Finance Act 1978

• (5) For the purposes of subsection (4) above—

• (a) no account shall be taken of any payment to the trustees if or to the extent that it consists of the proceeds of a disposal of rights arising under a rights issue; and

• (b) in relation to a particular disposal the amount of the payment or, as the case may be, of the aggregate of the payments referred to in that subsection shall be taken to be reduced by an amount equal to the total of the reduction (if any) previously made under that subsection in relation to earlier disposals ;

and any reference in subsection (4) or paragraph (a) above to the rights arising under a rights issue is a reference to rights conferred in respect of a participant's shares, being rights to be allotted, on payment, other shares in the same company.

• (6) Where the disposal referred to in subsection (1) above is made from a holding of shares which were appropriated to the participant at different times, then, in determining for the purposes of this Chapter—

• (a) the initial market value and the locked-in value of each of those shares, and

• (b) the percentage which is the appropriate percentage in relation to each of those shares,

the disposal shall be treated as being of shares which were appropriated earlier before those which were appropriated later.

• (7) If at any time the participant's beneficial interest in any of his shares is disposed of, the shares in question shall be treated for the purposes of this Chapter as having been disposed of at that time by the trustees for (subject to subsection (8) below) the like consideration as was obtained for the disposal of the beneficial interest; and for the purpose of this subsection there is no disposal of the participant's beneficial interest if and at the time when—

• (a) in England and Wales or Northern Ireland that interest becomes vested in any person on the insolvency of the participant or otherwise by operation of law, or

• (b) in Scotland, that interest becomes vested in a judicial factor, in a trustee on the participant's sequestrated estate or in a trustee for the benefit of the participant's creditors.

• (8) If—

• (a) a disposal of shares falling within subsection (1) above is a transfer to which section 54(1)(c) above applies, or

• (b) the Board is of opinion that any other disposal falling within that subsection is not at arm's length and accordingly direct that this subsection shall apply, or

• (c) a disposal of shares falling within that subsection is one which is treated as taking place by virtue of subsection (7) above and takes place within the period of retention,

then for the purposes of this Chapter the proceeds of the disposal shall be taken to be equal to the market value of the shares at the time of the disposal.

• (9) In subsection (5) above " shares ", in the context of shares allotted or to be allotted on a rights issue, includes securities and rights of any description.

Capital receipts in respect of scheme shares

56

• (1) Subject to the provisions of this section if, in respect of or by reference to any of a participant's shares, the trustees become entitled, before the release date, to receive any money or money's worth (in this section referred to as a " capital receipt"), the participant shall be chargeable to income tax under Schedule E for the year of assessment in which the entitlement arises on the appropriate percentage (determined as at the time when the trustees become so entitled) of the amount or value of the receipt.

• (2) Money or money's worth is not a capital receipt for the purposes of this section if or, as the case may be, to the extent that—

• (a) income in the hands of the recipient for the purposes of income tax; or

• (b) it consists of the proceeds of a disposal falling within section 55 above ; or

• (c) it consists of new shares within the meaning of section 57 below.

• (3) If, pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in the participant's shares is for the time being vested, the trustees—

• (a) dispose of some of the rights arising under a rights issue, as defined in section 55(5) above, and

• (b) use the proceeds of that disposal to exercise other such rights,

the money or money's worth which constitutes the proceeds of that disposal is not a capital receipt for the purposes of this section.

• (4) If, apart from this subsection, the amount or value of a capital receipt would exceed the sum which, immediately before the entitlement to the receipt arose, was the locked-in value of the shares to which the receipt is referable, subsection (1) above shall have effect as if the amount or value of the receipt were equal to that locked-in value.

• (5) Subsection (1) above does not apply in relation to a receipt if the entitlement to it arises after the death of the participant to whose shares it is referable.

Company reconstructions, amalgamations etc.

57

• (1) This section applies where there occurs in relation to any of a participant's shares (in this section referred to as " the original holding ") a transaction (in this section referred to as a " company reconstruction") which results in a new holding, as defined in paragraph 4 of Schedule 7 to the Finance Act 1965 (roll-over relief for capital gains tax purposes in cases of reconstructions, amalgamations, etc.), being equated with the original holding for the purposes of capital gains tax.

• (2) Where an issue of shares of any of the following descriptions (in respect of which a charge to income tax arises) is made as part of a company reconstruction, those shares shall be treated for the purposes of this section as not forming part of the new holding, that is to say,—

• (a) redeemable shares or securities issued as mentioned in section 233(2)(c) of the Taxes Act (issues not wholly for new consideration);

• (b) share capital issued in circumstances such that section 234(1) of the Taxes Act applies (bonus issue following repayment of share capital); and

• (c) share capital to which section 34 of the Finance (No. 2) Act 1975 applies (stock dividends).

• (3) In this section—

• (a) " new shares" means shares comprised in the new holding which were issued in respect of, or otherwise represent, shares comprised in the original holding; and

• (b) " the corresponding shares ", in relation to any new shares, means those shares in respect of which the new shares are issued or which the new shares otherwise represent.

• (4) Subject to the following provisions of this section, references in this Chapter to a participant's shares shall be construed, after the time of the company reconstruction, as being or, as the case may be, as including references to any new shares, and for the purposes of this Chapter—

• (a) a company reconstruction shall be treated as not involving a disposal of shares comprised in the original holding;

• (b) the date on which any new shares are to be treated as having been appropriated to the participant shall be that on which the corresponding shares were appropriated; and

• (c) the conditions in Part II of Schedule 9 to this Act shall be treated as fulfilled with respect to any new shares if they were (or were treated as) fulfilled with respect to the corresponding shares.

• (5) In relation to shares comprised in the new holding, subsection (2) of section 55 above shall apply as if the references in that subsection to the initial market value of the shares were references to their locked-in value immediately after the company reconstruction, which shall be determined as follows:—

• (a) ascertain the aggregate amount of the locked-in value immediately before the reconstruction of those shares comprised in the original holding which had at that time the same locked-in value; and

• (b) distribute that amount pro rata among—

• (i) such of those shares as remain in the new holding, and

• (ii) any new shares in relation to which those shares are the corresponding shares, according to their market value immediately after the reconstruction;

and paragraph (a) of that subsection shall apply only to capital receipts after the date of the reconstruction.

• (6) For the purposes of this Chapter if, as part of a company reconstruction, trustees become entitled to a capital receipt, within the meaning of section 56 above, their entitlement to the capital receipt shall be taken to arise before the new holding comes into being and, for the purposes of subsection (5) above, before the date on which the locked-in value of any shares comprised in the original holding falls to be ascertained.

• (7) In the context of a new holding, any reference in this section to shares includes securities and rights of any description which form part of the new holding for the purposes of Part III of the Finance Act 1965.

Excess or unauthorised shares

58

• (1) If the total of the initial market values of all the shares which are appropriated to an individual in any one year of assessment (whether under a single approved scheme or under two or more such schemes) exceeds £500, subsections (4) to (7) below shall apply to the excess shares, that is to say, any share which caused that limit to be exceeded and any share appropriated after that limit was exceeded.

• (2) For the purposes of subsection (1) above, if a number of shares is appropriated to an individual at the same time under two or more approved schemes, the same proportion of the shares appropriated at that time under each scheme shall be regarded as being appropriated before the limit of £500 is exceeded.

• (3) If the trustees of an approved scheme appropriate shares to an individual at a time when he is ineligible to participate in the scheme by virtue of Part III of Schedule 9 to this Act, the following provisions of this section shall apply in relation to those shares, and in those provisions those shares are referred to as " unauthorised shares ".

• (4) For the purposes of any provision of this Chapter charging an individual to income tax under Schedule E by reason of the occurrence of an event relating to any of his shares—

• (a) the appropriate percentage in relation to excess or unauthorised shares shall in every case be 100 per cent; and

• (b) without prejudice to section 55(6) above, the event shall be treated as relating to shares which are not excess or unauthorised shares before shares which are.

• (5) Excess or unauthorised shares which have not been disposed of before the release date or, if it is earlier, the date of the death of the participant whose shares they are shall be treated for the purposes of this Chapter as having been disposed of by the trustees immediately before the release date or, as the case may require, the date of the participant's death, for a consideration equal to their market value at that time.

• (6) The locked-in value at any time of any excess or unauthorised shares shall be their market value at that time.

• (7) Where there has been a company reconstruction to which section 57 above applies, a new share (within the meaning of that section) shall be treated as an excess or unauthorised share if the corresponding share (within the meaning of that section) or, if there was more than one corresponding share, each of them was an excess or unauthorised share.

P.A.Y.E. deduction of tax

59

• (1) Subject to subsections (3) and (4) below, where the trustees of an approved scheme receive a sum of money which constitutes (or forms part of)—

• (a) the proceeds of a disposal of shares falling within section 55(1) above, or

• (b) a capital receipt, within the meaning of section 56 above,

the trustees shall pay out of that sum of money to the company specified in subsection (2) below an amount equal to that on which income tax is payable in accordance with the section in question; and the company shall then pay over that amount to the participant but in so doing shall make a P.A.Y.E. deduction.

• (2) The company to which the payment mentioned in subsection (1) above is to be made is the company—

• (a) of which the participant is an employee or director at the time the trustees receive the sum of money referred to in that subsection, and

• (b) whose employees are at that time eligible (subject to the terms of the scheme and to Schedule 9 to this Act) to be participants in the approved scheme concerned,

and if there is more than one company which falls within paragraphs (a) and (b) above, such one of those companies as the Board may direct.

• (3) Where the trustees of an approved scheme receive a sum of money to which subsection (1) above applies but—

• (a) there is no company which falls within paragraphs (a) and (b) of subsection (2) above, or

• (b) the Board is of opinion that it is impracticable for the company which falls within those paragraphs (or, as the case may be, any of them) to make a P.A.Y.E. deduction and accordingly direct that this subsection shall apply,

then, in paying over to the participant the proceeds of the disposal or the capital receipt, the trustees shall make a P.A.Y.E. deduction in respect of an amount equal to that on which income tax is payable as mentioned in subsection (1) above as if the participant were a former employee of the trustees.

• (4) Where the trustees of an approved scheme receive a sum of money to which subsection (1) above applies and the Board direct that this subsection shall apply—

• (a) the trustees shall make the payment mentioned in that subsection to the company specified in the Board's direction; and

• (b) that company shall pay over that amount to the participant but in so doing shall make a P.A.Y.E. deduction, and for that purpose if the participant is not an employee of that company he shall be treated as a former employee;

but no such direction shall be given except with the consent of the trustees, the company or companies (if any) specified in subsection (2) above and the company specified in the direction.

• (5) Where in accordance with this section any person is required to make a P.A.Y.E. deduction in respect of any amount, that amount shall be treated for the purposes of section 204 of the Taxes Act (pay as you earn) and any regulations made under that section as an amount of income payable to the recipient and assessable to income tax under Schedule E, and accordingly such deduction shall be made as is required by those regulations.

• (6) Where, in connection with a transfer of a participant's shares to which paragraph (c) of subsection (1) of section 54 above applies, the trustees receive such a sum as is referred to in that paragraph, that sum shall be treated for the purposes of the Income Tax Acts—

• (a) as a sum deducted by the trustees pursuant to a requirement to make a P.A.Y.E. deduction under subsection (3) above; and

• (b) as referable to the income tax to which, as a result of the transfer, the participant is chargeable by virtue of section 55 above.

• (7) Unless the Board otherwise direct, in the application of this section to a sum of money which constitutes (or forms part of) the proceeds of a disposal of, or a capital receipt referable to, excess or unauthorised shares, within the meaning of section 58 above, the trustees shall determine the amount of the payment mentioned in subsection (1) above or, as the case may be, the amount of the P.A.Y.E. deduction to be made under subsection (3) above as if the shares were not excess shares.

Schedule D deduction of payments to trustees

60

• (1) Any sum expended by the company concerned or, in the case of a group scheme, by a participating company in making a payment to the trustees of an approved scheme shall be included—

• (a) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by that company, or

• (b) if that company is an investment company within the meaning of section 304 of the Taxes Act or a company in the case of which that section applies by virtue of section 305 of that Act, in the sums to be deducted as expenses of management in computing the profits of the company for the purposes of corporation tax,

if, and only if, one of the conditions in subsection (2) below is fulfilled.

• (2) The conditions referred to in subsection (1) above are—

• (a) that before the expiry of the relevant period the sum in question is applied by the trustees in the acquisition of shares for appropriation to individuals who are eligible to participate in the scheme by virtue of their being or having been employees or directors of the company making the payment; and

• (b) that the sum is necessary to meet the reasonable expenses of the trustees in administering the scheme.

• (3) For the purposes of subsection (2)(a) above, " the relevant period " means the period of nine months beginning on the day following the end of the period of account in which the sum in question is charged as an expense of the company incurring the expenditure or such longer period as the Board may allow by notice in writing given to that company.

• (4) For the purposes of this section, the trustees of an approved scheme shall be taken to apply sums paid to them in the order in which the sums are received by them.

Interpretation and construction

61

• (1) In this Chapter—

• " the appropriate percentage ", in relation to any shares, shall be construed in accordance with section 54(7) above;

• " approved scheme" shall be construed in accordance with section 53(2) above ;

• " the company concerned " has the meaning assigned to it by paragraph 1(1) of Schedule 9 to this Act;

• " group scheme " and, in relation to such a scheme, " participating company " have the meaning assigned by paragraph 1(2) of that Schedule;

• " initial market value ", in relation to any shares, shall be construed in accordance with section 53(4) above;

• " locked-in value ", in relation to any shares, shall be construed in accordance with section 55(2) above;

• " market value ", in relation to any shares, means their market value as determined in accordance with Part III of the Finance Act 1965 (capital gains tax);

• " participant " shall be construed in accordance with section 53(2)(a) above ;

• " the period of retention " has the meaning assigned to it by section 54(4) above ;

• " the release date " has the meaning assigned to it by section 54(6) above;

• " shares " includes stock;

• " the trust instrument ", in relation to an approved scheme, means the instrument referred to in paragraph 1(3)(c) of Schedule 9 to this Act; and

• " the trustees", in relation to an approved scheme or a participant's shares, means the body of persons for the establishment of which the scheme must provide as mentioned in paragraph 1(3) of Schedule 9 to this Act.

• (2) Any provision of this Chapter with respect to—

• (a) the order in which any of a participant's shares are to be treated as disposed of for the purposes of this Chapter, or

• (b) the shares in relation to which an event is to be treated as occurring for any such purpose,

shall have effect notwithstanding any direction given to the trustees with respect to shares of a particular description or to shares appropriated to the participant at a particular time.

• (3) For the purposes of capital gains tax—

• (a) no deduction shall be made from the consideration for the disposal of any shares by reason only that an amount determined under this Chapter is chargeable to income tax;

• (b) any charge to income tax by virtue of section 56 above shall be disregarded in determining whether a distribution is a capital distribution within the meaning of paragraph 3 of Schedule 7 to the Finance Act 1965; and

• (c) nothing in any such provision as is referred to in subsection (2) above shall affect the rules applicable to the computation of a gain accruing on a part disposal of a holding of shares or other securities which were acquired at different times.

PART IV — CAPITAL TRANSFER TAX

Reduction of tax

62

Exemption limit for transfers to non-domiciled spouses

63

• (1) In paragraph 1(2) and (3) of Schedule 6 to the Finance Act 1975 (exemption limit for transfers to non-domiciled spouse) for "£15,000" there shall be substituted " £25,000 ".

• (2) This section applies to any transfer of value made after 26th October 1977.

Further relief for business property

64

Further relief for woodlands

65

• (1) In paragraph 3 of Schedule 9 to the Finance Act 1975 (basis and rate of tax chargeable on disposal where value of trees or underwood has been left out of account under that Schedule) the existing provisions shall become sub-paragraph (1) and at the end there shall be inserted—

(2) Where, if the value of the trees or underwood had not been left out of account in determining the value transferred on the death of the person in question— (a) it would have been taken into account in determining the value of any relevant business property for the purposes of relief under Schedule 10 to the Finance Act 1976 in relation to the transfer of value made on his death; or (b) it would have been so taken into account if that Schedule had then been in force, the amount on which tax is chargeable under this paragraph shall be reduced by 50 per cent.

• (2) This section applies to disposals after 26th October 1977.

Definition of control of company

66

• (1) In sub-paragraph (7) of paragraph 13 of Schedule 4 to the Finance Act 1975 (under which a person is treated as controlling a company if he controls a majority of the votes capable of being exercised on all questions, or on any particular question, affecting the company) the words " or on any particular question " shall be omitted but after paragraph (b) there shall be inserted

and (c) where a company has shares or securities of any class giving powers of voting limited to either or both of the following— (i) the question of winding up the company ; (ii) any question primarily affecting shares or securities of that class, the reference in the preceding provisions of this sub-paragraph to all questions affecting the company as a whole shall be read as a reference to all such questions except any in relation to which those powers are capable of being exercised.

• (2) Subsection (1) above applies both for the purposes of the said paragraph 13 (payment of tax by instalments) and for the purposes of the provisions to which the said sub-paragraph (7) applies by virtue of—

• (a) paragraph 3(7) or 4(b) or (bb) of Schedule 8 to the said Act of 1975 (relief for agricultural property);

• (b) paragraph 13(2) of Schedule 10 to the Finance Act 1976 (relief for business property); or

• (c) section 49(6) of the Finance Act 1977 (excluded property).

• (3) This section does not affect the operation of the said paragraph 13 or of the provisions mentioned in subsection (2) above in relation to any transfer of value made before 20th April 1978.

Employee trusts

67

• (1) Subject to the provisions of this section, a transfer of value made by an individual who is beneficially entitled to shares in a company is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of the company which become comprised in a settlement if the trusts of the settlement are of the description specified in paragraph 17(1) of Schedule 5 to the Finance Act 1975 and the persons for whose benefit the trusts permit the settled property to be applied include all or most of the persons employed by or holding office with the company.

• (2) Subsection (1) above does not apply unless at the date of the transfer, or at a subsequent date not more than one year thereafter, both the following conditions are satisfied, that is to say—

• (a) the trustees—

• (i) hold more than one half of the ordinary shares in the company; and

• (ii) have powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised thereon; and

• (b) there are no provisions in any agreement or instrument affecting the company's constitution or management or its shares or securities whereby the condition in paragraph (a) above can cease to be satisfied without the consent of the trustees.

• (3) Where the company has shares or securities of any class giving powers of voting limited to either or both of the following—

• (a) the question of winding up the company ;

• (b) any question primarily affecting shares or securities of that class,

the reference in subsection (2)(a)(ii) above to all questions affecting the company as a whole shall be read as a reference to all such questions except any in relation to which those powers are capable of being exercised.

• (4) Subject to subsection (5) below, subsection (1) above does not apply if the trusts permit any of the settled property to be applied at any time (whether during any such period as is referred to in the said paragraph 17(1) or later) for the benefit of—

• (a) a person who is a participator in the company mentioned in subsection (1) above; or

• (b) any other person who is a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for section 90 of the Finance Act 1976 would have been a transfer of value; or

• (c) any other person who has been a participator in the company mentioned in subsection (1) above or in any such company as is mentioned in paragraph (b) above at any time after, or during the ten years before, the transfer of value mentioned in subsection (1) above; or

• (d) any person who is connected with any person within paragraph (a), (b) or (c) above.

• (5) The participators in a company who are referred to in subsection (4) above do not include any participator who—

• (a) is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital; and

• (b) on a winding-up of the company would not be entitled to 5 per cent. or more of its assets;

and in determining whether the trusts permit property to be applied as mentioned in that subsection, no account shall be taken of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident.

• (6) Subsection (5) of section 90 of the said Act of 1976 (interpretation) shall have effect in relation to this section as it has effect in relation to that section.

• (7) The enactments mentioned in Schedule 11 to this Act (which contain other provisions about employee trusts) shall have effect with the amendments there specified, being amendments consequential on the provisions of this section and Chapter III of Part III above and amendments bringing those enactments into conformity with those provisions.

• (8) Subsections (1) to (6) above apply in relation to transfers of value made on or after 11th April 1978.

Alteration of dispositions taking effect on death

68

• (1) Subject to the provisions of this section, where within the period of two years after a person's death any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or the benefit conferred by any of those dispositions is disclaimed, by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions—

• (a) the variation or disclaimer shall not be a transfer of value; and

• (b) Part III of the Finance Act 1975 shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred.

• (2) Subsection (1) above does not apply to a variation unless an election to that effect is made by written notice given to the Board within six months after the date of the instrument, or such longer time as the Board may allow, by—

• (a) the person or persons making the instrument; and

• (b) where the variation results in additional tax being payable, the personal representatives;

but personal representatives may decline to join in an election only if no, or no sufficient, assets are held by them in that capacity for discharging the additional tax.

• (3) Subsection (1) above does not apply to a variation or disclaimer made for any consideration in money or money's worth other than consideration consisting of the making, in respect of another of the dispositions, of a variation or disclaimer to which that subsection applies.

• (4) Where a variation to which subsection (1) above applies results in property being held in trust for a person for a period which ends not more than two years after the death, Part III of the said Act of 1975 shall apply as if the disposition of the property that takes effect at the end of the period had had effect from the beginning of the period; but this subsection shall not affect the application of that Part in relation to any distribution or application of property occurring before that disposition takes effect.

• (5) For the purposes of subsection (1) above the property comprised in a person's estate includes any excluded property but not any property to which he is treated as entitled by virtue of paragraph 3(1) of Schedule 5 to the said Act of 1975; and that subsection applies whether or not the administration of the estate is complete or the property concerned has been distributed in accordance with the original dispositions.

• (6) In paragraph 25(4) of Schedule 4 to the said Act of 1975 (effect of certificates of discharge) after the words " shall not affect any further tax " there shall be inserted the words " that may afterwards be shown to be payable by virtue of section 47 of this Act or section 68 of the Finance Act 1978 or ".

• (7) Subsections (1) to (5) above apply to a variation or disclaimer made on or after 11th April 1978 and as respects any such variation or disclaimer supersede section 47(1) and (2) of the said Act of 1975; and subsection (6) above applies where the further tax is shown to be payable on or after that date.

Sales of interests under settlements

69

• (1) In section 22(2) of the Finance Act 1975 and paragraph 4(5) of Schedule 5 to that Act (exemptions where settled property reverts to settlor unless the settlor had acquired a reversionary interest for a consideration in money or money's worth) for the words " unless the settlor had acquired " there shall be substituted the words " unless the settlor or his spouse had acquired ".

• (2) In paragraph 6 of the said Schedule 5 (charge on capital distributions of settled property) after paragraph (6A) there shall be inserted—

(6B) Neither sub-paragraph (6) nor sub-paragraph (6A) above applies where, at or before the time when the payment is made to the person concerned or that person becomes entitled to the interest, as the case may be, an interest under the settlement is or has been acquired for a consideration in money or money's worth by— (a) that person; or (b) that person's spouse; or (c) where that person is the settlor's widow or widower, the settlor.

• (3) At the end of paragraph 14(5) of the said Schedule 5 (transitional relief available only if beneficiary is an individual who is domiciled in the United Kingdom at the time the capital distribution is made) there shall be inserted the words " and who has not at or before that time acquired an interest under the settlement for a consideration in money or money's worth directly or indirectly from a person not so domiciled. "

• (4) In sub-paragraph (4A) of paragraph 15 of Schedule 6 to that Act (restrictions on exemptions from tax) for the words " paragraphs 1 and 10 to 13 above do not apply " there shall be substituted the words " paragraph 1 above does not apply " and the words " or body " (in both places) shall be omitted.

• (5) After the said sub-paragraph (4A) there shall be inserted—

(4B) Paragraphs 10 to 13 above do not apply in relation to any property if— (a) immediately before the time when it becomes the property of the exempt body it is comprised in a settlement; and (b) at or before that time, an interest under the settlement is or has been acquired for a consideration in money or money's worth by that or another exempt body. In this sub-paragraph " exempt body " means a charity, political party or other body within the said paragraphs 10 to 13 and for the purposes of this sub-paragraph there shall be disregarded any acquisition from a charity, political party or body within paragraphs 10 to 12.

• (6) For the purposes of section 22(2) and (3) of the said Act of 1975, paragraphs 4(5) and (6), 6(6B) and 14(5) of the said Schedule 5 and paragraph 15 (4A) and (4B) of the said Schedule 6, a person shall be treated as acquiring an interest for a consideration in money or money's worth if he becomes entitled to it as a result of transactions which include a disposition for such consideration (whether to him or another) of that interest or of other property.

• (7) Where a person becomes entitled to an interest in possession in settled property as a result of a disposition for a consideration in money or money's worth, any question whether and to what extent the giving of the consideration is a transfer of value or chargeable transfer shall be determined without regard to paragraph 3(1) of the said Schedule 5.

• (8) Subsections (1) to (5) above apply where the acquisition of the interest is after 11th April 1978, subsection (6) above applies where the person concerned becomes entitled to the interest after that date and subsection (7) above applies where the person concerned becomes entitled to the interest after 13th June 1978.

Charge on termination of discretionary trust

70

• (1) In paragraph 6 of Schedule 5 to the Finance Act 1975 (charge on capital distributions of settled property) after sub-paragraph (2) there shall be inserted—

(2A) Where the whole or any part of the property comprised in a settlement ceases to be comprised in that settlement (otherwise than by virtue of any payment or transfer of assets made by the trustees) at a time when no interest in possession subsists in the property or that part, then, if (a) sub-paragraph (2) above does not apply; but (b) a person at that time becomes entitled to (or immediately thereafter has) an interest in the property or part which would be an interest in possession if held beneficially by an individual, a capital distribution shall be treated as being made out of the property or that part of the property; and the amount of the distribution shall be taken to be equal to the value at that time of the property or that part of it.

• (2) In sub-paragraph (5) of the said paragraph 6 after the words " sub-paragraph (2)" there shall be inserted the words " or (2A) ".

• (3) In paragraph 11(8) of the said Schedule 5 for the words " paragraph 6(2) or (3)" there shall be substituted the words " paragraph 6(2), (2A) or (3) ".

• (4) At the end of paragraphs 10(2), 11(1A), 12(2) and 13(1A) of Schedule 6 to the said Act of 1975 (exceptions from charge where settled property is given to a charity etc.) there shall be added the words " and paragraph 6(2A) of that Schedule shall not apply. "

• (5) In section 47(1A) of the said Act of 1975 (exclusion of charge in case of property settled by will on discretionary trusts) for the words " paragraphs 6(2) or 15(3)" and " paragraphs 6(2) and 15(3)" there shall be substituted respectively the words " paragraph 6(2), (2A) or 15(3) " and "paragraphs 6(2), (2A) and 15(3) ".

• (6) This section shall be deemed to have come into force on 11th April 1978.

Protective trusts

71

• (1) In paragraph 18 of Schedule 5 to the Finance Act 1975 (protective trusts) for sub-paragraphs (2) and (3) there shall be substituted—

(2) For the purposes of capital transfer tax— (a) there shall be disregarded the failure or determination, before the end of the trust period, of trusts to the like effect as those specified in paragraph (i) of the said section 33(1); and (b) the principal beneficiary shall be treated as beneficially entitled to an interest in possession in any property which is for the time being held on trusts to the like effect as those specified in paragraph (ii) of the said section 33(1).

• (2) This section shall be deemed to have come into force on 11th April 1978 and applies if the failure or determination of the trusts is after that date; but no capital distribution shall be treated as made by virtue of paragraph 15(3) of the said Schedule 5 by reason only of the coming into force of this section.

Government securities in foreign ownership

72

• (1) In paragraph 3 of Schedule 7 to the Finance Act 1975 (certain government securities to be excluded property if person beneficially entitled is domiciled and ordinarily resident abroad) after sub-paragraph (2) there shall be inserted—

(2A) Where, by the same disposition, property has ceased to be comprised in one settlement and has become comprised in another, sub-paragraph (2) above shall, in its application to the second settlement, be construed as requiring the matters there stated to be shown both in relation to the property comprised in that settlement and in relation to the property that was comprised in the first settlement. (2B) Paragraph 24(5) of Schedule 5 to this Act shall apply for the purposes of sub-paragraphs (1)(b) and (2) above as it applies for the purposes of that Schedule.

• (2) This section shall be deemed to have come into force on 20th April 1978 and the new sub-paragraph (2A) set out above applies where the disposition mentioned in that sub-paragraph is on or after that date.

Life policies and deferred annuity contracts

73

• (1) In paragraph 11 of Schedule 10 to the Finance Act 1975 (valuation of life policies and deferred annuity contracts in connection with transfer of value), for sub-paragraph (2) there shall be substituted—

(2) Sub-paragraph (1) above does not apply in the case of the transfer of value which a person makes on his death or of any other transfer of value which does not result in the policy or contract ceasing to be part of the transferor's estate.

• (2) This section applies where the transfer of value is made on or after 11th April 1978.

Increase in value of settled property by omission to exercise a right

74

• (1) In section 20(7) of the Finance Act 1975 (omission to exercise right to count as disposition if it increases the value of another person's estate) after the words " of another person's estate " there shall be inserted the words " or of settled property in which no interest in possession (within the meaning of Schedule 5 to this Act) subsists ".

• (2) This section applies where the disposition under the said section 20(7) is on or after 11th April 1978.

PART V — MISCELLANEOUS AND SUPPLEMENTARY

National insurance surcharge

75

Development land tax

76

Disclosure of information to tax authorities in other member States

77

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

Local loans

78

Pre-consolidation amendments

79

Short title, interpretation, construction and repeals

80

• (1) This Act may be cited as the Finance Act 1978.

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

• (3) In this Act—

• (a) Part I (except sections 8 and 9) shall be construed as one with the Customs and Excise Management Act 1979;

• (b) Part II shall be construed as one with Part I of the Finance Act 1972;

• (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 . . . ;

• (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 13 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.

SCHEDULE 1

1

In section 1 (charge of anti-dumping duties) in subsection (5) (description of goods chargeable with dutyy : limitation by reference to persons by whom goods are produced) after the word “produced” there shall be inserted the words “ or supplied ” and after the word “production” there shall be inserted the words “ or supply ”.

2

In section 2 (relief where margin of dumping lower than duty) in subsection (4) (period within which application for relief is to be made) for the words “six months” there shall be substituted the words “ three months ”.

3

In section 3 (ascertainment of export price from country of origin) in subsection (1) (rules where goods are wholly produced in country of origin) for the words from “if” to “shall” there shall be substituted the words “ shall, subject to subsection 5(3) below ”.

4

• (1) In section (4) ascertainment of fair market price in country of origin) in subsection (1) (rules where goods are wholly produced in country of origin) for the words from “if” to “shall” there shall be substituted the words “ shall, subject to section 5(3) below ”.

• (2) In subsection (3) of that section (cases in which the ordinary rule for ascertainment of the fair market price does not apply) after the word “can” there shall be inserted the word “ appropriately ”.

• (3) In subsection (4) of that section (ascertainment of fair market price where goods are subject to a government trading monopoly) for the words from “either” to the end of the subsection there shall be substituted the words

with subsection (2) above, the fair market price shall be determined by the Secretary of State— (a) in accordance with subsection (3) above, or (b) by reference to such other price as he considers appropriate (making any necessary adjustments to ensure comparability), according as the Secretary of State considers appropriate.

5

• (1) In section 5 (meaning of country of origin) in subsection (1) for the words from “in relation” to the end of the subsection there shall be substituted the words “ shall be determined in accordance with the rules on the common definition of the concept of origin which are for the time being applicable in accordance with any Community instrument for the purposes of the uniform application of the Common Customs Tariff ”.

• (2) Subsection (2) of that section shall be omitted.

• (3) In subsection (3) of that section—

• (a) for the words “under subsection (2)” there shall be substituted the words “ in accordance with subsection (1) ” ;

• (b) after the word “then” there shall be inserted the words “ for the purpose of determining in accordance with section 3 or section 4 above ” ; and

• (c) the words from “shall be determined” to “except that” shall be omitted.

6

In section 6 (determination of export price and fair market price in country of exportation) for the words “in thec ase oof goods wholly produced in one country” there shall be substituted the words “ in a case where section 5(3) above does not apply ”.

7

In section 10 (additional provisions as to duties and reliefs) subsections (2) and (5) shall be omitted.

8

Section 11 (drawback on exportations) and section 12 (other reliefs relating to exportations) shall be omitted.

9

In section 13 (construction of references to production of goods etc.) in subsection (1) the words “growing or” shall be omitted.

10

In section 14 (power to require information from importers) subsections (1) and (3) shall be omitted.

SCHEDULES 2—5

1

In section 30(3) of the Taxes Act for the words " were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

2

In section 34(1)(iii) of the Taxes Act after the words " shall be treated " there shall be inserted the words " as income which is not chargeable at a rate lower than the basic rate and ".

3

In section 36(1) of the Taxes Act for the words "were chargeable at the basic rate to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate were chargeable at the basic rate to the exclusion of any higher or additional rate ".

4

In section 287(1)(c) of the Taxes Act for the words from " notwithstanding " to " total income " there shall be substituted the words " the income included by virtue of paragraph (a) above in his total income shall be treated as income which is not chargeable at a rate lower than the basic rate and, notwithstanding that paragraph, ".

5

In section 343(3) of the Taxes Act—

• (a) in paragraph (c) for the words before " those amounts " there shall be substituted the words " any amounts paid or credited in respect of any such dividends or interest shall be treated as income which is not chargeable at a rate lower than the basic rate and, in computing the total income of an individual entitled thereto, "; and

• (b) in paragraph (i) of the proviso after the words " the basic rate" there shall be inserted the words " or any lower rate ".

6

In section 399(4)(c) of the Taxes Act after the words "shall be treated " there shall be inserted the words " as income which is not chargeable at a rate lower than the basic rate and ".

7

In section 400(3) of the Taxes Act after the words " the basic rate " there shall be inserted the words " or any lower rate ".

8

In section 403(1) of the Taxes Act for the words "were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

9

In section 422(2) of the Taxes Act after the words " the basic rate ", where first occurring, there shall be inserted the words " or any lower rate " and after the words " total income " there shall be inserted the words " not chargeable at a lower rate ".

10

In section 424(c) of the Taxes Act for the words " to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate to the exclusion of any higher or additional rate ".

11

In section 430(1) of the Taxes Act for the words "were chargeable at the basic rate to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate were chargeable at the basic rate to the exclusion of any higher or additional rate ".

12

In section 457(1) of the Taxes Act for the words "were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

13

In section 458(1) of the Taxes Act for the words "were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

14

In paragraph 2(2) of Schedule 7 to the Finance Act 1971 for the words " were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

15

In section 87 of the Finance Act 1972—

• (a) in subsection (5)(c) after the words " shall be treated " there shall be inserted the words " as income which is not chargeable at a rate lower than the basic rate and "; and

• (b) in subsection (6) for the words " were charged at the basic rate to the exclusion of any other rate " there shall be substituted the words " not charged at a lower rate were charged at the basic rate to the exclusion of any higher or additional rate ".

16

In Schedule 16 to the Finance Act 1972—

• (a) in paragraph 5(2) (d) after the words " shall be treated" there shall be inserted the words " as income which is not chargeable at a rate lower than the basic rate and "; and

• (b) in paragraph 5(6A) for the words " were chargeable at the basic rate to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate were chargeable at the basic rate to the exclusion of any higher or additional rate ".

17

In section 44 of the Finance Act 1973 for the words " were chargeable at the basic rate to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate were chargeable at the basic rate to the exclusion of any higher or additional rate ".

18

In paragraph 19(1A) of Schedule 2 to the Finance Act 1975 for the words " were chargeable at the basic rate to the exclusion of any other rate " there shall be substituted the words " not chargeable at a lower rate were chargeable at the basic rate to the exclusion of any higher or additional rate ".

19

In section 34(4)(c) of the Finance (No. 2) Act 1975 after the words " shall be treated" there shall be inserted the words " as income which is not chargeable at a rate lower than the basic rate and ".

SCHEDULE 3

Preliminary

1

In this Schedule references to any paragraphs not otherwise identified are references to paragraphs of Schedule 4 to the Finance Act 1976 (premium relief for the year 1979-80 and subsequent years of assessment).

Time of payment

2

The said Schedule 4 shall have effect as if any premium or part of a premium which is paid otherwise than in the year of assessment in which it becomes due and payable were paid in that year.

Contracts for deferred annuities

3

In paragraph 1 (preliminary) for the words from " and " onwards there shall be substituted the words " ' Schedule 1' means Schedule 1 to that Act and, unless the context otherwise requires, ' contract' means a contract for a deferred annuity ".

Personal accident insurance

4

After paragraph 2 there shall be inserted—

(2A) (1) A policy which evidences a contract of insurance to which sub-paragraph (2) below applies shall not be a qualifying policy within the meaning of Schedule 1 unless it also evidences a contract falling within subsection (2)(a) of section 83 of the Insurance Companies Act 1974. (2) This sub-paragraph applies to contracts of insurance against risks of persons dying as a result of an accident or an accident of a specified class, not being contracts falling within subsection (2)(b) of the said section 83.

Non-resident members of armed forces, etc.

5

After paragraph 5 there shall be inserted—

(5A) Paragraphs 4(2) and 5 above shall apply in relation to an individual who is not resident in the United Kingdom but is— (a) a member of the armed forces of the Crown; (b) the wife of such a member; or (c) a woman serving in any of the capacities mentioned in section 366 (3), as if the individual were so resident.

Limit on deductions

6

Paragraph 6 (limit on deductions authorised under paragraph 5) shall be omitted.

Payments to friendly societies and industrial assurance companies

7

• (1) In paragraph 13 (1) (premiums to which the paragraph applies) after the words " a policy is issued " there shall be inserted the words " or a contract is made " and after the word " policy ", in the third place where it occurs, there shall be inserted the words " or contract ".

• (2) In paragraph 13 (4) (increases made in pursuance of regulations to be disregarded) for the words from " section 332 " to " Finance Act 1975 " there shall be substituted—

(a) section 100 of the Stamp Act 1891 and the heading " Policy of Life Insurance " in Schedule 1 to that Act; (b) section 332 of and paragraph 4 of Schedule 1 to the Taxes Act; (c) section 7 (6) of the Finance Act 1975 ; and (d) paragraph 11 (3) above;

.

Relief in respect of certain payments

8

• (1) In paragraph 14 (notices excluding the application of paragraph 5) after the word " policy " there shall be inserted the words " or contract ".

• (2) The provisions of that paragraph as so amended shall become sub-paragraph (1) and after those provisions there shall be inserted—

(2) Where the application of paragraph 5 above is so excluded in relation to any payments, the relief (if any) to which the person by whom the payments are made is entitled under section 19 shall be given to him under paragraph 15 below.

9

—After paragraph 14 there shall be inserted—

(14A) Where a person is entitled to relief under section 19 in respect of— (a) a payment to which section 220(1) applies; (b) a payment to which section 23 of the Finance Act 1970 applies; or (c) a payment made pursuant to a retirement benefits scheme or fund in the case of which payments made by the employer are exempted from the operation of section 220(1) by section 221(1)(b) or (c), (2) or (4) or would be so exempted if the employer were a body corporate, paragraph 5 above shall not apply but the like relief shall be given to him under paragraph 15 below.

Regulations

10

In paragraph 16(2) (regulations for carrying Schedule into effect) the provisions of paragraph (a) shall become paragraph (ab) and for the words from the beginning to " may provide " there shall be substituted the words

Regulations under this paragraph shall be made by statutory instrument and, without prejudice to the generality of sub-paragraph (1) above, may provide— (a) for the furnishing of such information by persons by whom premiums are payable as may be necessary for determining whether they are entitled to make deductions under paragraph 5 above and for excluding the operation of that paragraph in relation to payments made by persons who fail to comply with the regulations; (aa) for rounding to a multiple of one new penny or one new half-penny as appears to the Board appropriate any payment which, after a deduction authorised under paragraph 5 above, is not such a multiple;

.

Part payments to friendly societies

11

• (1) Where—

• (a) a person is entitled to relief under section 19 of the Taxes Act in respect of part only of a payment made to a registered friendly society; and

• (b) the insurance or contract was made by the society in the course of tax exempt life or endowment business (as defined in section 337(3) of that Act),

Schedule 4 to the Finance Act 1976 shall not apply with respect to that relief but there shall be deducted from his total income an amount equal to one-half of that part of the payment.

• (2) This paragraph applies for the year 1979-80 and subsequent years of assessment.

Part payments to trade unions

12

• (1) Where a person makes a payment to a trade union (as denned in section 2(1) of the Trade Union Act 1913), and part of that payment is attributable to the provision of superannuation, life insurance or funeral benefits, he shall be entitled to relief under section 19 of the Taxes Act in respect of that part of the payment.

• (2) Where a person is entitled to any such relief as aforesaid in respect of part of a payment made to a trade union, the said Schedule 4 shall not apply with respect to that relief but there shall be deducted from his total income an amount equal to one-half of that part of the payment.

• (3) This paragraph applies for the year 1979-80 and subsequent years of assessment.

Certification of qualifying policies

13

• (1) Paragraph 11 of Schedule 1 to the Taxes Act (certification of qualifying policies) shall be amended as follows—

• (a) in sub-paragraph (1) the words "Subject to sub-paragraph (3) below " shall be omitted and for the words " within three months of the date of issue " there shall be substituted the words " within three months of receipt of a request in writing by the policy holder ";

• (b) in sub-paragraph (2) for the words " the said sub-paragraph (3)" there shall be substituted the words " sub-paragraph (3) below " and for the words " within three months of the making of the variation" there shall be substituted the words " within three months of receipt of a request in writing by the policy holder "; and

• (c) in sub-paragraph (3) the words from the beginning to " receipt of the request; and " shall be omitted.

• (2) This paragraph applies where the qualifying policy is issued or varied after 5th April 1979.

SCHEDULES 7 AND 8

PART I — Computation of The Relief

1

In any year of assessment the relief to which an individual carrying on a trade is entitled on a claim made under section 27 of this Act shall be determined by reference to such proportion of his relevant income from the trade for that year as, in accordance with paragraph 3 below, is attributable to the days in that year which are qualifying days in relation to his carrying on of that trade.

2

• (1) Subject to sub-paragraph (2) below, any reference in this Schedule to an individual's relevant income from a trade is a reference to the income from that trade in respect of which he is chargeable to income tax under Case I of Schedule D; and any reference to his relevant income from a trade for a particular year of assessment is a reference to the income in respect of which he is so chargeable for that year.

• (2) In relation to any year of assessment, the references in sub-paragraph (1) above to the income from a trade in respect of which an individual is chargeable to income tax are references to the income from that trade—

• (a) after making any deduction in respect of an allowance which, under section 70 of the Capital Allowances Act 1968, falls to be made as a deduction in charging the profits or gains of that trade;

• (b) after making any addition in respect of any charge which, by virtue of section 70(6) of that Act, falls to be made for purposes of income tax on those profits or gains;

• (c) after making any deduction or set-off in respect of an allowance, the amount of which falls to be given by way of discharge or repayment of tax under section 71 of that Act and which arises from activities of that trade;

• (d) after allowing for any deduction or addition falling to be made by virtue of any provision of Schedule 5 to the Finance Act 1976 (relief for increase in value of trading stock and work in progress) in respect of any relief or charge attributable to that trade; and

• (e) before taking account of any set-off or reduction of income by virtue of any of sections 168, 171 and 174 of the Taxes Act or section 30 of this Act in respect of losses.

3

• (1) For the purposes of this Schedule, for any year of assessment in which there are qualifying days in relation to an individual carrying on a trade, the proportion of the individual's relevant income from the trade for that year which is attributable to those qualifying days is the proportion which the number of those days bears to 365 or, if the individual was not carrying on the trade throughout that year of assessment, to the number of days in the part of that year in which he was carrying on the trade.

• (2) A day which would not be a qualifying day apart from subsection (3) of section 27 of this Act shall be treated for the purposes of this Schedule as divided equally between the two or more trades referred to in that subsection, so that in relation to each of those trades the day counts as a fraction of a qualifying day.

4

• (1) Where for any year of assessment an individual is entitled to relief as mentioned in paragraph 1 above, a sum equal to one-quarter of that proportion of his relevant income from the trade which is referred to in that paragraph shall be deducted from or set off against the amount of the profits or gains on which he is chargeable to income tax for that year under Case I of Schedule D in respect of that trade.

• (2) The deduction or set-off to be made by virtue of sub-paragraph (1) above shall be made—

• (a) after taking account of any such deduction, addition or set-off as falls within paragraphs (a) to (d) of sub-paragraph (2) of paragraph 2 above; and

• (b) before taking account of any such set-off or reduction of income as is referred to in paragraph (e) of that sub-paragraph.

5

• (1) The provisions of this paragraph apply where a claim for any year of assessment made under section 27 of this Act relates (in whole or in part) to a trade carried on by an individual as a member of a partnership.

• (2) With respect to the trade carried on by the individual in partnership, any reference in paragraphs 1, 3 and 4 above to his relevant income from the trade shall be construed as a reference to his share of the profits of the partnership from the trade.

• (3) For the purposes of this Schedule, an individual's share of the profits of a partnership from a trade for any year of assessment means, subject to sub-paragraph (4) below, the share which is attributed to him for income tax purposes of the profits of the partnership from that trade which are chargeable to income tax under Case I of Schedule D for that year.

• (4) Paragraphs (a) to (e) of sub-paragraph (2) of paragraph 2 above shall apply with respect to the reference in sub-paragraph (3) above to the share attributed to an individual for income tax purposes of the profits of a partnership from a trade as they apply with respect to the references in sub-paragraph (1) of that paragraph to the income from a trade in respect of which an individual is chargeable to income tax.

6

Where, by virtue of section 154 of the Taxes Act (change in persons carrying on a trade), a trade is treated as having been discontinued for the purposes of computing tax, it shall also be so treated for the purposes of this Schedule.

PART II — Consequential Provisions

7

At the end of paragraph (c) of sub-paragraph (2) of paragraph 31 of Schedule 5 to the Finance Act 1976 (which excludes certain deductions etc. in computing " relevant income " for the purposes of the provisions of that Act relating to relief for increases in the value of trading stock and work in progress) there shall be added the words

and (d) no account shall be taken of any deduction falling to be made by virtue of section 27 of and Schedule 4 to the Finance Act 1978.

8

In sub-paragraph (2) of paragraph 3 of Schedule 2 to the Social Security Act 1975 and the Social Security (Northern Ireland) Act 1975 (which excludes certain reliefs in computing the profits or gains in respect of which Class 4 contributions are payable under that Act) after paragraph (c) there shall be inserted the following paragraph:—

(cc) section 27 of and Schedule 4 to the Finance Act 1978 (relief for absence on business abroad)

.

SCHEDULE 5

1

At the end of paragraph 8 of Schedule 16 to the Finance Act 1972 (determination of relevant income for the purpose of apportioning the income of close company among participators) there shall be added the following sub-paragraphs:—

(3) In arriving at the relevant income for any accounting period of a company which is a trading company or a member of a trading group, regard shall be had not only to the current requirements of the company's business and to such requirements necessary or advisable for the maintenance or development of that business as fall within sub-paragraph (2)(a) above, but also to any other requirements necessary or advisable for the acquisition of a trade or of a controlling interest in a trading company or in a company which is a member of a trading group by virtue of paragraph 11(2)(a) below; but for this purpose paragraph 12A below shall apply. (4) For the purposes of sub-paragraph (3) above, the acquisition of a controlling interest in a company means the acquisition, whether on a single occasion or otherwise, of such ordinary share capital of that company as enables the acquiring company to exercise the greater part of the voting power in that company. (5) For the purposes of sub-paragraph (3) above the requirements of a company's business which are necessary or advisable for such an acquisition as is mentioned in that sub-paragraph include such requirements as are necessary or advisable for— (a) the redemption or repayment of any share or loan capital or debt (including any premium thereon) issued or incurred in or towards payment for that acquisition, or issued or incurred for the purpose of raising money to be applied in or towards payment therefor, or (b) meeting any obligations of the company in respect of that acquisition, so far as any sum so expended or applied, or intended to be expended or applied, does not fall to be treated for the purposes of this Schedule as a distribution by the company.

2

After paragraph 12 of Schedule 16 to the Finance Act 1972 there shall be inserted the following paragraph—