Finance Bill (HC Bill 47)

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16AD (1) This paragraph applies for the purposes of paragraph 16AB(4).

(2) “The personal limit” at a time in the tax year in which the member
dies is arrived at as follows—

(a) identify each scheme pension under the scheme to which the
5member is actually or prospectively entitled immediately
before the member’s death, and

(b) as regards each pension identified at paragraph (a)—

(i) if it is one to which the member is actually entitled
immediately before the member’s death, identify the
10annual rate at which it is payable immediately before
the member’s death, or

(ii) if it is one to which the member is prospectively
entitled immediately before the member’s death,
identify the annual rate at which it would have been
15payable immediately before the member’s death had
the member been actually entitled to it immediately
before the member’s death, and

(c) if only one pension is identified at paragraph (a), the personal
limit is the annual rate identified at paragraph (b), and

(d) 20if two or more pensions are identified at paragraph (a), the
personal limit is the total of the annual rates identified at
paragraph (b).

(3) “The personal limit” at a time in a tax year (“year S”) later than the
tax year in which the member dies—

(a) 25is given by—


where L is the personal limit at times in the tax year (“year P”)
that precedes year S, or

(b) if the amount given by paragraph (a) is not a multiple of £100,
30is that amount rounded up to the nearest amount that is such
a multiple.

(4) See paragraph 16AE for the meaning of U%.

(5) If the scheme is a public service pension scheme, ignore any
abatement when identifying at sub-paragraph (2)(b) the annual rate
35of any scheme pension under the scheme.

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

(a) 5%,

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

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

(2) 40If the consumer prices index for September in year P is higher than
the consumer prices index for September in the tax year preceding
year 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
45retail prices index for September in the tax year preceding year P,
RPI% is the percentage increase in the index (but is otherwise 0%).

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(4) In 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
5(see sub-paragraph (6))”, and

(b) after 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
10the member dies is higher than it was for the month in
which 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
15member dies is higher than it was for the month in
which 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) 20in sub-paragraph (3)(a), omit “period of”,

(b) in 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
25increased at any time in the period of 12 months in
question—

(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
30to pensioner members of that group are at that time
increased 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
35margin.”,

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

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

(g) 40in sub-paragraph (11), for “opening month” substitute “month in which
the member died”, and

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

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

(7) 45The 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
any later day.

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(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),

5have 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) 10After 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
15Wet 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) 20In 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) 25the 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) 30After 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) 35where 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
40is to be taken into account only once for the purposes of subsection (4).”

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(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
5respect 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
10amended 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) 15After 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
20premises 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) 25Chapter 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) 30after that subsection insert—

(2A) For the purposes of section 222A (five-year averaging), a trade,
profession 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
35subsection (2)”.

(3) After section 222 insert—

222A 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
40qualifying trade, profession or vocation if the volatility condition in
subsection (2) is met.

(2) The volatility condition is that—

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

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(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
the claim relates; or

(b) 5the 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
under this section or section 222 has already been made.

(4) 10An 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
the subsequent claim relates.

(5) 15An 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
first anniversary of the normal self-assessment filing date for the last of
20the 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) in the heading, after “claim” insert “for two-year averaging”;

(b) 25in 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
averaging claim under this section or section 222A has already
30been 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) 35in 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) 40for 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) 45In section 224 (effect of adjustment)—

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

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(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
or both” substitute “any one or more”.

(8) 5In 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) In paragraph 3 of Schedule 1B to TMA 1970 (relief for fluctuating profits of
10farmers 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
years of assessment, and

(b) 15in 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) in sub-paragraph (3), for “the earlier year”, where it occurs first,
20substitute “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) after sub-paragraph (6) insert—

(7) 25In this paragraph—

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

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

(11) 30In 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) omit “(“the earlier year” and “the later year”)”;

(iii) 35for “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,
substitute “an earlier year”;

(d) 40in 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
subsequent tax years.

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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 5 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,

10the 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
15the 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
20business 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) 25the 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
30for 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,
where N is a number—

(i) greater than 0, and

(ii) 35less 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
respect of that business is equal to N% of A.

(5) An individual has a current-year estate amount for a tax year (“the
40current 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
calculating the profits for income tax purposes of that business
for a particular tax year (“the profits year”), whether that year is
45the current year or an earlier tax year,

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

(i) greater than 0, and

(ii) less than or equal to 100,

(c) 5the 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) the basic amount of that estate income consists of, or includes,
an amount representative of E% of the personal representatives’
10N% of the profits of the business for the profits year, where E is
a number—

(i) greater than 0, and

(ii) less than or equal to 100,

in which event the individual’s current-year estate amount for the
15current 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
year in respect of a property business, see section 274AA(4).

(7) In this section and section 274AA—

  • 20“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
656(4)).

274AA Reduction for individuals: calculation

(1) 25This 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
subsections of this section “relievable amount” means that relievable
amount or (as the case may be) any of those relievable amounts.

(2) 30In 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) the total of—

(i) 35the 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
the individual is liable to income tax otherwise than
40under 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
(“ATI”), the actual amount on which relief for the year is to be given in
45respect of a relievable amount is given by—


where—

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  • S is the total obtained by identifying the amount that is L for each
    relievable amount and then finding the total of the amounts
    identified, and

  • L has the same meaning as in subsection (2).

(4) 5Where—

(a) a relievable amount,

is greater than—

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

10the difference is the individual’s brought-forward amount for the
following tax year in respect of the property business concerned.

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


AA × BR

15where—

  • AA is the actual amount on which relief for the year is to be given
    in respect of the relievable amount, and

  • BR is the basic rate of income tax for the year,

(6) For the purposes of this section, an individual’s adjusted total income
20for a tax year is identified as follows—

Step 1

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

Step 2

25Exclude from that net income—

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

  • so much of it as is dividend income.

Step 3

30Reduce 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
adjusted total income for the year.

274B Reduction for accumulated or discretionary trust income: entitlement

(1) 35If 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
property business,

the trustees of the settlement are entitled to relief under this section for
40that 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
respect of a property business if for that year the trustees of the
settlement have a current-year amount, or brought-forward amount, in
45respect 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—

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(a) their 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) 5The trustees of a settlement have 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) 10the trustees of the settlement are liable for income tax on N% of
those 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
15profits is accumulated or discretionary income,

in 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
20274C(3).

(6) In 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
25entitled to relief under section 274B in respect of a relievable amount or
in 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) 30The amount of the relief in respect of a relievable amount is given by—


L × BR

where—

  • BR is the basic rate of income tax for the year, and

  • L is the lower of—

    (a)

    35the relievable amount, and

    (b)

    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 of the adjusted profits—

    (i)

    40on which the trustees of the settlement are liable
    for income tax, and

    (ii)

    which, in relation to the trustees of the
    settlement, is accumulated or discretionary
    income.

(3) 45Where 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.”