Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 4 — Restrictions on trade loss relief for partners
107

(c)
section 111(12) (meaning of “contribution to the firm” for purposes of
section 110),

for the words from “any regulations” to “excluded” substitute “section 113A
and any regulations made under section 114 (exclusion of amounts”.
12
Omit section 106 (meaning of “limited partner”).
5
13
In section 112 (meaning of “non-active partner” and “early tax year” etc)—
(a)
omit subsections (1) to (5), and
(b)
the heading accordingly becomes “Meaning of “early tax year””.
14
Omit the italic-cross heading before section 114 (regulations: exclusion of
amounts in calculating contribution to the firm or LLP) and for the heading
10
of that section substitute “Power to exclude other amounts”.
15
In section 115 (restrictions on reliefs for firms exploiting films), for
subsection (4) substitute—
“(4)
The restrictions under this section do not apply to so much of the loss
(if any) as derives from qualifying film expenditure.”
15
16
Omit section 116 (exclusion from restrictions under section 115: certain film
expenditure).
17
In section 792 (partners claiming excess sideways or capital gains relief)—
(a)
in subsection (7), for “106” substitute “103A”, and
(b)
in subsection (8), for “106(3)(a)” substitute “103A(3)(a)”.
20
18
In section 809 (individuals in partnership claiming relief for licence-related
trading losses: other definitions)—
(a)
in subsection (1), for “112” substitute “103B”, and
(b)
in subsection (2), for “112(1)(b)” substitute “103B(1)(b)”.
19
In paragraph 148(3)(b) of Schedule 2 (transitionals and savings: tax
25
avoidance)—
(a)
for “106” substitute “103A”, and
(b)
for “112” substitute “103B”.
20
In Schedule 4 (index of defined expressions)—
(a)
in the definition of “limited partner”, for “106” substitute “103A”,
30
(b)
in the definition of “non-active partner”, for “112” substitute “103B”,
and
(c)
after the definition of “qualifying donation (in Chapter 2 of Part 8)”
insert—

“qualifying film expenditure (in
section 103D”.

35

Chapter 3 of Part 4)

21
The amendments made by paragraphs 5 to 20 are deemed always to have
had effect.

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
108

Schedule 5
Section 29

Avoidance involving financial arrangements
Amounts not forming part of a company’s income
1     (1)
ICTA is amended as follows.
      (2)
In section 347A(1) (annual payments: general rule), as it had effect before
5
ITA 2007, omit paragraph (b) together with the “and” before it (payment to
which section applies not income of any company for corporation tax
purposes).
      (3)
The amendment made by sub-paragraph (2) has effect in relation to
payments made on or after 6th December 2006 but before 6th April 2007.
10
      (4)
Omit section 347A (as amended by ITA 2007).
      (5)
The amendment made by sub-paragraph (4) has effect in relation to
payments made on or after 6th April 2007.
2     (1)
In section 660C of ICTA, omit subsection (4) (income which is income of
settlor alone for income tax purposes by virtue of section 624 or 629 of
15
ITTOIA 2005 not income of any company for corporation tax purposes).
      (2)
The amendment made by sub-paragraph (1) has effect in relation to
accounting periods ending on or after 6th March 2007.
      (3)
But income which arises in an accounting period beginning before that date
is to be chargeable to corporation tax as a result of that amendment only if it
20
arises on or after that date.
Structured finance arrangements
3     (1)
Section 774B of ICTA (disregard of intended effects of arrangement
involving disposals of assets) is amended as follows.
      (2)
For subsection (1) substitute—
25
“(1)
This section applies if an arrangement is a structured finance
arrangement in relation to a person (“the borrower”).
(1A)
If the arrangement would (disregarding this section) have had the
relevant effect (see subsections (2) and (3)), the arrangement is not to
have that effect.
30
(1B)
If the arrangement would (disregarding this section) not have had
that effect, the payments mentioned in section 774A(2)(d) are to be
treated for tax purposes as income of the borrower payable in respect
of the security (whether or not those payments are also the income of
anyone else for tax purposes).”
35
      (3)
In subsection (4)(a) (income tax relief for finance charge in respect of
advance), for the words from the beginning to “is a person” substitute “a
person in relation to whom this section applies is”.
      (4)
In subsection (5) (corporation tax relief for finance charge in respect of
advance), for the words from the beginning to “is a company” substitute “If
40
a person in relation to whom this section applies is”.

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
109

4
In section 774D of ICTA (disregard of intended effects of arrangement
involving change in relation to a partnership), after subsection (2) insert—
“(2A)
In determining whether the condition in subsection (1)(b) is met it is
to be assumed that amounts of income equal to the payments
mentioned in section 774C(2)(f) or (4)(e) were payable to the
5
borrower partnership before the time at which the relevant change in
relation to its membership involving the lender or a person
connected with the lender occurs.”
5
In section 774E of ICTA (exceptions), in subsection (7)(a) (meaning of
“relevant person” where section 774B applies), for the words from “a
10
person” to “of that section)” substitute “the borrower under the structured
finance arrangement, a person connected with that borrower or (if that
borrower is a partnership) a member of the partnership”.
6     (1)
Section 774G of ICTA (minor definitions etc for purposes of sections 774A to
774D) is amended as follows.
15
      (2)
In paragraph (a) of subsection (3) (meaning of receiving asset)—
(a)
for “include the person’s” substitute “include—
(i)
the person’s”, and
(b)
after “it” insert “, and
(ii)
the discharge (in whole or in part) of any
20
liability of the person,”.
      (3)
In paragraph (c) of that subsection (meaning of payments in respect of asset),
for “include obtaining” substitute “include—
(i)
payments in respect of any other asset substituted for
it under the arrangement, and
25
(ii)
obtaining”.
      (4)
After subsection (5) insert—
“(5A)
In determining for the purposes of sections 774A to 774D whether an
amount is recorded as a financial liability in respect of the advance it
is to be assumed that the period of account in which the advance is
30
received ended immediately after the receipt of the advance.”
7     (1)
The amendments made by paragraphs 3 to 5 and 6(2) and (3) have effect in
relation to any arrangements whenever made.
      (2)
But, in relation to arrangements made before 6th March 2007, amounts are
as a result of any of those amendments—
35
(a)
to be charged to tax, or
(b)
to be brought into account in calculating any income for tax purposes
or deducted from any income for tax purposes,

only if the amounts arise on or after that date.
      (3)
In any case where, in relation to arrangements made before that date, a
40
person is treated as a result of any of those amendments as being a party to
any loan relationship—
(a)
a period of account is to be treated for the purposes of Chapter 2 of
Part 4 of FA 1996 as beginning on that date, and
(b)
the loan relationship is to be treated for those purposes as being
45
entered into by the person for a consideration equal to the notional
carrying value of the liability representing the relationship.

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
110

      (4)
For this purpose the notional carrying value is the amount that would have
been the carrying value of the liability in the accounts of the person if a
period of account had ended immediately before that date.
      (5)
“Carrying value” has the same meaning here as it has for the purposes of
paragraph 19A of Schedule 19 to FA 1996.
5
      (6)
The amendment made by paragraph 6(4) comes into force on the day on
which this Act is passed.
8     (1)
Section 263E of TCGA 1992 (structured finance arrangements) is amended as
follows.
      (2)
In subsection (2) (condition A: person making disposal of asset subsequently
10
acquires it), for the words from “subsequently” to the end substitute “(and
no-one else) has the right or obligation under the arrangement to acquire the
asset disposed of by that disposal at any subsequent time (whether or not the
right or obligation is subject to any conditions).”
      (3)
In subsection (3) (condition B: asset ceases to exist)—
15
(a)
in paragraph (a), for “subsequently ceases” substitute “will
subsequently cease”, and
(b)
in paragraph (b), for “that asset was held” substitute “it is intended
that that asset will be held”.
      (4)
After subsection (4) insert—
20
“(4A)
If, at any time after that disposal, it becomes apparent that—
(a)
the person making the disposal will not subsequently acquire
under the arrangement the asset disposed of by that disposal,
or
(b)
that asset will not be held as mentioned in subsection (3)(b),
25

that person is to be treated for the purposes of this Act as disposing
of that asset at that time for a consideration equal to its market value
at that time.”
      (5)
In subsection (5) (disregard of subsequent acquisitions), for “Any” substitute
“Except in a case falling within subsection (4A), any”.
30
      (6)
The amendments made by this paragraph have effect in relation to disposals
made on or after 6th March 2007.
      (7)
The amendments made by this paragraph also have effect in relation to any
disposal made by a person before that date if the person makes a claim to
that effect under this sub-paragraph.
35
Manufactured payments under arrangements having an unallowable purpose
9     (1)
In paragraph 7A(10) of Schedule 23A to ICTA (manufactured payments
under arrangements having an unallowable purpose), in the definition of
“manufactured payment”, after paragraph (c) insert—
“(d)
any payment which by virtue of paragraph 7(1)
40
constitutes a fee;”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to
payments made (or treated as made) on or after 6th December 2006.

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
111

      (3)
But, in the case of any payment made (or treated as made) by a company in
pursuance of old arrangements, that amendment has no effect in relation to
so much of the payment as (on such just and reasonable apportionments as
may be necessary) represents any old taxable income or gains arising or
accruing to the company as a result of those arrangements.
5
      (4)
For this purpose—
“old arrangements” means arrangements in pursuance of which (or of
any part of which) a transaction has taken place before 6th December
2006, and
“old taxable income or gains arising or accruing” means income or
10
gains within the charge to corporation tax arising or accruing (or
treated as arising or accruing) before that date.
Options and groups of companies
10    (1)
In section 171(2) of TCGA 1992 (exceptions to rule that disposals within the
same group of companies produce neither a gain nor a loss), after paragraph
15
(da) insert “or
(db)
a disposal by company A in fulfilment of its obligations
under an option granted to company B at a time when those
companies were not members of the same group;”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to cases
20
where the option is exercised on or after 6th March 2007 (whenever the
option was granted).
Loan relationships: amounts not fully recognised for accounting purposes
11    (1)
Section 85C of FA 1996 (amounts not fully recognised for accounting
purposes) is amended as follows.
25
      (2)
In subsection (1)—
(a)
in paragraph (c), for the words from “has at any time” to “liability”)”
substitute “an amount (a “relevant capital contribution”) has at any
time been contributed to the company which forms part of its capital
(whether share or other capital)”, and
30
(b)
in paragraphs (d) and (e), for “relevant accounting liability”
substitute “relevant capital contribution”.
      (3)
In subsection (2)—
(a)
for “or relevant accounting liability of the company” substitute “of
the company or any relevant capital contribution made to the
35
company”, and
(b)
for “or liability” (in both places) substitute “or contribution”.
      (4)
The amendments made by this paragraph have effect in relation to periods
of account ending on or after 9th May 2007.
      (5)
But, in relation to periods of account beginning before that date, amounts are
40
to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996
as a result of those amendments only if the amounts relate to any time on or
after that date.

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
112

Shares treated as loan relationships
12    (1)
Section 91A of FA 1996 (shares subject to outstanding third party
obligations) is amended as follows.
      (2)
In subsection (4) (debits in respect of certain transactions to be ignored), for
“No debits are to be brought into account” substitute “In determining those
5
debits and credits there are to be left out of account amounts”.
      (3)
Insert at the end—
“(11)
In this section “share” does not include a share in a building society.”
      (4)
The amendment made by sub-paragraph (2) has effect in relation to
accounting periods ending on or after 6th March 2007.
10
      (5)
But, in relation to accounting periods beginning before that date, amounts
are to be left out of account as a result of that amendment only if they relate
to any time on or after that date.
      (6)
The amendment made by sub-paragraph (3) has effect in relation to shares
held on or after 6th March 2007.
15
13    (1)
Section 91B of FA 1996 (non-qualifying shares) is amended as follows.
      (2)
In subsection (4) (debits in respect of certain transactions to be ignored), for
“no debits are to be brought into account” substitute “in determining those
debits and credits there are to be left out of account amounts”.
      (3)
Insert at the end—
20
“(8)
In this section “share” does not include a share in a building society.”
      (4)
The amendment made by sub-paragraph (2) has effect in relation to
accounting periods ending on or after 6th March 2007.
      (5)
But, in relation to accounting periods beginning before that date, amounts
are to be left out of account as a result of that amendment only if they relate
25
to any time on or after that date.
      (6)
The amendment made by sub-paragraph (3) has effect in relation to shares
held on or after 6th March 2007.
14    (1)
In section 103(1) of FA 1996 (interpretation of Chapter 2 of Part 4), in the
definition of “share”, before “, in relation to a company,” insert “(except in
30
sections 91A to 91G)”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to shares
held on or after 6th March 2007.
Exchange gains and losses where loan not on arm’s length terms
15    (1)
In paragraph 11A of Schedule 9 to FA 1996 (exchange gains and losses where
35
loan not on arm’s length terms), insert at the end—
    “(7)
Where—
(a)
a company would be treated as having a debtor
relationship in any accounting period if a claim were made
under paragraph 6D(2) of Schedule 28AA to the Taxes Act
40
1988 in relation to that period, and

Finance Bill
Schedule 5 — Avoidance involving financial arrangements
113

(b)
for that period there is a connection between that company
and the company which would have the corresponding
creditor relationship,

it shall be assumed that such a claim is made for the purpose of
determining the debits or credits to be brought into account for the
5
purposes of this Chapter in respect of any exchange gains or losses
arising in that period in respect of the liability representing that
debtor relationship.
      (8)
Section 87(3) and (4) (connection between a company and another
person) apply for the purposes of sub-paragraph (7)(b) above as
10
they apply for the purposes of section 87.
      (9)
Where, by virtue of any claim made (or assumed by virtue of sub-
paragraph (7) above to be made) under paragraph 6D(2) of
Schedule 28AA to the Taxes Act 1988, more than one company is
treated for any purpose as having a debtor relationship
15
represented by the same liability—
(a)
the total debtor exchange gains must not exceed the total
creditor exchange losses, and
(b)
the total debtor exchange losses must not exceed the total
creditor exchange gains.
20
     (10)
For the purposes of sub-paragraph (9) above—
(a)
any reference to the total debtor exchange gains is to the
total amount of the credits brought into account for the
purposes of this Chapter in respect of exchange gains from
those debtor relationships,
25
(b)
any reference to the total debtor exchange losses is to the
total amount of the debits brought into account for those
purposes in respect of exchange losses from those debtor
relationships,
(c)
any reference to the total creditor exchange gains is to the
30
total amount of the credits brought into account for those
purposes in respect of exchange gains from the
corresponding creditor relationship, and
(d)
any reference to the total creditor exchange losses is to the
total amount of the debits brought into account for those
35
purposes in respect of exchange losses from that
relationship.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to loan
relationships of any company in accounting periods ending on or after 6th
December 2006.
40
      (3)
But, in relation to an accounting period of any company beginning before
that date, that amendment has no effect if the company ceases to be a party
to the loan relationship before that date.
Loan relationships and collective investment schemes
16    (1)
Paragraph 4 of Schedule 10 to FA 1996 (company holdings in unit trusts and
45
offshore funds) is amended as follows.
      (2)
In sub-paragraph (2) (relevant holding treated as rights under creditor
relationship), for “and (4)” substitute “to (5)”.