Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous
119

(b)
with the substitution for references to the Stock Exchange of
references to the foreign stock exchange to which that list
relates, and
(c)
with any modifications which are necessary by reason of the
form of quotation adopted in the foreign stock exchange list
5
(including, in a case where a single figure only is published,
taking that figure as the market value).
      (6)
Where a strip or security is quoted in more than one foreign stock
exchange list—
(a)
any such list published for a foreign stock exchange in the
10
territory of the issuing government shall be used for the
purposes of sub-paragraph (5) above in preference to any
other such list, and
(b)
any such list published for a foreign stock exchange which is
regarded as the major exchange in that territory for strips or
15
securities shall be used for those purposes in preference to
any other such list.
      (7)
In this paragraph—
“the Daily List” means the The Stock Exchange Daily Official
List;
20
“foreign stock exchange” means a recognised stock exchange
in a territory outside the United Kingdom on which strips
are traded;
“foreign stock exchange list” means any publication which
performs in the case of a foreign stock exchange a function
25
equivalent, or broadly similar, to that performed by the
Daily List in relation to strips;
“issuing government” means the government which issued
the security mentioned in sub-paragraph (4)(a) above.
      (8)
The Treasury may by regulations make provision as to the manner of
30
determining, for any of the purposes mentioned in sub-paragraph (1)
above, the market value at any time of—
(a)
any strip, or
(b)
any security exchanged for strips of that security.
      (9)
Regulations under sub-paragraph (8) above may—
35
(a)
amend or modify any provision of this paragraph other than
that sub-paragraph, sub-paragraph (1) above or this sub-
paragraph;
(b)
make different provision for different cases; and
(c)
contain such incidental, supplemental, consequential and
40
transitional provision and savings as the Treasury may think
fit.”.
(9)
In paragraph 15(1) (general interpretation) in the definition of “market value”
(which applies except in paragraph 14) for “(except in paragraph 14 above)”
substitute “(except as provided in relation to paragraph 8, 9, 14 or 14B above
45
by paragraph 14E above)”.
(10)
The amendments made by—
(a)
subsections (2) and (3), and
(b)
subsections (8) and (9), so far as relating to paragraph 8 or 9 of Schedule
13 to the Finance Act 1996 (c. 8),
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous
120


have effect in relation to any transfer of a strip on or after 17th March 2004.
(11)
The amendments made by—
(a)
subsection (4), and
(b)
subsections (8) and (9), so far as relating to paragraph 14 of Schedule 13
to the Finance Act 1996,
5

have effect in relation to exchanges on or after 17th March 2004 and deemed
transfers and re-acquisitions under sub-paragraph (4) of that paragraph on or
after that date.
(12)
The amendments made by—
(a)
subsection (5), and
10
(b)
subsections (8) and (9), so far as relating to paragraph 14B of Schedule
13 to the Finance Act 1996,

have effect in relation to any strip held on 15th January 2004 or acquired after
that date (and see subsection (15)).
(13)
The amendment made by subsection (6) has effect in relation to losses accruing
15
on or after 17th March 2004.
(14)
The amendment made by subsection (7) has effect in relation to any strip
acquired on or after 15th January 2004 (and see subsection (15)).
(15)
In determining when a strip is acquired for the purposes of subsection (12) or
(14), any deemed transfers or re-acquisitions under paragraph 14(4) of
20
Schedule 13 to the Finance Act 1996 (c. 8) shall be disregarded.
130
Life policies etc.: restriction of corresponding deficiency relief
(1)
In Chapter 2 of Part 13 of the Taxes Act 1988 (life policies, life annuities and
capital redemption policies), section 549 (certain deficiencies allowable as
deductions) is amended as follows.
25
(2)
In subsection (1) for the words from “the total amount” to the end substitute
“the allowable amount”.
(3)
After that subsection insert—
“(1A)
The allowable amount is the total of any amounts that—
(a)
were treated as a gain by virtue of section 541(d), 543(1)(c) or
30
546C(7) on the previous happenings of chargeable events, and
(b)
formed part of that individual’s total income for a previous year
of assessment.”.
(4)
This section applies in relation to a deficiency occurring in connection with a
policy of life insurance if—
35
(a)
it is issued in respect of an insurance made on or after 3rd March 2004,
or
(b)
it is issued in respect of an insurance made before that date but on or
after that date—
(i)
it is varied so as to increase the benefits secured (any exercise of
40
rights conferred by the policy being regarded for this purpose
as a variation),
(ii)
there is an assignment (whether or not for money or money’s
worth) of the rights, or a share of the rights, conferred by the
policy, or
45

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
121

(iii)
all or part of the rights conferred by the policy become held as
security for a debt.
(5)
This section applies in relation to a deficiency occurring in connection with a
contract for a life annuity if—
(a)
it is entered into on or after 3rd March 2004, or
5
(b)
it is entered into before that date but on or after that date—
(i)
it is varied so as to increase the benefits secured (any exercise of
rights conferred by the contract being regarded for this purpose
as a variation),
(ii)
there is an assignment (whether or not for money or money’s
10
worth) of the rights, or a share of the rights, conferred by the
contract, or
(iii)
all or part of the rights conferred by the contract become held as
security for a debt.
(6)
This section applies in relation to a deficiency occurring in connection with a
15
capital redemption policy if—
(a)
it is effected on or after 3rd March 2004, or
(b)
it is effected before that date but on or after that date—
(i)
it is varied so as to increase the benefits secured (any exercise of
rights conferred by the policy being regarded for this purpose
20
as a variation),
(ii)
there is an assignment (whether or not for money or money’s
worth) of the rights, or a share of the rights, conferred by the
policy, or
(iii)
all or part of the rights conferred by the policy become held as
25
security for a debt.
Chapter 11
Miscellaneous
Reliefs for business
131
Relief for research and development: software and consumable items
30
(1)
In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on
research and development) for paragraph 6 (expenditure on consumable
stores) substitute—
“Expenditure on software or consumable items
6     (1)
For the purposes of this Schedule expenditure on software or
35
consumable items means expenditure on—
(a)
computer software, or
(b)
consumable or transformable materials,

and references to software or consumable items shall be construed
accordingly.
40
      (2)
For the purposes of this Schedule consumable or transformable
materials include water, fuel and power.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
122

      (3)
Expenditure on software or consumable items is attributable to
relevant research and development if the software or consumable
items are employed directly in such research and development.
      (4)
In the case of software or consumable items partly employed directly
in relevant research and development, an appropriate portion of the
5
expenditure on the software or consumable items is treated as
attributable to relevant research and development.
      (5)
For the purposes of sub-paragraphs (3) and (4), software or
consumable items employed in the provision of services, such as
secretarial or administrative services, in support of other activities
10
are not, by virtue of their employment in the provision of those
services, to be treated as themselves directly employed in those other
activities.”.
(2)
In each of the following enactments (which relate to tax relief for expenditure
on research and development)—
15
(a)
Schedule 20 to the Finance Act 2000 (small or medium-sized
enterprises), other than paragraph 6,
(b)
Schedule 12 to the Finance Act 2002 (c. 23) (large companies, work sub-
contracted to, and large company relief for, small or medium-sized
enterprises),
20
(c)
Schedule 13 to that Act (vaccine research etc),

for the words “consumable stores”, wherever occurring, substitute “software
or consumable items”.
(3)
The amendments made by this section to Schedule 12 to the Finance Act 2002
(large companies etc) have effect in relation to expenditure incurred on or after
25
1st April 2004.
(4)
Except as provided by subsection (5), the amendments made by this section
to—
(a)
Schedule 20 to the Finance Act 2000 (c. 17) (small or medium-sized
enterprises),
30
(b)
Schedule 13 to the Finance Act 2002 (vaccine research etc),

have effect in relation to expenditure incurred on or after the appointed day.
(5)
The amendment made by subsection (1) (substitution of paragraph 6 of
Schedule 20 to the Finance Act 2000), in its application for the purposes of
Schedule 12 to the Finance Act 2002 by virtue of the amendments made to that
35
Schedule by subsection (2), has effect in relation to expenditure incurred on or
after 1st April 2004.
(6)
In this section “the appointed day” means such day as the Treasury may by
order appoint; and different days may be so appointed for different provisions
or different purposes.
40
(7)
The days that may be appointed by an order under subsection (6) include days
earlier than the day on which this Act is passed, but not days earlier than 1st
April 2004.
132
Temporary increase in amount of first-year allowances for small enterprises
(1)
The amount of a first-year allowance under section 44 of the Capital
45
Allowances Act 2001 (c. 2) (expenditure incurred by small or medium-sized
enterprises) shall be determined, in the case of expenditure to which this

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
123

subsection applies, as if the percentage specified in the entry relating to that
section in the Table in section 52(3) of that Act were 50%.
(2)
Subsection (1) applies to expenditure incurred by a small enterprise (within the
meaning of section 44 of that Act) in the period of 12 months beginning with—
(a)
1st April 2004, if the small enterprise is within the charge to corporation
5
tax, or
(b)
6th April 2004, if the small enterprise is within the charge to income tax.
(3)
Accordingly, in section 52(3) of the Capital Allowances Act 2001, after the
Table insert—

“In the case of expenditure qualifying under section 44, see also
10
section 132 of the Finance Act 2004 (substitution of 50% in the case of
expenditure incurred by a small enterprise in 2004-05 or financial
year 2004).”.
133
Deduction for expenditure by landlords on energy-saving items
(1)
After section 31 of the Taxes Act 1988 (Schedule A deductions and allowances:
15
provisions supplementary to sections 25 to 30) insert—
“31A
Deductions for expenditure by landlords on energy-saving items
(1)
This section applies to a Schedule A business if the land mentioned in
paragraph 1(1) of Schedule A consists of or includes a dwelling-house.
(2)
In computing for the purposes of income tax the profits of a Schedule A
20
business to which this section applies, a deduction shall be allowed in
respect of any expenditure to which subsection (3) applies.

That is subject to any provision of regulations under subsection (13).
(3)
This subsection applies to expenditure as respects which the numbered
conditions set out in the following provisions of this section (“the
25
qualifying conditions”) are satisfied.
(4)
Condition 1 is that the expenditure is incurred in the provision of a
qualifying energy-saving item in the dwelling-house.
(5)
Condition 2 is that the expenditure is incurred on or after 6th April 2004
but before 6th April 2009.
30
(6)
Condition 3 is that the expenditure is incurred wholly and exclusively
for the purposes of the Schedule A business.
(7)
Condition 4 is that the expenditure is capital expenditure.
(8)
Condition 5 is that, apart from this section, the expenditure is not
deductible in computing the profits of the Schedule A business.
35
(9)
Condition 6 is that no allowance under the Capital Allowances Act may
be claimed in respect of the expenditure.
(10)
Condition 7 is that the expenditure is not incurred in respect of the
provision of an item in a dwelling-house which, at the time when the
item is installed,—
40
(a)
is in the course of construction, or

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
124

(b)
is comprised in land in which the person claiming the
deduction under this section does not have an interest or is in
the course of acquiring an interest or further interest.
(11)
Condition 8 is that for the purposes of section 503 (letting of furnished
holiday accommodation to be treated as a trade for certain purposes)
5
the Schedule A business either—
(a)
does not consist to any extent in the commercial letting of
furnished holiday accommodation, or
(b)
if it does so consist to any extent, the dwelling-house does not
constitute any or all of the furnished holiday accommodation in
10
question.
(12)
Condition 9 is that the income of the person claiming the deduction is
not computed in accordance with paragraph 9 or 11 of Schedule 10 to
the Finance (No. 2) Act 1992 (furnished accommodation) in respect of
any qualifying residence which consists of or includes the dwelling-
15
house.
(13)
The Treasury may by regulations make provision for any of the
following purposes—
(a)
restricting or reducing the amount of expenditure in respect of
which deductions may be claimed under this section;
20
(b)
excluding entitlement to a deduction under this section in such
cases as may be specified in, or determined in accordance with,
the regulations;
(c)
determining which of two or more persons is (and which is not)
entitled to a deduction under this section in cases where
25
different persons have different interests in land consisting of or
including the whole or part of a building containing one or
more dwelling-houses;
(d)
making apportionments (including apportioning amounts to
companies which are not entitled to a deduction under this
30
section) in cases where—
(i)
a Schedule A business is carried on by two or more
persons in partnership, or
(ii)
an interest in land is beneficially owned by two or more
persons jointly or in common.
35
(14)
Section 31B supplements this section.
31B
Provisions supplementary to section 31A
(1)
This section has effect for the purpose of supplementing section 31A
and shall be construed as one with that section.
(2)
Section 31A does not have effect for the purposes of corporation tax.
40
(3)
No deduction may be made under section 31A unless a claim is made.
(4)
Where, on a just and reasonable apportionment of any expenditure, the
qualifying conditions—
(a)
would be satisfied as respects some part or parts of the
expenditure, but
45
(b)
would not be satisfied as respects the remainder of the
expenditure,

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a deduction under section 31A shall be allowed in respect of the part or
parts mentioned in paragraph (a) but not in respect of the remainder.

Any such deduction is subject to, and must be in accordance with, the
other provisions of this section and regulations under section 31A(13).
(5)
Expenditure incurred by a person—
5
(a)
for the purposes of a Schedule A business, but
(b)
before the time when he begins to carry on that business,

is not deductible under section 31A by virtue of section 401 (relief for
pre-trading expenditure) unless the expenditure is incurred not more
than 6 months before that time (and on or after 6th April 2004).
10

The reference to section 401 is a reference to that section as it applies for
the purposes of Schedule A in relation to a Schedule A business by
virtue of section 21B.
(6)
“Qualifying energy-saving items” are items of any of the following
descriptions—
15
(a)
cavity wall insulation;
(b)
loft insulation.
(7)
The Treasury may by regulations amend subsection (6)—
(a)
by adding further descriptions of items; or
(b)
by removing or varying descriptions of items.
20
(8)
The Treasury may by regulations provide that an item is to be regarded
as an item of any particular description in subsection (6) only if it
satisfies such conditions as may be specified in, or determined in
accordance with, the regulations.
(9)
The conditions that may be imposed by regulations under subsection
25
(8) include conditions imposed by reference to information or
documents issued by any body, person or organisation.
(10)
The provision that may be made by regulations under this section or
section 31A which are made on or before 31st December 2004 includes
provision—
30
(a)
having effect before the date on which the regulations are made,
or
(b)
having effect in relation to expenditure incurred before that
date.
(11)
Any reference to the provision of a qualifying energy-saving item is a
35
reference to the acquisition of such an item and its installation in the
dwelling-house.”.
(2)
The amendment made by this section has effect in relation to expenditure
incurred on or after 6th April 2004 but before 6th April 2009.
134
Lloyd’s names: conversion to limited liability underwriting
40
Schedule 25 to this Act (which makes provision for certain reliefs to be
available where a member of Lloyd’s converts to limited liability
underwriting) has effect.