Finance Act 2003

(210) (1) This section has effect in relation to any policy of insurance or contract for a deferred annuity on the life of any person. (2) A gain accruing on a disposal of, or of an interest in, the rights conferred by the policy of insurance or contract for a deferred annuity is not a chargeable gain unless subsection (3) below applies. (3) This subsection applies if— (a) (in the case of a disposal of the rights) the rights or any interest in the rights, or (b) (in the case of a disposal of an interest in the rights) the rights, the interest or any interest from which the interest directly or indirectly derives (in whole or in part), have or has at any time been acquired by any person for actual consideration (as opposed to consideration deemed to be given by any enactment relating to the taxation of chargeable gains). (4) For the purposes of subsection (3) above — (a) (in the case of a policy of insurance) amounts paid under the policy by way of premiums, and (b) (in the case of a contract for a deferred annuity) amounts paid under the contract, whether by way of premiums or as lump sum consideration, do not constitute actual consideration. (5) And for those purposes actual consideration for— (a) a disposal which is made by one spouse to the other or is an approved post-marriage disposal, or (b) a disposal to which section 171(1) applies, is to be treated as not constituting actual consideration. (6) For the purposes of subsection (5)(a) above a disposal is an approved post-marriage disposal if— (a) it is made in consequence of the dissolution or annulment of a marriage by one person who was a party to the marriage to the other, (b) it is made with the approval, agreement or authority of a court (or other person or body) having jurisdiction under the law of any country or territory or pursuant to an order of such a court (or other person or body), and (c) the rights disposed of were, or the interest disposed of was, held by the person by whom the disposal is made immediately before the marriage was dissolved or annulled. (7) Subsection (8) below applies for the purposes of tax on chargeable gains where— (a) (if that subsection did not apply) a loss would accrue on a disposal of, or of an interest in, the rights conferred by the policy of insurance or contract for a deferred annuity, but (b) if sections 37 and 39 were disregarded, there would accrue on the disposal a loss of a smaller amount, a gain or neither a loss nor a gain. (8) If (disregarding those sections) a loss of a smaller amount would accrue, that smaller amount is to be taken to be the amount of the loss accruing on the disposal; and in any other case, neither a loss nor a gain is to be taken to accrue on the disposal. (9) But subsection (8) above does not affect the treatment for the purposes of tax on chargeable gains of the person who acquired rights, or an interest in rights, on the disposal. (10) The occasion of— (a) the receipt of the sum or sums assured by the policy of insurance, (b) the transfer of investments or other assets to the owner of the policy of insurance in accordance with the policy, or (c) the surrender of the policy of insurance, is for the purposes of tax on chargeable gains an occasion of a disposal of the rights (or of all of the interests in the rights) conferred by the policy of insurance. (11) The occasion of— (a) the receipt of the first instalment of the annuity under the contract for a deferred annuity, or (b) the surrender of the rights conferred by the contract for a deferred annuity, is for the purposes of tax on chargeable gains an occasion of a disposal of the rights (or of all of the interests in the rights) conferred by the contract for a deferred annuity. (12) Where there is a disposal on the occasion of the receipt of the first instalment of the annuity under the contract for a deferred annuity— (a) in the case of a disposal of the rights conferred by the contract, the consideration for the disposal is the aggregate of the amount or value of the first instalment and the market value at the time of the disposal of the right to receive the further instalments of the annuity, and (b) in the case of a disposal of an interest in the rights, the consideration for the disposal is such proportion of that aggregate as is just and reasonable; and no gain accruing on any subsequent disposal of, or of any interest in, the rights is a chargeable gain (even if subsection (3) above applies). (13) In this section “interest”, in relation to rights conferred by a policy of insurance or contract for a deferred annuity, means an interest as a co-owner of the rights (whether the rights are owned jointly or in common and whether or not the interests of the co-owners are equal).

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• (2) This section has effect in relation to disposals on or after 9th April 2003.

Application of market value rule in case of exercise of option

158

• (1) In Chapter 3 of Part 4 of the Taxation of Chargeable Gains Act 1992 (c. 12) (miscellaneous provisions relating to options and other matters), after section 144 insert—

(144ZA) (1) This section applies where— (a) an option is exercised, so that by virtue of section 144(2) or (3) the grant or acquisition of the option and the transaction resulting from its exercise are treated as a single transaction, and (b) section 17(1) (“the market value rule”) applies, or would apply but for this section, in relation to— (i) the grant of the option, (ii) the acquisition of the option (whether directly from the grantor or not) by the person exercising it, or (iii) the transaction resulting from its exercise. (2) If the option binds the grantor to sell— (a) the market value rule does not apply for determining the consideration for the sale, except, where the rule applies for determining the consideration for the option, to that extent (in accordance with section 144(2)(a)); (b) the market value rule does not apply for determining the cost to the person exercising the option of acquiring what is sold, except, where the rule applies for determining the cost of acquiring the option, to that extent (in accordance with section 144(3)(a)). (3) If the option binds the grantor to buy— (a) the market value rule does not apply for determining the cost of acquisition incurred by the grantor, but without prejudice to its application (in accordance with section 144(2)(b)) where the rule applies for determining the consideration for the option; (b) the market value rule does not apply for determining the consideration for the disposal of what is bought, but without prejudice to its application (in accordance with section 144(3)(b)) where the rule applies for determining the cost of the option. (4) To the extent that, by virtue of this section, the market value rule does not apply for determining an amount or value, the amount or value to be taken into account is (subject to section 120) the actual amount or value. (5) In this section “option” has the same meaning as in section 144.

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• (2) This section applies in relation to the exercise of an option on or after 10th April 2003.

Reporting limits and annual exempt amount

159

• (1) The Taxation of Chargeable Gains Act 1992 (c. 12) is amended in accordance with Schedule 28 to this Act.

• (2) In that Schedule—

• Part 1 makes provision as to the cases in which a return of information about chargeable gains is required,

• Part 2 contains minor and consequential amendments of the provisions relating to the annual exempt amount, and

• Part 3 provides for commencement.

Taper relief: assets qualifying as business assets

160

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Earn-out rights to be treated as securities unless contrary election

161

• (1) Section 138A of the Taxation of Chargeable Gains Act 1992 (c. 12) (use of earn-out rights for exchange of securities) is amended as follows.

• (2) In subsection (2) (seller’s right to elect for earn-out right to be treated as security of new company)—

• (a) at the end of paragraph (a) insert “ and ”; and

• (b) omit paragraph (c) (the seller’s right of election) and the word “and” immediately preceding it.

• (3) After subsection (2) insert—

(2A) Subsection (2) above does not have effect if the seller elects under this section for the earn-out right not to be treated as a security of the new company.

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• (4) In subsection (4) (election for corresponding treatment where old right extinguished in consideration of new right)—

• (a) at the end of paragraph (c) insert “ and ”;

• (b) omit paragraph (e) (right of election of person on whom the new right is conferred) and the word “and” immediately preceding it; and

• (c) in the closing words, for “that person” substitute “ the person on whom the new right is conferred ”.

• (5) After subsection (4) insert—

(4A) Subsection (4) above does not have effect if the person on whom the new right is conferred elects under this section for it not to be treated as a security of the new company.

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• (6) The amendments made by this section have effect in relation to rights conferred on or after 10th April 2003.

Deferred unascertainable consideration: election for treatment of loss

162

• (1) After section 279 of the Taxation of Chargeable Gains Act 1992 insert—

(279A) (1) Where— (a) a person (“the taxpayer”) makes a disposal of a right to which this section applies (see subsection (2) below), (b) on that disposal an allowable loss (“the relevant loss”) would, apart from section 279C, accrue to him in any year (“the year of the loss”), and (c) the year of the loss is a year in which the taxpayer is within the charge to capital gains tax (see section 279B(1)), the taxpayer may make an election under this section for the relevant loss to be treated as accruing in an earlier year in accordance with section 279C if condition 1 in subsection (3) below and condition 2 in subsection (5) below are satisfied. (2) This section applies to a right if each of the following conditions is satisfied— (a) the right was, in whole or in part, acquired by the taxpayer as the whole or part of the consideration for a disposal (the “original disposal”) by him of another asset (the “original asset”), (b) the original disposal was made in a year (“the year of the original disposal”) earlier than the year in which the disposal mentioned in subsection (1)(a) above is made (“the year of the right’s disposal”), (c) where the right was acquired by the taxpayer as the whole or part of the consideration for two or more disposals (each of which is accordingly an “original disposal”), the condition in paragraph (b) above is satisfied with respect to each of those disposals (the “original disposals”), (d) on the taxpayer’s acquisition of the right, there was no corresponding disposal of it, (e) the right is a right to unascertainable consideration (see section 279B(2) to (6)). (3) Condition 1 for making an election in relation to the relevant loss is that a chargeable gain accrued to the taxpayer on any one or more of the following events— (a) the original disposal, (b) an earlier disposal of the original asset by the taxpayer in the year of the original disposal, (c) a later disposal of the original asset by the taxpayer in a year earlier than the year of the right’s disposal, or would have so accrued but for paragraph 2(2)(a) of Schedule 5B or 5C (postponement of original gain). This subsection is subject to subsection (4) below. (4) If the right to which this section applies was acquired by the taxpayer as the whole or part of the consideration for two or more original disposals (including cases where there are two or more original assets (the “original assets”))— (a) any reference in subsection (3) above to the original disposal is a reference to any of the original disposals, (b) any reference in that subsection to the original asset is a reference to the asset which is the original asset in relation to that original disposal, and (c) any reference in that subsection to the year of the original disposal shall be construed accordingly. (5) Condition 2 for making an election in relation to the relevant loss is that there is a year (an “eligible year”)— (a) which is earlier than the year of the loss but not earlier than the year 1992-93, (b) in which a chargeable gain falling within subsection (3) above or subsection (6) below accrued to the taxpayer, and (c) for which, immediately before the election, there remains a relevant amount on which capital gains tax is chargeable (see subsection (7) below). (6) A chargeable gain falling within this subsection accrues to the taxpayer in a year if— (a) in that year a chargeable gain (the “revived gain”) is treated as accruing to the taxpayer in accordance with paragraphs 4 and 5 of Schedule 5B or 5C (chargeable gain accruing to person on chargeable event), and (b) the gain which, in determining the amount of the revived gain in accordance with those paragraphs, is the original gain consists of or represents the whole or some part of a gain that would have accrued as mentioned in subsection (3) above but for paragraph 2(2)(a) of Schedule 5B or 5C. (7) For the purposes of subsection (5)(c) above, a year is one for which, immediately before an election, there remains a relevant amount on which capital gains tax is chargeable if, immediately before the making of that election, there remains an amount in respect of which the taxpayer is chargeable to capital gains tax for the year— (a) after taking account of any previous elections made by the taxpayer under this section, (b) after excluding any amounts that fall to be brought into account for that year under section 2(4)(b) by virtue of section 2(5)(b), and (c) on the assumption that no part of the relevant loss (or of any other loss in respect of which an election under this section may be, but has not been, made) falls to be deducted in consequence of an election under this section from the chargeable gains accruing to the taxpayer in that year. (8) In this section “year” means year of assessment. (9) This section and sections 279B to 279D are to be construed as one. (279B) (1) For the purposes of section 279A(1)(c) a person is within the charge to capital gains tax in any year if— (a) he is chargeable to capital gains tax in respect of chargeable gains accruing to him in that year, or (b) on the assumption that there accrue to him in that year any chargeable gains (excluding amounts in relation to which section 2(4)(a) applies), he would be so chargeable apart from— (i) any deductions that fall to be made from the total amount referred to in section 2(2), and (ii) section 3 (annual exempt amount). (2) Subsections (3) to (6) below have effect for the purposes of section 279A(2)(e) (right to unascertainable consideration). (3) A right is a right to unascertainable consideration if, and only if,— (a) it is a right to consideration the amount or value of which is unascertainable at the time when the right is conferred, and (b) that amount or value is unascertainable at that time on account of its being referable, in whole or in part, to matters which are uncertain at that time because they have not yet occurred. This subsection is subject to subsections (4) to (6) below. (4) The amount or value of any consideration is not to be regarded as being unascertainable by reason only— (a) that the right to receive the whole or any part of the consideration is postponed or contingent, if the consideration or, as the case may be, that part of it is, in accordance with section 48, brought into account in the computation of the gain accruing to the taxpayer on the disposal of an asset, or (b) in a case where the right to receive the whole or any part of the consideration is postponed and is to be, or may be, to any extent satisfied by the receipt of property of one description or property of some other description, that some person has a right to select the property, or the description of property, that is to be received. (5) A right is not to be taken to be a right to unascertainable consideration by reason only that either the amount or the value of the consideration has not been fixed, if— (a) the amount will be fixed by reference to the value, and the value is ascertainable, or (b) the value will be fixed by reference to the amount, and the amount is ascertainable. (6) A right which is by virtue of subsection (2) or (4) of section 138A (use of earn-out rights for exchange of securities) assumed in accordance with subsection (3)(a) of that section to be a security, within the definition in section 132, is not to be regarded as a right to unascertainable consideration. (7) For the purposes of section 279A, any question as to— (a) whether a chargeable gain or a loss is one that accrues (or would, apart from any particular provision, accrue) on a particular disposal or a disposal of any particular description, or (b) the time at which, or year in which, any particular disposal takes place, is to be determined without regard to section 10A(2) (chargeable gains and losses accruing during temporary non-residence to be treated as accruing in year of return). This subsection is subject to subsection (8) below. (8) Subsection (7) above does not affect the determination of any question— (a) as to the year in which the chargeable gain or loss is, by virtue of section 10A(2), to be treated as accruing (apart from section 279C), or (b) where (apart from section 279C) a loss is to be treated by virtue of section 10A(2) as accruing in a particular year, whether the loss is an allowable loss. (279C) (1) This section applies where an election is made under section 279A by the taxpayer for the relevant loss to be treated as accruing in an earlier year in accordance with this section. (2) Where this section applies, the relevant loss shall be treated for the purposes of capital gains tax as if it were a loss accruing to the taxpayer in the earliest year which is an eligible year (the “first eligible year”), instead of in the year of the loss (but subject to, and in accordance with, the following provisions of this section). (3) The amount of the relevant loss that falls to be deducted from chargeable gains of the first eligible year in accordance with section 2(2)(a) is limited to the amount (the “first year limit”) found by taking the following steps— - Step 1: take the total amount of chargeable gains accruing to the taxpayer in the first eligible year, - Step 2: exclude from that amount any amounts that fall to be disregarded in accordance with section 2(4)(a) for that year, - Step 3: deduct from the amount remaining any amounts in respect of allowable losses (other than the relevant loss or any part of it) that fall to be deducted from that amount in accordance with section 2(2) otherwise than by virtue of section 2(5)(aa)(i) (taking account of any previous elections under section 279A). The amount so found is the first year limit, unless the first eligible year is a year in relation to which section 2(5)(aa) has effect, in which case the further steps in subsection (4) below must also be taken. (4) Those further steps are— - Step 4: add to the amount found by taking steps 1 to 3 in subsection (3) above every amount which is treated by virtue of section 77 or 86 as an amount of chargeable gains accruing to the taxpayer for the first eligible year (the “attributed amounts”), - Step 5: deduct from the resulting amount any amounts (other than the relevant loss or any part of it) that fall to be deducted from the attributed amounts in accordance with section 2(5)(aa)(i) (taking account of any previous elections under section 279A). The amount so found is the first year limit in a case where section 2(5)(aa) applies in relation to the first eligible year. (5) As respects any later year before the year of the loss, the relevant loss (so far as not previously allowed as a deduction from chargeable gains accruing in any previous year) falls to be deducted in accordance with section 2(2)(b) only if that later year is an eligible year. (6) The amount of the relevant loss that falls to be deducted from chargeable gains of that later eligible year in accordance with section 2(2)(b) is limited to the amount (the “later year limit”) in respect of which the taxpayer would be chargeable to capital gains tax for that later year— (a) on the assumption in subsection (7) below, (b) taking account of any previous elections under section 279A, and (c) apart from the provisions specified in subsection (8) below. (7) The assumption is that no part of— (a) the relevant loss, or (b) any loss in respect of which an election under section 279A may be, but has not been, made, falls to be deducted, in consequence of an election under section 279A, from any chargeable gains accruing to the taxpayer in that later eligible year. The assumption falls to be made immediately after the making of the election in respect of the relevant loss. (8) The provisions are— (a) section 2(5)(a)(ii) (taper relief), (b) section 2(5)(aa)(ii) (taper relief), (c) section 2(5)(b) (addition of certain amounts treated as amounts of chargeable gains), and (d) section 2A (taper relief), except that paragraphs (b) and (d) above are not to affect the operation of section 2(7) for the purposes of subsection (6) above. (9) All such adjustments shall be made, whether by discharge or repayment of tax, the making of assessments or otherwise, as are required to give effect to the election under section 279A made by the taxpayer for the relevant loss to be treated as accruing in an earlier year in accordance with this section. (10) Any reference in this section or section 279D to deduction in accordance with section 2(2)(a), section 2(2)(b) or section 2(2) includes a reference to such deduction by virtue of section 2(5)(a)(i) or (aa)(i). (279D) (1) An election under section 279A is irrevocable. (2) Any election under that section must be made by giving a notice in accordance with this section. (3) The notice must be given to an officer of the Board. (4) Subsections (5) to (8) below have effect in relation to the notice given by the taxpayer in respect of the relevant loss. (5) The notice must specify each of the following— (a) the amount of the relevant loss; (b) the right disposed of; (c) the year of the right’s disposal; (d) the year of the loss (if different from the year of the right’s disposal); (e) the year in which the right was acquired; (f) the original asset or assets. (6) The notice must also specify each of the following— (a) the eligible year in which the relevant loss is to be treated in accordance with section 279C(2) as accruing to the taxpayer; (b) the first year limit (see section 279C(3) and (4)); (c) how much of the relevant loss falls to be deducted in accordance with section 2(2)(a) from chargeable gains accruing to the taxpayer in that year. (7) If, in accordance with section 279C, any part of the relevant loss falls to be deducted in accordance with section 2(2)(b) from chargeable gains accruing to the taxpayer in any later eligible year, the notice must also specify— (a) each such year; (b) in the case of each such year, the later year limit (see section 279C(6)); (c) how much of the relevant loss falls to be deducted in accordance with section 2(2)(b) in each such year from chargeable gains accruing to the taxpayer in that year. (8) The notice must be given on or before the first anniversary of the 31st January next following the year of the loss. (9) An election under section 279A is made on the date on which the notice of the election is given. (10) Different notices must be given in respect of different losses. (11) Where a person makes two or more elections under section 279A on the same day, the notices must specify the order in which the elections are made. (12) For the purposes of any provisions of sections 279A to 279C whose operation is affected by the order in which any elections under section 279A are made, elections made by a person on the same day shall be treated as made at different times and in the order specified in accordance with subsection (11) above.

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• (2) Where—

• (a) on the disposal of a right to which section 279A of the Taxation of Chargeable Gains Act 1992 (c. 12) applies, an allowable loss would, apart from section 279C of that Act, accrue to a person in any year of assessment,

• (b) an election is made under section 279A of that Act for the loss to be treated as accruing in an earlier year in accordance with section 279C, and

• (c) the right is an earn-out right, within the meaning of section 138A of that Act, which was conferred before 10th April 2003,

no election may be made under section 138A of that Act (election for earn-out right to be treated as security etc) in respect of the right, whether at the same time as the election under section 279A or subsequently.

• (3) The amendment made by subsection (1) has effect in relation to allowable losses that would, apart from that amendment, accrue on or after 10th April 2003.

For this purpose, losses that would, apart from that amendment, be treated by virtue of section 10A of the Taxation of Chargeable Gains Act 1992 as accruing in the year 2003-04 shall be treated as so accruing on or after 10th April 2003.

• (4) Subsection (2) shall be deemed to have come into force on 10th April 2003.

Transfers of value: attribution of gains to beneficiaries

163

• (1) For section 85A of the Taxation of Chargeable Gains Act 1992 (c. 12) substitute—

(85A) (1) Schedule 4C to this Act has effect with respect to the attribution of gains to beneficiaries where there has been a transfer of value to which Schedule 4B applies. (2) Sections 86A to 95 have effect subject to the provisions of Schedule 4C. (3) No account shall be taken of any chargeable gains or allowable losses accruing by virtue of Schedule 4B in computing the trust gains for a year of assessment in accordance with sections 87 to 89, except in computing for the purposes of paragraph 7A(2) of Schedule 4C the amount on which the trustees would have been chargeable to tax under section 2(2) if they had been resident or ordinarily resident in the United Kingdom. (4) No account shall be taken of any chargeable gains or allowable losses to which sections 87 to 89 apply in computing the gains or losses accruing by virtue of Schedule 4B.

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• (2) Schedule 4C to that Act (transfers of value: attribution of gains to beneficiaries) is amended in accordance with Schedule 29 to this Act.

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• (4) The following provisions have effect with respect to the coming into force of the amendments made by this section and Schedule 29—

• (a) the amendments apply where the trustees of a settlement have made a transfer to which Schedule 4B applies at any time on or after 21st March 2000;

• (b) where there has been a transfer of value to which Schedule 4B applies before 9th April 2003, the transferor settlement shall be treated as having a Schedule 4C pool as from that date containing such Schedule 4C gains as would fall to be included in the pool if—

• (i) a year of assessment had ended with 8th April 2003, and

• (ii) the reference in paragraph 1(2)(b) of Schedule 4C as amended to the end of the year of assessment in which the transfer of value was made were to that date;

• (c) where a transferor settlement ceased to exist on or after 21st March 2000 and before 9th April 2003, Schedule 4C as amended applies as if it had ceased to exist on 8th April 2003 (so that paragraph (b) above applies);

• (d) so much of Schedule 4C as amended as provides—

• (i) that gains treated as accruing to beneficiaries who are not chargeable to tax are treated as outstanding section 87/89 gains, or

• (ii) that gains in a settlement’s Schedule 4C pool are not to be treated as accruing to such beneficiaries,

applies only in relation to capital payments made on or after 9th April 2003;

• (e) gains included in a settlement’s Schedule 4C pool by virtue of paragraph 1(2)(b) of that Schedule as amended shall only be attributed in accordance with the provisions of that Schedule to beneficiaries who receive capital payments on or after 9th April 2003.

• (5) Paragraph 8A(3) and (4) of Schedule 4C, inserted by paragraph 4 of Schedule 29 to this Act, applies only where the transfer referred to in that provision occurs on or after 9th April 2003.

• (6) Expressions used in subsection (4) that are defined for the purposes of Schedule 4C to the Taxation of Chargeable Gains Act 1992 (c. 12) as amended by Schedule 29 to this Act have the same meaning as in that Schedule.

Capital allowances and related matters

Avoidance affecting proceeds of balancing event

164

• (1) In Chapter 5 of Part 12 of the Capital Allowances Act 2001 (c. 2) (miscellaneous supplementary provisions), after section 570 insert—

(570A) (1) This section applies where an event occurs in relation to an asset (a “balancing event”) as a result of which a balancing allowance would (but for this section) fall to be made to a person (“the taxpayer”) under Part 3, 4, 4A, 5 or 10. (2) The taxpayer is not entitled to any balancing allowance if, as a result of a tax avoidance scheme, the amount to be brought into account as the proceeds from the event is less than it would otherwise have been. (3) In subsection (2) a “tax avoidance scheme” means a scheme or arrangement the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage by the taxpayer. (4) Where this section applies to deny a balancing allowance, the residue of qualifying expenditure immediately after the balancing event is nevertheless calculated as if the balancing allowance had been made. (5) In this section as it applies for the purposes of Part 5 (mineral extraction allowances)— (a) the references to the proceeds from the balancing event that are to be brought into account shall be read as references to the disposal value to be brought into account, and (b) the reference to the residue of qualifying expenditure shall be read as a reference to the unrelieved qualifying expenditure.

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• (2) This section applies in relation to any balancing event (within the meaning of section 570A, inserted by subsection (1) above) occurring on or after 27th November 2002, except where the event—

• (a) occurs in pursuance of a contract entered into before that date, and

• (b) does not occur in consequence of the exercise on or after that date of an option, right of pre-emption or similar right.

Extension of first-year allowances for ICT expenditure by small enterprises

165

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Expenditure on software for sub-licensing

166

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First-year allowances for expenditure on environmentally beneficial plant or machinery

167

Schedule 30 to this Act (first-year allowances for expenditure on environmentally beneficial plant or machinery) has effect in relation to expenditure incurred on or after 1st April 2003.

Relief for research and development

168

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Tonnage tax: extension of capital allowance restrictions on lessors of ships

169

Schedule 32 to this Act (tonnage tax: restrictions on capital allowances for lessors of ships) has effect.

Life insurance and pensions

Insurance companies

170

Schedule 33 to this Act (which makes provision about the taxation of insurance companies, including companies which have ceased to be insurance companies after a transfer of business) has effect.

Policies of life insurance etc: miscellaneous amendments

171

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Charges under life insurance policies for exceptional risk of disability

172

• (1) In Schedule 15 to the Taxes Act 1988 (provisions for determining whether an insurance policy is a “qualifying policy”)—

• (a) in paragraph 12(a) (disregard of so much of premium as is charged on the grounds of exceptional risk of death), and

• (b) in paragraph 12(b) (disregard of provision in policy charging, on those grounds, a sum as a debt against capital sum guaranteed on death),

after “death” insert “ or disability ”.

• (2) Accordingly, in the heading before paragraph 12 of that Schedule, for “mortality risk” substitute “ risk of death or disability ”.

• (3) In paragraph 3 of that Schedule (friendly society policies), omit paragraphs (b)(iii) and (c) of sub-paragraph (8) (which make provision corresponding to paragraph 12(a) and (b) but are unnecessary).

• (4) In paragraph 18 of that Schedule (rules about substituted policies applied where policies are varied) insert after sub-paragraph (3)—

(4) For the purposes of this paragraph there is no variation in the terms of a policy where— (a) an amount of premium chargeable on the grounds that an exceptional risk of death or disability is involved becomes or ceases to be payable, or (b) the policy is amended by the insertion, variation or removal of a provision under which, on those grounds, any sum may become chargeable as a debt against the capital sum guaranteed by the policy on death or disability.

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• (5) In section 460 of that Act (registered friendly societies: exemption from tax in respect of life or endowment business), in subsection (3)(b) (which makes provision corresponding to paragraph 12(a) of Schedule 15) after “death” insert “ or disability ”.

• (6) The amendments made by this section shall be deemed always to have had effect; but this section shall be disregarded to the extent that it would prevent a policy from being a qualifying policy at any time before 9th April 2003.

Gains on policies of life insurance etc: rate of tax

173

• (1) Schedule 35 to this Act (which makes provision for and in connection with charging certain gains on policies of life insurance etc at the lower rate) has effect.

• (2) The amendments made by that Schedule have effect in relation to gains treated as arising under Chapter 2 of Part 13 of the Taxes Act 1988 on the happening of chargeable events on or after 6th April 2004.

Personal pension arrangements: limit on contributions

174

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

Miscellaneous

Payments to adopters

175

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

Foster carers

176

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

Currency contracts and currency options

177

• (1) This section applies in any case where at any time on or after 30th September 2002—

• (a) a qualifying company becomes party to a qualifying contract which is a currency contract or currency option, or

• (b) the terms of such a qualifying contract held by such a company are varied,

and the conditions in subsection (2) are, or subsequently become, satisfied.

• (2) The conditions are that—

• (a) in accordance with generally accepted accounting practice, the company in preparing its statutory accounts uses the exchange rate implied by the qualifying contract (“the accounting rate”);

• (b) there is a difference between the accounting rate and the final payment rate; and

• (c) the difference between those exchange rates is more than 1 per cent of the final payment rate.

• (3) In subsection (2) “the final payment rate” means the exchange rate found by reference only to the amounts which fall or would, apart from this section and the provisions specified in subsection (4), fall to be regarded for the purposes of subsection (2) or, as the case may be, (7) of section 150 of the Finance Act 1994 (c. 9) as the amounts of the currency to be received, and the currency to be paid in exchange, under the qualifying contract as mentioned in that subsection.

• (4) Where this section first applies in relation to the qualifying contract in an accounting period of the company which begins before 1st October 2002 (“the relevant contract period”), the following provisions of the Finance Act 2002 (c. 23), namely—

• (a) section 79(1)(b) (repeal of forex),

• (b) section 80 and Schedule 24 (corporation tax: currency), and

• (c) section 83 and Schedules 26 and 27 (derivative contracts),

shall be taken to have effect in the case of the company, so far as relating to that contract, in relation to that accounting period and any subsequent accounting periods.

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

• (5) Where—

• (a) the qualifying contract is a currency contract which arises from the exercise of a currency option which is or was itself a qualifying contract (or a series of such currency options), and

• (b) that currency option was entered into or varied on or after 30th September 2002 (or, in the case of a series of currency options, any of them was entered into or varied on or after that date),

the provisions specified in subsection (4) shall be taken to have effect in the case of the company, so far as relating to the currency option (or, in the case of a series of currency options, each of the options entered into or varied on or after 30th September 2002), in relation to the earliest accounting period (“the relevant options period”) in which the option (or any of the options) was so entered into or varied and any subsequent accounting periods.

• (6) Where the provisions specified in subsection (4) have effect by virtue of this section in relation to a currency contract or currency option the following provisions of the Finance Act 2002, namely—

• (a) section 81 (transitional provision), so far as relating to section 80 and Schedule 24, and

• (b) Schedule 28 (derivative contracts: transitional provisions etc),

shall have effect accordingly.

• (7) In the application of Schedule 28 to the Finance Act 2002 by virtue of this section, any reference to the company’s commencement day is to be taken—

• (a) in the case of a currency contract, as a reference to the first day of the relevant contract period; or

• (b) in the case of a currency option, as a reference to the first day of the relevant options period.

• (8) This section does not apply in relation to any contract entered into or varied in an accounting period beginning on or after 1st October 2002 unless the contract arises from the exercise of a currency option which was entered into or varied on or after 30th September 2002 and in an accounting period beginning on or before that date.

• (9) In this section the following expressions, namely—

• (a) qualifying company,

• (b) qualifying contract,

• (c) currency contract,

• (d) currency option,

have the same meaning as in Chapter 2 of Part 4 of the Finance Act 1994 (c. 9), (disregarding for this purpose the provisions specified in subsection (4)) and references to the exercise of an option shall be construed accordingly.

• (10) In this section “statutory accounts” has the meaning given by paragraph 52 of Schedule 26 to the Finance Act 2002 (c. 23).

• (11) This section shall be deemed to have come into force on 30th September 2002.

Loan relationships: amendments

178

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

Derivative contracts: transactions within groups

179

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

Contributions to urban regeneration companies

180

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

• (2) In section 828(4) of the Taxes Act 1988 (orders or regulations under specified provisions not to be subject to Commons negative resolution parliamentary procedure) after “section 1(6),” insert “ 79B(5), ”.

Repos etc

181

Schedule 38 to this Act (which contains amendments relating to arrangements for the sale and repurchase of securities etc) has effect.

Relevant discounted securities: withdrawal of relief for costs and losses, etc

182

Schedule 39 to this Act (relevant discounted securities: withdrawal of relief for costs and losses, and extension of definition of “strip”) has effect.

Court common investment funds

183

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

Intangible fixed assets: tax avoidance arrangements and related parties

184

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

Part 8 — Other taxes

Inheritance tax

Gifts with reservation

185

• (1) Section 102 of the Finance Act 1986 (c. 41) (gifts with reservation) is amended as follows.

• (2) In subsection (5) (section not to apply where disposal is an exempt transfer by virtue of any of the provisions of the Inheritance Tax Act 1984 specified in the paragraphs of that subsection) at the end of paragraph (a) (section 18: transfers between spouses) insert “ , except as provided by subsections (5A) and (5B) below ”.

• (3) After subsection (5) insert—

(5A) Subsection (5)(a) above does not prevent this section from applying if or, as the case may be, to the extent that— (a) the property becomes settled property by virtue of the gift, (b) by reason of the donor’s spouse (“the relevant beneficiary”) becoming beneficially entitled to an interest in possession in the settled property, the disposal is or, as the case may be, is to any extent an exempt transfer by virtue of section 18 of the 1984 Act in consequence of the operation of section 49 of that Act (treatment of interests in possession), (c) at some time after the disposal, but before the death of the donor, the relevant beneficiary’s interest in possession comes to an end, and (d) on the occasion on which that interest comes to an end, the relevant beneficiary does not become beneficially entitled to the settled property or to another interest in possession in the settled property. (5B) If or, as the case may be, to the extent that this section applies by virtue of subsection (5A) above, it has effect as if the disposal by way of gift had been made immediately after the relevant beneficiary’s interest in possession came to an end. (5C) For the purposes of subsections (5A) and (5B) above— (a) section 51(1)(b) of the 1984 Act (disposal of interest in possession treated as coming to end of interest) applies as it applies for the purposes of Chapter 2 of Part 3 of that Act; and (b) references to any property or to an interest in any property include references to part of any property or interest.

.

• (4) The amendments made by this section have effect in relation to disposals made on or after 20th June 2003.

Authorised unit trusts, OEICs and common investment funds

186

• (1) The Inheritance Tax Act 1984 (c. 51) is amended as follows.

• (2) In section 6 (excluded property), after subsection (1) insert—

(1A) A holding in an authorised unit trust and a share in an open-ended investment company is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom.

.

• (3) In section 48 (settlements: excluded property), after subsection (3) insert—

(3A) Where property comprised in a settlement is a holding in an authorised unit trust or a share in an open-ended investment company— (a) the property (but not a reversionary interest in the property) is excluded property unless the settlor was domiciled in the United Kingdom at the time the settlement was made, and (b) section 6(1A) above applies to a reversionary interest in the property but does not otherwise apply in relation to the property.

.

• (4) In section 178(1) (sale of shares etc from deceased’s estate: preliminary)—

• (a) in the definition of “qualifying investments”, after “authorised unit trust” insert “ , shares in an open-ended investment company ”, and

• (b) for “section 1 of the Administration of Justice Act 1965” substitute “ section 42 of the Administration of Justice Act 1982 ”.

• (5) Section 272 (general interpretation) is amended as follows.

• (6) After the definition of “amount” insert—

“authorised unit trust” means a scheme which is a unit trust scheme for the purposes of section 469 of the Taxes Act 1988 (see subsection (7) of that section) and in the case of which an order under section 243 of the Financial Services and Markets Act 2000 is in force;

.

• (7) After the definition of “mortgage” insert—

“open-ended investment company” means an open-ended investment company within the meaning given by section 236 of the Financial Services and Markets Act 2000 which is incorporated in the United Kingdom;

.

• (8) This section has effect in relation to transfers of value or other events occurring on or after 16th October 2002.

Landfill tax

Rate of landfill tax

187

In section 42 of the Finance Act 1996 (c. 8) (amount of landfill tax), for the amount specified in subsection (1)(a), and the corresponding amount in subsection (2), substitute—

• (a) “£14” in relation to taxable disposals made, or treated as made, on or after 1st April 2003 and before 1st April 2004;

• (b) “£15” in relation to taxable disposals made, or treated as made, on or after 1st April 2004.

Climate change levy

Exemption for fuel used in recycling processes

188

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

CHP exemption to be based on current efficiency

189

• (1) Schedule 6 to the Finance Act 2000 (c. 17) (climate change levy) is amended as follows.

• (2) In paragraph 15 (exemption for supplies to combined heat and power stations)—

• (a) for paragraph (b) of sub-paragraph (4) substitute—

(b) the “efficiency percentage” for a combined heat and power station shall be determined in accordance with regulations under paragraph 149.

;

• (b) omit sub-paragraph (5).

• (3) In paragraph 148 (meaning of “combined heat and power station” etc)—

• (a) in sub-paragraphs (2)(c) and (3)(c), for “complying with sub-paragraph (6) and (so far as applicable)” substitute “ complying (so far as applicable) with ”;

• (b) omit sub-paragraph (6) (efficiency percentage to be stated on certificate of full or partial exemption).

• (4) In paragraph 149(1) (determination of efficiency percentages for combined heat and power stations) omit “the percentage that is to be stated in a certificate under paragraph 148 as”.

• (5) This section has effect in relation to supplies made on or after such day as the Treasury may by order made by statutory instrument appoint.

Supplies not known to be taxable when made, etc

190

• (1) In Schedule 6 to the Finance Act 2000 (climate change levy), paragraph 24 (deemed supply: change of circumstances or intentions) is amended as follows.

• (2) In the heading, for “change of circumstances or intentions” substitute “ change of circumstances etc ”.

• (3) For sub-paragraphs (1) and (2) substitute—

(1) This paragraph applies in the following cases. (1A) The first case is where— (a) a supply of a taxable commodity has been made, (b) the supply was not a taxable supply, and (c) there is such a change in circumstances or any person’s intentions that, if the changed circumstances or intentions had existed at the time the supply was made, the supply would have been a taxable supply. (1B) The second case is where— (a) a supply of a taxable commodity has been made, (b) the supply was made on the basis that it was not a taxable supply, and (c) it is later determined that the supply was (to any extent) a taxable supply. (2) This paragraph does not apply where the reason that— (a) the supply was not a taxable supply, or (b) the supply was made on the basis that it was not a taxable supply, is that it was, or was thought to be, exempt from the levy under paragraph 19 or 20A (exemption for supply of electricity produced from renewable sources or in combined heat and power stations) (but see paragraph 20 or 20B).

.

• (4) In sub-paragraph (3), at the beginning insert “ Where this paragraph applies, ”.

• (5) After that sub-paragraph insert—

(3A) Where— (a) had matters been as mentioned in sub-paragraph (1A)(c), only part of the supply would have been a taxable supply, or (b) the determination referred to in sub-paragraph (1B)(c) is that only part of the supply was a taxable supply, the reference in sub-paragraph (3) to the commodity shall be read as a reference to a corresponding part of it.

.

• (6) In sub-paragraph (5) for “sub-paragraph (1)(c)” substitute “ sub-paragraph (1A)(c) ”.

• (7) In paragraph 34(3) of that Act (time when deemed supply under paragraph 24 treated as made) at the end insert “ or, as the case may be, upon the later determination ”.

• (8) This section has effect in relation to supplies made on or after such day as the Treasury may by order made by statutory instrument appoint.

Deemed supplies

191

• (1) Schedule 6 to the Finance Act 2000 (c. 17) (climate change levy) is amended as follows.

• (2) In paragraph 5(3) (levy chargeable on deemed supply of electricity) for “paragraph 23(3)” substitute “ paragraph 20(6)(a), 20B(6)(a), 23(3) or 24 ”.

• (3) In paragraph 6 (supplies of gas)—

• (a) after sub-paragraph (2) insert—

(2A) Levy is chargeable on a supply of gas that is deemed to be made under paragraph 24.

;

• (b) in sub-paragraph (3) for “sub-paragraphs (1) and (2)” substitute “ sub-paragraph (1), (2) or (2A) ”.

• (4) Subsection (2) has effect in relation to supplies deemed to be made on or after 31st March 2003, and subsection (3) in relation to supplies deemed to be made on or after the day on which this Act is passed.

Amendments about registration, payment etc

192

• (1) Schedule 6 to the Finance Act 2000 (c. 17) (climate change levy) is amended as follows.

• (2) In paragraph 41 (returns and payment of levy)—

• (a) for paragraph (a) of sub-paragraph (1) (liability to account for levy by reference to accounting periods) substitute—

(a) for persons liable to account for levy to do so— (i) by reference to such periods (“accounting periods”) as may be determined by or under the regulations, or (ii) in such other way as may be so determined;

;

• (b) in sub-paragraph (1)(c) (liability to pay) omit “for any period”;

• (c) after sub-paragraph (2) insert—

(2A) Paragraph 91(5) provides for the application of Part 7 of this Schedule (recovery and interest) in relation to cases where, by virtue of regulations under sub-paragraph (1)(a)(ii) above, a person is liable to account for levy otherwise than by reference to accounting periods. (2B) Regulations under this paragraph may provide for the application of any provision of this Schedule in relation to such cases.

.

• (3) In paragraph 53 (requirement to be registered), after sub-paragraph (3) insert—

(4) Regulations made by the Commissioners may provide that, in such cases or circumstances and subject to such conditions or requirements as may be prescribed in the regulations, the Commissioners may exempt a person from the requirement to be registered.

.

• (4) In paragraph 62(2)(b) (provision in regulations about bringing tax credit into account) for “levy due from him for such accounting period or periods” substitute “ such levy due from him ”.

• (5) In paragraph 78 (assessments of amounts of levy due), after sub-paragraph (1) insert—

(1A) Where it appears to the Commissioners— (a) that any levy for which a person is liable to account otherwise than by reference to an accounting period has become due, and (b) that there has been a default by that person that falls within sub-paragraph (2), they may assess the amount of that levy to the best of their judgement and notify it to him.

.

• (6) In paragraph 91 (interpretation etc of Part 7) at the end insert—

(5) In relation to cases where, by virtue of regulations under paragraph 41(1)(a)(ii), a person is liable to account for levy otherwise than by reference to accounting periods, this Part of this Schedule shall have effect as if— (a) references to levy due for “an” or “any” accounting period were references simply to levy due; (b) references to levy due for a specified accounting period were references to the levy in question; (c) references to an assessment for a specified accounting period were references to an assessment in respect of the levy in question; (d) any time limit framed by reference to the end of the accounting period for which levy is due were framed by reference to the date on which payment of the levy is due; (e) references to the making of a return for an accounting period were references to the payment of the levy in question; (f) references to the amount shown in such a return were references to the amount of levy paid; (g) paragraph 88(8) and (9) were omitted.

.

• (7) In paragraph 93(4) (criminal penalty for false return)—

• (a) in paragraph (a) after “return” insert “ or other notification ”;

• (b) in paragraph (b), and in the words after that paragraph, after “return” insert “ or notification ”.

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

• (9) In paragraph 125(1) (obligation to keep records) for “persons who are, or are required to be, registered” substitute

persons who— (a) are registered, (b) are required to be registered, or (c) are exempted from the requirement to be registered by regulations under paragraph 53(4)

.

• (10) In paragraph 135(1)(c) (Commissioners' certificate as evidence of non-payment of levy shown as due in a return) after “return” insert “ or other notification ”.

Electricity from renewable sources etc

193

• (1) Schedule 6 to the Finance Act 2000 (c. 17) (climate change levy) is amended as follows.

• (2) In paragraph 20 (exemption under paragraph 19: averaging periods) for sub-paragraphs (6) to (8) substitute—

(6) If the total mentioned in sub-paragraph (3)(b) exceeds that mentioned in sub-paragraph (3)(a), then— (a) in a case where, at the time when the balancing period ends, an averaging period also ends because of sub-paragraph (2)(f) or (g), the supplier is for the purposes of this Schedule deemed to make at that time a taxable supply of a quantity of electricity equal to the excess; (b) in any other case, a balancing debit equal to the excess is carried forward to the next balancing period.

.

• (3) In paragraph 20B (exemption under paragraph 20A: averaging periods) for sub-paragraphs (6) to (8) substitute—

(6) If the total mentioned in sub-paragraph (3)(b) exceeds that mentioned in sub-paragraph (3)(a), then— (a) in a case where, at the time when the balancing period ends, an averaging period also ends because of sub-paragraph (2)(f) or (g), the supplier is for the purposes of this Schedule deemed to make at that time a taxable supply of a quantity of electricity equal to the excess; (b) in any other case, a balancing debit equal to the excess is carried forward to the next balancing period.

.

• (4) The amendment made by subsection (2) has effect where the end of the balancing period referred to in paragraph (a) of the sub-paragraph (6) substituted by that subsection falls on or after 31st March 2003.

• (5) The amendment made by subsection (3) has effect where the end of the balancing period referred to in paragraph (a) of the sub-paragraph (6) substituted by that subsection falls on or after 1st April 2003.

Insurance premium tax

Higher rate of tax: divided companies

194

• (1) In Schedule 6A to the Finance Act 1994 (c. 9) (insurance premium tax: premiums liable to tax at higher rate), insert after paragraph 3—

(3A) (1) A premium under a taxable insurance contract relating to a motor car or motor cycle also falls within paragraph 2 above if— (a) the insurance to be provided under the contract is provided by a divided company, and (b) any division of that company would, if it were a separate company, be a person connected with a supplier of motor cars or motor cycles. (2) A premium under a taxable insurance contract relating to relevant goods also falls within paragraph 3 above if— (a) the insurance to be provided under the contract is provided by a divided company, and (b) any division of that company would, if it were a separate company, be a person connected with a supplier of relevant goods. (3) Sub-paragraph (1) or (2) above does not apply if the insurance is provided to the insured free of charge. (4) A premium falls within paragraph 2 above by virtue of this paragraph only to the extent that it is attributable to cover for a risk which relates to a motor car or motor cycle supplied by a supplier of motor cars or motor cycles with whom the division in question would, if it were a separate company, be connected. (5) A premium falls within paragraph 3 above by virtue of this paragraph only to the extent that it is attributable to cover for a risk which relates to relevant goods supplied by a supplier of relevant goods with whom the division would, if it were a separate company, be connected. (6) For the purposes of this paragraph— (a) a company is a “divided company” if under the law under which the company is formed, under the company’s constitution or under arrangements entered into by or in relation to the company— (i) some or all of the assets of the company are available primarily, or only, to meet particular liabilities of the company, and (ii) some or all of the members of the company, and some or all of its creditors, have rights primarily, or only, in relation to particular assets of the company; (b) a “division” of such a company means an identifiable part of it (by whatever name known) that carries on distinct business activities and to which particular assets and liabilities of the company are primarily or wholly attributable. (7) In this paragraph “provided to the insured free of charge” has the meaning given by sub-paragraph (5) of paragraph 2 or 3 above. In determining for this purpose whether a divided company by whom insurance is provided is a person falling within sub-paragraph (2) of paragraph 2 or 3 above, the company shall be treated as connected with any person with whom a division of that company would be connected if it were a separate company. (8) Other expressions defined for the purposes of paragraph 2 or 3 above have the same meaning in this paragraph.

.

• (2) Subsection (1) applies in relation to a premium that falls to be regarded for the purposes of Part 3 of the Finance Act 1994 (c. 9) (insurance premium tax) as received under a taxable insurance contract by an insurer on or after the day on which this Act is passed.

Part 9 — Miscellaneous and supplementary provisions

Provisions consequential on changes to company law

Companies acquiring their own shares

195

• (1) This section applies for the purposes of the Taxes Acts and the Inheritance Tax Act 1984 (c. 51) where a company acquires any of its own shares (whether by purchase, the issuing of bonus shares or otherwise).

• (2) The acquisition of any of those shares by the company is not to be treated as the acquisition of an asset.

• (3) The company is not, by virtue of the acquisition or holding of any of those shares or its being entered in the company’s register of members in respect of any of them, to be treated as a member of itself.

• (4) Subject to subsection (5)—

• (a) the company’s issued share capital is to be treated as if it had been reduced by the nominal value of the shares acquired,

• (b) such of those shares as are not cancelled on acquisition are to be treated as if they had been so cancelled, and

• (c) any subsequent cancellation by the company of any of those shares is to be disregarded (and, accordingly, is not the disposal of an asset and does not give rise to an allowable loss within the meaning of the Taxation of Chargeable Gains Act 1992 (c. 12)).

• (5) Where the shares are issued to the company as bonus shares, subsection (4)(a) and (b) does not apply and the shares are to be treated as if they had not been issued.

• (6) Where, disregarding subsections (2) to (5)—

• (a) a company holds any of its own shares, and

• (b) the company issues bonus shares in respect of those shares or any class of those shares (“the existing shares”),

nothing in this section prevents the existing shares being the company’s holding of shares for the purposes of the application of section 126 of the Taxation of Chargeable Gains Act 1992 (application of sections 127 to 131 of that Act (company reorganisations etc)).

• (7) In subsection (6) the reference to the application of section 126 of the Taxation of Chargeable Gains Act 1992 does not include a reference to the application of that section in a modified form by virtue of any enactment relating to chargeable gains.

• (8) Where a company disposes of any of its own shares to a person in circumstances where, but for subsections (2) to (5), it would be regarded as holding the shares immediately before the disposal—

• (a) subsections (4)(b) and (c) and (5) cease to apply in relation to the shares disposed of (“the relevant shares”),

• (b) the relevant shares are to be treated as having been issued as new shares to that person by the company at the time of the disposal (and not as having been disposed of by the company at that time),

• (c) that person is to be treated as having subscribed for the relevant shares,

• (d) an amount equal to the amount or value of the consideration (if any) payable for the disposal of the relevant shares is to be treated as the amount subscribed for those shares,

• (e) if the amount or value of that consideration does not exceed the nominal value of those shares, the share capital of those shares is to be treated for the purposes of Part 23 of the Corporation Tax Act 2010 as if it were an amount equal to the amount or value of that consideration, and

• (f) if the amount or value of that consideration exceeds their nominal value, the relevant shares are to be treated as if they had been issued at a premium representing that excess.

• (9) Where—

• (a) a company purchases its own shares, and

• (b) the price payable by a company for the shares is taken into account in computing the profits of the company which are chargeable to tax under Chapter 2 of Part 3 of the Corporation Tax Act 2009,

subsections (2) to (7) do not apply and subsection (8) does not apply in relation to any disposal by the company of any of the shares.

• (10) Schedule 40 to this Act (which makes amendments relating to the acquisition and disposal by a company of its own shares) has effect.

• (11) For the purposes of this section—

• (a) a company issues “bonus shares” if it issues share capital as paid up otherwise than by the receipt of new consideration (within the meaning of section 1115 of the Corporation Tax Act 2010), and

• (b) “the Taxes Acts” has the same meaning as in the Taxes Management Act 1970 (c. 9),

and in this section references to a “company” are to a company with a share capital.

• (12) The preceding provisions of this section and the provisions of Schedule 40 to this Act have effect in relation to any acquisition of shares by a company on or after such day as the Treasury may by order made by statutory instrument appoint.

Companies in administration

196

Schedule 41 to this Act (provisions relating to the treatment, for tax purposes, of companies in administration) has effect.

International matters

Exchange of information between tax authorities of member States

197

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

Arrangements for mutual exchange of tax information

198

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

Savings income: Community obligations and international arrangements

199

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

Controlled foreign companies: exempt activities

200

• (1) Schedule 42 to this Act (which amends Part 2 of Schedule 25 to the Taxes Act 1988 (exempt activities)) shall have effect.

• (2) The amendments made by that Schedule have effect in relation to accounting periods of a controlled foreign company beginning on or after 27th November 2002.

• (3) In this section “accounting period” and “controlled foreign company” have the same meaning as in Chapter 4 of Part 17 of the Taxes Act 1988.

• (4) This section shall be taken to have come into force on 27th November 2002.

Application of CFC provisions to Hong Kong and Macao companies

201

• (1) In Part 2 (exempt activities) of Schedule 25 to the Taxes Act 1988 (cases where section 747(3) does not apply), in paragraph 5 insert after sub-paragraph (2)—

(3) In the case of a controlled foreign company— (a) which is, by virtue of section 749(5), presumed to be resident in a territory in which it is subject to a lower level of taxation, (b) the business affairs of which are, throughout the accounting period in question, effectively managed in a special administrative region, and (c) which is liable to tax for that period in that region, references in the following provisions of this Part of this Schedule to the territory in which that company is resident shall be construed as references to that region. (4) In sub-paragraph (3) above “special administrative region” means the Hong Kong or the Macao Special Administrative Region of the People’s Republic of China. (5) Where sub-paragraph (3) above applies, it applies in place of sub-paragraph (2).

.

• (2) This section shall be deemed to have had effect—

• (a) as from 1st July 1997, so far as relating to the Hong Kong Special Administrative Region;

• (b) as from 20th December 1999, so far as relating to the Macao Special Administrative Region.

Administrative matters

Deduction of tax from interest: recognised clearing houses etc

202

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

Authorised unit trusts: interest distributions paid gross

203

• (1) Chapter 3 of Part 12 of the Taxes Act 1988 (unit trust schemes) is amended as follows.

• (2) In section 468L(4) (obligation to deduct tax from interest distributions to be subject to provision made by sections 468M and 468N), for “sections 468M and 468N” substitute “ section 468M ”.

• (3) For sections 468M and 468N substitute—

(468M) (1) Where an interest distribution is made for a distribution period to a unit holder, any obligation to deduct under section 349(2) does not apply to the interest distribution if— (a) the unit holder is a company or the trustees of a unit trust scheme, or (b) either the residence condition or the reputable intermediary condition is on the distribution date fulfilled with respect to the unit holder. (2) Section 468O makes provision about the circumstances in which the residence condition or the reputable intermediary condition is fulfilled with respect to a unit holder.

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• (4) Section 468O (residence condition) is amended as follows.

• (5) In subsection (1), for “sections 468M and 468N” substitute “ section 468M ”.

• (6) After that subsection insert—