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 5 — Oil
128

Ring fence trades
152
Increase in rate of supplementary charge
(1)
In section 501A of ICTA (supplementary charge in respect of ring fence trades),
in subsection (1) (charge of 10 per cent on adjusted ring fence profits), for “10
per cent” substitute “20 per cent”.
5
(2)
The amendment made by subsection (1) has effect in relation to any accounting
period beginning on or after 1st January 2006 (but see also subsection (3)).
(3)
For the purpose of calculating the amount of the supplementary charge on a
company for an accounting period (a “straddling period”) beginning before 1st
January 2006 and ending on or after that date—
10
(a)
so much of the straddling period as falls before 1st January 2006, and so
much of the straddling period as falls on or after that date, are treated
as separate accounting periods, and
(b)
the company’s adjusted ring fence profits for the straddling period are
apportioned to the two separate accounting periods in proportion to
15
the number of days in those periods.
(4)
The amount of the supplementary charge on the company for the straddling
period is the sum of the amounts of supplementary charge that would, in
accordance with subsection (3), be chargeable on the company for those
separate accounting periods.
20
(5)
In the case of a company’s straddling period—
(a)
the Instalment Payments Regulations apply as if the amendment made
by subsection (1) had not been made, but
(b)
those Regulations also apply separately, in accordance with the
following subsection, in relation to the increase in the amount of any
25
supplementary charge on the company for that period that arises as a
result of that amendment.
(6)
In that separate application of those Regulations as mentioned in subsection
(5)(b), those Regulations have effect as if, for the purposes of those
Regulations,—
30
(a)
the straddling period were an accounting period beginning on 1st
January 2006,
(b)
supplementary charge were chargeable on the company for that
period, and
(c)
the amount of that charge were equal to the increase in the amount of
35
the supplementary charge for the straddling period that arises as a
result of the amendment made by subsection (1).
(7)
Any reference in the Instalment Payments Regulations to the total liability of a
company is, accordingly, to be read—
(a)
in their application as a result of subsection (5)(a), as a reference to the
40
amount that would be the company’s total liability for the straddling
period if the amendment made by subsection (1) had not been made,
and
(b)
in their application as a result of subsection (5)(b), as a reference to the
amount of the supplementary charge on the company for the deemed
45
accounting period under subsection (6)(a).
(8)
For the purposes of the Instalment Payments Regulations—

Finance (No.2) Bill
Part 5 — Oil
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(a)
a company is to be regarded as a large company as respects the deemed
accounting period under subsection (6)(a) if (and only if) it is a large
company for those purposes as respects the straddling period, and
(b)
any question whether a company is a large company as respects the
straddling period is to be determined as it would have been determined
5
if the amendment made by subsection (1) had not been made.
(9)
If the Instalment Payments Regulations—
(a)
apply in relation to a company’s liability to supplementary charge for
the deemed accounting period under subsection (6)(a), and
(b)
would (but for this subsection) treat any instalment payment in respect
10
of that liability as being due and payable on a date falling on or before
22nd March 2006,

those Regulations have effect as if the payment were due and payable instead
at the end of the period of 14 days beginning with that date.
(10)
In this section—
15
“adjusted ring fence profits” has the meaning given by section 501A of
ICTA,
“the Instalment Payments Regulations” means the Corporation Tax
(Instalment Payments) Regulations 1998 (S.I. 1998/ 3175),
“supplementary charge” means any sum chargeable under section
20
501A(1) of ICTA as if it were an amount of corporation tax.
153
Election to defer capital allowances
(1)
This section applies if—
(a)
a company carries on a ring fence trade in an accounting period
beginning on or after 1st January 2006,
25
(b)
relevant expenditure is incurred for the purposes of or in relation to the
ring fence trade (see subsections (4) to (7)), and
(c)
the relevant expenditure would (but for this section) be treated as
incurred for the purposes of CAA 2001 in the period of 12 months
ending with 31st December 2005.
30
(2)
The company may elect for the relevant expenditure to be treated instead as if
it were incurred on the first day of the company’s first accounting period
beginning on or after 1st January 2006.
(3)
The election—
(a)
has effect for the purposes of CAA 2001 other than those of section 45G
35
(expenditure not first-year qualifying expenditure under section 45F if
plant or machinery used for less than 5 years in a ring fence trade), and
(b)
must be made by notice given to an officer of Revenue and Customs on
or before 31st December 2007.
(4)
Expenditure is relevant expenditure if it falls within any of Cases A to C.
40
(5)
Expenditure falls within Case A if—
(a)
it is first-year qualifying expenditure on the provision of plant or
machinery under section 45F of CAA 2001 (expenditure on plant and
machinery for use wholly in a ring fence trade), and
(b)
no disposal event (see subsection (8)) in relation to the plant or
45
machinery occurs in the relevant period.

Finance (No.2) Bill
Part 5 — Oil
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(6)
Expenditure falls within Case B—
(a)
if it is first-year qualifying expenditure under section 416B of CAA 2001
(mineral extraction allowances: expenditure incurred by a company for
purposes of a ring fence trade),
(b)
if no disposal event in relation to any asset representing the
5
expenditure occurs in the relevant period,
(c)
if (or so far as) it is expenditure to which no part of any capital sum
received by the company in the relevant period is reasonably
attributable under section 425(2) of CAA 2001, and
(d)
if no entitlement to a balancing allowance for a chargeable period in
10
respect of the expenditure arises under any of sections 426 to 431 of
CAA 2001 as a result of an event that occurs in the relevant period (as
well as in that chargeable period).

The reference in paragraph (b) to any asset representing the expenditure is to
be read in accordance with section 416B(4) of CAA 2001.
15
(7)
Expenditure falls within Case C if—
(a)
it is qualifying expenditure on research and development under Part 6
of CAA 2001 where the ring fence trade is the trade by reference to
which the expenditure is qualifying expenditure, and
(b)
no disposal event in relation to any asset representing the expenditure
20
occurs in the relevant period.
(8)
In this section—
“disposal event”—
(a)
in relation to first-year qualifying expenditure under section
45F of CAA 2001, means an event of a kind that requires a
25
disposal value to be brought into account under Part 2 of that
Act (whether under section 61(1) or otherwise),
(b)
in relation to first-year qualifying expenditure under section
416B of CAA 2001, means an event of a kind that requires a
disposal value to be brought into account under section 421 or
30
422 of that Act,
(c)
in relation to qualifying expenditure on research and
development under Part 6 of CAA 2001, means an event of a
kind that requires a disposal value to be brought into account
under section 443(1) of that Act,
35
“the relevant period”, in relation to any expenditure for the purposes of or
in relation to a company’s ring fence trade, means the period—
(a)
beginning with the day on which the expenditure would (but
for this section) be treated as incurred for the purposes of CAA
2001, and
40
(b)
ending with the first day of the company’s first accounting
period beginning on or after 1st January 2006,
“ring fence trade” means a ring fence trade in respect of which tax is
chargeable under section 501A of ICTA (supplementary charge in
respect of ring fence trades).
45
154
Ring fence expenditure supplement
(1)
Chapter 5 of Part 12 of ICTA (petroleum extraction activities) is amended as
follows.

Finance (No.2) Bill
Part 5 — Oil
131

(2)
After section 496A (exploration expenditure supplement) insert—
“496B
  Ring fence expenditure supplement

Schedule 19C to this Act (ring fence expenditure supplement) shall
have effect.”.
(3)
Schedule 19B (petroleum extraction activities: exploration expenditure
5
supplement) is amended as follows.
(4)
In paragraph 1 (about the Schedule)—
(a)
in sub-paragraph (1) (entitlement of company to supplement), in the
opening words, after “2004” insert “but before 1st January 2006”,
(b)
in sub-paragraph (2) (condition that expenditure incurred on or after
10
1st January 2004), after “2004” insert “but before 1st January 2006”.
(5)
In paragraph 3 (accounting periods)—
(a)
in sub-paragraph (1), in the definition of “post-commencement period”,
after “2004” insert “but before 1st January 2006”,
(b)
in sub-paragraph (1), in the definition of “pre-commencement period”,
15
after “2004” insert “but before 1st January 2006”,
(c)
at the end insert—
    “(3)
In the case of an accounting period (a “straddling period”) of
any qualifying company beginning before 1st January 2006
and ending on or after that date—
20
(a)
so much of the straddling period as falls before 1st
January 2006, and
(b)
so much of the straddling period as falls on or after
that date,

are treated as separate accounting periods for the purposes of
25
this Schedule.
      (4)
Special provision is made elsewhere in this Schedule in
relation to straddling periods (see paragraphs 16, 18A and
22).”.
(6)
In paragraph 6 (qualifying E&A expenditure), in sub-paragraph (2) (condition
30
that expenditure incurred on or after 1st January 2004), after “2004” insert “but
before 1st January 2006”.
(7)
In paragraph 15 (supplement in respect of a post-commencement period), in
sub-paragraph (2) (supplement to be treated as a loss for the purposes of
Corporation Tax Acts), for “this Schedule)” substitute “this Schedule or Part 4
35
of Schedule 19C)”.
(8)
In paragraph 16 (amount of post-commencement supplement for a post-
commencement period), after sub-paragraph (2) (proportionate reduction of
supplement if post-commencement period less than 12 months) insert—
   “(2A)
But, if the post-commencement period is the deemed accounting
40
period under paragraph 3(3) ending before 1st January 2006, sub-
paragraph (2) has no effect in relation to the amount of the
supplement for that period.”.

Finance (No.2) Bill
Part 6 — Inheritance tax
132

(9)
After paragraph 18 (ring fence losses and non-qualifying losses) insert—
“Special rule for straddling periods
18A   (1)
This paragraph applies in any case where the period of the loss in
which a ring fence loss is incurred is the deemed accounting period
under paragraph 3(3) ending before 1st January 2006.
5
      (2)
The following assumption shall be made for the purpose of
calculating the amount of the qualifying E&A loss and the amount of
the non-qualifying loss.
      (3)
The assumption is that the loss made in the trade is taken to be the
loss incurred in the accounting period beginning before 1st January
10
2006 and ending on or after that date (disregarding paragraph 3(3)).
      (4)
The amount of the non-qualifying loss (found in accordance with
that assumption) is then reduced (but not below nil) by the following
amount.
      (5)
The amount is the amount of the ring fence loss in the deemed
15
accounting period beginning on 1st January 2006 determined under
paragraph 18 of Schedule 19C for the purposes of Part 4 of that
Schedule.”.
(10)
In paragraph 22 (reductions in respect of utilised ring fence profits), at the end
insert—
20
    “(4)
If the post-commencement period is the deemed accounting period
under paragraph 3(3) ending before 1st January 2006 (“the deemed
accounting period”), the amount of the profits of the deemed
accounting period is determined as follows.
      (5)
The amount of the profits of the straddling period is apportioned to
25
the deemed accounting period in proportion to the number of days
in the deemed accounting period that fall in the straddling period.
      (6)
The apportioned amount is taken for the purposes of this paragraph
to be the amount of the profits of the deemed accounting period.
      (7)
In this paragraph “the straddling period”, in relation to a qualifying
30
company, means an accounting period of the company beginning
before 1st January 2006 and ending on or after that date
(disregarding paragraph 3(3)).”.
(11)
After Schedule 19B insert the Schedule 19C set out in Schedule 19 to this Act.
Part 6
35
Inheritance tax
Future rates and bands
155
Rates and rate bands for 2008-09 and 2009-10
(1)
For the Table in Schedule 1 to IHTA 1984 (rates and rate bands), as it has effect
in relation to chargeable transfers made on or after 6th April 2008, there shall
40
be successively substituted—

Finance (No.2) Bill
Part 6 — Inheritance tax
133

(a)
the 2008-09 Table, which shall apply to any chargeable transfer made
on or after 6th April 2008 (but before 6th April 2009), and
(b)
the 2009-10 Table, which shall apply to any chargeable transfer made
on or after 6th April 2009.
(2)
Subsection (1)(b) is without prejudice to the application of section 8 of IHTA
5
1984 (indexation) by virtue of the difference between the retail prices index for
the month of September in 2008 or any later year and that for the month of
September in the following year.
(3)
The 2008-09 Table is—

Table of Rates of Tax

10

Portion of value
Rate of tax

    Lower limit (£)
      Upper limit (£)
     Per cent.

              0
           312,000
        Nil

           312,000
                —
         40

(4)
The 2009-10 Table is—
15

Table of Rates of Tax

Portion of value
Rate of tax

    Lower limit (£)
      Upper limit (£)
     Per cent.

              0
           325,000
        Nil

           325,000
                —
         40

20
(5)
Section 8(1) of IHTA 1984 (indexation of rate bands) shall not have effect as
respects any difference between the retail prices index—
(a)
for the month of September 2006 and that for the month of September
2007, or
(b)
for the month of September 2007 and that for the month of September
25
2008.
Trusts
156
Rules for trusts etc
(1)
Schedule 20 contains—
(a)
amendments of provisions of IHTA 1984 relating to settled property,
30
(b)
amendments of provisions relating to property that, for purposes of
that Act, is property subject to a reservation, and
(c)
related amendments of provisions relating to chargeable gains.

Finance (No.2) Bill
Part 7 — Pensions
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(2)
Those amendments have effect as mentioned in that Schedule.
157
Purchase of interests in foreign trusts
(1)
Section 48 of IHTA 1984 (settled property: excluded property) is amended as
follows.
(2)
In subsection (3) (circumstances in which settled property situated outside the
5
United Kingdom is excluded property), after paragraph (b) insert—

“; but this subsection is subject to subsection (3B) below.”.
(3)
In subsection (3A) (circumstances in which a holding in an authorised unit
trust or a share in an open-ended investment company comprised in settled
property is excluded property), after paragraph (b) insert—
10

“; but this subsection is subject to subsection (3B) below.”.
(4)
After subsection (3A) insert—
“(3B)
Property is not excluded property by virtue of subsection (3) or (3A)
above if—
(a)
a person is, or has been, beneficially entitled to an interest in
15
possession in the property at any time,
(b)
the person is, or was, at that time an individual domiciled in the
United Kingdom, and
(c)
the entitlement arose directly or indirectly as a result of a
disposition made on or after 5th December 2005 for a
20
consideration in money or money’s worth.
(3C)
For the purposes of subsection (3B) above—
(a)
it is immaterial whether the consideration was given by the
person or by anyone else, and
(b)
the cases in which an entitlement arose indirectly as a result of
25
a disposition include any case where the entitlement arose
under a will or the law relating to intestacy.”.
(5)
If, in consequence of the amendments made by this section, an amount of
inheritance tax would (but for this subsection) fall due before the day on which
this Act is passed, that amount is to be treated instead as falling due at the end
30
of the period of 14 days beginning with that day.
(6)
This section is deemed to have come into force on 5th December 2005.
Part 7
Pensions
158
Taxable property held by investment-regulated pension schemes
35
(1)
Schedule 21 (taxable property held by investment-regulated pension schemes)
has effect.
(2)
This section and that Schedule are deemed to have come into force on 6th April
2006.