Finance (No. 2) Act 1987

(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— (a) shall be limited by treating the amount of the foreign loan interest (as increased or reduced under subsection (2) or subsection (4) above) as reduced (or further reduced) for the purposes of that Chapter by an amount equal to so much of the lender’s financial expenditure in relation to the loan concerned as is properly attributable to the period for which the interest is paid; and (b) shall not exceed 15 per cent. of the foreign loan interest, computed without regard to paragraph (a) above or to any increase under subsection (2) or any reduction under subsection (4) above. (5A) For the purposes of this section the lender’s financial expenditure in relation to a loan is the aggregate of— (a) the financial expenses (consisting of interest or similar sums) incurred by the lender in or in connection with the provision of the loan, so far as those expenses consist of payments which either are charges on income for the purposes of corporation tax or are deductible in computing profits of the lender which are brought into charge to income tax or corporation tax; and (b) where the loan is financed by the issue of securities at a discount by the lender, so much of the amount of the discount as either constitutes such a charge as is mentioned in paragraph (a) above or is deductible as mentioned in that paragraph; and (c) so much as it is just and reasonable to attribute to the loan of any interest or other return forgone by a person connected or associated with the lender in connection with the provision of funds to the lender, either interest free or in other circumstances more favourable to the lender than if the parties were at arm’s length; and (d) any other sum, whether paid by way of refund of tax or interest or by way of commission, which— (i) is paid by the lender or a person connected or associated with him; (ii) is paid directly or indirectly to the borrower or a person connected or associated with him; (iii) is deductible as mentioned in paragraph (a) above; (iv) would not, apart from this paragraph, be taken into account in determining the amount of the foreign loan interest; and (v) it is reasonable to regard as referable to the loan or the foreign loan interest (or both). (5B) In a case where the amount of the lender’s financial expenditure in relation to a loan is not readily ascertainable, that amount shall be taken, subject to subsection (5C) below, to be such sum as it is just and reasonable to attribute to the financing of the loan, having regard, in particular, to any market rates of interest by reference to which the rate of interest on the loan is determined. (5C) The Board may by regulations supplement subsection (5B) above— (a) by specifying matters to be taken into account in determining such a just and reasonable attribution as is referred to in that subsection; and (b) by making provision with respect to the determination of market rates of interest for the purposes of that subsection; and any such regulations may make different provision for different cases. (5D) Regulations under subsection (5C) above shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons. (5E) For the purposes of this section— (a) section 533 of the Taxes Act (connected persons) applies; and (b) subsection (10) of section 494 of that Act (associated persons) applies as it applies for the purposes of that section.

• (6) Where the loan on which the foreign loan interest is payable was made pursuant to an agreement entered into before 1st April 1987, this section does not apply in relation to interest payable before 1st April 1989 but, subject thereto, this section (including the power to make regulations conferred by subsection (5) above) applies in relation to interest payable on or after 1st April 1987.

Double taxation relief: underlying tax reflecting interest on loans.

68

• (1) Section 66 of the Finance Act 1982 (restriction of double taxation relief in respect of underlying tax on certain dividends) shall be amended in accordance with this section.

• (2) After subsection (1) there shall be inserted the following subsections—

(1A) In a case where this section applies, the amount of the credit for that part of the foreign tax which consists of the tax referred to in subsection (1)(c) above shall not exceed an amount determined under subsection (1B) below. (1B) The amount referred to in subsection (1A) above is a sum equal to corporation tax, at the rate in force at the time the foreign tax referred to in paragraph (c) of subsection (1) above was chargeable, on so much of the interest on the loan as exceeds the amount of the lender’s relevant expenditure which is properly attributable to the period for which that interest is paid. (1C) In subsection (1B) above— (a) “interest”, subject to subsection (1D) below, has the meaning assigned to it by section 65(1A) above; and (b) “the lender’s relevant expenditure” means the amount which, if the company referred to in subsection (1)(d) above were resident in the United Kingdom (and liable to tax accordingly) would be its financial expenditure in relation to the loan, as determined in accordance with subsections (5) to (5E) of section 65 above. (1D) If, in accordance with subsection (2) or subsection (4) below, the amount of the dividend would be treated for the purposes of corporation tax as increased or reduced by any amount, then the amount which, apart from this subsection, would be the amount of the interest referred to in subsection (1B) above shall be taken to be increased or reduced by the same amount as the dividend is so treated as increased or reduced.

• (3) Where the loan referred to in paragraph (c) of subsection (1) of section 66 of the Finance Act 1982 was made pursuant to an agreement entered into before 1st April 1987, this section does not apply in relation to tax payable as mentioned in that paragraph by reference to interest payable before 1st April 1989 but, subject thereto, this section applies in relation to tax so payable by reference to interest payable on or after 1st April 1987.

Miscellaneous

Disclosure of employment information obtained from Inland Revenue.

69

• (1) Section 58 of the Finance Act 1969 (disclosure of information for statistical purposes by Board of Inland Revenue) shall be amended in accordance with this section.

• (2) At the end of subsection (4) (cases in which information obtained under the section may be disclosed by officers of the Department of Employment or Manpower Services Commission to other persons) there shall be added

or (c) to an authorised officer of any body specified in the first column of the following Table for the purposes of functions of that body under any enactment specified in relation to it in the second column of the Table.

Body	Enactment
A local education authority in England and Wales.	Section 8 of the Employment and Training Act 1973.
An education authority in Scotland.	Section 126 of the Education (Scotland) Act 1980.
The Northern Ireland Training Authority.	The Industrial Training (Northern Ireland) Order 1984.
A local planning authority within the meaning of the Town and Country Planning Act 1971 and any board which exercises for any area the functions of such an authority.	Part II of the Town and Country Planning Act 1971.
A planning authority as defined in section 172(3) of the Local Government (Scotland) Act 1973.	Part II of the Town and Country Planning (Scotland) Act 1972.
The Welsh Development Agency.	The Welsh Development Agency Act 1975.
The Scottish Development Agency.	The Scottish Development Agency Act 1975.
The Development Board for Rural Wales.	The Development of Rural Wales Act 1976.
The Highlands and Islands Development Board.	The Highlands and Islands Development (Scotland) Acts 1965 and 1968.
A development corporation within the meaning of the New Towns Act 1981.	Section 4 of the New Towns Act 1981.
A development corporation within the meaning of the New Towns (Scotland) Act 1968.	Section 3 of the New Towns (Scotland) Act 1968.
A new town commission within the meaning of the New Towns Act (Northern Ireland) 1965.	Section 7 of the New Towns Act (Northern Ireland) 1965.

• (3) In subsection (6) for the words “or paragraph (b) of subsection (4)” there shall be substituted “ paragraph (b) or paragraph (c) of subsection (4) above ”.

Lloyd’s underwriters.

70

Relief for losses on unquoted shares in trading companies.1980 c. 48.

71

Section 37 of the Finance Act 1980 (relief for losses on unquoted shares in trading companies) shall have effect, and be deemed always to have had effect, with the addition, at the end of the definition of “excluded company” in subsection (12), of the words

or (c) which is a building society, within the meaning of the Building Societies Act 1986, or a registered industrial and provident society, as defined in section 340 of the Taxes Act

.

Allowances for dwelling-houses let on assured tenancies.

72

Recognised investment exchanges.

73

Chapter IV — Capital Gains

Companies’ chargeable gains

General rules.

74

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

Life assurance business.

75

• (1) In Schedule 18 to the Finance Act 1972 (taxation of insurance companies) in paragraph 2(4) (modifications of section 85 of that Act)—

• (a) for the word “income”, in the first place where it occurs, there shall be substituted “profits”; and

• (b) for the words from “an amount” onwards there shall be substituted “deducting therefrom such fraction thereof as is equal to the fraction of the profits of the company in respect of its life assurance business which, under section 309 of the Taxes Act, is excluded from the computation of those profits or would be so excluded if the profits were computed in accordance with the provisions applicable to Case I of Schedule D”.

• (2) In subsection (2) of section 26 of the Finance Act 1974 (corporation tax on balance of policy holders' share of life assurance gains)—

• (a) for the words from the beginning to “that share” there shall be substituted “Corporation tax charged on so much of the policy holders' share of the life assurance gains”; and

• (b) for the words from “as if” onwards there shall be substituted “on the basis of a rate of corporation tax of 30 per cent”.

• (3) In subsection (3) of the said section 26—

• (a) in paragraph (a) the words “so much of” and the words from “as remains” to “1972” shall be omitted; and

• (b) in paragraph (b) the words “as so reduced” shall be omitted.

• (4) Subsections (1) to (3) above have effect with respect to accounting periods beginning on or after 17th March 1987.

Gains from oil extraction activities etc.

76

• (1) The provisions of this section have effect with respect to accounting periods beginning on or after 17th March 1987.

• (2) Section 16 of the Oil Taxation Act 1975 (restriction on setting advance corporation tax against income from oil extraction activities etc.) shall be amended as follows—

• (a) in subsection (1) the words “on its income” shall be omitted; and

• (b) in subsection (3) for the words “the company’s income”, in each place where they occur, there shall be substituted “the company’s profits”.

• (3) In section 79 of the Finance Act 1984 (gains on certain disposals related to oil fields) subsection (5) shall be amended as follows—

• (a) the words from “(reduced” to “Finance Act 1972)” shall be omitted; and

• (b) for the words from “section 15” to “income)” there shall be substituted “sections 15 and 16 of the Oil Taxation Act 1975”.

• (4) Section 44 of the Finance Act 1987 (limited right to carry back surrendered advance corporation tax) shall be amended as follows—

• (a) in subsection (1), in paragraph (e) for the words from “income”, in the first place where it occurs, to the end of the paragraph there shall be substituted “profits which consist of or include ring fence profits”;

• (b) in subsection (7) for the word “income” there shall be substituted “profits”; and

• (c) at the end there shall be added the following subsection—

(9) In this section “ring fence profits” has the meaning given by section 79(5) of the Finance Act 1984.

• (5) In section 45 of the Finance Act 1987 (surrender of advance corporation tax where oil extraction company etc. owned by a consortium) in subsection (4)—

• (a) for the word “income”, in the first two places where it occurs, there shall be substituted “profits”; and

• (b) for the words from “that income” onwards there shall be substituted “those profits as consists of ring fence profits, as defined in section 79(5) of the Finance Act 1984”.

Double taxation relief.

77

• (1) Section 100 of the Finance Act 1972 (double taxation relief) shall be amended in accordance with this section.

• (2) With respect to accounting periods of a company beginning on or after 17th March 1987—

• (a) in subsection (6) for the word “income”, in the first place where it occurs, there shall be substituted “profits (within the meaning of that section)”;

• (b) in paragraphs (a) and (b) of subsection (6) for the word “income”, in each place where it occurs, there shall be substituted “income or gain”;

• (c) in subsection (6) in the final words, for the words “income of the company” there shall be substituted “profits of the company” and for the words “relevant income” there shall be substituted “relevant income or gain”; and

• (d) in subsection (6A) for the word “income”, in each place where it occurs, there shall be substituted “income or gain”.

• (3) With respect to an accounting period of a company which begins before and ends on or after 17th March 1987, subsection (6) shall have effect as follows—

• (a) any reference to the company’s income for the accounting period shall be construed as a reference to its income as determined for the purposes of section 85 of the Finance Act 1972, in accordance with paragraph 3 of Schedule 5 to this Act; and

• (b) if a relevant gain accrues to the company on or after 17th March 1987, the subsection shall apply in relation to that relevant gain as it applies in relation to relevant income;

and in paragraph (b) above “relevant income” and “relevant gain” have the meaning assigned by subsection (3) of section 100.

• (4) Where the accounting period referred to in subsection (3) above began before 3rd June 1986, any reference in that subsection to subsection (6) of section 100 is a reference to that subsection as it had effect before the amendment made by section 49(2) of the Finance Act 1986.

• (5) Where the accounting period referred to in subsection (3) above began on or after 3rd June 1986 then (without prejudice to the modifications of subsection (6) of section 100 set out in subsection (3) above), subsection (6A) of section 100 ( as set out in section 49(3) of the Finance Act 1986)—

• (a) shall apply in relation to the amount of a relevant gain (as defined in subsection (3) of section 100) accruing on or after 17th March as it applies in relation to an amount of income; and

• (b) shall have effect as if the reference in paragraph (a) to income for the relevant accounting period were a reference to that income as determined for the purposes of section 85 of the Finance Act 1972, in accordance with paragraph 3 of Schedule 5 to this Act.

Miscellaneous

Collective investment schemes.

78

Building societies: groups of companies.

79

Roll-over relief not available for gains on oil licences.

80

Commodity and financial futures and options.

81

Chapter V — Taxes Management Provisions

Company returns

Return of profits.

82

Failure to make return for corporation tax.

83

Assessment of amounts due by way of penalty.

84

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) At the end of section 70 of the Management Act (evidential certificates) there shall be inserted the following subsection—

(5) Where an amount has been assessed by way of penalty under section 94 of this Act and either no appeal has been brought against that assessment or the amount assessed has been confirmed or varied on appeal,— (a) a certificate of an inspector or other officer of the Board that an amount is due by way of penalty under that section, and (b) a certificate of a collector that payment of that amount has not been made to him or, to the best of his knowledge and belief, to any other collector, or to a person acting on his behalf or on behalf of another collector, shall be sufficient evidence that the amount mentioned in the certificates is unpaid and is due to the Crown; and any document purporting to be such a certificate as is mentioned in this subsection shall be deemed to be such a certificate unless the contrary is proved.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) This section has effect with respect to penalties incurred after the appointed day.

Interest etc.

Interest on overdue corporation tax etc.

85

With respect to accounting periods ending after the appointed day, after section 87 of the Management Act there shall be inserted the following section—

(87A) (1) Corporation tax shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date when the tax becomes due and payable (in accordance with section 10 of the principal Act) until payment. (2) Subsection (1) above applies even if the date when the tax becomes due and payable (as mentioned in that subsection) is a non-business day within the meaning of section 92 of the Bills of Exchange Act 1882. (3) In relation to corporation tax assessed by virtue of section 346(2) or 347(1) of the principal Act, section 267(3C) or 278(5) of the Income and Corporation Taxes Act 1970, section 96(8) of the Finance Act 1990 or section 87(4) of the Capital Gains Tax Act 1979 (which enable unpaid corporation tax assessed on a company to be assessed on other persons in certain circumstances), the reference in subsection (1) above to the date when the tax becomes due and payable is a reference to the date when it became due and payable by the company. (4) Subject to subsection (7) below in any case where— (a) there is in any accounting period of a company (in this subsection referred to as “the later period”) an amount of surplus advance corporation tax, as defined in subsection (3) of section 239 of the principal Act, and (b) pursuant to a claim under the said subsection (3), the whole or any part of that amount is treated for the purposes of the said section 239 as discharging liability for an amount of corporation tax for an earlier accounting period (in this subsection referred to as “the earlier period”), and (c) disregarding the effect of the said subsection (3), an amount of corporation tax for the earlier period would carry interest in accordance with this section, then, in determining the amount of interest payable under this section on corporation tax unpaid for the earlier period, no account shall be taken of any reduction in the amount of that tax which results from the said subsection (3) except so far as concerns interest for any time after the date on which any corporation tax for the later period became due and payable (as mentioned in subsection (1) above). (5) A sum assessed on a company by such an assessment as is referred to in section 252(5) of the principal Act (recovery of payment of tax credit or interest on such a payment) shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date when the payment of tax credit or interest was made until the sum assessed is paid.

• (6) In any case where—

• (a) on a claim under section 393A(1) of the principal Act, the whole or any part of a loss incurred in an accounting period (“the later period”) has been set off for the purposes of corporation tax against profits of a preceding accounting period (“the earlier period”);

• (b) the earlier period does not fall wholly within the period of twelve months immediately preceding the later period; and

• (c) if the claim had not been made, there would be an amount or, as the case may be, an additional amount of corporation tax for the earlier period which would carry interest in accordance with this section,

then, for the purposes of the determination at any time of whether any interest is payable under this section or of the amount of interest so payable, the amount mentioned in paragraph (c) above shall be taken to be an amount of unpaid corporation tax for the earlier period except so far as concerns interest for any time after the date on which any corporation tax for the later period became (or, as the case may be, would have become) due and payable as mentioned in subsection (1) above.

• (7) Where, in a case falling within subsection (6)(a) and (b) above—

• (a) there is in the earlier period, as a result of the claim under section 393A(1) of the principal Act, an amount of surplus advance corporation tax, as defined in subsection (3) of section 239 of that Act; and

• (b) pursuant to a claim under the said subsection (3), the whole or any part of that amount is to be treated for the purposes of the said section 239 as discharging liability for an amount of corporation tax for an accounting period before the earlier period,

the claim under the said subsection (3) shall be disregarded for the purposes of subsection (6) above but subsection (4) above shall have effect in relation to that claim as if the reference in the words after paragraph (c) to the later period within the meaning of subsection (4) above were a reference to the period which, in relation to the claim under the said section 393A(1), would be the later period for the purposes of subsection (6) above.

Supplementary provisions as to interest on overdue tax.

86

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) In section 86 of the Management Act (interest on overdue tax), subsection (2)(d) and paragraph 5 of the Table (which relate to assessed corporation tax) shall be omitted.

• (3) References to section 86 of the Management Act in—

• (a) sections 70(2) and 92 of that Act (evidence, and remission of interest in certain cases), and

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

shall include a reference to section 87A of the Management Act.

• (4) In section 88 of the Management Act (interest on tax recovered to make good loss due to taxpayer’s fault)—

• (a) in subsection (2) (exclusion of certain non-assessed tax) after the words “in relation to” there shall be inserted “ corporation tax or ”; and

• (b) in subsection (5), paragraph (e) (which relates to corporation tax) shall be omitted.

• (5) In section 91 of the Management Act (effect on interest of reliefs) after subsection (1) there shall be inserted the following subsections—

(1A) Where interest is payable under section 87A of this Act in respect of an amount of corporation tax for an accounting period, and relief from tax is given by a discharge of any of that corporation tax— (a) such adjustment shall be made of the amount of interest payable under that section in respect of corporation tax for that accounting period, and (b) such repayment shall be made of any amounts of interest previously paid under that section in respect of that corporation tax, as are necessary to secure that the total sum (if any) paid or payable under that section in respect of corporation tax for that accounting period is the same as it would have been if the tax discharged had never been charged. (1B) Subsection (1A) above has effect subject to section 87A(4) of this Act.

• (6) At the beginning of subsection (2) of that section there shall be inserted the words “ Subject to subsection (2A) below ” and at the end of that subsection there shall be added the following subsection—

(2A) In any case where— (a) relief from corporation tax is given to any person by repayment, and (b) that tax was paid for an accounting period ending after the day which is the appointed day for the purposes of section 10 of the principal Act, that person shall be entitled to require that the amount repaid shall be treated for the purposes of this section, so far as it will go, as if it were a discharge of the corporation tax charged on him for that period.

• (7) This section has effect with respect to accounting periods ending after the appointed day.

Interest on tax overpaid.

87

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

Recovery of overpayment of tax etc.

88

Prescribed rate of interest.

89

Miscellaneous

Corporation tax to be payable without assessment.

90

Close companies: loans to participators.

91

• (1) In section 109 of the Management Act (close companies: loans to participators) subsection (2) shall be omitted.

• (2) In subsection (3) of that section for “88” there shall be substituted “ 87A ” and for the words from “charged” onwards there shall be substituted “ under the said section 419 became due and payable shall be that determined in accordance with subsection (3) of that section ”.

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

(3A) If there is such a repayment of the whole or any part of a loan or advance as is referred to in subsection (4) of section 419 of the principal Act, interest under section 87A of this Act on so much of the tax under the said section 419 as is referable to the amount repaid shall not be payable in respect of any period after the date on which the repayment was made.

• (4) This section has effect with respect to loans or advances made (or treated as made) in any accounting period ending after the appointed day.

Amendments relating to PAYE.

92

Sub-contractors in the construction industry.

93

• (1) Section 70 of the Finance (No. 2) Act 1975 (certificates securing exemption from the deduction scheme applicable to sub-contractors in the construction industry) shall be amended as follows.

• (2) After subsection (4) there shall be inserted the following subsection—

(4A) Where it appears to the Board that there has been a change in the control of a company holding or applying for a certificate, the Board may make any such direction as is referred to in subsection (4) above.

• (3) In subsection (5) (cancellation of certificates) at the end of paragraph (c) there shall be inserted

or (d) in the case of a certificate issued to a company, there has been a change in the control of the company and information with respect to that change has not been furnished in accordance with regulations under subsection (7) below

.

• (4) In subsection (6) (appeals against refusal of certificate)—

• (a) after the words “certificate under this section” there shall be inserted “or the cancellation of such a certificate”; and

• (b) after the word “refusal”, in the second place where it occurs, there shall be inserted “or as the case may be, cancellation”.

• (5) In subsection (7) after paragraph (c) there shall be inserted the following paragraph—

(cc) requiring the furnishing of information with respect to changes in the control of a company holding or applying for such a certificate

;

and after paragraph (f) there shall be inserted the following paragraph—

(ff) with respect to the production, copying and removal of, and the making of extracts from, any records kept by virtue of any such requirement as is referred to in paragraph (f) above and with respect to rights of access to or copies of any such records which are removed; and

.

• (6) At the end of the section there shall be added the following subsection—

(13) In this section “control” has the same meaning as in section 534 of the Taxes Act.

Failure to do things within a limited time.

94

In section 118(2) of the Management Act (cases where persons are deemed not to have failed to do things which are required to be done within a limited time), after the word “deemed”, in the second place where it occurs, there shall be inserted “ not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed ”.

Interpretation of Chapter V and consequential and supplementary provisions.

95

• (1) In this Chapter “the Management Act” means the Taxes Management Act 1970.

• (2) Subject to subsection (3) below, any reference in this Chapter to the appointed day is a reference to such day as the Treasury may by order made by statutory instrument appoint, and different days may be so appointed for different provisions of this Chapter.

• (3) No day may be appointed by virtue of subsection (2) above which falls earlier than 31st March 1992.

• (4) The provisions of Schedule 6 to this Act shall have effect, being provisions consequential on and supplementary to the provisions of this Chapter.

Part II — Inheritance Tax etc.

Interests in possession.

96

• (1) With respect to transfers of value made, and other events occurring, on or after 17th March 1987, the Inheritance Tax Act 1984 shall be amended in accordance with this section.

• (2) In section 3A (potentially exempt transfers)—

• (a) in subsection (2)(a) the words “otherwise than as settled property” shall be omitted;

• (b) in subsection (2)(b) the words from “otherwise” onwards shall be omitted; and

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) At the end of section 3A there shall be added the following subsection—

(7) In the application of this section to an event on the happening of which tax is chargeable under section 52 below, the reference in subsection (1)(a) above to the individual by whom the transfer of value is made is a reference to the person who, by virtue of section 3(4) above, is treated as the transferor.

• (4) In section 49 (treatment of interests in possession) subsection (3) (which was added by paragraph 14 of Schedule 19 to the Finance Act 1986) shall be omitted.

• (5) In section 55 (reversionary interest acquired by beneficiary) in subsection (2) the words “and such a disposition is not a potentially exempt transfer” (being words added by paragraph 15 of the said Schedule 19) shall be omitted.

• (6) Schedule 7 to this Act shall have effect for the purpose of making further amendments of the Inheritance Tax Act 1984 relating to interests in possession in settled property.

Acceptance in lieu: capital transfer tax and estate duty.

97

• (1) If, under paragraph 17 of Schedule 4 to the Finance Act 1975, the Commissioners of Inland Revenue agree to accept property in satisfaction of an amount of capital transfer tax on terms that the value to be attributed to the property for the purposes of that acceptance is determined as at a date earlier than that on which the property is actually accepted, the terms may provide that the amount of capital transfer tax which is satisfied by the acceptance of that property shall not carry interest under paragraph 19 of that Schedule from that date.

• (2) If, under any of the enactments set out in paragraphs (a) to (c) of subsection (3) of section 8 of the National Heritage Act 1980, the Commissioners of Inland Revenue agree to accept property in satisfaction of an amount of estate duty on terms that the value to be attributed to the property for the purposes of that acceptance is determined as at a date earlier than that on which the property is actually accepted, the terms may provide that the amount of estate duty which is satisfied by the acceptance of that property shall not carry interest under section 18 of the Finance Act 1896 from that date.

• (3) Subsections (1) and (2) above apply in any case where the acceptance of the property in question occurs on or after 17th March 1987 and paragraph 19 of Schedule 4 to the Finance Act 1975 or, as the case may be, section 18 of the Finance Act 1896 shall have effect subject to any such terms as are referred to in subsection (1) or subsection (2) above.

• (4) In this section “estate duty” and “property” have the meaning assigned by section 272 of the Inheritance Tax Act 1984.

Personal pension schemes.

98

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

Part III — Miscellaneous and Supplementary

Stamp duty: options, etc.

99

• (1) In section 50 of the Finance Act 1987 (stamp duty exemption for options to acquire, and other interests in, exempt securities), in subsection (1), after the word “acquire” there shall be inserted the words “or to dispose of”.

• (2) In subsection (3) of that section, after the words “the Finance Act (Northern Ireland) 1967 ” (in both places) there shall be inserted the words “or section 79(2) of the Finance Act 1986”.

Stamp duty Reserve tax.

100

• (1) The Finance Act 1986 shall have effect in relation to agreements to transfer securities made on or after 8th May 1987 with the insertion of the following section after section 89 —

(89A) (1) Section 87 above shall not apply as regartds an agreement to transfer securities other than units under a unit trust scheme to B or B's nominee if — (a) the agreement is part of an arrangement, entered into by B in the ordinary course of B's business as an issuing house, under which B (as principal) is to offer the securities for sale to the public, (b) the agreement is conditional upon the admission of the securities to the Offical List of The Stock Exchange, (c) the consideration under the agreement for each security is the same as the price at which B is to offer the security for sale, and (d) B sells the securities in accordance with the arrangement referred to in paragraph (a) above. (2) Section 87 above shall not apply as regards an agreement if the securities to which the agreement relates are newly subscribed securities other than units under a unit trust scheme and — (a) the agreement is made in pursuance of an offer to the public made by A (as principal) under an arrangement entered into in the ordinary course of A's business as an issuing house, (b) a right of allotment in respect of, or to subscribe for, the securities has been acquired by A under an agreement which is part of the arrangement, (c) both those agreements are conditional upon the admission of the securities to the Offical List of The Stock Exchange, and (d) the consideration for each security is the same under both agreements; and for the purposes of this subsection, “newly subscribed securities” are securities which, in pursuance of the arrangement referred to in paragraph (a) above, are issued wholly for new consideration. (3) Section 87 above shall not apply as regards an agreement if the securities to which the agreement relates are registered securities other than units under a unit trusty scheme and — (a) the agreement is made in pursuance of an offer to the public made by A, (b) the agreement is conditional upon the admission of the securities to the Offical List of The Stock Exchange, and (c) under the agreement A issues to B or his nominee a renounceable letter of acceptance, or similar instrument, in respect of the securities. (4) The Treasury may by regulations amend paragraph (b) of subsection (1) above, paragraph (c) of subsection (2) above, and paragraph (b) of subsection (3) above (as they have effect for the time being); and the power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

• (2) Section 91 of the Finance Act 1986 (liability to tax) shall have effect, and shall be deemed always to have had effect, with the omission of subsection (2).

Oil taxation.

101

• (1) Schedule 10 to the Finance Act 1987 (nomination scheme for disposals and appropriations of oil) shall have effect subject to the amendments in Schedule 8 to this Act.

• (2) In section 62 of the Finance Act 1987 (market value of oil to be determined on a monthly basis) subsection (6) (meaning of relevant sale of oil in relation to the additional return required by subsection (4) of that section) shall have effect subject to the following modifications—

• (a) after the words “sale of oil”, in the second place where they occur, there shall be inserted the words “ at arm’s length ”;. . .

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

• (3) Section 63 of the Finance Act 1987 (blends of oil from two or more fields) shall have effect with the omission from subsection (1) of the words from “and in” onwards and with the addition, at the end of that subsection, of the following subsection—

(1A) In this section— (a) “oil field” includes an area which is a foreign field for the purposes of section 12 of the Oil Taxation Act 1983; (b) “oil” includes any substance which would be oil if the enactments mentioned in section 1(1) of the principal Act extended to such an area as is referred to in paragraph (a) above; (c) “blended oil” means oil which has been mixed as mentioned in subsection (1) above; and (d) “the originating fields”, in relation to any blended oil, means the oil fields from which the blended oil is derived.

• (4) In paragraph 5 of Schedule 2 to the Oil Taxation Act 1975 (returns by the responsible person for an oil field) after sub-paragraph (2A) there shall be inserted the following sub-paragraph—

(2B) If in any chargeable period oil won from the oil field is mixed as mentioned in section 63 of the Finance Act 1987 so as to give rise to blended oil, within the meaning of that section, then, as respects that chargeable period, for paragraph (a) of sub-paragraph (2) above there shall be substituted the following paragraph— (’) state the total of the shares of the participators in the oil field of the oil won from the field during the period less so much of the oil won from the field as is not saved’.

• (5) Subsections (2) to (4) above have effect with respect to chargeable periods ending after 1st January 1987 and ..., Schedule 8 to this Act has effect with respect to calendar months in chargeable periods beginning with March 1987.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Government fees and charges.

102

• (1) This section applies where a Minister of the Crown of any other person has power under any enactment (whenever passed) to require the payment of, or to determine by subordinate legislation the amount of, any fee or charge (however described) which is payable to the Minister or to any other person who is required to pay the fee or charge into the Consolidated Fund (whether the obligation is so expressed or is expressed as a requirement to make the payment into the Exchequer).

• (2) In the following provisions of this section, a power falling within subsection (1) above is referred to as a “power to fix a fee” and, in relation to such a power,—

• (a) “fee” includes charge;

• (b) “the appropriate authority” means, if the power is exercisable by a Minister of the Crown or any Commissioners, that Minister or those Commissioners and, in any other case, such Minister of the Crown as the Treasury may determine ; and

• (c) “the recipient” means the Minister or other person to whom the fee is payable.

• (3) In relation to any power to fix a fee, the appropriate authority or any Minister of the Crown with the consent of the appropriate authority may, by order made by statutory instrument, specify functions, whether of the recipient or any other person and whether arising under any enactment, by virtue of the EU obligation or otherwise, the costs of which, in addition to any other matters already required to be taken into account, are to be taken into account in determing the amount of the fee.

• (4) In relation to any functions of the costs of which fall to be taken into account on the exercise of any power to fix a fee (whether by virtue of subsection (3) above or otherwise), the appropriate authority or any Minister of the Crown with the consent of the appropriate authority may, by order made by statutory instrument, specify matters which, in addition to any matters already required to be taken into account, are to be taken into account in determining the those costs, and, without prejudice to the generality of the power conferred by this subsection, those matters may include deficits incurred before as well as after the exercise of that power, a requirement to secure a return on an amount of capital and depreciation of assets.

• (5) No order shall be made under subsection (3) or subsection (4) above unless a draft of the order has been laid before, and approved by a resolution of, the House of Commons.

• (6) An order under subsection (3) or subsection (4) above has effect in relation to any exercise of the power to fix the fee concerned after the making of the order ; but no earlier exercise of that power shall be regarded as having been invalid if, had the order been made before that exercsie of power, the exercise would have been validated by the order.

• (7) In this section—

• (a) “Minister of the Crown” has the same meaning as in the Ministers of the Crown Act 1975;

• (b) “Commissioners” means the Commissioners of Customs and Excise or the Commissioners of Inland Revenue;

• (c) “enactment” does not include Northern Ireland legislation, as defined in section 24(5) of the Interpretation Act 1978; and

• (d) subject to paragraph (c) above, “subordinate legislation” has the same meaning as in the Interpretation Act 1978.

• (8) An Order in Council under paragraph 1(1)(b) of Schedule 1 to the Northern Ireland Act 1974 (legislation for Northern Ireland in the interim period) which states that it only made for purposes corresponding to those of this section—

• (a) shall not be subject to sub-paragraphs (4) and (5) of paragraph 1 of that Schedule (affirmative resolution of both House of Parliament); but

• (b) shall be subject to annulment in pursuance of a resolution of either House.

Consumption in port of goods transhipped for use as stores, etc.

103

• (1) Subject to subsection (2) below and to any directions given by the Commissioners under section 61 of the Customs and Excise Management Act 1979, goods transhipped for use as stores on a ship which is not less than 40 tons register and which is to make a voyage to a country outside the United Kingdom may be used while the ship is in port without payment of duty.

• (2) Subsection (1) above does not apply to—

• (a) dutiable alcoholic liquor other than beer and cider ; or

• (b) tobacco products;

and the reference in subsection (1) above to a country outside the United Kingdom does not include a reference to the Isle of Man.

• (3) In section 1(1) of the Customs and Excise Management Act 1979, at the end of the definition of “transit of transhipment” there shall be added “ or transhipment of those goods for use as stores ”.

• (4) In subsection (1) of section 61 of that Act, after paragraph (a) there shall be added—

(aa) as to the descriptions of vessel on which goods carried as stores may be used in port without payment of duty in accordance with section 103(1) of the Finance (No. 2) Act 1987; (ab) as to the quantity of any goods which may be carried as stores for use in port as mentioned in paragraph (aa) above and as to the time within which such goods or any specified quantities of them may be so used ; and

;

and in paragraph (b) of that subsection after the words “paragraph (a)” there shall b inserted “ or paragraph (aa) ”.

• (5) In subsection (5) of the said section 61 after the words “United Kingdom”, in the first place where they occur, there shall be inserted “ or for use in port without payment of duty ”.

• (6) Subsections (1) and (2) above shall be construed as one with the Customs and Excise Management Act 1979.

• (7) Notwitstanding the generality of section 24 of the Value Added Tax Act 1983 (application of customs and excise enactments in relation to value added tax), subsections (1) and (2) above are excluded from the enactments to which that section applies.

Short title, interpretation, construction and repeals.

104

• (1) This Act may be cited as the Finance (No. 2) Act 1987.

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

• (3) Part I of this Act, so far as it relates to income tax, shall be construed as one with the Income Tax Acts, so far as it relates to corporation tax, shall be construed as one with the Corporation Tax Acts and, so far as it relates to capital gains tax, shall be construed as one with the Capital Gains Tax Act 1979.

• (4) The enactments specified in Schedule 9 to this Act (which include enactments which are spent or otherwise unnecessary) are hereby repealed to the extent specified in the third column of that Schedule, but subject to any provision at the end of any Part of that Schedule.

SCHEDULES 1—5

Form.

1

The terms of the scheme must be set out in writing.

Employer and employment unit.

2

The scheme must identify the scheme employer.

3

If the scheme employer does not pay the emoluments of all the employees to whom the scheme relates, the scheme must identify each of the persons who pays the emoluments of any of those employees.

4

• (1) The scheme must identify the undertaking to which the scheme relates, and that undertaking must be one which is carried on with a view to profit.

• (2) The references in sub-paragraph (1) above to an undertaking include references to part of an undertaking; and the provisions of a scheme identifying part of an undertaking must do so in such a way as to distinguish it, otherwise than by name only, from other parts of the undertaking.

Employees.

5

The scheme must contain provisions by reference to which the employees to whom the scheme relates may be identified.

6

The scheme must contain provisions ensuring that no payments are made under it by reference to a profit period if the employees to whom the scheme relates constitute less than 80 per cent. of all the employees in the employment unit at the beginning of that profit period; but for this purpose any person who is at that time within paragraph 7 or 8 below shall not be counted.

7

• (1) The scheme must contain provisions ensuring that no payments are made under it to any person who is employed in the employment unit by a company and who has, or is an associate of a person who has, a material interest in the company.

• (2) For the purposes of this paragraph a person shall be treated as having a material interest in a company—

• (a) if he, either on his own or with any one or more of his associates, or if any associate of his with or without such other associates, is the beneficial owner of, or able (directly or through the medium of other companies or by any other indirect means) to control, more than 25 per cent. of the ordinary share capital of the company, or

• (b) if, in the case of a close company, on an amount equal to the whole distributable income of the company falling to be apportioned under Chapter III of Part XI of the Taxes Act for the purpose of computing total income, more than 25 per cent. of that amount could be apportioned to him together with his associates (if any), or to any associate of his, or to any such associates taken together.

• (3) In this paragraph “associate” has the same meaning as in section 303(3) of the Taxes Act and “control” has the meaning given by section 534 of that Act; and the definition of “control” in section 534 applies (with the necessary modifications) in relation to a company which is an unincorporated association as it applies in relation to one that is not.

8

• (1) The persons within this paragraph are any of the following employees who are excluded by the scheme from receiving any payment of profit-related pay—

• (a) those who are not required, under the terms of their employment, to work in the employment unit for twenty hours or more a week;

• (b) those who have not been employed by a relevant employer for a minimum period (of not more than three years) specified in the scheme;

and for this purpose “relevant employer” means the scheme employer or any person who pays the emoluments of any of the employees to whom the scheme relates.

Profit periods.

9

The scheme must identify the accounting period or periods by reference to which any profit-related pay is to be calculated.

10

• (1) Subject to sub-paragraphs (2) and (3) below, any such accounting period must be a period of twelve months.

• (2) If the scheme is a replacement scheme, the first of two profit periods may be a period of less than twelve months, but the scheme may not provide for more than two profit periods.

• (3) The scheme may make provision for a profit period to be abbreviated where registration of the scheme is cancelled with effect from a day after the beginning of the period; and a scheme making such provision may exclude the operation of all or any of the provisions of paragraph 13(4) and (5) or (as the case may be) paragraph 14(3)(b), (4) and (5) below in relation to the determination of the distributable pool for an abbreviated period.

• (4) For the purposes of this paragraph, a scheme is a replacement scheme if—

• (a) it succeeds another scheme (or two or more other schemes) registration of which was cancelled under section 10(1)(a) of this Act on the ground of a change in the employment unit or in the circumstances relating to the scheme, and

• (b) that change occurred not more than three months before the beginning of the first (or only) profit period of the new scheme, and the Board are satisfied that it was not brought about with a view to the registration of the new scheme or in circumstances satisfying the conditions in section 9(1)(a), (b) and (c) of this Act, and

• (c) not less than one half of the employees to whom the new scheme relates were employees to whom the previous scheme (or any of the previous schemes) related at the time of that change.

Distributable pool.

11

The scheme must contain provisions by reference to which the aggregate sum that may be paid to employees in respect of a profit period (“the distributable pool”) may be determined.

12

Except where the scheme is a replacement scheme (within the meaning of paragraph 10 above), the provisions for the determination of the distributable pool must employ either the method specified in paragraph 13 below (“method A”) or the method specified in paragraph 14 below (“method B”).

13

• (1) Method A is that the distributable pool is equal to a fixed percentage of the profits of the employment unit in the profit period.

• (2) That percentage must be such that, on the assumption as to profits mentioned in sub-paragraph (3) below, it will produce a distributable pool equal to not less than 5 per cent. of the standard pay of the employment unit.

• (3) The assumption referred to in sub-paragraph (2) above is that the profits in the profit period are the same as those in a base year specified in the scheme; and that base year must be a period of twelve months ending at a time within the period of two years immediately preceding the profit period, or the first of the profit periods, to which the scheme relates.

• (4) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of—

• (a) if the profit period is the first or only period to which the scheme relates, the profits for the base year referred to in sub-paragraph (3) above;

• (b) in any other case, the profits for the previous profit period.

• (5) Notwithstanding sub-paragraph (1) above, a scheme employing method A may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.

• (6) The references in this paragraph to the standard pay of the employment unit are references to the amount which the scheme employer, at the time when he applies for registration of the scheme, reasonably estimates will be the annual equivalent of the pay, at the beginning of the profit period or first profit period, of the employees to whom the scheme will then relate; and for this purpose an estimate shall (in the absence of evidence to the contrary) be taken to be a reasonable one if it is based on the most recent information available to the employer as to the monthly or annual pay of the relevant employees.

14

• (1) Method B is that the distributable pool is—

• (a) if the profit period is the first or only profit period to which the scheme relates, a percentage of a notional pool of an amount specified in the scheme;

• (b) in any other case, a percentage of the distributable pool for the previous profit period.

• (2) The amount of the notional pool referred to in sub-paragraph (1) above must not be less than 5 per cent. of the standard pay of the employment unit.

• (3) The percentage referred to in sub-paragraph (1) above must be either—

• (a) that arrived at by expressing the profits in the profit period as a percentage of the profits in the preceding period of twelve months, or

• (b) the percentage mentioned in paragraph (a) above reduced (if it is more than 100) or increased (if it is less than 100) by a specified fraction of the difference between it and 100;

and the reference in paragraph (b) above to a specified fraction is a reference to a fraction of not more than one half specified in the scheme.

• (4) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision for disregarding profits in the profit period so far as they exceed 160 per cent. (or such greater percentage as may be specified in the scheme) of the profits in the preceding period of twelve months.

• (5) Notwithstanding sub-paragraph (1) above, a scheme employing method B may include provision to the effect that there shall be no distributable pool if the profits in the profit period are less than an amount specified in, or ascertainable by reference to, the scheme; but that amount must be less than the amount which would produce a distributable pool of 5 per cent. of the standard pay of the employment unit.

• (6) Where by virtue of a provision of the kind described in sub-paragraph (5) above there is no distributable pool for a profit period, any comparison required in accordance with sub-paragraph (1)(b) to be made with the distributable pool for that period shall be made with what would have been the pool but for sub-paragraph (5).

• (7) In this paragraph “standard pay of the employment unit” has the same meaning as it has in paragraph 13 above.

15

If the scheme is a replacement scheme (within the meaning of paragraph 10 above), it must provide for the distributable pool for a profit period to be equal to a specified percentage of the profits for the period.

Payments from distributable pool, etc.

16

The scheme must provide for the whole of the distributable pool to be paid to employees in the employment unit.

17

The scheme must make provision as to when payments will be made to employees.

18

• (1) The provisions of the scheme must be such that employees participate in the scheme on similar terms.

• (2) For the purposes of sub-paragraph (1) above, the fact that the payments to employees vary according to the levels of their remuneration, the length of their service or similar factors shall not be regarded as meaning that they do not participate on similar terms.

Ascertainment of profits.

19

• (1) The scheme must provide for the preparation of a profit and loss account in respect of—

• (a) each profit period of the employment unit, and

• (b) any other period the profits for which must be ascertained for the purposes of this Chapter.

• (2) The profit and loss account must give a true and fair view of the profit or loss of the employment unit for the period to which it relates.

• (3) Subject to sub-paragraph (2) above, the requirements of Schedule 4 to the Companies Act 1985 shall apply (with any necessary modifications) to a profit and loss account prepared for the purposes of the scheme as they apply to a profit and loss account of a company for a financial year.

• (4) Notwithstanding the preceding provisions of this paragraph, a profit and loss account prepared for the purposes of the scheme must not make any deduction, in arriving at the profits or losses of the employment unit, for the remuneration of any person excluded from the scheme by virtue of paragraph 7 above.

• (5) Notwithstanding the preceding provisions of this paragraph, if the scheme so provides in relation to any of the items listed in sub-paragraph (6) below, a profit and loss account prepared for the purposes of the scheme may, in arriving at the profits or losses of the employment unit,—

• (a) leave the item out of account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be taken into account, or

• (b) take the item into account notwithstanding that Schedule 4 to the Companies Act 1985 requires it to be left out of account.

• (6) The items referred to in sub-paragraph (5) above are—

• (a) interest receivable and similar income;

• (b) interest payable and similar charges;

• (c) goodwill;

• (d) tax on profit or loss on ordinary activities (but not any penalty under the Taxes Acts);

• (e) research and development costs;

• (f) profit-related pay payable under the scheme;

• (g) extraordinary income;

• (h) extraordinary charges;

• (i) extraordinary profit or loss;

• (j) tax on extraordinary profit or loss.

• (7) References in this paragraph to Schedule 4 to the Companies Act 1985 shall be construed, in relation to Northern Ireland, as references to Schedule 4 to the Companies (Northern Ireland) Order 1986.

20

• (1) The scheme must provide that, in preparing a profit and loss account for the purposes of this Schedule, no changes may be made from the accounting policies used in preparing accounts for any earlier period relevant for those purposes, or in the methods of applying those policies, if the effect of the changes (either singly or taken together) would be that the amount of profits (or losses) differed by more than 5 per cent. from what would be that amount if no changes were made.

• (2) Sub-paragraph (1) above has effect subject to paragraph 19(2) above.

SCHEDULE 2

1

In section 226(13) of the Taxes Act, after “means” there shall be inserted “(a)”, and at the end there shall be added—

and (b) annuities or lump sums under approved personal pension arrangements within the meaning of Chapter II of Part I of the Finance (No. 2) Act 1987

.

2

• (1) In section 332(2) of the Taxes Act (exceptions to registered friendly societies' exemption from income tax and corporation tax), after paragraph (a) and before the word “and” which follows it there shall be inserted—

(aa) shall not apply to profits arising from pension business,

.

• (2) In section 337 of the Taxes Act (interpretation of Chapter III of Part XII of that Act etc.)—

• (a) in subsection (2), after the words “the Friendly Societies Act 1974” there shall be inserted the words “, any pension business”,

• (b) paragraph (b) of subsection (2) shall be omitted, and

• (c) in subsection (3), after the definition of “tax exempt life or endowment business” there shall be inserted—

• “pension business” shall be construed in accordance with section 323 above,

.

3

In section 14(1) of the Finance Act 1973 (lump sum benefits on retirement not chargeable under Schedule E), at the end there shall be added

; or (c) it is paid under approved personal pension arrangements (within the meaning of Chapter II of Part I of the Finance (No. 2) Act 1987)

.

4

• (1) In section 26 of the Finance Act 1978 (open market option for retirement annuities) in subsection (1), for the words from “may require” to the end there shall be substituted—

(a) may agree with the person with whom it is made that a sum representing the value of the individual’s accrued rights under it should be applied as the premium or other consideration either under another annuity contract made between them and approved by the Board under section 226 of the Taxes Act, or under personal pension arrangements made between them and approved by the Board under Chapter II of Part I of the Finance (No. 2) Act 1987, or (b) may require the person with whom it is made to pay such a sum to such other person as the individual may specify, to be applied by that other person as the premium or other consideration either under an annuity contract made between the individual and him and approved by the Board under section 226 of the Taxes Act, or under personal pension arrangements made between the individual and him and approved by the Board under Chapter II of Part I of the Finance (No. 2) Act 1987.

.

• (2) This paragraph shall be deemed to have come into force on 6th April 1987.

5

In section 45(2) of the Finance Act 1984, after paragraph (c) there shall be added—

(d) subsections (1) and (2) of section 39 of the Finance (No. 2) Act 1987

.

6

In paragraph 1 of Schedule 11 to the Finance Act 1984 (treatment of lettings as a trade for the purposes of certain provisions), at the end of sub-paragraph (2) there shall be added—

(k) subsection (2)(c) of section 35 of the Finance (No. 2) Act 1987 (personal pension schemes).

.

SCHEDULE 3

PART I — Amendments of Finance Act 1970 Etc.

The Finance Act 1970.

1

• (1) In subsection (2A) of section 19 of the Finance Act 1970 (mandatory approval of schemes) in paragraph (d), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”; and after that subsection there shall be inserted—

(2B) In subsection (2A) above “the permitted maximum” means £100,000 or such other sum as may for the time being be specified in an order made by the Treasury; and an order under this subsection shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.

• (2) This paragraph shall be deemed to have come into force on 17th March 1987.

2

• (1) In subsection (3) of section 19 (withdrawal of approval) after the words “such date” there shall be inserted the words “(which shall not be earlier than the date when those facts first ceased to warrant the continuance of their approval)”.

• (2) This paragraph shall be deemed to have come into force on 17th March 1987, but shall not authorise the withdrawal of an approval from a day before that day.

3

• (1) Section 20 (discretionary approval) shall be amended as follows.

• (2) At the end of subsection (1) there shall be added the words “; but this subsection has effect subject to subsection (4) below.”.

• (3) For paragraph (g) of subsection (2), there shall be substituted—

(g) which provides in certain contingencies for securing relevant benefits (but no other benefits) by means of an annuity contract approved by the Board and made with an insurance company of the employee’s choice,

.

• (4) After paragraph (g) of subsection (2) there shall be added—

or (h) to which the employer is not a contributor and which provides benefits additional to those provided by a scheme to which he is a contributor.

.

• (5) At the end of the section there shall be added—

(4) The Board shall not approve a scheme by virtue of this section if to do so would be inconsistent with regulations made for the purposes of this section. (5) Regulations made for the purposes of this section may restrict the Board’s discretion to approve a scheme by reference to the benefits provided by the scheme, the investments held for the purposes of the scheme, the manner in which the scheme is administered, or any other circumstances whatever. (6) The power to make regulations for the purposes of this section shall be exercisable by the Board by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.

.

4

• (1) In subsection (4) of section 21 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted; and after that subsection there shall be inserted—

(4A) The amount allowed to be deducted by virtue of subsection (4) above in respect of contributions paid by an employee in a year of assessment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent., or such higher percentage as the Board may in a particular case prescribe, of his remuneration for that year.

.

• (2) This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.

5

After subsection (7) of section 21 there shall be inserted—

(7A) Subsection (2) of section 354 and subsection (3) of section 354A of the Taxes Act (which treat unit holders under unit trust schemes as receiving certain payments) shall not apply to any authorised unit trust which is also an exempt approved scheme if the employer is not a contributor to the exempt approved scheme and that scheme provides benefits additional to those provided by another exempt approved scheme to which he is a contributor. (7B) A gain accruing to a unit holder on his disposal of units in an authorised unit trust to which subsection (7A) above applies shall not be a chargeable gain for the purposes of capital gains tax.

6

• (1) In subsection (2) of section 22 (tax relief for ordinary annual contributions) the words “ordinary annual” shall be omitted, and for the words “chargeable period” there shall be substituted the words “year of assessment”; and after that subsection there shall be inserted—

(2A) The amount allowed to be deducted by virtue of subsection (2) above in respect of contributions paid by a person in a year of assessment (whether under a single scheme or under two or more schemes) shall not exceed 15 per cent., or such higher percentage as the Board may in a particular case prescribe, of his remuneration for that year.

.

• (2) This paragraph shall have effect in relation to contributions paid on or after 6th April 1987.

7

• (1) Section 26 (1) shall be amended as follows.

• (2) After the definition of “pension” there shall be inserted—

• “the permitted maximum” has the meaning given by section 19(2B) above;

.

• (3) After the definition of “relevant benefits” there shall be inserted—

• “remuneration” does not include— anything in respect of which tax is chargeable under Schedule E and which arises from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares, or anything in respect of which tax is chargeable by virtue of section 187 of the Taxes Act (payments on termination of employment, etc.);

.

8

In section 26(2), after the words “the employer” there shall be inserted the words “or the employee”, and at the end there shall be added the words “; and any reference to pensions or contributions paid, or payments made, under a scheme includes a reference to pensions or contributions paid, or payments made, under such a contract entered into for the purposes of the scheme”.

9

• (1) In Schedule 5 to the Finance Act 1970, in paragraph 3(1)(i), after the words “final remuneration” there shall be inserted the words “(disregarding any excess of that remuneration over the permitted maximum)”.

• (2) This paragraph applies to any payments made on or after 17th March 1987 except payments made under schemes approved or established before that date to employees who became members before that date.

10

In paragraph 3 of that Schedule, at the end there shall be added—

(7) Where the pension has been secured by means of an annuity contract with an insurance company and the sum receivable is payable under that contract by the insurance company, the references to the administrator of the scheme in sub-paragraph (2) above and paragraph 2(2) and (4) above as applied by sub-paragraph (2) are to be read as references to the insurance company. (8) In sub-paragaph (7) above “insurance company” means— (a) a person authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on long term business and acting through a branch or agency in the United Kingdom, or (b) a society registered as a friendly society under the Friendly Societies Act 1974 or the Friendly Societies Act (Northern Ireland) 1970.

11

In paragraph 6 (which shall become paragraph 6(1)) of that Schedule, for the word “supported” there shall be substituted the word “accompanied”; and at the end there shall be added—

(2) The form in which an application for approval is to be made, or in which any information is to be given, in pursuance of this paragraph may be prescribed by the Board.

.

12

After paragraph 6 of that Schedule there shall be inserted—

(6A) (1) Relief under section 21(4) of this Act shall be given in accordance with sub-paragraphs (2) and (3) below in such cases and subject to such conditions as the Board may prescribe by regulations under paragraph 10 below in respect of schemes— (a) to which employees, but not their employers, are contributors, and (b) which provide benefits additional to benefits provided by schemes to which their employers are contributors. (2) An employee who is entitled to relief under section 21(4) in respect of a contribution may deduct from the contribution when he pays it, and may retain, an amount equal to income tax at the basic rate on the contribution. (3) The administrator of the scheme— (a) shall accept the amount paid after the deduction in discharge of the employee’s liability to the same extent as if the deduction had not been made, and (b) may recover an amount equal to the deduction from the Board. (4) Regulations under paragraph 10 below may, without prejudice to the generality of that paragraph,— (a) provide for the manner in which claims for the recovery of a sum under sub-paragraph (3)(b) above may be made; (b) provide for the giving of such information, in such form, as may be prescribed by or under the regulations; (c) provide for the inspection by persons authorised by the Board of books, documents and other records.

13

In paragraph 7 (which shall become paragraph 7(1)) of that Schedule, at the end there shall be added—

(2) Where benefits provided for an employee under an approved scheme or a statutory scheme have been secured by means of an annuity contract with an insurance company (within the meaning given by paragraph 3 above), the insurance company shall, within thirty days from the date of a notice from the inspector requiring it to do so, prepare and deliver to the inspector a return containing particulars of— (a) any payments under the contract by way of commutation of, or in lieu of, a pension, or any other lump sum payments under the contract, and (b) any payments made under the contract to the employer.

.

14

In paragraph 8(2)(a) of that Schedule, after the words “such scheme” there shall be inserted the words “to which he contributes”.

15

In paragraph 9 of that Schedule, after sub-paragraph (1) there shall be inserted—

(1A) Sub-paragraph (1) above does not apply if the employer is not a contributor to the scheme.

.

The Taxes Act.

16

In section 323(4) of the Taxes Act (insurance companies: interpretation of “pension business”), after paragraph (ab) there shall be inserted—

(ac) any annuity contract entered into for the purposes of— (i) a scheme which is approved or is being considered for approval under Chapter II of Part II of the Finance Act 1970, (ii) a statutory scheme as defined in section 26 of that Act, or (iii) a fund to which section 36 of the Finance Act 1980 applies, being a contract which is approved by the Board and made with the persons having the management of the scheme or fund (or those persons and a member of or contributor to the scheme or fund) and by means of which relevant benefits as defined in section 26 of the Finance Act 1970 (but no other benefits) are secured, (ad) any annuity contract approved by the Board which is entered into in substitution for a contract within paragraph (ac) above,

.

The Taxes Management Act 1970.

17

In both columns in the Table in section 98 of the Taxes Management Act 1970, after the reference to provisions of Schedule 5 to the Finance Act 1970 there shall be inserted—

Regulations under paragraph 10 of that Part of that Schedule

.

PART II — Schemes Approved before the Passing of this Act

Preliminary.

18

• (1) This Part of this Schedule shall be deemed to have come into force on 17th March 1987 and, subject to sub-paragraphs (2) and (3) below, applies in relation to any retirement benefits scheme approved by the Board before the passing of this Act.

• (2) The Board may by regulations provide that this Part of this Schedule, or any provision of it, shall not apply in relation to a scheme or to an employee—

• (a) in circumstances prescribed in the regulations;

• (b) in any case where in the opinion of the Board the facts are such that it would be appropriate for this Part of this Schedule, or the provision in question, not to apply;

and regulations under this sub-paragraph shall be made by statutory instrument, which shall be subject to annulment in pursuance of a resolution of the House of Commons.

• (3) This Part of this Schedule shall not apply to a retirement benefits scheme if, before the end of 1987, the administrator of the scheme gives written notice to the Board that it is not to apply.

• (4) Where a notice is given to the Board under sub-paragraph (3) above, the scheme shall, with effect from 17th March 1987 or (if later) the date with effect from which it was approved, cease to be approved.

Accelerated accrual.

19

• (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

• (2) Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20.

20

• (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme allows him to commute his pension or part of it for a lump sum or sums.

• (2) If the employee’s full pension (that is, the pension before any commutation) is equal to or less than a basic rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all a basic rate lump sum.

• (3) If the employee’s full pension is greater than a basic rate commutable pension but less than a maximum rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all the aggregate of—

• (a) a basic rate lump sum, and

• (b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

• (4) In this paragraph, as it applies in relation to an employee—

• (a) a “basic rate commutable pension” means a pension of one-sixtieth of his relevant annual remuneration for each year of service up to a maximum of 40;

• (b) a “maximum rate commutable pension” means a pension of one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20;

• (c) a “basic rate lump sum” means a lump sum of three-eightieths of his relevant annual remuneration for each year of service up to a maximum of 40;

• (d) a “maximum rate lump sum” means a lump sum of such amount as may be determined by or under regulations made by the Board for the purposes of this paragraph and paragraph 21 below;

• (e) “the relevant percentage” means the difference between a basic rate commutable pension and the employee’s full pension expressed as a percentage of the difference between a basic rate commutable pension and a maximum rate commutable pension.

• (5) Regulations under this paragraph shall be made by statutory instrument.

21

• (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme provides a lump sum or sums for him otherwise than by commutation of his pension or part of it.

• (2) If the employee’s pension is equal to or less than a basic rate non-commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all a basic rate lump sum.

• (3) If the employee’s pension is greater than a basic rate non-commutable pension but less than a maximum rate non-commutable pension the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all the aggregate of—

• (a) a basic rate lump sum, and

• (b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.

• (4) In this paragraph, as it applies in relation to an employee—

• (a) a “basic rate non-commutable pension” means a pension of one-eightieth of his relevant annual remuneration for each year of service up to a maximum of 40;

• (b) a “maximum rate non-commutable pension” means a pension of one-fortieth of his relevant annual remuneration for each year of service up to a maximum of 20;

• (c) “basic rate lump sum” and “maximum rate lump sum” have the same meanings as in paragraph 20 above; and

• (d) “the relevant percentage” means the difference between a basic rate non-commutable pension and the employee’s actual pension expressed as a percentage of the difference between a basic rate non-commutable pension and a maximum rate non-commutable pension.

Final remuneration.

22

• (1) This paragraph applies where an employee who is a member of the scheme retires on or after 17th March 1987.

• (2) The rules of the scheme shall have effect as if they provided that in determining the employee’s relevant annual remuneration for the purpose of calculating benefits, no account should be taken of anything excluded from the definition of “remuneration” in section 26(1) of the Finance Act 1970.

• (3) In the case of an employee—

• (a) whose employer is a company and who at any time in the last ten years of his service is a controlling director of the company, or

• (b) whose relevant annual remuneration for the purpose of calculating benefits, so far as the remuneration is ascertained by reference to years beginning on or after 6th April 1987, would (apart from this Schedule) exceed the permitted maximum,

the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed his highest average annual remuneration for any period of three or more years ending within the period of ten years which ends with the date on which his service ends.

• (4) In the case of an employee within paragraph (b) of sub-paragraph (3) above who retires before 6th April 1991, the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed the higher of—

• (a) the average annual remuneration referred to in that sub-paragraph, and

• (b) his remuneration (within the meaning given in section 26(1) of the Finance Act 1970) assessable to income tax under Schedule E for the year of assessment 1986–87.

• (5) For the purposes of this paragraph a person is a controlling director of a company if—

• (a) he is a director as defined in section 26 of the Finance Act 1970, and

• (b) he is within paragraph (c) of section 303(5) of the Taxes Act,

in relation to the company.

Lump sums.

23

• (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.

• (2) If the rules of the scheme allow the employee to obtain (by commutation of his pension or otherwise) a lump sum or sums calculated by reference to his relevant annual remuneration, they shall have effect as if they included a rule that in calculating a lump sum any excess of that remuneration over the permitted maximum should be disregarded.

Additional voluntary contributions.

24

• (1) This paragraph applies where—

• (a) the rules of the scheme make provision for the payment by employees of voluntary contributions, and

• (b) on or after 8th April 1987 an employee enters into arrangements to pay such contributions.

• (2) Notwithstanding anything in the rules of the scheme, they shall have effect as if they did not allow the payment to the employee of a lump sum in commutation of a pension if or to the extent that the pension is secured by the voluntary contributions.

25

• (1) This paragraph applies where an employee who is a member of the scheme (“the main scheme”) is also a member of an approved scheme (“the voluntary scheme”) which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his.

• (2) Any rules of the main scheme imposing a limit on the amount of a benefit provided for the employee shall have effect (notwithstanding anything in them to the contrary) as if they provided for the limit to be reduced by the amount of any like benefit provided for the employee by the voluntary scheme.

Supplementary.

26

• (1) In this Part of this Schedule “relevant annual remuneration” means final remuneration or, if the scheme provides for benefits to be calculated by reference to some other annual remuneration, that other annual remuneration.

• (2) Expressions used in this Part of this Schedule and in Chapter II of Part II of the Finance Act 1970 have the same meanings in this Part as they have in that Chapter.

SCHEDULE 4

PART I — Division of Accounting Periods Covering 1st April 1987.

1

• (1) This Part of this Schedule has effect in the circumstances set out in subsection (3)(a) of the principal section.

• (2) In this Part of this Schedule—

• (a) “the principal section” means section 63 of this Act;

• (b) “the straddling period” means the accounting period of the dual resident investing company which begins before and ends on or after 1st April 1987; and

• (c) “dual resident investing company” has the same meaning as in the principal section.

• (3) It shall be assumed for the purposes of subsections (1) and (2) of the principal section, the enactments relating to group relief and Part II of this Schedule,—

• (a) that an accounting period of the company ends on 31st March 1987; and

• (b) that a new accounting period begins on 1st April 1987, the new accounting period to end with the end of the straddling period.

• (4) In this Part of this Schedule “the component accounting periods” means the two accounting periods referred to in sub-paragraph (3) above.

2

Subject to paragraph 5 below, for the purposes referred to in paragraph 1(3) above, the losses and other amounts of the straddling period of a dual resident investing company, excluding any such excess of charges on income as is referred to in section 259(6) of the Taxes Act, shall be apportioned to the component accounting periods on a time basis according to their lengths.

3

If, in the straddling period of a dual resident investing company, the company has paid any amount by way of charges on income, then, for the purposes referred to in paragraph 1(3) above, the excess of that amount referred to in section 259(6) of the Taxes Act shall be apportioned to the component accounting periods—

• (a) according to the dates on which, subject to paragraph 6 below, the interest or other payments giving rise to those charges were paid (or were treated as paid for the purposes of section 248 of that Act); and

• (b) in proportion to the amounts of interest or other payments paid (or treated as paid) on those dates.

PART II — Early Payments of Interest Etc and Charges on Income

Interpretation.

4

In this Part of this Schedule—

• (a) “the principal section” means section 63 of this Act;

• (b) a “1986 accounting period” means an accounting period which begins or ends (or begins and ends) in the financial year 1986,

• (c) a “post-1986 accounting period” means an accounting period which begins on or after 1st April 1987, and

• (d) “dual resident investing company” has the same meaning as in the principal section.

Early payment of interest etc.

5

• (1) If the conditions in sub-paragraph (2) or sub-paragraph (3) below are fulfilled and if the Board so direct, this paragraph applies in relation to a 1986 accounting period of a dual resident investing company.

• (2) The conditions in this sub-paragraph are applicable only if the company is carrying on a trade in the 1986 accounting period, and those conditions are—

• (a) that in that accounting period the company has incurred a loss, computed as for the purposes of section 177(2) of the Taxes Act, in carrying on that trade; and

• (b) that in that period the company has made a payment falling within subsection (6)(a)(iii) of the principal section; and

• (c) that the payment referred to in paragraph (b) above either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.

• (3) The conditions in this sub-paragraph are applicable only if the company is an investment company in the 1986 accounting period, and those conditions are—

• (a) that for that accounting period the company has (apart from this paragraph) such an excess as is referred to in section 259(3) of the Taxes Act (excess of management expenses over profits); and

• (b) that one or more of the sums which for that accounting period may be deducted as expenses of management under section 304(1) of the Taxes Act either did not fall due in that period or would not have fallen due in that period but for the making, on or after 5th December 1986, of arrangements varying the due date for payment.