Finance Bill

House of Commons

Session 2005 - 06
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Finance Bill

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 5 — Chargeable gains
29

Chapter 5
Chargeable gains
Residence, location of assets etc
32
Temporary non-residents
(1)
Section 10A of TCGA 1992 is amended as follows.
5
(2)
In subsection (3) (certain gains or losses to be excluded from being treated by
virtue of subsection (2) as accruing to the taxpayer in year of return)—
(a)
in paragraph (a), for “he was neither resident nor ordinarily resident in
the United Kingdom” substitute—
“(i)
he was neither resident nor ordinarily resident in
10
the United Kingdom, or
(ii)
he was resident or ordinarily resident in the
United Kingdom but was Treaty non-resident;”;
(b)
in paragraph (d), after “152(1)(b)” insert “, 153(1)(b)”.
(3)
In subsection (8) (definitions) in the definition of “relevant disposal”, after
15
“United Kingdom” insert “and was not Treaty non-resident”.
(4)
For subsection (9) substitute—
“(9)
For the purposes of this section an individual satisfies the residence
requirements for a year of assessment—
(a)
if, during any part of that year of assessment, he is resident in
20
the United Kingdom and not Treaty non-resident, or
(b)
if he is ordinarily resident in the United Kingdom during that
year of assessment, unless he is Treaty non-resident during that
year of assessment.
(9A)
For the purposes of this section an individual is Treaty non-resident at
25
any time if, at that time, he falls to be regarded as resident in a territory
outside the United Kingdom for the purposes of double taxation relief
arrangements having effect at that time.
(9B)
Where this section applies in the case of any individual in
circumstances in which one or more intervening years would, but for
30
his being Treaty non-resident during some or all of that year or those
years, not be an intervening year, this section shall have effect in the
taxpayer’s case—
(a)
as if subsection (2)(a) above did not apply in the case of any
amount treated by virtue of section 87 or 89(2) as an amount of
35
chargeable gains accruing to the taxpayer in any such
intervening year, and
(b)
as if any such intervening year were not an intervening year for
the purposes of subsections (2)(b) and (c) and (6) above.”.
(5)
After subsection (9B) (as inserted by subsection (4) above) insert—
40
“(9C)
Nothing in any double taxation relief arrangements shall be read as
preventing the taxpayer from being chargeable to capital gains tax in
respect of any of the chargeable gains treated by virtue of subsection

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 5 — Chargeable gains
30

(2)(a) above as accruing to the taxpayer in the year of return (or as
preventing a charge to that tax from arising as a result).”.
(6)
Omit subsection (10) (section to be without prejudice to right to claim relief
under double taxation relief arrangements).
(7)
The amendments in subsections (2)(a), (4), (5) and (6) have effect—
5
(a)
in any case in which the year of departure is, or (on the assumption that
the amendment in subsection (4) had always had effect) would be, the
year 2005-06 or a subsequent year of assessment; and
(b)
in any case in which—
(i)
the year of departure is, or (on that assumption) would be, the
10
year 2004-05, and
(ii)
at a time in that year on or after 16th March 2005, the taxpayer
was resident or ordinarily resident in the United Kingdom and
was not Treaty non-resident (within the meaning given by
section 10A(9A) of TCGA 1992, as inserted by subsection (4)).
15
(8)
The amendment in subsection (2)(b) has effect in relation to relevant disposals
made on or after 16th March 2005.
(9)
The amendment in subsection (3) has effect for determining whether a disposal
of an asset is a relevant disposal for the purposes of section 10A of TCGA 1992
in any case in which the person making the disposal acquired the asset on or
20
after 16th March 2005.
33
Trustees both resident and non-resident in a year of assessment
(1)
After section 83 of TCGA 1992 insert—
“83A
Trustees both resident and non-resident in a year of assessment
(1)
This section applies if a chargeable gain accrues to the trustees of a
25
settlement on the disposal by them of an asset in a year of assessment
and the trustees—
(a)
are within the charge to capital gains tax in that year of
assessment, but
(b)
are non-UK resident at the time of the disposal.
30
(2)
Where this section applies, nothing in any double taxation relief
arrangements shall be read as preventing the trustees from being
chargeable to capital gains tax (or as preventing a charge to tax arising,
whether or not on the trustees) by virtue of the accrual of that gain.
(3)
For the purposes of this section the trustees of a settlement are within
35
the charge to capital gains tax in a year of assessment—
(a)
if, during any part of that year of assessment, they are resident
in the United Kingdom and not Treaty non-resident, or
(b)
if they are ordinarily resident in the United Kingdom during
that year of assessment, unless they are Treaty non-resident
40
during that year of assessment.
(4)
For the purposes of this section the trustees of a settlement are non-UK
resident at a particular time if, at that time,—
(a)
they are neither resident nor ordinarily resident in the United
Kingdom, or
45

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
31

(b)
they are resident or ordinarily resident in the United Kingdom
but are Treaty non-resident.
(5)
For the purposes of this section the trustees of a settlement are Treaty
non-resident at any time if, at that time, they fall to be regarded as
resident in a territory outside the United Kingdom for the purposes of
5
double taxation relief arrangements having effect at that time.”.
(2)
The amendment made by this section has effect in relation to disposals made
on or after 16th March 2005.
34
Location of assets etc
Schedule 4 (which makes provision in relation to the situation of assets for the
10
purposes of TCGA 1992 and which makes minor amendments in that Act in
relation to non-resident companies with United Kingdom permanent
establishments) has effect.
Miscellaneous
35
Exercise of options etc
15
Schedule 5 (which makes provision, for the purposes of the taxation of
chargeable gains, in relation to options) has effect.
36
Notional transfers within a group
(1)
Section 171A of TCGA 1992 (notional transfers within a group) is amended as
follows.
20
(2)
After subsection (3) insert—
“(3ZA)
In a case where B—
(a)
is not resident in the United Kingdom, but
(b)
is carrying on a trade in the United Kingdom through a
permanent establishment there,
25

the asset or part deemed to be transferred to B by A is to be treated for
the purposes of subsections (2)(c) and (3) above as having been
acquired by B for use by or for the purposes of the permanent
establishment; but that shall not be taken to affect the question whether
or not the asset or part is situated in the United Kingdom at any time.”.
30
(3)
The amendment made by this section has effect in relation to disposals made
on or after 16th March 2005.
Chapter 6
Miscellaneous
Accounting practice and related matters
35
37
Accounting practice and related matters

Schedule 6 (accounting practice and related matters) has effect.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
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Financial avoidance etc
38
Charges on income for the purposes of corporation tax
(1)
Section 338A of ICTA (meaning of “charges on income” for the purposes of
corporation tax) is amended as follows.
(2)
In subsection (2) (what are charges on income) paragraph (a) (annuities or
5
other annual payments that meet the conditions in section 338B) shall cease to
have effect.
(3)
In section 125(1) of ICTA (annual payments for non-taxable consideration) for
“income tax,” substitute “income tax and”.
(4)
In section 434A(2)(a) of ICTA (loss resulting to insurance company from
10
computation in accordance with Case I of Schedule D: reduction by specified
amounts) omit sub-paragraph (i) (which relates to charges on income).
(5)
The side-note to section 494 of ICTA (charges on income) becomes “Loan
relationships etc.”.
(6)
The amendment made by subsection (4) has effect for accounting periods
15
beginning on or after 1st April 2004.
(7)
The other amendments made by this section have effect in relation to payments
made on or after the commencement date in respect of annuities or other
annual payments.
(8)
Where—
20
(a)
an accounting period of a company begins before, and ends on or after,
the commencement date,
(b)
a payment in respect of an annuity or other annual payment is made by
the company in that period but before the commencement date, and
(c)
the payment is deductible as a charge on income for the purposes of
25
corporation tax,

subsection (9) applies.
(9)
In any such case, so much of any amount as represents that payment—
(a)
is not deductible under section 75 of ICTA (expenses of management),
and
30
(b)
is not to be brought into account under section 76 of that Act (expenses
of insurance companies) as expenses payable,

for that or any subsequent accounting period.
(10)
Subsection (12) applies in any case where—
(a)
a payment in respect of an annuity or other annual payment is made by
35
the company on or after the commencement date, and
(b)
the condition in subsection (11) is satisfied.
(11)
The condition is that the payment represents an amount which (apart from
subsection (12))—
(a)
would not be deductible under section 75 of ICTA, or
40
(b)
would not fall to be brought into account under section 76 of that Act,

by reason only of section 337A(1)(b) of that Act ( company’s income from any
source to be computed without any deduction in respect of charges on income)
as it applies by virtue of section 338A(2)(a) of that Act.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
33

(12)
In any such case, the amount represented by the payment—
(a)
is deductible under section 75 of ICTA, or
(b)
falls to be brought into account under section 76 of that Act as expenses
payable,

for the accounting period in which the payment is made.
5
(13)
In this section “the commencement date” means 16th March 2005.
39
Avoidance involving financial arrangements

Schedule 7 (which makes provision in relation to tax avoidance involving
financial arrangements) has effect.
Financing of companies etc
10
40
Transfer pricing and loan relationships
Schedule 8 (which amends Schedule 28AA to ICTA and Schedule 9 to FA 1996)
has effect.
Intangible fixed assets
41
Intangible fixed assets
15
(1)
Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed
assets) is amended as set out in subsections (2) to (4).
(2)
In paragraph 92 (transfer between company and related party treated as being
at market value)—
(a)
in sub-paragraph (1), for “the following two exceptions” substitute “the
20
following four exceptions”;
(b)
after sub-paragraph (4) insert—
   “(4A)
The third exception is where—
(a)
the asset is transferred from the company at less than
its market value, or to the company at more than its
25
market value,
(b)
the related party—
(i)
is not a company, or
(ii)
is a company in relation to which the asset is
not a chargeable intangible asset immediately
30
after the transfer to it or (as the case may be)
immediately before the transfer from it,

and
(c)
by virtue of any provision of—
(i)
section 209 of the Taxes Act 1988 (meaning of
35
“distribution”), or
(ii)
Part 3 of the Income Tax (Earnings and
Pensions) Act 2003 (employment income:
earnings and benefits etc treated as earnings),

the transfer gives rise (or would give rise but for sub-
40
paragraph (1)) to an amount to be taken into account

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
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in computing any person’s income, profits or losses
for tax purposes.
     (4B)
Where the third exception applies, sub-paragraph (1) does
not apply, in relation to the computation mentioned in sub-
paragraph (4A)(c), for the purposes of any such provision as
5
is mentioned there.
     (4C)
The fourth exception is where—
(a)
the asset is transferred to the company, and
(b)
on a claim for relief under section 165 of the Taxation
of Chargeable Gains Act 1992 (relief for gifts of
10
business assets) in respect of the transfer, a reduction
is made under subsection (4)(a) of that section.
     (4D)
Where the fourth exception applies—
(a)
the transfer is treated for the purposes of this
Schedule as being at market value less the amount of
15
the reduction;
(b)
all such adjustments as may be required, by way of
assessment, amendment of returns or otherwise, may
be made (notwithstanding any time limit on the
making of an assessment or the amendment of a
20
return).”.
(3)
In paragraph 95 (meaning of “related party”) for Case Three substitute—

“Case Three

C is a close company and P is, or is an associate of—
(a)
a participator in C, or
25
(b)
a participator in a company that has control of, or holds a
major interest in, C.”.
(4)
In paragraph 132 (roll-over relief: transitory interaction with relief on
replacement of business asset), in sub-paragraph (5) (disapplication for certain
corporation tax purposes of Classes 4 to 7 in section 155 of TCGA 1992)—
30
(a)
for “4 to 7” substitute “4 to 7A”;
(b)
for “(goodwill and various types of quota)” substitute “(goodwill and
certain other intangible assets)”.
(5)
In section 86(2) of FA 1993 (roll-over relief: power to amend section 155 of
TCGA 1992 by order) for the words after “may make such consequential
35
amendments” substitute “of—
(a)
Schedule 7AB to the Taxation of Chargeable Gains Act 1992, or
(b)
paragraph 132 of Schedule 29 to the Finance Act 2002,

as appear to the Treasury to be appropriate.”.
(6)
The amendments made by subsection (2) have effect in relation to any transfer
40
of an asset made on or after 16th March 2005.
(7)
The amendment made by subsection (3) has effect, for the purposes of
paragraph 92 of Schedule 29 to FA 2002 as it applies otherwise than for
determining the debits or credits to be brought into account under that
Schedule, in relation to any transfer of an asset made on or after 16th March
45
2005.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
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(8)
That amendment has effect, for all other purposes of that Schedule, in relation
to the debits or credits to be brought into account for accounting periods
beginning on or after 16th March 2005 (and, in relation to the debits or credits
to be brought into account for any such period, shall be deemed always to have
had effect).
5
(9)
An accounting period beginning before, and ending on or after, that date is
treated for the purposes of subsection (8) as if so much of that period as falls
before that date, and so much of that period as falls on or after that date, were
separate accounting periods.
(10)
The amendments made by subsection (4) have effect in relation to any such
10
acquisition as is referred to in paragraph 132(5) of Schedule 29 to FA 2002 made
on or after 22nd March 2005.
Insurance companies etc
42
Insurance companies etc
Schedule 9 (which makes provision about insurance companies etc) has effect.
15
International matters
43
Implementation of the amended Parent/Subsidiary Directive
(1)
Section 801 of ICTA (dividends paid between related companies: relief for UK
and third country taxes) is amended as follows.
(2)
After subsection (5) (meaning of one company being related to another)
20
insert—
“(5A)
For the purposes of subsections (2) and (3) above (including any
determination of the extent to which underlying tax paid by the third,
fourth or subsequent company in question would be taken into account
under this Part if the conditions specified for the purpose in subsection
25
(2) above were satisfied) a company is also related to another company
if that other company—
(a)
controls directly or indirectly, or
(b)
is a subsidiary of a company which controls directly or
indirectly,
30

not less than 10% of the ordinary share capital of the first-mentioned
company.”.
(3)
The amendment made by this section has effect where the dividend mentioned
in section 799(1) of ICTA is paid on or after 1st January 2005.
44
Territories with a lower level of taxation: reduction of amount of local tax
35
(1)
Section 750 of ICTA (controlled foreign companies: territories with a lower
level of taxation) is amended as follows.
(2)
In subsection (1), after “if” insert “, after giving effect to subsections (1A) and
(1B) below,”.