Finance Bill

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Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 22 — Chargeable gains: private residence relief
386

Schedule 22
Section 112

Chargeable gains: private residence relief
Relief on disposal of private residence
1     (1)
Section 222 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
5
      (2)
In subsection (5)(a) (notice to inspector to determine which of two or more
residences is individual’s main residence) for “the inspector” (on both
occasions) substitute “an officer of the Board”.
Amount of relief
2     (1)
Section 223 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended
10
as follows.
      (2)
In subsection (4) (dwelling-house let as residential accommodation) in
paragraph (a), omit the unnecessary words “or those provisions as applied
by section 225”.
      (3)
After subsection (7) insert—
15
“(8)
This section is subject to—
(a)
section 224 (amount of relief: further provisions), and
(b)
section 226A (private residence relief: cases where relief
obtained under section 260).”.
Amount of relief: further provisions
20
3     (1)
Section 224 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In subsection (1) (gain accruing from disposal of dwelling-house part of
which is used exclusively for purposes of trade etc: relief to apply only to
portion of gain) for “accrues from” substitute “accrues on”.
25
Private residence occupied under terms of settlement
4     (1)
Section 225 of the Taxation of Chargeable Gains Act 1992 is amended as
follows.
      (2)
In the opening words—
(a)
for “a trustee” substitute “the trustees of a settlement”, and
30
(b)
for “the trustee” substitute “the trustees”.
      (3)
In paragraph (a), for “the trustee” substitute “the trustees”.
      (4)
In paragraph (b)—
(a)
for “the inspector” substitute “an officer of the Board”, and
(b)
for “the trustee” substitute “the trustees”.
35
      (5)
At the end of that paragraph insert “;

but section 223 (as so applied) shall apply only on the making of a
claim by the trustees.”.

Finance Bill
Schedule 22 — Chargeable gains: private residence relief
387

Private residence held by personal representatives
5
After section 225 of the Taxation of Chargeable Gains Act 1992 insert—
“225A
Private residence held by personal representatives
(1)
Sections 222 to 224 shall also apply in relation to a gain accruing to
the personal representatives of a deceased person on a disposal of an
5
asset within section 222(1) if the following conditions are satisfied.
(2)
The first condition is that, immediately before and immediately after
the death of the deceased person, the dwelling-house or part of the
dwelling-house mentioned in section 222(1) was the only or main
residence of one or more individuals.
10
(3)
The second condition is that—
(a)
that individual or one of those individuals has a relevant
entitlement, or two or more of those individuals have
relevant entitlements, and
(b)
the relevant entitlement accounts for, or the relevant
15
entitlements together account for, 75% or more of the net
proceeds of disposal;

and for this purpose “relevant entitlement” means an entitlement as
legatee of the deceased person to, or to an interest in possession in,
the whole or any part of the net proceeds of disposal.
20
(4)
In subsection (3) above “net proceeds of disposal” means—
(a)
the proceeds of the disposal of the asset realised by the
personal representatives,
  less
(b)
any incidental costs allowable as a deduction in accordance
25
with section 38(1)(c) in computing the gain accruing to the
personal representatives on that disposal,

but on the assumption that none of the proceeds is required to meet
the liabilities of the deceased person’s estate (including any liability
to inheritance tax).
30
(5)
In sections 222 to 224 as applied by this section—
(a)
references to the individual shall be taken as references to the
personal representatives except in relation to the occupation
of the dwelling-house or part of the dwelling-house, and
(b)
the notice which may be given to an officer of the Board
35
under section 222(5)(a) shall be a joint notice by the personal
representatives and the individual or individuals entitled to
occupy the dwelling-house or part of the dwelling-house.
(6)
But section 223 (as so applied) shall apply only on the making of a
claim by the personal representatives.”.
40
Private residence relief: cases where relief obtained under section 260
6
After section 226 of the Taxation of Chargeable Gains Act 1992 (c. 12)
insert—
“226A
Private residence relief: cases where relief obtained under section 260
(1)
This section applies where—
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Finance Bill
Schedule 22 — Chargeable gains: private residence relief
388

(a)
section 223 applies, or would apart from this section apply, in
relation to a gain or part of a gain accruing to an individual
or the trustees of a settlement (“the transferor”) on a disposal
(the “later disposal”),
(b)
in computing the chargeable gain which would, apart from
5
section 223, accrue to the transferor on the later disposal, the
allowable expenditure would fall to be reduced, and
(c)
that reduction would to any extent fall to be made in
consequence, directly or indirectly, of a claim or claims under
section 260 in respect of one or more earlier disposals
10
(whether or not made to the transferor).
(2)
If a claim for relief under section 260 in respect of—
(a)
the earlier disposal, or
(b)
if there were two or more such disposals, any of them,

is made on or before the making of the later disposal, section 223
15
shall not apply in relation to the gain or part of a gain accruing on the
later disposal.
(3)
If a claim for relief under section 260 in respect of—
(a)
the earlier disposal, or
(b)
if there were two or more such disposals, any of them,
20

is made after the making of the later disposal and subsection (2)
above does not apply, it is to be assumed for the purposes of capital
gains tax that section 223 never applied in relation to the gain or part
of a gain accruing on the later disposal.
(4)
All such adjustments shall be made, whether by discharge or
25
repayment of tax, the making of assessments or otherwise, as are
required to give effect to subsection (3) above (notwithstanding any
limitation on the time within which any adjustment may be made).
(5)
Where the later disposal is made by the trustees of a settlement, the
references in subsections (2) and (3) above to the making of the later
30
disposal shall be read as references to the making of a claim for relief
under section 223 in respect of the gain or part of a gain accruing on
that disposal.
(6)
If a claim for relief under section 260 in respect of an earlier disposal
is revoked, this section shall apply as if the claim had never been
35
made.
(7)
This section is subject to section 226B (exception for maintenance
funds for historic buildings).
226B
Exception to section 226A
(1)
Section 226A shall not apply in relation to a later disposal made by
40
the trustees of a settlement if the trustees have elected that section
691(2) of the Taxes Act (certain income of maintenance funds for
historic buildings not to be income of settlor etc) shall have effect in
the case of—
(a)
the settlement, or
45
(b)
any part of the settlement,

in relation to each year of assessment in which a relevant earlier
disposal is made.

Finance Bill
Schedule 22 — Chargeable gains: private residence relief
389

(2)
In this section “relevant earlier disposal”, in relation to a later
disposal, means an earlier disposal in respect of which a claim
mentioned in section 226A(1)(c) is made.
(3)
This section is to be construed as one with section 226A.”.
Commencement
5
7     (1)
The amendments in paragraphs 1(2) and 4(4)(a) of this Schedule have effect
in relation to any notice given on or after 10th December 2003.
      (2)
The amendments in paragraphs 2(2), 3(2), 4(2), (3), (4)(b) and (5) and 5 of this
Schedule have effect in relation to disposals made on or after 10th December
2003.
10
      (3)
Subject to paragraph 8 of this Schedule, the amendments in paragraphs 2(3)
and 6 of this Schedule have effect in relation to gains or parts of gains
accruing on later disposals (within the meaning of the section 226A inserted
by paragraph 6 of this Schedule) made on or after 10th December 2003
(whenever any relevant earlier disposal was made).
15
      (4)
In sub-paragraph (3) above “relevant earlier disposal”, in relation to a later
disposal (within the meaning of the section 226A inserted by paragraph 6 of
this Schedule), means an earlier disposal in respect of which a claim
mentioned in subsection (1)(c) of that section is made.
Transitional provision
20
8     (1)
This paragraph has effect where section 226A of the Taxation of Chargeable
Gains Act 1992 (c. 12) (as inserted by paragraph 6 of this Schedule) (“section
226A”) applies in circumstances in which—
(a)
the relevant earlier disposal, or
(b)
if there were two or more such disposals, each of them,
25

was made before 10th December 2003.
      (2)
Section 226A shall have effect subject to the following modifications.
      (3)
In subsection (2), omit “not” and at the end insert “subject to the
modifications set out in subsections (2A) to (2C) below”.
      (4)
After subsection (2) insert—
30
“(2A)
Section 223(1) shall not apply.
(2B)
For the purposes of section 223(2)(a) and (3)—
(a)
the dwelling-house or the part of the dwelling-house in
question is to be taken not to have been the individual’s only
or main residence during the post-commencement period or
35
any part of that period, and
(b)
the words “but inclusive of the last 36 months of the period of
ownership in any event” shall not have effect in respect of so
much of that period of 36 months as falls within the post-
commencement period.
40
(2C)
In subsection (2B) above “post-commencement period” means the
period beginning on 10th December 2003 and ending on the date of
the later disposal.”.
      (5)
In subsection (3), omit “never” and at the end insert “subject to the
modifications set out in subsections (2A) to (2C) above”.
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Finance Bill
Schedule 23 — Finance leasebacks: transitional provision
390

      (6)
In this paragraph “relevant earlier disposal”, in relation to a later disposal,
means an earlier disposal in respect of which a claim mentioned in
subsection (1)(c) of section 226A is made.
      (7)
This paragraph is to be construed as one with section 226A.
      (8)
Subsections (5) and (6) of section 223 of the Taxation of Chargeable Gains Act
5
1992 apply in relation to the subsection (2B)(b) treated as inserted by sub-
paragraph (4) above as they apply in relation to subsections (1) and (2)(a) of
that section.
Schedule 23
Section 127

Finance leasebacks: transitional provision
10
Introduction
1
Sections 228B to 228E of the Capital Allowances Act 2001 (c. 2) (as inserted
by section 127) are subject to this Schedule in their application in relation to
existing leasebacks.
Section 228B
15
2     (1)
This paragraph applies if the pre-commencement rentals are greater than the
total of the actual rental deductions for periods of account up to, but
excluding, the transitional period of account.
      (2)
Section 228B shall not apply in relation to—
(a)
the transitional period of account if the lessee’s excess rentals are
20
greater than the notional rental deduction for that period, or
(b)
a subsequent period of account if the unrelieved portion of the
lessee’s excess rentals is greater than the notional rental deduction
for that period.
      (3)
Section 228B is subject to sub-paragraph (4) in its application to—
25
(a)
the transitional period of account if the lessee’s excess rentals are not
greater than the notional rental deduction for that period, or
(b)
a subsequent period of account if the unrelieved portion of the
lessee’s excess rentals is not greater than the notional rental
deduction for that period.
30
      (4)
The permitted maximum for that period of account is the total of—
(a)
the lessee’s excess rentals (in the case of the transitional period of
account) or the unrelieved portion of the lessee’s excess rentals (in
the case of a subsequent period of account), and
(b)
the amount given by this calculation—
35

where—
“Basic Amount” means the amount calculated in accordance with
section 228B(2),
“Notional Rental Deduction” means the notional rental deduction for
the period of account in question, and
40

Finance Bill
Schedule 23 — Finance leasebacks: transitional provision
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“Deductible Excess” means the amount included in the permitted
maximum by virtue of sub-paragraph (4)(a).
      (5)
But where, in relation to the transitional period of account, the amount given
by sub-paragraph (4) is less than the appropriate fraction of the notional
rental deduction for that period, the permitted maximum shall be that
5
fraction of that deduction.
      (6)
In this paragraph—
(a)
“the lessee’s excess rentals” means—
(i)
the pre-commencement rentals, minus
(ii)
the total of the actual rental deductions referred to in sub-
10
paragraph (1), and
(b)
“the unrelieved portion of the lessee’s excess rentals”, in relation to a
period of account, means—
(i)
the lessee’s excess rentals, minus
(ii)
the total of the actual rental deductions for periods of account
15
from and including the transitional period up to, but
excluding, the period in question.
      (7)
In this paragraph—
“actual rental deduction”, in relation to a period of account, means the
amount that may be deducted in respect of amounts payable under
20
the existing leaseback in calculating the lessee’s income or profits
for that period of account for the purpose of income tax or
corporation tax;
“notional rental deduction”, in relation to a period of account, means
the amount that could, if section 228B did not apply, be deducted in
25
respect of amounts payable under the existing leaseback in
calculating the lessee’s income or profits for that period of account
for the purpose of income tax or corporation tax.
      (8)
Nothing in sub-paragraphs (3) to (5) prevents the inclusion of an amount in
the permitted maximum by virtue of section 228B(3) and (4).
30
      (9)
This paragraph does not apply in relation to any period of account later than
a period of account for which the permitted maximum has been determined
in accordance with sub-paragraph (3) to (5).
3     (1)
This paragraph applies where—
(a)
the existing leaseback terminates, and
35
(b)
in the period of account immediately following that in which it
terminates, paragraph 2(2)(b) or 2(3)(b) would apply were it not for
the termination.
      (2)
The permitted maximum for the period of account in which the leaseback
terminates shall also include an amount equal to the amount that the
40
unrelieved portion of the lessee’s excess rentals would have been in the
period of account immediately following.
Section 228C
4
Section 228C shall not apply where the existing leaseback terminates before
17 March 2004.
45
5     (1)
This paragraph applies if—
(a)
the existing leaseback terminates otherwise than by expiry of its
term,

Finance Bill
Schedule 23 — Finance leasebacks: transitional provision
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(b)
upon the termination of the leaseback, or during the period of one
month beginning with the date of termination, the lessee becomes
the owner of the plant of machinery by acquiring it—
(i)
from the lessor, or
(ii)
where no person other than the lessor or a person connected
5
with the lessee has owned the plant or machinery at any time
since the termination of the leaseback, from a person
connected with the lessee,
(c)
the person who first acquires the plant or machinery from the lessor
does so as a result of incurring capital expenditure equal (at least) to
10
the market value of the plant or machinery at the termination of the
leaseback, and
(d)
the amount of the lessee acquisition expenditure that counts as
qualifying expenditure is restricted under section 226.
      (2)
If the section 226 restriction is greater than the amount calculated in
15
accordance with section 228C(3)—
(a)
section 228C(2) to (4) shall not apply, but
(b)
if there is a taxable disposal, section 228C(2) to (4) shall apply subject
to sub-paragraph (5).
      (3)
If the section 226 restriction is not greater than the amount calculated in
20
accordance with section 228C(3)—
(a)
the amount by which profits or income are increased in accordance
with section 228C(2) shall be reduced by the section 226 restriction,
and
(b)
if there is a taxable disposal, section 228C(2) to (4) shall apply again
25
subject to sub-paragraph (5).
      (4)
For the purposes of sub-paragraphs (2) and (3) there is a taxable disposal if
the lessee ceases to own the plant or machinery during the period of six
years beginning with the date of termination of the leaseback.
      (5)
Where section 228C(2) to (4) applies subject to this sub-paragraph—
30
(a)
a reference to the termination shall be treated as a reference to the
cessation of ownership of the plant or machinery, and
(b)
the amount by which profits or income are increased in accordance
with section 228C(2) shall be this fraction of the amount calculated in
accordance with section 228C(3) (or, in a case where sub-paragraph
35
(3) applied, that amount reduced by the section 226 restriction)—
      (6)
In sub-paragraph (5) “Disposal Proceeds” means the consideration due to
the lessee under the transaction as a result of which he ceases to own the
plant or machinery or, if higher, the market value of the plant or machinery
at the time of that transaction; but—
40
(a)
where that amount is greater than the lessee acquisition expenditure,
the Disposal Proceeds shall be the amount of the lessee acquisition
expenditure, or
(b)
where that amount is less than the Restricted Qualifying
Expenditure, the Disposal Proceeds shall be the amount of the
45
Restricted Qualifying Expenditure.
      (7)
In this paragraph—