Finance Act 2002

Loan relationships for unallowable purposes

30

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

Debits and credits treated as relating to capital expenditure

31

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

Repo transactions and stock lending

32

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

Discounted securities where companies have a connection

33

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

Discounted securities of close companies

34

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

Partnerships involving companies

35

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

Interpretation of Schedule 9: “major interest”

36

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

Investment trusts and venture capital trusts: treatment of capital reserves

37

• (1) Schedule 10 (collective investment schemes) is amended as follows.

• (2) For paragraph 1 substitute—

(1A) (1) Where any profits, gains or losses arising to an investment trust from a creditor relationship for an accounting period are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice used for that accounting period, those profits, gains or losses must not be brought into account as credits or debits for the purposes of this Chapter, notwithstanding section 84(2)(b) of this Act. (2) Where any profits, gains or losses arising to a venture capital trust from a creditor relationship for an accounting period— (a) are carried to or sustained by a capital reserve in accordance with the Statement of Recommended Practice used for the accounting period as if the venture capital trust were an investment trust, or (b) would be carried to or sustained by a capital reserve if the venture capital trust were an investment trust and were using that Statement of Recommended Practice, those profits, gains or losses must not be brought into account as credits or debits for the purposes of this Chapter, notwithstanding section 84(2)(b) of this Act. (3) For the purposes of this paragraph, the “Statement of Recommended Practice” used for an accounting period is— (a) in relation to an accounting period for which it is permitted to be used, the Statement of Recommended Practice relating to Investment Trust Companies, issued by the Association of Investment Trust Companies in December 1995, as from time to time modified, amended or revised, or (b) in relation to any accounting period for which it is permitted to be used, any subsequent Statement of Recommended Practice relating to investment trusts, as from time to time modified, amended or revised.

.

Authorised unit trusts and open-ended investment companies

38

• (1) Schedule 10 (collective investment schemes) is amended as follows.

• (2) For paragraph 2 (which makes special provision in relation to authorised unit trusts and is applied to open-ended investment companies by regulations under section 152 of the Finance Act 1995 (c. 4)) and the heading immediately preceding it substitute—

(2A) (1) Where any profits, gains or losses arising to an authorised unit trust from a creditor relationship in an accounting period are capital profits, gains or losses, those profits, gains or losses must not be brought into account as credits or debits for the purposes of this Chapter, notwithstanding section 84(2)(b) of this Act. (2) For the purposes of this paragraph, capital profits, gains or losses arising from a creditor relationship in an accounting period are such profits, gains or losses arising from a creditor relationship as fall to be dealt with under— (a) the heading “net gains/losses on investments during the period”, or (b) the heading “other gains/losses”, in the statement of total return for the accounting period. (3) For the purposes of sub-paragraph (2) above, the statement of total return for an accounting period is the statement of total return which, in accordance with the Statement of Recommended Practice used for the accounting period, must be included in the accounts contained in the annual report of the authorised unit trust which deals with the accounting period. (4) For the purposes of sub-paragraph (3) above, “Statement of Recommended Practice” means— (a) in relation to any accounting period for which it is required or permitted to be used, the Statement of Recommended Practice relating to Authorised Unit Trust Schemes issued by the Investment Management Regulatory Organisation Limited in January 1997, as from time to time modified, amended or revised; or (b) in relation to any accounting period for which it is required or permitted to be used, any subsequent Statement of Recommended Practice relating to authorised unit trust schemes, as from time to time modified, amended or revised. (5) The Treasury may by order amend this paragraph so as to alter the definition of capital profits, gains or losses in consequence of the modification, amendment, revision or replacement of a Statement of Recommended Practice. (6) The power to make an order under this paragraph includes power— (a) to make different provision for different cases; and (b) to make such consequential, supplementary, incidental or transitional provision, or savings, as appear to the Treasury to be necessary or expedient (including provision amending any enactment or any instrument made under any enactment). (2B) (1) Where any profits, gains or losses arising to an open-ended investment company from a creditor relationship in an accounting period are capital profits, gains or losses, those profits, gains or losses must not be brought into account as credits or debits for the purposes of this Chapter, notwithstanding section 84(2)(b) of this Act. (2) For the purposes of this paragraph, capital profits, gains or losses arising from a creditor relationship in an accounting period are such profits, gains or losses arising from a creditor relationship as fall to be dealt with under— (a) the heading “net gains/losses on investments during the period”, or (b) the heading “other gains/losses”, in the statement of total return for the accounting period. (3) For the purposes of sub-paragraph (2) above, the statement of total return for an accounting period is the statement of total return which, in accordance with the Statement of Recommended Practice used for the accounting period, must be included in the accounts contained in the annual report of the open-ended investment company which deals with the accounting period. (4) For the purposes of sub-paragraph (3) above, “Statement of Recommended Practice” means— (a) in relation to any accounting period for which it is required or permitted to be used, the Statement of Recommended Practice relating to Open-Ended Investment Companies issued by the Financial Services Authority in November 2000, as from time to time modified, amended or revised; or (b) in relation to any accounting period for which it is required or permitted to be used, any subsequent Statement of Recommended Practice relating to open-ended investment companies, as from time to time modified, amended or revised. (5) The Treasury may by order amend this paragraph so as to alter the definition of capital profits, gains or losses in consequence of the modification, amendment, revision or replacement of a Statement of Recommended Practice. (6) The power to make an order under this paragraph includes power— (a) to make different provision for different cases; and (b) to make such consequential, supplementary, incidental or transitional provision, or savings, as appear to the Treasury to be necessary or expedient (including provision amending any enactment or any instrument made under any enactment).

.

Distributing offshore funds

39

For paragraph 3 of that Schedule substitute—

(3) (1) For the purposes of paragraph 5(1) of Schedule 27 to the Taxes Act 1988 (computation of UK equivalent profit), the assumptions to be made in determining what, for any period, would be the total profits of an offshore fund are to include the assumptions in sub-paragraphs (2) and (3) below. (2) The first assumption is that the provisions of this Chapter so far as they relate to the creditor relationships of a company do not apply for the purposes of corporation tax in computing the profits or loss of an offshore fund. (3) The second assumption is that for the purposes of corporation tax the profits and gains, and losses, that are to be taken to arise from the creditor relationships of an offshore fund are to be computed— (a) in accordance with the provisions applicable, in the case of unauthorised unit trusts, for the purposes of income tax; and (b) as if the provisions so applicable had effect in relation to an accounting period of an offshore fund as they have effect, in the case of unauthorised unit trusts, in relation to a year of assessment. (4) In this paragraph “unauthorised unit trust” means the trustees of any unit trust scheme which is not an authorised unit trust but is a unit trust scheme for the purposes of section 469 of the Taxes Act 1988.

.

Life assurance business

40

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

Adjustments in the case of chargeable assets etc

41

• (1) In Schedule 15 (loan relationships: savings and transitional provisions) paragraph 11 is amended as follows.

• (2) After sub-paragraph (2) insert—

(2A) If, in a case where the continuing loan relationship is a creditor relationship,— (a) the company acquired its rights under the relationship on or before 31st March 1996 by virtue of an arm’s length transaction, (b) for the accounting period in which it acquired those rights— (i) there was no connection (as defined in sub-paragraph (2C) below) between the company and the person from whom the company acquired the asset, but (ii) there was such a connection between the company and a company standing in the position of a debtor as respects the money debt, and (c) there had been no such connection between the companies mentioned in paragraph (b)(ii) above at any time in the period which— (i) begins 4 years before the date on which the company acquired those rights, and (ii) ends twelve months before that date, this paragraph shall have effect as if the amount mentioned in sub-paragraph (2)(b) above were an amount equal to the greater of the amounts mentioned in sub-paragraph (2B) below. (2B) Those amounts are— (a) the fair value of the rights at the time when the company ceases to be a party to the loan relationship; and (b) the fair value of the rights on 1st April 1996. (2C) For the purposes of sub-paragraph (2A) above there is a connection between a company and another person at any time if at that time— (a) the other person is a company and one of the companies has control of the other, (b) the other person is a company and both companies are under the control of the same person, or (c) the company is a close company and the other person is a participator in that company or the associate of a person who is such a participator, and there is a connection between a company and another person for an accounting period if there is a connection (within paragraphs (a) to (c) above) between the company and the person at any time in that accounting period. (2D) For the purposes of sub-paragraph (2C) above— (a) subsections (2) to (6) of section 416 of the Taxes Act 1988 (meaning of control) shall apply as they apply for the purposes of Part 11 of that Act; (b) subject to paragraph (c) below, “participator” and “associate” have the meaning given for the purposes of that Part by section 417 of that Act; (c) a person shall not be regarded as a participator in relation to a company by reason only that he is a loan creditor of the company.

.

Reduction of paragraph 11 credit where s.251(4) of 1992 Act prevents paragraph 8 loss

42

In Schedule 15, after paragraph 11 (other adjustments in the case of chargeable assets etc) insert—

(11A) (1) This paragraph applies where, in the case of any asset representing in whole or in part a loan relationship of a company, an amount representing a deemed allowable loss would (apart from this paragraph) fall or have fallen to be brought into account in accordance with paragraph 8(3) above for an accounting period (whenever beginning or ending), but for section 251(4) of the 1992 Act (no allowable loss on disposal of debt acquired from connected person). (2) Where this paragraph applies, the amount of any credit falling within sub-paragraph (3) below shall be treated for the purposes of this Chapter as reduced (but not below nil) by the amount described in sub-paragraph (1) above. (3) A credit falls within this sub-paragraph if (apart from this paragraph)— (a) the credit falls to be given by virtue of paragraph 11(3)(a) above for an accounting period beginning on or after 1st October 2002; and (b) the loan relationship mentioned in paragraph 11(1)(a) above in the case of the credit is the same loan relationship as the one mentioned in sub-paragraph (1) above.

.

Part 2 — Amendments of other enactments

The Taxes Act 1988

Introductory

43

The Taxes Act 1988 is amended as follows.

Incidental costs of obtaining loan finance

44

In section 77(2)(a) (meaning of “qualifying loan” etc) omit sub-paragraph (ii) (interest deductible under section 338 against total profits).

Group relief

45

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

Apportionment of income and gains

46

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

Building society shares: regulations for deduction of tax

47

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

Building society shares: incidental costs of issuing qualifying shares

48

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

European Economic Interest Groupings

49

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

Funding bonds issued in respect of interest on certain debts

50

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

Transfers of income arising from securities

51

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

Treatment of price differential on sale and repurchase of securities

52

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

Restriction of relief for payments of interest

53

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

Limits on credit: corporation tax

54

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

Foreign tax on items giving rise to a non-trading credit

55

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

Investment trusts

56

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

Venture capital trusts

57

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

Change in ownership of investment company

58

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

The Finance Act 1988

Commercial woodlands

59

• (1) Schedule 6 to the Finance Act 1988 (c. 39) is amended as follows.

• (2) In consequence of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships) in paragraph 3 (abolition of Schedule D election etc) omit—

• (a) sub-paragraphs (3)(a), (4)(a) and (5)(a) and (b);

• (b) in sub-paragraph (5), in the words following paragraph (c), the word “group”; and

• (c) sub-paragraph (6).

The Taxation of Chargeable Gains Act 1992

Interest charged to capital

60

• (1) Section 40 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) After subsection (3) add—

(4) In consequence of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) (loan relationships) this section does not have effect in relation to interest referable to an accounting period ending on or after 1st April 1996.

.

Part 3 — Transitional provisions

Interpretation

61

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

Discounted securities where companies have a connection

62

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

Discounted securities of close companies

63

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

Authorised unit trusts and open-ended investment companies

64

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

SCHEDULE 26

Part 1 — Introduction

Profits arising from derivative contracts

1

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

Part 2 — Derivative contracts

Derivative contracts and relevant contracts

2

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

Contracts to satisfy accounting requirements etc

3

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

Contracts excluded by virtue of their underlying subject matter

4

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

Qualified exclusion: contract held by company for purposes of trade

5

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

Qualified exclusion: contract producing guaranteed return

6

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

Qualified exclusion: guaranteed amount payable on maturity

7

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

Qualified exclusion: contract held by company to provide insurance benefits

8

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

Underlying subject matter which is subordinate or of small value disregarded

9

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

Associated transactions

10

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

Meaning of “underlying subject matter”

11

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

Definition of terms relating to derivative contracts

12

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

Power to amend paragraphs 2 to 12

13

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

Part 3 — Method of taxation

Method of bringing amounts into account

14

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

Credits and debits brought into account

15

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

Exchange gains and losses arising from derivative contracts

16

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

Part 4 — Computation of amounts to be brought into account

Authorised accounting methods

17A

• (1) Subject to the provisions of this Schedule, the amounts to be brought into account by a company for any period for the purposes of this Schedule are those that, in accordance with generally accepted accounting practice, are recognised in determining the company’s profit or loss for the period.

• (2) If a company does not draw up accounts in accordance with generally accepted accounting practice (“correct accounts”)—

• (a) the provisions of this Schedule apply as if correct accounts had been drawn up, and

• (b) the amounts referred to in this Schedule as being recognised for accounting purposes are those that would have been recognised if correct accounts had been drawn up.

• (3) If a company draws up accounts that rely to any extent on amounts derived from an earlier period of account for which the company did not draw up correct accounts, the amounts referred to in this Schedule as being recognised for accounting purposes in the later period are those that would have been recognised if correct accounts had been drawn up for the earlier period.

• (4) The provisions of sub-paragraphs (2) and (3) apply where the company does not draw up accounts at all as well as where it draws up accounts that are not correct.

Application of accounting methods

18

• (1) This paragraph has effect, subject to the following provisions of this Schedule, for the determination of which of the alternative authorised accounting methods that are available by virtue of paragraph 17 is to be used as respects the derivative contracts of a company.

• (2) Different methods may be used as respects different derivative contracts or, as respects the same derivative contract, for different accounting periods or different parts of the same accounting period.

• (3) If a basis of accounting which is or equates with an authorised accounting method is used as respects any derivative contract of a company in a company’s statutory accounts, then the method which is to be used for the purposes of this Schedule as respects that contract for the accounting period, or part of a period, for which that basis is used in those accounts shall be—

• (a) where the basis used in those accounts is an authorised accounting method, that method; and

• (b) where it is not, the authorised accounting method to which it equates;

but this sub-paragraph is subject to paragraphs 19 to 21.

• (4) For any period or part of a period for which the authorised accounting method to be used as respects a derivative contract of a company is not—

• (a) the method determined under sub-paragraph (3),

• (b) an authorised mark to market basis of accounting in accordance with an election under paragraph 19, or

• (c) an authorised mark to market basis of accounting in accordance with paragraph 20 or 21,

an authorised accruals basis of accounting shall be used for the purposes of this Schedule as respects that derivative contract.

• (5) For the purposes of this paragraph (but subject to sub-paragraph (6))—

• (a) a basis of accounting equates with an authorised accruals basis of accounting if it purports to allocate payments under a derivative contract to accounting periods according to when they are taken to accrue; and

• (b) a basis of accounting equates with an authorised mark to market basis of accounting if it purports in respect of a derivative contract—

• (i) to produce credits or debits computed by reference to the determination, as at different times in an accounting period, of a fair value; and

• (ii) to produce credits or debits relating to payments under that derivative contract according to when they become due and payable.

• (6) An accounting method which purports to make any such allocation of payments under a derivative contract as is mentioned in sub-paragraph (5)(a) shall be taken for the purposes of this paragraph to equate with an authorised mark to market basis of accounting (rather than with an authorised accruals basis of accounting) if—

• (a) it purports to bring that derivative contract into account in each accounting period at a value which would be fair value if the valuation were made on the basis that any periodic payments falling to be made under the contract were to be disregarded to the extent that they have already accrued; and

• (b) the credits and debits produced in the case of that contract by that method (when it is properly applied) correspond, for all practical purposes, to the credits and debits produced in the case of that contract, and for the same accounting period, by an authorised mark to market basis of accounting.

Application of accounting methods: election to follow generally accepted accounting practice

19

• (1) Sub-paragraph (2) has effect if, in the case of a company falling within paragraph 52(1)(c) or (d)(companies whose statutory accounts are accounts to which Part 1 of Schedule 21C or 21D to the Companies Act 1985 (c. 6) applies or accounts falling to be drawn up in accordance with the requirements imposed under the law of the home State),—

• (a) an authorised mark to market basis of accounting would be used as respects some or all of the company’s derivative contracts, were the company a UK company following generally accepted accounting practice, but

• (b) that is not the basis of accounting used as respects those derivative contracts in the company’s statutory accounts.

• (2) Where this sub-paragraph has effect in relation to a company, the company may elect to use an authorised mark to market basis of accounting as its authorised accounting method for the purposes of this Schedule in relation to every derivative contract as respects which that basis would be used were it a UK company following generally accepted accounting practice.

• (3) Any election under sub-paragraph (2)—

• (a) must be made before the expiration of the period of two years following the end of the company’s first accounting period beginning on or after 1st October 2002 in which it is party to a derivative contract in relation to which an election under sub-paragraph (2) may be made;

• (b) has effect for that accounting period and all subsequent accounting periods of the company; and

• (c) is irrevocable.

• (4) A company which makes an election under sub-paragraph (2) as respects its derivative contracts shall be taken for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) to have at the same time made an election under section 86(3A) of that Act having effect—

• (a) for the accounting periods mentioned in sub-paragraph (3)(b), and

• (b) as respects any loan relationships to which the company is or may become a party in any of those accounting periods,

and that election shall so have effect notwithstanding anything in paragraph (a) or (b) of subsection (3B) of that section.

Application of accounting methods: requirement to follow generally accepted accounting practice

20

• (1) Sub-paragraph (2) has effect if, in the case of a company falling within paragraph 52(1)(c) or (d),—

• (a) the company has not made an election under paragraph 19,

• (b) an authorised mark to market basis of accounting would be used for an accounting period—

• (i) as respects some or all of the company’s derivative contracts, and

• (ii) as respects some or all of its loan relationships,

were the company a UK company following generally accepted accounting practice, and

• (c) that basis of accounting—

• (i) is used in the company’s statutory accounts as respects those loan relationships for that accounting period, but

• (ii) is not the basis of accounting used in the company’s statutory accounts as respects those derivative contracts for that accounting period.

• (2) Where this sub-paragraph has effect in relation to any accounting period, the company must for that accounting period use an authorised mark to market basis of accounting as its authorised accounting method for the purposes of this Schedule in relation to every derivative contract as respects which that basis would be used were it a UK company following generally accepted accounting practice.

• (3) Sub-paragraph (4) has effect where, in the case of a derivative contract of a company,—

• (a) the company uses, as respects the contract, a basis of accounting other than an authorised mark to market basis of accounting for an accounting period (the “preceding period”), but

• (b) by virtue of sub-paragraph (2), the company must for the succeeding accounting period (the “first mark to market period”) use, as respects the contract, an authorised mark to market basis of accounting as its authorised accounting method for the purposes of this Schedule.

• (4) Where this sub-paragraph has effect in relation to a derivative contract of a company, the company shall be deemed—

• (a) to have disposed of the contract immediately before the end of the preceding period for a consideration of an amount equal to the fair value of the contract at that time, and

• (b) to have reacquired it for the same consideration immediately after the beginning of the first mark to market period.

Basis of accounting for contracts falling within paragraph 6, 7 or 8

21

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

Part 5 — Special provision for release of liability

Bad debt etc

22

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

Part 6 — Special computational provisions

Derivative contracts for unallowable purposes

22A

• (1) This paragraph applies if at any time (“the relevant time”)—

• (a) a company ceases to be resident in the United Kingdom, or

• (b) in the case of a company not resident in the United Kingdom, the rights and liabilities of the company under a derivative contract to any extent cease to be held or owed for the purposes of a permanent establishment of the company in the United Kingdom in circumstances not involving a related transaction.

• (2) In a case falling within sub-paragraph (1)(a), this Schedule shall have effect as if the company had—

• (a) immediately before the relevant time, assigned its rights and liabilities under its derivative contracts for a consideration of an amount equal to their fair value at that time, and

• (b) immediately reacquired them for a consideration of the same amount.

• (3) Sub-paragraph (2) does not apply in relation to a derivative contract to the extent that, immediately after the relevant time, the company’s rights and liabilities under the contract are held or owed for the purposes of a permanent establishment of the company in the United Kingdom.

• (4) In a case falling within sub-paragraph (1)(b), this Schedule shall have effect as if the company had—

• (a) immediately before the relevant time, assigned the rights and liabilities, so far as ceasing to be held or owed for the purposes of the permanent establishment, for a consideration of an amount equal to their fair value at that time, and

• (b) immediately reacquired them for a consideration of the same amount.

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

Derivative contracts for unallowable purposes: supplementary

24

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

Debits and credits treated as relating to capital expenditure

25

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

Transfers of value to connected companies

26

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

Exchange gains and losses where derivative contracts not on arm’s length terms

27

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

Transactions within groups

28

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

Transactions within groups: exceptions relating to insurance

29

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

Transactions within groups: authorised mark to market basis of accounting

30

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

Derivative contracts with non-residents

30D

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

Part 7 — Collective investment schemes

Authorised unit trusts: capital profits and losses

32

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

Open-ended investment companies: capital profits and losses

33

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

Power to amend paragraphs 32 and 33

34

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

Distributing offshore funds

35

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

Contracts relating to holdings in unit trust schemes, open-ended investment companies and offshore funds

36

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

Contract which becomes contract to which paragraph 36 applies

37

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

Investment trusts and venture capital trusts: capital reserves

38

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

Investment trusts: approval for purposes of section 842 of the Taxes Act 1988

39

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

Venture capital trusts: approval for purposes of section 842AA of the Taxes Act 1988

40

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

Part 8 — Insurance and mutual trading companies

Application of Schedule to insurance and mutual trading companies

41

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

Application of Part 1 of Schedule 11 to the Finance Act 1996

42

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

Non-life mutual business

43

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

Part 9 — Miscellaneous

Derivative contracts ceasing to be held for purposes of trade

44

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

Contracts becoming held for purposes of trade

45

• (1) This paragraph applies where a relevant contract of a company—

• (a) whose underlying subject matter consists, or is treated as consisting, wholly of—

• (i) shares in a company or ,

• (ii) rights of a unit holder under a unit trust scheme, ...

• (iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) which is a chargeable asset, and

• (c) which was entered into or acquired by the company otherwise than for the purposes of a trade carried on by it,

is at any time appropriated by the company for the purposes of a trade carried on by it.

• (2) Where this paragraph applies—

• (a) section 161 of the Taxation of Chargeable Gains Act 1992 (c. 12) (appropriations to and from stock) shall have effect in relation to the appropriation of that contract, but

• (b) the company may not make an election under subsection (3) of that section in relation to that appropriation.

• (3) For the purposes of this paragraph an asset is a chargeable asset if any gain accruing on the disposal of the asset by the company would be a chargeable gain for the purposes of the Taxation of Chargeable Gains Act 1992 (and includes any obligations under futures contracts which, by virtue of section 143 of that Act, are regarded as assets to the disposal of which that Act applies).

• (4) Paragraph 9 applies for the purpose of determining whether the underlying subject matter of a relevant contract is to be treated as consisting wholly of the property referred to in sub-paragraph (1)(a).

Contracts where part of underlying subject matter of excluded type

46

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

Contracts where underlying subject matter of different excluded types

47

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

Election to treat contract as two assets

48

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

Partnerships involving companies

49

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

Partnerships involving companies: application of accounting methods

50

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

Prevention of deduction of tax

51

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

Part 10 — Interpretation

Statutory accounts

52

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

Derivative and relevant contracts of person

53

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

General interpretation

54

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

SCHEDULE 27

The Taxes Act 1988

1

The Taxes Act 1988 is amended as follows.

2

In section 15(1) (Schedule A) in paragraph 2(3) of Schedule A (profits of Schedule A business computed without regard to certain items) for the third indent (which relates to qualifying payments within Chapter 2 of Part 4 of the Finance Act 1994 (c. 9)) substitute—

—credits or debits within Schedule 26 to the Finance Act 2002 (derivative contracts).

.

3

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

4

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

• (2) After subsection (1A) of that section insert—

(1B) If, apart from section 143(1) of the 1992 Act or section 128(2) above, gains arising in the course of dealing in financial futures or in qualifying options would constitute, for the purposes of the Corporation Tax Acts, profits and gains chargeable to tax under Case V or VI of Schedule D, then any loss arising in the course of that dealing shall not be allowable against profits and gains which are chargeable to tax under Case V or VI of Schedule D.

.

5

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

6

Omit section 468AA (authorised unit trusts: futures and options).

7

• (1) Section 468L (interest distributions) is amended as follows.

• (2) In subsection (9) (meaning of “qualifying investments”) after paragraph (e) insert—

(f) derivative contracts whose underlying subject matter consists wholly of any one or more of the matters referred to in paragraphs (a) to (e) above; (g) contracts for differences whose underlying subject matter consists wholly of interest rates or creditworthiness or both of those matters.

.

• (3) In subsection (11) (assumption as to investments of other authorised unit trust which are to be regarded as qualifying investments) after “within paragraphs (a) to (c)” insert “ , (f) and (g) ”.

• (4) After subsection (12G) insert—

(12H) For the purposes of this section— - “contract for differences” has the same meaning as in paragraph 12 of Schedule 26 to the Finance Act 2002; - “derivative contract” means— 1. a contract which is a derivative contract within the meaning of that Schedule, or 2. a contract which is, in the accounting period in question, treated as if it were a derivative contract by virtue of paragraph 36 of that Schedule (contracts relating to holdings in unit trust schemes, open-ended investment companies and offshore funds); - “underlying subject matter” has the same meaning as in paragraph 11 of that Schedule.

.

8

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

9

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

10

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

11

In section 798B (restriction of relief on certain interest and dividends: meaning of “financial expenditure”) in subsection (5) (meaning of “qualifying losses”) for paragraph (b) (losses brought into account for purposes of Chapter 2 of Part 4 of the Finance Act 1994) substitute—

(b) the amount (if any) by which debits brought into account in respect of a derivative contract for the purposes of Schedule 26 to the Finance Act 2002 (derivative contracts) exceed credits so brought into account;

.

12

• (1) Section 807A (disposals and acquisitions of company loan relationships with or without interest) is amended as follows.

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

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

• (4) In that subsection, omit the definition of “relevant qualifying payment”.

13

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

14

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

15

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

The Finance Act 1994

16

In section 226 (provisions of the Finance Act 1993 (c. 34) and Finance Act 1994 which are not to apply in the case of Lloyd’s underwriters) for subsection (3) (contracts and options in premium trust fund of corporate member not to be qualifying contracts for purposes of Chapter 2 of Part 4 of the Finance Act 1994) substitute—

(3) No relevant contract (within the meaning of Schedule 26 to the Finance Act 2002) forming part of a premium trust fund of a corporate member shall be a derivative contract.

.

The Finance Act 1996

17

The Finance Act 1996 (c. 8) is amended as follows.

18

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

19

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

20

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

21

Omit Schedule 12(meaning of debt contract or option).

The Finance Act 2000

22

The Finance Act 2000 (c. 17) is amended as follows.

23

• (1) Schedule 22 (tonnage tax) is amended as follows.

• (2) In paragraph 50 (income which, otherwise than under Schedule 22 to the Finance Act 2000, falls to be taken into account as trading income from trade consisting of tonnage tax activities) in sub-paragraph (2), for paragraph (c) substitute—

(c) any credit falling to be brought into account under Schedule 26 to the Finance Act 2002 (derivative contracts).

.

• (3) In paragraph 63 (ring-fencing of accounting periods where company is tonnage tax company: meaning of “finance costs”) in sub-paragraph (2), for paragraph (b) substitute—

(b) any credit or debit falling to be brought into account under Schedule 26 to the Finance Act 2002 (derivative contracts) in relation to debt finance;

.

The Finance Act 2002

24

The Finance Act 2002 is amended as follows.

25

Section 78 (which amends the provision made by Schedule 5AA to the Taxes Act 1988 as regards corporation tax in relation to guaranteed returns on transactions involving futures and options, provision as regards which is made in Schedule 26 in relation to accounting periods beginning on or after 1st October 2002) shall cease to have effect.

26

In Schedule 29 (taxation of intangible fixed assets) in paragraph 75 (which provides for the Schedule not to apply to financial assets) for sub-paragraph (3)(b) (financial assets to include qualifying contracts within Chapter 2 of Part 4 of the Finance Act 1994) substitute—

(b) derivative contracts (see Part 2 of Schedule 26 to this Act),

.

SCHEDULE 28

Anti-avoidance: change of accounting period

1

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

Qualifying contracts to which company ceases to be party before commencement day

2

• (1) This paragraph applies if the conditions in sub-paragraphs (2) and (3) are satisfied in relation to any contract of a company.

• (2) The first condition is that the company was a party to a qualifying contract (within the meaning of Chapter 2 of Part 4 of the Finance Act 1994) before its commencement day, but is not a party to it on that commencement day.

• (3) The second condition is that, if the company had been a party to the contract on its commencement day, the contract would have been a derivative contract.

• (4) To the extent that amounts have been brought into account in computing, in accordance with Chapter 2 of Part 4 of the Finance Act 1994, the profits or losses accruing to the company from the contract in an old period of the company, they shall not be brought into account again by the company as credits or debits given in respect of that contract for the first new period or any subsequent accounting period of the company by Schedule 26.

• (4A) In relation to a subsequent accounting period ending on or after 1 April 2009, the reference in sub-paragraph (4) to Schedule 26 is to be read as a reference to Part 7 of the Corporation Tax Act 2009.

Qualifying contracts which become derivative contracts

3

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

Contracts which become derivative contracts: chargeable assets

4

• (1) This paragraph applies if the conditions in sub-paragraphs (2) to (4) are satisfied in relation to any contract of a company.

• (2) The first condition is that the company is a party to the contract immediately before and on its commencement day.

• (3) The second condition is that the contract—

• (a) was not a qualifying contract (within the meaning of Chapter 2 of Part 4 of the Finance Act 1994) immediately before the company’s commencement day, but

• (b) as from that day is a derivative contract.

• (4) The third condition is that the contract was, immediately before the company’s commencement day, a chargeable asset.

• (5) Where this paragraph applies, the company shall, when it ceases to be a party to the contract, bring into account, for the accounting period in which it ceases to be a party to the contract, the amount of any chargeable gain or allowable loss which would have been treated as accruing to the company on the assumption—

• (a) that it had made a disposal of the asset immediately before its commencement day, and

• (b) that the disposal had been for a consideration equal to the value (if any) given to the contract in the accounts of the company at the end of the company’s accounting period immediately before its first new period.

• (6) Sub-paragraph (5) has effect subject to sub-paragraph (7).

• (7) The company may elect that a debit representing the amount of any allowable loss, which under sub-paragraph (5) is to be brought into account for the accounting period in which it ceases to be a party to the contract, shall be brought into account for that accounting period as if it were a non-trading debit falling to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) in respect of a loan relationship of the company.

• (7A) In relation to an accounting period ending on or after 1 April 2009, the reference in sub-paragraph (7) to Chapter 2 of Part 4 of the Finance Act 1996 is to be read as a reference to Part 5 of the Corporation Tax Act 2009.

• (8) An election under sub-paragraph (7) may only be made within the period of two years following the end of the accounting period in which the company ceases to be a party to the contract.

• (9) For the purposes of this paragraph an asset is a chargeable asset if any gain accruing on the disposal of the asset by the company would be a chargeable gain for the purposes of the Taxation of Chargeable Gains Act 1992 (c. 12) (and includes any obligations under futures contracts which, by virtue of section 143 of that Act, are regarded as assets to the disposal of which that Act applies).

• (10) This paragraph has effect subject to paragraph 5.

Contracts: election to treat as two assets

5

• (1) This paragraph applies if the conditions in sub-paragraphs (2) to (4) are satisfied in relation to any contract of a company.

• (2) The first condition is that the company is a party to the contract immediately before and on its commencement day.

• (3) The second condition is that the contract—

• (a) was not a qualifying contract (within the meaning of Chapter 2 of Part 4 of the Finance Act 1994 (c. 9)) immediately before the company’s commencement day, but

• (b) as from that day would, but for an election under sub-paragraph (5) of this paragraph, be a derivative contract to which paragraph 7 of Schedule 26 (contracts designed to secure guaranteed amount) applies.

• (4) The third condition is that the contract was, immediately before the company’s commencement day, a chargeable asset.

• (5) Where this paragraph applies the company may elect that its contract shall be treated for the purposes of the Corporation Tax Acts as if it were—

• (a) a creditor relationship of the company which is a zero coupon bond (within the meaning of paragraph 48 of Schedule 26), and

• (b) an option of the company whose underlying subject matter is the same as the underlying subject matter of the contract to which this paragraph applies;

and sub-paragraphs (4) to (6) of that paragraph shall apply to a creditor relationship and an option arising under this sub-paragraph as they apply to a creditor relationship and an option arising under paragraph 48(2) of Schedule 26.

• (6) An election under sub-paragraph (5) in relation to a contract—

• (a) may only be made within the period of two years following the end of the company’s first new period;

• (b) has effect for the company’s first new period and all subsequent accounting periods of the company; and

• (c) is irrevocable.

• (7) Where an election under sub-paragraph (5) has been made by a company in relation to a contract, the company shall, when it ceases to be a party to the contract, bring into account, for the accounting period in which it ceases to be a party to the contract, the amount of any chargeable gain or allowable loss which would have been treated as accruing to the company on the assumption—

• (a) that it had made a disposal of the asset immediately before its commencement day, and

• (b) that the disposal had been for a consideration equal to the value (if any) given to the contract in the accounts of the company at the end of the company’s accounting period immediately before its first new period.

• (8) Sub-paragraph (7) has effect subject to sub-paragraph (9).

• (9) The company may elect that a debit representing the amount of any allowable loss, which under sub-paragraph (7) is to be brought into account for the accounting period in which it ceases to be a party to the contract, shall be brought into account for that accounting period as if it were a non-trading debit falling to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (c. 8) in respect of a loan relationship of the company.

• (9A) In relation to an accounting period ending on or after 1 April 2009, the reference in sub-paragraph (9) to Chapter 2 of Part 4 of the Finance Act 1996 is to be read as a reference to Part 5 of the Corporation Tax Act 2009.

• (10) An election under sub-paragraph (9) may only be made within the period of two years following the end of the accounting period in which the company ceases to be a party to the contract.

• (11) For the purposes of this paragraph references to an asset being a chargeable asset shall be construed in accordance with paragraph 4(9).

• (12) In this paragraph “option” and “underlying subject matter” have the same meaning as in Schedule 26.

Contracts which become derivative contracts: contracts within Schedule 5AA to the Taxes Act 1988

6

• (1) This paragraph applies if the conditions in sub-paragraphs (2) to (5) are satisfied in relation to any contract of a company.

• (2) The first condition is that the company is a party to the contract immediately before and on its commencement day.

• (3) The second condition is that the contract—

• (a) was not a qualifying contract (within the meaning of Chapter 2 of Part 4 of the Finance Act 1994 (c. 9)) immediately before the company’s commencement day, but

• (b) as from that day is a derivative contract.

• (4) The third condition is that the contract was, immediately before the company’s commencement day, a transaction to which Schedule 5AA to the Taxes Act 1988 applied.

• (5) The fourth condition is that, on or after the company’s commencement day, a relevant event occurs.

• (6) For the purposes of this paragraph a relevant event is an event which would, if Schedule 5AA to the Taxes Act 1988 had continued to apply to the contract for the purposes of corporation tax, have given rise to an amount of profits falling to be charged under that Schedule.

• (7) A credit representing that amount of profits (“a relevant credit”) shall be brought into account by virtue of paragraph 14(3) of Schedule 26 for the accounting period in which the relevant event occurs as if it were a non-trading credit falling to be brought into account for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of a loan relationship of the company.

• (8) The amount of the relevant credit is the sum of—

• (a) the amount of profits which would have been chargeable under Schedule 5AA to the Taxes Act 1988 if it had continued to apply to the contract, and

• (b) the amount of any debits given by Schedule 26 in respect of the contract for the first new period and any subsequent accounting period ending with the accounting period in which the relevant event occurred,

less the amount of any credits given by Schedule 26 in respect of the contract for those accounting periods.

• (8A) In relation to an accounting period ending on or after 1 April 2009—

• (a) the reference in sub-paragraph (7) to paragraph 14(3) of Schedule 26 is to be read as a reference to section 574 of the Corporation Tax Act 2009,

• (b) the reference in that sub-paragraph to Chapter 2 of Part 4 of the Finance Act 1996 is to be read as a reference to Part 5 of the Corporation Tax Act 2009, and

• (c) the references in sub-paragraph (8) to Schedule 26 are to be read as references to Part 7 of the Corporation Tax Act 2009.

Interpretation

7

For the purposes of this Schedule—

• (a) a company’s commencement day is the first day of its first accounting period to begin on or after 1st October 2002,

• (b) a company’s first new period is its first accounting period to begin on or after that date, and

• (c) an old period of the company is any accounting period of the company ending before the first day of its first new period.

SCHEDULE 29

Part 1 — Introduction

Gains and losses in respect of intangible fixed assets

1

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

Intangible assets

2

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

Intangible fixed assets

3

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

Goodwill

4

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

Company not drawing up correct accounts

5

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

Reference to consolidated group accounts

6

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

Part 2 — Debits in respect of intangible fixed assets

Introduction

7

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

Expenditure written off as it is incurred

8

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

Writing down on accounting basis

9

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

Writing down at fixed rate: election for fixed-rate basis

10

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

Writing down at fixed rate: calculation

11

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

Reversal of previous accounting gain

12

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

Part 3 — Credits in respect of intangible fixed assets

Introduction

13

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

Receipts recognised as they accrue

14

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

Revaluation

15

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

Negative goodwill

16

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

Reversal of previous accounting loss

17

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

Part 4 — Realisation of intangible fixed assets

Introduction

18

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

Meaning of “realisation”

19

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

Realisation of asset written down for tax purposes

20

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

Realisation of asset shown in balance sheet and not written down for tax purposes

21

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

Apportionment in case of part realisation

22

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

Realisation of asset not shown in balance sheet

23

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

Meaning of “proceeds of realisation”

24

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

Relief in case of reinvestment

25

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

Abortive expenditure on realisation

26

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

Part 5 — Calculation of tax written down value

Asset written down on accounting basis

27

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

Asset written down at fixed rate

28

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

Effect of part realisation of asset

29

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

Part 6 — How credits and debits are given effect

Introduction

30

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

Asset held for purposes of trade

31

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

Asset held for purposes of property business

32

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

Assets held for purposes of mines, transport undertakings, etc

33

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

Non-trading credits and debits

34

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

Claim to set non-trading loss against total profits

35

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

Special provisions relating to insurance companies

36

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

Part 7 — Roll-over relief in case of realisation and reinvestment

The relief

37

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

Conditions to be met in relation to the old asset and its realisation

38

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

Conditions to be met in relation to the expenditure on other assets

39

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

Claim for relief

40

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

How the relief is given: general

41

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

Determination of appropriate proportion or adjusted cost

42

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

Declaration of provisional entitlement to relief

43

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

Realisation and reacquisition

44

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

Deemed realisations and deemed acquisitions to be disregarded

45

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

Part 8 — Groups of companies

Introduction

46

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

General rule: a company and its 75% subsidiaries form a group

47

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

Membership of group restricted to effective 51% subsidiaries of principal company

48

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

Principal company cannot be 75% subsidiary of another company

49

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

Company cannot be member of more than one group

50

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

Continuity of identity of group

51

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

Meaning of “effective 51% subsidiary”

52

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

Meaning of equity holder and profits or assets available for distribution

53

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

Supplementary provisions

54

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

Part 9 — Application of provisions to groups of companies

Transfers within a group

55

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

Roll-over relief on reinvestment: application to group member

56

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

Roll-over relief on reinvestment: acquisition of group company treated as equivalent to acquisition of underlying assets

57

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

Company ceasing to be member of group (“degrouping”)

58

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

Degrouping: associated companies leaving group at the same time

59

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

Degrouping: principal company becoming member of another group

60

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

Degrouping: company ceasing to be member of group by reason of exempt distribution

61

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

Degrouping: merger carried out for bona fide commercial reasons

62

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

Degrouping: group member ceasing to exist

63

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

Degrouping: supplementary provisions

64

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

Degrouping: application of roll-over relief in relation to degrouping charge

65

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

Reallocation of degrouping charge within group

66

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

Application of roll-over relief in relation to reallocated degrouping charge

67

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

Recovery of degrouping charge from another group company or controlling director

68

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

Recovery of degrouping charge from another group company or controlling director: procedure etc

69

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

Recovery of degrouping charge from another group company or controlling director: time limit

70

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

Payments between group members in respect of reliefs

71

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

Part 10 — Excluded assets

Introduction

72

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

Assets entirely excluded: rights over tangible assets

73

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

Assets entirely excluded: oil licences

74

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

Assets entirely excluded: financial assets

75

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

Assets entirely excluded: rights in companies, trusts, etc

76

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

Assets entirely excluded: non-commercial purposes etc

77

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

Assets excluded except as regards royalties: life assurance business

78

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

Assets excluded except as regards royalties: mutual trade or business

79

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

Assets excluded except as regards royalties: films and sound recordings

80

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

Assets excluded except as regards royalties: computer software treated as part of cost of related hardware

81

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

Assets excluded to extent specified: research and development

82

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

Assets excluded to extent specified: election to exclude capital expenditure on computer software

83

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

Part 11 — Transfer of business or trade

Company reconstruction involving transfer of business

84

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

Transfer of UK trade between companies resident in different EU member States

85

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

Postponement of charge on transfer of assets to non-resident company.

86

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

Transfer of non-UK trade

87

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

Procedure on application for clearance

88

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

Transfer of life assurance business

89

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

Transfer of business of building society to company

90

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

Amalgamation of or transfer of engagements by certain societies

91

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

Part 12 — Transactions between related parties

Transfer between company and related party treated as being at market value

92

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

Exclusion of roll-over relief in case of part realisation involving related party

93

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

Delayed payment of royalty payable by company to related party

94

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

Meaning of “related party”

95

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

Meaning of “control” and “major interest”

96

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

Rights and powers to be taken into account: general

97

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

Rights and powers to be taken into account: rights and powers held jointly

98

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

Rights and powers to be taken into account: partnerships

99

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

Meaning of “participator” and “associate”

100

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

Connected persons

101

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

Part 13 — Supplementary provisions

Treatment of grants and other contributions to expenditure

102

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

Grants to be left out of account for tax purposes

103

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

Finance leasing etc

104

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

Assets acquired or realised together

105

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

Deemed market value acquisition: adjustment of amounts in case of nil accounting value

106

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

Treatment of fungible assets

107

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

Asset ceasing to be chargeable intangible asset: deemed realisation at market value

108

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

Asset ceasing to be chargeable intangible asset: postponement of gain in certain cases

109

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

Asset becoming chargeable intangible asset

110

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

Tax avoidance arrangements to be disregarded

111

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

Debits not allowed in respect of expenditure not generally deductible for tax purposes

112

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

Delayed payment of emoluments

113

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

Delayed payment of pension contributions

114

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

Bad debts etc

115

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

Assumptions for computing chargeable profits of controlled foreign companies

116

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

Part 14 — Commencement and transitional provisions

Commencement date

117

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

Application of Schedule to assets created or acquired after commencement

118

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

Application of Schedule to royalties

119

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

Assets regarded as created or acquired when expenditure incurred

120

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

Internally-generated goodwill: whether created before or after commencement

121

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

Certain other internally-generated assets: whether created before or after commencement

122

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

Expenditure on acquisition treated as incurred when recognised for accounting purposes

123

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

When expenditure treated as incurred: chargeable gains rule to be followed in certain cases

124

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

When expenditure treated as incurred: capital allowances general rule to be followed in certain cases

125

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

Application of Schedule to fungible assets

126

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

Certain assets acquired on transfer of business treated as existing assets

127

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

Application of Schedule to certain existing telecommunication rights

128

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