Income and Corporation Taxes Act 1970 (repealed 6.4.1992)

• (5) Where, in the case of a number of bodies corporate, the first directly owns ordinary share capital of the second and the second directly owns ordinary share capital of the third, then, for the purposes of this section, the first shall be deemed to own ordinary share capital of the third through the second, and, if the third directly owns ordinary share capital of a fourth, the first shall be deemed to own ordinary share capital of the fourth through the second and third, and the second shall be deemed to own ordinary share capital of the fourth through the third, and so on.

• (6) In this section—

• (a) any number of bodies corporate of which the first directly owns ordinary share capital of the next and the next directly owns ordinary share capital of the next but one and so on, and, if they are more than three, any three or more of them, are referred to as " a series " ;

• (b) in any series—

• (i) that body corporate which owns ordinary share capital of another through the remainder is referred to as " the first owner " ;

• (ii) that other body corporate the ordinary share capital of which is so owned is referred to as " the last owned body corporate " ;

• (iii) the remainder, if one only, is referred to as an " intermediary" and, if more than one, are referred to as "a chain of intermediaries";

• (c) a body corporate in a series which directly owns ordinary share capital of another body corporate in the series is referred to as an " owner ";

• (d) any two bodies corporate in a series of which one owns ordinary share capital of the other directly, and not through one or more of the other bodies corporate in the series, are referred to as being directly related to one another.

• (7) Where every owner in a series owns the whole of the ordinary share capital of the body corporate to which it is directly related, the first owner shall be deemed to own through the intermediary or chain of intermediaries the whole of the ordinary share capital of the last owned body corporate.

• (8) Where one of the owners in a series owns a fraction of the ordinary share capital of the body corporate to which it is directly related, and every other owner in the series owns the whole of the ordinary share capital of the body corporate to which it is directly related, the first owner shall be deemed to own that fraction of the ordinary share capital of the last owned body corporate through the intermediary or chain of intermediaries.

• (9) Where—

• (a) each of two or more of the owners in a series owns a fraction, and every other owner in the series owns the whole, of the ordinary share capital of the body corporate to which it is directly related; or

• (b) every owner in a series owns a fraction of the ordinary share capital of the body corporate to which it is directly related;

the first owner shall be deemed to own through the intermediary or chain of intermediaries such fraction of the ordinary share capital of the last owned body corporate as results from the multiplication of those fractions.

• (10) Where the first owner in any series owns a fraction of the ordinary share capital of the last owned body corporate in that series through the intermediary or chain of intermediaries in that series, and also owns another fraction or other fractions of the ordinary share capital of the last owned body corporate, either—

• (a) directly, or

• (b) through an intermediary or intermediaries which is not a member or are not members of that series, or

• (c) through a chain or chains of intermediaries of which one or some or all are not members of that series, or

• (d) in a case where the series consists of more than three bodies corporate, through an intermediary or intermediaries which is a member or are members of the series, or through a chain or chains of intermediaries consisting of some but not all of the bodies corporate of which the chain of intermediaries in the series consists,

then, for the purpose of ascertaining the amount of the ordinary share capital of the last owned body corporate owned by the first owner, all those fractions shall be aggregated and the first owner shall be deemed to own the sum of those fractions.

Connected persons

533

• (1) For the purposes of, and subject to, the provisions of the Tax Acts which apply this section, any question whether a person is connected with another shall be determined in accordance with the following provisions of this section (any provision that one person is connected with another being taken to mean that they are connected with one another).

• (2) A person is connected with an individual if that person is the individual's husband or wife, or is a relative, or the husband or wife of a relative, of the individual or of the individual's husband or wife.

• (3) A person, in his capacity as trustee of a settlement, is connected with any individual who in relation to the settlement is a settlor, with any person who is connected with such an individual and with a body corporate which, under section 454 of this Act is deemed to be connected with that settlement (" settlement" and " settlor " having for the purposes of this subsection the meanings assigned to them by subsection (3) of that section).

• (4) Except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the husband or wife or a relative of any individual with whom he is in partnership.

• (5) A company is connected with another company—

• (a) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other, or

• (b) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected.

• (6) A company is connected with another person, if that person has control of it or if that person and persons connected with him together have control of it.

• (7) Any two or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure or exercise control of the company.

• (8) In this section—

• " company " includes any body corporate or unincorporated association, but does not include a partnership, and this section shall apply in relation to any unit trust scheme (as defined in section 26(1) of the Prevention of Fraud (Investments) Act 1958 or section 22 of the Prevention of Fraud (Investments) Act (Northern Ireland) 1940) as if the scheme were a company and as if the rights of the unit holders were shares in the company,

• " control " shall be construed in accordance with section 302 of this Act,

• " relative " means brother, sister, ancestor or lineal descendant.

Meaning of "control" in certain contexts

534

For the purposes of, and subject to, the provisions of the Tax Acts which apply this section, " control", in relation to a body corporate, means the power of a person to secure—

• (a) by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or

• (b) by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,

that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person, and, in relation to a partnership, means the right to a share of more than one-half of the assets, or of more than one-half of the income, of the partnership

"Recognised stock exchange"

535

• (1) In the Corporation Tax Acts "recognised stock exchange " has the same meaning as in the Prevention of Fraud (Investments) Act 1958, except that it includes—

• (a) the Belfast Stock Exchange, and

• (b) any such stock exchange outside the United Kingdom as is for the time being designated for the purposes of this section as a recognised stock exchange by order made by the Board.

• (2) An order made by the Board under this section—

• (a) may designate a stock exchange by name, or by reference to any class or description of stock exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom,

• (b) may contain such transitional and other supplemental provisions as appear to the Board to be necessary or expedient, and

• (c) may be varied or revoked by a subsequent order so made.

PART XX — General

Commencement

536

• (1) Except as otherwise provided by the following provisions of this section, this Act shall come into force in relation to tax for the year 1970-71 and subsequent years of assessment, and for companies' accounting periods ending after 5th April 1970.

• (2) Except as otherwise provided by the following provisions of this section, such of the provisions of this Act as relate to capital gains tax (including the provisions of Part XVIII of this Act as applied to capital gains tax by section 39 of the Finance Act 1965) shall come into force in relation to that tax for the year 1970-71 and subsequent years of assessment.

• (3) The following provisions of this Act, that is—

• (a) so much of any provision of this Act as authorises the making, variation or revocation of any Order in Council or regulation or other instrument,

• (b) so much of any provision of this Act as relates to the making of a return, the furnishing of a certificate or the giving of any other information, including any such provision which imposes a duty on the Board or an officer of the Board as well as any such provision which imposes a duty on any other person,

• (c) so much of any provision of this Act as imposes any penalty,

• (d) except where the tax concerned is all tax for years of assessment before the year 1970-71 or accounting periods ending before 6th April 1970, so much of any other provision of this Act as confers any power or imposes any duty the exercise or performance of which operates or may operate in relation to tax for more than one chargeable period,

shall come into force for all purposes on 6th April 1970 to the exclusion of the corresponding enactments repealed by this Act.

• (4) This section has effect except as otherwise provided by any other provision of this Act.

Savings, transitory provisions and consequential amendments

537

• (1) Schedule 14 to this Act, which contains savings and transitory provisions, shall have effect, and the repeals made by section 538 below have effect subject to that Schedule.

• (2) For the avoidance of doubt it is hereby declared that this Act and the Taxes Management Act 1970 have effect subject to those provisions of the Tax Acts and the enactments relating to chargeable gains which are not repealed by this Act, and, with a view to preserving the existing effect of such enactments and instruments as are mentioned in Schedule 15 to this Act, they shall be amended in accordance with that Schedule.

• (3) The provisions of the said Schedule 15, and the other provisions of this Part of this Act, are without prejudice to the provisions of the Interpretation Act 1889 as respects the effect of repeals; and section 38(1) of the Interpretation Act 1889 shall have effect as if the Taxes Management Act 1970 formed part of this Act.

• (4) This section and the said Schedules 14 and 15 shall come into force on the passing of this Act.

Repeals

538

• (1) The enactments mentioned in Schedule 16 to this Act are hereby repealed to the extent specified in the third column of that Schedule.

• (2) Subject to the following provisions of this section, the said repeals shall come into force in accordance with subsections (1) and (2) of section 536 above.

• (3) Subsection (2) above has effect subject to section 119(1) of the Taxes Management Act 1970, to section 536(3) above and to any other provision of this Act by which any provision is brought into force to the exclusion of the corresponding enactments repealed by this Act.

• (4) No provision mentioned in subsection (3) above shall be taken as bringing a repeal into force except to the extent that the repealed enactment is being superseded, and in particular where part of the effect of any repealed enactment is reproduced in this Act, or is not reproduced, nothing in section 119(1) of the Taxes Management Act 1970 shall be taken as bringing the repeal into force except so far as the enactment is reproduced in the Taxes Management Act 1970.

• (5) In this section " enactments" includes any statutory instrument mentioned in Schedule 16 to this Act, and references in this Act and the Taxes Management Act 1970 to the enactments repealed by this Act shall be construed accordingly.

Continuity and construction of references to old and new law

539

• (1) The continuity of the operation of the Tax Acts and of the law relating to chargeable gains shall not be affected by the substitution of this Act and of the Taxes Management Act 1970 (in this section referred to as " the new Acts " ) for the repealed enactments.

• (2) Any reference, whether express or implied, in any enactment, instrument or document (including the new Acts and any enactment amended by Schedule 15 to this Act) to, or to things done or falling to be done under or for the purposes of, any provision of the new Acts shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or as the case may be to things done or falling to be done under or for the purposes of. that corresponding provision,

• (3) Any reference, whether express or implied, in any enactment, instrument or document (including the repealed enactments and enactments, instruments and documents passed or made after the passing of this Act) to, or to things done or falling to be done under or for the purposes of, any of the repealed enactments shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision of the new Acts has effect, a reference to, or as the case may be to things done or deemed to be done or falling to be done under or for the purposes of, that corresponding provision.

• (4) Any reference to Case VIII of Schedule D, whether a specific reference or one imported by more general words, in any enactment, instrument or document shall, in relation to the chargeable periods to which section 536(1) above applies, be construed as a reference to Schedule A, and for the purposes of subsection (2) above Schedule A in this Act shall be treated as corresponding to Case VIII of Schedule D in the repealed enactments, and any provision of the new Acts referring to Schedule A shall be construed accordingly.

• (5) The repeals made by this Act shall not affect any instrument made or other thing done under the repealed enactments and, if it was made or done under an enactment reproduced in the new Acts, the new Acts shall have effect as if it had also been made or done under the corresponding provision in the new Acts.

• (6) In this section " the repealed enactments" means the enactments repealed by this Act, and such of the enactments repealed by the Income Tax Act 1952 or the Capital Allowances Act 1968 as correspond to the provisions of those Acts of 1952 and 1968 so repealed.

Short title and construction

540

• (1) This Act may be cited as the Income and Corporation Taxes Act 1970.

• (2) This Act, so far as it relates to capital gains tax, shall be construed as one with Part III of the Finance Act 1965.

• (3) Any reference in this Act to any other enactment shall, except so far as the context otherwise requires, be construed as a reference to that enactment as amended or applied by or under any other enactment, including this Act.

SCHEDULE 1

PART I — Qualifying Conditions

General rules applicable to whole life and term assurances

1

• (1) Subject to the following provisions of this Part of this Schedule, if a policy secures a capital sum which is payable only on death, or one payable either on death or on earlier disability, it is a qualifying policy if—

• (a) it satisfies the conditions appropriate to it under sub-paragraphs (2) to (4) below, and

• (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 or, 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 the period is not to exceed the total premiums previously paid thereunder.

• (5) Notwithstanding sub-paragraph (1)(6) 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 of that event; 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) For the purposes of sub-paragraph (1)(d)(i) above, 10 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.

• (3) 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.

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 337(3) of this Act, 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 purposes 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 mot 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 which does sot 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 than 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 had it been 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 19(5) of this Act as issued) in respect of an insurance made after 19th March 1968.

PART II — Certification of Qualifying Policies

11

• (1) Subject to sub-paragraph (3) below, a body issuing any policy of life insurance which is in its opinion a qualifying policy within the meaning of Part I of this Schedule shall, within three months of the date of issue, give to the policy holder a duly authenticated certificate to that effect, specifying in the certificate 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, and is in the opinion of the body by whom it was issued a qualifying policy after the variation, that body shall, within three months of the making of the variation, give to the policy holder a like certificate with respect to the policy as varied.

• (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 19(5) of this Act, to be treated as issued in respect of an insurance made after that date.

SCHEDULE 2

Expenditure before 1964-65: deductions from rents

1

• (1) Except as provided by sub-paragraphs (2) and (3) below, no payment shall be deductible under sections 72 and 73 of this Act if made before the beginning of the year 1964-65.

• (2) Where, by virtue of paragraph 11 of Schedule 4 to the Finance Act 1963 as amended by section 16(2) of the Finance Act 1965 (excess of maintenance etc. costs during five years ending 5th April 1964 over available reliefs), any amount fell to be treated as a payment in relation to premises made by a person in the year 1964-65 in respect of dilapidation attributable to that year, the amount shall be similarly treated for the purposes of the said sections 72 and 73.

• (3) If, in respect of any payment such as is mentioned in subsection (1) of the said section 72 made by a person in relation to any premises before the beginning of the year 1964-65, a loss was carried forward to that year by virtue of section 346 of the Income Tax Act 1952 (relief in respect of losses under Case VI of Schedule D) the amount of the loss shall be treated for the purposes of the said sections 72 and 73 as if it were a like payment made by that person in respect of the premises in, and in respect of, that year.

• (4) A deduction falling to be made by virtue of sub-paragraph (3) above shall be made notwithstanding anything in section 176(3) or 179(1) of this Act (Case VI losses for income tax and corporation tax respectively: relief to be given as far as possible from the first subsequent Case VI assessment); and relief shall not be given under either of those sections in respect of the loss insofar as a deduction in respect of it is made under this paragraph.

Expenditure before 1964-65: deductions from other receipts

2

• (1) Subject to sub-paragraph (2) below, no payment shall be deductible under section 74 of this Act if made before the beginning of the year 1964-65.

• (2) Sub-paragraph (1) above shall not prevent the deduction of a payment in so far as a loss in respect thereof was carried forward to the year 1964-65 by virtue of section 346 of the Income Tax Act 1952 (relief in respect of losses under Case VI of Schedule D).

• (3) Paragraph 1(4) above shall apply in the case of a deduction falling to be made by virtue of sub-paragraph (2) above as it applies in the case of one falling to be made by virtue of sub-paragraph (3) of that paragraph.

Expenditure before 1964-65: sea walk

3

• (1) Section 76 of this Act shall apply in relation to expenditure in respect of which an allowance under section 94(1)(c) of the Income Tax Act 1952 would, but for its repeal, have fallen to be made in respect of any premises for the year 1964-65 as if the expenditure had been incurred in the year of assessment following that in which it was actually incurred and, so far as it was incurred in repairing an embankment, had been incurred in making it:

Provided that if, by reason of a claim made under the proviso to paragraph 16(3) of Schedule 4 to the Finance Act 1963, any expenditure incurred before the beginning of the year 1964-65 in repairing an embankment fell to be treated for the purposes of that Schedule as if it had been an amount paid by the claimant, in and in respect of that year, in respect of the maintenance of the premises preserved or protected by the embankment, the expenditure shall be similarly treated for the purposes of sections 71 to 77 of this Act.

• (2) Subject as aforesaid, the said section 76 shall not apply to expenditure incurred before the beginning of the year 1964-65.

Tithe redemption annuities

4

No part of any payment made as an instalment, or part of an instalment, of an annuity within the meaning of the Tithe Acts 1936 and 1951 shall be included among the deductions allowable under sections 71 to 77 of this Act.

SCHEDULE 3

1

A claim for relief under this Schedule shall be made to the Board if it relates to surtax, or if the claimant is not resident in the United Kingdom.

2

The relief shall be computed in accordance with paragraphs 3 to 6 below, and in those paragraphs—

• " chargeable sum " means an amount to which, under subsection (1), (2), (3) or (4) of section 80 of this Act, the claimant is treated as becoming entitled in the year of assessment, or in respect of which he is by virtue of subsection (5) of that section, or section 81 or 82 of this Act, chargeable to income tax for the year under Case VI of Schedule D ;

• " relevant period ", in relation to any chargeable sum, means the period treated in computing the amount of the sum as being the duration of the lease in respect of which it arises or, where it arises (by virtue of the said section 82) in connection with the sale of an estate or interest in land, means the period mentioned in subsection (1) of that section;

• " yearly equivalent ", in relation to any chargeable sum, means the amount which bears to that sum the same proportion as one bears to the number of years and fractions of years in the relevant period.

3

There shall be computed—

• (a) the amount of the tax which, in respect of the chargeable sum or the aggregate of the chargeable sums, as the case may be, would be chargeable if—

• (i) the relief were not given, and

• (ii) that sum or aggregate were treated as the highest part of the claimant's total income, and

• (iii) amounts deductible in computing the tax were so far as possible deducted from other sums from which they are deductible in the year rather than from that sum or aggregate, and

• (b) the amount of the tax which, in respect of that sum or aggregate, would be chargeable if calculated, in accordance with paragraph 4 below, by reference to the yearly equivalent of that sum, or, as the case may be, of each sum comprised in that aggregate,

and the relief shall consist of a reduction or repayment of tax equal to the difference between those amounts.

4

• (1) Where the relief is to be given in respect of one chargeable sum only, the tax shall be calculated for the purposes of paragraph 3(b) above as follows—

• (a) from the yearly equivalent of that sum there shall be deducted such amounts as, following the principle set out in paragraph 3(a)(iii) above, are deductible from that sum,

• (b) if any balance of the yearly equivalent remains, the tax in respect of the chargeable sum shall be calculated at the rate which, apart from the relief, would apply if the amount of the sum were reduced to the amount of that balance and were then treated as the highest part of the claimant's total income or, if two or more rates would then apply, at those rates in corresponding proportions,

• (c) if no such balance remains, the tax shall be calculated at the rate applicable to the highest part of the remainder of the claimant's total income for the year of assessment,

and, whether or not any such balance remains, the tax shall be arrived at by applying the said rate or rates to so much of the chargeable sum as remains after deducting such amounts as, following the principle set out in the said paragraph 3(a)(iii), are deductible from that sum.

• (2) Where the relief is to be given in respect of two or more chargeable sums, the tax for each shall be calculated for the said purposes as provided by sub-paragraph (1) above, but so that—

• (a) the rate of tax on a sum arising in respect of any relevant period shall be calculated before the rate of tax on any sum arising in respect of a shorter relevant period, and

• (b) in calculating the rate of tax on a sum arising in respect of any relevant period and the deductions from that sum, an amount deducted in respect of a sum tax for which has already been calculated shall not again be deducted, and, in calculating a rate of tax—

• (i) any chargeable sum tax for which has not already been calculated, or in respect of which no balance of the yearly equivalent remains, shall be disregarded, and

• (ii) as respects any other chargeable sum, the total income of the claimant shall be taken to include the sum, but on the assumption that the amount of it was only that of the balance remaining of the yearly equivalent.

• (3) Where two or more chargeable sums arise in respect of relevant periods of equal duration, they shall be treated for the purposes of this paragraph as a single chargeable sum of an amount equal to the aggregate of those sums and arising in respect of a relevant period of like duration.

5

A provision of paragraph 3 or 4 above requiring tax to be calculated as if an amount were treated as the highest part of the claimant's total income shall apply notwithstanding any provision of the Income Tax Acts directing other income to be treated as the highest part of his total income, but for the purposes of those paragraphs his total income shall be deemed—

• (a) not to include any amount in respect of which he is chargeable to tax under section 187 of this Act (payments on retirement or removal from office or employment), and

• (b) to include, in respect of any amount which would otherwise be included therein by virtue of section 399 (1)(a) of this Act (gains arising in connection with life policies etc.), no greater amount than the appropriate fraction thereof within the meaning of section 400 of this Act.

6

A provision of paragraph 3 or 4 above shall apply in relation to any part of the claimant's total income (as computed for the purposes of that provision) as respects which he would be entitled under Chapter II of Part I of this Act (personal and other reliefs) to a deduction equal to tax at the standard rate on that part as if that part were subject to a nil rate of tax, and shall apply in relation to any part thereof as respects which he would be entitled under section 22 of this Act (reduced rate relief) to a deduction equal to tax at any other rate on that part as if that part were subject to a rate of tax equal to the difference between the standard rate and that other rate.

SCHEDULE 4

PART I — Premiums etc.

1

• (1) Subject to paragraph 5 of this Schedule, for the purposes of section 80(1) of this Act (taxation of premium on grant of lease), the amount of any premium payable to the landlord shall be reduced by the amount of any betterment levy charged on the premium, and that reduction shall be made before the reduction under the said section 80(1) depending upon the length of the lease.

• (2) In applying subsection (6) of the said section 80 (premiums payable by instalments: claim for treatment as rent) to a premium which falls to be reduced under sub-paragraph (1) above (looking at the fraction by which it is reduced before any reduction depending on the length of the lease), a reduction by that fraction shall be made in the amount of each instalment.

• (3) For the purposes of sub-paragraph (1) above, the amount of betterment levy charged- on a premium is the principal amount of the betterment levy under Case B charged in respect of the grant of the lease, reduced by applying the fraction $AB$ (if less than unity) where—

• A is the capital value of the premium payable to the landlord as brought into account under paragraph 7 of Schedule 4 to the Land Commission Act 1967, and

• B is the aggregate amount of consideration as computed for the purposes of charging betterment levy.

• (4) Sub-paragraphs (1) and (3) above shall also apply as respects any amounts brought into section 80(1) of this Act as a premium by subsection (2) of that section (landlord's benefit from tenant's obligation to carry out work on premises) so far as the benefit to the landlord is brought into account under the said paragraph 7 of Schedule 4 to the Land Commission Act 1967 ; and references to premiums in this paragraph shall be construed accordingly.

• (5) For the purposes of sub-paragraph (1) above, the amount of betterment levy charged on any sum brought into the said section 80(1) as a premium by subsection (4) of that section (consideration for the variation or waiver of the terms of a lease) is the principal amount of the betterment levy under Case E or Case F charged in respect of the disposition for which that sum is consideration, but subject to a proportionate reduction as under sub-paragraph (3) above where the sum forms part only of the consideration brought into account in assessing the betterment levy in respect of the disposition, and where the levy is under Case F, subject to such adjustments of the consideration so brought into account as may be appropriate ; and references to a premium in this paragraph shall be construed accordingly.

2

Subject to paragraph 5 of this Schedule, any taxable amount under section 81 or 82 of this Act (assignment of lease at undervalue, and sale with right to reconveyance) shall be reduced by so much of the principal amount of any betterment levy under Case A charged on the assignment or sale on which the charge to tax arises as is attributable to the said taxable amount, and that reduction shall be made before any reduction under the said section 81 depending on the length of the lease, or any reduction under the said section 82 depending on the time between the sale and a subsequent reconveyance.

3

Any reduction to be effected under any of the provisions of paragraphs 1 and 2 above shall be disregarded in arriving at "the amount chargeable on the superior interest" in section 83 of this Act (premiums paid, etc: deduction from premiums and rents received) and " the amount chargeable " in section 134 of this Act (allowance of trading deduction where premium etc. paid).

4

• (1) Where for the purposes of Part III of the Land Commission Act 1967 a notice of assessment of betterment levy results in an operative assessment of levy, it shall become final and conclusive for the purposes of this Part of this Schedule, but subject to any adjustment under section 54 or 55 of that Act (mistake of fact and further notice of assessment of levy), or under any other provision of that Act.

• (2) Where betterment levy is chargeable in respect of land part only of which is the relevant land for the purposes of the charge to tax under Schedule A or Case VI of Schedule D, or where part of the consideration for a disposition is payable to a person other than the grantor in the circumstances mentioned in section 36(3) of the Land Commission Act 1967, the levy shall be apportioned in such manner as may be appropriate in the circumstances.

• (3) Any question arising in any appeal against an assessment to tax as to the application of the preceding provisions of this Part of this Schedule shall be determined on a reference to the Lands Tribunal.

• (4) The Land Commission shall afford to the inspector and to the Lands Tribunal such information as they may require for the purpose of this Part of this Schedule.

• (5) In relation to land in Scotland, for any reference in this paragraph to the Lands Tribunal there shall be substituted a reference to the Lands Tribunal for Scotland:

Provided that until sections 1 to 3 of the Lands Tribunal Act 1949 come into force as regards Scotland, this sub-paragraph shall have effect as if for the reference to the Lands Tribunal for Scotland there were substituted a reference to a person selected from the panel of referees appointed under Part I of the Finance (1909-1910) Act 1910.

PART II — Mining Leases

5

Part I of this Schedule shall not apply to betterment levy which is charged on any payment in accordance with regulations made in accordance with section 40(2) of the Finance Act 1968 (rents, royalties and other payments, including premiums, under mining leases).

6

Where betterment levy is charged as mentioned in paragraph 5 above on a payment which is charged to tax under Schedule A, the amount of betterment levy so charged shall for the purposes of Schedule A be treated as a payment made by the landlord in respect of management of the property in the chargeable period in which he becomes entitled to the payment:

7

Where betterment levy is charged as mentioned in paragraph 5 above on any payment which is charged to tax under Schedule D by virtue of section 156 of this Act (rent etc. payable in connection with mines, quarries and similar concerns), the amount of betterment levy so charged shall be treated—

• (a) for the purposes of section 158(1) of this Act (income tax: management expenses of owner of mineral rights), as a sum disbursed as an expense of management in the year of assessment for which the tax is charged, and

• (b) for the purposes of subsection (2) of the said section 158 (corresponding provision for corporation tax), as a sum so disbursed in the accounting period in which the payment falls to be taken into account for corporation tax.

8

The Land Commission shall afford to any officer of the Board such information as he may require for the purposes of this Part of this Schedule.

SCHEDULE 5

PART I — Public Revenue Dividends, etc., payable to the Bank of England and the Bank of Ireland, or entrusted for payment to the Bank of England, the Bank of Ireland or the National Debt Commissioners

1

The Bank of England and the Bank of Ireland, as respects the dividends and the profits attached thereto payable to them out of the public revenue of the United Kingdom, or payable out of any public revenue and entrusted to them for payment and distribution, and the National Debt Commissioners, as respects the dividends payable by them or of which they have the distribution, shall, when any payment becomes due, deliver to the Board true accounts, in books provided for the purpose, of—

• (a) the amounts of the dividends and profits attached thereto payable to the Bank, and

• (b) all dividends entrusted to the Bank or to the National Debt Commissioners for payment to the persons entitled thereto, and

• (c) the amount of income tax chargeable thereon at the standard rate in force at the time of payment, without any other deduction than is allowed by the Income Tax Acts.

2

• (1) In the case of dividends and profits attached thereto payable to the Bank of England out of the public revenue of the United Kingdom, the Bank of England shall set apart the income tax in respect of the amount payable to them.

• (2) In the case of dividends and profits attached thereto entrusted to the Bank of England for payment and distribution, dividends payable by the Bank of Ireland at its principal office in Belfast, and dividends payable by the National Debt Commissioners or of which the National Debt Commissioners have the distribution—

• (a) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall, before any payment is made by them, retain the amount of the income tax for the purposes of the Income Tax Acts, and

• (b) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and

• (c) the Bank of England, the Bank of Ireland and the National Debt Commissioners respectively shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.

• (3) In relation to dividends payable to the Bank of Ireland out of the public revenue of the United Kingdom, and public revenue dividends which are entrusted to the Bank of Ireland for payment and distribution and are not payable by that Bank at its principal office in Belfast, the following provisions shall have effect—

• (a) the money which, but for the provisions of this subparagraph, would be issuable to the Bank of Ireland under section 14 of the National Debt Act 1870, or otherwise payable to the Bank of Ireland for the purpose of dividends on securities of the United Kingdom Government entered in the register of the Bank of Ireland in Dublin, shall be issued and paid to the Bank of England, and

• (b) the Bank of England shall set apart and retain out of moneys so issued and paid to them the amount of the income tax on the dividends payable to the Bank of Ireland, and on the dividends on the securities of the United Kingdom Government entered in the register of the Bank of Ireland in Dublin, and

• (c) the Bank of England shall pay to the Bank of Ireland the residue of the moneys so issued and paid to them, to be applied by the Bank of Ireland to the payment of the dividends, and

• (d) the retaining of the amount shall be deemed to be a payment of the income tax by the persons entitled to the dividends, and shall be allowed by them on the receipt of the residue thereof, and the Bank of England and the Bank of Ireland shall be acquitted and discharged of a sum equal to the amount retained as though that sum had been actually paid.

3

Money set apart or retained under paragraph 2 above, and the amount of any tax charged on the trading profits of the Bank of England or the Bank of Ireland, shall be paid into the general account of the Board at the Bank of England or the Bank of Ireland.

4

No deduction of income tax under this Part of this Schedule shall be made from any dividends payable in respect of stock, securities or annuities standing in the name of the official custodian for charities, nor from any dividends in respect of which there is given to the Bank of England a certificate from the Charity Commissioners that the dividends are subject only to charitable trusts and are exempt from tax.

PART II — Public Revenue Dividends payable by Public Offices and Departments

5

Where any payment is made of public revenue dividends payable by any public office or department of the Crown, the appropriate officer shall retain the income tax charged and pay the same into the general account of the Board at the Bank of England or the Bank of Ireland.

PART III — Other Public Revenue Dividends, Foreign Dividends, and Proceeds of Coupons

6

The following persons are chargeable persons for the purposes of this Part of this Schedule—

• (a) every person (other than the National Debt Commissioners or the Bank of England or the Bank of Ireland) who is entrusted with the payment of any dividends which are payable out of the public revenue of Northern Ireland, or which are payable to any persons in the United Kingdom out of any public revenue other than that of the United Kingdom or Northern Ireland,

• (b) every person in the United Kingdom who is entrusted with the payment of any foreign dividends within the meaning of section 159 of this Act,

• (c) every banker or other person in the United Kingdom who obtains payment of any dividends in such circumstances that the dividends are chargeable to tax under Schedule C, or, in the case of foreign dividends as above defined, under Schedule D, and

• (d) every banker in the United Kingdom who sells or otherwise realises coupons, and every dealer in coupons in the United Kingdom who purchases coupons, in such manner that the proceeds of the sale or realisation are chargeable to tax under Schedule C, or, in the case of foreign dividends as above defined, under Schedule D ;

and every such person shall deliver to the Board—

• (i) on demand by the Board, true and perfect accounts of the amount of all such dividends or proceeds, and

• (ii) not later than twelve months after paying any dividends or effecting any other transaction in respect of which he is a chargeable person, and unless within that time he delivers an account with respect to the dividends or proceeds in question under paragraph (i) above, a written statement specifying his name and address and describing those dividends or proceeds.

7

The Board shall have all necessary powers in relation to the examining, auditing, checking and clearing of the books and accounts of dividends or proceeds delivered under paragraph 6 above, and shall assess and charge the dividends or proceeds at the standard rate of tax in force at the time of payment, but reduced by the amount of the exemptions (if any) allowed by them, and shall give notice of the amount so assessed and charged to the chargeable person.

8

The chargeable person shall out of moneys in his hands pay the income tax on the dividends or proceeds on behalf of the persons entitled thereto, and shall be acquitted in respect of all such payments, and the provisions of the Income Tax Acts shall apply as in the case of dividends payable out of the public revenue of the United Kingdom and entrusted to the Bank of England for payment and distribution.

9

The chargeable person shall pay the income tax into the general account of the Board at the Bank of England or the Bank of Ireland, and, in default of payment, it shall be recovered from him in the same manner as other tax assessed and charged upon him may be recovered.

10

A chargeable person who does all such things as are necessary to enable the tax to be assessed and paid shall receive as remuneration an allowance, to be calculated by reference to the amount of the dividends or proceeds paid from which tax has been deducted, and to be fixed by the Treasury at a rate not being less than thirteen shillings and sixpence for every £1,000 of that amount:

11

Nothing in the preceding provisions of this Part of this Schedule shall impose on any banker the obligation to disclose any particulars relating to the affairs of any person on whose behalf he may be acting.

12

Where income tax in respect of the proceeds of the sale or realisation of any coupon has been accounted for under this Part of this Schedule by any banker or dealer, and the coupon has been subsequently paid in such manner that income tax has been deducted from the payment under any of the provisions of this Schedule, the tax so deducted shall be repaid. A claim under this paragraph shall be made to the Board.

13

• (1) Without prejudice to the generality of paragraph 7 above, the Board may, by notice in writing served on any chargeable person, require that person, within such time as may be specified in the notice, to make available at his premises for inspection by an officer authorised by the Board all such books and other documents in the possession or control of that person as the officer may reasonably require for the purpose of determining whether any accounts delivered by that person under paragraph 6 above are correct and complete.

• (2) The Board may grant a certificate exempting any chargeable person from the provisions of sub-paragraph (1) above, and while the certificate is in force the powers conferred by that sub-paragraph shall not be exercisable in relation to that person; and any such certificate may be revoked at any time by the Board, and may contain such terms and conditions as they think proper.

PART IV — Interpretation of Parts I to III above

14

Section 107 of this Act (which defines, amongst other expressions, " dividends ", " public revenue ", " public revenue dividends ", " banker" and " coupons ") shall apply for the interpretation of Parts I to III of this Schedule as it applies for the interpretation of Part V of this Act:

SCHEDULE 6

Farming: the general rule

1

• (1) Subject to the provisions of this Schedule, in computing profits or gains under Case I of Schedule D, animals kept by a fanner for the purposes of his fanning shall be treated as trading stock.

• (2) Animals forming part of production herds with respect to which an election under paragraph 2 below has effect shall not be so treated, but shall be treated instead in accordance with the rules set out in paragraph 3 below.

• (3) An election under the said paragraph 2 is in this Schedule referred to as " an election for the herd basis ".

Farming: election for the herd basis

2

• (1) An election for the herd basis shall apply to all production herds of a particular class kept by the farmer making the election, including herds which he has ceased to keep before the making of the election, or first begins to keep after the making thereof.

• (2) An election for the herd basis must be made in writing to the inspector, and must specify the class of herds to which it relates.

• (3) Subject to paragraph 6 below, an election for the herd basis shall be valid only if it is made not later than two years after the end of the first chargeable period for which the farmer making the election is chargeable under Case I of Schedule D to tax in respect of the profits or gains of his farming, or is given relief under section 168 or 177(2) of this Act (set off of trading losses against general income) in respect of his farming, being profits or gains or relief the amount of which is computed by reference to the facts of a period during the whole or some part of which the farmer kept a production herd of the class in question.

• (4) An election for the herd basis shall be irrevocable and, subject to paragraph 6 below, shall have effect for the said first chargeable period and all subsequent chargeable periods.

3

• (1) Where an election for the herd basis has effect, the consequences for the purpose of computing profits or gains under Case I of Schedule D shall be as provided by this paragraph.

• (2) The initial cost of the herd and, subject to the provisions of this paragraph as to replacements, the cost of any animal added to the herd shall not be deducted as an expense, and the value of the herd shall not be brought into account.

• (3) Where an animal which has theretofore been treated as part of the farmer's trading stock is added to the herd otherwise than by way of replacement, there shall be included as a trading receipt—

• (a) in the case of an animal bred by the farmer, a sum equal to the cost of breeding it and rearing it to maturity, and

• (b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal, together with any cost incurred by him in rearing it to maturity.

• (4) Where an animal forming part of the herd dies, or ceases to form part thereof, and is replaced therein by another animal—

• (a) any proceeds of sale of the animal which dies or ceases to form part of the herd shall be included as a trading receipt, and

• (b) the cost of the animal which replaces it, except in so far as that cost consists of such costs as are allowable apart from the provisions of this Schedule as deductions in computing profits or gains of farming under Case I of Schedule D, shall be deducted as an expense:

Provided that—

• (i) where the second-mentioned animal is of better quality than the animal which it replaces, the amount deducted shall not exceed the amount which it would have been necessary to expend in order to acquire an animal of the same quality as the one replaced, and

• (ii) where the animal which is replaced was slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals, and the animal which replaces it is of worse quality, the amount included as a trading receipt shall not exceed the amount allowable as a deduction.

• (5) Where the herd is sold as a whole, and another production herd of the same class is acquired, sub-paragraphs (1) to (4) above shall apply as though there had been sold from the original herd, and replaced therein, a number of animals equal to the number in the original herd or in the newly acquired herd, whichever is the less.

• (6) If (either all at once or over a period not exceeding twelve months) either—

• (a) the whole of a herd is sold in circumstances in which subparagraph (5) above does not apply, or

• (b) a part of a herd is sold on a substantial reduction being made in the number of animals in the herd,

any profit or loss arising from the transaction shall not be taken into account:

Provided that where, within five years of the sale, the seller acquires or begins to acquire another production herd of the class in question or, as the case may be, acquires or begins to acquire animals to replace the part of the herd in question—

• (i) sub-paragraphs (4) and (5) above shall apply to the acquisition or replacement, except that, if the sale was one which the seller was compelled to effect by causes wholly beyond his control, the amount included as a trading receipt in respect of any animal sold which is replaced by an animal of worse quality shall not exceed the amount allowable as a deduction in respect of that animal of worse quality, and

• (ii) for the purposes of the application of those sub-paragraphs, the proceeds of sale of the animals comprised in the original herd or part of a herd shall be brought into account as if they had been respectively received at the times of the corresponding acquisitions.

• (7) If an animal forming part of the herd is sold, and neither sub-paragraph (4) nor (5) nor (6) above applies, any profit or loss arising from the transaction shall be included or deducted, as the case may be ; and for the purposes of this sub-paragraph, the said profit or loss shall be computed by comparing with the proceeds of sale—

• (a) in the case of an animal bred by the farmer, the cost of breeding it and rearing it to maturity, and