Finance Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 1 — Income tax and corporation tax charge and rate bands
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(b)
the fraction mentioned in section 13AA of ICTA (marginal relief for
small companies) shall be 19/400ths.
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The non-corporate distribution rate for financial year 2005

The non-corporate distribution rate for the financial year 2005 shall be 19%.
Trusts
5
21
Special trust rates not to apply to first slice of trust income
(1)
In ICTA, after section 686C insert—
“686D
Special trust rates not to apply to first slice of trust income
(1)
This section applies where income arising (or treated as arising) to the
trustees of a trust in a year of assessment consists of or includes income
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subject to a special trust tax rate (“the special trust tax rate income”).
(2)
“Income subject to a special trust tax rate” means any income which is
(or apart from this section would be) chargeable to income tax at—
(a)
the dividend trust rate, or
(b)
the rate applicable to trusts.
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(3)
So much of the special trust tax rate income as does not exceed £500 is
not chargeable to income tax at the dividend trust rate or the rate
applicable to trusts (but is instead chargeable to income tax at the basic
rate, the lower rate or the dividend ordinary rate, depending on the
nature of the income).
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(4)
In the following provisions “the relevant purposes” means the
purposes of—
(a)
determining (in accordance with section 1A(5)) which of the
special trust tax rate income is not chargeable to income tax at
the dividend trust rate, or the rate applicable to trusts, by virtue
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of subsection (3), and
(b)
determining at which of the basic rate, the lower rate and the
dividend ordinary rate that special trust tax rate income is
chargeable to income tax.
(5)
For the relevant purposes the fact that any amount forming part of the
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special trust tax rate income is subject to a special trust tax rate is to be
disregarded if, in any circumstances, an amount of that description is
chargeable on trustees at the basic rate, the lower rate or the dividend
ordinary rate.
(6)
For the relevant purposes any of the special trust tax rate income that
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consists of—
(a)
an amount which, by virtue of section 686A, is treated for the
purposes of the Tax Acts as if it were income to which section
686 applies, or
(b)
income treated as arising under Chapter 5 of Part 4 of ITTOIA
40
2005 (stock dividends from UK resident companies),

is to be regarded as income to which section 1A applies and which is
chargeable at the dividend ordinary rate.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
18

(7)
For the relevant purposes any of the special trust tax rate income that
consists of—
(a)
income treated as arising under section 761(1) (offshore income
gains),
(b)
income treated as received under section 68 of FA 1989
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(employee share ownership trusts), or
(c)
profits or gains which are treated as income under Chapter 12
of Part 4 of ITTOIA 2005 (guaranteed returns on disposals of
futures and options) and in relation to which section 568 applies
(profits or gains not meeting conditions of that section),
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is or are to be regarded as chargeable at the basic rate.
(8)
For the relevant purposes any of the special trust tax rate income that
consists of—
(a)
income treated as received under section 714(2) or 716(3)
(transfers of securities),
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(b)
profits taken to be income arising under Chapter 8 of Part 4 of
ITTOIA 2005 (profits from deeply discounted securities), or
(c)
gains which are treated as arising under Chapter 9 of that Part
and on which tax is charged at the rate applicable to trusts
under section 467(7)(b) of that Act (gains from contracts for life
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assurance),

is or are chargeable at the lower rate.”
(2)
In section 686(1) of ICTA (accumulation and discretionary trusts: special rates
of tax), after “shall” insert “(subject to section 686D)”.
(3)
In subsection (3) of section 687 of ICTA (payments under discretionary trusts:
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amounts to be set against amount assessable on trustees under subsection
(2)(b) of that section), after paragraph (a) insert—
“(aa1)
the amount of any tax on income arising to the trustees which is
charged by virtue of section 686D(3) at the basic rate or the
lower rate;”.
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(4)
After that subsection insert—
“(3A)
Paragraphs (a1) to (bc) of subsection (3) above do not apply in relation
to income, distributions or sums chargeable to tax by virtue of section
686D(3) at the basic rate, the lower rate or the dividend ordinary rate.”
(5)
This section applies for the year 2005-06 and subsequent years of assessment.
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Chapter 2
Personal taxation
Taxable benefits
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Childcare vouchers: exempt amount
(1)
Section 270A of ITEPA 2003 (limited exemption for qualifying childcare
40
vouchers) is amended as follows.
(2)
In subsection (6) (exempt amount), for “£50 for each qualifying week in that

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
19

year” substitute “the sum of—
(a)
£50 for each qualifying week in that year, and
(b)
the voucher administration costs for that year.”
(3)
After that subsection insert—
“(6A)
The “voucher administration costs” for any tax year in respect of which
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qualifying childcare vouchers are provided for an employee means the
difference between the cost of provision of the vouchers and their face
value.

The face value of a voucher is the amount stated on or recorded in the
voucher as the value of the provision of care for a child that may be
10
obtained by using it.”
(4)
After subsection (10) insert—
“(10A)
In this section “ cost of provision”, in relation to a childcare voucher,
has the meaning given in section 87(3) and (3A).”
(5)
This section has effect for the year 2005-06 and subsequent years of assessment.
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Extension of exemptions for childcare, workplace parking, cycles etc.
(1)
ITEPA 2003 is amended as follows.
(2)
In section 237(1) (exemption for provision of workplace parking), for “No
liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits:
residual liability to charge)” substitute “No liability to income tax arises”.
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(3)
In section 244(1) (exemption for provision of cycles and cyclist’s safety
equipment), for “No liability to income tax arises by virtue of Chapter 10 of Part
3 (taxable benefits: residual liability to charge)” substitute “No liability to
income tax arises”.
(4)
In section 270A(1) (limited exemption for qualifying childcare vouchers), for
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“employee, liability” substitute “employee—
(a)
no liability to income tax arises by virtue of section 62 (general
definition of earnings), and
(b)
liability”.
(5)
In section 318(1) (childcare: exemption for employer-provided care), for “No
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liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits:
residual liability to charge)” substitute “No liability to income tax arises”.
(6)
In section 318A(1) (childcare: limited exemption for other care), for “child,
liability” substitute “child—
(a)
no liability to income tax arises by virtue of section 62 (general
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definition of earnings), and
(b)
liability”.
(7)
This section has effect for the year 2005-06 and subsequent years of assessment.
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Employee benefits: transfer of previously loaned computer or cycle etc.
(1)
Section 206 of ITEPA 2003 (cost of the benefit: transfer of used or depreciated
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asset) is amended as follows.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
20

(2)
In subsection (3)(a), for “a car (within the meaning of Chapter 6)” substitute “an
excluded asset (see subsection (6))”.
(3)
After subsection (5) insert—
“(6)
An excluded asset is—
(a)
a car (within the meaning of Chapter 6),
5
(b)
computer equipment that has previously been applied as
mentioned in subsection (3)(b) in circumstances in which the
conditions set out in section 320 were met, or
(c)
a cycle or cyclist’s safety equipment that has previously been so
applied in circumstances in which the conditions set out in
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section 244 were met.”
(4)
This section has effect for the year 2005-06 and subsequent years of assessment.
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Extension of outplacement services etc exemption: part-time employees
(1)
ITEPA 2003 is amended as follows.
(2)
In section 310 (counselling and other outplacement services) in subsection (4)
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(person to have been employed full-time in the employment which is ceasing
for a specified period) omit “full-time”.
(3)
In section 311 (retraining courses) in subsection (3) (conditions to be satisfied
in relation to the course)—
(a)
at the end of paragraph (b) insert “and”;
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(b)
in paragraph (c) (course to last no more than one year) for “one year”
substitute “two years”;
(c)
omit paragraph (d) (employee to attend the course on a full-time or
substantially full-time basis) and the word “and” before it.
(4)
In that section, in subsection (4)(c) (person to be employed full-time in the
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employment which is ceasing for a specified period) omit “full-time”.
(5)
This section has effect in relation to the year 2005-06 and subsequent years of
assessment.
Social security pension lump sums
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Charge to income tax on lump sum
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(1)
A charge to income tax arises where a person becomes entitled to a social
security pension lump sum.
(2)
For the purposes of the Tax Acts (including subsection (5)), a social security
pension lump sum—
(a)
is to be treated as income, but
35
(b)
is not to be taken into account in determining the total income of any
person.
(3)
The person liable to a charge under this section is the person (“P”) entitled to
the lump sum, whether or not P is resident, ordinarily resident or domiciled in
the United Kingdom.
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
21

(4)
The charge is imposed on P for the applicable year of assessment (see
subsection (6)).
(5)
A charge under this section is a charge in respect of the amount of the lump
sum at the following rate—
(a)
if P’s total income for the applicable year of assessment is nil, 0%;
5
(b)
if P’s total income for that year of assessment is greater than nil but does
not exceed the starting rate limit for that year, the starting rate for that
year;
(c)
if P’s total income for that year of assessment exceeds the starting rate
limit but does not exceed the basic rate limit for that year, the basic rate
10
for that year;
(d)
if P’s total income for that year of assessment exceeds the basic rate
limit for that year, the higher rate for that year.
(6)
Section 27 makes provision as to the meaning of “the applicable year of
assessment” for the purposes of this section.
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(7)
Section 28 contains further definitions and makes provision as to
commencement.
(8)
Section 29 contains consequential amendments.
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Meaning of “applicable year of assessment” in section 26
(1)
For the purposes of section 26 “the applicable year of assessment” has the
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meaning given by this section.
(2)
Subject to subsections (5) to (7), the applicable year of assessment is—
(a)
the year of assessment in which the first benefit payment day falls, or
(b)
if P dies before the beginning of that year of assessment, the year of
assessment in which P dies.
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(3)
For the purposes of subsection (2) “the first benefit payment day” is, subject to
subsection (4), the day as from which P’s—
(a)
Category A or Category B retirement pension,
(b)
shared additional pension, or
(c)
graduated retirement benefit,
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becomes payable following the period of deferment by virtue of which P’s
entitlement to the lump sum arises.
(4)
But where—
(a)
the lump sum is a state pension lump sum to which P is entitled under
paragraph 7A of Schedule 5 to SSCBA 1992 or paragraph 7A of
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Schedule 5 to SSCB(NI)A 1992 or a graduated retirement benefit lump
sum to which P is entitled under a provision corresponding to either of
those paragraphs, and
(b)
at the time of S’s death, P was entitled to a Category A or Category B
retirement pension or (as the case may be) graduated retirement
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benefit,

the first benefit payment day is the day on which S died; and for this purpose
“S” is the person by virtue of whose period of deferment P’s entitlement to the
lump sum arises.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
22

(5)
Subsections (6) and (7) apply where social security regulations make provision
enabling the making of an election for a social security pension lump sum to be
paid in the year of assessment (“the later year of assessment”) next following
that given by subsection (2).
(6)
If such an election is made by P and is not revoked, the applicable year of
5
assessment is—
(a)
the later year of assessment, or
(b)
if P dies before the beginning of that year of assessment, the year of
assessment in which P dies.
(7)
If—
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(a)
P dies after the beginning of the later year of assessment,
(b)
by the time of P’s death, P has not notified the Secretary of State as to
whether or not P wishes to make such an election,
(c)
social security regulations make provision enabling the making of such
an election in such a case by the personal representatives of P, and
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(d)
P’s personal representatives make such an election in accordance with
the regulations,

the applicable year of assessment is the later year of assessment.
(8)
For the purposes of determining the applicable year of assessment, it does not
matter when the lump sum is actually paid.
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(9)
In this section—
“Category A or Category B retirement pension” means Category A or
Category B retirement pension under Part 2 of SSCBA 1992 or Part 2 of
SSCB(NI)A 1992;
“graduated retirement benefit” means graduated retirement benefit
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under section 36 of NIA 1965 or section 35 of NIA(NI) 1966;
“shared additional pension” means shared additional pension under Part
2 of SSCBA 1992 or Part 2 of SSCB(NI)A 1992;
“social security regulations” means any regulations under—
(a)
the Social Security Administration Act 1992 (c. 5), or
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(b)
the Social Security Administration (Northern Ireland) Act 1992
(c. 8).
(10)
This section is to be construed as one with section 26.
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Interpretation
(1)
In sections 26 and 27 “social security pension lump sum” means—
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(a)
a state pension lump sum,
(b)
a shared additional pension lump sum, or
(c)
a graduated retirement benefit lump sum.
(2)
In section 27 and this section—
“graduated retirement benefit lump sum” means a lump sum payable
40
under—
(a)
section 36 of NIA 1965, or
(b)
section 35 of NIA(NI) 1966;
“shared additional pension lump sum” means a lump sum payable
under—
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 2 — Personal taxation
23

(a)
section 55C of, and Schedule 5A to, SSCBA 1992, or
(b)
section 55C of, and Schedule 5A to, SSCB(NI)A 1992;
“state pension lump sum” means a lump sum payable under—
(a)
section 55 of, and Schedule 5 to, SSCBA 1992, or
(b)
section 55 of, and Schedule 5 to, SSCB(NI)A 1992.
5
(3)
In section 27 and this section—
“NIA 1965” means the National Insurance Act 1965 (c. 51);
“NIA(NI) 1966” means the National Insurance Act (Northern Ireland)
1966 (c. 6 (N.I.));
“SSCBA 1992” means the Social Security Contributions and Benefits Act
10
1992 (c. 4);
“SSCB(NI)A 1992” means the Social Security Contributions and Benefits
(Northern Ireland) Act 1992 (c. 7).
(4)
Sections 26 and 27 and this section have effect in relation to the year 2006-07
and subsequent years of assessment.
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Consequential amendments
(1)
ITEPA 2003 is amended as follows.
(2)
In section 577 (UK social security pensions) after subsection (1) insert—
“(1A)
But this section does not apply to any social security pension lump
sum (within the meaning of section 26 of FA 2005).”.
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(3)
In section 683 (PAYE income) in subsection (3) (meaning, subject to subsection
(4), of “PAYE pension income”) in the opening words, for “subsection (4)”
substitute “subsections (3A) and (4)”.
(4)
In that section, after subsection (3) insert—
“(3A)
“PAYE pension income” for a tax year also includes any social security
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pension lump sum (within the meaning of section 26 of FA 2005) in
respect of which a charge to income tax arises under that section for that
tax year.”.
(5)
In section 686 (meaning of “payment”) in subsection (1) (rules as to when
payment of, or on account of, PAYE income is to be treated as made for the
30
purposes of PAYE regulations) at the end of the subsection insert—

“But this is subject to subsection (5) (PAYE pension income: social
security pension lump sums).”.
(6)
In that section, after subsection (4) insert—
“(5)
For the purposes of PAYE regulations, a payment of, or on account of,
35
an amount which is PAYE pension income of a person by virtue of
section 683(3A) (social security pension lump sums) is to be treated as
made at the time when the payment is made.”.
(7)
In Schedule 1 (abbreviations and defined expressions) in Part 1 (abbreviations
of Acts and instruments) insert at the end—
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“FA 2005
The Finance Act 2005 (c. )”.