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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

112

 

“Net Consideration” means—

(a)   

the consideration payable to S for entering into the

relevant transaction, minus

(b)   

the restricted disposal value,

“Current Book Value” means the net book value of the leased plant

5

or machinery immediately before the termination, and

“Original Book Value” means the net book value of the leased

plant or machinery at the beginning of the leaseback.

(4)   

In this section “relevant qualifying activity” means the qualifying

activity for the purposes of which the leased plant or machinery was

10

used immediately before the termination.

(5)   

Section 228B has no effect on the treatment for the purposes of income

tax or corporation tax of amounts received by way of refund on the

termination of a leaseback of amounts payable under it.

(6)   

In subsection (5), “amounts received by way of refund” includes any

15

amount that would be so received in respect of the lessee’s interest

under the leaseback if any amounts due to the lessor under the

leaseback were disregarded.

228D  Lessor’s income or profits

(1)   

For the purpose of income tax or corporation tax, in calculating the

20

lessor’s income or profits for a period of account amounts receivable

under the leaseback in that period may be disregarded to the extent that

they exceed the permitted threshold.

(2)   

The permitted threshold is the total of—

(a)   

gross earnings, and

25

(b)   

the allowable proportion of the capital repayment.

(3)   

In subsection (2)(a) “gross earnings” means the amount shown in the

lessor’s accounts in respect of the lessor’s gross earnings under the

leaseback.

(4)   

In subsection (2)(b) “allowable proportion of the capital repayment”

30

means the amount obtained by this calculation—equation: cross[times[char[R],char[e],char[s],char[t],char[r],char[i],char[c],char[t],char[

e],char[d],string[" "],char[D],char[i],char[s],char[p],char[o],char[s],char[a],char[

l],string[" "],char[V],char[a],char[l],char[u],char[e]],over[times[char[I],char[

n],char[v],char[e],char[s],char[t],char[m],char[e],char[n],char[t],string[" "],char[

R],char[e],char[d],char[u],char[c],char[t],char[i],char[o],char[n],string[" "],char[

F],char[o],char[r],string[" "],char[P],char[e],char[r],char[i],char[o],char[d]],

times[char[N],char[e],char[t],string[" "],char[I],char[n],char[v],char[e],char[s],

char[t],char[m],char[e],char[n],char[t]]]]

   

where—

   

“Investment Reduction For Period” means the amount shown in

the lessor’s accounts in respect of the reduction in net

investment in the leaseback, and

35

   

“Net Investment” means the amount shown in the lessor’s

accounts as the lessor’s net investment in the leaseback at the

beginning of its term.

(5)   

In relation to a period of account during which the leaseback

terminates, “amounts receivable under the leaseback” includes any

40

amount that would be so receivable in respect of the lessor’s interest

under the leaseback if any reduction in respect of amounts due to the

lessee under the leaseback were disregarded.

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

113

 

(6)   

This section does not apply to a leaseback if the lessee is a lessee by way

of an assignment made before 17 March 2004.

228E  Lessor’s income or profits: termination of leaseback

(1)   

Subsection (2) applies where—

(a)   

the leaseback terminates,

5

(b)   

the lessor disposes of the plant or machinery, and

(c)   

the amount of the disposal value required to be brought into

account because of that disposal is limited by section 62.

(2)   

For the purpose of income tax or corporation tax, in calculating the

lessor’s income or profits for the period in which the termination occurs

10

the amount deducted in respect of any amount refunded to the lessee

may not exceed the amount to which the disposal value is limited by

section 62.

228F  Lease and finance leaseback

(1)   

Sections 228B, 228C and 228D apply, with the following modifications,

15

where plant or machinery is the subject of a lease and finance leaseback.

(2)   

In determining the permitted maximum for the purposes of section

228B, depreciation shall be disregarded.

(3)   

In the calculation under section 228C(3), the amount of the

consideration referred to in subsection (6)(b) of this section shall be

20

substituted for the Net Consideration.

(4)   

In determining the permitted threshold for the purposes of section

228D, the allowable proportion of the capital repayment shall be

disregarded.

(5)   

Plant or machinery is the subject of a lease and finance leaseback if—

25

(a)   

a person (“S”) leases the plant or machinery to another (“B”),

(b)   

after the date of that transaction, the use of the plant or

machinery falls within sub-paragraph (i), (ii) or (iii) of section

221(1)(b), and

(c)   

it is directly as a consequence of having been leased under a

30

finance lease that the plant or machinery is available to be so

used after that date.

(6)   

For the purposes of subsection (5), S leases the plant or machinery to B

only if—

(a)   

S grants B rights over the plant or machinery (other than rights

35

under a mortgage or other charge),

(b)   

consideration is given for that grant, and

(c)   

S is not required to bring all of that consideration into account

under this Part.

(7)   

In the application of sections 228B to 228D in relation to a lease and

40

finance leaseback—

(a)   

references to the lessee are references to the person referred to

as S in this section, and

(b)   

references to the lessor are references to the person so referred

to as B in this section or, where appropriate, to an assignee of

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that person.

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

114

 

228G  Sections 228A to 228F: supplementary

(1)   

In sections 228A to 228F—

   

the “current book value” of leased plant or machinery means the

book value of the plant or machinery having regard to any

relevant entry in the lessee’s accounts, but—

5

(a)   

also having regard to depreciation up to the time in

question, and

(b)   

disregarding any revaluation gains or losses and any

impairments;

   

“lessee” does not include a person who is lessee by way of an

10

assignment;

   

“restricted disposal value” means the disposal value under section

222;

   

“termination” in relation to a leaseback includes (except in section

228E)—

15

(a)   

the assignment of the lessee’s interest,

(b)   

the making of any arrangements (apart from an

assignment of the lessee’s interest) under which a

person other than the lessee becomes liable to make

some or all payments under the leaseback, and

20

(c)   

a variation as a result of which the leaseback ceases to be

a finance lease.

(2)   

In a case where accounts drawn up are not correct accounts, or no

accounts are drawn up—

(a)   

the provisions of sections 228A to 228F apply as if correct

25

accounts had been drawn up, and

(b)   

amounts referred to in any of those sections as shown in

accounts are those that would have been shown in correct

accounts.

(3)   

In a case where accounts are drawn up in reliance upon amounts

30

derived from an earlier period of account for which correct accounts

were not drawn up, or no accounts were drawn up, amounts referred

to in sections 228A to 228F as shown in the accounts for the later period

are those that would have been shown if correct accounts had been

drawn up for the earlier period.

35

(4)   

In subsections (2) and (3) “correct accounts” means accounts drawn up

in accordance with generally accepted accounting practice.”

(2)   

In sections 228A to 228G of the Capital Allowances Act 2001 (c. 2) (as inserted

by subsection (1) above), a reference to a provision of that Act includes a

reference to an equivalent provision of the Capital Allowances Act 1990 (c. 1)

40

(with any necessary modification).

(3)   

This section applies to income tax and corporation tax chargeable in relation to

periods that end on or after 17 March 2004.

(4)   

Schedule 23 contains transitional provision.

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

115

 

128     

Manufactured dividends

Schedule 24 to this Act (which makes provision in relation to cases where

payments are or have been made, or treated as made, which are representative

of dividends on shares of companies resident in the United Kingdom) has

effect.

5

129     

Gilt strips

(1)   

Schedule 13 to the Finance Act 1996 (c. 8) (discounted securities: income tax

provisions) is amended as follows.

(2)   

In paragraph 8 (transfers between connected persons deemed to be at market

value) after sub-paragraph (3) insert—

10

“(4)   

Where the relevant discounted security is a strip, its market value at

any time shall be determined for the purposes of this paragraph in

accordance with paragraph 14E below.”.

(3)   

In paragraph 9 (other transactions deemed to be at market value) after sub-

paragraph (2) insert—

15

“(3)   

Where the relevant discounted security is a strip, its market value at

any time shall be determined for the purposes of this paragraph in

accordance with paragraph 14E below.”.

(4)   

In paragraph 14 (strips of government securities) for sub-paragraph (6)

(regulations as to manner of determining market value) substitute—

20

“(6)   

Paragraph 14E below makes provision as to the manner of determining

for the purposes of this paragraph the market value at any time of—

(a)   

any strip, or

(b)   

any security exchanged for strips of that security.”.

(5)   

After paragraph 14A (strips of government securities: losses) insert—

25

“Strips of government securities: manipulation of acquisition, sale or redemption price

14B   (1)  

This paragraph applies in any case where, as a result of any scheme

or arrangement,—

(a)   

the amount paid by a person in respect of his acquisition of a

strip is or was more than the market value of the strip at the

30

time of that acquisition,

(b)   

the amount payable to a person on a transfer of a strip by him

is less than the market value of the strip at the time of the

transfer, or

(c)   

on redemption of a strip, the amount payable to a person, as

35

the person holding the strip, is less than the market value of

the strip on the day before redemption,

           

and the obtaining of a tax advantage by any person is the main

benefit, or one of the main benefits, that might have been expected to

accrue from, or from any provision of, the scheme or arrangement.

40

      (2)  

In a case falling within sub-paragraph (1)(a) above, the person shall

be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b)

above on a transfer of the strip by him as if he had paid in respect of

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

116

 

his acquisition of the strip an amount equal to the market value of the

strip at the time of that acquisition.

      (3)  

In a case falling within sub-paragraph (1)(b) above, the person shall

be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b)

above as if the amount payable to him on the transfer were an

5

amount equal to the market value of the strip at the time of the

transfer.

      (4)  

In a case falling within sub-paragraph (1)(c) above, the person shall

be treated for the purposes of paragraphs 1(2)(b) and 14A(3)(b)

above as if the amount payable to him on redemption were an

10

amount equal to the market value of the strip on the day before

redemption.

      (5)  

For the purposes of this paragraph, no account shall be taken of any

costs incurred in connection with any transfer or redemption of a

strip or its acquisition.

15

      (6)  

Paragraph 14E below makes provision as to the manner of

determining for the purposes of this paragraph the market value at

any time of a strip.

      (7)  

In this paragraph “tax advantage” has the meaning given by section

709(1) of the Taxes Act 1988.”.

20

(6)   

After paragraph 14B insert—

“Strips: manipulation of price: associated payment giving rise to capital gains tax loss

14C   (1)  

Where—

(a)   

as a result of any scheme or arrangement which has an

unallowable purpose, the circumstances are, or might have

25

been, as mentioned in paragraph (a), (b) or (c) of paragraph

14B(1) above,

(b)   

under the scheme or arrangement, a payment falls to be made

otherwise than in respect of the acquisition or disposal of a

strip, and

30

(c)   

as a result of that payment or the circumstances in which it is

made, a loss accrues to any person for the purposes of capital

gains tax,

           

the loss shall not be an allowable loss for the purposes of capital

gains tax.

35

      (2)  

For the purposes of this paragraph a scheme or arrangement has an

unallowable purpose if the main benefit, or one of the main benefits,

that might have been expected to result from, or from any provision

of, the scheme or arrangement (apart from paragraph 14B above and

this paragraph) is—

40

(a)   

the obtaining of a tax advantage by any person, or

(b)   

the accrual to any person of an allowable loss for the

purposes of capital gains tax.

      (3)  

In this paragraph “tax advantage” has the meaning given by section

709(1) of the Taxes Act 1988.”.

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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

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(7)   

After paragraph 14C insert—

“Restriction of profits and losses on strips by reference to original acquisition cost

14D   (1)  

This paragraph has effect for the purpose of excluding from charge

or, as the case may be, relief under this Schedule so much of—

(a)   

any profit realised by a person from the discount on a strip, or

5

(b)   

any loss sustained by a person from the discount on a strip,

           

as is referable to a relevant amount being less than the person’s

original acquisition cost for the strip.

           

For this purpose a relevant amount is any amount that falls to be

brought into account as paid in respect of the acquisition of the strip

10

or as payable on the transfer or redemption of the strip.

      (2)  

Where, on the transfer or redemption of a strip,—

(a)   

a person realises a profit (apart from this paragraph) from the

discount on the strip and amount C exceeds amount A, or

(b)   

a person sustains a loss (apart from this paragraph) from the

15

discount on the strip and amount C exceeds amount P,

           

then, for the purposes of the other provisions of this Schedule, the

profit or loss shall be restricted or eliminated in accordance with the

following provisions of this paragraph.

      (3)  

For the purposes of this paragraph—

20

“amount A” is the amount that falls to be brought into account

as the amount paid by the person in respect of his

acquisition of the strip in determining the amount of the

profit or loss apart from this paragraph,

“amount C” is the person’s original acquisition cost for the

25

strip (see sub-paragraph (6) below);

“amount L” is the amount (apart from this paragraph) of the

loss mentioned in sub-paragraph (2)(b) above;

“amount P” is the amount that falls to be brought into account

as the amount payable on the transfer or redemption of the

30

strip in determining the amount of the profit or loss apart

from this paragraph.

      (4)  

In a case falling within sub-paragraph (2)(a) above (person realising

a profit)—

(a)   

if amount P exceeds amount C, the amount of the profit is

35

restricted to the amount of that excess;

(b)   

if amount P does not exceed amount C, the person shall be

treated as not realising a profit from the discount on the strip.

      (5)  

In a case falling within sub-paragraph (2)(b) above (person

sustaining a loss)—

40

(a)   

if amount A exceeds amount C, the amount of the loss is

restricted to so much of amount L as remains after deducting

from it the amount by which amount C exceeds amount P;

(b)   

if amount A does not exceed amount C, the person shall be

treated for the purposes of this Schedule as not sustaining a

45

loss from the discount on the strip.

      (6)  

For the purposes of this paragraph a person’s “original acquisition

cost” in the case of a strip is the amount which—

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous

118

 

(a)   

disregarding any deemed transfers or re-acquisitions under

paragraph 14(4) above (other than the transfer mentioned in

sub-paragraph (2) above, if it is such a transfer), but

(b)   

otherwise giving effect, so far as applicable, to paragraph 8,

9, 14 or 14B above (each of which treats a person acquiring a

5

security as having paid an amount equal to its market value

determined in accordance with paragraph 14E below),

           

would fall to be taken into account as the amount paid by the person

in respect of his acquisition of the strip in determining whether a

profit is realised, or a loss is sustained, from the discount on the strip.

10

      (7)  

In this paragraph any reference to a transfer includes a reference to a

deemed transfer under paragraph 14(4) above.

      (8)  

In this paragraph any reference to sustaining a loss from the discount

on a strip shall be construed in accordance with paragraph 14A

above.”.

15

(8)   

After paragraph 14D insert—

“Market value of strips etc for the purposes of paragraphs 8, 9, 14 and 14B

14E   (1)  

This paragraph makes provision as to the manner of determining—

(a)   

for the purposes of paragraph 8, 9, 14 or 14B above, the

market value at any time of a strip, and

20

(b)   

for the purposes of paragraph 14(2) above, the market value

at any time of a security exchanged for strips of that security.

      (2)  

The market value on any day of a strip or security quoted in the Daily

List shall be—

(a)   

the lower of the two figures shown in the Daily List for the

25

strip or security for that day,

  plus

(b)   

one-quarter of the difference between those two figures,

           

unless the Stock Exchange is closed on that day.

      (3)  

If the Stock Exchange is closed on any day, the market value on that

30

day of any such strip or security shall be taken to be its market value

on the latest previous day or earliest subsequent day on which the

Stock Exchange is open, whichever affords the lower value.

      (4)  

In the case of a strip or security which—

(a)   

is a security, or a strip of a security, issued by or on behalf of

35

the government of a territory outside the United Kingdom,

and

(b)   

is not quoted in the Daily List, but

(c)   

is quoted in a foreign stock exchange list,

           

the market value shall be determined in accordance with sub-

40

paragraph (5) below.

      (5)  

In any such case, subsections (2) and (3) above shall have effect for

determining the market value of the strip or security, but for this

purpose those provisions shall have effect—

(a)   

with the substitution for references to the Daily List of

45

references to the foreign stock exchange list,

 

 

 
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