Finance Act 2004

(2A) At any time when the funded trade is carried on by the partners in a partnership of which the issuing company, or a qualifying 90% subsidiary of that company, is a member, there shall be disregarded for the purposes of sub-paragraph (2)(a) any other members of the partnership at that time. (2B) At any time when the funded trade is carried on by the parties to a joint venture to which the issuing company, or a qualifying 90% subsidiary of that company, is a party, there shall be disregarded for the purposes of sub-paragraph (2)(a) any other parties to the joint venture at that time.

,

• (c) for sub-paragraph (5)(a) substitute—

(a) by reason only of the issuing company or any other company being wound up or dissolved without winding up, the funded trade is carried on as mentioned in sub-paragraph (2)(a) for a period shorter than four months, and

,

• (d) in sub-paragraph (5)(b), for “was”, in each place, substitute “ is ”,

• (e) for sub-paragraph (6)(a) substitute—

(a) by reason only of anything done as a consequence of the issuing company or any other company being in administration or receivership, the funded trade is carried on as mentioned in sub-paragraph (2)(a) for a period shorter than four months, and

,

• (f) in sub-paragraph (6)(b), after “company” insert “ concerned ”.

13

In paragraph 102 (minor definitions etc) after sub-paragraph (7) insert—

(8) In determining for the purposes of paragraph 3(2), 23(5) or 36(1B) when a trade is begun to be carried on by a qualifying 90% subsidiary of the issuing company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary.

.

14

In paragraph 103 (index of defined expressions), after the entry for “qualifying subsidiary” insert—

qualifying 90% subsidiary	paragraph 23(10) and (11)

.

15

The amendments made by this Schedule have effect in relation to shares issued on or after 17th March 2004.

SCHEDULE 21

Penalties for failure to furnish particulars etc

1

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

Charge on settlor with interest in settlement etc: supplementary provisions

2

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

Relief for gifts of business assets

3

• (1) Section 165 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In subsection (1) (circumstances in which subsection (4) applies, subject to certain provisions) for “and 169” substitute “ , 169, 169B and 169C ”.

• (3) In subsection (3) (relief not to apply to disposal in certain cases) after paragraph (b) insert—

(ba) in the case of a disposal of shares or securities, the transferee is a company,

.

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

• (5) In subsection (10) (deduction to be allowed in computing chargeable gain on subsequent disposal by transferee, where disposal by transferor is chargeable transfer for inheritance tax purposes) for “after 13th March 1989, in respect of which a claim is made under this section,” substitute “ in relation to which subsection (4) above applies ”.

Gifts relief not to be available on certain transfers to settlor-interested settlements etc

4

After section 169A of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

(169B) (1) Neither section 165(4) nor section 260(3) shall apply in relation to a disposal (“the relevant disposal”)— (a) made by a person (“the transferor”) to the trustees of a settlement, and (b) in respect of which Condition 1 or Condition 2 below is satisfied. (2) Condition 1 is that, immediately after the making of the relevant disposal,— (a) there is a settlor (see section 169E) who has an interest in the settlement (see section 169F), or (b) an arrangement (see section 169G) subsists under which such an interest will or may be acquired by a settlor. (3) Condition 2 is that— (a) a chargeable gain would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal, (b) in computing the gain, the allowable expenditure would to any extent fall to be reduced in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and (c) immediately after the making of the relevant disposal,— (i) that individual has an interest in the settlement, or (ii) an arrangement subsists under which such an interest will or may be acquired by him. (4) This section is subject to section 169D (exception for maintenance funds for historic buildings and certain settlements for disabled persons). (169C) (1) This section applies in relation to a disposal (“the relevant disposal”)— (a) made by a person (“the transferor”) to the trustees of a settlement, (b) in relation to which section 165(4) or 260(3) applies, or would apart from this section apply, and (c) in respect of which Condition 1 or Condition 2 below is satisfied. (2) Condition 1 is that, at any time during the clawback period,— (a) there is a settlor who has an interest in the settlement, or (b) an arrangement subsists under which such an interest will or may be acquired by a settlor. (3) Condition 2 is that— (a) in computing the chargeable gain which would (assuming that neither section 165(4) nor section 260(3) applied in relation to the relevant disposal) accrue to the transferor on that disposal, the allowable expenditure would fall to be reduced, (b) that reduction would to any extent fall to be made in consequence, directly or indirectly, of a claim under section 165 or 260 in respect of an earlier disposal made by an individual (whether or not to the transferor), and (c) at any time during the clawback period,— (i) that individual has an interest in the settlement, or (ii) an arrangement subsists under which such an interest will or may be acquired by him. (4) If no claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time, neither section 165(4) nor section 260(3) shall apply in relation to that disposal. (5) Subsections (7) to (9) below apply if a claim for relief under section 165 or 260 in respect of the relevant disposal is made before the material time. (6) But those subsections do not apply if— (a) the transferor is an individual, and (b) he dies before the material time. (7) A chargeable gain, of an amount equal to the amount of the held-over gain (within the meaning of section 165 or 260) on the relevant disposal, shall be treated for the purposes of tax in respect of chargeable gains as accruing to the transferor at the material time. (8) For any chargeable period ending after the making of the relevant disposal, the chargeable gains and allowable losses of— (a) the trustees of the settlement, or (b) any person whose title to any property to any extent derives, directly or indirectly, from them, shall be determined on the assumption that neither section 165(4)(b) nor section 260(3)(b) ever applied in relation to that disposal. (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 subsection (8) above (notwithstanding any limitation on the time within which any adjustment may be made). (10) If a claim for relief under section 165 or 260 in respect of the relevant disposal is revoked, this section shall apply as if the claim had never been made. (11) In this section “the clawback period” means the period— (a) beginning immediately after the making of the relevant disposal, and (b) ending six years after the end of the year of assessment in which that disposal was made. (12) In this section “the material time” means the time at which subsection (1)(c) above first becomes satisfied. (13) This section is subject to section 169D. (169D) (1) Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement in a year of assessment if the trustees have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic buildings not to be income of settlor etc) shall have effect in the case of— (a) the settlement, or (b) any part of the settlement, in relation to that year of assessment. (2) Sections 169B and 169C shall not apply in relation to a disposal to the trustees of a settlement if the following conditions are satisfied. (3) The first condition is that, immediately after the making of the disposal,— (a) the settled property is held on trusts which secure that, during the lifetime of a disabled person, not less than half of the property which is applied is applied for the benefit of that person, and (b) the settled property is held on trusts— (i) which secure that, during his lifetime, he is entitled to not less than half of the income arising from the property, (ii) which secure that, during his lifetime, no such income may be applied for the benefit of any other person, or (iii) under which, during his lifetime, no interest in possession in the settled property subsists. (4) The second condition is that if, immediately after the making of the disposal, one or more settlors is an interested settlor, each such settlor must at that time be a disabled beneficiary. (5) For the purposes of subsection (4) above a settlor is an “interested settlor” in relation to a settlement if— (a) he has an interest in the settlement, or (b) an arrangement subsists under which such an interest will or may be acquired by him; and for this purpose, the references to an individual’s spouse in section 169F(2) and (3) shall be disregarded. (6) In subsection (4) above “disabled beneficiary”, in relation to a settlement, means a disabled person who— (a) is a beneficiary under the settlement, or (b) would be such a beneficiary if he had the interest in the settlement by virtue of which subsection (5)(b) above applies in relation to him. (7) In this section “disabled person” means— (a) a person who by reason of mental disorder within the meaning of the Mental Health Act 1983 is incapable of administering his property or managing his affairs; or (b) a person in receipt of attendance allowance or of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate. (8) In this section “attendance allowance” means an allowance under— (a) section 64 of the Social Security Contributions and Benefits Act 1992, or (b) section 64 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. (9) In this section “disability living allowance” means a disability living allowance under— (a) section 71 of the Social Security Contributions and Benefits Act 1992, or (b) section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992. (10) The trusts on which settled property is held shall not be treated as falling outside subsection (3) above by reason only of the powers conferred on the trustees by— (a) section 32 of the Trustee Act 1925, or (b) section 33 of the Trustee Act (Northern Ireland) 1958 (powers of advancement). (11) The references in subsection (3) above to the lifetime of a person shall, where the income from the settled property is held for his benefit on trusts of the kind described in section 33 of the Trustee Act 1925 (protective trusts), be construed as references to the period during which the income is held on trust for him. (169E) (1) For the purposes of this section, sections 169B to 169D and section 169G, a person is a settlor in relation to a settlement if— (a) he is an individual, and (b) the settled property consists of, or includes, property originating from him. (2) In subsection (1) above, the reference to property originating from a settlor is a reference to— (a) property which that settlor has provided directly or indirectly for the purposes of the settlement, and (b) property which wholly or partly represents that property or any part of it. (3) In subsection (2) above, the references to property which a settlor has provided directly or indirectly— (a) include references to property which has been provided directly or indirectly by another person in pursuance of reciprocal arrangements with that settlor, but (b) do not include references to property which that settlor has provided directly or indirectly in pursuance of reciprocal arrangements with another person. (4) In subsection (2) above, the reference to property which represents other property includes a reference to property which represents accumulated income from that other property. (169F) (1) For the purposes of this section and sections 169B to 169D, an individual is to be regarded as having an interest in a settlement if subsection (2) or (3) below applies. (2) This subsection applies if— (a) any property which may at any time be comprised in the settlement, or (b) any derived property, is, or will or may become, payable to or applicable for the benefit of the individual or his spouse in any circumstances whatsoever. (3) This subsection applies if the individual or his spouse enjoys a benefit deriving directly or indirectly from— (a) any property which is comprised in the settlement, or (b) any derived property. (4) The references in subsections (2) and (3) above to the spouse of the individual do not include— (a) a spouse from whom the individual is separated— (i) under an order of a court, (ii) under a separation agreement, or (iii) in such circumstances that the separation is likely to be permanent, or (b) the widow or widower of the individual. (5) An individual is not to be regarded as having an interest in a settlement by virtue of subsection (2) above if and so long as none of the property which may at any time be comprised in the settlement, and no derived property, can become payable or applicable as mentioned in that provision except in the event of— (a) in the case of a marriage settlement, the death of both parties to the marriage and of all or any of the children of the marriage, or (b) the death of a child of the individual where the child had become beneficially entitled to the property or any derived property at an age not exceeding 25. (6) In this section “derived property”, in relation to any property, means— (a) income from that property, (b) property directly or indirectly representing— (i) proceeds of that property, or (ii) proceeds of income from that property, or (c) income from property which is derived property by virtue of paragraph (b) above. (169G) (1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable. (2) An officer of the Board may by notice require any person to whom subsection (3) or (4) below applies to give him within such time as he may direct, not being less than 28 days, such particulars as he thinks necessary for the purposes of sections 169B to 169F. (3) This subsection applies to a person who is or has been— (a) a trustee of a settlement, (b) a beneficiary under a settlement, or (c) a settlor in relation to a settlement. (4) This subsection applies to a person who— (a) is the spouse of a settlor in relation to a settlement, or (b) has at any time on or after the making of the relevant disposal been the spouse of such a settlor. (5) In subsection (4) above “relevant disposal” means the disposal— (a) to which section 169B(1), 169C (1) or 169D (1) or (2) applies or may apply, and (b) in connection with which the notice is given.

.

Gifts on which inheritance tax is chargeable etc

5

• (1) Section 260 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) In subsection (1) (circumstances in which subsection (3) applies, subject to certain provisions) after “169” insert “ , 169B, 169C ”.

• (3) Omit subsection (6A) (unnecessary provision for preventing reduction in case of disposal which is chargeable event for purposes of Schedule 5B).

• (4) Omit subsection (6B) (unnecessary provision for preventing reduction in case of disposal which is chargeable event for purposes of Schedule 5C).

• (5) In subsection (7) (deduction to be allowed in computing chargeable gain on subsequent disposal by transferee, where disposal by transferor is chargeable transfer for inheritance tax purposes) after “subsection (2)(a) above” insert “ (whether or not subsection (3) above applies in relation to it) ”.

Payment by instalments of tax on gifts

6

• (1) Section 281 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In subsection (2) (option to pay capital gains tax by instalments by giving notice to inspector) for “the inspector” substitute “ an officer of the Board ”.

• (3) After subsection (7) insert—

(8) Subsection (2) above applies in relation to a chargeable gain accruing to a transferor under section 169C(7) (clawback of relief under section 165 or 260 if settlement becomes settlor-interested etc) as it applies in relation to a gain accruing to a person on a disposal if— (a) the relevant disposal (within the meaning of section 169C) in question was a disposal of the whole or any part of any assets to which this section applies, and (b) at the material time (within the meaning of that section), no part of the subject-matter of that relevant disposal has been disposed of for valuable consideration under a subsequent disposal (whether made by the trustees to whom that relevant disposal was made or by some other person). (9) Where subsection (2) above so applies, subsections (4) to (7) above apply accordingly but as if for paragraphs (a) and (b) of subsection (7) there were substituted “ any part of the subject-matter of the relevant disposal in question is disposed of for valuable consideration under a subsequent disposal (whether made by the trustees to whom that relevant disposal was made or by some other person). ”.

.

Recovery of tax from donee

7

• (1) Section 282 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) After subsection (4) insert—

(5) This section applies in relation to a chargeable gain accruing to a transferor under section 169C(7) (clawback of relief under section 165 or 260 if settlement becomes settlor-interested etc) as it applies in relation to a chargeable gain accruing to a person on the disposal of an asset by way of gift. (6) For the purposes of this section as applied by subsection (5) above— (a) the transferor shall be taken to be the donor, and (b) the trustees to whom the relevant disposal (within the meaning of section 169C) in question was made shall be taken to be the donee.

.

Application of taper relief

8

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

Relief for gifts of business assets

9

• (1) Schedule 7 to the Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In paragraph 2 (1) (circumstances in which section 165(4) applies, subject to certain provisions, in relation to disposals by trustees of settlement) for “and 169” substitute “ , 169, 169B and 169C ”.

Commencement

10

• (1) The amendment in paragraph 1(2) of this Schedule has effect in relation to any notice given—

• (a) after the passing of this Act, and

• (b) in respect of the year 2003-04 or any subsequent year of assessment.

• (2) The amendment in paragraph 2(2) of this Schedule has effect in relation to the provision of property on or after 10th December 2003.

• (3) The amendments in paragraphs 2(3) and 6(2) of this Schedule have effect in relation to any notice given in respect of the year 2004-05 or any subsequent year of assessment.

• (4) The amendments in paragraphs 3(2), 4, 5(2), 6(3), 7(2)... and 9(2) of this Schedule have effect in relation to disposals on or after 10th December 2003 (whenever any earlier disposal as mentioned in section 169B(3)(b) or 169C(3)(b) was made).

• (5) The amendment in paragraph 3(3) of this Schedule has effect in relation to disposals on or after 21st October 2003.

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

• (7) The amendment in paragraph 3(5) of this Schedule has effect in relation to disposals on or after 10th December 2003.

• (8) The amendments in paragraph 5(3) and (4) of this Schedule have effect in relation to gains accruing on or after 6th April 2004.

• (9) The amendment in paragraph 5(5) of this Schedule has effect in relation to disposals on or after 6th April 2004.

SCHEDULE 22

Relief on disposal of private residence

1

• (1) Section 222 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) In subsection (5)(a) (notice to inspector to determine which of two or more residences is individual’s main residence) for “the inspector” (on both occasions) substitute “ an officer of the Board ”.

Amount of relief

2

• (1) Section 223 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In subsection (4) (dwelling-house let as residential accommodation) in paragraph (a), omit the unnecessary words “or those provisions as applied by section 225”.

• (3) After subsection (7) insert—

(8) This section is subject to— (a) section 224 (amount of relief: further provisions), and (b) section 226A (private residence relief: cases where relief obtained under section 260).

.

Amount of relief: further provisions

3

• (1) Section 224 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

• (2) In subsection (1) (gain accruing from disposal of dwelling-house part of which is used exclusively for purposes of trade etc: relief to apply only to portion of gain) for “accrues from” substitute “ accrues on ”.

Private residence occupied under terms of settlement

4

• (1) Section 225 of the Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In the opening words—

• (a) for “a trustee” substitute “ the trustees of a settlement ”, and

• (b) for “the trustee” substitute “ the trustees ”.

• (3) In paragraph (a), for “the trustee” substitute “ the trustees ”.

• (4) In paragraph (b)—

• (a) for “the inspector” substitute “ an officer of the Board ”, and

• (b) for “the trustee” substitute “ the trustees ”.

• (5) At the end of that paragraph insert “ ; but section 223 (as so applied) shall apply only on the making of a claim by the trustees. ”.

Private residence held by personal representatives

5

After section 225 of the Taxation of Chargeable Gains Act 1992 insert—

(225A) (1) Sections 222 to 224 shall also apply in relation to a gain accruing to the personal representatives of a deceased person on a disposal of an asset within section 222 (1) if the following conditions are satisfied. (2) The first condition is that, immediately before and immediately after the death of the deceased person, the dwelling-house or part of the dwelling-house mentioned in section 222 (1) was the only or main residence of one or more individuals. (3) The second condition is that— (a) that individual or one of those individuals has a relevant entitlement, or two or more of those individuals have relevant entitlements, and (b) the relevant entitlement accounts for, or the relevant entitlements together account for, 75% or more of the net proceeds of disposal; and for this purpose “relevant entitlement” means an entitlement as legatee of the deceased person to, or to an interest in possession in, the whole or any part of the net proceeds of disposal. (4) In subsection (3) above “net proceeds of disposal” means— (a) the proceeds of the disposal of the asset realised by the personal representatives, less (b) any incidental costs allowable as a deduction in accordance with section 38(1)(c) in computing the gain accruing to the personal representatives on that disposal, but on the assumption that none of the proceeds is required to meet the liabilities of the deceased person’s estate (including any liability to inheritance tax). (5) In sections 222 to 224 as applied by this section— (a) references to the individual shall be taken as references to the personal representatives except in relation to the occupation of the dwelling-house or part of the dwelling-house, and (b) the notice which may be given to an officer of the Board under section 222(5)(a) shall be a joint notice by the personal representatives and the individual or individuals entitled to occupy the dwelling-house or part of the dwelling-house. (6) But section 223 (as so applied) shall apply only on the making of a claim by the personal representatives.

.

Private residence relief: cases where relief obtained under section 260

6

After section 226 of the Taxation of Chargeable Gains Act 1992 insert—

(226A) (1) This section applies where— (a) section 223 applies, or would apart from this section apply, in relation to a gain or part of a gain accruing to an individual or the trustees of a settlement (“the transferor”) on a disposal (the “later disposal”), (b) in computing the chargeable gain which would, apart from section 223, accrue to the transferor on the later disposal, the allowable expenditure would fall to be reduced, and (c) that reduction would to any extent fall to be made in consequence, directly or indirectly, of a claim or claims under section 260 in respect of one or more earlier disposals (whether or not made to the transferor). (2) If a claim for relief under section 260 in respect of— (a) the earlier disposal, or (b) if there were two or more such disposals, any of them, is made on or before the making of the later disposal, section 223 shall not apply in relation to the gain or part of a gain accruing on the later disposal. (3) If a claim for relief under section 260 in respect of— (a) the earlier disposal, or (b) if there were two or more such disposals, any of them, is made after the making of the later disposal and subsection (2) above does not apply, it is to be assumed for the purposes of capital gains tax that section 223 never applied in relation to the gain or part of a gain accruing on the later disposal. (4) 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 subsection (3) above (notwithstanding any limitation on the time within which any adjustment may be made). (5) Where the later disposal is made by the trustees of a settlement, the references in subsections (2) and (3) above to the making of the later disposal shall be read as references to the making of a claim for relief under section 223 in respect of the gain or part of a gain accruing on that disposal. (6) If a claim for relief under section 260 in respect of an earlier disposal is revoked, this section shall apply as if the claim had never been made. (7) This section is subject to section 226B (exception for maintenance funds for historic buildings). (226B) (1) Section 226A shall not apply in relation to a later disposal made by the trustees of a settlement if the trustees have elected that section 691(2) of the Taxes Act (certain income of maintenance funds for historic buildings not to be income of settlor etc) shall have effect in the case of— (a) the settlement, or (b) any part of the settlement, in relation to each year of assessment in which a relevant earlier disposal is made. (2) In this section “relevant earlier disposal”, in relation to a later disposal, means an earlier disposal in respect of which a claim mentioned in section 226A(1)(c) is made. (3) This section is to be construed as one with section 226A.

.

Commencement

7

• (1) The amendments in paragraphs 1(2) and 4(4)(a) of this Schedule have effect in relation to any notice given on or after 10th December 2003.

• (2) The amendments in paragraphs 2(2), 3(2), 4(2), (3), (4)(b) and (5) and 5 of this Schedule have effect in relation to disposals made on or after 10th December 2003.

• (3) Subject to paragraph 8 of this Schedule, the amendments in paragraphs 2(3) and 6 of this Schedule have effect in relation to gains or parts of gains accruing on later disposals (within the meaning of the section 226A inserted by paragraph 6 of this Schedule) made on or after 10th December 2003 (whenever any relevant earlier disposal was made).

• (4) In sub-paragraph (3) above “relevant earlier disposal”, in relation to a later disposal (within the meaning of the section 226A inserted by paragraph 6 of this Schedule), means an earlier disposal in respect of which a claim mentioned in subsection (1)(c) of that section is made.

Transitional provision

8

• (1) This paragraph has effect where section 226A of the Taxation of Chargeable Gains Act 1992 (c. 12) (as inserted by paragraph 6 of this Schedule) (“section 226A”) applies in circumstances in which—

• (a) the relevant earlier disposal, or

• (b) if there were two or more such disposals, each of them,

was made before 10th December 2003.

• (2) Section 226A shall have effect subject to the following modifications.

• (3) In subsection (2), omit “not” and at the end insert “ subject to the modifications set out in subsections (2A) to (2C) below ”.

• (4) After subsection (2) insert—

(2A) Section 223 (1) shall not apply. (2B) For the purposes of section 223(2)(a) and (3)— (a) the dwelling-house or the part of the dwelling-house in question is to be taken not to have been the individual’s only or main residence during the post-commencement period or any part of that period, and (b) the words “but inclusive of the last 36 months of the period of ownership in any event” shall not have effect in respect of so much of that period of 36 months as falls within the post-commencement period. (2C) In subsection (2B) above “post-commencement period” means the period beginning on 10th December 2003 and ending on the date of the later disposal.

.

• (5) In subsection (3), omit “never” and at the end insert “ subject to the modifications set out in subsections (2A) to (2C) above ”.

• (6) In this paragraph “relevant earlier disposal”, in relation to a later disposal, means an earlier disposal in respect of which a claim mentioned in subsection (1)(c) of section 226A is made.

• (7) This paragraph is to be construed as one with section 226A.

• (8) Subsections (5) and (6) of section 223 of the Taxation of Chargeable Gains Act 1992 apply in relation to the subsection (2B)(b) treated as inserted by sub-paragraph (4) above as they apply in relation to subsections (1) and (2)(a) of that section.

SCHEDULE 23

Introduction

1

• (1) Sections 228B to 228E of the Capital Allowances Act 2001 (c. 2) (as inserted by section 134) are subject to paragraphs 2 to 9 of this Schedule in their application in relation to existing leasebacks.

• (2) Paragraph 10 of this Schedule makes provision in relation to the taxation of chargeable gains where an existing leaseback terminates.

Section 228B

2

• (1) This paragraph applies if the pre-commencement rentals are greater than the total of the actual rental deductions for periods of account up to, but excluding, the transitional period of account.

• (2) Section 228B shall not apply in relation to—

• (a) the transitional period of account if the lessee’s excess rentals are greater than the notional rental deduction for that period, or

• (b) a subsequent period of account if the unrelieved portion of the lessee’s excess rentals is greater than the notional rental deduction for that period.

• (3) Section 228B is subject to sub-paragraph (4) in its application to—

• (a) the transitional period of account if the lessee’s excess rentals are not greater than the notional rental deduction for that period, or

• (b) a subsequent period of account if the unrelieved portion of the lessee’s excess rentals is not greater than the notional rental deduction for that period.

• (4) The permitted maximum for that period of account is the total of—

• (a) the lessee’s excess rentals (in the case of the transitional period of account) or the unrelieved portion of the lessee’s excess rentals (in the case of a subsequent period of account), and

• (b) the amount given by this calculation—

$$BasicAmount×(NotionalRentalDeduction-DeductibleExcess)NotionalRentalDeduction$where—“Basic Amount” means the amount calculated in accordance with section 228B(2),“Notional Rental Deduction” means the notional rental deduction for the period of account in question, and“Deductible Excess” means the amount included in the permitted maximum by virtue of sub-paragraph (4)(a).$

• (5) But where, in relation to the transitional period of account, the amount given by sub-paragraph (4) is less than the appropriate fraction of the notional rental deduction for that period, the permitted maximum shall be that fraction of that deduction.

• (6) In this paragraph—

• (a) “the lessee’s excess rentals” means—

• (i) the pre-commencement rentals, minus

• (ii) the total of the actual rental deductions referred to in sub-paragraph (1), and

• (b) “the unrelieved portion of the lessee’s excess rentals”, in relation to a period of account, means—

• (i) the lessee’s excess rentals, minus

• (ii) the total of the actual rental deductions for periods of account from and including the transitional period up to, but excluding, the period in question.

• (7) In this paragraph—

• “actual rental deduction”, in relation to a period of account, means the amount that may be deducted in respect of amounts payable under the existing leaseback in calculating the lessee’s income or profits for that period of account for the purpose of income tax or corporation tax;

• “notional rental deduction”, in relation to a period of account, means the amount that could, if section 228B did not apply, be deducted in respect of amounts payable under the existing leaseback in calculating the lessee’s income or profits for that period of account for the purpose of income tax or corporation tax.

• (8) Nothing in sub-paragraphs (3) to (5) prevents the inclusion of an amount in the permitted maximum by virtue of section 228B(3) and (4).

• (9) This paragraph does not apply in relation to any period of account later than a period of account for which the permitted maximum has been determined in accordance with sub-paragraph (3) to (5).

3

• (1) This paragraph applies where—

• (a) the existing leaseback terminates, and

• (b) in the period of account immediately following that in which it terminates, paragraph 2(2)(b) or 2(3)(b) would apply were it not for the termination.

• (2) The permitted maximum for the period of account in which the leaseback terminates shall also include an amount equal to the amount that the unrelieved portion of the lessee’s excess rentals would have been in the period of account immediately following.

Section 228C

4

Section 228C shall not apply where the existing leaseback terminates before 17 March 2004.

5

• (1) Section 228C applies subject to this paragraph where—

• (a) the existing leaseback terminates otherwise than by expiry of its term, and

• (b) the amount calculated in accordance with section 228C(3) exceeds the relevant cap.

• (2) In determining the amount by which income or profits are to be increased under section 228C(2), the amount calculated in accordance with section 228C(3) shall be disregarded to the extent that it exceeds the relevant cap.

• (3) The relevant cap is—

$$(OriginalConsideration-RelevantRentals)×NetConsiderationOriginalConsideration$where—“Original Consideration” has the same meaning as in section 228B;“Relevant Rentals” means—(a) the pre-commencement rentals, minus(b) the total of—(i) finance charges shown in the accounts for periods that end before 17 March 2004, and(ii) the appropriate proportion of finance charges shown in the accounts for the transitional period of account;“Net Consideration” has the same meaning as in section 228C.$

6

• (1) This paragraph applies if—

• (a) the existing leaseback terminates otherwise than by expiry of its term,

• (b) upon the termination of the leaseback, or during the period of one month beginning with the date of termination, the lessee becomes the owner of the plant of machinery by acquiring it—

• (i) from the lessor, or

• (ii) where no person other than the lessor or a person connected with the lessee has owned the plant or machinery at any time since the termination of the leaseback, from a person connected with the lessee,

• (c) the person who first acquires the plant or machinery from the lessor does so as a result of incurring capital expenditure equal (at least) to the market value of the plant or machinery at the termination of the leaseback, and

• (d) the amount of the lessee acquisition expenditure that counts as qualifying expenditure is restricted under section 226.

• (2) If the section 226 restriction is greater than the amount calculated in accordance with section 228C(3)—

• (a) section 228C(2) to (4) shall not apply, but

• (b) if there is a taxable disposal, section 228C(2) to (4) shall apply subject to sub-paragraph (5).

• (3) If the section 226 restriction is not greater than the amount calculated in accordance with section 228C(3)—

• (a) the amount by which profits or income are increased in accordance with section 228C(2) shall be reduced by the section 226 restriction, and

• (b) if there is a taxable disposal, section 228C(2) to (4) shall apply again subject to sub-paragraph (5).

• (4) For the purposes of sub-paragraphs (2) and (3) there is a taxable disposal if, during the period of six years beginning with the date of termination of the leaseback—

• (a) the whole of the plant or machinery is the subject of a disposal event (within the meaning of Part 2), or

• (b) part of the plant or machinery is the subject of such a disposal event.

• (5) Where section 228C(2) to (4) applies subject to this sub-paragraph—

• (a) a reference to the termination shall be treated as a reference to the cessation of ownership of the plant or machinery, and

• (b) the amount by which profits or income are increased in accordance with section 228C(2) shall be—

• (i) in a case falling within sub-paragraph (2)(b), the relevant fraction of the amount calculated in accordance with section 228C(3), or

• (ii) in a case falling within sub-paragraph (3)(b), the relevant fraction of the section 226 restriction.

• (6) In sub-paragraph (5)(b)(i) and (ii) “relevant fraction” means—

$$(DisposalProceeds-RestrictedQualifyingExpenditure)(LesseeAcquisitionExpenditure-RestrictedQualifyingExpenditure)$where “Disposal Proceeds” means the consideration due to the lessee under the taxable disposal or, if higher, the market value of the plant or machinery at the time of the taxable disposal; but—(a) where that amount is greater than the lessee acquisition expenditure, the Disposal Proceeds shall be the amount of the lessee acquisition expenditure, or(b) where that amount is less than the restricted qualifying expenditure, the Disposal Proceeds shall be the amount of the restricted qualifying expenditure.$

• (7) Where there is a taxable disposal by virtue of sub-paragraph (4)(b), this paragraph applies in relation to that disposal with the following modifications—

• (a) references in sub-paragraphs (5)(a) and (6) to the plant or machinery shall be taken to be references to the part of the plant or machinery comprised in the taxable disposal;

• (b) the amount by which profits or income are to be increased by virtue of sub-paragraph (5)(b) shall be the partial disposal fraction of the amount given by sub-paragraph (5)(b)(i) or (ii);

• (c) the partial disposal fraction of the restricted qualifying expenditure and of the lessee acquisition expenditure shall be used for the purposes of sub-paragraph (6) instead of those amounts of expenditure.

• (8) For the purposes of sub-paragraph (7) the partial disposal fraction is—

$$ApportionedLesseeAcquisitionExpenditureLesseeAcquisitionExpenditure$where “Apportioned Lessee Acquisition Expenditure” means so much of the lessee acquisition expenditure as was attributable to the acquisition of the part of the plant or machinery comprised in the taxable disposal.$

• (9) In this paragraph—

• “lessee acquisition expenditure” means the capital expenditure incurred by the lessee in acquiring the plant or machinery as described in sub-paragraph (1)(b),

• “restricted qualifying expenditure” means the qualifying expenditure under section 226, and

• “section 226 restriction” means—the lessee acquisition expenditure, minusthe restricted qualifying expenditure.

Section 228D

7

• (1) This paragraph applies if the pre-commencement rentals are greater than the total of the actual taxed rentals for periods of account up to, but excluding, the transitional period of account.

• (2) Section 228D shall not apply in relation to—

• (a) the transitional period of account if the lessor’s excess rentals are greater than the notional taxed rental for that period, or

• (b) a subsequent period of account if the untaxed portion of the lessor’s excess rentals is greater than the notional taxed rental for that period.

• (3) Section 228D is subject to sub-paragraph (4) in its application to—

• (a) the transitional period of account if the lessor’s excess rentals are not greater than the notional taxed rental for that period, or

• (b) a subsequent period of account if the untaxed portion of the lessor’s excess rentals is not greater than the notional taxed rental for that period.

• (4) The permitted threshold for that period of account is the total of—

• (a) the lessor’s excess rentals (in the case of the transitional period of account) or the untaxed portion of the lessor’s excess rentals (in the case of a subsequent period of account), and

• (b) the amount given by this calculation—

$$BasicAmount×(NotionalTaxedRental-DeductibleExcess)NotionalTaxedRental$where—“Basic Amount” means the amount calculated in accordance with section 228D(4);“Notional Taxed Rental” means the notional taxed rental for the period of account in question, and“Deductible Excess” means the amount included in the permitted threshold by virtue of sub-paragraph (4)(a).$

• (5) But where, in relation to the transitional period of account, the amount given by sub-paragraph (4) is less than the appropriate fraction of the notional taxed rental for that period, the permitted threshold shall be that fraction of that rental.

• (6) In this paragraph—

• (a) “the lessor’s excess rentals” means—

• (i) the pre-commencement rentals, minus

• (ii) the total of the actual taxed rentals referred to in sub-paragraph (1), and

• (b) “the untaxed portion of the lessor’s excess rentals”, in relation to a period of account, means—

• (i) the lessor’s excess rentals, minus

• (ii) the total of the actual taxed rentals for periods of account from and including the transitional period up to, but excluding, the period in question.

• (7) In this paragraph—

• “actual taxed rental”, in relation to a period of account, means the amount that should be taken into consideration in respect of amounts receivable under the existing leaseback in calculating the lessor’s income or profits for that period of account for the purpose of income tax or corporation tax;

• “notional taxed rental”, in relation to a period of account, means the amount that would, if section 228D did not apply, be taken into consideration in respect of amounts receivable under the existing leaseback in calculating the lessor’s income or profits for that period of account for the purpose of income tax or corporation tax.

• (8) Nothing in sub-paragraphs (3) to (5) prevents the inclusion of an amount in the permitted threshold by virtue of section 228D(2).

• (9) This paragraph does not apply in relation to any period of account later than a period of account for which the permitted threshold has been determined in accordance with sub-paragraphs (3) to (5).

8

• (1) This paragraph applies where—

• (a) the existing leaseback terminates, and

• (b) in the period of account immediately following that in which it terminates, paragraph 7(2)(b) or 7(3)(b) would apply were it not for the termination.

• (2) The permitted threshold for the period of account in which the leaseback terminates shall also include an amount equal to the amount that the untaxed portion of the lessor’s excess rentals would have been in the period of account immediately following.

Section 228E

9

Section 228E shall not apply where the existing leaseback terminates before 17 March 2004.

Chargeable gains

10

• (1) Sub-paragraph (2) applies where—

• (a) an existing leaseback is the leaseback in a lease and finance leaseback,

• (b) the leaseback terminates,

• (c) on or after the termination there is a disposal, by the user, of the whole or part of the plant and machinery subject to the leaseback, and

• (d) a chargeable gain that accrues on that disposal (“the relevant chargeable gain”) falls to be taken into account for the purposes of a chargeable gains computation.

• (2) The following fraction of the relevant chargeable gain shall instead be taken into account for the purposes of the chargeable gains computation—

$$(NetRentals-TerminationCharge)LeasePremium$where—“Net Rentals” means—(a) the total of the amounts deducted in calculating the user’s income or profits, for the purpose of income tax or corporation tax, in respect of amounts payable under the leaseback, minus(b) the total of the amounts shown in the user’s accounts in respect of finance charges relating to the leaseback;“Termination Charge” means the amount by which the user’s income or profits are to be increased by virtue of section 228C(2) of the CAA 2001 because of the termination;“Lease Premium” means the consideration relating to the leaseback referred to in section 228F(6)(b) of the CAA 2001.$

• (3) References in this paragraph to termination of the leaseback shall be construed in accordance with section 228H (1) of the CAA 2001.

• (4) In this paragraph—

• “CAA 2001” means the Capital Allowances Act 2001 (c. 2);

• “chargeable gains computation” means the computation, for the purposes of the TCGA 1992, of the total amount of chargeable gains that accrue to the user in any chargeable period that ends on or after 17 March 2004;

• “disposal” shall be construed in accordance with the TCGA 1992;

• “lease and finance leaseback” has the same meaning as in section 228F of the CAA 2001;

• “TCGA 1992” means the Taxation of Chargeable Gains Act 1992 (c. 12);

• “user” means the person who is the lessee under the leaseback.

Interpretation

11

• (1) In this Schedule—

• “existing leaseback” means a leaseback the term of which began before 17 March 2004;

• “pre-commencement rentals”, in relation to an existing leaseback, means—any amounts payable by the lessee to the lessor under the leaseback before 17 March 2004,any amounts so payable on or after 17 March 2004 in respect of a period that ends before 17 March 2004, or

• (c) where any amounts are so payable on or after 17 March 2004 in respect of a period which begins before that date and ends on or after that date, the appropriate fraction of each of those amounts;

“transitional period of account” means a period of account that includes 17 March 2004.

• (2) In this Schedule the “appropriate fraction”, in respect of an amount that relates to a particular period, means this fraction—

$$Pre-commencementPeriodWholePeriod$where—“Pre-commencement Period” means the number of days in the part of the period that falls before 17 March 2004, and“Whole Period” means the number of days in the whole of the period.$

SCHEDULE 24

Amendments of sections 231AA, 231AB and 233 of the Taxes Act 1988

1

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

Amendments of paragraph 2A of Schedule 23A to the Taxes Act 1988

2

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

Amendment of the Taxation of Chargeable Gains Act 1992

3

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

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

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

SCHEDULE 25

1

The Finance Act 1993 (c. 34) is amended as follows.

2

After section 179A insert—

(179B) Schedule 20A to this Act (which makes provision for certain reliefs to be available where a member converts to limited liability underwriting) shall have effect.

.

3

After Schedule 20 insert—

SCHEDULE 20A (1) (1) This Part of this Schedule applies if the following conditions are satisfied. (2) Condition 1 is that— (a) a member gives notice of his resignation from membership of Lloyd’s in accordance with the rules or practice of Lloyd's, (b) in accordance with such rules or practice, the member does not undertake any new insurance business at Lloyd’s after the end of the member’s last underwriting year, and (c) the member does not withdraw that notice. (3) Condition 2 is that all of the member’s outstanding syndicate capacity is disposed of by the member under a conversion arrangement to a successor company (“the syndicate capacity disposal”) with effect from the beginning of the underwriting year next following the member’s last underwriting year. (4) Condition 3 is that, immediately before the syndicate capacity disposal,— (a) the member controls the successor company, and (b) more than 50% of the ordinary share capital of the successor company is beneficially owned by the member. (5) Condition 4 is that the syndicate capacity disposal is made in consideration solely of the issue to the member of shares in the successor company. (6) Condition 5 is that the successor company starts to carry on its underwriting business in the underwriting year (“the successor company’s first underwriting year”) next following the member’s last underwriting year. (7) In this paragraph “the member’s last underwriting year”, in relation to a member who gives notice of his resignation from membership of Lloyd's, means the underwriting year during which, or at the end of which, he ceases to be an underwriting member and becomes a non-underwriting member in accordance with the rules or practice of Lloyd's. (8) In this paragraph “outstanding syndicate capacity”, in relation to a member, means the syndicate capacity of the member other than any which— (a) the member disposes of to a person other than a successor member at or before the end of the member’s last underwriting year, or (b) ceases to exist with effect from the end of that year. (2) (1) This paragraph applies if— (a) the member’s total income for a year of assessment includes any income derived by the member from the successor company (whether by way of dividends on the shares issued to the member or otherwise), and (b) throughout the period beginning with the time of the syndicate capacity disposal and ending with the end of that year of assessment,— (i) the member controls the successor company, and (ii) more than 50% of the ordinary share capital of the successor company is beneficially owned by the member. (2) The carry-forward provision shall apply as if the income so derived were profits on which the member was assessed under Schedule D in respect of the member’s underwriting business for that year. (3) But where under the carry-forward provision as applied by sub-paragraph (2) above a loss falls to be deducted from or set off against any income for any year of assessment, the deduction or set-off shall be made in the first place against that part, if any, of the income in respect of which the member has been, or is liable to be, assessed to tax for that year. (4) In this paragraph “the carry-forward provision” means section 385 of the Taxes Act 1988 (carry-forward of trading losses against subsequent profits). (3) (1) This paragraph applies if— (a) the aggregate of any chargeable gains accruing to the member on the syndicate capacity disposal exceeds the aggregate of any allowable losses accruing to him on that disposal, and (b) the member makes a claim under this paragraph to an officer of the Board. (2) The amount of the excess mentioned in sub-paragraph (1)(a) above (“the amount of the syndicate capacity gain”) shall for the purposes of capital gains tax be reduced by the amount of the rolled-over gain. (3) For the purpose of computing any chargeable gain accruing to the member on a disposal by him of any issued share or any asset directly or indirectly derived from any issued share— (a) the amount of the rolled-over gain shall be apportioned between the issued shares as a whole, and (b) the sums allowable as a deduction under section 38(1)(a) of the Gains Tax Act shall be reduced by the amount apportioned to the issued share under paragraph (a) above; but, in the case of a derived asset, the reduction shall be by an appropriate proportion of that amount; and if the issued shares are not all of the same class, the apportionment between the shares under paragraph (a) above shall be in accordance with their market values at the time they were acquired by the member. (4) In this paragraph “the amount of the rolled-over gain” means the lesser of— (a) the amount of the syndicate capacity gain, and (b) the aggregate amount of any sums which would be allowable as a deduction under section 38(1)(a) of the Gains Tax Act if the issued shares were disposed of as a whole by the member in circumstances giving rise to a chargeable gain. (5) In this paragraph the “issued shares” means the shares in the successor company issued to the member in consideration for the syndicate capacity disposal. (4) (1) This paragraph applies if— (a) at the time of, or after, the syndicate capacity disposal, assets forming some or all of the member’s ancillary trust fund are— (i) withdrawn from the fund, and (ii) without unreasonable delay, disposed of by him to the successor company (the “ATF disposal”), (b) the aggregate of any chargeable gains accruing to the member on the ATF disposal exceeds the aggregate of any allowable losses accruing to him on that disposal, (c) throughout the period beginning with the time of the syndicate capacity disposal and ending with the time of the ATF disposal,— (i) the member controls the successor company, and (ii) more than 50% of the ordinary share capital of the successor company is beneficially owned by the member, (d) the ATF disposal is made in consideration solely of the issue to the member of shares (the “issued shares”) in the successor company, and (e) the member makes a claim under this paragraph to an officer of the Board. (2) But this paragraph does not apply if— (a) the member could have made a claim under paragraph 3 above, and (b) at the time the member makes a claim under this paragraph, no claim under paragraph 3 above is or has been made by him. (3) The amount of the excess mentioned in sub-paragraph (1)(b) above (“the amount of the ATF assets gain”) shall for the purposes of capital gains tax be reduced by the amount of the rolled-over gain. (4) For the purpose of computing any chargeable gain accruing to the member on a disposal by him of any issued share or any asset directly or indirectly derived from any issued share— (a) the amount of the rolled-over gain shall be apportioned between the issued shares as a whole, and (b) the sums allowable as a deduction under section 38(1)(a) of the Gains Tax Act shall be reduced by the amount apportioned to the issued share under paragraph (a) above; but, in the case of a derived asset, the reduction shall be by an appropriate proportion of that amount; and if the issued shares are not all of the same class, the apportionment between the shares under paragraph (a) above shall be in accordance with their market values at the time they were acquired by the member. (5) In this paragraph “the amount of the rolled-over gain” means the lesser of— (a) subject to sub-paragraph (6) below, the amount of the ATF assets gain, and (b) the aggregate amount of any sums which would be allowable as a deduction under section 38(1)(a) of the Gains Tax Act if the issued shares were disposed of as a whole by the member in circumstances giving rise to a chargeable gain. (6) If the market value, immediately before the ATF disposal, of the assets disposed of under that disposal exceeds the amount of the ATF assets required, the amount of the ATF assets gain shall for the purposes of sub-paragraph (5)(a) above be reduced by multiplying it by— $$RT$where—R is the amount of the ATF assets required, andT is the market value, immediately before the ATF disposal, of the assets disposed of under that disposal.$ (7) In sub-paragraph (6) above “the amount of the ATF assets required” means the lesser of— (a) the amount of security required to be provided by the member in respect of his underwriting business in the member’s last underwriting year, and (b) the amount of security required to be provided by the successor company in respect of its underwriting business in the successor company’s first underwriting year. (8) This paragraph applies only on the first occasion on or after 6th April 2004 on which the member makes an ATF disposal. (9) If a claim made by the member under paragraph 3 above is revoked, this paragraph shall apply as if the claim had never been made. (5) (1) In this Part of this Schedule— - “control” shall be construed in accordance with section 416 of the Taxes Act 1988; - “ordinary share capital” has the meaning given by section 832 (1) of the Taxes Act 1988; - “successor company” means a corporate member (within the meaning of Chapter 5 of Part 4 of the Finance Act 1994) which is a successor member; - “the member’s last underwriting year” has the meaning given by paragraph 1(7) above; - “the successor company’s first underwriting year” has the meaning given by paragraph 1(6) above; - “the syndicate capacity disposal” has the meaning given by paragraph 1(3) above; - “underwriting business”, in relation to a successor company, has the same meaning as in Chapter 5 of Part 4 of the Finance Act 1994. (2) For the purposes of this Part of this Schedule, shares comprised in any letter of allotment or similar instrument shall be treated as issued unless— (a) the right to the shares conferred by it remains provisional until accepted, and (b) there has been no acceptance. (3) Paragraphs 3 and 4 above (and paragraph 1 above so far as relating to those paragraphs) are to be construed as one with the Gains Tax Act. (6) (1) This Part of this Schedule applies if the following conditions are satisfied. (2) Condition 1 is that— (a) a member gives notice of his resignation from membership of Lloyd’s in accordance with the rules or practice of Lloyd's, (b) in accordance with such rules or practice, the member does not undertake any new insurance business at Lloyd’s after the end of the member’s last underwriting year, and (c) the member does not withdraw that notice. (3) Condition 2 is that all of the member’s outstanding syndicate capacity is disposed of by the member under a conversion arrangement to a successor partnership (“the syndicate capacity disposal”) with effect from the beginning of the underwriting year next following the member’s last underwriting year. (4) Condition 3 is that the member is the only person who disposes of syndicate capacity under a conversion arrangement to the successor partnership. (5) Condition 4 is that the successor partnership starts to carry on its underwriting business in the underwriting year next following the member’s last underwriting year. (6) In this paragraph “the member’s last underwriting year”, in relation to a member who gives notice of his resignation from membership of Lloyd's, means the underwriting year during which, or at the end of which, he ceases to be an underwriting member and becomes a non-underwriting member in accordance with the rules or practice of Lloyd's. (7) In this paragraph “outstanding syndicate capacity”, in relation to a member, means the syndicate capacity of the member other than any which— (a) the member disposes of to a person other than a successor member at or before the end of the member’s last underwriting year, or (b) ceases to exist with effect from the end of that year. (7) (1) This paragraph applies if— (a) the member’s total income for a year of assessment includes profits of the successor partnership’s underwriting business, and (b) throughout the period beginning with the time of the syndicate capacity disposal and ending with the end of that year of assessment, the member is beneficially entitled to more than 50% of the profits of that business. (2) Section 385 of the Taxes Act 1988 (carry-forward of trading losses against subsequent profits) shall have effect, in its application in relation to the losses of the old underwriting business, as if the profits of the successor partnership’s underwriting business to which the member is beneficially entitled for that year were profits on which the member was assessed under Schedule D in respect of the old underwriting business for that year. (3) In sub-paragraph (2) above “the old underwriting business” means the member’s underwriting business carried on otherwise than through the successor partnership. (8) In this Part of this Schedule— - “successor partnership” means a limited partnership formed under the law of Scotland which is a successor member; - “the syndicate capacity disposal” has the meaning given by paragraph 6(3) above. (9) (1) This paragraph applies if a member— (a) makes a claim for relief under or by virtue of this Schedule, and (b) subsequently withdraws the notice of his resignation from membership of Lloyd's. (2) The member must give written notice of such withdrawal to an officer of the Board. (3) Such a notice must be given no later than six months from the date of the withdrawal of the notice of resignation. (4) All such adjustments shall be made, whether by discharge or repayment of tax, the making of assessments or otherwise, as are required as a result of the withdrawal of the notice of resignation (notwithstanding any limitation on the time within which any adjustment may be made). (5) If a member fails, fraudulently or negligently, to comply with sub-paragraphs (2) and (3) above, section 95 of the Taxes Management Act 1970 shall apply to him as if he had fraudulently or negligently made an incorrect return, statement or declaration in connection with the claim for relief made by him under or by virtue of this Schedule. (6) In this paragraph “tax” means income tax, capital gains tax or inheritance tax. (10) In this Schedule— - “conversion arrangement” means a conversion arrangement made under the rules or practice of Lloyd's; - “successor member” has the meaning given by the rules or practice of Lloyd's; - “syndicate capacity”, in relation to a member, means an asset comprising the rights of the member under a syndicate in which he participates. (11) (1) Paragraphs 2 and 3 above (and the other provisions of this Schedule so far as relating to those paragraphs) have effect in relation to syndicate capacity disposals (within the meaning of Part 1 of this Schedule) made on or after 6th April 2004. (2) Paragraph 4 above (and the other provisions of this Schedule so far as relating to that paragraph) have effect in relation to ATF disposals (within the meaning of that paragraph) made on or after 6th April 2004 (even if the syndicate capacity disposal mentioned in that paragraph was made before that date). (3) Paragraph 7 above (and the other provisions of this Schedule so far as relating to that paragraph) have effect in relation to syndicate capacity disposals (within the meaning of Part 2 of this Schedule) made on or after 6th April 2004.

.

SCHEDULE 26

Computation of UK equivalent profits: creditor relationships

1

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

• (2) Paragraph 3 of Schedule 10 to the Finance Act 1996 (c. 8) (assumptions to be made in relation to creditor relationships) shall cease to have effect.

• (3) In relation to a fund established on or before the day on which this Act is passed, this paragraph only has effect if an election that it should have effect has been made by or on behalf of the fund.

• (4) Any such election—

• (a) must be made by notice to an officer of the Board, in such form and within such time as the Board may determine, and

• (b) is irrevocable.

• (5) For the purpose of determining the United Kingdom equivalent profits of an offshore fund for the first account period of the fund in relation to which this paragraph has effect—

• (a) any profits, gains or losses arising from a creditor relationship that were taken into account in determining the United Kingdom equivalent profits of the fund for the preceding account period shall be disregarded, and

• (b) any profits, gains or losses arising from a creditor relationship that—

• (i) arose in, or in respect of, the preceding account period, but

• (ii) were not taken into account in determining the United Kingdom equivalent profits of the fund for that period,

shall be taken into account.

• (6) In this paragraph—

• “creditor relationship” has the same meaning as in Part 5 of the Corporation Tax Act 2009; and

• “United Kingdom equivalent profits” has the meaning given in paragraph 5 of Schedule 27 to the Taxes Act 1988.

Computation of UK equivalent profits: derivative contracts

2

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

• (2) Paragraph 35 of Schedule 26 to the Finance Act 2002 (c. 23) (assumptions to be made in relation to derivative contracts) shall cease to have effect.

• (3) In relation to a fund established on or before the day on which this Act is passed, this paragraph only has effect if an election that it should have effect has been made by or on behalf of the fund.

• (4) Any such election—

• (a) must be made by notice to an officer of the Board, in such form and within such time as the Board may determine, and

• (b) is irrevocable.

• (5) For the purpose of determining the United Kingdom equivalent profits of an offshore fund for the first account period of the fund in relation to which this paragraph has effect—

• (a) any profits or losses arising from a derivative contract that were taken into account in determining the United Kingdom equivalent profits of the fund for the preceding account period shall be disregarded, and

• (b) any profits or losses arising from a derivative contract that—

• (i) arose in, or in respect of, the preceding account period, but

• (ii) were not taken into account in determining the United Kingdom equivalent profits of the fund for that period,

shall be taken into account.

• (6) In this paragraph—

• “derivative contract” has the same meaning as in Part 7 of the Corporation Tax Act 2009;

• “United Kingdom equivalent profits” has the meaning given in paragraph 5 of Schedule 27 to the Taxes Act 1988.

Treatment of umbrella funds and funds comprising more than one class of interest

3

At the beginning of Chapter 5 of Part 17 of that Act (offshore funds) insert—