Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill (Volume I)
Part 2 — Income tax, corporation tax and capital gains tax - general
30

60
Financial arrangements avoidance
Schedule 22 contains provision about avoidance involving financial
arrangements.
61
Manufactured payments
(1)
Schedule 23 contains anti-avoidance provisions about manufactured
5
payments.
(2)
The amendments made by that Schedule have effect in relation to
manufactured payments (including deemed manufactured payments) made
(or treated as made) on or after 31 January 2008.
62
Controlled foreign companies
10
(1)
Chapter 4 of Part 17 of ICTA (controlled foreign companies) is amended as
follows.
(2)
In section 747 (imputation of chargeable profits of controlled foreign
companies)—
(a)
in subsection (6), before “and” at the end of paragraph (a) insert—
15
“(aa)
any reference in this Chapter to its chargeable profits for
an accounting period includes (subject to subsections (7)
to (9)) income which accrues during that accounting
period to the trustees of a settlement in relation to which
the company is a settlor or a beneficiary;”, and
20
(b)
after that subsection insert—
“(7)
Where there is more than one settlor or beneficiary in relation to
the settlement mentioned in subsection (6)(aa), the income is to
be apportioned between the company and the other settlors or
beneficiaries on a just and reasonable basis.
25
(8)
Where income within subsection (6)(aa) is included in the
chargeable profits of a company, any dividend or other
distribution received by the company which derives from that
income is not included in the chargeable profits of the company
to the extent that it is so derived.
30
(9)
Any income within subsection (6)(aa) which would (apart from
this subsection)—
(a)
be included in the chargeable profits of a company
which is a beneficiary in relation to a settlement and
apportioned under subsection (3), and
35
(b)
be included in the chargeable profits of a company
which is a settlor in relation to the settlement and
apportioned under that subsection,

is not to be included in the chargeable profits of the company
which is a settlor.”
40
(3)
In section 755D (meaning of control)—

Finance Bill (Volume I)
Part 2 — Income tax, corporation tax and capital gains tax - general
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(a)
after subsection (1) insert—
“(1A)
For the purposes of this Chapter a person also controls a
company if the person possesses, or is entitled to acquire, such
rights as would—
(a)
if the whole of the income of the company were
5
distributed, entitle the person to receive the greater part
of the amount so distributed,
(b)
if the whole of the company’s share capital were
disposed of, entitle the person to receive the greater part
of the proceeds of the disposal, or
10
(c)
in the event of the winding-up of the company or in any
other circumstances, entitle the person to receive the
greater part of the assets of the company which would
then be available for distribution.”, and
(b)
in subsection (2), after “above” insert “or satisfy subsection (1A) above”.
15
(4)
In paragraph 2A of Schedule 25 (acceptable distribution policy)—
(a)
in sub-paragraph (2), for “sub-paragraph (4)” substitute “sub-
paragraphs (4) and (4A)”, and
(b)
after sub-paragraph (4) insert—
   “(4A)
Sub-paragraph (2) does not apply where the distribution
20
condition is satisfied in relation to the relevant accounting
period, but—
(a)
the relevant profits for that period do not include
income within sub-paragraph (4B), and
(b)
if that income were included, the distribution
25
condition would not be satisfied in relation to that
period.
     (4B)
The income within this sub-paragraph is—
(a)
any income which accrues during the relevant
accounting period to the trustees of a settlement in
30
relation to which the company is a settlor or a
beneficiary, and
(b)
any income which accrues during that period to a
partnership of which the company is a partner,
apportioned between the company and the other
35
partners on a just and reasonable basis.
     (4C)
Where there is more than one settlor or beneficiary in relation
to the settlement mentioned in sub-paragraph (4B)(a), the
income is to be apportioned between the company and the
other settlors or beneficiaries on a just and reasonable basis.
40
     (4D)
In sub-paragraph (4B)(b) “partnership” includes an entity
established under the law of a country or territory outside the
United Kingdom of a similar character to a partnership; and
“partner” is to be read accordingly.”
(5)
In paragraph 6 of Schedule 25 (definition of exempt activities), after sub-
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Finance Bill (Volume I)
Part 2 — Income tax, corporation tax and capital gains tax - general
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paragraph (5B) insert—
   “(5C)
For the purposes of this paragraph, the gross income of a holding
company or a superior holding company during an accounting
period includes—
(a)
any income which accrues during that period to the trustees
5
of a settlement in relation to which the company is a settlor or
a beneficiary, and
(b)
any income which accrues during that period to a
partnership of which the company is a partner, apportioned
between the company and the other partners on a just and
10
reasonable basis.
     (5D)
Where there is more than one settlor or beneficiary in relation to the
settlement mentioned in sub-paragraph (5C)(a), the income is to be
apportioned between the company and the other settlors or
beneficiaries on a just and reasonable basis.
15
     (5E)
In sub-paragraph (5C)(b) “partnership” includes an entity
established under the law of a country or territory outside the United
Kingdom of a similar character to a partnership; and “partner” is to
be read accordingly.”
(6)
The amendments made by subsections (2) and (5) have effect in relation to
20
income accruing on or after 12 March 2008.
(7)
The amendments made by subsection (3) have effect for determining whether,
at any time on or after 12 March 2008, a company is controlled by persons
resident in the United Kingdom for the purposes of Chapter 4 of Part 17 of
ICTA.
25
(8)
The amendments made by subsection (4) have effect in relation to any
dividend paid on or after 12 March 2008.
(9)
In relation to an accounting period of a company beginning before, and ending
on or after, 12 March 2008 (“the straddling period”), the amendments made by
this section have effect as if, for the purposes of Chapter 4 of Part 17 of ICTA,
30
so much of the period as falls before that date, and so much of the period as
falls on or after that date, were separate accounting periods.
(10)
The company’s chargeable profits for the straddling period, and its creditable
tax (if any) for that period, are to be apportioned to the two separate accounting
periods on a just and reasonable basis.
35
(11)
In this section “accounting period”, “chargeable profits” and “creditable tax”
have the same meaning as in Chapter 4 of Part 17 of ICTA.
63
Intangible fixed assets: related parties
(1)
In Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed
assets), after paragraph 95 (meaning of “related party”) insert—
40
“Persons treated as “related parties”
95A   (1)
For the purposes of this Schedule, a person (“P”) shall be treated as a
related party in relation to a company (“C”) within a Case in
paragraph 95(1) if P would be a related party in relation to C within

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Part 2 — Income tax, corporation tax and capital gains tax - general
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that Case but for any person (other than an individual) being the
subject of—
(a)
insolvency arrangements, or
(b)
equivalent arrangements under the law of any country or
territory (whether made when the person is solvent or
5
insolvent).
      (2)
For the purpose of this paragraph, “insolvency arrangements”
includes—
(a)
arrangements under which a person acts as the liquidator,
provisional liquidator, receiver, administrator or
10
administrative receiver of a company or partnership, and
(b)
voluntary arrangements proposed or approved in relation to
a company or partnership under Part 1 of the Insolvency Act
1986 or Part 2 of the Insolvency (Northern Ireland) Order
1989.
15
      (3)
In this paragraph—
“administrative receiver” means an administrative receiver
within the meaning of section 251 of the Insolvency Act 1986
or Article 5(1) of the Insolvency (Northern Ireland) Order
1989,
20
“administrator” means a person appointed to manage the
affairs, business and property of the company or partnership
under Schedule B1 to that Act or to that Order, and
“receiver” means a person appointed as receiver of some or all
of the property of the company or partnership under an
25
enactment or under an instrument issued for the purpose of
representing security for, or the rights of creditors in respect
of, any debt.”
(2)
Subject to subsections (4) and (5), the amendment made by subsection (1) has
effect in relation to the debits and credits to be brought into account for
30
accounting periods beginning on or after 12 March 2008.
(3)
For the purposes of subsection (2), an accounting period beginning before, and
ending on or after, that day is treated as if so much of that period as falls before
that day, and so much of that period as falls on or after that day, were separate
periods.
35
(4)
The amendment made by subsection (1) does not have effect for the purpose of
determining whether a person was a related party in relation to a company at
a time before 12 March 2008.
(5)
That amendment has effect, for the purposes of paragraph 92 of Schedule 29 to
FA 2002 as it applies otherwise than for determining the debits and credits to
40
be brought into account under that Schedule, in relation to any transfer of an
asset made on or after 12 March 2008.
64
Repeal of obsolete anti-avoidance provisions
(1)
In Part 17 of ICTA (tax avoidance)—
(a)
in section 704 (cancellation of corporation tax advantages: the
45
prescribed circumstances), omit—
(i)
paragraph B (and the “OR” after it), and

Finance Bill (Volume I)
Part 2 — Income tax, corporation tax and capital gains tax - general
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(ii)
in paragraph C(1), paragraph (b) (and the “or” before it),
(b)
in section 709 (definitions), omit subsection (2A),
(c)
omit sections 731 to 735 (purchase and sale of securities), and
(d)
omit section 736 (company dealing in securities: distribution materially
reducing value of holding).
5
(2)
In Part 13 of ITA 2007 (tax avoidance)—
(a)
in section 684(2) (person liable to counteraction of income tax
advantage), omit the entry relating to section 687 of that Act,
(b)
omit section 687 (deductions from profits obtained following
distribution or dealings), and
10
(c)
in section 688 (receipt of consideration representing company’s assets,
future receipts or trading stock), omit—
(i)
in subsection (3), paragraph (b) (and the “or” before it), and
(ii)
subsections (4), (5) and (9).
(3)
In consequence of the amendments made by subsection (1)(a) and (b), omit—
15
(a)
in FA 1997, section 73, and
(b)
in ITA 2007, paragraph 155(4) and (5) and (6)(b) of Schedule 1.
(4)
In consequence of the amendments made by subsection (1)(c) and (d), omit—
(a)
in ICTA, sections 343(5) and 738,
(b)
in FA 1990, section 53,
20
(c)
in FA 1991, sections 55 and 56,
(d)
in TCGA 1992, paragraph 14(40) and (41) of Schedule 10,
(e)
in FA 1994, paragraph 17 of Schedule 16,
(f)
in FA 1995, section 81,
(g)
in FA 1996—
25
(i)
paragraph 36 of Schedule 20, and
(ii)
paragraph 9 of Schedule 38,
(h)
in FA 1997, section 77,
(i)
in F(No.2)A 1997—
(i)
section 26, and
30
(ii)
paragraph 14 of Schedule 6,
(j)
in FA 2003, paragraph 6 of Schedule 38,
(k)
in ITTOIA 2005, paragraphs 302 and 303 of Schedule 1,
(l)
in ITA 2007—
(i)
in section 64(8), paragraph (f) (and the “and” before it),
35
(ii)
in section 72(5), paragraph (f) (and the “and” before it),
(iii)
in section 448(3), “and section 451”,
(iv)
in section 449(3), “and section 451”,
(v)
section 451,
(vi)
in section 505, in subsection (4) “and section 506” and, in
40
subsection (5) “and in section 506”,
(vii)
section 506, and
(viii)
paragraphs 167 to 170 of Schedule 1, and
(m)
in FA 2007, paragraph 6 of Schedule 14.
(5)
The amendments made by subsections (1)(a) and (b), (2) and (3) have effect in
45
relation to transactions in securities entered into on or after 1 April 2008.

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Part 2 — Income tax, corporation tax and capital gains tax - general
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(6)
The amendment made by subsection (1)(c) has effect in relation to cases where
the purchase by the first buyer (within the meaning of section 731(2) of ICTA)
is made on or after that date.
(7)
The amendment made by subsection (1)(d) has effect in relation to
distributions made on or after that date.
5
(8)
The amendments made by subsection (4) have effect in accordance with
subsections (6) and (7).
Miscellaneous
65
Income of beneficiaries under settlor-interested settlements
(1)
In section 685A of ITTOIA 2005 (settlor-interested settlements), after
10
subsection (5) insert—
“(5A)
If the recipient of the annual payment is treated by subsection (3) as
having paid income tax in respect of the annual payment, the amount
of the payment is treated as the highest part of the recipient’s total
income for all income tax purposes except the purposes of sections 535
15
to 537 (gains from contracts for life insurance etc: top slicing relief).
(5B)
See section 1012 of ITA 2007 (relationship between highest part rules)
for the relationship between—
(a)
the rule in subsection (5A), and
(b)
other rules requiring particular income to be treated as the
20
highest part of a person’s income.”
(2)
In section 1012(4) of ITA 2007 (relationship between rules on highest part of
total income), after the entry relating to section 465A of ITOIA 2005 insert—
“section 685A(5A) of ITTOIA 2005 (payments from trustees of
settlor-interested settlements to be treated as highest part of
25
total income),”.
(3)
The amendments made by this section have effect for the tax year 2006-07 and
subsequent tax years.
66
Income charged at dividend upper rate
(1)
In section 13(2) of ITA 2007 (income charged at dividend upper rate:
30
individuals)—
(a)
omit “and” at the end of paragraph (a), and
(b)
at the end of paragraph (b) insert “, and
(c)
is not relevant foreign income charged in accordance
with section 832 of ITTOIA 2005.”
35
(2)
The amendments made by subsection (1) have effect for the tax year 2008-09
and subsequent tax years.
67
Payments on account of income tax
(1)
In section 964 of ITA 2007, omit subsection (5) (sums representing income tax
deducted from annual payments not to be taken into account for the purpose
40
of calculating amounts to be paid on account of income tax).

Finance Bill (Volume I)
Part 3 — Capital allowances
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(2)
The repeal made by subsection (1) has effect for the purpose of calculating the
amount of any payments to be made under section 59A of TMA 1970 on
account of liability to income tax for the tax year 2008-09 and subsequent tax
years.
68
Allowances etc for non-resident nationals of an EEA state
5
(1)
In section 278 of ICTA (non-residents eligible for reliefs)—
(a)
in subsection (2)(a), omit “or an EEA national”, and
(b)
omit subsection (9).
(2)
In section 56(3) of ITA 2007 (non-UK residents eligible for personal allowances
and tax reductions), before paragraph (a) insert—
10
“(za)
is a national of an EEA state,”.
(3)
Accordingly, omit section 145 of FA 1996 (personal reliefs for non-resident EEA
nationals).
(4)
The amendments made by this section have effect for the tax year 2008-09 and
subsequent tax years.
15
Part 3
Capital allowances
Plant and machinery: qualifying expenditure
69
Thermal insulation of buildings
(1)
Section 28 of CAA 2001 (thermal insulation of industrial buildings) is amended
20
as follows.
(2)
In subsection (1)—
(a)
for “consisting of a trade” substitute “other than an ordinary property
business or an overseas property business”,
(b)
for “an industrial” substitute “a”, and
25
(c)
for “the trade” substitute “the qualifying activity”.
(3)
In subsection (2), for “an industrial” substitute “a”.
(4)
After that subsection insert—
“(2A)
Subsection (2) is subject to section 35 (expenditure on plant or
machinery for use in dwelling-house not qualifying expenditure).
30
(2B)
This section does not apply to expenditure within subsection (2) if a
deduction for that expenditure is allowable—
(a)
under section 31ZA of ICTA, or
(b)
under section 312 of ITTOIA 2005,

(deductions for expenditure on energy-saving items).
35
(2C)
For the purposes of subsection (2B), whether such a deduction is
allowable is to be determined without regard to subsection (1)(e) of the
section in question.”
(5)
Omit subsection (3).