Finance Bill (HC Bill 102)

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402B Termination awards not benefiting from threshold to be treated as
earnings

(1) The amount of a termination award to which this section applies is
treated as an amount of earnings of the employee, or former employee,
5from the employment.

(2) See also section 7(3)(b) and (5)(ca) (which cause amounts treated as
earnings under this section to be included in general earnings).

(3) Section 403(3) (when benefits are received) does not apply in relation to
payments or other benefits to which this section applies.

402C 10 The termination awards to which section 402B applies

(1) This section has effect for the purpose of identifying the extent to which
section 402B applies to termination awards in respect of the termination
of the employment of the employee.

(2) In this section “relevant termination award” means a termination
15award that is neither—

(a) a redundancy payment, nor

(b) so much of an approved contractual payment as is equal to or
less than the amount which would have been due if a
redundancy payment had been payable.

(3) 20If the post-employment notice pay (see section 402D) in respect of the
termination is greater than, or equal to, the total amount of the relevant
termination awards in respect of the termination, section 402B applies
to all of those relevant termination awards.

(4) If the post-employment notice pay in respect of the termination is less
25than the total amount of the relevant termination awards in respect of
the termination but is not nil—

(a) section 402B applies to a part of those relevant termination
awards, and

(b) the amount of that part is equal to the post-employment notice
30pay.

(5) Section 309(4) to (6) (meaning of “redundancy payment” and
“approved contractual payment” etc) apply for the purposes of
subsection (2) as they apply for the purposes of section 309.

402D “Post-employment notice pay”

(1) 35“The post-employment notice pay” in respect of a termination is
(subject to subsection (11)) given by—


where—

  • BP, D and P are given by subsections (3) to (7), and

  • 40T is the total of the amounts of any payment or benefit received in
    connection with the termination which—

    (a)

    would fall within section 401(1)(a) but for section 401(3),

    (b)

    is taxable as earnings under Chapter 1 of Part 3,

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    (c)

    is not pay in respect of holiday entitlement for a period
    before the employment ends, and

    (d)

    is not a bonus payable for termination of the
    employment.

(2) 5If the amount given by the formula in subsection (1) is a negative
amount, the post-employment notice pay is nil.

(3) Subject to subsections (5) and (6)

  • BP is the employee’s basic pay (see subsection (7)) from the
    employment in respect of the last pay period of the employee to
    10end before the trigger date,

  • P is the number of days in that pay period, and

  • D is the number of days in the post-employment notice period.

(4) See section 402E for the meaning of “trigger date” and “post-
employment notice period”.

(5) 15If there is no pay period of the employee which ends before the trigger
date then—

  • BP is the employee’s basic pay from the employment in respect of
    the period starting with the first day of the employment and
    ending with the trigger date,

  • 20P is the number of days in that period, and

  • D is the number of days in the post-employment notice period.

(6) If the last pay period of the employee to end before the trigger date is a
month, the minimum notice (see section 402E) is given by contractual
terms and is expressed to be a whole number of months, and the post-
25employment notice period is equal in length to the minimum notice or
is otherwise a whole number of months, then—

  • BP is the employee’s basic pay from the employment in respect of
    the last pay period of the employee to end before the trigger
    date,

  • 30P is 1, and

  • D is the length of the post-employment notice period expressed in
    months.

(7) In this section “basic pay” means—

(a) employment income of the employee from the employment but
35disregarding—

(i) any amount received by way of overtime, bonus,
commission, gratuity or allowance,

(ii) any amount received in connection with the termination
of the employment,

(iii) 40any amount treated as earnings under Chapters 2 to 10
of Part 3 (the benefits code) or which would be so treated
apart from section 64,

(iv) any amount which is treated as earnings under Chapter
12 of Part 3 (amounts treated as earnings),

(v) 45any amount which counts as employment income by
virtue of Part 7 (income relating to securities and
securities options), and

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(vi) any employment-related securities that constitute
earnings under Chapter 1 of Part 3 (earnings), and

(b) any amount which the employee has given up the right to
receive but which would have fallen within paragraph (a) had
5the employee not done so.

(8) In subsection (7) “employment-related securities” has the same
meaning as it has in Chapter 1 of Part 7 (see section 421B).

(9) The Treasury may by regulations amend this section for the purpose of
altering the meaning of “basic pay”.

(10) 10A statutory instrument containing regulations under subsection (9)
may not be made unless a draft of it has been laid before, and approved
by a resolution of, the House of Commons.

(11) Where the purpose, or one of the purposes, of any arrangements is the
avoidance of tax by causing the post-employment notice pay calculated
15under subsection (1) to be less than it would otherwise be, the post-
employment notice pay is to be treated as the amount which the post-
employment notice pay would have been but for the arrangements.

(12) In subsection (11) “arrangements” includes any scheme, arrangement
or understanding of any kind, whether or not legally enforceable,
20involving a single transaction or two or more transactions.

402E Meaning of “trigger date” and “post-employment notice period” in
section 402D

(1) Subsections (2) and (4) to (6) have effect for the purposes of section
402D (and subsection (4) has effect also for the purposes of this section).

(2) 25The “trigger date” is—

(a) if the termination is not a notice case, the last day of the
employment, and

(b) if the termination is a notice case, the day the notice is given.

(3) For the purposes of this section, the termination is a “notice case” if the
30employer or employee gives notice to the other to terminate the
employment, and here it does not matter—

(a) whether the notice is more or less than, or the same as, the
minimum notice, or

(b) if the employment ends before the notice expires.

(4) 35The “minimum notice” is the minimum notice required to be given by
the employer to terminate the employee’s employment by notice in
accordance with the law and contractual terms effective—

(a) where the termination is not a notice case—

(i) immediately before the employment ends, or

(ii) 40where the employment ends by agreement entered into
after the start of the employment, immediately before
the agreement is entered into, and

(b) where the termination is a notice case, immediately before the
notice is given.

(5) 45The “post-employment notice period” is the period—

(a) beginning at the end of the last day of the employment, and

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(b) ending with the earliest lawful termination date.

(But see subsection (8) for provision about limited-term contracts.)

(6) If the earliest lawful termination date is, or precedes, the last day of the
employment, the number of days in the post-employment notice period
5is nil.

(7) “The earliest lawful termination date” is the last day of the period
which—

(a) is equal in length to the minimum notice, and

(b) begins at the end of the trigger date.

(8) 10In the case of a contract of employment which is a limited-term contract
and which does not include provision for termination by notice by the
employer, the post-employment notice period is the period—

(a) beginning at the end of the last day of the employment, and

(b) ending with the day of the occurrence of the limiting event.

(9) 15If, in a case to which subsection (8) applies, on the last day of the
employment the day of the occurrence of the limiting event is not
ascertained or ascertainable (because, for example, the limiting event is
the performance of a task), then subsection (8) has effect as if for
paragraph (b) there were substituted—

(b) 20ending with the day on which notice would have expired if the
employer had, on the last day of the employment, given to the
employee the minimum notice required to terminate the
contract under section 86 of the Employment Rights Act 1996
(assuming that that section applies to the employment).”

(10) 25In this section “limited-term contract” and “limiting event” have the
same meaning as in the Employment Rights Act 1996 (see section
235(2A) and (2B)).”

(4) In section 403 (charges on payments and benefits which can benefit from
threshold)—

(a) 30in subsection (1), for “Chapter” substitute “section”,

(b) in subsection (3), after “Chapter” insert “(but see section 402B(3))”,

(c) in subsection (4), for the words from “when” to “exceeds” substitute
“when aggregated with—

(1)(a)other payments or benefits in respect of the employee or
35former employee that are payments or benefits to which
this section applies, and

(b) other payments or benefits in respect of the employee or
former employee that are payments or benefits—

(i) received in the tax year 2017-18 or an earlier tax
40year, and

(ii) to which this Chapter applied in the tax year of
receipt,

it exceeds”,

(d) in subsection (5)(a), for “Chapter” substitute “section”,

(e) 45in subsection (6), after “employment income” insert “or, as the case may
be, in relation to whom section 402B(1) provides for an amount to be
treated as an amount of earnings”, and

(f) in the heading, at the end insert “where threshold applies”.

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(5) In section 404 (how the threshold applies)—

(a) in subsection (3)(b) (meaning of “termination or change date”), for “this
Chapter” substitute “section 403”, and

(b) after subsection (5) insert—

(6) 5In subsection (3)(b), the reference to a payment or other benefit
to which section 403 applies includes a reference to a payment
or other benefit—

(a) received in the tax year 2017-18 or an earlier tax year,
and

(b) 10to which this Chapter applied in the tax year of receipt.”

(6) After section 404A insert—

404B Power to vary threshold

(1) The Treasury may by regulations amend the listed provisions by
substituting, for the amount for the time being mentioned in those
15provisions, a different amount.

(2) The listed provisions are—

  • subsections (1), (4) and (5) of section 403, and

  • subsections (1), (4) and (5) of section 404 and its heading.

(3) Regulations under this section may include transitional provision.

(4) 20A statutory instrument containing regulations under this section which
reduce the mentioned amount may not be made unless a draft of it has
been laid before, and approved by a resolution of, the House of
Commons.”

(7) In section 406 (exception in cases of death, injury or disability)—

(a) 25the existing text becomes subsection (1), and

(b) after that subsection insert—

(2) Although “injury” in subsection (1) includes psychiatric injury,
it does not include injured feelings.”

(8) In section 414(2) (proportionate reduction for foreign service in certain cases),
30for “otherwise count as employment income under this Chapter” substitute
“otherwise—

(a) be treated as earnings by section 402B(1), or

(b) count as employment income as a result of section 403”.

(9) In section 717(4) (regulations etc not subject to negative procedure), before “or
35section 681F(3)” insert “, section 402D(10) (meaning of basic pay for purpose of
calculating charge on termination award), section 404B(4) (reduction of tax-
free threshold for employment-termination etc payments)”.

(10) The amendments made by this section have effect for the tax year 2018-19 and
subsequent tax years.

6 40PAYE settlement agreements

(1) In Chapter 5 of Part 11 of ITEPA 2003 (PAYE settlement agreements), in
sections 703(a) and 704(1)(a), for “an officer of Revenue and Customs”
substitute “Her Majesty’s Revenue and Customs”.

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(2) The amendment made by this section has effect in relation to the tax year 2018-
19 and subsequent tax years.

7 Money purchase annual allowance

(1) Part 4 of FA 2004 is amended as follows.

(2) 5In section 227ZA (chargeable amount), in subsection (1)(b), for “£10,000”
substitute “£4,000”.

(3) In section 227B (alternative chargeable amount), in subsections (1)(b) and (2),
for “£10,000” substitute “£4,000”.

(4) In section 227D (pension input amounts in respect of certain hybrid
10arrangements), in Steps 4 and 5 of subsection (4), for “£10,000” substitute
“£4,000”.

(5) The amendments made by this section have effect for the tax year 2017-18 and
subsequent tax years.

Income tax: investments

8 15Dividend nil rate for tax year 2018-19 etc

(1) In section 13A of ITA 2007 (income charged at the divided nil rate), for “£5000”,
in each place, substitute “£2000”.

(2) The amendments made by this section have effect for the tax year 2018-19 and
subsequent tax years.

9 20Life insurance policies: recalculating gains on part surrenders etc

(1) ITTOIA 2005 is amended as follows.

(2) After section 507 (method for making periodic calculations in part surrender or
assignment cases) insert—

507A Recalculating gains under section 507

(1) 25An interested person may apply to an officer of Revenue and Customs
for a review of a calculation under section 507 on the ground that the
gain arising from it is wholly disproportionate.

(2) For the purposes of this section an interested person in relation to a
calculation under section 507 is a person who would be liable for all or
30any part of the amount of tax that would be chargeable under this
Chapter if the gain were not recalculated.

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

(a) made in writing, and

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

(i) 35the four tax years following the tax year in which the
gain arose, or

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

(4) In considering whether the gain is wholly disproportionate, the officer
may take into account (as well as the amount of the gain) any factor

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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

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(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.”

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(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.

10 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.”

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

(1) ITA 2007 is amended as follows.

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

(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

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(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.”

(3) In section 257CD (SEIS: the no pre-arranged exits requirement), for subsection
5(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 257HB(1), or

(b) any arrangements with a view to any shares in the issuing
10company 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
on or after 5 December 2016.

12 VCTs: follow-on funding

(1) 15ITA 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
“sections 326A, 327 and 327A apply”;

(b) in subsection (1), for “Sections 326A and 327 apply” substitute “Sections
20326A, 327 and 327A apply”.

(3) After section 327 insert—

327A Follow-on funding

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

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

(b) 25the 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) the acquisition falls within section 326(2).

(2) If, after the acquisition, another company makes an investment in the
30new 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
having been made in the relevant company before the end of the
initial investing period included a reference to a relevant
35investment having been made in the old company before the
acquisition and before the end of the initial investing period,
and

(b) in subsection (6)(a) the reference to relevant investments made
in the relevant company included a reference to relevant
40investments 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
effect as if—

(a) in subsection (3)(a) the reference to a relevant investment
45having been made in the relevant company before the end of the