Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
46

(2)
In Schedule 4B to TCGA 1992 (transfers of value by trustees linked with trustee
borrowing), in paragraph 3(2), after “in that year” insert “(otherwise than by
virtue of section 47 of the Finance Act 2005)”.
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Commencement
This Chapter has effect for the tax year beginning on 6th April 2004 and
5
subsequent tax years.
Chapter 6
Authorised investment funds
62
Open-ended investment companies
After section 468 of ICTA (authorised unit trust schemes) insert—
10
“468A
Open-ended investment companies
(1)
In relation to an open-ended investment company the rate of
corporation tax for the financial year 2005 and subsequent financial
years shall be deemed to be the rate at which income tax at the lower
rate is charged for the year of assessment which begins on 6th April in
15
the financial year concerned (and sections 13, 13AA and 13AB shall not
apply).
(2)
In this section “open-ended investment company” means a company
incorporated in the United Kingdom to which section 236 of the
Financial Services and Markets Act 2000 (c. 8) applies.
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(3)
Each of the parts of an umbrella company shall be regarded for the
purposes of this section as an open-ended investment company and the
umbrella company as a whole shall not be so regarded (and shall not,
unless an enactment expressly provides otherwise, be regarded as a
company for any other purpose of the Tax Acts).
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(4)
In subsection (3) “umbrella company” means an open-ended
investment company—
(a)
in respect of which the instrument of incorporation provides
arrangements for separate pooling of the contributions of the
shareholders and the profits or income out of which payments
30
are to be made to them, and
(b)
the shareholders of which are entitled to exchange rights in one
pool for rights in another,
and a reference to part of an umbrella company is a reference to a
separate pool.”
35
63
Authorised unit trusts and open-ended investment companies
(1)
The following provisions shall cease to have effect—
(a)
sections 468H to 468Q of ICTA (authorised unit trusts),
(b)
paragraphs 2A and 2B of Schedule 10 to FA 1996 (authorised unit trusts
and open-ended investment companies: loan relationships),
40
(c)
paragraphs 32 and 33 of Schedule 26 to FA 2002 (collective investment
schemes: derivative contracts),

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
47

(d)
section 373(4) and (6) of ITTOIA 2005 (open-ended investment
company: interest distributions), and
(e)
section 376(4) and (6) of ITTOIA 2005 (authorised unit trust: interest
distributions).
(2)
In this Chapter “authorised investment funds” means—
5
(a)
authorised unit trust schemes, and
(b)
open-ended investment companies.
(3)
The Treasury may, by regulations—
(a)
make provision about the treatment of authorised investment funds for
the purposes of an enactment relating to taxation;
10
(b)
provide for the modification of an enactment relating to taxation in its
application in relation to—
(i)
authorised investment funds,
(ii)
shareholders or unit holders in authorised investment funds, or
(iii)
transactions involving authorised investment funds;
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(c)
impose requirements on persons responsible for the management of an
authorised investment fund in relation to the provision of information,
the form of accounts, the keeping of records or other administrative
matters.
(4)
For the purposes of this Chapter—
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(a)
“unit trust scheme” has the meaning given by section 237 of the
Financial Services and Markets Act 2000 (c. 8),
(b)
a unit trust scheme is authorised in relation to an accounting period if
an order under section 243 of the Financial Services and Markets Act
2000 is in force in relation to that scheme during the whole or part of
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that accounting period,
(c)
“unit holder” means a person entitled to a share of the investments
subject to the trusts of a unit trust scheme,
(d)
a reference to a shareholder or unit holder includes a person
beneficially entitled to shares or units (and a reference to owning units
30
or shares shall be construed accordingly),
(e)
“open-ended investment company” means a company incorporated in
the United Kingdom to which section 236 of the Financial Services and
Markets Act 2000 applies,
(f)
“associate” has the meaning given by section 417 ICTA,
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(g)
“net asset value” means the value of the assets of the authorised
investment fund, after the deduction of specified liabilities,
(h)
a reference to a distribution includes investing an amount on behalf of
a unit holder or shareholder in respect of his accumulation units or
accumulation shares,
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(i)
“distribution accounts” means accounts showing—
(i)
the total amount available for distribution to unit holders or
shareholders, and
(ii)
how that amount is computed,
(j)
the “distribution date” for a distribution period in relation to an
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authorised investment fund means—
(i)
the date specified by or in accordance with the terms of the trust
or the instrument of incorporation of the company for any
distribution for that distribution period, or

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
48

(ii)
if no date is specified, the last day of that distribution period,
(k)
“distribution period” in relation to an authorised investment fund
means a period by reference to which the total amount available for
distribution to unit holders or shareholders is ascertained,
(l)
“umbrella company” has the meaning given by section 468A of ICTA,
5
(m)
“umbrella scheme” has the meaning given by section 468 of ICTA, and
(n)
section 839 of ICTA (connected persons) applies.
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Section 63(3): specific powers
(1)
Regulations under section 63(3)(a) or (b) may make provision about
distributions which may, in particular—
10
(a)
require an authorised investment fund to comply with prescribed rules
for determining (whether by reference to a formula or otherwise) what
proportion of an amount shown in distribution accounts as available
for distribution is to be distributed by way of dividends and what
proportion is to be distributed by way of yearly interest;
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(b)
permit persons responsible for the management of an authorised
investment fund to elect to distribute entirely by way of dividends;
(c)
require distribution accounts to show the amount available for
distribution—
(i)
by way of dividends;
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(ii)
by way of yearly interest;
(d)
allow a distribution of yearly interest for a distribution period to be
deducted, in the prescribed manner, in computing the profits of the
authorised investment fund for the accounting period in which the last
day of that distribution period falls;
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(e)
make provision for determining the distribution date in relation to a
distribution period of an authorised investment fund;
(f)
permit distributions to be made, in prescribed circumstances, to or for
the benefit of a person not ordinarily resident in the United Kingdom
without deducting tax;
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(g)
permit distributions to be made without deducting tax, in prescribed
circumstances, to a person ordinarily resident in the United Kingdom
who is unlikely to be liable to pay an amount by way of income tax for
the year of assessment in which the distribution is made;
(h)
include provision, in respect of a unit holder or shareholder who is
35
within the charge to corporation tax, about—
(i)
the liability to corporation tax resulting from receipt of a
distribution, and
(ii)
the method of computing that liability.
(2)
Regulations under section 63(3)(a) or (b) may, in particular—
40
(a)
make special provision for loan relationships held by an authorised
investment fund;
(b)
make special provision for derivative contracts held by an authorised
investment fund;
(c)
modify the meaning of “relevant holding” for the purposes of—
45
(i)
paragraph 4 of Schedule 10 to FA 1996 (loan relationships), and
(ii)
paragraph 36 of Schedule 26 to FA 2002 (derivative contracts);

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
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(d)
make special provision in relation to the treatment of umbrella
companies and umbrella schemes (or shareholders or unit holders in
umbrella companies or schemes);
(e)
prohibit action which favours a class of unit holders or shareholders.
(3)
Regulations under section 63(3)(a) or (b) may, in particular—
5
(a)
make special provision in relation to a person who, alone or together
with associates or connected persons, owns (otherwise than as a
nominee) units or shares, in a fund designated by the Financial Services
Authority as a Qualified Investor Scheme, which represent 10% or
more (or such other percentage as the regulations may specify) of the
10
net asset value of the fund;
(b)
include exceptions from provision made by virtue of paragraph (a)
including, in particular, an exception relating to units or shares held
by—
(i)
a charity (within the meaning of section 506(1) of ICTA),
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(ii)
a registered pension scheme (within the meaning of section 150
of FA 2004),
(iii)
a company to which section 212 of TCGA 1992 applies in respect
of the units or shares, or
(iv)
such other persons as the regulations may specify.
20
(4)
Regulations under section 63(3)(c) may, in particular, require persons
responsible for the management of an authorised investment fund to supply
information to, and make available books, documents and other records for
inspection by, the Commissioners for Her Majesty’s Revenue and Customs.
(5)
Regulations under section 63(3) may in particular—
25
(a)
amend a reference in an enactment to a provision repealed by section
63(1);
(b)
make different provision for different circumstances;
(c)
make incidental, consequential, supplemental or transitional provision.
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Section 63: commencement and procedure
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(1)
Section 63(1) shall come into force on such day as the Treasury may appoint by
order.
(2)
An order under subsection (1) may—
(a)
commence only a specified repeal;
(b)
commence different repeals at different times;
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(c)
commence a repeal at different times for different purposes;
(d)
include savings.
(3)
Regulations under section 63(3) shall be subject to annulment by a resolution
of the House of Commons.
(4)
But the first set of regulations under 63(3) may not be made unless a draft has
40
been laid before and approved by resolution of the House of Commons.
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Unauthorised unit trusts: chargeable gains
(1)
Section 100 of TCGA 1992 (exemption for authorised unit trusts, &c.) shall be
amended as follows.

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
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(2)
After subsection (2) insert—
“(2A)
In determining whether subsection (2) applies no account shall be taken
of units in a scheme which—
(a)
have been disposed of by a unit holder, and
(b)
are held by the managers of the scheme (in that capacity)
5
pending disposal.
(2B)
In determining whether subsection (2) applies no account shall be taken
of the possibility of a charge to corporation tax on income in respect of
a gain accruing on a disposal by—
(a)
an insurance company (within the meaning given by section
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431 of the Taxes Act), or
(b)
a friendly society (being an incorporated friendly society or
registered friendly society within the meaning given by section
466(2) of the Taxes Act).”
(3)
This section shall have effect for the year 2005-06 and subsequent years of
15
assessment.
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Unit trusts: treatment of accumulation units
(1)
In Chapter III of Part III of TCGA 1992 (collective investment schemes, &c.)
after section 99A insert—
“99B
Calculation of the disposal cost of accumulation units
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(1)
For the purposes of computing the gain accruing on a disposal by a unit
holder of units in a unit trust scheme and for the purposes of all other
provisions of this Act, an amount shall be treated as expenditure falling
within section 38(1)(b) if—
(a)
it represents income from the investments subject to the unit
25
trust scheme,
(b)
it has been reinvested in respect of the units on behalf of the unit
holder (without an issue of new units), and
(c)
it is either—
(i)
charged to income tax as income of the unit holder (or
30
would be charged to income tax as his income but for a
relief which has effect in respect of it) for the purposes of
the Income Tax Acts, or
(ii)
taken into account as a receipt in calculating profits,
gains or losses of the unit holder for the purposes of the
35
Income Tax Acts.
(2)
Where an amount is treated as expenditure by virtue of subsection (1),
the expenditure shall be treated for the purposes of this Act as having
been incurred—
(a)
in relation to an authorised unit trust, on the distribution date
40
for the distribution period in respect of which the amount is
reinvested, and
(b)
in relation to any other unit trust scheme, on the date on which
the amount is reinvested.
(3)
In subsection (2)(a) “distribution date” and “distribution period” shall
45
have the meaning given by section 468H of the Taxes Act.”

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 6 — Authorised investment funds
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(2)
This section shall have effect in relation to a disposal of units on or after 16th
March 2005.
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Section 349B ICTA: exemption for distributions to PEP/ISA managers
(1)
Section 349B(4) of ICTA (requirement for individual to be entitled to income
tax exemption) shall be amended as follows.
5
(2)
In paragraph (a) after “of a plan” insert “of a kind to which regulations under
Chapter 3 of Part 6 of ITTOIA 2005 (income from individual investment plans)
apply”.
(3)
Paragraph (b) shall cease to have effect.
(4)
This section shall have effect in relation to payments made on or after 6 April
10
2005.
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Offshore funds
(1)
In section 761 of ICTA 1988 (charge on offshore income gain)—
(a)
in subsection (2)—
(i)
for “sections 2(1) and 10” substitute “sections 2(1), 10 and 10B”,
15
and
(ii)
for “section 11(2)(b)” substitute “section 11(2A)(c)”, and
(b)
in subsection (3)—
(i)
leave out “section 10” and insert “sections 10 and 10B”,
(ii)
for “subsection (1) of that section” substitute “subsection (1) of
20
section 10”, and
(iii)
for the words “and subsection (3) of that section (which makes
similar provision in relation to corporation tax) shall have effect
with the omission of the words “situated in the United
Kingdom”” substitute “and paragraphs (a) and (b) of subsection
25
(1) of section 10B (which make similar provision in relation to
corporation tax) shall have effect with the omission of the words
“situated in the United Kingdom and””.
(2)
For paragraph 1(1)(d) of Schedule 27 to ICTA 1988 (distributing funds)
substitute—
30
“(d)
the form of the distribution is such that—
(i)
if any sum forming part of it were received in the
United Kingdom by an individual resident there and
did not form part of the profits of a trade, profession
or vocation, that sum would fall to be chargeable to
35
tax under a provision specified in section 830(2) of
ITTOIA 2005, or
(ii)
if any sum forming part of it were received in the
United Kingdom by a company resident there and
did not form part of the profits of a trade, profession
40
or vocation, that sum would fall to be be chargeable to
tax—
(a)
under Case III of Schedule D as income falling
within a provision specified in section 830(2)
of ITTOIA 2005 or Case V of Schedule D, or
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(b)
under Case V of Schedule D;”

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Alternative finance arrangements
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(3)
For paragraph 3(1)(a) of that Schedule (distributing funds) substitute—
“(a)
the holders of interests in the fund who are individuals
domiciled and resident in the United Kingdom—
(i)
are chargeable to tax under a provision specified in
section 830(2) of ITTOIA 2005 in respect of such of those
5
sums as are referable to their interests; or
(ii)
if any of that income is derived from assets within the
United Kingdom, would be so chargeable had the assets
been outside the United Kingdom;
(aa)
the holders of interests in the fund which are companies
10
resident in the United Kingdom—
(i)
are chargeable to tax under Case III of Schedule D in
respect of income which falls within a provision
specified in section 830(2) of ITTOIA 2005 or which falls
within Case V of Schedule D;
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(ii)
are chargeable to tax under Case V of Schedule D; or
(iii)
if any of that income is derived from assets within the
United Kingdom, would have been chargeable under
sub-paragraph (i) or (ii) had the assets been outside the
United Kingdom; and”.
20
(4)
In paragraph 3(1)(b) of that Schedule (distributing funds) for “sub-paragraph
(i) or (ii)” substitute “paragraph (a) or (aa)”.
Chapter 7
Alternative finance arrangements
Introductory
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70
Alternative finance arrangements
(1)
In this Chapter “alternative finance arrangements” means arrangements falling
within section 71 or 73.
(2)
In this Chapter “financial institution” means—
(a)
a bank as defined by section 840A of ICTA,
30
(b)
a building society within the meaning of the Building Societies Act 1986
(c. 53),
(c)
a wholly-owned subsidiary of a bank within paragraph (a) or a
building society within paragraph (b),
(d)
a person authorised by a licence under Part 3 of the Consumer Credit
35
Act 1974 (c. 39) to carry on a consumer credit business or consumer hire
business within the meaning of that Act, or
(e)
a person authorised in a jurisdiction outside the United Kingdom to
receive deposits or other repayable funds from the public and to grant
credits for its own account.
40
(3)
For the purposes of subsection (2)(c) a company is a wholly-owned subsidiary
of a bank or building society (“the parent”) 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 subsidiaries.