Finance Bill (HC Bill 1)

(7) For that purpose “priority rule” is a rule (however expressed) to the
effect that particular provisions have effect to the exclusion of, or
otherwise in priority to, anything else.

(8) An example of a priority rule is section 6(1) of TIOPA 2010 (effect to be
5given to double taxation arrangements despite anything in any
enactment).”

(3) This section applies to agreements of the kind mentioned in section 894A(1)(a)
of CTA 2010 or section 809ZFA of ITA 2007 that are made on or after 25
November 2015.

10Part 3 Income tax and corporation tax

Capital allowances

65 Capital allowances: designated assisted areas

In section 45K of CAA 2001 (expenditure on plant and machinery for use in
15designated assisted area), in subsection (1)(b) (condition that expenditure is
incurred in the period of 8 years beginning with 1 April 2012), for “1 April
2012” substitute “the date on which the area is (or is treated as) designated
under subsection (2)(a)”.

66 Capital allowances: anti-avoidance relating to disposals

(1) 20Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

(2) Section 213 (relevant transactions: sale, hire purchase etc. and assignment) is
amended in accordance with subsections (3) and (4).

(3) In subsection (1) for the words from “enters” to “(“S”)” substitute “and another
person (“S”) enter into a relevant transaction”.

(4) 25After subsection (3) insert—

“(4) For the purposes of this Chapter, references to the disposal value of the
plant or machinery under a relevant transaction are references to the
disposal value that is to be brought into account by S as a result of the
sale, contract or assignment in question.”

(5) 30Section 215 (transactions to obtain tax advantages) is amended in accordance
with subsections (6) to (8).

(6) In subsection (1)—

(a) after “restricted” insert “, and balancing charges are imposed or
increased,”, and

(b) 35for the words from “B” to “S” substitute “B and S enter into a relevant
transaction”.

(7) In subsection (4)—

(a) after “includes” insert “—

(a) ”, and”

(b) at end insert “, and

(b) avoiding liability for the whole or part of a balancing
charge to which a person would otherwise be liable.”

(8) After subsection (4) insert—

“(4A) 5If the tax advantage relates to the disposal value of the plant or
machinery under the relevant transaction (whether by obtaining a
more favourable allowance or by avoiding the whole or part of a
balancing charge) then—

(a) the applicable section is section 218ZB, and

(b) 10the tax advantage is to be disregarded for the purposes of
subsection (6) and (8)(b).”

(9) After section 218ZA (restrictions on writing down allowances: section 215)
insert—

“218ZB Disposal values: section 215

(1) 15If—

(a) this section applies as a result of section 215,

(b) a payment is payable to any person under the transaction,
scheme or arrangement mentioned in that section,

(c) some or all of the payment would not (apart from this section)
20be taken into account in determining the disposal value of the
plant or machinery under the relevant transaction, and

(d) as a result of the matters mentioned in paragraphs (b) and (c) S
would otherwise obtain a tax advantage as mentioned in
section 215(3) and (4),

25the disposal value of the plant or machinery under the relevant
transaction is to be adjusted in a just and reasonable manner so as to
include an amount representing so much of the payment as would or
would in effect cancel out the tax advantage.

(2) In subsection (1) “payment” includes the provision of any benefit, the
30assumption of any liability and any other transfer of money or money’s
worth, and “payable” is to be construed accordingly.”

(10) In section 66 (list of provisions outside Chapter 5 about disposal values) insert
at the appropriate place—

(11) 35The amendments made by this section have effect in relation to transactions
mentioned in section 213(1)(a), (b) or (c) of CAA 2001 that take place on or after
25 November 2015.

Trade and property business profits

67 Trade and property business profits: money’s worth

(1) 40ITTOIA 2005 is amended in accordance with subsections (2) and (3).

(2) In Chapter 3 of Part 2 (trade profits: basic rules), after section 28 insert—

“28A Money’s worth

(1) Subsection (2) applies—

(a) for the purpose of bringing into account an amount arising in
5respect of a transaction involving money’s worth entered into
in the course of a trade, and

(b) if an amount at least equal to the amount that would be brought
into account under that subsection is not otherwise brought into
account as a receipt in calculating the profits of a trade under a
10provision of this Part other than a provision mentioned in
subsection (3).

(2) For the purpose of calculating the profits of the trade, an amount equal
to the value of the money’s worth is brought into account as a receipt
if, had the transaction involved money, an amount would have been
15brought into account as a receipt in respect of it.

(3) But where another provision of this Part makes express provision for
the bringing into account of an amount in respect of money’s worth as
a receipt in calculating the profits of a trade (however expressed), that
other provision applies instead of subsection (2).”

(3) 20In Chapter 3 of Part 3 (profits of property businesses), in section 272
(application of trading income rules), in the Table in subsection (2), at the
appropriate place insert—

(4) CTA 2009 is amended in accordance with subsections (5) and (6).

(5) 25In Chapter 3 of Part 3 (trade profits: basic rules), after section 49 insert—

“49A Money’s worth

(1) Subsection (2) applies—

(a) for the purpose of bringing into account an amount arising in
respect of a transaction involving money’s worth entered into
30in the course of a trade, and

(b) if an amount at least equal to the amount that would be brought
into account under that subsection is not otherwise brought into
account as a receipt in calculating the profits of a trade under a
provision of this Part other than a provision mentioned in
35subsection (3).

(2) For the purpose of calculating the profits of the trade, an amount equal
to the value of the money’s worth is brought into account as a receipt
if, had the transaction involved money, an amount would have been
brought into account as a receipt in respect of it.

(3) 40But where another provision of this Part makes express provision for
the bringing into account of an amount in respect of money’s worth as
a receipt in calculating the profits of a trade (however expressed), that
other provision applies instead of subsection (2).”

(6) In Chapter 3 of Part 4 (profits of property businesses), in section 210
(application of trading income rules), in the Table in subsection (2), at the
appropriate place insert—

(7) 5The amendments made by this section have effect in relation to transactions
entered into on or after 16 March 2016.

68 Replacement and alteration of tools

(1) Omit the following provisions (replacement and alteration of trade tools)—

(a) section 68 of ITTOIA 2005 and the italic heading before that section, and

(b) 10section 68 of CTA 2009 and the italic heading before that section.

(2) In consequence of subsection (1)(a), in ITTOIA 2005—

(a) in subsection (1) of section 56A (cash basis accounting), omit the entry
relating to section 68, and

(b) in section 272 (profits of a property business: application of trading
15income rules), in subsection (2), omit the entry in the table relating to
section 68.

(3) In consequence of subsection (1)(b), in section 210 of CTA 2009 (profits of a
property business: application of trading income rules), in subsection (2), omit
the entry in the table relating to section 68.

(4) 20The amendments made by this section have effect in relation to expenditure
incurred on or after the date in subsection (5).

(5) The date is—

(a) for corporation tax purposes, 1 April 2016, and

(b) for income tax purposes, 6 April 2016.

25Property business deductions

69 Property business deductions: replacement of domestic items

(1) In Chapter 5 of Part 3 of ITTOIA 2005 (property income), after section 311
insert—

““Deduction for replacement of domestic items

311A 30Replacement domestic items relief

(1) This section applies if conditions A to D are met.

(2) Condition A is that a person (“P”) carries on a property business in
relation to land which consists of or includes a dwelling-house.

(3) Condition B is that—

(a) 35a domestic item has been provided for use in the dwelling-
house (“the old item”),

(b) P incurs expenditure on a domestic item for use in the dwelling-
house (“the new item”),

(c) the new item is provided solely for the use of the lessee,

(d) the new item replaces the old item, and

(e) 5following that replacement, the old item is no longer available
for use in the dwelling-house.

(4) Condition C is that a deduction for the expenditure is not prohibited by
the wholly and exclusively rule but would otherwise be prohibited by
the capital expenditure rule (see subsection (15)).

(5) 10Condition D is that no allowance under CAA 2001 may be claimed in
respect of the expenditure.

(6) In calculating the profits of the business, a deduction for the
expenditure is allowed.

But this is subject to subsections (7) and (8).

(7) 15No deduction is allowed for expenditure in a tax year if—

(a) the business consists of or includes the commercial letting of
furnished holiday accommodation (see Chapter 6), and

(b) the dwelling-house constitutes some or all of that
accommodation for the tax year.

(8) 20No deduction is allowed for expenditure in a tax year if—

(a) the person has rent-a-room receipts in respect of the dwelling-
house for the tax year, and

(b) section 793 or 797 (rent-a-room relief) applies in relation to
those receipts.

(9) 25The basic amount of the deduction is as follows—

(a) where the new item is the same or substantially the same as the
old item, the deduction is equal to the expenditure incurred by
P on the new item;

(b) where the new item is not the same or substantially the same as
30the old item, the deduction is equal to so much of the
expenditure incurred by P on the new item as does not exceed
the expenditure which P would have incurred on an item which
is the same or substantially the same as the old item.

Subsections (10) to (13) make further provision about the calculation of
35the deduction in certain cases.

(10) If P incurs incidental expenditure of a capital nature in connection with
the disposal of the old item or the purchase of the new item, the
deduction is increased by the amount of the incidental expenditure.

(11) If the old item is disposed of in part-exchange for the new item—

(a) 40the expenditure incurred by P on the new item is treated as
including an amount equal to the value of the old item, and

(b) the deduction is reduced by that amount.

(12) If the old item is disposed of other than in part-exchange for the new
item, the deduction is reduced by the amount or value of any
45consideration in money or money’s worth which P or a person
connected with P receives, or is entitled to receive, in respect of the
disposal.

(13) For the purposes of subsection (12), where the old item is disposed of
together with other consideration, the consideration in respect of the
disposal mentioned in that subsection is taken not to include the
amount of, or an amount equal to the value of, that other consideration.

(14) 5In this section, “domestic item” means an item for domestic use (such
as furniture, furnishings, household appliances and kitchenware), and
does not include anything that is a fixture.

“Fixture”—

(a) means any plant or machinery that is so installed or otherwise
10fixed in or to a dwelling-house as to become, in law, part of that
dwelling-house, and

(b) includes any boiler or water-filled radiator installed in a
dwelling-house as part of a space or water heating system.

“Plant or machinery” here has the same meaning as in Part 2 of CAA
152001.

(15) In this section—

• “the capital expenditure rule” means the rule in section 33 (capital
  expenditure), as applied by section 272;

• “lessee” means the person who is entitled to the use of the
  20dwelling-house under a lease or other arrangement under
  which a sum is payable in respect of the use of the dwelling-
  house;

• “the wholly and exclusively rule” means the rule in section 34
  (expenses not wholly and exclusively for trade and
  25unconnected losses), as applied by section 272.”

(2) In Chapter 5 of Part 4 of CTA 2009 (property income), after section 250 insert—

““Deduction for replacement of domestic items

250A Replacement domestic items relief

(1) This section applies if conditions A to D are met.

(2) 30Condition A is that a company (“C”) carries on a property business in
relation to land which consists of or includes a dwelling-house.

(3) Condition B is that—

(a) a domestic item has been provided for use in the dwelling-
house (“the old item”),

(b) 35C incurs expenditure on a domestic item for use in the dwelling-
house (“the new item”),

(c) the new item is provided solely for the use of the lessee,

(d) the new item replaces the old item, and

(e) following that replacement, the old item is no longer available
40for use in the dwelling-house.

(4) Condition C is that a deduction for the expenditure is not prohibited by
the wholly and exclusively rule but would otherwise be prohibited by
the capital expenditure rule (see subsection (14)).

(5) Condition D is that no allowance under CAA 2001 may be claimed in
45respect of the expenditure.

(6) In calculating the profits of the business, a deduction for the
expenditure is allowed.

(7) But no deduction is allowed for expenditure in an accounting period
if—

(a) 5the business consists of or includes the commercial letting of
furnished holiday accommodation (see Chapter 6), and

(b) the dwelling-house constitutes some or all of that
accommodation for the accounting period.

(8) The basic amount of the deduction is as follows—

(a) 10where the new item is the same or substantially the same as the
old item, the deduction is equal to the expenditure incurred by
C on the new item;

(b) where the new item is not the same or substantially the same as
the old item, the deduction is equal to so much of the
15expenditure incurred by C on the new item as does not exceed
the expenditure which C would have incurred on an item which
is the same or substantially the same as the old item.

Subsections (9) to (12) make further provision about the calculation of
the deduction in certain cases.

(9) 20If C incurs incidental expenditure of a capital nature in connection with
the disposal of the old item or the purchase of the new item, the
deduction is increased by the amount of the incidental expenditure.

(10) If the old item is disposed of in part-exchange for the new item—

(a) the expenditure incurred by C on the new item is treated as
25including an amount equal to the value of the old item, and

(b) the deduction is reduced by that amount.

(11) If the old item is disposed of other than in part-exchange for the new
item, the deduction is reduced by the amount or value of any
consideration in money or money’s worth which C or a person
30connected with C receives, or is entitled to receive, in respect of the
disposal.

(12) For the purposes of subsection (11), where the old item is disposed of
together with other consideration, the consideration in respect of the
disposal mentioned in that subsection is taken not to include the
35amount of, or an amount equal to the value of, that other consideration.

(13) In this section, “domestic item” means an item for domestic use (such
as furniture, furnishings, household appliances and kitchenware), and
does not include anything that is a fixture.

“Fixture”—

(a) 40means any plant or machinery that is so installed or otherwise
fixed in or to a dwelling-house as to become, in law, part of that
dwelling-house, and

(b) includes any boiler or water-filled radiator installed in a
dwelling-house as part of a space or water heating system.

45“Plant or machinery” here has the same meaning as in Part 2 of CAA
2001.

(14) In this section—

Finance BillPage 127

• “the capital expenditure rule” means the rule in section 53 (capital
  expenditure), as applied by section 210;

• “lessee” means the person who is entitled to the use of the
  dwelling-house under a lease or other arrangement under
  5which a sum is payable in respect of the use of the dwelling-
  house;

• “the wholly and exclusively rule” means the rule in section 54
  (expenses not wholly and exclusively for trade and
  unconnected losses), as applied by section 210.”

(3) 10In section 41 of TCGA 1992 (restriction of losses by reference to capital
allowances and renewals allowances), in subsection (4), after paragraph (a)
insert—

“(aa) any deduction under section 311A of ITTOIA 2005 or section
250A of CTA 2009 (replacement domestic items relief),”.

(4) 15In section 308 of ITTOIA 2005 (furnished lettings), in subsection (1)(b), after
“expenses” insert “of a revenue nature”.

(5) In section 322 of ITTOIA 2005 (commercial letting of furnished holiday
accommodation), after paragraph (za) in subsections (2) and (2A) insert—

“(zb) section 311A (replacement domestic items relief: see subsection
20(7)),”.

(6) In section 248 of CTA 2009 (furnished lettings), in subsection (1)(b), after
“expenses” insert “of a revenue nature”.

(7) In section 264 of CTA 2009 (commercial letting of furnished holiday
accommodation), before paragraph (a) in subsections (2) and (2A) insert—

“(za) 25section 250A (replacement domestic items relief: see subsection
(7)),”.

(8) The amendments made by this section have effect in relation to expenditure
incurred on or after the date in subsection (9).

(9) The date is—

(a) 30for corporation tax purposes, 1 April 2016, and

(b) for income tax purposes, 6 April 2016.

70 Property business deductions: wear and tear allowance

(1) In Part 3 of ITTOIA 2005 (property income)—

(a) omit sections 308A to 308C and the italic heading before section 308A
35(wear and tear allowance), and

(b) in section 327 (capital allowances and loss relief: UK property
business), in subsection (2), omit paragraph (c) and the “or” before that
paragraph.

(2) The amendments made by subsection (1) have effect for the tax year 2016-17
40and subsequent tax years.

(3) In Part 4 of CTA 2009 (property income)—

(a) omit sections 248A to 248C of CTA 2009 and the italic heading before
section 248A (wear and tear allowance), and

(b) in section 269 (capital allowances and loss relief: UK property
business), in subsection (2), omit paragraph (c) and the “or” before that
paragraph.

(4) The amendments made by subsection (3) have effect in relation to accounting
5periods beginning on or after 1 April 2016.

(5) For the purposes of subsection (3), where a company has an accounting period
beginning before 1 April 2016 and ending on or after that date (“the straddling
period”)—

(a) so much of the straddling period as falls before 1 April 2016, and so
10much of that period as falls on or after that date, are treated as separate
accounting periods, and

(b) any amounts brought into account for the purposes of calculating for
corporation tax purposes the profits of a property business for the
straddling period are apportioned to the two separate accounting
15periods in accordance with section 1172 of CTA 2010 (time basis) or, if
that method produces a result that is unjust or unreasonable, on a just
and reasonable basis.

Transfer pricing

71 Transfer pricing: application of OECD principles

(1) 20In section 164(4) of TIOPA 2010 (Part to be interpreted in accordance with
OECD principles)—

(a) in paragraph (a) after “2010” insert “as revised by the report, Aligning
Transfer Pricing Outcomes with Value Creation, Actions 8-10 - 2015
Final Reports, published by the OECD on 5 October 2015”, and

(b) 25in the words after paragraph (b)—

(i) for “such material” substitute “material which is”, and

(ii) for “as may be so designated” substitute “and which is
designated for the time being by order made by the Treasury”.

(2) In section 357GE(1) of CTA 2010 (other interpretation), in the definition of “the
30OECD transfer pricing guidelines”, for the words from “means” to the end
substitute “has the same meaning as “the transfer pricing guidelines” in section
164 of TIOPA 2010”.

(3) The amendments made by subsection (1) have effect (in relation to provision
made or imposed at any time)—

(a) 35for corporation tax purposes, in relation to accounting periods
beginning on or after 1 April 2016, and

(b) for income tax purposes, in relation to the tax year 2016-17 and
subsequent tax years.

(4) The amendment made by subsection (2) has effect in relation to accounting
40periods beginning on or after 1 April 2016.

Part 4 Capital gains tax

Rate

72 Reduction in rate of capital gains tax

(1) 5Section 4 of TCGA 1992 (rates of capital gains tax) is amended as set out in
subsections (2) to (11).

(2) In subsection (1) after “entrepreneurs’ relief)” insert “and section 169VC (rate
in case of claim for investors’ relief)”.

(3) In subsection (2)—

(a) 10after “section” insert “and section 4BA”, and

(b) for the words from “in respect” to the end substitute—

“(a) in respect of upper rate gains accruing to a person in a
tax year, is 18%, and

(b) in respect of gains accruing to a person in a tax year
15which are not upper rate gains, is 10%.”

(4) After subsection (2) insert—

“(2A) In this section “upper rate gains” means—

(a) residential property gains (see section 4BB),

(b) NRCGT gains (see section 14D), and

(c) 20gains accruing under section 103KA(2) or (3) (carried interest).”

(5) For subsection (3) substitute—

“(3) The rate of capital gains tax in respect of gains accruing in a tax year to
the trustees of a settlement or the personal representatives of a
deceased person—

(a) 25in respect of upper rate gains, is 28%, and

(b) in respect of gains which are not upper rate gains, is 20%.”

(6) In subsection (4), for the words from the second “in respect” to the end
substitute—

“(a) in respect of upper rate gains accruing to the individual in the
30tax year, is 28%, and

(b) in respect of gains accruing to the individual in the tax year
which are not upper rate gains, is 20%.”

(7) In subsection (5) for “28%” substitute “(subject to section 4BA) 20%”.

(8) For subsection (6) substitute—

“(6) 35Subsection (6A) applies for the purposes of subsection (5) where—

(a) there is an excess as mentioned in that subsection (“the higher-
rate excess”), and

(b) the amount on which the individual is chargeable to capital
gains tax for the tax year includes any special rate gains, that is,
40gains which are—