Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 10 — Avoidance: miscellaneous
132

(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—
(a)
it is issued in respect of an insurance made on or after 3rd March 2004,
5
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
rights conferred by the policy being regarded for this purpose
10
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
15
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
(b)
it is entered into before that date but on or after that date—
20
(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
worth) of the rights, or a share of the rights, conferred by the
25
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
capital redemption policy if—
30
(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
as a variation),
35
(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
security for a debt.
40

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
133

Chapter 11
Miscellaneous
Reliefs for business
138
Relief for research and development: software and consumable items
(1)
In Schedule 20 to the Finance Act 2000 (c. 17) (tax relief for expenditure on
5
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
consumable items means expenditure on—
10
(a)
computer software, or
(b)
consumable or transformable materials,

and references to software or consumable items shall be construed
accordingly.
      (2)
For the purposes of this Schedule consumable or transformable
15
materials include water, fuel and power.
      (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
20
in relevant research and development, an appropriate portion of the
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
25
secretarial or administrative services, in support of other activities
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
30
on research and development)—
(a)
Schedule 20 to the Finance Act 2000 (c. 17) (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
35
enterprises),
(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
40
(large companies etc) have effect in relation to expenditure incurred on or after
1st April 2004.
(4)
Except as provided by subsection (5), the amendments made by this section
to—

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
134

(a)
Schedule 20 to the Finance Act 2000 (small or medium-sized
enterprises),
(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
5
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
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
10
order appoint; and different days may be so appointed for different provisions
or different purposes.
(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.
15
139
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
Allowances Act 2001 (c. 2) (expenditure incurred by small or medium-sized
enterprises) shall be determined, in the case of expenditure to which this
subsection applies, as if the percentage specified in the entry relating to that
20
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
tax, or
25
(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
section 139 of the Finance Act 2004 (substitution of 50% in the case of
30
expenditure incurred by a small enterprise in 2004-05 or financial
year 2004).”.
140
Deduction for expenditure by landlords on energy-saving items
(1)
After section 31 of the Taxes Act 1988 (Schedule A deductions and allowances:
provisions supplementary to sections 25 to 30) insert—
35
“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
business to which this section applies, a deduction shall be allowed in
40
respect of any expenditure to which subsection (3) applies.

That is subject to any provision of regulations under subsection (13).

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
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(3)
This subsection applies to expenditure as respects which the numbered
conditions set out in the following provisions of this section (“the
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
(5)
Condition 2 is that the expenditure is incurred on or after 6th April 2004
but before 6th April 2009.
(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.
10
(8)
Condition 5 is that, apart from this section, the expenditure is not
deductible in computing the profits of the Schedule A business.
(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
15
provision of an item in a dwelling-house which, at the time when the
item is installed,—
(a)
is in the course of construction, or
(b)
is comprised in land in which the person claiming the
deduction under this section does not have an interest or is in
20
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)
either—
(a)
the Schedule A business does not consist to any extent in the
25
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
question.
(12)
Condition 9 is that the income of the person claiming the deduction is
30
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-
house.
(13)
The Treasury may by regulations make provision for any of the
35
following purposes—
(a)
restricting or reducing the amount of expenditure in respect of
which deductions may be claimed under this section;
(b)
excluding entitlement to a deduction under this section in such
cases as may be specified in, or determined in accordance with,
40
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
different persons have different interests in land consisting of or
including the whole or part of a building containing one or
45
more dwelling-houses;

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
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(d)
making apportionments (including apportioning amounts to
companies which are not entitled to a deduction under this
section) in cases where—
(i)
a Schedule A business is carried on by two or more
persons in partnership, or
5
(ii)
an interest in land is beneficially owned by two or more
persons jointly or in common.
(14)
Section 31B supplements this section.
31B
Provisions supplementary to section 31A
(1)
This section has effect for the purpose of supplementing section 31A
10
and shall be construed as one with that section.
(2)
Section 31A does not have effect for the purposes of corporation tax.
(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—
15
(a)
would be satisfied as respects some part or parts of the
expenditure, but
(b)
would not be satisfied as respects the remainder of the
expenditure,

a deduction under section 31A shall be allowed in respect of the part or
20
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—
(a)
for the purposes of a Schedule A business, but
25
(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).

The reference to section 401 is a reference to that section as it applies for
30
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—
(a)
cavity wall insulation;
35
(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.
(8)
The Treasury may by regulations provide that an item is to be regarded
40
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.

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
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(9)
The conditions that may be imposed by regulations under subsection
(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
5
provision—
(a)
having effect before the date on which the regulations are made,
or
(b)
having effect in relation to expenditure incurred before that
date.
10
(11)
Any reference to the provision of a qualifying energy-saving item is a
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.
15
141
Lloyd’s names: conversion to limited liability underwriting
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.
Offshore matters
20
142
Offshore funds
(1)
The provisions of the Taxes Act 1988 relating to offshore funds are amended in
accordance with Schedule 26 to this Act.
(2)
Except as otherwise provided—
(a)
the amendments have effect for account periods (within the meaning of
25
Chapter 5 of Part 17 of that Act) ending on or after the day on which this
Act is passed, and
(b)
regulations made under a power conferred by virtue of any of the
amendments may be made so as to have effect in relation to any such
account period.
30
143
Meaning of “offshore installation”
Schedule 27 to this Act (which makes amendments relating to the meaning of
“offshore installation”) has effect.
Health
144
Immediate needs annuities
35
(1)
The Taxes Act 1988 is amended as follows.
(2)
In section 431 (interpretative provisions relating to insurance companies) in
subsection (2) (interpretation for purposes of Chapter 1 of Part 12) in the

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 11 — Miscellaneous
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definition of “annuity business”, at the end insert “, other than the business of
granting immediate needs annuities (within the meaning of section 580C)”.
(3)
After section 580B insert—
“580C Relief from tax on annual payments under immediate needs annuities
(1)
No liability to income tax arises in respect of a relevant annual payment
5
made under an immediate needs annuity to the extent that—
(a)
it is made for the benefit of the person protected under the
immediate needs annuity, and
(b)
it is made to a care provider or a local authority in respect of the
provision of care for the person protected.
10
(2)
In this section “relevant annual payment” means an annual payment
which—
(a)
would (apart from this section) be brought into charge under
Case III of Schedule D, or
(b)
is equivalent to a description of payment brought into charge
15
under Case III of that Schedule but would (apart from this
section) be brought into charge under Case V of that Schedule.
(3)
In this section “immediate needs annuity” means a contract for a life
annuity—
(a)
the purpose, or one of the purposes, of which is to protect a
20
person against the consequences of his being unable, at the time
the contract is made, to live independently without assistance
because of—
(i)
mental or physical impairment, or
(ii)
injury, sickness or other infirmity,
25

which is expected to be permanent, and
(b)
under which benefits are payable in respect of the provision of
care for the person protected.
(4)
In this section “care provider” means a person who carries on a trade,
profession or vocation which consists of or includes the provision of
30
care and who—
(a)
in relation to care provided in England and Wales or Northern
Ireland, is registered under the relevant enactment in respect of
the provision of care;
(b)
in relation to care provided in Scotland, provides care which is
35
registered under the relevant enactment;
(c)
in relation to care provided in a territory outside the United
Kingdom, satisfies comparable requirements under the law of
that territory relating to the provision of care.
(5)
In this section “the relevant enactment” means—
40
(a)
in relation to England and Wales, Part 2 of the Care Standards
Act 2000,
(b)
in relation to Scotland, Part 1 of the Regulation of Care
(Scotland) Act 2001,
(c)
in relation to Northern Ireland, Part 2 or 3 of the Registered
45
Homes (Northern Ireland) Order 1992 or Part 3 of the Health
and Personal Social Services (Quality, Improvement and
Regulation) (Northern Ireland) Order 2003.