House of Commons portcullis
House of Commons
Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 3 — Authorised investment funds etc

19

 

21      

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

(1)   

For the purposes of computing the gain accruing on a disposal by a unit

5

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

trust scheme,

10

(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

would be charged to income tax as his income but for a

15

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

Income Tax Acts.

20

(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

for the distribution period in respect of which the amount is

25

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

have the meaning given by section 468H of the Taxes Act.”

30

(2)   

This section shall have effect in relation to a disposal of units on or after 16th

March 2005.

22      

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.

35

(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

40

2005.

23      

Offshore funds

(1)   

In section 761 of ICTA (charge on offshore income gain)—

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 3 — Authorised investment funds etc

20

 

(a)   

in subsection (2)—

(i)   

for “sections 2(1) and 10” substitute “sections 2(1), 10 and 10B”,

and

(ii)   

for “section 11(2)(b)” substitute “section 11(2A)(c)”, and

(b)   

in subsection (3)—

5

(i)   

for “section 10” substitute “sections 10 and 10B”,

(ii)   

for “subsection (1) of that section” substitute “subsection (1) of

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

10

with the omission of the words “situated in the United

Kingdom”” substitute “and paragraphs (a) and (b) of subsection

(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””.

15

(2)   

For paragraph 1(1)(d) of Schedule 27 to ICTA (distributing funds) substitute—

“(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

20

or vocation, that sum would fall to be chargeable to

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

25

did not form part of the profits of a trade, profession

or vocation, that sum would fall to be chargeable to

tax in accordance with section 18 of ICTA (Schedule

D)—

(a)   

under Case III of Schedule D in respect of

30

income arising from securities out of the

United Kingdom or from possessions out of

the United Kingdom, or

(b)   

under Case V of Schedule D;”.

(3)   

For paragraph 3(1)(a) of that Schedule (distributing funds) substitute—

35

“(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

sums as are referable to their interests; or

40

(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

resident in the United Kingdom—

45

(i)   

are chargeable to tax under Case III of Schedule D in

respect of income arising from securities out of the

United Kingdom or from possessions out of the United

Kingdom;

(ii)   

are chargeable to tax under Case V of Schedule D; or

50

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

21

 

(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”.

(4)   

In paragraph 3(1)(b) of that Schedule (distributing funds) for “sub-paragraph

5

(i) or (ii)” substitute “paragraph (a) or (aa)”.

Chapter 4

Avoidance involving tax arbitrage

24      

Deduction cases

(1)   

If the Commissioners for Her Majesty’s Revenue and Customs consider, on

10

reasonable grounds, that conditions A to D are or may be satisfied in relation

to a transaction to which a company falling within subsection (2) is party, they

may give the company a notice under this section.

(2)   

A company falls within this subsection if—

(a)   

it is resident in the United Kingdom, or

15

(b)   

it is resident outside the United Kingdom but is within the charge to

corporation tax.

(3)   

Condition A is that the transaction to which the company is party forms part

of a scheme that is a qualifying scheme.

(4)   

Condition B is that the scheme is such that for the purposes of corporation tax

20

the company is in a position to claim or has claimed an amount by way of

deduction in respect of the transaction or is in a position to set off or has set off

against profits in an accounting period an amount relating to the transaction.

(5)   

Condition C is that the main purpose, or one of the main purposes, of the

scheme is to achieve a UK tax advantage for the company.

25

(6)   

Condition D is that the amount of the UK tax advantage in question is more

than a minimal amount.

(7)   

A notice under this section is a notice—

(a)   

specifying the transaction in relation to which the Commissioners

consider that conditions A to D are or may be satisfied,

30

(b)   

specifying the accounting period in relation to which the

Commissioners consider that condition B is or may be satisfied as

regards the transaction, and

(c)   

informing the company that as a consequence section 25 (rules relating

to deductions) has effect in relation to the transaction.

35

(8)   

Nothing in this section prevents the Commissioners from giving a company

falling within subsection (2) a notice under this section as regards two or more

transactions.

(9)   

Schedule 3 makes provision about what constitutes a qualifying scheme.

25      

Rules relating to deductions

40

(1)   

The following provisions of this section apply in relation to a transaction if—

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

22

 

(a)   

a notice specifying the transaction is given to a company under section

24, and

(b)   

when the notice is given, conditions A to D of section 24 are satisfied in

relation to the transaction.

(2)   

The company must compute (or recompute) for the purposes of corporation

5

tax its income or chargeable gains, or its liability to corporation tax—

(a)   

for the accounting period specified in the notice under section 24, and

(b)   

for any subsequent accounting period,

   

in accordance with rules A and B.

(3)   

Rule A is that, in respect of the specified transaction, no amount is allowable as

10

a deduction for the purposes of the Corporation Tax Acts to the extent that, in

relation to the expense in question, an amount may be otherwise deducted or

allowed in computing the income, profits or losses of any person for the

purposes of any tax (including any foreign tax) other than—

(a)   

petroleum revenue tax, or

15

(b)   

the tax chargeable under section 501A(1) of ICTA (supplementary

charge in respect of ring fence trades).

(4)   

The reference in subsection (3) to an amount otherwise deducted or allowed in

computing the income, profits or losses of any person for the purposes there

mentioned includes a reference to an amount that would be so deducted or

20

allowed but for any rule that has the same effect as rule A.

(5)   

For the purposes of subsection (4) “rule” means—

(a)   

a provision of the Tax Acts, or

(b)   

a rule having effect under the tax law of any territory outside the

United Kingdom.

25

(6)   

Rule B applies if—

(a)   

a transaction, or a series of transactions, forming part of the scheme by

reference to which conditions A to D are satisfied makes or imposes

provision as a result of which one person (“the payer”) makes a

payment and another person (“the payee”) receives, or becomes

30

entitled to receive, a payment or payments,

(b)   

in respect of the payment by the payer, an amount may be deducted or

otherwise allowed to the payer, or to another person who is party to, or

concerned in, the scheme, in computing any profits or losses for tax

purposes, and

35

(c)   

in respect of the payment or payments that the payee receives or is

entitled to receive as a result of the transaction or series of transactions,

or part of such payment or payments, the payee is not liable to tax or, if

liable, his liability to tax is reduced as a result of provision made or

imposed by the scheme.

40

(7)   

Without prejudice to the generality of subsection (6)(c), the payee’s liability to

tax in respect of the payment or payments that he receives or is entitled to

receive as a result of the transaction or series of transactions shall be treated for

the purposes of subsection (6)(c) as reduced as a result of provision made or

imposed by the scheme if—

45

(a)   

an amount arising from the transaction or series of transactions

forming part of the scheme, or from another transaction or series of

transactions forming part of the scheme, falls to be deducted or

otherwise allowed to the payee in computing for tax purposes any

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

23

 

profits or losses arising from the payment or payments or the

entitlement to receive the payment or payments, or

(b)   

an amount of relief arising from the transaction or series of transactions

forming part of the scheme, or from another transaction or series of

transactions forming part of the scheme, may be deducted from the

5

amount of income or gains arising from the payment or payments or

the entitlement to receive the payment or payments.

(8)   

The requirement in subsection (6)(c) is not satisfied if the payee is not liable to

tax because he is not liable to tax on any income or gains received by him or for

his benefit under the tax law of any territory.

10

(9)   

The requirement in subsection (6)(c) is not satisfied if, or to the extent that, the

payee is not subject to tax because his liability to tax is subject to an exemption

falling within subsection (10).

(10)   

An exemption falls within this subsection if—

(a)   

it exempts a person from being liable to tax in respect of income or

15

gains, without providing for that income or those gains to be treated as

the income or gains of one or more other persons, and

(b)   

it is conferred by a provision contained in or having the force of an Act

or by a provision of the tax law of any territory outside the United

Kingdom.

20

(11)   

Rule B is that the aggregate of the amounts allowable as a deduction for the

purposes of the Corporation Tax Acts in computing any profits to the company

arising from—

(a)   

the specified transaction, and

(b)   

any other transaction that forms part of the scheme and to which the

25

company is party,

   

is to be reduced in accordance with subsections (12) and (13).

(12)   

If, in respect of the payment or payments that the payee receives or is entitled

to receive, the payee is not liable to tax for the purposes of the requirement in

subsection (6)(c), the aggregate is to be reduced to nil.

30

(13)   

If, in respect of the payment or payments, the payee is liable to tax as regards

part or his liability to tax is reduced as described in subsection (6)(c), the

aggregate is to be reduced to such proportion of the aggregate as is equal to the

proportion of the payment or payments on which the payee is liable to tax; and

for this purpose the amount by which the payee’s liability is reduced is to be

35

treated as an amount on which the payee is not liable to tax.

(14)   

The company may choose to incorporate in its company tax return for the

specified accounting period such relevant adjustments as are necessary for

counteracting those effects of the scheme that are referable to the purpose

referred to in condition C.

40

(15)   

If, as a consequence of incorporating relevant adjustments in that company tax

return, the company counteracts those effects of the scheme that are referable

to the purpose referred to in condition C, the company is to be treated, so far

as regards the scheme, as having complied with subsection (2).

(16)   

The following are relevant adjustments—

45

(a)   

treating all or part of a deduction allowable for corporation tax

purposes as not being allowable;

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

24

 

(b)   

treating all or part of an amount that for corporation tax purposes may

be set off against profits in an accounting period as not falling to be set

off.

(17)   

In this section, references to tax purposes include a reference to the purposes

of any foreign tax; and foreign tax has the meaning given by section 403D of

5

ICTA.

(18)   

In this section, “company tax return” means the return required to be delivered

pursuant to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with

paragraph 4 of that Schedule.

26      

Receipts cases

10

(1)   

If the Commissioners for Her Majesty’s Revenue and Customs consider, on

reasonable grounds, that conditions A to E are or may be satisfied in relation

to a company resident in the United Kingdom, they may give the company a

notice under this section.

(2)   

Condition A is that a scheme makes or imposes provision (“the actual

15

provision”) as between the company and another person (“the paying party”)

by means of a transaction or series of transactions.

(3)   

Condition B is that the actual provision includes the making by the paying

party, by means of a transaction or series of transactions, of a payment that is

a qualifying payment in relation to the company.

20

(4)   

Condition C is that, as regards the qualifying payment made by the paying

party, there is an amount that—

(a)   

is available as a deduction for the purposes of the Tax Acts, or

(b)   

may be deducted or otherwise allowed in respect of the payment under

the tax law of any territory outside the United Kingdom,

25

   

and does not fall to be disregarded as described in subsection (5).

(5)   

An amount is to be disregarded if or to the extent that it is, for tax purposes, set

against any income arising to the paying party from the transaction or

transactions forming part of the scheme.

(6)   

Condition C is not to be treated as satisfied if—

30

(a)   

the paying party is a dealer,

(b)   

in the ordinary course of his business, he incurs losses in respect of the

transaction or transactions forming part of the scheme to which he is

party, and

(c)   

the amount by reference to which condition C would, but for this

35

subsection, be satisfied is an amount in respect of those losses.

(7)   

In subsection (6), “dealer” means a person who is a dealer in relation to a

distribution within the meaning of section 95(2) of ICTA or who would, if he

were resident in the United Kingdom, be such a dealer.

(8)   

Condition D is that at least part of the qualifying payment is not an amount to

40

which subsection (9) or (10) applies.

(9)   

This subsection applies to an amount that is, for the purposes of the

Corporation Tax Acts—

(a)   

income or gains arising to the company in the accounting period in

which the qualifying payment was made in relation to the company, or

45

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

25

 

(b)   

income arising to any other company resident in the United Kingdom

in a corresponding accounting period.

(10)   

This subsection applies to an amount that is taken into account in determining

the debits and credits to be brought into account by a company for the

purposes of Chapter 2 of Part 4 of FA 1996 as respects a share in another

5

company by virtue of section 91A or 91B of FA 1996 (shares treated as loan

relationships).

(11)   

Condition E is that the company and the paying party expected on entering

into the scheme that a benefit would arise as a result of condition D being

satisfied (whether by reference to all or part of the qualifying payment).

10

(12)   

A notice under this section is a notice—

(a)   

informing the company of the Commissioners’ view under subsection

(1),

(b)   

specifying the qualifying payment by reference to which the

Commissioners consider conditions B to E are or may be satisfied,

15

(c)   

specifying the accounting period of the company in which the payment

is made, and

(d)   

informing the company that as a consequence section 27 has effect in

relation to the payment.

(13)   

For the purposes of this section a payment is a qualifying payment in relation

20

to a company if it constitutes a contribution to the capital of the company.

(14)   

For the purposes of this section the accounting period of a company (“company

A”) corresponds to the accounting period of another company (“company B”)

if at least one day of company A’s accounting period falls within company B’s

accounting period.

25

27      

Rule as to qualifying payment

(1)   

The following provisions of this section apply in relation to a payment that is

a qualifying payment in relation to a company if—

(a)   

a notice specifying that payment is given to the company under section

26, and

30

(b)   

when the notice is given, conditions A to E of section 26 are satisfied in

relation to the company.

(2)   

The company must compute (or recompute) for the purposes of corporation

tax for the accounting period specified in the notice its income or chargeable

gains, or its liability to corporation tax, as if the relevant part of the qualifying

35

payment were an amount of income chargeable under Case VI of Schedule D

arising to the company in that period.

(3)   

The relevant part of the qualifying payment is the part by reference to which

conditions C and D are satisfied; and, where conditions C and D are satisfied

in relation to the whole of the qualifying payment, the relevant part is the

40

whole of the qualifying payment.

(4)   

In this section “qualifying payment” has the same meaning as in section 26.

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2005
Revised 1 July 2005