Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains
63

(6)
If the Board consider, on reasonable grounds, that conditions A to D are
or may be satisfied, they may give the company a notice in respect of
the arrangements (but see also section 184I).
(7)
If, when the notice is given, conditions A to D are satisfied, no loss
accruing to the company at any time is to be deductible from the
5
relevant gain.
(8)
A notice under this section must—
(a)
specify the arrangements,
(b)
specify the accounting period in which the relevant gain
accrues, and
10
(c)
inform the relevant company of the effect of this section.
(9)
If relevant gains accrue in more than one accounting period, a single
notice under this section may specify all the accounting periods
concerned.
(10)
In this section—
15
“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions (whether or not legally
enforceable),
“tax advantage” has the meaning given by section 184D.
(11)
For the purposes of this section it does not matter whether the tax
20
advantage is secured for the relevant company or for any other
company.
184I
Notices under sections 184G and 184H
(1)
Subsection (2) applies if—
(a)
the Board give a notice under section 184G or 184H (a “relevant
25
notice”) to a company that specifies an accounting period, and
(b)
the notice is given before the company has made its company
tax return for that accounting period.
(2)
If the company makes its return for that period before the end of the
applicable 90 day period (see subsection (12)), it may—
30
(a)
make a return that disregards the notice, and
(b)
at any time after making the return and before the end of the
applicable 90 day period, amend the return for the purpose of
complying with the provision referred to in the notice.
(3)
If a company has made a company tax return for an accounting period,
35
the Board may give the company a relevant notice in relation to that
period only if a notice of enquiry has been given to the company in
respect of its return for that period.
(4)
After any enquiries into the return for that period have been completed,
the Board may give the company a relevant notice only if requirements
40
A and B are met.
(5)
Requirement A is that at the time the enquiries into the return were
completed, the Board could not have been reasonably expected, on the
basis of information made available—
(a)
to them before that time, or
45
(b)
to an officer of theirs before that time,

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains
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to have been aware that the circumstances were such that a relevant
notice could have been given to the company in relation to that period.
(6)
For the purposes of requirement A, paragraph 44(2) and (3) of Schedule
18 to the Finance Act 1998 (information made available) applies as it
applies for the purposes of paragraph 44(1).
5
(7)
Requirement B is that—
(a)
the company or any other person was requested to produce or
provide information during an enquiry into the return for that
period, and
(b)
if the request had been duly complied with, the Board could
10
reasonably have been expected to give the company a relevant
notice in relation to that period.
(8)
If—
(a)
a company makes a company tax return for an accounting
period, and
15
(b)
the company is subsequently given a relevant notice that
specifies that period,

it may amend the return for the purpose of complying with the
provision referred to in the notice at any time before the end of the
applicable 90 day period.
20
(9)
If the relevant notice is given to the company after it has been given a
notice of enquiry in respect of its return for the period, no closure notice
may be given in relation to its company tax return until—
(a)
the end of the applicable 90 day period, or
(b)
the earlier amendment of its company tax return for the
25
purpose of complying with the provision referred to in the
notice.
(10)
If the relevant notice is given to the company after any enquiries into
the return for the period are completed, no discovery assessment may
be made as regards the chargeable gain to which the notice relates
30
until—
(a)
the end of the applicable 90 day period, or
(b)
the earlier amendment of the company tax return for the
purpose of complying with the provision referred to in the
notice.
35
(11)
Subsections (2)(b) and (8) do not prevent a company tax return for a
period becoming incorrect if—
(a)
a relevant notice is given to the company in relation to that
period,
(b)
the return is not amended in accordance with subsection (2)(b)
40
or (8) for the purpose of complying with the provision referred
to in the notice, and
(c)
the return ought to have been so amended.
(12)
In this section—
“the applicable 90 day period”, in relation to a relevant notice,
45
means the period of 90 days beginning with the day on which
the notice is given,

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains
65

“closure notice” means a notice under paragraph 32 of Schedule 18
to the Finance Act 1998,
“company tax return” means the return required to be delivered
pursuant to a notice under paragraph 3 of that Schedule, as read
with paragraph 4 of that Schedule,
5
“discovery assessment” means an assessment under paragraph 41
of that Schedule,
“notice of enquiry” means a notice under paragraph 24 of that
Schedule.”.
(2)
In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in
10
paragraph 25(1) (scope of enquiry), after “relief)” insert “or a notice under
section 184G or 184H of the Taxation of Chargeable Gains Act 1992 (avoidance
involving capital losses)”.
(3)
In paragraph 42 of that Schedule (restrictions on power to make discovery
assessment etc), in sub-paragraph (2A), after “1988” insert “or section 184G or
15
184H of the Taxation of Chargeable Gains Act 1992”.
(4)
The amendments made by this section have effect in relation to chargeable
gains accruing on any disposal that is made on or after 5th December 2005.
72
Repeal of s.106 of TCGA 1992
(1)
Section 106 of TCGA 1992 (disposal of shares and securities by company within
20
prescribed period of acquisition) shall cease to have effect.
(2)
In consequence of that repeal—
(a)
in section 104(2)(b) of TCGA 1992 (share pooling: general interpretative
provisions) omit “, 106”,
(b)
in section 105 of that Act (disposal on or before day of acquisition of
25
shares and other unidentified assets)—
(i)
in subsection (2)(b) for “any of the provisions of section 106 or”
substitute “section”, and
(ii)
in subsection (2)(c) omit “106,”,
(c)
in section 108(8) of that Act (identification of relevant securities) omit
30
“shall have effect subject to section 106 but”,
(d)
in section 110(1)(b) of that Act (section 104 holdings: indexation
allowance) for “sections 105 and 106” substitute “section 105”, and
(e)
in Schedule 15 to FA 2000 (corporate venture scheme), in paragraph
93(6) (identification of shares on a disposal), for “Sections 104 to 106”
35
substitute “Sections 104, 105”.
(3)
The amendments made by this section have effect in relation to any disposal
that is made on or after 5th December 2005.
Insurance policies and annuities
73
Policies of insurance and non-deferred annuities
40
(1)
TCGA 1992 is amended as follows.

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains
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(2)
For section 204 (policies of insurance) substitute—
“204
Policies of insurance and non-deferred annuities
(1)
A gain accruing on a disposal of, or of an interest in, the rights
conferred by a non-life policy of insurance is not a chargeable gain (but
see subsection (2)).
5
(2)
If a disposal is of, or of an interest in, the rights conferred by a non-life
policy of insurance of the risk of—
(a)
any kind of damage to assets, or
(b)
the loss or depreciation of assets,

the exemption under subsection (1) does not apply so far as those rights
10
relate to chargeable assets.
(3)
For this purpose “chargeable assets” means assets on the disposal of
which a chargeable gain—
(a)
may accrue, or
(b)
might have accrued.
15
(4)
Nothing in subsections (1) and (2) prevents sums received under a non-
life policy of insurance of the risk of—
(a)
any kind of damage to assets, or
(b)
the loss or depreciation of assets,

from being sums derived from the assets for the purposes of this Act
20
(and, in particular, for the purposes of section 22).
(5)
A gain accruing on a disposal of, or of an interest in, the rights
conferred by a contract for an annuity is not a chargeable gain if the
annuity is—
(a)
a non-deferred annuity, or
25
(b)
an annuity granted (or deemed to be granted) under the
Government Annuities Act 1929.
(6)
If any investments or other assets are, in accordance with a policy
issued in the course of life assurance business carried on by an
insurance company, transferred to the policy holder—
30
(a)
the policy holder’s acquisition of the assets, and
(b)
the disposal of the assets to the policy holder,

are to be taken for the purposes of this Act to be for a consideration
equal to the market value of the assets.
(7)
In this section “interest”, in relation to any rights, means an interest as
35
a co-owner of the rights.
(8)
It does not matter—
(a)
whether the rights are owned jointly or in common, or
(b)
whether or not the interests of the co-owners are equal.
(9)
In this section a “non-deferred annuity” means an annuity—
40
(a)
which is not granted under a contract for a deferred annuity,
and
(b)
which is granted in the ordinary course of a business of granting
annuities on the life of any person,

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 7 — Chargeable gains
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and it does not matter whether the annuity includes instalments of
capital.
(10)
In this section a “non-life policy of insurance” means—
(a)
a contract made in the course of a capital redemption business,
as defined in section 458(3) of the Taxes Act, and
5
(b)
any other policy of insurance which is not a policy of insurance
on the life of any person.”.
(3)
In section 237 (superannuation funds, annuities and annual payments)—
(a)
at the end of paragraph (a), insert “or”, and
(b)
omit paragraph (b) (including the “or” at the end of that paragraph)
10
(exemption for disposals of non-deferred annuities etc).
(4)
The amendments made by this section have effect in relation to disposals made
on or after 5th December 2005.
Capital gains tax
74
Exception to “bed and breakfasting” rules etc
15
(1)
TCGA 1992 is amended as follows.
(2)
In section 106A (identification of securities: general rules for capital gains tax),
after subsection (5) (acquisition of securities within 30 days after disposing of
securities of same class) insert—
“(5A)
Subsection (5) above shall not require securities to be identified with
20
securities which the person making the disposal acquires at a time
when—
(a)
he is neither resident nor ordinarily resident in the United
Kingdom, or
(b)
he is resident or ordinarily resident in the United Kingdom but
25
is Treaty non-resident.”.
(3)
In section 288 (interpretation), after subsection (7A) (meaning of “surrender” in
application of Act to Scotland) insert—
“(7B)
For the purposes of this Act, a person is Treaty non-resident at any time
if, at that time, he falls to be regarded as resident in a territory outside
30
the United Kingdom for the purposes of double taxation relief
arrangements having effect at that time.”.
(4)
In consequence of the amendment made by subsection (3)—
(a)
in section 10A (temporary non-residents), omit subsection (9A)
(meaning of “Treaty non-resident”), and
35
(b)
in section 83A (trustees both resident and non-resident in a year of
assessment), omit subsection (5) (meaning of “Treaty non-resident”).
(5)
The amendment made by subsection (2) has effect in relation to any acquisition
made at any time on or after 22nd March 2006.
(6)
The amendments made by subsections (3) and (4) have effect in relation to any
40
time on or after 22nd March 2006.

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
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Chapter 8
Avoidance: miscellaneous
Film partnerships
75
Interest relief: film partnership
(1)
The amount of interest on a loan in respect of which an individual (“the
5
borrower”) is eligible for relief for a year of assessment under sections 353 and
362 of ICTA (interest on loan to buy into partnership) shall, where this section
applies, be restricted to 40% of the interest that would otherwise be eligible for
relief.
(2)
This section applies where—
10
(a)
the partnership (“the film partnership”) carries on a trade,
(b)
the profits or losses of the trade are computed in accordance with
Chapter 9 of Part 2 of ITTOIA 2005 (films, etc),
(c)
the loan is secured on an asset or activity of another partnership (“the
investment partnership”),
15
(d)
the borrower is or has been a member of the investment partnership,
and
(e)
at a time in the year of assessment the proportion of the profits of the
investment partnership to which the borrower is entitled is less than the
proportion of the partnership’s capital contributed by him at that time.
20
(3)
For the purposes of subsection (2)(c) a loan is secured on an asset or activity of
a partnership if there is any arrangement—
(a)
under which an asset of the partnership may be used or relied upon
wholly or partly to guarantee repayment of any part of the loan, or
(b)
by virtue of which any part of the loan is expected to be repaid (directly
25
or indirectly) out of assets or income held by or accruing to the
partnership.
(4)
For the purposes of subsection (2)(e) the reference to profits excludes any
amount that would not be taken into account as, or for the purpose of
calculating, income for the purposes of the Tax Acts.
30
(5)
In subsection (2)(e) the reference to the partnership’s capital is a reference to—
(a)
anything that is, or in accordance with generally accepted accounting
practice would be, accounted for as partners’ capital or partners’
equity, and
(b)
amounts lent to the partnership by the partners.
35
(6)
For the purposes of subsection (2)(e) the reference to the proportion of the
partnership’s capital contributed by the borrower includes, in particular, a
reference to—
(a)
any amount paid by the borrower to acquire an interest in the
investment partnership if or in so far as the borrower retains the
40
interest at that time,
(b)
any amount made available by the borrower (directly or indirectly) to
another person who acquires an interest in the investment partnership
if or in so far as that other person retains the interest at that time,
(c)
any amount lent by the borrower to the investment partnership,
45

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
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(d)
any amount made available by the borrower (directly or indirectly) to
another person who lends it to the investment partnership, and
(e)
an amount made available in any other way prescribed by regulations
made by the Commissioners for Her Majesty’s Revenue and Customs.
(7)
Regulations under subsection (6)(e)—
5
(a)
may make provision having retrospective effect,
(b)
may make provision generally or only in relation to specified cases or
circumstances,
(c)
may make different provision for different cases or circumstances,
(d)
may make transitional, consequential or incidental provision,
10
(e)
shall be made by statutory instrument, and
(f)
shall not be made unless a draft has been laid before and approved by
resolution of the House of Commons.
(8)
In subsections (2) to (6) a reference to the borrower or another partner includes
a reference to a person connected with him within the meaning of section
15
839(2) of ICTA.
(9)
This section shall have effect in relation to the payment of interest accruing on
or after 10th March 2006.
Financial instruments
76
Avoidance involving financial arrangements
20
Schedule 6 (which makes provision in relation to tax avoidance involving
financial arrangements) has effect.
Intangible fixed assets
77
Treating assets as “existing assets” etc
(1)
Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed
25
assets) is amended as follows.
(2)
In paragraph 13 (credits in respect of intangible fixed assets: introduction), in
sub-paragraph (1) (credits brought into account under Part 3), after paragraph
(a) (receipts recognised in determining profit or loss), insert—
“(aa)
receipts in respect of royalties so far as the receipts do not
30
give rise to a credit under paragraph 14 (see paragraph
14A),”.
(3)
After paragraph 14 (receipts recognised as they accrue) insert—
“Receipts in respect of royalties so far as not dealt with under paragraph 14
14A   (1)
So far as a receipt in respect of any royalty does not give rise to a
35
credit under paragraph 14 (whether in the period of account in which
it is received or in a subsequent period of account), a credit shall be
brought into account for tax purposes.