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

Finance (No. 2) BillPage 40

(i) the investments were held under a plan,

(ii) the individual was entitled to the income from the
investments, and

(iii) as a result of investment plan regulations, the
5individual’s income from investments under the plan
was exempt from income tax (either wholly or to an
extent specified in the regulations).

(5) Investments are also “administration-period investments” if (directly
or indirectly) they represent investments that are administration-
10period investments as a result of subsection (4).

(6) Investment plan regulations may provide that investments are
administration-period investments as a result of subsection (4) or (5)
only at times specified in, or ascertained in accordance with, the
regulations.

(7) 15Provision under subsection (6) may (in particular) be framed by
reference to the completion of the administration of a deceased
individual’s estate.

(8) In the application of subsection (7) in relation to Scotland, the reference
to the completion of the administration is to be read in accordance with
20section 653(2).”

(2) In section 151(2) of TCGA 1992 (Chapter 3 of Part 6 of ITTOIA 2005 applies
with modifications in relation to regulations giving relief from capital gains tax
in respect of investments under plans)—

(a) in the words before paragraph (a), for “section 694(1) to (2)” substitute
25“sections 694(1) to (2) and 694A(1)”, and

(b) after paragraph (a) insert—

(aa) section 694A(2) applies also for the purposes of
subsection (1) of this section,

(ab) the reference in section 694A(3) to section 694A(1) is to
30be read as a reference to paragraph (aa) of this
subsection,

(ac) the reference in section 694A(4)(b)(iii) to the
individual’s income from investments under the plan
being exempt from income tax is to be read as a
35reference to the individual being entitled to relief from
capital gains tax in respect of the investments,”.

(3) In section 62 of TCGA 1992 (death: general provisions), after subsection (4)
(acquisition of asset as legatee) insert—

(4A) The Treasury may by regulations make provision having effect in place
40of subsection (4)(b) above in a case where there has been a time when
the personal representatives—

(a) held the asset acquired by the legatee, and

(b) would, if they had disposed of the asset at that time—

(i) by way of a bargain at arm’s length, and

(ii) 45otherwise than to a legatee,

have been entitled as a result of regulations under section 151
(investments under plans) to relief from capital gains tax in
respect of any chargeable gain accruing on the disposal.

Finance (No. 2) BillPage 41

(4B) Provision made by regulations under subsection (4A) above may (in
particular) treat a person who acquires an asset as legatee as doing so
at a time or for a consideration, or at a time and for a consideration,
ascertained as specified by the regulations.”

(4) 5In consequence of subsection (2)(a), in FA 2011 omit section 40(6)(a).

Reliefs: enterprise investment scheme, venture capital trusts etc

28 EIS, SEIS and VCTs: exclusion of energy generation

(1) In section 192(1) of ITA 2007 (meaning of “excluded activities”: EIS and SEIS),
for paragraphs (ka) to (kc) substitute—

(ka) 10generating or exporting electricity or making electricity
generating capacity available,

(kb) generating heat,

(kc) generating any form of energy not within paragraph (ka) or
(kb),

(kd) 15producing gas or fuel, and”.

(2) In section 303(1) of ITA 2007 (meaning of “excluded activities”: VCTs), for
paragraphs (ka) to (kc) substitute—

(ka) generating or exporting electricity or making electricity
generating capacity available,

(kb) 20generating heat,

(kc) generating any form of energy not within paragraph (ka) or
(kb),

(kd) producing gas or fuel, and”.

(3) In consequence of subsection (1), ITA 2007 is amended as follows—

(a) 25in section 192(2)—

(i) for paragraph (g) substitute and

(g) section 198A (export of electricity).”;

(ii) omit paragraph (h);

(b) in section 198A—

(i) 30in the heading, omit “subsidised generation or”;

(ii) omit subsections (3) to (9);

(c) omit section 198B.

(4) In consequence of subsection (2), ITA 2007 is amended as follows—

(a) in section 303(2)—

(i) 35for paragraph (g) substitute and

(g) section 309A (export of electricity).”;

(ii) omit paragraph (h);

(b) in section 309A—

(i) in the heading, omit “subsidised generation or”;

(ii) 40omit subsections (3) to (9);

(c) omit section 309B.

(5) The amendments made by subsections (1) and (3) have effect in relation to
shares issued on or after 6 April 2016.

Finance (No. 2) BillPage 42

(6) The amendments made by subsections (2) and (4) have effect in relation to
relevant holdings issued on or after 6 April 2016.

29 EIS and VCTs: definition of certain periods

(1) In section 175A of ITA 2007 (EIS: the permitted maximum age requirement)—

(a) 5in subsection (7) for the words from “five” to the end substitute
“relevant five year period.”;

(b) after that subsection insert—

(7A) Subject to subsection (7B), the relevant five year period is the
five year period which ends immediately before the beginning
10of the last accounts filing period.

(7B) If the last accounts filing period ends more than 12 months
before the issue date, the relevant five year period is the five
year period which ends 12 months before the issue date.”

(2) In section 252A of ITA 2007 (EIS: meaning of “knowledge-intensive
15company”)—

(a) in subsection (4), in the definition of “the relevant three preceding
years”, for the words from “means” to the end substitute “means,
subject to subsection (4A), the three consecutive years the last of which
ends immediately before the beginning of the last accounts filing
20period.”;

(b) after that subsection insert—

(4A) If the last accounts filing period ends more than 12 months
before the date on which the relevant shares are issued, the
relevant three preceding years are the three consecutive years
25the last of which ends 12 months before the date on which the
relevant shares are issued.”

(3) In section 280C of ITA 2007 (VCTs: the permitted maximum age condition)—

(a) in subsection (8) for the words from “five” to the end substitute
“relevant five year period.”;

(b) 30after that subsection insert—

(8A) Subject to subsection (8B), the relevant five year period is the
five year period which ends immediately before the beginning
of the last accounts filing period.

(8B) If the last accounts filing period ends more than 12 months
35before the investment date, the relevant five year period is the
five year period which ends 12 months before the investment
date.”

(4) In section 294A of ITA 2007 (VCTs: the permitted company age requirement)—

(a) in subsection (7) for the words from “five” to the end substitute
40“relevant five year period.”;

(b) after that subsection insert—

(7A) Subject to subsection (7B), the relevant five year period is the
five year period which ends immediately before the beginning
of the last accounts filing period.

Finance (No. 2) BillPage 43

(7B) If the last accounts filing period ends more than 12 months
before the investment date, the relevant five year period is the
five year period which ends 12 months before the investment
date.”

(5) 5In section 331A of ITA 2007 (VCTs: meaning of “knowledge-intensive
company”)—

(a) in subsection (5), in the definition of “the relevant three preceding
years”, for the words from “means” to the end substitute “means,
subject to subsection (5A), the three consecutive years the last of which
10ends immediately before the beginning of the last accounts filing
period.”;

(b) after that subsection insert—

(5A) If the last accounts filing period ends more than 12 months
before the applicable time, the relevant three preceding years
15are the three consecutive years the last of which ends 12 months
before the applicable time.”

(6) The amendments made by this section are to be treated as always having had
effect; but this is subject to section 30.

30 EIS and VCTs: election

(1) 20If a company (“the relevant company”) makes an election for this section to
apply, then—

(a) the amendments made by subsection (1) of section 29 do not apply in
relation to shares issued by the relevant company in the material
period,

(b) 25the amendments made by subsection (2) of that section do not apply for
the purposes of determining whether, at the date of issue of any shares
issued by the company in the material period, the company is a
knowledge-intensive company for the purposes of Part 5 of ITA 2007,

(c) the amendments made by subsection (3) of that section do not apply in
30relation to investments made in the relevant company in the material
period,

(d) the amendments made by subsection (4) of that section do not apply for
the purposes of determining whether the requirement of section 294A
of ITA 2007 is met in relation to any holding of shares or securities
35issued by the relevant company in the material period, and

(e) the amendments made by subsection (5) of that section do not apply for
the purposes of determining whether, at any time in the material period
which is the applicable time within the meaning given by section 331A
of ITA 2007, the relevant company is a knowledge-intensive company
40for the purposes of Part 6 of ITA 2007.

(2) Amendments that by reason of an election under this section do not apply in
relation to particular shares or investments or for particular purposes are also
to be treated as never having applied in relation to those shares or investments
or for those purposes.

(3) 45Any election under this section must be made in writing and signed by a
director of the relevant company.

(4) Where a company has made an election under this section—

Finance (No. 2) BillPage 44

(a) it must include a statement that the election has been made in any
compliance statement subsequently provided by it under section 204(2)
of ITA 2007 in respect of an issue of shares made by it in the material
period, and

(b) 5it must provide a copy of the election to each company to which it has
issued shares or securities in the material period.

(5) An election under this section is irrevocable.

(6) In this section “the material period” means the period beginning with 18
November 2015 (the date when F(No. 2)A 2015 was passed) and ending with 5
10April 2016.

31 VCTs: requirements for giving approval

(1) Section 274 of ITA 2007 (requirements for the giving of approval) is amended
as follows.

(2) In the table in subsection (2), after the entry beginning “The 70% eligible shares
15condition” insert—

“The non-qualifying
investments
condition

The company has not made and
will not make, in the relevant
period, an investment which is
20neither of the following—

(a)

an investment that on the
date it is made is included
in the company’s
qualifying holdings;

(b)

25an investment falling
within subsection (3A).”




(3) 30In subsection (3), in each of paragraphs (f), (g) and (h), for “(3A)” substitute
“(3ZA)”.

(4) After subsection (3) insert—

(3ZA) In the second column of the table in subsection (2), in the entries for the
investment limits condition, the permitted maximum age condition
35and the no business acquisition condition, any reference to an
investment made by the company in a company does not include an
investment falling within subsection (3A).”

(5) In subsection (3A) for the words from “In the second” to “does not include”
substitute “Investments made by a company (“the investor”) fall within this
40subsection if they are”.

(6) In subsection (5)(c), for the words from “made by” to “(3A)” substitute “falling
within subsection (3A) may be held by the company”.

(7) The amendments made by this section have effect in relation to investments
made on or after 6 April 2016.

Finance (No. 2) BillPage 45

Reliefs: peer-to-peer lending

32 Income tax relief for irrecoverable peer-to-peer loans

(1) ITA 2007 is amended as follows.

(2) After section 412 insert—

“CHAPTER 1A 5Irrecoverable peer-to-peer loans
The relief
412A Relief for irrecoverable peer-to-peer loans

(1) A person (“L”) is entitled to relief under this section if—

(a) L has made a peer-to-peer loan (“the relevant loan”),

(b) 10the loan was made through an operator,

(c) L has not assigned the right to recover the principal of the loan,
and

(d) any outstanding amount of the principal of the loan has, on or
after 6 April 2015, become irrecoverable.

(2) 15But if the outstanding amount became irrecoverable before 6 April 2016
L is entitled to relief under this section only on the making of a claim.

(3) The relief is given by deducting the outstanding amount in calculating
L’s net income for the tax year in which the amount became
irrecoverable (see Step 2 of the calculation in section 23).

(4) 20The deduction under this section is to be made only from income
arising from the payment to L of interest on—

(a) the relevant loan, and

(b) any other loan within subsection (5) or (6).

(5) A loan is within this subsection if—

(a) 25it is a peer-to-peer loan made by L, and

(b) it was made through the operator through whom the relevant
loan was made.

(6) A loan is within this subsection if—

(a) the loan was made by someone other than L,

(b) 30the right to receive interest on the loan has been assigned to L,

(c) the right was assigned through the operator through whom the
relevant loan was made, and

(d) either—

(i) L is a person within paragraph (a), (b) or (c) of section
35412I(4), or

(ii) the recipient of the loan is a person within one of those
paragraphs and the loan is a personal or small loan.

(7) The amount deducted under this section is limited in accordance with
section 25(4) and (5).

Finance (No. 2) BillPage 46

(8) In this section “irrecoverable” means irrecoverable other than by legal
proceedings or by the exercise of any right granted by way of security
for the loan.

412B Claims for additional relief: sideways relief

(1) 5A person (“L”) may make a claim for relief under this section if—

(a) L is entitled to relief under section 412A in respect of any
outstanding amount of the principal of a loan (“the relevant
loan”), but

(b) in the tax year in relation to which L is entitled to that relief (“the
10relevant year”)—

(i) L has no income of the kind mentioned in section
412A(4) from which to deduct the outstanding amount,
or

(ii) L has insufficient income of that kind to enable the
15outstanding amount to be deducted in full under that
section.

(2) The claim is for the outstanding amount or (in a case within subsection
(1)(b)(ii)) the part of the outstanding amount not capable of being
deducted under section 412A to be deducted under this section in
20calculating L’s net income for the relevant year.

(3) The deduction under this section is to be made only from income
arising from the payment to L of interest on loans within subsection (4)
or (5).

(4) A loan is within this subsection if—

(a) 25it is a peer-to-peer loan made by L, and

(b) it was made through an operator who is not the operator
through whom the relevant loan was made.

(5) A loan is within this subsection if—

(a) the loan was made by someone other than L,

(b) 30the right to receive interest on the loan has been assigned to L,

(c) that right was assigned through an operator who is not the
operator through whom the relevant loan was made, and

(d) either—

(i) L is a person within paragraph (a), (b) or (c) of section
35412I(4), or

(ii) the recipient of the loan is a person within one of those
paragraphs and the loan is a personal or small loan.

(6) The amount deducted under this section is limited in accordance with
section 25(4) and (5).

412C 40Claims for additional relief: carry-forward relief

(1) A person (“L”) may make a claim for relief under this section if—

(a) L is entitled to relief under section 412A in respect of any
outstanding amount of the principal of a loan (“the relevant
loan”), but

(b) 45in the tax year in relation to which L is entitled to that relief (“the
relevant year”)—

Finance (No. 2) BillPage 47

(i) L has no income of the kind mentioned in section
412A(4) or section 412B(3) from which to deduct the
outstanding amount, or

(ii) L has insufficient income of that kind to enable the
5outstanding amount to be deducted in full under those
sections.

(2) The claim is for the outstanding amount or (in a case within subsection
(1)(b)(ii)) the part of the outstanding amount not capable of being
deducted under sections 412A and 412B to be deducted under this
10section in calculating L’s net income for the four tax years following the
relevant year.

(3) The deduction under this section is to be made only from income
arising from the payment to L of interest on—

(a) the relevant loan, and

(b) 15any other loan within subsection (4) or (5).

(4) A loan is within this subsection if—

(a) it is a peer-to-peer loan made by L, and

(b) it was made through an operator (whether or not that operator
is the operator through whom the relevant loan was made).

(5) 20A loan is within this subsection if—

(a) the loan was made by someone other than L,

(b) the right to receive interest on the loan has been assigned to L,

(c) that right was assigned through an operator (whether or not
that operator is the operator through whom the relevant loan
25was made), and

(d) either—

(i) L is a person within paragraph (a), (b) or (c) of section
412I(4), or

(ii) the recipient of the loan is a person within one of those
30paragraphs and the loan is a personal or small loan.

(6) This section needs to be read with section 412D (how relief works).

412D How carry-forward relief works

(1) This subsection explains how deductions are to be made under section
412C.

35The amount to be deducted at any step is limited in accordance with
section 25(4) and (5).

Step 1 Deduct the outstanding amount or (in a case within section
412C(1)(b)(ii)) the part of the outstanding amount not capable of being
deducted under sections 412A and 412B from the lending income for
40the first tax year following the relevant year.

Step 2 Deduct from the lending income for the second tax year
following the relevant year any part of the outstanding amount not
previously deducted.

Step 3 Apply Step 2 in relation to the lending income for the third and
45fourth tax years following the relevant year, stopping if all of the
outstanding amount is deducted.

(2) In this section—

    Finance (No. 2) BillPage 48

  • “lending income” means income of a kind mentioned in section
    412C(3);

  • “relevant year” has the meaning given by section 412C(1)(b).

Supplementary provisions
412E 5Subsequent recovery of peer-to-peer loans

(1) This section applies where—

(a) any amount of the principal of a loan has been deducted under
this Chapter in calculating a person’s net income for a tax year,
and

(b) 10the person subsequently recovers that amount or any part of it.

(2) The amount recovered is to be treated for the purposes of this Act as if
it were interest on the loan paid to the person at the time it was
recovered.

(3) For the purposes of this section, a person is to be treated as recovering
15an amount if the person (or any other person at his or her direction)
receives any money or money’s worth—

(a) in satisfaction of the person’s right to recover that amount, or

(b) in consideration of the person’s assignment of the right to
recover it;

20and where a person assigns such a right otherwise than by way of a
bargain made at arm’s length the person shall be treated as receiving
money or money’s worth equal to the market value of the right at the
time of the assignment.

412F Assigned loans treated as made by the assignee etc

(1) 25This section applies where—

(a) a person (“A”) is assigned the right to recover the principal of a
loan,

(b) the right is assigned through an operator (“O”),

(c) A makes a payment in consideration of the assignment, and

(d) 30A does not further assign the right.

(2) The loan is to be treated for the purposes of section 412A(1) as—

(a) having been made by A, and

(b) having been made through O.

(3) The amount (if any) of the principal of the loan which is treated as
35irrecoverable may not exceed the amount which is arrived at by—

(a) taking the amount of the payment mentioned in subsection
(1)(c), and

(b) deducting any amount of the principal of the loan previously
recovered by A.

412G 40Nominees etc

For the purposes of this Chapter—

(a) a loan or a payment made by or to a nominee or bare trustee for
a person is treated as made by or to that person, and

Finance (No. 2) BillPage 49

(b) a right assigned by or to a nominee or bare trustee for a person
is treated as assigned by or to that person.

412H Interaction with other reliefs

(1) Subsection (2) applies in relation to a loan if any person has obtained
5income tax relief (other than under this Chapter) which is properly
attributable to the loan.

(2) The amount (if any) of the principal of the loan which is treated as
irrecoverable may not exceed the amount which is arrived at by—

(a) taking the amount of the principal of the loan, and

(b) 10deducting the amount of the relief mentioned in subsection (1).

Interpretation
412I Meaning of “loan”, “peer-to-peer loan” and related terms

(1) This section applies for the purposes of this Chapter.

(2) “Loan” means a loan of money which—

(a) 15is made on genuine commercial terms, and

(b) is not part of a scheme or arrangement the main purpose or one
of the main purposes of which is to obtain a tax advantage
(within the meaning given by section 208 of the FA 2013).

(3) A loan is a “peer-to-peer loan” only if it meets—

(a) 20Condition A or B, and

(b) Condition C.

(4) Condition A is that the person who made the loan is—

(a) an individual,

(b) a partnership which consists of—

(i) 25two or three persons, and

(ii) at least one person who is not a body corporate, or

(c) an unincorporated body of persons which—

(i) is not a partnership, and

(ii) consists of at least one person who is not a body
30corporate.

(5) Condition B is that—

(a) the recipient of the loan is a person within paragraph (a), (b) or
(c) of subsection (4), and

(b) the loan is a personal or small loan.

(6) 35Condition C is that, assuming interest were paid on the loan, the person
who made the loan would (except for this Chapter) be liable for income
tax charged on the interest.

(7) “Personal loan” means a loan which is not used wholly or
predominantly for the purposes of a business carried on, or intended to
40be carried on, by the recipient of the loan.

(8) “Small loan” means a loan of £25,000 or less.