Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Schedule 15 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
272

Flagging: restrictions where dredger or tug ceases to be qualifying ship under paragraph 22E
10
After paragraph 22E insert—
“Flagging: restrictions where ship ceases to be qualifying ship under paragraph 22E
22F   (1)
This paragraph applies where a qualifying ship operated by a
tonnage tax company ceases to be a qualifying ship by virtue of
5
paragraph 22E.
      (2)
No notice may be given under section 130 of the Capital
Allowances Act 2001 for the postponement of all or part of a
relevant allowance to which—
(a)
the company, or
10
(b)
if immediately before the date on which the ship so ceases
to be a qualifying ship (“the cessation date”) the company
is a member of a tonnage tax group, any company that is
or becomes a member of the group,

becomes entitled on or after the cessation date.
15
      (3)
In sub-paragraph (2) “relevant allowance” means an allowance in
respect of—
(a)
qualifying expenditure on the provision of the ship, or
(b)
qualifying expenditure which—
(i)
is incurred on the provision of the ship, and
20
(ii)
is allocated to a single ship pool.
      (4)
No claim may be made under section 135 of that Act for deferment
of all or part of a balancing charge—
(a)
to which the company or, if immediately before the
cessation date the company is a member of a tonnage tax
25
group, any company that is or becomes a member of the
group becomes liable, and
(b)
which arises when there is a disposal event in respect of the
ship on or after the cessation date.
      (5)
Relief in respect of a relevant loss shall not be given under section
30
393A(1) of the Taxes Act 1988 (losses: set off against profits of the
same, or an earlier, accounting period).
      (6)
Group relief under Chapter 4 of Part 10 of that Act shall not be
available in respect of a relevant loss.
      (7)
Accordingly, relief in respect of a relevant loss shall be given only
35
under section 393(1) of that Act (losses other than terminal losses).
      (8)
In sub-paragraphs (5) to (7) “relevant loss” means a loss which is
incurred in respect of the ship on or after the cessation date in the
course of a trade carried on by—
(a)
the company, or
40
(b)
if immediately before the cessation date the company is a
member of a tonnage tax group, any company that is or
becomes a member of the group.”.

Finance Bill
Schedule 15 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
273

Requirement to prove compliance with safety etc standards
11
After paragraph 43 insert—
“The requirement to prove compliance with safety etc standards
43A   (1)
The Secretary of State may make provision by regulations for or in
connection with requiring qualifying companies or qualifying
5
groups to provide evidence of compliance with prescribed
standards relating to—
(a)
health and safety in connection with qualifying ships
which are not registered in any of the Member States’
registers;
10
(b)
environmental performance of such ships;
(c)
working conditions on such ships.
      (2)
The provision that may be made by regulations under this
paragraph includes provision for or in connection with—
(a)
requiring returns to be made at prescribed intervals;
15
(b)
authorising the Secretary of State to require persons to
provide prescribed information in prescribed
circumstances;
(c)
enabling audits to be carried out on behalf of the Secretary
of State;
20
(d)
authorising the Secretary of State to issue certificates of
non-compliance in prescribed cases or circumstances;
(e)
the effect of such a certificate (including preventing the
making of a renewal election when such a certificate is in
force);
25
(f)
enabling persons to apply to the Secretary of State for the
cancellation of such a certificate;
(g)
requiring or enabling the Secretary of State to revoke a
tonnage tax election after a prescribed period of non-
compliance;
30
(h)
the making of appeals;
(i)
authorising the disclosure of information between the
Secretary of State and the Inland Revenue.
      (3)
Regulations under this paragraph may create criminal offences in
respect of failures to comply with requirements imposed by the
35
regulations.
      (4)
Regulations under this paragraph shall be made by statutory
instrument which shall be subject to annulment in pursuance of a
resolution of the House of Commons.
      (5)
Regulations under this paragraph—
40
(a)
may make different provision for different cases, and
(b)
may contain such supplementary, incidental and
transitional provisions as appear to the Secretary of State
to be necessary or expedient.
      (6)
In this paragraph “prescribed” means prescribed by regulations
45
under this paragraph.”.

Finance Bill
Schedule 15 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
274

The ring fence: capital allowances: general: introduction
12    (1)
Paragraph 68 is amended as follows.
      (2)
In sub-paragraph (2) (description of general scheme of Part 9 of Schedule 22)
for paragraph (c) substitute—
“(c)
on leaving tonnage tax—
5
(i)
a company is treated as having incurred qualifying
expenditure on its tonnage tax plant and
machinery assets of an amount equal to the lower
of cost and market value, where it leaves tonnage
tax on expiry of an election or on the taking effect
10
of a withdrawal notice, but
(ii)
otherwise, a company is put broadly in the position
it would have been in if it had never been subject to
tonnage tax.”.
The ring fence: capital allowances: exit: plant and machinery
15
13    (1)
Paragraph 85 is amended as follows.
      (2)
After sub-paragraph (1) insert—
   “(1A)
Sub-paragraph (1C) applies where the company leaves tonnage
tax—
(a)
on the expiry of a tonnage tax election, or
20
(b)
on a tonnage tax election ceasing to be in force under
paragraph 13(2A) (taking effect of withdrawal notice
under paragraph 15A).
     (1B)
In any other case, sub-paragraph (2) applies.
     (1C)
Where this sub-paragraph applies, the amount of qualifying
25
expenditure in respect of each asset used by the company for the
purposes of its tonnage tax activities and held by the company
when it leaves tonnage tax shall be taken to be—
(a)
the market value of the asset at the time the company
leaves tonnage tax, or
30
(b)
if less, the amount of expenditure incurred on the
provision of the asset that would have been qualifying
expenditure if the company had not been subject to
tonnage tax.”.
      (3)
In sub-paragraph (2) (amount of qualifying expenditure to be determined by
35
reference to tax written down value of assets) at the beginning insert “Where
this sub-paragraph applies,”.
The ring fence: capital allowances: ship leasing: sale and lease-back arrangements
14    (1)
Paragraph 92 is amended as follows.
      (2)
In sub-paragraph (2) (meaning of “sale and lease-back arrangements”) for
40
“subject to sub-paragraph (3)” substitute “subject to sub-paragraphs (3) and
(3A)”.

Finance Bill
Schedule 15 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
275

      (3)
After sub-paragraph (3) insert—
   “(3A)
This paragraph does not apply if—
(a)
expenditure is incurred on enhancing the ship or on
converting it to another use,
(b)
the amount of that expenditure—
5
(i)
is greater than 33% of the market value of the ship
immediately after completion of the enhancement
or conversion, and
(ii)
is equal to or greater than the market value of the
interest in the ship which is the subject of the
10
transaction mentioned in Step Two in sub-
paragraph (2), and
(c)
that transaction is effected not more than four months after
the first occasion following completion of the
enhancement or conversion on which the ship is brought
15
into use by any person for any purpose.”.
Meaning of “offshore activities”
15    (1)
Paragraph 104 is amended as follows.
      (2)
After sub-paragraph (1) (meaning of “offshore activities”) insert—
   “(1A)
But none of the following activities is to be regarded as an offshore
20
activity—
(a)
offshore supply services;
(b)
towage, salvage or other marine assistance;
(c)
anchor handling;
(d)
carriage of liquids or gases;
25
(e)
safety or rescue services;
(f)
the carriage of cargo in connection with dredging.
     (1B)
The Treasury may make provision by order amending sub-
paragraph (1A) by—
(a)
adding, or
30
(b)
varying,

any description of activity.”.
Vessels to which the special rules for offshore activities do not apply
16
Omit paragraph 105.
Index of defined expressions
35
17    (1)
Paragraph 147 is amended as follows.
      (2)
Insert each of the following at the appropriate place—

“qualifying dredger
paragraph 20(7)”;

“Member States’ registers
paragraph 22B(7)”.

Finance Bill
Schedule 16 — Stamp duty land tax: alternative property finance
276

Part 2
Commencement and transitional provision
Commencement
18    (1)
Subject to paragraphs 19 to 21, paragraphs 4 to 6, 8 to 10 and 15 to 17 (and
paragraph 1 so far as relating to those paragraphs) shall be deemed to have
5
come into force on 1st July 2005.
      (2)
This Part of this Schedule, and the other provisions of Part 1 of this Schedule,
shall come into force on the day on which this Act is passed.
Transitional provision: qualifying activities
19    (1)
If a withdrawal notice is given on or before 31st March 2006 under
10
paragraph 15A of Schedule 22 to FA 2000 in respect of a single company or
a group, the amendments made by—
(a)
paragraph 4, and
(b)
so far as relating to tugs, paragraph 6,

shall not have effect in relation to that company or group until the day on
15
which the relevant accounting period begins.
      (2)
In sub-paragraph (1) “the relevant accounting period” means the first
accounting period of the company to begin after 1st July 2005.
      (3)
In the case of a withdrawal notice given in respect of a group, this paragraph
has effect in relation to each qualifying company in the group by reference
20
to that company’s accounting periods.
Transitional provision: flagging: order designating financial year 2005
20
In relation to the financial year 2005, Schedule 22 to FA 2000 shall have effect
with the omission of paragraph 22C(1).
Transitional provision: flagging
25
21
Where a company (whether or not a member of a group) has operated a
qualifying dredger or a tug at any time before 1st July 2005, the company is
to be treated, for the purposes of paragraph 22D of Schedule 22 to FA 2000,
as not having operated the qualifying dredger or tug before that date.
Schedule 16
30
Section 140

Stamp duty land tax: alternative property finance
Introduction
1
Part 4 of FA 2003 is amended in accordance with this Schedule.

Finance Bill
Schedule 16 — Stamp duty land tax: alternative property finance
277

Alternative property finance: England and Wales and Northern Ireland
2
After section 71 insert—
“71A
Alternative property finance: land sold to financial institution and
leased to individual
(1)
This section applies where arrangements are entered into between an
5
individual and a financial institution under which—
(a)
the institution purchases a major interest in land or an
undivided share of a major interest in land (“the first
transaction”),
(b)
where the interest purchased is an undivided share, the
10
major interest is held on trust for the institution and the
individual as beneficial tenants in common,
(c)
the institution (or the person holding the land on trust as
mentioned in paragraph (b)) grants to the individual out of
the major interest a lease (if the major interest is freehold) or
15
a sub-lease (if the major interest is leasehold) (“the second
transaction”), and
(d)
the institution and the individual enter into an agreement
under which the individual has a right to require the
institution or its successor in title to transfer to the individual
20
(in one transaction or a series of transactions) the whole
interest purchased by the institution under the first
transaction.
(2)
The first transaction is exempt from charge if the vendor is—
(a)
the individual, or
25
(b)
another financial institution by whom the interest was
acquired under arrangements of the kind mentioned in
subsection (1) entered into between it and the individual.
(3)
The second transaction is exempt from charge if the provisions of this
Part relating to the first transaction are complied with (including the
30
payment of any tax chargeable).
(4)
Any transfer to the individual that results from the exercise of the
right mentioned in subsection (1)(d) (“a further transaction”) is
exempt from charge if—
(a)
the provisions of this Part relating to the first and second
35
transactions are complied with, and
(b)
at all times between the second transaction and the further
transaction—
(i)
the interest purchased under the first transaction is
held by a financial institution so far as not transferred
40
by a previous further transaction, and
(ii)
the lease or sub-lease granted under the second
transaction is held by the individual.
(5)
The agreement mentioned in subsection (1)(d) is not to be treated—
(a)
as substantially performed unless and until the whole
45
interest purchased by the institution under the first
transaction has been transferred (and accordingly section
44(5) does not apply), or

Finance Bill
Schedule 16 — Stamp duty land tax: alternative property finance
278

(b)
as a distinct land transaction by virtue of section 46 (options
and rights of pre-emption).
(6)
The requirements of subsection (1), or (4)(b)(ii), are not met if—
(a)
the individual enters into the arrangement, or holds the lease
or sub-lease, as trustee and any beneficiary of the trust is not
5
an individual, or
(b)
the individual enters into the arrangements, or holds the
lease or sub-lease, as partner and any of the other partners is
not an individual.
(7)
A further transaction that is exempt from charge by virtue of
10
subsection (4) is not a notifiable transaction unless the transaction
involves the transfer to the individual of the whole interest
purchased by the institution under the first transaction, so far as not
transferred by a previous further transaction.
(8)
In this section “financial institution” means—
15
(a)
a bank within the meaning of section 840A of the Taxes Act
1988,
(b)
a building society within the meaning of the Building
Societies Act 1986, or
(c)
a wholly-owned subsidiary of a bank within paragraph (a) or
20
a building society within paragraph (b).

For the purposes of paragraph (c) a company is a wholly-owned
subsidiary of a bank or building society if it has no members except
the parent and the parent’s wholly-owned subsidiaries or persons
acting on behalf of the parent or the parent’s wholly-owned
25
subsidiaries.
(9)
References in this section to an individual shall be read, in relation to
times after the death of the individual concerned, as references to his
personal representatives.
(10)
This section does not apply in relation to land in Scotland.”
30
Alternative property finance: Scotland
3     (1)
Section 72 (alternative property finance: land sold to financial institution
and leased to individual) is amended as follows.
      (2)
In subsection (1)—
(a)
in paragraph (b)—
35
(i)
for “freehold” substitute “the interest of the owner”, and
(ii)
for “leasehold” substitute “the tenant’s right over or interest
in a property subject to a lease”, and
(b)
in paragraph (c), omit “or its successor in title”.
      (3)
For subsection (7) substitute—
40
“(7)
In this section “financial institution” has the same meaning as in
section 71A.”
      (4)
Omit subsection (8).
      (5)
After subsection (9) insert—