Finance Act 1994

• (c) a contract to supply to a person who is to export goods services consisting of the valuation or testing of, or other work carried out on, those goods where the condition mentioned in sub-paragraph (3) below is satisfied;

• (d) a contract to supply services to a person in order that he may comply with a legally binding obligation to make a supply of services to an overseas customer.

• (3) The condition referred to in sub-paragraph (2)(b) and (c) above is that the goods to be exported are to be exported in order that the person exporting them may comply with a legally binding obligation to make a relevant supply of goods to an overseas customer.

• (4) For the purposes of this paragraph—

• (a) “export” means export from the United Kingdom and cognate expressions shall be construed accordingly; and

• (b) any reference to a person who is to export goods shall be taken as including a reference to a person at whose direction the insured is to export them and the reference in sub-paragraph (3) above to the person exporting goods shall be construed accordingly.

• (5) Where a contract relates to—

• (a) credit of the description in sub-paragraph (1) above; and

• (b) loss resulting from the insured or any third party being required to pay the amount of any bond or guarantee against non-performance by the insured of the contract which involves him making the supply,

the contract shall be treated for the purposes of sub-paragraph (1) above as if it did not relate to loss of the description in paragraph (b) above.

Contracts relating to exchange losses

14

• (1) A contract falls within this paragraph if—

• (a) it relates only to loss resulting from a change in the rate at which the price for a supply which is or may be made by the insured may be exchanged for another currency; and

• (b) the conditions mentioned in sub-paragraph (2) below are satisfied.

• (2) The conditions referred to in sub-paragraph (1) above are that—

• (a) the insured is a person carrying on business in the United Kingdom;

• (b) the contract of insurance concerns a contract to make a relevant supply of goods, or a supply of services, or both, to an overseas customer (whether or not the contract to make the supply is one into which the insured has entered, or one for which he has tendered or intends to tender); and

• (c) the period of cover for the risk expires no later than the date by which the whole of the price for the supply is to be paid or, where the contract has not been entered into, would be required to be paid.

• (3) Where the contract relates to—

• (a) loss of the description in sub-paragraph (1)(a) above; and

• (b) loss relating from a change in the rate at which the price of goods which the insured imports into the United Kingdom for the purpose of enabling him to make the supply concerned may be exchanged for another currency,

the contract shall be treated for the purposes of sub-paragraphs (1) and (2) above as if it did not relate to loss of the description in paragraph (b) above.

Contracts relating to the provision of financial facilities

15

• (1) A contract falls within this paragraph if it relates only to the provision of a relevant financial facility and the conditions mentioned in sub-paragraph (2) below are satisfied.

• (2) The conditions referred to in sub-paragraph (1) above are that—

• (a) the person to whom the relevant financial facility is provided is an overseas customer;

• (b) it is provided in order that he may comply with a legally binding obligation to receive a relevant supply of goods, or a supply of services, or both, from a person carrying on business . . .; and

• (c) the contract of insurance insures against risks arising from or in relation to either or both—

• (i) credit,

• (ii) suretyship.

• (3) For the purposes of this paragraph a relevant financial facility is—

• (a) the making of an advance;

• (b) the issue of a letter of credit or acceptance of a bill of exchange;

• (c) the giving of a guarantee or bond; or

• (d) any other similar transaction entered into in order to provide a customer with the means to pay, or a supplier with the right to call upon a third party for, the consideration for goods or services.

PART II — INTERPRETATION

16

• (1) This Part of this Schedule applies for the purposes of Part I of this Schedule.

• (2) A relevant supply of goods is any supply of goods where the supply is to be made outside the United Kingdom or where the goods are to be exported from the United Kingdom.

• (3) An overseas customer, in relation to a supply of goods or services, is a person who—

• (a) does not have any business establishment in the United Kingdom but has such an establishment elsewhere;

• (b) has such establishments both in the United Kingdom and elsewhere, provided that the establishment at which, or for the purposes of which, the goods or services which are to be supplied to him are most directly to be used is not in the United Kingdom; or

• (c) has no such establishment in any place and does not have his usual place of residence in the United Kingdom.

16A

Paragraphs 2, 4, 5, 7, 7A, 8, 9, 10, 11 and 15 must be read with—

• (a) section 22 of the Financial Services and Markets Act 2000;

• (b) any relevant order under that section; and

• (c) Schedule 2 to that Act.

SCHEDULE 8

The Taxes Act 1988

1

In section 257A(6) of the Taxes Act 1988 (relief confined to one deduction), for “deduction” there shall be substituted “ income tax reduction ”.

2

• (1) In subsections (1) and (2) of section 257BA of that Act (elections as to transfer of relief under section 257A)—

• (a) for the words “to deduct from her total income”, in each place where they occur, there shall be substituted “ to an income tax reduction calculated by reference to ”; and

• (b) for the words “that he is entitled to deduct under section 257A”, in each place where they occur, there shall be substituted “ by reference to which the calculation of the income tax reduction to which he is entitled under section 257A is to be made ”.

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

• (a) for “to deduct from his total income” there shall be substituted “ to an income tax reduction calculated by reference to ”;

• (b) for “the amount, if any, that he is already entitled to deduct” there shall be substituted “ any income tax reduction to which he is already entitled ”; and

• (c) for “that she is entitled to deduct by virtue of that election” there shall be substituted “ by reference to which the calculation of the income tax reduction to which she is entitled by virtue of that election is to be made ”.

• (3) Any election made for the purposes of section 257BA of the Taxes Act 1988 which—

• (a) has been made before the coming into force of this paragraph, and

• (b) apart from this paragraph, would have effect in accordance with that section for the year 1994-95 or any subsequent year,

shall so have effect as if it were an election for the purposes of that section as amended by this paragraph.

3

• (1) In subsection (1) of section 257BB of that Act (transfer of relief where it is not all used), for paragraph (b) and the words after that paragraph there shall be substituted—

(b) the amount of the reduction to which he is entitled is determined in accordance with section 256(2)(b) or, by virtue of his having no income tax liability to which that reduction is applicable, is nil, his wife shall be entitled (in addition to any reduction to which she is entitled by virtue of an election under section 257BA) to an income tax reduction calculated by reference to an amount equal to the unused part of the amount by reference to which her husband’s income tax reduction fell to be calculated in pursuance of section 257A and any election under section 257BA.

• (2) In subsection (3) of that section, for paragraph (b) and the words after that paragraph there shall be substituted—

(b) the amount of the reduction to which she is entitled is determined in accordance with section 256(2)(b) or, by virtue of her having no income tax liability to which that reduction is applicable, is nil, her husband shall be entitled (in addition to any other reduction to which he is entitled by virtue of section 257A) to an income tax reduction calculated by reference to an amount equal to the unused part of the amount by reference to which his wife’s income tax reduction fell to be calculated in pursuance of that election.

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

• (4) Subsection (6) of that section (calculation of amount left after deductions of a person’s total income) shall cease to have effect.

4

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

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

6

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

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

11

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

12

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

The Taxes Management Act 1970 (c. 9)

13

In section 37A of the Taxes Management Act 1970 (effect of assessment where allowances transferred)—

• (a) after the word “person’s”, in the first place where it occurs, there shall be inserted “ liability to income tax or ”;

• (b) for the words from “any deduction made” to “spouse” there shall be substituted “ any income tax reduction or deduction from total income made in the case of that person’s spouse ”; and

• (c) for the words from “and where” onwards there shall be substituted “ and the entitlement in that case of the first-mentioned person for the year in question to any income tax reduction or deduction from total income shall be treated as correspondingly reduced. ”

SCHEDULE 9

The Taxes Act 1988

1

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

2

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

3

Subsections (4) and (5) of section 353 of the Taxes Act 1988 (restriction of relief to basic rate tax) shall cease to have effect.

4

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

5

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

6

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

7

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

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

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

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

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

9

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

10

• (1) In subsection (2) of section 370 of the Taxes Act 1988 (conditions for interest to be treated as relevant loan interest)—

• (a) after “section 353(2)” there shall be inserted “ and any other provision applying to interest falling to be treated as relevant loan interest ”; and

• (b) for “from section 74(o) and, where applicable,” there shall be substituted “ (where applicable) from ”.

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

11

In section 375(3) of the Taxes Act 1988 (liability of borrower for excess where deduction should not have been made), for the words from “entitles” to “been allowed” there shall be substituted “ shall be taken as regards the borrower as entitling him to any deduction or to retain any amount deducted and, accordingly, where any amount that has been deducted exceeds the amount which ought to have been deducted ”.

The Finance Act 1993 (c. 34)

12

Subsection (7) of section 57 of the Finance Act 1993 (transitional provision for bridging loans made before 6th April 1991) shall cease to have effect.

SCHEDULE 10

Introductory

1

In this Schedule “the 1989 Act” means the Finance Act 1989.

Reduction of relief

2

• (1) Section 54 of the 1989 Act (relief on premiums for medical insurance) shall be amended as follows.

• (2) In subsection (3) (relief by deduction from income) for the words from “it shall be deducted” to the end of the subsection there shall be substituted

the individual shall be entitled to relief under this subsection in respect of the payment; and (except where subsections (4) to (6) below apply) relief under this subsection shall be given— (a) in accordance with subsections (3A) to (3C) below, and (b) only on a claim made for the purpose.

• (3) The following subsections shall be inserted after subsection (3)—

(3A) Where an individual is entitled to relief under subsection (3) above in respect of one or more payments made in a given year of assessment, the amount of his liability for that year of assessment to income tax on his total income shall be the amount to which he would be liable apart from this section less whichever is the smaller of— (a) the amount found under subsection (3B) below, and (b) the amount which reduces his liability to nil. (3B) The amount referred to in subsection (3A)(a) above is an amount found by— (a) taking the amount of the payment referred to in subsection (3A) above or (as the case may be) the aggregate amount of the payments there referred to, and (b) finding an amount equal to tax on the amount taken under paragraph (a) above at the basic rate for the year of assessment concerned. (3C) In determining for the purposes of subsection (3A) above the amount of incomerson would be liable apart from this section, no account shall be taken of— (a) any income tax reduction under Chapter I of Part VII of the Taxes Act 1988 or under section 347B of that Act; (b) any income tax reduction under section 353(1A) of the Taxes Act 1988; (c) any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 of the Taxes Act 1988 or by way of a credit under section 790(1) of that Act; (d) any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.

• (4) This paragraph shall apply in relation to payments made on or after 6th April 1994.

3

• (1) In sections 257D(8) and 265(3) of the Taxes Act 1988 (total income after deductions) paragraph (d) (deduction on account of payments to which section 54(5) of the 1989 Act applies to be disregarded) shall be omitted.

• (2) This paragraph shall apply in relation to payments made on or after 6th April 1994.

Surviving spouse

4

• (1) In section 54 of the 1989 Act the following subsection shall be inserted after subsection (2)—

(2A) In a case where— (a) a payment is made in respect of a premium under a contract at a time when the contract meets the requirement in subsection (2) above by virtue of paragraph (c) of that subsection, and (b) a payment is made under the same contract at a time after one of the individuals has died and when the contract does not (apart from this subsection) meet the requirement in subsection (2) above by virtue only of the fact that the surviving spouse is not aged 60 or over at the time, for the purposes of subsection (2) above in its application to the contract the surviving spouse shall be deemed to be aged 60 or over at the time mentioned in paragraph (b) above.

• (2) This paragraph shall apply where the first or only payment to be made in respect of a premium under the contract after the death occurs is made on or after 6th April 1994.

Small benefits and abolition of certification

5

• (1) Section 55 of the 1989 Act (eligible contracts) shall be amended as follows.

• (2) In subsection (2) (conditions for contract’s being eligible) the following paragraphs shall be inserted after paragraph (b)—

(ba) at the relevant time the contract satisfies the conditions set out in subsection (2A) below, (bb) the contract is not one in the case of which subsection (2D) below applies,

.

• (3) Also in subsection (2)—

• (a) after paragraph (c) there shall be inserted “ and ”, and

• (b) paragraph (e) and the word “and” immediately preceding it shall be omitted.

• (4) The following subsections shall be inserted after subsection (2)—

(2A) The conditions referred to in subsection (2)(ba) above are that— (a) the contract either provides indemnity in respect of all or any of the costs of all or any of the treatments, medical services and other matters for the time being specified in regulations made by the Treasury, or in addition to providing indemnity of that description provides cash benefits falling within rules for the time being so specified, (b) the contract does not confer any right other than such a right as is mentioned in paragraph (a) above or is for the time being specified in regulations made by the Treasury, (c) the premium under the contract is reasonable, and (d) the contract satisfies such other requirements as are for the time being specified in regulations made by the Treasury. (2B) In a case where— (a) at the relevant time the contract confers a material right, or more than one such right, but (b) the total cost to the insurer of providing benefits in pursuance of the material right or (as the case may be) in pursuance of all the material rights would not exceed the prescribed sum, the contract shall not thereby be regarded as failing to satisfy at the relevant time the condition set out in subsection (2A)(b) above. (2C) For the purposes of subsection (2B) above a material right is a right which— (a) is not a right such as is mentioned in subsection (2A)(a) above or such as is for the time being specified in regulations made under subsection (2A)(b) above, and (b) is not a right to a cash benefit. (2D) This subsection applies in the case of a contract (the main contract) if— (a) at least one other contract is entered into which is a contract (a collateral contract) under which a benefit is provided in consideration of the insured’s entering into the main contract, and (b) the cost to the insurer of fulfilling his obligations under the collateral contract (or, if there is more than one collateral contract, of fulfilling his obligations under all of them) exceeds the prescribed sum.

• (5) Subsections (3) to (6) shall be omitted.

• (6) In subsection (9) (approved benefit) for “mentioned in section 56(3)(a) below” there shall be substituted the following paragraphs—

(a) mentioned in subsection (2A)(a) above, or (b) for the time being specified in regulations made under subsection (2A)(b) above.

• (7) The following subsections shall be inserted after subsection (9)—

(10) For the purposes of this section a benefit is also an approved benefit if it is not a cash benefit and— (a) it is a single benefit provided otherwise than as mentioned in subsection (9) above and the cost to the insurer of providing it does not exceed the prescribed sum, or (b) it is one of a number of benefits provided otherwise than as mentioned in subsection (9) above and the total cost to the insurer of providing the benefits does not exceed the prescribed sum. (11) In this section the reference to a premium, in relation to a contract of insurance, is to any amount payable under the contract to the insurer. (12) For the purposes of this section the prescribed sum is £30. (13) The Treasury may by order substitute for the sum for the time being specified in subsection (12) above such sum as may be specified in the order; and any such substitution shall have effect in relation to cases where the relevant time falls on or after such date as is specified in the order.

• (8) This paragraph shall apply where the time which is the relevant time for the purposes of section 55 falls on or after 1st July 1994.

6

The Board shall not certify a contract under section 56 of the 1989 Act in such a way that the certification is expressed to take effect on or after 1st July 1994.

SCHEDULE 11

1

Chapter IA of Part V of the Taxation of Chargeable Gains Act 1992 shall be amended as follows.

Disposals on which relief available

2

In section 164A—

• (a) in subsection (1)(a), for the words following “(“the re-investor”)” there is substituted “ on any disposal by him of any asset (“the asset disposed of”); and ”,

• (b) in subsection (2), “Subject to section 164C” is omitted and for “initial holding” (in three places) there is substituted “ asset disposed of ”,

• (c) subsections (3) to (7) are omitted,

• (d) in subsection (9), for “initial holding” there is substituted “ asset disposed of ”, and

• (e) for subsection (12) there is substituted—

(12) Without prejudice to section 52(4), where consideration is given for the acquisition of any assets some of which are shares to the acquisition of which a claim under this section relates and some of which are not, the consideration shall be apportioned in such manner as is just and reasonable

.

3

For section 164B there is substituted—

(164B) (1) Subject to the following provisions of this section, section 164A shall apply, as it applies in such a case as is mentioned in subsection (1) of that section, where there is— (a) a disposal by the trustees of a settlement of any asset comprised in any settled property to which this section applies, and (b) such an acquisition by those trustees of eligible shares in a qualifying company as would for the purposes of that section be an acquisition of a qualifying investment at a time in the qualifying period. (2) This section applies— (a) to any settled property in which the interests of the beneficiaries are not interests in possession, if all the beneficiaries are individuals, and (b) to any settled property in which the interests of the beneficiaries are interests in possession, if any of the beneficiaries are individuals, and references in this section to individuals include any charity. (3) If, at the time of the disposal of the asset mentioned in subsection (1)(a) above, the settled property comprising that asset is property to which this section applies by virtue of subsection (2)(b) above but not all the beneficiaries are individuals, then— (a) only the relevant proportion of the gain which would accrue to the trustees on the disposal shall be taken into account for the purposes of section 164A(2)(a)(i), and (b) no reduction under section 164A(2) shall be made in respect of the whole or any part of the balance of the gain. (4) Section 164A shall not apply by virtue of this section in a case where, at the time of the disposal of the asset mentioned in subsection (1)(a) above, the settled property which comprises that asset is property to which this section applies by virtue of subsection (2)(a) above unless, immediately after the acquisition of shares mentioned in subsection (1)(b) above, the settled property comprising the shares is also property to which this section applies by virtue of subsection (2)(a) above. (5) Section 164A shall not apply by virtue of this section in a case where, at the time of the disposal of the asset mentioned in subsection (1)(a) above, the settled property which comprises that asset is property to which this section applies by virtue of subsection (2)(b) above unless, immediately after the acquisition of shares mentioned in subsection (1)(b) above— (a) the settled property comprising the shares is also property to which this section applies by virtue of subsection (2)(b) above, and (b) if not all the beneficiaries are individuals, the relevant proportion is not less than the proportion which was the relevant proportion at the time of the disposal of the asset mentioned in subsection (1)(a) above. (6) If, at any time, in the case of settled property to which this section applies by virtue of subsection (2)(b) above, both individuals and others have interests in possession, the relevant proportion at that time is the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is— (a) the total amount of the income of the settled property, being income the interests in which are held by beneficiaries who are individuals, and (b) the total amount of all the income of the settled property. (7) Where, in the case of any settled property in which any beneficiary holds an interest in possession, one or more beneficiaries (“the relevant beneficiaries”) hold interests not in possession, this section shall apply as if— (a) the interests of the relevant beneficiaries were a single interest in possession, and (b) that interest were held, where all the relevant beneficiaries are individuals, by an individual and, in any other case, by a person who is not an individual. (8) In this section references to interests in possession do not include interests for a fixed term.

4

Sections 164C to 164E are omitted.

5

In section 164H(1), “within the meaning of section 164C” is omitted.

6

In section 164L(10), for the words following “trustees or” there is substituted “ any individual or charity by virtue of whose interest, at the time of the acquisition, section 164B applies to the settled property ”.

Acquisitions on which relief available

7

For section 164A(8) there is substituted—

(8) For the purposes of this section, a person who acquires any eligible shares in a qualifying company shall be regarded as acquiring a qualifying investment unless, where the asset disposed of consisted of shares in or other securities of any company (“the initial holding”), the qualifying company— (a) is the company in which the initial holding subsisted, or (b) is a company that was, at the time of the disposal of the initial holding, or is, at the time of the acquisition of the qualifying investment, a member of the same group of companies as the company in which the initial holding subsisted.

Retirement relief

8

Section 164A(11) is omitted and after section 164B there is inserted—

(164BA) (1) The provisions of section 164A for making any reduction shall apply before any provisions for calculating the amount of, or giving effect to, any relief under section 163 or 164; and references in that section and this to a chargeable gain (except the second reference in subsection (4)(a) below) shall be construed accordingly. (2) Subsection (3) below applies where— (a) any claim for relief is made under section 164A in respect of any chargeable gain, and (b) apart from this Chapter, the whole or any part of that gain would be relieved under section 163 or 164. (3) For the purpose of giving relief under section 163 or 164, any reduction under section 164A shall be treated as having been made first against the unrelieved part of the chargeable gain; and only the amount (if any) which is equal to the unrelieved part of the chargeable gain after that reduction shall be treated as exceeding the amount available for relief. (4) For the purposes of this section— (a) the unrelieved part of a chargeable gain is so much of that gain as, apart from this Chapter, would constitute a chargeable gain after the application of the appropriate paragraph of Schedule 6, (b) “amount available for relief” has the same meaning as in the appropriate paragraph of that Schedule, and (c) the “appropriate paragraph” means, as the case may be, paragraph 6, 7(1)(b) or 8(1)(b).

Clawback

9

• (1) In section 164F—

• (a) for subsection (1) there is substituted—

(1) This section shall apply where a person has acquired any eligible shares in a qualifying company (“the acquired holding”) for a consideration which is treated as reduced, under section 164A or this section, by any amount (“the held-over gain”)

,

• (b) in subsection (3), for the words from “either” to the end of paragraph (b) there is substituted “ charged on any disposal or under this section ”,

• (c) for subsection (4) there is substituted—

(4) For the purposes of this section the whole or a part of any held-over gain on the acquisition of the acquired holding shall be treated— (a) in accordance with subsection (4A) below as charged on any disposal in relation to which the whole or any part of the held-over gain falls to be taken into account in determining the chargeable gain or allowable loss accruing on the disposal, and (b) as charged under this section so far as it falls to be disregarded in accordance with subsection (11) below. (4A) In the case of any such disposal as is mentioned in subsection (4)(a) above, the amount of the held-over gain charged on that disposal— (a) shall, except in the case of a part disposal, be the amount taken into account as so mentioned, and (b) in the case of a part disposal, shall be calculated by multiplying the following, that is to say— (i) so much of the amount of the held-over gain as has not already been charged on a previous disposal, and (ii) the fraction used in accordance with section 42(2) for determining, subject to any deductions in pursuance of this Chapter, the amount allowable as a deduction in the computation of the gain accruing on the disposal in question

,

• (d) in subsection (5)—

• (i) in paragraph (a) “or 164D” is omitted, and

• (ii) in paragraph (c), for the words from “section 164D(4)” to the end there is substituted “ subsections (4) and (4A) above ”,

• (e) in subsection (10), “(within the meaning of section 164D)” is omitted, and

• (f) after that subsection there is inserted—

(10A) Where (apart from this subsection) a chargeable gain of any amount would by virtue of subsection (2) above accrue to the person who acquired the acquired holding but, within the period mentioned in subsection (10B) below, that person acquires a qualifying investment (within the meaning of section 164A), that person shall, on making a claim as respects the qualifying investment, be treated— (a) as if the amount of the gain were reduced by whichever is the smallest of the following— (i) the actual amount or value of the consideration for the acquisition of the qualifying investment, (ii) in the case of a qualifying investment acquired otherwise than by a transaction at arm’s length, the market value of that investment at the time of its acquisition, (iii) the amount specified for the purposes of this subsection in the claim, and (b) as if the amount or value of the consideration for the acquisition of the qualifying investment were reduced by the amount of the reduction made under paragraph (a) above; but paragraph (b) above shall not affect the treatment for the purposes of this Act of the other party to the transaction involving the qualifying investment. (10B) The period referred to in subsection (10A) above is the period (not including any period before the acquisition of the acquired holding) which begins 12 months before and ends 3 years after the time when the chargeable gain accrues or would but for that subsection accrue, together with any such further period after the disposal as the Board may by notice allow.

• (2) Section 164F as amended by sub-paragraph (1) above shall have effect as follows—

• (a) the reference in subsection (1) to consideration treated as reduced under section 164A includes consideration treated as reduced under section 164D,

• (b) the reference in subsection (3) to a gain having been charged on any disposal includes any gain having been carried forward from any disposal of shares, and

• (c) the amounts referred to in subsection (4A)(a) and (b)(i) shall be treated as reduced by any amounts carried forward from any disposal of shares.

• (3) References in sub-paragraph (2) above to an amount being carried forward from a disposal of shares are references to the reduction by that amount, in accordance with section 164D(3)(a), of the amount of the consideration for the disposal of those shares.

Anti-avoidance

10

In section 164L—

• (a) after subsection (10) there is inserted—

(10A) For the purposes of this Chapter, where— (a) a person has acquired any eligible shares in a qualifying company (“the acquired holding”) for a consideration which is treated as reduced under this Chapter by any amount (“the held-over gain”), and (b) after that acquisition, he acquires eligible shares in a relevant company, he shall not be regarded in relation to his acquisition of those shares in the relevant company as acquiring a qualifying investment for the purposes of section 164A. (10B) For the purposes of subsection (10A) above a company is a relevant company if— (a) where that person has disposed of any of the acquired holding, it is the company in which the acquired holding has subsisted or a company which was a member of the same group of companies as that company at any time since the acquisition of the acquired holding, (b) it is a company in relation to the disposal of any shares in which there has been a claim under this Chapter such that, without that or an equivalent claim, there would have been no held-over gain in relation to the acquired holding, or (c) it is a company which, at the time of the disposal or acquisition to which the claim relates, was a member of the same group of companies as a company falling within paragraph (b) above

, and

• (b) in subsection (11), for the definition of “chargeable business assets” there is substituted—

“chargeable business asset”, in relation to any company, means a chargeable asset (including goodwill but not including shares or securities or other assets held as investments) which is, or is an interest in, an asset used for the purposes of a trade, profession, vocation, office or employment carried on by— (a) the individual acquiring the shares, (b) any personal company of that individual, (c) a member of a trading group of which the holding company is a personal company of that individual, or (d) a partnership of which that individual is a member

.

Miscellaneous

11

In section 164N, after subsection (1) there is inserted—

(1A) Every asset of a company is for the purposes of this Chapter a chargeable asset of that company at any time, except one on the disposal of which by the company at that time no gain accruing to the company would be a chargeable gain

.

SCHEDULE 12

Introductory

1

This Schedule applies in relation to chargeable gains and allowable losses accruing to—

• (a) an individual, or

• (b) the trustees of a settlement made before 30th November 1993;

(referred to in this Schedule as “the taxpayer”).

2

• (1) This paragraph applies for the purposes of this Schedule, and the determinations required by this paragraph to be made shall be made without regard to paragraphs 4 to 7 below.

• (2) If an allowable loss accrues on a disposal made on or after 30th November 1993 and, under the old indexation rules, a greater allowable loss would have accrued, there is an indexation loss in respect of the disposal equal to the amount by which the allowable loss which would have accrued under the old indexation rules exceeds the allowable loss accruing on the disposal.

• (3) If a disposal made on or after 30th November 1993 is one on which neither a gain nor a loss accrues and, under the old indexation rules, an allowable loss would have accrued, there is an indexation loss in respect of the disposal equal to the amount of the allowable loss that would have accrued under the old indexation rules.

• (4) If the total amount of chargeable gains accruing to the taxpayer in any year of assessment for which this Schedule has effect exceeds the allowable losses accruing in that year, there is a relevant gain for that year equal to the amount of the excess.

3

• (1) The cases in which the appropriation of an asset by the taxpayer is treated under section 161(1) of the 1992 Act (appropriations to and from stock) as a disposal of the asset include cases in which, if he had sold the asset for its market value, an allowable loss would have accrued to him under the old indexation rules.

• (2) Where, but for an election under subsection (3) of section 161 of the 1992 Act—

• (a) an asset appropriated by the taxpayer would have been treated as disposed of as mentioned in subsection (1) of that section, and

• (b) paragraph 2(2) or (3) above would have applied on the disposal,

paragraphs 1 and 2 above and 6 and 7 below shall apply, as if the asset had been so treated, to determine for the purposes of subsection (3) of that section any increase to be made in the amount of any allowable loss; and the appropriation of the asset is referred to below as a “relevant appropriation”.

• (3) Sections 574 to 576 of the Taxes Act (relief for individual on disposal of shares in qualifying trading company) shall apply if an individual who has subscribed for shares as mentioned in section 574(1) disposes of them in circumstances where paragraph 2(3) above applies as they apply in other cases.

• (4) Where a person makes a claim for relief under subsection (1) of section 574 in the case of a disposal in respect of which there is an indexation loss (referred to below as a “section 574 disposal”)—

• (a) paragraphs 6 and 7 below shall apply to determine any increase to be made, for the purposes of that subsection, in the amount of the allowable loss, and

• (b) paragraphs 4 and 5 below shall apply to so much only of the indexation loss as is not relieved under that section.

• (5) References in this paragraph and paragraphs 6 and 7 below to an increase in any loss include, in circumstances where paragraph 2(3) above applies, a reference to the creation of the loss.

Capital gains tax

4

• (1) Where in the case of any taxpayer—

• (a) there is a relevant gain for the year 1993-94,

• (b) the relevant gain exceeds the exempt amount for that year, and

• (c) there are indexation losses in respect of any disposals made in that year,

then, for the purposes of the 1992 Act, the amount by which the total amount of chargeable gains accruing to the taxpayer in that year exceeds the allowable losses accruing in the year shall be reduced by the amount mentioned in sub-paragraph (2) below, and shall be so reduced before the deduction of any allowable losses carried forward from any previous year or carried back under section 62 from any subsequent year.

• (2) The amount referred to in sub-paragraph (1) above is so much of the total of indexation losses in respect of disposals made in that year as does not exceed—

• (a) £10,000, or

• (b) the amount by which the relevant gain exceeds the exempt amount for the year,

whichever is the smaller.

5

• (1) Where in the case of any taxpayer—

• (a) there is a relevant gain for the year 1994-95,

• (b) the relevant gain exceeds the exempt amount for that year, and

• (c) there are indexation losses in respect of any disposals made in that year or unused indexation losses for the previous year,

then, for the purposes of the 1992 Act, the amount by which the total amount of chargeable gains accruing to the taxpayer in the year 1994-95 exceeds the allowable losses accruing in that year shall be reduced by the amount mentioned in sub-paragraph (2) below, and shall be so reduced before the deduction of any allowable losses carried forward from any previous year or carried back under section 62 from any subsequent year.

• (2) The amount referred to in sub-paragraph (1) above is so much of the total of indexation losses in respect of disposals made in the year 1994-95, plus any unused indexation losses for the previous year, as does not exceed—

• (a) £10,000 less the aggregate of—

• (i) the amount of any reduction made under paragraph 4(1) above for the previous year, and

• (ii) any increase made under paragraph 6(2) below for the previous year, or

• (b) the amount by which the relevant gain exceeds the exempt amount for the year 1994-95,

whichever is the smaller.

• (3) For the purposes of this paragraph, if the total amount of indexation losses in respect of disposals made by the taxpayer in the year 1993-94 exceeds the aggregate of—

• (a) the amount of any reduction made under paragraph 4(1) above for that year, and

• (b) any increase made under paragraph 6(2) below for that year,

there are unused indexation losses for that year of an amount equal to the excess.

Income tax

6

• (1) This paragraph applies where, at any time in the period beginning with 30th November 1993 and ending with 5th April 1994, the taxpayer makes any relevant appropriation or any section 574 disposal; and for the purposes of this paragraph there shall be determined—

• (a) the amount of any reduction for the year 1993-94 which (disregarding relevant appropriations and section 574 disposals) would be made under paragraph 4(1) above, and

• (b) the amounts of any indexation losses in respect of relevant appropriations or section 574 disposals made in that period.

• (2) If the aggregate of the amounts referred to in sub-paragraph (1)(a) and (b) above does not exceed £10,000, the amount of any allowable loss referable to such an appropriation or disposal shall be increased by any indexation loss in respect of it.

• (3) In any other case, notwithstanding anything in paragraphs 4 and 5 above—

• (a) the aggregate of—

• (i) the amount of any reduction for the year 1993-94 to be made under paragraph 4(1) above, and

• (ii) the amount of any indexation losses in respect of relevant appropriations or section 574 disposals made in the period referred to in sub-paragraph (1) above,

shall be equal to £10,000 and shall be allocated as the taxpayer may determine between that reduction and increases in allowable losses referable to such appropriations or disposals, and

• (b) no reduction shall be made under paragraph 5 above or 7 below for the year 1994-95.

7

• (1) This paragraph applies where, at any time in the year 1994-95, the taxpayer makes any relevant appropriation or any section 574 disposal; and for the purposes of this paragraph there shall be determined—

• (a) the amount of any reduction for that year which (disregarding relevant appropriations and section 574 disposals) would be made under paragraph 5(1) above, and

• (b) the amounts of any indexation losses in respect of relevant appropriations or section 574 disposals made in that year.

• (2) If the aggregate of the amounts referred to in sub-paragraph (1)(a) and (b) above does not exceed the limit for 1994-95, that is—

• (a) £10,000, less

• (b) the aggregate of the amount of any reduction made under paragraph 4(1) above for the year 1993-94 and of any increases made under paragraph 6(2) above for that year,

the amount of any allowable loss referable to such an appropriation or disposal shall be increased by any indexation loss in respect of it.

• (3) In any other case, notwithstanding anything in paragraph 5 above, the aggregate of the amount of any reduction for the year 1994-95 to be made under paragraph 5(1) above and of the amount of any indexation losses in respect of relevant appropriations or section 574 disposals made in that year—

• (a) shall be equal to the limit for 1994-95, and

• (b) shall be allocated as the taxpayer may determine between that reduction and increases in allowable losses referable to such appropriations or disposals.

Supplementary

8

• (1) In this Schedule—

• “the 1992 Act” means the Taxation of Chargeable Gains Act 1992, and

• “the old indexation rules” means the 1992 Act as it would have effect if—the amendments made by subsections (1) to (5) of section 93 of this Act, andthe repeal of section 103 (collective investment schemes, etc.) and section 111 (building societies) of the 1992 Act by subsection (7) of section 93 of this Act,had not come into force.

• (2) Other expressions not defined in this Schedule but used both in it and in the 1992 Act have the same meaning as in that Act.

• (3) References in this Schedule to the reduction of any amount include its reduction to nil.

SCHEDULE 13

Introduction

1

The Finance Act 1989 shall be amended as provided in this Schedule.

Trustees

2

In Schedule 5, in paragraph 3 (trustees) the following sub-paragraph shall be inserted after sub-paragraph (4)—

(5) This paragraph applies in relation to trusts established on or before the day on which the Finance Act 1994 was passed.

3

In Schedule 5, the following paragraphs shall be inserted after paragraph 3—

(3A) Where a trust is established after the day on which the Finance Act 1994 was passed, the trust deed must make provision as mentioned in one of paragraphs (a) to (c) below— (a) provision for the establishment of a body of trustees and complying with paragraph 3(2) to (4) above; (b) provision for the establishment of a body of trustees and complying with paragraph 3B(2) to (9) below; (c) provision that at any time while the trust subsists there must be a single trustee. (3B) (1) The following are the provisions that must be complied with under paragraph 3A(b) above. (2) The trust deed must— (a) appoint the initial trustees; (b) contain rules for the retirement and removal of trustees; (c) contain rules for the appointment of replacement and additional trustees. (3) The trust deed must be so framed that at any time while the trust subsists the conditions set out in sub-paragraph (4) below are fulfilled as regards the persons who are then trustees; and in that sub-paragraph “the relevant time” means that time. (4) The conditions are that— (a) the number of trustees is not less than three; (b) all the trustees are resident in the United Kingdom; (c) the trustees include at least one person who is a professional trustee and at least two persons who are non-professional trustees; (d) at least half of the non-professional trustees were, before being appointed as trustees, selected in accordance with sub-paragraph (7) or (8) below; (e) all the trustees so selected are persons who are employees of companies which fall within the founding company’s group at the relevant time, and who do not have and have never had a material interest in any such company. (5) For the purposes of this paragraph a trustee is a professional trustee at a particular time if— (a) the trustee is then a trust corporation, a solicitor, or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph, (b) the trustee is not then an employee or director of any company then falling within the founding company’s group, and (c) the trustee meets the requirements of sub-paragraph (6) below; and for the purposes of this paragraph a trustee is a non-professional trustee at a particular time if the trustee is not then a professional trustee for those purposes. (6) A trustee meets the requirements of this sub-paragraph if— (a) he was appointed as an initial trustee and, before being appointed as trustee, was selected by (and only by) the persons who later became the non-professional initial trustees, or (b) he was appointed as a replacement or additional trustee and, before being appointed as trustee, was selected by (and only by) the persons who were the non-professional trustees at the time of the selection. (7) Trustees are selected in accordance with this sub-paragraph if the process of selection is one under which— (a) all the persons who are employees of the companies which fall within the founding company’s group at the time of the selection, and who do not have and have never had a material interest in any such company, are (so far as is reasonably practicable) given the opportunity to stand for selection, (b) all the employees of the companies falling within the founding company’s group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and (c) persons gaining more votes are preferred to those gaining less. (8) Trustees are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company’s group at the time of the selection. (9) For the purposes of this paragraph a company falls within the founding company’s group at a particular time if— (a) it is at that time resident in the United Kingdom, and (b) it is the founding company or it is at that time controlled by the founding company. (3C) (1) This paragraph applies where the trust deed provides that at any time while the trust subsists there must be a single trustee. (2) The trust deed must— (a) be so framed that at any time while the trust subsists the trustee is a company which at that time is resident in the United Kingdom and controlled by the founding company; (b) appoint the initial trustee; (c) contain rules for the removal of any trustee and for the appointment of a replacement trustee. (3) The trust deed must be so framed that at any time while the trust subsists the company which is then the trustee is a company so constituted that the conditions set out in sub-paragraph (4) below are then fulfilled as regards the persons who are then directors of the company; and in that sub-paragraph “the relevant time” is that time and “the trust company” is that company. (4) The conditions are that— (a) the number of directors is not less than three; (b) all the directors are resident in the United Kingdom; (c) the directors include at least one person who is a professional director and at least two persons who are non-professional directors; (d) at least half of the non-professional directors were, before being appointed as directors, selected in accordance with sub-paragraph (7) or (8) below; (e) all the directors so selected are persons who are employees of companies which fall within the founding company’s group at the relevant time, and who do not have and have never had a material interest in any such company. (5) For the purposes of this paragraph a director is a professional director at a particular time if— (a) the director is then a solicitor or a member of such other professional body as the Board may at that time allow for the purposes of this sub-paragraph, (b) the director is not then an employee of any company then falling within the founding company’s group, (c) the director is not then a director of any such company (other than the trust company), and (d) the director meets the requirements of sub-paragraph (6) below; and for the purposes of this paragraph a director is a non-professional director at a particular time if the director is not then a professional director for those purposes. (6) A director meets the requirements of this sub-paragraph if— (a) he was appointed as an initial director and, before being appointed as director, was selected by (and only by) the persons who later became the non-professional initial directors, or (b) he was appointed as a replacement or additional director and, before being appointed as director, was selected by (and only by) the persons who were the non-professional directors at the time of the selection. (7) Directors are selected in accordance with this sub-paragraph if the process of selection is one under which— (a) all the persons who are employees of the companies which fall within the founding company’s group at the time of the selection, and who do not have and have never had a material interest in any such company, are (so far as is reasonably practicable) given the opportunity to stand for selection, (b) all the employees of the companies falling within the founding company’s group at the time of the selection are (so far as is reasonably practicable) given the opportunity to vote, and (c) persons gaining more votes are preferred to those gaining less. (8) Directors are selected in accordance with this sub-paragraph if they are selected by persons elected to represent the employees of the companies falling within the founding company’s group at the time of the selection. (9) For the purposes of this paragraph a company falls within the founding company’s group at a particular time if— (a) it is at that time resident in the United Kingdom, and (b) it is the founding company or it is at that time controlled by the founding company.

4

In Schedule 5, the following shall be inserted at the end of paragraph 12 (position after trust’s establishment)— “ This paragraph applies in relation to trusts established on or before the day on which the Finance Act 1994 was passed. ”

5

In Schedule 5, the following paragraph shall be inserted after paragraph 12—

(12A) (1) Subject to sub-paragraphs (2) and (3) below, a trust which was at the time it was established a qualifying employee share ownership trust shall continue to be one. (2) If the trust deed makes provision under paragraph 3A(a) above, the trust shall not be a qualifying employee share ownership trust at any time when the requirements mentioned in paragraph 3(3)(a) to (f) above are not satisfied. (3) If the trust deed makes provision under paragraph 3A(b) above, the trust shall not be a qualifying employee share ownership trust at any time when the conditions mentioned in paragraph 3B(4)(a) to (e) above are not satisfied. (4) If the trust deed makes provision under paragraph 3A(c) above, the trust shall not be a qualifying employee share ownership trust at any time when— (a) there is not a single trustee, (b) the trustee is not a company which is resident in the United Kingdom and controlled by the founding company, or (c) the conditions mentioned in paragraph 3C(4)(a) to (e) above are not satisfied as regards the directors of the trustee. (5) This paragraph applies in relation to trusts established after the day on which the Finance Act 1994 was passed.

Securities

6

• (1) Section 69 (chargeable events) shall be amended as follows.

• (2) In subsection (1)(c) (retention of securities at expiry of seven years from acquisition) for “period of seven years” there shall be substituted “ qualifying period ”.

• (3) After subsection (4) there shall be inserted—

(4A) For the purposes of subsection (1)(c) above the qualifying period is— (a) seven years, in the case of trusts established on or before the day on which the Finance Act 1994 was passed; (b) twenty years, in the case of other trusts; and for this purpose a trust is established when the deed under which it is established is executed.

7

• (1) Paragraph 9 of Schedule 5 (transfer of securities) shall be amended as follows.

• (2) In sub-paragraph (1)(b) for “period of seven years” there shall be substituted “ qualifying period ”.

• (3) After sub-paragraph (2) there shall be inserted—

(2A) For the purposes of sub-paragraph (1) above the qualifying period is— (a) seven years, in the case of trusts established on or before the day on which the Finance Act 1994 was passed; (b) twenty years, in the case of other trusts.

Interpretation

8

In Schedule 5, the following paragraph shall be inserted after paragraph 16—

(17) For the purposes of this Schedule a trust is established when the deed under which it is established is executed.

SCHEDULE 14

1

Chapter III of Part XII of the Taxes Act 1988 shall be amended in accordance with paragraphs 2 to 5 of this Schedule.

The new sections

2

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Other amendments

3

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4

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5

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6

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Commencement

7

• (1) Subject to sub-paragraph (2) below, this Schedule shall have effect in relation to distribution periods beginning on or after 1st April 1994.

• (2) Nothing in the amendments made by this Schedule shall be taken to permit—

• (a) the total amount shown in the distribution accounts for a distribution period of an authorised unit trust, or

• (b) a part of that total amount,

to be shown as available for distribution as foreign income dividends unless the distribution date for that distribution period is 1st July 1994 or a subsequent date.

SCHEDULE 15

Amendments of the Taxes Act 1988

1

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2

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3

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4

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5

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6

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7

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8

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9

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10

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11

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12

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13

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14

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15

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16

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17

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18

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19

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20

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21

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22

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23

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24

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25

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26

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27

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Amendments of the Taxation of Chargeable Gains Act 1992

28

The Taxation of Chargeable Gains Act 1992 shall be amended as follows:

29

In section 150 (business expansion schemes), at the end of subsection (1) there is inserted “ and references in this section to Chapter III of Part VII of the Taxes Act or any provision of that Chapter are to that Chapter or provision as it applies in relation to shares issued before 1st January 1994 ”.

30

After that section there is inserted—

(150A) (1) For the purpose of determining the gain or loss on any disposal of eligible shares by an individual where— (a) an amount of relief is attributable to the shares, and (b) apart from this subsection there would be a loss, the consideration given by him for the shares shall be treated as reduced by the amount of the relief. (2) Subject to subsection (3) below, if on any disposal of eligible shares by an individual after the end of the period referred to in section 312(1A)(a) of the Taxes Act where an amount of relief is attributable to the shares, there would (apart from this subsection) be a gain, the gain shall not be a chargeable gain. (3) Where— (a) an individual’s liability to income tax has been reduced (or treated by virtue of section 304 of the Taxes Act (husband and wife) as reduced) for any year of assessment under section 289A of that Act in respect of any issue of shares, and (b) the amount of the reduction (“A”) is less than the amount (“B”) which is equal to tax at the lower rate for that year on the amount subscribed for the issue, then, if there is a disposal of the shares on which there is a gain, subsection (2) above shall apply only to so much of the gain as is found by multiplying it by the fraction— $AB$ (4) Any question as to— (a) which of any shares issued to a person at different times a disposal relates, being shares to which relief is attributable, or (b) whether a disposal relates to shares to which relief is attributable or to other shares, shall for the purposes of capital gains tax be determined as for the purposes of section 299 of the Taxes Act; and Chapter I of this Part shall have effect subject to the foregoing provisions of this subsection. (5) Sections 104, 105 and 107 shall not apply to shares to which relief is attributable. (6) Where— (a) an individual holds shares which form part of the ordinary share capital of a company, and (b) relief is attributable to some of the shares but not others, then, if there is within the meaning of section 126 a reorganisation affecting those shares, section 127 shall apply (subject to the following provisions of this section) separately to the shares to which relief is attributable and to the other shares (so that shares of each kind are treated as a separate holding of original shares and identified with a separate new holding). (7) Where— (a) an individual holds shares (“the existing holding”) which form part of the ordinary share capital of a company, (b) there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a), a reorganisation affecting the existing holding, and (c) immediately following the reorganisation, relief is attributable to the existing holding or the allotted shares, sections 127 to 130 shall not apply in relation to the existing holding. (8) Sections 135 and 136 shall not apply in respect of shares to which relief is attributable. (9) Where the relief attributable to any shares is reduced by virtue of section 305(2) of the Taxes Act— (a) the sums allowable as deductions from the consideration in the computation, for the purposes of capital gains tax, of the gain or loss accruing to an individual on the disposal of any of the allotted shares or debentures shall be taken to include the amount of the reduction apportioned between the allotted shares or (as the case may be) debentures in such a way as appears to the inspector, or on appeal to the Commissioners concerned, to be just and reasonable, and (b) the sums so allowable on the disposal (in circumstances in which the preceding provisions of this section do not apply) of any of the shares referred to in section 305(1)(a) shall be taken to be reduced by the amount mentioned in paragraph (a) above, similarly apportioned between those shares. (10) There shall be made all such adjustments of capital gains tax, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of the relief being given or withdrawn. (11) Chapter III of Part VII of the Taxes Act (enterprise investment scheme) applies for the purposes of this section to determine whether relief is attributable to any shares and, if so, the amount of relief so attributable; and “eligible shares” has the same meaning as in that Chapter. (12) References in this section to Chapter III of Part VII of the Taxes Act or any provision of that Chapter are to that Chapter or provision as it applies in relation to shares issued on or after 1st January 1994

.

31

At the end of section 164M of that Act (exclusion of double relief) there is inserted “ but the reference in this section to that Chapter is to that Chapter as it applies in relation to shares issued before 1st January 1994 ”.

32

• (1) After that section there is inserted—

(164MA) If a person makes a claim for relief under Chapter III of Part VII of the Taxes Act (enterprise investment scheme) in respect of any shares, those shares shall not be, or be treated as ever having been, eligible shares

.

• (2) This paragraph has effect in relation to shares issued on or after 1st January 1994.

33

In section 164N(1), in the definition of “eligible shares”, for “and 164M” there is substituted “ 164M and 164MA ”.

34

In section 231(1)(d), “(business expansion scheme)” is omitted.

SCHEDULE 16

Part I — The new Chapter

1

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Part II — Liability for and collection of advance corporation tax

2

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3

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

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

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

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III — Insurance companies etc.

4

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5

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

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

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

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

6

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7

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8

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9

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Part IV — Other provisions

Penalties

10

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Small companies’ relief

11

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Expenses of management

12

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Group income

13

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Mutual business etc.

14

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Discretionary trusts

15

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Personal representatives

16

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Purchase and sale of securities

17

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Manufactured dividends

18

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19

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Interest on tax overpaid

20

• (1) Section 826 of the Taxes Act 1988 shall be amended as follows.

• (2) In subsection (1) the following paragraph shall be inserted after paragraph (a)—

(aa) a repayment falls to be made under sections 246N and 246Q of advance corporation tax paid by a company in respect of distributions made by it in such an accounting period; or

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

SCHEDULE 17

1

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2

• (1) Subsection (1) of section 271 of that Act shall have effect, and be deemed always to have had effect, as if—

• (a) the words “or contract”, wherever they occur, were omitted;

• (b) in paragraph (b), the words “or the contract was made after that date” were omitted; and

• (c) in paragraph (c), the words “or, as the case may be, the body with which the contract was made” were omitted.

• (2) Subsection (2) of that section shall have effect, and be deemed always to have had effect, as if paragraph (b) and the word “or” immediately preceding it were omitted.

3

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4

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5

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6

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7

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8

Sections ... 843(2) of that Act (in their application as amended by the Taxation of Chargeable Gains Act 1992) shall have effect, and be deemed always to have had effect, as if, in each case, for “the 1990 Act” there were substituted “the 1992 Act”.

9

Paragraph 8(b) of Schedule 11 to that Act (in its application as amended by the Capital Allowances Act 1990) shall have effect, and be deemed always to have had effect, as if the words “Chapter II of Part I of the 1968 Act or” were omitted.

SCHEDULE 18

Application of insurance companies provisions relating to loan relationships

1

• (1) Part I of Schedule 11 to the Finance Act 1996 (special provision with respect to loan relationships for insurance companies) shall have effect (subject to sub-paragraph (2) below) in relation to qualifying contracts as it has effect in relation to loan relationships which are creditor relationships within the meaning of Chapter II of Part IV of that Act.

• (2) That Part of that Schedule shall have effect in its application in relation to qualifying contracts, as if—

• (a) references to section 82(2) of the Finance Act 1996 were references to section 159 of this Act, and

• (b) references to credits and debits given by Chapter II of Part IV of that Act in respect of a loan relationship were references, respectively, to the profits and losses deriving from the contract.

1A

• (1) Where the I minus E basis is applied for any accounting period in respect of the life assurance business or capital redemption business of any insurance company, this Chapter shall have effect for that period in relation to contracts and options held for the purposes of that business as if the words in subsection (10) of section 150A from “but references” onwards were omitted.

• (2) Expressions used in sub-paragraph (1) above and in Part I of Schedule 11 to the Finance Act 1996 have the same meanings in this paragraph as in that Part of that Schedule.

Life assurance business: Case I of Schedule D

2

• (1) Subject to sub-paragraph (2) below, sub-paragraphs (3) and (4) below apply where—

• (a) a qualifying contract was at any time in an accounting period of an insurance company held by the company for the purposes of any life assurance business carried on by it, and

• (b) the profits of the company in respect of that business are, for the purposes of the Tax Acts, computed in accordance with the provisions of the Taxes Act 1988 applicable to Case I of Schedule D.

• (2) Where the qualifying contract was held partly for the purposes of the life assurance business and partly for other purposes—

• (a) amounts A and B for the period shall be apportioned on a just and reasonable basis, and

• (b) any reference in sub-paragraph (3) or (4) below to either of those amounts shall be construed as a reference to so much of it as is referable to the life assurance business.

• (3) Notwithstanding anything in sections 159 and 160 of this Act, amount A for the period shall not—

• (a) under or by virtue of this Chapter be chargeable to corporation tax as profits of the company, or

• (b) be taken into account as a receipt in computing for the purposes of this Chapter the profits or losses of the company.

• (4) Notwithstanding anything in those sections, amount B for the period shall not—

• (a) be allowable as a deduction in computing for the purposes of this Chapter the profits or losses of the company, or

• (b) under or by virtue of this Chapter be allowable as a deduction in computing any other income or profits or gains or losses of the company for the purposes of the Tax Acts.

• (5) Subsection (5)(a) of section 173 of this Act applies for the purposes of this paragraph as it applies for the purposes of that section.

Non-life mutual business

3

• (1) Subject to sub-paragraph (2) below, sub-paragraph (3) below applies where a qualifying contract was at any time in an accounting period of a mutual trading company held by the company for the purposes of any non-life mutual business carried on by it.

• (2) Where the qualifying contract was held partly for the purposes of the non-life mutual business and partly for other purposes—

• (a) the profit or loss on the contract for the period shall be apportioned on a just and reasonable basis, and

• (b) any reference in sub-paragraph (3) below to that profit or loss shall be construed as a reference to so much of it as is referable to the non-life mutual business.

• (3) Notwithstanding anything in section 159 of this Act—

• (a) no part of the profit or loss on the contract for the period shall be treated for the purposes of the Tax Acts as a profit or loss of a trade or part of a trade, and

• (b) accordingly, the whole of that profit or loss shall be treated for the purposes of section 160 of this Act as a non-trading profit or loss.

Interpretation

4

In this Schedule—

• . . .

• . . .

• “non-life mutual business” means any mutual trading, or any mutual insurance or other mutual business, which (in either case) is not life assurance business.

SCHEDULE 19

Part I — Amendments of Management Act

Notice of liability to income tax and capital gains tax

1

• (1) For section 7 of the Management Act there shall be substituted the following section—

(7) (1) Every person who— (a) is chargeable to income tax or capital gains tax for any year of assessment, and (b) has not received a notice under section 8 of this Act requiring a return for that year of his total income and chargeable gains, shall, subject to subsection (3) below, within six months from the end of that year, give notice to an officer of the Board that he is so chargeable. (2) In the case of a person who is chargeable as mentioned in subsection (1) above as a trustee of a settlement, that subsection shall have effect as if the reference to a notice under section 8 of this Act were a reference to a notice under section 8A of this Act. (3) A person shall not be required to give notice under subsection (1) above in respect of a year of assessment if for that year his total income consists of income from sources falling within subsections (4) to (7) below and he has no chargeable gains. (4) A source of income falls within this subsection in relation to a year of assessment if— (a) all payments of, or on account of, income from it during that year, and (b) all income from it for that year which does not consist of payments, have or has been taken into account in the making of deductions or repayments of tax under section 203 of the principal Act. (5) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year has been or will be taken into account— (a) in determining that person’s liability to tax, or (b) in the making of deductions or repayments of tax under section 203 of the principal Act. (6) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year is— (a) income from which income tax has been deducted; (b) income from or on which income tax is treated as having been deducted or paid; or (c) income chargeable under Schedule F, and that person is not for that year liable to tax at a rate other than the basic rate or the lower rate. (7) A source of income falls within this subsection in relation to any person and any year of assessment if all income from it for that year is income from which he could not become liable to tax under a self-assessment made under section 9 of this Act in respect of that year. (8) If any person, for any year of assessment, fails to comply with subsection (1) above, he shall be liable to a penalty not exceeding the amount of the tax— (a) in which he is assessed under section 9 or 29 of this Act in respect of that year, and (b) which is not paid on or before the 31st January next following that year.

• (2) This paragraph has effect as respects the year 1995-96 and subsequent years of assessment.

European Economic Interest Groupings

2

In subsection (2) of section 12A of the Management Act (European Economic Interest Groupings), for the words “making assessments to income tax, corporation tax and capital gains tax on members of a grouping” there shall be substituted the words “ securing that members of a grouping are assessed to income tax and capital gains tax or (as the case may be) corporation tax ”.

Records for purposes of returns

3

After section 12A of the Management Act there shall be inserted the following section—

(12B) (1) Any person who may be required by a notice under section 8, 8A, 11 or 12AA of this Act (or under any of those sections as extended by section 12 of this Act) to make and deliver a return for a year of assessment or other period shall— (a) keep all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period; and (b) preserve those records until the end of whichever of the following is the later, namely— (i) the day mentioned in subsection (2) below; and (ii) where a return delivered by him is enquired into by an officer of the Board, the day on which, by virtue of section 28A(5) or 28B(5) of this Act, the officer’s enquiries are treated as completed. (2) The day referred to in subsection (1) above is— (a) in the case of a person carrying on a trade, profession or business alone or in partnership or a company, the fifth anniversary of the 31st January next following the year of assessment or (as the case may be) the sixth anniversary of the end of the period; (b) in any other case, the first anniversary of the 31st January next following the year of assessment or, where a return is delivered by the person concerned after that date, the quarter day next following the first anniversary of the day on which the return is delivered; and the quarter days for the purposes of this subsection are 31st January, 30th April, 31st July and 31st October. (3) In the case of a person carrying on a trade, profession or business alone or in partnership— (a) the records required to be kept and preserved under subsection (1) above shall include records of the following, namely— (i) all amounts received and expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place, and (ii) in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade; and (b) the duty under that subsection shall include a duty to preserve until the day mentioned in subsection (2) above all supporting documents relating to such items as are mentioned in paragraph (a)(i) or (ii) above. (4) The duty under subsection (1) above to preserve records may be discharged by the preservation of the information contained in them; and where information is so preserved a copy of any document forming part of the records shall be admissible in evidence in any proceedings before the Commissioners to the same extent as the records themselves. (5) Any person who fails to comply with subsection (1) above in relation to a year of assessment or accounting period shall be liable to a penalty not exceeding £3,000. (6) For the purposes of this section— (a) a person engaged in the letting of property shall be treated as carrying on a trade; and (b) “supporting documents” includes accounts, books, deeds, contracts, vouchers and receipts.

Recovery of overpayment of tax etc.

4

• (1) After subsection (1A) of section 30 of the Management Act (recovery of overpayment of tax etc.) there shall be inserted the following subsection—

(1B) Subsections (2) to (8) of section 29 of this Act shall apply in relation to an assessment under subsection (1) above as they apply in relation to an assessment under subsection (1) of that section; and subsection (4) of that section as so applied shall have effect as if the reference to the loss of tax were a reference to the repayment of the amount of tax which ought not to have been repaid.

• (2) For subsection (5) of that section there shall be substituted the following subsection—

(5) An assessment under this section shall not be out of time under section 34 of this Act if it is made before the end of whichever of the following ends the later, namely— (a) the chargeable period following that in which the amount assessed was repaid or paid as the case may be, or (b) where a return delivered by the person concerned, or an amendment of such a return, is enquired into by an officer of the Board, the period ending with the day on which, by virtue of section 28A(5) of this Act, the officer’s enquiries are treated as completed.

Assessing procedure

5

• (1) After section 30 of the Management Act there shall be inserted the following section—

(30A) (1) Except as otherwise provided, all assessments to tax which are not self-assessments shall be made by an officer of the Board. (2) All income tax which falls to be charged by an assessment which is not a self-assessment may, notwithstanding that it was chargeable under more than one Schedule, be included in one assessment. (3) Notice of any such assessment shall be served on the person assessed and shall state the date on which it is issued and the time within which any appeal against the assessment may be made. (4) After the notice of any such assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts. (5) Assessments to tax which under any provision in the Taxes Acts are to be made by the Board shall be made in accordance with this section.

• (2) This paragraph, so far as it relates to partnerships whose trades, professions or businesses are set up and commenced before 6th April 1994, has effect as respects the year 1997-98 and subsequent years of assessment.

Amendment of partnership statement where loss of tax discovered

6

After section 30A of the Management Act there shall be inserted the following section—

(30B) (1) Where an officer of the Board or the Board discover, as regards a partnership statement made by any person (the representative partner) in respect of any period— (a) that any profits which ought to have been included in the statement have not been so included, or (b) that an amount of profits so included is or has become insufficient, or (c) that any relief claimed by the representative partner is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (3) and (4) below, by notice to that partner so amend the statement as to make good the omission or deficiency or eliminate the excess. (2) Where a partnership statement is amended under subsection (1) above, the officer shall by notice to each of the relevant partners so amend their self-assessments under section 9 or 11AA of this Act as to give effect to the amendments of the partnership statement. (3) Where the situation mentioned in subsection (1) above is attributable to an error or mistake as to the basis on which the partnership statement ouade, no amendment shall be made under that subsection if that statement was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made. (4) No amendment shall be made under subsection (1) above unless one of the two conditions mentioned below is fulfilled. (5) The first condition is that the situation mentioned in subsection (1) above is attributable to fraudulent or negligent conduct on the part of— (a) the representative partner or a person acting on his behalf, or (b) a relevant partner or a person acting on behalf of such a partner. (6) The second condition is that at the time when an officer of the Board— (a) ceased to be entitled to give notice of his intention to enquire into the representative partner’s return under section 12AA of this Act; or (b) informed that partner that he had completed his enquiries into that return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above. (7) Subsections (6) and (7) of section 29 of this Act apply for the purposes of subsection (6) above as they apply for the purposes of subsection (5) of that section; and those subsections as so applied shall have effect as if— (a) any reference to the taxpayer were a reference to the representative partner; (b) any reference to the taxpayer’s return under section 8, 8A or 11 were a reference to the representative partner’s return under section 12AA of this Act; and (c) sub-paragraph (ii) of paragraph (a) of subsection (7) were omitted. (8) An objection to the making of an amendment under subsection (1) above on the ground that neither of the two conditions mentioned above is fulfilled shall not be made otherwise than on an appeal against the amendment. (9) In this section— - “profits” has the same meaning as in section 29 of this Act; - “relevant partner” means a person who was a partner at any time during the period in respect of which the partnership statement was made. (10) Any reference in this section to the representative partner includes, unless the context otherwise requires, a reference to any successor of his.

Right of appeal

7

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Error or mistake

8

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

• (2) The proviso to subsection (2) of that section shall cease to have effect and after that subsection there shall be inserted the following subsection—

(2A) No relief shall be given under this section in respect of— (a) an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made; or (b) an error or mistake in a claim which is included in the return.

9

After section 33 of the Management Act there shall be inserted the following section—