Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Schedule 24 — Manufactured dividends
416

Schedule 24
Section 135

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)
5
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
10
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
15
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.”.
      (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
25
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
30
under stock lending arrangement or interim holder under
repurchase agreement);

section 231AB(1A) (section 233(1) not to apply to original
owner under repurchase agreement in respect of certain
manufactured dividends).”.
35
      (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
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
40
on or after that date.
      (5)
In sub-paragraph (4) “the commencement date” means—
(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
45
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
after the day on which this Act is passed.

Finance Bill
Schedule 24 — Manufactured dividends
417

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.
      (2)
For sub-paragraph (1) (amount of manufactured dividend paid allowable as
5
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
of—
10
(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,

shall be allowable as a deduction for the purposes of income tax
15
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
dividend manufacturer—
20
(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
payment so received;
25

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
dividend or other payment so received is received by the dividend
30
manufacturer in—
(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.”.
35
      (4)
In sub-paragraph (1A) (circumstances in which amount of manufactured
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
40
the total income of the dividend manufacturer”,
(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)—
45
(a)
for “sub-paragraph (1)” (in both places) substitute “sub-paragraph
(1ZA) or (1A)”,
(b)
in paragraph (a), for “paragraph (a) of sub-paragraph (1A)”
substitute “sub-paragraph (1ZA)” and at the end insert “, or”,

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Schedule 24 — Manufactured dividends
418

(c)
in paragraph (b), for “paragraph (b) of that sub-paragraph”
substitute “sub-paragraph (1A) above”,
(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”.
5
      (6)
In sub-paragraph (4) (meaning of “deductible”)—
(a)
in paragraph (a), omit “or corporation tax”, and
(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
10
(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
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.
15
      (8)
In sub-paragraph (7) “the commencement date” means—
(a)
if the dividend manufacturer is an individual, 6th November 2003;
(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)
20
so far as relating to those amendments) have effect in relation to a
manufactured dividend paid, or treated as paid, by a dividend
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-
25
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
omission of—
(a)
the words “the lesser of”, and
(b)
paragraph (b) and the word “and” before it.
30
     (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
35
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
40
(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—
45

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Schedule 24 — Manufactured dividends
419

(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
5
(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
10
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
15
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
20
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
25
(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
30
mentioned in Condition 1, 2 or 3 accrued to him.
(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—
35

where—

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
40

B is an amount equal to so much of the manufactured
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
45
mentioned in Condition 1, 2 or 3.

Finance Bill
Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
420

(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
5
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
10
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;
15

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.
20
(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
25
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
30
to cases where—
(a)
the manufactured dividend is or was paid, or treated as paid, by the
person on or after 17th March 2004, or
(b)
the chargeable gain accrues or accrued to the person on or after that
date.
35
Schedule 25
Section 141

Lloyd’s names: conversion to limited liability underwriting
1
The Finance Act 1993 (c. 34) is amended as follows.
2
After section 179A insert—
“179B
  Conversion to limited liability underwriting
40
Schedule 20A to this Act (which makes provision for certain reliefs to
be available where a member converts to limited liability
underwriting) shall have effect.”.

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Schedule 25 — Lloyd’s names: conversion to limited liability underwriting
421

3
After Schedule 20 insert—
“Schedule 20A
Section 179B

Lloyd’s underwriters: conversion to limited liability underwriting
Part 1
Conversion to underwriting through successor companies
5
Introduction
1     (1)
This Part of this Schedule applies if the following conditions are
satisfied.
      (2)
Condition 1 is that—
(a)
a member gives notice of his resignation from membership
10
of Lloyd’s in accordance with the rules or practice of
Lloyd’s,
(b)
in accordance with such rules or practice, the member does
not undertake any new insurance business at Lloyd’s after
the end of the member’s last underwriting year, and
15
(c)
the member does not withdraw that notice.
      (3)
Condition 2 is that all of the member’s outstanding syndicate
capacity is disposed of by the member under a conversion
arrangement to a successor company (“the syndicate capacity
disposal”) with effect from the beginning of the underwriting year
20
next following the member’s last underwriting year.
      (4)
Condition 3 is that, immediately before the syndicate capacity
disposal,—
(a)
the member controls the successor company, and
(b)
more than 50% of the ordinary share capital of the
25
successor company is beneficially owned by the member.
      (5)
Condition 4 is that the syndicate capacity disposal is made in
consideration solely of the issue to the member of shares in the
successor company.
      (6)
Condition 5 is that the successor company starts to carry on its
30
underwriting business in the underwriting year (“the successor
company’s first underwriting year”) next following the member’s
last underwriting year.
      (7)
In this paragraph “the member’s last underwriting year”, in
relation to a member who gives notice of his resignation from
35
membership of Lloyd’s, means the underwriting year during
which, or at the end of which, he ceases to be an underwriting
member and becomes a non-underwriting member in accordance
with the rules or practice of Lloyd’s.
      (8)
In this paragraph “outstanding syndicate capacity”, in relation to
40
a member, means the syndicate capacity of the member other than
any which—
(a)
the member disposes of to a person other than a successor
member at or before the end of the member’s last
underwriting year, or
45

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422

(b)
ceases to exist with effect from the end of that year.
Income tax: carry forward of loss relief following conversion
2     (1)
This paragraph applies if—
(a)
the member’s total income for a year of assessment
includes any income derived by the member from the
5
successor company (whether by way of dividends on the
shares issued to the member or otherwise), and
(b)
throughout the period beginning with the time of the
syndicate capacity disposal and ending with the end of
that year of assessment,—
10
(i)
the member controls the successor company, and
(ii)
more than 50% of the ordinary share capital of the
successor company is beneficially owned by the
member.
      (2)
The carry-forward provision shall apply as if the income so
15
derived were profits on which the member was assessed under
Schedule D in respect of the member’s underwriting business for
that year.
      (3)
But where under the carry-forward provision as applied by sub-
paragraph (2) above a loss falls to be deducted from or set off
20
against any income for any year of assessment, the deduction or
set-off shall be made in the first place against that part, if any, of
the income in respect of which the member has been, or is liable to
be, assessed to tax for that year.
      (4)
In this paragraph “the carry-forward provision” means section 385
25
of the Taxes Act 1988 (carry-forward of trading losses against
subsequent profits).
Capital gains tax: roll-over relief on disposal of syndicate capacity
3     (1)
This paragraph applies if—
(a)
the aggregate of any chargeable gains accruing to the
30
member on the syndicate capacity disposal exceeds the
aggregate of any allowable losses accruing to him on that
disposal, and
(b)
the member makes a claim under this paragraph to an
officer of the Board.
35
      (2)
The amount of the excess mentioned in sub-paragraph (1)(a)
above (“the amount of the syndicate capacity gain”) shall for the
purposes of capital gains tax be reduced by the amount of the
rolled-over gain.
      (3)
For the purpose of computing any chargeable gain accruing to the
40
member on a disposal by him of any issued share or any asset
directly or indirectly derived from any issued share—
(a)
the amount of the rolled-over gain shall be apportioned
between the issued shares as a whole, and
(b)
the sums allowable as a deduction under section 38(1)(a) of
45
the Gains Tax Act shall be reduced by the amount
apportioned to the issued share under paragraph (a)