Finance (No. 2) Bill (HL Bill 156)

which the officer considers appropriate including, so far as the officer
considers it appropriate to do so—

(a) the economic gain on the rights surrendered or assigned,

(b) the amount of the premiums paid under the policy or contract,

(c) 5the amount of tax that would be chargeable under this Chapter
if the gain were not recalculated.

(5) If, following an application under subsection (1), an officer considers
that the gain arising from the calculation under section 507 is wholly
disproportionate, the officer must recalculate the gain on a just and
10reasonable basis.

(6) Following a recalculation under subsection (5), references in this
Chapter (but excluding this section) to a calculation under section 507
are to be regarded as references to a recalculation under this section.

(7) Following a recalculation under subsection (5), an officer of Revenue
15and Customs must notify the interested person of the result of the
recalculation.

(8) If two or more persons are interested persons in relation to a calculation
under section 507—

(a) an application under subsection (1) may be made only by all the
20interested persons jointly, and

(b) subsection (7) applies as if the reference to the interested person
were a reference to each of the interested persons.

(9) Following a recalculation under subsection (5), all necessary
adjustments and repayments of income tax are to be made.

(10) 25No recalculation is to be made under this section if the gain mentioned
in subsection (1) arises as a result of one or more transactions which
form part of arrangements, the main purpose, or one of the main
purposes, of which is to obtain a tax advantage for any person.

(11) In this section—

• 30“arrangements” includes any agreement, understanding, scheme,
  transaction or series of transactions (whether or not legally
  enforceable), and

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

(3) 35After section 512 (available premium left for relevant transaction in certain part
surrender or assignment cases) insert—

“512A Recalculating gains under section 511

(1) An interested person may apply to an officer of Revenue and Customs
for a review of a calculation under section 511 on the ground that the
40gain arising from it is wholly disproportionate.

(2) For the purposes of this section an interested person in relation to a
calculation under section 511 is a person who would be liable for all or
any part of the amount of tax that would be chargeable under this
Chapter—

(a) 45if the gain were not recalculated, or

(b) if all rights under the policy or contract had been surrendered
immediately after the surrender or assignment of rights which
gave rise to the calculation.

(3) Applications under subsection (1) must be—

(a) 5made in writing, and

(b) received by an officer of Revenue and Customs within—

(i) the four tax years following the tax year in which the
gain arose, or

(ii) such longer period as the officer may agree.

(4) 10In considering whether the gain is wholly disproportionate, the officer
may take into account (as well as the amount of the gain) any factor
which the officer considers appropriate including, so far as the officer
considers it appropriate to do so—

(a) the economic gain on the rights surrendered or assigned,

(b) 15the amount of the premiums paid under the policy or contract,

(c) the amount of tax that would be chargeable under this Chapter
if the gain were not recalculated.

(5) If, following an application under subsection (1), an officer considers
that the gain arising from the calculation under section 511 is wholly
20disproportionate, the officer must recalculate the gain on a just and
reasonable basis.

(6) Following a recalculation under subsection (5), references in this
Chapter (but excluding this section) to a calculation under section 511
are to be regarded as references to a recalculation under this section.

(7) 25Following a recalculation under subsection (5), an officer of Revenue
and Customs must notify the interested person of the result of the
recalculation.

(8) If two or more persons are interested persons in relation to a calculation
under section 511—

(a) 30an application under subsection (1) may be made only by all the
interested persons jointly, and

(b) subsection (7) applies as if the reference to the interested person
were a reference to each of the interested persons.

(9) Following a recalculation under subsection (5), all necessary
35adjustments and repayments of income tax are to be made.

(10) No recalculation is to be made under this section if the gain mentioned
in subsection (1) arises as a result of one or more transactions which
form part of arrangements, the main purpose, or one of the main
purposes, of which is to obtain a tax advantage for any person.

(11) 40In this section—

• “arrangements” includes any agreement, understanding, scheme,
  transaction or series of transactions (whether or not legally
  enforceable), and

• “tax advantage” has the meaning given by section 1139 of CTA
  452010.””

(4) In section 538 (recovery of tax from trustees), after subsection (6) insert—

“(7) Subsection (8) applies where—

(a) an individual has recovered an amount from trustees under this
section, and

(b) 5subsequently the individual’s liability to tax under this Chapter
has been reduced (or removed) as a result of a recalculation
under section 507A or 512A.

(8) The individual must repay to the trustees the amount (if any) by which
the recovered amount exceeds the individual’s revised entitlement.

(9) 10In subsection (8) the individual’s revised entitlement is the amount to
which the individual is entitled under this section calculated by
reference to the individual’s liability to tax under this Chapter as
reduced (or removed) as a result of the recalculation under section
507A or 512A.””

(5) 15The amendments made by subsection (4) have effect in relation to amounts
recovered before, as well as after, the day on which this Act is passed.

23 Personal portfolio bonds

In section 520 of ITTOIA 2005 (property categories), after subsection (4)
insert—

“(5) 20The Treasury may by regulations—

(a) amend the table in subsection (2) by adding, removing or
amending a category of property;

(b) add, remove or amend a definition relating to any category of
property in that table; and

(c) 25make consequential amendments.

(6) A statutory instrument containing regulations under this section which
have the effect of removing a category of property from the table in
subsection (2)—

(a) must be laid before the House of Commons; and

(b) 30ceases to have effect at the end of the period of 28 days
beginning with the day on which it was made, unless it is
approved during that period by a resolution of the House of
Commons.

(7) In reckoning the period of 28 days, no account is to be taken of any time
35during which Parliament is dissolved or prorogued, or during which
the House of Commons is adjourned for more than four days.””

Reliefs relating to investments

24 EIS and SEIS: the no pre-arranged exits requirement

(1) ITA 2007 is amended as follows.

(2) 40In section 177 (EIS: the no pre-arranged exits requirement), for subsection (2)
substitute—

“(2) The arrangements referred to in subsection (1)(a) do not include—

(a) any arrangements with a view to such an exchange of shares, or
shares and securities, as is mentioned in section 247(1), or

(b) any arrangements with a view to any shares in the issuing
company being exchanged for, or converted into, shares in that
5company of a different class.””

(3) In section 257CD (SEIS: the no pre-arranged exits requirement), for subsection
(2) substitute—

“(2) The arrangements referred to in subsection (1)(a) do not include—

(a) any arrangements with a view to such an exchange of shares, or
10shares and securities, as is mentioned in section 257HB(1), or

(b) any arrangements with a view to any shares in the issuing
company being exchanged for, or converted into, shares in that
company of a different class.””

(4) The amendments made by this section have effect in relation to shares issued
15on or after 5 December 2016.

25 VCTs: follow-on funding

(1) ITA 2007 is amended as follows.

(2) In section 326 (restructuring to which sections 326A and 327 apply)—

(a) in the heading to section 326, for “section 327 applies” substitute
20“sections 326A, 327 and 327A apply”;

(b) in subsection (1), for “Sections 326A and 327 apply” substitute “Sections
326A, 327 and 327A apply”.

(3) After section 327 insert—

“327A Follow-on funding

(1) 25Subsections (2) and (3) apply where—

(a) this section applies (see section 326(1)),

(b) the acquisition by the new company of all the old shares, which
is provided for by the arrangements mentioned in section
326(1), takes place, and

(c) 30the acquisition falls within section 326(2).

(2) If, after the acquisition, another company makes an investment in the
new company, section 280C (the permitted maximum age condition)
has effect in relation to that investment as if—

(a) in subsection (4)(a) the reference to a relevant investment
35having been made in the relevant company before the end of the
initial investing period included a reference to a relevant
investment having been made in the old company before the
acquisition and before the end of the initial investing period,
and

(b) 40in subsection (6)(a) the reference to relevant investments made
in the relevant company included a reference to relevant
investments made in the old company before the acquisition.

(3) In relation to any relevant holding issued by the new company after the
acquisition, section 294A (the permitted company age requirement) has
45effect as if—

(a) in subsection (3)(a) the reference to a relevant investment
having been made in the relevant company before the end of the
initial investing period included a reference to a relevant
investment having been made in the old company before the
5acquisition and before the end of the initial investing period,
and

(b) in subsection (5)(a) the reference to relevant investments made
in the relevant company included a reference to relevant
investments made in the old company before the acquisition.

(4) 10In subsection (3) “relevant holding” has the same meaning as in
Chapter 4.””

(4) The amendments made by this section have effect—

(a) for the purposes of section 280C of ITA 2007, in relation to investments
made on or after 6 April 2017;

(b) 15for the purposes of section 294A of ITA 2007, in relation to relevant
holdings issued on or after 6 April 2017.

26 VCTs: exchange of non-qualifying shares and securities

(1) Section 330 of ITA 2007 (power to facilitate company reorganisations etc
involving exchange of shares) is amended as follows.

(2) 20After subsection (1) insert—

“(1A) The Treasury may by regulations make provision for the purposes of
this Part for cases where—

(a) a holding of shares or securities that does not meet the
requirements of Chapter 4 is exchanged for other shares or
25securities not meeting those requirements, and

(b) the exchange is made for genuine commercial reasons and does
not form part of a scheme or arrangement the main purpose or
one of the main purposes of which is the avoidance of tax.””

(3) In subsection (2), for “subsection (1)” substitute “subsections (1) and (1A)”.

(4) 30In subsection (3), for “The regulations” substitute “Regulations under
subsection (1)”.

(5) After subsection (3) insert—

“(3A) Regulations under subsection (1A) may, among other things, make
provision—

(a) 35for the new shares or securities to be treated in any respect in the
same way as the original shares and securities for any period;

(b) as to when the new shares or securities are to be regarded as
having been acquired;

(c) as to the valuation of the original or the new shares or
40securities.””

(6) In subsection (4), for “The regulations” substitute “Regulations under this
section”.

(7) In subsection (6). in paragraph (c), at the beginning insert “in the case of
regulations under subsection (1)”.

27 Social investment tax relief

Schedule 8 makes provision about income tax relief for social investments.

28 Business investment relief

(1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

(2) 5In section 809VC (qualifying investments), in subsection (1)(a), after “issued
to” insert “or acquired by”.

(3) In section 809VD (condition relating to qualifying investments)—

(a) in subsection (1), omit the “or” at the end of paragraph (b) and after that
paragraph insert—

“(ba) 10an eligible hybrid company, or”;”

(b) in subsection (2)(b), for “2” substitute “5”;

(c) in subsection (3)(c), for “2” substitute “5”;

(d) after subsection (3) insert—

“(3A) A company is an “eligible hybrid company” if—

(a) 15it is a private limited company,

(b) it is not an eligible trading company or an eligible
stakeholder company,

(c) it carries on one or more commercial trades or is
preparing to do so within the next 5 years,

(d) 20it holds one or more investments in eligible trading
companies or is preparing to do so within the next 5
years, and

(e) carrying on commercial trades and making investments
in eligible trading companies are all or substantially all
25of what it does (or of what it is reasonably expected to
do once it begins operating).”;”

(e) in subsection (4), for “reference in subsection (3)” substitute “references
in subsections (3) and (3A)”;

(f) in subsection (5)(a), for “2” substitute “5”.

(4) 30In section 809VE (commercial trades), after subsection (5) insert—

“(6) A company which is a partner in a partnership is not to be regarded as
carrying on a trade carried on by the partnership.””

(5) In section 809VH (meaning of “potentially chargeable event”)—

(a) in subsection (1)(a), after “eligible stakeholder company” insert “nor an
35eligible hybrid company”;

(b) in subsection (1)(d), for “2-year” substitute “5-year”;

(c) in subsection (2), for paragraph (b) substitute—

“(b) the value is received from any person in circumstances
that are directly or indirectly attributable to the
40investment, and”;”

(d) omit subsection (4);

(e) in subsection (5)—

(i) for “2-year” substitute “5-year”;

(ii) in paragraph (a), for “2” substitute “5”;

(f) 45in subsection (6), omit the “or” at the end of paragraph (b) and after that

paragraph insert—

“(ba) it is an eligible hybrid company but is not trading and—

(i) it holds no investments in eligible trading
companies, or

(ii) 5none of the eligible trading companies in which
it holds investments is trading, or”;”

(g) in subsection (10)(b), after “eligible stakeholder company” insert “or an
eligible hybrid company”.

(6)
In section 809VJ (grace period), after subsection (2) insert—

“(2A) 10But subsection (2B) applies instead of subsections (1) and (2) where the
potentially chargeable event is a breach of the 5-year start-up rule by
virtue of section 809VH(5)(b).

(2B) The grace period allowed for the steps mentioned in section 809VI(2)(a)
and (2)(b) is the period of 2 years beginning with the day on which a
15relevant person first became aware or ought reasonably to have become
aware of the potentially chargeable event referred to in subsection
(2A).””

(7) In section 809VN (order of disposals etc), in subsections (1)(c) and (5)(a) and
(b), after “eligible stakeholder company” insert “or eligible hybrid company”.

(8) 20The amendments made by this section come into force on 6 April 2017.

CHAPTER 3 Corporation tax

Corporation tax reliefs

29 Carried-forward losses

(1) Schedule 9 makes provision about corporation tax relief for losses and other
25amounts that are carried forward.

(2) The Commissioners may by regulations made by statutory instrument make
provision consequential on any provision made by Schedule 9.

(3) Regulation under subsection (2)—

(a) may make provision amending or modifying any provision of the
30Taxes Acts (including any provision inserted by Schedule 9),

(b) may make incidental, supplemental, transitional, transitory or saving
provision, and

(c) may make different provision for different purposes.

(4) A statutory instrument containing regulations under subsection (2) is subject
35to annulment in pursuance of a resolution of the House of Commons.

(5) In this section “the Taxes Acts” has the same meaning as in the Taxes
Management Act 1970 (see section 118(1) of that Act).

30 Losses: counteraction of avoidance arrangements

(1) Any loss-related tax advantage that would (in the absence of this section) arise
from relevant tax arrangements is to be counteracted by the making of such
adjustments as are just and reasonable.

(2) 5Any adjustments required to be made under this section (whether or not by an
officer of Revenue and Customs) may be made by way of—

(a) an assessment,

(b) the modification of an assessment,

(c) amendment or disallowance of a claim,

10 or otherwise.

(3) For the purposes of this section arrangements are “relevant tax arrangements”
if conditions A and B are met.

(4) Condition A is that the purpose, or one of the main purposes, of the
arrangements is to obtain a loss-related tax advantage.

(5) 15Condition B is that it is reasonable to regard the arrangements as
circumventing the intended limits of relief under the relevant provisions or
otherwise exploiting shortcomings in the relevant provisions.

(6) In determining whether or not condition B is met all the relevant circumstances
are to be taken into account, including whether the arrangements include any
20steps that—

(a) are contrived or abnormal, or

(b) lack a genuine commercial purpose.

(7) In this section “loss-related tax advantage” means a tax advantage as a result
of a deduction (or increased deduction) under a provision mentioned in
25subsection (8).

(8) The provisions are—

(a) sections 37, 45, 45A, 45B and 45F of CTA 2010 (deductions in respect of
trade losses);

(b) section 62(5) of CTA 2010 (losses of a UK property business);

(c) 30Part 5 of CTA 2010 (group relief);

(d) Part 5A of CTA 2010 (group relief for carried-forward losses);

(e) sections 457, 459, 461, 462, 463B and 463G of CTA 2009 (non-trading
deficits from loan relationships);

(f) section 753 of CTA 2009 (non-trading losses on intangible fixed assets);

(g) 35section 1219 of CTA 2009 (management expenses etc);

(h) section 124B of FA 2012 (excess carried-forward BLAGAB trade losses).

(9) In this section—

• “arrangements” includes any agreement, understanding, scheme
  transaction or series of transactions (whether or not legally
  40enforceable);

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

(10) This section has effect in relation to a tax advantage that relates (or would apart
from this section relate) to an accounting period beginning on or after 1 April
2017 (regardless of when the arrangements in question were made).

(11) Where a tax advantage would (apart from this subsection) relate to an
accounting period beginning before 1 April 2017 and ending on or after that
date (“the straddling period”)—

(a) so much of the straddling period as falls before 1 April 2017, and so
5much of that period as falls on or after that date, are treated as separate
accounting periods, and

(b) the extent (if any) to which the tax advantage relates to the second of
those accounting periods is to be determined by apportioning
amounts—

(i) 10in accordance with section 1172 of CTA 2010 (time basis), or

(ii) if that method would produce a result that is unjust or
unreasonable, on a just and reasonable basis.

31 Corporate interest restriction

Schedule 10 makes provision about the amounts that may be brought into
15account for the purposes of corporation tax in respect of interest and other
financing costs.

32 Museum and gallery exhibitions

Schedule 11 makes provision about relief in respect of the production of
museum and gallery exhibitions.

33 20Grassroots sport

(1) CTA 2010 is amended as follows.

(2) In section 1(2) (overview of Act)—

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

(b) after that paragraph insert—

“(ga) 25relief for expenditure on grassroots sport (see Part 6A), and”.”

(3) In section 99(1) (group relief: losses and other amounts which may be
surrendered), after paragraph (d) insert—

“(da) amounts allowable as qualifying expenditure on grassroots
sport (see Part 6A),”.”

(4) 30In section 105(4) (group relief: order in which amounts are treated as
surrendered)—

(a) after paragraph (a) insert—

“(aa) second, expenditure within section 99(1)(da),”,”

(b) in paragraph (b), for “second” substitute “third”,

(c) 35in paragraph (c), for “third” substitute “fourth”, and

(d) in paragraph (d), for “fourth” substitute “fifth”.

(5) After Part 6 insert—

““Part 6A

Relief for expenditure on grassroots sport

217A Relief for expenditure on grassroots sport

(1) A payment made by a company which is qualifying expenditure on
grassroots sport (and which is not refunded) is allowed as a deduction
5in accordance with this section from the company’s total profits in
calculating the corporation tax chargeable for the accounting period in
which the payment is made.

(2) The deduction is from the company’s total profits for the accounting
period after any other relief from corporation tax other than—

(a) 10relief under Part 6,

(b) group relief, and

(c) group relief for carried-forward losses.

(3) If the company is a qualifying sport body at the time of the payment, a
deduction is allowed for the amount of the payment.

15See section 217C for the meaning of “qualifying sport body”.

(4) If the company is not a qualifying sport body at the time of the
payment, a deduction is allowed—

(a) if the payment is to a qualifying sport body, for the amount of
the payment, and

(b) 20if the payment does not fall within paragraph (a) (a “direct
payment”), in accordance with subsections (7) and (8).

(5) If at any time on or after 1 April 2017 the company receives income for
use for charitable purposes which are purposes for facilitating
participation in amateur eligible sport, a deduction is allowed only if,
25and in so far as, the payment exceeds an amount which is equal to the
amount of that income which—

(a) the company does not have to bring into account for
corporation tax purposes, and

(b) has not previously been taken into account under this
30subsection to disallow a deduction under this Part of all or any
part of a payment.

See section 217B(3) for the meaning of terms used in this subsection.

(6) But in any case, the amount of the deduction is limited to the amount
that reduces the company’s taxable total profits for the accounting
35period to nil.

(7) If the total of all the direct payments made by the company in the
accounting period is equal to or less than the maximum deduction for
direct payments, a deduction is allowed under subsection (4)(b) in
respect of that total.

(8) 40If the total of all the direct payments made by the company in the
accounting period is more than the maximum deduction for direct
payments, a deduction is allowed under subsection (4)(b) in respect of
so much of that total as does not exceed the maximum deduction for
direct payments.