Finance Bill

House of Commons

Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 23 — Finance leasebacks: transitional provision
393

“lessee acquisition expenditure” means the capital expenditure
incurred by the lessee in acquiring the plant or machinery as
described in paragraph 5(1)(b),
“restricted qualifying expenditure” means the qualifying expenditure
under section 226, and
5
“section 226 restriction” means—
(a)
the lessee acquisition expenditure, minus
(b)
the restricted qualifying expenditure.
Section 228D
6     (1)
This paragraph applies if the pre-commencement rentals are greater than the
10
total of the actual taxed rentals for periods of account up to, but excluding,
the transitional period of account.
      (2)
Section 228D shall not apply in relation to—
(a)
the transitional period of account if the lessor’s excess rentals are
greater than the notional taxed rental for that period, or
15
(b)
a subsequent period of account if the untaxed portion of the lessor’s
excess rentals is greater than the notional taxed rental for that period.
      (3)
Section 228D is subject to sub-paragraph (4) in its application to—
(a)
the transitional period of account if the lessor’s excess rentals are not
greater than the notional rental deduction for that period, or
20
(b)
a subsequent period of account if the untaxed portion of the lessor’s
excess rentals is not greater than the notional rental deduction for
that period.
      (4)
The permitted threshold for that period of account is the total of—
(a)
the lessor’s excess rentals (in the case of the transitional period of
25
account) or the untaxed portion of the lessor’s excess rentals (in the
case of a subsequent period of account), and
(b)
the amount given by this calculation—

where—
“Basic Amount” means the amount calculated in accordance with
30
section 228D(2);
“Notional Taxed Rental” means the notional taxed rental for the
period of account in question, and
“Deductible Excess” means the amount included in the permitted
threshold by virtue of sub-paragraph (4)(a).
35
      (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
taxed rental for that period, the permitted threshold shall be that fraction of
that deduction.
      (6)
In this paragraph—
40
(a)
“the lessor’s excess rentals” means—
(i)
the pre-commencement rentals, minus
(ii)
the total of the actual taxed rentals referred to in sub-
paragraph (1), and

Finance Bill
Schedule 23 — Finance leasebacks: transitional provision
394

(b)
“the untaxed portion of the lessor’s excess rentals”, in relation to a
period of account means—
(i)
the lessor’s excess rentals, minus
(ii)
the total of the actual taxed rentals for periods of account
from and including the transitional period up to, but
5
excluding, the period in question.
      (7)
In this paragraph—
“actual taxed rental”, in relation to a period of account, means the
amount that should be taken into consideration in respect of
amounts receivable under the existing leaseback in calculating the
10
lessor’s income or profits for that period of account for the purpose
of income tax or corporation tax;
“notional taxed rental”, in relation to a period of account, means the
amount that would, if section 228D did not apply, be taken into
consideration in respect of amounts receivable under the existing
15
leaseback in calculating the lessor’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 threshold by virtue of section 228D(5).
      (9)
This paragraph does not apply in relation to any period of account later than
20
a period of account for which the permitted threshold has been determined
in accordance with sub-paragraph (3) to (5).
7     (1)
This paragraph applies where—
(a)
the existing leaseback terminates, and
(b)
in the period of account immediately following that in which it
25
terminates, paragraph 6(2)(b) or 6(3)(b) would apply were it not for
the termination.
      (2)
The permitted threshold for the period of account in which the leaseback
terminates shall also include an amount equal to the amount that the
untaxed portion of the lessor’s excess rentals would have been in the period
30
of account immediately following.
Section 228E
8
Section 228E shall not apply where the existing leaseback terminates before
17 March 2004.
Interpretation
35
9     (1)
In this Schedule—
“existing leaseback” means a leaseback the term of which began
before 17 March 2004;
“pre-commencement rentals”, in relation to an existing leaseback,
means—
40
(a)
any amounts payable by the lessee to the lessor under the
leaseback before 17 March 2004,
(b)
any amounts so payable on or after 17 March 2004 in respect
of a period that ends before 17 March 2004, or
(c)
where any amounts are so payable on or after 17 March 2004
45
in respect of a period which begins before that date and

Finance Bill
Schedule 24 — Manufactured dividends
395

ends on or after that date, the appropriate fraction of each of
those amounts;
“transitional period of account” means a period of account that
includes 17 March 2004.
      (2)
In this Schedule the “appropriate fraction”, in respect of an amount that
5
relates to a particular period, means this fraction—

where—

“Pre-commencement Period” means the number of days in the part of
the period that falls before 17 March 2004, and

“Whole Period” means the number of days in the whole of the period.
10
Schedule 24
Section 128

Manufactured dividends
Amendments of sections 231AA, 231AB and 233 of the Taxes Act 1988
1     (1)
In section 231AA of the Taxes Act 1988 (no tax credit for borrower under
stock lending arrangement or interim holder under repurchase agreement)
15
after subsection (1) insert—
“(1A)
Where subsection (1) above applies to a relevant person in respect of
a qualifying distribution, section 233(1) (certain persons to be treated
as having paid income tax at Schedule F ordinary rate on certain
distributions etc) shall not apply in relation to that person in respect
20
of that distribution.

In this subsection “relevant person” means a person resident in the
United Kingdom, not being a company.”.
      (2)
In section 231AB of that Act (no tax credit for original owner under
repurchase agreement in respect of certain manufactured dividends) after
25
subsection (1) insert—
“(1A)
Where subsection (1) above applies to a relevant person in respect of
a qualifying distribution, section 233(1) (certain persons to be treated
as having paid income tax at Schedule F ordinary rate on certain
distributions etc) shall not apply in relation to that person in respect
30
of that distribution.

In this subsection “relevant person” means a person resident in the
United Kingdom, not being a company.”.
      (3)
In section 233 of that Act (taxation of certain recipients of distributions etc)
in subsection (1) (person other than United Kingdom resident company who
35
is not entitled to tax credit on distribution: to be treated as having paid
income tax at Schedule F ordinary rate on the distribution etc) at the end
insert—

“But this subsection is subject to—

section 231AA(1A) (section 233(1) not to apply to borrower
40
under stock lending arrangement or interim holder under
repurchase agreement);

Finance Bill
Schedule 24 — Manufactured dividends
396


section 231AB(1A) (section 233(1) not to apply to original
owner under repurchase agreement in respect of certain
manufactured dividends).”.
      (4)
The amendment made by sub-paragraph (1) (and the amendment made by
sub-paragraph (3) so far as relating to that amendment) have effect in
5
relation to any qualifying distribution received by a relevant person on or
after the commencement date where a manufactured dividend
representative of that distribution is or was paid, or treated as paid, by him
on or after that date.
      (5)
In sub-paragraph (4) “the commencement date” means—
10
(a)
if the relevant person is an individual, 6th November 2003;
(b)
if the relevant person is not an individual, 17th March 2004.
      (6)
The amendment made by sub-paragraph (2) (and the amendment made by
sub-paragraph (3) so far as relating to that amendment) have effect in
relation to any qualifying distribution received by a relevant person on or
15
after the day on which this Act is passed.
Amendments of paragraph 2A of Schedule 23A to the Taxes Act 1988
2     (1)
In Schedule 23A to the Taxes Act 1988 (manufactured dividends and
interest) paragraph 2A (deductibility of manufactured payment in the case
of the manufacturer) is amended as follows.
20
      (2)
For sub-paragraph (1) (amount of manufactured dividend paid allowable as
deduction against total income, subject to sub-paragraph (1A)) substitute—
“(1)
Where, in the case of a manufactured dividend, the dividend
manufacturer is resident in the United Kingdom but is not a
company, an amount (“the relevant amount”) equal to the lesser
25
of—
(a)
the amount of the manufactured dividend paid (so far as it
is not otherwise deductible), and
(b)
the amount of the dividend of which the manufactured
dividend is representative,
30

shall be allowable as a deduction for the purposes of income tax
only under sub-paragraph (1ZA) or (1A) below.”.
      (3)
After sub-paragraph (1) insert—
“(1ZA)
The relevant amount shall be allowable under this sub-paragraph
as a deduction for the purposes of income tax to the extent that the
35
dividend manufacturer—
(a)
receives the dividend on the equities which is represented
by the manufactured dividend or receives a payment
which is representative of that dividend, and
(b)
is chargeable to income tax on the dividend or other
40
payment so received;

and that deduction shall be made against the amount of the
dividend or other payment so received on which the dividend
manufacturer is chargeable to income tax.
(1ZB)
Sub-paragraph (1ZA) above shall apply only if the amount of the
45
dividend or other payment so received is received by the dividend
manufacturer in—

Finance Bill
Schedule 24 — Manufactured dividends
397

(a)
the year of assessment in which he pays the manufactured
dividend, or
(b)
the year of assessment immediately before, or immediately
after, that year.”.
      (4)
In sub-paragraph (1A) (circumstances in which amount of manufactured
5
dividend paid is allowable as deduction against total income)—
(a)
in the opening words, for the words from “An amount shall” to
“only” substitute “The relevant amount shall be allowable under this
sub-paragraph as a deduction for the purposes of income tax against
the total income of the dividend manufacturer”,
10
(b)
omit paragraph (a),
(c)
omit paragraph (c) and the word “or” before it, and
(d)
omit the words following paragraph (c).
      (5)
In sub-paragraph (1B) (no double deduction allowed)—
(a)
for “sub-paragraph (1)” (in both places) substitute “sub-paragraph
15
(1ZA) or (1A)”,
(b)
in paragraph (a), for “paragraph (a) of sub-paragraph (1A)”
substitute “sub-paragraph (1ZA)” and at the end insert “, or”,
(c)
in paragraph (b) for “paragraph (b) of that sub-paragraph” substitute
“sub-paragraph (1A) above”,
20
(d)
omit paragraph (c) and the word “or” before it, and
(e)
for “, other payment or chargeable gain” (in both places) substitute
“or other payment”.
      (6)
In sub-paragraph (4) (meaning of “deductible”)—
(a)
in paragraph (a), omit “or corporation tax”, and
25
(b)
in paragraph (b), omit “or, as the case may be, total profits”.
      (7)
Subject to sub-paragraph (10), the amendments made by sub-paragraphs (3),
(4)(b) and (5)(b) (and the amendments made by sub-paragraphs (2) and
(5)(a) so far as relating to those amendments) have effect in relation to a
manufactured dividend paid, or treated as paid, by a dividend
30
manufacturer on or after the commencement date where the dividend or
other payment of which that manufactured dividend is representative is or
was received by him on or after that date.
      (8)
In sub-paragraph (7) “the commencement date” means—
(a)
if the dividend manufacturer is an individual, 6th November 2003;
35
(b)
if the dividend manufacturer is not an individual, 17th March 2004.
      (9)
Subject to sub-paragraph (10), the amendments made by sub-paragraphs
(4)(a) and (5)(c) (and the amendments made by sub-paragraphs (2) and (5)(a)
so far as relating to those amendments) have effect in relation to a
manufactured dividend paid, or treated as paid, by a dividend
40
manufacturer on or after 17th March 2004.
     (10)
In relation to a manufactured dividend paid, or treated as paid, by a
dividend manufacturer before the day on which this Act is passed, the sub-
paragraph (1) of paragraph 2A of Schedule 23A to the Taxes Act 1988
substituted by sub-paragraph (2) of this paragraph shall have effect with the
45
omission of—
(a)
the words “the lesser of”, and
(b)
paragraph (b) and the word “and” before it.

Finance Bill
Schedule 24 — Manufactured dividends
398

     (11)
The amendments made by sub-paragraphs (4)(c) and (d) and (5)(d) and (e)
have effect in relation to cases where—
(a)
the manufactured dividend is or was paid, or treated as paid, by the
dividend manufacturer on or after 17th March 2004, or
(b)
the chargeable gain accrues or accrued to the dividend manufacturer
5
on or after that date.
Amendment of the Taxation of Chargeable Gains Act 1992
3     (1)
After section 263C of the Taxation of Chargeable Gains Act 1992 (c. 12)
insert—
“263D  Gains accruing to persons paying manufactured dividends
10
(1)
This section applies where one of the following conditions is satisfied
in relation to a person who—
(a)
is resident in the United Kingdom, but
(b)
is not a company.
(2)
Condition 1 is that—
15
(a)
the person is the interim holder under a repurchase
agreement,
(b)
he disposes of any United Kingdom equities transferred to
him under that agreement,
(c)
a chargeable gain accrues to him on that disposal, and
20
(d)
under that agreement, he pays a manufactured dividend
which is representative of a dividend on those United
Kingdom equities.
(3)
Condition 2 is that—
(a)
the person is the borrower under a stock lending
25
arrangement,
(b)
he disposes of any United Kingdom equities transferred to
him under that arrangement,
(c)
a chargeable gain accrues to him on that disposal, and
(d)
under that arrangement, he pays a manufactured dividend
30
which is representative of a dividend on those United
Kingdom equities.
(4)
Condition 3 is that—
(a)
the person is a party to a contract or other arrangements for
the transfer of United Kingdom equities which is neither a
35
repurchase agreement nor a stock lending arrangement (“the
short sale transaction”),
(b)
he disposes of the United Kingdom equities under the short
sale transaction,
(c)
a chargeable gain accrues to him on that disposal, and
40
(d)
under that transaction, he pays a manufactured dividend
which is representative of a dividend on those United
Kingdom equities.
(5)
For the purposes of capital gains tax, a loss shall be treated as
accruing to the person on the date on which the chargeable gain
45
mentioned in Condition 1, 2 or 3 accrued to him.

Finance Bill
Schedule 24 — Manufactured dividends
399

(6)
The amount of that loss shall be equal to the lesser of—
(a)
the amount of that chargeable gain, and
(b)
the adjusted amount.
(7)
In subsection (6) above “the adjusted amount” means—

where—
5

A is the lesser of—
(a)
the amount of the manufactured dividend paid, and
(b)
the amount of the dividend of which the
manufactured dividend is representative; and

B is an amount equal to so much of the manufactured
10
dividend paid as is allowable to the person as a deduction for
the purposes of income tax under paragraph 2A of Schedule
23A to the Taxes Act.
(8)
But that loss shall not be deductible except from the chargeable gain
mentioned in Condition 1, 2 or 3.
15
(9)
For the purposes of this section “manufactured dividend” has the
same meaning as in paragraph 2 of Schedule 23A to the Taxes Act;
and any reference to a manufactured dividend being paid—
(a)
includes a reference to a payment falling by virtue of section
737A(5) of that Act to be treated for the purposes of Schedule
20
23A as if it were made, but
(b)
does not include a reference to a payment falling by virtue of
section 736B(2) of that Act to be treated for the purposes of
that Schedule as if it were made.
(10)
For the purposes of this section the cases where there is a repurchase
25
agreement are the following—
(a)
any case falling within subsection (1) of section 730A of the
Taxes Act, and
(b)
any case which would fall within that subsection if the sale
price and the repurchase price were different;
30

and, in any such case, any reference to the interim holder shall be
construed accordingly.
(11)
In this section “stock lending arrangement” has the same meaning as
in section 263B of this Act; and, in relation to any such arrangement,
any reference to the borrower shall be construed accordingly.
35
(12)
In this section “United Kingdom equities” has the meaning given by
paragraph 1(1) of Schedule 23A to the Taxes Act.”.
      (2)
In section 737E of the Taxes Act 1988 (power to modify sections 727A, 730A,
730BB and 737A to 737C)—
(a)
in subsection (4) (powers to modify also exercisable in relation to
40
section 263A of the Taxation of Chargeable Gains Act 1992) after
“263A” insert “or 263D”, and
(b)
in subsection (6)(b) (particular power to modify in relation to section
263A of that Act) after “263A” insert “or 263D”.
      (3)
The amendments made by sub-paragraphs (1) and (2) have effect in relation
45
to cases where—