Finance (No. 2) Bill (HC Bill 155)

(5) If the scheme is a public service pension scheme, ignore any
abatement when identifying at sub-paragraph (2)(b) the annual rate
of any scheme pension under the scheme.

16AE (1) In paragraphs 16AC(3) and 16AD(3), U% means the highest of—

(a) 55%,

(b) CPI% (see sub-paragraph (2)), and

(c) RPI% (see sub-paragraph (3)).

(2) If the consumer prices index for September in year P is higher than
the consumer prices index for September in the tax year preceding
10year P, CPI% is the percentage increase in the index (but is otherwise
0%).

(3) If the retail prices index for September in year P is higher than the
retail prices index for September in the tax year preceding year P,
RPI% is the percentage increase in the index (but is otherwise 0%).

(4) 15In this paragraph “year P” has the same meaning as in paragraph
16AC or (as the case may be) paragraph 16AD.”

(4) In paragraph 16B (limit in post-death year)—

(a) in sub-paragraph (3)(c), for “amounts” substitute “uprated amounts
(see sub-paragraph (6))”, and

(b) 20after sub-paragraph (5) insert—

“(6) The “uprated amount” of a lump sum is the amount of the
lump sum increased by the higher of C% and R%, where—

(a) if the consumer prices index for the month in which
the member dies is higher than it was for the month in
25which the member became entitled to the lump sum,
C% is the percentage increase in the index (but is
otherwise 0%), and

(b) if the retail prices index for the month in which the
member dies is higher than it was for the month in
30which the member became entitled to the lump sum,
R% is the percentage increase in the index (but is
otherwise 0%).”

(5) In paragraph 16C (limit in subsequent years)—

(a) in sub-paragraph (3)(a), omit “period of”,

(b) 35in sub-paragraph (3)(b), for “subsection” substitute “sub-paragraph”,

(c) for sub-paragraphs (4) and (5) substitute—

“(4) The condition is that if the annual rate of a pension payable
under the pension scheme to a dependant of the member is
increased at any time in the period of 12 months in
40question—

(a) the dependant is at that time one of a group of at least
20 pensioner members of the pension scheme, and

(b) all the pensions being paid under the pension scheme
to pensioner members of that group are at that time
45increased at the same rate.”,”

(d) in sub-paragraph (6)—

(i) for “month period” substitute “months”, and

(ii) for the words after “increased by” substitute “the permitted
margin.”,

(e) in sub-paragraph (8)(a), for “end of the post-death year” substitute
“member’s death”,

(f) 5in sub-paragraph (8)(b), after “first month” insert “ending after the
start”,

(g) in sub-paragraph (11), for “opening month” substitute “month in which
the member died”, and

(h) omit sub-paragraphs (13) and (14).

(6) 10The amendments made by this section are treated as having come into force on
6 April 2016.

(7) The amendments made by subsections (2) to (4), so far as they relate to
paragraph 16B of Schedule 28 to FA 2004, have effect where the last day of “the
post-death year” (see sub-paragraph (1) of that paragraph) is 6 April 2016 or
15any later day.

(8) The following amendments—

(a) the amendments made by subsections (2) to (4), so far as they relate to
paragraph 16C of Schedule 28 to FA 2004, and

(b) the amendments made by subsection (5),

20have effect where the last day of “the 12 months in question” (see sub-
paragraph (1) of that paragraph) is 6 April 2016 or any later day.

22 Pension flexibility

Schedule 5 makes amendments in connection with pension flexibility.

23 Netherlands Benefit Act for Victims of Persecution 1940-1945

(1) 25After section 642 of ITEPA 2003 insert—

“642A Netherlands Benefit Act for Victims of Persecution 1940-1945

No liability to income tax arises on a pension, annuity, allowance or
other payment provided in accordance with the provisions of the
scheme established under the law of the Netherlands and known as
30Wet uitkeringen vervolgingsslachtoffers 1940-1945.”

(2) The amendment made by this section has effect for the tax year 2016-17 and
subsequent tax years.

Trading and other income

24 Fixed-rate deductions for use of home for business purposes

(1) 35In Part 2 of ITTOIA 2005 (trading income), Chapter 5A (trade profits:
deductions allowable at a fixed rate) is amended as follows.

(2) Section 94H (use of home for business purposes) is amended as follows.

(3) In subsection (1), for the words from “in respect of” to the end substitute “in
respect of—

“(a) 40the use of the person’s home for the purposes of the trade, or

(b) where the person is a firm, the use of a partner’s home for those
purposes.”

(4) In subsection (4), for the words from “work done” to the end substitute
“qualifying work”.

(5) 5After subsection (4) insert—

“(4A) “Qualifying work” means—

(a) work done by the person, or any employee of the person, in the
person’s home wholly and exclusively for the purposes of the
trade, or

(b) 10where the person is a firm, work done by a partner, or any
employee of the firm, in the partner’s home wholly and
exclusively for those purposes.

(4B) Where more than one person does qualifying work in the same home
at the same time, any hour spent wholly and exclusively on that work
15is to be taken into account only once for the purposes of subsection (4).”

(6) In subsection (5), after “person” insert “, or, where the person is a firm, a
partner of the firm,”.

(7) After subsection (5) insert—

“(5A) Where a firm makes a deduction for a period under this section in
20respect of the use of a partner’s home for the purposes of a trade, the
only deduction which the firm may make for the period in respect of
the use of any other partner’s home for those purposes is a deduction
under this section.”

(8) Section 94I (premises used both as a home and as business premises) is
25amended as follows.

(9) In subsection (1)(b), for “used by the person as a home,” substitute “used as a
home by—

“(i) the person carrying on the trade, or

(ii) where that person is a firm, a partner of the firm,”.

(10) 30After subsection (6) insert—

“(6A) Where a person makes a deduction for a period under this section in
respect of expenses incurred in relation to premises falling within
subsection (1)(b), the only deduction which the person may make for
the period in respect of expenses incurred in relation to any other
35premises falling within subsection (1)(b) is a deduction under this
section.”

(11) The amendments made by this section have effect for the tax year 2016-17 and
subsequent tax years.

25 Averaging profits of farmers etc

(1) 40Chapter 16 of Part 2 of ITTOIA 2005 (averaging profits of farmers and creative
artists) is amended as specified in subsections (2) to (7).

(2) In section 221 (claim for averaging of fluctuating profits)—

(a) in subsection (2), at the beginning insert “For the purposes of section
222 (two-year averaging)”;

(b) after that subsection insert—

“(2A) For the purposes of section 222A (five-year averaging), a trade,
5profession or vocation is a “qualifying trade, profession or
vocation” if it falls within subsection (2)(a) or (b).”;

(c) in subsection (3), for “this purpose” substitute “the purpose of
subsection (2)”.

(3) After section 222 insert—

“222A 10 Circumstances in which claim for five-year averaging may be made

(1) An averaging claim may be made under this section in relation to five
consecutive tax years in which a taxpayer is or has been carrying on the
qualifying trade, profession or vocation if the volatility condition in
subsection (2) is met.

(2) 15The volatility condition is that—

(a) one of the following is less than 75% of the other—

(i) the average of the relevant profits of the first four tax
years to which the claim relates;

(ii) the relevant profits of the last of the tax years to which
20the claim relates; or

(b) the relevant profits of one or more (but not all) of the five tax
years to which the claim relates are nil.

(3) Any of the first four tax years to which an averaging claim under this
section relates may be a tax year in relation to which an averaging claim
25under this section or section 222 has already been made.

(4) An averaging claim (“the subsequent claim”) may not be made under
this section if an averaging claim in respect of the trade, profession or
vocation has already been made under this section or section 222 in
relation to a tax year which is later than the last of the tax years to which
30the subsequent claim relates.

(5) An averaging claim may not be made under this section in relation to
the tax year in which the taxpayer starts, or permanently ceases, to
carry on the trade, profession or vocation.

(6) An averaging claim under this section must be made on or before the
35first anniversary of the normal self-assessment filing date for the last of
the tax years to which the claim relates.

(7) But see section 225(4) (extended time limit if profits adjusted for some
other reason).”

(4) In section 222 (circumstances in which claim may be made)—

(a) 40in the heading, after “claim” insert “for two-year averaging”;

(b) in subsection (1), after “made” insert “under this section”;

(c) for subsection (2) substitute—

“(2) The earlier of the two years to which an averaging claim under
this section relates may be a tax year in relation to which an
45averaging claim under this section or section 222A has already
been made.”;

(d) in subsection (3)—

(i) after “made”, in the first place, insert “under this section”;

(ii) after “made”, in the second place, insert “under this section or
section 222A”;

(e) 5in subsection (4), after “made” insert “under this section”;

(f) in subsection (5), after “averaging claim” insert “under this section”.

(5) In section 223 (adjustment of profits)—

(a) in subsection (2), for “second of the two tax years” substitute “last of the
two or five tax years”;

(b) 10for subsection (3) substitute—

“(3) The amount of the adjusted profits of each of the tax years to
which the claim relates is the average of the relevant profits of
those tax years.”;

(c) omit subsection (4).

(6) 15In section 224 (effect of adjustment)—

(a) in subsection (4), for “either” substitute “any”;

(b) in subsection (6), for “second of the two tax years” substitute “last of the
two or five tax years”.

(7) In section 225 (effect of later adjustment of profits), in subsection (1), for “either
20or both” substitute “any one or more”.

(8) In section 31C of ITTOIA 2005 (excluded provisions), in subsection (6), for
“section 221” substitute “Chapter 16”.

(9) In section 1025 of ITA 2007 (meaning of “modified net income”), in subsection
(2)(d), for “the earlier of the tax years” substitute “any earlier tax year”.

(10) 25In paragraph 3 of Schedule 1B to TMA 1970 (relief for fluctuating profits of
farmers etc)—

(a) in sub-paragraph (1), for the words from “for two” to the end
substitute—

“(a) in the case of a two-year claim, for two consecutive
30years of assessment, and

(b) in the case of a five-year claim, for five consecutive
years of assessment.”;

(b) in sub-paragraph (2), for “the later year” substitute “the last of the two
or five years”;

(c) 35in sub-paragraph (3), for “the earlier year”, where it occurs first,
substitute “an earlier year”;

(d) in sub-paragraph (5)—

(i) for “the earlier year” substitute “an earlier year”;

(ii) for “the later year” substitute “the last of the two or five years”;

(e) 40after sub-paragraph (6) insert—

“(7) In this paragraph—

• “two-year claim” means a claim under section 222 of
  ITTOIA 2005;

• “five-year claim” means a claim under section 222A of
  45ITTOIA 2005.”

(11) In paragraph 4 of Schedule 1B to TMA 1970 (relief claimed by virtue of section
224(4) of ITTOIA 2005)—

(a) in sub-paragraph (1)—

(i) after “for two” insert “or five”;

(ii) 5omit “(“the earlier year” and “the later year”)”;

(iii) for “either” substitute “any”;

(b) in sub-paragraph (2), for “the later year” substitute “the last of the two
or five years”;

(c) in sub-paragraph (3), for “the earlier year”, where it occurs first,
10substitute “an earlier year”;

(d) in sub-paragraph (5)—

(i) for “the earlier year” substitute “an earlier year”;

(ii) for “the later year” substitute “the last of the two or five years”.

(12) The amendments made by this section have effect for the tax year 2016-17 and
15subsequent tax years.

26 Relief for finance costs related to residential property businesses

(1) In ITTOIA 2005, for sections 274A and 274B and the preceding italic heading
(tax reductions for non-deductible costs of dwelling-related loans: individuals,
and accumulated or discretionary trust income) substitute—

““Tax reductions for non-deductible costs of a dwelling-related loan

274A 20 Reduction for individuals: entitlement

(1) If for a tax year an individual has—

(a) a relievable amount in respect of a property business, or

(b) two or more relievable amounts each in respect of a different
property business,

25the individual is entitled to relief under this section for that year in
respect of that relievable amount or (as the case may be) each of those
relievable amounts.

(2) An individual has a relievable amount for a tax year in respect of a
property business if for that year the individual has any one or more of
30the following in respect of that business—

(a) a current-year amount;

(b) a current-year estate amount;

(c) a brought-forward amount.

(3) An individual’s relievable amount for a tax year in respect of a property
35business is the total of—

(a) the individual’s current-year amount (if any) for that year in
respect of that business,

(b) the individual’s current-year estate amounts (if any) for that
year in respect of that business, and

(c) 40the individual’s brought-forward amount (if any) for that year
in respect of that business.

(4) An individual has a current-year amount for a tax year in respect of a
property business if—

(a) an amount (“A”) would be deductible in calculating the profits
for income tax purposes of that business for that year but for
section 272A,

(b) the individual is liable for income tax on N% of those profits,
5where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) that liability is not under Chapter 6 of Part 5 (estate income),

in which event the individual’s current-year amount for that tax year in
10respect of that business is equal to N% of A.

(5) An individual has a current-year estate amount for a tax year (“the
current year”), in respect of a property business and a particular
deceased person’s estate, if—

(a) an amount (“A”) would, but for section 272A, be deductible in
15calculating the profits for income tax purposes of that business
for a particular tax year (“the profits year”), whether that year is
the current year or an earlier tax year,

(b) the personal representatives of the deceased person are liable
for income tax on N% of those profits, where N is a number—

(i) 20greater than 0, and

(ii) less than or equal to 100,

(c) the individual is liable for income tax on estate income treated
under Chapter 6 of Part 5 as arising in the current year from an
interest in the estate, and

(d) 25the basic amount of that estate income consists of, or includes,
an amount representative of E% of the personal representatives’
N% of the profits of the business for the profits year, where E is
a number—

(i) greater than 0, and

(ii) 30less than or equal to 100,

in which event the individual’s current-year estate amount for the
current tax year, in respect of that business and estate and the profits
year, is equal to E% of N% of A.

(6) As to whether an individual has a brought-forward amount for a tax
35year in respect of a property business, see section 274AA(4).

(7) In this section and section 274AA—

• “estate income”, and

• “basic amount” in relation to any estate income,

have the same meaning as in Chapter 6 of Part 5 (see sections 649 and
40656(4)).

274AA Reduction for individuals: calculation

(1) This section applies if for a tax year an individual is entitled to relief
under section 274A in respect of a relievable amount or in respect of
each of two or more relievable amounts, and in the following
45subsections of this section “relievable amount” means that relievable
amount or (as the case may be) any of those relievable amounts.

(2) In respect of a relievable amount, the actual amount on which relief for
the year is to be given is (subject to subsection (3)) the amount (“L”) that
is the lower of—

(a) the relievable amount, and

(b) 5the total of—

(i) the profits for income tax purposes of the property
business concerned for the year after any deduction
under section 118 of ITA 2007 (“the adjusted profits”) or,
if less, the share (if any) of the adjusted profits on which
10the individual is liable to income tax otherwise than
under Chapter 6 of Part 5, and

(ii) so much (if any) of the relievable amount as consists of
current-year estate amounts.

(3) If S is greater than the individual’s adjusted total income for the year
15(“ATI”), the actual amount on which relief for the year is to be given in
respect of a relievable amount is given by—

(4) Where—

(a) a relievable amount,

25is greater than—

(b) the actual amount on which relief for the year is to be given in
respect of the relievable amount,

the difference is the individual’s brought-forward amount for the
following tax year in respect of the property business concerned.

(5) 30The amount of the relief for the year in respect of a relievable amount
is given by—

(6) For the purposes of this section, an individual’s adjusted total income
for a tax year is identified as follows—

Step 1

40Identify the individual’s net income for the year (see Step 2 of the
calculation in section 23 of ITA 2007).

Step 2

Exclude from that net income—

• so much of it as is within section 18(3) or (4) of ITA 2007 (income
  45from savings), and

• so much of it as is dividend income.

Step 3

Reduce what is left after Step 2 of this calculation by the amount of any
allowances deducted for the year in the individual’s case at Step 3 of the
calculation in section 23 of ITA 2007. The result is the individual’s
5adjusted total income for the year.

274B Reduction for accumulated or discretionary trust income: entitlement

(1) If for a tax year the trustees of a settlement have—

(a) a relievable amount in respect of a property business, or

(b) two or more relievable amounts each in respect of a different
10property business,

the trustees of the settlement are entitled to relief under this section for
that year in respect of that relievable amount or (as the case may be)
each of those relievable amounts.

(2) The trustees of a settlement have a relievable amount for a tax year in
15respect of a property business if for that year the trustees of the
settlement have a current-year amount, or brought-forward amount, in
respect of that business (or have both).

(3) In the case of trustees of a settlement, their relievable amount for a tax
year in respect of a property business is the total of—

(a) 20their current-year amount (if any) for that year in respect of that
business, and

(b) their brought-forward amount (if any) for that year in respect of
that business.

(4) The trustees of a settlement have a current-year amount for a tax year
25in respect of a property business if—

(a) an amount (“A”) would be deductible in calculating the profits
for income tax purposes of that business for that year but for
section 272A,

(b) the trustees of the settlement are liable for income tax on N% of
30those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) in relation to the trustees of the settlement, that N% of those
profits is accumulated or discretionary income,

35in which event the current-year amount of the trustees of the settlement
for that tax year in respect of that business is equal to N% of A.

(5) As to whether the trustees of a settlement have a brought-forward
amount for a tax year in respect of a property business, see section
274C(3).

(6) 40In this section and section 274C “accumulated or discretionary income”
has the meaning given by section 480 of ITA 2007.

274C Reduction for accumulated or discretionary trust income: calculation

(1) This section applies if for a tax year the trustees of a settlement are
entitled to relief under section 274B in respect of a relievable amount or
45in respect of each of two or more relievable amounts, and in the
following subsections of this section “relievable amount” means that
relievable amount or (as the case may be) any of those relievable
amounts.

(2) The amount of the relief in respect of a relievable amount is given by—

(3) Where L in the case of a relievable amount is less than the relievable
amount, the difference between them is the brought-forward amount of
the trustees of the settlement for the following tax year in respect of the
property business concerned.”

(2) 20In consequence of the amendment made by subsection (1), in F(No.2)A 2015
omit section 24(5).

27 Individual investment plans of deceased investors

(1) In Chapter 3 of Part 6 of ITTOIA 2005 (power to exempt income from
individual investment plans from income tax), after section 694 insert—

“694A 25 Deceased investors

(1) In section 694(1) “income of an individual from investments under a
plan” includes—

(a) income (of any person) from administration-period
investments under a plan, and

(b) 30income (of any person) from the estate of a deceased person
(“D”) where the whole or any part of the income of D’s personal
representatives is income from administration-period
investments under a plan.

(2) For the purposes of sections 694(3)(a) and (4) and 695(1) “individual”,
35in relation to investments that are administration-period investments,
includes—

(a) the personal representatives of the deceased individual
concerned, and

(b) any other person on whose directions plan managers agree to
40act in relation to the investments.

(3) In sections 699 and 701 “investor” includes a person entitled to an
exemption given by investment plan regulations by virtue of
subsection (1) of this section.

(4) Investments are “administration-period investments” if—

(a) 45an individual dies, and

(b) immediately before the individual’s death—