioned among the participators in the participating company according to the extent of their respective interests as participators, and subsection (2) above shall apply to them accordingly in relation to the amounts further apportioned, and so on through any number of companies.”

(8) In subsection (10) (application to trustees), for “owning shares in the company” there shall be substituted “who are participators in the company, or in any company amongst the participators in which the gain is apportioned under subsection (9) above,”.

(9) After subsection (11) there shall be inserted the following subsections—

“(12) In this section “participator”, in relation to a company, has the meaning given by section 417(1) of the Taxes Act for the purposes of Part XI of that Act (close companies).

(13) In this section—

(a) references to a person’s interest as a participator in a company are references to the interest in the company which is represented by all the factors by reference to which he falls to be treated as such a participator; and

(b) references to the extent of such an interest are references to the proportion of the interests as participators of all the participators in the company (including any who are not resident or ordinarily resident in the United Kingdom) which on a just and reasonable apportionment is represented by that interest.

(14) For the purposes of this section, where—

(a) the interest of any person in a company is wholly or partly represented by an interest which he has under any settlement (“his beneficial interest”), and

(b) his beneficial interest is the factor, or one of the factors, by reference to which that person would be treated (apart from this subsection) as having an interest as a participator in that company,

the interest as a participator in that company which would be that person’s shall be deemed, to the extent that it is represented by his beneficial interest, to be an interest of the trustees of the settlement (and not of that person), and references in this section, in relation to a company, to a participator shall be construed accordingly.

(15) Any appeal under section 31 of the Management Act involving any question as to the extent for the purposes of this section of a person’s interest as a participator in a company shall be to the Special Commissioners.”

(10) In paragraph 1(3) of Schedule 5 to the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (application of section 86 to section 13 gains)—

(a) in paragraph (a), for “hold shares in a company which originate” there shall be substituted “are participators in a company in respect of property which originates”;

(b) in paragraph (b), for “the shares” there shall be substituted “so much of their interest as participators as arises from that property”; and

(c) at the end there shall be added—

“Subsections (12) and (13) of section 13 shall apply for the purposes of this sub-paragraph as they apply for the purposes of that section.”

(11) This section applies to gains accruing on or after 28th November 1995.

Cancellation of tax advantages

175 Transactions in certain securities

(1) In section 704 of the Taxes Act 1988 (which relates to the cancellation of tax advantages and specifies the circumstances mentioned in section 703(1)) in paragraph D(2)(b) (companies which do not satisfy the conditions there specified with respect to their shares or stocks) for “are authorised to be dealt in on the Stock Exchange, and are so dealt in (regularly or from time to time)” there shall be substituted “are listed in the Official List of the Stock Exchange, and are dealt in on the Stock Exchange regularly or from time to time”.

(2) The reference in paragraph D(2)(b) of section 704 of the Taxes Act 1988 to being listed in the Official List of the Stock Exchange and being dealt in on the Stock Exchange regularly or from time to time shall be taken to include a reference to being dealt in on the Unlisted Securities Market regularly or from time to time, but this subsection is subject to subsection (3) below.

(3) Subsection (2) above—

(a) so far as relating to sub-paragraph (2) of paragraph D of section 704 of the Taxes Act 1988 as it applies for the purposes of sub-paragraph (1) of that paragraph or paragraph E of that section, shall not have effect where the relevant transaction takes place after the date on which the Unlisted Securities Market closes;

(b) so far as relating to paragraph D of that section as it applies for the purposes of section 210(3) or 211(2) of that Act (which relate to bonus issues following, and other matters to be treated or not treated as, repayment of share capital) shall not have effect—

(i) in the case of section 210(3), in relation to share capital issued after that date; or

(ii) in the case of section 211(2), in relation to distributions made after that date.

(4) Except as provided by subsection (3) above, this section—

(a) so far as relating to sub-paragraph (2) of paragraph D of section 704 of the Taxes Act 1988 as it applies for the purposes of sub-paragraph (1) of that paragraph or paragraph E of that section, shall have effect where the relevant transaction takes place after the passing of this Act; and

(b) so far as relating to paragraph D of that section as it applies for the purposes of section 210(3) or 211(2) of that Act, shall have effect—

(i) in the case of section 210(3), in relation to share capital issued after the passing of this Act; or

(ii) in the case of section 211(2), in relation to distributions made after the passing of this Act.

(5) In this section “the relevant transaction” means—

(a) the transaction in securities mentioned in paragraph (b) of section 703(1) of the Taxes Act 1988, or

(b) the first of the two or more such transactions mentioned in that paragraph,

as the case may be.

Chargeable gains: reliefs

176 Retirement relief: age limits

(1) In each of sections 163 and 164 of, and paragraph 5 of Schedule 6 to, the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (retirement relief), for “the age of 55”, wherever occurring, there shall be substituted “the age of 50”.

(2) The amendments made by this section shall apply in relation to disposals on or after 28th November 1995.

177 Reinvestment relief on disposal of qualifying corporate bond

Section 164A of the Taxation of Chargeable Gains Act 1992 (re-investment relief) shall have effect, and be deemed always to have had effect, as if the following subsections were inserted after subsection (2)—

“(2A) Where the chargeable gain referred to in subsection (1)(a) above is one which (apart from this section) would be deemed to accrue by virtue of section 116(10)(b)—

(a) any reduction falling to be made by virtue of subsection (2)(a) above shall be treated as one made in the consideration mentioned in section 116(10)(a), instead of in the consideration for the disposal of the asset disposed of; but

(b) if the disposal on which that gain is deemed to accrue is a disposal of only part of the new asset, it shall be assumed, for the purpose only of making a reduction affecting the amount of that gain—

(i) that the disposal is a disposal of the whole of a new asset,

(ii) that the gain accruing on that disposal relates to an old asset consisting in the corresponding part of what was in fact the old asset, and

(iii) that the corresponding part of the consideration deemed to be given for what was in fact the old asset is taken to be the consideration by reference to which the amount of that gain is computed;

and in this subsection “new asset” and “old asset” have the same meanings as in section 116.

(2B) Where a chargeable gain accrues in accordance with subsection (12) of section 116, this Chapter shall have effect—

(a) as if that gain were a gain accruing on the disposal of an asset; and

(b) in relation to that deemed disposal, as if references in this Chapter to the consideration for the disposal were references to the sum of money falling, apart from this Chapter, to be used in computing the gain accruing under that subsection.”

Special cases

178 Sub-contractors in the construction industry

(1) In section 566 of the Taxes Act 1988 (powers to make regulations in connection with the provisions relating to sub-contractors in the construction industry), after subsection (2) there shall be inserted the following subsection—

“(2A) The Board may by regulations make provision—

(a) for the issue of documents (to be known as “registration cards”) to persons who are parties, as sub-contractors, to any contract relating to construction operations or who are likely to become such parties;

(b) for a registration card to contain all such information about the person to whom it is issued as may be required, for the purposes of any regulations under this section, by a person making payments under any such contract;

(c) for a registration card to take such form and to be valid for such period as may be prescribed by the regulations;

(d) for the renewal, replacement or cancellation of a registration card;

(e) for requiring the surrender of a registration card in such circumstances as may be specified in the regulations;

(f) for requiring the production of a registration card to such persons and in such circumstances as may be so specified;

(g) for requiring any person who—

(i) makes or is proposing to make payments to which section 559 applies, and

(ii) is a person to whom a registration card has to be produced under the regulations,

to take steps that ensure that it is produced to him and that he has an opportunity of inspecting it for the purpose of checking that it is a valid registration card issued to the person required to produce it.

(2B) A person who fails to comply with an obligation imposed on him by virtue of subsection (2A)(g) above shall be liable to a penalty not exceeding £3,000.

(2C) Subject to subsection (2D) below, where—

(a) a person who is a party to a contract relating to any construction operations (“the contractor”) makes or is proposing to make payments to which section 559 applies,

(b) the contractor is required by regulations under this section to make statements about another party to the contract (“the sub-contractor”) in any return, certificate or other document,

(c) a registration card containing the information to be stated should have been produced, in accordance with any such regulations, to the contractor, and

(d) the statements made in the return, certificate or other document, so far as relating to matters the information about which should have been obtainable from the card, are inaccurate or incomplete in any material respect,

the contractor shall be liable to a penalty not exceeding £3,000.

(2D) A person shall not be liable to a penalty under subsection (2C) above if—

(a) a valid registration card issued to the sub-contractor, or a document which the contractor had reasonable grounds for believing to be such a card, was produced to the contractor and inspected by him before the statements in question were made; and

(b) the contractor took all such steps as were reasonable, in addition to the inspection of that card, for ensuring that the statements were accurate and complete.

(2E) A person liable to a penalty under subsection (2C) above shall not, by reason only of the matters in respect of which he is liable to a penalty under that subsection, be liable to any further penalty under section 98 of the Management Act.

(2F) Regulations under this section may make different provision for different cases.”

(2) In the second column of the Table in section 98 of the [1970 c. 9.] Taxes Management Act 1970 (penalties in respect of certain information provisions), for the entry relating to regulations under section 566(1) and (2) of the Taxes Act 1988 there shall be substituted the following entry—

“regulations under section 566(1), (2) or (2A);”.

179 Roll-over relief in respect of ships

Schedule 35 to this Act (which amends sections 33A to 33F of the [1990 c. 1.] Capital Allowances Act 1990) shall have effect.

180 Scientific research expenditure: oil licences

(1) The Capital Allowances Act 1990 shall have effect, and be deemed always to have had effect, with the following sections inserted after section 138 (assets ceasing to belong to traders)—

“138A Disposal of oil licences etc

(1) For the purposes of section 138 where—

(a) a person (“the transferor”) disposes of any interest in an oil licence to another (“the transferee”), and

(b) part of the value of that interest is attributable to any allowable exploration expenditure incurred by the transferor,

that disposal shall be deemed (subject to section 138B) to be a disposal by which an asset representing the allowable exploration expenditure to which that part of the value is attributable ceases to belong to the transferor.

(2) Section 138 shall have effect in relation to the disposal of an interest in an oil licence, to the extent that the disposal is treated by virtue of subsection (1) above as a disposal of an asset representing allowable exploration expenditure, as if the disposal value of the asset were an amount equal to such part of the transferee’s expenditure on acquiring the interest as it is just and reasonable to attribute to the part of the value of that interest that is attributable to the allowable exploration expenditure.

(3) In this section and section 138B references to allowable exploration expenditure are references to any allowable scientific research expenditure of a capital nature incurred on mineral exploration and access.

(4) In this section and section 138B—

• “foreign oil concession” means any right to search for or win overseas petroleum, being a right conferred or exercisable (whether or not by virtue of a licence) in relation to a particular area;

• “interest” in relation to an oil licence, includes, where there is an agreement which—

  (a)

  relates to oil from the whole or any part of the area to which the licence applies, and

  (b)

  was made before the extraction of the oil to which it relates,

  any entitlement under that agreement to, or to a share of, either that oil or the proceeds of its sale;

• “mineral exploration and access” has the same meaning as in Part IV;

• “oil”—

  (a)

  except in relation to a UK licence, means any petroleum; and

  (b)

  in relation to such a licence, has the same meaning as in Part I of the [1975 c. 22.] Oil Taxation Act 1975;

• “oil licence” means any UK licence or foreign oil concession;

• “overseas petroleum” means any petroleum that exists in its natural condition at a place to which neither the [1934 c. 36.] Petroleum (Production) Act 1934 nor the [1964 c. 28 (N.I.).] Petroleum (Production) Act (Northern Ireland) 1964 applies;

• “petroleum” has the [1934 c. 36.] same meaning as in the Petroleum (Production) Act 1934; and

• “UK licence” means a licence within the meaning of Part I of the Oil Taxation Act 1975.

138B Disposal of oil licences: election for alternative tax treatment

(1) Subsections (2) and (3) below apply where—

(a) a person (“the transferor”) disposes of any interest in an oil licence to another (“the transferee”) during the transitional period;

(b) part of the value of the interest is attributable to allowable exploration expenditure incurred by the transferor; and

(c) an election is made in accordance with this section specifying an amount as the amount to be treated as so attributable.

(2) Section 138 shall have effect in relation to the disposal as if—

(a) the disposal were a disposal by which an asset representing the allowable exploration expenditure ceases to belong to the transferor; and

(b) the disposal value of that asset were an amount equal to the amount specified in the election.

(3) For the purposes of Part IV, the amount of any expenditure incurred—

(a) by the transferee in acquiring the interest from the transferor, or

(b) by any person subsequently acquiring the interest (or an interest deriving from the interest),

which is taken to be attributable to expenditure incurred, before the disposal to the transferee, on mineral exploration and access shall be the lesser of the amount specified in the election and the amount which, apart from this subsection, would be taken to be so attributable.

(4) An election—

(a) shall be made by notice to the Board given by the transferor; and

(b) subject to subsection (5) below, shall not have effect unless a copy of it is served on the transferee and the transferee consents to it.

(5) If the Special Commissioners are satisfied—

(a) that the disposal was made under or in pursuance of an agreement entered into by the transferor and the transferee on the mutual understanding that a quantified (or quantifiable) part of the value of the interest disposed of was attributable to allowable exploration expenditure, and

(b) that the part quantified in accordance with that understanding and the amount specified in the election are the same,

they may dispense with the need for the transferee to consent to the election.

(6) Any question falling to be determined by the Special Commissioners under subsection (5) above shall be determined by them in like manner as if it were an appeal; but both the transferor and the transferee shall be entitled to appear and be heard by those Commissioners or to make representations to them in writing.

(7) Subject to subsection (8) below, an election may specify any amount, including a nil amount, as the amount to be treated as mentioned in subsection (1)(c) above.

(8) Where—

(a) a return has been made for a chargeable period of the transferor, and

(b) the return includes, at the time when it is made, an amount which, disregarding the provisions of this section, would be treated under section 138 as a trading receipt accruing in that period,

the election must not specify an amount less than the amount included in the return unless the Board agrees the lesser amount in question.

(9) An election made in accordance with this section—

(a) is irrevocable; and

(b) shall not be varied after it is made.

(10) For the purposes of this section a disposal is a disposal made during the transitional period if it is one made—

(a) before 13th September 1995; or

(b) on or after that date in pursuance of any obligation to make the disposal which, immediately before that date, was an unconditional obligation.

(11) For the purposes of subsection (10) above, the fact that a third party who is not connected with the transferor or the transferee may, by exercising any right or withholding any permission, prevent the fulfilment of an obligation does not prevent the obligation from being treated as unconditional.

(12) In subsection (11) above the reference to a third party is a reference to any person, body, government or public authority, whether within or outside the United Kingdom; and section 839 of the principal Act (connected persons) applies for the purposes of that subsection.

(13) All such assessments and adjustments of assessments shall be made as may be necessary to give effect to this section.”

(2) Section 151(1) of the [1990 c. 1.] Capital Allowances Act 1990 (procedure on apportionments under Parts I, III to VI and Part VIII) shall have effect, and be deemed always to have had effect, as if for “VI” there were substituted “VII”.

(3) In section 118 of the Capital Allowances Act 1990 (mineral extraction licences in the case of assets formerly owned by non-traders), the existing provisions shall become subsection (1) of that section and the following subsection shall be inserted after that subsection—

“(2) Section 138A shall have effect for the purposes of subsection (1) above in relation to expenditure on mineral exploration and access as it has effect for the purposes of section 138 in relation to allowable scientific research expenditure of a capital nature.”

(4) Subsection (3) above applies in relation to any sale taking place on or after 13th September 1995.

(5) In any case to which enactments re-enacted in the [1990 c. 1.] Capital Allowances Act 1990 apply instead of that Act, this section shall have effect as if it required amendments equivalent to those made by subsections (1) and (2) above to have effect, and be deemed always to have had effect, in relation to those enactments.

181 Overseas petroleum

(1) In subsection (1) of section 196 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 (interpretation of sections 194 and 195), for “licence” there shall be substituted “UK licence”.

(2) After subsection (1) of section 196 of that Act there shall be inserted the following subsection—

“(1A) For the purposes of section 194 a licence other than a UK licence relates to an undeveloped area at any time if, at that time—

(a) no development has actually taken place in any part of the licensed area; and

(b) no condition for the carrying out of development anywhere in that area has been satisfied—

(i) by the grant of any consent by the authorities of a country or territory exercising jurisdiction in relation to the area; or

(ii) by the approval or service on the licensee, by any such authorities, of any programme of development.”;

and in subsection (2) of that section for “subsection (1) above” there shall be substituted “subsections (1) and (1A) above”.

(3) For subsection (5) of section 196 of that Act there shall be substituted the following subsections—

“(5) In sections 194 and 195 and this section—

• “foreign oil concession” means any right to search for or win overseas petroleum, being a right conferred or exercisable (whether or not by virtue of a licence) in relation to a particular area;

• “interest” in relation to a licence, includes, where there is an agreement which—

  (a)

  relates to oil from the whole or any part of the licensed area, and

  (b)

  was made before the extraction of the oil to which it relates,

  any entitlement under that agreement to, or to a share of, either that oil or the proceeds of its sale;

• “licence” means any UK licence or foreign oil concession;

• “licensed area” (subject to subsection (4) above)—

  (a)

  in relation to a UK licence, has the same meaning as in Part I of the [1975 c. 22.] Oil Taxation Act 1975; and

  (b)

  in relation to a foreign oil concession, means the area to which the concession applies;

• “licensee”—

  (a)

  in relation to a UK licence, has the same meaning as in Part I of the Oil Taxation Act 1975; and

  (b)

  in relation to a foreign oil concession, means the person with the concession or any person having an interest in it;

• “oil”—

  (a)

  except in relation to a UK licence, means any petroleum (within the meaning of the [1934 c. 36.] Petroleum (Production) Act 1934); and

  (b)

  in relation to such a licence, has the same meaning as in Part I of the Oil Taxation Act 1975;

• “overseas petroleum” means any oil that exists in its natural condition at a place to which neither the [1934 c. 36.] Petroleum (Production) Act 1934 nor the [1964 c. 28 (N.I.).] Petroleum (Production) Act (Northern Ireland) 1964 applies; and

• “UK licence” means a licence within the meaning of Part I of the [1975 c. 22.] Oil Taxation Act 1975.

(5A) References in sections 194 and 195 to a part disposal of a licence shall include references to the disposal of any interest in a licence.”

(4) Subsections (1) to (3) above shall have effect in relation to any disposal on or after 13th September 1995 and subsection (3) shall also have effect, and be deemed always to have had effect, for the construction of section 195 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 in its application to disposals before that date.

(5) Where enactments re-enacted in the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 apply, instead of that Act, in the case of any disposal before 13th September 1995, this section shall have effect as if it required amendments equivalent to those made by subsection (3) above to have effect, and be deemed always to have had effect, for the construction of any enactment corresponding to section 195 of that Act.

182 Controlled foreign companies

Schedule 36 to this Act (which contains amendments of Chapter IV of Part XVII of the Taxes Act 1988) shall have effect in relation to accounting periods of a controlled foreign company, within the meaning of that Chapter, beginning on or after 28th November 1995.