Finance (No. 2) Bill (151)

Part 1 Direct taxes

Income tax and corporation tax: charge

1 Income tax charge for tax year 2018-19

5Income tax is charged for the tax year 2018-19.

2 Corporation tax charge for financial year 2019

Corporation tax is charged for the financial year 2019.

Income tax: rates and allowances

3 Main rates of income tax for tax year 2018-19

For the tax year 2018-19 the main rates of income tax are as follows—

(a) the basic rate is 20%;

(b) 5the higher rate is 40%;

(c) the additional rate is 45%.

4 Default and savings rates of income tax for tax year 2018-19

(1) For the tax year 2018-19 the default rates of income tax are as follows—

(a) the default basic rate is 20%;

(b) 10the default higher rate is 40%;

(c) the default additional rate is 45%.

(2) For the tax year 2018-19 the savings rates of income tax are as follows—

(a) the savings basic rate is 20%;

(b) the savings higher rate is 40%;

(c) 15the savings additional rate is 45%.

5 Starting rate limit for savings for tax year 2018-19

Section 21 of ITA 2007 (indexation) does not apply in relation to the starting
rate limit for savings for the tax year 2018-19 (so that, under section 12(3) of ITA
2007 as amended by section 4 of FA 2017, that limit remains at £5000 for that
20tax year).

6 Transfer of tax allowance after death of spouse or civil partner

(1) Chapter 3A of Part 3 of ITA 2007 (transferable tax allowance) is amended as
follows.

(2) Section 55B (tax reduction: entitlement) is amended in accordance with
25subsections (3) to (5).

(3) In subsection (2) (conditions for entitlement to tax reduction)—

(a) for paragraph (a) (individual is spouse or civil partner of maker of
election in force under section 55C) substitute—

“(a) the individual is the gaining party (see section 55C(1)(a))
30in the case of an election under section 55C which is in
force for the tax year,”, and”

(b) in paragraph (d), for “individual’s” substitute “relinquishing”.

(4) After subsection (5) insert—

“(5A) In this section “the relinquishing spouse or civil partner”, in relation to
35an election under section 55C, means the individual mentioned in
section 55C(1)(a) by whom, or by whose personal representatives, the
election is made.””

(5) In subsection (6) (reduced personal allowance for transferor)—

(a) after “under subsection (1)” insert “by reference to an election under
40section 55C”, and

(b) for “individual’s” substitute “relinquishing”.

(6) Section 55C (elections to reduce personal allowance) is amended in accordance
with subsections (7) and (8).

(7) In subsection (1)(a) (individual may make election if married or in civil
5partnership)—

(a) after “the same person” insert “(“the gaining party”)”, and

(b) in sub-paragraph (ii), after “when the election is made” insert “or,
where the election is made after the death of one or each of them, when
they were last both living”.

(8) 10After subsection (4) insert—

“(5) The personal representatives of an individual may make any election
for the purposes of section 55B that the individual (if living) might
make in relation to—

(a) the tax year in which the individual dies, or

(b) 15an earlier tax year.””

(9) Section 55D (procedure for elections under section 55C) is amended in
accordance with subsections (10) and (11).

(10) In subsection (3) (elections which are not automatically continued in force for
subsequent years), after “is made after the end of the tax year to which it
20relates” insert “or is made after the death of either of the spouses or civil
partners”.

(11) In subsection (4) (election may be withdrawn only by individual who made it),
after “by whom the election was made” insert “; an election made by an
individual’s personal representatives may not be withdrawn”.

(12) 25The amendments made by this section—

(a) are to be treated as having come into force on 29 November 2017,

(b) have effect in relation to elections made on or after that day, and

(c) so have effect even where a relevant death occurred on or before that
day.

30Employment

7 Deductions from seafarers’ earnings

In section 384 of ITEPA 2003 (which provides that Crown employees cannot be
seafarers for the purposes of Chapter 6 of Part 5), in subsection (2) (meaning of
Crown employment), before the “and” at the end of paragraph (a) insert—

“(aa) 35which is not employment in the Royal Fleet Auxiliary Service,”.”

8 Exemption for armed forces’ accommodation allowances

(1) In Chapter 8 of Part 4 of ITEPA 2003 (exemptions: special kinds of employees),

after section 297C insert—

“297D Armed forces: accommodation allowances

(1) No liability to income tax arises in respect of payments of
accommodation allowances to, or in respect of, a member of the armed
5forces of the Crown.

(2) An “accommodation allowance” is an allowance—

(a) payable out of the public revenue,

(b) for, or towards, costs of accommodation, and

(c) in respect of which any conditions specified in regulations
10made by the Treasury are met.

(3) The provision that may be made by regulations under subsection (2)(c)
includes provision framed by reference to a scheme (by whatever name
called), or document, as it has effect from time to time.

(4) Regulations under this section may make—

(a) 15different provision for different cases, and

(b) different provision for different areas.

(5) Regulations under this section that do not increase any person’s
liability to income tax may have effect in relation to times before they
are made.””

(2) 20The amendment made by subsection (1) has effect in relation to payments on
or after such date as may be specified in regulations made by the Treasury.

9 Benefits in kind: diesel cars

(1) Section 141 of ITEPA 2003 (benefits in kind: appropriate percentage for diesel
cars) is amended as follows.

(2) 25For subsection (1) substitute—

“(1) This section applies to a diesel car first registered on or after 1 January
1998 but before 1 September 2017.

(1A) This section applies to a diesel car first registered on or after 1
September 2017 if—

(a) 30it is a car with real driving emissions figures for NO_x and either
of those figures exceeds 80 milligrams per kilometre driven, or

(b) it is a car without real driving emissions figures for NO_x.””

(3) In subsection (2)—

(a) in the words before step 1, for “such a” substitute “the”;

(b) 35in paragraph (a) of step 3, for “3 percentage points” substitute “4
percentage points”.

(4) After subsection (2) insert—

“(2A) In this section a “car with real driving emissions figures for NO_x”
means a car first registered on the basis of an EC certificate of
40conformity which declares, in terms of milligrams per kilometre
driven—

(a) a maximum real driving emissions value for NO_x for urban real
driving emissions trips, and

(b) a maximum real driving emissions value for NO_x for complete
real driving emissions trips.

(2B) The car’s real driving emissions figures for NO_x are those declared
values.

(2C) 5In this section a “car without real driving emissions figures for NO_x”
means any other diesel car.””

(5) In sections 139(7)(a) and 140(5)(a) of ITEPA 2003 (appropriate percentage),
before “diesel” insert “certain”.

(6) The amendments made by this section have effect in relation to the tax year
102018-19 and subsequent tax years.

10 Termination payments: foreign service

(1) Chapter 3 of Part 6 of ITEPA 2003 (payments, and other benefits, on
termination of employment etc) is amended as follows.

(2) In section 413 (exception from charge on termination etc payment where
15employee’s work history includes sufficient foreign service), before subsection
(1) insert—

“(A1) This section applies to a payment or other benefit if—

(a) the payment or other benefit is within section 401(1)(a), and the
employee or former employee is non-UK resident for the tax
20year in which the employment terminates, or

(b) the payment or other benefit is within section 401(1)(b) or (c).””

(3) In section 414(1) (reduction of termination etc payment where foreign service
insufficient for section 413 exception)—

(a) before paragraph (a) insert—

“(za) 25either—

(i) the payment or other benefit is within section
401(1)(a), and the employee or former employee
is non-UK resident for the tax year in which the
employment terminates, or

(ii) 30the payment or other benefit is within section
401(1)(b) or (c),”, and”

(b) for paragraph (b) substitute—

“(b) section 413(1) does not except the payment or other
benefit from the application of this Chapter.””

(4) 35After section 414A insert—

“414B Exception in certain cases of foreign service as seafarer

(1) This section applies to a payment or other benefit if—

(a) the payment or other benefit is within section 401(1)(a), and

(b) the employee or former employee is UK resident for the tax year
40in which the employment terminates.

(2) This Chapter does not apply if the service of the employee or former
employee in the employment in respect of which the payment or other
benefit is received included foreign seafaring service comprising—

(a) three-quarters or more of the whole period of service ending
with the date of the termination in question, or

(b) if the period of service ending with that date exceeded 10 years,
the whole of the last 10 years, or

(c) 5if the period of service ending with that date exceeded 20 years,
one-half or more of that period, including any 10 of the last 20
years.

(3) In subsection (2) “foreign seafaring service” means service to which
subsection (4), (5) or (7) applies.

(4) 10This subsection applies to service in or after the tax year 2003-04 such
that a deduction equal to the whole amount of the earnings from the
employment was or would have been allowable under Chapter 6 of
Part 5 (deductions from seafarers’ earnings).

(5) This subsection applies to service before the tax year 2003-04 and after
15the tax year 1973-74 such that a deduction equal to the whole amount
of the emoluments from the employment was or would have been
allowable under a seafarers’ earnings deduction provision.

(6) In subsection (5) “seafarers’ earnings deduction provision” means—

(a) paragraph 1 of Schedule 2 to FA 1974 so far as relating to
20employment as a seafarer,

(b) paragraph 1 of Schedule 7 to FA 1977 so far as relating to
employment as a seafarer,

(c) section 192A of ICTA, or

(d) section 193(1) of ICTA so far as relating to employment as a
25seafarer.

(7) This subsection applies to service before the tax year 1974-75 in an
employment as a seafarer such that tax was not chargeable in respect of
the emoluments of the employment—

(a) in the tax year 1956-57 or later, under Case I of Schedule E, or

(b) 30in earlier tax years, under Schedule E,

or it would not have been so chargeable had there been any such
emoluments.

(8) In this section “employment as a seafarer” is to be read in accordance
with section 384.

414C 35 Reduction in other cases of foreign service as seafarer

(1) This section applies if—

(a) the payment or other benefit is within section 401(1)(a),

(b) the employee or former employee is UK resident for the tax year
in which the employment terminates,

(c) 40the service of the employee or former employee in the
employment in respect of which the payment or other benefit is
received includes foreign service, and

(d) section 414B(2) does not except the payment or other benefit
from the application of this Chapter.

(2) 45The taxable person may claim relief in the form of a proportionate
reduction of the amount that would otherwise—

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

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

(3) The proportion is that which the length of the foreign seafaring service
bears to the whole length of service in the employment before the date
of the termination in question.

(4) 5A person’s entitlement to relief under this section is limited as
mentioned in subsection (5) if the person is entitled—

(a) to deduct, retain or satisfy income tax out of a payment which
the person is liable to make, or

(b) to charge any income tax against another person.

(5) 10The relief must not reduce the amount of income tax for which the
person is liable below the amount the person is entitled so to deduct,
retain, satisfy or charge.

(6) In this section “foreign seafaring service” has the same meaning as in
section 414B(2).””

(5) 15The amendments made by this section have effect—

(a) where the date of the termination or change in question is, or is after, 6
April 2018, and

(b) the payment, or other benefit, is received after 13 September 2017.

Disguised remuneration

11 20Employment income provided through third parties

Schedule 1 contains provision about employment income provided through
third parties.

12 Trading income provided through third parties

Schedule 2 contains provision amending Schedule 12 to F(No.2)A 2017
25(trading income provided through third parties: loans etc outstanding on 5
April 2019).

Pensions

13 Pension schemes

Schedule 3 contains provision about pension schemes.

30Investments

14 EIS, SEIS and VCT reliefs: risk to capital

(1) In Part 5 of ITA 2007 (enterprise investment scheme)—

(a) in section 157 (eligibility for EIS relief), in subsection (1), before
paragraph (a) insert—

“(za) 35the risk-to-capital condition is met (see section 157A),”,
and”

(b) after that section insert—

“157A Risk-to-capital condition

(1) The risk-to-capital condition is met if, having regard to all the
circumstances existing at the time of the issue of the shares, it
5would be reasonable to conclude that—

(a) the issuing company has objectives to grow and develop
its trade in the long-term, and

(b) there is a significant risk that there will be a loss of
capital of an amount greater than the net investment
10return.

(2) For the purposes of subsection (1)(b)—

(a) the risk is to be determined by reference to a loss of
capital, and the net investment return, for the investors
generally,

(b) 15the reference to a loss of capital is to a loss of some or all
of the amounts subscribed for the shares by the
investors, and

(c) the reference to the net investment return is to the net
investment return to the investors (whether by way of
20income or capital growth) taking into account the value
of EIS relief.

(3) For the purposes of subsection (1) the circumstances to which
regard may be had include—

(a) the extent to which the company’s objectives include
25increasing the number of its employees or the turnover
of its trade,

(b) the nature of the company’s sources of income,
including the extent to which there is a significant risk of
the company not receiving some or all of the income,

(c) 30the extent to which the company has or is likely to have
assets, or is or could become a party to arrangements for
acquiring assets, that could be used to secure financing
from any person,

(d) the extent to which the activities of the company are sub-
35contracted to persons who are not connected with it,

(e) the nature of the company’s ownership structure or
management structure, including the extent to which
others participate in or devise the structure,

(f) how any opportunity for investment in the company is
40marketed, and

(g) the extent to which arrangements are in place under
which opportunities for investments in the company are
or may be marketed with, or otherwise associated with,
opportunities for investments in other companies or
45entities.

(4) If the issuing company is a parent company—

(a) any reference in this section to the company’s trade is to
what would be the trade of the group if the activities of
the group companies taken together were regarded as
50one trade, and

(b) any reference in subsection (3)(a) to (e) to the company
is to any group company.””

(2) In Part 5A of ITA 2007 (seed enterprise investment scheme)—

(a) in section 257AA (eligibility for SEIS relief), before paragraph (a)
5insert—

“(za) the risk-to-capital condition is met (see section
257AAA),”, and”

(b) after that section insert—

“257AAA Risk-to-capital condition

(1) 10The risk-to-capital condition is met if, having regard to all the
circumstances existing at the time of the issue of the shares, it
would be reasonable to conclude that—

(a) the issuing company has objectives to grow and develop
its trade in the long-term, and

(b) 15there is a significant risk that there will be a loss of
capital of an amount greater than the net investment
return.

(2) For the purposes of subsection (1)(b)—

(a) the risk is to be determined by reference to a loss of
20capital, and the net investment return, for the investors
generally,

(b) the reference to a loss of capital is to a loss of some or all
of the amounts subscribed for the shares by the
investors, and

(c) 25the reference to the net investment return is to the net
investment return to the investors (whether by way of
income or capital growth) taking into account the value
of SEIS relief.

(3) For the purposes of subsection (1) the circumstances to which
30regard may be had include—

(a) the extent to which the company’s objectives include
increasing the number of its employees or the turnover
of its trade,

(b) the nature of the company’s sources of income,
35including the extent to which there is a significant risk of
the company not receiving some or all of the income,

(c) the extent to which the company has or is likely to have
assets, or is or could become a party to arrangements for
acquiring assets, that could be used to secure financing
40from any person,

(d) the extent to which the activities of the company are sub-
contracted to persons who are not connected with it,

(e) the nature of the company’s ownership structure or
management structure, including the extent to which
45others participate in or devise the structure,

(f) how any opportunity for investment in the company is
marketed, and

(g) the extent to which arrangements are in place under
which opportunities for investments in the company are