Finance Act 1968

• (b) except to the extent permitted by sub-paragraph (5) below, it does not secure any other benefits.

• (2) If the capital sum referred to in sub-paragraph (1) above is payable whenever the event in question happens, or if it happens at any time during the life of a specified person—

• (a) the premiums under the policy must be payable at yearly or shorter intervals, and either—

• (i) until the happening of the event, or, as the case may require, until the happening of the event or the earlier death of the specified person, or

• (ii) until the time referred to in sub-paragraph (i) above or the earlier expiry of a specified period ending not earlier than ten years after the making of the insurance, and

• (b) the total premiums payable in any period of twelve months must not exceed—

• (i) twice the amount of the total premiums payable in any other such period, or

• (ii) one-eighth of the total premiums which would be payable if the policy were to continue in force for a period of ten years from the making of the insurance, or, in a case falling within paragraph (a)(ii) above, until the end of the period therein referred to.

• (3) If the capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person—

• (a) the premiums under the policy must be payable at yearly or shorter intervals, and either—

• (i) until the happening of the event or the earlier expiry of the said term, or, as the case may require, until the happening of the event or, if earlier, the expiry of the term or the death of the specified person, or

• (ii) as in sub-paragraph (i) above, but with the substitution for references to the term of references to a specified shorter period, being one ending not earlier than ten years after the making of the insurance of, if sooner, the expiry of three-quarters of the said term, and

• (b) the total premiums payable in any period of twelve months must not exceed—

• (i) twice the amount of the total premiums payable in any other such period, or

• (ii) one-eighth of the total premiums which would be payable if the policy were to continue in force for the term referred to in paragraph (a)(i) above, or, as the case may require, for the shorter period referred to in paragraph (a)(ii) above.

• (4) If the capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending not more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person, the policy must provide that any payment made by reason of its surrender during that period is not to exceed the total premiums previously paid thereunder.

• (5) Notwithstanding sub-paragraph (1)(b) above, if a policy secures a capital sum payable only on death, it may also secure benefits (including benefits of a capital nature) to be provided in the event of a person's disability ; and no policy is to be regarded for the purposes of that provision as securing other benefits by reason only of the fact that it confers a right to participate in profits, that it carries a guaranteed surrender value, that it gives an option to receive payments by way of annuity, or that it makes provision for the waiver of premiums by reason of a person's disability or for the effecting of a further insurance or insurances without the production of evidence of insurability.

• (6) In applying sub-paragraph (2) or (3) above to any policy—

• (a) no account shall be taken of any provision for the waiver of premiums by reason of a person's disability, and

• (b) if the term of the policy runs from a date earlier, but not more than three months earlier, than the making of the insurance, the insurance shall be treated as having been made on that date, and any premium paid in respect of the period before the making of the insurance, or in respect of that period and a subsequent period, as having been payable on that date.

• (7) References in this paragraph to a capital sum payable on any event include references to any capital sum, or series of capital sums, payable by reason thereof; and a policy secures a capital sum payable either on death or on disability notwithstanding that the amount payable may vary with the event.

General rules applicable to endowment assurances

2

• (1) Subject to the following provisions of this Part of this Schedule, a policy which secures a capital sum payable either on survival for a specified term or on earlier death, or earlier death or disability, including a policy securing the sum on death only if occurring after the attainment of a specified age not exceeding sixteen, is a qualifying policy if it satisfies the following conditions—

• (a) the term must be one ending not earlier than ten years after the making of the insurance,

• (b) premiums must be payable under the policy at yearly or shorter intervals, and—

• (i) until the happening of the event in question, or

• (ii) until the happening of that event, or the earlier expiry of a specified period shorter than the term but also ending not earlier than ten years after the making of the insurance, or

• (iii) if the policy is to lapse on the death of a specified person, until one of those times or the policy's earlier lapse,

• (c) the total premiums payable under the policy in any period of twelve months must not exceed—

• (i) twice the amount of the total premiums payable in any other such period, or

• (ii) one-eighth of the total premiums which would be payable if the policy were to run for the specified term,

• (d) the policy—

• (i) must guarantee that the capital sum payable on death, or on death occurring after the attainment of a specified age not exceeding sixteen, will, whenever that event may happen, be equal to three-quarters at least of the total premiums which would be payable if the policy were to run for that term, disregarding any amounts included in those premiums by reason of their being payable otherwise than annually, and

• (ii) if it is a policy which does not secure a capital sum in the event of death before the attainment of a specified age not exceeding sixteen, must not provide for the payment in that event of an amount exceeding the total premiums previously paid thereunder, and

• (e) the policy must not secure the provision (except by surrender) at any time before the happening of the event in question of any benefit of a capital nature other than a payment falling within paragraph (d)(ii) above, or benefits attributable to a right to participate in profits or arising by reason of a person's disability.

• (2) Sub-paragraphs (6) and (7) of paragraph 1 above shall, with any necessary modifications, have effect for the purposes of this paragraph as they have effect for the purposes of that paragraph.

• (3) For the purposes of sub-paragraph (1)(d)(i) above, ten per cent, of the premiums payable under any policy issued in the course of an industrial assurance business as defined in section 1(2) of the Industrial Assurance Act 1923 shall be treated as attributable to the fact that they are not paid annually.

Special types of policy

3

A policy issued by any friendly society, or branch of a friendly society, in the course of its tax exempt life or endowment business, as defined in section 29(9) of the Finance Act 1966, is a qualifying policy notwithstanding that it does not comply with the conditions specified in paragraph 1 or 2 above.

4

• (1) A policy issued in the course of an industrial assurance business, as defined in section 1(2) of the Industrial Assurance Act 1923, and not constituting a qualifying policy by virtue of paragraph 1 or 2 above, is nevertheless a qualifying policy if—

• (a) the sums guaranteed by the policy, together with those guaranteed at the time the assurance is made by all other policies issued in the course of such a business to the same person and not constituting qualifying policies apart from this paragraph, do not exceed £1,000,

• (b) it satisfies the conditions with respect to premiums specified in paragraph 1(2) above,

• (c) except by reason of death or surrender, no capital sum other than one falling within paragraph (d) below can become payable under the policy earlier than ten years after the making of the assurance, and

• (d) where the policy provides for the making of a series of payments during its term—

• (i) the first such payment is due not earlier than five years after the making of the assurance, and the others, except the final payment, at intervals of not less than five years, and

• (ii) the amount of any payment, other than the final payment, does not exceed four-fifths of the premiums paid in the interval before its payment, and

• (iii) if the first such payment is due earlier than ten years after the making of the assurance, or any other such payment except the last is due earlier than ten years after the preceding one, the sums guaranteed by the policy, together with the other sums referred to in paragraph (a) above so far as guaranteed by policies the payments under which also fall within this sub-paragraph, do not exceed £500.

• (2) For the purpose of this paragraph, the sums guaranteed by a policy do not include any bonuses, or, in the case of a policy providing for a series of payments during its term, any of those payments except the first, or any sum payable on death during the term by reference to one or more of those payments except so far as that sum is referable to the first such payment.

5

• (1) The following provisions apply to any policy which is not a qualifying policy apart from those provisions, and the benefits secured by which consist of or include the payment on or after a person's death of—

• (a) one capital sum of an amount which does not vary according to the date of death, plus a series of capital sums payable if the death occurs during a specified period, or

• (b) a capital sum, the amount of which is less if the death occurs in a later part of a specified period man if it occurs in an earlier part of that period.

• (2) A policy falling within sub-paragraph (1)(a) above is a qualifying policy if—

• (a) it would be one if it did not secure the series of capital sums there referred to, and the premiums payable under the policy were such as would be chargeable if that were in fact the case, and

• (b) it would also be one if it secured only that series of sums, and the premiums thereunder were the balance of those actually so payable.

• (3) A policy falling within sub-paragraph (1)(b) above is a qualifying policy if—

• (a) it would be one if the amount of the capital sum there referred to were equal throughout the period to its smallest amount, and the premiums payable under the policy were such as would be chargeable if that were in fact the case, and

• (b) it would also be one if it secured only that capital sum so far as it from time to time exceeds its smallest amount, and the premiums payable thereunder were the balance of those actually so payable.

Other special provisions

6

For the purpose of determining whether any policy is a qualifying policy, there shall be disregarded—

• (a) so much of any premium thereunder as is charged on the grounds that an exceptional risk of death is involved, and

• (b) any provision under which, on those grounds, any sum may become chargeable as a debt against the capital sum guaranteed by the policy on death.

7

Where the terms of any policy provide that it is to continue in force only so long as another policy does so, neither policy is a qualifying policy unless, if they had constituted together a single policy issued in respect of an insurance made at the time of the insurance in respect of which the first-mentioned policy was issued, that single policy would have been a qualifying policy.

8

• (1) Where, in the case of a policy under which a single premium only is payable, liability for the payment of that premium is discharged in accordance with sub-paragraph (2) below, the policy is a qualifying policy notwithstanding anything in paragraph 1(2) or 1(3) above, or in paragraph (b) or (c) of paragraph 2(1); and where, in the case of any other policy, liability for the payment of the first premium thereunder, or of any part of that premium, is so discharged, the premium or part shall be disregarded for the purposes of paragraph 1(2)(b) and 1(3)(b) above, and of paragraph (c) of paragraph 2(1).

• (2) Liability for the payment of a premium is discharged in accordance with this sub-paragraph if it is discharged by the retention by the company with whom the insurance is made of the whole or a part of any sum which has become payable on the maturity of, or on the surrender more than ten years after its issue of the rights conferred by, a policy—

• (a) previously issued by the company to the person making the insurance, or, if it is made by trustees, to them or any predecessors in office, or

• (b) issued by the company when the person making the insurance was an infant, and securing a capital sum payable either on a specified date falling not more than one month after his attaining twenty-five or on the anniversary of the policy immediately following his attainment of that age,

being, unless it is a policy falling within paragraph (b) above and the premium in question is a first premium only, a policy which was itself a qualifying policy, or which would have been a qualifying policy if issued in respect of an insurance made after 19th March 1968.

9

• (1) Where one policy (hereafter referred to as " the new policy ") is issued in substitution for, or on the maturity of and in consequence of an option conferred by, another policy (hereafter referred to as " the old policy " ) the question whether the new policy is a qualifying policy shall, to the extent provided by the rules in sub-paragraph (2) below, be determined by reference to both policies.

• (2) The said rules (for the purposes of which, the question whether the old policy was a qualifying policy shall be determined in accordance with this Part of this Schedule, whatever the date of the insurance in respect of which it was issued) are as follows—

• (a) if the new policy would apart from this paragraph be a qualifying policy, but the old policy was not, the new policy is not a qualifying policy unless the person making the insurance in respect of which it is issued was an infant when the old policy was issued, and the old policy was one securing a capital sum payable either on a specified date falling not later than one month after his attaining twenty-five or on the anniversary of the policy immediately following his attainment of that age ;

• (b) if the new policy would apart from this paragraph be a qualifying policy, and the old policy was also a qualifying policy, the new policy is a qualifying policy unless—

• (i) it takes effect before the expiry of ten years from the making of the insurance in respect of which the old policy was issued, and

• (ii) the highest total of premiums payable thereunder for any period of twelve months expiring before that time is less than one-half of the highest total paid for any period of twelve months under the old policy, or under any related policy issued less than ten years before the issue of the new policy (" related policy " meaning any policy in relation to which the old policy was a new policy within the meaning of this paragraph, any policy in relation to which that policy was such a policy, and so on);

• (c) if the new policy would not apart from this paragraph be a qualifying policy, and would fail to be so by reason only of paragraph 1(2) or 1(3) above, or of paragraph (a), (b) or (c) of paragraph 2(1), it is nevertheless a qualifying policy if the old policy was a qualifying policy and—

• (i) the old policy was issued in respect of an insurance made more than ten years before the taking effect of the new policy, and the premiums payable for any period of twelve months under the new policy do not exceed the smallest total paid for any such period under the old policy, or

• (ii) the old policy was issued outside the United Kingdom, and the circumstances are as specified in sub-paragraph (3) below.

• (3) The said circumstances are—

• (a) that the person in respect of whom the new insurance is made became resident in the United Kingdom during the twelve months ending with the date of its issue,

• (b) that the issuing company certify that the new policy is in substitution for the old, and that the old was issued either by a branch or agency of theirs outside the United Kingdom or by a company outside the United Kingdom with whom they have arrangements for the issue of policies in substitution for ones held by persons coming to the United Kingdom, and

• (c) that the new policy confers on the holder benefits which are substantially equivalent to those which he would have enjoyed if the old policy had continued in force.

10

• (1) Subject to the provisions of this paragraph, where the terms of a policy are varied, the question whether the policy after the variation is a qualifying policy shall be determined in accordance with the rules in paragraph 9 above, with references in those rules to the new policy and the old policy construed for that purpose as references respectively to the policy after the variation and the policy before the variation, and with any other necessary modifications.

• (2) In applying any of those rules by virtue of this paragraph, the question whether a policy after a variation would be a qualifying policy apart from the rule shall be determined as if any reference in paragraphs 1 to 7 of this Schedule to the making of an insurance,

or to a policy's term, were a reference to the taking effect of the variation or, as the case may be, to the term of the policy as from the variation.

• (3) This paragraph does not apply by reason of—

• (a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect, or

• (b) any variation effected before the end of the year 1968 for the sole purpose of converting into a qualifying policy any policy issued (but not one treated by virtue of section 16(6) of this Act as issued) in respect of an insurance made after 19th March 1968.

PART II — Provisions Charging Tax on Gains

Meaning of " chargeable event", and computation of gain arising

11

• (1) Subject to the provisions of this paragraph, in this Part of this Schedule " chargeable event" means, in relation to a policy of life insurance—

• (a) unless it is a policy which falls within sub-paragraph (2) below, any of the following—

• (i) any death giving rise to benefits under the policy,

• (ii) the maturity of the policy,

• (iii) the surrender in whole or in part of the rights conferred by the policy, and

• (iv) the assignment for money or money's worth of those rights or of any share therein ; and

• (b) if it is a policy falling within sub-paragraph (2) below, any of the above events, but—

• (i) in the case of death or maturity, only if the policy is converted into a paid-up policy before the expiry of ten years from the making of the insurance, or, if sooner, of three-quarters of the term for which the policy is to run if not ended by death or disability,

• (ii) in the case of a surrender or assignment, only if it is effected within that time, or the policy has been converted into a paid-up policy within that time.

• (2) A policy falls within this sub-paragraph if (whether or not the premiums thereunder are eligible for relief under section 219 of the Income Tax Act 1952) it is a qualifying policy within the meaning of Part I of this Schedule.

• (3) The maturity of a policy is not a chargeable event in relation thereto if a new policy is issued in consequence of the exercise of an option conferred by the maturing policy unless the person making the insurance in respect of which the new policy is issued was an infant when the former policy was issued, and the former policy was one securing a capital sum payable either on a specified date falling not later than one month after his attaining twenty-five or on the anniversary of the policy immediately following his attainment of that age.

• (4) No event is a chargeable event in relation to a policy if the rights conferred by the policy have at any time before the event been assigned for money or money's worth.

• (5) No account shall be taken for the purposes of this paragraph of any assignment effected by way of security for a debt, or on the discharge of a debt secured by the rights or share concerned, or of any assignment between spouses living together ; and references in sub-paragraph (1) above to the surrender of the rights conferred by a policy do not include references to the surrender of any right to a bonus.

• (6) Where sub-paragraph (1)(b) above applies to a policy which has been varied so as to increase the premiums payable thereunder, it shall so apply as if the references in sub-paragraph (i) to the making of the insurance and the term of the policy were references respectively to the taking effect of the variation and the term of the policy as from the variation.

12

• (1) On the happening of a chargeable event in relation to any policy of life insurance, there shall be treated as a gain arising in connection with the policy—

• (a) if the event is a death, the excess (if any) of the surrender value of the policy immediately before the death, plus the amount or value of any relevant capital payments, over the total amount previously paid under the policy by way of premiums ;

• (b) if the event is the maturity of the policy, or the surrender in whole or in part of the rights thereby conferred, the excess (if any) of the amount or value of the sum payable or other benefits arising by reason of the event, plus the amount or value of any relevant capital payments, over the total amount previously paid under the policy by way of premiums, or, in the case of a partial surrender, over the same proportion of that amount as is borne by the amount or value of the said sum or other benefits to the amount or value of the sum or other benefits which would have been payable, or would have arisen, if the rights had been wholly surrendered;

• (c) if the event is an assignment—

• (i) if it is an assignment of all the rights conferred by the policy, the excess (if any) of the amount or value of the consideration, plus the amount or value of any relevant capital payments, over the total amount previously paid under the policy by way of premiums, and

• (ii) if it is an assignment of a share only in those rights, the excess (if any) of the amount or value of the consideration, plus the amount or value of any relevant capital payments so far as attributable to the share assigned and received by the assignor or by any person at his direction, over the same proportion of the total amount previously paid under the policy by way of premiums as is borne by the amount or value of the consideration to the market value of the rights.

• (2) Where, in a case falling within sub-paragraph (1)(b) above, a right to periodical payments arises by reason of the event, there shall be treated as payable by reason thereof an amount equal to the capital value of those payments at the time the right arises.

• (3) Where, in a case falling within sub-paragraph (1)(c) above, the assignment is between persons who are connected with each other within the meaning of paragraph 21 of Schedule 7 to the Finance Act 1965, the assignment shall be deemed to have been made for a consideration equal to the market value of the rights or share assigned.

• (4) In this paragraph, " relevant capital payments" means, in relation to any policy, any sum or other benefit of a capital nature, other than one attributable to a person's disability, paid or conferred under the policy before the happening of the chargeable event, and any sum paid, or other benefit conferred, by reason of any surrender before that time of a right to a bonus under the policy; and references in this sub-paragraph and (in relation to premiums) in sub-paragraph (1) above to " the policy" include references to any related policy, that is to say, to any policy in relation to which the policy is a new policy within the meaning of paragraph 9 above, any policy in relation to which that policy is such a policy, and so on.

13

• (1) Subject to sub-paragraphs (2) and (3) below, in this Part of this Schedule "chargeable event" means, in relation to any contract for a life annuity, the surrender in whole or in part of the rights conferred by the contract, or the assignment for money or money's worth of those rights or of any share therein.

Where the terms of a contract provide for the payment of a capital sum as an alternative, in whole or in part, to payments by way of annuity, the taking of the capital sum shall be treated for the purposes of this and the next following paragraph as a surrender in whole or in part of the rights conferred by the contract

• (2) An event referred to in sub-paragraph (1) above is not a chargeable event in relation to any contract if the rights conferred by the contract have at any time before the event been assigned for money or money's worth.

• (3) Sub-paragraph (5) of paragraph 11 above shall, with any necessary modification, apply for the purposes of this paragraph as it applies for the purposes of the said paragraph 11.

14

• (1) On the happening of a chargeable event in relation to any contract for a life annuity, there shall be treated as a gain arising in connection with the contract—

• (a) if the event is the surrender in whole or in part of the rights conferred by the contract, the excess (if any) of the amount payable by reason of the event over—

• (i) the total amount previously paid under the contract, whether by way of premiums or as lump sum consideration, reduced, if before the happening of the event one or more payments have been made on account of the annuity, by the capital element in the said payment or payments, as determined in accordance with section 27 of the Finance Act 1956, or

• (ii) in the case of a partial surrender, the same proportion of that amount (as so reduced where appropriate) as is borne by the amount payable by reason of the event to the amount which would have been so payable if the rights had been wholly surrendered;

• (b) if the event is the assignment for money or money's worth of the rights conferred by the contract, or of any share therein, the excess (if any) of the amount or value of the consideration over—

• (i) the amount specified in sub-paragraph (1)(a)(i) above, or

• (ii) if the assignment is of a share only, the same proportion of that amount (reduced as therein mentioned where appropriate) as is borne by the amount or value of the consideration to the market value of the rights.

• (2) Sub-paragraph (3) of paragraph 12 above shall apply for the purposes of sub-paragraph (1) above as it applies for the purposes of sub-paragraph (1)(c) of that paragraph.

15

• (1) Subject to sub-paragraph (2) below, in this Part of this Schedule "chargeable event" means, in relation to a capital redemption policy, any of the following—

• (i) the maturity of the policy,

• (ii) the surrender in whole or in part of the rights conferred by the policy, and

• (iii) the assignment for money or money's worth of those rights or of any share therein.

• (2) Sub-paragraph (5) of paragraph 11 above shall apply for the purposes of this paragraph as it applies for purposes of the said paragraph 11.

16

• (1) The provisions of paragraph 12 above, except sub-paragraph (3) thereof, shall, so far as appropriate and subject to sub-paragraph (2) below, apply to capital redemption policies as they apply to policies of life insurance.

• (2) Where a chargeable event happens in relation to a capital redemption policy which has previously been assigned for money or money's worth, the said paragraph 12 shall have effect in relation thereto as if, for the references to the total amount previously paid under the policy by way of premiums, there were substituted references to the amount or value of the consideration given for the last such assignment, plus the total amount of the premiums paid under the policy since that assignment

Method of charging gain to tax

17

• (1) Where, under the preceding provisions of this Schedule, a gain is to be treated as arising in connection with any policy or contract—

• (a) if, immediately before the happening of the chargeable event in question, the rights conferred by the policy or contract were vested in an individual as beneficial owner, or were held on trusts created by an individual (including trusts arising under section 11 of the Married Women's Property Act 1882, section 2 of the Married Women's Policies of Assurance (Scotland) Act 1880, or section 4 of the Law Reform (Husband and Wife) Act (Northern Ireland) 1964) or as security for a debt owed by an individual, the amount of the gain shall be deemed for the purposes of surtax (but not for any other income tax purpose except the furnishing of information) to form part of that individual's total income for the year in which the event happened ;

• (b) if, immediately before the happening of that event, the said rights were in the beneficial ownership of a close company within the meaning of Part IV of the Finance Act 1965, or were held on trusts created, or as security for a debt owed, by such a company, then—

• (i) for the purposes of section 77 of that Act (shortfall in distributions) the company's distributable income (but not its estate or trading income) for the accounting period in which the event happened shall be treated as increased by the amount of the gain, and

• (ii) the amount of the gain shall also be deemed to form part of the company's income for that period for the purposes of section 78 of that Act (surtax apportionments) ;

• (c) if, immediately before the happening of that event, the said rights were vested in personal representatives within the meaning of Part XIX of the Income Tax Act 1952, the amount of the gain shall, as regards surtax, be deemed for the purposes of the said Part XIX to be part of the aggregate income of the estate of the deceased:

Provided that nothing in this sub-paragraph shall apply to any amount which is chargeable to income tax or to corporation tax apart from this sub-paragraph.

• (2) Where, immediately before the happening of a chargeable event, the rights conferred by any policy or contract were vested beneficially in two or more persons, or were held on trusts created,

or as security for a debt owed, by two or more persons, paragraphs (a) and (b) of sub-paragraph (1) above shall have effect in relation to each of those persons as if he had been the sole owner, settlor or debtor, but with references to the amount of the gain construed as references to the part of it proportionate to his share in the rights at the time of the event or, as the case may require, when the trusts were created.

• (3) References in sub-paragraphs (1) and (2) above to the rights conferred by a policy or contract are, in the case of an assignment of a share only in any rights, references to that share.

Relief where gain charged directly to surtax

18

• (1) The following provisions of this paragraph shall have effect for the purpose of giving relief, on a claim in that behalf being made by him to the Board, in respect of any increase in an individual's liability to tax which is attributable to one or more amounts being included in his total income for a year of assessment by virtue of paragraph 17(1)(a) above.

• (2) Where one amount only is so included, there shall be computed—

• (a) the surtax which would be chargeable in respect of the amount if relief under this paragraph were not available and it constituted the highest part of the claimant's total income for the year, and

• (b) the surtax (if any) which would be chargeable in respect of the amount if calculated, in accordance with sub-paragraph (3) below, by reference to its appropriate fraction,

and the relief shall consist of a reduction or repayment of tax equal to the difference between the two amounts of surtax so computed, or, if surtax would not be chargeable on a calculation by reference to the appropriate fraction, of a reduction or repayment of the tax equal to the surtax computed under paragraph (d) above.

• (3) In sub-paragraph (2) above " appropriate fraction" means, in relation to any amount, such a sum as bears thereto the same proportion as that borne by one to the number of complete years for which the policy or contract has run before the happening of the chargeable event; and the computation required by paragraph (b) of that sub-paragraph shall be made by applying to the amount in question the rate or rates of surtax (if more than one, in corresponding proportions) which would apply if it were reduced to that fraction, treating it, as so reduced, as still constituting the highest part of the claimant's total income for the year, and treating so much of it (if any) as would then not be chargeable to surtax as if it were chargeable thereto at a nil rate.

For the purposes of this sub-paragraph, the number of years for which a policy of life insurance has run before the happening of a chargeable event shall be calculated, where appropriate, from the issue of the earliest related policy, meaning, any policy in relation to which the policy is a new policy within the meaning of paragraph 9 above, any policy in relation to which that policy is such a policy, and so on.

• (4) Where by virtue of the said paragraph 17(1)(a) two or more amounts are included in an individual's total income for any year of assessment, sub-paragraphs (2) and (3) above shall apply as if they together constituted a single amount, but with the appropriate fraction of the whole determined by adding together the appropriate fractions of the individual amounts.

• (5) A provision of this paragraph requiring surtax to be calculated as if an amount constituted the highest part of a claimant's total income shall apply notwithstanding any provision of the Income Tax Acts directing any other amount to be treated as the highest part thereof, but, for the purposes of this paragraph, a claimant's total income shall be deemed not to include any amount in respect of which he is chargeable to tax under section 37 of the Finance Act 1960 (payments on retirement or removal from office or employment) or sections 22 to 24 of the Finance Act 1963 (premiums, &c, treated as rent).

• (6) For the purposes of any provision of the Income Tax Acts, other than this paragraph or Schedule 6 to the Finance Act 1963, requiring an amount to be treated as the highest part of an individual's income, his income shall be calculated without regard to any amount included therein as mentioned in sub-paragraph (1) above ; and where an individual claims relief for any year of assessment under the said Schedule 6 or paragraph 7 of Schedule 4 to the Finance Act 1960, then, in calculating the relief, the claimant's income shall be deemed to include, in respect of any amount which would otherwise be included therein as aforesaid, no greater amount than the appropriate fraction thereof.

• (7) Section 9 of the Income Tax Management Act 1964 shall apply to any claim for relief under this paragraph.

Right of individual to recover tax from trustees

19

• (1) Where an amount is included in an individual's income by virtue of paragraph 17(1)(a) above, and the rights or share in question were held immediately before the happening of the chargeable event on trust, the individual shall be entitled to recover from the trustees, to the extent of any sums, or to the value of any benefits, received by them by reason of the event, an amount equal to that (if any) by which the tax with which he is chargeable for the year of assessment in question, reduced by the amount of any relief available under paragraph 18 above in respect of the amount so included, exceeds the tax with which he would have been chargeable for the year if the said amount had not been so included.

• (2) Where, for the purposes of relief under the said paragraph 18, two or more amounts are to be treated as one, the reduction required by sub-paragraph (1) above on account of the relief available in respect of any of them shall consist of a proportionate part of the relief available in respect of their aggregate.

• (3) An individual may require the Board to certify any amount recoverable by him by virtue of this paragraph, and the certificate shall be conclusive evidence of the amount.

PART III — Supplementary Provisions

Duty of insurers, etc. to certify qualifying policies, and to give information about chargeable events

20

• (1) Subject to sub-paragraph (3) below, where a policy of life insurance issued in respect of an insurance made after 19th March 1968 is, in the opinion of the body by whom it is issued, a qualifying policy within the meaning of Part I of this Schedule, it shall be the duty of that body to give to the policy holder a duly authenticated certificate to that effect.

Any such certificate shall be given within three months of the issue of the policy, or, if later, within three months of the passing of this Act, and shall specify the name of the policy holder, the name of the person whose life is assured, the reference number or other means of identification allocated to the policy, the capital sum or sums assured, and the amounts and dates for payment of the premiums.

• (2) Subject to the said sub-paragraph (3), where a policy of life insurance is varied after the said 19th March and, in the opinion of the body by whom it was issued, is after the variation a qualifying policy within the meaning of the said Part I, it shall be the duty of that body, within three months of the making of the variation, or, if later, within three months of the passing of this Act, to give to the policy holder a like certificate with respect to the policy after the variation.

• (3) Where, in the case of any policy, or any policy after a variation, the total premiums payable in any period of twelve months do not exceed £26, a certificate need be given under sub-paragraph (1) or (2) above only if requested in writing by the policy holder, and, if so requested, shall be given within three months of receipt of the request; and sub-paragraph (2) above shall not apply by reason of—

• (a) any variation which, whether or not of a purely formal character, does not affect the terms of a policy in any significant respect, or

• (b) any variation of a policy issued in respect of an insurance made on or before 19th March 1968, other than a variation by virtue of which the policy falls, under section 16(6) of this Act, to be treated as issued in respect of an insurance made after that date.

• (4) Subject to sub-paragraph (5) below, where a chargeable event within the meaning of Part II of this Schedule has happened in relation to any policy or contract, the body by or with whom the policy or contract was issued, entered into or effected shall, within three months of the event or, if it is a death or an assignment, within three months of their receiving written notification thereof, deliver to the inspector a certificate specifying—

• (a) the name and address of the policy holder,

• (b) the nature of the event, and the date on which it happened,

• (c) as may be required for computing the gain to be treated as arising by virtue of the said Part II—

• (i) the surrender value of the policy, or the sum payable, or other benefits to be conferred, by the body in question by reason of the event,

• (ii) the amount or value of any relevant capital payments,

• (iii) the amounts previously paid under the policy or contract by way of premiums, or otherwise by way of consideration for an annuity, and

• (iv) the capital element in any payment previously made on account of an annuity, and

• (d) the number of years relevant for computing the appropriate fraction of the gain for the purposes of paragraph 18(3) above.

• (5) Sub-paragraph (4) above shall not apply where—

• (a) the body in question are satisfied that no gain is to be treated as arising by reason of the event, or

• (b) the amount of the surrender value or sum, or the value of the other benefits, referred to in paragraph (c)(i) of that sub-paragraph, together with the amount or value of any payments within paragraph (c)(ii) thereof, does not exceed £500,

but the inspector may by notice in writing require a like certificate in any such case, and it shall be the duty of the body to deliver the certificate within thirty days of receipt of the notice.

• (6) Sections 46 and 47 of the Finance Act 1960 (penalties) shall have effect as if sub-paragraphs (4) and (5) above were included in the third column of Schedule 6 to that Act.

Interpretation

21

In this Schedule " assignment", in relation to Scotland, means an assignation.

SCHEDULE 10

Allowable deductions

1

• (1) In computing the charge to tax in respect of sums received by any person which are chargeable to tax by virtue of subsection (1) of the principal section, there shall be deducted from the amount which, apart from this paragraph, would be chargeable to tax—

• (a) any loss, expense or debit (not being a loss, expense or debit arising directly or indirectly from the discontinuance itself) which, if the trade, profession or vocation had not been discontinued, would have been deducted in computing for tax purposes the profits or gains of the person by whom it was carried on before the discontinuance, or would have been deducted from or set off against those profits or gains as so computed, and

• (b) any allowance under the Capital Allowances Act 1968 to which the person who carried on the trade, profession or vocation was entitled immediately before the discontinuance and to which effect has not been given by way of relief before the discontinuance.

• (2) No amount shall be deducted under sub-paragraph (1) above if that amount has been allowed under any other provision of the Income Tax Acts or the Corporation Tax Acts.

• (3) No amount shall be deducted more than once under this paragraph, or both under this paragraph and under section 32(4) of the Finance Act 1960 (post-cessation receipts: allowable deductions), and—

• (a) any expense or debit shall be apportioned between a sum chargeable under subsection (1) of the principal section and a sum chargeable under the said section 32 in such manner as may be just,

• (b) as between sums chargeable, whether under subsection (1) of the principal section or the said section 32, for one year of assessment or accounting period, and sums so chargeable for a subsequent year of assessment or accounting period, any deduction in respect of a loss or capital allowance shall be made against sums chargeable for the earlier year of assessment or accounting period,

• (c) subject to paragraph (b) above, as between sums chargeable for any year of assessment or accounting period under subsection (1) of the principal section and sums so chargeable under the said section 32, any deduction in respect of a loss or capital allowance shall be made under this paragraph rather than under the said section 32,

but, in the case of a loss which by virtue of this paragraph or the said section 32(4) is to be allowed after the discontinuance, not so as to authorise its deduction from any sum chargeable for a year of assessment or accounting period preceding that in which the loss is incurred.

• (4) In section 21(5) of the Finance Act 1964 (body corporate carrying on mutual business: exclusion of double relief), and in section 17(8) of the Finance Act 1967 (relief for sale of copyright), the references to section 32(4) of the Finance Act 1960 shall include references to this paragraph.

2

• (1) In computing the charge to tax in respect of sums received by any person which are chargeable to tax by virtue of subsection (2) of the principal section, there shall be deducted any expense or debit which is not otherwise allowable and which, but for the change in basis, would have been deducted in computing for tax purposes the profits or gains of the trade, profession or vocation.

• (2) No amount shall be deducted more than once under this paragraph.

Transfer of right to receive a payment

3

• (1) Subject to sub-paragraph (2) below, in the case of a transfer for value of the right to receive any sum to which subsection (1) or subsection (2) of the principal section applies, any tax chargeable by virtue of that section shall be charged in respect of the amount or value of the consideration (or, in the case of a transfer otherwise than at arm's length, in respect of the value of the right transferred as between parties at arm's length), and references in the principal section and this Schedule to sums received shall be construed accordingly.

• (2) Where the occasion of the discontinuance is a change in the persons carrying on the trade, profession or vocation, and the right to receive any sum to which subsection (1) of the principal section applies is or was transferred, at the time of the change, to die persons carrying on the trade, profession or vocation after title change, tax shall not be charged by virtue of the principal section, but (except where the change took place before 19th March 1968) any sum received by those persons by virtue of the transfer shall be treated for all purposes as a receipt to be brought into the computation of profits or gains of the trade, profession or vocation in the period in which it is received.

Work in progress

4

• (1) It is hereby declared that where work in progress at the discontinuance of a profession or vocation, or the responsibility for its completion, is transferred, the sums to which subsection (1) of the principal section applies include any sums received by way of consideration for the transfer, and any sums received by way of realisation by the transferee, on behalf of the transferor, of the work in progress transferred.

• (2) Where, in the case of any profession or vocation, the profits or gains of which are chargeable to tax under Case I or Case II of Schedule D there has been—

• (a) a change from a conventional basis to the earnings basis, or a change of conventional basis, and

• (b) the value of work in progress at the time of the change was debited in the accounts and allowed as a deduction in computing profits for tax purposes for a period after the change,

then, in so far as no counterbalancing credit was brought into account in computing profits for tax purposes for any period ending before or with the date of the change, tax shall be charged under subsection (2) of the principal section in respect of that amount for the year of assessment in which the change occurred as if that amount were a sum to which the said subsection (2) applies, and the change of basis were a change of the kind described in that subsection.

• (3) In this paragraph " work in progress " at the time of a change of basis shall be construed in the same way as " work in progress " at the discontinuance of a profession or vocation is construed by section 43(5) of the Finance Act 1960, with the substitution in that subsection for references to the discontinuance of references to the change of basis.

Earned income relief

5

Where an individual is chargeable to tax by virtue of the principal section, and the profits or gains of the trade, profession or vocation to which he was entitled before the discontinuance, or as the case may be before the change in basis, fell to be treated as earned income for income tax purposes the sums in respect of which he is so chargeable (after any reduction under section 19 of this Act) shall also be treated for income tax purposes as earned income.

Election for charge to tax at time of discontinuance or change of basis

6

• (1) Where any sum chargeable to tax by virtue of the principal section is received in any year of assessment beginning not later than six years after the discontinuance, or as the case may be after the change of basis, the recipient may, by notice in writing sent to the inspector within two years after that year of assessment, elect that the tax so chargeable shall be charged as if the sum were received on the date on which the discontinuance took place, or as the case may be on the last day of the period at the end of which the change of basis took place and in any such case an assessment shall (notwithstanding anything in the Income Tax Acts or the Corporation Tax Acts) be made on him accordingly, and in connection with that assessment no further deduction or relief shall be made or given in respect of any loss or allowance deducted in pursuance of paragraph 1 or paragraph 2 above.

• (2) In section 33(3) of the Finance Act 1960 (election as respects tax chargeable by virtue of section 32 of that Act corresponding to the election under this paragraph) for the words ' twelve months' there shall be substituted the words ' two years'.

Company surtax

7

Subsections (4) and (5) of section 33 of the Finance Act 1960 (which, as amended by section 63 of the Finance Act 1965, concern the charge to tax on participators in a close company which is wound up) shall have effect as if references to section 32 of that Act included references to subsection (1) of the principal section.

Partnerships

8

• (1) Section 19 of this Act shall apply as follows as respects the net amount of any sum chargeable under the principal section which is assessed by reference to a sum accruing to a partnership.

• (2) The part of that net amount which is apportioned to any partner (who is an individual), or the personal representative of such an individual, shall be a net amount with which that person is chargeable under the principal section.

• (3) If the part of the said net amount which is so apportioned is a greater proportion of that amount than is the individual's share (that is to say the part to be included in his total income) of the total amount of the partnership profits assessed to income tax for the three years of assessment ending with the year in which the discontinuance or change of basis took place, the amount of the reduction to be given by way of relief shall not exceed the amount of relief which would have been so given if the apportionment had been made by reference to his share of that total amount.

SCHEDULE 11

1

• (1) If a person so elects, quoted securities covered by the election shall be excluded—

• (a) from the principal section, and

• (b) from paragraph 22(4) of Schedule 6 to the Finance Act 1965 (which brings into the computation of the gain the cost of acquisition as well as the value on 6th April 1965).

• (2) This paragraph has effect as respects any disposal after 19th March 1968.

• (3) An election made by any person under this paragraph shall be as respects all disposals made by him at any time, including disposals made before the election but after 19th March 1968—

• (a) of quoted securities of kinds other than fixed-interest securities and preference shares, or

• (b) of fixed-interest securities and preference shares,

and references to the quoted securities covered by an election shall be construed accordingly.

Any person may make both of the elections.

• (4) An election under this paragraph shall not cover quoted securities which the holder acquired on a disposal after 19th March 1968 in relation to which either of the following enactments (which secure that neither a gain nor a loss accrues on the disposal) applies, that is—

• (a) paragraph 20(1) of Schedule 7 to the Finance Act 1965 (husband and wife),

• (b) paragraph 2(1) of Schedule 13 to that Act (transfers within group of companies),

but this paragraph shall apply to the quoted securities so held if the person making the original disposal (that is to say the wife or husband of the holder, or the other member of the group of companies) makes an election covering quoted securities of the kind in question.

For the purpose of identifying quoted securities disposed of by the holder with quoted securities acquired by him on a disposal in relation to which either of the said enactments applies, so far as they are of the same class, quoted securities acquired at an earlier time shall be deemed to be disposed of before quoted securities acquired at a later time.

• (5) For the avoidance of doubt it is hereby declared—

• (a) that where a person makes an election under this paragraph as respects quoted securities which he holds in one capacity, that election does not cover quoted securities which he holds in another capacity, and

• (b) that an election under this paragraph is irrevocable.

• (6) An election under this paragraph shall be made by notice in writing to the inspector not later than the expiration of two years from the end of the year of assessment or accounting period of a company in which the first relevant disposal is made, or such further time as the Board may allow.

• (7) Subject to paragraph 2 below, in this paragraph the "first relevant disposal", in relation to each of the elections referred to in sub-paragraph (3) of this paragraph, means the first disposal after 19th March 1968 by the person making the election of quoted securities of the kind covered by that election.

• (8) In ascertaining the first relevant disposal, and in ascertaining " the relevant time " for the purposes of paragraph 2 below, any disposal chargeable under Case VII of Schedule D shall be disregarded, and " disposal chargeable under Case VII of Schedule D " includes any case where the acquisition and disposal is in circumstances such that no gain accrues, but if a gain had accrued it would have been so chargeable.

• (9) All such adjustments shall be made, whether by way of discharge or repayment of tax, or the making of assessments or otherwise, as are required to give effect to an election under this paragraph.

Election by principal company of group

2

• (1) In the case of companies which at the relevant time are members of a group of companies—

• (a) an election under paragraph 1 above by the company which at that time is the principal company of the group shall have effect also as an election by any other company which at that time is a member of the group, and

• (b) no election under that paragraph may be made by any other company which at that time is a member of the group.

• (2) In this paragraph " the relevant time ", in relation to a group of companies, and in relation to each of the elections referred to in paragraph 1(3) above, is the first occasion after 19th March 1968 when any company which is then a member of a group disposes of quoted securities of a kind covered by that election, and for the purposes of paragraph 1(6) above that occasion is, in relation to the group, " the first relevant disposal".

• (3) This paragraph shall not apply in relation to quoted securities of either kind referred to in paragraph 1(3) of this Schedule which are owned by a company which, in some period after 19th March 1968 and before the relevant time, was not a member of the group if in that period it had made an election under paragraph 1 above in relation to securities of that kind (or was treated by virtue of this paragraph, in relation to another group, as having done so), or had made a disposal of quoted securities of that kind and did not make an election within the time limited by paragraph 1(6) above.

• (4) This paragraph shall apply notwithstanding that a company ceases to be a member of the group at any time after the relevant time.

• (5) In this paragraph " company " and " group " shall be construed in accordance with paragraph 1 of Schedule 13 to the Finance Act 1965.

Pooling at value on 6th April 1965: exchange of securities etc.

3

• (1) Where a person who has made only one of the elections under the preceding provisions of this Schedule disposes of quoted securities which, in accordance with paragraphs 4 to 7 of Schedule 7 to the Finance Act 1965, are to be regarded as being or forming part of a new holding, the election shall apply according to the nature of the quoted securities disposed of, notwithstanding that under the said paragraph 4 the new holding is to be regarded as the same asset as the original holding and that the election would apply differently to the original holding.

• (2) Where the election does not cover the disposal out of the new holding, but does cover quoted securities of the kind comprised in the original holding, then in computing the gain accruing on the disposal out of the new holding (in accordance with the principal section) the question of what remained undisposed of on any disposal out of the original holding shall be decided on the footing that die principal section applied to that earlier disposal.

• (3) In the case converse to that in sub-paragraph (2) above (that is to say where the election covers the disposal out of the new holding, but does not cover quoted securities of the kind comprised in the original holding) the question of how much of the new holding derives from quoted securities held on 6th April 1965, and how much derives from other quoted securities, shall be decided for the purposes of this Schedule as it is decided for the purposes of the principal section.

Underwriters

4

No election under this Schedule shall cover quoted securities comprised in any underwriter's premiums trust fund, or premiums trust fund deposits, or personal reserves, being securities comprised in funds to which paragraph 9 of Schedule 7 to the Finance Act 1965 applies.

SCHEDULE 12

PART I — Capital Gains Tax and Corporation Tax

Exemption for tangible movables which are wasting assets

1

• (1) Subject to the provisions of this paragraph, no chargeable gain shall accrue on the disposal after 19th March 1968 of, or of an interest in, an asset which is tangible movable property and which is a wasting asset.

• (2) Sub-paragraph (1) above shall not apply to a disposal of, or of an interest in, an asset—

• (a) if, from the beginning of the period of ownership of the person making the disposal to the time when the disposal is made, the asset has been used and used solely for the purposes of a trade, profession or vocation and if that person has claimed or could have claimed any capital allowance in respect of any expenditure attributable to the asset or interest under paragraph (a) or paragraph (b) of paragraph 4(1) of Schedule 6 to the Finance Act 1965, or

• (b) if the person making the disposal has incurred any expenditure on the asset or interest which has otherwise qualified in full for any capital allowance.

• (3) In the case of the disposal of, or of an interest in, an asset which, in the period of ownership of the person making the disposal, has been used partly for the purposes of a trade, profession or vocation and partly for other purposes, or has been used for the purposes of a trade, profession or vocation for part of that period, or which has otherwise qualified in part only for capital allowances—

• (a) the consideration for the disposal, and any expenditure attributable to the asset or interest by virtue of the said paragraph 4(1)(a) and (b), shall be apportioned by reference to the extent to which that expenditure qualified for capital allowances, and

• (b) the computation under the said Schedule 6 shall be made separately in relation to the apportioned parts of the expenditure and consideration, and

• (c) sub-paragraph (1) above shall not apply to any gain accruing by reference to the computation in relation to the part of the consideration apportioned to use for the purposes of the trade, profession or vocation, or to the expenditure qualifying for capital allowances.

• (4) Sub-paragraph (1) above shall not apply to a disposal of commodities of any description by a person dealing on a terminal market or dealing with or through a person ordinarily engaged in dealing on a terminal market.

• (5) Paragraph 28 of Schedule 6 to the Finance Act 1965 (assets treated as acquired at value on 6th April 1965: capital allowances to be treated as made in respect of notional expenditure on acquisition on that date) shall apply for the purposes of paragraph 11 of that Schedule (wasting assets qualifying for capital allowances) as it applies for the purposes of paragraph 6 of that Schedule (restriction of losses by reference to capital allowances).

• (6) This paragraph shall be construed as one with Schedule 6 to the Finance Act 1965.

Exemption for private residences

2

• (1) Section 29 of the Finance Act 1965 shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling-house or the part of a dwelling-house was made wholly or partly for the purpose of realising a gain from the disposal of it, and shall not apply in relation to a gain so far as attributable to any expenditure which was incurred after the beginning of the period of ownership and was incurred wholly or partly for the purpose of realising a gain from the disposal.

• (2) Sub-paragraph (1) above has effect in substitution for subsection (11) of the said section 29 (which excludes relief unless the acquisition was made for the purpose of residing in, or in the part of, the dwelling-house and not wholly or partly for the purpose of realising a gain).

Replacement of business assets

3

• (1) This paragraph has effect as respects Class I of the classes of assets in section 33(6) of the Finance Act 1965.

• (2) Where the trade is a trade of dealing in or developing land, but a profit on the sale of any land held for the purposes of the trade would not form part of the trading profits, then, as regards that land, the trade shall be treated for the purposes of the said section 33 as if it were not a trade of dealing in or developing land.

• (3) A person who is a lessor of tied premises shall be treated as if he occupied (as well as used) those tied premises only for the purposes of the relevant trade.

This sub-paragraph shall be construed in accordance with section 26(2) of the Finance Act 1952 (income tax and corporation tax on tied premises).

Death of heir of entail or proper liferenter

4

• (1) The provisions of Part III of the Finance Act 1965, so far as relating to the charging of capital gains tax on the death after 19th March 1968 of an heir of entail in possession of any property in Scotland subject to an entail, whether sui iuris or not, or of a proper liferenter of any property, shall have effect subject to the following provisions of this paragraph.

• (2) For the purposes of the said Part III, on the death of any such heir or liferenter—

• (a) the deceased shall be deemed not to have been a person competent to dispose of the entailed or, as the case may be, liferented property;

• (b) the heir of entail next entitled to the entailed property under the entail (hereafter in this paragraph called " the next heir") or, as the case may be, the person (if any) who, on the death of the liferenter, becomes entitled to possession of the property as fiar (hereafter in this paragraph called " the fiar ") shall be deemed to have acquired all the assets forming part of the property—

• (i) in the case of the next heir, at the date on which the deceased succeeded to the property under the entail,

• (ii) in the case of the fiar, at the date on which the instrument under which the deceased was entitled to his liferent came into operation so as to create a liferent of the property,

for a consideration equal to their market value at that date, and to have disposed of, and immediately reacquired, those assets at the date of the deceased's death for a consideration equal to their market value at that date.

• (3) Section 21 of the Finance Act 1965 (alternative charge to capital gains tax) shall not apply in relation to the charging of capital gains tax on gains accruing in consequence of sub-paragraph (2)(b) above.

• (4) Section 25(5) of the Finance Act 1965 (under which, in the case of the death of any individual, the relief provided for by section 24(2) of that Act in respect of capital gains tax chargeable on gains accruing in consequence of section 24(1) of that Act may in certain circumstances become available to the trustees of a settlement) shall, in a case where the deceased was such an heir of entail or life-renter as aforesaid, have effect, for the purpose of making that relief available to the next heir or, as the case may be, the fiar as well as to any such trustees, as if references—

• (a) to the trustees of a settlement, or to a body of trustees,

included references to the next heir or, as the case may be, the fiar,

• (b) to settled property included references to the property of which the deceased was the heir of entail in possession or, as the case may be, the liferenter,

• (c) to the disposal of settled property deemed to be effected in accordance with subsection (3) or subsection (4) of the said section 25 on the termination of a life interest by the death, or otherwise in consequence of the death, included references to the disposal of the property deemed to be effected in accordance with sub-paragraph (2)(b) above,

and subject to any other necessary modification.

• (5) In the case of the death of any such heir or liferenter, section 29 of the Finance Act 1965 (private residences) shall, subject to all necessary modifications, apply in relation to a gain accruing in consequence of sub-paragraph (2)(b) above to the next heir or fiar on the disposal of an asset deemed to be effected in accordance with that sub-paragraph, being an asset within subsection (1) of the said section 29, where the dwelling-house or part of a dwelling-house mentioned in that subsection was the only or main residence of the deceased.

• (6) Where on the death of any such heir the next heir becomes chargeable to capital gains tax on gains accruing in consequence of sub-paragraph (2)(b) above, he shall, for the purpose of paying that tax or of recovering the amount of the tax if he has already paid it, have the like right to sell or charge the entailed property or any part of it as he would have had if the tax had been estate duty leviable on the property.

• (7) Paragraph 4 of Schedule 10 to the Finance Act 1965 (postponement of payment of tax) shall have effect as if—

• (a) after sub-paragraph (1)(b) there were inserted the following words—

or (c) on the disposal of any property deemed to be effected on any occasion in accordance with paragraph 4(2)(b) of Schedule 12 to the Finance Act 1968,

; and

• (b) in sub-paragraph (1), after the word " trustees " there were inserted the words " or, in a case falling within head (c) of this sub-paragraph, of the next heir or of the fiar, ".

• (8) In estimating, for the purposes of estate duty, the value of any-property passing on the death of any such heir or liferenter, being property of which, by virtue of sub-paragraph (2)(b) above, the next heir or, as the case may be, the fiar is deemed to have disposed at the date of the deceased's death, allowance shall be made for any capital gains tax chargeable on gains accruing in consequence of the said sub-paragraph 2(b) on that death in respect of that property.

• (9) This paragraph (except sub-paragraph (8) thereof) shall be construed as one with Part III of the Finance Act 1965, and sub-paragraph (8) shall be construed as one with Part I of the Finance Act 1894.

Election for valuation on 6th April 1965

5

• (1) An election under paragraph 25(1) of Schedule 6 to the Finance Act 1965 shall be made by notice in writing to the inspector given within two years from the end of the year of assessment or accounting period of a company in which the disposal is made or such further time as the Board may by notice in writing allow.

• (2) This paragraph applies to a disposal made before or after the passing of this Act, and has effect in substitution for the time limit of two years in the said paragraph 25(1) whether or not that time limit has expired before the passing of this Act.

• (3) Where the said time limit has expired before the passing of this Act all such adjustments shall be made, whether by way of repayment or discharge of tax, or by assessment, as may be required to give effect to the provisions of this paragraph.

Land in Great Britain : election excluding valuation at current use value

6

In section 33(3) of the Finance Act 1967 after " end of the year of assessment", there shall be inserted " or accounting period of a company " , and the definition of " year of assessment" shall be repealed.

Duration of leases

7

• (1) In ascertaining for the purposes of Part III of the Finance Act 1965 the duration of a lease of land the following provisions shall have effect.

• (2) Where the terms of the lease include provision for the determination of the lease by notice given by the landlord, the lease shall not be treated as granted for a term longer than one ending at the earliest date on which it could be determined by notice given by the landlord.

• (3) Where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease, the lease shall not be treated as having been granted for a term longer than one ending on that date.

• (4) Sub-paragraph (3) applies in particular where the lease provides for the rent to go up after a given date, or for the tenant's obligations to become in any other respect more onerous after a given date, but includes provision for the determination of the lease on that date by notice given by the tenant, and those provisions render it unlikely that the lease will continue beyond that date.

• (5) Where the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the tenant this paragraph shall apply as if the term of the lease extended for as long as it could be extended by the tenant, but subject to any right of the landlord by notice to determine the lease.

• (6) It is hereby declared that the question what is the duration of a lease is to be decided, in relation to the grant or any disposal of the lease, by reference to the facts which were known or ascertainable at the time when the lease was acquired or created.

• (7) Paragraph 8 of Schedule 8 to the Finance Act 1965 (which is superseded by this paragraph) shall cease to have effect, and this paragraph shall be construed as one with the said Schedule 8 and so that the reference in paragraph 9(1) of that Schedule to the said paragraph 8 shall be taken as a reference to this paragraph.

Disposal of debts

8

• (1) In paragraph 11 of Schedule 7 to the Finance Act 1965—

• (a) in sub-paragraph (1) (exemption for debt in hands of original creditor or his legatee), and

• (b) in sub-paragraph (4) (disallowance of loss on disposal of debt by assignee connected with original creditor or his legatee)

for the words " or his legatee " there shall be substituted the words " or his personal representative or legatee ".

• (2) Where the original creditor is a trustee and the debt, when created, is settled property, the said sub-paragraphs (1) and (4) shall apply as if for the references to the original creditor's personal representative or legatee there were substituted references to any person becoming absolutely entitled, as against the trustee, to the debt on its ceasing to be settled property, and to that person's personal representative or legatee.

Government securities issued at a discount

9

In Schedule 9 to the Finance Act 1965 after the entry relating to " 6% Conversion Stock 1972 " there shall be added the following entry:—

British Transport 3% Stock 1967-72	97 ½	100

Exclusion of short-term gains accruing to trustees

10

• (1) This paragraph has effect as respects a gain accruing to a trustee on a disposal of an asset forming part of settled property, being a disposal deemed to be effected by the trustee under section 25(4) of the Finance Act 1965 (which, as extended by subsections (6) and (7) of that section, creates an occasion of charge on a termination of a life interest and on certain other occasions).

• (2) The gain shall not be a chargeable gain for the purposes of Part III of the Finance Act 1965—

• (a) if the trustee disposes of the asset in circumstances such that the disposal is chargeable under Case VII of Schedule D, or

• (b) if by virtue of paragraph 4(2) of Schedule 9 to the Finance Act 1962 (beneficiary becoming absolutely entitled to settled property) any person is treated as if the acquisition of the asset by the trustee had been his acquisition of it, and that person disposes of the asset in circumstances such that the disposal is chargeable under the said Case VII.

• (3) This paragraph shall be construed as if contained in paragraph 3 of Schedule 6 to the Finance Act 1965.

• (4) There shall be made all such adjustments, whether by way of discharge or repayment of tax, or by the making of assessments, or otherwise, as are required to give effect to the provisions of this paragraph.

Short-term gains on disposals only partly derived from relevant acquisitions

11

• (1) This paragraph has effect where—

• (a) after 10th April 1968 there is a disposal chargeable under Case VII of Schedule D, and

• (b) an interest included in that disposal does not derive, or wholly derive, from a relevant acquisition,

and in this paragraph the interest, or part of an interest, which does not derive from a relevant acquisition is called " the untaxed element".

• (2) For the purposes of Part III of the Finance Act 1965 it shall be assumed that immediately before the said disposal the untaxed element was sold and immediately reacquired by the person making the disposal (but so that the assumed sale is not a disposal chargeable under Case VII of Schedule D for the purposes of paragraph 3(1) of Schedule 6 to the Finance Act 1965 (exclusion of short-term gains)).

• (3) Where the said disposal is a part disposal, the assumption in sub-paragraph (2) above shall be made only as respects such part of the untaxed element as can reasonably and justly be attributed to what is disposed of.

• (4) For the said purposes it shall be assumed that the sale and reacquisition is for a consideration equal to the amount at which the untaxed element fell to be brought into account under section 13(4) of the Finance Act 1962 (which involves valuation at a date immediately before the disposal) in computing the gain accruing on the disposal chargeable under Case VII:

Provided that if the untaxed element is an interest in land section 33 of the Finance Act 1967 (current use value for land in Great Britain) and Schedule 14 to that Act shall have effect as if the definition of " land " in paragraph 17 of that Schedule included what is assumed to be sold.

• (5) In this paragraph references to a disposal chargeable under Case VII of Schedule D are references to cases where the acquisition and disposal is in circumstances such that the gain accruing on it is chargeable under Case VII of Schedule D, or where it would be so chargeable if there were a gain so accruing.

• (6) For the purposes of this paragraph " relevant acquisition" has the meaning given by section 13(8)(a) of the Finance Act 1962, and an interest included in the disposal shall be treated as deriving from an acquisition if without that acquisition the whole interest could not have been so included.

Exclusion of short-term gains : supplemental

12

• (1) Paragraph 10 above, and sub-paragraphs (2), (3) and (4) of paragraph 3 of Schedule 6 to the Finance Act 1965 (which make corresponding provision for cases where a disposal of an asset is followed by another disposal of that asset which is chargeable under Case VII) shall apply if what is disposed of on the second occasion does not consist of or include the whole of what was disposed of on the first occasion, so as to afford relief in respect of so much of it as was comprised in both disposals.

• (2) In paragraph 3 of Schedule 6 to the Finance Act 1965 and in this Schedule references to a disposal chargeable under Case VII shall not include references to a disposal on which by virtue of paragraph 18(1) of Schedule 9 to the Finance Act 1962 neither a gain nor a loss can accrue.

Administration: non-resident trading in United Kingdom

13

The Table at the end of paragraph 1(3) of Schedule 10 to the Finance Act 1965 (income tax provisions applied to capital gains tax) shall include section 374 of the Income Tax Act 1952 (responsibility and indemnification of persons in whose name a non-resident person is chargeable).

Commencement

14

Except as otherwise provided, this Part of this Schedule has effect as respects any disposals of assets after 5th April 1968.

PART II — Companies

Company amalgamations and reconstructions

15

• (1) Paragraph 7 of Schedule 7 to the Finance Act 1965 shall be amended as follows.

• (2) Sub-paragraph (1) (issue of shares or debentures in one company to holders of shares or debentures in another company to be treated as an exchange in certain circumstances) shall apply after 10th April 1968, in relation to a company which has no share capital, as if references to shares in or debentures of a company included references to any interests in the company possessed by members of the company, and paragraphs 4 and 6 of the said Schedule 7 shall apply accordingly.

• (3) Sub-paragraph (2) (reconstruction or amalgamation involving transfer of a company's business) shall only apply to a transfer at a time after 10th April 1968 if both that company and the company to which the business is transferred are at that time resident in the United Kingdom.

Transfer of business to a company

16

Paragraph 8 of Schedule 7 to the Finance Act 1965 shall not apply to a transfer after 10th April 1968 if the person, or any of the persons, to whom any gain accrues on the transfer is a company.

Dividend-stripping: receipt of dividend by member of a group

17

• (1) This paragraph has effect where section 65(3) of the Finance Act 1965 (main provisions about dividend-stripping) or paragraph 3(4) of Schedule 11 to the Finance Act 1967 (transfers between companies and their members or participators) applies so as to treat any amount as a capital distribution paid after 10th April 1968 if the recipient was, at the time when it became entitled to receive that amount, a member of a group of companies and if the holding consists of shares in another member of the group.

• (2) Paragraph 3(2) of Schedule 7 to the Finance Act 1965 (postponement of occasion of charge) shall apply as if the inspector had duly given a direction under that sub-paragraph, and that sub-paragraph shall apply accordingly, but subject to the provisions of paragraph 9 of Schedule 10 to the Finance Act 1966 (no postponement where there is no expenditure against which the distribution can be set off), and the said paragraph 9(1) shall apply as if it referred to the said paragraph 3(2) as extended by this paragraph.

Company ceasing to be member of a group

18

• (1) If a company (in this paragraph called the chargeable company) ceases to be a member of a group of companies at any time after 10th April 1968, this paragraph shall have effect as respects any asset which the chargeable company acquired from another company which was at the time of acquisition a member of that group of companies, but only if the time of acquisition fell—

• (a) on or after 6th April 1965, and

• (b) within the period of six years ending with the time when the company ceases to be a member of the group.

Where two or more associated companies cease to be members of the group at the same time, this sub-paragraph shall not have effect as respects an acquisition by one from another of those associated companies.

• (2) If, when the chargeable company ceases to be a member of the group, the chargeable company, or an associated company also leaving the group, owns, otherwise than as trading stock—

• (a) the asset, or

• (b) property to which a chargeable gain has been carried forward from the asset on a replacement of business assets,

the chargeable company shall be treated for all the purposes of Part III of the Finance Act 1965 as if immediately after its acquisition of the asset it had sold, and immediately reacquired, the asset at market value at that time.

• (3) For the purposes of this paragraph—

• (a) two or more companies are associated companies if, by themselves, they would form a group of companies,

• (b) a chargeable gain is carried forward from an asset to other property on a replacement of business assets if, by one or more claims under section 33 of the Finance Act 1965, the chargeable gain accruing on a disposal of the asset is reduced, and as a result an amount falls to be deducted from the expenditure allowable in computing a gain accruing on the disposal of the other property,

• (c) an asset acquired by the chargeable company shall be treated as the same as an asset owned at a later time by that company or associated company if the value of the second asset is derived in whole or in part from the first asset, and in particular where the second asset is a freehold, and the first asset was a leasehold and the lessee has acquired the reversion.

• (4) If any of the corporation tax assessed on a company in consequence of this paragraph is not paid within six months from the date when it becomes payable then—

• (a) a company which on the said date, or immediately after the chargeable company ceased to be a member of the group, was the principal company of the group, and

• (b) a company which owned the asset on the said date, or when the chargeable company ceased to be a member of the group,

may at any time within two years from the time when the tax became payable, be assessed and charged (in the name of the chargeable company) to all or any part of that tax ; and a company paying any amount of tax under this sub-paragraph shall be entitled to recover a sum of that amount from the chargeable company.

• (5) Notwithstanding any limitation on the time for making assessments, an assessment to corporation tax chargeable in consequence of this paragraph may be made at any time within six years from the time when the chargeable company ceased to be a member of the group, and where under this paragraph the chargeable company is to be treated as having disposed of, and reacquired, an asset, all such recomputations of liability in respect of other disposals, and all such adjustments of tax, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of the provisions of this paragraph shall be carried out.

Shares in subsidiary member of a group

19

• (1) This paragraph has effect if a company (in this paragraph called the subsidiary) ceases to be a member of a group of companies at any time after 10th April 1968, and on an earlier occasion shares in the subsidiary were disposed of by another company (in this paragraph called " the chargeable company") which was then a member of that group in the course of an amalgamation or reconstruction in the group, but only if that earlier occasion fell—

• (a) on or after 6th April 1965, and

• (b) within the period of six years ending with the date on which the subsidiary ceases to be a member of the group.

• (2) The chargeable company shall be treated, for all the purposes of Part III of the Finance Act 1965, as if immediately before the earlier occasion it had sold, and immediately re-acquired, the said shares at market value at that time.

• (3) If, before the subsidiary ceases to be a member of the group, the chargeable company has ceased to exist, or a resolution has been passed, or an order made, for the winding up of the company, or any other act has been done for the like purpose, any corporation tax to which, if the chargeable company had continued in existence, it would have been chargeable in consequence of this paragraph may be assessed and charged (in the name of the chargeable company) on the company which is, at the time when the subsidiary ceases to be a member of the group, the principal company of the group.

• (4) If any of the corporation tax assessed on a company in consequence of this paragraph, or in pursuance of sub-paragraph (3) above, is not paid within six months from the date when it becomes payable, then—

• (a) a company which is on the said date, or was on the earlier occasion, the principal company of the group, and

• (b) any company taking an interest in the subsidiary as part of the amalgamation or reconstruction in the group,

may at any time within two years from the time when the tax became payable, be assessed and charged (in the name of the chargeable company) to all or any part of that tax; and a company paying any amount of tax under this sub-paragraph shall be entitled to recover a sum of that amount from the chargeable company, or as the case may be from the company assessed under sub-paragraph (3) above.

• (5) Notwithstanding any limitation on the time for making assessments, an assessment to corporation tax chargeable in consequence of this paragraph may be made at any time within six years from the time when the subsidiary ceased to be a member of the group and, in relation to any disposal of the property after the earlier occasion, there shall be made all such adjustments of tax, whether by way Of assessment or by way of discharge or repayment of tax as may be required in consequence of the provisions of this paragraph.

• (6) For the purposes of this paragraph there is a disposal of shares in the course of an amalgamation or reconstruction in a group of companies if paragraph 6 or paragraph 7 of Schedule 7 to the Finance Act 1965 (company amalgamations) applies to shares in a company so as to equate them with shares in or debentures of another company, and the companies are members of the same group, or become members of the same group as a result of the amalgamation or reconstruction.

• (7) Where by virtue of paragraph 7 of the said Schedule 7 shares are to be treated as cancelled and replaced by a new issue, references in this paragraph to a disposal of shares include references to the occasion of their being so treated.

Loss on disposal of shares etc. attributable to depreciatory transaction in a group

20

• (1) This paragraph has effect as respects a disposal after 10th April 1968 of shares in, or securities of, a company if the value of the shares or securities has been materially reduced by any disposal of assets, on or after 6th April 1965, at other than market value by one member of a group of companies to another, and in this paragraph any such disposal of assets is called a " depreciatory transaction ":

Provided that no account shall be taken under this sub-paragraph of a disposal of assets if and to the extent that that disposal of assets fell to be treated as giving rise to a capital distribution within the meaning of Part III of the Finance Act 1965, and if the recipient of the capital distribution is the person disposing of the shares and securities.

• (2) If the person making the disposal of the shares or securities is, or has at any time been, a member of the said group of companies, any allowable loss accruing on the disposal shall be reduced to such extent as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable having regard to the depreciatory transaction:

Provided that if the person is not a member of the said group when that person disposes of the shares or securities, no reduction of the loss shall be made by reference to a depreciatory transaction which took place when that person was not a member of the said group.

• (3) The inspector or the Commissioners shall make the decision under sub-paragraph (2) above on the footing that the allowable loss ought not to reflect any diminution in the value of the company's assets which was attributable to a depreciatory transaction if and so far as the effect of the transaction was to increase the value of the assets of any other member of the group, but allowance may be made for any other transaction on or after 6th April 1965 which has enhanced the value of the company's assets and depreciated the value of the assets of any other member of the group.

• (4) If, under sub-paragraph (2) above, a reduction is made in an allowable loss, any chargeable gain accruing on a disposal of the shares or securities of any other company which was a party to the depreciatory transaction by reference to which the reduction was made, being a disposal not later than six years after the depreciatory transaction, shall be reduced to such extent as appears to the inspector, or on appeal to the Commissioners concerned, to be just and reasonable having regard to the effect of the depreciatory transaction on the value of those shares or securities at the time of their disposal:

Provided that the total amount of any one or more reductions in chargeable gains made by reference to a depreciatory transaction shall not exceed the amount of the reductions in allowable losses made by reference to that depreciatory transaction.

All such adjustments, whether by way of discharge or repayment of tax, or otherwise, as are required to give effect to the provisions of this sub-paragraph may be made at any time.

• (5) For the purposes of this paragraph—

• " securities " includes any loan stock or similar security whether secured or unsecured, references to the disposal of assets include references to any method by which one company which is a member of a group appropriates the goodwill of another member of the group, a

• " group of companies " may consist of companies some or all of which are not resident in the United Kingdom.