In the M3Taxation of Chargeable Gains Act 1992, after section 236 insert—

“ Employee share ownership plans

236A Relief for transfers to employee share ownership plans

Schedule 7C (which makes provision for roll-over relief where shares are transferred to an approved employee share ownership plan) shall have effect.”.

In Schedule 9 to the Taxes Act 1988 (approved share option schemes and profit sharing schemes), in paragraph 3(2) (grounds for withdrawing approval of profit sharing schemes), after “below" in paragraph (e) insert—“; or

(f)

the trustees appropriate shares to participants, one or more of whom have had free shares appropriated to them, at an earlier time in the same year of assessment, under a relevant share plan”.

After paragraph 3(3) of that Schedule insert—

“(4)

For the purposes of sub-paragraph (2)(f) above the reference to persons having had free shares appropriated to them includes persons who would have had free shares appropriated to them but for their failure to obtain a performance allowance (within the meaning of paragraph 25 of Schedule 8 to the Finance Act 2000).

(5)

In sub-paragraph (2)(f) and (4) above—

“free shares” has the same meaning as in Schedule 8 to the Finance Act 2000;

“relevant share plan”, in relation to a profit sharing scheme, means an employee share ownership plan that—

(a)

was established by the grantor or a connected company, and

(b)

is approved under Schedule 8 to that Act.

(6)

For the purposes of sub-paragraph (5) above “connected company” means—

(a)

a company which controls or is controlled by the grantor or which is controlled by a company which also controls the grantor, or

(b)

a company which is a member of a consortium owning the grantor or which is owned in part by the grantor as a member of a consortium.”.

After paragraph 11 (requirements as to listing etc.) insert—

“11A

(1)

In the case of a profit sharing scheme, scheme shares must not be shares—

(a)

in an employer company, or

(b)

in a company that—

(i)

has control of an employer company, and

(ii)

is under the control of a person or persons within sub-paragraph (2)(b)(i) below in relation to an employer company.

(2)

For the purposes of this paragraph a company is “an employer company” if—

(a)

the business carried on by it consists substantially in the provision of the services of the persons employed by it, and

(b)

the majority of those services are provided to—

(i)

a person who has, or two or more persons who together have, control of the company, or

(ii)

a company associated with the company.

(3)

For the purposes of sub-paragraph (2)(b)(ii) above a company shall be treated as associated with another company if both companies are under the control of the same person or persons.

(4)

For the purposes of sub-paragraphs (1) to (3) above—

(a)

references to a person include a partnership, and

(b)

where a partner, alone or together with others, has control of a company, the partnership shall be treated as having like control of that company.

(5)

For the purposes of this paragraph the question whether a person controls a company shall be determined in accordance with section 416(2) to (6).”.

In paragraph 2 of Schedule 9 to the Taxes Act 1988 (conditions for approval of share option schemes and profit sharing schemes), after sub-paragraph (2) insert—

“(2A)

The Board shall not approve a profit sharing scheme unless they are satisfied—

(a)

that the arrangements for the scheme do not make any provision, and are not in any way associated with any provision made, for loans to some or all of the employees of—

(i)

the company that established the scheme, or

(ii)

in the case of a group scheme, any participating company, and

(b)

that the operation of the scheme is not in any way associated with such loans.

(2B)

For the purposes of sub-paragraph (2A) above “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.”.

In paragraph 3(2) of that Schedule (withdrawal of approval of profit sharing schemes), before paragraph (d) insert—

“(ca)

the Board—

(i)

cease to be satisfied of the matters mentioned in paragraph 2(2A) above, or

(ii)

in the case of a scheme approved before 21st March 2000, are not satisfied of those matters; or”.

In subsection (1) (definition of “chargeable event”), after paragraph (d) insert—

“(e)

where—

(i)

the trustees make a qualifying transfer within subsection (3AA) below for a consideration, and

(ii)

they do not, during the period specified in subsection (5A) below, expend a sum of not less than the amount of that consideration for one or more qualifying purposes,

the expiry of that period.”.

After subsection (3) insert—

“(3AA)

For the purposes of subsection (1)(a) above a transfer is also a qualifying transfer if—

(a)

it is a transfer of relevant shares made to the trustees of the plan trust of an employee share ownership plan,

(b)

the plan is approved under Schedule 8 to the Finance Act 2000 when the transfer is made, and

(c)

the consideration (if any) for which the transfer is made does not exceed the market value of the shares.

(3AB)

For the purpose of determining whether a transfer by the trustees is a qualifying transfer within subsection (3AA) above, where on or after 21st March 2000—

(a)

the trustees transfer or dispose of part of a holding of shares (whether by way of a qualifying transfer or otherwise), and

(b)

the holding includes any relevant shares,

the relevant shares shall be treated as transferred or disposed of before any other shares included in that holding.

For this purpose “holding” means any number of shares of the same class held by the trustees, growing or diminishing as shares of that class are acquired or disposed of.

(3AC)

For the purposes of subsections (3AA) and (3AB) above—

“market value” has the same meaning as in Schedule 8 to the Finance Act 2000; and

“relevant shares” means—

1. (i)

   shares that are held by the trustees of the employee share ownership trust at midnight on 20th March 2000, and

2. (ii)

   shares purchased by those trustees with original funds after that time.

(3AD)

For the purposes of subsection (3AC) above—

(a)

“original funds” means any money held by the trustees of the employee share ownership trust in a bank or building society account at midnight on 20th March 2000, and

(b)

any payment made by the trustees after that time (whether to acquire shares or otherwise) shall be treated as made out of original funds (and not out of money received after that time) until those funds are exhausted.”.

After that subsection insert—

“(5A)

The period referred to in paragraph (e) of subsection (1) above is the period—

(a)

beginning with the qualifying transfer mentioned in that paragraph, and

(b)

ending nine months after the end of the period of account in which that qualifying transfer took place.

For this purpose the period of account means the period of account of the company that established the employee share ownership trust.”.

In section 70 of the M6Finance Act 1989 (chargeable amounts), after subsection (3) insert—

“(4)

If the chargeable event falls within section 69(1)(e) above the chargeable amount is an amount equal to—

(a)

the amount of the consideration received for the qualifying transfer mentioned in section 69(1)(e) above, less

(b)

the amount of any expenditure by the trustees for a qualifying purpose during the period mentioned in section 69(5A) above.”.

In paragraph 9(4) of Schedule 5 to the Taxes Act 1988 (treatment of farm animals etc for purposes of Case I of Schedule D), for the words from “in relation to animals" to the end there shall be substituted—

“(a)

in relation to animals or other creatures kept singly as they apply in relation to herds; and

(b)

in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.”.

After section 76 of the M12Taxation of Chargeable Gains Act 1992, insert—

“76A Disposal of interest in settled property: deemed disposal of underlying assets.

Schedule 4A to this Act has effect with respect to disposals for consideration of an interest in settled property.”.

After section 76A of the M14Taxation of Chargeable Gains Act 1992 (inserted by section 91(1) above), insert—

“76B Transfers of value by trustees linked with trustee borrowing.

Schedule 4B to this Act has effect with respect to transfers of value by trustees that are, in accordance with the Schedule, treated as linked with trustee borrowing.”.

After section 85 of that Act, insert—

“85A Transfers of value: attribution of gains to beneficiaries.

Schedule 4C to this Act has effect with respect to the attribution to beneficiaries of gains accruing under Schedule 4B.”.

After section 79 of the M17Taxation of Chargeable Gains Act 1992, insert—

“79A Restriction on set-off of trust losses.

(1)

This section applies to a chargeable gain accruing to the trustees of a settlement where—

(a)

in computing the gain, the allowable expenditure is reduced in consequence, directly or indirectly, of a claim to gifts relief in relation to an earlier disposal to the trustees;

(b)

the transferor on that earlier disposal, or any person connected with the transferor, has at any time—

(i)

acquired an interest in the settled property, or

(ii)

entered into an arrangement to acquire such an interest; and

(c)

in connection with that acquisition or arrangement any person has at any time received, or become entitled to receive, any consideration.

(2)

Where this section applies to a chargeable gain, no allowable losses accruing to the trustees (in the year in which the gain accrues or any earlier year) may be set against the gain.

This applies to the whole of the chargeable gain (and not just the element deferred as a result of the claim to gifts relief).

(3)

In this section—

(a)

“gifts relief” means relief under section 165 or 260; and

(b)

references to losses not being allowed to be set against a chargeable gain are to the losses not being allowed as a deduction against chargeable gains to the extent that they include that gain.

(4)

The references in subsection (1)(b) above to an interest in settled property have the same meaning as in Schedule 4A.”.

After section 79A of the M18Taxation of Chargeable Gains Act 1992 (inserted by section 93 above), insert—

“79B Attribution to trustees of gains of non-resident companies.

(1)

This section applies where trustees of a settlement are participators—

(a)

in a close company, or

(b)

in a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom.

For this purpose “participator” has the same meaning as in section 13.

(2)

Where this section applies, nothing in any double taxation relief arrangements shall be read as preventing a charge to tax arising by virtue of the attribution to the trustees under section 13, by reason of their participation in the company mentioned in subsection (1) above, of any part of a chargeable gain accruing to a company that is not resident in the United Kingdom.

(3)

Where this section applies and—

(a)

a chargeable gain accrues to a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom, and

(b)

all or part of the chargeable gain is treated under section 13(2) as accruing to a close company which is not chargeable to corporation tax in respect of the gain by reason of double taxation relief arrangements, and

(c)

had the company mentioned in paragraph (b) (and any other relevant company) not been resident in the United Kingdom, all or part of the chargeable gain would have been attributed to the trustees by reason of their participation in the company mentioned in subsection (1) above,

section 13(9) shall apply as if the company mentioned in paragraph (b) above (and any other relevant company) were not resident in the United Kingdom.

(4)

The references in subsection (3) above to “any other relevant company" are to any other company which if it were not resident in the United Kingdom would be a company in relation to which section 13(9) applied with the result that all or part of the chargeable gain was attributed to the trustees as mentioned in that subsection.”.

After subsection (9) add—

“(10)

Subsection (3) or (7) above does not apply to the disposal of an interest created by or arising under a settlement which has relevant offshore gains at the material time.

The material time is—

(a)

in relation to subsection (3) above, the relevant time within the meaning of section 80;

(b)

in relation to subsection (7) above, the time found under subsection (8) above.

(11)

For the purposes of subsection (10) above, a settlement has relevant offshore gains at any time if, were the year of assessment to end at that time, there would be an amount of trust gains which by virtue of section 89(2) or paragraph 8(3) of Schedule 4C would be available to be treated as chargeable gains accruing to any beneficiaries of the settlement receiving capital payments in the following year of assessment.”.

For sections 92 to 95 of the M24Finance Act 1993 there shall be substituted—

“92 The basic rule: sterling to be used.

(1)

Where a company carries on a business, the profits or losses of the business for an accounting period shall for the purposes of corporation tax be computed and expressed in sterling; but this is subject to section 93 below.

(2)

In this section—

“losses” includes management expenses and any allowances falling to be made under section 28 or 61(1) of the M25Capital Allowances Act 1990;

“profits” includes gains, income and any charges falling to be made under section 28 or 61(1) of that Act.

93 Use of currency other than sterling.

(1)

This section applies where in an accounting period a company carries on a business and either the first condition or the second condition is fulfilled.

(2)

The first condition is that—

(a)

the accounts of the company as a whole are prepared in a currency other than sterling in accordance with normal accounting practice; and

(b)

in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in such a currency in accordance with such practice.

(3)

The second condition is that—

(a)

the accounts of the company as a whole are prepared in sterling but, so far as relating to the business, they are prepared, using the closing rate/net investment method, from financial statements prepared in a currency other than sterling; or

(b)

in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in sterling but, so far as relating to the business, it is prepared, using that method, from financial statements prepared in such a currency.

(4)

The profits or losses of the business for an accounting period shall for the purposes of corporation tax be found by—

(a)

taking the amount of all the profits and losses of the business for the period computed and expressed in the relevant foreign currency;

(b)

taking account of any of the following which are so computed and expressed—

(i)

any management expenses brought forward under section 75(3) of the Taxes Act 1988 from an earlier accounting period;

(ii)

any losses of the business brought forward under section 392B or 393 of that Act from such a period; and

(iii)

any non-trading deficits on loan relationships brought forward under section 83 of the M26Finance Act 1996 from the previous accounting period; and

(c)

taking the sterling equivalent of the amount found by applying paragraphs (a) and (b) above.

(5)

In the application of section 22B, 34, 35, 38C, 38D or 79A of the M27Capital Allowances Act 1990 for the purposes of subsection (4)(a) or (b) above, it shall be assumed that any sterling amount mentioned in any of those sections is its equivalent expressed in the relevant foreign currency.

(6)

Where in an accounting period—

(a)

a company carries on different parts of a business through different branches (whether within or outside the United Kingdom); and

(b)

this section would apply differently in relation to different parts if they were separate businesses,

those parts shall be treated for the purposes of this section as if they were separate businesses for that period.

(7)

In this section, unless the context otherwise requires—

“accounts”, in relation to a company, means—

(a)

the annual accounts of the company prepared in accordance with Part VII of the M28Companies Act 1985 or Part VIII of the M29Companies (Northern Ireland) Order 1986; or

(b)

if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of its home State; or

(c)

if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of that Part applied to it;

“branch” includes any collection of assets and liabilities;

“the closing rate/net investment method” means the method so called as described under the title “Foreign currency translation” in the Statement of Standard Accounting Practice issued in April 1983 by the Institute of Chartered Accountants in England and Wales;

“home State”, in relation to a company, means the country or territory under whose laws the company is incorporated;

“losses” has the same meaning as in section 92 above except that it does not include allowable losses within the meaning of the M30Taxation of Chargeable Gains Act 1992;

“profits” has the same meaning as in section 92 above except that it does not include chargeable gains within the meaning of that Act;

“the relevant foreign currency” means the currency other than sterling or, where the first condition is fulfilled and two different such currencies are involved, the currency in which the return of accounts is prepared;

“return of accounts”, in relation to a branch in the United Kingdom, means a return of such accounts of the branch as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).

94 Rules for ascertaining currency equivalents.

(1)

Any receipt or expense which is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and is denominated in a currency other than sterling, shall be translated into its sterling equivalent—

(a)

if either of the conditions mentioned in subsection (2) below is fulfilled, by reference to the rate used in the preparation of the accounts of the company as a whole for that period;

(b)

if neither of those conditions is fulfilled, by reference to the London closing exchange rate for the relevant day.

(2)

The conditions are—

(a)

that the rate is an arm’s length exchange rate for the relevant day;

(b)

that the rate is an average arm’s length exchange rate for a period ending with that day, or for a period not exceeding three months which includes that day, and the arm’s length exchange rate for any day in that period (except the first) is not significantly different from that for the preceding day.

(3)

Subject to subsections (5) and (7) below, any amount found by applying paragraphs (a) and (b) of subsection (4) of section 93 above shall be translated into its sterling equivalent by reference to the London closing exchange rate for the relevant day.

(4)

The following—

(a)

any receipt or expense which is to be taken into account in making a calculation for the purposes of subsection (4)(a) or (b) of section 93 above, and is denominated in a currency other than the relevant foreign currency; and

(b)

any such sterling amount as is referred to in subsection (5) of that section,

shall be translated into its equivalent expressed in the relevant foreign currency by reference to the London closing exchange rate for the relevant day.

(5)

Where section 93 above applies by virtue of the first condition mentioned in that section, then, as regards the business or part of the business, the company—

(a)

may elect, by a notice given to an officer of the Board, that as from the first day of the accounting period in which the notice is given, an average arm’s length exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned; and

(b)

may withdraw such an election, by a notice so given, as from the first day of the first accounting period beginning on or after the date of the notice.

(6)

Where an election under subsection (5) above is withdrawn, no further election may be made under that subsection so as to take effect before the third anniversary of the day on which the withdrawal takes effect.

(7)

Where—

(a)

section 93 above applies by virtue of the second condition mentioned in that section; and

(b)

the accounts of the company, so far as relating to the business or part of the business, are prepared by reference to an average arm’s length exchange rate,

that exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned.

(8)

In this section—

“accounts” has the same meaning as in section 93 above;

“arm’s length exchange rate” means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm’s length;

“average arm’s length exchange rate”, in relation to a period, means the rate which represents an appropriate average of arm’s length exchange rates for the period;

“the relevant day” means—

(a)

for the purposes of subsections (1), (2) and (4)(a) above, the day on which the company becomes entitled to the receipt or incurs (or is treated as incurring) the expense;

(b)

for the purposes of subsection (3) above, the last day of the accounting period in question;

(c)

for the purposes of subsection (4)(b) above, the day on which the company incurs the capital expenditure.

(9)

Nothing in this section affects the operation of Chapter IV of Part VII of the Taxes Act 1988 (controlled foreign companies) or Chapter II of this Part.

(10)

Nothing in paragraph 88 of Schedule 18 to the M31Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent any amount which is taken to be conclusively determined for the purposes of the Corporation Tax Acts from being translated under this section by reference to an exchange rate which was not used to determine the amount which can no longer be altered.”.

For subsections (2) to (8) of that section there shall be substituted—

“(2)

Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

(3)

The Board may by regulations—

(a)

make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and

(b)

provide that nothing in Chapter II of Part XIII shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.

(4)

Regulations under subsection (1) or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.”.

In subsection (4)(b) of section 432ZA of the Taxes Act 1988 (linked assets), for the words from “the proportion which" to the end there shall be substituted—

“the proportion A/B where—

A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;

B is the total of the linked liabilities of the company which are liabilities of that fund.”.

For subsection (6) of that section there shall be substituted—

“(6)

In this section—

“internal linked fund”, in relation to an insurance company, means an account—

(a)

to which linked assets are appropriated by the company; and

(b)

which may be divided into units the value of which is determined by the company by reference to the value of those assets;

“linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.”.

For subsection (8) of section 432A there shall be substituted—

“(8)

In subsection (6) above “appropriate part”, in relation to the investment reserve, means—

(a)

where none (or none but an insignificant proportion) of the liabilities of the long term business are with-profits liabilities, the part of that reserve which bears to the whole the proportion A/B where—

A is the amount of the liabilities of the category of business in question;

B is the whole amount of the liabilities of the long term business; and

(b)

in any other case, the part of that reserve which bears to the whole the proportion C/D where—

C is the amount of the with-profits liabilities of the category of business in question;

D is the whole amount of the with-profits liabilities of the long term business.”.

After subsection (9) of that section there shall be inserted—

“(9A)

In this section and sections 432C and 432D “net value”, in relation to any assets, means the excess of the value of the assets over any liabilities which—

(a)

represent a money debt; and

(b)

are liabilities of an internal linked fund in which the assets are held;

and in this subsection “internal linked fund” has the same meaning as in section 432ZA.

(9B)

In this section—

“investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business over the aggregate of—

(a)

the liabilities of that business; and

(b)

any liabilities of the long term business fund which represent a money debt;

“money debt” has the same meaning as in Chapter II of Part IV of the M33Finance Act 1996.”.

In Schedule 11 to the M34Finance Act 1996 (loan relationships: special provisions for insurers), after paragraph 3 there shall be inserted—

“3A

(1)

This paragraph applies where—

(a)

any money debt of an insurance company is represented by a liability which is a liability of the long term business fund of the company; and

(b)

any question arises for the purposes of the Corporation Tax Acts as to the extent to which any debits or credits given for the purposes of this Chapter in respect of that debt or liability are referable to any category of the company’s long term business.

(2)

If any debits relate to interest payable in respect of the late payment of any benefits, they are referable to the category of long term business which comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.

(3)

If the liability is a liability of an internal linked fund of the company, any debits or credits are referable—

(a)

to the category of long term business to which the fund relates; or

(b)

where the fund relates to two or more categories of such business, to those categories in the same proportion as the linked assets in the fund are apportioned to them under section 432ZA(4) of the Taxes Act 1988 (linked assets).

(4)

In any case not falling within sub-paragraph (2) or (3) above, there shall be referable to any category of long term business the relevant fraction of any debits or credits.

(5)

For the purpose of determining that fraction, subsections (6) and (8) of section 432A of the Taxes Act 1988 (apportionment of income and gains) shall have effect as if—

(a)

the debits or credits were income not directly referable to any category of business;

(b)

the reference in subsection (6)(a) to assets directly referable to a category of business were a reference to assets linked to that category of business; and

(c)

subsection (9) of that section were omitted.

(6)

In this paragraph “internal linked fund” has the same meaning as in section 432ZA of the Taxes Act 1988 (linked assets).”.