Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
478

431   (1)
Amend section 59 (partnerships) as follows.
      (2)
Renumber the existing text as subsection (1).
      (3)
After that subsection insert—
“(2)
Subsection (3) applies if—
(a)
a person resident in the United Kingdom (“the resident
5
partner”) is a member of a partnership which resides outside
the United Kingdom or which carries on any trade,
profession or business the control and management of which
is situated outside the United Kingdom, and
(b)
by virtue of any arrangements falling within section 788 of
10
the Taxes Act (“the arrangements”) any of the capital gains of
the partnership are relieved from capital gains tax in the
United Kingdom.
(3)
The arrangements do not affect any liability to capital gains tax in
respect of the resident partner’s share of any capital gains of the
15
partnership.”
432
In section 97(7) (supplementary provisions) for “section 660G(1) and (2) of
the Taxes Act” substitute “section 620 of ITTOIA 2005”.
433   (1)
Amend section 117 (meaning of qualifying corporate bond) as follows.
      (2)
In subsection (2AA) for “relevant discounted security for the purposes of
20
Schedule 13 to the Finance Act 1996” substitute “deeply discounted security
for the purposes of Chapter 8 of Part 4 of ITTOIA 2005 (see section 430)”.
      (3)
In subsection (6C) for “Schedule 13 to the Finance Act 1996 (relevant
discounted securities)” substitute “Chapter 8 of Part 4 of ITTOIA 2005
(profits from deeply discounted securities) (see section 433)”.
25
434   (1)
Amend section 142 (capital gains on stock dividends) as follows.
      (2)
In subsection (1) for the words from “section 249” to “that section” substitute
“section 410(2), (3) or (4) of ITTOIA 2005 applies”.
      (3)
In subsection (3) for “the appropriate amount in cash (within the meaning of
section 251(2) to (4) of the Taxes Act)” substitute “the cash equivalent of the
30
share capital in accordance with section 412 of ITTOIA 2005”.
435
After section 148 insert—
“148A
  Futures and options involving guaranteed returns
(1)
Profits and gains that are chargeable under Chapter 12 of Part 4 of
ITTOIA 2005 are not to be brought into account for the purposes of
35
capital gains tax, except where section 148B applies.
(2)
Where—
(a)
losses are sustained by a person from a disposal, and
(b)
had profits or gains arisen to the person from the disposal,
they would be chargeable under that Chapter,
40

the losses are not to be brought into account for the purposes of
capital gains tax, except where section 148C applies.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
479

148B
  Deemed disposals at a gain under section 564(4) of ITTOIA 2005
(1)
This section deals with how this Act applies where profits or gains
arising to a person from such a disposal as is referred to in section
564(4) of ITTOIA 2005 (“the deemed disposal”) are chargeable to tax
under Chapter 12 of Part 4 of that Act.
5
(2)
Amounts taken into account or allowable as deductions in
calculating the profits or gains are not to be excluded from any
calculation made for the purposes of this Act as a result of section 37
or 39.
(3)
For the purposes of this Act the amount of the consideration for the
10
acquisition by the person of any asset the person disposes of by the
future running to delivery or the exercise of the option is increased
by the amount of the profits or gains chargeable under Chapter 12 of
Part 4 of ITTOIA 2005.
(4)
Any increase made as a result of subsection (3) is to be disregarded
15
in calculating any indexation allowance.
(5)
For the purposes of this Act the amount of the consideration for the
acquisition of any asset acquired by the person by means of the
future running to delivery or the exercise of the option is increased
by the amount of the profits or gains chargeable under Chapter 12 of
20
Part 4 of ITTOIA 2005.
(6)
If the deemed disposal is a disposal of an option by the grantor, for
the purposes of subsections (3) to (5) any determination—
(a)
whether profits or gains arose to the grantor from that
disposal, and
25
(b)
of the amount of those profits or gains,

is to be made as if the deemed disposal and the disposal by which the
option was granted were a single transaction.
(7)
Section 565 of ITTOIA 2005 (interpretation of section 564 of that Act)
applies for the purposes of this section as it applies for the purposes
30
of section 564 of that Act.
148C
  Deemed disposals at a loss under section 564(4) of ITTOIA 2005
(1)
This section deals with how this Act applies where a loss sustained
by a person from such a disposal as is referred to in section 564(4) of
ITTOIA 2005 (“the deemed disposal”) is brought into account for the
35
purposes of section 392 of ICTA (losses).
(2)
Amounts taken into account or allowable as deductions in
calculating that loss are not to be excluded from any calculation
made for the purposes of this Act as a result of section 37 or 39.
(3)
If the deemed disposal is a disposal of an option by the grantor, for
40
the purposes of subsections (4) and (5) any determination—
(a)
whether the grantor sustained a loss from that disposal, and
(b)
of the amount of that loss,

is to be made as if the deemed disposal and the disposal by which the
option was granted were a single transaction.
45
(4)
If the loss from the deemed disposal equals or is less than—

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
480

(a)
the amount of the consideration for the acquisition of any
asset acquired by the person sustaining the loss by means of
the future running to delivery or the exercise of the option, or
(b)
the amount of the consideration for the acquisition by that
person of any asset the person disposes of by the future
5
running to delivery or the exercise of the option,

for the purposes of this Act the amount of that consideration is
reduced by the amount of the loss.
(5)
If the loss from the deemed disposal exceeds the amount of that
consideration—
10
(a)
that consideration is reduced to nil, and
(b)
an amount equal to the excess is treated for the purposes of
this Act as a chargeable gain accruing to the person
sustaining the loss on the appropriate occasion.
(6)
In a case where the consideration mentioned in subsection (4)(a) is
15
reduced under subsection (5)(a), the appropriate occasion is the first
occasion after the acquisition mentioned in subsection (4)(a) when
there is a disposal of the asset in question.
(7)
In a case where the consideration mentioned in subsection (4)(b) is so
reduced, the appropriate occasion is the disposal the person
20
sustaining the loss makes by the future running to delivery or the
exercise of the option, as the case may be.
(8)
In subsection (6) the reference to a disposal of the asset in question
includes a reference to anything that would be such a disposal but for
section 116(10) or 127.
25
(9)
In subsections (6) and (7) the references to a disposal include
references to a disposal which, in accordance with this Act, would
(apart from subsection (5)(b)) be a disposal on which neither a gain
nor a loss accrues.
(10)
Section 565 of ITTOIA 2005 (interpretation of section 564) applies for
30
the purposes of this section as it applies for the purposes of section
564.”
436
In section 151 (personal equity plans) for subsections (2) and (2A)
substitute—
“(2)
The provisions of Chapter 3 of Part 6 of ITTOIA 2005 (income from
35
individual investment plans), except section 694(1) and (2), shall
apply in relation to regulations made under subsection (1) as they
apply to regulations made under section 694(1), but with the
substitution for any reference to income tax of a reference to capital
gains tax.”
40
437
In section 151A(6) (venture capital trusts: reliefs) for the words from “in
accordance” to the end of the subsection substitute “as references to shares
not acquired within the limit in section 709(4) of ITTOIA 2005; and the
question whether shares are acquired within that limit shall be determined
as it is for the purposes of Chapter 5 of Part 6 of that Act.”
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
481

438
After section 151B insert—
“151C
  Strips: manipulation of price: associated payment giving rise to loss
(1)
This section applies if—
(a)
as a result of any scheme or arrangement which has an
unallowable purpose, the circumstances are, or might have
5
been, as mentioned in paragraph (a), (b) or (c) of section
449(2) of ITTOIA 2005,
(b)
under the scheme or arrangement, a payment falls to be made
otherwise than in respect of the acquisition or disposal of a
strip, and
10
(c)
as a result of that payment or the circumstances in which it is
made, a loss accrues to any person.
(2)
The loss shall not be an allowable loss.
(3)
For the purposes of this section a scheme or arrangement has an
unallowable purpose if the main benefit, or one of the main benefits
15
that might have been expected to result from, or from any provision
of, the scheme or arrangement (apart from section 449 of ITTOIA
2005 and this section) is—
(a)
the obtaining of a tax advantage by any person, or
(b)
the accrual to any person of an allowable loss.
20
(4)
The reference in subsection (1)(b) to the acquisition or disposal of a
strip shall be construed as if it were in Chapter 8 of Part 4 of ITTOIA
2005 (profits from deeply discounted securities) (see, in particular,
sections 437 and 445 of that Act for the meaning of “disposal” and
“acquisition” and section 444 of that Act for the meaning of “strip”).
25
(5)
In subsection (3)(a) “tax advantage” has the meaning given by
section 709(1) of the Taxes Act.
(6)
This section applies to losses accruing on or after 17th March 2004.”
439
In section 156(4) (assets of Class 1) after “Taxes Act” insert “or section 19 of
ITTOIA 2005”.
30
440
In section 198(5)(b) (replacement of business assets used in connection with
oil fields) after “the Taxes Act” insert “or defined as “oil-related activities” in
section 16(2) of ITTOIA 2005”.
441   (1)
Amend section 241 (furnished holiday lettings) as follows.
      (2)
For subsection (2) substitute—
35
“(2)
For the purposes of this section as it applies to capital gains tax the
“commercial letting of furnished holiday accommodation” has the
same meaning as it has for the purposes of Chapter 6 of Part 3 of
ITTOIA 2005.

For the purposes of this section as it applies to corporation tax in
40
respect of chargeable gains the “commercial letting of furnished
holiday accommodation” has the meaning given by section 504 of the
Taxes Act.”
      (3)
In subsection (3)(a) for the words from “Schedule A business” to “Kingdom”
substitute “UK property business (within the meaning of the Taxes Act), or
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
482

any Schedule A business (within the meaning of that Act), which consists of,
or so far as it consists of, the commercial letting of furnished holiday
accommodation”.
442
In section 251(8)(b) (general provisions concerning debts) for “relevant
discounted security for the purposes of Schedule 13 to that Act if paragraph
5
3(2)(c) of that Schedule” substitute “deeply discounted security for the
purposes of Chapter 8 of Part 4 of ITTOIA 2005 if section 432(2) of that Act”.
443
In section 254(1)(c) (definition of “a qualifying loan” for relief for debts on
qualifying corporate bonds) for “relevant” and “Schedule 13 to the Finance
Act 1996” substitute respectively “deeply” and “Chapter 8 of Part 4 of
10
ITTOIA 2005”.
444
After section 261 insert—
“Know-how
261A
Disposal of know-how as part of disposal of all or part of a trade
(1)
This section applies if—
15
(a)
a person carrying on a trade receives consideration for the
disposal of know-how which has been used in the trade, and
(b)
the know-how is disposed of as part of the disposal of all or
part of the trade.
(2)
If, as a result of section 194 of ITTOIA 2005, the consideration is
20
treated for income tax purposes as—
(a)
a capital receipt for goodwill (in relation to the person
disposing of the know-how), or
(b)
a capital payment for goodwill (in relation to the person
acquiring the know-how),
25

the consideration is treated for capital gains tax purposes in the same
way.
(3)
This section has effect as if it were contained in Chapter 14 of Part 2
of ITTOIA 2005.”
445   (1)
Amend section 271 (miscellaneous exemptions) as follows.
30
      (2)
In subsection (1)(f) for “section 322 of the Taxes Act” substitute “section 771
of ITTOIA 2005”.
      (3)
In subsection (4)—
(a)
for “bonus”, in both places, substitute “interest”,
(b)
for “section 326 or 326A of the Taxes Act (certified contractual
35
savings schemes and tax-exempt special savings accounts)”
substitute “section 702 of ITTOIA 2005 (certified SAYE savings
arrangements)”,
(c)
for “savings scheme”, in the first place where it occurs, substitute
“savings arrangement”,
40
(d)
for “certified contractual savings scheme” substitute “certified SAYE
savings arrangement”,
(e)
for “scheme”, in the last place where it occurs, substitute
“arrangement”, and
(f)
at end insert—
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
483


“In this subsection “certified SAYE savings arrangement” has the
meaning given by section 703 of ITTOIA 2005.”
446
In section 286(3) (connected persons: interpretation) for “Chapter 1A of Part
XV of the Taxes Act (see section 660G(1) and (2) of that Act)” substitute
“Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act)”.
5
447   (1)
Amend section 288 (interpretation) as follows.
      (2)
In subsection (1) after the definition of “ITEPA 2003” insert—
““ITTOIA 2005” means the Income Tax (Trading and Other
Income) Act 2005;”.
      (3)
After subsection (7) insert—
10
“(7A)
In the application of this Act to Scotland “surrender” includes
renunciation.”
448
In Schedule A1 (application of taper relief), in paragraph 17(6), for “section
660G(1) and (2) of the Taxes Act” substitute “section 620 of ITTOIA 2005”.
449
In Schedule 1 (application of exempt amount and reporting limits in cases
15
involving settled property), in paragraph 2(7), for “section 660G(1) and (2) of
the Taxes Act” substitute “section 620 of ITTOIA 2005”.
450
In paragraph 13(7)(h) of Schedule 5B (enterprise investment scheme: re-
investment)—
(a)
in sub-paragraph (i) after “trade or profession” insert “carried on
20
wholly or partly in the United Kingdom”, and
(b)
in sub-paragraph (ii) for the words from “in computing” to the end
substitute “in calculating for tax purposes the profits of that trade or
profession”.
451   (1)
Amend Schedule 8 (leases) as follows.
25
      (2)
In paragraph 5—
(a)
in sub-paragraph (1) after “that Act)” insert “or by virtue of any of
sections 277 to 281 of ITTOIA 2005 as a receipt of a UK property
business (within the meaning of that Act)”,
(b)
in sub-paragraph (2) after “that Act)” insert “or by virtue of any of
30
sections 277 to 281 of ITTOIA 2005 as a receipt of a UK property
business (within the meaning of that Act)”,
(c)
in sub-paragraph (3) after “that Act)” insert “or by virtue of section
284 or 285 of ITTOIA 2005 (sale of land with right to reconveyance or
leaseback) as a receipt of a UK property business (within the
35
meaning of that Act),” and
(d)
for sub-paragraph (5) substitute—
    “(5)
References in sub-paragraphs (1) and (2) above to a
premium include references to—
(a)
a premium deemed to have been received under
40
subsection (4) or (5) of section 34 of the Taxes Act
(which correspond to paragraph 3(2) and (3) of this
Schedule),
(b)
a sum that becomes payable by the tenant under
the terms subject to which a lease is granted in lieu
45
of the whole or a part of the rent for any period,

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 2 — Other enactments
484

(c)
a sum that becomes payable by the tenant under
the terms subject to which a lease is granted as
consideration for the surrender of the lease, and
(d)
a sum that becomes payable by the tenant
(otherwise than by way of rent) as consideration for
5
the variation or waiver of any of the terms of a
lease.”
      (3)
In paragraph 6—
(a)
for sub-paragraph (1) substitute—
    “(1)
If—
10
(a)
under section 37(4) of the Taxes Act (allowance
where, by the grant of a sublease, a lessee has
converted a capital amount into a right to income)
a person is to be treated as paying additional rent
in consequence of having granted a sublease, or
15
(b)
under section 292 of ITTOIA 2005 a person is to be
treated as incurring expenses in consequence of
having granted a sublease,

the amount of any loss accruing to the person on the
disposal by way of the grant of the sublease shall be
20
reduced by the total amount of rent which the person is
thereby treated as paying, or the total amount of expenses
which the person is thereby treated as incurring, over the
term of the sublease (and without regard to whether relief
is thereby effectively given over the term of the sublease),
25
but not so as to convert the loss into a gain, or to increase
any gain.”,
(b)
in sub-paragraph (2) at the end insert “or by virtue of section 282 of
ITTOIA 2005 (assignments for profit of lease granted at undervalue)
as a receipt of a UK property business (within the meaning of that
30
Act)”, and
(c)
in sub-paragraph (3) after “that paragraph” insert “or under section
301 or 302 of ITTOIA 2005 on a claim under that section,”.
      (4)
For paragraph 7 substitute—
“7
If—
35
(a)
under section 34(2) and (3) of the Taxes Act any amount is
brought into account by virtue of section 34(2) and (3) of
the Taxes Act as a receipt of a Schedule A business (within
the meaning of that Act) which is or is treated as carried on
by any person, or
40
(b)
under section 277 of ITTOIA 2005 any amount is brought
into account by virtue of section 278 of that Act as a receipt
of a UK property business (within the meaning of that Act)
which is carried on by any person,

that person shall be treated for the purposes of the computation of
45
any gain accruing to him as having incurred at the time the lease
was granted expenditure of that amount (in addition to any other
expenditure) attributable to the asset under section 38(1)(b).”
      (5)
In paragraph 7A after “Schedule A business” insert “or UK property
business”.
50