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 7 — Savings income: double taxation arising from withholding tax
97

(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
5
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
10
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—
15

where—

SWT is the amount of special withholding tax levied in respect of the
whole or the part of the consideration for the disposal,

GUK is the amount of the chargeable gain received in the United
Kingdom, and
20

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
25
(b)
the amount of any chargeable gain for the purposes of capital gains tax,

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.
30
112
Computation of income etc subject to foreign tax and special withholding tax
(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—
35

“, and
(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”.
40
(4)
After subsection (4) insert—
“(5)
In this section—

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax
98

(a)
“special withholding tax” has the same meaning as in Chapter 7
of Part 3 of the Finance Act 2004 (see section 107(3) of that Act);
and
(b)
references to special withholding tax are to special withholding
tax in respect of which a claim has been made under that
5
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.
(6)
After subsection (1) insert—
10
“(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
(b)
special withholding tax is levied in respect of the whole or any
15
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
to an amount equal to—
20

where—

SWT is the amount of special withholding tax levied in respect
of the whole or the part of the consideration for the disposal,

GUK is the amount of the chargeable gain received in the
United Kingdom, and
25

G is the amount of the chargeable gain accruing to the person on
the disposal.
(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 107 of that Act); and references to special
30
withholding tax are to special withholding tax in respect of which a
claim has been made under that Chapter.”.
Certificates to avoid levy of special withholding tax
113
Issue of certificate
(1)
This section has effect for enabling the Inland Revenue to issue certificates to
35
be used under the law of a territory outside the United Kingdom
implementing—
(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
40
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
provision of international arrangements (whatever the period for
which the provision is to have effect).

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Savings income: double taxation arising from withholding tax
99

(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
(b)
such documents as they may require to verify that information,

the Inland Revenue must issue a certificate to the applicant.
5
(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,
town and country of birth,
(c)
the number of the account which is to, or may, give rise to payments of
10
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,
(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
15
income for, the applicant, and
(e)
the period, not exceeding three years, for which the applicant would
like the certificate to be valid.
(4)
A certificate under this section must be in writing and must state—
(a)
the information mentioned in subsection (3)(a) to (d), and
20
(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
period of two months beginning with the date on which the applicant provides
the information and documents required by or under subsection (2).
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(6)
In this section and section 114 “the Inland Revenue” means any officer of the
Commissioners of Inland Revenue.
(7)
Where the requirements of—
(a)
Article 13(2) of the Savings Directive (requirements in relation to issue
of certificates for purposes of Article 13(1)(b) procedure), and
30
(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
modifications as may be required by virtue of those arrangements.
114
Refusal to issue certificate and appeal against refusal
35
(1)
This section applies if, on an application for a certificate under section 113, 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.
(2)
The Inland Revenue must give written notice (“the refusal notice”) to the
applicant of their refusal to issue a certificate.
40
(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.
(5)
The appeal notice must be given to the Inland Revenue within 30 days of the
date of the refusal notice.
45

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Chargeable gains
100

(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—
(a)
confirm the refusal notice, or
(b)
quash it and require the Inland Revenue to issue a certificate.
5
Supplementary
115
Supplementary
(1)
In section 792 of the Taxes Act 1988 (double taxation relief: interpretation of the
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
10
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 111 of the Finance
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
15
for foreign tax) in subsection (1), after “section 277” insert “and to section 111
of the Finance Act 2004 (computation of chargeable gains subject to special
withholding tax)”.
(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
20
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
section.
Chapter 8
25
Chargeable gains
116
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
to settlor-interested settlements etc or on transfers of shares etc to companies,
30
and makes minor amendments in sections 79 and 281 of that Act) has effect.
117
Private residence relief
Schedule 22 (which makes provision about private residence relief) has effect.
118
Authorised unit trusts: treatment of umbrella schemes
(1)
The Taxation of Chargeable Gains Act 1992 is amended as follows.
35
(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

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Chargeable gains
101

(b)
for paragraph (b) substitute—
“(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
5
under section 243 of the Financial Services and Markets
Act 2000 is in force during the whole or part of that
period.”
(3)
After that section insert—
“99A
Authorised unit trusts: treatment of umbrella schemes
10
(1)
In this section an “umbrella scheme” means an authorised unit trust—
(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
15
one pool for rights in another,

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
20
authorised unit trust, and
(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
25
separate pool to which the part of the umbrella scheme relates.
(4)
Nothing in subsections (2) or (3) shall prevent—
(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);
30
(b)
a transfer of business to an umbrella scheme being regarded as
a transfer to an authorised unit trust for the purposes of section
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
35
trust for the purposes of section 271(1)(j) (exemption for
disposal of units in an authorised unit trust which is also an
approved personal pension scheme etc).”.
(4)
In section 288 (interpretation)—
(a)
in subsection (1), in the definition of “collective investment scheme”, at
40
the end insert “(subject to section 99A)”;
(b)
in the table in subsection (8) (index of general definitions)—
(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”.
45
(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.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership
102

Chapter 9
Avoidance involving loss relief or partnership
Individuals benefited by film relief
119
Individuals benefited by film relief
(1)
This section applies if—
5
(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
10
(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);
15
(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
20
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
(b)
a relevant disposal occurs, if by the time it has occurred an exit event
25
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
the time of that event annual profits or gains which are—
30
(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)—
(a)
so much of the total amount or value of any consideration received by
35
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;

but this is subject to section 122(2).
40
(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.