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 2 — Transitionals and savings etc.
Part 4 — Property income
541

profession or vocation for the rent that the person is treated as paying under
section 87(2) of ICTA by reference to the amount chargeable.
      (3)
Sub-paragraph (4) applies if—
(a)
in calculating the profits of a Schedule A business or an overseas
property business (within the meaning of section 65A(4) or 70A(4) of
5
ICTA) for a tax year before the tax year 2005-06 or an accounting
period ending before 6th April 2005, a person is treated as paying
rent as a result of section 37(4) of ICTA by reference to the amount
chargeable on the superior interest for the purposes of that section,
and
10
(b)
as a result of paragraph 67 the amount chargeable on the superior
interest is the taxed receipt for the purposes of Chapter 4 of Part 3.
      (4)
References in sections 290(5)(c) and 295(1)(b) to the deductions allowed for
expenses under section 292 by reference to the taxed receipt include
references to the deductions allowed in calculating the profits of the
15
Schedule A business or overseas property business (within the meaning of
section 65A(4) or 70A(4) of ICTA) for the rent that the person is treated as
paying as a result of section 37(4) of ICTA by reference to the amount
chargeable on the superior interest.
Lease premiums: rules for determining effective duration of lease
20
70    (1)
In relation to a lease granted after 12th June 1969 and before 25th August
1971, for sections 303 and 304 substitute—

“303  Rules for determining effective duration of lease
(1)
The following rules apply for determining the effective duration of a
lease for the purposes of this Chapter.
25
Rule 1: Where the terms of a lease include provision for the
determination of the lease by notice given by the landlord,
the lease is not to be treated as granted for a term longer than
one ending at the earliest date on which it could be
determined by notice so given.
30

Rule 2: A lease is not to be treated as having been granted for a
term longer than one ending on a date before the end of the
term for which the lease was granted, if the terms of the lease
or any other circumstances make it unlikely that the lease will
35
continue beyond that date.

Rule 3: Where the terms of the lease include provision for the
extension of the lease beyond a given date by notice given by
the tenant, account may be taken of any circumstances
40
making it likely that the lease will be so extended.
(2)
Rule 2 applies by reference to the facts known or ascertainable at the
time of the grant of the lease.
(3)
In applying the rules, it is assumed that all parties concerned,
whatever their relationship, act as if they were at arm’s length.
45
(4)
In this section, in relation to Scotland, “term”, where referring to the
duration of a lease, means period.”

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 4 — Property income
542

      (2)
This paragraph does not apply if the determination is for the purposes of
section 281 (sums payable for variation or waiver of term of lease).
71    (1)
In relation to a lease granted before 13th June 1969, for sections 303 to 305
substitute—

“303  Rules for determining effective duration of lease
5
(1)
The following rules apply for determining the effective duration of a
lease for the purposes of this Chapter.
Rule 1: Where the effective duration of a lease is being
determined after the date on which the lease has for any
reason come to an end, the duration is taken to have extended
10
from its commencement to that date.

Rule 2: Where the terms of the lease include provision for the
determination of the lease by notice given either by the
landlord or by the tenant, the lease is not to be treated as
15
granted for a term longer than one ending at the earliest date
on which it could be determined by notice.

Rule 3: A lease is not to be treated as having been granted for a
term longer than one ending on a date before the end of the
20
term for which the lease was granted, if the terms of the lease
or any other circumstances make it unlikely that the lease will
continue beyond that date.
(2)
Rules 2 and 3 are subject to rule 1.
(3)
Rules 2 and 3 apply in accordance with circumstances prevailing at
25
the time of the determination.
(4)
In this section, in relation to Scotland, “term”, where referring to the
duration of a lease, means period.”
      (2)
This paragraph does not apply if the determination is for the purposes of
section 281 (sums payable for variation or waiver of term of lease).
30
Reverse premiums
72    (1)
Section 311 does not apply to a reverse premium—
(a)
which was received before 9th March 1999, or
(b)
to which the recipient was entitled immediately before that date.
      (2)
In determining whether a reverse premium was one to which the recipient
35
was entitled immediately before 9th March 1999, no account is to be taken of
any arrangements made on or after that date.
Deductions for expenditure on energy-saving items
73
Sections 312 to 314 do not apply to expenditure incurred before 6th April
2004.
40
Commercial letting of furnished holiday accommodation
74    (1)
Subject to sub-paragraph (4), Chapter 6 of Part 3 applies before 6th April
2006 with the following amendments.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 4 — Property income
543

      (2)
In section 322(2)—
(a)
after paragraph (b) insert—
“(ba)
section 623(2)(c) or 644(2)(c) of ICTA (income
regarded as relevant earnings for pension purposes:
see section 504A of that Act),”,
5
(b)
at the end of paragraph (d) insert “and”, and
(c)
omit paragraph (f) and the word “and” before it.
      (3)
In section 328(2)—
(a)
before paragraph (a) insert—
“(aa)
income regarded as relevant earnings for pension
10
purposes under section 623(2)(c) or 644(2)(c) of ICTA,
or”, and
(b)
omit paragraph (b) and the word “or” before it.
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained amendments
15
substituting sections 322(2) and 328(2) of this Act for those subsections as
amended by sub-paragraphs (2) and (3) above.
75    (1)
Subject to sub-paragraph (3), section 504A of ICTA (as inserted by Schedule
1 to this Act) applies before 6th April 2006 with the following amendment.
      (2)
In subsection (2)—
20
(a)
after paragraph (a) insert—
“(ab)
section 623(2)(c) or 644(2)(c) (income regarded as
relevant earnings for pension purposes), and”, and
(b)
omit paragraph (c) and the word “and” before it.
      (3)
The power of the Treasury to make an order under section 281 or 283 of FA
25
2004 has effect as if Schedule 35 to that Act contained an amendment
substituting section 504A of ICTA (as inserted by Schedule 1 to this Act) for
that section as amended by sub-paragraph (2) above.
Adjustment on change of basis
76    (1)
Chapter 7 of Part 3 applies to a change of basis taking effect for a period of
30
account which ends on or after 6th April 2005.
      (2)
For this purpose the period of account for which a change of basis takes
effect is the first period of account for which the new basis is adopted.
Meaning of “mineral royalties”
77
The definition of “mineral royalties” in section 341(2) does not include any
35
rent receivable before 6th April 1970.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
544

Part 5
Savings and investment income: general
Open-ended investment companies: saving for powers to make provision corresponding to
provisions applicable to unit trusts
78    (1)
Despite the enactment by this Act in the OEIC sections of provisions
5
previously contained in regulations made under section 152 of FA 1995, the
Treasury may continue to make regulations under that section for achieving
any purpose that could be achieved by such regulations before the coming
into force of the OEIC sections.
      (2)
Accordingly—
10
(a)
regulations under that section may make provision for securing, in
relation to the matters mentioned in subsection (1)(a) to (c) of that
section, that the provision made by the OEIC sections corresponds,
subject to such modifications as the Treasury consider appropriate,
to the provision made by the enactments mentioned in subsection (2)
15
of that section in relation to—
(i)
unit trusts,
(ii)
rights under, and the assets subject to, such trusts, and
(iii)
transactions for purposes connected with such trusts, and
(b)
that section has effect with such modifications as are required for the
20
purposes of this paragraph.
      (3)
In this paragraph—
“the OEIC sections” means—
(a)
sections 373 to 375 of this Act (under which certain amounts are
treated as interest paid by open-ended investment companies),
25
and
(b)
sections 386 to 388 of this Act (under which certain amounts are
treated as dividends paid by open-ended investment
companies), and
“unit trust” has the same meaning as in section 152 of FA 1995 (see
30
subsection (7)).
Deeply discounted securities issued in accordance with qualifying earn-out right
79
Despite the repeal by this Act of section 104(4) of FA 2002, sections 430(5)
and 442 (securities issued in accordance with qualifying earn-out right)
apply whenever the security was issued.
35
Deeply discounted securities: deemed transfers of strips on 5th April
80    (1)
Despite the repeal by this Act of paragraph 14(4) of Schedule 13 to FA 1996,
a person who was deemed under that paragraph to have transferred a strip
on 5th April 2005 is treated for the purposes of Chapter 8 of Part 4 (profits
from deeply discounted securities) as if the person had re-acquired the strip
40
under that paragraph on 6th April 2005 for an amount equal to the amount
for which it was deemed to have been transferred.
      (2)
That Chapter and this Part of this Schedule apply to a deemed transfer and
reacquisition under that paragraph (including a reacquisition within sub-

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
545

paragraph (1)) as if it were a transfer and reacquisition under section 445(2)
and (3).
      (3)
Section 452 (power to modify that Chapter for strips) applies as if this
paragraph were in that Chapter.
Deeply discounted securities: restriction of profits and losses on strips
5
81    (1)
Sections 447 and 448 (restriction of profits and losses on strips by reference
to original acquisition cost) do not apply to a strip acquired before 15th
January 2004.
      (2)
For the purposes of paragraph (1) any deemed acquisitions under paragraph
14(4) of Schedule 13 to FA 1996 or section 445(3) of this Act are ignored.
10
Deeply discounted securities: saving for charities’ losses
82
The references in section 454(4) and (5) to trustees include any person who,
had the loss been a profit—
(a)
would have been eligible for relief from tax for the tax year in which
the loss is sustained as a result of section 505(1) of ICTA (exemption
15
from income tax for certain income forming part of the income of a
charity), or
(b)
would have been so eligible but for section 505(3) of that Act (income
that is not exempt in some circumstances for charities incurring non-
qualifying expenditure).
20
Deeply discounted securities: saving for pension trustees’ losses
83
The references in section 454(4) and (5) to trustees include any person who,
had the loss been a profit, would have been eligible for relief from tax for the
tax year in which the loss is sustained as a result of—
(a)
section 592(2) of ICTA (exemption from income tax for income from
25
investments or deposit held for exempt approved pension schemes),
(b)
section 608(2)(a) of ICTA (corresponding exemption for
superannuation funds approved before 6th April 1980),
(c)
section 613(4) of ICTA (corresponding exemption for parliamentary
pension funds),
30
(d)
section 614(2), (3), (4) or (5) of ICTA (corresponding exemption for
certain overseas pension funds),
(e)
section 620(6) of ICTA (corresponding exemption for retirement
annuity funds), or
(f)
section 643(2) of ICTA (corresponding exemption for approved
35
personal pension schemes).
Exclusion of deeply discounted securities from section 711 to 728 of ICTA (accrued income
profits)
84
Securities only fall within paragraph (f) of section 710(3) of ICTA (meaning
of “securities” for purposes of sections 711 to 728), as substituted by
40
Schedule 1 to this Act, if the disposal of the securities on or after 6th April
2005 would be a disposal of deeply discounted securities for the purposes of
Chapter 8 of Part 4 of this Act.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
546

Gains from contracts for life insurance etc: foreign policies of life insurance
85    (1)
This paragraph modifies the application of—
(a)
section 474(4) (foreign policies of life insurance which are not
qualifying policies),
(b)
section 531(6) (foreign policies of life insurance to which section 530
5
applies), and
(c)
section 532 (relief for policies and contracts with European Area
Insurers),

in relation to a policy of life insurance which meets conditions A and B.
      (2)
Condition A is that the policy is a foreign policy of life insurance by virtue
10
of paragraph (a) of the definition of that term in section 476(3).
      (3)
Condition B is that the income of the company which issued the policy was
charged to corporation tax under section 445 of ICTA for an accounting
period ending on or after the day on which the policy was issued.
      (4)
The policy is treated as having been a qualifying policy for any part of the
15
chargeable period when—
(a)
it would have been treated as a qualifying policy apart from section
474(4), and
(b)
the conditions in either sub-paragraph (3) or sub-paragraph (4) of
paragraph 24 of Schedule 15 to ICTA (as it then had effect) were met.
20
      (5)
The policy meets condition B in section 531(6) if—
(a)
the conditions in either sub-paragraph (3) or sub-paragraph (4) of
paragraph 24 of Schedule 15 to ICTA (as it then had effect) were met
throughout the chargeable period, and
(b)
the conditions in sub-paragraph (3) of that paragraph are met
25
throughout the period—
(i)
beginning immediately after the end of the chargeable
period, and
(ii)
ending with the date on which the gains mentioned in section
531(1) arise.
30
      (6)
Despite the definition of “policy period” in section 532(5), for the purposes
of determining whether conditions A to C in that section have been met in
relation to the policy or contract throughout the policy period, that period is
to be taken not to include—
(a)
any part of the chargeable period when the conditions in either sub-
35
paragraph (3) or sub-paragraph (4) of paragraph 24 of Schedule 15 to
ICTA (as it then had effect) were met, and
(b)
any subsequent period when the conditions in sub-paragraph (3) of
that paragraph are met.
      (7)
In this paragraph “the chargeable period” means the period—
40
(a)
beginning with the date on which the policy was issued, and
(b)
ending with the last day of the last accounting period for which the
company which issued the policy was liable to tax under section 445
of ICTA.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 5 — Savings and investment income: general
547

Gains from contracts for life insurance etc: exclusion of pension policies
86    (1)
Subject to sub-paragraph (4), before 6th April 2006 Chapter 9 of Part 4
applies with the following amendments.
      (2)
For section 479 (exclusion of pension policies) substitute—
“479
  Exclusion of pension policies
5
(1)
This Chapter does not apply to a pension policy.
(2)
In this section “pension policy” means—
(a)
a policy of life insurance issued in connection with an
approved scheme,
(b)
a policy of insurance which is, or is evidence of, a contract for
10
the time being approved under section 621 of ICTA (contracts
to provide for surviving spouses and dependants), or
(c)
a policy of life insurance held in connection with an approved
personal pension scheme.
(3)
In this section—
15
“approved scheme” has the meaning given by section 612(1) of
ICTA, and
“personal pension scheme” and “approved”, in relation to such
a scheme, have the meaning given by section 630(1) of ICTA.”
      (3)
In section 486 (exclusion of maturity of capital redemption policies in certain
20
circumstances) for “non-registered occupational pension” substitute
“sponsored superannuation”.
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained amendments—
(a)
substituting section 479 of this Act for that section as substituted by
25
sub-paragraph (2), and
(b)
substituting “non-registered occupational pension” for “sponsored
superannuation” in section 486 of this Act.
Gains from contracts for life insurance etc: rights partially assigned
87
Section 505 (assignments involving co-ownership) does not have effect in
30
relation to any transaction which—
(a)
took place in relation to a policy or contract in an insurance year
beginning on or before 5th April 2001, and
(b)
would otherwise and by reason only of the application of that section
fall to be taken into account as an assignment of a part of or a share
35
in the rights conferred by the policy or contract in a calculation
under—
(i)
section 507 (periodic calculations in part surrender and
assignment cases), or
(ii)
section 511 (transaction-related calculations in part surrender
40
and assignment cases).
88    (1)
This paragraph applies if a calculation under section 507 or 511 in relation to
a policy or contract requires account to be taken of any part of or share in the
rights conferred by the policy or contract which has been assigned for