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
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 2 — Minor and consequential amendments
336

(a)
“settlement” has the same meaning as in section 620
of ITTOIA 2005,
(b)
“trustee”, in relation to a settlement in relation to
which there would be no trustees apart from this
paragraph, means any person in whom the settled
5
property or its management is for the time being
vested, and
(c)
“principal settlement” and “sub-fund settlement”
have the meaning given by paragraph 1 of Schedule
4ZA to the 1992 Act.”
10
26
In paragraph 4(12) of Schedule 28AA for the definitions of “settlement” and
“settlor” substitute—
“settlement” and “settlor” have the same meanings as in section
620 of ITTOIA 2005.”
27    (1)
Paragraph 7 and paragraphs 9 to 26 shall come into force on 6th April 2006
15
(in relation to settlements whenever created).
      (2)
Paragraph 8 shall come into force on 6th April 2007 (in relation to
settlements whenever created).
28    (1)
FA 1989 shall be amended as follows.
      (2)
The following provisions shall cease to have effect—
20
(a)
section 68(2)(c),
(b)
section 71(4)(c), and
(c)
section 110.
      (3)
In section 68(2)—
(a)
after paragraph (ba) insert “, and”, and
25
(b)
after paragraph (bb) omit “, and”.
      (4)
In section 71(4)—
(a)
after paragraph (ba) insert “, and”, and
(b)
after paragraph (bb) omit “, and”.
      (5)
Sub-paragraph (2)(a) and (b) shall have effect in relation to payments made
30
on or after 6th April 2006.
      (6)
Sub-paragraph (2)(c) shall have effect from 6th April 2007 (in relation to
settlements whenever created).
      (7)
Sub-paragraphs (3) and (4) shall come into force on 6th April 2006.
29    (1)
In section 151(2)(a) of FA 1989 (assessment of trustees) for “the trustees to
35
whom the income arises” substitute “the trustees of the settlement in the
year of assessment in which the income arises”.
      (2)
This paragraph shall come into force on 6th April 2006.
30    (1)
In section 25(9)(b) of FA 1990—
(a)
after sub-paragraph (iii) omit “or”, and
40
(b)
after sub-paragraph (iv) insert— “or
(v)
section 685A(2) of that Act (payments from
settlor-interested settlements);”.

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 2 — Minor and consequential amendments
337

      (2)
This paragraph shall have effect for payments in respect of income made on
or after 6th April 2006.
31    (1)
In ITTOIA 2005—
(a)
for “trustees of trusts” in each place in sections 417(2) and 420
substitute “trustees of settlements”,
5
(b)
in section 420(1)(a) and (c) for “trust” substitute “settlement”,
(c)
in the title of section 420 for “trust” substitute “settlement”.
      (2)
For section 623 of ITTOIA 2005 (calculation of income) substitute—
“623
Calculation of income
For the purpose of calculating liability to tax under this Chapter (but
10
for no other purpose), a settlor shall be allowed the same deductions
and reliefs as if any amount treated under this Chapter as income of
the settlor had actually been received by the settlor.”
      (3)
This paragraph shall come into force on 6th April 2006 in respect of
settlements whenever created, and in respect of loans or advances whenever
15
made.
32    (1)
The following provisions of ITTOIA 2005 shall cease to have effect—
(a)
section 457(4), and
(b)
section 568(5).
      (2)
In section 457(5) of ITTOIA 2005 for “(2) to (4)” substitute “(2) and (3)”.
20
      (3)
In section 467(7) of that Act for paragraph (b) substitute—
“(b)
at the rate applicable by virtue of section 686A of ICTA
(payments treated as income) in any other case.”
      (4)
This paragraph shall have effect in relation to payments made on or after 6th
April 2006 to the trustees of a settlement (whenever created).
25
33    (1)
In sections 628 and 630 of ITTOIA 2005 for “UK trust” in each place
substitute “UK settlement”.
      (2)
In section 628(6) of that Act for the definition of “UK trust” substitute—
““UK settlement” means a settlement the trustees of which are
resident and ordinarily resident in the United Kingdom.”
30
      (3)
In section 630(1)(b) of that Act for “terms of the trust” substitute “terms of the
settlement”.
      (4)
In section 631(5)(e)(ii) of that Act for “provisions of the trust” substitute
“terms of the settlement”.
      (5)
This paragraph shall come into force on 6th April 2006.
35
34    (1)
After section 629(7) of ITTOIA 2005 insert—
“(8)
Subsection (1) is subject to section 28A of FA 2005.”
      (2)
This paragraph shall have effect in relation to payments made on or after 6th
April 2004.
35    (1)
FA 2005 shall be amended as follows.
40

Finance (No.2) Bill
Schedule 13 — Settlements: amendments to ICTA and ITTOIA 2005 etc
Part 2 — Minor and consequential amendments
338

      (2)
In the following provisions for “trustees” substitute “the trustees of a
settlement”—
(a)
section 23(1)(a) and (b) (vulnerable persons: introduction),
(b)
section 24(1) (vulnerable persons: claims),
(c)
section 25(1)(a) (qualifying trusts: income tax), and
5
(d)
section 37(1) (vulnerable person election).
      (3)
In section 25(3)—
(a)
for “section 660G(1) and (2) of ICTA” substitute “section 620(1) of
ITTOIA 2005”, and
(b)
for “section 660A of that Act” substitute “sections 624 and 625 of that
10
Act.”.
      (4)
In section 27(2)(b) (qualifying expenses) for “total income” substitute
“income”.
      (5)
Section 42(5)(b) shall cease to have effect.
      (6)
In section 43(4) (penalties) for the first reference to “trustees” substitute “the
15
trustees of a settlement”.
      (7)
This paragraph shall come into force on 6th April 2006.
36    (1)
After section 28 of FA 2005 insert—
“28A
Disapplication of section 629 of ITTOIA 2005
(1)
In a case where this section applies, section 629(1) of ITTOIA 2005
20
shall not apply in respect of a payment by the trustees of a settlement
to a beneficiary under the settlement.
(2)
This section applies if in a year of assessment—
(a)
the trustees make a payment to a vulnerable person,
(b)
the payment is made out of qualifying trusts income,
25
(c)
the vulnerable person is a relevant child (within the meaning
given by section 629 of ITTOIA 2005) of a settlor in relation to
the settlement, and
(d)
the trustees have made a successful claim for special income
tax treatment under section 25.”
30
      (2)
This paragraph shall have effect in relation to payments made on or after 6th
April 2004.
37    (1)
For the purposes of regulations (whenever made) made under a provision of
the Tax Acts —
(a)
references to settled property, a settlor or trustees shall be read in
35
accordance with sections 685A to 685G of ICTA (inserted by
paragraph 1 of this Schedule), and
(b)
references to the trustees of a trust shall be treated as references to the
trustees of a settlement.
      (2)
This paragraph shall come into force on 6th April 2006.
40

Finance (No.2) Bill
Schedule 14 — Investment reliefs: venture capital schemes
Part 1 — Limits on gross assets of issuers of shares or securities
339

Schedule 14
Section 91

Investment reliefs: venture capital schemes
Part 1
Limits on gross assets of issuers of shares or securities
Enterprise investment scheme
5
1     (1)
In section 293(6A) of ICTA (enterprise investment scheme: limits on value of
gross assets of share-issuing company or its group)—
(a)
in paragraph (a) (value must not exceed £15 million immediately
before issue of eligible shares), for “£15 million” substitute “£7
million”, and
10
(b)
in paragraph (b) (value must not exceed £16 million immediately
after issue of eligible shares), for “£16 million” substitute “£8
million”.
      (2)
Sub-paragraph (1) has effect in relation to shares issued on or after 6th April
2006, subject to sub-paragraphs (3) and (4).
15
      (3)
Sub-paragraph (1) does not have effect in relation to shares issued on or after
6th April 2006 to a person who subscribed for them before 22nd March 2006.
      (4)
Sub-paragraph (1) does not have effect in relation to shares issued on or after
6th April 2006 to the managers of an investment fund approved for the
purposes of section 311 of ICTA by the Commissioners for Her Majesty’s
20
Revenue and Customs if—
(a)
the fund was approved before 22nd March 2006,
(b)
investments in the fund have been accepted before 6th April 2006,
and
(c)
the shares are issued to the managers as nominee for an individual
25
who has (whether or not before 6th April 2006) invested in the fund.
Venture capital trusts
2     (1)
In paragraph 8(1) of Schedule 28B to ICTA (venture capital trusts: limits on
value of gross assets of company issuing relevant holding or its group)—
(a)
in paragraph (a) (value must not exceed £15 million immediately
30
before issue of relevant holding), for “£15 million” substitute “£7
million”, and
(b)
in paragraph (b) (value must not exceed £16 million immediately
after issue of relevant holding), for “£16 million” substitute “£8
million”.
35
      (2)
Sub-paragraph (1) has effect in relation to relevant holdings issued on or
after 6th April 2006, subject to sub-paragraph (3).
      (3)
Sub-paragraph (1) does not have effect for the purpose of determining
whether any shares or securities acquired by a company (“the trust
company”) by means of the investment of protected money are, for the
40
purposes of section 842AA of ICTA, to be regarded as comprised in
qualifying holdings of the company at any time.
      (4)
In sub-paragraph (3) “protected money” means—

Finance (No.2) Bill
Schedule 14 — Investment reliefs: venture capital schemes
Part 3 — Enterprise investment scheme: maximum subscriptions and carry-back of relief
340

(a)
money raised by the issue before 6th April 2006 of shares in or
securities of the trust company, or
(b)
money derived from the investment by the trust company of any
such money.
Corporate venturing scheme
5
3     (1)
In paragraph 22(1) and (2) of Schedule 15 to FA 2000 (corporate venturing
scheme: limits on value of gross assets of share-issuing company or its
group)—
(a)
in paragraph (a) (value must not exceed £15 million immediately
before issue of relevant shares), for “£15 million” substitute “£7
10
million”, and
(b)
in paragraph (b) (value must not exceed £16 million immediately
after issue of relevant shares), for “£16 million” substitute “£8
million”.
      (2)
Sub-paragraph (1) has effect in relation to shares issued on or after 6th April
15
2006, subject to sub-paragraph (3).
      (3)
Sub-paragraph (1) does not have effect in relation to shares issued on or after
6th April 2006 to a person who subscribed for them before 22nd March 2006.
Part 2
Rate of relief for investments in venture capital trusts
20
4     (1)
In paragraph 1(5)(a) of Schedule 15B to ICTA (where relief available on
shares issued by venture capital trust on or after 6th April 2006, income tax
liability reduced by amount not exceeding the sum subscribed multiplied by
the lower rate of 20%), for “tax at the lower rate for that year on” substitute
“30 per cent of”.
25
      (2)
In paragraph 3(4) of that Schedule (where shares in venture capital trust
disposed of by bargain at arm’s length within 3 years of their issue, relief
given is reduced by reference to consideration for disposal if less than
amount subscribed), for “tax at the lower rate for the year of assessment for
which the relief was given on” substitute “30 per cent of”.
30
      (3)
Sub-paragraphs (1) and (2) have effect in relation to shares issued on or after
6th April 2006.
Part 3
Enterprise investment scheme: maximum subscriptions and carry-back of relief
5     (1)
In section 289A(4) of ICTA (which limits the amount eligible to be relieved
35
in the previous year), for “£25,000” substitute “£50,000”.
      (2)
Sub-paragraph (1) has effect in relation to shares issued on or after 6th April
2006.
6     (1)
In section 290(2) of ICTA (maximum amount eligible for relief in any year),
for “£200,000” substitute “£400,000”.
40
      (2)
Sub-paragraph (1) has effect for the year 2006-07 and for subsequent years of
assessment.

Finance (No.2) Bill
Schedule 14 — Investment reliefs: venture capital schemes
Part 5 — Venture capital trusts: meaning of “investments”
341

Part 4
Lengthening of periods applicable to venture capital trusts
7     (1)
Schedule 15B to ICTA (venture capital trusts: relief from income tax) is
amended as follows.
      (2)
In paragraph 2(3) (no relief for investments linked to loans made within
5
period ending immediately before third anniversary of date on which shares
issued), in the definition of “the relevant period”, for “third” substitute
“fifth”.
      (3)
In paragraph 3(1)(b) (loss of investment relief for disposal of shares within
three years of issue), for “three” substitute “five”.
10
      (4)
In paragraph 6(1) (meaning of “eligible shares”), for “three” substitute “five”.
      (5)
Sub-paragraphs (1) to (4) have effect in relation to shares issued on or after
6th April 2006.
Part 5
Venture capital trusts: meaning of “investments”
15
8     (1)
In section 842AA of ICTA (venture capital trusts: conditions for approval),
after subsection (11) insert—
“(11A)
A reference in this section, or in section 842(2)(b) as applied by
subsection (11)(a) above, to a company’s investments shall be taken
to include, so far as it would not otherwise do so,—
20
(a)
money in the company’s possession, and
(b)
any sum owed to the company by another person if the
company has account-holder’s rights over that sum.
(11B)
For the purposes of subsection (11A)(b) above, a company has
“account-holder’s rights” over a sum owed to the company if—
25
(a)
the company has a right (whether or not the exercise of the
right is subject to conditions) to require the other person to
pay out the sum, or amounts out of the sum, to the company
or at the company’s direction, and
(b)
the sum is owed to the company—
30
(i)
as a result of amounts having been paid to the other
person by or for the company, or
(ii)
as a result of the other person having identified a sum
in respect of which the company may exercise such a
right.
35
(11C)
Subsection (11A) above does not have effect to cause a company’s
investments to be taken to include anything to which the company is
not beneficially entitled, but for this purpose a company shall be
taken to be beneficially entitled to—
(a)
sums subscribed for shares issued by it, and
40
(b)
anything to which it is entitled that (directly or indirectly)
represents any such sums.”

Finance (No.2) Bill
Schedule 15 — Accountancy change: spreading of adjustment
Part 1 — Income tax
342

      (2)
Sub-paragraph (1) has effect for the purposes of determining whether, at a
time on or after 6th April 2007, the conditions specified in section 842AA(2)
of ICTA are, will be or were fulfilled with respect to a company.
Schedule 15
Section 102

Accountancy change: spreading of adjustment
5
Part 1
Income tax
Application of this Part of this Schedule
1     (1)
This Part of this Schedule applies where—
(a)
there is a change of accounting approach from one period of account
10
to the next in calculating the profits of a business for income tax
purposes,
(b)
the later period of account ends on or after 22nd June 2005 and the
basis on which the profits for that period are calculated is in
accordance with UK GAAP (including SSAP 9 and Application Note
15
G as interpreted by UITF 40), and
(c)
the earlier period of account ended before that date and the basis on
which profits for that period were calculated was in accordance with
UK GAAP (including SSAP 9 and Application Note G, but not as
interpreted by UITF 40),
20

and has effect in relation to any adjustment income under Chapter 17 of Part
2 of ITTIOIA 2005 attributable to the change of basis from that mentioned in
paragraph (c) to that mentioned in paragraph (b).
      (2)
In relation to a period for which accounts are drawn up in accordance with
international accounting standards, the references in sub-paragraph (1) to
25
requirements of UK GAAP shall be read as references to the corresponding
requirements of international accounting standards.
      (3)
In sub-paragraph (1)—
“SSAP 9” means Statement of Standard Accounting Practice No.9 on
Long-term contracts, issued by the Accounting Standards Board;
30
“Application Note G” means Application Note G to Financial
Reporting Standard 5 issued by the Accounting Standards Board in
November 2003;
“UITF 40” means Abstract No.40 on Revenue recognition and service
contracts, issued by the Urgent Issues Task Force of the Accounting
35
Standards Board on 10th March 2005.
      (4)
Any reference in this Part of this Schedule to the date on which the change
of accounting approach was adopted is to the first day of the first period of
account for which it was adopted.
      (5)
To determine the amount of adjustment income attributable to the change of
40
basis mentioned in the closing words of sub-paragraph (1), assume that
there was no other change of accounting approach.