Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
671

Meaning of a company being “in administration”
89    (1)
Sub-paragraph (2) applies in relation to—
(a)
an administration order under Part 3 of the Insolvency (Northern
Ireland) Order 1989 the petition for which was presented before 6
April 2007, or
5
(b)
any corresponding order under the law of a country or territory
outside the United Kingdom the proceedings for which were
instituted before that date.
      (2)
Section 331 applies with the substitution for subsection (2) of—
“(2)
A company is “in administration” if—
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(a)
it is in administration within the meaning of Schedule B1 to
the Insolvency Act 1986, or
(b)
there is in force in relation to it—
(i)
an administration order under Part 3 of the
Insolvency (Northern Ireland) Order 1989, or
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(ii)
any corresponding order under the law of a country
or territory outside the United Kingdom.”
      (3)
In relation to an administration order under Part 2 of the Insolvency Act 1986
the petition for which was presented before 15 September 2003, section 331
applies with the substitution for subsection (2) of—
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“(2)
A company is “in administration” if there is in force in relation to it—
(a)
an administration order under Part 2 of the Insolvency Act
1986 or Part 3 of the Insolvency (Northern Ireland) Order
1989, or
(b)
any corresponding order under the law of a country or
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territory outside the United Kingdom.”
Meaning of “company”, “shares” and “research and development” in Part 6
90    (1)
This paragraph applies in relation to the meaning of “company”, “shares”
and “research and development” in Part 6 (see section 332).
      (2)
If—
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(a)
a company holds investments of any description in an entity
immediately before 6 April 2007, and
(b)
the entity is a company for any purposes of the Part 6 provisions but
not for the corresponding purposes of the ICTA provisions,

any question whether the entity is a company for those purposes of the Part
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6 provisions is to be determined in accordance with the ICTA provisions
until such time as the company ceases to hold investments of that
description.
      (3)
If—
(a)
a company holds investments of any description in an entity
40
immediately before 6 April 2007, and
(b)
the investments are shares for any purposes of either of the
following—
(i)
the Part 6 provisions, and
(ii)
the ICTA provisions,
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Income Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Other reliefs
672


but not for the corresponding purposes of the other set of provisions,

any question whether the investments are shares for those purposes of the
Part 6 provisions is to be determined in accordance with the ICTA
provisions until such time as the company ceases to hold investments of that
description.
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      (4)
In sub-paragraphs (2) and (3)—
“the ICTA provisions” means section 842AA of ICTA (VCT approvals)
and Schedule 28B to that Act (qualifying holdings),
“the Part 6 provisions” means Chapter 3 of Part 6 (VCT approvals) and
Chapter 4 of that Part (qualifying holdings).
10
      (5)
For the purpose of determining whether any shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 332
applies in relation to shares issued before 6 April 2000 with the substitution
for the definition of “research and development” of—
““research and development” means any activity which is
15
intended to result in a patentable invention (within the
meaning of the Patents Act 1977) or in a computer program.”
Part 9
Other reliefs
Interest: loans for interests in close companies
20
91
Section 392(3)(a) does not apply if the shares were acquired before 14 March
1989.
92
Section 392(3)(b) does not apply if the shares were acquired before 6 April
1989.
93    (1)
In relation to a loan made before 14 November 1986—
25
(a)
section 395(1)(c) applies with the substitution for “the trustees of” of
“any person (other than the individual) interested in”, and
(b)
section 395(1)(d) applies with the substitution for “the personal
representatives” of “any person (other than the individual)
interested in the estate”.
30
      (2)
No individual is an associate because of sub-paragraph (1)(a) if the trust
relates exclusively to a registered pension scheme.
      (3)
No individual is an associate because of sub-paragraph (1)(a) if —
(a)
the trust—
(i)
is exclusively for the benefit of the employees, or the
35
employees and directors, of the company or their
dependants, and
(ii)
is not wholly or mainly for the benefit of the directors or their
relatives, and
(b)
the individual—
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(i)
is not (either alone or with relatives) the beneficial owner of
more than 5% of the company’s ordinary share capital, and
(ii)
could not become so as a result of the operation of the trust.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 9 — Other reliefs
673

      (4)
For the purposes of sub-paragraph (3)(b), charitable trusts that may arise on
the failure or determination of other trusts are ignored.
      (5)
In relation to any time before 6 April 2006, sub-paragraph (2) applies as if the
reference to a registered pension scheme were a reference to an exempt
approved scheme, as defined in section 592 of ICTA.
5
94
Section 395(2) does not apply in relation to a loan made before 26 July 1989,
and, for the purposes of that section, section 550 of ITEPA 2003 (which
defines “employee benefit trust” and is applied for the purposes of section
395 by section 395(6)) has effect as if section 550 of ITEPA 2003 referred to
that day instead of 13 March 1989.
10
Interest: loans for interests in employee-controlled companies
95    (1)
In relation to a loan used before 6 April 1990 in one or more of the ways
specified in section 396(2)—
(a)
section 396 applies as if—
(i)
the reference in subsection (3) to full-time employees
15
included a reference to full-time employees’ spouses,
(ii)
the references in subsection (4) to an individual included a
reference to an individual’s spouse, unless the individual and
the individual’s spouse are both full-time employees of the
company within the meaning of section 396(5), and
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(b)
section 397(4) applies as if references to the individual included
references to the individual’s spouse.
      (2)
If a loan within section 396(2)(b) was made on or after that date, interest on
the loan is eligible for relief under section 383 only if interest on the original
loan would have been allowable under section 353 of ICTA after that date.
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Interest relief: film partnerships
96
Section 399(4) (restriction on relief for interest on loans for purchasing
interest in some film partnerships) only applies if the interest accrued on or
after 10 March 2006.
Interest: loans for investing in co-operatives
30
97
Section 401 applies in relation to a loan used in one or more of the ways
specified in subsection (2)(a) or (b) of that section only if the loan was made
after 10 March 1981, but subsection (2)(c) of that section applies whenever
the original loan was made.
Gift aid: gifts of money for relief in poor countries
35
98
Despite the amendments made by this Act to section 25 of FA 1990, that
section continues to apply for the purposes of section 48 of FA 1998 (gifts of
money for relief in poor countries) as if those amendments had not been
made.
Gift aid: restrictions on associated benefits
40
99    (1)
This paragraph applies if—
(a)
a gift is made on or after 6 April 2007, and

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Special rules about settlements and trustees
674

(b)
a benefit associated with the gift is received before that date or relates
(wholly or partly) to a period falling before that date.
      (2)
Step 2 of the calculation in section 419(8) is to be read as if the words “(and
neither condition C nor condition D is met in relation to it)” were omitted.
Gift aid: election to carry back relief
5
100   (1)
This paragraph applies if in the tax year 2007-08 an individual makes a gift
to a charity that is a qualifying donation for the purposes of Chapter 2 of Part
8.
      (2)
Section 426 has effect with the substitution for subsections (2) and (3) of—
“(2)
The condition is that in year P the grossed up amount of the gift
10
would, if made in year P, be payable out of profits or gains brought
into charge to income tax or capital gains tax.
(3)
If an election is made, section 25(6) to (9A) of FA 1990 have effect in
relation to the individual as if the gift were a qualifying donation
(within the meaning of section 25 of FA 1990) made in year P.”
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      (3)
Section 426 has effect with the omission of subsections (4) and (5).
Qualifying maintenance payments: maintenance assessments
101   (1)
This paragraph applies for the purposes for which, on the day on which this
Act comes into force, the amendments to section 347B of ICTA made by
paragraph 8(1) and (2) of Schedule 3 to the Child Support, Pensions and
20
Social Security Act 2000 (c. 19) (maintenance assessments superseded by
maintenance calculations) do not have effect.
      (2)
Until a day is appointed for any of those purposes under this paragraph,
section 454 and 455 have effect for that purpose as if—
(a)
in section 454(7) and section 455(1)(a), (b), (c) and (3) for “calculation”
25
there were substituted “assessment”, and
(b)
for section 454(8) there were substituted—
“(8)
In this section “maintenance assessment” means a
maintenance assessment made under the Child Support Act
1991 or the Child Support (Northern Ireland) Order 1991.”
30
      (3)
The power to appoint a day under this paragraph is exercisable by the
Secretary of State by order made by statutory instrument and different days
may be appointed for different purposes (including different days for
different areas).
Part 10
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Special rules about settlements and trustees
Trustees’ expenses to be set against trustees’ trust rate income
102   (1)
This paragraph applies if the trustees of a settlement incur an allowable
expense (see section 484) in a tax year prior to the tax year 2007-08.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 10 — Special rules about settlements and trustees
675

      (2)
So far as the trustees have not paid the expense, the expense cannot, under
Chapter 4 of Part 9, be set against the trustees’ trust rate income for any tax
year.
      (3)
So far as the expense is paid by the trustees in a tax year (“the relevant tax
year”) after the tax year 2006-07, the expense is treated for the purposes of
5
sections 484(1) and 485(1) as if it were incurred in the relevant tax year.
      (4)
So far as the expense is paid by the trustees in a tax year prior to the tax year
2007-08, section 485 applies in relation to the expense with the following
modifications.
      (5)
It applies as if for subsection (3) there were substituted—
10
“(3)
Condition A is—
(a)
that section 686(2AA) of ICTA could not be applied in
relation to the allowable expense so as to reduce the trustees’
liability to tax for the tax year in which the trustees paid the
expense, and
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(b)
that was the case only because the trustees’ section 686
income for that year was insufficient or they had no section
686 income for that year.

“Section 686 income” means income to which section 686 of ICTA
applies.”
20
      (6)
It applies as if for subsection (4) there were substituted—
“(4)
Condition B is that—
(a)
for no tax year prior to the tax year 2007-08 has the allowable
expense been used to reduce the trustees’ liability to tax, and
(b)
the allowable expense has not been set against the trustees’
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trust rate income for a tax year prior to the current tax year as
a result of this section.”
Share incentive plans: definition of “applicable period”
103   (1)
This paragraph applies for the purposes of section 489 if the relevant shares
(see subsection (1) of that section) were acquired by the trustees before 11
30
May 2001.
      (2)
That section applies in relation to those shares with the following
modifications.
      (3)
It applies as if subsection (2) were omitted.
      (4)
It applies as if in subsection (3) the words “If any were” were omitted.
35
      (5)
It applies as if in subsection (4)—
(a)
for “If none were” there were substituted “But if when the trustees
acquired the relevant shares none of the shares in the relevant
company were readily convertible assets”, and
(b)
in paragraph (b) for “any shares in the relevant company” there were
40
substituted “the relevant shares”.
      (6)
It applies as if in subsection (5) for “(2) to” there were substituted “(3) and”.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 11 — Special rules about charitable trusts etc
676

Discretionary payments: trustees’ tax pool
104   (1)
Section 497 applies with the following modifications in relation to the
trustees of a settlement established prior to the tax year 2007-08 if the current
tax year is the tax year 2007-08.
      (2)
It also so applies if—
5
(a)
the current tax year is a tax year subsequent to the tax year 2007-08,
and
(b)
the trustees have been UK resident for no tax year prior to the current
tax year or the last tax year prior to the current tax year for which
they were UK resident is a tax year prior to the tax year 2007-08.
10
      (3)
It applies as if in subsection (1) for Step 1 there were substituted—

“Step 1

Take the amount of the trustees’ final section 687(3) tax pool and
deduct from that amount (but not so that it goes below nil) the total
of all tax (if any) treated under section 687(2)(a) of ICTA as being
15
paid as a result of payments made by the trustees in the tax year
2006-07.

“The amount of the trustees’ final section 687(3) tax pool” is the total
amount—
(a)
available to the trustees under section 687(3) of ICTA for
20
setting against tax assessable on them under section 687(2)(b)
of that Act for the tax year 2006-07, or
(b)
which would have been so available had tax been so
assessable.”
      (4)
It applies as if subsections (2) and (3) were omitted.
25
Part 11
Special rules about charitable trusts etc
Transactions with substantial donors
105
Section 543(1)(g) and (h) and sections 549 to 557 (non-charitable
expenditure: transactions with substantial donors) do not have effect in
30
relation to—
(a)
a transaction occurring before 22 March 2006, or
(b)
a transaction entered into in pursuance of a contract made before 22
March 2006 (otherwise than in pursuance of a variation on or after
that date).
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106
For the purposes of section 549 a person may meet the definition of
“substantial donor” by reference to gifts made at a time before this Act comes
into force.
Non-charitable expenditure
107   (1)
This paragraph applies if, as a result of sections 562 to 564, an amount of
40
expenditure for the tax year 2007-2008 or any subsequent tax year (“the carry
back tax year”) is treated as non-charitable expenditure for the tax year 2005-
2006 or any earlier tax year.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 12 — Manufactured payments and repos
677

      (2)
The amount of relief or exemption to be disallowed in respect of the tax year
2005-2006 or any earlier tax year is not to exceed the amount which would
have been disallowed in respect of that tax year if—
(a)
sections 562 to 564 had not applied in relation to the carry back tax
year, and
5
(b)
the amount of expenditure for the carry back tax year to be treated as
non-charitable expenditure for an earlier tax year had instead been
calculated in accordance with the provisions mentioned in sub-
paragraph (3).
      (3)
Those provisions are—
10
(a)
sections 505 and 506 of ICTA, and
(b)
Part 3 of Schedule 20 to that Act,

as those provisions would have had effect in relation to the carry back tax
year if the amendments made to them by section 55 of FA 2006 had not been
made and the amendments made to them by this Act had not been made.
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Part 12
Manufactured payments and repos
Tax credits: stock lending arrangements and repos
108
Sections 592 and 593 do not apply if the qualifying distribution was made
before 8 April 1998.
20
109   (1)
Section 592(3) does not apply if the qualifying distribution was received by
the borrower before the relevant date.
      (2)
The relevant date is—
(a)
if the borrower is an individual, 6 November 2003, and
(b)
if the borrower is not an individual, 17 March 2004.
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110   (1)
Section 593(3) does not apply if the qualifying distribution was received by
the interim holder before the relevant date.
      (2)
The relevant date is—
(a)
if the interim holder is an individual, 6 November 2003, and
(b)
if the interim holder is not an individual, 17 March 2004.
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Deemed manufactured payments: stock lending arrangements
111
Section 596 does not apply if the stock lending arrangement was made
before 1 July 1997.
112   (1)
Section 597 does not apply if the stock lending arrangement was made
before 5 December 2005.
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      (2)
In relation to a stock lending arrangement made on or after 5 December 2005
but before 22 March 2006, section 597 has effect with the omission of
subsection (6).
      (3)
If—
(a)
a stock lending arrangement was made before 5 December 2005 in
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respect of any securities (“the original securities”), and