Finance Bill (HC Bill 47)

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Qualifying transformer vehicles

182 Qualifying transformer vehicles

(1) In this section “qualifying transformer vehicle” means a transformer vehicle
which meets conditions which are specified in regulations made by the
5Treasury.

(2) The Treasury may by regulations make provision about the treatment for the
purposes of any enactment relating to taxation of—

(a) qualifying transformer vehicles;

(b) investors in qualifying transformer vehicles;

(c) 10transactions involving qualifying transformer vehicles.

(3) Regulations under subsection (2) may, in particular, disapply, apply (with or
without modification) or modify the application of any enactment.

(4) Without limiting the generality of subsection (2), regulations under that
subsection may in particular include—

(a) 15provision for profits or other amounts to be calculated with any
adjustments, or on any basis, set out in the regulations;

(b) provision conferring, altering or removing an exemption or relief;

(c) provision about the treatment of arrangements the purpose, or one of
the main purposes, of which is to secure a tax advantage;

(d) 20provision about collection and enforcement (including the withholding
of tax);

(e) in relation to qualifying transformer vehicles, requirements with
regard to the provision of information to investors;

(f) in relation to qualifying transformer vehicles or investors in qualifying
25transformer vehicles, requirements with regard to—

(i) the provision of information to Her Majesty’s Revenue and
Customs,

(ii) the preparation of accounts,

(iii) the keeping of records, or

(iv) 30other administrative matters.

(5) Regulations under this section—

(a) may provide for Her Majesty’s Revenue and Customs to exercise a
discretion in dealing with any matter;

(b) may make provision by reference to rules, guidance or other
35documents issued by any person (as they have effect from time to time).

(6) Regulations under this section may—

(a) make different provision for different cases or different purposes
(including different provision in relation to different descriptions of
qualifying transformer vehicle or, as the case may be, transformer
40vehicle);

(b) contain incidental, supplementary, consequential and transitional
provision and savings.

(7) Regulations under this section are to be made by statutory instrument.

(8) A statutory instrument containing regulations under subsection (1) is subject
45to annulment in pursuance of a resolution of the House of Commons.

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(9) But the first set of regulations under subsection (1) may not be made unless a
draft has been laid before, and approved by a resolution of, the House of
Commons.

(10) A statutory instrument containing regulations under subsection (2) may not be
5made unless a draft has been laid before, and approved by a resolution of, the
House of Commons.

(11) In this section—

  • “enactment” includes subordinate legislation (as defined in section 21 of
    the Interpretation Act 1978);

  • 10“investors” in relation to a qualifying transformer vehicle means holders
    of investments issued by the qualifying transformer vehicle; and for
    this purpose “investment” includes any asset, right or interest;

  • “tax advantage” has the meaning given by section 1139 of CTA 2010;

  • “transformer vehicle” has the same meaning as in section 284A of the
    15Financial Services and Markets Act 2000.

Part 12 Office of Tax Simplification

183 Office of Tax Simplification

(1) There continues to be an Office of Tax Simplification (referred to in this Act as
20the “OTS”).

(2) Schedule 25 contains provision about the OTS.

184 Functions of the OTS: general

(1) The OTS must provide advice to the Chancellor of the Exchequer, on request
or as the OTS considers appropriate, on the simplification of the tax system.

(2) 25For the purposes of this section and section 185—

(a) “the tax system” means the law relating to, and the administration of,
relevant taxes,

(b) “relevant taxes” means taxes that the Commissioners for Her Majesty’s
Revenue and Customs are responsible for collecting and managing,
30and

(c) a reference to “taxes” includes a reference to duties and national
insurance contributions.

(3) References in this section and section 185 (however expressed) to the
simplification of the tax system include references to improving the efficiency
35of the administration of relevant taxes.

185 Functions of the OTS: reviews and reports

(1) At the request of the Chancellor of the Exchequer, the OTS must conduct a
review of an aspect of the tax system for the purpose of identifying whether,
and if so how, that aspect of the tax system could be simplified.

(2) 40The OTS must prepare a report—

(a) setting out the results of the review, and

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(b) making such recommendations (if any) as the OTS consider
appropriate.

(3) The OTS must send a copy of the report to the Chancellor of the Exchequer.

(4) The Chancellor of the Exchequer must—

(a) 5publish the report, and

(b) lay a copy of the report before Parliament.

(5) The Chancellor of the Exchequer must prepare and publish a response to the
report.

186 Annual report

(1) 10The OTS must prepare a report of the performance of its functions in each
financial year.

(2) The report relating to a financial year must be prepared as soon as reasonably
practicable after the end of the financial year.

(3) The OTS must—

(a) 15send a copy of the report to the Chancellor of the Exchequer, and

(b) publish the report.

(4) The Chancellor of the Exchequer must lay a copy of the report before
Parliament.

(5) For the purposes of this paragraph, each of the following is a “financial year”—

(a) 20the period beginning with the day on which this section comes into
force and ending with the following 31 March, and

(b) each successive period of 12 months.

187 Review of the OTS

(1) The Treasury must, before the end of each review period, conduct a review of
25the effectiveness of the OTS in performing its functions.

(2) The “review period” means—

(a) in relation to the first review, the period of 5 years beginning with the
day on which this section comes into force, and

(b) in relation to subsequent reviews, the period of 5 years beginning with
30the day on which the previous review was completed.

(3) The Treasury must prepare and publish a report of each review.

188 Commencement

Sections 183 to 187 and Schedule 25 come into force on such day as the
Treasury may by regulations made by statutory instrument appoint.

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Part 13 Final

189 Interpretation

In this Act—

  • 5ALDA 1979” means the Alcoholic Liquor Duties Act 1979;

  • CAA 2001” means the Capital Allowances Act 2001;

  • CEMA 1979” means the Customs and Excise Management Act 1979;

  • “CTA 2009” means the Corporation Tax Act 2009;

  • “CTA 2010” means the Corporation Tax Act 2010;

  • 10“FA”, followed by a year, means the Finance Act of that year;

  • “F(No.2)A, followed by a year means the Finance (No.2) Act of that year;

  • “F(No.3)A, followed by a year, means the Finance (No.3) Act of that year;

  • HODA 1979” means the Hydrocarbon Oil Duties Act 1979;

  • ICTA” means the Income and Corporation Taxes Act 1988;

  • 15IHTA 1984” means the Inheritance Tax Act 1984;

  • “ITA 2007” means the Income Tax Act 2007;

  • ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003;

  • ITTOIA 2005” means the Income Tax (Trading and Other Income) Act
    2005;

  • 20OTA 1975” means the Oil Taxation Act 1975;

  • TCGA 1992” means the Taxation of Chargeable Gains Act 1992;

  • “TIOPA 2010” means the Taxation (International and Other Provisions)
    Act 2010;

  • TMA 1970” means the Taxes Management Act 1970;

  • 25“TPDA 1979” means the Tobacco Products Duty Act 1979;

  • VATA 1994” means the Value Added Tax Act 1994;

  • VERA 1994” means the Vehicle Excise and Registration Act 1994.

190 Short title

This Act may be cited as the Finance Act 2016.

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SCHEDULES

SCHEDULE 1 Section 5 Abolition of dividend tax credits etc

Main repeals

1 (1) 5In ITTOIA 2005 omit sections 397 to 398, 400, 414 and 421 (distributions: tax
credits, and tax treated as paid).

(2) In CTA 2010 omit section 1109 (tax credits for certain distributions).

Further amendments in ITTOIA 2005

2 ITTOIA 2005 is further amended as follows.

3 10In the heading of Chapter 3 of Part 4, for “credits etc” substitute “treated as
paid”.

4 In section 382(2) (other contents of Chapter 3 of Part 4)—

(a) omit “tax credits,”, and

(b) for “397” substitute “399”.

5 15Omit section 384(3) (which refers to section 398).

6 Omit section 393(5) (determining entitlement to tax credit).

7 In section 394 (which deems a distribution to be made)—

(a) omit subsection (5) (determining entitlement to tax credit), and

(b) in subsection (6), for “But for” substitute “For”.

8 20In section 395(3) (interpretation of section 395(2)) omit the words from
“after” to the end.

9 For section 396A(2)(b) (alternative receipt treated as qualifying distribution
for the purposes of sections 397 and 399 and for the purposes of section 1100
of CTA 2010) substitute—

(b) 25for the purposes of sections 1100 to 1103 of CTA 2010
(statements and returns of details of distributions) it is
treated as a distribution that—

(i) is so made, and

(ii) is one to which section 1100 of CTA 2010 applies.”

10 30In the italic heading before section 397, omit “Tax credits and”.

11 (1) Section 399 (qualifying distribution received by person not entitled to tax
credits) is amended as follows.

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(2) For subsection (1) substitute—

(1) This section applies if—

(a) a person’s income for a tax year includes a distribution of a
company, and

(b) 5the person is non-UK resident.”

(3) In subsection (2) omit “(but see subsection (7))”.

(4) Omit subsections (3) to (5) (amount of dividend received by non-UK
resident to be treated as its grossed-up amount).

(5) Omit subsection (5A) (amounts treated as qualifying distributions for
10purposes of the section).

(6) Omit subsection (7) (which provides for subsection (2) to be subject to
repealed provisions).

(7) For the heading substitute “Tax treated as paid on distributions received by
non-UK resident persons”.

12 (1) 15Section 401 (relief: qualifying distribution after linked non-qualifying
distribution) is amended as follows.

(2) For subsections (1) to (6) substitute—

(1) Where a person is liable to income tax on a CD distribution, the
person’s liability to income tax on a subsequent non-CD distribution
20is reduced in accordance with this section if the non-CD distribution
consists of a repayment of—

(a) the share capital, or

(b) the principal of the security,

which constituted the CD distribution.

(1A) 25The reduction is—

(a) the amount of income tax to which the person is liable on the
CD distribution, or

(b) if lower, the amount of income tax to which the person is
liable on the non-CD distribution.

(1B) 30For the purposes of calculating the amounts mentioned in subsection
(1A)(a) and (b) assume—

(a) that the CD distribution is the lowest part of the person’s
dividend income in the tax year (“year 1”) in which it is made,

(b) that the non-CD distribution, if it is made in year 1, is the part
35of the person’s dividend income in year 1 that is next lowest
after the CD distribution, and

(c) that the non-CD distribution, if it is made after year 1, is the
lowest part of the person’s dividend income in the tax year in
which it is made.”

(3) 40In subsection (7) (interpretation), for ““security”” substitute

  • CD distribution” means a distribution which is a distribution
    for the purposes of the Corporation Tax Acts only because it
    falls within paragraph C or D in section 1000(1) of CTA 2010
    (redeemable share capital or security issued as bonus in
    45respect of shares in, or securities of, the company),

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  • “non-CD distribution” means a distribution which is not a CD
    distribution, and

  • “security””.

(4) In the heading, for “qualifying distribution after linked non-qualifying
5distribution” substitute “distribution repaying shares or security issued in
earlier distribution”.

13 Omit section 401A (recovery of overpaid tax credit etc).

14 In section 401B (power to obtain information for the purposes of section 397),
for “section 397”, in each place it occurs, substitute “this Chapter”.

15 10Omit sections 406(4A) and 407(4A) (determining entitlement to tax credit).

16 In section 408(2A) (interpretation of section 408(2)) omit the words from
“after” to the end.

17 In section 411(2) (stock dividends: amount on which tax charged) omit
“, grossed up by reference to the dividend ordinary rate for the tax year”.

18 15In section 416 (released debts: amount on which tax charged)—

(a) in subsection (1) (tax charged on gross amount) omit “gross”, and

(b) omit subsection (2) (meaning of “gross amount”).

19 In section 418(3) (release of loan: tax only on grossed-up amount of excess
where part previously charged) omit “, grossed up by reference to the
20dividend ordinary rate”.

20 In section 651 (meaning of “UK estate” and “foreign estate”)—

(a) in subsection (4), for “680(3) or (4) (sums” substitute “664(2)(c) or (d)
or 680(4) (sums not liable to tax and sums”, and

(b) in subsection (5), for “680(3) or (4)” substitute “664(2)(c) or (d) or
25680(4)”.

21 In section 657 (tax charged on estate income from foreign estates), for “680(3)
or (4)”, in both places, substitute “680(4)”.

22 In section 663 (applicable rate for purposes of grossing-up under sections
656 and 657), after subsection (4) insert—

(5) 30The aggregate income of the estate, so far as it consists of income
within section 664(2)(c) or (d), is treated for the purposes of this
section as bearing income tax at 0%.”

23 In section 670 (applicable rate for purposes of Step 2 in section 665(1)), after
subsection (4) insert—

(4A) 35The aggregate income of the estate, so far as it consists of income
within section 664(2)(c) or (d), is treated for the purposes of this
section as bearing income tax at 0%.”

24 In section 680 (income of an estate that is treated as bearing income tax)—

(a) in subsection (2) omit “(3) or”, and

(b) 40omit subsection (3) (sums treated as bearing tax at the dividend
ordinary rate).

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25 In section 680A (estate income treated as dividend income), in each of
subsections (1)(a) and (4)(a), after “at the dividend ordinary rate” insert “or
as bearing tax at 0% because of section 663(5)”.

26 In section 854(6) (carrying on by partner of notional business: meaning of
5“untaxed income”)—

(a) omit the “or” at the end of paragraph (b), and

(b) after paragraph (c) insert—

(d) income chargeable under Chapter 5 of Part 4 (stock
dividends from UK resident companies), or

(e) 10income chargeable under Chapter 6 of Part 4 (release
of loan to participator in closed company).”

27 Omit section 858(3) (partnerships with foreign element: entitlement to tax
credit).

Further amendments in CTA 2010

28 15CTA 2010 is further amended as follows.

29 (1) Section 279F (ring fence profits: related 51% group company) is amended as
follows.

(2) In subsection (7)(c) (conditions to be met by a company’s dividend income
in order for company to be a passive company), in sub-paragraph (ii)
20(dividends must be franked investment income) for “franked investment
income” substitute “exempt ABGH distributions”.

(3) After subsection (9) insert—

(10) In subsection (7)(c) “exempt ABGH distribution” means a
distribution which—

(a) 25is a distribution for the purposes of the Corporation Tax Acts
only because it falls within paragraph A, B, G or H in section
1000(1), and

(b) is exempt for the purposes of Part 9A of CTA 2009 (company
distributions).”

30 (1) 30Section 279G (ring fence profits: meaning of “augmented profits”) is
amended as follows.

(2) In subsection (1)(b) (franked investment income is part of augmented profits
unless excluded)—

(a) for “franked investment income” substitute “exempt ABGH
35distributions”, and

(b) for “is” substitute “are”.

(3) In subsection (3) (exclusion of franked investment income received from
certain subsidiaries etc), for “franked investment income” substitute
“exempt ABGH distribution”.

(4) 40After subsection (4) insert—

(5) In this section “exempt ABGH distribution” means a distribution
which—

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(a) is a distribution for the purposes of the Corporation Tax Acts
only because it falls within paragraph A, B, G or H in section
1000(1), and

(b) is exempt for the purposes of Part 9A of CTA 2009 (company
5distributions).”

31 For section 463(7) (loan to trustees of settlement which has ended: amount
on which debtor taxed when all or part of loan released or written off)
substitute—

(7) The amount which Y is treated as receiving is equal to the amount
10released or written off.”

32 (1) Section 549 (distributions: supplementary) is amended as follows.

(2) Omit subsection (2) (which excludes entitlement to tax credits).

(3) In subsection (2A) (which disapplies sections 409 to 414 of ITTOIA 2005), for
“414” substitute “413A”.

33 (1) 15Section 751 (interpretation of Part 15 (transactions in securities)) is amended
as follows.

(2) The existing text becomes subsection (1).

(3) In that subsection, in the definition of “dividends”, omit “qualifying”.

(4) After that subsection insert—

(2) 20In the definition of “dividends” given by subsection (1), “other
distributions” does not include a distribution which is a distribution
for the purposes of the Corporation Tax Acts only because it falls
within paragraph C or D in section 1000(1) (redeemable share capital
or security issued as bonus in respect of shares in, or securities of, the
25company).”

34 Omit section 814D(8) (which excludes entitlement to tax credits).

35 Omit section 997(5) (which introduces sections 1109 to 1111).

36 In sections 1026(1)(b) and 1027(2)(b) (cases where amount paid up in respect
of bonus shares does not fall to be treated as a qualifying distribution) omit
30“qualifying”.

37 (1) Section 1070 (distributions by company carrying on mutual business) is
amended as follows.

(2) In subsection (2) (provisions about distributions apply to company’s
distributions only where made out of taxed profits or franked investment
35income), for paragraph (b) (franked investment income) substitute—

(b) income of the company consisting of exempt ABGH
distributions.”

(3) After subsection (5) insert—

(5A) In subsection (2) “exempt ABGH distribution” means a distribution
40which—

(a) is a distribution for the purposes of the Corporation Tax Acts
only because it falls within paragraph A, B, G or H in section
1000(1), and

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(b) is exempt for the purposes of Part 9A of CTA 2009 (company
distributions).”

38 (1) Section 1071 (company not carrying on business) is amended as follows.

(2) In subsection (5) (provisions about distributions apply to company’s
5distributions only where made out of taxed profits or franked investment
income), for paragraph (b) (franked investment income) substitute—

(b) income of the company consisting of exempt ABGH
distributions.”

(3) After subsection (5) insert—

(5A) 10In subsection (5) “exempt ABGH distribution” means a distribution
which—

(a) is a distribution for the purposes of the Corporation Tax Acts
only because it falls within paragraph A, B, G or H in section
1000(1), and

(b) 15is exempt for the purposes of Part 9A of CTA 2009 (company
distributions).”

39 (1) Section 1100 (qualifying distribution: right to request a statement) is
amended as follows.

(2) In subsection (1) (requests for statement)—

(a) 20for “qualifying distribution” substitute “distribution to which this
section applies”, and

(b) omit paragraph (b) (amount of any tax credit), and the “and”
preceding it.

(3) After subsection (4) insert—

(4A) 25This section applies to any distribution other than one which is a
distribution for the purposes of the Corporation Tax Acts only
because it falls within paragraph C or D in section 1000(1)
(redeemable share capital or security issued as bonus in respect of
shares in, or securities of, the company).”

(4) 30Omit subsections (2) and (5) (interpretation of subsection (1)(b)).

(5) In subsection (7) (section to be read with section 396A(2) of ITTOIA 2005)—

(a) for “needs” substitute “, and sections 1101 to 1103, need”, and

(b) for “as “qualifying distributions” for the purposes of this section”
substitute “as distributions to which this section applies”.

(6) 35In the heading, for “Qualifying” substitute “Certain”.

40 (1) Section 1101 (non-qualifying distributions etc: returns and information) is
amended as follows.

(2) In subsection (1) (duty to make return), for “which is not a qualifying
distribution” substitute “to which section 1100 does not apply”.

(3) 40In subsection (4) (duty to make return where not clear whether distribution
is non-qualifying), for “which is not a qualifying distribution” substitute “to
which section 1100 does not apply”.

(4) In the heading, and in the heading of section 1102, for “Non-qualifying”
substitute “Other”.