Finance Act 1974

• (1) This paragraph shall apply in relation to a disposal of an interest in land to which the principal section applies if any expenditure which is or, but for paragraph 1 of [ Schedule 3 to the Capital Gains Tax Act 1979 ], would be allowable under [ section 32(1)(b) of that Act] as a deduction from the consideration for the disposal in computing the chargeable gain accruing thereon has been incurred since the person making the disposal acquired the interest, not being expenditure attributable to material development of the land carried out as mentioned in paragraph 11(1) of this Schedule ( that is, carried out after 17 th December 1973 [ and] since the person making the disposal acquired the interest [ but before the appointed day, within the meaning of the Development Land Tax Act 1976 ]).

• (2) For the purpose of computing the amount given by subsection (3)(c) of the principal section the current use value of the interest in land at the time of its acquisition by the person making the disposal or, if the interest was acquired by him before 6 th April 1965, its current use value at that date shall be taken to be equal to the sum of the amounts mentioned in the following sub-paragraph.

• (3) The amounts referred to in the preceding sub-paragraph are the following, that is to say—

• (a) the current use value of the interest at the time of its acquisition by the person making the disposal or on 6 th April 1965, as the case may be; and

• (b) so much of the expenditure mentioned in sub-paragraph (1) above as is reflected in the current use value of the interest at the time of the disposal.

• (4) Where material development of the land has been carried out ( whether on only one occasion or on two or more different occasions) after 17 th December 1973 [ and] since the person making the disposal acquired the interest [ but before the appointed day, within the meaning of the Development Land Tax Act 1976 ], sub-paragraphs (2) and (3) above shall not apply, and paragraph 11 of this Schedule shall have effect subject to the following provisions of this paragraph.

• (5) Where any expenditure mentioned in sub-paragraph (1) above was incurred before the date on which the material development of the land carried out after 17 th December 1973 on the first or only occasion was begun, then in calculating under paragraph 11(4)(a) or 11(6)(a) of this Schedule the amount mentioned in the said paragraph 11(4)(a), the current use value of the interest at the time of its acquisition by the person making the disposal or on 6 th April 1965, as the case may be, shall be increased by so much of the expenditure so incurred as is reflected in the current use value of the interest immediately before the date on which the material development carried out on that occasion was begun.

• (6) Where any expenditure so mentioned was incurred on or after the date on which the material development of the land so carried out on the last or only occasion was begun, then in calculating under paragraph 11(5)(b) or 11(6)(c) of this Schedule the expenditure attributable to that material development which is allowable as mentioned in the said paragraph 11(5)(b) there shall be included in that expenditure so much of the expenditure incurred as is reflected in the current use value of the interest at the time of the disposal.

• (7) Where any expenditure so mentioned was incurred on or after the date on which the material development ( “the preceding development”) so carried out on any but the last of two or more occasions was begun but before the date on which the material development ( “the following development”) carried out on the next of those occasions was begun, then, in calculating under paragraph 11(6)(b) of this Schedule the expenditure attributable to the preceding development which is allowable as mentioned in paragraph 11(5)(b) of this Schedule, there shall be included in that expenditure so much of the expenditure so incurred as is reflected in the current use value of the interest immediately before the date on which the following development was begun.

Provisions supplementary to paragraphs 11 and 12

13

• (1) Where paragraph 11 of this Schedule would, apart from this paragraph, apply in relation to a disposal of an interest in land because of any material development of the land carried out after 17 th December 1973 [ and] since the person making the disposal acquired the interest [ but before the appointed day, within the meaning of the Development Land Tax Act 1976 ], the said paragraph 11 shall not so apply if the amount by which the current use value of the interest immediately after the date on which that material development was begun, calculated on the assumption that it was lawful for that development to be carried out, exceeds the current use value of the interest immediately before that date—

• (a) is not greater than one-tenth of the current use value of the interest immediately before that date;

• (b) does not exceed £2,500.

• (2) Where material development of the land in question has been carried out on two or more different occasions after 17 th December 1973 [ and] since the person making the disposal acquired the interest [ but before the appointed day, within the meaning of the Development Land Tax Act 1976 ] then for the purposes of this paragraph there shall be calculated for each of those occasions the amount by which the current use value of the interest immediately after the date on which the material development carried out on that occasion was begun, calculated on the assumption that it was lawful for that development to be carried out, exceeds the current use value of the interest immediately before that date, and the preceding sub-paragraph shall not apply in relation to the disposal if the aggregate of the amounts so calculated exceeds £2,500.

• (3) Where by virtue of the preceding provisions of this paragraph paragraph 11 of this Schedule does not apply in relation to a disposal of an interest in land even though material development of the land has been carried out as aforesaid, the material development in question shall be disregarded for the purposes of paragraph 12 of this Schedule.

14

• (1) Subject to the following sub-paragraph, material development shall for the purposes of paragraphs 11 to 13 of this Schedule not be treated as carried out after a particular date if it was begun on or before that date.

• (2) If, in the case of any land—

• (a) material development thereof was begun on or before 17 th December 1973 but was not completed on or before that date; and

• (b) the development was on that date to any extent not authorised by planning permission then in force,

then, for the purposes of paragraphs 11 to 13 of this Schedule, so much of the development carried out after that date as was not so authorised on that date shall be treated as begun on the earliest date after 17 th December 1973 on which any specified operation comprised therein is begun, and shall accordingly be treated as material development of the land carried out after 17 th December 1973.

• (3) Sub-paragraph (3) of paragraph 1 of this Schedule shall apply for the purposes of this paragraph as it applies for the purposes of paragraph 1; and in this paragraph “specified operation”has the same meaning as in paragraph 9 of this Schedule.

Computation of amount given by subsection (3)(c) of principal section in certain cases within paragraph 23(4) of Schedule 6 to the Finance Act 1965

15

Where a chargeable gain accrues to a person on a disposal of an interest in land to which the principal section applies, being a disposal in relation to which [ paragraph 9 of Schedule 5 to the Capital Gains Tax Act 1979 ] ( sales of land in United Kingdom reflecting development value) applies, then, if the amount of the gain is by virtue of sub-paragraph (4) of that paragraph computed without regard to [ the said Schedule 5 ] ( assets held on 6 th April 1965), this Chapter shall have effect in relation to that disposal as if in subsection (3)(c) of the principal section and paragraphs 11 and 12 of this Schedule any reference to the current use value of the interest at the time of its acquisition by the person making the disposal or, if the interest was acquired by him before 6 th April 1965, its current use value at that date referred only to its current use value at the time of its acquisition by him.

Computation of development gains in connection with replacements of business assets

16

• (1) Subject to the provisions of paragraph 2 of Schedule 4 to this Act, the development gain, if any, accruing in respect of a disposal of an interest in land to which the principal section applies shall, if the disposal is one in relation to which [ sections 115 to 121 of the Capital Gains Tax Act 1979 ] ( replacement of business assets) [ apply], be computed as if any claim under [ those sections] as respects the whole or a part of the consideration for the disposal had not been made.

• (2) The preceding sub-paragraph shall not affect the subsequent operation of paragraph4 ofSchedule 8 to this Act in relation to such a claim.

17

Where under [ section 115(1)(b) or 116(1)(b) of the Capital Gains Tax Act 1979 ] or paragraph 18(4) of this Schedule the person making a disposal of an interest in land to which the principal section applies would, apart from this paragraph, be treated for the purposes of [ that Act] as if the amount or value of the consideration for the acquisition of that interest were reduced or further reduced by some amount, the development gain, if any, accruing in respect of the disposal shall be computed as if the said [ section 115(1)(b) or 116(1)(b) ] or the said paragraph 18(4), as the case may be, did not apply to that consideration.

Replacement of business assets

18

• (1) If the consideration which a person carrying on a trade obtains for the disposal of, or of his interest in, assets ( in this paragraph referred to as “the old assets”) used, and used only, for the purposes of the trade throughout the period of ownership is wholly or partly applied by him in acquiring other assets, or an interest in other assets ( in this paragraph referred to as “the new assets”) which on the acquisition are taken into use, and used only, for the purposes of the trade,and—

• (a) the old assets and new assets are within the classes of assets listed in subsection (6) of [ section 118 ( with section 119) of the Capital Gains Tax Act 1979 ] ( replacement of business assets) and the old assets consist of or include land in the United Kingdom; and

• (b) some or all of the new assets are qualifying assets; and

• (c) development gains accrue to the person carrying on the trade in respect of the disposal; and

• (d) the amount of the consideration for the disposal applied as aforesaid is greater than the difference between the whole of that consideration and the amount of those development gains,

then, if the person carrying on the trade makes a claim as respects those development gains, the provisions of sub-paragraphs (2) to (5) below shall apply.

• (2) There shall be ascertained the following amounts, that is to say—

• (a) the amount by which so much of the consideration for the disposal as has been applied as described in sub-paragraph (1) above exceeds the difference mentioned in sub-paragraph (1)(d) above; and

• (b) the amount of the consideration for the disposal which has been so applied in acquiring qualifying assets;

and in the following provisions of this paragraph “the material amount”means whichever of those amounts is the smaller ( or, if they are equal, the amount which is equal to each of them).

• (3) The income tax or corporation tax to which the person carrying on the trade is chargeable for the chargeable period in which the disposal was made shall be reduced by an amount equal to whichever of the following amounts is the smallest, that is to say—

• (a) 30 per cent. of what is, under sub-paragraph (5) below, the appropriate amount;

• (b) 30 per cent. of the amount, if any, by which the development gains accruing to him in that chargeable period exceed the development losses, if any, accruing to him in that period ( so that if the amount under this head is nil, no reduction will fall to be made under this sub-paragraph);

• (c) the total amount of the income tax for which he is liable for that chargeable period or, in the case of a company, the total amount of the corporation tax for which the company is liable for that chargeable period after setting against that liability the amount of any advance corporation tax falling to be set against it under section 85 of the Finance Act 1972, but before any set-off under subsection (5) of section 240 of the Taxes Act ( income tax on distributions etc. received by U.K. company).

For the purposes of paragraph (b) of this sub-paragraph a man and his wife living with him shall be treated as one person if the result of so treating them is to increase the amount given by that paragraph.

• (4) Where a reduction falls to be made under the preceding sub-paragraph, the person carrying on the trade shall be treated for the purposes of [ the Capital Gains Tax Act 1979 ] as if the consideration for the acquisition of, or of the interest in, such of the new assets as are qualifying assets were reduced ( or further reduced) by what is, under sub-paragraph (5) below, the appropriate amount; but this sub-paragraph shall not affect the treatment for those purposes of the other party to the transaction involving the old assets or of the other party to the transaction involving the new assets.

• (5) For the purposes of sub-paragraphs (3)(a) and (4) above—

• (a) if the material amount is equal to or greater than one-half of the development gains accruing in respect of the disposal, the appropriate amount is the full amount of the development gains so accruing;

• (b) if the material amount is less than one-half of the development gains so accruing, the appropriate amount is an amount equal to twice the material amount.

(6) The following provisions of the Capital Gains Tax Act 1979 shall, with any necessary modifications, apply for the purposes of this paragraph as they apply for the purposes of section 115 of that Act, namely— (a) subsections (3) to (8) of the said section 115, (b) section 119, (c) section 121.]

• (7) Without prejudice to the provisions of [ section 43(4) of the Capital Gains Tax Act 1979 ] where consideration is given—

• (a) for the acquisition or disposal of assets some or part of which are assets in relation to which a claim under this paragraph applies and some or part of which are not; or

• (b) for the acquisition or disposal of assets some or part of which are, in relation to a claim under this paragraph, qualifying assets and some or part of which are not,

the consideration shall be apportioned in such manner as is just and reasonable.

• (8) For the purposes of this paragraph assets are, in relation to a trade, qualifying assets if they are within the following classes of assets, that is to say the classes listed in [ section 118 of the Capital Gains Tax Act 1979 ], excluding assets within [ paragraph 2 ] of head A in class 1 other than land constituting the site of any asset within [ paragraph 1 ] of that head ( including in the site any land in the immediate vicinity of the asset which is occupied for purposes ancillary to the occupation and use of the asset).

Replacement of business assets: depreciating assets

19

• (1) Paragraph 18 above shall have effect subject to the provisions of this paragraph, in which—

• (a) the “tax reduction”means the reduction in the income tax or corporation tax to which the person carrying on the trade is chargeable which is made under sub-paragraph (3) of the said paragraph 18 in connection with a disposal of an asset ( called “asset No. 1”);

• (b) the “expenditure reduction”means the related amount by which under sub-paragraph (4) of that paragraph, and apart from the provisions of this paragraph, the expenditure allowable in respect of another asset ( called “asset No. 2”) is reduced;

• (c) any reference to an expenditure reduction of any amount being carried forward to any asset is a reference to a reduction of that amount in expenditure allowable in respect of that asset.

• (2) If asset No. 2 is a depreciating asset, the expenditure reduction shall not be carried forward, but—

• (a) when the claimant disposes of asset No. 2, or

• (b) when he ceases to use asset No. 2 for the purposes of a trade carried on by him, or

• (c) on the expiration of a period of ten years beginning with the acquisition of asset No. 2,

whichever event comes first, an amount equal to the tax reduction may be assessed to tax and recovered accordingly.

Any assessment to income tax or corporation tax under this paragraph shall be made under Case VI of Schedule D.

• (3) If, in the circumstances specified in sub-paragraph (4) below, the claimant acquires an asset ( called “asset No. 3”) which is not a depreciating asset, and so claims under paragraph 18 above—

• (a) the expenditure reduction shall be carried forward to asset No. 3, and

• (b) the claim which applies to asset No. 2 shall be treated as withdrawn ( so that sub-paragraph (2) above does not apply).

• (4) The circumstances are that asset No. 3 is acquired not later than the occurrence of whichever of the events mentioned in sub-paragraph (2) above comes first and, assuming—

• (a) that the consideration for asset No. 1 was applied in acquiring asset No. 3, and

• (b) that the time between the disposal of asset No. 1 and the acquisition of asset No. 3 was within the time limited by section 115(3) of the Capital Gains Tax Act 1979 as applied by paragraph 18(6) above,

the whole amount of the expenditure reduction could be carried forward from asset No. 1 to asset No. 3; and the claim under sub-paragraph (3) above shall be accepted as if those assumptions were true.

• (5) For the purposes of this paragraph an asset is a depreciating asset at any time if—

• (a) at that time it is a wasting asset as defined in section 37(1) of the Capital Gains Tax Act 1979, or

• (b) within the period of ten years beginning at that time it will become a wasting asset ( so defined).

• (6) This paragraph shall be construed as one with paragraph 18 above.]

Company amalgamations

20

• (1) Where a company issues shares or debentures to a person in exchange for shares in or debentures of another company in circumstances such that [ section 85 of the Capital Gains Tax Act 1979 ] ( company amalgamations) applies, then, if section 41(1) of this Act applies to the disposal by him to the issuing company of the shares in or debentures of the other company, the amount of any development gain accruing to him in respect of that disposal shall be computed as if the said [ section 85 ] did not apply in relation to the exchange.

• (2) Where, in the case of a disposal of shares in or debentures of a company made in the circumstances mentioned in the preceding sub-paragraph, the amount of any development gain accruing in respect of that disposal falls by virtue of that sub-paragraph to be computed as if the said [ section 85 ] did not apply in relation to the exchange, the provisions of paragraph 14 of Schedule 9 to this Act ( postponement of payment of tax), excluding sub-paragraphs (2) and (6), shall, with any necessary modifications, apply in the case of that disposal as they apply in the case of a disposal of an interest in land which is deemed to have been made as mentioned in sub-paragraph (1) of the said paragraph 14, but as if in the said sub-paragraph (1) for the reference to the total tax chargeable in respect of a gain accruing on the disposal there were substituted a reference to such part of that total tax as is equal to the amount by which that total tax exceeds the tax which would have been chargeable but for sub-paragraph (1) of this paragraph.

Private residences

21

Where [ subsection (2) of section 102 of the Capital Gains Tax Act 1979 ] ( private residences) would, apart from this paragraph, apply to a gain accruing to an individual on a disposal of an interest in land to which the principal section applies, then—

• (a) there shall first be computed both the development gain that would accrue to him in respect of the disposal if that subsection did not so apply and the chargeable gain that would accrue to him thereon if that were so;

• (b) the amount of the development gain accruing to him in respect of the disposal shall be equal to the amount of the development gain as computed under (a) above reduced by the fraction given by that subsection; and

• (c) that subsection shall then be applied to so much of the gain accruing on the disposal as is equal to the chargeable gain as computed under (a) above.

Transfer of business on retirement

22

• (1) Where a disposal within subsection (1) of [ section 124 of the Capital Gains Tax Act 1979 ( transfer of business on retirement) involves a disposal by the individual in question of one or more interests in land to which the principal section applies, the development gains, if any, accruing to him in respect of the disposal shall be computed without reference to that section.

• (2) Where any development gains accrue to an individual in respect of a disposal within subsection (1) of the said [ section 124 ], being gains which so accrue—

• (a) where subsection (1)(a) of that section applies, on the disposal of chargeable business assets comprised in the disposal by way of sale or gift; or

• (b) where subsection (1)(b) of that section applies, on the disposal of the shares or securities,

sub-paragraphs (3) to (5) below shall apply in relation to the disposal within the said subsection (1) made by that individual, instead of the provisions of that section.

• (3) There shall be ascertained how much of the amount available for relief under [ the said section 124 ] would, under [ subsection (4) or (5) ] of that section, have fallen to be applied in giving relief to the individual as respects the disposal if this Chapter had not applied in relation to the disposal.

• (4) An amount up to, but not exceeding, the amount ascertained under the preceding sub-paragraph shall be applied so as to give relief to the individual as respects the disposal by reducing or extinguishing one or both of the following amounts, that is to say—

• (a) the aggregate of the development gains accruing to the individual in respect of the disposal, being gains which so accrue as mentioned in sub-paragraph (2)(a) or (b) above; and

• (b) the aggregate of the chargeable gains accruing to him on the disposal, being gains which so accrue as mentioned in the said sub-paragraph (2)(a) or (b),

and as between those amounts shall be so applied in whatever way is to the individual’s best advantage.

• (5) [ Subsection (7) of the said section 124 ] shall apply for the purpose of arriving at the aggregate mentioned in sub-paragraph (4)(b) above as it applies ( in cases where that section applies) for the purpose of arriving at the aggregate under [ subsection (4) or (5) ] of that section.

• (6) Any relief given under sub-paragraph (4) above as respects the disposal shall, for the purposes of the said [ section 124 ] as regards any other disposal within subsection (1) of that section, be taken into account in determining under subsection (4) of that section how far the amount available for relief under [ that section] has been applied.

• (7) In this paragraph “chargeable business asset” has the same meaning as in the said [ section 124 ].

Insurance companies

23

Where, in the case of an insurance company carrying on life assurance business, a profit arising from general annuity business and attributable to a disposal of an interest in land to which section 38 of this Act applies falls ( or would but for paragraph 7(2) of Schedule 7 to this Act fall) to be taken into account in the computation under section 312 of the Taxes Act ( general annuity business and pension business: separate charge on profits), the development gain, if any, accruing to the company in respect of the disposal shall be computed as if [ section 31(1) of the Capital Gains Tax Act 1979 ] ( computation of chargeable gains: exclusion of sums taken into account in computing income) did not apply.

Chargeable gains in respect of mineral royalties

24

No part of any chargeable gain which under section 29 of the Finance Act 1970 ( taxation of mineral royalties) is treated as accruing to a person entitled to receive such royalties under a mineral lease or agreement shall be a development gain.

Computation of development gain in respect of disposal of interest in land with planning permission for the winning and working of minerals

25

• (1) Without prejudice to any other provisions of this Schedule as to the computation of the amount given by subsection (3)(c) of the principal section, this paragraph shall apply in relation to a disposal of an interest in land to which the principal section applies if at the time of the disposal there is in force, as regards the land or any part of it, planning permission authorising material development consisting of the winning and working of minerals.

• (2) For the purpose of computing the amount given by subsection (3)(c) of the principal section, the amount of the chargeable gain accruing on the disposal shall be taken to be what it would be if the amount which, in the computation of that chargeable gain, falls to be taken as the consideration were reduced to the sum of the following amounts, that is to say—

• (a) the market value of the interest at the time of the disposal calculated on the assumption that it was at that time, and would continue to be, unlawful to carry out any material development of the land consisting of the winning and working of minerals; and

• (b) one-half of the amount by which the actual consideration for the disposal exceeds the said market value.

In this sub-paragraph “the actual consideration for the disposal” means the amount which, in the computation ( apart from this paragraph) of the chargeable gain accruing on the disposal, falls to be taken as the consideration.

• (3) Sub-paragraph (3) of paragraph 1 of this Schedule shall apply for the purposes of this paragraph as it applies for the purposes of paragraph 1; and in this paragraph “minerals” has the meaning given by paragraph 10(1) of this Schedule.

• (4) For the purposes of this paragraph the winning and working of minerals includes the carrying out of any ancillary operations requisite therefor.

SCHEDULE 4

1

In this Schedule “the principal section” means section 38 of this Act.

Replacement of business assets

2

• (1) This paragraph shall apply in relation to a disposal of an interest in land to which the principal section applies if the disposal is one in relation to which section 33 of the Finance Act 1965 (replacement of business assets) applies.

• (2) Where—

• (a) a claim is made by a person under the said section 33 as respects so much of the consideration for the disposal as has been applied by him in acquiring other assets, or an interest in other assets (in this sub-paragraph referred to as “the new assets”) as described in subsection (1) of that section; and

• (b) the acquisition of, or of the interest in, some or all of the new assets took place either before 18th December 1973, or under an unconditional contract for the acquisition entered into before that date, or under a contract to which sub-paragraph (4) below applies,

then the amount of any development gain accruing to him in respect of the disposal (as computed before this sub-paragraph is applied) shall be reduced by the amount, if any, by which so much of the consideration for the disposal as has been applied in acquiring before that date, or under such a contract, all or any of the new assets exceeds the sum of the amounts mentioned in the following sub-paragraph.

• (3) The amounts referred to in the preceding sub-paragraph are the following, that is to say—

• (a) the sum that is by virtue of paragraph 4(1)(a) and (b) of Schedule 6 to the Finance Act 1965 allowable as a deduction from the consideration for the disposal in computing the chargeable gain; and

• (b) the chargeable gain, if any, accruing to him on the disposal (as computed before the preceding sub-paragraph is applied).

• (4) This sub-paragraph applies to a contract made after 17th December 1973 if—

• (a) the parties thereto had before 18th December 1973 arranged (without entering into a binding contract) to dispose of and acquire the interest in question on terms which do not differ materially from the terms of the contract subsequently made; and

• (b) the arrangement was made in writing, or is evidenced by a memorandum or note thereof so made before that date.

Conditional contracts entered into before 18th December 1973

3

If the disposal of an asset under a conditional contract entered into before 18th December 1973 is made for a consideration not depending wholly or mainly on the value of the asset at the time the condition is satisfied, then for the purposes of subsection (1) of the principal section the contract shall in relation to the disposal be treated (on the condition being satisfied) as if it had never been conditional.

Disposals under arrangements made before 15th December 1973

4

Where an owner of an interest in land to which the principal section applies had before 18th December 1973 arranged (without entering into a binding contract) to dispose of that interest to another person and—

• (a) the arrangement was made in writing, or is evidenced by a memorandum or note thereof so made before that date; and

• (b) he disposes of the interest to that other person under a contract entered into before 18th December 1974 of which the terms do not differ materially from the terms of the arrangement or, if they so differ, are not more beneficial to the said owner,

the contract—

• (i) if not conditional, shall be treated for the purposes of subsection (1) of the principal section as if made before 18th December 1973; or

• (ii) if conditional, shall be treated for the purposes of the preceding paragraph as if entered into before that date.

Disposal to authority exercising compulsory powers where notice to treat was served before 18th December 1973

5

• (1) Where a disposal of an interest in land to which the principal section applies is made to an authority exercising compulsory powers, then, if notice to treat in respect of that interest was (or is by virtue of any enactment deemed to have been) served before 18th December 1973 on the person making the disposal, the disposal shall be treated for the purposes of this Chapter as having been made before that date.

• (2) In this paragraph “authority exercising compulsory powers” means, in relation to any disposal of an interest in land, a person acquiring the interest compulsorily or who has been authorised to acquire it compulsorily (whether for himself or some other person).

SCHEDULE 5

Interpretation

1

In this Schedule " the principal section " means section 39 of this Act.

Net proceeds

2

Paragraph 14(5) of Schedule 6 to the Finance Act 1965 (consideration to be brought into account without discount etc.) shall apply in the computation of the net proceeds of a disposal for the purposes of the principal section as it applies in the computation under that Schedule.

3

Paragraph 14(2)(a) of Schedule 7 to the Finance Act 1965 (consideration for option) shall apply for the computation of the net proceeds of a disposal for the purposes of the principal section as it applies for the computation of chargeable gains.

Disregard of proceeds of certain disposals

4

• (1) For the purposes of the principal section the consideration for a disposal shall be disregarded if, under any provision other than section 38(2) of this Act—

• (a) it falls to be excluded from the computation of a gain, arising on the disposal; or

• (b) a gain accruing on the disposal is not a chargeable gain.

• (2) If by virtue of section 29(3) of the Finance Act 1965 (private residences) a fraction of the gain accruing to an individual on a disposal is not a chargeable gain, that fraction of the net proceeds of the disposal shall be disregarded for the purposes of the principal section.

5

For the purposes of the principal section the consideration for a disposal shall be disregarded if the disposal is one as respects which any of the following provisions of the Taxes Act applies, that is to say—

• (a) section 267 (company reconstruction or amalgamation: transfer of assets);

• (b) section 273 (transfers within a group);

• (c) section 342 (disposals of land between the Housing Corporation and housing societies).

Gifts to charities etc.

6

In section 119(2)(a) of the Finance Act 1972 (gifts to charities etc.) after the words " 1971 " there shall be inserted the words " or section 39 of the Finance Act 1974 ".

SCHEDULE 6

Interpretation

1

• (1) In this Schedule “the principal section” means section 40 of this Act.

• (2) Part I of Schedule 3 to this Act shall apply for the purposes of the principal section and this Schedule as it applies for the purposes of section 38 of this Act.

Losses accruing to persons not resident or ordinarily resident in the United Kingdom

2

A loss accruing to a person in a chargeable period during no part of which he is resident or ordinarily resident in the United Kingdom shall not be to any extent a development loss unless, under [section 12 of the Capital Gains Tax Act 1979 ] as applied by paragraph 1 of Schedule 8 of this Act, he would (or would but for section 39(1) of this Act) be chargeable to income tax or corporation tax in respect of a development gain if there had been a gain instead of a loss on that occasion.

Modification of sections 176 and 179 of the Taxes Act (Case VI losses) in relation to development losses

3

In its application to a development loss in accordance with subsection (3) of the principal section—

• (a) section 176 of the Taxes Act shall have effect with the omission of so much of subsection (5) as precedes the words “but the question”; and

• (b) section 179 of that Act shall have effect with the omission of subsection (3).

4

Without prejudice to the following provisions of this Schedule, any development losses which have accrued to a person in any chargeable period shall under section 176 or, as the case may be, section 179 of the Taxes Act be deducted from or set off against—

• (a) first, any development gains accruing to him in that period;

• (b) secondly, any other profits or gains or income arising from transactions in respect of which he is assessed for that period under Case VI of Schedule D;

• (c) thirdly, any development gains accruing to him in the first subsequent chargeable period;

• (d) fourthly, any other profits or gains or income arising from transactions in respect of which he is assessed for the last-mentioned chargeable period under that Case,

and so on for each successive chargeable period.

Computation of development loss in cases where paragraph 11 or 12 of Schedule 3 would apply in computing a development gain

5

For the purpose of computing the development loss accruing to a person in respect of a disposal of an interest in land to which the principal section applies, being a disposal in relation to which paragraph 11 or 12 of Schedule 3 to this Act would (or would but for paragraph 13 of that Schedule) apply if a chargeable gain had accrued to him on the disposal, paragraphs 11, 12 and 14 (but not 13) of that Schedule shall have effect in relation to the disposal subject to the following modifications, that is to say—

• (a) paragraph 11(2) shall be omitted;

• (b) in paragraphs 11(3) and 12(2), the references to the amount given by section 38(3)(c) of this Act shall be read as references to the amount given by section 40(4) of this Act; and

• (c) in paragraph 11, for the word “exceeds”, wherever occurring, there shall be substituted the words “is less than”.

Computation of amount given by subsection (4) of principal section in certain cases within paragraph 23(4) of Schedule 6 to the Finance Act 1965

6

Where an allowable loss accrues to a person on a disposal of an interest in land to which the principal section applies, being a disposal in relation to which [paragraph 9 of Schedule 5 to the Capital Gains Tax Act 1979 ] (sales of land in United Kingdom reflecting development value) applies, then, if the amount of the loss is by virtue of sub-paragraph (4) of that paragraph computed without regard to [the said Schedule 5 ] (assets held on 6 th April 1965), this Chapter shall have effect in relation to that disposal as if in subsection (4) of the principal section and paragraphs 11 and 12 of Schedule 3 to this Act ( as applied by paragraph 5 of this Schedule) any reference to the current use value of the interest at the time of its acquisition by the person making the disposal or, if the interest was acquired by him before 6 th April 1965, its current use value of that date referred only to its current use value at the time of its acquisition by him.

Private residences

7

Where a claim under the principal section is made in respect of a disposal by an individual of an interest in land to which the principal section applies, being an interest such that [section 102(2) of the Capital Gains Tax Act 1979 ] (private residences) would, apart from this paragraph, apply to the loss accruing to him on the disposal, paragraph 21(a) to (c) of Schedule 3 to this Act shall have effect in relation to the disposal subject to the following modifications, that is to say—

• (a) any reference to a chargeable gain shall be read as a reference to an allowable loss;

• (b) any reference to a development gain shall be read as a reference to a development loss; and

• (c) any other reference to a gain shall be read as a reference to a loss.

Set-off of development losses

8

• (1) Where, in the case of any person, section 39(1) of this Act applies in relation to any chargeable period, then, if any development losses accrued to him in that period, they shall for the purposes of section 176 or 179 of the Taxes Act ( Case VI losses) be treated as reduced by the amount of the development gains which, but for the said section 39(1), would have accrued to him in the period in which the development losses accrued.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) For any year of assessment in which a married woman is living with her husband, they shall be treated for the purposes of this paragraph as one person.

Insurance companies

9

• (1) Where, in the case of an insurance company carrying on life assurance business, a loss arising from general annuity business and attributable to a disposal of an interest in land to which the principal section applies falls (or would but for the following sub-paragraph fall) to be taken into account in the computation under section 312 of the Taxes Act (general annuity business and pension business: separate charge on profits), the development loss, if any, accruing to the company in respect of the disposal shall be computed as if [section 31(1) of the Capital Gains Tax Act 1979 ] (computation of chargeable gains: exclusion of sums taken into account in computing income) did not apply.

• (2) Development losses shall be left out of account in computing under the said section 312 the profits arising to an insurance company from general annuity business and, accordingly, in subsection (2) of section 313 of the Taxes Act (general annuity business), after paragraph (a) there shall be inserted as paragraph (aa)—[for text see 1970 s.313(2)(aa)].

• (3) This paragraph shall be construed as one with Chapter II of Part XII of the Taxes Act.

SCHEDULE 7

Individuals

1

For the purposes mentioned in subsection (3) of section 32 of the Finance Act 1971 (income tax charged at basic and other rates) a development gain accruing to an individual shall not be investment income.

2

• (1) An individual to whom a development gain accrues may on making a claim require that effect shall be given to the following provisions of this paragraph in relation to that gain.

• (2) If the interval between tthe claimant’s acquisition and disposal of the asset on the disposal of which the development gain accrued to him exceeds twelve months but does not exceed twenty-four months, then, for all income tax purposes, one-half only of the amount of the gain shall be treated as having arisen on the date of the disposal, and the remaining half shall be treated as having arisen twelve months before that date.

• (3) If the said interval exceeds twenty-four months but does not exceed thirty-six months, then, for all income tax purposes, one-third only of the amount of the gain shall be treated as having arisen on the date of the disposal, and one-third shall be treated as having arisen twelve months, and one-third twenty-four months, before that date.

• (4) If the said interval exceeds thirty-six months, then, for all income tax purposes, one-quarter only of the amount of the gain shall be treated as having arisen on the date of the disposal, and one-quarter shall be treated as having arisen twelve months, one-quarter twenty-four months, and one-quarter thirty-six months, before that date.

Companies: general

3

• (1) Subject to paragraph 4 below, advance corporation tax paid by a company shall not be set against its liability to corporation tax on any profits attributable to development gains and, accordingly, in section 85(6) of the Finance Act 1972 after the words “chargeable gains”, in both places where they occur, there shall be inserted the words “or development gains”.

• (2) In subsection (8) of section 95 and subsection (3) of section 96 of the Finance Act 1972 (where the income of a company is defined for the purposes of those sections by reference to the said section 85(6)), after the words “section 85(6) above” there shall be added the words “as originally enacted”.

Close companies

4

• (1) Paragraph 3(1) above shall not apply in the case of a close company as regards an accounting period for which the income of the company may under paragraph 1 of Schedule 16 to the Finance Act 1972 be apportioned among the participators or could be so apportioned apart from sub-paragraphs (2) and (3) of that paragraph; and accordingly section 85(6) of the Finance Act 1972 shall, in the case of a close company, have effect as regards any such accounting period as if the said paragraph 3(1) had not been enacted.

• (2) For the purposes of paragraph 11(1) of Schedule 16 to the Finance Act 1972 (close companies: definition of trading company) a development gain accruing to a company shall not be investment income.

5

In paragraph 10(8) of Schedule 16 to the Finance Act 1972 (order in which different descriptions of company’s income are to be treated as reduced by allowable deductions)—

• (a) in paragraph (b), for the word “and” there shall be substituted the words “other than estate or trading income attributable to development gains”;

• (b) in paragaph (c), for the words “chargeable gains” there shall be substituted the words “development gains; and”;

• (c) after paragraph (c) there shall be inserted as paragraph (d)—

(d) fourthly, so far as it cannot be made under (a), (b) or (c) above, from the amount included in the company’s profits in respect of chargeable gains.

6

After paragraph 14 of Schedule 16 to the Finance Act 1972 there shall be inserted the following paragraph—

(14A) (1) For the purposes of paragraph 14 above any part of a company’s distributable income which is attributable to development gains to which this paragraph applies shall be treated as not affected by any such restriction as is mentioned in sub-paragraph (1) of that paragraph, and the amount which would otherwise be disregarded under that sub-paragraph shall accordingly be reduced by an amount equal to that part. (2) This paragraph applies to any development gain accruing in respect of a disposal which is by virtue of section 45(1) of the Finance Act 1974 or paragraph 2(3) of Schedule 9 to that Act deemed to have been made. (3) Any deduction which under paragraph 10(8)(c) above is treated as made from the amount included in a company’s profits in respect of development gains shall for the purposes of this paragraph be treated as made first from any amount so included in respect of development gains to which this paragraph applies. (4) For the purposes of this paragraph the part, if any, of a company’s distributable income which is attributable to development gains to which this paragraph applies is the part attributable to such development gains after the making of any deduction under paragraph 10(8)(c) above in accordance with sub-paragraph (3) of this paragraph

Insurance companies

7

• (1) A development gain accruing to an insurance company carrying on life assurance business shall, if it accrues in respect of investments held in connection with that business, be treated for the purposes of sections 310 ( rate relief: investment income reserved for policy holders) and 315 (foreign life assurance funds) of the Taxes Act as if it were income from investments held in connection with that business.

• (2) Income attributable to development gains shall be left out of account in computing under section 312 of the Taxes Act (general annuity business and pension business: separate charge on profits) the profits arising to an insurance company from general annuity business and, accordingly, in subsection (2)(a) of section 313 of the Taxes Act ( general annuity business) for the words “and group income” there shall be substituted the words “group income and income attributable to development gains”.

• (3) Overseas life insurance companies shall be chargeable to corporation tax on income attributable to development gains in the same manner as other insurance companies carrying on life assurance business and, accordingly, in section 316 of the Taxes Act (overseas life insurance companies: charge on investment income) after subsection (1) there shall be inserted as subsection (1A)—[ for text see 1970 s.316(1A)].

(1A) In the preceding subsection “income” shall not include income attributable to development gains (but without prejudice to any claim under section 310 of this Act)

• (4) This paragraph shall be construed as one with Chapter II of Part XII of the Taxes Act.

Discretionary trusts

8

In section 17 of the Finance Act 1973 (payments under discretionary trusts), in subsection (3) (amounts to be set against tax assessable on trustees in connection with such payments), at the end of paragraph (d) there shall be inserted the words—

and (e) the amount of any tax on income arising to the trustees by virtue of section 38(2) of the Finance Act 1974 (development gains) and charged at a rate equal to the sum of the basic rate and the additional rate in pursuance of section 43(1) of that Act;

Estates of deceased persons in course of administration

9

• (1) Where a development gain has accrued to the personal representatives of a deceased person as such during the administration period, Part XV of the Taxes Act (estates of deceased persons in course of administration) shall have effect subject to the following provisions of this paragraph.

• (2) For the purposes of section 426(5) of the Taxes Act (relief from tax on deemed income in respect of a limited interest in a foreign estate)—

• (a) any income arising to the personal representatives of a deceased person as such by virtue of section 38(2) of this Act (development gains) shall be treated as not forming part of the aggregate income of the estate in question; and

• (b) any United Kingdom income tax borne by any such income shall be left out of account.

• (3) Section 427 of the Taxes Act (absolute interests in residue) shall have effect as if—

• (a) for subsection (3)(a) there were substituted—

(a) in the case of a United Kingdom estate— (i) in the first instance, as regards so much of his residuary income for that year as has borne income tax at the basic rate for that year, that much of that income less income tax at that rate, and (ii) subject to the preceding sub-paragraph, as regards so much of his residuary income for that year as has borne income tax at a rate equal to the sum of the basic rate and the additional rate for that year, that much of that income less income tax at the sum of those rates, and

• (b) in subsection (3), as amended by paragraph 53(b) of Schedule 6 to the Finance Act 1971, there were added at the end the words— “ or, where appropriate, at a rate equal to the sum of the basic rate and the additional rate ”; and

• (c) in subsection (4)(a), as amended by paragraph 53(c) of the said Schedule 6, after the words “the basic rate” there were inserted the words— “ or, in so far as it has borne income tax at a rate equal to the sum of the basic rate and the additional rate, at a rate equal to the sum of those rates ”.

• (4) Section 429 of the Taxes Act (special provisions as to certain interests in residue) shall have effect as if in subsection (2)(a), as amended by paragraph 55 of the said Schedule 6, after the words “the basic rate” there were inserted the words— “ or, in so far as it has borne income tax at a rate equal to the sum of the basic rate and the additional rate, at the sum of those rates ”.

• (5) This paragraph shall be construed as one with Part XV of the Taxes Act; and in sections 427 and 429 of that Act, as they have effect by virtue of this paragraph, “the additional rate” means the additional rate mentioned in section 32(1) of the Finance Act 1971 or, if more than one, the higher or highest of them.

Settlements on children

10

Where a development gain accrues in respect of a disposal of assets made by a person holding them as trustee for a person who would be absolutely entitled as against the trustee but for being an infant, the income which by virtue of section 38(2) of this Act is treated as arising by reference to that gain shall for the purposes of Chapter II of Part XVI of the Taxes Act (settlements on children) be deemed to be paid to the infant.

In this paragraph “infant”, in relation to Scotland, means a pupil or minor.

SCHEDULE 8

Persons chargeable to tax in respect of development gains

1

[Sections 2 and 12 of the Capital Gains Tax Act 1979 ] (persons chargeable to capital gains tax or corporation tax in respect of chargeable gains) shall have effect in relation to income tax or corporation tax in respect of development gains as they have effect in relation to capital gains tax or corporation tax in respect of chargeable gains.

Development gains accruing to non-resident companies and trusts

2

[Section 15 of the Capital Gains Tax Act 1979 ] (chargeable gains accruing to certain non-resident companies) shall have effect in relation to development gains as it has effect in relation to chargeable gains, subject to the modification that for the reference in subsection (7) to capital gains tax there shall be substituted a reference to income tax or corporation tax.

3

[Section 17 of the Capital Gains Tax Act 1979 ] (chargeable gains accruing to non-resident trusts) shall have effect in relation to development gains as it has effect in relation to chargeable gains, subject to the following modifications, that is to say—

• (a) in subsection (2), for the words “capital gains tax under [section 4(1) above]” there shall be substituted the words “income tax by virtue of section 38(2) of the Finance Act 1974”; and

• (b) for the references to capital gains tax in subsections (4)(b) and (5) there shall be substituted references to income tax or corporation tax.

Development gains accruing in connection with replacement of business assets

4

Where a development gain accrues to a person in respect of a disposal of an interest in land to which section 38 of this Act applies, being a disposal in relation to which section [sections 115 to 121 of the Capital Gains Tax Act 1979 ] (replacement of business assets) [apply ], then, if a claim under [those sections] is made as respects the whole or any part of the consideration for the disposal, the consideration obtained by him for the disposal shall be treated for the purposes of [those sections in their application] in relation to the disposal as if it were equal to the amount by which the actual consideration obtained by him exceeds the amount of the said development gain.

Development gains accruing in connection with company amalgamations

5

Where a company has issued shares or debentures to a person in exchange for shares or debentures in another company in a case falling within paragraph 20 of Schedule 3 to this Act, the amount of any development gain which accrued to him in respect of the disposal by him to the issuing company of the shares or debentures in the other company shall, in computing under [Chapter II of Part II of the Capital Gains Tax Act 1979 ] the gain accruing on a disposal of the shares or debentures so issued to him, be treated as an amount allowable under [section 32(1)(b) of that Act].

Transfer of business to a company

6

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

7

• (1) If, in a case where [section 123 of the Capital Gains Tax Act 1979 ] applies, any development gains accrue to the transferor in respect of his disposal (referred to below as “the original disposal”) of the assets included in the business, then, if the transferor makes a claim under this paragraph as respects the transfer, the following provisions of this paragraph shall apply.

This paragraph shall be construed as one with the [said section 123 .]

• (2) For the purposes of this paragraph—

• (a) “the net development gains” means the development gains accruing to the transferor in respect of the original disposal, as reduced by any development losses deducted from or set off against those gains under section 176 or 179 of the Taxes Act in accordance with paragraph 4 of Schedule 6 to this Act;

• (b) “the qualifying amount”—

• (i) if the business is transferred wholly in exchange for shares issued by the company to the transferor, means the amount of the net development gains;

• (ii) in any other case, means the amount by which what would have been the amount determined under [subsection (4) of the said section 123 ] if this Chapter had not been enacted exceeds the amount actually determined under [that subsection], or the amount of the net development gains, whichever is the smaller;

• (c) the qualifying amount shall be apportioned between the new assets ( that is to say, the shares received by the transferor in exchange for the business) as a whole, and, if those shares are not all of the same class, the apportionment between them shall be in accordance with their market values at the time they were acquired by the transferor.

• (3) The profits or gains chargeable to tax under Case VI of Schedule D on the transferor for the year of assessment in which the original disposal is made shall be reduced by the qualifying amount.

• (4) If the transferor disposes of shares comprised in the new assets, being all the shares of a particular class which are so comprised, then the amount apportioned to those shares under sub-paragraph (2)(c) above shall be treated as a development gain accruing to him in the year of assessment in which that disposal is made and as constituting profits or gains chargeable to tax under Case VI of Schedule D for that year.

• (5) If the transferor disposes of shares comprised in the new assets, being some but not all of the shares of a particular class which are so comprised ( so that the disposal constitutes a part disposal), then a fraction only of the amount apportioned to all the shares of that class under sub-paragraph (2)(c) above shall be treated as mentioned in the preceding sub-paragraph, and that fraction shall be the fraction of the sums mentioned in the following sub-paragraph which is allowable as a deduction in computing under [Chapter II of Part II of the Capital Gains Tax Act 1979 ] the amount of the gain accruing on that part disposal.

• (6) The sums referred to in the preceding sub-paragraph are the sums which, if all the shares of the class in question comprised in the new assets and remaining undisposed of immediately before the time of the part disposal in question had been disposed of at that time, would be allowable by virtue of [section 32(1)(a) and (b) of the Capital Gains Tax Act 1979 ] as a deduction in computing under [Chapter II of Part II of that Act] the gain accruing on the disposal of all those shares.

• (7) Where an individual to whom a development gain is treated as accruing by virtue of this paragraph makes a claim under paragraph 2 of Schedule 7 to this Act as respects that gain, sub-paragraphs (2) to (4) of that paragraph shall have effect in relation to that claim subject to the following modifications, that is to say—

• (a) the references to the interval between the claimant’s acquisition and disposal of the asset on the disposal of which the development gain accrued to him shall be read as references to the interval between the date when he acquired any of those assets of the business which caused development gains to accrue to him in respect of the original disposal and the date of the original disposal; and

• (b) the references to “the date of the disposal” shall be read as references to the date of the disposal of shares comprised in the new assets which is mentioned in sub-paragraph (4) or (5) above, as the case may be.

SCHEDULE 9

Interpretation

1

• (1) In this Schedule—

• “the five-year period”, in relation to a relevant chargeable building, means the period of five years beginning with the material date;

• “the interest of a relevant person”, in relation to a relevant chargeable building, means that interest of a relevant person in the relevant land by virtue of which he is a relevant person (and references to a relevant person’s interest shall be construed accordingly);

• “the principal section” means section 45 of this Act;

• “relevant chargeable building” means a chargeable building which after 17 th December 1973 is first let or occupied to a material extent after the commencement of the relevant development, other than a chargeable building in the case of which, by virtue of subsection (3) of the principal section, subsection (1) of that section does not apply;

• “relevant person”, in relation to a chargeable building which after 17 th December 1973 is first let or occupied to a material extent after the commencement of the relevant development, means any person who after that date, either by granting one or more leases or by his occupation of the whole or any part or parts of the chargeable building, caused or helped to cause the building to be let or occupied as aforesaid.

• (2) In the application of the principal section and this Schedule to Scotland,—

• “freehold” means the estate or interest of the proprietor of the dominium utile, or, in the case of property other than feudal property, of the owner;

• “reversion” means the interest of the landlord in property subject to a lease.

The interest of a relevant person

2

• (1) In the case of a relevant chargeable building, this paragraph shall apply in relation to the interest of a relevant person in the relevant land.

• (2) Subsection (1) of the principal section shall not apply to a relevant person’s interest in the relevant land on the material date unless on that date—

• (a) the relevant land is wholly or partly let under one or more leases granted by him; and

• (b) the rent or aggregate of the rents to which he is entitled under the lease or leases is £5,000 or more per annum,

and shall in any case not apply to his interest in so much, if any, of the relevant land as is occupied by him on that date.

For the purposes of this and the following sub-paragraph a relevant person who on any date occupies not less than 90 per cent. of the floor area of the relevant chargeable building shall be deemed to occupy on that date the whole of so much of the relevant land as is then subject to his interest (and references to occupation in this and the following sub-paragraph shall be construed accordingly).

• (3) Where by virtue of sub-paragraph (2) above subsection (1) of the principal section does not apply—

• (a) to a relevant person’s interest in the relevant land on the material date by reason of his occupation of so much of that land as is subject to that interest; or

• (b) to a relevant person’s interest in that land on that date so far as it is not occupied by him,

then, if within the five-year period the rent or aggregate of the rents to which he is entitled under any lease or leases by which he has let the whole or any part or parts of the relevant land becomes £5,000 or more per annum, he shall be deemed for the purposes of [ the Capital Gains Tax Act 1979 ] and Chapter I of this Part of this Act to have on the subsequent date disposed of and immediately re-acquired for a consideration equal to its market value his interest in so much of the relevant land as is not on the subsequent date occupied by him.

In this and the following sub-paragraph “the subsequent date” means the date within the five-year period on which the said rent or the aggregate of the said rents first becomes £5,000 or more per annum or, if this sub-paragraph would to any extent apply to a relevant person’s interest on the last-mentioned date but for his occupation on that date of not less than 90 per cent. of the floor area of the relevant chargeable building, the date (if any) within the five-year period on which he first occupies less than 90 per cent. of that floor area.

• (4) If before the end of the five-year period a relevant person—

• (a) in a case where subsection (1) of the principal section applies to his interest on the material date in so much of the relevant land as was not occupied by him on that date, ceases to occupy any part of the relevant land which was occupied by him on that date; or

• (b) in a case where sub-paragraph (3) above applies to his interest on the subsequent date in so much of the relevant land as was not occupied by him on that date, ceases to occupy any part of the relevant land which was occupied by him on that date,

then the said subsection (1) or sub-paragraph (3) shall apply to his interest in that part as if he had not been in occupation of it on the material date or the subsequent date, as the case may be (but without prejudice to the operation of this sub-paragraph in relation to his interest in any other such part of the relevant land which he may cease to occupy within the five-year period).

• (5) For the purposes of this paragraph the rent per annum to which a relevant person is entitled at any particular date under a lease of the whole or part of the relevant land shall be treated as being whichever of the following is the greater, that is to say—

• (a) the rent which at the time when the lease was granted was the rack-rent for so much of the relevant land as is let under the lease; and

• (b) the actual rent per annum to which he is entitled under the lease at that date.

Interests other than that of a relevant person

3

• (1) Subject to the following paragraphs of this Schedule, this paragraph (so far as applicable) shall in the case of a relevant chargeable building have effect with respect to any interest (other than the interest of a relevant person) which a person has in the relevant land on the material date, being a freehold interest or an interest under a lease or agreement for a lease.

• (2) Subsection (1) of the principal section shall not apply to a person’s freehold interest in the whole or part of the relevant land or to the interest of a lessee under a lease of the whole or part of the relevant land if at the material date—

• (a) that interest is not subject to any lease or agreement for a lease, and the rack-rent for so much of the relevant land as is subject to that interest is less than £5,000 per annum and cannot reasonably be expected to be increased to or above £5,000 per annum within the five-year period; or

• (b) that interest is subject to one or more leases or agreements for a lease extending, or together extending, to the whole of so much of the relevant land as is subject to that interest, and the rent or aggregate of the rents to which he is or is to be entitled under or by virtue of the said one or more leases or agreements is less than £5,000 per annum and cannot reasonably be expected to be increased to or above £5,000 per annum within the five-year period; or

• (c) that interest is subject to one or more leases or agreements for a lease extending, or together extending, to part only of so much of the relevant land as is subject to that interest, and the aggregate of—

• (i) the rent or aggregate of the rents to which he is or is to be entitled under or by virtue of the said one or more leases or agreements; and

• (ii) the rack-rent for the remainder of so much of the relevant land as is subject to that interest,

is less than £5,000 per annum and cannot reasonably be expected to be increased to or above £5,000 per annum within the five-year period.

• (3) Sub-paragraph (2) above shall apply in relation to the interest of a person under an agreement to grant him a lease of the whole or part of the relevant land as it applies in relation to the interest of a lessee under a lease of the whole or part of the relevant land, subject to the modification that in paragraphs (a) to (c) the references to his interest under that agreement being subject to one or more leases shall be omitted.

• (4) Where a person’s interest in the relevant land falls within sub-paragraph (1) above and is not excluded from the operation of subsection (1) of the principal section by any of the preceding provisions of this paragraph, the said subsection (1) shall not apply to that interest if the rent or aggregate of the rents to which he is or is to be entitled under or by virtue of any one or more leases or agreements for a lease to which at the material date that interest is subject does not, and cannot be made to, reflect the value or any part of the value of the relevant development.

• (5) Where—

• (a) the preceding sub-paragraph would apply to a person’s interest in the relevant land but for the fact that the rent or aggregate of the rents there mentioned can be made to reflect the value or part of the value of the relevant development; but

• (b) that rent or the aggregate of those rents cannot be made to reflect that value (or part of it) until a date as from which the rent or one or more of the rents in question could be increased under provisions for the review of the rent contained in any relevant lease or agreement,

then, if that person makes a claim under this sub-paragraph, subsection (1) of the principal section shall in the case of that interest or, if the rent or rents which can be increased as mentioned in paragraph (b) above extend to part only of a person’s interest, that part of his interest apply as if the last reference therein to the material date were a reference to the date mentioned in paragraph (b) of this sub-paragraph and, where the rent or rents which can be increased at that date extend to part only of a person’s interest, as if his interest in the relevant land were limited to that part.

4

• (1) In the case of a relevant chargeable building, paragraph 3 of this Schedule shall not have effect with respect to an interest which a person has in the relevant land on the material date, being either—

• (a) a freehold or leasehold interest which on the material date is subject to a lease or an agreement to grant a lease, being (in either case) a lease of which the term will expire within the period of twenty-five years from the commencement of the relevant development; or