Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
74

Pre-owned assets
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Restriction of exemption from charge to income tax
(1)
Schedule 15 to FA 2004 (charge to income tax on benefits received by former
owner of property) is amended as follows.
(2)
In paragraph 11 (exemptions from charge)—
5
(a)
in sub-paragraph (9) (meaning of “the relevant property”) for “sub-
paragraphs (1) to (8)” substitute “this paragraph”, and
(b)
at the end insert—
   “(11)
Sub-paragraph (12) applies where at any time—
(a)
the relevant property has ceased to be comprised in a
10
person’s estate for the purposes of IHTA 1984, or
(b)
he has directly or indirectly provided any
consideration for the acquisition of the relevant
property,

and at any subsequent time the relevant property or any
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derived property is comprised in his estate for the purposes
of IHTA 1984 as a result of section 49(1) of that Act (treatment
of interests in possession).
     (12)
Where this sub-paragraph applies, the relevant property and
any derived property—
20
(a)
are not to be treated for the purposes of sub-
paragraphs (1) and (2) as comprised in his estate at
that subsequent time, and
(b)
are not to be treated as falling within sub-paragraph
(5) in relation to him at that subsequent time.
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     (13)
For the purposes of sub-paragraphs (11) and (12) references,
in relation to the relevant property, to any derived property
are to other property—
(a)
which derives its value from the relevant property,
and
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(b)
whose value, so far as attributable to the relevant
property, is not substantially less than the value of the
relevant property.”.
(3)
In paragraph 21 (election for application of inheritance tax provisions where
paragraph 3 (land) or 6 (chattels) would otherwise apply)—
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(a)
in sub-paragraph (2)(b) (application of the gifts with reservation rules),
in sub-paragraph (i) at the end insert “, but only so far as the chargeable
person is not beneficially entitled to an interest in possession in the
property”,
(b)
in sub-paragraph (2)(b) for sub-paragraph (ii) and the “and” before it
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substitute—
“(ii)
section 102(3) and (4) of that Act shall apply,
but only so far as the chargeable person is not
beneficially entitled to an interest in
possession in the property, and
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(iii)
if the chargeable person is beneficially entitled
to an interest in possession in the property,

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
75

sections 53(3) and (4) and 54 of IHTA 1984
(which deal with cases of property reverting
to the settlor etc) shall not apply in relation to
the chargeable proportion of the property.”,
and
5
(c)
in sub-paragraph (3) (meaning of “the chargeable proportion”), after
the “and” at the end of paragraph (a)(ii) insert—
“(iii)
in the case of property in which the chargeable
person is beneficially entitled to an interest in
possession, to the date of his death or (if his
10
interest comes to an end on an earlier date)
that earlier date, and”.
(4)
In paragraph 22 (election for application of inheritance tax provisions where
paragraph 8 (intangible property) would otherwise apply), in sub-paragraph
(2)(b) (application of the gifts with reservation rules)—
15
(a)
in sub-paragraph (i) at the end insert “, but only so far as the chargeable
person is not beneficially entitled to an interest in possession in the
property concerned”, and
(b)
for sub-paragraph (ii) and the “and” before it substitute—
“(ii)
section 102(3) and (4) of that Act shall apply,
20
but only so far as the chargeable person is not
beneficially entitled to an interest in
possession in the property concerned, and
(iii)
if the chargeable person is beneficially entitled
to an interest in possession in the property
25
concerned, sections 53(3) and (4) and 54 of
IHTA 1984 (which deal with cases of property
reverting to the settlor etc) shall not apply in
relation to that property.”.
(5)
The amendments made by this section have effect—
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(a)
for the part of the year 2005-06 beginning with 5th December 2005, and
(b)
for the year 2006-07 and subsequent years of assessment.
(6)
If—
(a)
paragraph 11 of Schedule 15 to FA 2004 ceases, in consequence of the
amendments made by this section, to apply to a person in relation to
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any property, and
(b)
that person dies before the day on which this Act is passed without
making an election under paragraph 21 or 22 of that Schedule in
relation to that property,

his personal representatives (within the meaning of IHTA 1984) may make any
40
election under paragraph 21 or 22 of that Schedule that he might have made.
(7)
If—
(a)
in consequence of the amendments made by this section a person
makes an election under paragraph 21 or 22 of Schedule 15 to FA 2004,
(b)
that person dies before the day on which this Act is passed, and
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(c)
an amount of inheritance tax would (but for this subsection) fall due
before that day,

that amount is to be treated instead as falling due at the end of the period of 14
days beginning with that day.

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
76

(8)
This section is deemed to have come into force on 5th December 2005.
Chapter 9
Miscellaneous provisions
Leasing of plant or machinery
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Leases of plant or machinery
5
(1)
Schedule 8 (which makes provision in relation to leases of plant or machinery)
has effect.
(2)
Schedule 9 (which makes miscellaneous amendments relating to such leases)
has effect.
Sale of lessors
10
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Sale etc of lessor companies etc
Schedule 10 (which makes provision about the sale etc of lessor companies etc)
has effect.
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Restrictions on use of losses etc: leasing partnerships
(1)
In section 403 of ICTA (amounts which may be surrendered by way of group
15
relief), in subsection (4) (section 403 subject to certain exceptions), at the end
insert “and

section 785ZA (restrictions on use of losses: leasing partnerships)”.
(2)
After section 785 of ICTA (meaning of expressions for purposes of sections 781
to 784 (assets leased to traders and others)) insert—
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“785ZA
  Restrictions on use of losses: leasing partnerships
(1)
This section applies for corporation tax purposes if—
(a)
a company carries on a business in respect of which the
company is within the charge to corporation tax,
(b)
the company carries on the business in partnership with other
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persons in an accounting period of the partnership,
(c)
the business (“the leasing business”) is, on any day in that
period, a business of leasing plant or machinery,
(d)
the company incurs a loss in its notional business in any
accounting period comprised (wholly or partly) in the
30
accounting period of the partnership, and
(e)
the interest of the company in the leasing business during the
accounting period of the partnership is not determined on an
allowable basis (see subsections (2) to (4)).
(2)
The interest of the company in the leasing business during the
35
accounting period of the partnership is determined on an allowable
basis if (and only if) the following condition is met.
(3)
The condition is met if, for the purposes of section 114(2),—

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
77

(a)
the company’s share in the profits or loss of the leasing business
for that period is determined wholly by reference to a single
percentage, and
(b)
the company’s share in any relevant capital allowances for that
period is determined wholly by reference to the same
5
percentage.
(4)
For the purposes of this condition “profits” does not include chargeable
gains.
(5)
The following restrictions apply in respect of so much of the loss
incurred by the company in its notional business as derives from any
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relevant capital allowances (“the restricted part of the loss”).
(6)
Apart from by way of set off against any relevant leasing income, relief
is not to be given to the company under any relevant loss relief
provision in respect of the restricted part of the loss.
(7)
If the leasing business is a trade, relief is not to be given to the company
15
under section 393A(1) in respect of the restricted part of the loss.
(8)
The restricted part of the loss is not available for set off by way of group
relief in accordance with section 403.
(9)
For the purpose of determining how much of a loss derives from any
relevant capital allowances, the loss is to be calculated on the basis that
20
any relevant capital allowances are the final amounts to be deducted.
785ZB
  Section 785ZA: definitions
(1)
This section applies for the purposes of section 785ZA.
(2)
“Business of leasing plant or machinery” has the same meaning as in
Part 3 of Schedule 10 to the Finance Act 2006 (sale etc of lessor
25
companies etc).
(3)
“Lease” has the same meaning as in section 785A.
(4)
“Notional business”, in relation to a company, means the business—
(a)
from which the company’s share in the profits or loss of the
leasing business is treated under section 114(2) as deriving for
30
the purposes of the charge to corporation tax, and
(b)
which is treated under that provision as carried on alone by the
company for those purposes.
(5)
“Plant or machinery” has the same meaning as in Part 2 of the Capital
Allowances Act.
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(6)
“Relevant capital allowance” means an allowance under Part 2 of the
Capital Allowances Act in respect of expenditure incurred on the
provision of plant or machinery wholly or partly for the purposes of the
leasing business.
(7)
“Relevant leasing income” means any income of the company’s
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notional business deriving from any lease—
(a)
which is a lease of plant or machinery, and
(b)
which was entered into before the end of the accounting period
of the company in which the loss in its notional business was
incurred.
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
78

(8)
“Relevant loss relief provision” means any of the following
provisions—
(a)
section 392A (Schedule A losses),
(b)
section 392B (losses from overseas property businesses),
(c)
section 393 (trade losses),
5
(d)
section 396 (Case VI losses).”.
(3)
After section 261 of CAA 2001 (special leasing: life assurance business) insert—
“261A
  Special leasing: leasing partnerships
(1)
This section applies for corporation tax purposes if—
(a)
a company carries on a business in partnership with other
10
persons in a chargeable period of the partnership,
(b)
the business (“the leasing business”) is, on any day in that
period, a business of leasing plant or machinery,
(c)
the company is entitled to an allowance under section 19
(special leasing of plant or machinery) for any chargeable
15
period comprised (wholly or partly) in the chargeable period of
the partnership, and
(d)
the interest of the company in the leasing business during the
chargeable period of the partnership is not determined on an
allowable basis.
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(2)
Subsections (3) to (6) of section 260 do not apply in relation to the
allowance.
(3)
For the purposes of this section—
(a)
“business of leasing plant or machinery” has the same meaning
as in Part 3 of Schedule 10 to FA 2006 (sale etc of lessor
25
companies etc), and
(b)
section 785ZA of ICTA applies for determining whether the
interest of the company in the leasing business during the
chargeable period of the partnership is determined on an
allowable basis.”.
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(4)
The amendments made by this section have effect in relation to any business
carried on by a company in partnership in any accounting period of the
partnership ending on or after 5th December 2005.
(5)
But, in relation to any accounting period of the partnership beginning before
5th December 2005 and ending on or after that date, those amendments have
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effect only if—
(a)
the company starts to carry on the business in partnership on or after
that date, or
(b)
a relevant change in the interest of the company in the business occurs
on or after that date.
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(6)
A relevant change in the interest of the company in the business occurs at any
time if—
(a)
immediately before that time its interest in the business during any
accounting period of the partnership is determined on an allowable
basis (within the meaning given by section 785ZA of ICTA), and
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(b)
immediately after that time its interest in the business during that
period is not so determined.