Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
106

(4)
For the purposes of subsection (3)—
(a)
a derivative contract is hedging in relation to a company if or in so far
as it is acquired as a hedge of risk in relation to an asset,
(b)
a designation of a contract as wholly or partly hedging for the purposes
of a company’s accounts shall be conclusive, and
5
(c)
“embedded derivatives” and “host contract” have the meanings given
by paragraph 2(3) of Schedule 26 to FA 2002 (derivative contracts).
(5)
Profits shall be computed without regard to items giving rise to credits or
debits which would be within Schedule 26 to FA 2002 (derivative contracts) but
for paragraph 4(2)(b) (exclusion of share-based and unit-trust-based contracts).
10
(6)
Income and expenditure relating partly to tax-exempt business and partly to
non-tax-exempt business shall be apportioned reasonably.
(7)
Section 3(1) of CAA 2001 (claims for capital allowances) shall not apply; and
any allowance which the company could claim under that section shall be
made automatically and reflected in the calculation of profits.
15
121
Distributions: liability to tax
(1)
A distribution received by a shareholder of a company to which this Part
applies in respect of profits of C (tax-exempt) shall be treated—
(a)
in the case of a shareholder within the charge to corporation tax, as
profits of a Schedule A business, and
20
(b)
in the case of a shareholder within the charge to income tax, as the
profits of a UK property business (within the meaning of section 264 of
ITTOIA 2005).
(2)
A distribution received by a shareholder who is not resident in the United
Kingdom—
25
(a)
if the shareholder is a company, shall be chargeable to tax as profits of
a Schedule A business,
(b)
if the shareholder is not a company, shall be chargeable to tax as profits
of a UK property business (within the meaning of section 264 of ITTOIA
2005), and
30
(c)
in either case, shall not be chargeable to tax by virtue of section 42A of
ICTA (non-resident landlords).
(3)
Subsection (1) shall not apply in relation to a shareholder if and in so far as he—
(a)
is a dealer in respect of distributions (within the meaning of section 95
of ICTA),
35
(b)
is a dealer in securities who is charged to tax under Part 2 of ITTOIA
2005 (trading income) in respect of distributions made by companies,
(c)
is an individual member of Lloyd’s (within the meaning given by
section 184(1) of FA 1993) and the distribution is made in respect of
assets forming part of—
40
(i)
a premium trust fund of his (within the meaning given by
section 174 of FA 1993), or
(ii)
an ancillary trust fund of his (within the meaning given by
section 176 of FA 1993), or
(d)
is a corporate member of Lloyd’s (within the meaning given by section
45
230(1) of FA 1994) and the distribution is made in respect of assets
forming part of—

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
107

(i)
a premiums trust fund belonging to it (within the meaning
given by section 222 of FA 1994), or
(ii)
an ancillary trust fund belonging to it (within the meaning
given by section 223 of FA 1994).
(4)
Section 114(1)(a) of ICTA (partnerships with companies as members) does not
5
disapply subsection (1) above.
(5)
Section 231 of ICTA (tax credits in respect of qualifying distributions) shall not
apply to distributions made by a company to which this Part applies in respect
of profits of C (tax-exempt).
(6)
Distributions from companies to which this Part applies and distributions from
10
principal companies of groups to which this Part applies shall be treated, for
the purposes of subsection (1), as the profits of a single business (irrespective
of whether the shareholder receives different distributions in different
capacities) which is separate from—
(a)
any other Schedule A business carried on by the shareholder,
15
(b)
any other UK property business (within the meaning of section 264 of
ITTOIA 2005) carried on by the shareholder,
(c)
any overseas property business (within the meaning of section 70A(4)
of ICTA) carried on by the shareholder, and
(d)
any overseas property business (within the meaning of section 265 of
20
ITTOIA 2005) carried on by the shareholder.
(7)
In the case of a shareholder which is a partnership, subsection (6) applies to
receipts by a partner of a share of any distribution as it applies to receipts by a
shareholder.
(8)
In subsection (1)—
25
(a)
the reference to a company to which this Part applies includes a
reference to C (post-cessation), and
(b)
“profits” includes gains.
122
Distributions: deduction of tax
(1)
The Treasury may make regulations providing for the assessment, collection
30
and recovery of tax where—
(a)
a company to which this Part applies makes a distribution of profits of
C (tax-exempt), and
(b)
tax is or may become chargeable in respect of the distribution (whether
by virtue of section 121(1) or otherwise).
35
(2)
Regulations under this section may, in particular—
(a)
require a company to deduct tax at the basic rate before payment of
distributions;
(b)
specify classes of shareholder to whom distributions may be made
without deduction of tax;
40
(c)
make provision about the calculation of payments of tax to be made by
a company;
(d)
require a company to account for tax deducted;
(e)
apply an enactment (with or without modification) in respect of cases
where tax is deducted or treated as deducted from income;
45

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
108

(f)
specify the time at which a distribution is to be treated as made by a
company;
(g)
specify periods in respect of which payments of tax are to be made;
(h)
specify times at which payments of tax are to be made;
(i)
make provision about the making of claims and determinations in
5
respect of over-payment or under-payment (which may include
provision for appeals);
(j)
include provision requiring the payment of interest in respect of late
payments of tax (which may—
(i)
provide for payment without deduction of tax;
10
(ii)
allow interest paid as a deduction from profits of the company’s
tax-exempt business);
(k)
require a company to provide a shareholder with a certificate
containing specified information;
(l)
make provision about the repayment to a shareholder of sums
15
deducted and paid to the Commissioners in respect of tax;
(m)
make provision for the payment of interest in respect of repayments
under paragraph (l);
(n)
require notices to be given by or to a company;
(o)
require a company to make returns;
20
(p)
require a company to make records available to the Commissioners for
inspection.
(3)
A reference in subsection (2) to a distribution in respect of profits of tax-exempt
business includes a distribution made after this Part has ceased to apply to a
company.
25
(4)
A distribution which is treated as having been made by virtue of section
107(9)(b) shall also be treated as having been made for the purposes of
regulations under this section.
(5)
In this section “profits” includes gains.
123
Attribution of distributions
30
Distributions made by a company to which this Part applies shall be
attributed—
(a)
first, to payments in satisfaction of Condition 4 of section 107,
(b)
secondly, if or in so far as the company determines, to distribution of
amounts which derive from activities of a kind in respect of which
35
corporation tax is chargeable in relation to income,
(c)
thirdly, to distribution of profits of the property rental business,
(d)
fourthly, to distribution of gains accruing to C (tax-exempt) which by
virtue of section 124 are not chargeable gains, and
(e)
fifthly, to other distributions.
40
Capital gains
124
Corporation tax
(1)
A gain accruing to a company to which this Part applies on the disposal of an
asset shall not be a chargeable gain if—

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
109

(a)
the asset was used wholly and exclusively for the purposes of the
business of C (tax-exempt), or
(b)
the asset was used partly for the purposes of the business of C (tax-
exempt) and partly for the purposes of the business of C (residual)
during one or more periods of (in aggregate) less than a year, but was
5
otherwise used wholly and exclusively for the purposes of the business
of C (tax-exempt).
(2)
Where a gain accrues to a company to which this Part applies on the disposal
of an asset which for one or more periods of (in aggregate) at least a year has
been used partly for the purposes of the business of C (tax-exempt) and partly
10
for the purposes of the business of C (residual), such part of the gain as may
reasonably be attributed to the business of C (tax-exempt) (having regard to the
extent to which, and the length of the periods during which, the asset was used
for the different purposes) shall not be a chargeable gain.
(3)
Corporation tax shall be charged in respect of gains accruing to C (residual) at
15
a rate determined without reference to section 13 of ICTA (small companies
rate).
125
Movement of assets out of ring-fence
(1)
Subsection (2) applies when an asset which has been used wholly and
exclusively for the purposes of the business of C (tax-exempt) begins to be used
20
(otherwise than by being disposed of in the course of trade) wholly and
exclusively for the purposes of the business of C (residual).
(2)
The asset shall be treated as having been at that time—
(a)
disposed of by C (tax-exempt), and
(b)
immediately re-acquired by C (residual).
25
(3)
The sale and re-acquisition deemed under subsection (2) shall be treated as
being for a consideration equal to the market value of the asset.
(4)
For the purposes of CAA 2001—
(a)
the sale and re-acquisition deemed under subsection (2)—
(i)
shall not give rise to allowances or charges, and
30
(ii)
shall not make it possible to make an election under section 198
or 199 of that Act (apportionment),
(b)
subsection (3) above shall not apply, and
(c)
anything done by or to C (tax-exempt) before the deemed sale and re-
acquisition shall be treated after the deemed sale and re-acquisition as
35
having been done by or to C (residual).
(5)
Subsection (6) applies when an asset which has been used wholly and
exclusively for the purposes of the business of C (tax-exempt) is disposed of in
the course of trade for the purposes of the business of C (residual).
(6)
Where this subsection applies—
40
(a)
the deemed sale and re-acquisition under section 111(2) shall be
disregarded, and
(b)
the asset shall be treated as having been disposed of in the course of the
business of C (residual).
(7)
Subsection (6) shall be taken to apply, in particular, where—
45

Finance (No.2) Bill
Part 4 — Real Estate Investment Trusts
110

(a)
a property acquired by a company to which this Part applies has been
developed since acquisition,
(b)
the cost of the development exceeds 30% of the fair value of the
property (determined in accordance with international accounting
standards) at entry or at acquisition, whichever is the earlier, and
5
(c)
the company disposes of the property within the period of three years
beginning with the completion of the development.
(8)
Where subsection (6) applies in relation to an asset held at entry, the company
may make a claim for repayment of a proportion of the tax paid under section
112 calculated as follows—
10
where—
(a)
Asset Market Value means market value of the asset at entry,
(b)
Aggregate Market Value means the aggregate market value of assets
treated as sold and re-acquired under section 111(2) (ignoring any asset
of negative market value), and
15
(c)
Tax Paid means tax paid under section 112.
126
Movement of assets into ring-fence
(1)
This section applies where an asset which has been used wholly and
exclusively for the purposes of the business of C (residual) begins to be used
wholly and exclusively for the purposes of the business of C (tax-exempt).
20
(2)
The asset shall be treated as having been—
(a)
disposed of by C (residual), and
(b)
immediately re-acquired by C (tax-exempt).
(3)
The sale and re-acquisition deemed under subsection (2) shall be treated as
being for a consideration equal to the market value of the asset.
25
(4)
For the purposes of CAA 2001—
(a)
the sale and re-acquisition deemed under subsection (2)—
(i)
shall not give rise to allowances or charges, and
(ii)
shall not make it possible to make an election under section 198
or 199 of that Act (apportionment),
30
(b)
subsection (3) above shall not apply, and
(c)
anything done by or to C (residual) before the deemed sale and re-
acquisition shall be treated after the deemed sale and re-acquisition as
having been done by or to C (tax-exempt).
127
Interpretation
35
Sections 124 to 126 shall be construed as one with TCGA 1992.