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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Employment-related securities and options

28

 

Disapplication of Chapters 2 and 3B

454     

Deemed election for disapplication of Chapter 2

(1)   

If the shares are restricted securities (or the interest in shares is a

restricted interest in securities), the employer and the employee are to

be treated as making an election under section 431(1) (election for

5

disapplication of Chapter 2) in relation to the shares (or interest in

shares).

(2)   

But the employer and the employee may agree that subsection (1) is not

to apply in relation to the shares (or interest in shares).

(3)   

An agreement under subsection (2) is irrevocable and—

10

(a)   

must be made in a form approved by the Board of the Inland

Revenue, and

(b)   

may not be made more than 14 days after the acquisition.

(4)   

If the employer and the employee make an agreement under subsection

(2) in relation to the shares (or interest in shares), subsection (5) applies

15

for the purposes of determining the taxable amount for the purposes of

section 426 (charge on occurrence of chargeable event) on the

occurrence on any chargeable event in relation to the shares (or interest

in shares).

(5)   

In determining under section 428(3) (amount of charge) what would

20

have been the market value of the shares (or interest in shares) at the

time of the acquisition but for any restrictions (IUMV), that market

value is to be calculated disregarding the effect on that market value of

the intellectual property agreement and any transfer of intellectual

property pursuant to it.

25

455     

Disapplication of Chapter 3B

For the purposes of Chapter 3B (securities with artificially enhanced

market value) neither the intellectual property agreement nor any

transfer of intellectual property pursuant to it are things done

otherwise than for genuine commercial purposes.

30

Supplementary

456     

Meaning of “intellectual property” and “transfer”

(1)   

In this Chapter “intellectual property” means—

(a)   

any patent, trade mark, registered design, copyright or design

right, plant breeders’ rights or rights under section 7 of the Plant

35

Varieties Act 1997,

(b)   

any right under the law of a country or territory outside the

United Kingdom corresponding to, or similar to, a right within

paragraph (a),

(c)   

any information or technique not protected by a right within

40

paragraph (a) or (b) but having industrial, commercial or other

economic value,

(d)   

any licence or other right in respect of anything within

paragraph (a), (b) or (c), or

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Employment-related securities and options

29

 

(e)   

any goodwill (having the meaning that it has for accounting

purposes) associated with anything within paragraphs (a) to

(d).

(2)   

The Treasury may by order amend the definition of “intellectual

property” in subsection (1).

5

(3)   

For the purposes of this Chapter a transfer of intellectual property

includes—

(a)   

a sale of the intellectual property,

(b)   

the grant of a licence or other right in respect of it, and

(c)   

the assignment of a licence or other right in respect of it.

10

457     

Meaning of “research institution”

(1)   

In this Chapter “research institution” means—

(a)   

any university or other institution that is a publicly funded

institution as defined in section 41(2) of the Higher Education

Act 2004, or

15

(b)   

any institution that carries out research activities otherwise than

for profit and that is neither controlled nor wholly or mainly

funded by a person who carries on activities for profit.

(2)   

The Treasury may by order amend subsection (1) to include in or

exclude from the definition of “research institution” a person specified

20

in the order or persons of a description specified in the order.

458     

Meaning of “involved in research”

For the purposes of this Chapter a person is involved in research in

relation to any intellectual property transferred or to be transferred

from one or more research institutions if—

25

(a)   

he has been actively engaged for the research institution (or any

of them) in connection with research (whether as an employee

or otherwise), and

(b)   

that research is relevant to anything to which the intellectual

property relates.

30

459     

Transfer of intellectual property by controlled company

(1)   

For the purposes of this Chapter where a research institution has

control of a company, a transfer of intellectual property from the

company is to be treated as a transfer from the research institution.

(2)   

For the purposes of this Chapter where two or more research

35

institutions together have control of a company, a transfer of

intellectual property from the company is to be treated as a transfer

from those research institutions.

(3)   

In this section “control” means control within the meaning of section

416 of ICTA.

40

460     

Definitions

(1)   

In this Chapter—

“interest”, in relation to shares, and

“shares”,

   

have the meaning indicated in section 420.

45

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Employment-related securities and options

30

 

(2)   

In this Chapter “market value” has the meaning indicated in section

421(1).

(3)   

In this Chapter—

“the acquisition”,

“the employee”, and

5

“the employer”,

   

have the meaning indicated in section 421B(8).

(4)   

In this Chapter—

“restricted interest in securities”, and

“restricted securities”,

10

   

have the meaning indicated in sections 423 and 424.”

(2)   

In consequence of the amendment made by subsection (1), Chapter 1 of Part 7

of ITEPA 2003 (income and exemptions relating to securities: introduction) is

amended as follows.

(3)   

Substitute “4A” for “4” in—

15

(a)   

subsections (1), (4) and (8) of section 421B,

(b)   

the heading of and the heading above that section, and

(c)   

subsections (5) and (6) of section 421D.

(4)   

In section 421K(3)(g) (reportable events), after “securities)” insert “or would

give rise to such an amount but for Chapter 4A (shares in research institution

20

spin-out companies)”.

(5)   

The amendments made by this section have effect in relation to shares (or an

interest in shares) acquired before an agreement for the transfer of intellectual

property is made, or within the period of 183 days beginning with the date on

which such an agreement is made, if—

25

(a)   

the date of acquisition of the shares (or interest in shares), or

(b)   

the date on which the agreement was made,

   

or both, fell on or after 2nd December 2004.

(6)   

Where section 454 of ITEPA 2003 (as inserted by subsection (1)) has effect (by

virtue of subsection (5)) in relation to shares (or an interest in shares) acquired

30

before 2nd December 2004, it applies in relation to them (or it) so as to treat the

election under section 431(1) as made on that date.

(7)   

Where section 454 of ITEPA 2003 (as inserted by subsection (1)) has effect (by

virtue of subsection (5)) in relation to shares (or an interest in shares) acquired

before 1st October 2005, it has effect with the substitution in subsection (3)(b)

35

of that section of “later than 15th October 2005” for “more than 14 days after the

acquisition of the shares (or interest in shares)”.

34      

Research institution spin-out companies: pre-2nd December 2004 cases

(1)   

Subsections (2) to (7) have effect where—

(a)   

Chapter 4A of Part 7 of ITEPA 2003 (as inserted by section 33) would

40

apply but for subsection (5) of that section (commencement), and

(b)   

an election is made under this subsection by the employee and the

employer no later than 15th October 2005.

(2)   

Section 452(1) and (2)(a), (c) and (d) and section 453(1) of ITEPA 2003 apply.

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Employment-related securities and options

31

 

(3)   

But when the chargeable event occurs in relation to the shares (or interest in

shares), the taxable amount counts as employment income of the employee for

the tax year in which the chargeable event occurs.

(4)   

The chargeable event occurs in relation to the shares (or interest in shares) on

the earlier of—

5

(a)   

the day on which there is a disposal for consideration of the shares, or

any interest in them, by an associated person otherwise than to another

associated person, and

(b)   

the day specified in any election made by an employee under this

subsection.

10

(5)   

The taxable amount for the purposes of subsection (3) is—equation: plus[times[char[M],char[V]],minus[times[char[D],char[A]]]]

   

where—

MV is the market value of the shares (or interest in shares) immediately

before the occurrence of the chargeable event, and

DA is the total of any deductible amounts.

15

(6)   

Each of the following is a deductible amount—

(a)   

the amount of any consideration given for the acquisition of the shares

(or interest in shares),

(b)   

any amount that constituted earnings from the employee’s

employment under Chapter 1 of Part 3 of ITEPA 2003 (earnings) in

20

respect of the acquisition of the shares (or interest in shares),

(c)   

any amount that counted as employment income in relation to the

shares (or interest in shares) under Chapter 2 or 4 of Part 7 of that Act

as originally enacted otherwise than by virtue of section 457 of that Act

(as originally enacted) (charge on receipt of chargeable benefit),

25

(d)   

if the shares (or interest in shares) were (or was) acquired on a

conversion of other shares (or of another interest in shares), any

amount that counted as employment income of the employee under

Chapter 3 of that Part (including that Chapter as originally enacted)

(convertible securities) by reason of the conversion,

30

(e)   

if the acquisition of the shares (or interest in shares) was pursuant to a

securities option, any amount that counted as employment income of

the employee under section 476 of that Act (or section 476 or 477 as

originally enacted) (acquisition of securities pursuant to securities

option) by reason of the acquisition, and

35

(f)   

in the case of a chargeable event under subsection (4)(a), the amount of

any expenses incurred by the holder of the shares (or interest in shares)

in connection with the disposal.

(7)   

An election under subsection (1) or (4) is irrevocable and must be made in a

form approved by the Board of Inland Revenue.

40

(8)   

The Treasury may by regulations modify—

(a)   

this section,

(b)   

any provision of Part 4 of TCGA 1992, and

(c)   

any provision of Part 7 of ITEPA 2003,

   

in relation to shares (or interests in shares) to which Chapter 4A of that Part

45

would apply but for section 33(5) and which are restricted securities (or

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Employment-related securities and options

32

 

restricted interests in securities) or convertible securities (or interests in

convertible securities).

(9)   

The power conferred by subsection (8) is exercisable by statutory instrument.

(10)   

A statutory instrument containing regulations under subsection (8) is subject

to annulment in pursuance of a resolution of the House of Commons.

5

(11)   

In this section—

“associated person” has the same meaning as in Chapters 1 to 5 of Part 7

of ITEPA 2003 (see section 421C of that Act),

“Board of Inland Revenue” has the same meaning as in that Act (see

section 720(2) of that Act), and

10

“convertible securities” has the same meaning as in Chapter 3 of Part 7 of

that Act (see section 436 of that Act),

   

and expressions used in this section and in Chapter 4A of Part 7 of that Act

have the same meaning in this section as in that Chapter.

35      

Capital gains

15

(1)   

TCGA 1992 is amended as follows.

(2)   

In section 119A(3) (increase in expenditure by reference to tax charged in

relation to employment-related securities: events giving rise to relevant

income tax charge)—

(a)   

after “employment income” insert “in respect of the employment-

20

related securities”,

(b)   

for the word “or” at the end of paragraph (c) substitute—

“(ca)   

under section 447 of ITEPA 2003 (receipt of benefit) in a

case where the benefit is an increase in the market value

of the employment-related securities,”,

25

(c)   

after paragraph (d) insert “or—

(e)   

under subsection (3) of section 34 of the Finance Act

2005 (transitional charge in relation to shares in spin-out

companies) by virtue of subsection (4)(b) of that section

(election by employee).”, and

30

(d)   

omit the words following the paragraphs.

(3)   

After section 149AA insert—

“149AB  

 Shares in research institution spin-out companies

(1)   

Where an individual has acquired shares (or an interest in shares) in

circumstances where section 452(1) and (2)(a) of ITEPA 2003 (shares in

35

research institution spin-out companies: market value on acquisition)

apply (and section 149AA does not apply in relation to those shares (or

interest in shares)) the consideration for the acquisition shall (subject to

section 119A) be taken to be equal to the aggregate of—

(a)   

the actual amount or value given for the shares (or interest in

40

shares), and

(b)   

any amount that constituted earnings under Chapter 1 of Part 3

of ITEPA 2003 (earnings) in respect of the acquisition.

(2)   

Subsection (1) above applies only to the individual making the

acquisition and, accordingly, is to be disregarded in calculating the

45

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 4 — Scientific research organisations

33

 

consideration received by the person from whom the shares (or interest

in shares) are (or is) acquired.”

(4)   

The amendment made by paragraph (b) of subsection (2) has effect only in

relation to disposals on or after 6th April 2005; but the other amendments made

by that subsection have effect in relation to any disposal (whether before or

5

after the passing of this Act).

(5)   

The amendment made by subsection (3) has effect in relation to any acquisition

(whether before or after the passing of this Act).

Chapter 4

Scientific research organisations

10

36      

Corporation tax exemption for organisations

(1)   

Section 508 of ICTA (tax exemption for scientific research organisations) is

amended as follows.

(2)   

In subsection (1) (Associations undertaking scientific research and approved

by Secretary of State), for paragraph (a) substitute—

15

“(a)   

an Association has as its object the undertaking of research and

development which may lead to or facilitate an extension of any

class or classes of trade; and”.

(3)   

In that subsection, for “Board, be allowed in the case of the Association”

substitute “Board in relation to any accounting period, be allowed in the case

20

of the Association for that accounting period”.

(4)   

After that subsection insert—

“(1A)   

The Treasury may by regulations prescribe circumstances in which the

conditions in subsection (1) above shall be deemed not to be complied

with.

25

(1B)   

The Treasury may by regulations make provision specifying for the

purposes of paragraph (a) of that subsection—

(a)   

what shall be deemed to be, or not to be, an Association,

(b)   

circumstances in which an Association shall be deemed to have,

or not to have, the undertaking of research and development as

30

its object,

(c)   

circumstances in which the undertaking of research and

development shall be deemed to be, or not to be, capable of

leading to or facilitating an extension of a class of trade, or

(d)   

what shall be deemed to be, or not to be, a class of trade.”

35

(5)   

For subsection (3) (meaning of “scientific research”) substitute—

“(3)   

Section 837A (meaning of “research and development”) applies for the

purposes of subsection (1)(a) above.

(4)   

Regulations under subsection (3) of that section (power to prescribe

activities which are, or are not, research and development) may make

40

provision for the purposes of that section as it applies by virtue of

subsection (3) of this section which is additional to, or different from,

the provision made otherwise for the purposes of that section.”

 
 

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 4 — Scientific research organisations

34

 

(6)   

This section has effect in relation to accounting periods beginning on or after

such day as the Treasury may by order made by statutory instrument appoint.

37      

Income tax deduction for payments to organisations

(1)   

Section 88 of ITTOIA 2005 (income tax deduction for payments to research

associations etc.) is amended as follows.

5

(2)   

In subsection (1) (conditions for deduction), for the words from the beginning

of paragraph (a) to “research” in paragraph (b) substitute—

“(a)   

pays any sum to an Association in the case of which exemption

may be claimed under section 508 of ICTA and which has as its

object the undertaking of research and development which may

10

lead to or facilitate an extension of the class of trade to which the

trade carried on by the person belongs, or

(b)   

pays any sum to be used for scientific research related to that

class of trade”.

(3)   

In subsection (4), omit paragraph (a) (meaning of “approved” in relation to

15

scientific research association).

(4)   

In subsection (5) (references to scientific research related to a class of trade), for

“references in this section” substitute “reference in subsection (1)(b)”.

(5)   

This section has effect in relation to sums paid to an Association during any

accounting period of the Assocation beginning on or after the day appointed

20

under section 36(6).

38      

Corporation tax deduction for payments to organisations

(1)   

Section 82B of ICTA (corporation tax deduction for payments to research

associations etc.) is amended as follows.

(2)   

In subsection (1) (conditions for deduction), for the words from the beginning

25

of paragraph (a) to “above” in paragraph (b) substitute—

“(a)   

pays any sum to an Association in the case of which exemption

may be claimed under section 508 and which has as its object the

undertaking of research and development which may lead to or

facilitate an extension of the class of trade to which the trade

30

carried on by the company belongs, or

(b)   

pays any sum to be used for scientific research related to that

class of trade”.

(3)   

In subsection (3) (reference to scientific research related to a class of trade), for

“this section” substitute “subsection (1)(b) above”.

35

(4)   

This section has effect in relation to sums paid to an Association during any

accounting period of the Assocation beginning on or after the day appointed

under section 36(6).

 
 

 
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