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Finance Bill


Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 1 — Personal taxation

8

 

(2)   

Subsection (1) and Schedule 1 shall come into force on such day as the Treasury

may by order made by statutory instrument appoint.

(3)   

An order under subsection (2) may—

(a)   

appoint different days for different purposes, and

(b)   

contain transitional provisions and savings.

5

Part 2

Income tax, corporation tax and capital gains tax

Chapter 1

Personal taxation

Social security pension lump sums

10

7       

Charge to income tax on lump sum

(1)   

A charge to income tax arises where a person becomes entitled to a social

security pension lump sum.

(2)   

For the purposes of the Tax Acts (including subsection (5)) a social security

pension lump sum—

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(a)   

is to be treated as income, but

(b)   

is not to be taken into account in determining the total income of any

person.

(3)   

The person liable to a charge under this section is the person (“P”) entitled to

the lump sum, whether or not P is resident, ordinarily resident or domiciled in

20

the United Kingdom.

(4)   

The charge is imposed on P for the applicable year of assessment (see

subsection (6)).

(5)   

A charge under this section is a charge in respect of the amount of the lump

sum at the following rate—

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(a)   

if P’s total income for the applicable year of assessment is nil, 0%;

(b)   

if P’s total income for that year of assessment is greater than nil but does

not exceed the starting rate limit for that year, the starting rate for that

year;

(c)   

if P’s total income for that year of assessment exceeds the starting rate

30

limit but does not exceed the basic rate limit for that year, the basic rate

for that year;

(d)   

if P’s total income for that year of assessment exceeds the basic rate

limit for that year, the higher rate for that year.

(6)   

Section 8 makes provision as to the meaning of “the applicable year of

35

assessment” for the purposes of this section.

(7)   

Section 9 contains further definitions and makes provision as to

commencement.

(8)   

Section 10 contains consequential amendments.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 1 — Personal taxation

9

 

8       

Meaning of “applicable year of assessment” in section 7

(1)   

For the purposes of section 7 “the applicable year of assessment” has the

meaning given by this section.

(2)   

Subject to subsections (5) to (7), the applicable year of assessment is—

(a)   

the year of assessment in which the first benefit payment day falls, or

5

(b)   

if P dies before the beginning of that year of assessment, the year of

assessment in which P dies.

(3)   

For the purposes of subsection (2) “the first benefit payment day” is, subject to

subsection (4), the day as from which P’s—

(a)   

Category A or Category B retirement pension,

10

(b)   

shared additional pension, or

(c)   

graduated retirement benefit,

   

becomes payable following the period of deferment by virtue of which P’s

entitlement to the lump sum arises.

(4)   

But where—

15

(a)   

the lump sum is a state pension lump sum to which P is entitled under

paragraph 7A of Schedule 5 to SSCBA 1992 or paragraph 7A of

Schedule 5 to SSCB(NI)A 1992 or a graduated retirement benefit lump

sum to which P is entitled under a provision corresponding to either of

those paragraphs, and

20

(b)   

at the time of S’s death, P was entitled to a Category A or Category B

retirement pension or (as the case may be) graduated retirement

benefit,

   

the first benefit payment day is the day on which S died; and for this purpose

“S” is the person by virtue of whose period of deferment P’s entitlement to the

25

lump sum arises.

(5)   

Subsections (6) and (7) apply where social security regulations make provision

enabling the making of an election for a social security pension lump sum to be

paid in the year of assessment (“the later year of assessment”) next following

that given by subsection (2).

30

(6)   

If such an election is made by P and is not revoked, the applicable year of

assessment is—

(a)   

the later year of assessment, or

(b)   

if P dies before the beginning of that year of assessment, the year of

assessment in which P dies.

35

(7)   

If—

(a)   

P dies after the beginning of the later year of assessment,

(b)   

by the time of P’s death, P has not notified the Secretary of State as to

whether or not P wishes to make such an election,

(c)   

social security regulations make provision enabling the making of such

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an election in such a case by the personal representatives of P, and

(d)   

P’s personal representatives make such an election in accordance with

the regulations,

   

the applicable year of assessment is the later year of assessment.

(8)   

For the purposes of determining the applicable year of assessment, it does not

45

matter when the lump sum is actually paid.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 1 — Personal taxation

10

 

(9)   

In this section—

“Category A or Category B retirement pension” means Category A or

Category B retirement pension under Part 2 of SSCBA 1992 or Part 2 of

SSCB(NI)A 1992;

“graduated retirement benefit” means graduated retirement benefit

5

under section 36 or 37 of NIA 1965 or section 35 or 36 of NIA(NI) 1966;

“shared additional pension” means shared additional pension under Part

2 of SSCBA 1992 or Part 2 of SSCB(NI)A 1992;

“social security regulations” means any regulations under—

(a)   

the Social Security Administration Act 1992 (c. 5), or

10

(b)   

the Social Security Administration (Northern Ireland) Act 1992

(c. 8).

(10)   

This section is to be construed as one with section 7.

9       

Interpretation and commencement

(1)   

In sections 7 and 8 “social security pension lump sum” means—

15

(a)   

a state pension lump sum,

(b)   

a shared additional pension lump sum, or

(c)   

a graduated retirement benefit lump sum.

(2)   

In section 8 and this section—

“graduated retirement benefit lump sum” means a lump sum payable

20

under—

(a)   

section 36 or 37 of NIA 1965, or

(b)   

section 35 or 36 of NIA(NI) 1966;

“shared additional pension lump sum” means a lump sum payable

under—

25

(a)   

section 55C of, and Schedule 5A to, SSCBA 1992, or

(b)   

section 55C of, and Schedule 5A to, SSCB(NI)A 1992;

“state pension lump sum” means a lump sum payable under—

(a)   

section 55 of, and Schedule 5 to, SSCBA 1992, or

(b)   

section 55 of, and Schedule 5 to, SSCB(NI)A 1992.

30

(3)   

In section 8 and this section—

“NIA 1965” means the National Insurance Act 1965 (c. 51);

“NIA(NI) 1966” means the National Insurance Act (Northern Ireland)

1966 (c. 6 (N.I.));

“SSCBA 1992” means the Social Security Contributions and Benefits Act

35

1992 (c. 4);

“SSCB(NI)A 1992” means the Social Security Contributions and Benefits

(Northern Ireland) Act 1992 (c. 7).

(4)   

Sections 7 and 8 and this section have effect in relation to the year 2006-07 and

subsequent years of assessment.

40

10      

Consequential amendments

(1)   

ITEPA 2003 is amended as follows.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 1 — Personal taxation

11

 

(2)   

In section 577 (UK social security pensions) after subsection (1) insert—

“(1A)   

But this section does not apply to any social security pension lump

sum (within the meaning of section 7 of F(No.2)A 2005).”.

(3)   

In section 683 (PAYE income) in subsection (3) (meaning, subject to subsection

(4), of “PAYE pension income”) in the opening words, for “subsection (4)”

5

substitute “subsections (3A) and (4)”.

(4)   

In that section, after subsection (3) insert—

“(3A)   

“PAYE pension income” for a tax year also includes any social security

pension lump sum (within the meaning of section 7 of F(No.2)A 2005)

in respect of which a charge to income tax arises under that section for

10

that tax year.”.

(5)   

In section 686 (meaning of “payment”) in subsection (1) (rules as to when

payment of, or on account of, PAYE income is to be treated as made for the

purposes of PAYE regulations) at the end of the subsection insert—

   

“But this is subject to subsection (5) (PAYE pension income: social

15

security pension lump sums).”.

(6)   

In that section, after subsection (4) insert—

“(5)   

For the purposes of PAYE regulations, a payment of, or on account of,

an amount which is PAYE pension income of a person by virtue of

section 683(3A) (social security pension lump sums) is to be treated as

20

made at the time when the payment is made.”.

(7)   

In Schedule 1 (abbreviations and defined expressions) in Part 1 (abbreviations

of Acts and instruments) insert at the end—

 

“F(No.2)A 2005

The Finance (No. 2) Act 2005

 
  

(c. )”.

 

25

Gift aid

11      

Donations to charity by individuals

(1)   

For section 25(5E) to (5G) of FA 1990 (donations to charity by individuals:

benefits: disregard of certain rights of admission) substitute—

“(5E)   

In determining whether a gift to a charity is a qualifying donation the

30

benefit of any right of admission received in consequence of the gift

shall be disregarded if subsections (5F) to (5H) are satisfied in relation

to the right.

(5F)   

This subsection is satisfied if the opportunity to make a gift and to

receive the right of admission in consequence is available to the public.

35

(5G)   

This subsection is satisfied if the right of admission is a right granted by

the charity for the purpose of viewing property preserved, maintained,

kept or created by a charity in pursuance of its charitable purposes,

including, in particular—

(a)   

buildings,

40

(b)   

grounds or other land,

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 1 — Personal taxation

12

 

(c)   

plants,

(d)   

animals,

(e)   

works of art (but not performances),

(f)   

artefacts, and

(g)   

property of a scientific nature.

5

(5H)   

This subsection is satisfied if—

(a)   

the right of admission applies, during a period of at least one

year, at all times at which the public can obtain admission, or

(b)   

a member of the public could purchase the same right of

admission and the amount of the gift is greater by at least 10%

10

than the amount which he would have to pay.

(5I)   

In subsection (5E) “right of admission” means a right of admission—

(a)   

of the person who makes the gift or of that person and one or

more members of his family (whether or not the right must be

exercised by all those persons at the same time),

15

(b)   

to premises or property to which the public are admitted on

payment of an admission fee, and

(c)   

without payment of the admission fee or on payment of a

reduced fee;

   

and in the application of subsection (5H)(b) “the same right of

20

admission” means a right relating to the same property, classes of

person and periods of time as the right received in consequence of the

gift.

(5J)   

For the purposes of subsection (5H)(a) a right of admission shall be

treated as applying at all times at which the public can obtain

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admission despite the fact that the right does not apply on days

specified by the charity, being days on each of which an event is to take

place on the premises to which the right relates; provided that no more

than 5 days are specified for that purpose in relation to—

(a)   

the period during which the right applies, in the case of a period

30

of one year, or

(b)   

each calendar year during all or part of which the right applies,

in the case of a right applying for a period of more than one

year.”

(2)   

This section shall have effect in relation to gifts made on or after 6th April 2006.

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Employee securities

12      

Employee securities: anti-avoidance

Schedule 2 contains amendments relating to employee securities.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 2 — Scientific research organisations

13

 

Chapter 2

Scientific research organisations

13      

Corporation tax exemption for organisations

(1)   

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

amended as follows.

5

(2)   

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

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

“(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”.

10

(3)   

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

“in relation to any accounting period, be allowed in the case of the Association

for that accounting period”.

(4)   

After that subsection insert—

“(1A)   

The Treasury may by regulations prescribe circumstances in which the

15

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

with.

(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,

20

(b)   

circumstances in which an Association shall be deemed to have,

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

its object,

(c)   

circumstances in which the undertaking of research and

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

25

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.”

(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.

30

(4)   

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

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

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.”

35

(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.

14      

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.

40

(2)   

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

 
 

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

14

 

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

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

5

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

scientific research association).

10

(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

under section 13(6).

15

15      

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

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

20

“(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

carried on by the company belongs, or

25

(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”.

(4)   

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

30

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

under section 13(6).

Chapter 3

Authorised investment funds etc

16      

Open-ended investment companies

35

After section 468 of ICTA (authorised unit trust schemes) insert—

“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

40

rate is charged for the year of assessment which begins on 6th April in

 
 

 
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