Clause 590: Duration of notice under section 586 or 587

1855.     This clause provides for a notice under clause 586 or 587 to cease to have effect. It is based on section 138(1) and (2) of FA 2006.

1856.     This clause enacts parts of SI 2006/2886 and SI 2007/3425. See Change 43 in Annex 1.

1857.     Subsections (1)(b) and (2)(b) provide that if the venturing group or venturing company ceases to be a UK REIT, the notice under clause 586 ceases to have effect. For joint venture companies, this is not explicit in regulations 4 and 11 of SI 2006/3425. But it is implicit that a joint venture company ceases to be within the UK REIT regime if the company which made the notice ceases to be a UK REIT. Subsections (1)(b) and (2)(b) make this explicit. So the positions for joint venture companies and joint venture groups are the same.

1858.     Subsection (6) provides that if a notice under clause 586 or 587 ceases to have effect, clause 581 (early exit) continues to have effect. The joint venture company regulations do not contain a provision similar to that for joint venture groups. But it is implicit from the regulations that clause 581 continues to have effect once the joint venture company ceases to be in the UK REIT regime. So subsection (6) applies to joint venture companies as it does to joint venture groups.

Clause 591: Conditions as to balance of business

1859.     This clause provides that the balance of business tests in clause 531 must be met by the joint venture company or joint venture group. It is based on section 138(1) and (2) of FA 2006.

1860.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

Clause 592: Joint venture groups: financial statements

1861.     This clause provides that the principal company of a joint venture group must prepare financial statements for the group. It is based on section 138(1) and (2) of FA 2006.

1862.     This clause enacts parts of SI 2007/3425. See Change 43 in Annex 1.

1863.     Subsection (5) provides that the financial statements must be submitted to an “officer of Revenue and Customs” rather than to “the Commissioners for Her Majesty’s Revenue and Customs”. See Change 5 in Annex 1.

Clause 593: Financial statements under section 532: joint venture groups

1864.     This clause provides that the amount to be included in the financial statements under clause 532 should include only the “relevant percentage” of profits, expenses, gains, losses, assets and liabilities. It is based on section 138(1) and (2) of FA 2006.

1865.     This clause enacts parts of SI 2007/3425. See Change 43 in Annex 1.

Clause 594: Modifications of Chapter 3

1866.     This clause makes specific modifications to the Part in relation to property rental business carried on by a joint venture company or by one or more members of a joint venture group. It is based on sections 138(1) and (2) of FA 2006.

1867.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

Clause 595: Joint venture company liable for additional charge

1868.     This clause provides that a joint venture company is chargeable to an additional amount of entry charge in certain circumstances. It is based on sections 138(1) and (2) of FA 2006.

1869.     This clause enacts regulation 14 of SI 2006/2866. See Change 43 in Annex 1.

1870.     This clause provides that a joint venture company is chargeable to tax under clause 538 in respect of the “reduced notional amount” if either:

• a venturing company becomes a principal company of a group UK REIT and it increases its holding in a joint venture company; or

• a venturing group increases its holding in a joint venture company to more than 75%.

1871.     Subsection (7) defines “reduced notional amount”.

1872.     If more than 75% of the shares of the joint venture company are held by the company, the joint venture company is a subsidiary and is covered by the clause 523(1) notice. It is not possible to give a further notice under clause 586.

Clause 596: Member of joint venture group liable for additional charge

1873.     This clause provides that a member of a joint venture group is chargeable to an additional amount of entry charge in certain circumstances. It is based on sections 138(1) and (2) of FA 2006.

1874.     This clause enacts parts of SI 2007/3425. See Change 43 in Annex 1.

1875.     Subsections (1) to (3) provide that a member of a joint venture group is chargeable to tax under clause 538 in respect of “the reduced notional amount” if a venturing company increases its holding in a member of a joint venture group with the result that it becomes a principal company of a group.

1876.     Subsections (4) and (5) provide that a member of a joint venture group is chargeable to tax under clause 538 in respect of the “reduced notional amount” if a venturing group increases its holding in a member of a joint venture group to at least 75% with the result that the member of the joint venture group becomes a member of the venturing group.

1877.     Regulation 14(6) of SI 2006/2866 refers to the case where “a venturing group .. increases its shareholding .. to 75% or more” in a joint venture company. These words include the possibility that the 75% comprises smaller shareholdings by members of the venturing group.

1878.     Regulation 24(1) of SI 2007/3425 refers to the case where “a member of a venturing group .. increases its shareholding .. to 75% or more” in a member of a joint venture group. These words seem to require that the 75% holding must be by a single member of the venturing group.

1879.     The result in each case is that the joint venture company (or member of the joint venture group) becomes a member of a group UK REIT. Chapter 3 of Part 24 of this Bill provides that indirect shareholdings are to be taken into account in determining whether a company is a member of a group. So the SI 2006/2866 approach is more logical than that of 2007/3425 and is the one adopted by the clause in both cases.

1880.     Subsections (6) defines “reduced notional amount”.

Clause 597: Cases where no additional charge due

1881.     This clause provides that neither a joint venture company nor a member of a joint venture group is chargeable to an additional amount in respect of the entry charge if there is no increase in shareholding. It is based on sections 138(1) and (2) of FA 2006.

1882.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

Clause 598: Chapter 10: supplementary

1883.     This clause explains what is meant by “equity holder” and percentages of beneficial interest for the purposes of the Chapter. It is based on section 138(1) of FA 2006.

1884.     This clause enacts parts of SI 2006/2866 and SI 2007/3425. See Change 43 in Annex 1.

1885.     Subsection (1)(b) defines “equity holder” for the purposes of the Chapter by reference to a loan creditor other than a loan in relation to a “normal commercial loan”. This is based on regulation 4(1) of SI 2007/3425. SI 2006/2866 does not define “normal commercial loan” for joint venture companies. This clause applies the definition for both joint venture groups and joint venture companies.

1886.     The exclusions for “owner-occupied” property in Condition 6 of regulations 3(1) and 10(1) of SI 2006/2866 are not rewritten. Instead the rule in paragraph 3(3) of Schedule 16 to FA 2006 is rewritten in clause 604(2) and applies to the whole of this Part.

Chapter 11: Part 12: supplementary

Clause 599: Calculation of profits

1887.     This clause provides for the calculation of profits for the purposes of certain provisions in the Part. It is based on section 120 of FA 2006.

1888.     This clause applies to non-UK companies and joint venture companies (including non-UK ones).

1889.     Subsection (7) requires income and expenditure to be “apportioned on a just and reasonable basis”. It is based on section 120(6) of FA 2006 which states that income and expenditure be “apportioned reasonably”. See Change 33 in Annex 1.

Clause 600: Power to make regulations about cases involving related persons

1890.     This clause allows the Treasury, by order, to treat persons as forming part of a group REIT. It is based on section 136A of FA 2006.

1891.     An order under this clause is intended to counteract arrangements by which a company with non-qualifying activities is artificially excluded from a group of companies with the result that the balance of business tests are satisfied.

1892.     In subsection (2) “REIT company” is defined, for the purpose of subsection (1) only, to include the members of a group UK REIT. In this respect it differs from the definitions in clause 518(4).

1893.     Subsection (5) ensures that this clause is an exception to the general rule about orders and regulations in clause 1171(4).

Clause 601: Availability of group reliefs

1894.     This clause provides that the part of a group UK REIT that carries on property rental business is treated as a separate group from the part that carries on other business for the purposes of various group-related provisions. It is based on section 136 of FA 2006.

Clause 602: Effect of deemed disposal and reacquisition

1895.     This clause provides that a deemed disposal and reacquisition of an asset under this Part has effect for any future disposal. It is based on section 141 of FA 2006.

Clause 603: Regulations

1896.     This clause provides that regulations made under the Part may make provision for various other purposes. It is based on section 144 of FA 2006.

1897.     This clause is in line with other general regulation-making provisions and includes a specific reference to the making of “supplemental” provision.

Clause 604: Property rental business: exclusion of listed business

1898.     This clause provides a list of classes of businesses that are not property rental business. It is based on section 104(2) of, and paragraphs 1 to 5 and 14 of Schedule 16 to, FA 2006.

Clause 605: Property rental business: exclusion of business producing listed income

1899.     This clause provides that business is not property rental business in so far as it gives rise to certain income. It is based on section 104(2) of, and paragraphs 6 to 14 of Schedule 16 to, FA 2006.

1900.     Subsection (1) provides that business is not property rental business in so far as it gives rise to income of a class referred to in subsection (2). Section 104(2)(b) of FA 2006 refers to “income or profits..”. It is unclear what the reference to “profits” is intended to catch. So this clause omits the reference to profits.

Clause 606: Groups

1901.     This clause sets out which companies are treated as part of a group for the purposes of the Part. It is based on section 134(2) to (6) of FA 2006.

1902.     Subsection (3) provides that a company cannot be a member of more than one group. But that rule is disapplied for the joint venture Chapter by subsection (4). So a company may be a member of a joint venture group (see clause 584(2)) and a member of another group. And a company may be a member of more than one group UK REIT.

Clause 607: Meaning of “entry” and “cessation” etc

1903.     This clause contains definitions related to a company or group becoming, or ceasing to be, a UK REIT. It is based on sections 105(1) and (2) and 134(1) of, and paragraphs 4 and 10 to 12 of Schedule 17 to, FA 2006.

Clause 608: References to assets

1904.     This clause explains what is meant by a reference to an asset and when that asset is “involved” in a business. It is based on sections 108(3), 111(6), 131(6), 132(3) and 142 of FA 2006.

Clause 609: Definitions

1905.     This clause contains a list of definitions for this Part. It is based on section 142 of FA 2006.

1906.

Part 13: Other special types of company etc

Overview

1907.     This Part contains rules for special types of company etc.

1908.     Chapter 1 is about corporate beneficiaries under trusts.

1909.     Chapter 2 is about authorised investment funds.

1910.     Chapter 3 is about unauthorised unit trusts.

1911.     Chapter 4 is about securitisation companies.

1912.     Chapter 5 is about companies in liquidation or administration.

1913.     Chapter 6 is about banks in compulsory liquidation.

1914.     Chapter 7 is about co-operative housing associations.

1915.     Chapter 8 is about self-build societies.

1916.     Chapter 9 is about community amateur sports clubs.

Chapter 1: Corporate beneficiaries under trusts

Overview

1917.     This Chapter contains rules that apply to the income of corporate beneficiaries of settlements. The first clause concerns payments made at the discretion of the trustees. The second clause concerns cases where the beneficiary is entitled to a share of the settlement income as it arises (often described as having an “interest in possession”).

Clause 610: Discretionary payments by trustees to companies

1918.     This clause provides that discretionary payments by trustees to which sections 494 and 495 of ITA apply are ignored in calculating the beneficiary’s liability to corporation tax. It is based on section 687A of ICTA.

1919.     Under subsection (2), this provision does not apply to payments made to charitable and similar bodies. These bodies have their own rules (see Part 11).

1920.     The word “profits” in section 687A of ICTA does not have a defined meaning: the interpretation in section 6(4)(a) of ICTA does not apply to this section. Subsections (3) and (4) of this clause refer to the “income” of the company for corporation tax purposes instead as this fits with the charge to corporation tax on income (see for example clause 4(3) of this Bill) and with Chapter 7 of Part 9 of ITA (discretionary payments).

1921.     Under subsection (3)(b), the payments are income for corporation tax purposes under section 493 of ITA but are ignored for the purpose of determining the income that is chargeable to corporation tax.

1922.     The beneficiary is treated under section 494 of ITA as having paid income tax on the grossed-up amount of the discretionary payment and the trustees are liable for that tax under section 496 of ITA. But subsection (3)(a) provides that the tax is not available for set-off against corporation tax or any other income tax for which the beneficiary has to account and subsection (3)(c) provides that the deemed income tax is not repaid to the company.

Clause 611: Income tax provisions to apply in relation to trustees’ expenses

1923.     This clause applies the rules in sections 500 and 503 of ITA. It is based on section 698B of ICTA. These provisions are concerned with the treatment of trustees’ expenses in a case where the beneficiary is entitled to trust income as it arises. This is where the beneficiary has an interest in possession (IIP).

1924.     It is very rare for a company to be an IIP beneficiary of a trust so this is a case where it seems preferable to have this clause read across to, rather than duplicate, the income tax provisions.

1925.     Much of the content of sections 500 and 503 ITA was new as there was very little statutory guidance about how trustees’ expenses affect the measure of a beneficiary’s income. The principles were mainly derived from trust and tax law, but are well understood and are the subject of guidance issued by HMRC. See Change 45 in Annex 1.

1926.

Chapter 2: Authorised investment funds

Overview

1927.     This Chapter rewrites sections 468, 468A and 469A of ICTA and provides rules about authorised investment funds.

1928.     The term “authorised investment funds” is not defined in this Chapter because it is not used in the body of the clauses. But it is defined in other legislation and is commonly understood to refer to both open-ended investment companies (OEICs) and authorised unit trusts (AUTs). The Chapter also provides rules about court investment funds, which are treated as AUTs.

Clause 612: Overview of Chapter

1929.     This clause provides an overview of what is in the Chapter. It is new.

Clause 613: Meaning of “open-ended investment company”

1930.     This clause sets out the definition of an “open-ended investment company” (an OEIC). It is based on section 468A(2) of ICTA.

Clause 614: Applicable corporation tax rate

1931.     This clause, which is based on section 468A(1) of ICTA, provides that the rate of corporation tax applicable to an OEIC is the income tax basic rate (see section 6 of ITA).

Clause 615: Umbrella companies

1932.     This clause sets out the definition of “umbrella company” and how such a company is treated. It is based on section 468A(3) and (4) of ICTA.

1933.     An umbrella company is an OEIC whose investments are pooled separately in sub-funds which may have different investment objectives. As in section 235 of FISMA, this practice is referred to in this clause in terms of separate pooling and separate parts. References in the clause to a part of an umbrella company are to a separate pool (subsection (2)).

1934.     Each separate part of an umbrella company is treated as a separate OEIC while the umbrella company as a whole is not treated as an OEIC. This mirrors the provision made for umbrella schemes by clause 619.

Clause 616: Meaning of “authorised unit trust” and “unit holder”

1935.     This clause defines these terms for the purposes of the Chapter. It is based on section 468(6) of ICTA.

Clause 617: Authorised unit trust treated as UK resident company

1936.     This clause provides that the Tax Acts have effect as if the trustees of an AUT were a UK resident company, and as if the rights of the unit holders were shares in the company. It is based on section 468(1) and (3) of ICTA,

1937.     Detailed rules for the taxation of both an AUT as an institution, and unit holders as investors, are set out in the Authorised Investment Funds (Tax) Regulations 2006 (SI 2006/964).

1938.     Subsection (3) makes it clear that the treatment in subsection (1)(b) does not affect the rules which enable an AUT to make distributions which are interest distributions to unit holders. The term “interest distribution” is currently defined in regulation 18(3) of SI 2006/964.

Clause 618: Applicable corporation tax rate

1939.     This clause states that a special rate of corporation tax is applicable to AUTs. It is based on section 468(1A) of ICTA.

1940.     The applicable rate is the income tax basic rate (see section 6 of ITA).

Clause 619: Umbrella schemes

1941.     This clause sets out the definition of an “umbrella scheme” and how such a scheme is treated. It is based on section 468(7), (8) and (9) of ICTA.

1942.     An umbrella scheme is a fund which is divided into sub-funds which may have different investment objectives. As in section 235 of FISMA, this practice is referred to in this clause in terms of separate pooling and separate parts. References in the clause to a part of an umbrella scheme are to the pooling arrangements that relate to a separate pool.

1943.     Each separate part of an umbrella scheme is treated as a separate AUT while the umbrella scheme as a whole is not treated as an AUT. This mirrors the provision made for umbrella companies by clause 615.

Clause 620: Court investment funds

1944.     This clause sets out the treatment of court investment funds. It is based on section 469A of ICTA.

1945.     In section 469A of ICTA the fund is described as a court common investment fund but for capital gains tax purposes (see section 100(3) of TCGA) the same kind of account is named a court investment fund. We have changed the term to be consistent with the simpler and clearer description in TCGA.

1946.     A court investment fund is defined in subsection (1) as a fund set up under section 42 of the Administration of Justice Act 1982.

1947.     The effect of the clause is that the Tax Acts apply to a court investment fund as if it were an AUT (with the investment manager of the fund in the role of trustee) and as if the persons with qualifying interests in the fund (see the table in subsection (3)) were unit holders in the AUT.

1948.

Chapter 3: Unauthorised unit trusts

Overview

1949.     This Chapter contains special rules relating to the income and capital expenditure of unit trusts. It is based on section 469 of ICTA. The corresponding income tax provisions are in Chapter 9 of Part 9 of ITA.

Clause 621: Treatment of income

1950.     This clause is based on sections 469(1) and (2) of ICTA. The corresponding rule for income tax is in section 504 of ITA.

1951.     Subsection (2) provides that for the purposes of the Corporation Tax Acts income arising to the trustees is treated as their income and not as the income of the unit holders.

Clause 622: Treatment of capital expenditure

1952.     This clause is based on sections 469(1) and (2) of ICTA. The corresponding rule for income tax is in section 504A of ITA, as inserted by the Income Tax Act 2007 (Amendment) Order 2009 (SI 2009/23).

1953.     The effect of this special rule is that all allowances and charges under rules relating to capital expenditure are enjoyed or suffered by the trustees and not the unit holders.

1954.

Chapter 4: Securitisation companies

Overview

1955.     This Chapter deals with securitisation companies. It is based on section 84 of FA 2005.

1956.     Section 84 of FA 2005 consisted primarily of a Treasury power to determine how the Corporation Tax Acts were to apply to securitisation companies. It also contained a Treasury power to refine, for the purposes of those regulations, the basic section 84 definition of a securitisation company .

1957.     The rewritten clauses separate the two regulation making powers. The power to refine the definition of a securitisation company is in subsection (2)(b) of clause 623. The power to make regulations governing the taxation of securitisation companies comprises the whole of clause 624.

1958.     Section 83 of FA 2005 also deals with securitisation companies although the definition of “securitisation companies” for the purposes of section 83 is not the same as that for section 84. Section 83 governs the application of accounting standards to certain securitisation companies for periods of account beginning on or after 1 January 2005 and ending before 1 January 2008. That period has, however, now been extended, (in accordance with the power in subsection (7A)) by the Securitisation Companies (Application of section 83(1) of the Finance Act 2005: Accounting Standards) Regulations 2007 (SI 2007/3338), to 1 January 2017 in a limited number of cases. As section 83 has a finite life and a limited application it is not rewritten.