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 9 — Miscellaneous provisions
79

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Disposal of plant or machinery subject to lease where income retained
(1)
CAA 2001 is amended as follows.
(2)
In section 66 (list of provisions outside Chapter 5 of Part 2 about disposal
values), after the entry relating to section 222 of CAA 2001, insert—

“sections 228K to 228M
Disposal of plant or machinery

5

subject to lease where income

retained”.

(3)
After section 228J (plant or machinery subject to further operating lease)
insert—
“Disposal of plant or machinery subject to lease where income retained
10
228K
Disposal of plant or machinery subject to lease where income retained
(1)
This section applies for corporation tax purposes if—
(a)
on any day (“the relevant day”) a person (“the lessor”) carries on
a business of leasing plant or machinery (the “leasing
business”),
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(b)
on the relevant day the lessor sells or otherwise disposes of any
relevant plant or machinery subject to a lease to another person,
(c)
the other person does not, as a result of the disposal, become
entitled to all of the rentals under the lease in respect of the
plant or machinery which are payable on or after the relevant
20
day, and
(d)
the lessor is required to bring a disposal value of the plant or
machinery into account under this Part.
(2)
The disposal value to be brought into account is determined as follows.
(3)
If the amount or value of the consideration for the disposal exceeds the
25
limit that would otherwise be imposed on the amount of the disposal
value by section 62 (general limit) or 239 (limit on disposal value where
additional VAT rebate)—
(a)
that limit is not to apply, and
(b)
the whole of the amount or value of the consideration for the
30
disposal is to be the disposal value to be brought into account.
(4)
In any other case, the disposal value to be brought into account is the
sum of—
(a)
the amount or value of the consideration for the disposal, and
(b)
the value of the rentals under the lease in respect of the plant or
35
machinery (see subsections (7) and (8)) which are payable on or
after the relevant day and to which the other person does not, as
a result of the disposal, become entitled,

but subject to the limit imposed on the amount of the disposal value by
section 62 or 239.
40
(5)
If—
(a)
any of the rentals under the lease are receivable by the lessor on
or after the relevant day, and

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
80

(b)
the value of any of those rentals is represented in the amount of
the disposal value under subsection (4)(b),

the amount of those rentals that is equal to their value as so represented
is left out of account in calculating the income of the lessor’s leasing
business for corporation tax purposes.
5
(6)
If, in determining under subsection (5) the amount of any rental to be
so left out of account, it is necessary to apportion the amount of the
rental, the apportionment is to be made on a just and reasonable basis.
(7)
For the purposes of this section, the value of any rentals under the lease
in respect of the plant or machinery is taken to be the amount of the net
10
present value of the rentals (see section 228L).
(8)
If any land or other asset which is not plant or machinery is subject to
the lease, the value of any rentals under the lease in respect of the plant
or machinery is taken to be so much of the amount of the net present
value of the rentals as, on a just and reasonable basis, relates to the plant
15
or machinery.
(9)
This section is supplemented by—
(a)
section 228L (which provides rules for determining the net
present value of the rentals), and
(b)
section 228M (which defines other expressions used in this
20
section).
228L
Determining the net present value of the rentals for purposes of s.228K
(1)
For the purposes of section 228K, the amount of the net present value
of the rentals is calculated as follows—

Step 1
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Find the amount (“RI”) of each rental payment—
(a)
which is payable at any time during the term of the lease, and
(b)
which is payable on or after the relevant day.

Step 2

For each rental payment find the day (“the payment day”) on which it
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becomes payable.

Step 3

For each rental payment find the number of days in the period (“P”)
which—
(a)
begins with the relevant day, and
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(b)
ends with the payment day.

Step 4

Calculate the net present value of each payment (“NPVRI”) by
applying the following formula—

where—
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T is the temporal discount rate, and
i is the number of days in P divided by 365.

Step 5

Add together each amount of NPVRI determined under step 4.

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
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(2)
For the purposes of this section the “term” of a lease has the meaning
given in Chapter 6A of this Part.
(3)
For the purposes of this section the “temporal discount rate” is 3.5% or
such other rate as may be specified by regulations made by the
Treasury.
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(4)
The regulations may make such provision as is mentioned in
subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to
set rates of interest).
(5)
Subsection (5) of that section (power of Commissioners to specify rate
by order in certain circumstances) applies in relation to regulations
10
under this section as it applies in relation to regulations under that
section.
228M
Other definitions for the purposes of s.228K
(1)
This section applies for the purposes of section 228K.
(2)
“Business of leasing plant or machinery”—
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(a)
has the same meaning as in Part 2 of Schedule 10 to FA 2006
(sale etc of lessor companies etc) (if the business is carried on
otherwise than in partnership), or
(b)
has the same meaning as in Part 3 of that Schedule (if the
business is carried on in partnership).
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(3)
“Lease” includes—
(a)
an underlease, sublease, tenancy or licence, and
(b)
an agreement for any of those things.
(4)
“Relevant plant or machinery”, in relation to a business of leasing plant
or machinery, means plant or machinery on whose provision
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expenditure is incurred wholly or partly for the purposes of the
business.”.
(4)
In Schedule 1 (abbreviations and defined expressions), in Part 1
(abbreviations), insert at the end—

“FA 2006
The Finance Act 2006 (c.)”.

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(5)
The amendments made by this section have effect in relation to any disposal
made on or after 5th December 2005.
(6)
But any rentals that are receivable by the lessor before 22nd March 2006 are to
be left out of account in calculating the income of the lessor’s leasing business
for corporation tax purposes.
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85
Restrictions on effect of elections under section 266 of CAA 2001
(1)
CAA 2001 is amended as follows.
(2)
In section 266 (election where predecessor and successor are connected
persons), in subsection (7) (sections 104, 108 and 265 not to apply if election is
made), at the end insert “(but see section 267A)”.
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
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(3)
In section 267 (effect of election), at the end insert—
“(6)
This section is subject to section 267A.”.
(4)
After that section insert—
“267A
  Restriction on effect of election
(1)
This section applies for corporation tax purposes if—
5
(a)
on any day (“the relevant day”) a person (“the predecessor”)
carries on a business of leasing plant or machinery,
(b)
on the relevant day another person (“the successor”) succeeds to
the business, and
(c)
the predecessor and the successor make an election under
10
section 266.
(2)
Neither—
(a)
section 266(7), nor
(b)
the provisions of section 267,

have effect in relation to any plant or machinery which, in determining
15
whether the business is a business of leasing plant or machinery on the
relevant day, is qualifying leased plant or machinery.
(3)
In this section “business of leasing plant or machinery”—
(a)
has the same meaning as in Part 2 of Schedule 10 to FA 2006
(sale etc of lessor companies etc) (if the business is carried on
20
otherwise than in partnership), or
(b)
has the same meaning as in Part 3 of that Schedule (if the
business is carried on in partnership).”.
(5)
The amendments made by this section have effect in relation to any succession
occurring on or after 5th December 2005.
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Insurance companies and policyholders
86
Insurance companies
Schedule 11 (which makes provision about insurance companies) has effect.
87
Qualifying policies: altering method for calculating benefits
(1)
Schedule 15 to ICTA (provisions for determining whether an insurance policy
30
is a “qualifying policy” for the purposes of the Tax Acts) is amended as follows.
(2)
In paragraph 18 (variations), in sub-paragraph (3) (paragraph does not apply
by reason of certain variations), at the end insert “, or
(d)
any variation which alters the method for calculating the
benefits secured by the policy.”.
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(3)
In paragraph 22 (certificates from body issuing policy), in sub-paragraph (3)
(sub-paragraph (2) does not apply by reason of certain variations), at the end
insert “; or
(c)
any variation which alters the method for calculating the
benefits secured by the policy.”.
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
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(4)
In the case of a variation effected as part of, or in connection with, an insurance
business transfer scheme, the amendments made by this section are deemed
always to have had effect.
(5)
In any other case, the amendments made by this section have effect in relation
to variations effected on or after 7th October 2005.
5
(6)
In this section an “insurance business transfer scheme” means—
(a)
a scheme falling within section 105 of the Financial Services and
Markets Act 2000 (c. 8),
(b)
a scheme sanctioned by a court under Part 1 of Schedule 2C to the
Insurance Companies Act 1982 (c. 50), or
10
(c)
a scheme sanctioned by a court under section 49 of that Act or under
any earlier enactment corresponding to that section,

and for the purposes of this subsection any reference to an enactment is a
reference to the enactment as it had effect from time to time.
Settlements
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88
Settlements, etc: chargeable gains
Schedule 12 (which amends TCGA 1992 in respect of settlors and trustees of
settlements and makes other minor and consequential amendments) shall have
effect.
89
Settlements, etc: income
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Schedule 13 (which amends ICTA and ITTOIA 2005 in respect of settlors and
trustees of settlements and makes other minor and consequential
amendments) shall have effect.
90
Special trusts tax rates not to apply to social landlords’ service charge income
(1)
Section 686 of ICTA (accumulation and discretionary trusts: special rates of
25
tax) is amended as follows.
(2)
In subsection (2), after paragraph (b) insert—
“(ba)
is not income from service charges held on trust (or, in Scotland,
held in trust) by a relevant housing body; and”.
(3)
After subsection (6) insert—
30
“(6ZA)
In this section—
“relevant housing body” means—
(a)
a local authority,
(b)
a registered social landlord,
(c)
a Northern Ireland housing association,
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(d)
a charitable housing association,
(e)
a charitable housing trust,
(f)
a housing action trust established under Part 3 of the
Housing Act 1988,
(g)
the Housing Corporation, or
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(h)
the Northern Ireland Housing Executive; and

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
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“service charge” has the meaning given by section 18(1) of the
Landlord and Tenant Act 1985.
(6ZB)
In subsection (6ZA)—
“charitable housing association” means a society, body or
company which—
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(a)
satisfies the conditions in section 5(1)(a) and (b) of the
Housing Act 1985, and
(b)
is registered in a register kept under section 3 of the
Charities Act 1993 or section 3 of the Charities and
Trustee Investment (Scotland) Act 2005;
10
“charitable housing trust” means a corporation or body which—
(a)
satisfies the condition in section 6(a) or (b) of the
Housing Act 1985, and
(b)
is registered in a register kept under section 3 of the
Charities Act 1993 or section 3 of the Charities and
15
Trustee Investment (Scotland) Act 2005;
“Northern Ireland housing association” means a body which is
registered in the register maintained under Article 14 of the
Housing (Northern Ireland) Order 1992; and
“registered social landlord” means a body which is registered in a
20
register maintained under section 1 of the Housing Act 1996 or
section 57 of the Housing (Scotland) Act 2001.”
(4)
This section has effect for the year 2006-07 and subsequent years of assessment.
Investment reliefs
91
Venture capital schemes
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(1)
Schedule 14 contains amendments of the provisions relating to—
the enterprise investment scheme,
venture capital trusts, and
the corporate venturing scheme.
(2)
Those amendments have effect as mentioned in that Schedule.
30
Employment-related securities
92
Avoidance using options etc
(1)
Section 420 of ITEPA 2003 (meaning of securities etc) is amended as follows.
(2)
In subsection (1)(f), insert at the beginning “options and”.
(3)
In subsection (5)(e), insert at the beginning “securities”.
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(4)
In subsection (8), in the definition of “securities option”, after “acquire
securities” insert “other than a right to acquire securities which is acquired
pursuant to a right or opportunity made available under arrangements the
main purpose (or one of the main purposes) of which is the avoidance of tax or
national insurance contributions”.
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Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Miscellaneous provisions
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(5)
This section has effect in relation to options acquired on or after 2nd December
2004; but subsection (4) also has effect in relation to an option acquired before
that date where something is done on or after that date as part of the
arrangements under which it was made available.
93
Corporation tax relief for shares acquired under EMI option
5
(1)
Schedule 23 to FA 2003 (corporation tax relief for employee share acquisition)
is amended as follows.
(2)
In paragraph 21 (amount of relief in case of restricted shares), after sub-
paragraph (4) insert—
   “(4A)
But if the option is a qualifying option, the amount mentioned in sub-
10
paragraph (4) is increased by (or, if that amount is nil, is taken to be)
the amount equal to any difference between—
(a)
the amount that would have counted as employment income
of the employee under section 476 of the Income Tax
(Earnings and Pensions) Act 2003 in respect of the acquisition
15
apart from the EMI code, and
(b)
the amount (if any) that in fact counts as such income in
accordance with the EMI code.”
(3)
In paragraph 22C (amount of relief in case of convertible shares), after sub-
paragraph (4) insert—
20
  “(4ZA)
But if the option is a qualifying option, the amount mentioned in sub-
paragraph (4) is increased by (or, if that amount is nil, is taken to be)
the amount equal to any difference between—
(a)
the amount that would have counted as employment income
of the employee under section 476 of the Income Tax
25
(Earnings and Pensions) Act 2003 (as modified by section 437
of that Act) in respect of the acquisition apart from the EMI
code, and
(b)
the amount (if any) that in fact counts as such income in
accordance with the EMI code.”
30
(4)
In paragraph 30 (minor definitions) insert at the appropriate places—
““the EMI code” has the meaning given by section 527(3) of the
Income Tax (Earnings and Pensions) Act 2003;”, and
““qualifying option” has the same meaning as in the EMI code (see
section 527(4) of the Income Tax (Earnings and Pensions) Act
35
2003);”.
(5)
In paragraph 31 (index of defined expressions) insert at the appropriate
places—

“the EMI code
paragraph 30”, and

“qualifying option
paragraph 30”.

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(6)
This section applies in relation to an acquisition of shares made on or after 1st
September 2003 (and for this purpose shares are acquired when the recipient
acquires a beneficial interest in the shares and not, if different, the time the
shares are conveyed or transferred).