Finance Act 2003

• (1) In section 531(4) (enterprise management incentives: limitation of charge on exercise of qualifying option to acquire shares below market value), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.

• (2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

38

• (1) In section 532(5) (enterprise management incentives: modified tax consequences following disqualifying events), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.

• (2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

39

• (1) In section 538 (share conversions excluded for purposes of section 536), for subsection (4) substitute—

(4) In this section— “associated company” has the same meaning as, by virtue of section 416 of ICTA, it has for the purposes of Part 11 of ICTA, “director” has the same meaning as in the benefits code (see section 67) but also includes a person who is to be or has been a director, “employee” includes a person who is to be or has been an employee, and “employee-controlled” has the same meaning as in Chapters 1 to 4 of this Part (see section 421H(1)).

.

• (2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).

40

• (1) In section 540(1) (enterprise management incentives: notional loan provisions not to apply in relation to acquisition of shares by exercise of qualifying option), for “Chapter 8 of Part 3” substitute “ Chapter 3C of this Part ”.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.

41

• (1) In section 541 (enterprise management incentives: effect on other income tax charges), for subsections (1) and (2) substitute—

(1) Nothing in the EMI code affects— (a) the operation of Chapters 2 to 4 of this Part in relation to shares acquired under a qualifying option, or (b) the operation of Chapter 5 of this Part otherwise than in relation to the acquisition of shares under a qualifying option. (2) But in calculating the taxable amount for the purposes of section 426 (post-acquisition charge on restricted securities) in respect of shares acquired under a qualifying option, the amount of relief on the exercise of the option is to be regarded as a deductible amount for the purposes of section 428 (amount of charge).

.

• (2) So far as relating to—

• (a) Chapter 9 of Part 3 (which is repealed and replaced by provisions inserted in Part 7),

• (b) any of the new Chapters substituted or inserted in Part 7 by this Schedule, and

• (c) each of the Chapters of that Part as originally enacted for which new Chapters are substituted by this Schedule,

sub-paragraph (1) has effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.

42

• (1) Part 2 of Schedule 1 (index of defined expressions) is amended as follows.

• (2) Omit the entries relating to—

• “acquisition (in Chapter 8 of Part 3)”,

• “the acquisition (in Chapter 8 of Part 3)”,

• “acquisition (in Chapter 9 of Part 3)”,

• “the acquisition (in Chapter 4 of Part 7)”,

• “as a director or employee, in relation to the acquisition of an interest in shares (in Chapter 2 of Part 7)”,

• “as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 3 of Part 7)”,

• “as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 4 of Part 7)”,

• “assign, in relation to a share option (in Chapter 5 of Part 7)”,

• “associated company (in Chapter 4 of Part 7)”,

• “company (in Chapter 5 of Part 7)”,

• “the Contributions and Benefits Act (in Chapter 5 of Part 7)”,

• “convertible, in relation to shares (in Chapter 3 of Part 7)”,

• “dependent subsidiary (in Chapter 4 of Part 7)”,

• “director (in Chapter 2 of Part 7)”,

• “director (in Chapter 3 of Part 7)”,

• “director (in Chapter 4 of Part 7)”,

• “director (in Chapter 5 of Part 7)”,

• “employee (in Chapter 8 of Part 3)”,

• “employee (in Chapter 9 of Part 3)”,

• “employee (in Chapter 2 of Part 7)”,

• “the employee (in Chapter 2 of Part 7)”,

• “employee (in Chapter 3 of Part 7)”,

• “the employee (in Chapter 3 of Part 7)”,

• “employee (in Chapter 4 of Part 7)”,

• “the employee (in Chapter 4 of Part 7)”,

• “employee (in Chapter 5 of Part 7)”,

• “the employee (in Chapter 5 of Part 7)”,

• “employee-controlled (in relation to a company) (in Chapter 4 of Part 7)”,

• “the employee’s interest (in Chapter 2 of Part 7)”,

• “the employer company (in Chapter 2 of Part 7)”,

• “the employer company (in Chapter 3 of Part 7)”,

• “the employer company (in Chapter 4 of Part 7)”,

• “employment-related shares (in Chapter 9 of Part 3)”,

• “the employment-related shares (in Chapter 8 of Part 3)”,

• “held by outside shareholders (in Chapter 4 of Part 7)”,

• “interest in shares (in Chapter 8 of Part 3)”,

• “interest in shares (in Chapter 9 of Part 3)”,

• “interest in shares (in Chapter 4 of Part 7)”,

• “market value (in Chapter 8 of Part 3)”,

• “market value (in Chapter 9 of Part 3)”,

• “market value (in Chapter 2 of Part 7)”,

• “only conditional (interest in shares) (in Chapter 2 of Part 7)”,

• “payment for the employment-related shares (in Chapter 8 of Part 3)”,

• “release, in relation to a share option (in Chapter 5 of Part 7)”,

• “secondary Class 1 contributions (in Chapter 5 of Part 7)”,

• “share option (in Chapter 5 of Part 7)”,

• “the share option (in Chapter 5 of Part 7)”,

• “shares (in Chapter 8 of Part 3)”,

• “shares (in Chapter 9 of Part 3)”,

• “shares (in Chapter 2 of Part 7)”,

• “the shares (in Chapter 2 of Part 7)”,

• “shares (in Chapter 3 of Part 7)”,

• “the shares (in Chapter 3 of Part 7)”,

• “shares (in Chapter 4 of Part 7)”,

• “the shares (in Chapter 4 of Part 7)”,

• “shares (in Chapter 5 of Part 7)”,

• “terms (in Chapter 2 of Part 7)”,

• “terms (in Chapter 3 of Part 7)”, and

• “value (in relation to shares) (in Chapter 4 of Part 7)”.

• (3) At the appropriate places insert—

the acquisition (in Chapters 1 to 4 of Part 7)	section 421B(8) (see also section 446Q(4))

,

the acquisition (in Chapter 5 of Part 7)	section 471(5)

,

associated company (in section 421H(1) and Chapters 2 to 4 of Part 7)	section 421H(2)

,

associated person (in Chapters 1 to 4 of Part 7)	section 421C

,

associated person (in Chapter 5 of Part 7)	section 472

,

chargeable event (in Chapter 3B of Part 7)	section 446P(5)

,

the Contributions and Benefits Act (in Chapter 5 of Part 7)	section 484(7)

,

consideration (in Chapters 2 to 5 of Part 7)	sections 421(2) and 421A

,

consideration given for the acquisition of employment-related securities (in Chapters 2 to 3A of Part 7)	section 421I

,

convertible securities (in Chapters 2 to 3A of Part 7)	section 436

,

the employee (in Chapters 1 to 4 of Part 7)	section 421B(8)

,

the employee (in Chapter 5 of Part 7)	section 471(5)

,

employee-controlled (in Chapters 2 to 4 of Part 7)	section 421H(1)

,

the employer (in Chapters 1 to 4 of Part 7)	section 421B(8)

,

the employer (in Chapter 5 of Part 7)	section 471(5)

,

the employment (in Chapters 1 to 4 of Part 7)	section 421B(8)

,

the employment (in Chapter 5 of Part 7)	section 471(5)

,

employment-related securities (in Chapters 1 to 5 of Part 7)	section 421B(8) (see also section 484(4))

,

employment-related securities option (in Chapter 5 of Part 7)	section 471(5)

,

interest, in relation to securities (or shares) (in Chapters 1 to 5 of Part 7)	section 420(8)

,

market value (in Chapters 1 to 5 of Part 7)	section 421(1)

,

non-commercial increase (in Chapter 3B of Part 7)	section 446K(4)

,

non-commercial reduction (in Chapter 3B of Part 7)	section 446K(4)

,

the notional loan (in Chapter 3C of Part 7)	section 446S(1)

,

recognised stock exchange	section 841 of ICTA

,

relevant period (in Chapter 3B of Part 7)	section 446O

,

restricted securities and restricted interest in securities (in Chapters 2, 3A and 3B of Part 7)	sections 423 and 424

,

restriction (in Chapters 2, 3A and 3B of Part 7)	section 432(8)

,

secondary Class 1 contributions (in Chapter 5 of Part 7)	section 484(7)

,

securities (in Chapters 1 to 5 of Part 7)	section 420

,

securities option (in Chapters 1 to 5 of Part 7)	section 420(8)

,

shares (in Chapters 1 to 5 of Part 7)	section 420(8)

,

valuation date (in Chapter 3B of Part 7)	section 446O

, and

variation, in relation to a restriction (in Chapter 2 of Part 7)	section 427(4)

.

• (4) So far as relating to—

• (a) Chapters 8 and 9 of Part 3 (which are repealed and replaced by provisions inserted in Part 7),

• (b) each of the new Chapters substituted or inserted in Part 7, and

• (c) each of the Chapters of that Part as originally enacted for which new provisions are substituted,

sub-paragraphs (1) to (3) have effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.

43

• (1) In paragraph 35 of Schedule 2 (approved share incentive plans: maximum annual award), for sub-paragraphs (3) and (4) substitute—

(3) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not. (4) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.

.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.

44

• (1) In paragraph 42(3) of Schedule 3 (approved SAYE option schemes: withdrawal of approval), for paragraph (b) substitute—

(b) section 421G(b) (exemption from Chapters 2 to 4 of Part 7),

.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.

45

• (1) Schedule 5 (enterprise management incentives) is amended as follows.

• (2) In paragraph 5, for sub-paragraphs (7) and (8) substitute—

(7) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not. (8) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.

.

• (3) In paragraph 37, for sub-paragraphs (4) to (6) substitute—

(4) Where the shares that may be acquired by the employee are restricted shares, the agreement must contain details of the restrictions. (5) For the purposes of sub-paragraph (4)— (a) shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and (b) “restrictions” means that provision.

.

• (4) Sub-paragraphs (1) to (3) have effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.

46

• (1) Schedule 7 (transitionals and savings) is amended as follows.

• (2) Omit paragraphs 30 and 31.

• (3) In the heading of Part 6, for “share-related” substitute “ related to securities ”.

• (4) In the heading of Part 7, for “share-related income” substitute “ income related to securities ”.

• (5) Before paragraph 44 insert—

(43A) (1) This paragraph relates to the operation of section 421E (exclusions from Chapters 2 to 4 of Part 7: residence) in relation to an acquisition made before 6th April 2003. (2) Section 421E(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”. (3) Section 421E(2) has effect with the substitution of “ the emoluments of the employment did not fall to be charged to income tax under Schedule E ” for the words from “the earnings”.

.

• (6) In paragraph 44, after “Part 7” insert “ , as originally enacted, ”.

• (7) In paragraph 45(1), at end insert “ , as originally enacted. ”.

• (8) In paragraph 46(1), after “disposal)” insert “ , as originally enacted, ”.

• (9) Omit paragraphs 47 and 48.

• (10) In paragraph 49, for “shares” substitute “ securities ”.

• (11) Omit paragraphs 50 to 52.

• (12) Omit paragraph 53.

• (13) In paragraph 54, after “Part 7” insert “ , both as originally enacted and as substituted by the Finance Act 2003, ”.

• (14) In paragraph 55—

• (a) after “Part 7” insert “ , as originally enacted, ”, and

• (b) omit sub-paragraph (2)(a).

• (15) In paragraph 56, after “section 449” insert “ , as originally enacted, ”.

• (16) In paragraph 58(1), at end insert “ , as originally enacted. ”

• (17) Omit paragraph 59.

• (18) Omit paragraphs 60 and 61.

• (19) After paragraph 61 insert—

(61A) Chapter 3D of Part 7 does not apply in relation to securities, or an interest in securities, acquired on or before 6th April 1976.

.

• (20) Omit paragraph 62.

• (21) For paragraph 63 substitute—

(63) (1) This paragraph relates to the operation of section 474 (exclusions from Chapter 5 of Part 7: residence) in relation to an acquisition made before 6th April 2003. (2) Section 474(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”.

.

• (22) In paragraph 64—

• (a) for “share” (in both places) substitute “ securities ”,

• (b) for “obtained” substitute “ acquired ”, and

• (c) for “receipt” substitute “ acquisition ”.

• (23) In paragraph 65—

• (a) in sub-paragraph (1), for “479 (amount of gain realised by exercising option) in relation to a share option obtained” substitute “ 478 in relation to an event that is a chargeable event by virtue of section 477(3)(a) or (b) (acquisition of securities pursuant to an option and assignment and release of option) in the case of a share option acquired ”, and

• (b) in sub-paragraph (2), for “479(1)” substitute “ 478(1) ” and for “cost” substitute “ amount ”.

• (24) Omit paragraph 66.

• (25) Omit paragraph 67.

• (26) In this paragraph—

• (a) sub-paragraphs (2) and (19) have effect in relation to securities, and interests in securities, disposed of on or after 16th April 2003,

• (b) sub-paragraphs (5) and (13) to (17) have effect on and after 16th April 2003,

• (c) sub-paragraphs (6) to (8), (10), (11), (20), (23) and (24) have effect on the day appointed under paragraph 3(2), and

• (d) sub-paragraphs (21) and (22) have effect in accordance with the provision made for the substitution of Chapter 5 of Part 7.

Consequential amendments of other enactments

47

• (1) In section 98 of the Taxes Management Act 1970 (c. 9) (penalties for failure to furnish information etc)—

• (a) in the first column of the Table, at the appropriate place insert “ Section 421J(4) of ITEPA 2003. ”, and

• (b) in the second column of the Table, for the entries relating to sections 432, 433, 445, 465, 466 and 486 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) substitute “ Section 421J(3) of ITEPA 2003. ”.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 1 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

48

• (1) In section 4(4)(a) of—

• (a) the Social Security Contributions and Benefits Act 1992 (c. 4) (payments treated as earnings), and

• (b) the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (corresponding provision for Northern Ireland),

for the words after “479” substitute “ of ITEPA 2003 in respect of which an amount counts as employment income of the earner under section 476 of that Act (charge on acquisition of securities pursuant to option etc), reduced by any amounts deducted under section 480(1) to (6) of that Act in arriving at the amount counting as such employment income; ”.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

49

The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

50

• (1) After section 119 insert—

(119A) (1) This section applies to a disposal of an asset consisting of employment-related securities if the disposal— (a) is an event giving rise to a relevant income tax charge, or (b) is the first disposal after an event, other than a disposal, giving rise to a relevant income tax charge. (2) Section 38(1)(a) applies as if the relevant amount had formed part of the consideration given by the person making the disposal for his acquisition of the employment-related securities. (3) For the purposes of this section an event gives rise to a relevant income tax charge if it results in an amount counting as employment income— (a) under section 426 of ITEPA 2003 (restricted securities), (b) under section 438 of ITEPA 2003 by virtue of section 439(3)(a) of that Act (conversion of convertible securities), (c) under section 446U of ITEPA 2003 (securities acquired for less than market value: discharge of notional loan), or (d) under section 476 of ITEPA 2003 by virtue of section 477(3)(a) of that Act (acquisition of securities pursuant to employment-related securities option), in respect of the employment-related securities. (4) For the purposes of this section “the relevant amount” is the aggregate of the amounts counting as employment income as mentioned in subsection (3) above by reason of events occurring— (a) not later than the disposal, and (b) where this section has applied to an earlier disposal of the employment-related securities, after the last disposal to which this section applied. (5) But where the relevant amount consists of or includes an amount counting as employment income under section 476 of ITEPA 2003, it is to be increased by the aggregate of any amounts deducted under section 480(5)(a) or (b), 481 or 482 of that Act in arriving at the amount of that employment income. (6) Where securities or interests in securities cease to be employment-related securities— (a) by reason of subsection (6) of section 421B of ITEPA 2003 in circumstances in which, immediately before the employee’s death, the employment-related securities are held otherwise than by the employee, or (b) by reason of subsection (7) of that section, they are to be regarded for the purposes of this section as remaining employment-related securities until the next occasion on which they are disposed of. (7) In this section— - “employment-related securities”, and - “employee”, in relation to employment-related securities, - have the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003. (8) References in this section to ITEPA 2003 are to that Act as amended by Schedule 22 to the Finance Act 2003.

.

• (2) Sub-paragraph (1) has effect in relation to disposals on or after 16th April 2003.

51

In section 120 (increase in expenditure by reference to tax charged in relation to shares etc), after subsection (8) insert—

(9) References in this section to ITEPA 2003 are to that Act as originally enacted.

.

52

• (1) After section 149A insert—

(149AA) (1) Where an individual has acquired an asset consisting of employment-related securities which are— (a) restricted securities or a restricted interest in securities, or (b) convertible securities or an interest in convertible securities, the consideration for the acquisition shall (subject to section 119A) be taken to be equal to the aggregate of the actual amount or value given for the employment-related securities and any amount that constituted earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings) in respect of the acquisition. (2) Subsection (1) above applies only to the individual making the acquisition and, accordingly, is to be disregarded in calculating the consideration received by the person from whom the employment-related securities are acquired. (3) This section has effect in relation to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003. (4) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003 (as substituted by Schedule 22 to the Finance Act 2003). (5) In this section— - “restricted interest in securities”, and - “restricted securities”, - have the same meaning as in Chapter 2 of that Part of ITEPA 2003 (as so substituted). (6) In this section “convertible securities” has the same meaning as in Chapter 3 of that Part of ITEPA 2003 (as so substituted).

.

53

In section 149B (employee incentive schemes: conditional interests in shares), after subsection (4) insert—

(5) This section does not apply to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003. (6) References in this section to ITEPA 2003 are to that Act as originally enacted.

.

54

• (1) In section 288 (interpretation), after subsection (1) insert—

(1A) If any employment-related securities option would not otherwise be regarded as an option for the purposes of this Act, it shall be so regarded; and the acquisition of securities by an associated person pursuant to an employment-related securities option is to be treated for the purposes of this Act as the exercise of the option. Expressions used in this subsection and Chapter 5 of Part 7 of ITEPA 2003 have the same meaning in this subsection as in that Chapter.

.

• (2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1).

55

• (1) The Social Security Contributions (Share Options) Act 2001 (c. 20) is amended as follows.

• (2) The amendments of that Act have effect on and after the day appointed under paragraph 3(2).

56

In section 2(3)(b) (effect of notice under section 1), insert at the end “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

57

• (1) Section 3 (special provision for roll-overs) is amended as follows.

• (2) In subsection (4)—

• (a) in paragraph (a), for “section 485(1) to (4)” substitute “ section 483(1) to (4) ”, and

• (b) insert at the end of paragraph (b)(i) “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.

• (3) In subsection (6), for “485(1) to (3)” substitute “ 483(1) to (3) ”.

• (4) In subsection (11)(a), insert at the end “ (less any deductible amounts under section 480(1) to (6)); ”.

58

In section 5(2)(c) (interpretation), for “483(1)” substitute “ 477(6) ”.

59

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

60

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

61

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

62

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

63

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

64

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

65

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

66

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

67

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

68

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

69

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

70

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

71

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

72

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

73

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

SCHEDULE 23

Part 1 — General provisions

Introduction

1

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

Requirements for relief

2

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

Business must be within the charge to corporation tax

3

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

Kind of shares acquired

4

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

Part 2 — Award of shares

Introduction

5

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

The company whose shares are acquired

6

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

Income tax position of employee

7

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

Amount of relief

8

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

How relief is given

9

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

Timing of relief

10

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

Part 3 — Grant of option

Introduction

11

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

The company whose shares are acquired

12

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

Takeover of company whose shares are subject of option

13

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

Income tax position of the employee

14

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

Amount of relief

15

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

How relief is given

16

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

Timing of relief

17

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

Part 4 — Provisions applying in case of restricted shares

Introduction

18

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

Meaning of shares being “subject to forfeiture”

19

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

Income tax position of the employee in case of shares subject to forfeiture

20

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

Amount of relief in case of shares subject to forfeiture

21

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

Timing of relief in case of shares subject to forfeiture

22

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

Part 5 — Supplementary provisions

Transfer of business within a group

23

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

Relationship between relief and other deductions: priority of deductions under SIP code

24

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

Relationship between relief and other deductions: exclusion of other deductions

25

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

Meaning of “employment”

26

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

Exercise of option after death of employee or recipient

27

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

Meaning of “group company” and “parent company”

28

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

Meaning of “consortium” and “commercial association of companies”

29

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

Minor definitions

30

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

Index of defined expressions

31

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

Part 6 — Commencement and transitional provisions

Commencement

32

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

Transitional provisions

33

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

SCHEDULE 24

Restriction of deductions

1

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

“Provision of qualifying benefits”

2

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

“Qualifying expenses”

3

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

Payment “out of” employee benefit contributions

4

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

Transfer of asset to employee

5

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

Provisional calculation of profits

6

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

Life assurance business

7

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

Deductions to which Schedule does not apply

8

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

Interpretation

9

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

Consequential amendments

10

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

Commencement and transitory provisions

11

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

SCHEDULE 25

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

SCHEDULE 26

Introduction

1

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

Brokers

2

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

Investment managers

3

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

Investment managers: the 20% rule

4

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

Investment managers: application of 20% rule to collective investment schemes

5

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

Lloyd’s agents

6

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

General supplementary provisions

7

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

SCHEDULE 27

Taxes Act 1988

1

• (1) The Taxes Act 1988 is amended as follows.

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

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

• (4) In Schedule 15 (qualifying policies), in paragraph 24 (policies issued by non-resident companies), in sub-paragraph (3)(b) (twice) and (c) for “branch” substitute “ permanent establishment ”.

Taxation of Chargeable Gains Act 1992

2

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

• (2) In section 10 (non-resident with United Kingdom branch or agency)—

• (a) omit subsection (3); and

• (b) in subsection (4), omit “or corporation tax”.

• (3) In sections 13(5)(d), 25(7)(b), ... 139(1A), 140A(2), 159(4)(b), 171(1A), 175(2AA), 179(1A), 190(2)(b) and (3)(b), 199(6)(b) and 228(6)(b), and in Schedule 7A, paragraph 1(3A), for “10(3)” substitute “ 10B ”.

Finance Act 1993

3

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

Finance Act 1995

4

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

5

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

6

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

7

Omit section 129 of the Finance Act 1995 (c. 4) (limit on income chargeable on non-residents: corporation tax).

Finance Act 1996

8

In Schedule 15 to the Finance Act 1996 (c. 8) (loan relationships: transitional provisions), in paragraph 8(6)(c)—

• (a) for “10(3)” substitute “ 10B ”, and

• (b) for “on a disposal by a branch or agency” substitute “ attributable to a permanent establishment ”.

Finance Act 2000

9

In Schedule 15 to the Finance Act 2000 (c. 17) (corporate venturing scheme), in paragraph 79(5) (gain accruing on chargeable event), for “section 10” substitute “ section 10B ”.

SCHEDULE 28

Part 1 — Reporting limits

1

After section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

(3A) (1) Where in the case of an individual— (a) the amount of chargeable gains accruing to him in any year of assessment does not exceed the exempt amount for that year, and (b) the aggregate amount or value of the consideration for all chargeable disposals of assets made by him in that year does not exceed four times the exempt amount for that year, a statement to that effect is sufficient compliance with so much of any notice under section 8 of the Management Act as requires information for the purposes of establishing the amount in which he is chargeable to capital gains tax for that year. (2) For the purposes of subsection (1)(a) above— (a) the amount of chargeable gains accruing to an individual in a year of assessment for which no deduction falls to be made in respect of allowable losses is the amount after any reduction for taper relief; (b) the amount of chargeable gains accruing to an individual in a year of assessment for which such a deduction does fall to be made is the amount before deduction of losses or any reduction for taper relief. (3) For the purposes of subsection (1)(b) above a “chargeable disposal” is any disposal other than— (a) a disposal on which any gain accruing is not a chargeable gain, or (b) a disposal the consideration for which is treated by virtue of section 58 (husband and wife) as being such that neither a gain nor a loss would accrue. (4) Subsection (1) above applies to personal representatives (for the year of assessment in which the individual in question dies and for the next 2 following years) as it applies to an individual. (5) Subsection (1) above applies to the trustees of a settlement in accordance with Schedule 1. (6) In this section “exempt amount” has the meaning given by section 3 (read, where appropriate, with Schedule 1).

.

2

• (1) In the heading to Schedule 1 to that Act (application of exempt amount in cases involving settled property) after “Exempt Amount” insert “ And Reporting Limits ”.

• (2) In paragraph 1 of that Schedule (trustees for person with a disability) after sub-paragraph (5) insert—

(5A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.

.

• (3) In paragraph 2 of that Schedule (other trustees) after sub-paragraph (6) insert—

(6A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.

.

Part 2 — Annual exempt amount

3

• (1) Section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) Omit subsection (6).

• (3) In subsection (7) for “subsections (1) to (6)” substitute “ subsections (1) to (5C) ”.

• (4) After that subsection insert—

(7A) As they apply by virtue of subsection (7) above— (a) subsection (5A) has effect with the omission of paragraph (b), and (b) subsection (5B) has effect with the omission of the words “or (b)”.

.

4

• (1) Paragraph 1 of Schedule 1 to that Act is amended as follows.

• (2) In sub-paragraph (1), in the words following paragraph (b)—

• (a) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”;

• (b) at the end insert “ , but with the modifications specified in this paragraph ”.

• (3) After sub-paragraph (2) insert—

(2A) As they apply by virtue of sub-paragraph (1) above— (a) section 3(5A) has effect with the omission of paragraph (b), and (b) section 3(5B) has effect with the omission of the words “or (b)”.

.

• (4) In sub-paragraph (3)—

• (a) for “section 3” substitute “ sections 3 and 3A(1)(a) ”;

• (b) after “the exempt amount for the year”, where it first occurs, insert “ (except the one in section 3(2)) ”.

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

5

• (1) Paragraph 2 of that Schedule is amended as follows.

• (2) In sub-paragraph (1) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”.

• (3) In sub-paragraph (2)—

• (a) for “subsections (1) and (5)” substitute “ section 3(1), (5A), (5B) and (5C) ”;

• (b) after “section 3(1), (5A), (5B) and (5C)” insert “ and section 3A(1)(a) ”.

• (4) After sub-paragraph (2) insert—

(2A) As they apply by virtue of sub-paragraph (1) above— (a) section 3(5A) has effect with the omission of paragraph (b), and (b) section 3(5B) has effect with the omission of the words “or (b)”.

.

• (5) Omit sub-paragraph (3).

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

6

In the first column of the Table in section 98 of the Taxes Management Act 1970 (c. 9) (penalty for failure to furnish particulars etc), at the appropriate place insert— “ Paragraph 1(7) of Schedule 1 to the 1992 Act. ”.

Part 3 — Commencement

7

The amendments in paragraphs 1, 2, 3(2) and (3), 4(2)(a) and (4)(a) and 5(2), (3)(b) and (5) of this Schedule apply in relation to any notice under section 8 or, as the case may be, section 8A of the Taxes Management Act 1970 given in relation to the year 2003-04 or any subsequent year of assessment.

8

The amendments in paragraphs 3(4), 4(2)(b), (3) and (4)(b) and 5(3)(a) and (4) of this Schedule shall be deemed always to have had effect.

9

The amendments in paragraphs 4(5), 5(6) and 6 of this Schedule have effect in relation to any notice given in respect of the year 2002-03 or any subsequent year of assessment, except that the amendment in paragraph 6 has effect only in relation to such a notice given after the passing of this Act.

SCHEDULE 29

Introduction

1

Schedule 4C to the Taxation of Chargeable Gains Act 1992 (c. 12) (transfers of value: attribution of gains to beneficiaries) is amended as follows.

Scope and scheme of Schedule

2

For paragraphs 1 and 2 (introduction and general scheme of Schedule) substitute—

(1) (1) This Schedule applies where the trustees of a settlement (“the transferor settlement”) make a transfer of value to which Schedule 4B applies (“the original transfer”). (2) Where this Schedule applies, the following gains— (a) any Schedule 4B trust gains accruing by virtue of the transfer (see paragraphs 3 to 7), and (b) any outstanding section 87/89 gains of the transferor settlement at the end of the year of assessment in which the transfer is made (see paragraph 7A), are pooled for the purpose of attributing them, in accordance with this Schedule, to beneficiaries who receive capital payments. Paragraph 7B provides for further gains to be brought into the pool in the case of a further transfer of value. (3) The gains mentioned in sub-paragraph (2) are referred to in this Schedule as “Schedule 4C gains” and the pool is referred to as the transferor settlement’s “Schedule 4C pool”. (4) Paragraphs 8 to 9 provide for the attribution of gains in a settlement’s Schedule 4C pool. (5) References in this Schedule to a transfer to which Schedule 4B applies include any such transfer, whether or not any chargeable gain or allowable loss accrues under that Schedule by virtue of the transfer.

Other gains to be brought into Schedule 4C pool

3

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

Attribution of gains to beneficiaries

4

• (1) For paragraphs 8 and 9 (attribution of gains to beneficiaries) substitute—

(8) (1) The gains in a settlement’s Schedule 4C pool at the end of any year of assessment are treated as chargeable gains accruing in that year to beneficiaries who receive in that year, or have received in an earlier year, capital payments from the trustees of any settlement that is a relevant settlement in relation to the pool. Paragraph 8A defines “relevant settlement” for this purpose. (2) The attribution of chargeable gains to beneficiaries under this paragraph shall be made in proportion to, but shall not exceed, the amounts of the capital payments made to them. Paragraphs 8B and 8C provide for the matching of gains with available capital payments. (3) A chargeable gain shall not be treated as accruing to a beneficiary under this Schedule unless he is chargeable to tax for that year of assessment. (4) For the purposes of this Schedule a beneficiary is “chargeable to tax” for a year of assessment if, and only if— (a) he is resident in the United Kingdom for any part of that year or is ordinarily resident in the United Kingdom for that year, and (b) he is domiciled in the United Kingdom for any part of that year. (5) Any gains in a settlement’s Schedule 4C pool that are not attributed to beneficiaries in a year of assessment are carried forward to the following year of assessment, when this paragraph applies again. (8A) (1) This paragraph specifies what settlements are relevant settlements in relation to a Schedule 4C pool. (2) The transferor and transferee settlements in relation to the original transfer of value are relevant settlements. (3) If the trustees of any settlement that is a relevant settlement in relation to a Schedule 4C pool— (a) make a transfer of value to which Schedule 4B applies, or (b) make a transfer of settled property to which section 90 applies, any settlement that is a transferee settlement in relation to that transfer is also a relevant settlement in relation to that pool. (4) If the trustees of a settlement that is a relevant settlement in relation to a Schedule 4C pool make a transfer of value to which Schedule 4B applies, any other settlement that is a relevant settlement in relation to that pool is also a relevant settlement in relation to the Schedule 4C pool arising from the further transfer. (8B) (1) The following rules apply as regards the attribution of the gains in a settlement’s Schedule 4C pool to beneficiaries of relevant settlements. This paragraph has effect subject to paragraph 8C (order of attribution as between gains in Schedule 4C pool and other trust gains). (2) Gains of earlier years are attributed to beneficiaries before gains of later years. (3) For the purposes of this Schedule the year of a gain is determined as follows— (a) a Schedule 4B trust gain is a gain of the year of assessment in which the transfer of value in question takes place; (b) a section 87/89 gain is a gain of the year of assessment in which it first forms part of a settlement’s trust gains in accordance with section 87(2). (4) Gains of the same year are matched with available capital payments made at any time by trustees of any relevant settlement. (5) If gains of one year are wholly matched, gains of the next year are then matched, and so on. (6) The gains are attributed to beneficiaries in proportion to, but not so as to exceed, the amount of available capital payments received by them. (8C) (1) Where in a year of assessment— (a) gains in a settlement’s Schedule 4C pool fall to be attributed to beneficiaries of relevant settlements, and (b) one or more of those settlements also have gains that fall to be attributed to beneficiaries under section 87(4) or 89(2), the provisions of paragraph 8B have effect as follows. (2) The rules in that paragraph apply in relation to all the gains falling to be so attributed. (3) As between gains of the same year, Schedule 4C gains are attributed to beneficiaries before other gains. (9) (1) In any year of assessment capital payments made to a beneficiary by the trustees of a relevant settlement, in that year or any earlier year, are available for the purposes of paragraphs 8 to 8C subject to the following provisions. (2) A capital payment is no longer available to the extent that chargeable gains have, by reason of it, been treated as accruing to the recipient in an earlier year of assessment— (a) under this Schedule, or (b) under section 87(4) or 89(2). (3) Capital payments received— (a) before 21st March 2000, or (b) before the year of assessment preceding the year of assessment in which the original transfer of value was made, shall be disregarded.

.

• (2) After paragraph 12 insert—

(12A) (1) This paragraph applies where by virtue of section 10A an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the year of return by virtue of a capital payment made to him in an intervening year. (2) Where this paragraph applies, a capital payment equal to so much of that capital payment as exceeds the amount otherwise charged shall be deemed for the purposes of this Schedule to be made to the beneficiary in the year of return. (3) The “amount otherwise charged” means the total of any chargeable gains attributed to the beneficiary under section 87(4) or 89(2) by virtue of the capital payment. (4) For the purposes of paragraph 13(5)(b) a deemed capital payment under this paragraph shall be treated as made when the actual capital payment mentioned in sub-paragraph (1) above was made. (5) Expressions used in this paragraph and section 10A have the same meanings in this paragraph as in that section

.

Gains attributed to settlor

5

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

Minor and consequential amendments

6

• (1) In paragraph 10(1) for “of the transferor settlement, or of any transferee settlement,” substitute “ of any relevant settlement ”.

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

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

• (4) After paragraph 13 insert—

(13A) Where a settlement ceases to exist after the trustees have made a transfer of value to which Schedule 4B applies, this Schedule has effect as if a year of assessment had ended immediately before the settlement ceased to exist.

.

SCHEDULE 30

Introductory

1

The Capital Allowances Act 2001 (c. 2) is amended as follows.

Types of expenditure for which first-year allowances available

2

In section 39—

• (a) after “under” insert “ any of the following provisions ”;

• (b) at the end of the entry relating to section 45E, omit “or”;

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

First-year qualifying expenditure on environmentally beneficial plant or machinery

3

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

General exclusions affecting first-year qualifying expenditure

4

• (1) In section 46(1)—

• (a) after “under” insert “ any of the following provisions ”;

• (b) at the end of the entry relating to section 45E, omit “or”;

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

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

Amount of first-year allowances

5

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

Penalty for failure to provide information etc

6

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

Transitory provision: expenditure incurred etc before first order made

7

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

SCHEDULE 31

Part 1 — Small and medium-sized enterprises: Schedule 20 to Finance Act 2000

Introductory

1

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

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

2

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

Required minimum aggregate expenditure: inclusion of new class of expenditure

3

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

Qualifying R&D expenditure: expenditure on externally provided workers

4

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

Staffing costs: persons partly engaged directly and actively in relevant R&D

5

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

Qualifying expenditure on externally provided workers

6

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

Qualifying expenditure on sub-contracted R&D: externally provided workers

7

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

Part 2 — Large companies: Part 1 of Schedule 12 to Finance Act 2002

Introductory

8

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

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

9

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

Qualifying expenditure on externally provided workers

10

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

Part 3 — Work sub-contracted to SMEs: Part 2 of Schedule 12 to Finance Act 2002

Introductory

11

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

Required minimum aggregate expenditure: reduction from £25,000 to £10,000

12

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

Required minimum aggregate expenditure: inclusion of new class of expenditure

13

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

R&D directly undertaken by SME: qualifying expenditure on externally provided workers

14

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

Part 4 — Entitlement of SME to certain relief available to large companies

Insertion of Part 2A of Schedule 12 to the Finance Act 2002

15

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

Part 5 — Supplementary: amendments to Parts 3 to 6 of Schedule 12 to Finance Act 2002

Introductory

16

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

Deduction in computing profits of trade

17

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

Refunds of contributions to independent research and development

18

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

Meaning of “qualifying expenditure on externally provided workers”

19

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

Part 6 — Expenditure on vaccine research etc: Schedule 13 to Finance Act 2002

Introductory

20

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

Reduction of required qualifying expenditure from £25,000 to £10,000

21

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

Direct research and development: qualifying expenditure on externally provided workers

22

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

Meaning of “qualifying expenditure on externally provided workers”

23

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

Relevant expenditure of sub-contractor: qualifying expenditure on externally provided workers

24

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

SCHEDULE 32

The ring fence: amendments to the provisions about capital allowances and ship leasing

1

• (1) In Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax), Part 10 (the ring fence: capital allowances: ship leasing) is amended as follows.

• (2) Omit the word “finance” from the expression “finance lease” in paragraphs 89(1), 90(1), 92(1), 93(1), 94(1), 98(1)(a) and 99(1)(a).

• (3) At the end of sub-paragraph (1) of paragraph 89 (introduction to Part 10) insert—

“ This is subject to paragraph 89A (exception for ordinary charters). ”.

• (4) For sub-paragraph (2) of that paragraph substitute—

(2) In this Part of this Schedule “lease” means any arrangements that provide for a ship to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”).

.

• (5) After that paragraph insert—

(89A) (1) Paragraphs 94 to 102, and paragraph 89(1) so far as relating to those paragraphs, do not apply in the following cases. (2) The first case is where the ship is chartered out by a person who is responsible— (a) for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, throughout the period of the charter, and (b) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during that period. For the purposes of this sub-paragraph a person is “responsible” if he is responsible as principal or if he appoints another person, other than the lessee or a person connected with the lessee, to be responsible in his place. (3) The second case is where— (a) the ship is chartered out by a person acting in the course of a trade that consists of, or to a significant extent includes, operating ships, and (b) the conditions in sub-paragraph (4) are met. (4) Those conditions are— (a) that the period of the charter does not exceed seven years, and there is no provision or agreement under which it could be extended beyond seven years; (b) that the period of the charter, together with any other periods in the same ten years during which the ship is chartered out to the lessee or a person connected with him, does not exceed seven years in total; (c) that there are no arrangements under which the lessee or a person connected with him may acquire the ship, whether directly or indirectly, from the lessor. In paragraph (b) “the same ten years” means any period of ten years that includes the period of the charter mentioned in that paragraph. (5) References in this paragraph to the period of a charter are to the term specified in the lease or, if longer, the actual period during which the ship is chartered. (6) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.

.

Consequential amendments

2

• (1) In paragraph 41(4) of that Schedule (the requirement not to enter into tax avoidance arrangements: exemption for finance leases)—

• (a) in the first sentence omit “finance”;

• (b) for the second sentence substitute— “ In this sub-paragraph “lease”, and “lessor” in relation to a lease, have the meaning given by paragraph 89(2). ”.

• (2) In paragraph 147 (index of defined expressions)—

• (a) omit the entry for “finance lease (and lessor and lessee) (in Part X)”;

• (b) insert at the appropriate place—

lease (and lessor and lessee) (in Part X)	paragraph 89(2)

.

Commencement and temporary provision

3

• (1) Subject to paragraph 4(2), the amendments made by paragraphs 1 and 2 apply in relation to any lease entered into on or after 19th December 2002.

• (2) In sub-paragraph (4)(b) of the paragraph 89A inserted by paragraph 1(5) above, the reference to any other periods during which the ship is chartered out does not include any period during which it is chartered out under a lease entered into before 19th December 2002.

4

• (1) This paragraph applies in relation to any lease entered into on or after 19th December 2002 and before 16 April 2003.

• (2) Part 10 of the Schedule 22 to the Finance Act 2000 (c. 17) has effect as if, instead of the paragraph inserted after paragraph 89 by paragraph 1(5) above, the following paragraph were inserted—

(89A) (1) Paragraph 89(1), and the provisions of this Part of this Schedule listed there, do not apply in the following cases. (2) The first case is where the ship is chartered out by a person who is responsible— (a) for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, throughout the period of the charter, and (b) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during that period. For the purposes of this sub-paragraph a person is “responsible” if he is responsible as principal or if he appoints another person, other than the lessee or a person connected with the lessee, to be responsible in his place. (3) The second case is where— (a) the ship is chartered out to another person (“the charterer”) because of short-term over-capacity, (b) the person chartering out the ship does so in the course of a trade that consists of or includes operating ships, and (c) the conditions in sub-paragraph (4) are met. (4) Those conditions are— (a) that the period of the charter does not exceed three years, and there is no provision or agreement under which it could be extended beyond three years; (b) that the period of the charter, together with any other periods in the same five years during which the ship is chartered out to the charterer or a person connected with him, does not exceed three years in total; (c) that neither the charterer nor any person connected with him has an option to purchase the ship. (5) In sub-paragraph (4)(b)— (a) the reference to any other periods during which the ship is chartered out does not include any period during which it is chartered out under a lease entered into before 19th December 2002; (b) “the same five years” means any period of five years that includes the period of the charter mentioned in that sub-paragraph. (6) References in this paragraph to the period of a charter are to the term specified in the lease or, if longer, the actual period during which the ship is chartered. (7) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.

.

• (3) Paragraph 93(1) of that Schedule (certificates required to support claim by lessor) has effect as if after paragraph (a) there were inserted—

(aa) that the lease is such that, by virtue of paragraph 89A (exception for ordinary charters), paragraph 89(1) does not apply, or

.

5

In paragraphs 3 and 4 “lease” means any arrangements that provide for a ship to be leased or otherwise made available by one person to another.

SCHEDULE 33

Case I profits

1

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

2

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

3

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

4

• (1) In section 83AA of the Finance Act 1989 (c. 26) (amounts added to long-term insurance fund of a company in excess of company’s loss), omit—

• (a) subsections (3) to (5),

• (b) subsection (6)(a),

• (c) subsection (7)(b) and the word “and” before it, and

• (d) in subsection (10), the definitions of “the relevant accounting period” and “the transferor company”.

• (2) Sub-paragraph (1) has effect for periods of account beginning on or after 1st January 2003.

5

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

6

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

• (2) Section 89 of that Act (meaning of policy holders' share of profits) is amended as follows.

• (3) In subsection (1), for the words after “references to” substitute—

(a) in a case where there are no Case I profits of the company for the period in respect of its life assurance business, the amount of the relevant profits, and (b) in any other case, the amount arrived at in accordance with subsection (1A) below.

.

• (4) After that subsection insert—

(1A) An amount is arrived at in accordance with this subsection by— (a) deducting from any profits of the company for the period chargeable under Case VI of Schedule D under sections 436, 439B and 441 of the Taxes Act 1988 (as reduced by any losses under those sections and any charges on income referable to any category of business other than basic life assurance and general annuity business) so much of the Case I profits of the company for the period in respect of its life assurance business as does not exceed the amount of any profits of the company for the period so chargeable, and (b) deducting any remaining Case I profits of the company for the period in respect of its life assurance business from any BLAGAB profits of the company for the period. (1B) For the purposes of this section, the BLAGAB profits of a company for an accounting period are the income and chargeable gains referable to the company’s basic life assurance and general annuity business reduced by the aggregate amount of— (a) any non-trading deficit on the company’s loan relationships, (b) expenses of management falling to be deducted under section 76 of the Taxes Act 1988, and (c) charges on income, so far as referable to the company’s basic life assurance and general annuity business.

.

• (5) In subsection (2), for “subsection (1)” substitute “ subsections (1) and (1A) ”.

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

• (7) In—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) the second sentence of section 434A(3) of that Act (computation of losses and limitation on relief),

for “88” substitute “ 89 ”.

• (8) In section 434A(2)(a)(i) of the Taxes Act 1988 (computation of losses and limitation on relief), for “for the period, otherwise than in accordance with those provisions, the profits or losses of the company’s life assurance business” substitute “ , otherwise than in accordance with those provisions, the relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of the company for the period ”.

• (9) In section 437(1A) of the Taxes Act 1988 (general annuity business), for “profits for any accounting period of a company’s life assurance business” substitute “ relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of an insurance company for any accounting period ”.

• (10) In paragraph 16(1) of Schedule 7 to the Finance Act 1991 (c. 31) (transitional relief for old general annuity contracts), for “profits for any accounting period of an insurance company’s life assurance business” substitute “ relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of an insurance company for any accounting period ”.

• (11) Section 89(1B) of the Finance Act 1989 (c. 26) (inserted by sub-paragraph (4)) has effect for the purposes of section 210A of the Taxation of Chargeable Gains Act 1992 (c. 12) (inserted by paragraph 14(1)) in relation to any accounting period of a company if it is necessary under that section to determine the company’s BLAGAB profits for the period.

• (12) But, subject to that, this paragraph has effect for accounting periods ending on or after 9th April 2003.

7

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

8

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

9

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

10

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

11

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

12

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

Rate of tax on policy holders' share of life assurance profits

13

• (1) The Finance Act 1989 is amended as follows.

• (2) In section 88(1) (corporation tax rate on policy holders' share of relevant profits of companies carrying on life assurance business to be basic rate of income tax)—

• (a) omit “and section 88A”, and

• (b) for “basic” substitute “ lower ”.

• (3) Omit section 88A (cases where tax rate already is lower rate).

• (4) In section 89(1) (meaning of “policy holders' share of profits”)—

• (a) for “sections 88 and 88A” substitute “ section 88 ”, and

• (b) omit “or, as the case may be, basic life assurance and general annuity business”.

• (5) The Taxes Act 1988 is amended as follows.

• (6) In section 438B(5) (income or gains arising from property investment LLP)—

• (a) omit paragraph (b) and the word “and” before it, and

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

• (7) Section 755A (controlled foreign companies: chargeable profits and creditable tax apportioned to company carrying on life assurance business) is amended as follows.

• (8) In subsection (3), for “88A(1)” substitute “ 88(1) ”.

• (9) For subsection (11) substitute—

(11) For the purposes of this section the policy holders' part of any BLAGAB apportioned profit is— (a) where subsection (11A) below applies, the whole of that profit, and (b) in any other case, the relevant fraction (within the meaning of subsection (11B) below) of that profit. (11A) This subsection applies if— (a) the UK company’s life assurance business is mutual business, (b) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is equal to all those profits, or (c) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is more than its BLAGAB profits for that period. (11B) The relevant fraction for the purposes of subsection (11)(b) above is the fraction arrived at by dividing— (a) the policy holders' share of the UK company’s relevant profits for the relevant accounting period, by (b) the UK company’s BLAGAB profits for that period. (11C) In subsections (11A) and (11B) above— (a) references to the policy holders' share of the UK company’s share of the relevant profits are to be construed in accordance with sections 88(3) and 89 of the Finance Act 1989, and (b) references to the UK company’s BLAGAB profits are to be construed in accordance with section 89(1B) of that Act.

.

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

• (11) This paragraph has effect for the financial year 2003 and subsequent financial years.

Chargeable gains

14

• (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210 insert—