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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax

91

 

105     

Credit under Part 18 of Taxes Act 1988 to be allowed first

(1)   

Any credit for foreign tax that falls to be allowed under Chapters 1 and 2 of Part

18 of the Taxes Act 1988 (double taxation relief) against income tax or capital

gains tax is to be so allowed before effect is given to section 103 or 104.

(2)   

In this section “foreign tax” has the same meaning as in Chapter 2 of Part 18 of

5

the Taxes Act 1988 (see section 792(1) of that Act).

Computation of income etc

106     

Computation of income etc subject to special withholding tax only

(1)   

This section applies where—

(a)   

a person is chargeable to income tax in respect of a payment of savings

10

income, or

(b)   

a chargeable gain accrues to a person on a disposal by him of assets in

circumstances where the consideration for the disposal consists of or

includes an amount of savings income,

   

and the conditions in subsections (2) and (3) are satisfied.

15

(2)   

The first condition is that special withholding tax is levied in respect of—

(a)   

the payment of savings income, or

(b)   

the whole or any part of the consideration for the disposal.

(3)   

The second condition is that no credit for foreign tax in respect of the savings

income or the chargeable gain in question falls to be allowed under Chapters 1

20

and 2 of Part 18 of the Taxes Act 1988 (double taxation relief) (so that section

795(1) and (2) of that Act, which make similar provision to subsections (4) to (6)

of this section, do not apply).

(4)   

If income tax is payable by reference to the amount of the savings income

received in the United Kingdom, the amount received is to be treated for the

25

purposes of income tax as increased by the amount of special withholding tax

levied in respect of it.

(5)   

If capital gains tax is payable by reference to the amount of the chargeable gain

received in the United Kingdom, the amount received is to be treated for the

purposes of capital gains tax as increased by an amount equal to—equation: times[char[S],char[W],cross[char[T],over[times[char[G],char[U],char[K]],plus[char[

G],minus[times[char[S],char[W],char[T]]]]]]]

30

   

where—

   

SWT is the amount of special withholding tax levied in respect of the

whole or a part of the consideration for the disposal,

   

GUK is the amount of the chargeable gain received in the United

Kingdom, and

35

   

G is the amount of the chargeable gain accruing to the person on the

disposal.

(6)   

If neither subsection (4) nor subsection (5) applies, then, in computing—

(a)   

the amount of the income or gain in question for the purposes of

income tax, or

40

(b)   

the amount of any chargeable gain for the purposes of capital gains tax,

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax

92

 

   

no deduction is to be made for special withholding tax (whether in respect of

the same or any other income or gain or, as the case may be, chargeable gains).

(7)   

In this section references to special withholding tax are to special withholding

tax in respect of which a claim has been made under this Chapter.

107     

Computation of income etc subject to foreign tax and special withholding tax

5

(1)   

Section 795 of the Taxes Act 1988 (double taxation relief: computation of

income subject to foreign tax) is amended as follows.

(2)   

In subsection (1) (remittance basis: grossing up) after “increased by” insert “—

(a)” and at the end insert—

   

“, and

10

(b)   

the amount of any special withholding tax levied in respect of

the income.”.

(3)   

In subsection (2)(a) (other cases: no deduction for foreign tax) after “foreign

tax” insert “or special withholding tax”.

(4)   

After subsection (4) insert—

15

“(5)   

In this section—

(a)   

“special withholding tax” has the same meaning as in Chapter 7

of Part 3 of the Finance Act 2004 (see section 102(3) of that Act);

and

(b)   

references to special withholding tax are to special withholding

20

tax in respect of which a claim has been made under that

Chapter.”.

(5)   

Section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12) (which applies

Chapters 1 and 2 of Part 18 of the Taxes Act 1988 in relation to capital gains tax)

is amended as follows.

25

(6)   

After subsection (1) insert—

“(1A)   

Subsection (1B) below applies where—

(a)   

a chargeable gain accrues to a person on a disposal by him of

assets in circumstances where the consideration for the disposal

consists of or includes an amount of savings income, and

30

(b)   

special withholding tax is levied in respect of the whole or any

part of the consideration for the disposal.

(1B)   

In section 795 of the Taxes Act, as applied by this section, for the

reference in subsection (1)(b) to the amount of any special withholding

tax levied in respect of the income, there shall be substituted a reference

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to an amount equal to—equation: times[char[S],char[W],cross[char[T],over[times[char[G],char[U],char[K]],plus[char[

G],minus[times[char[S],char[W],char[T]]]]]]]

   

where—

   

SWT is the amount of special withholding tax levied in respect

of the whole or a part of the consideration for the disposal,

   

GUK is the amount of the chargeable gain received in the

40

United Kingdom, and

   

G is the amount of the chargeable gain accruing to the person on

the disposal.

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax

93

 

(1C)   

In subsections (1A) and (1B) above “savings income” and “special

withholding tax” have the same meaning as in Chapter 7 of Part 3 of the

Finance Act 2004 (see section 102 of that Act); and references to special

withholding tax are to special withholding tax in respect of which a

claim has been made under that Chapter.”.

5

Certificates to avoid levy of special withholding tax

108     

Issue of certificate

(1)   

This section has effect for enabling the Inland Revenue to issue certificates to

be used under the law of a territory outside the United Kingdom

implementing—

10

(a)   

in the case of a member State, Article 13(1)(b) of the Savings Directive

(procedure to avoid levy of special withholding tax where beneficial

owner presents to his paying agent certificate drawn up by competent

authority of his member State of residence for tax purposes), or

(b)   

in the case of a territory other than a member State, any corresponding

15

provision of international arrangements (whatever the period for

which the provision is to have effect).

(2)   

If, on the written application of a person, the Inland Revenue are satisfied that

the applicant has provided them with—

(a)   

the required information, and

20

(b)   

such documents as they may require to verify that information,

   

the Inland Revenue must issue a certificate to the applicant.

(3)   

“The required information” means—

(a)   

the applicant’s name and address,

(b)   

his National Insurance number or, if he does not have one, his date,

25

town and country of birth,

(c)   

the number of the account which is to, or may, give rise to payments of

savings income to or for the applicant or, if there is no such number, a

statement identifying the debt, instrument or arrangement which is to,

or may, give rise to such payments,

30

(d)   

the name and address of the paying agent who is to make such

payments of savings income to, or to secure such payments of savings

income for, the applicant, and

(e)   

the period, not exceeding three years, for which the applicant would

like the certificate to be valid.

35

(4)   

A certificate under this section must be in writing and must state—

(a)   

the information mentioned in subsection (3)(a) to (d), and

(b)   

the period of validity of the certificate (which must not exceed three

years).

(5)   

A certificate under this section must be issued no later than the end of the

40

period of two months beginning with the date on which the applicant provides

the information and documents required by or under subsection (2).

(6)   

In this section and section 109 “the Inland Revenue” means any officer of the

Commissioners of Inland Revenue.

(7)   

Where the requirements of—

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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax

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(a)   

Article 13(2) of the Savings Directive (requirements in relation to issue

of certificates for purposes of Article 13(1)(b) procedure), and

(b)   

any corresponding provision of any international arrangements,

   

differ to any extent, subsections (3) to (5) shall have effect, in their application

in relation to the international arrangements concerned, with such

5

modifications as may be required by virtue of those arrangements.

109     

Refusal to issue certificate and appeal against refusal

(1)   

This section applies if, on an application for a certificate under section 108, the

Inland Revenue are not satisfied that the applicant has provided them with the

information and documents required by or under subsection (2) of that section.

10

(2)   

The Inland Revenue must give written notice (“the refusal notice”) to the

applicant of their refusal to issue a certificate.

(3)   

The refusal notice must specify the reasons for the refusal.

(4)   

The applicant may by written notice (“the appeal notice”) appeal to the Special

Commissioners against the refusal.

15

(5)   

The appeal notice must be given to the Inland Revenue within 30 days of the

date of the refusal notice.

(6)   

Part 5 of the Taxes Management Act 1970 (c. 9) (appeals and other proceedings)

shall apply in relation to an appeal under this section.

(7)   

On the appeal, the Special Commissioners may—

20

(a)   

confirm the refusal notice, or

(b)   

quash it and require the Inland Revenue to issue a certificate.

Supplementary

110     

Supplementary

(1)   

In section 792 of the Taxes Act 1988 (double taxation relief: interpretation of the

25

credit code) in subsection (1), in the definition of “foreign tax”, at the end insert

“(other than special withholding tax within the meaning of Chapter 7 of Part 3

of the Finance Act 2004)”.

(2)   

In section 811 of the Taxes Act 1988 (deduction for foreign tax where no credit

allowable) in subsection (2), at the end insert “and to section 106 of the Finance

30

Act 2004 (computation of income subject to special withholding tax)”.

(3)   

In section 278 of the Taxation of Chargeable Gains Act 1992 (c. 12) (allowance

for foreign tax) in subsection (1), after “section 277” insert “and to section 106

of the Finance Act 2004 (computation of chargeable gains subject to special

withholding tax)”.

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(4)   

Section 10 of the Exchequer and Audit Departments Act 1866 (c. 39) (gross

revenues to be paid to Exchequer) is to be construed as allowing the

Commissioners of Inland Revenue to deduct payments for or in respect of

amounts repaid in accordance with this Chapter before causing the gross

revenues of their department to be paid to the account mentioned in that

40

section.

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Chargeable gains

95

 

Chapter 8

Chargeable gains

111     

Restriction of gifts relief etc

Schedule 21 (which makes provision for relief under section 165 or 260 of the

Taxation of Chargeable Gains Act 1992 not to be available on certain transfers

5

to settlor-interested settlements etc or on transfers of shares etc to companies,

and makes minor amendments in sections 79 and 281 of that Act) has effect.

112     

Private residence relief

Schedule 22 (which makes provision about private residence relief) has effect.

113     

Authorised unit trusts: treatment of umbrella schemes

10

(1)   

The Taxation of Chargeable Gains Act 1992 is amended as follows.

(2)   

In section 99(2) (application of Act to unit trust schemes: definitions)—

(a)   

in the opening words, after “Subject to subsection (3)” insert “and

section 99A”; and

(b)   

for paragraph (b) substitute—

15

“(aa)   

“unit holder” means a person entitled to a share of the

investments subject to the trusts of a unit trust scheme;

(b)   

“authorised unit trust” means, as respects an accounting

period, a unit trust scheme in the case of which an order

under section 243 of the Financial Services and Markets

20

Act 2000 (c. 8) is in force during the whole or part of that

period.”

(3)   

After that section insert—

“99A    

Authorised unit trusts: treatment of umbrella schemes

(1)   

In this section an “umbrella scheme” means an authorised unit trust—

25

(a)   

which provides arrangements for separate pooling of the

contributions of the participants and the profits or income out

of which payments are to be made to them, and

(b)   

under which the participants are entitled to exchange rights in

one pool for rights in another,

30

   

and any reference to a part of an umbrella scheme is a reference to such

of the arrangements as relate to a separate pool.

(2)   

For the purposes of this Act (except subsection (1))—

(a)   

each of the parts of an umbrella scheme shall be regarded as an

authorised unit trust, and

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(b)   

the scheme as a whole shall not be regarded as an authorised

unit trust or as any other form of collective investment scheme.

(3)   

In this Act, in relation to a part of an umbrella scheme, any reference to

a unit holder is to a person for the time being having rights in the

separate pool to which the part of the umbrella scheme relates.

40

(4)   

Nothing in subsections (2) or (3) shall prevent—

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership

96

 

(a)   

gains accruing to an umbrella scheme being regarded as gains

accruing to an authorised unit trust for the purposes of section

100(1) (exemption for authorised unit trusts etc);

(b)   

a transfer of business to an umbrella scheme being regarded as

a transfer to an authorised unit trust for the purposes of section

5

139(4) (exclusion of transfers to authorised unit trusts etc);

(c)   

a disposal by a unit holder of units in an umbrella scheme being

regarded as a disposal by him of units in an authorised unit

trust for the purposes of section 271(1)(j) (exemption for

disposal of units in an authorised unit trust which is also an

10

approved personal pension scheme etc).”.

(4)   

In section 288 (interpretation)—

(a)   

in subsection (1), in the definition of “collective investment scheme”, at

the end insert “(subject to section 99A)”;

(b)   

in the table in subsection (8) (index of general definitions)—

15

(i)   

in the first column after “Unit trust scheme” insert “and “unit

holder””;

(ii)   

in the second column for “s 99” substitute “ss 99 and 99A”.

(5)   

The amendments made by this section have effect in relation to years of

assessment and accounting periods beginning on or after 1st April 2004.

20

Chapter 9

Avoidance involving loss relief or partnership

Individuals benefited by film relief

114     

Individuals benefited by film relief

(1)   

This section applies if—

25

(a)   

an individual has made a claim under section 380 or 381 of the Taxes

Act 1988 in respect of a film-related loss sustained by him in a trade

carried on solely or in partnership (“a relevant claim”);

(b)   

there is a disposal on or after 10 December 2003 of a right of the

individual to profits arising from the trade (a “relevant disposal”); and

30

(c)   

an exit event occurs.

(2)   

An “exit event” occurs when any of the following happens—

(a)   

on or after 10 December 2003 the individual receives any non-taxable

consideration for a relevant disposal (whether or not he also receives

any taxable consideration for it);

35

(b)   

on or after 10 December 2003 the losses claimed become greater than

the individual’s capital contribution to the trade (whether because of a

claim or a decrease in that capital contribution);

(c)   

on or after 10 December 2003 there is an increase in the amount (if any)

by which the losses claimed exceed the individual’s capital

40

contribution to the trade.

(3)   

A “chargeable event” occurs whenever—

(a)   

the individual makes a relevant claim, if by the time the claim has been

made a relevant disposal and an exit event have occurred; or

 

 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership

97

 

(b)   

a relevant disposal occurs, if by the time it has occurred an exit event

has occurred and the individual has made a relevant claim; or

(c)   

an exit event occurs, if by the time it has occurred a relevant disposal

has occurred and the individual has made a relevant claim.

(4)   

Where a chargeable event occurs, the individual shall be treated as receiving at

5

the time of that event annual profits or gains which are—

(a)   

of an amount equal to the chargeable amount; and

(b)   

chargeable to income tax under Case VI of Schedule D.

(5)   

The “chargeable amount” is an amount equal to the sum of the following

(computed as at the time immediately after the chargeable event)—

10

(a)   

so much of the total amount or value of any consideration received by

the individual for the relevant disposal (or, if there has been more than

one, for relevant disposals) as is non-taxable; and

(b)   

the amount (if any) by which the losses claimed exceed the individual’s

capital contribution to the trade;

15

   

but this is subject to section 117(2).

(6)   

For the purposes of subsection (1)(a) it is immaterial when the claim is made.

(7)   

It is immaterial whether the trade is still being carried on by the individual (or

by anyone else) when a chargeable event occurs.

115     

“Disposal of a right of the individual to profits arising from the trade”

20

(1)   

The reference in section 114(1)(b) to a disposal of a right of the individual to

profits arising from the trade includes, in particular—

(a)   

the disposal, giving up or loss by the individual, or by a partnership of

which he is a member, of any right to any income (or any part of any

income) where the right arises from the trade;

25

(b)   

any default in the payment of income to which the individual, or a

partnership of which he is a member, has a right arising from the trade;

(c)   

a change in the individual’s entitlement to any profits arising from the

trade such that his share of the profits is reduced or extinguished;

(d)   

a change in the individual’s entitlement to any losses arising from the

30

trade such that he becomes entitled to a share, or a greater share, of the

losses without becoming entitled to a corresponding share of profits;

(e)   

the disposal, giving up or loss of the individual’s interest in a

partnership that carries on the trade, including the dissolution of the

partnership.

35

(2)   

It is immaterial for the purposes of subsection (1)(a) whether the right is

disposed of alone or as part of a larger disposal (and the references here to

disposal include giving up or loss).

(3)   

If there is an agreement under which the individual is entitled—

(a)   

to a particular share of any profits or losses arising from the trade in a

40

period, and

(b)   

to a different share of any profits or losses arising from the trade in a

succeeding period (“the later period”),

his entitlement to the profits or losses arising in the later period shall be treated

for the purposes of subsection (1)(c) and (d) as changing at the beginning of the

45

later period; and in paragraphs (a) and (b) of this subsection a “share” of profits

or losses includes a nil share.

 

 

 
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