Finance Bill

Finance Bill - continued	House of Commons
PART III, INCOME TAX AND CORPORATION TAX - continued
Distributions, tax credits etc in and after 1999-00 - continued

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Estates of deceased persons in administration.

33. - (1) For section 698A of the Taxes Act 1988 (taxation at the lower rate of the income of beneficiaries) there shall be substituted-

"Taxation of income of beneficiaries at lower rate or at rates applicable to Schedule F income.	698A. - (1) Subject to subsection (3) below, in so far as any income of any person is treated under this Part as having borne income tax at the lower rate, section 1A shall have effect as if that income were income to which that section applies otherwise than by virtue of the income being income chargeable under Schedule F.
	(2) Subject to subsection (3) below, in so far as any income of any person is treated under this Part as having borne income tax at the Schedule F ordinary rate, that income shall be treated as if it were income chargeable under Schedule F.
	(3) Subsections (1) and (2) above shall not apply to income paid indirectly through a trustee and treated by virtue of section 698(3) as having borne income tax at the lower rate or the Schedule F ordinary rate; but, subject to section 686(1), section 1A shall have effect as if the payment made to the trustee were income of the trustee-
	(a) to which section 1A applies by virtue of the income being chargeable under Schedule F, in the case of income treated as having borne tax at the Schedule F ordinary rate; and
	(b) to which section 1A applies otherwise than by virtue of the income being chargeable under Schedule F, in any other case."

(2) Section 699A of the Taxes Act 1988 (untaxed sums comprised in the income of the estate) shall be amended in accordance with subsections (3) to (6) below.

(3) In subsection (1A) (which is inserted by section 21 of this Act and describes sums to which subsection (1)(a) and (b) of s.699A is deemed to apply) after "if it is a sum in respect of" there shall be inserted-

	"(a) a distribution chargeable under Schedule F; or
	(b) ".

(4) In subsection (2) (determination whether any amount is a relevant amount) in paragraph (b) (application of the assumption in section 701(3A)(b)) for "assumption" there shall be substituted "assumptions".

(5) In subsection (4) (rate at which sums are assumed to bear tax) in paragraphs (a) and (c) for "lower rate" there shall be substituted "Schedule F ordinary rate".

(6) In subsection (6) (income represented by a relevant amount to be treated as not brought into charge to tax for the purposes of ss.348 and 349(1)) at the end there shall be added "except to the extent that the relevant amount is or would be paid out of sums in respect of a distribution chargeable under Schedule F".

(7) In section 701 of the Taxes Act 1988 (interpretation of Part XVI) subsection (3A) (which defines the "applicable rate" as basic rate or lower rate, according to the rate at which the income of the residue out of which the payment to the beneficiary is made bears tax) shall be amended in accordance with subsections (8) and (9) below.

(8) For the words "or the lower rate", in both places where they occur, there shall be substituted ", the lower rate or the Schedule F ordinary rate".

(9) In paragraph (b) (assumption that payments are made out of income bearing tax at the basic rate before income bearing tax at the lower rate)-

(a) after "it shall be assumed" there shall be inserted "(i)";

(b) after "lower rate" there shall be inserted "or the Schedule F ordinary rate"; and

(ii) that payments are to be made out of income bearing tax at the lower rate before they are made out of income bearing tax at the Schedule F ordinary rate."

(10) The amendment made by subsection (3) above has effect in relation to distributions made on or after 6th April 1999.

(11) The amendments made by subsections (1) and (4) to (9) above have effect for the year 1999-00 and subsequent years of assessment.

Tax credits and taxation of distributions: miscellaneous provisions.

34. Schedule 4 to this Act (which contains provisions relating to tax credits and the taxation of distributions) shall have effect.

Transitional relief for charities etc.

35. - (1) In any case where-

(a) a qualifying distribution is made on or after 6th April 1999 and before 6th April 2004 by a company resident in the United Kingdom, and

(b) the recipient of the distribution is a section 505 body, and

(c) if the section 505 body falls within neither paragraph (b) nor paragraph (c) of subsection (3) below, entitlement to exemption from tax by virtue of subsection (1)(c)(iii) of section 505 of the Taxes Act 1988 (charities) in respect of the distribution is not prevented by anything in that section,

the section 505 body, on a claim made under this section to the Board, shall be entitled to be paid by the Board out of money provided by Parliament an amount determined in accordance with subsection (2) below.

(2) The amount referred to in subsection (1) above is an amount equal to-

(a) 21 per cent of the amount or value of the distribution if the distribution is made on or after 6th April 1999 and before 6th April 2000;

(b) 17 per cent of that amount or value if the distribution is made on or after 6th April 2000 and before 6th April 2001;

(c) 13 per cent of that amount or value if the distribution is made on or after 6th April 2001 and before 6th April 2002;

(d) 8 per cent of that amount or value if the distribution is made on or after 6th April 2002 and before 6th April 2003;

(e) 4 per cent of that amount or value if the distribution is made on or after 6th April 2003 and before 6th April 2004.

(3) For the purposes of this section each of the following is a section 505 body-

(a) any charity (as defined in section 506(1) of the Taxes Act 1988);

(b) each of the bodies mentioned in section 507 of that Act (heritage bodies);

(4) Schedule 5 to this Act shall have effect to remove or restrict entitlement to payment under this section in certain circumstances.

(5) For the purposes of Chapter I of Part XVII of the Taxes Act 1988 (cancellation of tax advantages) payment of an amount under this section shall be treated as repayment of tax.

(6) Any entitlement of a section 505 body to a payment under subsection (1) above shall be subject to a power of the Board to determine (whether before or after any payment is made) that, having regard to the operation in relation to the distribution in question of section 703 of the Taxes Act 1988 (cancellation of tax advantages), that body is to be treated as if it had had no entitlement to that payment or to so much of it as they may determine.

(7) No claim may be made under this section later than two years after the end of the chargeable period of the section 505 body in which the distribution is made.

(8) An appeal may be brought against any decision of the Board under this section or under Schedule 5 to this Act by giving written notice to the Board within thirty days of receipt of written notice of the decision.

(9) An appeal under this section shall lie to the Special Commissioners, and the provisions of the Taxes Management Act 1970 relating to appeals under the Tax Acts shall apply to an appeal under this section as they apply to those appeals.

(10) Any payment of an amount under this section shall be treated for the purposes of section 252 of the Taxes Act 1988 (rectification of excessive set-off etc of ACT or tax credit) as a payment of tax credit.

Foreign income dividends.

36. - (1) No election shall be made under section 246A of the Taxes Act 1988 (election for dividend to be treated as foreign income dividend) in respect of any distributions made on or after 6th April 1999.

(2) No amount shall be shown as available for distribution as foreign income dividends in the distribution accounts of an authorised unit trust for a distribution period the distribution date for which falls on or after 6th April 1999.

(3) No distribution made on or after 6th April 1999 shall be treated as a foreign income dividend by virtue of paragraph 2(1) of Schedule 7 to the 1997 c .16.Finance Act 1997 (Tax Acts to have effect as if qualifying distributions to which Schedule 7 applies were foreign income dividends).

(4) Schedule 6 to this Act (which makes provision for and in connection with the repeal of provisions relating to foreign income dividends) shall have effect.

(5) In subsection (2) above, "distribution accounts", "distribution date" and "distribution period" shall be construed in accordance with section 468H of the Taxes Act 1988 (interpretation of sections 468I to 468R of that Act).

Gilt-edged securities

Interest to be paid gross.

37. - (1) The Taxes Act 1988 shall be amended as follows.

(2) In section 50 (Treasury direction for payment of public revenue dividends without deduction of tax), before subsection (1) there shall be inserted the following subsection-

"(A1) The interest on registered gilt-edged securities (whenever issued and whatever the terms on which they were issued) shall be paid without deduction of income tax."

(3) In that section-

(a) in subsection (1), after "following securities" there shall be inserted "in so far as they are not gilt-edged securities";

(b) in subsection (2), after "by virtue of" there shall be inserted "subsection (A1) above or of";

(c) in subsection (3), for "to which subsection (1) above applied" there shall be substituted "the interest on which is to be paid without deduction of income tax"; and

(d) in subsections (4) and (5), for the words "two months", in each place where they occur, there shall be substituted "one month".

(4) In subsection (7) of that section, after "requires" there shall be inserted the following definition-

	""gilt-edged securities" means any securities which-
	(a) are gilt-edged securities for the purposes of the 1992 Act; or
	(b) will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they were issued,".

(5) Section 51A (interest on gilt-edged securities held under authorised arrangements to be paid without deduction of tax) shall cease to have effect.

(6) In section 51B (periodic accounting for tax on interest on gilt-edged securities), for subsection (5) there shall be substituted the following subsections-

	"(5) In this section "relevant gilt-edged securities" means securities of one of the following descriptions-
	(a) gilt-edged securities issued before 6th April 1998 other than those in relation to which a direction under section 50(1) was given before that date;
	(b) gilt-edged securities issued on or after that date in relation to which the Treasury have given a direction that they may be subjected to periodic accounting;
	and in this subsection "gilt-edged securities" has the same meaning as in section 50.
	(5A) Regulations under this section shall not apply to a payment of interest on any relevant gilt-edged securities if that payment is made at any time after the Treasury have given a direction that those securities are to be exempted from periodic accounting."

(7) In sections 722A(5) and 730C(9), and in paragraph 3A(2)(a) of Schedule 23A, (which all define "gilt-edged securities" by reference to section 51A of the Taxes Act 1988), for "51A" there shall be substituted, in each case, "50".

(8) Subject to subsections (9) to (13) below, this section has effect in relation to payments of interest falling due on or after 6th April 1998.

(9) Subsection (3)(d) above has effect in relation to applications made and notices given at any time on or after the day on which this Act is passed.

(10) Where-

(a) any person holds any gilt-edged securities in relation to which a direction was given under section 50(1) of the Taxes Act 1988 at any time before 6th April 1998, and

(b) that person at any time before that date made an application under section 50(2) of that Act with respect to those securities,

that application (unless withdrawn) shall have effect in relation to any interest on those securities to which section 50(A1) of that Act applies as it previously had effect in relation to any interest on those securities to which that direction applied.

(11) Sections 50, 51B and 118D(4) of the Taxes Act 1988 shall have effect in relation to any gilt-edged securities issued before 6th April 1998 which-

(a) are securities the interest on which, if paid immediately before that date, would have fallen to be paid after deduction of income tax, and

(b) are registered within the meaning of section 50 of that Act but are not securities in relation to which any direction under section 50 of that Act was given before that date,

as if the appropriate person had so made an application under section 50(2) of that Act as to enable that application to take effect in relation to payments of interest made on or after that date.

(12) In subsection (11) above "the appropriate person" means-

(a) in the case of securities transferred before 6th April 1998 but after the time when the balance was struck for a dividend on them falling due on or after that date, the person who held the securities at the time when the balance was so struck;

(b) in any other case, the person holding the securities in question immediately before 6th April 1998.

(13) Section 50(5) of the Taxes Act 1988 shall have effect in relation to an application treated as made by virtue of subsection (11) above as if a notice withdrawing that application was capable of being given at any time on or after the passing of this Act.

Paying and collecting agents.

38. - (1) Chapter VIIA of Part IV of the Taxes Act 1988 (paying and collecting agents) shall be amended as follows.

(2) Section 118A (interpretation of Chapter) shall become subsection (1) of that section and, in paragraph (k) of that subsection (meaning of "international organisation"), for "has the meaning given by section 51A(8)" there shall be substituted "means an organisation of which two or more sovereign powers, or the governments of two or more sovereign powers, are members".

(3) After that subsection there shall be inserted the following subsection-

"(2) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of this Chapter, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question shall be conclusive evidence of that fact."

(4) In section 118D(4) (payments of interest payable without deduction of tax not to be chargeable payments), after "by virtue of" there shall be inserted "section 50(A1) or of".

(5) In subsection (3) of section 118G (United Kingdom public revenue dividends excluded from being chargeable payments)-

(a) paragraphs (b) and (d) to (f) shall be omitted; and

(b) for paragraph (c) there shall be substituted the following paragraph-

	"(ca) they are payable in respect of a FOTRA security (within the meaning of section 154 of the Finance Act 1996) which-
	(i) is not registered (within the meaning of section 50 of this Act); and
	(ii) is, for the time being, beneficially owned by a person who is not ordinarily resident in the United Kingdom."

(6) In section 118G(7), for paragraphs (a) and (b) there shall be substituted "foreign dividends on foreign holdings held by a nominee approved for the purposes of this subsection".

(7) Section 118G(8) and (10) shall cease to have effect.

(8) This section has effect in relation to payments falling due on or after 6th April 1998.

Prepared 24 July 1997