Finance Act 1995

• (3) For the purposes of paragraphs 5(2) and 9 above a person shall be taken to have control of a company if he would be so taken for the purposes of Part XI by virtue of section 416(2) to (6).

SCHEDULE 15

Part I — Relief on investment

Entitlement to claim relief

1

• (1) Subject to the following provisions of this Schedule, an individual shall, for any year of assessment, be entitled under this Part of this Schedule to claim relief in respect of an amount equal to the aggregate of the amounts (if any) which, by reference to eligible shares issued to him by venture capital trusts in the course of that year, are amounts on which he is eligible for relief in accordance with sub-paragraph (2) below.

• (2) The amounts on which an individual shall be taken for the purposes of sub-paragraph (1) above to be eligible for relief shall be any amounts subscribed by him on his own behalf for eligible shares issued by a venture capital trust for raising money.

• (3) An individual shall not be entitled under this Part of this Schedule to claim relief for any given year of assessment in respect of an amount of more than £100,000.

• (4) An individual shall not be entitled under this Schedule to claim any relief to which he is eligible by reference to any shares unless he had attained the age of eighteen years before those shares were issued.

• (5) Where an individual makes a claim for any relief to which he is entitled under this Part of this Schedule for any year of assessment, the amount of his liability for that year to income tax on his total income shall be equal to the amount to which he would be so liable apart from this Part of this Schedule less whichever is the smaller of—

• (a) an amount equal to tax at the lower rate for that year on the amount in respect of which he is entitled to claim relief for that year, and

• (b) the amount which reduces his liability to nil.

• (6) In determining for the purposes of sub-paragraph (5) above the amount of income tax to which a person would be liable apart from this Part of this Schedule, no account shall be taken of—

• (a) any income tax reduction under section 289A,

• (b) any income tax reduction under Chapter I of Part VII or under section 347B,

• (c) any income tax reduction under section 353(1A),

• (d) any income tax reduction under section 54(3A) of the Finance Act 1989,

• (e) 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 or by way of a credit under section 790(1), or

• (f) 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.

• (7) Where, in the case of any claim for relief under this Part of this Schedule in respect of any shares issued in any year of assessment, effect is given to the claim by repayment of tax, section 824 shall have effect in relation to the repayment as if the time from which the twelve months mentioned in subsections (1)(a) and (3)(a) of that section are to be calculated were the end of the year of assessment in which the shares were issued.

• (8) A person shall not be entitled to be given any relief under this Part of this Schedule by reference to any shares if circumstances have arisen which would have resulted, had that relief already been given, in the withdrawal or reduction of the relief.

• (9) A person shall not under this Part of this Schedule be eligible for any relief on any amount by reference to any shares unless the shares are both subscribed for and issued for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

Loan-linked investments

2

• (1) An individual shall not be entitled to relief under this Part of this Schedule in respect of any shares if—

• (a) there is a loan made by any person, at any time in the relevant period, to that individual or any associate of his; and

• (b) the loan is one which would not have been made, or would not have been made on the same terms, if that individual had not subscribed for those shares or had not been proposing to do so.

• (2) References in this paragraph to the making by any person of a loan to any individual or an associate of his include references—

• (a) to the giving by that person of any credit to that individual or any associate of his; and

• (b) to the assignment or assignation to that person of any debt due from that individual or any associate of his.

• (3) In this paragraph—

• “associate” has the meaning given in subsections (3) and (4) of section 417, except that in those subsections (as applied for the purposes of this paragraph) “relative” shall not include a brother or sister; and

• “the relevant period”, in relation to relief under this Part of this Schedule in respect of any shares in a company which is a venture capital trust, means the period beginning with the incorporation of the company (or, if the company was incorporated more than two years before the date on which the shares were issued, beginning two years before that date) and ending five years after the issue of the shares.

Loss of investment relief

3

• (1) This paragraph applies, subject to sub-paragraph (5) below, where—

• (a) an individual who has made any claim for relief under this Part of this Schedule makes any disposal of eligible shares in a venture capital trust, and

• (b) that disposal takes place before the end of the period of five years beginning with the issue of those shares to that individual.

• (2) If the disposal is made otherwise than by way of a bargain made at arm’s length, any relief given under this Part of this Schedule by reference to the shares which are disposed of shall be withdrawn.

• (3) Where the disposal was made by way of a bargain made at arm’s length—

• (a) if, apart from this sub-paragraph, the relief given by reference to the shares that are disposed of is greater than the amount mentioned in sub-paragraph (4) below, it shall be reduced by that amount, and

• (b) if paragraph (a) above does not apply, any relief given by reference to those shares shall be withdrawn.

• (4) The amount referred to in sub-paragraph (3) above is an amount equal to tax at the lower rate for the year of assessment for which the relief was given on the amount or value of the consideration which the individual receives for the shares.

• (5) This paragraph shall not apply in the case of any disposal of shares which is made by a married man to his wife or by a married woman to her husband if it is made, in either case, at a time when they are living together.

• (6) Where any eligible shares issued to any individual (“the transferor”), being shares by reference to which any amount of relief under this Part of this Schedule has been given, are transferred to the transferor’s spouse (“the transferee”) by a disposal such as is mentioned in sub-paragraph (5) above, this paragraph shall have effect, in relation to any subsequent disposal or other event, as if—

• (a) the transferee were the person who had subscribed for the shares,

• (b) the shares had been issued to the transferee at the time when they were issued to the transferor,

• (c) there had been, in respect of the transferred shares, such a reduction under this Part of this Schedule in the transferee’s liability to income tax as is equal to the actual reduction in respect of those shares of the transferor’s liability, and

• (d) that deemed reduction were (notwithstanding the transfer) to be treated for the purposes of this paragraph as an amount of relief given by reference to the shares transferred.

• (7) Any assessment for withdrawing or reducing relief by reason of a disposal or other event falling within sub-paragraph (6) above shall be made on the transferee.

• (8) In determining for the purposes of this paragraph any question whether any disposal relates to shares by reference to which any relief under this Part of this Schedule has been given, it shall be assumed, in relation to any disposal by any person of any eligible shares in a venture capital trust, that—

• (a) as between eligible shares acquired by the same person on different days, those acquired on an earlier day are disposed of by that person before those acquired on a later day; and

• (b) as between eligible shares acquired by the same person on the same day, those by reference to which relief under this Part of this Schedule has been given are disposed of by that person only after he has disposed of any other eligible shares acquired by him on that day.

• (9) Where—

• (a) the approval of any company as a venture capital trust is withdrawn, and

• (b) the withdrawal of the approval is not one to which section 842AA(8) applies,

any person who, at the time when the withdrawal takes effect, is holding any shares by reference to which relief under this Part of this Schedule has been given shall be deemed for the purposes of this paragraph to have disposed of those shares immediately before that time and otherwise than by way of a bargain made at arm’s length.

Assessment on withdrawal or reduction of relief

4

• (1) Any relief given under this Part of this Schedule which is subsequently found not to have been due shall be withdrawn by the making of an assessment to tax under Case VI of Schedule D for the year of assessment for which the relief was given.

• (2) An assessment for withdrawing or reducing relief in pursuance of paragraph 3 above shall also be made as an assessment to tax under Case VI of Schedule D for the year of assessment for which the relief was given.

• (3) No assessment for withdrawing or reducing relief given by reference to shares issued to any person shall be made by reason of any event occurring after his death.

Provision of information

5

• (1) Where an event occurs by reason of which any relief under this Part of this Schedule falls to be withdrawn or reduced, the individual to whom the relief was given shall, within 60 days of his coming to know of the event, give a notice to the inspector containing particulars of the event.

• (2) If the inspector has reason to believe that a person has not given a notice which he is required to give under sub-paragraph (1) above in respect of any event, the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event as the inspector may reasonably require for the purposes of this Part of this Schedule.

• (3) No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a venture capital trust that relief given by reference to a particular number or proportion of its shares has been given or claimed under this Part of this Schedule.

Interpretation of Part I

6

• (1) In this Part of this Schedule “eligible shares”, in relation to a company which is a venture capital trust, means new ordinary shares in that trust which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future preferential right to be redeemed.

• (2) In this Part of this Schedule “ordinary shares”, in relation to a company, means shares forming part of a company’s ordinary share capital.

• (3) In this Part of this Schedule references to a disposal of shares shall include references to a disposal of an interest or right in or over the shares.

Part II — Relief on distributions

7

• (1) A relevant distribution of a venture capital trust shall not be regarded as income for any income tax purposes if the person beneficially entitled to it is a qualifying investor.

• (2) For the purposes of this paragraph a person is a qualifying investor, in relation to any distribution, if he is an individual who has attained the age of eighteen years and is beneficially entitled to the distribution—

• (a) as the person who himself holds the shares in respect of which the distribution is made, or

• (b) as a person with such a beneficial entitlement to the shares as derives from their being held for him, or for his benefit, by a nominee of his.

• (3) In this paragraph “relevant distribution”, in relation to a company which is a venture capital trust, means any distribution which—

• (a) consists in a dividend (including a capital dividend) which is paid in respect of any ordinary shares in that company which—

• (i) were acquired by the person to whom the distribution is made at a time when the company was such a trust, and

• (ii) are not shares acquired in excess of the permitted maximum for any year of assessment;

and

• (b) is not a dividend paid in respect of profits or gains arising or accruing in any accounting period ending at a time when the company was not such a trust.

Meaning of “permitted maximum”

8

• (1) For the purposes of this Part of this Schedule shares in a venture capital trust shall be treated, in relation to any individual, as acquired in excess of the permitted maximum for any year of assessment to the extent that the value of the shares comprised in the relevant acquisitions of that individual for that year exceeds £100,000.

• (2) The reference in sub-paragraph (1) above to the relevant acquisitions of an individual for a year of assessment is a reference to all shares which—

• (a) are acquired in that year of assessment by that individual or any nominee of his;

• (b) are ordinary shares in a company which is a venture capital trust at the time of their acquisition; and

• (c) are shares so acquired for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.

• (3) Sub-paragraph (4) below applies where—

• (a) any ordinary shares in a venture capital trust (“the new shares”) are acquired by any individual in circumstances in which they are required for the purposes of the 1992 Act to be treated as the same assets as any other shares; and

• (b) the other shares consist of or include any ordinary shares in a venture capital trust that were, or are treated as, acquired otherwise than in excess of the permitted maximum for any year of assessment.

• (4) Where this sub-paragraph applies—

• (a) the value of the new shares shall be disregarded in determining whether any other shares acquired in the same year of assessment as the new shares are acquired in excess of the permitted maximum for that year; and

• (b) the new shares or, as the case may be, an appropriate proportion of them shall be treated as themselves acquired otherwise than in excess of the permitted maximum.

• (5) For the purposes of this paragraph the value of any shares acquired by or on behalf of any individual shall be taken to be their market value (within the meaning of the 1992 Act) at the time of their acquisition.

• (6) Where any shares in a venture capital trust are acquired in excess of the permitted maximum for any year of assessment, the shares representing the excess shall be identified for the purposes of this Part of this Schedule—

• (a) by treating shares acquired later in the year as comprised in the excess before those acquired earlier in the year;

• (b) by treating shares of different descriptions acquired on the same day as acquired within the permitted maximum in the same proportions as are borne by the respective values of the shares comprised in the acquisitions of each description to the total value of all the shares in the trust acquired on that day; and

• (c) by applying the rules in section 151A(4) and (5) of the 1992 Act for determining the shares to which any disposal of shares in the trust relates (even one which is not a disposal for the purposes of that Act).

Interpretation of Part II

9

• (1) In this Part of this Schedule “ordinary shares”, in relation to a company, means shares forming part of the company’s ordinary share capital.

• (2) In this Part of this Schedule “nominee”, in relation to any individual, includes the trustees of a bare trust of which that individual is the only beneficiary.

SCHEDULE 16

Application of Schedule

1

• (1) This Schedule applies where—

• (a) there would (apart from paragraph 2(2)(a) below) be a chargeable gain (“the original gain”) accruing to an individual (“the investor”) at any time (“the accrual time”) on or after 6th April 1995;

• (b) that gain is one accruing on the disposal by the investor of any asset or in accordance with paragraphs 4 and 5 of Schedule 5B or paragraphs 4 and 5 below;

• (c) the investor makes a qualifying investment; and

• (d) the investor is resident or ordinarily resident in the United Kingdom at the accrual time and the time when he makes the qualifying investment and is not, in relation to the qualifying investment, a person to whom sub-paragraph (4) below applies.

• (2) The investor makes a qualifying investment for the purposes of this Schedule if—

• (a) he subscribes for any shares by reference to which he is given relief under Part I of Schedule 15B to the Taxes Act on any amount;

• (b) those shares are issued at a qualifying time; and

• (c) where that time is before the accrual time, those shares are still held by the investor at the accrual time;

and in this Schedule “relevant shares”, in relation to a case to which this Schedule applies, means any of the shares in a venture capital trust which are acquired by the investor in making the qualifying investment.

• (3) In this Schedule “a qualifying time”, in relation to any shares subscribed for by the investor, means—

• (a) any time in the period beginning twelve months before the accrual time and ending twelve months after the accrual time, or

• (b) any such time before the beginning of that period or after it ends as the Board may by notice allow.

• (4) This sub-paragraph applies to an individual in relation to a qualifying investment if—

• (a) though resident or ordinarily resident in the United Kingdom at the time when he makes the investment, he is regarded for the purposes of any double taxation relief arrangements as resident in a territory outside the United Kingdom; and

• (b) were section 151A(1) to be disregarded, the arrangements would have the effect that he would not be liable in the United Kingdom to tax on a gain arising on a disposal, immediately after their acquisition, of the shares acquired in making that investment.

The postponement of the original gain

2

• (1) On the making of a claim by the investor for the purposes of this Schedule, so much of the investor’s unused qualifying expenditure on relevant shares as—

• (a) is specified in the claim, and

• (b) does not exceed so much of the original gain as is unmatched,

shall be set against a corresponding amount of the original gain.

• (2) Where the amount of any qualifying expenditure on any relevant shares is set under this Schedule against the whole or any part of the original gain—

• (a) so much of that gain as is equal to that amount shall be treated as not having accrued at the accrual time; but

• (b) paragraphs 4 and 5 below shall apply for determining the gain that is to be treated as accruing on the occurrence of any chargeable event in relation to any of those relevant shares.

• (3) For the purposes of this Schedule, but subject to the following provisions of this paragraph—

• (a) the investor’s qualifying expenditure on any relevant shares is the sum equal to the amount on which he is given relief under Part I of Schedule 15B to the Taxes Act by reference to those shares; and

• (b) that expenditure is unused to the extent that it has not already been set under this Schedule against the whole or any part of a chargeable gain.

• (4) For the purposes of this paragraph the original gain is unmatched, in relation to any qualifying expenditure on relevant shares, to the extent that it has not had any other amount set against it under this Schedule or Schedule 5B.

Chargeable events

3

• (1) Subject to the following provisions of this paragraph, there is for the purposes of this Schedule a chargeable event in relation to any relevant shares if, after the making of the qualifying investment—

• (a) the investor disposes of those shares otherwise than by way of a disposal within marriage;

• (b) those shares are disposed of, otherwise than by way of a disposal to the investor, by a person who acquired them on a disposal made by the investor within marriage;

• (c) there is, in a case where those shares fall within section 151B(3)(c), such an actual or deemed exchange of those shares for any non-qualifying holdings as, under section 135 or 136, requires, or but for section 116 would require, those holdings to be treated for the purposes of this Act as the same assets as those shares;

• (d) the investor becomes a non-resident while holding those shares and within the relevant period;

• (e) a person who acquired those shares on a disposal within marriage becomes a non-resident while holding those shares and within the relevant period;

• (f) the company in which those shares are shares has its approval as a venture capital trust withdrawn in a case to which section 842AA(8) of the Taxes Act does not apply; or

• (g) the relief given under Part I of Schedule 15B to the Taxes Act by reference to those shares is withdrawn or reduced in circumstances not falling within any of paragraphs (a) to (f) above.

• (2) In sub-paragraph (1) above—

• “non-qualifying holdings” means any shares or securities other than any ordinary shares (within the meaning of section 151A) in a venture capital trust; and

• “the relevant period”, in relation to any relevant shares, means the period of five years beginning with the time when the investor made the qualifying investment by virtue of which he acquired those shares.

• (3) For the purposes of sub-paragraph (1) above there shall not be a chargeable event by virtue of sub-paragraph (1)(d) or (e) above in relation to any shares if—

• (a) the reason why the person in question becomes a non-resident is that he works in an employment or office all the duties of which are performed outside the United Kingdom, and

• (b) he again becomes resident or ordinarily resident in the United Kingdom within the period of three years from the time when he became a non-resident, without having meanwhile disposed of any of those shares;

and, accordingly, no assessment shall be made by virtue of sub-paragraph (1)(d) or (e) above before the end of that period in any case where the condition in paragraph (a) above is satisfied and the condition in paragraph (b) above may be satisfied.

• (4) For the purposes of sub-paragraph (3) above a person shall be taken to have disposed of any shares if and only if there has been such a disposal as would, if the person making the disposal had been resident in the United Kingdom, have been a chargeable event in relation to those shares.

• (5) Where in any case—

• (a) the investor or a person who has acquired any relevant shares on a disposal within marriage dies, and

• (b) an event occurs at or after the time of the death which (apart from this sub-paragraph) would be a chargeable event in relation to any relevant shares held by the deceased immediately before his death,

that event shall not be a chargeable event in relation to the shares so held.

• (6) Without prejudice to the operation of paragraphs 4 and 5 below in a case falling within sub-paragraph (1)(f) above, the references in this paragraph to a disposal shall not include references to the disposal which by virtue of section 151B(6) is deemed to take place in such a case.

Gain accruing on chargeable event

4

• (1) On the occurrence of a chargeable event in relation to any relevant shares in relation to which there has not been a previous chargeable event—

• (a) a chargeable gain shall be treated as accruing at the time of the event; and

• (b) the amount of the gain shall be equal to so much of the original gain as is an amount against which there has under this Schedule been set any expenditure on those shares.

• (2) In determining for the purposes of this Schedule any question whether any shares to which a chargeable event relates are shares the expenditure on which has under this Schedule been set against the whole or any part of any gain, the assumptions in sub-paragraph (3) below shall apply and, in a case where the shares are not (within the meaning of section 151B) eligible for relief under section 151A(1), shall apply notwithstanding anything in any of sections 104, 105 and 107.

• (3) Those assumptions are that—

• (a) as between shares acquired by the same person on different days, those acquired on an earlier day are disposed of by that person before those acquired on a later day; and

• (b) as between shares in a company that were acquired on the same day, those the expenditure on which has been set under this Schedule against the whole or any part of any gain are disposed of by that person only after he has disposed of any other shares in that company that were acquired by him on that day.

• (4) Where at the time of a chargeable event any relevant shares are treated for the purposes of this Act as represented by assets which consist of or include assets other than the relevant shares—

• (a) the expenditure on those shares which was set against the gain in question shall be treated, in determining for the purposes of this paragraph the amount of expenditure on each of those assets which is to be treated as having been set against that gain, as apportioned in such manner as may be just and reasonable between those assets; and

• (b) as between different assets treated as representing the same relevant shares, the assumptions mentioned in sub-paragraph (3) above shall apply with the necessary modifications in relation to those assets as they would apply in relation to the shares.

Persons to whom gain accrues

5

• (1) The chargeable gain which accrues in accordance with paragraph 4 above on the occurrence in relation to any relevant shares of a chargeable event shall be treated as accruing, as the case may be—

• (a) to the person who makes the disposal,

• (b) to the person who holds the shares in question at the time of the exchange or deemed exchange,

• (c) to the person who becomes a non-resident,

• (d) to the person who holds the shares in question when the withdrawal of the approval takes effect, or

• (e) to the person who holds the shares in question when the circumstances arise in respect of which the relief is withdrawn or reduced.

• (2) Where—

• (a) sub-paragraph (1) above provides for the holding of shares at a particular time to be what identifies the person to whom any chargeable gain accrues, and

• (b) at that time, some of those shares are held by the investor and others are held by a person to whom the investor has transferred them by a disposal within marriage,

the amount of the chargeable gain accruing by virtue of paragraph 4 above shall be computed separately in relation to the investor and that person without reference to the shares held by the other.

Interpretation

6

• (1) In this Schedule “non-resident” means a person who is neither resident nor ordinarily resident in the United Kingdom.

• (2) In this Schedule references to a disposal within marriage are references to any disposal to which section 58 applies.

• (3) Notwithstanding anything in section 288(5), shares shall not for the purposes of this Schedule be treated as issued by reason only of being comprised in a letter of allotment or similar instrument.

SCHEDULE 17

Part I — The new provisions

1

In Part XV of the Taxes Act 1988 (settlements) the following provisions are inserted (in place of sections 660 to 676 and 683 to 685) as Chapter IA—

(660A) (1) Income arising under a settlement during the life of the settlor shall be treated for all purposes of the Income Tax Acts as the income of the settlor and not as the income of any other person unless the income arises from property in which the settlor has no interest. (2) Subject to the following provisions of this section, a settlor shall be regarded as having an interest in property if that property or any derived property is, or will or may become, payable to or applicable for the benefit of the settlor or his spouse in any circumstances whatsoever. (3) The reference in subsection (2) above to the spouse of the settlor does not include— (a) a person to whom the settlor is not for the time being married but may later marry, or (b) a spouse from whom the settlor is separated under an order of a court, or under a separation agreement or in such circumstances that the separation is likely to be permanent, or (c) the widow or widower of the settlor. (4) A settlor shall not be regarded as having an interest in property by virtue of subsection (2) above if and so long as none of that property, and no derived property, can become payable or applicable as mentioned in that subsection except in the event of— (a) the bankruptcy of some person who is or may become beneficially entitled to the property or any derived property, or (b) an assignment of or charge on the property or any derived property being made or given by some such person, or (c) in the case of a marriage settlement, the death of both parties to the marriage and of all or any of the children of the marriage, or (d) the death of a child of the settlor who had become beneficially entitled to the property or any derived property at an age not exceeding 25. (5) A settlor shall not be regarded as having an interest in property by virtue of subsection (2) above if and so long as some person is alive and under the age of 25 during whose life that property, or any derived property, cannot become payable or applicable as mentioned in that subsection except in the event of that person becoming bankrupt or assigning or charging his interest in the property or any derived property. (6) The reference in subsection (1) above to a settlement does not include an outright gift by one spouse to the other of property from which income arises, unless— (a) the gift does not carry a right to the whole of that income, or (b) the property given is wholly or substantially a right to income. For this purpose a gift is not an outright gift if it is subject to conditions, or if the property given or any derived property is or will or may become, in any circumstances whatsoever, payable to or applicable for the benefit of the donor. (7) The reference in subsection (1) above to a settlement does not include an irrevocable allocation of pension rights by one spouse to the other in accordance with the terms of a relevant statutory scheme (within the meaning of Chapter I of Part XIV). (8) Subsection (1) above does not apply to income arising under a settlement made by one party to a marriage by way of provision for the other— (a) after the dissolution or annulment of the marriage, or (b) while they are separated under an order of a court, or under a separation agreement or in such circumstances that the separation is likely to be permanent, being income payable to or applicable for the benefit of that other party. (9) Subsection (1) above does not apply to income consisting of— (a) annual payments made by an individual for bona fide commercial reasons in connection with his trade, profession or vocation; or (b) covenanted payments to charity (as defined by section 347A(7)). (10) In this section “derived property”, in relation to any property, means income from that property or any other property directly or indirectly representing proceeds of, or of income from, that property or income therefrom. (660B) (1) Income arising under a settlement which does not fall to be treated as income of the settlor under section 660A but which during the life of the settlor is paid to or for the benefit of an unmarried minor child of the settlor in any year of assessment shall be treated for all the purposes of the Income Tax Acts as the income of the settlor for that year and not as the income of any other person. (2) Where income arising under a settlement is retained or accumulated by the trustees, any payment whatsoever made thereafter by virtue or in consequence of the settlement, or any enactment relating thereto, to or for the benefit of an unmarried minor child of the settlor shall be deemed for the purposes of subsection (1) above to be a payment of income if or to the extent that there is available retained or accumulated income. (3) There shall be taken to be available retained or accumulated income at any time when the aggregate amount of the income which has arisen under the settlement since it was made or entered into exceeds the aggregate amount of income so arising which has been— (a) treated as income of the settlor or a beneficiary, or (b) paid (whether as income or capital) to or for the benefit of a beneficiary other than an unmarried minor child of the settlor, or (c) applied in defraying expenses of the trustees which were properly chargeable to income (or would have been so chargeable but for any express provisions of the trust). (4) Where an offshore income gain (within the meaning of Chapter V of Part XVII) accrues in respect of a disposal of assets made by a trustee holding them for a person who would be absolutely entitled as against the trustee but for being a minor, the income which by virtue of section 761(1) is treated as arising by reference to that gain shall for the purposes of this section be deemed to be paid to that person. (5) Income paid to or for the benefit of a child of a settlor shall not be treated as provided in subsection (1) above for a year of assessment in which the aggregate amount paid to or for the benefit of that child which but for this subsection would be so treated does not exceed £100. (6) In this section— (a) “child” includes a stepchild and an illegitimate child; (b) “minor” means a person under the age of 18 years, and “minor child” shall be construed accordingly; and (c) references to payments include payments in money or money’s worth. (660C) (1) Tax chargeable by virtue of this Chapter shall be charged under Case VI of Schedule D. (2) In computing the liability to income tax of a settlor chargeable by virtue of this Chapter the same deductions and reliefs shall be allowed as would have been allowed if the income treated as his by virtue of this Chapter had been received by him. (3) Subject to section 833(3), income which is treated by virtue of this Chapter as income of a settlor shall be deemed for the purposes of this section to be the highest part of his income. (660D) (1) Where by virtue of this Chapter income tax becomes chargeable on and is paid by a settlor, he is entitled— (a) to recover from any trustee, or any other person to whom the income is payable by virtue or in consequence of the settlement, the amount of the tax so paid; and (b) for that purpose to require an officer of the Board to furnish to him a certificate specifying the amount of income in respect of which he has so paid tax and the amount of tax so paid. A certificate so furnished is conclusive evidence of the facts stated therein. (2) Where a person obtains, in respect of an allowance or relief, a repayment of income tax in excess of the amount of the repayment to which he would, but for this Chapter, have been entitled, an amount equal to the excess shall be paid by him to the trustee, or other person to whom the income is payable by virtue or in consequence of the settlement, or, where there are two or more such persons, shall be apportioned among those persons as the case may require. If any question arises as to the amount of a payment or as to an apportionment to be made under this subsection, that question shall be decided by the General Commissioners whose decision shall be final. (3) Nothing in this Chapter shall be construed as excluding a charge to tax on the trustees as persons by whom any income is received. (660E) (1) In the case of a settlement where there is more than one settlor, this Chapter shall have effect in relation to each settlor as if he were the only settlor, as follows. (2) In this Chapter, in relation to a settlor— (a) references to the property comprised in a settlement include only property originating from that settlor, and (b) references to income arising under the settlement include only income originating from that settlor. (3) For the purposes of section 660B there shall be taken into account, in relation to a settlor, as income paid to or for the benefit of a child of the settlor only— (a) income originating from that settlor, and (b) in a case in which section 660B(2) applies, payments which are under that provision (as adapted by subsection (4) below) to be deemed to be payments of income. (4) In applying section 660B(2) to a settlor— (a) the reference to income arising under the settlement includes only income originating from that settlor; and (b) the reference to any payment made by virtue or in consequence of the settlement or any enactment relating thereto includes only a payment made out of property originating from that settlor or income originating from that settlor. (5) References in this section to property originating from a settlor are references to— (a) property which that settlor has provided directly or indirectly for the purposes of the settlement; and (b) property representing that property; and (c) so much of any property which represents both property so provided and other property as, on a just apportionment, represents the property so provided. (6) References in this section to income originating from a settlor are references to— (a) income from property originating from that settlor; and (b) income provided directly or indirectly by that settlor. (7) In subsections (5) and (6) above— (a) references to property or income which a settlor has provided directly or indirectly include references to property or income which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor, but do not include references to property or income which that settlor has provided directly or indirectly in pursuance of reciprocal arrangements with another person; and (b) references to property which represents other property include references to property which represents accumulated income from that other property. (660F) An officer of the Board may by notice require any party to a settlement to furnish him within such time as he may direct (not being less than 28 days) with such particulars as he thinks necessary for the purposes of this Chapter. (660G) (1) In this Chapter— - “settlement” includes any disposition, trust, covenant, agreement, arrangement or transfer of assets, and - “settlor”, in relation to a settlement, means any person by whom the settlement was made. (2) A person shall be deemed for the purposes of this Chapter to have made a settlement if he has made or entered into the settlement directly or indirectly, and, in particular, but without prejudice to the generality of the preceding words, if he has provided or undertaken to provide funds directly or indirectly for the purpose of the settlement, or has made with any other person a reciprocal arrangement for that other person to make or enter into the settlement. (3) References in this Chapter to income arising under a settlement include, subject to subsection (4) below, any income chargeable to income tax by deduction or otherwise, and any income which would have been so chargeable if it had been received in the United Kingdom by a person domiciled, resident and ordinarily resident in the United Kingdom. (4) Where the settlor is not domiciled, or not resident, or not ordinarily resident, in the United Kingdom in a year of assessment, references in this Chapter to income arising under a settlement do not include income arising under the settlement in that year in respect of which the settlor, if he were actually entitled thereto, would not be chargeable to income tax by deduction or otherwise by reason of his not being so domiciled, resident or ordinarily resident. But where such income is remitted to the United Kingdom in circumstances such that, if the settlor were actually entitled to that income when remitted, he would be chargeable to income tax by reason of his residence in the United Kingdom, it shall be treated for the purposes of this Chapter as arising under the settlement in the year in which it is remitted.

Part II — Minor and consequential amendments of the Taxes Act 1988

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4

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

• (2) In section 347A of the Taxes Act 1988, after subsection (6) add—

(7) In subsection (2)(b) above “a covenanted payment to charity” means a payment made under a covenant made otherwise than for consideration in money or money’s worth in favour of a body of persons or trust established for charitable purposes only whereby the like annual payments (of which the payment in question is one) become payable for a period which may exceed three years and is not capable of earlier termination under any power exercisable without the consent of the persons for the time being entitled to the payments. (8) For the purposes of subsection (7) above the bodies mentioned in section 507 shall each be treated as a body of persons established for charitable purposes only.

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7

In section 505(6) of the Taxes Act 1988, for “section 660(3)” substitute “ section 347A(7) ”.

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9

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10

In section 678 of the Taxes Act 1988, omit subsection (7).

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12

For the heading before section 686 of the Taxes Act 1988 substitute—

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14

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15

Omit section 689 of the Taxes Act 1988 (recovery from trustees of discretionary trusts of higher rate tax due from beneficiaries).

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Part III — Consequential amendments of other enactments

Taxes Management Act 1970 (c. 9)

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22

In section 31(3) of the Taxes Management Act 1970 (including that provision as proposed to be substituted by paragraph 7 of Schedule 19 to the Finance Act 1994), for “sections 660 to 685” substitute “ sections 660A to 660G or 677 to 682A ”.

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Finance Act 1989 (c. 26)

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25

In section 60 of the Finance Act 1989, omit subsection (3) and in subsection (4) for “subsections (2) and (3)” substitute “ subsection (2) ”.

Finance Act 1990 (c. 29)

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Taxation of Chargeable Gains Act 1992 (c. 12)

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30

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31

In section 286 of the Taxation of Chargeable Gains Act 1992, for subsection (3) substitute—

(3) A person, in his capacity as trustee of a settlement, is connected with— (a) any individual who in relation to the settlement is a settlor, (b) any person who is connected with such an individual, and (c) any body corporate which is connected with that settlement. In this subsection “settlement” and “settlor” have the same meaning as in Chapter IA of Part XV of the Taxes Act (see section 660G(1) and (2) of that Act). (3A) For the purpose of subsection (3) above a body corporate is connected with a settlement if— (a) it is a close company (or only not a close company because it is not resident in the United Kingdom) and the participators include the trustees of the settlement; or (b) it is controlled (within the meaning of section 840 of the Taxes Act) by a company falling within paragraph (a) above.

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SCHEDULE 18

Introductory

1

Part XVI of the Taxes Act 1988 shall be amended as follows.

Limited interests in residue

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Absolute interests in residue

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• (1) In section 696 (absolute interests in residue), for subsection (3) there shall be substituted the following subsections—

(3) When any sum has been paid during the administration period in respect of that absolute interest, that sum, except so far as it is excluded from the operation of this subsection, shall be deemed for all tax purposes to have been paid to that person as income for the year of assessment in which it was actually paid. (3A) A payment shall be excluded from the operation of subsection (3) above to the extent (if any) that the aggregate of that sum and all the sums which— (a) have been paid previously during the administration period in respect of that absolute interest, and (b) fall under this section to be treated as paid to that person as income, exceeds the aggregated income entitlement of that person for the year of assessment in which the sum is paid. (3B) For the purposes of this section the aggregated income entitlement of that person for any year of assessment is the amount which would be the aggregate of the amounts received for that year of assessment and all previous years of assessment in respect of the interest if that person had a right in each year to receive, and had received— (a) in the case of a United Kingdom estate, his residuary income for that year less income tax at the applicable rate for that year; and (b) in the case of a foreign estate, his residuary income for that year.

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

(5) Where, on the completion of the administration of the estate, the aggregate of all the sums which, apart from this subsection— (a) have been paid during the administration period in respect of that absolute interest, and (b) fall under this section to be treated as paid to that person as income, is exceeded by the aggregated income entitlement of that person for the year of assessment in which the administration of the estate is completed, then an amount equal to the amount of the excess shall be treated for the purposes of subsections (3) to (4) above as having been actually paid, immediately before the end of the administration period, in respect of that interest.

• (3) Sub-paragraph (1) above has effect, subject to sub-paragraph (4) below, in relation to any payment made on or after 6th April 1995; and sub-paragraph (2) above shall have effect in relation to any estate the administration of which is completed on or after 6th April 1995.

• (4) Where any sum is deemed by virtue of subsection (3) of section 696 of the Taxes Act 1988 (as it has effect apart from this Schedule) and sections 652, 660 and 665 of the Income Tax (Trading and Other Income) Act 2005 to have been paid to any person as income for the year 1994-95 or any previous year of assessment, that sum shall be treated for the purposes of subsections (3A) and (5) of that section (as they have effect by virtue of this Schedule) as a sum actually paid in respect of that person’s absolute interest in that year of assessment.

Supplemental provisions relating to section 696

4

• (1) After subsection (1) of section 697 (calculation of residuary income) there shall be inserted the following subsection—

(1A) For the purpose of ascertaining under subsection (1) above the residuary income of an estate for any year, where the amount of the deductions falling to be made from the aggregate income of the estate for that year (including any falling to be made by virtue of this subsection) exceeds the amount of that income, the excess shall be carried forward and treated for that purpose as an amount falling to be deducted from the aggregate income of the estate for the following year.

• (2) In subsection (2) of that section (reduction of residuary income where benefits received are less than aggregate of residuary income), for the words from “his residuary income for” onwards there shall be substituted “ section 696 shall have effect as if the amount of the deficiency were to be applied in reducing the amount taken to be his residuary income for the year in which the administration of the estate is completed and, in so far as the deficiency exceeds that income, in reducing the amount taken to be his residuary income for the previous year, and so on. ”

• (3) Sub-paragraph (1) above has effect for ascertaining the residuary income of an estate for the year 1995-96 or any subsequent year of assessment; and sub-paragraph (2) above has effect in relation to any estate the administration of which is completed on or after 6th April 1995.

Special provisions as to successive interests in residue

5

• (1) For subsection (2) of section 698 (special provisions as to successive interests in residue) there shall be substituted the following subsections—

(1A) Subsection (1B) below applies where— (a) successively during the administration period there are different persons with interests in the residue of the estate of a deceased person or in parts of such a residue; (b) the later interest or, as the case may be, each of the later interests arises or is created on the cessation otherwise than by death of the interest that precedes it; and (c) the earlier or, as the case may be, earliest interest is a limited interest. (1B) Where this subsection applies, this Part shall have effect in relation to any payment made in respect of any of the interests referred to in subsection (1A) above— (a) as if all those interests were the same interest so that none of them is to be treated as having ceased on being succeeded by any of the others; (b) as if (subject to paragraph (c) below) the interest which is deemed to exist by virtue of paragraph (a) above (“the deemed single interest”) were an interest of— (i) except in a case to which sub-paragraph (ii) below applies, the person in respect of whose interest or previous interest the payment is made; (ii) in a case where the person entitled to receive the payment is any other person who has or has had an interest which is deemed to be comprised in the deemed single interest, that other person; and (c) in so far as any of the later interests is an absolute interest as if, for the purposes of section 696(3A) to (5)— (i) the earlier interest or interests had never existed and the absolute interest had always existed; (ii) the sums (if any) which were deemed in relation to the earlier interest or interests to have been paid as income for any year of assessment to any of the persons entitled thereto were sums previously paid during the administration period in respect of the absolute interest; and (iii) those sums were sums falling to be treated as sums paid as income to the person entitled to the absolute interest. (2) Where successively during the administration period there are different persons with absolute interests in the residue of the estate of a deceased person or in parts of such a residue, the aggregate payments and aggregated income entitlement referred to in subsections (3A) and (3B) of section 696 shall be computed for the purposes of that section in relation to an absolute interest subsisting at any time (“the subsequent interest”)— (a) as if the subsequent interest and any previous absolute interest corresponding to the subsequent interest, or relating to any part of the residue to which the subsequent interest relates, were the same interest; and (b) as if the residuary income for any year of the person entitled to the previous interest were residuary income of the person entitled to the subsequent interest and any amount deemed to be paid as income to the person entitled to the previous interest were an amount deemed to have been paid to the person entitled to the subsequent interest.

• (2) This paragraph has effect in relation to any payment made on or after 6th April 1995 and, so far as it relates to the operation of section 695(3) or 696(5) of the Taxes Act 1988, in relation to any estate the administration of which is completed on or after that date.

Adjustments and information

6

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Interpretation

7

Subsection (14) of section 701 (cases where residuary income has borne income tax at the additional rate) shall cease to have effect.

SCHEDULE 19

Introductory

1

• (1) In this Schedule—

• (a) “approved stock lending arrangement” means an arrangement such as is mentioned in subsection (1), (2) or (2A) of section 129 and in relation to which that section and section 271(9) of the 1992 Act apply;

• (b) “the borrower”, in relation to such an arrangement, means the person to whom the securities are transferred under the arrangement; and

• (c) “the lender” means the person making that transfer and to whom, in return, securities of the same kind and amount are to be transferred.

• (2) References in this Schedule to the borrower or lender under an approved stock lending arrangement include any person acting as the nominee of the borrower or lender.

Treatment of interest earned on cash collateral

2

• (1) This paragraph applies where in connection with an approved stock lending arrangement—

• (a) the borrower pays to the lender an amount (“cash collateral”) by way of security for the performance of the obligation to transfer to the lender securities of the same kind and amount as those transferred by him;

• (b) interest is earned by the lender on the whole of the cash collateral in respect of the period for which he holds it, and is paid to him without deduction of tax; and

• (c) the lender pays to the borrower an amount (“rebate interest”) equal to the amount of interest earned by him on the cash collateral.

• (2) Where this paragraph applies—

• (a) the interest earned by the lender on the cash collateral shall be treated for all purposes of the Tax Acts as the income of the borrower and not as the income of the lender;

• (b) the lender shall not be required to deduct from the payment of rebate interest any sum representing income tax thereon;

• (c) no relief shall be given to the lender in respect of the payment under any provision of the Tax Acts; and

• (d) the rebate interest shall not be regarded as the income of the borrower.

• (3) This paragraph does not apply unless the amount of the rebate interest is identified as such by the parties separately from any fee or other amount payable in connection with the arrangement.

Application of paragraph 2 in case of chain of arrangements

3

• (1) Where the lender under one or more approved stock lending arrangements (“the lending arrangements”) is also the borrower under one or more other such arrangements (“the borrowing arrangements”) entered into to enable him to fulfil his obligations under the former arrangements, the interest which by virtue of paragraph 2(2)(a) above as it applies in relation to the borrowing arrangements is treated as his (the “attributed interest”) shall be treated for the purposes of that paragraph as it applies in relation to the lending arrangements as interest earned by him on the cash collateral provided under those arrangements, as follows.

• (2) Where the aggregate amount of the cash collateral provided under the borrowing arrangements equals that provided under the lending arrangements, the whole of the attributed interest shall be so treated.

• (3) Where the aggregate amount of the cash collateral provided under the borrowing arrangements exceeds that provided under the lending arrangements, a part of the attributed interest shall be so treated.

That part shall be the proportion of the attributed interest which the aggregate amount of the cash collateral provided under the lending arrangements bears to that provided under the borrowing arrangements.

• (4) Where the aggregate amount of the cash collateral provided under the borrowing arrangements is less than that provided under the lending arrangements, the attributed interest shall be treated as earned by him on a part of the cash collateral provided under the lending arrangements.

That part shall be an amount equal to the aggregate amount of the cash collateral provided under the borrowing arrangements.

Interpretation

4

In this Schedule—

• “relief” means relief by way of— deduction in computing profits or gains, or deduction or set off against income or total profits; and

• “securities” includes stocks and shares.

SCHEDULE 20

Making of claims

1

In Schedule 1A to the Management Act (claims etc. not included in returns), in sub-paragraph (5) of paragraph 2 (making of claims), for paragraph (b) there shall be substituted the following paragraphs—

(b) such information as is reasonably required for the purpose of determining whether and, if so, the extent to which the claim is correct; (bb) the delivery with the claim of such accounts, statements and documents, relating to information contained in the claim, as are reasonably required for the purpose mentioned in paragraph (b) above;

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Keeping and preserving of records

2

After paragraph 2 of that Schedule there shall be inserted the following paragraph—

(2A) (1) Any person who may wish to make a claim in relation to 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 a correct and complete claim; and (b) shall preserve those records until the end of the relevant day. (2) In relation to a claim, the relevant day for the purposes of sub-paragraph (1) above is whichever of the following is the latest, namely— (a) where enquiries into the claim or any amendment of the claim are made by an officer of the Board, the day on which, by virtue of paragraph 7(4) below, those enquiries are treated as completed; and (b) where no enquiries into the claim or any amendment of the claim are so made, the day on which such an officer no longer has power to make such enquiries. (3) The duty under sub-paragraph (1) above to preserve records may be discharged by the preservation of the information contained in them; and where the 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. (4) Any person who fails to comply with sub-paragraph (1) above in relation to any claim which is made for a year of assessment or accounting period shall be liable to a penalty not exceeding £3,000.

Amendments of claims

3

In paragraph 3 of that Schedule (amendments of claims), in sub-paragraph (1)(a), for the word “return” there shall be substituted the word “ claim ”.

Giving effect to claims and amendments

4

• (1) At the beginning of sub-paragraph (1) of paragraph 4 of that Schedule (giving effect to claims and amendments) there shall be inserted the words “ Subject to sub-paragraphs (1A) and (3) below and to any other provision in the Taxes Acts which otherwise provides, ”.

• (2) After that sub-paragraph there shall be inserted the following sub-paragraph—

(1A) In relation to a claim which would otherwise fall to be taken into account in the making of deductions or repayments of tax under section 203 of the principal Act, sub-paragraph (1) above shall apply as if for the word “shall” there were substituted the word “may”.

• (3) At the beginning of sub-paragraph (2) of that paragraph there shall be inserted the words “ Subject to sub-paragraph (3) below, ”.

• (4) After the said sub-paragraph (2) there shall be inserted the following sub-paragraph—

(3) Where any such claim or amendment as is mentioned in sub-paragraph (1) or (2) above is enquired into by an officer of the Board— (a) that sub-paragraph shall not apply until the day on which, by virtue of paragraph 7(4) below, the officer’s enquiries are treated as completed; but (b) the officer may at any time before that day give effect to the claim or amendment, on a provisional basis, to such extent as he thinks fit.

Power to enquire into claims

5

In paragraph 5 of that Schedule (power to enquire into claims), for sub-paragraphs (2) and (3) there shall be substituted the following sub-paragraphs—

(2) The period referred to in sub-paragraph (1) above is whichever of the following ends the latest, namely— (a) the period ending with the quarter day next following the first anniversary of the day on which the claim or amendment was made; (b) where the claim or amendment relates to a year of assessment, the period ending with the first anniversary of the 31st January next following that year; and (c) where the claim or amendment relates to a period other than a year of assessment, the period ending with the first anniversary of the end of that period; and the quarter days for the purposes of this sub-paragraph are 31st January, 30th April, 31st July and 31st October. (3) A claim or amendment which has been enquired into under sub-paragraph (1) above shall not be the subject of— (a) a further notice under that sub-paragraph; or (b) if it is subsequently included in a return, a notice under section 9A(1), 11AB(1) or 12AC(1) of this Act.

SCHEDULE 21

Notice of liability

1

Section 7 of the Management Act (notice of liability) shall have effect as respects the year 1995-96 as if the reference in subsection (7) to a self-assessment made under section 9 of that Act in respect of that year were a reference to assessments made more than six months after the end of that year.

Payments on account of income tax

2

• (1) Section 59A of that Act (payments on account of income tax) shall have effect as respects the year 1996-97 with the modifications made by sub-paragraphs (2) to (7) below.

• (2) The references in subsections (1)(a) and (4A) to a person being assessed to income tax under section 9 of that Act shall be construed as references to his being assessed to income tax under section 29 of that Act.

• (3) The reference in subsection (1)(b) to the assessed amount shall be construed as a reference to the difference between that amount and the aggregate of the following, namely—

• (a) so much of any income tax charged at a higher rate on any income—

• (i) from which tax has been deducted otherwise than under section 203 of the Taxes Act 1988, or

• (ii) from or on which income tax is treated as having been deducted or paid,

as is attributable to the difference between that rate and the basic rate; and

• (b) so much of any income tax charged at a higher rate on any income chargeable under Schedule F as is attributable to the difference between that rate and the lower rate.

• (4) The reference in subsection (1)(c) to the relevant amount shall be construed as a reference to the difference between that amount and the amount of any income tax charged under Schedule E which—

• (a) has not been deducted under section 203 of the Taxes Act 1988; and

• (b) is not charged by an assessment made under regulation 103 of the Income Tax (Employments) Regulations 1993.

• (5) Subsection (2) shall have effect as if it required—

• (a) the first payment on account to be of an amount equal to the aggregate of—

• (i) such part of the relevant amount as represents tax charged under Schedule A or any of Cases III to VI of Schedule D; and

• (ii) 50 per cent. of the remaining part of the relevant amount, and

• (b) the second payment on account to be of an amount equal to 50 per cent. of that remaining part.

• (6) Subsection (4) shall have effect as if it provided that, in the circumstances there mentioned—

• (a) the amount of the first payment on account should be, and should be deemed always to have been, equal to the aggregate of—

• (i) such part of the stated amount as represents tax charged under Schedule A or any of Cases III to VI of Schedule D; and

• (ii) 50 per cent. of the remaining part of the stated amount, and

• (b) the amount of the second payment on account should be, and should be deemed always to have been, equal to 50 per cent. of that remaining part.

• (7) Subsection (4A) shall have effect as if it provided that, in the circumstances and subject as there mentioned—

• (a) the amount of the first payment on account should be, and should be deemed always to have been, equal to the aggregate of—

• (i) such part of the relevant amount (as determined on the basis of the assessment or, as the case may be, the assessment as amended) as represents tax charged under Schedule A or any of Cases III to VI of Schedule D; and

• (ii) 50 per cent. of the remaining part of the relevant amount, as so determined, and

• (b) the amount of the second payment on account should be, and should be deemed always to have been, equal to 50 per cent. of that remaining part.

• (8) In this paragraph “higher rate” means a rate other than the basic rate or the lower rate.

Partnerships

3

• (1) This paragraph applies in the case of a partnership whose trade, profession or business is set up and commenced before 6th April 1994.

• (2) Section 32 of the Management Act (relief for double assessments to tax) shall have effect, as respects each partner and the year 1996-97, as if the partnership had not been assessed to income tax for that year.

• (3) Section 59B of that Act (payment of income tax and capital gains tax) shall have effect, as respects each partner and that year, as if his share of any income tax to which the partnership is assessed for that year were income tax which in respect of that year had been deducted at source.

SCHEDULE 22

Part I — Cases I and II of Schedule D

Increase of profits or gains of transitional period

1

• (1) This paragraph applies where, in the case of a trade, profession or vocation carried on by any person—

• (a) paragraph 2(2) of Schedule 20 to the Finance Act 1994 applies without the modification made by paragraph 2(3) of that Schedule; and

• (b) any amount which is included in the profits or gains of the transitional period would not have been so included if—

• (i) any relevant change made by that person had not been made; or

• (ii) any relevant transaction entered into by that person had not been entered into.

• (2) Subject to sub-paragraph (3) below, the said paragraph 2(2) shall have effect as if the reference to the appropriate percentage of the aggregate of the amounts there mentioned were a reference to the aggregate of—

• (a) that percentage of each of those amounts; and

• (b) 1.25 times the complementary percentage of each of the amounts falling within sub-paragraph (1)(b) above.

• (3) Sub-paragraph (2) above does not apply where—

• (a) the aggregate of the amounts falling within sub-paragraph (1)(b) above is less than such amount as may be prescribed by regulations made by the Board;

• (b) the proportion which the aggregate of those amounts bears to the aggregate of the amounts mentioned in the said paragraph 2(2) is less than such proportion as may be so prescribed; or

• (c) the appropriate percentage of the turnover for the transitional period is less than such amount as may be so prescribed;

and regulations under this sub-paragraph may make as respects trades or professions carried on by persons in partnership provision different from that made as respects trades, professions or vocations carried on by individuals.

• (4) In this paragraph—

• “the appropriate percentage” means the following expressed as a percentage, that is, 365 divided by the number of days in the transitional period;

• “the complementary percentage” means the difference between 100 per cent. and the appropriate percentage;

• “the transitional period” means the basis period for the year 1996-97 and the relevant period (within the meaning of paragraph 2 of Schedule 20 to the Finance Act 1994) taken together.

2

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

Increase of profits or gains of transitional overlap period

3

• (1) This paragraph applies where, in the case of a trade, profession or vocation carried on by any person—

• (a) paragraph 52 of Schedule 2 to the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA 2005”) applies; and

• (b) any amount which is included in the transitional overlap profit would not have been so included if—

• (i) any relevant change made by that person had not been made; or

• (ii) any relevant transaction entered into by that person had not been entered into.

• (2) Subject to sub-paragraph (3) below, paragraph 52 of that Schedule shall have effect as if the reference to the transitional overlap profit were a reference to the amount (if any) by which that profit exceeds 1.25 times the aggregate of the amounts falling within sub-paragraph (1)(b) above.

• (3) Sub-paragraph (3) of paragraph 1 above shall apply for the purposes of this paragraph as it applies for the purposes of that paragraph but subject to the following modifications, namely—

• (a) the reference to the aggregate of the amounts mentioned in the said paragraph 2(2) shall have effect as a reference to the transitional overlap profit; and

• (b) the reference to the appropriate percentage of the turnover for the transitional period shall have effect as a reference to the appropriate percentage of the turnover for the transitional overlap period.

• (4) In this paragraph—

• “the appropriate percentage” means the following expressed as a percentage, that is, 365 divided by the number of days in the transitional overlap period;

• “the transitional overlap period” means the period beginning immediately after the end of—the basis period for the year 1996-97 (determined in accordance with paragraph 1 of Schedule 20 to the Finance Act 1994 despite the repeal by ITTOIA 2005 of that paragraph); orin the case of a trade or profession carried on by any person in partnership with other persons, the basis period of the partnership for that year (as so determined),and (in either case) ending with 5th April 1997;

• “the transitional overlap profit” means the amount mentioned in paragraph 52(2) of Schedule 2 to ITTOIA 2005.

4

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

5

• (1) This paragraph applies where, in the case of a trade or profession carried on by any person in partnership with other persons—

• (a) paragraph 52 of Schedule 2 to ITTOIA 2005 applies with or without the modification made by paragraph 3(2) above;

• (b) a claim is made under section 383 of the Income Tax Act 2007 (relief for interest payments) in respect of interest on a loan to defray money contributed or advanced by him (“the partner”) to the partnership; and

• (c) sub-paragraph (2) below applies to any of the money so contributed or advanced.

• (2) This sub-paragraph applies to money so contributed or advanced unless it was contributed or advanced wholly or mainly—

• (a) for bona fide commercial reasons; or

• (b) for a purpose other than the reduction of the partnership’s borrowings for a relevant period.

• (3) Subject to sub-paragraph (4) below, paragraph 52 of Schedule 2 to ITTOIA 2005 shall have effect as if the reference to the transitional overlap profit were a reference to the difference between that profit and the amount of interest paid by the partner in respect of the transitional overlap period on money to which sub-paragraph (2) above applies.

• (4) Sub-paragraph (3) above does not apply where—

• (a) the loan was made before 1st April 1994; or

• (b) the aggregate amount of interest paid as mentioned in that sub-paragraph is less than such amount as may be prescribed by regulations made by the Board.

• (5) In this paragraph—

• “relevant period” means a period the whole or part of which falls within the transitional overlap period;

• “the transitional overlap period” has the same meaning as in paragraph 3 above;

• “the transitional overlap profit” means the amount mentioned in paragraph 52(2) of Schedule 2 to ITTOIA 2005 (whether having effect with or without the modification made by paragraph 3(2) above).

Part II — Cases III, IV and V of Schedule D

Increase of trade etc. profits or gains arising in 1995-96 and 1996-97

6

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

Increase of trade etc. profits or gains arising in transitional overlap period

7

• (1) This paragraph applies where, in the case of any income derived by any person from the carrying on by him of a trade, profession or vocation—

• (a) paragraph 53 of Schedule 2 to ITTOIA 2005 applies; and

• (b) any amount which is included in the transitional overlap profit would not have been so included if—

• (i) any relevant change made by that person had not been made; or

• (ii) any relevant transaction entered into by that person had not been entered into.

• (2) Subject to sub-paragraph (3) below, paragraph 53 of that Schedule shall have effect as if the reference to the transitional overlap profit were a reference to the amount (if any) by which that profit exceeds 1.25 times the aggregate of the amounts falling within sub-paragraph (1)(b) above.

• (3) Sub-paragraph (3) of paragraph 1 above shall apply for the purposes of this paragraph as it applies for the purposes of that paragraph but subject to the following modifications, namely—

• (a) the reference to the aggregate of the amounts mentioned in the said paragraph 2(2) shall have effect as a reference to the transitional overlap profit; and

• (b) the reference to the appropriate percentage of the turnover for the transitional period shall have effect as a reference to the appropriate percentage of the turnover for the transitional overlap period.

• (4) In this paragraph—

• “the appropriate percentage” means the following expressed as a percentage, that is, 365 divided by the number of days in the transitional overlap period;

• “the transitional overlap period” means the period beginning immediately after the end of—the basis period for the year 1996-97 (determined in accordance with paragraph 1 of Schedule 20 to the Finance Act 1994 despite the repeal by ITTOIA 2005 of that paragraph); orin the case of any income derived by any person from the carrying on by him of a trade or profession in partnership with other persons, the basis period of the partnership for that year (as so determined),and (in either case) ending with 5th April 1997;

• “the transitional overlap profit” means the amount mentioned in paragraph 53(3) of Schedule 2 to ITTOIA 2005.

8

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

Increase of interest arising in 1995-96 and 1996-97

9

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

Increase of other income arising in 1995-96 and 1996-97

10

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

Part III — Procedural and other provisions

Time limits for purposes of paragraphs 1, 2, 4, 6 and 8 to 10

11

• (1) Nothing in subsection (2) or (3) of section 29 of the Management Act (as substituted by section 191 of the Finance Act 1994) shall prevent an assessment being made under subsection (1) of that section in any case where—

• (a) the loss of tax there mentioned is attributable to any failure to give effect to any of paragraphs 1, 2, 4, 6 and 8 to 10 above; and

• (b) at the time when the assessment is made, the condition mentioned in sub-paragraph (3) below is fulfilled.

• (2) Nothing in subsection (3) or (4) of section 30B of the Management Act (amendment of partnership return where loss of tax discovered) shall prevent an amendment being made under subsection (1) of that section in any case where—

• (a) the omission, deficiency or excess there mentioned is attributable to any failure to give effect to any of paragraphs 1, 2, 4, 6 and 8 to 10 above; and

• (b) at the time when the amendment is made, the condition mentioned in sub-paragraph (3) below is fulfilled.

• (3) The condition referred to in sub-paragraphs (1) and (2) above is that either—

• (a) a return under section 8 or 8A of the Management Act (personal or trustee return) or, as the case may require, a partnership return has been made for the year 1997-98 and that return is still capable of being amended; or

• (b) no such return has been so made.

Advance notice for purposes of paragraphs 3, 5 and 7

12

• (1) An officer of the Board shall not so amend a return under section 8 or 8A of the Management Act (personal or trustee return) as to give effect to paragraph 3, 5 or 7 above unless a notice stating—

• (a) in the case of paragraph 3 or 7 above, the aggregate of the amounts falling within sub-paragraph (1)(b) of that paragraph; and

• (b) in the case of paragraph 5 above, the aggregate amount of interest paid as mentioned in sub-paragraph (3) of that paragraph,

is given by such an officer at a time when the condition mentioned in sub-paragraph (2) below is fulfilled.

• (2) The condition referred to in sub-paragraph (1) above is that either—

• (a) a return under section 8 or 8A of the Management Act (personal or trustee return) has been made for the year 1998-99 and that return is still capable of being amended; or

• (b) no such return has been so made.

• (3) Subject to sub-paragraph (4) below, a notice under sub-paragraph (1) above shall be conclusive of the matters stated in it.

• (4) An appeal may be brought against a notice under sub-paragraph (1) above at any time within the period of 30 days beginning with the date on which the notice is given.

• (5) Subject to sub-paragraph (6) below, the provisions of the Management Act relating to appeals shall have effect in relation to an appeal under sub-paragraph (4) above as they have effect in relation to an appeal against an assessment to tax.

• (6) On an appeal under sub-paragraph (4) above, section 50(6) to (8) of the Management Act (procedure on appeals) shall not apply but the Commissioners may—

• (a) if it appears to them that the matters stated in the notice under sub-paragraph (1) above are correct, confirm the notice; or

• (b) if it does not so appear to them, set aside or modify the notice accordingly.

Penalties not to apply in certain cases

13

• (1) Where a relevant return (as originally made) states—

• (a) that paragraph 1, 3 or 4 above applies in the case of a trade, profession or vocation carried on by any person; or

• (b) that paragraph 7 or 8 above applies in the case of any income derived by any person from the carrying on by him of a trade, profession or vocation,

sub-paragraph (2) of that paragraph shall have effect, in its application to any amounts stated in the return (as so made) to fall within sub-paragraph (1)(b) of that paragraph or, in the case of paragraph 4 or 8 above, to be amounts which would have fallen within sub-paragraph (1)(b) of the preceding paragraph, as if the words “1.25 times” were omitted.

• (2) Where a relevant return (as originally made) states—

• (a) that paragraph 6 above applies in the case of any income derived by any person from the carrying on by him of a trade, profession or vocation; or

• (b) that paragraph 9 or 10 above applies in the case of any income arising to any person from any source,

sub-paragraph (2) of that paragraph shall have effect, in its application to any amounts stated in the return (as so made) to fall within sub-paragraph (1)(b) of that paragraph, as if for the words “62.5 per cent.” there were substituted the words “ 50 per cent ”.

• (3) In this paragraph—

• “relevant return” means a return which, for the relevant year, is made under section 8, 8A or 12AA of the Management Act in respect of the trade, profession or vocation or, as the case may be, the source of the income;

• “the relevant year” means—in relation to paragraph 1, 6, 9 or 10 above, the year 1996–97;in relation to paragraph 3, 4, 7 or 8 above, the year 1997–98.

Part IV — Interpretation

Relevant changes for purposes of paragraphs 1, 3, 6 and 7

14

• (1) Any accounting change or change of business practice is a relevant change for the purposes of paragraphs 1, 3 and 7 above unless—

• (a) the change is made exclusively for bona fide commercial reasons; or

• (b) the obtaining of a tax advantage is not the main benefit that could reasonably be expected to arise from the making of the change.

• (2) In this paragraph “accounting change”—

• (a) does not include any change of accounting date which brings the end of the basis period for the year 1996-97 closer to 5th April 1997; but

• (b) subject to that, means any change of accounting date or other modification of an accounting policy or any substitution of one such policy for another.

• (3) In this paragraph “change of business practice” means any change in an established practice of trade, profession or vocation carried on by any person—

• (a) as to the timing of any of the following, namely—

• (i) the supply of goods or services, the invoicing of customers or clients and the collection of outstanding debts; and

• (ii) the obtaining of goods or services, the incurring of business expenses and the settlement of outstanding debts; or

• (b) as to the obtaining or making of payments in advance or payments on account.

Relevant transactions for purposes of paragraphs 1, 3, 6 and 7

15

Any self-cancelling transaction or transaction with a connected person is a relevant transaction for the purposes of paragraphs 1, 3 and 7 above unless—

• (a) the transaction is entered into exclusively for bona fide commercial reasons; or

• (b) the obtaining of a tax advantage is not the main benefit that could reasonably be expected to arise from the entering into of the transaction.

16

• (1) An agreement by which the person by whom a trade, profession or vocation is carried on agrees to sell or transfer trading stock or work in progress is a self-cancelling transaction for the purposes of paragraph 15 above if by the same or any collateral agreement that person—

• (a) agrees to buy back or re-acquire the trading stock or work in progress; or

• (b) acquires or grants an option, which is subsequently exercised, for him to buy back or re-acquire the trading stock or work in progress.

• (2) In sub-paragraph (1) above—

• “trading stock” has the same meaning as in section 100 of the Taxes Act 1988;

• “work in progress”, in relation to a profession or vocation, means—any services performed in the ordinary course of the profession or vocation, the performance of which is wholly or partly completed at the time of the sale or transfer and for which it would be reasonable to expect that a charge would have been made on their completion if the sale or transfer had not been effected; andany article produced, and any such material as is used, in the performance of any such services,

and references in that sub-paragraph to the sale or transfer of work in progress shall include references to the sale or transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the carrying out of the work.

17

• (1) For the purposes of paragraph 15 above, any question whether the person by whom a trade, profession or vocation is carried on is connected with another person shall be determined in accordance with sub-paragraphs (2) to (5) below.

• (2) An individual carrying on a trade, profession or vocation is connected with another person if they are connected with each other within the meaning of section 993 of the Income Tax Act 2007 (but as if, in subsection (4) of that section, the words from “But this subsection” to the end were omitted).

• (3) Persons carrying on a trade or profession in partnership are connected with an individual if he controls the partnership.

• (4) Persons carrying on a trade or profession in partnership are connected with a company if the company controls the partnership or the same person controls both the company and the partnership.

• (5) Persons carrying on a trade or profession in partnership are connected with persons carrying on another trade or profession in partnership if the same person controls both partnerships.

• (6) In this paragraph—

• (a) “control” shall be construed—

• (i) in relation to a company, in accordance with sections 450 and 451 of the Corporation Tax Act 2010;

• (ii) in relation to a partnership, in accordance with section 995 of the Income Tax Act 2007; and

• (b) any reference to a person controlling a company or partnership is a reference to his doing so either alone or with one or more persons connected with him.

Relevant arrangements for purposes of paragraph 9

18

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

Relevant arrangements for purposes of paragraph 10

19

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

Relevant transactions for purposes of paragraph 10

20

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

General

21

• (1) In this Schedule “turnover”, in relation to a trade, profession or vocation, means the amounts derived from the provision of goods or services falling within its ordinary activities, after deduction of trade discounts and value added tax.

• (2) Obtaining a tax advantage shall not be regarded as a bona fide commercial reason for the purposes of this Schedule.

SCHEDULE 23

General imposition of obligations et ceteralaetc.

1

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

Discharge of obligations and liabilities

2

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

Obligations and liabilities requiring notice

3

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

Information requirements

4

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

Criminal offences and penalties Et ceteralaetc

5

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

Indemnities

6

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

Meaning of “independent agent”

7

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

SCHEDULE 24