Legalize / United Kingdom / Public General Act

Finance Act 1976

Type Public General Act

Publication 1976-07-29

Last updated 2024-02-22

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

Liability for tax in respect of transfer by spouse

119

(1) Section 25(8) of the Finance Act 1975 (which makes the transferor's spouse liable for tax in respect of a chargeable transfer to the extent of the value of property acquired by the spouse on another transfer made by the transferor) shall have effect as if for the reference to the value of the property (" the transferred property ") at the time of the other transfer there mentioned (" the spouse transfer") there were substituted a reference to the market value of the property at that time or, in a case where subsection (2) below applies, to the lower market value mentioned in paragraph (c) of that subsection.

(2) This subsection applies where—

(a) the chargeable transfer is made after the spouse transfer ; and

(b) the transferred property either remains the property of the transferor's spouse (" the transferee ") at the date of the chargeable transfer, or has before that date been sold by the transferee by a qualifying sale; and

(c) the market value of the transferred property on the relevant date (that is to say, the date of the chargeable transfer or, as the case may be, of the qualifying sale) is lower than its market value at the time of the spouse transfer; and

(d) the transferred property is not tangible movable property.

(3) In this section " market value " and " qualifying sale " have the same meanings as in section 99 above; and, subject to subsection (4) below, Schedule 12 to this Act shall have effect for the purposes of this section as it has effect for the purposes of that section.

(4) In its application by virtue of subsection (3) above Schedule 12 to this Act shall have effect as if—

(a) references to the chargeable transfer were references to the spouse transfer; and

(b) references to the transferee's spouse were omitted; and

Excluded property: reversionary interests

120

(1) In section 24(3) of the Finance Act 1975, after paragraph (a) there shall be inserted—

(aa) it is one to which either the settlor or his spouse is beneficially entitled ; or

(2) This section shall be deemed to have come into force on 16th April 1976, but shall not apply in relation to a reversionary interest under a settlement made before that date.

Deeds of family arrangement, etc.

121

(1) In section 47 of the Finance Act 1975, after section (1) there shall be inserted—

(1A) Where property comprised in a person's estate immediately before his death is settled by his- will and, within the period of two years after his death and before any interest in possession has subsisted in the property, a distribution payment (within the meaning of paragraph 6 of Schedule 5 to this Act) is made out of the property or an event occurs on the happening of which a capital distribution would (apart from this subsection) be treated as so made under paragraphs 6(2) or 15(3) of that Schedule, then— (a) the making of the distribution payment shall not be a capital distribution, and paragraphs 6(2) and 15(3) shall have effect on the happening of the event as if the references in them to a capital distribution were references to a distribution payment, and (b) this Part of this Act shall apply as if the will had provided that on the testator's death the property should be applied or held as it is applied by the distribution payment or held after the happening of the event. (1B) Where a testator expresses a wish that property bequeathed by his will should be transferred by the legatee to other persons, and the legatee transfers any of the property in accordance with that wish within the period of two years after the death of the testator— (a) the transfer shall not be a transfer of value, and (b) this Part of this Act shall have effect as if the property transferred had been bequeathed by the will to the transferee.

(2) Subsection (1) above applies in relation to deaths before as well as after the passing of this Act, and shall have effect in relation to a death occurring after 9th December 1972 but before 13th March 1975 as if the references to the period of two years after the death were references to the period ending with 13th March 1977.

Inheritance (Provision for Family and Dependants) Act 1975

122

(1) Where an order is made under section 2 of the Inheritance (Provision for Family and Dependants) Act 1975 in relation to any property forming part of the net estate of a deceased person, then, without prejudice to section 19(1) of that Act, the property shall for the purposes of capital transfer tax be treated as if it had on his death devolved subject to the provisions of the order.

(2) Where an order is made under section 10 of the said Act of 1975 requiring a person to provide any money or other property by reason of a disposition made by the deceased, then—

(a) if that disposition was a chargeable transfer and the personal representatives of the deceased make a claim for the purpose—

(i) tax paid or payable on the value transferred by that chargeable transfer (whether or not by the claimants) shall be repaid to them by the Board or, as the case may be, shall not be payable ; and

(ii) the rate or rates of tax applicable to the transfer of value made by the deceased on his death shall be determined as if the values previously transferred by chargeable transfers made by him were reduced by that value;

(b) the money or property shall be included in the deceased's estate for the purpose of the transfer of value made by him on his death.

(3) Where the money or other property ordered to be provided under the said section 10 is less than the maximum permitted by that section subsection (2)(a) above shall have effect in relation to such part of the value there mentioned as is appropriate.

(4) The adjustment in consequence of the provisions of this section or of section 19(1) of the said Act of 1975 of the tax payable in respect of the transfer of value made by the deceased on his death shall not affect—

(a) the amount of any deduction to be made under section 8 of that Act in respect of tax borne by the person mentioned in subsection (3) of that section ; or

(b) the amount of tax to which regard is to be had under section 9(2) of that Act;

and where a person is ordered under that Act to make a payment or transfer property by reason of his holding property treated as part of the deceased's net estate under section 8 or 9 and tax borne by him is taken into account for the purposes of the order, any repayment of that tax shall be made to the personal representatives of the deceased and not to that person.

(5) Tax repaid under paragraph (a)(i) of subsection (2) above shall be included in the deceased's estate for the purposes of the transfer of value made by him on his death; and tax repaid under that paragraph or under subsection (4) above shall form part of the deceased's net estate for the purposes of the said Act of 1975.

(6) A distribution payment made in compliance with an order under the said Act of 1975 shall not be a capital distribution; and where an order under that Act provides for property to be settled or for the variation of a settlement and, apart from this subsection—

(a) tax would be charged under paragraph 4(2) of Schedule 5 to the Finance Act 1975 on the coming into force of the order; or

(b) a capital distribution would be treated as made on that occasion under any other provision of the said Schedule 5,

the said paragraph 4(2) shall not apply and any such provision as is mentioned in paragraph (b) above shall apply as if it referred to a distribution payment instead of a capital distribution.

(7) In subsections (2)(a) and (5) above " tax " includes interest on tax.

(8) Tax overpaid or underpaid in consequence of subsection (1) above or of the said section 19(1) shall not carry interest for any period before the order there mentioned is made; and tax repayable on a claim under subsection (2) above shall carry interest (which shall not constitute income for any tax purposes) at the rate for the time being applicable under paragraph 19(1)(ii) of Schedule 4 to the Finance Act 1975 from the date on which the claim is made.

(9) This section applies in relation to deaths after 6th April 1976.

Legitim

123

(1) Where a testator dies leaving a surviving spouse and a person under the age of 18 entitled to claim legitim, and provision is made in his will or other testamentary document for a disposition to his spouse which, if it could take effect, would leave insufficient property in the estate to satisfy the entitlement of that person in respect of legitim, the following provisions of this section shall apply.

(2) Subject to subsections (3) and (4) below, tax shall be charged at the testator's death as if the disposition to the spouse did not include any amount in respect of legitim, but if within the period mentioned in subsection (8) below the person or persons concerned renounce their claim to legitim, tax shall be repaid to the estate calculated on the basis that the disposition to the spouse did include the amount renounced, and the tax to be repaid shall carry interest at the rate for the time being set out in paragraph 19(1)(c)(i) of Schedule 4 to the Finance Act 1975 from the date on which the tax was paid.

(3) The executors or judicial factor of the testator may, in accordance with the provisions of this section, elect that subsection (2) above shall not apply but that subsection (4) below shall apply.

(4) Tax shall be charged at the testator's death as if the disposition to the spouse had taken effect, but where the person or persons concerned claim legitim within the period mentioned in subsection (8) below, tax shall be charged on the amount so claimed calculated on the basis that the legitim fund had been paid out in full at the testator's death (excluding any part of the fund renounced before any claim has been made) and the tax chargeable thereon had been apportioned rateably among the persons entitled to claim legitim (excluding any who have renounced as aforesaid) and the amount of tax charged shall carry interest at the rate mentioned in subsection (2) above as if paragraph 19(1)(b) of Schedule 4 to the Finance Act 1975 had applied.

(5) Section 8(3) and (4) of the Finance Act 1894 and section 25(5)(a) of the Finance Act 1975 shall not apply in relation to tax charged by virtue of subsection (4) above but the person liable in respect of that tax shall be the person who claims legitim and any person mentioned in section 25(5)(c) of that Act, and section 27(1) of that Act shall apply in relation to the person who claims legitim as it applies in relation to the personal representatives of a deceased person.

(6) Where within the period mentioned in subsection (8) below a person renounces his claim to legitim, that shall not be a transfer of value.

(7) Where the executors or judicial factor of the testator decide to make an election under subsection (3) above they shall give notice in writing of that election to the Board within two years from the date of death of the testator or such longer period as the Board may permit.

(8) For the purposes of subsections (2) and (4) above, a person shall be treated as having claimed legitim unless he has renounced his claim before attaining the age of 18 or he renounces his claim within two years of his attaining that age or such longer period as the Board may permit.

(9) Where a person dies before attaining the age of 18 or before making a renunciation under subsection (8) above the provisions of this section shall apply in relation to that person's executors or judicial factor as they would have applied in relation to that person if that person had attained the age of 18 with the substitution of the date of death of that person for the date on which a person attained that age, but where the executors or factor renounce a claim to legitim in respect of a person the amount renounced shall not be treated as part of that person's estate.

(10) Where subsection (2) above applies in relation to any estate, then notwithstanding anything in paragraph 24 of Schedule 4 to the Finance Act 1975 the Board may repay tax under that subsection without limit of time.

(11) Where subsection (4) above applies in relation to any estate, then notwithstanding anything in section 11 of the Finance Act 1894 or paragraph 25 of Schedule 4 to the Finance Act 1975 a certificate of discharge may be given under the said section 11 or the said paragraph 25 in respect of the whole estate, and notwithstanding anything in section 8(7) of the Finance Act 1894 or paragraph 23 of Schedule 4 to the Finance Act 1975 the giving of the certificate shall not preclude the Board from claiming tax under subsection (4) above without limit of time.

(12) In the case of a testator who died before 13th March 1975, any reference in this section to tax includes a reference to estate duty.

(13) This section has effect in relation to the estate of any testator who died after 12th November 1974 and extends to Scotland only.

Acceptance of property in satisfaction of tax

124

In Schedule 4 to the Finance Act 1975, in paragraph 17(4), for paragraphs (a) and (b) there shall be substituted—

(a) any picture, print, book, manuscript, work of art, scientific object or other thing which the Treasury are satisfied is pre-eminent for its national, scientific, historic or artistic interest;

Double taxation relief

125

(1) For paragraph 8 of Schedule 7 to the Finance Act 1975 (unilateral double taxation relief) there shall be substituted—

(8) (1) Where the Board are satisfied that in any territory outside the United Kingdom (an " overseas territory ") any amount of tax imposed by reason of any disposition or other event is attributable to the value of any property, then, if— (a) that tax is of a character similar to that of capital transfer tax or is chargeable on or by reference to death or gifts inter vivos ; and (b) any capital transfer tax chargeable by reference to the same disposition or other event is also attributable to the value of that property, they shall allow a credit in respect of that amount (" the overseas tax") against that capital transfer tax in accordance with the following provisions. (2) Where the property is situated in the overseas territory and not in the United Kingdom, the credit shall be of an amount equal to the overseas tax. (3) Where the property— (a) is situated neither in the United Kingdom nor in the overseas territory ; or (b) is situated both in the United Kingdom and in the overseas territory, the credit shall be of an amount calculated in accordance with the following formula— $$A A + B × C$ where A is the amount of the capital transfer tax, B is the overseas tax and C is whichever of A and B is the smaller.$ (4) Where tax is imposed in two or more overseas territories in respect of property which— (a) is situated neither in the United Kingdom nor in any of those territories ; or (b) is situated both in the United Kingdom and in each of those territories, sub-paragraph (3) above shall apply as if, in the formula there set out, B were the aggregate of the overseas tax imposed in each of those territories and C were the aggregate of all, except the largest, of A and the overseas tax imposed in each of them. (5) Where credit is allowed under sub-paragraph (2) above or paragraph 7 above in respect of overseas tax imposed in one overseas territory, any credit under sub-paragraph (3) above in respect of overseas tax imposed in another shall be calculated as if the capital transfer tax were reduced by the credit allowed under sub-paragraph (2) or paragraph 7; and where, in the case of any overseas territory mentioned in sub-paragraph (3) or (4) above, credit is allowed against the overseas tax for tax charged in a territory in which the property is situated, the overseas tax shall be treated for the purposes of those paragraphs as reduced by the credit. (6) In this paragraph references to tax imposed in an overseas territory are references to tax chargeable under the law of that territory and paid by the person liable to pay it. (7) Where relief can be given both under this paragraph and paragraph 7 above, relief shall be given under whichever paragraph provides the greater relief.

(2) This section has effect in relation to dispositions and other events after 6th April 1976.

Part V — Miscellaneous and Supplementary

Stamp duty: exemption for transfers of loan capital

126

Stamp duty: stock exchange transfers

127

(1) Stamp duty shall not be chargeable on any transfer to a stock exchange nominee which is executed for the purposes of a stock exchange transaction.

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

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In section 33(1) of the Finance Act 1970 (composition by Stock Exchange in respect of transfer duty) after the words “" the heading ” “Conveyance or Transfer on Sale ” there shall be inserted the words “ ““or”Conveyance or Transfer of any kind not hereinbefore described ” ”and the words “being instruments executed for the purposes of stock exchange transactions as defined in section 4(1) of the Stock Transfer Act 1963 ” shall be omitted.

(5) This section shall be construed as one with the Stamp Act 1891 and in this section—

“jobber” means a member of The Stock Exchange who is recognised by the Council thereof as carrying on the business of a jobber and carries on that business in the United Kingdom;

“stock exchange nominee” means any person designated for the purposes of this section as a nominee of The Stock Exchange by an order made by the Secretary of State;

“stock exchange transaction” has the meaning given in section 4 of the Stock Transfer Act 1963 .

(6) The power to make an order under subsection (5) above shall be exercisable by statutory instrument and includes power to vary or revoke a previous order.

(7) Section 33 of the Finance Act 1970 shall extend to Northern Ireland; and in the application of that section and this section to Northern Ireland for any reference to the Stock Transfer Act 1963 there shall be substituted a reference to the Stock Transfer Act (Northern Ireland) 1963 .

Stamp duty: chargeable transactions in respect of capital companies

128

Development gains

129

Petroleum revenue tax

130

(1) Schedule 2 to the Oil Taxation Act 1975 (management and collection) shall be amended as follows.

(2) In paragraph 12(1), after paragraph (c) there shall be inserted

or (d) that for any chargeable period they ought to have made an assessment to tax instead of a determination of loss or a determination of loss instead of an assessment to tax;

and for the words “adjustments in assessments or determinations" there shall be substituted the words “assessments or determinations or amendments of assessments or determinations".

(3) After paragraph 12(2) there shall be inserted—

(3) Where under this paragraph the Board make an assessment or determination or amend an assessment or determination they shall give notice thereof to the participator concerned; and sub-paragraphs (4), (5) and (6) of paragraph 10 above shall apply in relation to any such assessment, determination or amendment as they apply in relation to an assessment or determination under that paragraph.

(4) In paragraph 14(1) after the words “an assessment or determination" there shall be inserted the words “or an amendment of an assessment or determination" and at the end there shall be inserted the words “or of the notice of the amendment".

(5) In paragraph 14(9), in paragraph (a), for the words “or determination" there shall be substituted the words “, determination or amendment" and for the words from “on the adjustments" onwards there shall be substituted the words “on how the assessment, determination, amendment or decision should be varied or on what assessment or determination should be substituted in relation to the chargeable period in question, the same consequences shall ensue as if the Commissioners had determined the appeal to that effect."

(6) For paragraph 14(10) there shall be substituted—

(10) If, on the appeal, it appears to a majority of the Commissioners present at the hearing that the assessment, determination or amendment is wrong— (a) because no, or a smaller, assessable profit or a, or a larger, allowable loss has accrued for the chargeable period in question; or (b) because a, or a larger, assessable profit or no, or a smaller, allowable loss has accrued for that period, the Commissioners shall vary the assessment, determination or amendment in such manner, or substitute such assessment or determination, as may be required; and it shall be for the participator to satisfy the Commissioners as to any matter within paragraph (a) above.

(7) In paragraph 14(11) for the words “the determination of the Special Commissioners in any proceedings" there shall be substituted the words “the determination by the Special Commissioners of any appeal".

Inter-American Development Bank

131

(1) The following provisions of this section shall have effect on the United Kingdom’s becoming a member of the Inter-American Development Bank (“the Bank").

(2) A security issued by the Inter-American Development Bank shall be taken for the purposes of capital transfer tax . . . to be situated outside the United Kingdom.

(3) No stamp duty shall be chargeable under Schedule 15 to the Finance Act 1999 (bearer instruments) ... on the transfer of the stock constituted by, or transferable by means of, any instrument issued by the Bank.

Citation, interpretation, construction and repeals

132

(1) This Act may be cited as the Finance Act 1976.

(2) In this Act “the Taxes Act” means the Income and Corporation Taxes Act 1970.

(3) In this Act—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) Part III, so far as it relates to income tax, shall be construed as one with the Income Tax Acts, so far as it relates to corporation tax shall be construed as one with the Corporation Tax Acts and, so far as it relates to capital gains tax, shall be construed as one with the Capital Gains Tax Act 1979;

(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(5) The enactments mentioned in Schedule 15 to this Act (which include spent enactments) are hereby repealed to the extent specified in the third column of that Schedule, but subject to any provision at the end of any Part of that Schedule.

SCHEDULES 1, 2

SCHEDULE 2

SCHEDULE 3

The Customs and Excise Act 1952

1

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2–4

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3

In section 249(5) of that Act for the words " and producers of wine or made-wine " there shall be substituted the words " producers of wine or made-wine and makers of cider ".

4

In section 253(3) of that Act for the words "or licensed producer of wine or made-wine " there shall be substituted the words " licensed producer of wine or made-wine or registered maker of cider ".

5

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6

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7

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The Finance Act 1964

8

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The Finance (No. 2) Act 1975

9

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SCHEDULE 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preliminary

1

In this Schedule references to any sections not otherwise identified are to sections of the Taxes Act and " Schedule 1 " means Schedule 1 to that Act.

Short-term assurances

2

A policy which secures a capital sum payable only on death or payable either on death or on earlier disability shall not be a qualifying policy within the meaning of Schedule 1 if the capital sum is payable only if the event in question happens before the expiry of a specified term ending less than one year after the making of the insurance.

Relief by deduction from premiums

3

(1) In section 19(1) for the words " if the claimant " to the end there shall be substituted the words " an individual who pays any such premium as is specified in subsection (2) below shall (without making any claim) be entitled to relief under this section, and Schedule 4 to the Finance Act 1976 shall apply with respect to that relief. "

(2) In section 19(2)—

(a) for the words from " by the claimant" to " (ii) with under writers " there shall be substituted the words " by an individual under a policy of insurance or contract for a deferred annuity, where—

(a) the payments are made to—

(i) any insurance company legally established in the United Kingdom or any branch in the United Kingdom of an insurance company lawfully carrying on in the United Kingdom life assurance business (as denned in section 323(2) of this Act); or

(ii) underwriters; "

(b) in sub-paragraphs (iii) and (iv) of paragraph (a) the word " with " shall be omitted ;

(d) at the end of paragraph (c) there shall be added the words " or his spouse ".

4

(1) Relief under section 19 in respect of any premiums paid by an individual in a year of assessment shall be given by making good to the person to whom they are paid any deficiency arising from the deductions authorised under paragraph 5 below.

(2) Where the individual is not resident in the United Kingdom but is entitled to relief by virtue of subsection (2) of section 27, sub-paragraph (1) above shall not apply but (subject to the proviso to that subsection) the like relief shall be given to him under paragraph 15 below.

5

Subject to the following provisions of this Schedule,—

(a) an individual resident in the United Kingdom who is entitled to relief under section 19 in respect of any premium may deduct from any payment in respect of the premium and retain an amount equal to 17 ½ per cent. thereof ; and

(b) the person to whom the payment is made shall accept the amount paid after the deduction in discharge of the individual's liability to the same extent as if the deduction had not been made and may recover the deficiency from the Board.

Limit on deductions authorised under paragraph 5

6

(1) Where the premiums payable in any year in respect of any policy or contract exceed £1,500 the percentage mentioned in paragraph 5(a) above is a percentage of such part only of any payment as bears to the whole thereof the same proportion as £1,500 bears to the total amount of the premiums so payable ; but without prejudice to the operation of paragraph 15 below in any case where by virtue of this paragraph the relief given under section 19 is reduced below the limit specified in section 21.

(2) In this paragraph " year " means the twelve months beginning with the making of the assurance or contract and any subsequent period of twelve months.

Husband and wife

7

Subsection (7) of section 19 shall be omitted.

8

The references in section 19 to an individual's spouse shall include any person who was that individual's spouse at the time the insurance or contract was made, unless the marriage was dissolved before 6th April 1979.

9

Where an election under section 23 of the Finance Act 1971 is in force, the relief to which either the husband or the wife is entitled under section 19 in respect of an insurance or contract on the life of the other or made by the other shall not be affected by paragraph 3 of Schedule 4 to that Act (which requires relief to be determined as if the husband and the wife were not married).

10

Where, throughout a year of assessment, a woman is a married woman living with her husband, then—

(a) if no election under section 38 is in force, section 21 and paragraph 15 below shall apply as if any relief to which the wife is entitled under section 19 were relief to which the husband is entitled ; and

(b) if an election under section 38 is in force, section 21 and paragraph 15 below shall apply separately to the amounts paid by each of them, but as if for the limit specified in section 21 there were substituted, in relation to each of them, a limit of £750 or one-twelfth of their total income, whichever is the greater, plus any amount by which the payments in respect of which relief can be given to the other fall short of the limit so substituted.

Industrial assurance policies

11

(1) This paragraph applies to—

(a) a policy issued in the course of an industrial assurance business as denned in section 1(2) of the Industrial Assurance Act 1923 or the Industrial Assurance Act (Northern Ireland) 1924; and

(b) a policy issued by a registered friendly society in the course of tax exempt life or endowment business (as denned in section 337(3)).

(2) If a policy to which this paragraph applies was issued before the passing of this Act section 19 shall have effect in relation to it as if subsections (2)(b), (3) and (4) were omitted ; and if a policy to which this paragraph applies was issued after the passing of this Act, paragraph (b) of section 19(2) shall have effect in relation to it as if it permitted the insurance to be on the life of the individual's parent or grandparent or, subject to sub-paragraph (3) below, on the life of the individual's child or grandchild.

(3) Relief may be given in respect of premiums under a policy of insurance on the life of an individual's child or grandchild which is issued after the passing of this Act as if paragraph (b) of section 19(3) were omitted, but may be given only if the annual amount of the premiums, together with that of any relevant premiums, does not exceed £52 ; and for this purpose a relevant premium, in relation to an insurance made at any time on the life of an individual's child or grandchild, is any premium under a policy of insurance on the same life, where the insurance is made at the same time or earlier, whether it is made by the individual or any other person.

(4) In this paragraph " child " has the same meaning as in section 10 and " grandchild ", " parent" and " grandparent " have corresponding meanings.

12

In paragraph 4(1) of Schedule 1, sub-paragraph (iii) of paragraph (d) shall be omitted, together with the " and " preceding it, and after paragraph (d) there shall be inserted the words " or if the policy was issued before 6th April 1976, or was issued before 6th April 1979 and is in substantially the same form as policies so issued before 6th April 1976. ".

Premiums payable to friendly societies and industrial assurance companies

13

(1) Where a policy is issued by a registered friendly society or a policy to which paragraph 11 above applies is issued by an industrial assurance company, paragraphs 4 and 5 above shall apply in relation to premiums payable under the policy subject to the following modifications.

(2) References to the deductions authorised under paragraph 5 shall be construed as including references to any amount retained by or refunded to the person paying the premium under any scheme made by the society or company in accordance with regulations made under this paragraph.

(3) The appropriate authority may make regulations authorising—

(a) the adoption by registered friendly societies and industrial assurance companies of any prescribed scheme for securing that in the case of policies or contracts to which the scheme applies amounts equal to 17 ½ per cent. of the premiums payable are retained by or refunded to the person paying the premiums or that, in the case of such policies or contracts issued or made before 6th April 1979, the amounts expressed as the amounts of the premiums payable are treated as amounts arrived at by deducting 17 ½ per cent. from the amounts payable and that the amounts of the capital sums assured or guaranteed are treated as correspondingly increased ; or

(b) the adoption by any such society or company of any special scheme for that purpose which may, in such circumstances as may be prescribed, be approved by the appropriate authority.

(4) Increases treated as made in pursuance of regulations under this paragraph shall not be treated as variations of a policy or contract and shall be disregarded for the purposes of section 332 of and paragraph 4 of Schedule 1 to the Taxes Act and section 7(6) of the Finance Act 1975 ; and the regulations may include such adaptations and modifications of the enactments relating to friendly societies or industrial assurance companies and such other incidental and supplementary provisions as appear to the appropriate authority necessary or expedient for the purpose of enabling such societies or companies to adopt the schemes authorised by the regulations.

(5) Subsections (4), (5) and (7) to (11) of section 6 of the Decimal Currency Act 1969 shall, with the necessary modifications, apply in relation to regulations made under this paragraph.

Supplementary provisions as to relief under section 19

14

Where it appears to the Board that the relief (if any) to which a person is entitled under section 19 has been exceeded or might be exceeded unless the premiums payable by him under any policy were paid in full, they may by notice in writing to that person and to the person to whom the payments are made exclude the application of paragraph 5 above in relation to any payments due or made after such date as may be specified in the notice and before such date as may be specified in a further notice in writing to those persons.

15

(1) Where in any year of assessment the relief to which a person is entitled under section 19 has not been fully given in accordance with the preceding provisions of this Schedule, he may claim relief for the difference, and relief for the difference shall then be given by a payment made by the Board or by discharge or repayment of tax or partly in one such manner and partly in another; and where the relief given to any person in accordance with the preceding provisions of this Schedule exceeds that to which he is entitled under section 19, he shall be liable to make good the excess and an inspector may make such assessments as may in his judgment be required for recovering the excess.

(2) The Taxes Management Act 1970 shall apply to any assessment under this paragraph as if it were an assessment to tax for the year of assessment in which the relief was given and as if—

(a) the assessment were among those specified in sections 55(1) (recovery of tax not postponed) and 86(2) (interest on overdue tax) of that Act; and

(b) the sum charged by the assessment were tax specified in paragraph 3 of the Table in section 86(4) of that Act (reckonable date).

16

(1) The Board may make regulations for carrying the preceding provisions of this Schedule into effect.

(2) Without prejudice to the generality of sub-paragraph (1) above, regulations under this paragraph may provide—

(a) for the manner in which claims for the recovery of any sum under paragraph 5(b) above may be made ;

(b) for the furnishing of such information by persons by or to whom premiums are payable as appears to the Board necessary for deciding such claims and for exercising their powers under paragraph 14 or paragraph 15 above ; and

(c) for requiring persons to whom premiums are paid to make available for inspection by an officer authorised by the Board such books and other documents in their possession or under their control as may reasonably be required for the purpose of determining whether any information given by those persons for the purposes of this Schedule is correct and complete.

(3) In section 98 of the Taxes Management Act 1970 (penalty for failure to furnish information etc.) the following shall be added in the second column of the Table:

	Regulations under paragraph 16 of Schedule 4 to the Finance Act 1976

(4) The following provisions of the Taxes Management Act 1970, that is to say—

(a) section 29(3)(c) (excessive relief);

(b) section 30 (recovery of tax repaid in consequence of fraud or negligence);

(d) section 95 (incorrect return or accounts);

shall apply in relation to the payment of a sum claimed under paragraph 5(b) above to which the claimant was not entitled as if it had been income tax repaid as a relief which was not due.

17

A notice given to a person under section 8 of the Taxes Management Act 1970 may require him to include in the return of his income particulars of premiums paid by him or his wife living with him under policies of life insurance or contracts for deferred annuities and of deductions made from the premiums payable.

Consequential amendments

18

(1) In section 5 after the words "who makes a claim in that behalf " there shall be inserted the words " (or, in the case of relief under section 19 below, who satisfies the conditions of that section) ".

(2) In section 25(2) the words " section 19 or " shall be omitted.

(3) The proviso to section 27(2) shall have effect as if the amount of any relief to which an individual is entitled under section 19 were an amount by which his liability to income tax is reduced.

(4) In section 39(1)(c) the words " 19 or " shall be omitted.

19

(1) In section 7(5) of the Finance Act 1975 for the words " the basic rate of income tax in force " there shall be substituted the words " the percentage found by doubling that mentioned in paragraph 5(a) of Schedule 4 to the Finance Act 1976 as in force ".

(2) In section 8(2) of the Finance Act 1975 for the words " one half of the basic rate of income tax in force " there shall be substituted the words " that mentioned in paragraph 5(a) of Schedule 4 to the Finance Act 1976 as in force ".

(3) In paragraph (b) of section 9(4) of the Finance Act 1975 for the words from " income tax " where they first occur to " liability " there shall be substituted " section 19 of the Taxes Act as a sum paid by that person in satisfaction of his liability " and in the words following the paragraph the words " increase in " shall be omitted.

(4) In paragraph 7(1) of Schedule 2 to the Finance Act 1975 there shall be substituted—

(a) for the words " the conditions of paragraphs (a) and (d)(iii) of that sub-paragraph are satisfied " the words " the condition of paragraph (a) of that sub-paragraph is satisfied " ",

(b) for the words " they are not " the words " it is not" ; and

20

In section 20 the following shall be omitted:—

(a) in subsection (1), paragraph (a) and the words " on the amount of the premium paid by him or " ;

(b) subsection (2) ;

(d) in subsection (5), the words " premiums or" and the proviso; and

(e) subsection (6).

21

(1) Section 21 shall be amended as follows.

(2) In subsection (1) for the words " sections 19 and 20 " there shall be substituted the words " section 19 " and for the words " one-sixth of that person's total income" there shall be substituted the words " £1,500 in any year of assessment or one-sixth of that person's total income, whichever is the greater ".

(3) Subsection (1A) shall be omitted.

(4) In subsection (3) for the words " the said sections " there shall be substituted the words " sections 19 and 20 above ".

(5) In subsection (4) for the words " one-half of the basic rate " there shall be substituted " 17 ½ per cent. " and the words " premiums or " in paragraph (b) and the words following that paragraph shall be omitted.

SCHEDULE 5

PART I — Income Tax

Entitlement to relief

1

(1) Where a person carries on a trade in respect of which he is within the charge to income tax under Case I of Schedule D and—

(a) the value of his trading stock at the end of a period of account (the " closing stock value ") exceeds

(b) the value of his trading stock at the beginning of that period (the " opening stock value "),

he shall, subject to the provisions of this Schedule, be entitled to relief under this paragraph by reference to the amount of that excess (the " increase in stock value ").

(2) The amount of relief to which a person is entitled under this paragraph for any trade in respect of any period of account is the amount of the increase in stock value in that period less 15% of the relevant income of that trade for that period.

(3) A person shall not be entitled to relief under this paragraph in respect of any period of account unless a claim for the relief is made within two years after the end of the year of assessment in which that period of account ends.

Charge by way of recovery of relief

2

(1) Where a person carries on a trade in respect of which he is within the charge to income tax under Case I of Schedule D and in a period of account his closing stock value is less than his opening stock value, then, subject to the provisions of this Schedule, a charge by way of recovery of relief shall be made on him, on whichever is the lesser of—

(a) the whole amount of the reduction in stock value in that period; or

(b) the amount of unrecovered past relief allowed to him for that trade.

(2) Where during or at the end of a period of account a person carrying on a trade ceases to do so, or ceases to be within the charge to income tax tinder Case I of Schedule D in respect of the trade, he is not entitled to relief or liable to a charge in respect of that period under the foregoing provisions of this Part, but a final charge by way of recovery of relief shall be made on him on an amount equal to the unrecovered past relief allowed to him for that trade.

This sub-paragraph is subject to paragraphs 20 and 21 below (which provide for continuity in the case of certain successions).

(3) Where during or at the end of a period of account a person carrying on a trade ceases (by virtue of ceasing to be resident in the United Kingdom) to be within the charge to income tax under Case I of Schedule D in respect of a part of the trade, he shall be treated for the purposes of this Schedule as if that part were a separate trade carried on by him in that period ; and all necessary apportionments between the two parts of the trade (including the apportionment of unrecovered past relief allowed for that trade) shall be made by reference to the respective values of the trading stock of each part immediately after that event.

Method of giving effect to relief or charge

3

(1) Relief under paragraph 1 above in respect of any period of account shall be given as a deduction in charging the profits or gains of the trade to income tax for the relevant year of assessment.

The relief shall be deducted before any deduction is made for capital allowances.

(2) A charge under paragraph 2 above in respect of any period of account shall be made by means of an assessment to income tax on the profits or gains of the trade—

(a) in the case of a charge under paragraph 2(1), for the relevant year of assessment; and

(b) in the case of a charge under paragraph 2(2) for the year of assessment in which the discontinuance or other event takes place.

Any such assessment is in addition to any other assessment falling to be made on the profits or gains of the trade for the year of assessment in question.

Top-slicing

4

(1) Where a trade has been carried on by a person for more than one year before the discontinuance or other event on which a charge under paragraph 2(2) above falls to be made on him, then his liability to tax for the year of assessment for which the charge is made shall, on a claim made by him within two years of the end of that year of assessment, be reduced in accordance with the following provisions of this paragraph.

(2) The reduction is the amount of the difference between—

(a) the tax on the whole amount on which the charge is made (the " chargeable amount"), calculated on the basis set out in sub-paragraph (4) below ; and

(b) the tax (if any) on the appropriate fraction of the chargeable amount, calculated on the same basis, and multiplied by the reciprocal of the appropriate fraction.

(3) The " appropriate fraction " depends on the period for which the trade has been carried on before the discontinuance or other event and is—

(a) one-half if the trade has been so carried on for more than one but less than two years ;

(b) one-third if it has been so carried on for two years or more.

(4) The amounts of tax referred to in sub-paragraph (2) are to be calculated on the following assumptions—

(a) that the person's total income does not include any amount in respect of which he is chargeable to tax under section 80, 81 or 82 of the Taxes Act (premiums, etc. treated as rent), section 187 of that Act (payments on retirement or removal from office) or section 399(1)(a) of that Act (gains from life policies, etc);

(b) that deductions to be made in computing the tax are so far as possible set against sums other than the chargeable amount (or the fraction of it);

(c) that the chargeable amount (or fraction), after any deductions remaining to be made after applying paragraph (b), is the highest part of the person's total income (notwithstanding any other provisions of the Income Tax Acts directing any other income to be so treated).

(5) Where a claim under this paragraph for any year of assessment is made in respect of more than one trade, the paragraph applies to each chargeable amount individually as if there were only one charge in that year.

(6) For the purposes of section 400, paragaphs 3 and 4 of Schedule 3 and paragraph 8 of Schedule 8 of the Taxes Act (other top-slicing provisions) a person's total income shall not be treated as including any amount as a result of a charge under paragraph 2(2).

Meaning of " relevant year of assessment" and " basis period "

5

(1) This paragraph provides for ascertaining the relevant year of assessment in relation to a period of account for the purposes of this Part of this Schedule.

(2) In this Part of this Schedule—

(a) the "basis period" for any year of assessment means the period on the profits or gains of which income tax for that year falls to be finally computed under Case I of Schedule D in respect of the trade in question, or, where, by virtue of any provision of section 115 of the Taxes Act, the profits or gains of any other period are to be taken as the profits or gains of the said period, that other period ; and

(b) references to a period of account entering into a basis period are to the period of account, or any part of it, falling within or coinciding with that basis period.

(3) Where a period of account enters into the basis period for only one year of assessment, that year is the relevant year of assessment in relation to that period of account.

(4) Where a period of account enters into the basis period for more than one year of assessment, then—

(a) if this is by virtue of section 116 or 117 of the Taxes Act (commencement of trade), the relevant year of assessment in relation to that period of account is the first year of assessment into whose basis period the period of account enters ; and

(b) in any other case, the relevant year of assessment is the last such year of assessment.

(5) Where a period of account does not enter into the basis period for any year of assessment, the relevant year of assessment in relation to that period of account is that following the year of assessment in which the period of account ends.

Right to set unused relief against general income

6

(1) Subject to the provisions of this paragraph, a claim made under section 168 of the Taxes Act (set-off of losses against general income) for relief in respect of a loss sustained by the claimant in a trade in any year of assessment (the " year of loss ") may require the amount of that loss to be determined as if an amount equal to the relief to which he is entitled under this Part of this Schedule for the year of assessment for which the year of loss is the basis year were to be deducted in computing the profits or gains or losses of the trade in the year of loss.

(2) A claim may be made under the said section 168 for relief in respect of a loss sustained by the claimant in any trade in any year of assessment notwithstanding that—

(a) unless relief under this Part of this Schedule is brought into account; or

(b) unless there are brought into account both that relief and capital allowances (by virtue of section 169 of the Taxes Act),

the claimant will not have sustained a loss in the trade in that year.

(3) Relief for any year of assessment shall be taken into account by virtue of this paragraph only if and so far as it is not required to offset any charge for that year under paragraph 2; and for the purposes of this sub-paragraph the relief for a year of assessment shall be treated as required to offset the charge for a year up to the amount on which the charge falls to be made after deducting from it the amount (if any) of relief for earlier years which is carried forward to that year and would, if not set against the charge, be unused in that year.

(4) Where the relief taken into account by virtue of this paragraph is that for the year of assessment for which the claim is made or for the preceding year (the year of loss being the basis year for that year itself, or the claim being made by way of carry forward of the loss by virtue of section 168(2) of the Taxes Act), effect shall not be given to that relief in respect of an amount greater than the amount unused in the year for which the claim is made, or, in the case of relief for the preceding year, the amount unused in both years.

(5) For the purposes of this paragraph—

(a) where the end of the basis period for a year of assessment falls in, or coincides with the end of, any year of assessment, that year is the basis year for the first mentioned year of assessment, but so that, if a year of assessment would under the foregoing provision be the basis year both for that year itself and for another year of assessment, it shall be the basis year for the year itself and not for the other year,

(b) any reference to the relief or charge for a year of assessment shall be construed as a reference to the relief or charge falling to be given effect in that year (excluding, in the case of relief, any part of the relief for an earlier year carried forward under paragraph 7 below),

(c) any reference to an amount of relief unused in a year shall be construed as referring to the amount by which, by reason of an insufficiency of profits or gains, effect cannot be given in that year, and

(d) effect shall be deemed to be given to relief carried forward from an earlier year before it is given to relief for a later year.

(6) Where, on a claim made by virtue of this paragraph, relief is not given under section 168 of the Taxes Act for the full amount of the loss determined as mentioned in sub-paragraph (1) above, the relief under that section shall be attributed to the loss sustained by the claimant in the trade rather than to the relief under this Schedule in respect of that trade, but shall be attributed to relief under this Schedule rather than to the capital allowances in respect of the trade brought into account by virtue of section 169 of the Taxes Act.

(7) Where a claim is made under the said section 168 by a person who, since the end of the year for which the claim is made, has carried on the trade in question in partnership, then effect shall be given to this paragraph in relation to that claim only with the consent in writing of every other person engaged in carrying on the trade between the end of that year and the making of the claim, except that where the claim is for a loss sustained before an event treated as the permanent discontinuance of the trade, the consent is not required of a person so engaged only since the discontinuance.

(8) If a person whose consent is required under sub-paragraph (7) has died, the consent in writing of his personal representatives is required instead.

Carry forward of unused relief

7

(1) Where, in any year of assessment, full effect cannot be given to any relief falling to be allowed under this Part of this Schedule owing to there being no profits or gains of the trade chargeable for that year, or owing to the profits or gains chargeable being less than the amount of the relief, the relief or part of the relief to which effect has not been given, as the case may be, shall be carried forward and, for the purpose of making the assessment to income tax for the following year, be added to the amount of relief for that year and be deemed to be part of that relief, or, if no relief falls to be allowed for that year, be deemed to be relief for that year, and so on for succeeding years.

(2) This paragraph has effect subject to paragraph 6 above.

8

In computing for the purposes of Schedule 2 to the Social Security Act 1975 the amount of the profits or gains of a trade in respect of which Class 4 contributions are payable—

(a) deductions or additions shall be made under paragraph 2 of that Schedule for any relief or charge under this Part of this Schedule which falls to be made in charging profits or gains to income tax under Case I of Schedule D; and

(b) paragraphs 6 and 7 above shall be included among the relief provisions to which paragraph 3(1) of that Schedule applies.

PART II — Corporation Tax

Entitlement to relief

9

(1) Where a company carries on a trade in respect of which it is within the charge to corporation tax under Case I of Schedule D and—

(a) the value of its trading stock at the end of a period of account (the " closing stock value ") exceeds

(b) the value of its trading stock at the beginning of that period (the " opening stock value "),

the company shall, subject to the provisions of this Schedule, be entitled to relief under this paragraph by reference to the amount of that excess (the " increase in stock value ").

(2) The amount of relief to which a company is entitled under this paragraph for any trade in respect of any period of account is the amount of the increase in stock value in that period less 152 of the relevant income of that trade for that period.

(3) A company shall not be entitled to relief under this paragraph unless a claim for the relief is made within two years after the end of the period of account in respect of which the relief is claimed.

Charge by way of recovery of relief

10

(1) Where a company carries on a trade in respect of which it is within the charge to corporation tax under Case I of Schedule D and in a period of account its closing stock value is less than its opening stock value, then, subject to the provisions of this Schedule, a charge by way of recovery of relief shall be made on the company, on whichever is the lesser of—

(a) the whole amount of the reduction in stock value in that period; or

(b) the amount of unrecovered past relief allowed to the company for that trade.

(2) Where during or at the end of a period of account a company carrying on a trade ceases to do so, or ceases to be within the charge to corporation tax under Case I of Schedule D in respect of the trade, it is not entitled to relief or liable to a charge in respect of that period under the foregoing provisions of this Part, but a final charge by way of recovery of relief shall be made on the company on an amount equal to the unrecovered past relief allowed to it for that trade.

This sub-paragraph is subject to paragraphs 20 and 21 below (which provide for continuity in the case of certain successions).

(3) Where during or at the end of a period of account a company carrying on a trade ceases (by virtue of ceasing to be resident in the United Kingdom) to be within the charge to corporation tax in respect of a part of the trade, it shall be treated for the purposes of this Schedule as if that part were a separate trade carried on by it in that period; and all necessary apportionments between the two parts of the trade (including the apportionment of unrecovered past relief allowed for that trade) shall be made by reference to the respective values of the trading stock of each part immediately after that event.

11

(1) Where there is a change of ownership of a company and section 483 of the Taxes Act applies so as to restrict the carrying forward of losses incurred before the change, then relief to which those disallowed losses are attributable shall, although unrecovered in periods of account ending before the change of ownership nevertheless be disregarded in ascertaining the amount of unrecovered past relief in later periods of account.

(2) Relief to which disallowed losses are attributable is that which was not given effect in the period of account or base period for which it was allowed or in a subsequent period of account.

(3) For the purposes of sub-paragraph (2) relief is assumed to be given effect before capital allowances and profits or gains are assumed to be set against losses attributable to relief before other losses. Section 483(5) of the Taxes Act has effect subject to this sub-paragraph.

(4) For the purpose of ascertaining the extent to which relief to which disallowed losses are attributable has been recovered in periods of account ending before the change of ownership, it shall be assumed—

(a) that relief is recovered from earlier periods before later periods ; and

(b) that effect is given to relief from earlier periods before later periods.

Method of giving effect to relief or charge

12

(1) Relief under paragraph 9 above in respect of any period of account shall, subject to the provisions of this paragraph, be given effect by treating the amount of the relief as a trading expense of the trade in that period.

(2) A charge under paragraph 10 above in respect of any period of account shall, subject to the provisions of this paragraph, be given effect by treating the amount on which the charge is to be made as a trading receipt of the trade in that period.

(3) Where a trade is set up and commenced by a company during a period of account, any amount which in accordance with this paragraph falls to be treated as an expense or receipt of the trade in that period, shall be brought into account only in respect of the accounting period, or periods, beginning with or after that commencement.

(4) Where during a period of account a company carrying on a trade ceases to do so, or ceases in respect of it to be within the charge to corporation tax under Case I of Schedule D, any relief or charge which in accordance with this paragraph falls to be treated as an expense or receipt of the trade in that period, shall be brought into account only in respect of the accounting period, or periods, ending on or before that discontinuance or other event.

PART III — Link With Previous Stock Relief Provisions

Interpretation

13

In this Part of this Schedule, "Schedule 10 " means Schedule 10 to the Finance (No. 2) Act 1975, "Schedule 10 relief" means relief under that Schedule and " base period " means a base period (including a further base period) as defined in that Schedule.

Entry into operation of Parts I and II

14

(1) The provisions of this paragraph indicate the periods of account to which Parts I and II of this Schedule apply (being, in most cases, the periods of account falling after the base period for which Schedule 10 relief was given).

(2) The periods of account in respect of which entitlement to relief or liability to charge may arise under Part I of this Schedule are, subject to sub-paragraph (3) below, those falling after the following—

(a) the last period of account ending in the year 1974-75 ; or

(b) if no period of account ended in that year, the first period of account ending after 5th April 1975.

(3) Where a trade was set up and commenced after 5th April 1974 and there is no period of account ending in the year 1974-75, such entitlement or liability may arise in respect of any period of account the whole or part of which falls after that commencement.

(4) The periods of account in respect of which entitlement to relief or liability to charge may arise under Part II of this Schedule are, subject to sub-paragraph (5) below, those falling after the following—

(a) the last period of account ending in the financial year 1974 ; or

(b) if no period of account ended in that year, the first period of account ending after 31st March 1975.

(5) Where a trade was set up and commenced after 31st March 1974 and there is no period of account ending in the financial year 1974, such entitlement or liability may arise in respect of any period of account the whole or part of which falls after that commencement.

Transitional relief

15

(1) The provisions of this paragraph apply for supplementing Schedule 10 relief in the case of persons whose base period ended after 5th April 1975, or, in the case of a company, 31st March 1975 (the relief having been proportionately reduced in those cases).

(2) There is entitlement to transitional relief under this paragraph—

(a) where the base period of a person other than a company ended after 5th April 1975 and a claim for relief is made before 6th April 1978 ;

(b) where a company's base period ended after 31st March 1975 and a claim for relief is made within two years after the end of the base period.

(3) In either case the amount of transitional relief is given by the formula

$$(B−I)×MN$ where— B is the base period increase, as defined in paragraph 1(1) or 6(1) of Schedule 10, I is 15 per cent. of the relevant income for the base period, computed in accordance with this Schedule, M is, in the case of a person other than a company, the lesser of 12 or the number of months in the base period in excess of 24, and, in the case of a company, is the number of months between the end of the accounting period ending in the financial year 1974 and the end of the base period, and N is the number of months in the base period.$

(4) Where a base period consists of a number of complete months and a fraction of a month or consists only of a fraction of a month, references in this paragraph to the number of months in that period shall be construed as including that fraction, or as a reference to that fraction, as the case may be.

(5) Transitional relief to which a person other than a company is entitled shall be given as a deduction in charging the profits or gains of the trade to income tax for the last year of assessment in the basis period for which (as defined in paragraph 5 above) there falls the whole or any part of the period of account whose end also marks the end of the base period.

(6) Transitional relief to which a company is entitled shall be given effect by treating the amount of the relief as a trading expense of the trade in the accounting period whose end also marks the end of the base period.

(7) Any claim, or adjustment of a claim, for any other relief which falls to be made in consequence of a claim for transitional relief may be made at any time when a claim for transitional relief could be made, notwithstanding that it would otherwise be out of time.

(8) All such adjustments shall be made in any assessments to tax as are necessary to give effect to the provisions of this paragraph.

Succession during or at end of base period

16

(1) In this paragraph " succession " means such a succession in the persons engaged in carrying on a trade as is mentioned in paragraph 13 of Schedule 10, and "predecessor" and "successor" mean the persons so engaged before and after a succession.

(2) Where there was a succession within the 12 months before the end of the base period and—

(a) the predecessor was an individual, a partnership or a company ; and

(b) the successor was a company,

the inspector may, on an application by the successor, notwithstanding anything in Schedule 10, apportion the relief falling to be given under that Schedule as seems to him just between the predecessor and successor.

(3) Where there was a succession at the end of the base period, the successor may elect that the predecessor's closing stock value at the end of the base period be reduced in accordance with Schedule 10, notwithstanding anything in paragraphs 5, 11 and 12 of that Schedule (change of persons engaged in carrying on a trade to be treated as cessation of that trade).

(4) An application or election under this paragraph must be made by notice in writing to the inspector by 1st January 1977 or after that date but within two years after the end of the base period.

(5) Any claim, or adjustment of a claim, for other relief which falls to be made in consequence of an application or election under this paragraph may be made at any time when the application or election could be made, notwithstanding that it would otherwise be out of time.

(6) All such adjustments shall be made in any assessments to tax as are necessary to give effect to the provisions of this paragraph.

Time limit for claiming Schedule 10 relief

17

A claim by a company for Schedule 10 relief may be made at any time before 1st January 1977 notwithstanding that the time limit imposed by paragraph 6(3) of that Schedule has expired.

Recovery of Schedule 10 relief

18

(1) The provisions of this paragraph apply for making Schedule 10 relief and relief under this Part recoverable in the same way as relief under Part I or II of this Schedule.

(2) The reference in paragraph 26 below (meaning of " past relief " for purposes of recovery of relief) to the amount of Schedule 10 relief allowed to any person in respect of a trade is to—

(a) the amount by which his closing stock value at the end of the base period was reduced in accordance with paragraph 1(2)(a)(i) or 6(2)(a)(i) of Schedule 10 ; together with

(b) the amount of any relief to which he is entitled under this Part.

(3) In ascertaining the amount of Schedule 10 relief no account is to be taken of any diminution directed by paragraph 8(3) of that Schedule in the case where the end of the base period coincided with the end of the reference period for relief under section 18 of the Finance Act 1975.

(4) For the purpose of ascertaining at any time the amount of unrecovered past relief allowed to any person in respect of a trade, relief given to a predecessor by virtue of paragraph 16 above shall be treated as if given to the successor.

(5) In consequence of the foregoing provisions of this paragraph paragraph 1(2)(b) and paragraph 6(2)(b) of Schedule 10 are repealed and shall be deemed never to have had effect; and no account shall be taken for any of the purposes of this Schedule of any reduction in the value of trading stock under section 18(4) of the Finance Act 1975.

PART IV — General

Partnerships

19

(1) Where a trade is carried on by persons in partnership, entitlement to relief or liability to charge under this Schedule is a joint entitlement or liability, and any claim for relief under this Schedule shall be a single claim made in the partnership name.

(2) Where none of those persons is a company, entitlement to relief and liability to charge under this Schedule shall be ascertained and given effect as if the trade were carried on by an individual.

(3) Where any of those persons is a company, entitlement to relief and liability to charge under this Schedule shall be ascertained as if the partnership were a company and shall be given effect in accordance with the following provisions of this paragraph.

(4) A company's share in any such entitlement or liability in any accounting period of the partnership shall be determined according to the interests of the partners during that period, and shall be given effect as if the share derived from a trade carried on by the company alone in its corresponding accounting period or periods.

In this sub-paragraph "corresponding accounting period or periods" means the accounting period or periods of the company comprising or together comprising the accounting period of the partnership, and any necessary apportionment shall be made between corresponding accounting periods if more than one.

(5) The share in any such entitlement or liability of the partner or partners other than companies shall be given effect as if that share derived from a trade carried on by him, or, as the case may be, by them in partnership, otherwise than in partnership with a company.

Successions

20

(1) The provisions of this paragraph apply—

(a) where the whole or part of a trade carried on by one company (" the predecessor ") is transferred to another company ("the successor") and section 252 of the Taxes Act (company reconstructions) has effect in relation to that event; or

(b) where the whole of a trade carried on by an individual or by persons in partnership (" the predecessor ") is transferred to a company resident in the United Kingdom ("the successor ") and at the date of the transfer not less than three-quarters of the ordinary share capital of the company is held by that individual or those persons,

and, in either case, the trading stock is transferred at cost or at market value.

(2) Where the whole of a trade is transferred and the predecessor and successor so elect, then, for the purposes of this Schedule—

(a) the trading stock transferred shall be treated both as forming part of the predecessor's closing stock in his period of account which ends with or includes the date of transfer, and as forming part of the successor's opening stock in his period of account which begins with or includes the date of transfer ; and

(b) in ascertaining in that or any later period of account the amount of unrecovered past relief allowed to a person in respect of the trade, the successor shall be treated as having carried on the trade since the predecessor began (or is himself treated, by virtue of this sub-paragraph or of any other provision of this Schedule, as having begun) to do so.

(3) Where part of a trade is transferred and the predecessor and successor so elect, then, for the purposes of this Schedule, the predecessor shall be treated as having carried on in the period of account during or at the end of which the transfer occurs a separate trade consisting of the part transferred; and all necessary apportionments between the two parts of the trade (including the apportionment of unrecovered past relief allowed for the trade) shall be made by reference to the respective values of the trading stock of each part immediately after the transfer.

(4) An election under this paragraph shall be by notice in writing signed by both the predecessor and the successor and sent to the inspector within two years after the date of the transfer.

21

(1) Subject to the provisions of this paragraph, where there is a change in the persons engaged in carrying on a trade, this Schedule applies as if the trade had been permanently discontinued at the date of the change and a new trade had been then set up and commenced.

For the purposes of this paragraph, a change in the personal representatives of any person, or in the trustees of any trust, shall not be treated as a change in the persons carrying on any trade carried on by those personal representatives or trustees as such.

(2) Where there is a change of persons but—

(a) a person engaged in carrying on the trade immediately before the change continues to be so engaged immediately after the change; and

(b) the trading stock of the trade immediately before the change is the trading stock immediately after the change,

an election may be made to the effect that sub-paragraph (1) shall not apply to the change.

(3) An election under this paragraph must be made by all the persons engaged in carrying on the trade before the change ("the predecessors ") and all those so engaged immediately after the change (" the successors "), and be signed by them and sent to the inspector within two years after the date of the change.

Where those persons have elected under section 154(2) of the Taxes Act that the trade be treated as continuing for income tax purposes, they shall be treated as having also made an election under this paragraph.

(4) In ascertaining for the purposes of this Schedule the amount of unrecovered past relief allowed to a person in respect of a trade where at an earlier date a change in the persons carrying on that trade has been the subject of an election under this paragraph, the successors (in relation to that change) shall be treated as having carried on the trade since the predecessors began (or are themselves treated, by virtue of this sub-paragraph or of any other provision of this Schedule, as having begun) to do so.

(5) Where during a period of account there is a change in the persons engaged in carrying on a trade, and—

(a) an election is made under this paragraph ; but

(b) no election is made under section 154(2) of the Taxes Act in relation to that change,

any relief or charge under this Schedule in respect of that period of account shall be apportioned between the precedessors and successors according to the respective lengths of the parts of the period falling before and after the change, and for the purpose of giving effect to that relief or charge each of those parts shall be treated as if it were a separate period of account.

Adjustment for special circumstances

22

(1) Where any arrangements have been effected by a person carrying on a trade, or by him and other persons acting together, such as, in particular, the following—

(a) any acquisition or disposal of trading stock otherwise than in the normal course of the trade in question ; or

(b) any change in the normal pattern or method of carrying on the trade; or

(d) any increase in the value of a person's trading stock which is associated with a decrease in the trading stock of another person connected with him (within the meaning of section 533(5) or (6) of the Taxes Act),

and it appears that the sole or main benefit which, but for this paragraph, might have been expected to accrue to that person was the obtaining of relief or the reduction of the amount of a charge under this Schedule, an adjustment shall be made under this paragraph.

(2) The adjustment is to substitute, for the purposes of this Schedule, for any opening or closing value of trading stock in any period of account which appears to have been affected by the arrangements, the value which it appears there would have been had those arrangements not been made.

Valuation of stock in certain cases

23

(1) For the purposes of this Schedule in ascertaining the entitlement of a person to relief, or his liability to a charge, in respect of any period of account—

(a) in a case where at any time during the twelve months preceding the beginning of that period of account he was not carrying on the trade in question ; or

(b) in a case where during that period of account there was a major alteration in the conduct of the trade in question which resulted in an exceptional increase in his trading stock,

he shall be treated as having at the beginning of that period of account trading stock of such value as may be attributed in accordance with this paragraph.

(2) If for any of the purposes of this Schedule there falls to be ascertained the value of any trading stock at a date other than the beginning or end of a period of account and when no value was in fact determined, that value shall be such as may be attributed in accordance with this paragraph.

(3) The value to be attributed is such value as is reasonable and just having regard to all the relevant circumstances of the case, and in particular—

(a) to the opening and closing values of trading stock of the trade for that period of account;

(b) to movements during that period of account in the costs of items of a kind comprised in the person's trading stock during the period; and

Discontinuity in stock values

24

(1) Where a person's closing stock value in a period of account is not calculated on the same basis as that used for the calculation of the opening stock value in that period, he shall be treated, for the purposes of this Schedule, as having at the beginning of that period trading stock of the amount he would have had if the basis of calculation had been that used for the closing stock value.

(2) Where a person's opening stock value in a period of account (including a value he is treated as having by virtue of sub-paragraph (1) above or of any other provision of this Schedule) is less than the amount of unrecovered past relief allowed to him for that trade, he shall be treated, for the purposes of this Schedule, as having at the beginning of that period trading stock of an amount equal to the amount of unrecovered past relief.

Farm animals

25

(1) Animals treated as trading stock under Schedule 6 to the Taxes Act (farm animals etc.) shall, subject to the provisions of this paragraph, be so treated for the purposes of this Schedule.

(2) Where a person makes an election for the herd basis under that Schedule which takes effect during a period of account, animals forming part of a herd with respect to which the election has effect shall be treated for the purposes of this Schedule as not having been trading stock of that person at any time during that period.

(3) Where a person makes an election for the herd basis under that Schedule then at the end of the last period of account not affected by the election (hereafter referred to as "the point of election ") the unrecovered past relief allowed to him for the fanning or other trade in question (including the relief in respect of that period of account) shall be apportioned between the herd and the rest of his trading stock by reference to their respective values at the point of election, and in subsequent periods of account that part attributed to the herd is recoverable in accordance with the following provisions of this paragraph.

(4) A charge by way of recovery of relief shall be made where in a period of account for which the election has effect there is a reduction of the number of animals in the herd and—

(a) in the case of the first period in respect of which such a charge arises, the number at the end of that period is less than the number of animals in the herd at the point of election (that difference being referred to hereafter as " the relevant number "); or

(b) in the case of any subsequent period in respect of which such a charge arises, the number at the end of that period is less than the number of animals in the herd at the end of the last preceding period of account in respect of which such a charge arose (that difference being referred to hereafter as " the relevant number ").

This paragraph also applies (subject to sub-paragraph (6) below) where the person ceases to keep the herd and the first-mentioned number in paragraph (a) or (b) above is accordingly nil.

(5) The amount on which the charge to be made is the amount which bears to the whole amount of unrecovered past relief attributed to the herd at the point of election, the same proportion as the relevant number of animals in relation to the period of account in question bears to the number of animals in the herd at the point of election.

(6) Where a herd is sold as a whole and another production herd of the same class is acquired, this paragraph applies as if those herds were the same herd.

(7) A charge under this paragraph shall be treated for all purposes as if it were a charge by way of recovery of relief under paragraph 2 or 10 above falling to be made for the farming or other trade in question, and shall be given effect accordingly.

(8) In this paragraph "herd" and "production herd" have the same meaning as in Schedule 6 to the Taxes Act, and this paragraph applies (as does that Schedule), with the necessary adaptations, to animals or other creatures kept singly as it applies in relation to herds.

Meaning of " past relief "

26

(1) References in this Schedule to " past relief", in relation to a trade carried on by any person in any period of account, are to the aggregate amount of the following reliefs allowed to him (or treated as allowed to him)—

(a) Schedule 10 relief (as defined in paragraph 18 above) allowed for that trade ; and

(b) relief under Part I or Part II of this Schedule allowed for that trade in respect of earlier periods of account.

(2) The amount of unrecovered past relief in any period of account is that aggregate amount less the aggregate of the amounts on which charges by way of recovery of relief have been made on that person for that trade in respect of earlier periods of account.

Application to professions and foreign trades etc.

27

(1) The foregoing provisions of this Schedule have effect, with the necessary modifications, in relation to professions and vocations chargeable under Case II of Schedule D as they have effect in relation to trades chargeable under Case I of that Schedule.

(2) The foregoing provisions of this Schedule (including sub-paragraph (1) of this paragraph) have effect, with the necessary modifications, in relation to trades, professions and vocations carried on outside the United Kingdom and chargeable under Case V of Schedule D otherwise than on a remittance basis as they have effect in relation to trades, professions and vocations chargeable under Case I or Case II of that Schedule, except that where, in charging the income from that trade, profession or vocation, a deduction of one quarter of the amount of that income falls to be allowed under section 23(3) of the Finance Act 1974 (income charged to income tax otherwise than on remittance basis) the amount of relief under this Schedule shall be confined to three-quarters of the amount which would have been applicable had the trade, profession or vocation been chargeable under the said Case I or Case II.

Interpretation

28

(1) In this Schedule " period of account" means a period for which an account is made up in relation to the trade, profession or vocation in question.

(2) For the purposes of this Schedule a source of income is "within the charge to" income tax or corporation tax if that tax is chargeable on the income arising from it, or would be so chargeable if there were any such income, and references to a person or to profits or gains, being within the charge to tax shall be similarly construed.

29

(1) Subject to the provisions of this paragraph, in this Schedule " trading stock" means property of any description, whether real or personal, being either—

(a) property such as is sold in the ordinary course of the trade, profession or vocation in question, or would be so sold if it were mature or if its manufacture, preparation or construction were complete ; or

(b) materials such as are used in the manufacture, preparation or construction of any such property as is referred to in paragraph (a) above,

and includes work in progress.

(2) Sub-paragraph (1) above does not apply to—

(a) securities, which for this purpose includes stocks and shares; or

(b) land, other than such as is ordinarily sold in the course of the trade, profession or vocation only—

(i) after being developed by the person carrying on the trade, profession or vocation, or

(ii) in the case of a company which is a member of a group, for the purpose of being developed by another company in that group ; or

(3) In sub-paragraph (2) above, references to development are references to the construction or substantial reconstruction of buildings on the land in question and "group" shall be construed in accordance with section 272 of the Taxes Act.

(4) For the purposes of this Schedule the value of a person's trading stock at any time shall be reduced to the extent to which payments on account have been made at or before that time in respect of that stock.

(5) References in this Schedule to trading stock are to the trading stock brought into account in computing the profits or gains of a trade, profession or vocation in accordance with Case I or, as the case may be, Case II of Schedule D.

(6) Where a person not resident in the United Kingdom carries on a trade partly within the United Kingdom and partly abroad, references in this Schedule to his trading stock are to the stock attributable to that part of the trade within the charge to United Kingdom tax.

30

In this Schedule " work in progress " means—

(a) any services performed in the ordinary course of the trade, profession or vocation, the performance of which was partly completed at the material time and for which it would be reasonable to expect that a charge will subsequently be made; and

(b) any article produced, and any such material as is used, in the performance of any such services.

31

(1) In tins Schedule " relevant income" in relation to a person carrying on a trade, profession or vocation, means the income from that trade, profession or vocation computed in accordance with the rules applicable to Case I or, as the case may be, Case II of Schedule D.

(2) In computing, for the purposes of this Schedule, the relevant income for any period of account—

(a) no account shall be taken of any set-off or reduction of income by virtue of section 168, 171, 174, 177 or 178 of the Taxes Act, in respect of losses ;

(b) no deduction or addition shall be made by virtue of any provision of this Schedule, in respect of any relief or charge; and

(c) no account shall be taken of any reduction in the value of trading stock directed by section 18 of the Finance Act 1975 or Schedule 10 to the Finance (No. 2) Act 1975

but there shall be taken into account any deduction or addition in respect of capital allowances and balancing charges referable to that period of account.

(3) In a case falling within Part I of this Schedule, the capital allowances and balancing charges referable to a period of account are—

(a) the first year and initial allowances claimed for expenditure incurred in that period ;

(b) balancing allowances and charges on disposals in that period ; and

(c) the appropriate fraction of the writing down allowances for the year which in relation to that period of account is the relevant year of assessment for the purposes of the said Part I.

(4) The appropriate fraction mentioned in sub-paragraph (3)(c) is the fraction of which the denominator is the number of months during which the trade was carried on in the relevant year of assessment and the numerator is the number of months during which the trade was carried on in the period of account.

For the purposes of this sub-paragraph fractions of a month shall be disregarded.

(5) In a case falling within Part II of this Schedule the capital allowances referable to a period of account are the allowances (less any balancing charges) for the accounting period or periods constituting that period of account.

(6) In a case falling within Part III of this Schedule the relevant income for the base period there referred to is the aggregate amount of the relevant income for each of the periods of account comprising that period, and the capital allowances and balancing charges referable to each such period of account shall be ascertained as if those periods were periods to which Part I or, as the case may be, Part II of this Schedule applied.

32

Any reference in this Schedule to a period ending in another period includes a reference to a period ending on the same day as the other period.

SCHEDULE 6

SCHEDULE 7

PART I — Tables of Flat Rate Cash Equivalents

PART II — Supplementary Provisions

Application of Tables A and B

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