Finance Act 1971

Part I — Customs and Excise

Relief from import duty for goods of developing countries

1

Temporary relief from import duty for certain Commonwealth textiles

2

Excise duty on gas for use as fuel for road vehicles

3

Remission of purchase tax on exported vehicles

4

• (1) In section 23 of the Purchase Tax Act 1963 (remission of purchase tax on exported vehicles) after subsection (1) insert the following subsection—

(2) This subsection has effect as respects a mechanically propelled vehicle manufactured outside the United Kingdom, and sold in the United Kingdom by a person who is appointed by the manufacturer to be the sole selling agent in the United Kingdom for vehicles manufactured by that manufacturer, and who is registered. Where it is shown to the satisfaction of the Commissioners that a person who acquires such a mechanically propelled vehicle from the said sole selling agent is resident in the United Kingdom, but is about to become resident outside the United Kingdom, the Commissioners may, subject to such conditions as they may think necessary for the protection of the revenue, remit any tax which would otherwise be payable in respect of the vehicle by the said sole selling agent.

• (2) Where tax is remitted under the said section 23(2), section 9 of the Finance Act 1967 (enforcement of conditions attached to remission of tax) shall have effect in relation to that subsection as it has effect in relation to section 23(1) of the Purchase Tax Act 1963, but with the substitution for any reference to the manufacturer of a reference to the said sole selling agent.

• (3) Nothing in section 6 of the Vehicles (Excise) Act 1971 (exemption of vehicles excise duty) shall apply in relation to purchase tax remitted under the subsection added by this section to the said section 23.

• (4) Nothing in this section shall apply in relation to a vehicle acquired from the said sole selling agent before the passing of this Act.

Purchase tax-exercise of functions of Commissioners with respect to registration, etc.

5

The functions conferred on the Commissioners of Customs and Excise by section 6 of the Purchase Tax Act 1963 (registration, etc., of wholesalers, manufacturers and others) shall be exercisable, and, together with the corresponding functions conferred on the Commissioners by the enactments repealed by that Act, treated as having always been exercisable, by any officer of customs and excise.

Agricultural machines-vehicles excise duty and customs and excise duty

6

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) As from the said 1st September, in Schedule 1 to the Hydrocarbon Oil (Customs & Excise) Act 1971 (vehicles in which heavy oil may be used without repayment of rebate)—

• (a) the reference in paragraph 2(b) to the said Schedule 3 shall be construed as a reference to that Schedule as amended by subsection (1) above, and

• (b) the reference to an agricultural machine in paragraph 3(b) shall not include any vehicle which does not satisfy the conditions specified in paragraphs (a) and (b) of section 6(1) of the Finance Act (Northern Ireland) 1971 (which makes provision corresponding to that made by subsection (1) above).

Disabled passengers-vehicles excise duty

7

Bingo duty amendments

8

• (1) Section 3 of the Finance Act 1969 (which imposes a duty of excise on the playing of bingo) shall be amended by omitting from the definition of “bingo ” in subsection (10) (under which the term covers all versions of bingo except one whose rules permit a player to withdraw any part of his initial stake after the game has begun) all the words from “except” onwards.

This subsection has effect as from 13th April 1971.

• (2) The following paragraphs shall be inserted in Schedule 9 to the said Act of 1969 after paragraph 4 (which exempts bingo from duty if played at an entertainment promoted otherwise than for private gain and in compliance with conditions which include a limit of 50p on a player's payment at the entertainment and one of £50 on the prizes thereat, and which treats two or more entertainments as one in certain circumstances)—

(4A) Where a series of entertainments is held otherwise than as mentioned at the end of paragraph 4 above— (a) sub-paragraphs (a) to (d) of that paragraph shall have effect separately in relation to each entertainment in the series, whether some or all of the persons taking part in any one of those entertainments are thereby qualified to take part in any other of them or not, and (b) if each of the persons taking part in the bingo played at the final entertainment of the series is qualified to do so by reason of having taken part in the bingo played at another entertainment of the series held on a previous day, sub-paragraph (b) of that paragraph shall have effect in relation to that final entertainment as if for the words “fifty pounds ” there were substituted the words “one hundred pounds ”. (4B) The Commissioners may by order made by statutory instrument provide that, in relation to entertainments held on or after the date on which the order comes into operation, paragraphs 4 and 4A above shall have effect as if, for such one or more of the following sums as may be specified in the order, that is to say— (a) the sum of fifty new pence referred to in paragraph 4(a), (b) the sum of fifty pounds referred to in paragraph 4(b) and paragraph 4A(b), and (c) the sum of one hundred pounds referred to in paragraph 4A(b), there were substituted such larger sum as is specified in the order. Any statutory instrument containing an order under this paragraph shall be subject to annulment in pursuance of a resolution of the House of Commons.

Pool betting duty

9

In the proviso to section 7(2) of the Finance Act 1964 (exemption from pool betting duty of voluntary contributions to charities and certain other bodies)—

• (a) after the words “by virtue of this subsection ” there shall be inserted the words “or of section 1(5) of that Act ”, and

• (b) for the words from “which are made ” to “cannot be made ” there shall be substituted the words “made by persons making bets and those persons know, when making the payments, that their purpose is to provide the benefit ”.

Gaming licence duty in Scotland

10

• (1) For the purpose of determining the amount of the duty chargeable under section 2 of the Finance Act 1970 on a gaming licence in respect of premises in Scotland for a period beginning after 30th September 1971 but before 1st April 1973 the rateable value of any lands and heritages shall be ascertained in accordance with the following provisions of this section in any case where a rateable value is shown for them in the valuation roll for the time being in force and either a lower value or no value was shown for them in the valuation roll for the year 1970-71.

• (2) Where the rateable value of any lands and heritages falls to be ascertained in accordance with this section, then,—

• (a) if a rateable value was shown for them in the valuation roll for the year 1970-71, their rateable value shall be taken to be the value so shown, but subject to paragraph (b) of this subsection ;

• (b) if, since the valuation roll for the year 1970-71 was made up, there has been a material change of circumstances affecting the value of the lands and heritages, their rateable value shall be taken to be the value determined under this section as the rateable value that would have been shown for them in that valuation roll if the change had been given effect to in making up that roll;

• (c) if no value was shown for the lands and heritages in the valuation roll for the year 1970-71, their rateable value shall be taken to be the value determined under this section as the value that would have been so shown if, at the time of the valuation for the purposes of that roll, the premises in respect of which the licence is to be granted had been in existence and all relevant circumstances had been the same as at the time the value of the lands and heritages is determined under this section.

• (3) Any determination under this section shall be made by the Commissioners after consultation with the assessor appointed under the Valuation and Rating (Scotland) Act 1956 for the valuation area concerned ; but the person to whom the licence is to be or has been granted may, by notice in writing given to the Commissioners not later than four weeks after the date on which the determination is notified to him, require the determination to be referred to the arbitration of a referee appointed by the Lord President of the Court of Session, whose decision shall be final and conclusive.

• (4) A person appointed under the preceding subsection shall not be an officer of any Government department.

• (5) If the amount of duty chargeable is reduced in consequence of a decision of a referee appointed under this section, any amount overpaid shall be repaid.

• (6) In this section “the year 1970-71” shall be construed in accordance with section 26 of the Local Government (Financial Provisions) (Scotland) Act 1963 and “material change of circumstances” has the meaning assigned to it by section 9(7) of the Valuation and Rating (Scotland) Act 1956.

Customs procedures, etc.

11

Continuation of powers under section 9 of Finance Act 1961

12

PART II — INCOME TAX AND CORPORATION TAX

CHAPTER I — General

Surtax rates for 1970-71

13

• (1) Subject to subsection (2) below, income tax for the year 1970-71 shall be charged, in the case of an individual whose total income exceeded £2,500, at the same higher rates in respect of the excess of that income over £2,000 as were charged for the year 1969-70.

• (2) An individual whose total income for the year 1970-71 did not exceed £2,681 shall be entitled to have the surtax chargeable by virtue of subsection (1) above reduced to an amount equal to 40 per cent. of the difference between his total income and £2,500.

Charge of corporation tax for financial year 1970

14

Corporation tax shall be charged for the financial year 1970 at the rate of 40 per cent.

Alterations of personal reliefs

15

• (1) Chapter II of Part I of the Taxes Act shall be amended in accordance with the following provisions of this section.

• (2) In section 7 (relief for persons over sixty-five with small incomes)—

• (a) for the references to £475 and £740 (income limits for exemption) there shall be substituted—

• (i) for the year 1971-72 references to £504 and £786; and

• (ii) for subsequent years of assessment references to £530 and £825;

• (b) for the reference to £255 (the excess over those limits beyond which relief by reduction of tax is excluded) there shall be substituted—

• (i) for the year 1971-72 a reference to £330; and

• (ii) for subsequent years of assessment a reference to £345;

• (c) for the reference to 47.5 per cent. (the percentage governing relief by reduction of tax) there shall be substituted, for the year 1972-73 and subsequent years of assessment, a reference to 50 per cent.

• (3) In section 9 (earned income and old age reliefs)—

• (a) in subsection (1) the following shall be substituted for paragraph (b):—

(b) 15 per cent. of the amount of any excess of his earned income over £4,005

;

• (b) in subsection (2) for the words from the beginning to “living with him ” there shall be substituted the words “If the claimant proves that at any time within the year of assessment he ” and for the words “shall be entitled” there shall be substituted the words “he shall be entitled ”;

• (c) after subsection (3) there shall be inserted the following subsection—

(3A) If the claimant proves that, at any time within the year of assessment,— (a) he had his wife living with him ; and (b) either he or his wife living with him was of the age of sixty-five years or upwards ; subsections (2) and (3) above shall have effect as if for the references to £1,000 there were substituted references to £1,200.

• (4) In section 10(3) (appropriate amount for child)—

• (a) for “£165” (child over sixteen) there shall be substituted “£205 ”;

• (b) for “£140” (child over eleven but not over sixteen) there shall be substituted “£180 ”, and

• (c) for “£115” (child not over eleven) there shall be substituted “£155 ”.

• (5) In section 12(1) (widower's or widow's housekeeper) the following shall be added at the end of the proviso:—

and (iv) no relief shall be allowed under this section to a person entitled to relief under section 14 below

.

• (6) In section 16 (relief for dependent relatives)—

• (a) for the reference in subsection (1) to £260 (lower income limit of dependent relative) there shall be substituted—

• (i) for the year 1971-72 a reference to £289; and

• (ii) for subsequent years of assessment a reference to £312;

• (b) for the references in subsections (1) and (2) to £335 (normal higher income limit) there shall be substituted—

• (i) for the year 1971-72 references to £364 ; and

• (ii) for subsequent years of assessment references to £387 ; and

• (c) for the reference in subsection (2) to £370 (higher income limit where the claimant is a woman other than a married woman living with her husband) there shall be substituted—

• (i) for the year 1971-72 a reference to £399; and

• (ii) for subsequent years of assessment a reference to £422.

• (7) Section 24(1) (reduction in reliefs on account of family allowances) shall have effect, and be deemed always to have had effect, as if—

• (a) the words “or allowances ” and the words “for each allowance if more than one ” were omitted; and

• (b) at the end there were added the following paragraph—

Where for any year of assessment an individual is assessable to income tax in respect of payments on account of two or more allowances within the preceding provision of this subsection, the appropriate reduction shall be made thereunder in respect of each such allowance and section 14(4) of the Finance Act 1968 (which was replaced by section 24(1)) shall be deemed to have been enacted with the like omissions and addition; but nothing in this subsection shall affect the determination of any commissioners, or the judgment of any court, made or given before 17th March 1971.

;

Parent and child-repeal of aggregation provisions, and amendment of settlement provisions

16

• (1) For the year 1972-73 and subsequent years of assessment—

• (a) Chapter V of Part I of the Taxes Act (under which a child's investment etc. income is, in certain circumstances, to be treated as income of his or her parent) shall not have effect, and

• (b) Chapter II of Part XVI of that Act (settlements by parents: treatment of income thereunder of unmarried children below the age of eighteen years, or between that age and twenty-one but not working regularly) shall not apply to any child who has attained the age of eighteen.

• (2) In consequence of subsection (1) above, the said Act shall be amended for those years as follows—

• (a) the following subsection shall be substituted for subsection (3) of section 168—

(3) A claim for relief under this section may require that the relief be given only by reference to the income of the person sustaining the loss, without extending to the income of that person's wife or husband.

,

• (b) in section 437(1), for all the words from “the child was unmarried ” to “working regularly ” there shall be substituted the words “the child was unmarried and below the age of eighteen ”,

• (c) in section 438(2)(b) and section 440(1), for the words “within subsection (1)(a) or subsection (1)(b) of section 437 above” (wherever occurring) and the words “within the said subsection (1)(a) or subsection (1)(b) ” there shall be substituted the words “below the age of eighteen ” , and

• (d) the following subsection shall be substituted for subsections (3) and (4) of the said section 437—

(3) Income paid to or for the benefit of a child of a settlor shall not be treated as provided in subsection (1) above for any year of assessment in which the aggregate amount of the income paid to or for the benefit of that child, which, but for this subsection, would be so treated by virtue of this Chapter, does not exceed £5

.

Partnership changes-time limit for elections under section 154 of Taxes Act

17

• (1) Subject to subsection (2) below, section 154(2) of the Taxes Act (under which, at any time within twelve months after a change in the ownership of a trade, etc., the persons concerned may in certain circumstances elect that the trade is not to be treated as discontinued, or a new one as set up and commenced) shall be amended by substituting, for the words “twelve months ”, the words “two years ”.

• (2) Subsection (1) above shall not apply where the change referred to in the said section 154(2) occurred before 6th April 1970.

Exemption of invalidity benefit, attendance allowances and family income supplements, and increase in relief on savings bank interest

18

• (1) Subsections (1) and (2) of section 219 of the Taxes Act (income tax treatment of social security benefits) shall be amended as follows—

• (a) in paragraph (a) of the said subsection (1) (which charges national insurance benefits except unemployment benefit, sickness benefit, maternity benefit and death grant), after the words “sickness benefit” there shall be inserted the words “invalidity benefit, attendance allowance ” , and

• (b) in the said subsection (2) (which exempts payments of benefit under the Ministry of Social Security Act 1966 and the Supplementary Benefits &c. Act (Northern Ireland) 1966), after the words “(Northern Ireland) 1966 ” there shall be inserted the words " and payments in respect of a family income supplement under the Family Income Supplements Act 1970 or the Family Income Supplements Act (Northern Ireland) 1971 ".

• (2) Section 414(1) of the Taxes Act (relief from income tax other than surtax on the first £15 of certain savings bank interest) shall be amended by substituting, for each reference to £15, a reference to £21.

Exemption of interest on damages for personal injuries

19

The following section shall be inserted in the Taxes Act after section 375:—

(375A) (1) The following interest shall not be regarded as income for any income tax purpose— (a) any interest on damages in respect of personal injuries to a plaintiff or any other person, or in respect of a person's death, which is included in any sum for which judgment is given by virtue of an order under section 3 of the Law Reform (Miscellaneous Provisions) Act 1934 or section 17 of the Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1937, and (b) any interest on damages or solatium in respect of personal injuries sustained by a pursuer or by any other person, decree for payment of which is included in any interlocutor by virtue of section 1 of the Interest on Damages (Scotland) Act 1958. (2) In this section “personal injuries” includes any disease and any impairment of a person's physical of mental condition.

Annuities for the self-employed and others

20

• (1) In section 226(1)(b) of the Taxes Act (relief in respect of annuity contracts having for their main object the provision of a life annuity in old age) after the words “in old age ” insert “or under a contract for the time being approved under section 226A of this Act ”.

• (2) For subsection (1) of section 227 of the Taxes Act substitute—

(227) (1) Relief shall be given under this section in respect of a qualifying premium paid by an individual only on a claim made for the purpose, and where relief is to be so given, the amount of that premium shall, subject to the provisions of this section, be deducted from or set off against his relevant earnings for the year of assessment in which the premium is paid. (1A) Subject to the provisions of this section and of section 228 below, the amount which may be deducted or set off in any year of assessment (whether in respect of one or more qualifying premiums, and whether or not including premiums in respect of a contract approved under section 226A of this Act)— (a) shall not be more than the sum of £1,500, and (b) shall not be more than 15 per cent. of the individual's net relevant earnings for that year. (1B) Subject to the provisions of this section, the amount which may be deducted or set off in any year of assessment in respect of qualifying premiums paid under a contract approved under section 226A of this Act (whether in respect of one or more such premiums)— (a) shall not be more than the sum of £500, and (b) shall not be more than 5 per cent. of the individual's net relevant earnings for that year. (1C) Where the condition in section 226(1)(a) above is satisfied as respects part only of the year, then for the said sums of £1,500 and £500 mentioned above there shall be substituted sums which respectively bear to £1,500 and £500 the same proportion as that part bears to the whole year.

• (3) At the end of section 226(2) of the Taxes Act (which precludes approval of an annuity contract if any annuity is capable of commutation) add—

Provided that the contract may give the individual the right to receive, by way of commutation of part of the annuity payable to him, a lump sum not exceeding three times the annual amount of the remaining part of the annuity, taking, where the annual amount is or may be different in different years, the initial annual amount, and shall make any such right depend on the exercise by the individual of an election at or before the time when the annuity first becomes payable to him.

• (4) Schedule 2 to this Act shall have effect for supplementing this section which in that Schedule is referred to as “the principal section”.

Occupational pension schemes

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Amendments of schemes

22

• (1) This section applies to any amendment of a retirement benefits scheme proposed in connection with an application for the Board's approval for the purposes of Chapter II of Part II of the Finance Act 1970 which is needed in order to ensure that approval is so given, or designed to enhance the benefits under the scheme up to the limits suitable in a scheme for which approval is sought.

• (2) A provision, however expressed, designed to preclude any amendment of a scheme which would prejudice its approval under section 208 or section 222 of the Taxes Act shall not prevent any amendment to which this section applies.

• (3) In the case of a scheme which contains no powers of amendment, the administrator of the scheme may, with the consent of all the members of the scheme, and of the employer (or of each of the employers), make in the scheme any amendment to which this section applies.

• (4) The Chief Registrar of Friendly Societies (in this section called “the Chief Registrar”) shall have power, on an application made by or on behalf of the administrator of the scheme, by direction to make in the scheme any amendment to which this section applies.

• (5) An application to the Chief Registrar under subsection (4) above shall be in writing and shall state—

• (a) the proposed amendments of the scheme, and the reasons therefor,

• (b) if the instrument regulating the scheme provides a method whereby it may be amended, the reasons why the proposed amendments cannot without serious difficulty be made by that method,

• (c) whether and to what extent persons interested in the scheme have had an opportunity to vote or have been otherwise consulted on the proposed amendments, and the results of any such voting or consultation.

• (6) The application shall be accompanied—

• (a) by a written certificate given by the Board and stating that the Board will, if the proposed amendments are made, approve the scheme for the purposes of Chapter II of Part II of the Finance Act 1970, and

• (b) unless the Chief Registrar otherwise directs, by two copies of the instrument regulating the scheme.

• (7) Before making a decision on the application the Chief Registrar may invite any persons interested in the scheme to make representations with regard to the application, and may require the applicants to give notice of the application, in a form and manner to be approved by him, to other persons interested in the scheme, or any of them, for the purpose of inviting them to make representations to him in such manner and within such time as the notice may specify, or otherwise for the purpose of ascertaining their views on the application.

• (8) After considering any representation so made, or view so ascertained, the Chief Registrar may issue a direction authorising the administrator of the scheme, or any other person having, under the rules of the scheme, power to amend it, to amend the scheme within such limits and subject to such conditions as the direction may specify, and any amendments so made shall have effect notwithstanding anything to the contrary contained in the instrument regulating the scheme.

• (9) In the application of this section to a scheme established under the law of Northern Ireland, for references to the Chief Registrar there shall be substituted references to the Registrar of Friendly Societies for Northern Ireland.

• (10) The Treasury shall have power by order contained in a statutory instrument to prescribe fees chargeable by the Chief Registrar, or the Registrar of Friendly Societies for Northern Ireland, in respect of applications made under this section, and in respect of the giving of directions in pursuance of such applications.

Taxation of wife's earnings

23

• (1) Where a man and his wife living with him jointly so elect for the year 1972-73 or any subsequent year of assessment the wife's earnings and their other income shall be chargeable to income tax as provided in Schedule 4 to this Act.

• (2) An election under this section must be made in such form and manner as the Board may prescribe and must be made not earlier than six months before the beginning of the year of assessment for which it is made nor later than six months after the end of that year or such later time as the Board may in any particular case allow.

• (3) An election under this section for any year of assessment shall, unless revoked, have effect also for any subsequent year of assessment.

• (4) An election in force for any year may be revoked by notice in writing in such form and manner as the Board may prescribe and any such notice must be given jointly by the husband and the wife not later than six months after the end of that year or such later time as the Board may in any particular case allow.

• (5) Any election or revocation of an election under this section that could have been made jointly with a person who has died may, within the time permitted by this section, be made jointly with his personal representatives.

Claims for deferment of part of surtax for 1972-73

24

• (1) A person chargeable to surtax for the year 1972-73 may claim to be allowed to defer payment of two-thirds of that surtax or, if his income includes income which has borne tax by deduction, two-thirds of so much of that surtax as is attributable to his other income.

• (2) One half of any amount deferred under this section (that is to say one-third of the surtax) shall be payable on 1st January 1975 instead of on 1st January 1974 and the other half on 1st January 1976.

• (3) For the purposes of this section—

• (a) income which has borne tax by deduction is income from which tax at the standard rate has been deducted (otherwise than in pursuance of section 204 of the Taxes Act (pay as you earn)) or is treated as having been deducted; and

• (b) the amount of surtax attributable to a person's other income is the surtax to which he would be chargeable if his other income, reduced by any deductions under section 28 of the Taxes Act, were his only income; and

• (c) any reductions of his total income attributable to any provision other than section 28 of the Taxes Act shall be treated as first reducing income which has borne tax by deduction ; and

• (d) where, in the case of a husband and wife, an application under section 38(2) of the Taxes Act (separate assessment to surtax) or an election under section 23 of this Act has effect, the amounts that may be deferred by them respectively shall be ascertained, in accordance with the preceding provisions of this section, by reference to the surtax to which each of them is chargeable and to the income in respect of which that surtax is chargeable.

• (4) A claim under this section shall be made to the Board but shall not be allowed by the Board unless it appears to them that the amount to be deferred is £100 or more and is not in dispute.

Close companies

25

• (1) The provisions of Chapter III of Part XI of the Taxes Act relating to shortfalls in distributions of close companies shall be amended as follows:—

• (a) in section 290(6) (relevant maximum and minimum amounts for trading companies) for “£9,000” and “£1,500” (in both places) there shall be substituted respectively “£15,000 ” and “£5,000 ” ; and

• (b) in section 290(5) (proportion of reduction) for “one-fifth ” there shall be substituted “one-half ”, and

• (c) in section 291(3)(b) (deduction in arriving at distributable investment income) for “£200” there shall be substituted “£500 ” .

This subsection has effect for any accounting period ending after 30th March 1971; but where such an accounting period begins before that day the relief to be given under the provisions amended by this subsection shall be limited to the aggregate of—

• (i) the relief, if any, which would have been given thereunder if this subsection had not been passed, reduced in the proportion which the part of the accounting period falling before that day bears to the whole ; and

• (ii) the relief which would have been given apart from this limitation, reduced in the proportion which the remainder of the accounting period bears to the whole.

• (2) Where the following conditions are satisfied with respect to a close company, that is to say,—

• (a) that its activities consist wholly or mainly of the carrying on of a trade ; and

• (b) that that trade consists wholly or mainly of one or more of the following, that is to say, life assurance business (within the meaning of section 323(2) of the Taxes Act) insurance business of any other class, banking, money lending, financing of hire-purchase or similar transactions, or dealing in securities ;

its income incidental to that trade shall (so far as not otherwise falling within the definition of estate or trading income in section 291(4) of the Taxes Act) be treated as estate or trading income in arriving, under section 290 of that Act, at the required standard for the purposes of section 289 of that Act (shortfall in distributions).

• (3) For the purposes of subsection (2) of this section income of & company is incidental to its trade if, and only if—

• (a) it is derived from investments (other than investments in a 51 per cent. subsidiary) or is interest on a debt; and

• (b) any profit on the sale of the investments would be a trading receipt, and the debt, if proved to be a bad debt, would be allowed as a deduction, in computing the company's trading income for the purposes of corporation tax.

• (4) Subsection (2) of this section applies—

• (a) to any accounting period which ends after 30th March 1971; and

• (b) to any tax chargeable under section 289 of the Taxes Act for an earlier accounting period, if the amount thereof has not been finally determined (within the meaning of section 118(4) of the Taxes Management Act 1970) and the company so elects by notice given to the inspector before that amount is finally determined.

• (5) In relation to a loan made after 30th March 1971 subsection (3) of section 286 of the Taxes Act (exemption from taxation under that section of certain loans made to assist house purchase) shall have effect as if—

• (a) paragraph (a) and, in the words preceding it, the words from “under a bona fide scheme ” to the last “close company ”, were omitted ; and

• (b) for paragraph (b) there were substituted the following paragraph:—

(b) neither the amount of the loan, nor that amount when taken together with any other outstanding loans which— (i) were made by the close company or any of its associated companies to the borrower, or to the wife or husband of the borrower, and (ii) if made before 31st March 1971, were made for the purpose of purchasing a dwelling which was or was to be the borrower's only or main residence ; exceeds £15,000 and the outstanding loans falling within sub-paragraph (ii) above do not together exceed £10,000; and

; and

• (c) after the paragraphs there were added the words " but if the borrower acquires such a material interest at a time when the whole or part of any such loan made after 30th March 1971 remains outstanding the close company shall be regarded as making to him at that time a loan of an amount equal to the sum outstanding. "

• (6) If shares in any company (in this subsection referred to as “the first company”) are at any time after 30th March 1971 held on trust for a fund or scheme approved under section 208 or 222 of the Taxes Act (superannuation funds and retirement schemes) or for an exempt approved scheme as defined in Chapter II of Part II of the Finance Act 1970, then, unless the fund or scheme is established wholly or mainly for the benefit of persons who are, or are dependants of, employees or directors or past employees or directors of—

• (a) the first company ; or

• (b) an associated company of the first company ; or

• (c) a company which is under the control of any director or associate of a director of the first company or of two or more persons each of whom is such a director or associate; or

• (d) a close company ;

the persons holding the shares shall, for the purposes of section 282(4) of the Taxes Act (company not treated as close company if under control of company which is not a close company) be deemed to be the beneficial owners of the shares and, in that capacity, to be a company which is not a close company.

• (7) This section shall be construed as if it were included in Chapter III of Part XI of the Taxes Act.

Double taxation relief for underlying tax

26

• (1) Part XVIII of the Taxes Act (double taxation relief) shall be amended as follows.

• (2) For section 508 (extension of relief to United Kingdom and third country taxes) there shall be substituted the following section:—

(508) (1) Where a company resident outside the United Kingdom (in this section referred to as “the overseas company”) pays a dividend to a company resident in the United Kingdom (in this section referred to as “the United Kingdom company”) and the overseas company is related to the United Kingdom company, then, for the purpose of allowing credit under any arrangements against corporation tax in respect of the dividend, there shall be taken into account, as if it were tax payable under the law of the territory in which the overseas company is resident,— (a) any United Kingdom income tax or corporation tax payable by the overseas company in respect of its profits; and (b) any tax which, under the law of any other territory, is payable by the overseas company in respect of its profits. (2) Where the overseas company has received a dividend from a third company and the third company is related to the overseas company, then, subject to subsection (4) below, there shall be treated for the purposes of subsection (1) above as tax paid by the overseas company in respect of its profits any underlying tax payable by the third company, to the extent that it would be taken into account under this Part of this Act if the dividend had been paid by a company resident outside the United Kingdom to a company resident in the United Kingdom and arrangements had provided for underlying tax to be taken into account. (3) Where the third company has received a dividend from a fourth company and the fourth company is related to the third company, then, subject to subsection (4) below, tax payable by the fourth company shall similarly be treated for the purposes of subsection (2) above as tax paid by the third company; and so on for successive companies each of which is related to the one before. (4) Subsections (2) and (3) above are subject to the following limitations— (a) no tax shall be taken into account in respect of a dividend paid by a company resident in the United Kingdom except United Kingdom corporation tax and any tax for which that company is entitled to credit under this Part of this Act; and (b) no tax shall be taken into account in respect of a dividend paid by a company resident outside the United Kingdom to another such company unless it could have been taken into account under the other provisions of this Part of this Act had the other company been resident in the United Kingdom. (5) For the purposes of this section a company is related to another company if that other company— (a) controls directly or indirectly, or (b) is a subsidiary of a company which controls directly or indirectly, not less than 10 per cent. of the voting power in the first-mentioned company.

• (3) In section 498(4) for the words from " not less than 25 per cent.“to ”of the Commonwealth territories“there shall be substituted the words ” not less than 10 per cent. of the voting power in the company paying the dividend ".

• (4) In section 507, in subsection (1), for the words " 25 per cent.“there shall be substituted the words ” 10 per cent. " and subsections (2) and (3) shall be omitted.

• (5) This section has effect with respect to dividends paid (within the meaning of section 527(3) of the Taxes Act) on or after 1st April 1971.

Business entertaining expenses

27

• (1) In subsection (8)(b) of section 411 of the Taxes Act (which limits expenses on gifts for which deductions may be made) for “£1 ” there shall be substituted “£2 ”.

• (2) This section applies to expenses incurred after 5th April 1971.

Reserves of marketing boards and certain other statutory bodies

28

• (1) The following section shall be substituted for section 348 of the Taxes Act (which relates to the tax treatment of sums paid into or withdrawn from the reserve funds of marketing boards):—

(348) (1) Where a body established by or under any enactment and having as its object, or one of its objects, the marketing of an agricultural product or the stabilising of the price of an agricultural product is required, by or under any scheme or arrangements approved by or made with a Minister of the Crown or government department, to pay the whole or part of any surplus derived from its trading operations or other trade receipts into a reserve fund satisfying the conditions specified in subsection (2) below, then, in computing for the purposes of tax the profits or gains or losses of the body's trade— (a) there shall be allowed as deductions any sums required as aforesaid to be paid by the body into the reserve fund out of the profits or gains of the trade, and (b) there shall be taken into account as trading receipts any sums withdrawn by the body from the fund, except so far as they are required as aforesaid to be paid to a Minister or government department, or are distributed to producers of the product in question or refunded to persons paying any levy or duty. (2) The conditions to be satisfied by the reserve fund are as follows:— (a) that no sum may be withdrawn from the fund without the authority or consent of a Minister of the Crown or government department, and (b) that where money has been paid to the body by a Minister of the Crown or government department in connection with arrangements for maintaining guaranteed prices, or in connection with the body's trading operations, and is repayable to that Minister or department, sums afterwards standing to the credit of the fund are required as aforesaid to be applied in whole or in part in repaying the money, and (c) that the fund is reviewed by a Minister of the Crown at intervals fixed by or under the scheme or arrangements in question, and any amount by which it appears to the Minister to exceed the reasonable requirements of the body is withdrawn therefrom. (3) In this section, references to a Minister of the Crown or government department include references to a Minister or department in Northern Ireland, and references to producers of a product include references to producers of one type or quality of a product from another.

• (2) This section applies to accounting periods ending on or after 6th April 1971.

CHAPTER II — Sub-Contractors in Construction Industry

Deductions on account of income tax from payments to certain sub-contractors in construction industry

29

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exceptions from section 29

30

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation of Chapter II

31

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER III — Method of Charging Income Tax for 1973-74 and Subsequent Years

Income tax charged at basic and other rates

32

• (1) Income tax shall be charged—

• (a) in respect of any income not falling within paragraph (b) below, at such rate, to be known as the basic rate, as Parliament may determine ; and

• (b) in respect of so much of an individual's total income as exceeds such amount as Parliament may determine, at such higher rate or rates as Parliament may determine ;

and where an individual's total income includes investment income and that investment income exceeds such amount as Parliament may determine, income tax shall also be charged in respect of the excess at such additional rate or rates as Parliament may determine.

• (2) Section 9(1) of the Taxes Act (earned income relief) shall cease to have effect.

• (3) For the purposes of this section, and of any provision made in pursuance of this section, investment income is any income other than earned income, but subject to subsection (4) of this section; and references in the Income Tax Acts to income chargeable as investment income are references to income chargeable at the additional rate or rates mentioned in subsection (1) of this section.

• (4) Where income derived by an individual from a trade, profession or vocation is earned income and—

• (a) the proceeds of sale of any investments ; or

• (b) a debt, if proved to be a bad debt;

would be taken into account in computing the profits or gains of that trade, profession or vocation, income from those investments or interest on that debt is not investment income for the purposes mentioned in subsection (3) of this section.

Personal reliefs

33

• (1) Sections 6 (relief for small incomes), 9(2) and (3) (old age relief) and 193 (travelling expenses due to war) of the Taxes Act shall cease to have effect.

• (2) Relief to which a person is entitled under any provision mentioned in the first column of the following Table shall, instead of being given by a deduction from tax of a sum equal to tax (at the standard rate) on the amount specified in the second column of that Table, be given by a deduction of the amount specified in the third column of that Table from his total income.

Provision of Taxes Act	Amount on which tax deducted	Amount to be deducted from total income
	£	£
s. 8 (personal relief)
(1)(a) (married)	465	600
(1)(b) (single)	325	420
(2) (wife's earned income)	325 or, if less, seven-ninths of amount of wife's earned income	420 or, if less, amount of wife's earned income
s. 10 (children)
(3)(a) (over 16)	205	265
(b) (11-16)	180	235
(c) (under 11)	155	200
s. 12 (housekeeper)	75	100
s. 13 (relative taking charge of younger brother or sister)	75	100
s. 14 (additional relief for widows, etc., with children)	100	130
s. 16 (dependent relative)
(1) (other than single woman)	75	100
(2) (single woman)	110	145
s. 17 (daughter's services)	40	55
s. 18 (blind person)
(1) (one person blind)	100 reduced by seven-ninths of tax-free disability payments	130 reduced by tax-free disability payments
(2) (both spouses blind)	200 reduced by seven-ninths of tax-free disability payments	260 reduced by tax-free disability payments

• (3) Sections 19 to 21 (premiums on life policies) of the Taxes Act shall be amended as follows:—

• (a) in section 19(1) for the words “two-fifths of the standard rate” and “at the standard rate ” there shall be substituted respectively the words “one-half of the basic rate ” and “at the basic rate ” and in the proviso for “£25 ” there shall be substituted “£20 ”.

• (b) section 19(8) shall be omitted ;

• (c) in section 20(3) and (5) for the words “standard rate ”, wherever they occur, there shall be substituted the words “basic rate ”;

• (d) in section 20(4) for the words from “exceed ” to the end there shall be substituted the words " exceed the claimant's total income as reduced by any deductions made under this Chapter. ";

• (e) in section 21(4) for the words “two-fifths of the standard rate ” there shall be substituted the words “one-half of the basic rate ”.

• (4) In section 24(1) of the Taxes Act (reduction in reliefs on account of family allowances)—

• (a) the words “from tax ” shall be omitted ;

• (b) for the words “sections 8 and 10 to 19 ” there shall be substituted the words “sections 8 to 18 ”, and

• (c) for the words from “by an amount” to “£42 ” there shall be substituted the words “by £60 ”.

• (5) For section 25 of the Taxes Act there shall be substituted the following section:—

(25) (1) Where any of the claimant's income is income the income tax on which (at the basic rate) he is entitled to charge against any other person, or to deduct, retain or satisfy out of any payment, he shall not be entitled to relief under this Chapter in respect of that income, except to the extent, if any, that the relief would exceed tax at the basic rate on that income. (2) Notwithstanding subsection (1) above relief under section 19 or section 20 of this Act may be given to the extent that the deduction from tax provided for thereby can be made from so much of the income tax with which the claimant is chargeable as exceeds what would be the amount thereof if all income tax were chargeable at the basic rate to the exclusion of any other rate.

Effect of deductions

34

• (1) Where deductions reduce a person's total income and the order in which they are made or in which income of different descriptions is reduced thereby may affect his liability to income tax the deductions shall be made and treated as reducing income in accordance with the following provisions of this section.

• (2) Subject to any express provisions of the Income Tax Acts, any deductions allowable in computing a person's total income or to be made from a person's total income shall be treated as reducing income of different descriptions in the order which will result in the greatest reduction of his liability to income tax.

• (3) Deductions from total income under Chapter II of Part I of the Taxes Act shall be made after any other deductions and shall not affect the amount to be taken as a person's total income for the purposes of section 7 (relief for persons over 65) or 21 (limit on relief for certain premiums etc.) of the Taxes Act nor the amount determining whether a person is entitled to relief under section 16 (dependent relatives) of that Act or by how much relief under that section is reduced.

• (4) Deductions from total income under Chapter II of Part I of the Taxes Act shall, in the first instance, be disregarded in determining what income is chargeable as investment income and what income is not so chargeable; and shall then be treated as reducing the income not so chargeable before reducing any income so chargeable.

Abolition of certain provisions relating to surtax

35

Sections 31 (relief where income for longer period is received in one year) 32 (relief in case of purchases cum dividend) and 35 (expenses of Crown servants abroad) of the Taxes Act shall cease to have effect.

Construction of references in Income Tax Acts to deduction of tax

36

Any provision of the Income Tax Acts requiring, permitting or assuming the deduction of income tax from any amount (otherwise than in pursuance of section 204 of the Taxes Act (pay as you earn)) or treating income tax as having been deducted from any amount, shall be construed as referring to deduction of income tax at the basic rate in force for the relevant year of assessment; and for this purpose the relevant year of assessment shall be taken to be (except where otherwise provided)—

• (a) if the amount is an amount payable wholly out of pro fits or gains brought into charge to tax, the year in which the amount becomes due;

• (b) in any other case, the year in which the amount is paid.

Consequential amendments and repeals

37

• (1) The enactments mentioned in Schedule 6 to this Act shall have effect subject to the amendments specified therein.

• (2) The enactments mentioned in Part II of Schedule 14 to this Act are hereby repealed to the extent specified in the third column of that Part.

Commencement of Chapter III and transitional provisions

38

• (1) The preceding provisions of this Chapter shall have effect for the year 1973-74 and subsequent years of assessment; and accordingly the amendments and repeals made by those provisions (including those mentioned in section 37 of this Act) shall not be taken to affect tax for an earlier year of assessment or the doing of anything in relation to tax for such a year.

• (2) The transitional provisions contained in Schedule 7 to this Act shall have effect.

Basic rate for 1973-74

39

PART III — INCOME TAX AND CORPORATION TAX: CAPITAL ALLOWANCES

CHAPTER I — New System of Allowances and Charges in respect of Trade (etc.) Machinery and Plant

Introductory

Application of new system

40

• (1) Subject to subsections (2) and (3) below, this Chapter applies to capital expenditure on the provision of machinery or plant incurred on or after 27th October 1970; and, in the case of expenditure to which this Chapter applies, no allowances or charges shall be made under Chapter II of Part I of the Capital Allowances Act 1968.

• (2) This Chapter shall not apply to capital expenditure incurred by any person on the provision of second-hand machinery or plant if capital expenditure on providing the machinery or plant was incurred by another person before the said 27th October and—

• (a) he and that other person are connected with each other within the terms of section 533 of the Taxes Act, or

• (b) it appears with respect to the transaction under which the first-mentioned expenditure is incurred, or with respect to transactions of which it is one, that the sole or main benefit which, but for this subsection, might have been expected to accrue to the parties or any of them was the obtaining of an allowance under this Chapter.

• (3) Where any capital expenditure is incurred before the said 27th October on the provision of machinery or plant under a contract which provides that a person shall or may become the owner of the machinery or plant on the performance of the contract, this Chapter shall not apply to any capital expenditure incurred under the contract in respect of that machinery or plant unless it is first brought into use by that person on or after that date.

First-year allowances, writing-down allowances and balancing adjustments

First-year allowances-general rules

41

• (1) Subject to the provisions of this Chapter, where—

• (a) a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, and

• (b) in consequence of his incurring the expenditure, the machinery or plant belongs to him at some time during the chargeable period related to the incurring of the expenditure, there shall be made to him for that period an allowance (in this Chapter referred to as “a first-year allowance”) which shall be of an amount determined in accordance with section 42 below:

Provided that no first-year allowance shall be made in respect of any expenditure if the chargeable period related to the incurring of the expenditure is also the chargeable period related to the permanent discontinuance of the trade.

• (2) Where a person has incurred capital expenditure on the provision of machinery or plant for the purposes of a trade, and the machinery or plant ceases to belong to him without having been brought into use for the purposes of the trade, a first-year allowance shall not be made in respect of the expenditure, or if previously made shall be withdrawn.

• (3) Where one or more first-year allowances fall to be made for any chargeable period in connection with a trade carried on by a company, the company may, by notice in writing given to the inspector not later than two years after the end of that period, either disclaim the allowance or allowances or require that the amount, or aggregate amount, thereof be reduced to an amount specified in that behalf in the notice; and a claim for one or more first-year allowances to be made for any chargeable period in connection with a trade carried on by a person other than a company may contain a similar requirement as to the amount or aggregate amount thereof:

Provided that this subsection shall not apply to allowances in respect of expenditure on the provision of new ships.

• (4) All such assessments and adjustments of assessments shall be made as may be necessary to give effect to subsection (2) or (3) above.

First-year allowances-rates

42

• (1) Except in a case falling within subsection (2) below, a first-year allowance shall be of an amount equal to 60 per cent. of the expenditure in respect of which it is made.

• (2) Subject to subsection (4) below, a first-year allowance in respect of expenditure incurred on the provision of—

• (a) a new ship, or

• (b) new machinery or plant (not being mobile equipment) for use for industrial purposes in a development area or in Northern Ireland,

shall be of an amount equal to the whole of that expenditure.

• (3) Where a first-year allowance in respect of a person's expenditure on the provision of an asset falls to be withheld or withdrawn by virtue of section 41(2) above, that person's ownership of the asset shall be disregarded in determining whether the asset is new for the purposes of subsection (2) of this section.

• (4) If, within the period of three years beginning with the date on which expenditure is incurred on the provision of machinery or plant for use as mentioned in paragraph (b) of the said subsection (2), the machinery or plant is used—

• (i) in a place which is neither in a development area nor in Northern Ireland, or

• (ii) for purposes other than industrial purposes, or

• (iii) in a building or structure which is prevented by section 7(3) of the Capital Allowances Act 1968 (dwelling-houses, retail shops, showrooms, hotels and offices) from being an industrial building or structure within the meaning of Chapter I of Part I of that Act,

that subsection shall be deemed not to have applied to the first-year allowance in respect of that expenditure, and all such assessments and adjustments of assessments shall be made as may be necessary to give effect to this subsection.

• (5) A place in Great Britain which ceases at any time to be in a development area shall be treated for the purposes of this section as continuing to be in a development area in relation to machinery or plant which is in use there at that time or is provided for use there under a contract entered into before that time.

• (6) In this section—

• “development area” has the same meaning as in Part I of the Local Employment Act 1960 ;

• “industrial purposes” means the purposes of a trade, or a part of a trade, which consists— in the carrying on of a dock, water, electricity or hydraulic power undertaking (as defined by section 7(5) of the Capital Allowances Act 1968) or a gas, transport, inland navigation, tunnel or bridge undertaking, or in the working of any mine, oil well or other source of mineral deposits, or in the manufacture of goods or materials, or the subjection of goods or materials to any process, or in the construction, alteration or demolition of buildings or other fixed works of construction or civil engineering, including roads, or in the distribution of goods by pipe-line, or (f) in the storage— of goods or materials which are to be used in the manufacture of other goods or materials, or of goods or materials which are to be subjected, in the course of a trade, to any process, or of goods or materials which, having been manufactured or produced or subjected, in the course of a trade, to any process, have not yet been delivered to any purchaser, or of goods or materials on their arrival by sea or by air into any part of the United Kingdom;

• “mobile equipment” means— machinery or plant having its own means of propulsion, or constructed or adapted for being towed, but excluding machinery or plant suitable for use only in or about a building or structure used for industrial purposes, at a source of mineral deposits or on or about a building or civil engineering site, and containers for use in the transportation of goods.

First-year allowances-exclusion of certain road vehicles

43

First-year allowances shall not be made in respect of capital expenditure on the provision of mechanically-propelled road vehicles, except—

• (a) vehicles of a construction primarily suited for the conveyance of goods or burden of any description,

• (b) vehicles of a type not commonly used as private vehicles and unsuitable to be so used, and

• (c) vehicles provided wholly or mainly for hire to, or for the carriage of, members of the public in the ordinary course of a trade.

Writing-down allowances and balancing adjustments

44

• (1) Subject to the provisions of this Chapter, where—

• (a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and

• (b) in consequence of his incurring the expenditure, the machinery or plant belongs, or has belonged, to him, and

• (c) the machinery or plant is or has been in use for the purposes of the trade,

allowances and charges shall be made to and on him in accordance with the following provisions of this section.

• (2) For any chargeable period for which a person within subsection (1) above has qualifying expenditure as defined in subsection (4) below which exceeds any disposal value to be brought into account by him in accordance with subsection (5) below, there shall be made to him—

• (a) unless the period is the chargeable period related to the permanent discontinuance of the trade, an allowance (in this Chapter referred to as “a writing-down allowance”) of an amount equal to—

• (i) 25 per cent. of the excess, or

• (ii) a proportionately reduced percentage of the excess if the period is part only of a year, or if the period is a year of assessment but the trade has been carried on for part only thereof;

• (b) if the period is the chargeable period related to the permanent discontinuance of the trade, an allowance (in this Chapter referred to as “a balancing allowance”) equal to the whole of the excess:

Provided that a claim for a writing-down allowance to be made for any chargeable period in connection with a trade carried on by a person other than a company may require that the amount of the allowance be reduced to an amount specified in that behalf in the claim.

• (3) For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a charge (in this Chapter referred to as “a balancing charge”), and the amount on which the charge is made shall be an amount equal to the difference.

• (4) For the purposes of subsections (2) and (3) above, a person's qualifying expenditure for a chargeable period is the aggregate of the following amounts—

• (a) the balance remaining after deducting any first-year allowances made in respect thereof of any capital expenditure incurred by him on the provision for the purposes of the trade of machinery or plant which is in use for those purposes during the chargeable period in question or its basis period, or has at any previous time been in use for those purposes, not being—

• (i) expenditure which, or any part of which, has formed part of his qualifying expenditure for any previous chargeable period, or

• (ii) expenditure in respect of which a first-year allowance is or could (assuming a claim therefor in the case of a person other than a company, and disregarding any notice of disclaimer in the case of a company) be made for the chargeable period in question; and

• (b) if for the chargeable period immediately preceding the chargeable period in question there was an excess of qualifying expenditure over disposal value, the balance of that excess after deducting any writing-down allowance made by reference thereto.

• (5) For the purposes of subsections (2) and (3) above, the disposal value to be brought into account by a person for any chargeable period is the disposal value (calculated in accordance with subsection (6) below) of all machinery or plant on the provision of which for the purposes of the trade he has incurred capital expenditure and which—

• (a) belongs to him at some time in the chargeable period or its basis period, and

• (b) is in that period, or has at any previous time been, in use for the purposes of the trade, and

• (c) in that period, either ceases (whether on a sale or in any other circumstances) to belong to him or permanently ceases (whether because of the discontinuance of the trade or for any other reason) to be used for the purposes of the trade :

Provided that this subsection shall not require a person to bring into account the disposal value of any machinery or plant which he disposes of by way of gift in such circumstances that there is a charge to tax under Part VIII of the Taxes Act (Schedule E).

• (6) The disposal value of any machinery or plant depends upon the event by reason of which it falls to be taken into account, and—

• (a) unless paragraph (b) below applies, if that event is the sale of the machinery or plant, equals the net proceeds to the person in question of the sale, together with any insurance moneys received by him in respect of the machinery or plant by reason of any event affecting the price obtainable on the sale, and, so far as it consists of capital sums, any other compensation of any description so received,

• (b) if that event is the sale of the machinery or plant at a price lower than that which it would have fetched if sold in the open market, and otherwise than in circumstances such that—

• (i) the buyer's expenditure on the acquisition of the machinery or plant can be taken into account in making allowances to him under this Chapter or Part II of the Capital Allowances Act 1968 (scientific research allowances), or

• (ii) there is a charge to tax under Part VIII of the Taxes Act (Schedule E),

equals the price which the machinery or plant would have fetched if sold in the open market,

• (c) if that event is the demolition or destruction of the machinery or plant, equals the net amount received by the person in question for the remains of the machinery or plant, together with any insurance moneys received by him in respect of the demolition or destruction and, so far as it consists of capital sums, any other compensation of any description so received,

• (d) if that event is the permanent loss of the machinery or plant otherwise than in consequence of its demolition or destruction, equals any insurance moneys received by him in respect of the loss and, so far as it consists of capital sums, any other compensation of any description so received,

• (e) if that event is the permanent discontinuance of the trade before the occurrence of an event within paragraph (a), (b), (c) or (d) above, is the same as the disposal value specified for the last-mentioned event, and

• (f) in the case of any other event, equals the price which the machinery or plant would have fetched if sold in the open market at the time of the event :

Provided that the disposal value of any machinery or plant shall in no case exceed the capital expenditure incurred by the person in question on the provision of the machinery or plant for the purposes of the trade.

Application to machinery and plant on hire-purchase etc. or lease, and to activities other than trades

Machinery and plant on hire-purchase etc.

45

• (1) Where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes thereof under a contract providing that he shall or may become the owner of the machinery or plant on the performance of the contract—

• (a) the machinery or plant shall be treated for the purposes of this Chapter as belonging to him at any time when he is entitled to the benefit of the contract so far as it relates to that machinery or plant, and

• (b) all capital expenditure in respect of that machinery or plant to be incurred by him under the contract after the time when the machinery or plant is brought into use for the purposes of the trade shall be treated for the purposes of this Chapter as having been incurred by him at that time.

• (2) Where a person to whom any machinery or plant is treated as belonging by virtue of subsection (1)(a) above ceases to be entitled to the benefit of the contract in question so far as it relates to that machinery or plant without in fact becoming the owner of the machinery or plant—

• (a) the machinery or plant shall be treated for the purposes of this Chapter as ceasing to belong to him at the time when he ceases to be so entitled, and

• (b) if he ceases to be so entitled after the machinery or plant has been brought into use for the purposes of the trade, the disposal value of the machinery or plant—

• (i) shall not exceed the total capital expenditure which he would have incurred in respect of the machinery or plant if he had wholly performed the contract, but

• (ii) subject to that limitation, shall be taken as an amount equal to any capital sums which he receives, or is entitled to receive, by way of consideration, compensation, damages or insurance moneys in respect of his rights under the contract, or in respect of the machinery or plant, together with so much of the said capital expenditure as he has not in fact incurred.

Machinery and plant on lease

46

• (1) Where machinery or plant is first let by any person otherwise than in the course of a trade, then, whether or not it is used for the purposes of a trade carried on by the lessee—

• (a) the capital expenditure incurred by the lessor in providing the machinery or plant shall be treated for the purposes of this Chapter as having been incurred in providing it for the purposes of a trade begun to be carried on by him, separately from any other trade which he may carry on, at the commencement of the letting, and

• (b) the machinery or plant shall be treated for the purposes of this Chapter as being used for the purposes of the trade from the time when the trade is treated as begun until the time when the lessor permanently ceases to let it otherwise than in the course of a trade, and then as permanently ceasing to be so used;

Provided that this subsection shall not apply to machinery or plant let for use in a dwelling house.

• (2) Where a lessee incurs capital expenditure on the provision for the purposes of a trade carried on by him of machinery or plant which he is required to provide under the terms of the lease, the machinery or plant shall be treated for the purposes of this Chapter as belonging to him for so long as it continues to be used for the purposes of the trade; but, as from the determination of the lease, section 44(5) above shall have effect as if the capital expenditure on providing the machinery or plant had been incurred by the lessor and not by the lessee.

Application to activities other than trades

47

• (1) Except as otherwise provided, the provisions of this Chapter shall, with any necessary adaptations, apply in relation to—

• (a) professions, employments, vocations and offices, and

• (b) the occupation of woodlands, where the profits or gains thereof are assessable under Schedule D,

as they apply in relation to trades:

Provided that—

• (i) in their application to an office or employment, the said provisions shall apply only to machinery or plant which is necessarily provided for use in the performance of the duties thereof, and

• (ii) section 189(2) of the Taxes Act (offices and employments with duties abroad) shall have effect as if the reference therein to Chapter II of Part I of the Capital Allowances Act 1968 included a reference to this Chapter, and the provisions of this Chapter as applied by this subsection shall have effect subject to the said section 189(2).

• (2) Sections 78 and 306 of the Taxes Act (capital allowances for machinery and plant used in estate management or in the management of the business of an investment company or life assurance company) shall each have effect as if the references therein to Chapter II of Part I of the Capital Allowances Act 1968 included a reference to this Chapter, and as if the reference in subsection (2) thereof to section 46 of the said Act of 1968 included a reference to section 48 below.

Supplementary

Manner of making allowances and charges

48

• (1) Subject to subsection (2) below, any allowance or charge made to or on any person under this Chapter shall be made to or on that person in taxing his trade.

• (2) Any allowance made by virtue of section 46(1) above shall be made by way of discharge or repayment of tax, and, subject to subsection (3) below, shall be available primarily against income from the letting of machinery or plant; and effect shall be given to any charge made by virtue of the said section 46(1)—

• (a) if a charge to income tax, by making the charge under Case VI of Schedule D,

• (b) if a charge to corporation tax, by treating the amount on which the charge is to be made as income from the letting of machinery or plant.

• (3) Where an allowance falling to be made for any chargeable period by virtue of section 46(1) above is in respect of expenditure on the provision of machinery or plant which for the whole or any part of that period or its basis period is not used for the purposes of a trade carried on by the lessee, that allowance or, as the case may require, a proportionate part thereof shall be available primarily against income from the letting of that machinery or plant only.

• (4) The following provisions of the Capital Allowances Act 1968 with respect to the manner of making allowances and charges, that is to say, sections 70 and 71 (allowances and charges under Part I of that Act as it applies for the purposes of income tax) and sections 73 and 74 (corresponding provisions for corporation tax) shall have effect as if the references therein to the said Part I included references to this Chapter:

Provided that, where an allowance falling to be made for any chargeable period by virtue of section 46(1) above is in respect of expenditure on the provision of machinery or plant which for the whole or any part of that period or its basis period is not used for the purposes of a trade carried on by the lessee, the proviso to subsection (1) of the said section 71 or, as the case may be, subsection (4) of the said section 74 shall not apply to that allowance or, as the case may require, to a proportionate part thereof.

Minor rules, and consequential amendments

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The provisions of Schedule 8 to this Act shall have effect, being provisions supplementing the foregoing provisions of this Chapter, and provisions making consequential amendments in certain enactments.

Interpretation etc.

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• (1) In this Chapter—

• “capital expenditure” means capital expenditure to which this Chapter applies in accordance with section 40 above;

• “chargeable period” means an accounting period of a company or a year of assessment; and a reference to a “chargeable period or its basis period” is a reference to the chargeable period if it is an accounting period and to the basis period for it if it is a year of assessment, a reference to a “chargeable period related to ” the incurring of expenditure, or a sale or other event, is a reference to the chargeable period in which, or to that in the basis period for which, the expenditure is incurred or the sale or other event takes place, and means the latter if, but only if, the chargeable period is a year of assessment;

• “income” includes any amount on which a charge to tax is authorised to be made under this Chapter;

• “new” means unused and not second-hand.

“tax ”, where neither income tax nor corporation tax is specified, means either of those taxes.

• (2) In this Chapter as it applies for income tax purposes “basis period” shall be construed in accordance with subsections (2) to (5) of section 72 of the Capital Allowances Act 1968, with references in those provisions to Part I of that Act or Chapter II of that Part read for the purpose as references to this Chapter.

• (3) Section 82(1) of the Capital Allowances Act 1968 (construction of references to capital expenditure and capital sums) shall apply for the purposes of this Chapter as it applies for the purposes of Part I of that Act.

• (4) Any reference in this Chapter to the date on which expenditure is incurred shall be construed as a reference to the date when the sums in question become payable; and for the purposes of this Chapter, any expenditure incurred for the purposes of a trade by a person about to carry it on shall be treated as if it had been incurred by him on the first day on which he does carry it on.

• (5) Any reference in this Chapter to an allowance made includes a reference to an allowance which would be made but for an insufficiency of profits or gains, or other income, against which to make it.

• (6) Any reference in this Chapter to any machinery, plant, building, structure or works shall be construed as including a reference to a part of any machinery, plant, building, structure or works.

• (7) The provisions of this Chapter, and the provisions applying for the purposes of this Chapter, shall apply in relation to a share in machinery or plant as they apply in relation to a part of machinery or plant; and, for the purposes of the said provisions, a share in machinery or plant shall be deemed to be used for the purposes of a trade so long as, and only so long as, the machinery or plant is used for the purposes thereof.

• (8) In section 411(1)(c) of the Taxes Act (use of asset for providing business entertainment to be treated for capital allowances purposes as use otherwise than for the purposes of a trade), the reference to Chapter II of Part I of the Capital Allowances Act 1968 shall include a reference to this Chapter.

CHAPTER II — Other Provisions

Initial allowances for industrial buildings-continuance of increased rate for development and intermediate areas and Northern Ireland

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The rate of initial allowance under section 1 of the Capital Allowances Act 1968 (industrial buildings and structures) provided for by section 15(1) of the Finance Act 1970 in a case falling within subsection (2) of that section (that is to say, a rate of two-fifths in the case of buildings and structures in development areas, intermediate areas and Northern Ireland) shall apply in relation to expenditure incurred after 5th April 1972 as well as in relation to expenditure incurred during the period beginning on 6th April 1970 and ending on the said 5th April; and accordingly, the said section 15(1) shall be amended by inserting after the words “In relation to capital expenditure incurred ” the words “in a case falling within subsection (2) below on or after 6th April 1970, and in any other case ”.

Initial allowances for mining etc. works-increased rate for development areas and Northern Ireland, and right of disclaimer

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• (1) In relation to expenditure within section 56(1) of the Capital Allowances Act 1968 (works in connection with mines, oil wells and other sources of mineral deposits of a wasting nature) which is incurred on or after 27th October 1970 on the construction of works situated—

• (a) in an area which is a development area (within the meaning of Part I of the Local Employment Act 1960) on the date on which the expenditure is incurred or, if the expenditure is incurred under a contract entered into on or after the said 27th October, on the date on which the contract was entered into, or

• (b) in Northern Ireland,

section 56(2) of that Act (which provides for an initial allowance of an amount equal to two-fifths of any expenditure within the said section 56(1)) shall have effect with the substitution for the words “two-fifths ” of the words “the whole ”.

Expenditure shall not be treated for the purposes of this subsection as having been incurred after the date on which it was in fact incurred by reason only of section 64 of the said Act of 1968 (expenditure incurred before trade began).

• (2) A company to whom an initial allowance under the said section 56(1) falls to be made for any chargeable period in respect of expenditure incurred on or after 27th October 1970 may, by notice in writing given to the inspector not later than two years after the end of that period, either disclaim the allowance or require that the amount thereof be reduced to an amount specified in the notice; and a person other than a company claiming an initial allowance under the said section 56(1) in respect of expenditure so incurred may require the amount thereof to be reduced to an amount specified in the claim.

Writing-down allowances-increased rates for machinery and plant provided before 6th November 1962

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Paragraph 2(1) of Schedule 4 to the Capital Allowances Act 1968 (under which the increased rates of writing-down allowances provided for by that Schedule apply only to new machinery and plant capital expenditure on the provision of which was incurred after 5th November 1962) shall be amended by inserting at the end the words " and, for accounting periods ending on or after 27th October 1970 and years of assessment from the year 1971-72 onwards, also to any machinery or plant not within the meaning of that expression. "

Double taxation relief and overspill relief

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• (1) In any claim under section 515 of the Taxes Act (postponement of capital allowances to secure double taxation relief), no account shall be taken of expenditure incurred, or treated for the purposes of Chapter I of this Part of this Act as incurred, on or after 27th October 1970.

• (2) Section 84 of, and Schedule 20 to, the Finance Act 1965 (transitional relief for existing companies with overseas trading income) shall have effect as if the said Chapter I and subsection (1) above had not been enacted.

PART IV — TAX ON CAPITAL GAINS AND ESTATE DUTY

Restoration of development value in computation of chargeable gains, and repeal of certain provisions made in connection with betterment levy

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Taxation of short-term capital gains

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemption or relief for small disposals

57

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Disposal of options

58

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Abolition of charge to capital gains tax on death, etc.

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Replacement of business assets

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alteration of amount of estate duty

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• (1) As respects deaths occurring after 30th March 1971 the provisions of Part I of Schedule 17 to the Finance Act 1969 for determining the amount of estate duty on an estate shall have effect with the substitution of the words “£12,500 ” for the words “£10,000 ”—

• (a) in paragraph (a) (under which no duty is payable on an estate if the aggregate principal value of all property comprised in the estate does not exceed £10,000); and

• (b) in paragraph (b)(i) (under which the rate applicable to so much of that aggregate principal value as exceeds that sum but does not exceed £17,500 is 25 per cent.).

• (2) As respects deaths so occurring, section 16(3) of the Finance Act 1894 as substituted by section 33(1) of the Finance Act 1954 and further amended by paragraph 3 of Part III of Schedule 17 to the Finance Act 1969 (property other than certain settled property not to be aggregated with the latter if net value of non-settled property does not exceed £10,000, and provision for marginal relief if that net value does exceed that amount) shall have effect with the substitution of the words “£12,500 ” for the words “ten thousand pounds ” in paragraphs (a) and (b).

Payment of estate duty by instalments

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• (1) Estate duty chargeable on a death in respect of any property to which this subsection applies may, at the option of the person paying the duty, be paid by eight equal yearly instalments or sixteen half-yearly instalments.

• (2) The property to which subsection (1) above applies is the following, that is to say—

• (a) shares or securities of a company the principal value of which falls to be ascertained under section 55 of the Finance Act 1940 (valuation by reference to assets of the company);

• (b) shares or securities of a company not falling within paragraph (a) above and not quoted on a recognised stock exchange in the United Kingdom or elsewhere, if either the condition stated in subsection (3) below is fulfilled or the Commissioners of Inland Revenue are satisfied that the estate duty on those shares or securities cannot be paid at once without undue hardship;

• (c) the following property situate in England and Wales, that is to say any leasehold estate or interest in land and any property which is treated as personal property for estate duty purposes by reason only of being held on trust for sale, not being in any case an estate, interest or right by way of mortgage or other security.

• (3) The condition mentioned in subsection (2)(b) above is that not less than 20 per cent. of the estate duty chargeable on the death for which the person paying the duty on the shares or securities is accountable (in the same capacity) consists of duty on those shares or securities and such other duty (if any) as may by virtue of the other provisions of this section or of section 6(8) of the Finance Act 1894 (real property) be paid by instalments.

• (4) Where estate duty is chargeable on a death in respect of a business or an interest in a business, so much of the duty chargeable on the death as is attributable to the net value of the business or, as the case may be, to the value of that interest may, at the option of the person paying the duty, be paid by eight equal yearly instalments or sixteen half-yearly instalments.

• (5) For the purposes of subsection (4) above “the net value of the business” means the principal value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purpose of the business ; and in ascertaining for the purposes of subsection (4) above the value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the business would have fallen to be ascertained in accordance with this subsection if the entire business had passed on the death of the deceased.

• (6) Notwithstanding anything in section 6 of the Finance Act 1894 (collection and recovery of estate duty), where subsection (1) or (4) above applies the first instalment shall be payable at the expiration of twelve months from the death of the deceased, and interest under section 18 of the Finance Act 1896 on the unpaid portion of the duty shall be added to each instalment and paid accordingly.

• (7) Notwithstanding the exercise of the option under subsection (1) or (4) above in respect of any estate duty, the duty for the time being unpaid, with interest under the said section 18 to the time of payment, may be paid at any time; and in any case the duty or, as the case may be, the unpaid portion of the duty, and any interest accrued under that section, shall become payable forthwith (whether before or after the expiration of twelve months from the death of the deceased)—

• (a) in the case of duty on property to which subsection (1) above applies by virtue of paragraph (a), paragraph (b) or paragraph (c) of subsection (2) above, as the case may be, on a sale of the whole or any part of the property in question;

• (b) in the case of duty on property consisting of a business falling within subsection (4) above, on a sale of the whole or any part of the business or of any interest in the business;

• (c) in the case of duty on property consisting of an interest in such a business, on a sale of the whole or any part of that interest,

so however that where the sale is of a part only of the property in question or, in a case falling within paragraph (b) above, is of an interest in the business, there shall become payable forthwith (with any interest thereon accrued as aforesaid) only such proportion of the duty or, as the case may be, of the unpaid portion of the duty as is referable to the part or interest sold.

• (8) Where estate duty is chargeable on a death in respect of an interest in a business and, under a partnership agreement or otherwise, any sum is paid in satisfaction of the whole or any part of that interest otherwise than on a sale, that interest or the part of it in question shall for the purposes of subsection (7) above be treated as having been sold at the time of the payment.

• (9) Where a person, having paid to the Commissioners of Inland Revenue any estate duty which is or might have been payable to them by instalments under this section, is entitled to recover the duty from some other person by whom, as against him, the duty falls to be borne, that other person shall, in the absence of any agreement to the contrary, be entitled to repay the duty by the like instalments (with the like interest thereon) as if he were paying the duty to the Commissioners.

• (10) This section shall apply in relation to any death occurring after 30th March 1971.

• (11) In this section—

• (a) “business” includes a business carried on in the exercise of a profession or vocation, but does not include a business carried on otherwise than for gain;

• (b) “company” includes any body corporate.

• (12) This section shall be construed as one with Part I of the Finance Act 1894.