Finance Act 1982

• (4) Subsection (1) above does not apply in a case where the company to which the interest or other distribution is paid is entitled under any enactment, other than section 239 of the Taxes Act (U.K. company distributions not chargeable to corporation tax), to an exemption from tax in respect of that interest or distribution.

• (5) In subsection (1)(a) above " the relevant day " means—

• (a) in the case of any interest or other distribution which is payable before 1st April 1983 pursuant to an obligation entered into before 9th March 1982, 1st April 1983 ; and

• (b) in any other case, 9th March 1982.

• (6) This section shall be construed as if it were included in Part X of the Taxes Act.

Maintenance funds for historic buildings: reimbursement of settlor

61

• (1) This section applies to income arising from settled property in respect of which a direction under section 93 below has effect if the income—

• (a) is treated by virtue of Part XVI of the Taxes Act as income of the settlor for the year 1982-83 or a subsequent year of assessment, and

• (b) is applied in reimbursing the settlor for expenditure incurred by him for a purpose within subsection (3)(a)(i) of section 93, and if that expenditure is (or would apart from the reimbursement be) deductible in computing the profits of a trade carried on by the settlor.

• (2) Income to which this section applies shall not be treated as reducing the expenditure deductible in computing the profits referred to in subsection (1) above, and shall not be regarded as income of the settlor otherwise than by virtue of Part XVI of the Taxes Act.

Maintenance funds: miscellaneous amendments

62

• (1) Where settled property in respect of which a direction has effect under section 93 below constitutes part only of the property comprised in a settlement, it and the other property shall be treated as comprised in separate settlements for the purposes of the enactments specified in subsection (2) below.

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

• (a) sections 168 to 173 of the Taxes Act;

• (b) Part XVI of the Taxes Act;

• (c) sections 16 and 17 of the Finance Act 1973 ;

• (d) section 38 of the Finance Act 1977 ;

• (e) sections 52 and 53 of the Finance Act 1980.

• (3) Schedule 10 to this Act (which makes amendments relating to maintenance funds) shall have effect.

Sums paid to settlor otherwise than as income

63

• (1) In section 451 of the Taxes Act (sums paid to settlor otherwise than as income) subsection (1) shall have effect in accordance with subsections (2) and (3) below and shall be presumed so to have had effect in relation to any capital sum paid to the settlor on or after 6th April 1981.

• (2) In paragraph (b) the amendment made by section 42(2)(c) of the Finance Act 1981 shall be presumed not to have been made and, accordingly, the words following " up to the end of " shall read " the next following year, be treated for the purposes aforesaid as income of the settlor for the next following year ".

• (3) In the words following paragraph (b) (as amended by section 42(2)(6) of the Finance Act 1981) after the words " each subsequent year " there shall be inserted the words " up to a maximum of ten subsequent years ".

• (4) Where a capital sum was paid in a relevant year ending before 6th April 1981 (the operative date for sections 42 and 43 of the Finance Act 1981) and the circumstances are such that—

• (a) subsection (1) of section 451 of the Taxes Act applies to that sum, but

• (b) on that date the whole or some part of that sum (in this subsection referred to as " the balance ") had not been treated, in accordance with that subsection, as the income of the settlor for any relevant year ending before that date,

the balance shall be deemed for the purposes of that section to have been paid not at the time the capital sum was in fact paid but on 6th April 1981.

• (5) Expressions used in subsections (1) and (4) above have the same meaning as in section 451(1) of the Taxes Act.

Payments of interest in currencies other than sterling

64

• (1) In section 131 (2)(c)(ii) (deduction of certain interest payments to non-residents in computing profits or gains) and section 249(1)(c)(ii) (similar provision in relation to corporation tax) of the Taxes Act, for the words " the currency of a territory outside the scheduled territories " there shall be substituted, in each case, the words " a currency other than sterling ".

• (2) In section 416(1) of the Taxes Act (local authority borrowing in foreign currencies) for the words from " the currency " to " territories " there shall be substituted the words " a currency other than sterling ".

• (3) Subsection (1) has effect in relation to payments of interest made, and subsection (2) has effect in relation to securities issued, on or after 6th April 1982.

Double taxation relief: interest on certain overseas loans

65

• (1) This section applies in a case where—

• (a) in any chargeable period the profits of any person (in this section referred to as " the lender") which are brought into charge to income tax or corporation tax include an amount, computed in accordance with section 503 of the Taxes Act, in respect of interest (in this section referred to as " foreign loan interest") on a loan made to a person resident in a territory outside the United Kingdom; and

• (b) in determining the liability of the lender to income tax or corporation tax, expenditure related to the earning of the foreign loan interest is deductible in computing the profits referred to in paragraph (a) above ; and

• (c) the lender is entitled in accordance with Chapter II of Part XVIII of the Taxes Act (double taxation relief) to credit for foreign tax chargeable on or by reference to the foreign loan interest.

• (2) If, in a case where this section applies, the foreign tax referred to in subsection (1)(c) above is or includes an amount of spared tax, then, for the purposes of income tax or corporation tax, the amount which, apart from this subsection, would be the amount of the foreign loan interest shall be treated as increased by so much of the spared tax as does not exceed the permitted amount, as defined in subsection (3) below; but nothing in this subsection prejudices the operation of section 503 of the Taxes Act in relation to foreign tax which is not spared tax.

• (3) In this section " spared tax " means foreign tax which, although not payable, falls to be taken into account for the purposes of credit by virtue of section 497(3) of the Taxes Act; and the permitted amount, in relation to spared tax which is referable to the whole or any part of the foreign loan interest, is an amount which does not exceed—

• (a) 15 per cent, of the interest to which the spared tax is referable, computed without regard to any increase under subsection (2) above ; or

• (b) if it is less, the amount of that spared tax for which, in accordance with any arrangements applicable to the case in question, credit falls to be given as mentioned in subsection (1)(c) above.

• (4) If, in a case where this section applies.—

• (a) the foreign tax referred to in subsection (1)(c) above is or includes an amount of tax which is not spared tax, and

• (b) that amount of tax exceeds the amount of the credit which, by virtue of Chapter II of Part XVIII of the Taxes Act and subsection (5) below, is allowed for that foreign tax against income tax or corporation tax,

then, for the purposes of income tax or corporation tax, the amount which, apart from this subsection, would be the amount of the foreign loan interest shall be treated as reduced by a sum equal to the excess.

• (5) Where this section applies, the amount of the credit for foreign tax referred to in subsection (1)(c) above which, in accordance with Chapter II of Part XVIII of the Taxes Act, is to be allowed against income tax or corporation tax shall not exceed 15 per cent, of the foreign loan interest, computed without regard to any increase under subsection (2) or any reduction under subsection (4) above.

• (6) This section shall be construed as if it were included in Chapter II of Part XVIII of the Taxes Act.

• (7) Where the loan on which the foreign loan interest is payable was made pursuant to an agreement entered into before 1st April 1982, this section does not apply in relation to interest payable before 1st April 1983, but subject thereto, this section applies in relation to interest payable on or after 1st April 1982.

Double taxation relief: underlying tax reffecting interest on loans

66

• (1) This section applies in a case where

• (a) a bank or a company connected with a bank makes a claim for an allowance by way of credit in accordance with Chapter II of Part XVIII of the Taxes Act; and

• (b) the claim relates to underlying tax on a dividend paid by the overseas company, within the meaning of section 508 of that Act; and

• (c) that underlying tax is or includes tax payable under the law of a territory outside the United Kingdom on or by reference to interest on a loan made in the course of its business by that overseas company or by such a third, fourth or successive company as is referred to in subsection (2) or subsection (3) of that section; and

• (d) if the company which made the loan had been resident in the United Kingdom, then, in determining its liability to corporation tax, expenditure related to the earning of the interest on the loan would be deductible in computing the profits of the company brought into charge to tax.

• (2) If, in a case where this section applies, the underlying tax is or includes an amount of spared tax, then, for the purposes of corporation tax, the amount which, apart from this subsection, would be the amount of the dividend shall be treated as increased by an amount equal to so much of that spared tax as does not exceed the permitted amount, as defined in subsection (3) below; but nothing in this subsection prejudices the operation of section 503 of the Taxes Act in relation to foreign tax which is not spared tax.

• (3) In this section " spared tax " has the same meaning as in section 65 above; and the permitted amount, in relation to spared tax which is referable to the whole or any part of the interest referred to in subsection (1)(c) above, is an amount which does not exceed—

• (a) 15 per cent, of the interest to which that spared tax is referable ; or

• (b) if it is less, the amount of that spared tax which under any arrangements is to be taken into account for the purpose of allowing credit against corporation tax in respect of the dividend concerned.

• (4) If, in a case where this section applies.—

• (a) the underlying tax is or includes an amount of tax which is not spared tax, and

• (b) that amount of tax exceeds 15 per cent, of the interest to which it is referable, then, for the purposes of corporation tax, the amount which,

apart from this subsection, would be the amount of the dividend shall be treated as reduced by a sum equal to the excess.

• (5) Where this section applies, the amount of the credit referred to in paragraph (a) of subsection (1) above which is referable to the underlying tax payable as mentioned in paragraph (c) of that subsection shall not exceed 15 per cent, of so much of the interest referred to in that paragraph as is included in the relevant profits of the company paying the dividend; and for the purposes of this subsection—

• (a) " relevant profits " has the same meaning as, by virtue of section 506 of the Taxes Act, it has for the purposes of the computation of underlying tax ; and

• (b) the amount of the interest shall be determined without making any deduction in respect of any foreign tax.

• (6) In subsection (1) above " bank " means a company carrying on, in the United Kingdom or elsewhere.—

• (a) a banking business ; or

• (b) another business which includes the making of loans where the circumstances of the business are such that, in determining the liability of the company to corporation tax, expenditure related to the earning of the interest on those loans is deductible in computing the profits brought into charge to tax ;

and section 533 of the Taxes Act (connected persons) applies for the purposes of subsection (1) above.

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

• (8) Where the loan referred to in subsection (1)(c) above was made pursuant to an agreement entered into before 1st April 1982 this section does not apply to any underlying tax which is referable to interest on that loan payable before 1st April 1983 but, subject thereto, this section applies where the underlying tax is referable to interest payable on or after 1st April 1982.

Double taxation relief: branches of non-resident banks

67

At the end of paragraph (b) of the proviso to section 502 of the Taxes Act (exceptions, in relation to unilateral relief, from the requirement that the person claiming relief must be resident in the United Kingdom) there shall be added

and (c) for tax paid under the law of any territory in respect of interest on a loan where the following conditions are fulfilled, namely.— (i) that the person in question is a company which, for the chargeable period in question, carries on a banking business in the United Kingdom through a branch or agency ; and (ii) that the loan was made by the company through the branch or agency in the United Kingdom ; and (iii) that the territory under whose law the tax was paid is not one in which the company is liable to tax by reason of domicile, residence or place of management; and (iv) that the amount of relief claimed does not exceed (or is by the claim expressly limited to) that which would have been available if the branch or agency had been a company resident in the United Kingdom and the loan had been made by it in the course of its banking business.

Postponement of recovery of tax

68

• (1) In section 55 of the Taxes Management Act 1970 (postponement of recovery of tax) in subsection (2) for the words “If no application is made under subsection (3) below” there shall be substituted the words “ Except as otherwise provided by the following provisions of this section ”.

• (2) After subsection (3) of that section there shall be inserted the following subsection—

(3A) An application under subsection (3) above may be made more than thirty days after the date of the issue of the notice of assessment if there is a change in the circumstances of the case as a result of which the appellant has grounds for believing that he is over-charged to tax by the assessment.

• (3) In subsection (6) of that section (determination of application) in paragraph (a) after the words “subsection (3) above” there shall be inserted the words “ other than an application made by virtue of subsection (3A) above ”.

• (4) This section has effect in relation to notices of assessment to tax issued after the passing of this Act.

Interest on unpaid tax

69

• (1) In section 86 of the Taxes Management Act 1970 (interest on overdue tax) in subsection (3) (date when interest becomes payable)—

• (a) the following paragraph shall be inserted after paragraph (a)—

(aa) in relation to any tax payable in accordance with the determination of an appeal against an assessment but which had not been charged by the assessment, the date which if it had been charged would by virtue of paragraph (a) above have been the reckonable date; and

; and

• (b) in paragraph (b) after the words “paragraph (a)” there shall be inserted the words “ or paragraph (aa) ”.

• (2) This section has effect in relation to notices of assessment to tax issued after the passing of this Act.

Chapter II

Allowances for assets leased outside the United Kingdom

70–79

Restriction on first-year allowances in respect of ships and aircraft let on charter

71

• (1) In subsection (5) of section 64 of the Finance Act 1980 (first-year allowances to be available in respect of ships and aircraft let out on certain charters) after the words " subsection (2) above " there shall be inserted the words " but subject to subsection (6A) below ".

• (2) At the end of subsection (6) of that section there shall be inserted the following subsection: —

(6A) Subsection (5) above does not apply if the main object, or one of the main objects, of the letting of the ship or aircraft on charter, or of a series of transactions of which the letting on charter was one, or of any of the transactions in such a series was to obtain a first-year allowance in respect of expenditure incurred on the provision of the ship or aircraft, whether by the person referred to in subsection (5) (a) above or some other person.

• (3) This section applies in relation to expenditure incurred on or after 10th March 1982 unless—

• (a) the expenditure consists of the payment of sums payable under a contract entered into before that date by the person incurring the expenditure ; and

• (b) the ship or aircraft concerned is brought into use not later than 31st March 1984.

Expenditure on production and acquisition of films etc.

72

• (1) Expenditure which—

• (a) is incurred on or after 10th March 1982 on the production or acquisition of a film, tape or disc, and

• (b) would, apart from this subsection, constitute capital expenditure on the provision of machinery or plant for the purposes of Chapter I of Part III of the Finance Act 1971 (first-year and other allowances in respect of machinery and plant),

shall be regarded for the purposes of the Tax Acts as expenditure of a revenue nature unless it is expenditure falling within subsection (7) below.

• (2) In this section—

• (a) any reference to a film is (except where, in subsection (8) below, the context otherwise requires) a reference to an original master negative of the film and its soundtrack (if any);

• (b) any reference to a tape is a reference to an original master film tape or original master audio tape ; and

• (c) any reference to a disc is a reference to an original master film disc or original master audio disc;

and any reference to the acquisition of a film, tape or disc includes a reference to the acquisition of any description of rights in a film, tape or disc.

• (3) Subject to the following provisions of this section, in computing the profits or gains accruing to any person from a trade or business which consists of or includes the exploitation of a film, tape or disc, expenditure which—

• (a) is incurred on or after 10th March 1982 on the production or acquisition of a film, tape or disc, and

• (b) is expenditure of a revenue nature (whether by virtue of subsection (1) above or otherwise),

shall be allocated to relevant periods in accordance with subsection (4) below ; and in this subsection and subsection (4) below " relevant period " means a period for which the accounts of the trade or business concerned are made up or, if those accounts are not made up for any period, a period the profits or gains of which are taken into account in assessing the income of the trade or business for any chargeable period.

• (4) The amount of expenditure falling within subsection (3) above which falls to be allocated to any relevant period shall be such as is just and reasonable, having regard to—

• (a) the amount of that expenditure which remains un allocated at the beginning of that period;

• (b) the proportion which the estimated value of the film, tape or disc which is realised in that period (whether by way of income or otherwise) bears to the aggregate of the value so realised and the estimated remaining value of the film, tape or disc at the end of that period ; and

• (c) the need to bring the whole of the expenditure falling within subsection (3) above into account over the time during which the value of the film, tape or disc is expected to be realised.

• (5) Subsections (3) and (4) above do not apply to the profits or gains of a trade in which the film, tape or disc concerned constitutes trading stock, as defined in section 137(4) of the Taxes Act.

• (6) In a case where any expenditure on the production or acquisition of a film, tape or disc is expenditure to which subsection (1) above applies, sums received from the disposal of that film, tape of disc shall be regarded for the purposes of the Tax Acts as receipts of a revenue nature (if they would not be so regarded apart from this subsection); and the reference in this subsection to sums received from the disposal of any film, tape or disc shall be construed as including—

• (a) sums received from the disposal of any interest or right in or over the film, tape or disc, including an interest or right created by the disposal; and

• (b) insurance or compensation moneys and other moneys of a like nature which are derived from the film, tape or disc.

• (7) The preceding provisions of this section do not apply to expenditure which is incurred by any person on or before 31st March 1984 if it consists of the payment of sums payable under a contract entered into by him before 10th March 1982 or it is incurred—

• (a) by a person who carries on a trade or business which consists of or includes the exploitation of films, tapes or discs; and

• (b) on the production or acquisition of a film, tape or disc which is certified by the Secretary of State for the purposes of this section as a qualifying film, tape or disc and the value of which is expected to be realisable over a period of not less than two years.

• (8) The Secretary of State shall not certify a film, tape or disc as a qualifying film, tape or disc for the purposes of this section unless he is satisfied that it is the master negative, master tape or master disc of a film which, in his opinion.—

• (a) is an eligible film for the purposes of regulations made or having effect as if made under section 6 of the Film Levy Finance Act 1981 (payments by the British Film Fund Agency to the makers of British films) and in force immediately before the passing of this Act; or

• (b) would be such an eligible film if it were not a television film within the meaning of those regulations.

• (9) In this section " expenditure of a revenue nature " means expenditure which, if it were incurred in the course of a trade the profits or gains of which are chargeable to tax under Case i of Schedule D, would be taken into account for the purpose of computing the profits, gains or losses of the trade; and " receipts of a revenue nature" means receipts which, if they were receipts of such a trade, would be taken into account for that purpose.

Industrial buildings allowance: very small workshops

73

• (1) Chapter I of Part I of the Capital Allowances Act 1968 (industrial buildings allowances) shall apply with the modifications specified in paragraphs 1 to 3 of Schedule 13 to the Finance Act 1980 in relation to capital expenditure on the construction of an industrial building to which this section applies if the expenditure is incurred after 26th March 1983 and before 27th March 1985.

• (2) This section applies to an industrial building if the gross internal floor space of the whole building will not exceed 1,250 square feet.

• (3) Subsections (3) to (6) of section 75 of the Finance Act 1980 (small workshops allowance) shall apply for the purposes of this section as they apply for the purposes of that section and accordingly—

• (a) in subsection (3) the reference to subsection (2) of that section shall be construed as including a reference to subsection (2) of this section ; and

• (b) in subsections (4) and (5) the references to subsection (1) of that section shall be construed as including a reference to subsection (1) of this section.

• (4) The Tax Acts shall have effect as if this section were contained in Chapter I of Part I of the said Act of 1968.

Industrial buildings allowance: licensees

74

• (1) In section 1 of the Capital Allowances Act 1968 (initial allowances) the following subsection shall be inserted after subsection (1)—

(1A) The reference in subsection (1) above to the occupation of a building or structure for the purposes of a trade carried on by the person who incurred the capital expenditure on that building or structure shall include a reference to the use of that building or structure for the purposes of a trade carried on by a licensee of that person or of a lessee of that person.

• (2) Section 6 of that Act (method of making allowances and charges) shall apply where the building or structure in question is used by a licensee of the person entitled to the relevant interest as if that interest were subject to a lease.

• (3) In section 7 of that Act (definition of " industrial building or structure ") the following subsection shall be inserted after subsection (3)—

(3A) Where a building or structure is used by more than one licensee of the same person that building or structure shall not be an industrial building or structure unless each of the licensees uses the building or that part of it to which his licence relates for the purposes of a trade which falls within subsection (1) above.

• (4) Subsections (1) and (3) above shall apply in relation to licences granted on or after 10th March 1982.

Industrial buildings allowance: maintenance of goods etc.

75

• (1) In section 7 of the Capital Allowances Act 1968 (definition of " industrial building or structure ") the following subsection shall be inserted after subsection (2)—

(2A) The reference in paragraph (e) of subsection (1) above to the subjection of goods or materials to any process shall include a reference to the maintaining or repairing of any goods or materials but, notwithstanding subsection (2) above, paragraph (e) shall not apply to the maintenance or repair by any person of goods or materials employed by that person in any trade or undertaking unless that trade or undertaking itself falls within any of the paragraphs of that subsection (including paragraph (e)).

• (2) In subsection (3) of that section (retail shops etc. not to constitute industrial buildings or structures) for the words " subsection (1) or subsection (2)" there shall be substituted the words " the preceding provisions ".

• (3) This section shall be deemed to have come into force on 10th March 1982.

Allowances for dwelling houses let on assured tenancies

76

• (1) The provisions of Schedule 12 to this Act shall have effect to provide for reliefs in respect of expenditure incurred on the construction of buildings consisting of or including dwelling-houses let on assured and certain other tenancies.

• (2) Schedule 12 to this Act has effect only where the expenditure concerned is incurred on or after 10th March 1982 and before 1st April 1987 or is deemed to have been so incurred by virtue of paragraph 8 of that Schedule.

Teletext receivers and teletext and viewdata adaptors

77

• (1) Paragraph 7 of Schedule 12 to the Finance Act 1980 (transitional period for 100 per cent, first year allowances for television sets) shall be amended in accordance with the following provisions of this section.

• (2) In sub-paragraph (2) (definition of "the transitional period ") in paragraph (a) after the words " other than " there shall be inserted the words " a teletext receiver or " and at the end of paragraph (a) there shall be inserted: —

(aa) in relation to expenditure on the provision of a teletext receiver, the period of five years beginning with that date

.

• (3) In sub-paragraph (3) (definition of "viewdata receiver") after the words " television set" in the first place where they occur, there shall be inserted the words " which is not a teletext receiver but which is " and the words from "and a television set" to the end of the sub-paragraph shall be omitted.

• (4) After sub-paragraph (3) there shall be inserted the following sub-paragraphs:—

(4) In this Part of this Schedule " a teletext receiver " means a television set— (a) which is constructed for receiving teletext transmissions, that is to say, transmissions intended for general reception and consisting of a succession of visual displays (with or without accompanying sound) each capable of being selected and held for separate viewing or other use; and (b) which is not also constructed for displaying information received as mentioned in sub-paragraph (3) above. (5) In relation to expenditure incurred after 9th March 1982— (a) this Part of this Schedule, other than sub-paragraph (6) below, shall have effect as if any reference to a television set included a reference to a teletext adaptor or a viewdata adaptor; and (b) sub-paragraph (2) above shall have effect as if any reference to a teletext receiver included a reference to a teletext adaptor and as if any reference to a viewdata receiver included a reference to a viewdata adaptor. (6) In this Part of this Schedule (a) " teletext adaptor " means a device external to a television set which, after it is connected to that television set, allows the set to display transmissions in the same manner as a teletext receiver; and (b) " viewdata adaptor" means a device external to a television set which, after it is connected to that television set, allows the set to display information received in the same manner as a viewdata receiver.

Extension of section 515 relief to Case V of Schedule D

78

• (1) In section 515(1) of the Taxes Act (postponement of capital allowances to secure double taxation relief) for the words " tax in respect of a trade under Case I of Schedule D " there shall be substituted the words " tax under Schedule D in respect of a trade ".

• (2) This section applies in relation to claims made on or after 6th April 1982.

Capital allowances and stock relief

79

• (1) This section applies in any case where a person is entitled to an allowance or relief for a year of assessment and—

• (a) he and the inspector have come to an agreement, in writing, as to the extent to which the allowance or relief is to be given effect in that year (whether by deduction from profits or gains or by discharge or repayment of tax, or both); and

• (b) no assessment giving effect to the allowance or relief is made for that year.

• (2) In a case to which this section applies the allowance or relief shall be taken to have been given effect in the year of assessment in question, as if an assessment had been made, to the extent set out in the agreement mentioned in subsection (1) above.

• (3) In this section—

• " allowance " means an allowance to which section 70 or 71 of the Capital Allowances Act 1968 applies (income tax allowances in taxing a trade); and

• " relief " means a relief to which Part II of Schedule 9 to the Finance Act 1981 applies (income tax: stock relief).

• (4) This section has effect in relation to agreements made on or after 6th April 1982.

Chapter III — Capital Gains

Increase and indexation of annual exempt amount

80

Increase of chattel exemption

81

• (1) In the following enactments, namely,—

• (a) section 128 of the Capital Gains Tax Act 1979 (chattel exemption by reference to consideration of £2,000),

• (b) section 12(2)(b) of the Taxes Management Act 1970 (information about assets acquired), and

• (c) section 25(7) of that Act (information about assets disposed of),

for “£2,000”, in each case where it occurs, there shall be substituted “ £3,000 ”.

• (2) This section applies to disposals on or after 6th April 1982 and, accordingly, in relation to subsection (1)(b) above, to assets acquired on or after that date.

Extension of general relief for gifts

82

• (1) Section 79 of the Finance Act 1980 (which gives relief for disposals between individuals and, by virtue of section 78 of the Finance Act 1981, disposals by individuals to trustees) shall have effect as if references to an individual included references to the trustees of a settlement; but a claim for relief under that section in respect of a disposal to the trustees of a settlement shall be made by the transferor alone (instead of by the transferor and the transferee).

• (2) In subsection (4) of that section, the words from “or” onwards shall cease to have effect.

• (3) In subsection (5) of that section—

• (a) in paragraph (a), for the words from “chargeable” to “purposes” there shall be substituted the words “ attributable to the value of the asset ”; and

• (b) the words from “and where” onwards shall cease to have effect.

• (4) In section 78 of the Finance Act 1981 (subsections (1) and (3) of which are superseded by this section) in subsection (2) for the words “that section” there shall be substituted the words “ section 79 of the Finance Act 1980 ”.

• (5) This section applies to disposals on or after 6th April 1982.

Relief on compulsory purchase

83

Termination of life interest etc.

84

Maintenance funds for historic buildings

85

Indexation allowance on certain disposals

86

Calculation of indexation allowance

87

Identification of securities etc. disposed of: general rules

88

Identification of securities: special rules

89

• (1) Where, in a case of a man and his wife living with him, one of them—

• (a) disposes of securities to his wife or her husband on or after 6th April 1982, and

• (b) disposes of other securities, which are of the same kind as those disposed of to the wife or husband, to another person (in this section referred to as “a third party”), the provisions of subsections (3) and (4) below have effect with respect to any securities acquired by the person making those disposals which, but for the provisions of section 88 above, could have been comprised in either of those disposals.

• (2) Where a company which is a member of a group of companies—

• (a) disposes of securities to another member of the group on or after 1st April 1982, and

• (b) disposes of other securities, which are of the same kind as those disposed of to that other company, to another person (in this section referred to as a “third party”) not being another member of the same group, the provisions of subsections (3) and (4) below have effect with respect to any securities acquired by the company making those disposals which, but for the provisions of section 88 above, could have been comprised in either of those disposals.

• (3) If, apart from the provisions of this subsection, securities disposed of to a third party—

• (a) would be indexed securities, and

• (b) but for the disposal referred to in subsection (1)(a) or, as the case may be, subsection (2)(a) above would be unindexed securities,

the identification shall be reversed so that the securities disposed of to the third party (or, if the quantity disposed of to the third party was greater than the quantity disposed of to the wife or husband or, as the case may be, to the other company, a part of them equal to the quantity so disposed of) shall be unindexed securities.

• (4) If there is more than one disposal falling within subsection (1)(a) or, as the case may be, subsection (2)(a) above, or more than one disposal to a third party, the provisions of subsection (3) above shall be applied to securities disposed of on an earlier date before being applied to securities disposed of on a later date, and the re-identification of the securities first disposed of shall accordingly determine the way in which this section applies to the securities comprised in the later disposal.

• (5) In this subsection “indexed securities” means securities which were acquired or provided more than twelve months before the date of the disposal concerned and “unindexed securities” shall be construed accordingly.

• (6) Section 272 of the Taxes Act (groups of companies) shall apply for the purpose of this section as it applies for the purposes of sections 273 to 281 of that Act.

• (7) Subsection (9) of section 88 above applies for the purposes of this section as it applies for the purposes of that.

Part IV

CHAPTER I — General

Reduction of tax

90

Indexation of rate bands

91

• (1) If the retail prices index for the month of December in 1982 or any later year is higher than it was for the previous December, then, unless Parliament otherwise determines, section 37 of the Finance Act 1975 shall apply to chargeable transfers made on or after 6th April in the following year with the substitution in subsection (3) of new Tables for the Tables applying (whether by virtue of this section or otherwise) to earlier chargeable transfers.

• (2) The new Tables shall differ from the Tables they replace in that for each of the amounts specified in the first and second columns there shall be substituted amounts arrived at by increasing the previous amounts by the same percentage as the percentage increase in the retail prices index and, if the result is not a multiple of £1,000, rounding it up to the nearest amount which is such a multiple.

• (3) The references in this section to the retail prices index are references to the general index of retail prices (for all items) published by the Department of Employment; and if that index is not published for a month of December those references shall be construed as references to any substituted index or index figures published by that Department.

• (4) The Treasury shall before 6th April 1983 and each subsequent 6th April make an order specifying the amounts which by virtue of this section will be treated, in relation to chargeable transfers on or after that date, as specified in the Tables in section 37(3) of the Finance Act 1975 ; and any such order shall be made by statutory instrument.

• (5) In section 85(3) of the Finance Act 1980 (transitional provisions on reduction of tax by that section or subsequent enactments) for the words " which reduces tax by substituting " there shall be substituted the words " by virtue of which tax is reduced by the substitution of ".

Exemptions

92

• (1) In paragraph 1(2) of Schedule 6 to the Finance Act 1975 (exemption limit for transfers to non-domiciled spouses) for " £50,000 " there shall be substituted " £55,000 ".

• (2) In paragraph 10(1)(b) of that Schedule (limit on exempt gifts made to charities on or within one year of death) for " £200,000 " there shall be substituted " £250,000 ".

• (3) This section applies to any transfer of value made on or after 9th March 1982.

Maintenance funds: Treasury directions

93

• (1) On a claim made for the purpose, the Treasury shall give a direction under this section in respect of property comprised in a settlement if the conditions mentioned in subsection (2) below are fulfilled.

• (2) The conditions are—

• (a) that the Treasury are satisfied—

• (i) that the trusts on which the property is held comply with the requirements mentioned in subsection (3) below, and

• (ii) that the property is of a character and amount appropriate for the purposes of those trusts ; and

• (b) that the trustees—

• (i) are approved by the Treasury,

• (ii) include a trust corporation (as defined in section 94(1) below) or a solicitor or an accountant (as so defined) or a member of such other professional body as the Treasury may allow in the case of the property concerned, and

• (iii) are, at the time the direction is given, resident in the United Kingdom (as specified in section 94(1) below).

• (3) The requirements are—

• (a) that none of the property held on the trusts can at any time in the period of six years beginning with the date on which it became so held be applied otherwise than—

• (i) for the maintenance, repair or preservation of, or making provision for public access to, property which is for the time being qualifying property (as defined in section 94(2) below), for the maintenance, repair or preservation of property held on the trusts or for such improvement of property so held as is reasonable having regard to the purposes of the trusts, or for defraying the expenses of the trustees in relation to the property so held;

• (ii) as respects income not so applied and not accumulated, for the benefit of a body mentioned in paragraph 12 of Schedule 6 to the Finance Act 1975 (museums etc.) or of a qualifying charity (as defined in section 94(4) below); and

• (b) that none of the property can, on ceasing to be held on the trusts at any time in that period or, if the settlor dies in that period, at any time before his death, devolve otherwise than on any such body or charity; and

• (c) that income arising from property held on the trusts cannot at any time after the end of that period be applied except as mentioned in paragraph (a)(i) or (ii) above.

• (4) Subject to subsection (5) below, paragraphs (a) and (b) of subsection (3) above do not apply to property which—

• (a) was previously comprised in another settlement; and

• (b) ceased to be comprised in that settlement and became comprised in the current settlement in circumstances such that by virtue of paragraph 3(1) of Schedule 16 to this Act there was no charge (or, but for paragraph 3(4) of that Schedule, there would have been no charge) to tax in respect of it;

and in relation to any such property paragraph (c) of that subsection shall apply with the omission of the words " at any time after the end of that period ".

• (5) Subsection (4) above shall not have effect if the time when the property comprised in the previous settlement devolved otherwise than on any such body or charity as is mentioned in paragraph (a) of subsection (3) above fell before the expiration of the period of six years mentioned in that paragraph; but in such a case subsection (3) above shall apply to the current settlement as if for the references to the period of six years there mentioned there were substituted references to the period beginning with the date on which the property became comprised in the current settlement and ending six years after the date on which it became held on the relevant trusts of the previous settlement (or, where this subsection has already had effect in relation to the property, the date on which it became held on the relevant trusts of the first settlement in the series).

• (6) If in the Treasury's opinion the facts concerning any property or its administration cease to warrant the continuance of the effect of a direction given under this section in respect of the property, they may at any time by notice in writing to the trustees withdraw the direction on such grounds, and from such date, as may be specified in the notice; and the direction shall cease to have effect accordingly.

• (7) Where a direction under this section has effect in respect of property, the trustees shall from time to time furnish the Treasury with such accounts and other information relating to the property as the Treasury may reasonably require.

• (8) Where a direction under this section has effect in respect of property, the trusts on which the property is held shall be enforceable at the suit of the Treasury and the Treasury shall, as respects the appointment, removal and retirement of trustees, have the rights and powers of a beneficiary.

• (9) The Treasury may give a direction under this section in respect of property proposed to be comprised in a settlement or to be held on particular trusts, and the preceding provisions of this section shall be read accordingly.

• (10) This section shall have effect in relation to events after 8th March 1982.

Provisions supplementary to section 93

94

• (1) For the purposes of section 93(2) above—

• (a) " accountant" means a member of an incorporated society of accountants;

• (b) " trust corporation " means a person that is a trust corporation for the purposes of the Law of Property Act 1925 or for the purposes of Article 9 of the Administration of Estates (Northern Ireland) Order 1979;

• (c) trustees shall be regarded as resident in the United Kingdom at any particular time if the general administration of the trusts is ordinarily carried on in the United Kingdom and the trustees or a majority of them (and, where there is more than one class of trustees, a majority of each class) are resident in the United Kingdom ;

and, where a trustee is a trust corporation, the question whether the trustee is resident in the United Kingdom shall, for the purposes of paragraph (c) above, be determined as for the purposes of corporation tax.

• (2) Property is qualifying property for the purposes of section 93(3) above if—

• (a) it has been designated under section 34(1) of the Finance Act 1975 or section 77(1)(b), (c),(d) or (e) of the Finance Act 1976; and

• (b) the requisite undertaking has been given with respect to it under the said section 34 or under section 76, 78(5) (b) or 82(3) of the Finance Act 1976 ; and

• (c) tax has not (since the last occasion on which such an undertaking was given) become chargeable with respect to it under the said section 34 or under section 78 or 82(3) of the Finance Act 1976.

• (3) If it appears to the Treasury that provision is, or is to be, made by a settlement for the maintenance, repair or preservation of any such property as is mentioned in subsection (1) (b). (c), (d) or (e) of section 77 of the Finance Act 1976, they may, on a claim made for the purpose—

• (a) designate that property under this subsection ; and

• (b) accept with respect to it an undertaking such as is described in subsection (4) of that section ;

and, if they do so, subsection (2) above shall have effect as if the designation were under that section and the undertaking under section 76 of the Finance Act 1976 and as if the reference to tax becoming chargeable were a reference to the occurrence of an event on which tax would become chargeable under section 78 of that Act if there had been a conditionally exempt transfer of the property when the claim was made and the undertaking had been given under the said section 76.

• (4) A charity is a qualifying charity for the purposes of section 93(3) above if it exists wholly or mainly for maintaining, repairing or preserving for the public benefit buildings of historic or architectural interest, land of scenic, historic or scientific interest or objects of national, scientific, historic or artistic interest; and in this subsection " national interest" includes interest within any part of the United Kingdom.

• (5) Property comprised in a settlement by virtue of a transfer of value made before the coming into force of this section and exempt under section 84 of the Finance Act 1976 shall be treated as property in respect of which a direction has been given under section 93 above.

• (6) Designations, undertakings and acceptances made under section 84(6) of the Finance Act 1976 shall be treated as made under subsection (3) above and, in relation to them, subsections (2) and (3) above shall be treated as having been in force when they were made.

Maintenance funds: exempt transfers

95

• (1) Subject to the provisions of Part II of Schedule 6 to the Finance Act 1975 as applied by this section, a transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property which by virtue of the transfer becomes, or immediately after the transfer remains, comprised in a settlement and in respect of which—

• (a) a direction under section 93 above has effect at the time of the transfer, or

• (b) such a direction is given after the time of the transfer.

• (2) Sub-paragraphs (1), (2), (2A), (3)(a), (b) and (ba) and (4B) of paragraph 15 of Schedule 6 to the Finance Act 1975 shall apply to this section as they apply to paragraphs 10 to 13 of that Schedule, and for the purposes of the said sub-paragraph (4B) the trustees of a settlement in relation to which a direction under section 93 above has effect shall be treated as a body within paragraph 13 of that Schedule.

• (3) In paragraph 16 of Schedule 6 to the Finance Act 1975 for the words " sections 76 and 84 of the Finance Act 1976 " there shall be substituted the words " section 76 of the Finance Act 1976 and section 95 of the Finance Act 1982 ".

• (4) This section shall have effect in relation to events after 8th March 1982.

Non-residents' bank accounts

96

• (1) In determining for the purposes of capital transfer tax the value of the estate immediately before his death of a person to whom this section applies there shall be left out of account the balance on—

• (a) any qualifying foreign currency account of his, and

• (b) subject to subsection (3) below, any qualifying foreign currency account of the trustees of settled property in which he is beneficially entitled to an interest in possession.

• (2) This section applies to a person who is not domiciled in the United Kingdom immediately before his death, and is neither resident nor ordinarily resident there at that time.

• (3) Subsection (1)(b) above does not apply in relation to settled property if the settlor was domiciled in the United Kingdom when he made the settlement, or if the trustees are domiciled, resident or ordinarily resident in the United Kingdom immediately before the beneficiary's death.

• (4) For the purposes of this section—

• (a) the question whether a person is resident or ordinarily resident in the United Kingdom shall, subject to paragraph (b) below, be determined as for the purposes of income tax; but

• (b) the trustees of a settlement shall be regarded as not resident or ordinarily resident in the United Kingdom unless the general administration of the settlement is ordinarily carried on in the United Kingdom and the trustees or a majority of them (and, where there is more than one class of trustees, a majority of each class) are resident and ordinarily resident there.

• (5) In this section " qualifying foreign currency account" means a foreign currency account with the Bank of England, the Post Office, a recognised bank or licensed institution; and for this purpose—

• (a) " foreign currency account" means any account other than one denominated in sterling, and

• (b) " recognised bank " and " licensed institution " have the same meanings as in the Banking Act 1979.

• (6) This section has effect in relation to deaths occurring after 8th March 1982.

Scottish agricultural leases

97

• (1) Subject to subsections (2) and (3) below, where any part of the value of a person's estate immediately before his death is attributable to the value of the interest of a tenant of agricultural property in Scotland, being an interest held by virtue of tacit relocation; and

• (a) either he had been tenant of the said property continuously for a period of at least two years immediately preceding his death or he had become tenant of the said property by succession ; and

• (b) the said interest is acquired on his death by a new tenant,

the value of the said interest shall be left out of account in determining the value transferred on the death.

• (2) The value to be left out of account under subsection (1) above shall not include the value of any rights to compensation in respect of tenant's improvements.

• (3) Subsections (1) and (2) above apply to deaths on or after 15th November 1976.

• (4) The Finance Act 1981 shall be amended as follows—

• (a) in section 98 at the beginning there shall be inserted " (1) " , and at the end there shall be inserted the following new subsection—

(2) This section applies to deaths on or after 15th November 1976.

;

• (b) section 99 and Schedule 15 shall cease to have effect.

Employee and newspaper trusts

98

• (1) Paragraph 17 of Schedule 5 to the Finance Act 1975 shall be amended in accordance with subsections (2) to (5) below.

• (2) In sub-paragraph (1)(a) for the words " profession or undertaking " (where they first occur) there shall be substituted the words " or profession ".

• (3) In sub-paragraph (1) the words "or (c) charities" shall be omitted.

• (4) After sub-paragraph (1) there shall be inserted—

(1A) Where settled property is held on trusts permitting the property to be applied for the benefit of persons within paragraph (a) or (b) of sub-paragraph (1) above, those trusts shall not be regarded as outside the description specified in that sub-paragraph by reason only that they also permit the settled property to be applied for charitable purposes.

• (5) For sub-paragraph (2) there shall be substituted—

(2) Where any class mentioned in sub-paragraph (1) above is defined by reference to employment by or office with a particular body, this paragraph applies to the settled property only if— (a) the class comprises all or most of the persons employed by or holding office with the body concerned ; or (b) the trusts on which the settled property is held are those of a profit sharing scheme approved in accordance with Schedule 9 to the Finance Act 1978.

• (6) In paragraph 17A(1) of that Schedule for the words "to (c) " there shall be substituted the words " and (b) ".

• (7) This section shall have effect in relation to events after 8th March 1982.

Close companies

99

• (1) Paragraph 24 of Schedule 5 to the Finance Act 1975 shall have effect with the following amendments in relation to events after 8th March 1982.

• (2) In sub-paragraph (2), for paragraph (b) there shall be substituted—

(b) if no qualifying interest in possession subsists in the settled property, Chapter II of Part IV of the Finance Act 1982 shall have effect as if on the making of the transfer the trustee had made a disposition as a result of which the value of the settled property had been reduced by an amount equal to the part so apportioned less the amount specified in sub-paragraph (3) below

;

and for the words " an interest in possession " in each place where they occur there shall be substituted the words " a qualifying interest in possession ".

• (3) In sub-paragraph (5) for the words from " as " to " beneficially " there shall be substituted the words " and of Chapter II of Part IV of the Finance Act 1982 as being the persons ".

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

(5A) Where— (a) the participators mentioned in sub-paragraph (5) above include the trustees of a settlement, and (b) a person is beneficially entitled to an interest in possession in the whole or part of the settled property by virtue of which the trustees are participators, that person shall be treated for the said purposes as beneficially entitled to the whole or a corresponding part of the interest to which the trustees would otherwise be treated as entitled under that sub-paragraph.

• (5) In sub-paragraph (6), at the end, there shall be added the words " and "qualifying interest in possession " has the meaning given by section 103 of the Finance Act 1982."

Apsley House

100

The enactments relating to capital transfer tax shall not apply in respect of the rights conferred by section 3 of the Wellington Museum Act 1947.

CHAPTER II — Settlements Without Interests in Possession

Preliminary

Preliminary

101

This Chapter, which supersedes paragraphs 6 to 14 of Schedule 5 to the Finance Act 1975, shall have effect in relation to events after 8th March 1982, but subject, in the case of any settlement which commenced before 27th March 1974, to the provisions of Schedule 15 to this Act.

Principal definitions

Relevant property

102

• (1) In this Chapter " relevant property " means settled property in which no qualifying interest in possession subsists, other than—

• (a) property held for charitable purposes only, whether for a limited time or otherwise ;

• (b) property to which section 114 below applies ;

• (c) property to which paragraph 2 of Schedule 16 to this Act applies;

• (d) property which is part of or held for the purposes of a fund or scheme to which paragraph 16 of Schedule 5 to the Finance Act 1975 applies (superannuation schemes);

• (e) property to which paragraph 17 of that Schedule applies (trusts for employees etc. and newspaper trusts);

• (f) property which is held on trusts to the like effect as those specified in section 33(1)(ii) of the Trustee Act 1925 (protective trusts) and which became held on those trusts on the failure or determination before 12th April 1978 of trusts to the like effect as those specified in section 33(1)(i);

• (g) property within paragraph 19 of Schedule 5 to the Finance Act 1975 (trusts for disabled persons), as it applies to property which was transferred into settlement before 10th March 1981 ;

• (h) property comprised in a trade or professional compensation fund; and

• (i) excluded property.

• (2) The reference in subsection (1)(d) above to property which is part of or held for the purposes of a fund or scheme does not include a reference to a benefit which, having become payable under the fund or scheme, becomes comprised in a settlement.

Qualifying interest in possession

103

• (1) In this Chapter " qualifying interest in possession " means an interest in possession to which an individual, or where subsection (2) below applies a company, is beneficially entitled.

• (2) This subsection applies where—

• (a) the business of the company consists wholly or mainly in the acquisition of interests in settled property, and

• (b) the company has acquired the interest for full consideration in money or money's worth from an individual who was beneficially entitled to it.

• (3) Where the acquisition mentioned in paragraph (b) of subsection (2) above was before 14th March 1975—

• (a) the condition set out in paragraph (a) of that subsection shall be treated as satisfied if the business of the company was at the time of the acquisition such as is described in that paragraph, and

• (b) that condition need not be satisfied if the company is authorised to carry on long-term business under section 3 or 4 of the Insurance Companies Act 1981.

Commencement of settlement

104

In this Chapter references to the commencement of a settlement are references to the time when property first becomes comprised in it.

Ten-year anniversary

105

• (1) In this Chapter " ten-year anniversary " in relation to a settlement means the tenth anniversary of the date on which the settlement commenced and subsequent anniversaries at ten-yearly intervals, but subject to subsections (2) to (4) below.

• (2) The ten-year anniversaries of a settlement treated as made under section 120 below shall be the dates that are (or would but for that section be) the ten-year anniversaries of the settlement first mentioned in that section.

• (3) No date falling before 1st April 1983 shall be a ten-year anniversary.

• (4) Where—

• (a) the first ten-year anniversary of a settlement would apart from this subsection fall during the year ending with 31st March 1984, and

• (b) during that year an event occurs in respect of the settlement which could not have occurred except as the result of some proceedings before a court, and

• (c) the event is one on which tax is (or, apart from Part II of Schedule 15 to this Act, would be) chargeable under this Chapter,

the first ten-year anniversary shall be taken to be 1st April 1984 (but without affecting the dates of later anniversaries).

Related settlements

106

• (1) For the purposes of this Chapter two settlements are related if and only if—

• (a) the settlor is the same in each case, and

• (b) they commenced on the same day,

but subject to subsection (2) below.

• (2) Two settlements are not related for the purposes of this Chapter if all the property comprised in one or both of them was immediately after the settlement commenced held for charitable purposes only without limit of time (defined by a date or otherwise).

Principal charge to tax

Charge at ten-year anniversary

107

Where immediately before a ten-year anniversary all or any part of the property comprised in a settlement is relevant property, tax shall be charged at the rate applicable under sections 109 and 110 below on the value of the property or part at that time.

Charge at other times

108

• (1) Subject to the following provisions of this section, there shall be a charge to tax under this section—

• (a) where the property comprised in a settlement or any part of that property ceases to be relevant property (whether because it ceases to be comprised in the settlement or otherwise); and

• (b) in a case in which paragraph (a) above does not apply, where the trustees of the settlement make a disposition, as a result of which the value of relevant property comprised in the settlement is less than it would be but for the disposition.

• (2) The amount on which tax is charged under this section shall be—

• (a) the amount by which the value of relevant property comprised in the settlement is less immediately after the event in question than it would be but for the event, or

• (b) where the tax payable is paid out of relevant property comprised in the settlement immediately after the event, the amount which, after deducting the tax, is equal to the amount on which tax would be charged by virtue of paragraph (a) above.

• (3) The rate at which tax is charged under this section shall be the rate applicable under section 111 or 112 below.

• (4) Subsection (1) above does not apply if the event in question occurs in a quarter beginning with the day on which the settlement commenced or with a ten-year anniversary.

• (5) Tax shall not be charged under this section in respect of—

• (a) a payment of costs or expenses (so far as they are fairly attributable to relevant property), or

• (b) a payment which is (or will be) income of any person for any of the purposes of income tax or would for any of those purposes be income of a person not resident in the United Kingdom if he were so resident,

or in respect of a liability to make such a payment.

• (6) Tax shall not be charged under this section by virtue of subsection (1)(b) above if the disposition is such that, were the trustees beneficially entitled to the settled property, section 20(4) of the Finance Act 1975 (disposition not intended to confer gratuitous benefit) or section 97 of the Finance Act 1981 (grant of tenancies of agricultural property) would prevent the disposition from being a transfer of value.

• (7) Tax shall not be charged under this section by reason only that property comprised in a settlement ceases to be situated in the United Kingdom and thereby becomes excluded property by virtue of paragraph 2(1)(a) of Schedule 5 to the Finance Act 1975.

• (8) If the settlor of a settlement was not domiciled in the United Kingdom when the settlement was made, tax shall not be charged under this section by reason only that property comprised in the settlement is invested in securities issued as mentioned in paragraph 3 of Schedule 7 to the Finance Act 1975 and thereby becomes excluded property by virtue of sub-paragraph (2) of that paragraph; and section 45 of that Act (domicile) shall not apply to determine the settlor's domicile for the purposes of this subsection in relation to property which became comprised in a settlement before 10th December 1974.

• (9) For the purposes of this section trustees shall be treated as making a disposition if they omit to exercise a right (unless it is shown that the omission was not deliberate) and the disposition shall be treated as made at the time or latest time when they could have exercised the right.

Rates of principal charge

Rate of ten-yearly charge

109

• (1) Subject to subsection (2) below, the rate at which tax is charged under section 107 above at any time shall be three tenths of the effective rate (that is to say the rate found by expressing the tax chargeable as a percentage of the amount on which it is charged) at which tax would be charged on the value transferred by a chargeable transfer of the description specified in subsection (3) below.

• (2) Where the whole or part of the value mentioned in section 107 above is attributable to property which was not relevant property, or was not comprised in the settlement, throughout the period of ten years ending immediately before the ten-year anniversary concerned, the rate at which tax is charged on that value or part shall be reduced by one-fortieth for each of the successive quarters in that period which expired before the property became, or last became, relevant property comprised in the settlement.

• (3) The chargeable transfer postulated in subsection (1) above is one—

• (a) the value transferred by which is equal to an amount determined in accordance with subsection (4) below ;

• (b) which is made immediately before the ten-year anniversary concerned by a transferor who has in the preceding ten years made chargeable transfers having an aggregate value determined in accordance with subsection (5) below; and

• (c) for which the appropriate Table of rates is the second Table set out in section 37(3) of the Finance Act 1975.

• (4) The amount referred to in subsection (3)(a) above is equal to the aggregate of—

• (a) the value on which tax is charged under section 107 above;

• (b) the value immediately after it became comprised in the settlement of any property which was not then relevant property and has not subsequently become relevant property while remaining comprised in the settlement; and

• (c) the value, immediately after a related settlement commenced, of the property then comprised in it.

• (5) The aggregate value referred to in subsection (3)(b) above is equal to the aggregate of—

• (a) the values transferred by any chargeable transfers made by the settlor in the period of ten years ending with the day on which the settlement commenced, disregarding transfers made on that day, and

• (b) the amounts on which any charges to tax were imposed under section 108 above in respect of the settlement in the ten years before the anniversary concerned;

but subject to section 110 below.

Added property etc.

110

• (1) This subsection applies where, after the settlement commenced and after 8th March 1982, but before the anniversary concerned, the settlor made a chargeable transfer as a result of which the value of the property comprised in the settlement was increased.

• (2) For the purposes of subsection (1) above, it is immaterial whether the amount of the property so comprised was increased as a result of the transfer, but a transfer as a result of which the value increased but the amount did not shall be disregarded if it is shown that the transfer—

• (a) was not primarily intended to increase the value, and

• (b) did not result in the value being greater immediately after the transfer by an amount exceeding five per cent, of the value immediately before the transfer.

• (3) Where subsection (1) above applies, section 109(5)(a) above shall have effect as if it referred to the greater of—

• (a) the aggregate of the values there specified, and

• (b) the aggregate of the values transferred by any chargeable transfers made by the settlor in the period of ten years ending with the day on which the chargeable transfer falling within subsection (1) above was made, disregarding transfers made on that day and excluding the values mentioned in subsection (4) below ;

and where the settlor made two or more chargeable transfers falling within subsection (1) above, paragraph (b) above shall be taken to refer to the transfer in relation to which the aggregate there mentioned is the greatest.

• (4) The values are—

• (a) any value attributable to property whose value is taken into account in determining the amount mentioned in section 109(4) above ; and

• (b) any value attributable to property in respect of which a charge to tax has been made under section 108 above and by reference to which an amount mentioned in section 109(5)(b) above is determined.

• (5) Where the property comprised in a settlement immediately before the ten-year anniversary concerned, or any part of that property, had on any occasion within the preceding ten years ceased to be relevant property then, if on that occasion tax was charged in respect of the settlement under section 108 above, the aggregate calculated under section 109(5) above shall be reduced by an amount equal to the lesser of—

• (a) the amount on which tax was charged under section 108 (or so much of that amount as is attributable to the part in question), and

• (b) the value on which tax is charged under section 107 above (or so much of that value as is attributable to the part in question);

and if there were two or more such occasions relating to the property or the same part of it, this subsection shall have effect in relation to each of them.

• (6) References in subsection (5) above to the property comprised in a settlement immediately before an anniversary shall, if part only of the settled property was then relevant property, be construed as references to that part.

• (7) In relation to the first ten-year anniversary of a settlement which commenced after 26th March 1974 and before 9th March 1982, section 109(5) above shall have effect with the addition after paragraph (b) of the words

and (c) the amounts of any distribution payments (determined in accordance with the rules applicable before 9th March 1982 under paragraph 11 of Schedule 5 to the Finance Act 1975) made out of the settled property after 26th March 1974 but before 9th March 1982 and within the period of ten years before the anniversary concerned

.

Rate before first ten-year anniversary

111

• (1) The rate at which tax is charged under section 108 above on an occasion preceding the first ten-year anniversary after the settlement's commencement shall be the appropriate fraction of the effective rate at which tax would be charged on the value transferred by a chargeable transfer of the description specified in subsection (4) below.

• (2) For the purposes of this section the appropriate fraction is three tenths multiplied by so many fortieths as there are complete successive quarters in the period beginning with the day on which the settlement commenced and ending with the day before the occasion of the charge, but subject to subsection (3) below.

• (3) Where the whole or part of the amount on which tax is charged is attributable to property which was not relevant property, or was not comprised in the settlement, throughout the period referred to in subsection (2) above, then in determining the appropriate fraction in relation to that amount or part—

• (a) no quarter which expired before the day on which the property became, or last became, relevant property comprised in the settlement shall be counted, but

• (b) if that day fell in the same quarter as that in which the period ends, that quarter shall be counted whether complete or not.

• (4) The chargeable transfer postulated in subsection (1) above is one—

• (a) the value transferred by which is equal to an amount determined in accordance with subsection (5) below ;

• (b) which is made at the time of the charge to tax under section 108 by a transferor who has in the period of ten years ending with the day of the occasion of the charge made chargeable transfers having an aggregate value equal to that of any chargeable transfers made by the settlor in the period of ten years ending with the day on which the settlement commenced, disregarding transfers made on that day ; and

• (c) for which the appropriate Table of rates is the second Table set out in section 37(3) of the Finance Act 1975.

• (5) The amount referred to in subsection (4)(a) above is equal to the aggregate of—

• (a) the value, immediately after the settlement commenced, of the property then comprised in it;

• (b) the value, immediately after a related settlement commenced, of the property then comprised in it; and

• (c) the value, immediately after it became comprised in the settlement, of any property which became so comprised after the settlement commenced and before the occasion of the charge under section 108 (whether or not it has remained so comprised).

Rate between ten-year anniversaries

112

• (1) Subject to subsection (2) below, the rate at which tax is charged under section 108 above on an occasion following one or more ten-year anniversaries after the settlement's commencement shall be the appropriate fraction of the rate at which it was last charged under section 107 (or would have been charged apart from section 109(2)).

• (2) If at any time before the occasion of the charge under section 108 and on or after the most recent ten-year anniversary—

• (a) property has become comprised in the settlement; or

• (b) property which was comprised in the settlement immediately before the anniversary, but was not then relevant property, has become relevant property,

then, whether or not the property has remained comprised in the settlement or has remained relevant property, the rate at which tax is charged under section 108 shall be the appropriate fraction of the rate at which it would last have been charged under section 107 (apart from section 109(2)) if immediately before that anniversary the property had been relevant property comprised in the settlement with a value determined in accordance with subsection (3) below.

• (3) In the case of property within subsection (2) (a) above which either—

• (a) was relevant property immediately after it became prised in the settlement; or

• (b) was not then relevant property and has not subsequently become relevant property while remaining comprised in the settlement,

the value to be attributed to it for the purposes of subsection (2) above is its value immediately after it became comprised in the settlement; and in any other case the value to be so attributed is the value of the property when it became (or last became) relevant property.

• (4) For the purposes of this section the appropriate fraction is so many fortieths as there are complete successive quarters in the period beginning with the most recent ten-year anniversary and ending with the day before the occasion of the charge; but subsection (3) of section 111 above shall have effect for the purposes of this subsection as it has effect for the purposes of subsection (2) of that section.

Special cases

Property leaving temporary charitable trusts

113

• (1) This section applies to settled property held for charitable purposes only until the end of a period (whether defined by a date or in some other way).

• (2) Subject to subsections (3) and (4) below, there shall be a charge to tax under this section—

• (a) where settled property ceases to be property to which this section applies, otherwise than by virtue of an application for charitable purposes, and

• (b) in a case in which paragraph (a) above does not apply, where the trustees make a disposition (otherwise than by an application of property for charitable purposes) as a result of which the value of settled property to which this section applies is less than it would be but for the disposition.

• (3) Tax shall not be charged under this section in respect of—

• (a) a payment of costs or expenses (so far as they are fairly attributable to property to which this section applies), or

• (b) a payment which is (or will be) income of any person for any of the purposes of income tax or would for any of those purposes be income of a person not resident in the United Kingdom if he were so resident,

or in respect of a liability to make such a payment.

• (4) Tax shall not be charged under this section by virtue of subsection (2)(b) above if the disposition is such that, were the trustees beneficially entitled to the settled property, section 20(4) of the Finance Act 1975 (disposition not intended to confer gratuitous benefit) or section 97 of the Finance Act 1981 (grant of tenancies of agricultural property) would prevent the disposition from being a transfer of value.

• (5) The amount on which tax is charged under this section shall be—

• (a) the amount by which the value of property which is comprised in the settlement and to which this section applies is less immediately after the event giving rise to the charge than it would be but for the event, or

• (b) where the tax payable is paid out of settled property to which this section applies immediately after the event, the amount which, after deducting the tax, is equal to the amount on which tax would be charged by virtue of paragraph (a) above.

• (6) The rate at which tax is charged under this section shall be the aggregate of the following percentages—

• (a) 025 per cent, for each of the first forty complete successive quarters in the relevant period,

• (b) 0-20 per cent, for each of the next forty,

• (c) 015 per cent, for each of the next forty,

• (d) 010 per cent, for each of the next forty, and

• (e) 005 per cent, for each of the next forty.

• (7) In subsection (6) above " the relevant period " means the period beginning with the later of—

• (a) the day on which the property in respect of which tax is chargeable became (or last became) property to which this section applies, and

• (b) 13th March 1975,

and ending with the day before the event giving rise to the charge.

• (8) Where the property in respect of which tax is chargeable—

• (a) was relevant property immediately before 10th December 1981, and

• (b) became (or last became) property to which this section applies on or after that day and before 9th March 1982,

subsection (7) above shall have effect as if the day referred to in paragraph (a) of that subsection were the day on which the property became (or last became) relevant property before 10th December 1981.

• (9) For the purposes of this section trustees shall be treated as making a disposition if they omit to exercise a right (unless it is shown that the omission was not deliberate) and the disposition shall be treated as made at the time or latest time when they could have exercised the right.

Accumulation and maintenance trusts

114

• (1) Subject to subsection (2) below, this section applies to settled property if—

• (a) one or more persons (in this section referred to as beneficiaries) will, on or before attaining a specified age not exceeding twenty-five, become beneficially entitled to it or to an interest in possession in it, and

• (b) no interest in possession subsists in it and the income from it is to be accumulated so far as not applied for the maintenance, education or benefit of a beneficiary.

• (2) This section does not apply to settled property unless either—

• (a) not more than twenty-five years have elapsed since the commencement of the settlement or, if it was later, since the time (or latest time) when the conditions stated in paragraphs (a) and (b) of subsection (1) above became satisfied with respect to the property, or

• (b) all the persons who are or have been beneficiaries are or were either—

• (i) grandchildren of a common grandparent, or

• (ii) children, widows or widowers of such grandchildren who were themselves beneficiaries but died before the time when, had they survived, they would have become entitled as mentioned in subsection (1)(a) above.

• (3) Subject to subsections (4) and (5) below, there shall be a charge to tax under this section—

• (a) where settled property ceases to be property to which this section applies, and

• (b) in a case in which paragraph (a) above does not apply, where the trustees make a disposition as a result of which the value of settled property to which this section applies is less than it would be but for the disposition.

• (4) Tax shall not be charged under this section—

• (a) on a beneficiary's becoming beneficially entitled to, or to an interest in possession in, settled property on or before attaining the specified age, or

• (b) on the death of a beneficiary before attaining the specified age.

• (5) Subsections (3) to (7) and (9) of section 113 above shall apply for the purposes of this section as they apply for the purposes of that section (with the substitution of a reference to subsection (3)(b) above for the reference in section 113(4) to section 113(2)(b)).

• (6) Where the conditions stated in paragraphs (a) and (b) of subsection (1) above were satisfied on 15th April 1976 with respect to property comprised in a settlement which commenced before that day, subsection (2)(a) above shall have effect with the substitution of a reference to that day for the reference to the commencement of the settlement, and the condition stated in subsection (2)(b) above shall be treated as satisfied if—

• (a) it is satisfied in respect of the period beginning with 15th April 1976, or

• (b) it is satisfied in respect of the period beginning with 1st April 1977 and either there was no beneficiary living on 15th April 1976 or the beneficiaries on 1st April 1977 included a living beneficiary, or

• (c) there is no power under the terms of the settlement whereby it could have become satisfied in respect of the period beginning with 1st April 1977, and the trusts of the settlement have not been varied at any time after 15th April 1976.

• (7) In subsection (1) above " persons " includes unborn persons ; but the conditions stated in that subsection shall be treated as not satisfied unless there is or has been a living beneficiary.

• (8) For the purposes of this section a person's children shall be taken to include his illegitimate children, his adopted children and his stepchildren.

Property becoming subject to employee trusts

115

• (1) Tax shall not be charged under section 108 above in respect of shares in or securities of a company which cease to be relevant property on becoming held on trusts of the description specified in paragraph 17(1) of Schedule 5 to the Finance Act 1975 if the conditions in subsection (2) below are satisfied.

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

• (a) that 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;

• (b) that, at the date when the shares or securities cease to be relevant property or at a subsequent date not more than one year thereafter, both the conditions mentioned in subsection (2) of section 67 of the Finance Act 1978 (read with subsections (3) and (6)) are satisfied, without taking account of shares or securities held on other trusts; and

• (c) that the trusts do not 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 any of the persons mentioned in subsection (4) of the said section 67 (read with subsections (5) and (6)) or for the benefit of the settlor or of any person connected with him.

• (3) In its application for the purposes of subsection (2)(c) above, section 67(4) of the Finance Act 1978 shall be construed as if—

• (a) references to section 67(1) were references to subsection (2) above; and

• (b) references to the time of the transfer of value were references to the time when the property ceases to be relevant property.

Property leaving employee trusts and newspaper trusts

116

• (1) This section applies to settled property to which paragraph 17 of Schedule 5 to the Finance Act 1975 applies if no qualifying interest in possession subsists in it.

• (2) Subject to subsections (4) and (5) below, there shall be a charge to tax under this section—

• (a) where settled property ceases to be property to which this section applies, otherwise than by virtue of a payment out of the settled property, and

• (b) where a payment is made out of settled property to which this section applies for the benefit of a person within subsection (3) below, or a person connected with such a person, and

• (c) in a case in which paragraphs (a) and (b) above do not apply, where the trustees make a disposition (otherwise than by way of a payment out of the settled property) as a result of which the value of settled property to which this section applies is less than it would be but for the disposition.

• (3) A person is within this subsection if—

• (a) he has directly or indirectly provided any of the settled property otherwise than by additions not exceeding in value £1,000 in any one year; or

• (b) in a case where the employment in question is employment by a close company, he is a participator in relation to that company and either—

• (i) is beneficially entitled to, or to rights entitling him to acquire, not less than 5 per cent, of, or of any class of the shares comprised in, its issued share capital, or

• (ii) would, on a winding-up of the company, be entitled to not less than 5 per cent, of its assets ; or

• (c) he has acquired an interest in the settled property for a consideration in money or money's worth.

• (4) If the trusts are those of a profit sharing scheme approved in accordance with Schedule 9 to the Finance Act 1978, tax shall not be chargeable under this section by virtue of subsection (3)(b) above on an appropriation of shares in pursuance of the scheme.

• (5) Subsections (3) to (9) of section 113 above shall apply for the purposes of this section as they apply for the purposes of that section (with the substitution of a reference to subsection (2)(c) above for the reference in section 113(4) to section 113(2)(b)).

• (6) In this section—

• (a) " close company " and " participator " have the same meanings as in section 39 of the Finance Act 1975; and

• (b) "year" means the period beginning with 26th March 1974 and ending with 5th April 1974, and any subsequent period of twelve months ending with 5th April;

and a person shall be treated for the purposes of this section 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.

Maintenance funds for historic buildings

117

Schedule 16 to this Act shall have effect.

Protective trusts and trusts for disabled persons

118

• (1) This section applies to—

• (a) settled property which is held on trusts to the like effect as those specified in section 33(1)(ii) of the Trustee Act 1925 and which became held on those trusts on the failure or determination before 12th April 1978 of trusts to the like effect as those specified in section 33(1)0). and

• (b) settled property within paragraph 19 of Schedule 5 to the Finance Act 1975, as it applies to property which was transferred into settlement before 10th March 1981.

• (2) Subject to subsection (3) below, there shall be a charge to tax under this section—

• (a) where settled property ceases to be property to which this section applies, otherwise than by virtue of a payment out of the settled property for the benefit of the relevant beneficiary, and

• (b) in a case in which paragraph (a) above does not apply, where the trustees make a disposition (otherwise than by way of such a payment) as a result of which the value of settled property to which this section applies is less than it would be but for the disposition.

• (3) Subsections (3) to (9) of section 113 above shall apply for the purposes of this section as they apply for the purposes of that section.

• (4) In this section " the relevant beneficiary " means—

• (a) where this section applies by virtue of subsection (1)(a) above, the principal beneficiary within the meaning of section 33 of the Trustee Act 1925 :

• (b) where this section applies by virtue of subsection (1)(b) above, the person mentioned in paragraph 19(1) of Schedule 5 to the Finance Act 1975.

Property becoming held for charitable purposes or by exempt bodies

119

• (1) Subject to the following provisions of this section, tax shall not be charged under this Chapter in respect of property which ceases to be relevant property, or ceases to be property to which section 113, 114, 116 or 118 above or paragraph 2 of Schedule 16 to this Act applies, on becoming—

• (a) property held for charitable purposes only without limit of time (defined by a date or otherwise);