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

Part 3 Part 6 of ITA 2007: excluded activities from 6 April 2015

Introductory

6 The following provisions of Part 6 of ITA 2007 (venture capital trusts) are
5amended as set out in paragraphs 7 and 8—

(a) section 309A (excluded activities for purposes of Part 6: subsidised
generation or export of electricity), and

(b) section 309B (excluded activities for those purposes: subsidised
generation of heat and subsidised production of gas or fuel).

10Generation of electricity involving contracts for difference

7 In section 309A—

(a) in subsection (3), omit “or” at the end of paragraph (b) and for
paragraph (c) substitute—

“(ba) a contract for difference has been entered into in
15connection with the generation of the electricity, or

(c) a scheme established in a territory outside the United
Kingdom that—

(i) corresponds to one set out in a renewables
obligation order under section 32 of the
20Electricity Act 1989, or

(ii) is similar to one established by virtue of
regulations under Chapter 2 of Part 2 of the
Energy Act 2013 (contracts for difference),

operates to incentivise the generation of the
25electricity.”, and

(b) in subsection (9), at the appropriate place insert—

• ““contract for difference” means a contract for difference
  within the meaning of Chapter 2 of Part 2 of the
  Energy Act 2013 (see section 6(2) of that Act);”.

30Subsidised energy-related activities: anaerobic digestion and hydroelectric power

8 (1) In section 309A—

(a) in subsection (5), omit “, B or C” (exceptions for generation involving
anaerobic digestion and hydroelectric power),

(b) omit subsections (7) and (8), and

(c) 35in subsection (9), omit the definition of “anaerobic digestion”.

(2) In section 309B—

(a) in subsection (3), omit “or B” (exception for generation or production
involving anaerobic digestion), and

(b) omit subsection (5).

40Application

9 The amendments made by this Part of this Schedule have effect in relation
to relevant holdings issued on or after 6 April 2015.

Part 4 Further amendments of Parts 5 to 6 of ITA 2007

Parts 5 and 6: certain community-based activities to be excluded activities

10 (1) Part 5 of ITA 2007 is further amended as follows.

(2) 5In section 198A—

(a) omit subsections (5) and (6) (exception for community-based
generation), and

(b) in subsection (9), omit the definitions of “community benefit
society”, “co-operative society” and “NI industrial and provident
10society”.

(3) In section 198B—

(a) omit subsections (3) and (4) (exception for community-based
generation or production), and

(b) omit subsection (6) (interpretation of section).

11 (1) 15Part 6 of ITA 2007 is further amended as follows.

(2) In section 309A—

(a) omit subsections (5) and (6) (exception for community-based
generation), and

(b) in subsection (9), omit the definitions of “community benefit
20society”, “co-operative society” and “NI industrial and provident
society”.

(3) In section 309B—

(a) omit subsections (3) and (4) (exception for community-based
generation or production), and

(b) 25omit subsection (6) (interpretation of section).

12 In consequence of paragraphs 10 and 11—

(a) in FA 2014, omit section 56(3)(b) and (6)(b), and

(b) in the Co-operative and Community Benefit Societies Act 2014, omit
paragraphs 106 and 107 of Schedule 4.

30Part 5B: subsidised generation or export of electricity to cease to be excluded activity

13 (1) Part 5B of ITA 2007 is further amended as follows.

(2) In section 257MQ(1) (list of excluded activities) omit paragraph (f)
(subsidised generation or export of electricity).

(3) Omit section 257MS (subsidised generation or export of electricity).

35Application of Part

14 (1) The amendments made by this Part of this Schedule have effect in
accordance with regulations made by the Treasury.

(2) Regulations under this paragraph may make different provision for
different purposes.

(3) Section 1014(4) of ITA 2007 (regulations etc subject to annulment) does not
apply in relation to regulations under this paragraph.

(4) Regulations under this paragraph may not provide for amendments of ITA
2007 to have effect—

(a) 5in the case of amendments of Part 5 of that Act, in relation to shares
issued before 6 April 2015;

(b) in the case of amendments of Part 6 of that Act, in relation to relevant
holdings issued before 6 April 2015.

Section 37

SCHEDULE 7 10Disposals of UK residential property interests by non-residents etc

Part 1 Amendments of TCGA 1992

1 TCGA 1992 is amended in accordance with paragraphs 2 to 40.

2 In section 1 (the charge to tax), in subsection (2A), for the words from “gains
15are” to the end substitute “gains are—

(a) ATED-related gains in respect of which the companies are
chargeable to capital gains tax under section 2B, or

(b) NRCGT gains in respect of which the companies are
chargeable to capital gains tax under section 14D or 188D.”

3 (1) 20Section 2 (persons and gains chargeable to capital gains tax, and allowable
losses) is amended as follows.

(2) After subsection (2) insert—

“(2A) Where subsection (1B) applies, the amounts that may be deducted
under subsection (2)(a) include any allowable NRCGT losses
25accruing to the person in the overseas part of the tax year concerned
(see section 14B(4)).

(2B) The amounts that may be deducted under subsection (2)(b) include
any allowable NRCGT losses (other than group losses, as defined in
section 188E(4)) accruing to the person in a tax year (“year P”)
30previous to the year mentioned in subsection (2)(a) (so far as those
losses have not been allowed as a deduction from chargeable gains
accruing in year P or any previous year).”

(3) After subsection (7A) insert—

“(7B) Except where otherwise specified (see subsections (2A) and (2B)),
35nothing in this section applies in relation to an NRCGT gain
chargeable to, or an NRCGT loss allowable for the purposes of,
capital gains tax by virtue of section 14D or 188D.”

4 In section 2B (persons chargeable to capital gains tax on ATED-related
gains), in subsection (10), in paragraph (b) of the definition of “ring-fenced
40ATED-related allowable losses”, for “from ATED-related chargeable gains

accruing in any previous tax year on relevant high value disposals,”
substitute “from chargeable gains accruing in any previous tax year,”.

5 (1) Section 3 (annual exempt amount) is amended as follows.

(2) In subsection (5), for the words from “is the amount” to the end substitute “is
5(what would apart from this section be) the total of the amounts for that year
on which that individual is chargeable to capital gains tax in accordance
with either (or both) of—

“(a) section 2 (gains, other than ATED-related gains and NRCGT
gains, chargeable to capital gains tax), and

(b) 10section 14D (NRCGT gains chargeable to capital gains tax).”

(3) After subsection (5B) insert—

“(5BA) In this section, “adjusted net gains”, in relation to a tax year and an
individual, means—

(a) if the residence condition is met (see section 2(1A)) and the
15year is not a split year as respects the individual, the section
2 adjusted net gains;

(b) if the residence condition is not met, the section 14D adjusted
net gains;

(c) if the residence condition is met and the year is a split year as
20respects the individual the total of the section 2 adjusted net
gains (if any) and the section 14D adjusted net gains (if any).”

(4) In subsection (5C), for the words from “In subsections” to “in his case by—”
substitute “In subsection (5BA) “section 2 adjusted net gains”, in relation to
an individual and a tax year, means the amount given in the individual’s
25case by—”.

(5) After subsection (5C) insert—

“(5D) In subsection (5BA) “section 14D adjusted net gains”, in relation to an
individual and a tax year, means the amount given in the
individual’s case by—

(a) 30taking the amount from which the deductions provided for
by paragraphs (a) and (b) of subsection 14D(2) are to be
made, and

(b) deducting only the amounts falling to be deducted in
accordance with paragraph (a) of that subsection.”

(6) 35In subsection (7), for “(5C)” substitute “(5D)”.

6 In section 4 (rates of capital gains tax), after subsection (3A) insert—

“(3B) The rate of capital gains tax is 20% in respect of—

(a) gains chargeable under section 14D accruing to a company in
a tax year, and

(b) 40gains chargeable under section 188D accruing in a tax year to
the relevant body of an NRCGT group (as defined in that
section).”

7 For section 4B (deduction of losses etc in most beneficial way) substitute—

“4B Deduction of losses etc in most beneficial way

(1) 45Where it is necessary to determine—

(a) from which chargeable gains an allowable loss accruing to a
person is to be deducted, or

(b) which allowable losses are to be deducted from any
chargeable gains accruing to a person,

5(including in a case falling within subsection (2)), the losses
concerned may be used in whichever way is most beneficial to that
person.

(2) Where the gains accruing to a person in a tax year are (apart from this
section) chargeable to capital gains tax at different rates, the exempt
10amount under section 3 may be used in respect of those gains in
whichever way is most beneficial to that person.

(3) This section is subject to any enactment which contains a limitation
on the gains from which allowable losses may be deducted.”

8 (1) Section 8 (company’s profits for corporation tax purposes to include
15chargeable gains) is amended as follows.

(2) In subsection (1), in paragraph (b), omit the words from “period” to the end
and insert “period—

(i) any allowable losses previously accruing to the
company while it has been within the charge to
20corporation tax, and

(ii) any allowable NRCGT losses previously accruing
to the company.”

(3) After subsection (4A) insert—

“(4B) Subject to subsection (1)(b)(ii), nothing in this section applies in
25relation to an NRCGT gain chargeable to, or an NRCGT loss
allowable for the purposes of, capital gains tax by virtue of section
14D or 188D.”

9 In section 10A (temporary non-residents), as that section has effect where the
year of departure (as defined in Part 4 of Schedule 45 to FA 2013) is the tax
30year 2012-13 or an earlier tax year, in subsection (5) after “section 10” insert
“, 14D”.

10 In section 13 (attribution of gains to members of non-resident companies), in
subsection (1A), for the words from “an ATED-related gain” to the end
substitute—

“(a) 35an ATED-related gain chargeable to capital gains tax by
virtue of section 2B (capital gains tax on ATED-related
gains), or

(b) an NRCGT gain chargeable to capital gains tax by virtue of
section 14D or 188D (capital gains tax on NRCGT gains).”

11 40After section 14A insert—

“UK residential property: non-resident CGT

14B Meaning of “non-resident CGT disposal”

(1) For the purposes of this Act a disposal made by a person is a “non-
resident CGT disposal” if—

(a) 45it is a disposal of a UK residential property interest, and

(b) condition A or B is met.

But see also subsection (5).

(2) Condition A is—

(a) in the case of an individual, that the individual is not resident
5in the United Kingdom for the tax year in question (see
subsection (3)),

(b) in the case of personal representatives of a deceased person,
that the single and continuing body mentioned in section
62(3) is not resident in the United Kingdom,

(c) 10in the case of the trustees of a settlement, that the single
person mentioned in section 69(1) is not resident in the
United Kingdom during any part of the tax year in question,
and

(d) in any other case, that the person is not resident in the United
15Kingdom at the relevant time.

(3) In subsection (2)—

(a) “the tax year in question” means the tax year in which any
gain on the disposal accrues (or would accrue, were there to
be such a gain);

(b) 20“the relevant time” means the time at which any gain on the
disposal accrues (or would accrue were there to be such a
gain).

(4) Condition B is that—

(a) the person is an individual, and

(b) 25any gain accruing to the individual on the disposal would
accrue in the overseas part of a tax year which is a split year
as respects the individual.

(5) A disposal by a person of a UK residential property interest is not a
non-resident CGT disposal so far as any chargeable gains accruing to
30the person on the disposal—

(a) would be gains in respect of which the person would be
chargeable to capital gains tax—

(i) under section 10(1) (non-resident with UK branch or
agency), or

(ii) 35under section 2 as a result of subsection (1C) of that
section (corresponding provision relating to the
overseas part of a split year), or

(b) would be gains forming part of the person’s chargeable
profits for corporation tax purposes by virtue of section 10B
40(non-resident company with UK permanent establishment).

14C Meaning of “disposal of a UK residential property interest”

Schedule B1 gives the meaning in this Act of “disposal of a UK
residential property interest”.

14D Persons chargeable to capital gains tax on NRCGT gains

(1) 45A person is chargeable to capital gains tax in respect of any
chargeable NRCGT gain accruing to the person in the tax year on a
non-resident CGT disposal.

See also section 188D(1).

(2) Capital gains tax is charged on the total amount of chargeable
NRCGT gains accruing to the person in the tax year, after
5deducting—

(a) any allowable losses accruing to the person in the tax year on
disposals of UK residential property interests, and

(b) so far as they have not been allowed as a deduction from
chargeable gains accruing in any previous tax year, any
10allowable losses accruing to the person in any previous tax
year (not earlier than the tax year 1965-66) on disposals of UK
residential property interests.

(3) In subsection (2), the reference to chargeable NRCGT gains does not
include any such gains which accrue to a member of an NRCGT
15group.

(4) The only deductions that can be made from chargeable NRCGT
gains to which subsection (2) applies are those permitted by this
section.

This is subject to section 62(2AA) (carry-back of losses accruing in
20year of death).

(5) See section 57B and Schedule 4ZZB for how to determine—

(a) whether an NRCGT gain (or loss) accrues on a non-resident
CGT disposal, and

(b) the amount of any NRCGT gain (or loss) so accruing.

14E 25Further provision about use of NRCGT losses

(1) Subsections (2) to (4) apply in relation to an allowable NRCGT loss
accruing to a person in a tax year on a non-resident CGT disposal.

(2) The loss is not allowable as a deduction from chargeable gains
accruing in any earlier tax year.

30This is subject to section 62(2) and (2AA) (carry-back of losses
accruing in year of death).

(3) Relief is not to be given under this Act more than once in respect of
the loss or any part of the loss.

(4) Relief is not to be given under this Act in respect of the loss if, and so
35far as, relief has been or may be given in respect of it under the Tax
Acts.

14F Persons not chargeable under section 14D if a claim is made

(1) A person is not chargeable to capital gains tax under section 14D in
respect of a chargeable NRCGT gain accruing to the person on a non-
40resident CGT disposal if the person—

(a) is an eligible person in relation to the disposal, and

(b) makes a claim under this section with respect to the disposal.

(2) A diversely-held company which makes a non-resident CGT
disposal is an eligible person in relation to the disposal.

(3) A scheme (see subsection (7)) which makes a non-resident CGT
disposal is an eligible person in relation to the disposal if condition
A or B is met.

(4) Condition A is that the scheme is a widely-marketed scheme
5throughout the relevant ownership period.

(5) Condition B is that—

(a) an investor in the scheme is an offshore fund, an open-ended
investment company or an authorised unit trust (“the feeder
fund”),

(b) 10the scheme is a widely-marketed scheme throughout the
alternative period, after taking into account—

(i) the scheme documents relating to the feeder fund,
and

(ii) the intended investors in the feeder fund, and

(c) 15the scheme and the feeder fund have the same manager.

(6) A company carrying on life assurance business (as defined in section
56 of the Finance Act 2012) which makes a non-resident CGT
disposal is an eligible person if immediately before the time of the
disposal the interest in UK land which is the subject of that disposal
20is held for the purpose of providing benefits to policyholders in the
course of that business.

(7) In this section “scheme” means any of the following—

(a) a unit trust scheme;

(b) a company which is an open-ended investment company
25incorporated by virtue of regulations under section 262 of the
Financial Services and Markets Act 2000;

(c) a company incorporated under the law of a territory outside
the United Kingdom which is, under that law, the equivalent
of an open-ended investment company.

(8) 30In this section “the relevant ownership period”, in relation to a
scheme, means—

(a) the period beginning with the day on which the scheme
acquired the interest in UK land which (or part of which) is
the subject of the non-resident CGT disposal and ending with
35the day on which that disposal occurs, or

(b) if shorter, the period of 5 years ending with the day on which
that disposal occurs.

(9) For the purposes of subsection (5), the “alternative period”, in
relation to a scheme, is the shorter of—

(a) 40the relevant ownership period, and

(b) the period beginning when the feeder fund first became an
investor in the scheme and ending with the date of the
disposal.

(10) In this section—

• 45“diversely-held company” means a company which is not a
  closely-held company;

• “interest in UK land” has the same meaning as in Schedule B1;

Finance (No. 2) BillPage 188

• “open-ended investment company” has the same meaning as in
  Part 17 of the Financial Services and Markets Act 2000 (see
  section 236 of that Act).

(11) In Schedule C1—

(a) 5Part 1 sets out the rules for determining whether or not a
company is a closely-held company;

(b) Part 2 sets out how to determine whether or not a scheme is
a widely-marketed scheme at any time.

14G Section 14F: divided companies

(1) 10This section applies where a company which makes a non-resident
CGT disposal—

(a) is a divided company;

(b) would, without this section, be an eligible person for the
purposes of section 14F in relation to the disposal.

(2) 15In determining for the purposes of section 14F whether or not the
company is an eligible company in relation to the disposal, the
company is to be treated as if it were a closely-held company if the
conditions in subsection (3) are met.

(3) The conditions are that—

(a) 20the gain or loss accruing on the disposal is primarily or
wholly attributable to a particular division of the company,
and

(b) if that division were a separate company, that separate
company would be a closely-held company.

(4) 25For the purposes of this section a company is a “divided company”
if, under the law under which the company is formed, under the
company’s articles of association or other document regulating the
company or under arrangements entered into by or in relation to the
company—

(a) 30some or all of the assets of the company are available
primarily, or only, to meet particular liabilities of the
company, and

(b) some or all of the members of the company, and some or all
of its creditors, have rights primarily, or only, in relation to
35particular assets of the company.

(5) References in this section to a “division” of a divided company are to
an identifiable part of the company that carries on distinct business
activities and to which particular assets and liabilities of the
company are primarily or wholly attributable.

14H 40Section 14F: arrangements for avoiding tax

(1) Subsection (2) applies where—

(a) arrangements are entered into, and

(b) the main purpose, or one of the main purposes, of any party
entering into them (or any part of them) is to avoid capital
45gains tax being charged under section 14D as a result of a
person not being an eligible person in relation to the disposal
by virtue of subsection (2) (diversely-held companies) or, as

the case may be, subsection (3) (widely-marketed schemes) of
section 14F (persons not chargeable under section 14D if a
claim is made).

(2) The arrangements (or that part of the arrangements) are to be
5disregarded in determining whether or not the company is an
eligible person by virtue of that subsection.

(3) In this section “arrangements” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).”

12 10In section 16 (computation of losses), in subsection (3), for “or 10B,”
substitute “, 10B, 14D or 188D”.

13 After section 25 insert—

“25ZA Deemed disposal of UK residential property interest under section
25(3)

(1) 15This section applies if, ignoring subsections (3) and (4)—

(a) a gain or loss would accrue to a person on a disposal of a UK
residential property interest deemed to have been made by
virtue of section 25(3), and

(b) on the assumptions in subsection (2), that gain or loss would
20be an NRCGT gain chargeable to, or an NRCGT loss
allowable for the purposes of, capital gains tax by virtue of
section 14D (see section 57B and Schedule 4ZZB).

(2) The assumptions are—

(a) the disposal is a non-resident CGT disposal, and

(b) 25if the person is a company, any claim which the company
could make under section 14F is made.

(3) No gain or loss accrues to the person on that disposal.

(4) But, on a subsequent disposal of the whole or part of the interest in
UK land which is the subject of the disposal mentioned in subsection
30(1)(a), the whole or a corresponding part of the gain or loss which
would have accrued to the person were it not for subsection (3)—

(a) is deemed to accrue to the person (in addition to any gain or
loss that actually accrues on that subsequent disposal), and

(b) (if that would not otherwise be the case) is to be treated as an
35NRCGT gain chargeable to, or an NRCGT loss allowable for
the purposes of, capital gains tax by virtue of section 14D
accruing on a non-resident CGT disposal.

(5) A person may make an election for subsections (3) and (4) not to
apply in relation to the disposal mentioned in subsection (1)(a).

(6) 40If the person is a company, such an election must be made within 2
years after the day on which the company ceases to carry on a trade
in the United Kingdom through a branch or agency.

(7) In this section, “interest in UK land” has the meaning given by
paragraph 2 of Schedule B1.”