Finance Bill

House of Commons

Session 2009 - 10
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Finance Bill

Finance Bill
Schedule 13 — Transactions in securities
121

(a)
as regards corporation tax, on or after 1 April 2010, and
(b)
as regards income tax or capital gains tax, on or after 6 April 2010.
Limit on reduction for foreign tax
7     (1)
In section 112 of TIOPA 2010 (deduction from income for foreign tax), after
subsection (2) insert—
5
“(2A)
But if X is less than Y, an amount equal to the difference between X
and Y must be subtracted from the amount by which any income of
a person (“the relevant income”) is reduced under subsection (1)(a).
(2B)
In subsection (2A)—
X is the amount of the relevant income that the person would
10
(disregarding this section) be required to bring into account
for income tax or corporation tax purposes, less any
deduction that the person would be allowed to make for the
amount paid in respect of non-UK tax, and
Y is the amount of the relevant income (that is to say, the
15
amount on which the amount in respect of non-UK tax is
paid).”
      (2)
The amendment made by this paragraph has effect in relation to amounts in
respect of non-UK tax that are paid—
(a)
as regards corporation tax, on or after 1 April 2010, and
20
(b)
as regards income tax, on or after 6 April 2010.
Schedule 13
Section 39

Transactions in securities
Income tax
1
Chapter 1 of Part 13 of ITA 2007 (transactions in securities: income tax
25
advantages) is amended as follows.
2
For sections 682 to 694 substitute—
“Introduction
682
Overview of Chapter
  This Chapter makes provision for counteracting income tax
30
advantages from transactions in securities.
683
Provisions of Chapter
(1)
Sections 684 to 687 specify when a person is liable to counteraction of
income tax advantages from transactions in securities.
(2)
Sections 695 to 700 make provision about the procedure for
35
counteraction of such income tax advantages.
(3)
Sections 701 and 702 make provision for a clearance procedure.

Finance Bill
Schedule 13 — Transactions in securities
122

(4)
Section 705 makes provision for appeals against counteraction
notices.
(5)
Sections 712 deals with cases in which a person liable to
counteraction dies.
(6)
Section 713 contains interpretative provisions.
5
Person liable to counteraction of income tax advantages
684
Person liable to counteraction of income tax advantage
(1)
This section applies to a person where—
(a)
the person is a party to a transaction in securities or two or
more transactions in securities (see subsection (2)),
10
(b)
the circumstances are covered by section 685 and not
excluded by section 686,
(c)
the main purpose, or one of the main purposes, of the person
in being a party to the transaction in securities, or any of the
transactions in securities, is to obtain an income tax
15
advantage, and
(d)
the person obtains an income tax advantage in consequence
of the transaction or the combined effect of the transactions.
(2)
In this Chapter “transaction in securities” means a transaction, of
whatever description, relating to securities, and includes in
20
particular—
(a)
the purchase, sale or exchange of securities,
(b)
issuing or securing the issue of new securities,
(c)
applying or subscribing for new securities, and
(d)
altering or securing the alteration of the rights attached to
25
securities.
(3)
Section 687 defines “income tax advantage”.
(4)
This section is subject to—
section 696(3) (disapplication of this section where person
receiving preliminary notification that section 684 may apply
30
makes statutory declaration and relevant officer of Revenue
and Customs sees no reason to take further action), and
section 697(5) (determination by tribunal that there is no prima
facie case that section 684 applies).
685
Receipt of consideration in connection with distribution by or assets
35
of close company
(1)
The circumstances covered by this section are circumstances where
condition A or condition B is met.
(2)
Condition A is that, as a result of the transaction in securities or any
one or more of the transactions in securities, the person receives
40
relevant consideration in connection with—
(a)
the distribution, transfer or realisation of assets of a close
company,
(b)
the application of assets of a close company in discharge of
liabilities, or
45

Finance Bill
Schedule 13 — Transactions in securities
123

(c)
the direct or indirect transfer of assets of one close company
to another close company,

and does not pay or bear income tax on the consideration (apart from
this Chapter).
(3)
Condition B is that—
5
(a)
the person receives relevant consideration in connection with
the transaction in securities or any one or more of the
transactions in securities,
(b)
two or more close companies are concerned in the transaction
or transactions in securities concerned, and
10
(c)
the person does not pay or bear income tax on the
consideration (apart from this Chapter).
(4)
In a case within subsection (2)(a) or (b) “relevant consideration”
means consideration which—
(a)
is or represents the value of—
15
(i)
assets which are available for distribution by way of
dividend by the company, or
(ii)
assets which would have been so available apart from
anything done by the company,
(b)
is received in respect of future receipts of the company, or
20
(c)
is or represents the value of trading stock of the company.
(5)
In a case within subsection (2)(c) or (3) “relevant consideration”
means consideration which consists of any share capital or any
security issued by a close company and which is or represents the
value of assets which—
25
(a)
are available for distribution by way of dividend by the
company,
(b)
would have been so available apart from anything done by
the company, or
(c)
are trading stock of the company.
30
(6)
The references in subsection (2)(a) and (b) to assets do not include
assets which are shown to represent a return of sums paid by
subscribers on the issue of securities, despite the fact that under the
law of the country in which the company is incorporated assets of
that description are available for distribution by way of dividend.
35
(7)
So far as subsection (2)(c) or (3) relates to share capital other than
redeemable share capital, it applies only so far as the share capital is
repaid (on a winding up or otherwise); and for this purpose any
distribution made in respect of any shares on a winding up or
dissolution of the company is to be treated as a repayment of share
40
capital.
(8)
References in this section to the receipt of consideration include
references to the receipt of any money or money’s worth.
(9)
In this section—
“security” includes securities not creating or evidencing a
45
charge on assets;
“share” includes stock and any other interest of a member in a
company.

Finance Bill
Schedule 13 — Transactions in securities
124

686
Excluded circumstances: fundamental change of ownership
(1)
Circumstances are excluded by this section if—
(a)
immediately before the transaction in securities (or the first of
the transactions in securities) the person (referred to in this
section as “the party”) holds shares or an interest in shares in
5
the close company, and
(b)
there is a fundamental change of ownership of the close
company.
(2)
There is a fundamental change of ownership of the close company
if—
10
(a)
as a result of the transaction or transactions in securities,
conditions A, B and C are met, and
(b)
those conditions continue to be met for a period of 2 years.
(3)
Condition A is that at least 75% of the ordinary share capital of the
close company is held beneficially by—
15
(a)
a person who is not connected with the party and has not
been so connected within the period of 2 years ending with
the day on which the transaction in securities (or the first of
the transactions in securities) takes place, or
(b)
persons none of whom is so connected or has been so
20
connected within that period.
(4)
Condition B is that shares in the close company held by that person
or those persons carry an entitlement to at least 75% of the
distributions which may be made by the company.
(5)
Condition C is that shares so held carry at least 75% of the total
25
voting rights in the close company.
687
Income tax advantage
(1)
For the purposes of this Chapter the person obtains an income tax
advantage if—
(a)
the amount of any income tax which would be payable by the
30
person in respect of the relevant consideration if it
constituted a qualifying distribution exceeds the amount of
any capital gains tax payable in respect of it, or
(b)
income tax would be payable by the person in respect of the
relevant consideration if it constituted a qualifying
35
distribution and no capital gains tax is payable in respect of it.
(2)
So much of the relevant consideration as exceeds the maximum
amount that could in any circumstances have been paid to the person
by way of a qualifying distribution at the time when the relevant
consideration is received is to be left out of account for the purposes
40
of subsection (1).
(3)
The amount of the income tax advantage is the amount of the excess
or (if no capital gains tax is payable) the amount of the income tax
which would be payable.
(4)
In this section “relevant consideration” has the same meaning as in
45
section 685.”

Finance Bill
Schedule 13 — Transactions in securities
125

3
In section 698(6) (counteraction notices), omit—
(a)
the entry relating to section 699, and
(b)
in the entry relating to section 700, “in section 690 cases”.
4
Omit section 699 (limit on amount assessed in section 689 and 690 cases).
5
In section 700 (timing of assessments in section 690 cases)—
5
(a)
in subsection (1), for “690 (receipt of relevant company assets
(circumstance E))” substitute “688(2)(c) or (3)”, and
(b)
in the heading, omit “in section 690 cases”.
6
In the heading before section 701, omit “and information powers”.
7     (1)
Section 713 (interpretation) is amended as follows.
10
      (2)
Before the definition of “company” insert—
““close company” includes a company that would be a close
company if it were resident in the United Kingdom,”.
      (3)
Omit the definition of “transaction in securities”.
Corporation tax
15
8
Part 15 of CTA 2010 (transactions in securities: corporation tax advantages)
is amended as follows.
9
In section 733(2) (company liable to counteraction of corporation tax
advantage), omit the entry relating to section 735.
10
Omit section 735 (abnormal dividends used for exemptions or reliefs).
20
Consequential amendments
11
In section 809S of ITA 2007 (remittance basis: anti-avoidance provisions
relating to transfers of mixed funds), for subsection (4) substitute—
“(4)
“Income tax advantage” means—
(a)
a relief from income tax or increased relief from income tax,
25
(b)
a repayment of income tax or increased repayment of income
tax,
(c)
the avoidance or reduction of a charge to income tax or an
assessment to income tax, or
(d)
the avoidance of a possible assessment to income tax;
30

and for this purpose “relief from income tax” includes a tax credit.
(4A)
For the purposes of subsection (4)(c) and (d) it does not matter
whether the avoidance or reduction is effected—
(a)
by receipts accruing in such a way that the recipient does not
pay or bear income tax on them, or
35
(b)
by a deduction in calculating profits or gains.”
12    (1)
Schedule 4 to that Act (index of defined expressions) is amended as follows.
      (2)
After the definition of “close company” insert—

Finance Bill
Schedule 14 — Unauthorised unit trusts
126

“close company (in Chapter 1 of Part 13)
section 713”.

      (3)
In the entry relating to “income tax advantage (in Chapter 1 of Part 13)”, for
“683(1)” substitute “687”.
      (4)
In the entry relating to “transaction in securities (in Chapter 1 of Part 13)”,
for “713” substitute “684(2)”.
5
13
In FA 2007, in Schedule 26, omit paragraph 12(11).
14
In CTA 2010, in Schedule 1, omit paragraphs 545 and 546.
Commencement
15    (1)
The amendments made by paragraphs 2 to 5, 7 and 11 to 13 (and paragraph
1 so far as relating to them) have effect in relation to income tax advantages
10
obtained on or after 24 March 2010.
      (2)
The amendment made by paragraph 6 (and paragraph 1 so far as relating to
it) are treated as having come into force on 1 April 2009.
      (3)
The amendments made by paragraphs 8 to 10 have effect in relation to
corporation tax advantages obtained on or after 1 April 2010.
15
      (4)
The repeals made by paragraph 14 are treated as having come into force on
1 April 2010.
Schedule 14
Section 41

Unauthorised unit trusts
Amendments of Chapter 13 of Part 15 of ITA 2007
20
1     (1)
Chapter 13 of Part 15 of ITA 2007 (deduction of income tax at source:
unauthorised unit trusts) is amended as follows.
      (2)
In section 941(6) (deemed payments to unit holders and deemed deductions
of income tax), after the definition of “deemed deduction”, insert—
““deemed income” means the gross amount of income treated
25
as received as mentioned in subsection (1),”.
      (3)
In section 942 (income tax to be collected from trustees) after subsection (5)
insert—
“(6)
No relief under—
(a)
sections 2 and 6 of TIOPA 2010 (double taxation
30
arrangements: relief by agreement), or
(b)
section 18(1)(b) and (2) of that Act (relief for foreign tax where
no double taxation arrangements),

is allowed in relation to income tax to be collected by virtue of this
section.”
35

Finance Bill
Schedule 14 — Unauthorised unit trusts
127

      (4)
After section 943 (calculation of trustees’ income pool) insert—
“943A
Treatment of cases involving double tax relief
(1)
This section applies where—
(a)
the trustees of an unauthorised unit trust are treated as
making deemed payments to unit holders in a tax year (“the
5
current tax year”),
(b)
there is a reduction in the income pool in the current tax year,
and
(c)
the amount of the trustees’ double tax relief pool as at the
start of the current tax year is greater than zero.
10
(2)
Section 848 (income tax deducted at source treated as income tax
paid by recipient) does not apply to the foreign element of the
deemed deduction treated as made from any of the deemed
payments.
(3)
Instead, for the purposes of the Tax Acts—
15
(a)
the foreign element of the deemed deduction is treated as if it
were tax payable under the law of a territory outside the
United Kingdom with which there are not in force any
arrangements under section 2(1) of TIOPA 2010 (double
taxation relief by agreement), and
20
(b)
the foreign element of the deemed income represented by the
deemed payment is treated as if it were income that—
(i)
arises in a territory of the kind mentioned in
paragraph (a), and
(ii)
is income by reference to which the tax treated under
25
paragraph (a) as payable was computed.
(4)
A reference in this Chapter to a reduction in the income pool in a tax
year is to the amount (if any) by which—
(a)
the amount of the income pool at the start of the tax year,
exceeds
30
(b)
the amount of the income pool at the start of the following tax
year.
(5)
See—
section 943B for provision about references to the “foreign
element” of a deemed deduction or deemed income, and
35
section 943C for provision about the calculation of the trustees’
double tax relief pool as at the beginning of a tax year.
943B
The “foreign element” of a deemed deduction or deemed income
(1)
References in this Chapter to the “foreign element” of—
(a)
a deemed deduction treated as made in a tax year, or
40
(b)
deemed income treated as received in a tax year,

are to the deemed deduction or deemed income multiplied by the
relevant fraction.
(2)
For this purpose “the relevant fraction” means—