Finance (No. 2) Bill (HC Bill 193)

(ii) any other annuity purchased as mentioned in
paragraph (c)(ii) that is in the chain of annuities
beginning with that prior annuity and ending with
the annuity.

(4) 5The charge to tax under this Part does not apply to payments to a
person of a lifetime annuity if—

(a) the payments are payable to the person under pension rule 2
(see section 165 of FA 2004),

(b) either—

(i) 10a member of a registered pension scheme was entitled
to be paid the annuity immediately before the
member’s death, or

(ii) the annuity was purchased using sums or assets
transferred to an insurance company by another
15insurance company in consequence of an annuity to
which there was entitlement as mentioned in sub-
paragraph (i), or which was purchased as mentioned
in this sub-paragraph, ceasing to be payable,

(c) the member had not reached the age of 75 at the date of the
20member’s death,

(d) the member died on or after 3 December 2014,

(e) any payment of the annuity made before 6 April 2015 is made
to the member, and

(f) in a case where the annuity is one purchased as mentioned in
25paragraph (b)(ii), any payment made before 6 April 2015—

(i) of the prior annuity to which there is entitlement as
mentioned in paragraph (b)(i), or

(ii) of any other annuity purchased as mentioned in
paragraph (b)(ii) that is in the chain of annuities
30beginning with that prior annuity and ending with
the annuity,

is made to the member.

(5) Paragraph 27E(3) to (5) of Schedule 28 to FA 2004 (meaning of
“unused drawdown funds” and “unused uncrystallised funds”)
35apply for the purposes of subsection (1).

(6) Paragraph 27FA(2) of Schedule 28 to FA 2004 (meaning of “undrawn
funds”) applies for the purposes of subsection (2)(e).

(7) For the purposes of subsection (3)(c), a dependants’ annuity or
nominees’ annuity is purchased together with a lifetime annuity if
40the dependants’ annuity or nominees’ annuity (as the case may be)
is related to the lifetime annuity, and paragraph 3(4A) and (4B) of
Schedule 29 to FA 2004 (meaning of “related”) apply for the purposes
of this subsection.

(8) For the purposes of this section, a person becomes entitled to an
45annuity when the person first acquires an actual (rather than a
prospective right) to receive the annuity.

646C Registered schemes: beneficiaries’ annuities from drawdown funds

(1) The charge to tax under this Part does not apply to a dependants’
short-term annuity, nominees’ short-term annuity, dependants’
annuity or nominees’ annuity paid to a person if—

(a) 5it is paid in respect of a deceased member of a registered
pension scheme who had not reached the age of 75 at the date
of the member’s death,

(b) the member died on or after 3 December 2014, and

(c) the annuity was purchased using sums or assets out of the
10person’s—

(i) dependant’s drawdown pension fund,

(ii) dependant’s flexi-access drawdown fund, or

(iii) nominee’s flexi-access drawdown fund,

in respect of a money purchase arrangement under a
15registered pension scheme.

(2) The charge to tax under this Part does not apply to a successors’
short-term annuity, or successors’ annuity, paid to a person if—

(a) it is paid in respect of a deceased beneficiary of a deceased
member of a registered pension scheme where the
20beneficiary had not reached the age of 75 at the date of the
beneficiary’s death,

(b) the beneficiary died on or after 3 December 2014, and

(c) the annuity was purchased using sums or assets out of the
person’s successor’s flexi-access drawdown fund in respect
25of a money purchase arrangement under a registered pension
scheme,

and here “beneficiary” means dependant, nominee or successor.

(3) Subsection (1) is subject to subsections (4) to (6).

(4) Subsection (1) does not exempt payments on or after 6 April 2015 to
30a person of a dependants’ short-term annuity, or dependants’
annuity, payable in respect of a deceased member of a registered
pension scheme and purchased using sums or assets out of the
person’s dependant’s drawdown pension fund in respect of a money
purchase arrangement under a registered pension scheme (“the
35drawdown fund”) if before 6 April 2015—

(a) any payment of the annuity was made,

(b) any payment was made of any other dependants’ short-term
annuity, or dependants’ annuity, purchased using sums or
assets out of—

(i) 40the drawdown fund, or

(ii) any fund represented (to any extent) by the
drawdown fund, or

(c) any payment of dependants’ income withdrawal was made
from—

(i) 45the drawdown fund, or

(ii) any fund represented (to any extent) by the
drawdown fund.

(5) Subsection (1) does not exempt payments to a person of a
dependants’ short-term annuity, or dependants’ annuity, payable in

respect of a deceased member of a registered pension scheme and
purchased using sums or assets out of the person’s dependant’s
flexi-access drawdown fund in respect of a money purchase
arrangement under a registered pension scheme (“the new fund”)
5if—

(a) any of the sums or assets that make up the new fund—

(i) became newly-designated dependant funds under
paragraph 22A(2)(b) of Schedule 28 to FA 2004 or as a
result of the operation of any of paragraphs 22B to
1022D of that Schedule, or

(ii) arise, or (directly or indirectly) derive, from any such
newly-designated funds or from sums or assets that
to any extent so arise or derive,

(b) before 6 April 2015—

(i) 15any payment of dependants’ income withdrawal in
respect of the deceased member was made to the
person from, or

(ii) any payment in respect of the deceased member was
made to the person of a dependants’ short-term
20annuity, or dependants’ annuity, purchased using
sums or assets out of,

the person’s dependant’s drawdown pension fund in respect
of a money purchase arrangement under a registered pension
scheme, and

(c) 25any of the sums or assets that made up that fund at the time
of the payment make up, or are represented by sums or assets
that to any extent make up, the new fund.

(6) Where relevant unused uncrystallised funds—

(a) are designated on or after 6 April 2015 as available for the
30payment of dependants’ drawdown pension or nominees’
drawdown pension, and

(b) as a result of the designation make up (to any extent) a
person’s dependant’s flexi-access drawdown fund or
nominee’s flexi-access drawdown fund in respect of a money
35purchase arrangement under a registered pension scheme,
but

(c) are not so designated before the end of the relevant two-year
period,

subsection (1) does not exempt payments to the person of a
40dependants’ short-term annuity, nominees’ short-term annuity,
dependants’ annuity or nominees’ annuity if any of the sums or
assets used to purchase the annuity represent, at the time of the
purchase, the whole or any part of those relevant unused
uncrystallised funds.

(7) 45In this section “the relevant two-year period”, in relation to relevant
unused uncrystallised funds held for the purposes of a money
purchase arrangement relating to a deceased individual under a
registered pension scheme, means the period of two years beginning
with the earlier of—

(a) 50the day on which the scheme administrator first knew of the
individual’s death, and

(b) the day on which the scheme administrator could first
reasonably have been expected to know of it.

(8) For the purposes of this section, sums or assets held after the death
of a member of a registered pension scheme for the purposes of a
5money purchase arrangement relating to the member under the
scheme are “relevant unused uncrystallised funds” if—

(a) they are unused uncrystallised funds, and

(b) the member had not reached the age of 75 at the date of the
member’s death.

(9) 10Paragraph 27E(4) and (5) of Schedule 28 to FA 2004 (meaning of
“unused uncrystallised funds”) apply for the purposes of subsection
(8)(a).

646D Non-registered schemes: beneficiaries’ annuities from unused funds

(1) The charge to tax under this Part does not apply to an annuity
15payable to a person if—

(a) it is paid in respect of a deceased member of an overseas
pension scheme, or relevant non-UK scheme, who had not
reached the age of 75 at the date of the member’s death,

(b) it would, if the scheme were a registered pension scheme and
20if “insurance company” in Part 4 of FA 2004 had the meaning
given by subsection (8), be a dependants’ annuity or
nominees’ annuity,

(c) the member died on or after 3 December 2014,

(d) either—

(i) 25the annuity was purchased using sums or assets that
would, if the scheme were a registered pension
scheme, be unused drawdown funds or unused
uncrystallised funds, or

(ii) the annuity was purchased using sums or assets
30transferred to an insurance company by another
insurance company in consequence of an annuity—

(a) that was payable to the person by that other
insurance company,

(b) that was purchased as mentioned in sub-
35paragraph (i) or this sub-paragraph, and

(c) that would have been a dependants’ annuity
or nominees’ annuity (as the case may be) if
the scheme had been a registered pension
scheme,

40ceasing to be payable,

(e) no payment of the annuity is made before 6 April 2015, and

(f) in a case where the annuity is purchased as mentioned in
paragraph (d)(ii), no payment is made before 6 April 2015
of—

(i) 45the prior annuity purchased as mentioned in
paragraph (d)(i), and

(ii) any other annuity purchased as mentioned in
paragraph (d)(ii) that is in the chain of annuities
beginning with that prior annuity and ending with
50the annuity.

(2) The charge to tax under this Part does not apply to an annuity
payable to a person if—

(a) it is paid in respect of a deceased member of an overseas
pension scheme or relevant non-UK scheme,

(b) 5it is paid on the subsequent death of an individual who
would, if the scheme were a registered pension scheme, be a
dependant, nominee or successor of the member (“the
beneficiary”),

(c) it would, if the scheme were a registered pension scheme and
10if “insurance company” in Part 4 of FA 2004 had the meaning
given by subsection (8), be a successors’ annuity,

(d) the beneficiary had not reached the age of 75 at the date of the
beneficiary’s death,

(e) the beneficiary died on or after 3 December 2014,

(f) 15either—

(i) the annuity was purchased using sums or assets that
would, if the scheme were a registered pension
scheme, be undrawn funds, or

(ii) the annuity was purchased using sums or assets
20transferred to an insurance company by another
insurance company in consequence of an annuity—

(a) that was payable to the person by that other
insurance company,

(b) that was purchased as mentioned in sub-
25paragraph (i) or this sub-paragraph, and

(c) that would have been a successors’ annuity if
the scheme had been a registered pension
scheme and if “insurance company” in Part 4
of FA 2004 had the meaning given by
30subsection (8),

ceasing to be payable,

(g) no payment of the annuity is made before 6 April 2015, and

(h) in a case where the annuity is purchased as mentioned in
paragraph (f)(ii), no payment is made before 6 April 2015
35of—

(i) the prior annuity purchased as mentioned in
paragraph (f)(i), and

(ii) any other annuity purchased as mentioned in
paragraph (f)(ii) that is in the chain of annuities
40beginning with that prior annuity and ending with
the annuity.

(3) The charge to tax under this Part does not apply to an annuity
payable to a person if—

(a) it is paid in respect of a deceased member of an overseas
45pension scheme, or relevant non-UK scheme, who had not
reached the age of 75 at the date of the member’s death,

(b) it would, if the scheme were a registered pension scheme and
if “insurance company” in Part 4 of FA 2004 had the meaning
given by subsection (8), be a dependants’ annuity payable to
50a dependant of the member or a nominees’ annuity payable
to a nominee of the member,

(c) the member died on or after 3 December 2014,

(d) the annuity—

(i) was purchased together with an annuity payable to
the member that would, if the scheme were a
5registered pension scheme and if “insurance
company” in Part 4 of FA 2004 had the meaning given
by subsection (8), have been a lifetime annuity, or

(ii) was purchased using sums or assets transferred to an
insurance company by another insurance company in
10consequence of an annuity—

(a) that was payable to the person by that other
insurance company, and

(b) that would, if the scheme were a registered
pension scheme and if “insurance company”
15in Part 4 of FA 2004 had the meaning given by
subsection (8), have been a dependants’
annuity or nominees’ annuity (as the case may
be) purchased as mentioned in sub-paragraph
(i) or this sub-paragraph,

20ceasing to be payable,

(e) no payment of the annuity is made before 6 April 2015, and

(f) in a case where the annuity is purchased as mentioned in
paragraph (d)(ii), no payment is made before 6 April 2015
of—

(i) 25the prior annuity purchased as mentioned in
paragraph (d)(i), and

(ii) any other annuity purchased as mentioned in
paragraph (d)(ii) that is in the chain of annuities
beginning with that prior annuity and ending with
30the annuity.

(4) The charge to tax under this Part does not apply to payments to a
person of an annuity if—

(a) either—

(i) a member of an overseas pension scheme, or relevant
35non-UK scheme, was entitled to be paid the annuity
immediately before the member’s death, or

(ii) the annuity was purchased using sums or assets
transferred to an insurance company by another
insurance company in consequence of an annuity to
40which there was entitlement as mentioned in sub-
paragraph (i), or which was purchased as mentioned
in this sub-paragraph, ceasing to be payable,

(b) the payments would, if the scheme were a registered pension
scheme and if “insurance company” in Part 4 of FA 2004 had
45the meaning given by subsection (8), be—

(i) payments of a lifetime annuity, and

(ii) payable to the person under pension rule 2 (see
section 165 of FA 2004),

(c) the member had not reached the age of 75 at the date of the
50member’s death,

(d) the member died on or after 3 December 2014,

(e) any payment of the annuity made before 6 April 2015 is made
to the member, and

(f) in a case where the annuity is one purchased as mentioned in
paragraph (a)(ii), any payment made before 6 April 2015—

(i) 5of the prior annuity to which there is entitlement as
mentioned in paragraph (a)(i), or

(ii) of any other annuity purchased as mentioned in
paragraph (a)(ii) that is in the chain of annuities
beginning with that prior annuity and ending with
10the annuity,

is made to the member.

(5) Paragraph 27E(3) to (5) of Schedule 28 to FA 2004 (meaning of
“unused drawdown funds” and “unused uncrystallised funds”)
apply for the purposes of subsection (1).

(6) 15Paragraph 27FA(2) of Schedule 28 to FA 2004 (meaning of “undrawn
funds”) applies for the purposes of subsection (2)(f).

(7) For the purposes of subsection (3)(d), an annuity is purchased
together with another if they are purchased—

(a) in the form of a joint life annuity, or

(b) 20separately in circumstances in which the day on which the
one is purchased is no earlier than seven days before, and no
later than seven days after, the day on which the other is
purchased.

(8) In this section “insurance company” means—

(a) 25an insurance company as defined by section 275 of FA 2004,
or

(b) a person—

(i) whose normal business includes the activity of
providing annuities,

(ii) 30who carries on that activity in a country or territory
outside the United Kingdom, and

(iii) whose carrying on of that activity in any particular
country or territory outside the United Kingdom—

(a) is regulated in that country or territory, or

(b) 35is lawful under the law of that country or
territory because it is regulated in another
country or territory,

and for this purpose an activity is regulated in a country or
territory if it is regulated by the government of that country
40or territory or by a body established under the law of that
country or territory for the purpose of regulating the
carrying-on of the activity.

646E Non-registered schemes: beneficiaries’ annuities from drawdown
funds

(1) 45The charge to tax under this Part does not apply to an annuity paid
to a person if—

(a) it is paid in respect of a deceased member of an overseas
pension scheme, or a relevant non-UK scheme, who had not
reached the age of 75 at the date of the member’s death,

(b) the person would, if that scheme were a registered pension
scheme, be a dependant or nominee of the member,

(c) the annuity was purchased using sums or assets held for the
purposes of a money purchase arrangement under an
5overseas pension scheme or relevant non-UK scheme, and
those sums or assets would if that scheme were a registered
pension scheme form the whole or part of the person’s—

(i) dependant’s drawdown pension fund,

(ii) dependant’s flexi-access drawdown fund, or

(iii) 10nominee’s flexi-access drawdown fund,

in respect of the arrangement,

(d) the annuity would, if the scheme were a registered pension
scheme and if “insurance company” in Part 4 of FA 2004 had
the meaning given by section 646D(8), be a dependants’
15short-term annuity or dependants’ annuity or (as the case
may be) a nominees’ short-term annuity or nominees’
annuity, and

(e) the member died on or after 3 December 2014.

(2) The charge to tax under this Part does not apply to an annuity
20payable to a person if—

(a) it is paid in respect of a deceased individual (“the
beneficiary”) who had not reached the age of 75 at the date of
the beneficiary’s death,

(b) the beneficiary would have been a dependant, nominee or
25successor of a deceased member of an overseas pension
scheme, or relevant non-UK scheme, if that scheme had been
a registered pension scheme,

(c) the person would, if that scheme were a registered pension
scheme, be a successor of the member,

(d) 30the annuity was purchased using sums or assets out of a fund
held for the purposes of a money purchase arrangement
under an overseas pension scheme or relevant non-UK
scheme and would, if that scheme were a registered pension
scheme and if “insurance company” in Part 4 of FA 2004 had
35the meaning given by section 646D(8), be a successors’ short-
term annuity, or successors’ annuity, purchased using sums
or assets out of the person’s successor’s flexi-access
drawdown fund in respect of the arrangement, and

(e) the beneficiary died on or after 3 December 2014.

(3) 40Subsection (1) is subject to subsections (4) and (5).

(4) Subsection (1) does not exempt payments on or after 6 April 2015 to
a person of an annuity payable in respect of a deceased member of
an overseas pension scheme, or relevant non-UK scheme, if—

(a) the annuity is purchased using sums or assets held for the
45purposes of a money purchase arrangement under an
overseas pension scheme or relevant non-UK scheme,

(b) the annuity would, if that scheme were a registered pension
scheme and if “insurance company” in Part 4 of FA 2004 had
the meaning given by section 646D(8), be a dependants’
50short-term annuity or dependants’ annuity,

(c) the annuity was purchased using sums or assets out of a fund
that would, if that scheme were a registered pension scheme,
be the person’s dependant’s drawdown pension fund in
respect of the arrangement (“the drawdown fund”), and

(d) 5before 6 April 2015—

(i) any payment of the annuity was made,

(ii) any payment was made to the person of any other
annuity purchased using sums or assets out of the
drawdown fund or out of any fund represented (to
10any extent) by the drawdown fund, or

(iii) any payment was made to the person out of the
drawdown fund, or out of any fund represented (to
any extent) by the drawdown fund, of any pension
that would be dependants’ income withdrawal if the
15fund concerned were held for the purposes of a
registered pension scheme.

(5) Subsection (1) does not exempt payments to a person of an annuity
payable in respect of a deceased member of an overseas pension
scheme, or relevant non-UK scheme, if—

(a) 20the annuity was purchased using sums or assets held for the
purposes of a money purchase arrangement under an
overseas pension scheme or relevant non-UK scheme and
would, if that scheme were a registered pension scheme and
“insurance company” in Part 4 of FA 2004 had the meaning
25given by section 646D(8), be a dependants’ short-term
annuity or dependants’ annuity,

(b) the annuity was purchased using sums or assets out of a fund
(“the new fund”) that would, if that scheme were a registered
pension scheme, be the person’s dependant’s flexi-access
30drawdown fund in respect of the arrangement,

(c) before 6 April 2015—

(i) any payment of pension in respect of the deceased
member was made to the person from a fund held for
the purposes of a money purchase arrangement
35under an overseas pension scheme, or relevant non-
UK scheme, that would be a payment of dependants’
income withdrawal from the person’s dependant’s
drawdown pension fund in respect of the
arrangement if the scheme were a registered pension
40scheme, or

(ii) any payment in respect of the deceased member was
made to the person of an annuity purchased using
sums or assets out of a fund held for the purposes of
a money purchase arrangement under an overseas
45pension scheme, or relevant non-UK scheme, that
would be a payment of a dependants’ short-term
annuity, or dependants’ annuity, purchased using
sums or assets out of the person’s dependant’s
drawdown pension fund in respect of the
50arrangement if the scheme were a registered pension
scheme, and

(d) any of the sums or assets that made up the fund mentioned
in paragraph (c)(i) or (ii) make up, or are represented by sums
or assets that to any extent make up, the new fund.

646F Interpretation of sections 646B to 646E

5In sections 646B to 646E, an expression listed in the first column of
the table has the meaning given by the provision of FA 2004 listed
against that expression in the second column of the table.

(2) The amendment made by this paragraph has effect in relation to pension
5paid on or after 6 April 2015.

Exemption from tax under Part 9 of ITEPA 2003 not to give rise to tax under other provisions

18 In section 393B(2)(a) of ITEPA 2003 (tax on benefits under employer-
financed retirement benefit schemes: “relevant benefits” do not include
benefits charged to tax under Part 9) after “charged to tax under Part 9
10(pension income)” insert “, or that would be charged to tax under that Part
but for section 573(2A) or (2B), 646D or 646E”.

Annuity for dependant purchased before 6 April 2006 jointly with annuity for member

19 In Schedule 36 to FA 2004 (transitional provision etc in relation to pre-6 April
2006 pensions) after paragraph 45 insert—

15“Taxation of certain annuities for dependants purchased pre-commencement

45A (1) The charge to tax under Part 9 of ITEPA 2003 (taxation of pension
income) does not apply to an annuity payable to a person (“the
dependant”) if—

(a) the annuity is payable on the death of a member of a
20pension scheme,

(b) the annuity is paid in respect of the deceased member,

(c) the member had not reached the age of 75 at the date of the
member’s death,

(d) the member died on or after 3 December 2014,

(e) 25no payment of the annuity is made before 6 April 2015,

(f) the annuity has fulfilled the transitional conditions at all
times on or after 6 April 2006,

(g) the annuity was purchased together with an annuity
payable to the member, and

(h) 30that annuity payable to the member fulfilled the
transitional conditions at all times in the period beginning
with 6 April 2006 and ending with the member’s death.

(2) For the purposes of sub-paragraph (1)(g), an annuity is purchased
together with another if they are purchased—

(a) 35in the form of a joint life annuity, or

(b) separately in circumstances in which the day on which the
one is purchased is no earlier than seven days before, and
no later than seven days after, the day on which the other
is purchased.

(3) 40In sub-paragraph (1) “the transitional conditions” means the
conditions specified in the subsection (3A) set out in article 2(3) of
the Taxation of Pension Schemes (Transitional Provisions) Order
2006 (S.I. 2006/572S.I. 2006/572).”

Minor and consequential amendments

20 In section 573 of ITEPA 2003 (foreign pensions to which other provisions of
Part 9 of ITEPA 2003 do not apply) after subsection (2D) insert—

“(2E) Chapter 17 of this Part provides exemptions for certain annuities (see
5sections 646D and 646E: certain beneficiaries’ annuities purchased
out of unused or drawdown funds).

(2F) See also paragraph 45A of Schedule 36 to FA 2004 (exemption in
certain cases for payments on or after 6 April 2015 to beneficiaries
under joint-life or similar annuities purchased before 6 April 2006).”

21 10In Chapter 10 of Part 9 of ITEPA 2003 (other employment-related annuities)
after section 611 insert—

“611A Exemptions from sections 609 to 611

(1) Chapter 17 of this Part provides exemptions for certain annuities (see
sections 646B to 646E: certain beneficiaries’ annuities purchased out
15of unused or drawdown funds).

(2) See also paragraph 45A of Schedule 36 to FA 2004 (exemption in
certain cases for payments on or after 6 April 2015 to beneficiaries
under joint-life or similar annuities purchased before 6 April 2006).”

22 In section 579A of ITEPA 2003 (section applies to pensions under registered
20pension schemes, with exceptions) after subsection (2) insert—

“(3) Chapter 17 of this Part provides exemptions for certain annuities (see
sections 646B and 646C: certain beneficiaries’ annuities purchased
out of unused or drawdown funds).”

23 (1) For section 579CZA(5)(b) of ITEPA 2003 (tax exemption for dependants’
25income withdrawal overridden where any paid before 6 April 2015)
substitute—

“(b) before 6 April 2015—

(i) any payment of dependants’ income withdrawal in
respect of the deceased member was made to the
30person from, or

(ii) any payment in respect of the deceased member was
made to the person of a dependants’ short-term
annuity purchased using sums or assets out of,

the person’s dependant’s drawdown pension fund in respect
35of a money purchase arrangement under a registered pension
scheme, and”.

(2) The amendment made by this paragraph has effect in relation to pension
paid on or after 6 April 2015.

Section 35

SCHEDULE 5 Relief for contributions to flood and coastal erosion risk management
projects

Income tax: trade profits

1 5In Chapter 5 of Part 2 of ITTOIA 2005 (trade profits: rules allowing
deductions), after section 86 insert—

“Contributions to flood and coastal erosion risk management projects

86A Contributions to flood and coastal erosion risk management projects

(1) This section applies if—

(a) 10a person carrying on a trade (“the contributor”) incurs
expenses in making a qualifying contribution to a qualifying
flood or coastal erosion risk management project, and

(b) a deduction would not otherwise be allowable for the
expenses in calculating the profits of the trade.

(2) 15In determining whether the condition in subsection (1)(b) is satisfied,
a deduction giving effect to a capital allowance is to be disregarded.

(3) In calculating the profits of the trade, a deduction is allowed under
this section for the expenses.

(4) But if, in connection with the making of the contribution, the
20contributor or a connected person—

(a) receives a disqualifying benefit, or

(b) is entitled to receive such a benefit,

no deduction is allowed.

(5) For the purposes of subsection (4) it does not matter whether a
25person receives, or is entitled to receive, the benefit—

(a) from the carrying out of the project, or

(b) from any person.

(6) Subsection (7) applies if—

(a) a deduction has been made under this section in relation to
30the contribution, and

(b) the contributor or a connected person receives—

(i) a refund of any part of the contribution, if the
contribution is a sum of money, or

(ii) compensation for any part of the contribution, if the
35contribution is the provision of services,

in money or money’s worth.

(7) The amount of, or an amount equal to the value of, the refund or
compensation (so far as not otherwise brought into account in
calculating the profits of the trade or treated as a post-cessation
40receipt)—

(a) is brought into account in calculating the profits of the trade,
as a receipt arising on the date on which the refund or
compensation is received, or

(b) if the contributor has permanently ceased to carry on the
trade before that date, is treated as a post-cessation receipt
(see Chapter 18).

(8) In this section “disqualifying benefit” means a benefit consisting of
5money or other property, but it does not include—

(a) a refund of the contribution, if the contribution is a sum of
money;

(b) compensation for the contribution, if the contribution is the
provision of services;

(c) 10a structure that—

(i) is or is to be used for the purposes of flood or coastal
erosion risk management, and

(ii) is put in place in carrying out the project;

(d) an addition to a structure where—

(i) 15the structure is or is to be used for the purposes of
flood or coastal erosion risk management, and

(ii) the addition is made in carrying out the project;

(e) land, plant or machinery that is or is to be used, in the
realization of the project, for the purposes of flood or coastal
20erosion risk management;

(f) a right over land that is or is to be used, in the realization of
the project, for the purposes of flood or coastal erosion risk
management.

(9) In subsection (8) “structure” includes road, path, pipe, earthwork,
25plant and machinery.

86B Interpretation of section 86A

(1) This section applies for the purposes of section 86A.

(2) A flood or coastal erosion risk management project is a qualifying
project if—

(a) 30an English risk management authority has applied to the
Environment Agency for a grant under section 16 of the
Flood and Water Management Act 2010 in order to fund the
project, or

(b) the Environment Agency has determined that it will carry
35out the project,

and the Environment Agency has allocated funding by way of grant-
in-aid to the project.

(3) A contribution to a flood or coastal erosion risk management project
is a qualifying contribution if the contribution is made—

(a) 40for the purposes of the project, and

(b) under an agreement between—

(i) the person making the contribution, and

(ii) the applicant authority or (as the case may be) the
Environment Agency,

45or between those two persons and other persons.

(4) References to a flood risk management project or a coastal erosion
risk management project are to be interpreted in accordance with
sections 1 to 3 of the Flood and Water Management Act 2010.

(5) In section 86A and this section—

• 5“contribution”, in relation to a period of account, means—

  (a)

  a sum of money paid in that period of account, or

  (b)

  any services provided in that period of account;

• “English risk management authority” has the meaning given by
  section 6(14) of the Flood and Water Management Act 2010.”

10Income tax: profits of a property business

2 In section 272 of ITTOIA 2005 (application of trading income rules), in the
table in subsection (2), after the entry for sections 82 to 86 insert—

15Corporation tax: trading income and trade profits

3 In Chapter 5 of Part 3 of CTA 2009 (trading income and trade profits: rules
allowing deductions), after section 86 insert—

“Contributions to flood and coastal erosion risk management projects

86A Contributions to flood and coastal erosion risk management projects

(1) 20This section applies if—

(a) a company carrying on a trade (“the contributor”) incurs
expenses in making a qualifying contribution to a qualifying
flood or coastal erosion risk management project, and

(b) a deduction would not otherwise be allowable for the
25expenses in calculating the profits of the trade.

(2) In determining whether the condition in subsection (1)(b) is satisfied,
a deduction giving effect to a capital allowance is to be disregarded.

(3) In calculating the profits of the trade, a deduction is allowed under
this section for the expenses.

(4) 30But if, in connection with the making of the contribution, the
contributor or a connected person—

(a) receives a disqualifying benefit, or

(b) is entitled to receive such a benefit,

no deduction is allowed.

(5) 35For the purposes of subsection (4) it does not matter whether a
person receives, or is entitled to receive, the benefit—

(a) from the carrying out of the project, or

(b) from any person.

(6) Subsection (7) applies if—

(a) a deduction has been made under this section in relation to
the contribution, and

(b) the contributor or a connected person receives—

(i) a refund of any part of the contribution, if the
5contribution is a sum of money, or

(ii) compensation for any part of the contribution, if the
contribution is the provision of services,

in money or money’s worth.

(7) The amount of, or an amount equal to the value of, the refund or
10compensation (so far as not otherwise brought into account in
calculating the profits of the trade or treated as a post-cessation
receipt)—

(a) is brought into account in calculating the profits of the trade,
as a receipt arising in the accounting period in which the
15refund or compensation is received, or

(b) if the contributor has permanently ceased to carry on the
trade before the refund or compensation is received, is
treated as a post-cessation receipt (see Chapter 15).

(8) In this section “disqualifying benefit” means a benefit consisting of
20money or other property, but it does not include—

(a) a refund of the contribution, if the contribution is a sum of
money;

(b) compensation for the contribution, if the contribution is the
provision of services;

(c) 25a structure that—

(i) is or is to be used for the purposes of flood or coastal
erosion risk management, and

(ii) is put in place in carrying out the project;

(d) an addition to a structure where—

(i) 30the structure is or is to be used for the purposes of
flood or coastal erosion risk management, and

(ii) the addition is made in carrying out the project;

(e) land, plant or machinery that is or is to be used, in the
realization of the project, for the purposes of flood or coastal
35erosion risk management;

(f) a right over land that is or is to be used, in the realization of
the project, for the purposes of flood or coastal erosion risk
management.

(9) In subsection (8) “structure” includes road, path, pipe, earthwork,
40plant and machinery.

86B Interpretation of section 86A

(1) This section applies for the purposes of section 86A.

(2) A flood or coastal erosion risk management project is a qualifying
project if—

(a) 45an English risk management authority has applied to the
Environment Agency for a grant under section 16 of the
Flood and Water Management Act 2010 in order to fund the
project, or

(b) the Environment Agency has determined that it will carry
out the project,

and the Environment Agency has allocated funding by way of grant-
in-aid to the project.

(3) 5A contribution to a flood or coastal erosion risk management project
is a qualifying contribution if the contribution is made—

(a) for the purposes of the project, and

(b) under an agreement between—

(i) the company making the contribution, and

(ii) 10the applicant authority or (as the case may be) the
Environment Agency,

or between those two bodies and other persons.

(4) References to a flood risk management project or a coastal erosion
risk management project are to be interpreted in accordance with
15sections 1 to 3 of the Flood and Water Management Act 2010.

(5) In section 86A and this section—

• “contribution”, in relation to an accounting period, means—

  (a)

  a sum of money paid in that accounting period, or

  (b)

  any services provided in that accounting period;

• 20“English risk management authority” has the meaning given by
  section 6(14) of the Flood and Water Management Act 2010.”

Corporation tax: profits of a property business

4 In section 210 of CTA 2009 (application of trading income rules), in the table
in subsection (2), after the entry for sections 82 to 86 insert—

Corporation tax: investment business

5 In Chapter 2 of Part 16 of CTA 2009 (investment business: management
expenses), in section 1221 (amounts treated as expenses of management), in
30subsection (3), after paragraph (i) insert—

“(ia) section 1244A (contributions to flood and coastal erosion risk
management projects),”.

6 In Chapter 3 of Part 16 of CTA 2009 (investment business: amounts treated
as expenses of management), after section 1244 insert—

35“Contributions to flood and coastal erosion risk management projects

1244A Contributions to flood and coastal erosion risk management projects

(1) This section applies if a company with investment business (“the
contributor”) incurs expenses in making a qualifying contribution to
a qualifying flood or coastal erosion risk management project.

(2) The expenses are treated for the purposes of Chapter 2 as expenses
of management.

(3) But if, in connection with the making of the contribution, the
contributor or a connected person—

(a) 5receives a disqualifying benefit, or

(b) is entitled to receive such a benefit,

no deduction is allowed under section 1219.

(4) For the purposes of subsection (3) it does not matter whether a
person receives, or is entitled to receive, the benefit—

(a) 10from the carrying out of the project, or

(b) from any person.

(5) In this section “disqualifying benefit” means a benefit consisting of
money or other property, but it does not include—