Finance Act 1984

• (a) arising in the accounting period in which the security is redeemed; and

• (b) chargeable to tax under Case VI of Schedule D.

• (6) Where a resolution is passed, an order made or any other act takes place for the winding up of a company which has issued a deep discount security before the security is redeemed, this paragraph shall have effect in relation to any payment made in respect of the security in the course of the winding up as if the payment were made on redemption.

Reorganisations, conversions, reconstructions and amalgamations

8

• (1) This paragraph applies where—

• (a) there is a conversion of securities to which section 82 of the Capital Gains Tax Act 1979 applies and those securities include deep discount securities ; or

• (b) securities including deep discount securities are exchanged (or by virtue of section 86(1) of that Act are treated as exchanged) for other securities in circumstances in which section 85(3) of that Act applies.

• (2) Where this paragraph applies—

• (a) the securities converted or exchanged shall (subject to sub-paragraph (3) below and notwithstanding section 78 of the Act of 1979) be treated for the purposes of the charge to tax under paragraph 1 of this Schedule as having been disposed of immediately before the time of the conversion, or, as the case may be, exchange, by the person who was the beneficial owner of the securities at that time ;

• (b) sub-paragraph (1)(c) of that paragraph and section 31 of the Act of 1979 shall not apply, but any sum payable to the beneficial owner of the deep discount securities by way of consideration for their disposal (in addition to his new holding) shall be treated for the purposes of capital gains tax as reduced by the amount of the accrued income on which he is chargeable to income tax by virtue of paragraph (a) above ; and

• (c) where that amount exceeds any such sum, the excess shall be treated as expenditure within section 32(1)(b) of that Act incurred by him on the security immediately before that time.

• (3) Where a person would (but for this sub-paragraph) be treated by sub-paragraph (2)(a) above as having, for tie purposes of paragraph 1 of this Schedule, disposed of deep discount securities which are converted into, or exchanged for, other deep discount securities—

• (a) he shall not be so treated—

• (i) if the date which is the redemption date in relation to the new securities is not later than the date which was the redemption date in relation to the converted or exchanged securities ; and

• (ii) no consideration is given for the conversion or exchange other than the new securities ; but

• (b) the amount of the accrued income attributable to his period of ownership of the converted or exchanged securities (including any amount added by virtue of the previous operation of this paragraph) shall be added to the amount of the accrued income attributable to his period of ownership of the new securities.

Disposals on a no-gain J no-loss basis

9

Where a disposal of a deep discount security is to be treated for the purposes of capital gains tax as one on which neither a gain nor a loss accrues to the person making the disposal, the consideration for which the person acquiring the security would, apart from this paragraph, be treated for the purposes of capital gains tax as having acquired the security shall be increased by the amount mentioned in paragraph 1(1)(a) of this Schedule.

Time of disposal and acquisition where securities disposed of under contract

10

• (1) Where any deep discount security is disposed of and acquired under a contract, the time at which the disposal and acquisition is made is the time at which the contract is made (and not, if different, the time at which the security is transferred).

• (2) If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.

Identification of securities disposed of

11

• (1) The rules contained in sections 88 and 89 of the Finance Act 1982 (identification, for the purposes of capital gains tax, of securities disposed of) shall apply for the purposes of this Schedule as they apply for the purposes of capital gains tax.

• (2) In paragraph 1(2) of Schedule 6 to the Finance Act 1983 (exclusion of certain securities from provisions relating to election for pooling for purposes of capital gains tax), there shall be added, after paragraph (a)—

; nor (aa) deep discount securities (within the meaning of section 36 of the Finance Act 1984)

.

Exemption for charities

12

Section 360(2) of the Taxes Act (exemption for charities from tax on chargeable gains) shall apply in relation to tax chargeable by virtue of paragraph 1 above as it applies in relation to tax on chargeable gains.

Consequential amendments

13

In section 254 of the Taxes Act (1osses and charges etc. for which claim to set-off against surplus of franked investment income may be made), the words " or paragraph 3 of Schedule 9 to the Finance Act 1984 " shall be inserted—

• (a) at the end of paragraph (b) in subsection (2); and

• (b) after the words " 248 of this Act " in subsection (7)(b).

14

In Schedule 10 to the Finance Act 1975 (capital transfer tax: valuation) in paragraph 9 (value transferred on death) at the end of sub-paragraph (1) there shall be added the words

and (f) allowance shall be made for any liability to income tax arising under paragraph 1 of Schedule 9 to the Finance Act 1984 (deep discount securities) on a disposal which is deemed to occur by virtue of paragraph 2(2) of that Schedule.

SCHEDULE 10

Approval of schemes

1

• (1) On the application of a body corporate (in this Schedule referred to as " the grantor ") which has established a share option scheme, the Board shall approve the scheme if they are satisfied that it fulfils the requirements of this Schedule; but shall not approve it if it appears to them that there are features of the scheme which are neither essential nor reasonably incidental to the purpose of providing for employees and directors benefits in the nature of rights to acquire shares.

• (2) An application under sub-paragraph (1) above shall be made in writing and contain such particulars and be supported by such evidence as the Board may require.

• (3) Where the grantor has control of another company or companies, the scheme may be expressed to extend to all or any of the companies of which it has control and in this Schedule a scheme which is expressed so to extend is referred to as a " group scheme ".

• (4) In relation to a group scheme the expression "participating company" means the grantor or any other company to which for the time being the scheme is expressed to extend.

• (5) Where the provisions of a scheme are approved in pursuance of an application made under this paragraph before 1st January 1985, section 38 of this Act shall apply in relation to any right obtained before 1st July 1985 as if the scheme containing those provisions had always been approved.

2

• (1) If, at any time after the Board have approved a scheme, any of the requirements of this Schedule cease to be satisfied or the grantor fails to provide information requested by the Board under paragraph 14 below, the Board may withdraw the approval with effect from that time or such later time as the Board may specify.

• (2) If an alteration is made in the scheme at any time after the Board have approved the scheme, the approval shall not have effect after the date of the alteration unless the Board have approved the alteration.

3

If the grantor is aggrieved by—

• (a) the failure of the Board to approve the scheme or to approve an alteration in the scheme ; or

• (b) the withdrawal of approval;

it may, by notice in writing given to the Board within thirty days from the date on which it is notified of the Board's decision, require the matter to be determined by the Special Commissioners, and the Special Commissioners shall hear and determine the matter in like manner as an appeal.

Eligibility

4

• (1) The scheme must not provide for any person to be eligible to participate in it, that is to say to obtain and exercise rights under it—

• (a) unless he is a full-time director or qualifying employee of the grantor or, in the case of a group scheme, of a participating company;

• (b) at any time when he has, or has within the preceding twelve months had, a material interest in a close company within the meaning of Chapter III of Part XI of the Taxes Act, which is—

• (i) a company the shares of which may be acquired pursuant to the exercise of rights obtained under the scheme; or

• (ii) a company which has control of such a company or is a member of a consortium which owns such, a company.

• (2) Notwithstanding sub-paragraph (1)(a) above, the scheme may provide that a person may exercise rights obtained under it despite having ceased to be a full-time director or qualifying employee.

• (3) In determining whether a company is a close company for the purposes of sub-paragraph (1) above, section 282(1)(a) of the Taxes Act (exclusion of companies not resident in United Kingdom) and section 283 of that Act (exclusion of certain companies with quoted shares) shall be disregarded.

• (4) In determining for the purposes of this paragraph whether a person has or has had a material interest in a company, subsection (6) of section 285 of the Taxes Act (interest paid to directors and directors' associates) and paragraph (ii) of the proviso to section 303 (3) of that Act (meaning of " associate ") shall have effect with the substitution for the references in those provisions to 5 per cent, of references to 10 per cent.

Limitation of rights

5

• (1) The scheme must provide that no person shall obtain rights under it which would, at the time they are obtained, cause the aggregate market value of the shares which he may acquire in pursuance of rights obtained under the scheme or under any other scheme approved under this Schedule and established by the grantor or by any associated company of the grantor (and not exercised) to exceed or further exceed the appropriate limit.

• (2) The appropriate limit is the greater of—

• (a) £100,000; or

• (b) four times the amount of the relevant emoluments for the current or preceding year of assessment (whichever of those years gives the greater amount).

• (3) Where there were no relevant emoluments for the preceding year of assessment, sub-paragraph (2) above shall apply with the following paragraph substituted for paragraph (b)—

(b) four times the amount of the relevant emoluments for the period of twelve months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments

.

• (4) For the purposes of sub-paragraph (1) above, the market value of shares shall be calculated as at the time when the rights in relation to those shares were obtained or, in a case where an agreement relating to them has been made under paragraph 13 below, such earlier time or times as may be provided in the agreement.

• (5) For the purposes of sub-paragraph (2) above the relevant emoluments are such of the emoluments of the office or employment by virtue of which the person in question is eligible to participate in the scheme as are liable to be paid under deduction of tax pursuant to section 204 of the Taxes Act (pay-as-you-earn), after deducting from them amounts included by virtue of Chapter II of Part III of the Finance Act 1976.

Scheme shares

6

The scheme must provide for directors and employees to obtain rights to acquire shares (in this Schedule referred to as "scheme shares") which satisfy the requirements of paragraphs 7 to 11 below.

7

Scheme shares must form part of the ordinary share capital of—

• (a) the grantor ; or

• (b) a company which has control of the grantor ; or

• (c) a company which either is, or has control of, a company which—

• (i) is a member of a consortium owning either the grantor or a company having control of the grantor; and

• (ii) beneficially owns not less than three twentieths of the ordinary share capital of the company so owned.

8

Scheme shares must be—

• (a) shares of a class quoted on a recognised stock exchange ; or

• (b) shares in a company which is not under the control of another company ; or

• (c) shares in a company which is under the control of a company (other than a company which is, or would if resident in the United Kingdom be, a close company within the meaning of section 282 of the Taxes Act) whose shares are quoted on a recognised stock exchange.

9

Scheme shares must be—

• (a) fully paid up;

• (b) not redeemable ; and

• (c) not subject to any restrictions other than restrictions which attach to all shares of the same class.

10

• (1) In determining for the purposes of paragraph 9(c) above whether scheme shares which are or are to be acquired by any person are subject to any restrictions, there shall be regarded as a restriction attaching to the shares any contract, agreement, arrangement or condition by which his freedom to dispose of the shares or of any interest in them or of the proceeds of their sale or to exercise any right conferred by them is restricted or by which such a disposal or exercise may result in any disadvantage to him or to a person connected with him.

• (2) Sub-paragraph (1) above does not apply to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Rules set out in the Model Code for Securities Transactions by Directors of Listed Companies issued by the Stock Exchange in April 1981.

11

Except where scheme shares are in a company whose ordinary share capital consists of shares of one class only, the majority of the issued shares of the same class must be held by persons other than—

• (a) persons Who acquired their shares in pursuance of a right conferred on them or an opportunity afforded to them as a director or employee of the grantor or any other company and not in pursuance of an offer to the public ;

• (b) trustees holding shares on behalf of persons who acquired their beneficial interests in the shares as mentioned in paragraph (a) above; and

• (c) in a case where the shares fall within sub-paragraph (c) and do not fall within sub-paragraph (a) of paragraph 8 above, companies which have control of the company whose shares are in question or of which that company is an associated company.

Transfer of rights

12

• (1) The scheme must not permit any person obtaining rights under it to transfer any of them but may provide that if such a person dies before exercising them, they may be exercised after, but not later than one year after, the date of his death.

• (2) Where the scheme contains the provision permitted by sub-paragraph (1) above and any rights are exercised—

• (a) after the death of the person who obtained them ; but

• (b) before the expiry of the period of ten years beginning with his obtaining them ;

subsection (3) of section 38 of this Act shall apply with the omission of the reference to the conditions mentioned in subsection (4).

Share price

13

The price at which scheme shares may be acquired by the exercise of a right obtained under the scheme must be stated at the time the right is obtained and must not be manifestly less than the market value of shares of the same class at that time or, if the Board and the grantor agree in writing, at such earlier time or tunes as may be provided in the agreement, but the scheme may provide for such variation of the price so stated as may be necessary to take account of any variation in the share capital of which the scheme shares form part.

Information

14

The Board may by notice in writing require any person to furnish them, within such time as the Board may direct (not being less than thirty days), with such information as the Board think necessary for the performance of their functions under this Schedule, and as the person to whom the notice is addressed has or can reasonably obtain, including in particular information—

• (a) to enable the Board to determine—

• (i) whether to approve a scheme or withdraw an approval already given; or

• (ii) the liability to tax, including capital gains tax, of any person who has participated in a scheme ; and

• (b) in relation to the administration of a scheme and any alteration of the terms of a scheme.

Interpretation

15

• (1) In this Schedule—

• " associated company " has the same meaning as in section 302 of the Taxes Act;

• " control" has the same meaning as in section 534 of the Taxes Act;

• " grantor " has the meaning given by paragraph 1(1) ;

• " group scheme" and, in relation to such a scheme, " participating company" have the meanings given by paragraph 1;

• " market value " has the same meaning as in Part VIII of the Capital Gains Tax Act 1979 ;

• " qualifying employee" in relation to a company, means an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) who is required, under the terms of his employment, to work for the company for at least twenty hours a week;

• " scheme shares " has the meaning given by paragraph 6 ; and

• " shares " includes stock.

• (2) Section 303(3) of the Taxes Act (meaning of "associate") shall have effect in a case where the scheme is a group scheme, with the substitution of a reference to all the participating companies for the first reference to the company in paragraph (ii) of the proviso to that subsection.

• (3) Section 533 of the Taxes Act (connected persons) shall apply for the purposes of this Schedule.

• (4) For the purposes of this Schedule a company is a member of a consortium owning another company if it is one of a number of companies which between them beneficially own not less than three-quarters of the other company's ordinary share capital and each of which beneficially owns not less than one-twentieth of that capital.

SCHEDULE 11

Treatment of lettings as a trade for certain purposes

1

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

Losses and pre-trading expenditure

2

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

Expenditure

3

In computing the profits or gains arising from the commercial letting of furnished holiday accommodation which are chargeable to tax under Case VI of Schedule D, such expenditure may be deducted as would be deductible if the letting were a trade and those profits or gains were accordingly to be computed in accordance with the rules applicable to Case I of that Schedule.

Capital gains tax

4

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

5

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

Power to make apportionments

6

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

Adjustments of tax charged

7

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

SCHEDULE 12

PART I — Withdrawal of Allowances

Initial allowances for industrial buildings and structures

1

• (1) In section 1(2) of the Capital Allowances Act 1968 (rate of initial allowances for capital expenditure on the construction of industrial buildings or structures) for the words " three-quarters" there shall be substituted,—

• (a) with respect to capital expenditure incurred after 13th March 1984 and before 1st April 1985, the words " one half" ; and

• (b) with respect to capital expenditure incurred on or after 1st April 1985 and before 1st April 1986, the words "one quarter " ;

and no initial allowance shall be made in respect of expenditure incurred on or after 1st April 1986.

• (2) Nothing in sub-paragraph (1) above applies to capital expenditure which—

• (a) is incurred after 13th March 1984 and before 1st April 1987 ; and

• (b) consists of the payment of sums under a contract entered into on or before 13th March 1984 by the person incurring the expenditure.

• (3) Sub-paragraphs (1) and (2) above shall be construed as if they were contained in Part I of the Capital Allowances Act 1968 except that—

• (a) expenditure shall not be treated for the purposes of those sub-paragraphs as having been incurred after the date on which it was in fact incurred by reason only of section 1(6) of that Act (expenditure incurred before a trade begins); and

• (b) expenditure falling within subsection (1)(b) of section 5 of that Act (purchase price of building or structure bought unused) shall be treated for the purposes of those sub-paragraphs as having been incurred at the latest time when any expenditure falling within subsection (1)(a) of that section (expenditure on the construction of the building or structure) was incurred.

First-year allowances for machinery and plant

2

• (1) In section 42(1) of the Finance Act 1971 (rate of first-year allowance for capital expenditure incurred on provision of machinery or plant) for the words " the whole " there shall be substituted,—

• (a) with respect to capital expenditure incurred after 13th March 1984 and before 1st April 1985, the words "three-quarters" ; and

• (b) with respect to capital expenditure incurred on or after 1st April 1985 and before 1st April 1986, the words "one half " ;

and no first-year allowance shall be made in respect of expenditure incurred on or after 1st April 1986.

• (2) Nothing in sub-paragraph (1) above applies to capital expenditure which—

• (a) is incurred after 13th March 1984 and before 1st April 1987 ; and

• (b) consists of the payment of sums under a contract entered into on or before 13th March 1984 by the person incurring the expenditure or by a person whose contractual obligations that person has assumed with a view to entering into leasing arrangements.

• (3) For the purposes of sub-paragraph (2)(b) above, a person incurring expenditure on the provision of machinery or plant (in this sub-paragraph referred to as " the lessor ") shall be taken to have assumed, with a view to entering into leasing arrangements, the contractual obligations of a person who entered into a contract for the provision of that machinery or plant (in this sub-paragraph referred to as " the lessee ") if, and only if,—

• (a) arrangements exist under which the lessor will lease the machinery or plant to the lessee ; and

• (b) the obligations of the lessee under the contract either have been taken over by the lessor or have been discharged on the lessor's entering into a new contract for the provision of the machinery or plant concerned ;

and, where there is such a new contract as is referred to in paragraph (b) above, sums paid under that contract shall be treated for the purposes of sub-paragraph (2)(b) above and Part II of this Schedule as paid under the contract referred to in that sub-paragraph.

• (4) Sub-paragraphs (1) to (3) above shall be construed as if they were contained in Chapter I of Part III of the Finance Act 1971, except that expenditure shall not be treated for the purposes of those sub-paragraphs as having been incurred after the date on which it was in fact incurred by reason only of so much of section 50(4) of that Act as relates to expenditure incurred before a trade begins.

Initial allowances in respect of dwelling-houses let on assured tenancies

3

• (1) In paragraph 1(2) of Schedule 12 to the Finance Act 1982 (rate of initial allowance in respect of qualifying dwelling-house on the construction of which capital expenditure is incurred) for the words " three-quarters " there shall be substituted,—

• (a) with respect to capital expenditure incurred after 13th March 1984 and before 1st April 1985, the words " one half " ; and

• (b) with respect to capital expenditure incurred on or after 1st April 1985 and before 1st April 1986, the words " one quarter " ;

and no initial allowance shall be made in respect of expenditure incurred on or after 1st April 1986.

• (2) Nothing in sub-paragraph (1) above applies to capital expenditure which—

• (a) is incurred after 13th March 1984 and before 1st April 1987 ; and

• (b) consists of the payment of sums under a contract entered into on or before 13th March 1984 by the person incurring the expenditure.

• (3) Sub-paragraphs (1) and (2) above shall be construed as if they were contained in Schedule 12 to the Finance Act 1982 except that expenditure falling within sub-paragraph (1)(b) of paragraph 8 of that Schedule (purchase price of building bought unused) shall be treated for the purposes of those sub-paragraphs as having been incurred at the latest time when any expenditure falling within sub-paragraph (1)(a) of that paragraph (expenditure on the construction of the building) was incurred.

PART II — Supplementary

Transitional relief for regional projects

4

• (1) The provisions of Part I of this Schedule do not apply to so much of any expenditure as is certified by the Secretary of State for the purposes of this paragraph to be expenditure which, in his opinion, qualifies for a regional development grant or a grant under Part IV of the relevant Order and consists of the payment of sums on a project—

• (a) either in an area which on 13th March 1984 was a development area, within the meaning of the Industrial Development Act 1982, or in Northern Ireland ; and

• (b) in respect of which a written offer of financial assistance under section 7 or section 8 of that Act was made on behalf of the Secretary of State in the period beginning on 1st April 1980 and ending on 13th March 1984 or in respect of which a written offer of financial assistance was made in that period by the Highlands and Islands Development Board.

• (2) The provisions of Part I of this Schedule do not apply to so much of any expenditure as is certified by the Department of Economic Development in Northern Ireland for the purposes of this paragraph to be expenditure which, in the opinion of that Department, qualifies for a grant under Part IV of the relevant Order and consists of the payment of sums on a project—

• (a) in Northern Ireland ; and

• (b) in respect of which a written offer of financial assistance under Article 7 or Article 8 of the relevant Order was made on behalf of a Department of the Government of Northern Ireland in the period beginning on 1st April 1980 and ending on 13th March 1984 or in respect of which a written offer of financial assistance was made in that period by the Local Enterprise Development Unit.

• (3) In this paragraph—

• "regional development grant" means a grant under Part II of the Industrial Development Act 1982 ;

• " the relevant Order" means the Industrial Development (Northern Ireland) Order 1982 ; and any reference to a particular provision of that Act or Order includes a reference to the corresponding provision of any Act or Order which was in force before and repealed by the said Act or Order of 1982.

Spreading of expenditure under certain contracts

5

• (1) Where in circumstances falling within paragraph 8 below a person incurs such capital expenditure as is referred to in section 1 of the Capital Allowances Act 1968 under a contract—

• (a) which is entered into after 13th March 1984 and on or before 31st March 1986, and

• (b) which either specifies no date on or by which the contractual obligations must be fully performed or specifies such a date which is after 31st March 1985,

Chapter I of Part I of that Act shall have effect in relation to the capital expenditure so incurred subject to the following provisions of this paragraph.

• (2) In this Part of this Schedule, in relation to a contract falling within sub-paragraph (1) above,—

• " the contract date " means the date on which the contract is entered into;

• " the contract price " means the total capital expenditure on the construction of the building or structure concerned which the person referred to in sub-paragraph (1) above is to incur pursuant to the contract;

• " the completion date " means the date specified as mentioned in sub-paragraph (1)(b) above or, if no date is so specified, 31st March 1987 ; and

• " the maximum allowable expenditure " shall be construed in accordance with paragraph 9 below.

• (3) In respect of capital expenditure incurred in either of the financial years 1984 and 1985 under a contract falling within sub-paragraph (1) above, the initial allowance under section 1 of the Capital Allowances Act 1968 shall not exceed the fraction appropriate under paragraph 1 above of the maximum allowable expenditure for that year.

• (4) So much (if any) of the capital expenditure incurred in the financial year 1984 under a contract falling within sub-paragraph (1) above as exceeds the maximum allowable expenditure for that year shall be deemed for all purposes of Chapter I of Part I of the Capital Allowances Act 1968 to be incurred on 1st April 1985.

• (5) So much (if any) of the aggregate of—

• (a) the capital expenditure incurred in the financial year 1985 under a contract falling within sub-paragraph (1) above, and

• (b) any excess relating to that contract which, by virtue of sub-paragraph (4) above, is deemed to be incurred in that financial year,

as exceeds the maximum allowable expenditure for that financial year shall be deemed for all purposes of Chapter I of Part I of the Capital Allowances Act 1968 to be incurred on 1st April 1986.

• (6) This paragraph shall be construed as if it were contained in Chapter I of Part I of the Capital Allowances Act 1968 except that—

• (a) expenditure shall not be treated for the purposes of this paragraph as having been incurred after the date on which it was in fact incurred by reason only of section 1(6) of that Act; and

• (b) expenditure falling within subsection (1)(b) of section 5 of that Act shall be treated for the purposes of this paragraph as having been incurred at the latest time when any expenditure falling within subsection (1)(a) of that section was incurred.

6

• (1) Where in circumstances falling within paragraph 8 below a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of that trade under a contract—

• (a) which is entered into after 13th March 1984 and on or before 31st March 1986, and

• (b) which provides that he shall or may become the owner of the machinery or plant on or before the performance of the contract, and

• (c) which either specifies no date on or by which the contractual obligations must be fully performed or specifies such a date which is after 31st March 1985,

Chapter I of Part III of the Finance Act 1971 shall have effect in relation to the capital expenditure so incurred subject to the following provisions of this paragraph.

• (2) In this Part of this Schedule, in relation to a contract falling within sub-paragraph (1) above,—

• " the contract date " means the date on which the contract is entered into ;

• " the contract price " means the total capital expenditure on the provision of the machinery or plant which the person referred to in sub-paragraph (1) above is to incur pursuant to the contract;

• " the completion date " means the date specified as mentioned in sub-paragraph (1)(c) above or, if no date is so specified, 31st March 1987 ; and

• " the maximum allowable expenditure " shall be construed in accordance with paragraph 9 below.

• (3) The provisions of this paragraph do not apply in relation to capital expenditure to which section 45(1)(b) of the Finance Act 1971 (machinery and plant on hire-purchase etc.) applies.

• (4) In respect of capital expenditure incurred in either of the financial years 1984 and 1985 under a contract falling within sub-paragraph (1) above, the first-year allowance under section 42(1) of the Finance Act 1971 shall not exceed the fraction appropriate under paragraph 2 above of the maximum allowable expenditure for that year.

• (5) So much (if any) of the capital expenditure incurred in the financial year 1984 under a contract falling within sub-paragraph (1) above as exceeds the maximum allowable expenditure for that year shall be deemed for all purposes of Chapter I of Part III of the Finance Act 1971 to be incurred on 1st April 1985.

• (6) So much (if any) of the aggregate of—

• (a) the capital expenditure incurred in the financial year 1985 under a contract falling within sub-paragraph (1) above, and

• (b) any excess relating to that contract which, by virtue of sub-paragraph (5) above, is deemed to be incurred in that financial year,

as exceeds the maximum allowable expenditure for that financial year shall be deemed for all purposes of Chapter I of Part III of the Finance Act 1971 to be incurred on 1st April 1986.

• (7) This paragraph shall be construed as if it were contained in Chapter I of Part III of the Finance Act 1971 except that expenditure shall not be treated for the purposes of this paragraph as having been incurred after the date on which it was in fact incurred by reason only of so much of section 50(4) of that Act as relates to expenditure incurred before a trade began.

7

• (1) Where in circumstances falling within paragraph 8 below an approved body incurs such capital expenditure as is referred to in paragraph 1(1) of Schedule 12 to the Finance Act 1982 under a contract—

• (a) which is entered into after 13th March 1984 and on or before 31st March 1986, and

• (b) which either specifies no date on or by which the contractual obligations must be fully performed or specifies such a date which is after 31st March 1985,

that Schedule shall have effect in relation to the capital expenditure so incurred subject to the following provisions of this paragraph.

• (2) In this Part of this Schedule, in relation to a contract falling within sub-paragraph (1) above,—

• " the contract date " means the date on which the contract was entered into;

• " the contract price " means the total capital expenditure on the construction of the building concerned which die approved body referred to hi sub-paragraph (1) above is to incur pursuant to the contract;

• " the completion date " means the date specified as mentioned in sub-paragraph (1)(b) above or, if no date is so specified, 31st March 1987 ; and

• " the maximum allowable expenditure " shall be construed in accordance with paragraph 9 below.

• (3) In respect of capital expenditure incurred in either of the financial years 1984 and 1985 under a contract falling within sub-paragraph (1) above, the initial allowance under paragraph 1 of Schedule 12 to the Finance Act 1982 shall not exceed the fraction appropriate under paragraph 3 above of the maximum allowable expenditure for that year.

• (4) So much (if any) of the capital expenditure incurred in the financial year 1984 under a contract falling within sub-paragraph (1) above as exceeds the maximum allowable expenditure for that year shall be deemed for all purposes of Schedule 12 to the Finance Act 1982 to be incurred on 1st April 1985.

• (5) So much (if any) of the aggregate of—

• (a) the capital expenditure incurred in the financial year 1985 under a contract falling within sub-paragraph (1) above, and

• (b) any excess relating to that contract which, by virtue of sub-paragraph (4) above, is deemed to be incurred in that financial year,

as exceeds the maximum allowable expenditure for that financial year shall be deemed for all purposes of Schedule 12 to the Finance Act 1982 to be incurred on 1st April 1986.

• (6) This paragraph shall be construed as if it were contained in Schedule 12 to the Finance Act 1982 except that expenditure falling within sub-paragraph (1)(b) of paragraph 8 of that Schedule shall foe treated for the purposes of this paragraph as having been incurred at the latest time when any expenditure falling within sub-paragraph (1)(a) of that paragraph was incurred.

8

• (1) The circumstances referred to in sub-paragraph (1) of each of paragraphs 5 to 7 above is that the sole or main benefit which (apart from this Part of this Schedule) might have been expected to be gained by incurring the expenditure at the time at which it was incurred was either—

• (a) the securing of an initial allowance or first-year allowance in respect of the expenditure, rather than a writing-down allowance ; or

• (b) the securing of a higher rate of initial or first-year allowance in respect of the expenditure.

• (2) In sub-paragraph (1) above—

• " initial allowance " means an initial allowance under section 1 of the Capital Allowances Act 1968 or Schedule 12 to the Finance Act 1982 ; and

• " first-year allowance " means a first-year allowance under section 41 of the Finance Act 1971.

9

• (1) References in paragraphs 5 to 7 above to the maximum allowable expenditure for each of the financial years 1984 and 1985 shall be construed in accordance with this paragraph.

• (2) For each contract falling within sub-paragraph (1) of any of paragraphs 5 to 7 above, the maximum allowable expenditure shall be that fraction of the contract price of which—

• (a) the numerator,—

• (i) for the financial year 1984, is the number of complete months in the period beginning on the contract date and ending on 31st March 1985 ; and

• (ii) for the financial year 1985, is 12 or, if it is less, the number of complete months in the period beginning on the contract date and ending on 31st March 1986; and

• (b) the denominator is the number of complete months in the period beginning on the contract date and ending on the completion date or, if it is earlier, 31st March 1987.

10

• (1) Where, by virtue of paragraph 5(4), paragraph 6(5) or paragraph 7(4) above, a portion of any expenditure which is incurred by any person in the financial year 1984 is deemed to be incurred on 1st April 1985, so much of that expenditure as is not deemed to be incurred on that date shall be apportioned to the chargeable periods or their basis periods which begin or end in the financial year 1984 on a time basis according to the respective lengths of those periods which fall within that financial year.

• (2) Where, by virtue of paragraph 5(5), paragraph 6(6) or paragraph 7(5) above, a portion of the aggregate of any capital expenditure incurred and deemed to be incurred by any person in the financial year 1985 is deemed to be incurred on 1st April 1986, so much of that aggregate expenditure as is not deemed to be incurred on that date shall be apportioned to the chargeable periods or their basis periods which begin or end in the financial year 1985 on the like time basis as is specified in sub-paragraph (1) above.

SCHEDULE 13

PART I — APPLICATION OF PROVISIONS RELATING TO GILT-EDGED SECURITIES

Capital Gains Tax Act 1979

1

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

2

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

3

• (1) In section 70 of that Act, in subsection (1) after the words " gilt-edged securities " there shall be inserted the words " or, subject to subsection (1A) below, qualifying corporate bonds ".

• (2) After subsection (1) of that section there shall be inserted the following subsection:—

(1A) This section does not apply in relation to a disposal of qualifying corporate bonds if the disposal is such that section 58 of the Finance (No. 2) Act 1975 applies but, subject to that, any reference in the following provisions of this section to gilt-edged securities includes a reference to qualifying corporate bonds.

Other enactments

4

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

5

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

6

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

PART II — REORGANISATIONS, CONVERSIONS, RECONSTRUCTIONS ETC.

7

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

8

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

9

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

10

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

11

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

SCHEDULE 14

Interpretation

1

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

Claims for postponement of tax

2

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

Tax referable to attributed gains

3

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

Initial calculations relevant to tax which may be postponed

4

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

Relevant benefits

5

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

The basic rules as to postponement

6

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

Effect of subsequent capital payments received by the beneficiary

7

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

8

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

Effect of related benefits derived from payments received by close relatives of the beneficiary

9

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

Related benefits

10

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

Time when postponed tax becomes payable

11

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

Balance of capital payments

12

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

13

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

Second and later claims

14

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

Information

15

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

Consequential relief from C.T.T

16

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

SCHEDULE 15

PART I — Paragraph to be Inserted in Part I of Schedule 2 To Finance Act 1975

PART II — Modifications of Provisions Relating to Qualifying Policies

1

In this Part of this Schedule—

• " Schedule 1 " means Schedule 1 to the Taxes Act (qualifying conditions etc.);

• " Schedule 2 " means Schedule 2 to the Finance Act 1975 (certification of qualifying policies etc.) ; and

• " the old policy" and " the new policy " have the same meaning as in paragraph 9 of Schedule 1.

2

• (1) In the application of paragraph 9 of Schedule 1 (substitutions) in any case where—

• (a) the old policy was issued in respect of an insurance made after 17th November 1983 and could not be a qualifying policy by virtue of paragraph 1A of Schedule 2, and

• (b) the new policy is not a new non-resident policy, as defined in the said paragraph 1A,

the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modifications in sub-paragraph (2) below.

• (2) The modifications referred to in sub-paragraph (1) above are as follows:—

• (a) if, apart from paragraph 1A of Schedule 2, the old policy and any related policy (within the meaning of sub-paragraph (2)(b) of paragraph 9 of Schedule 1) of which account falls to be taken would have been, or would have been capable of being certified qualifying policy under paragraph 1 of Schedule 2, that policy shall be assumed to have been a qualifying policy for the purposes of paragraph 9(2) of Schedule 1 ; and

• (b) if, apart from this paragraph, the new policy would be, or would be capable of being certified as, a qualifying policy, it shall not be such a policy or, as the case may be, be capable of being so certified unless the circumstances are as specified in paragraph 9(3) of Schedule 1 ; and

• (c) in paragraph 9(3)(b) of Schedule 1 the words "either by a branch or agency of theirs outside the United Kingdom or " shall be omitted.

• (3) In the application of paragraph 9 of Schedule 1 in any case where—

• (a) the old policy is a qualifying policy which was issued in respect of an insurance made on or before 17th November 1983 but, if the insurance had been made after that date, the policy could not have been a qualifying policy by virtue of paragraph 1A of Schedule 2, and

• (b) the new policy is issued after 17th November 1983 and is not a new non-resident policy, as defined in the said paragraph 1A,

the rules for the determination of the question whether the new policy is a qualifying policy shall apply with the modification in sub-paragraph (2)(c) above.

3

If, in the case of a substitution of policies falling within sub-paragraph (1) or sub-paragraph (3) of paragraph 2 above, the new policy confers such an option as results in the application to it of sub-paragraph (3) of paragraph 3 of Schedule 2 (amendment of qualifying conditions) the new policy shall be treated for the purposes of that sub-paragraph as having been issued in respect of an insurance made on the same day as that on which was made the insurance in respect of which the old policy was issued.

4

• (1) For the purposes of Schedule 1 and Part I of Schedule 2, a policy of life insurance which was issued—

• (a) in respect of an insurance made on or before 17th November 1983, and

• (b) by a company resident outside the United Kingdom,

shall be treated as issued in respect of an insurance made after that date if the policy is varied after that date so as to increase the benefits secured or to extend the term of the insurance.

• (2) If a policy of life insurance which was issued as mentioned in paragraphs (a) and (b) of sub-paragraph (1) above confers on the person to whom it is issued an option to have another policy substituted for it or to have any of its terms changed, then for the purposes of that sub-paragraph any change in the terms of the policy which is made in pursuance of the option shall be deemed to be a variation of the policy.

PART III — Modifications of Chargeable Events Legislation

5

In this Part of this Schedule—

• (a) " chargeable event" has, subject to paragraph 6 below, the meaning assigned to it by section 394 of the Taxes Act (life policies) or, as the case may be, section 398 of that Act (capital redemption policies); and

• (b) " new non-resident policy " has the meaning assigned to it by paragraph 1A of Schedule 2 to the Finance Act 1975.

6

If, in the case of a substitution of policies falling within sub-paragraph (1) or sub-paragraph (3) of paragraph 2 above, the new policy is a qualifying policy, section 394 of the Taxes Act shall have effect with the following modifications:—

• (a) the surrender of the rights conferred by the old policy shall not be a chargeable event; and

• (b) the new policy shall be treated as having been issued in respect of an insurance made on the day referred to in paragraph 3 above.

7

If at any time neither the conditions in sub-paragraph (3) nor the conditions in sub-paragraph (4) of paragraph 1A of Schedule 2 to the Finance Act 1975 are fulfilled with respect to a new non-resident policy which has previously become a qualifying policy, then, from that time onwards, Chapter III of Part XIV of the Taxes Act shall apply in relation to the policy as if it did not fall within subsection (2) of section 394 of that Act (qualifying policies).

8

• (1) On the happening of a chargeable event in relation to a new non-resident policy or a new offshore capital redemption policy, the amount which, apart from this paragraph, would by virtue of section 395 of the Taxes Act be treated as a gain arising in connection with the policy shall be reduced by multiplying it by a fraction of which—

• (a) the denominator is the number of days in the period for which the policy has run before the happening of the chargeable event; and

• (b) the numerator is the number of days in the period referred to in paragraph (a) above on which the policy holder was resident in the United Kingdom.

• (2) The calculation of the number of days in the period referred to in sub-paragraph (1) above shall be made in like manner as is provided in the second paragraph of subsection (3) of section 400 of the Taxes Act (substituting a reference to the number of days for the reference in that paragraph to the number of years).

9

• (1) Subject to sub-paragraph (2) below, where, under section 395 of the Taxes Act, a gain (reduced in accordance with paragraph 8 above) is to be treated as arising in connection with a new non-resident policy or a new offshore capital redemption policy—

• (a) section 399 of that Act shall have effect, in relation to the gain, as if subsection (4) were omitted ; and

• (b) the gain shall be chargeable to tax under Case VI of Schedule D ;

but any relief under section 400 of the Taxes Act shall be computed as if this paragraph had not been enacted.

• (2) Paragraphs (a) and (b) of sub-paragraph (1) above do not apply to a gain arising in connection with a new non-resident policy if the conditions in either sub-paragraph (3) or sub-paragraph (4) of paragraph 1A of Schedule 2 to the Finance Act 1975 are fulfilled at all times between the date on which the policy was issued and the date on which the gain is treated as arising.

10

Where a claim is made under section 400 of the Taxes Act in respect of the amount of a gain treated as arising in connection with a new non-resident policy or a new offshore capital redemption policy (with or without other amounts), the " appropriate fraction " which, in accordance with subsection (2) of that section, is to be applied to that amount shall be modified by deducting from the number of complete years referred to in subsection (3) of that section any complete years during which the policy holder was not resident in the United Kingdom.

11

Paragraph 18 of Schedule 2 to the Finance Act 1975 (which modifies the operation of section 400(3) of the Taxes Act when there is more than one chargeable event of a particular description) shall not apply in relation to a new non resident policy or a new offshore capital redemption policy.

SCHEDULE 16

General

1

• (1) The company shall be assumed to be resident in the United Kingdom.

• (2) Nothing in sub-paragraph (1) above requires it to be assumed that there is any change in the place or places at which the company carries on its activities.

• (3) For the avoidance of doubt, it is hereby declared that, if any sums forming part of the company's profits for an accounting period have been received by the company without any deduction of or charge to tax by virtue of section 99 or section 100 of the Taxes Act (securities held by non-residents), the effect of the assumption in sub-paragraph (1) above is that those sums are to be brought within the charge to tax for the purposes of calculating the company's chargeable profits or corresponding United Kingdom tax.

• (4) In any case where—

• (a) it is at any time necessary for any purpose of this Act to determine the chargeable profits of the company for an accounting period, and

• (b) at that time no direction has been given under section 82(1) of this Act with respect to that or any earlier accounting period of the company,

it shall be assumed, for the purpose of any of the following provisions of this Schedule which refer to the first accounting period in respect of which a direction is given under that section, that such a direction has been given for that period (but not for any earlier period).

• (5) Nothing in this Schedule affects any liability for, or the computation of, corporation tax in respect of a trade which is carried on by a company resident outside the United Kingdom through a branch or agency in the United Kingdom.

2

• (1) The company shall be assumed to have become resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the beginning of the first accounting period in respect of which a direction is given under section 82(1) of this Act and that United Kingdom residence shall be assumed to continue throughout subsequent accounting periods of the company (whether or not a direction is given in respect of all or any of them) until the company ceases to be controlled by persons resident in the United Kingdom.

• (2) Except in so far as the following provisions of this Schedule otherwise provide, for the purposes of calculating a company's chargeable profits or corresponding United Kingdom tax for any accounting period which is not the first such period referred to in sub-paragraph (1) above (and, in particular, for the purpose of applying any relief which is relevant to two or more accounting periods), it shall be assumed that a calculation of chargeable profits or, as the case may be, corresponding United Kingdom tax has been made for every previous accounting period throughout which the company was, by virtue of sub-paragraph (1) above, assumed to have been resident in the United Kingdom.

3

The company shall be assumed not to be a close company.

4

• (1) Subject to sub-paragraph (2) below, where any relief under the Corporation Tax Acts is dependent upon the making of a claim or election, the company shall be assumed to have made that claim or election which would give the maximum amount of relief and to have made that claim or election within any time limit applicable to it

• (2) If, by notice in writing given to the Board at any time not later than the expiry of the time for the making of an appeal under section 88 of this Act or within such longer period as the Board may in any particular case allow, the United Kingdom resident company which has or, as the case may be, any two or more United Kingdom resident companies which together have, a majority interest in the company so request, the company shall be assumed—

• (a) not to have made any claim or election specified in the notice; or

• (b) to have made a claim or election so specified, being different from one assumed by sub-paragraph (1) above but being one which (subject to compliance with any time limit) could have been made in the case of a company within the charge to corporation tax ; or

• (c) to have disclaimed or required the postponement, in whole or in part, of an allowance if (subject to compliance with any time limit) a company within the charge to corporation tax could have disclaimed the allowance or, as the case may be, required such a postponement.

• (3) For the purposes of this paragraph, a United Kingdom resident company has, or two or more United Kingdom resident companies together have, a majority interest in the company if on the apportionment of the company's chargeable profits for the relevant accounting period under subsection (3) of section 82 of this Act, more than half of the profits—

• (a) which are apportioned to United Kingdom resident companies, and

• (b) which give rise to an assessment on any such companies under subsection (4)(a) of that section,

are apportioned to the United Kingdom resident company or companies concerned.

• (4) In sub-paragraph (3) above " the relevant accounting period " means the accounting period or, as the case may be, the first accounting period in which the relief in question is or would be available in accordance with sub-paragraph (1) above.

Group relief, etc.

5

The company shall be assumed to be neither a member of a group of companies nor a member of a consortium for the purposes of any provision of the Tax Acts.

6

• (1) In relation to section 256 of the Taxes Act (group income) it shall be assumed—

• (a) that the conditions for the making of an election under subsection (1) are not fulfilled with respect to dividends paid or received by the company ; and

• (b) that the conditions for the making of an election under subsection (2) are not fulfilled with respect to payments made or received by the company.

• (2) References in sub-paragraph (1) above to dividends or payments received by the company apply to any received by another person on behalf of or in trust for the company, but not to any received by the company on behalf of or in trust for another person.

7

The company shall be assumed not to be a subsidiary to which the benefit of any advance corporation tax may be surrendered under section 92 of the Finance Act 1972.

Company reconstructions

8

Without prejudice to the operation of section 252 of the Taxes Act (company reconstructions without change of ownership) in a case where the company is the predecessor, within the meaning of that section, and a company resident in the United Kingdom is the successor, within the meaning of that section, the assumption that the company is resident in the United Kingdom shall not be regarded as requiring it also to be assumed that the company is within the charge to tax in respect of a trade for the purposes of section 252 of the Taxes Act and, accordingly, except in so far as the company is actually within that charge (by carrying on the trade through a branch or agency in the United Kingdom), it shall be assumed that the company can never be the successor, within the meaning of that section, to another company (whether resident in the United Kingdom or not).

Losses in pre-direction accounting periods

9

• (1) Subject to sub-paragraph (2) below, this paragraph applies in any case where the company incurred a loss in a trade in an accounting period—

• (a) which precedes the first accounting period in respect of which a direction is given under section 82(1) of this Act (in this paragraph referred to as " the starting period "); and

• (b) which ended less than six years before the beginning of the starting period ; and

• (c) in which the company was not resident in the United Kingdom ;

and in this paragraph any such accounting period is referred to as a " pre-direction period ".

• (2) This paragraph does not apply in any case where a declaration is made under paragraph 11(3) below specifying an accounting period of the company which begins before, or is the same as, the first pre-direction period in which the company incurred a loss as mentioned in sub-paragraph (1) above.

• (3) If a claim is made for the purpose by the United Kingdom resident company or companies referred to in paragraph 4(2) above, the chargeable profits (if any) of the company for accounting periods beginning with that pre-direction period which is specified in the claim and in which a loss is incurred as mentioned in sub-paragraph (1) above shall be determined (in accordance with the provisions of this Schedule other than this paragraph) on the assumption that that pre-direction period was the first accounting period in respect of which a direction was given under section 82(1) of this Act.

• (4) A claim under sub-paragraph (3) above shall be made by notice in writing given to the Board within sixty days of the date of the notice under subsection (1) or subsection (3) of section 88 of this Act relating to the starting period or within such longer period as the Board may in any particular case allow.

• (5) For the purposes of a claim under sub-paragraph (3) above, it shall be assumed that Chapter VI of Part II of this Act was in force before the beginning of the first of the pre-direction periods.

• (6) In determining for the purposes of this paragraph which accounting period of the company is the starting period, no account shall be taken of the effect of any declaration under paragraph 11(3) below.

Capital allowances

10

• (1) Subject to paragraphs 11 and 12 below, if, in an accounting period falling before the beginning of the first accounting period in respect of which a direction is given under section 82(1) of this Act, the company incurred any capital expenditure on the provision of machinery or plant for the purposes of its trade, that machinery or plant shall be assumed, for the purposes of section 44 of the Finance Act 1971 (writing-down allowances and balancing adjustments), not to have been brought into use for the purposes of that trade until the beginning of that first accounting period, and paragraph 7 of Schedule 8 to that Act (expenditure treated as equivalent to market value at the time the machinery or plant is brought into use) shall apply accordingly.

• (2) This paragraph shall be construed as one with Chapter I of Part III of the Finance Act 1971.

11

• (1) This paragraph applies in any case where it appears to the Board that the reason why no direction was given under section 82(1) of this Act in respect of an accounting period which precedes the starting period was that the effect of any allowance which would be assumed for that preceding period by virtue of this Schedule would be such that—

• (a) the company would not have been considered, to be subject in that accounting period to a lower level of taxation in the territory in which it was resident; or

• (b) the company would have had no chargeable profits for that accounting period; or

• (c) the chargeable profits of the company for that accounting period would not have exceeded £20,000 or such smaller amount as was appropriate in accordance with section 83(1)(d) of this Act.

• (2) In this paragraph " the starting period" means the first accounting period in respect of which a direction is given under section 82(1) of this Act and, in a case where a claim is made under sub-paragraph (3) of paragraph 9 above, no account shall be taken of the effect of that sub-paragraph in determining which accounting period is the starting period for the purposes of this paragraph.

• (3) If, in a case where this paragraph applies, the Board so declare by notice in writing given to every company to which, in accordance with section 88(1) of this Act, notice of the making of the direction relating to the starting period is required to be given, the chargeable profits of that period and every subsequent accounting period and the corresponding United Kingdom tax for every subsequent accounting period shall be determined (in accordance with the provisions of this Schedule other than this paragraph) on the assumption that the accounting period specified in the declaration was the first accounting period in respect of which a direction was given and, accordingly, as if allowances had been assumed in respect of that accounting period and any subsequent accounting period which precedes the starting period.

• (4) Nothing in sub-paragraph (3) above affects the operation of paragraph 9(3) above in a case where the accounting period specified in a claim under the said paragraph 9(3) begins before the period specified in a declaration under sub-paragraph (3) above.

• (5) Subject to sub-paragraph (6) below, the Board shall not make a declaration under sub-paragraph (3) above with respect to an accounting period which precedes the starting period unless the facts are such that—

• (a) assuming the company to have been subject in that period to a lower level of taxation in the territory in which it was resident, and

• (b) assuming the company to have had in that period chargeable profits of such an amount that the condition in section 83(1)(d) of this Act would not be fulfilled,

a direction could have been given in respect of that period under section 82(1) of this Act.

• (6) In its application to a company falling within section 84(3) of this Act, sub-paragraph (5) above shall have effect with the omission of paragraph (a).

• (7) In this paragraph "allowance" means an allowance under Chapter I of Part I of the Capital Allowances Act 1968 or Chapter I of Part III of the Finance Act 1971.

12

• (1) Notwithstanding anything in the preceding provisions of this Schedule, if it appears that the transaction by which an asset was acquired by the company had as its sole or main purpose the reduction of the amount of the company's chargeable profits or, as the case may be, corresponding United Kingdom tax for any accounting period (by virtue of the assumption of a relevant allowance in respect of that asset), it shall be assumed that no relevant allowance is available to the company in respect of expenditure incurred on the acquisition of that asset.

• (2) In sub-paragraph (1) above " relevant allowance " means—

• (a) an initial allowance under Chapter I of Part I of the Capital Allowances Act 1968 (industrial buildings and structures); or

• (b) a first-year allowance, as defined in section 41 of the Finance Act 1971.

Unremittable overseas income

13

For the purposes of the application of section 418 of the Taxes Act (relief for unremittable income) to the company's income it shall be assumed—

• (a) that any reference in paragraph (a) or paragraph (b) of subsection (1) of that section to the United Kingdom is a refererence to both the United Kingdom and the territory in which the company is in fact resident; and

• (b) that a notice under subsection (2) of that section (expressing a wish to be assessed in accordance with that subsection) may be given on behalf of the company by the United Kingdom resident company or companies referred to in paragraph 4(2) above.

SCHEDULE 17

PART I — Acceptable Distribution Policy

1

The provisions of this Part of this Schedule have effect for the purposes of paragraph (a) of subsection (1) of section 83 of this Act.

2

• (1) Subject to sub-paragraph (2) below, a controlled foreign company pursues an acceptable distribution policy in respect of a particular accounting period if, and only if—

• (a) a dividend which is not paid out of specified profits is paid for that accounting period or for some other period which, in whole or in part, falls within that accounting period : and

• (b) the dividend is paid during, or not more than eighteen months after the expiry of, the period for which it is paid or at such later time as the Board may in any particular case allow; and

• (c) the proportion of the dividend or, if there is more than one, of the aggregate of those dividends which is paid to persons resident in the United Kingdom represents at least 50 per cent. of the company's available profits for the accounting period referred to in paragraph (a) above or, where sub-paragraph (4) or sub-paragraph (5) below applies, of the appropriate portion of those profits ;

and for the purposes of this sub-paragraph a dividend which is not paid for a specified period shall be treated as paid for the period or periods the profits of which are, in relation to the dividend, the relevant profits for the purposes of section 506 of the Taxes Act (computation of underlying tax on dividends).

• (2) In the case of a controlled foreign company which is not a trading company, sub-paragraph (1) above shall have effect with the substitution of 90 per cent. for 50 per cent.

• (3) For the purposes of this Part of this Schedule, a dividend represents those profits of the controlled foreign company in question which in relation to that dividend are the relevant profits for the purposes of section 506 of the Taxes Act and, accordingly, where those profits are the profits of a period which falls partly within and partly outside an accounting period of that company, the necessary apportionment shall be made to determine what proportion of those profits is attributable to that accounting period.

• (4) This sub-paragraph applies where—

• (a) throughout the accounting period in question all the issued shares of the controlled foreign company are of a single class, and

• (b) at the end of that accounting period some of those shares are held by persons resident outside the United Kingdom, and

• (c) at no time during that accounting period does any person have an interest in the company other than an interest derived from the issued shares of the company,

and in a case where this sub-paragraph applies the appropriate portion for the purposes of sub-paragraph (1)(c) above is the fraction of which the denominator is the total number of the issued shares of the company at the end of the accounting period in question and, subject to sub-paragraph (8) below, the numerator is the number of those issued shares by virtue of which persons resident in the United Kingdom have interests in the company at that time.

• (5) This sub-paragraph applies where—

• (a) throughout the accounting period in question there are only two classes of issued shares of the controlled foreign company and, of those classes, one (in this paragraph referred to as " non-voting shares ") consists of non-voting fixed-rate preference shares and the other (in this paragraph referred to as " voting shares ") consists of shares which carry the right to vote in all circumstances at general meetings of the company, and

• (b) at the end of that accounting period some of the issued shares of the company are held by persons resident outside the United Kingdom, and

• (c) at no time during that accounting period does any person have an interest in the company other than an interest derived from non-voting shares or voting shares,

and in a case where this sub-paragraph applies the appropriate portion of the profits referred to in sub-paragraph (1)(c) above is the amount determined in accordance with sub-paragraph (6) below.

• (6) The amount referred to in sub-paragraph (5) above is that given by the formula—

$$P×QR+(X−P)×YZ$ where— P is the amount of any dividend falling within paragraphs (a) and (b) of sub-paragraph (1) above which is paid in respect of the non-voting shares or, if there is more than one such dividend, of the aggregate of them; Q is, subject to sub-paragraph (8) below, the number of the nonvoting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of the accounting period in question; R is the total number at that time of the issued non-voting shares; X is the available profits for the accounting period in question ; Y is, subject to sub-paragraph (8) below, the number of voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of that accounting period ; and Z is the total number at that time of the issued voting shares.$

• (7) For the purposes of sub-paragraph (5)(a) above, non-voting fixed-rate preference shares are shares—

• (a) which are fixed-rate preference shares as defined in paragraph 1 of Schedule 12 to the Finance Act 1973 ; and

• (b) which either carry no right to vote at a general meeting of the company or carry such a right which is contingent upon the non-payment of a dividend on the shares and which has not in fact become exercisable at any time prior to the payment of a dividend for the accounting period in question.

• (8) In any case where the immediate interests held by persons resident in the United Kingdom who have indirect interests in a controlled foreign company at the end of a particular accounting period do not reflect the proportion of the shares or, as the case may be, shares of a particular class in the company by virtue of which they have those interests (as in a case where they hold, directly or indirectly, part of the shares in a company which itself holds, directly or indirectly, some or all of the shares in the controlled foreign company) the number of those shares shall be treated as reduced for the purposes of sub-paragraph (4) or, as the case may be, sub-paragraph (6) above to such number as may be appropriate having regard to—

• (a) the immediate interests held by the persons resident in the United Kingdom; and

• (b) any intermediate shareholdings between those interests and the shares in the controlled foreign company.

• (9) The definition of " profits " in section 82(6)(b) of this Act does not apply to any reference in this paragraph to specified profits or to relevant profits for the purposes of section 506 of the Taxes Act

3

• (1) Subject to sub-paragraph (2) below, for the purposes of this Part of this Schedule, the available profits of a controlled foreign company for any accounting period shall be ascertained, subject to sub-paragraph (5) below, by—

• (a) determining what would be the relevant profits of that period for the purposes of section 506 of the Taxes Act if a dividend were paid for that period ; and

• (b) deducting so much of those relevant profits as consists of an excess of capital profits over capital losses.

• (2) If, for any accounting period of the controlled foreign company which—

• (a) is of less than twelve months' duration, and

• (b) is not an accounting period which, but for the coming into operation of this Chapter on 6th April 1984, would have begun before that date and been of at least twelve months' duration,

the available profits, as ascertained under sub-paragraph (1) above, are less than the chargeable profits (determined on the additional assumptions in section 85(3)(a) of this Act), then, if the Board so declare, for the purposes of this Part of this Schedule the available profits for the accounting period shall be those chargeable profits.

• (3) The definition of " profits " in section 82(6)(b) of this Act does not apply to the reference in sub-paragraph (1)(a) above to relevant profits for the purposes of section 506 of the Taxes Act

• (4) In sub-paragraph (1)(b) above " capital profits " means gains—

• (a) which accrue on the disposal of assets ; and

• (b) which, if the company were within the charge to corporation tax in respect of the activities giving rise to those disposals, would not be taken into account as receipts in computing the company's income or profits or gains or losses for the purposes of the Income Tax Acts ;

and the expression " capital losses " shall be construed accordingly.

• (5) In any case where—

• (a) a controlled foreign company pays a dividend for any period out of specified profits, and

• (b) those specified profits represent dividends received by the company, directly or indirectly, from another controlled foreign company,

so much of those specified profits as is equal to the dividend referred to in paragraph (a) above shall be left out of account in determining, for the purposes of this Part of this Schedule, the available profits of the controlled foreign company referred to in that paragraph for any accounting period.

4

• (1) For the purposes of this Part of this Schedule, where—

• (a) a controlled foreign company pays a dividend (in this paragraph referred to as " the initial dividend") to another company which is also not resident in the United Kingdom, and

• (b) that other company or another company which is related to it pays a dividend (in this paragraph referred to as " the subsequent dividend ") to a United Kingdom resident, and

• (c) the subsequent dividend is paid out of profits which are derived, directly or indirectly, from the whole or part of the initial dividend,

so much of the initial dividend as is represented by the subsequent dividend shall be regarded as paid to the United Kingdom resident

• (2) For the purposes of this paragraph, one company is related to another if the other—

• (a) controls directly or indirectly, or

• (b) is a subsidiary of a company which controls directly or indirectly,

at least 10 per cent. of the voting power in the first-mentioned company ; and where one company is so related to another and that other is so related to a third company, the first company is for the purposes of this paragraph related to the third, and so on where there is a chain of companies, each of which is related to the next

PART II — Exempt Activities

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• (1) The provisions of this Part of this Schedule have effect for the purposes of paragraph (b) of subsection (1) of section 83 of this Act.

• (2) In the case of a controlled foreign company—

• (a) which is, by virtue of section 84(3) of this Act, presumed to be resident in a territory in which it is subject to a lower level of taxation, and

• (b) the business affairs of which are, throughout the accounting period in question, effectively managed in a territory outside the United Kingdom other than one in which companies are liable to tax by reason of domicile, residence or place of management,

references in the following provisions of this Part of this Schedule to the territory in which that company is resident shall be construed as references to the territory falling within paragraph (b) above or, if there is more than one, to that one of them which may be notified to the Board by the United Kingdom resident company or companies referred to in paragraph 4(2) of Schedule 16 to this Act.

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• (1) Throughout an accounting period a controlled foreign company is engaged in exempt activities if, and only if, each of the following conditions is fulfilled,—

• (a) that, throughout that accounting period, the company has a business establishment in the territory in which it is resident ; and

• (b) that, throughout that accounting period, its business affairs in that territory are effectively managed there ; and

• (c) that any of sub-paragraphs (2) to (4) below applies to the company.

• (2) This sub-paragraph applies to a company if,—

• (a) at no time during the accounting period in question does the main business of the company consist of either—

• (i) investment business, or

• (ii) dealing in goods for delivery to or from the United Kingdom or to or from connected or associated persons ; and

• (b) in the case of a company which is mainly engaged in wholesale, distributive or financial business in that accounting period, less than 50 per cent. of its gross trading receipts from that business is derived directly or indirectly from connected or associated persons.

• (3) This sub-paragraph applies to a company which is a holding company if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period,—

• (a) are resident in the territory in which the holding company is resident; and

• (b) are not themselves holding companies, but otherwise are, in terms of this Schedule, engaged in exempt activities ;

and a holding company to which this sub-paragraph applies is in this Part of this Schedule referred to as a " local holding company ".

• (4) This sub-paragraph applies to a company which is a holding company, but not a local holding company, if at least 90 per cent. of its gross income during the accounting period in question is derived directly from companies which it controls and which, throughout that period,—

• (a) are local holding companies; or

• (b) are not themselves holding companies (whether local or not), but otherwise are, in terms of this Schedule, engaged in exempt activities.

• (5) Any reference in sub-paragraph (3) or sub-paragraph (4) above to a company which a holding company controls includes a reference to a trading company in which the holding company holds the maximum amount of ordinary share capital which is permitted under the law of the territory—

• (a) in which the trading company is resident; and

• (b) from whose laws the trading company derives its status as a company.

• (6) The following provisions of this Part of this Schedule have effect in relation to sub-paragraphs (1) to (4) above.

7

• (1) For the purposes of paragraph 6(1)(a) above, a " business establishment'', in relation to a controlled foreign company, means premises—

• (a) which are, or are intended to be, occupied and used with a reasonable degree of permanence ; and

• (b) from which the company's business in the territory in which it is resident is wholly or mainly carried on.

• (2) For the purposes of sub-paragraph (1) above, the following shall be regarded as premises,—

• (a) an office, shop, factory or other building or part of a building ; or

• (b) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ; or

• (c) a building site or the site of a construction or installation project;

but such a site as is referred to in paragraph (c) above shall not be regarded as " premises " unless the building work or the project, as the case may be, has a duration of at least twelve months.

8

• (1) Subject to sub-paragraph (4) below, the condition in paragraph 6(1)(b) above shall not be regarded as fulfilled unless—

• (a) the number of persons employed by the company in the territory in which it is resident is adequate to deal with the volume of the company's business ; and

• (b) any services provided by the company for persons resident outside that territory are not in fact performed in the United Kingdom.

• (2) For the purposes of sub-paragraph (1)(a) above, persons who are engaged wholly or mainly in the business of the company and whose remuneration is paid by a person connected with, and resident in the same territory as, the company shall be treated as employed by the company.

• (3) In the case of a holding company, sub-paragraph (2) above shall apply with the omission of the words " wholly or mainly ".

• (4) For the purposes of sub-paragraph (1)(b) above, no account shall be taken—

• (a) of services provided through a branch or agency of the controlled foreign company if the profits or gains of the business carried on through the branch or agency are within the charge to tax in the United Kingdom ; or

• (b) of services provided through any other person whose profits or gains from the provision of the services are within the charge to tax in the United Kingdom and who provides the services for a consideration which is, or which is not dissimilar from what might reasonably be expected to be, determined under a contract entered into at arm's length ; or

• (c) of services which are no more than incidental to services provided outside the United Kingdom.

9

• (1) Subject to sub-paragraph (3) below, for the purposes of paragraph 6(2)(a)(i) above, each of the following activities constitutes investment business,—

• (a) the holding of securities, patents or copyrights;

• (b) dealing in securities, other than in the capacity of a broker ;

• (c) the leasing of any description of property or rights ; and

• (d) the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of the controlled foreign company in question.

• (2) In sub-paragraph (1)(b) above "broker" includes any person offering to sell securities to, or purchase securities from, members of the public generally.

• (3) For the purposes of paragraph 6(2) above, in the case of a company which is mainly engaged in banking or any similar business falling within paragraph 11(1)(c) below, nothing in sub-paragraph (1) above shall require the main business of die company to be regarded as investment business.

10

Goods which are actually delivered into the territory in which the controlled foreign company is resident shall not be taken into account for the purposes of paragraph 6(2)(a)(ii) above.

11

• (1) For the purposes of paragraph 6(2)(b) above, each of the following activities constitutes wholesale, distributive or financial business,—

• (a) dealing in any description of goods wholesale rather than retail;

• (b) the business of shipping or air transport, as defined in section 514(1) of the Taxes Act;

• (c) banking or any similar business involving the receipt of deposits, loans or both and the making of loans or investments ;

• (d) the administration of trusts;

• (e) dealing in securities in the capacity of a broker, as defined in paragraph 9(2) above ;

• (f) dealing in commodity or financial futures; and

• (g) insurance business which is long-term business or general business, as defined in section 1 of the Insurance Companies Act 1982.

• (2) In a case where the gross trading receipts of a company include an amount in respect of the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall be a deduction in calculating the company's gross trading receipts for the purposes of paragraph 6(2)(b) above.

• (3) In the case of a controlled foreign company engaged in a banking or other business falling within sub-paragraph (1)(c) above, no payment of interest received from a company resident in the United Kingdom shall be regarded for the purposes of paragraph 6(2)(b) above as a receipt derived directly or indirectly from connected or associated persons, but it shall be conclusively presumed that the condition in paragraph 6(2)(b) above is not fulfilled if, at any time during the accounting period in question, the amount by which the aggregate value of the capital interests in the company held directly or indirectly by—

• (a) the persons who have control of the company, and

• (b) any person connected or associated with those persons,

exceeds the value of the company's fixed assets is 15 per cent. or more of the amount by which the company's outstanding capital exceeds that value.

• (4) For the purposes of this paragraph, in relation to a controlled foreign company,—

• (a) " capital interest" means an interest in the issued share capital or reserves of the company or in a loan to or deposit with the company or the liability of a guarantor under a guarantee given to or for the benefit of the company;

• (b) except in the case of the liability of a guarantor, the value of a capital interest is its value as shown in the company's accounts ;

• (c) in the case of the liability of a guarantor, the value shall be taken to be the market value of the benefit which the controlled foreign company derives from the provision of the guarantee ;

• (d) the value of the company's fixed assets means the value, as shown in the company's accounts, of the plant, premises and trade investments employed in the company's business ; and

• (e) " outstanding capital" means the total value of all the capital interests in the company, less the value, as shown in the company's accounts, of any advances made by the company to persons resident outside the United Kingdom and falling within paragraph (a) or paragraph (b) of sub-paragraph (3) above.

• (5) For the purposes of sub-paragraph (4) above—

• (a) " trade investments", in relation to a controlled foreign company, means securities any profit on the sale of which would not be brought into account as a trading receipt in computing the chargeable profits of an accounting period in which that profit arose ; and

• (b) the reference in paragraph (e) to advances made to a person by the controlled foreign company includes, in the case of a company which is a person resident outside the United Kingdom and falling within paragraph (a) or paragraph (b) of sub-paragraph (3) above, any securities of that company which are held by the controlled foreign company but are not trade investments, as defined in paragraph (a) above ;

and in this sub-paragraph " securities " includes stocks and shares.

• (6) In the application of paragraph 6(2)(b) above in the case of a controlled foreign company engaged in insurance business of any kind—

• (a) the reference to gross trading receipts which are derived directly or indirectly from connected or associated persons is a reference to those which, subject to sub-paragraph (7) below, are attributable, directly or indirectly, to liabilities undertaken in relation to any of those persons or their property;

• (b) the only receipts to be taken into account are commissions and premiums received under insurance contracts;

• (c) so much of any such commission or premium as is returned is not to be taken into account; and

• (d) when a liability under an insurance contract is reinsured, in whole or in part, the amount of the premium which is attributable, directly or indirectly, to that liability shall be treated as reduced by so much of the premium under the reinsurance contract as is attributable to that liability.