Finance (No. 2) Act 2005

(85A) (1) This paragraph applies where— (a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea), (b) each merging company is resident in a member State, (c) the merging companies are not all resident in the same State, and (d) paragraph 84 above does not apply to any qualifying transferred assets. (2) Where this paragraph applies a transfer of qualifying transferred assets is treated for the purposes of this Schedule as tax-neutral (see paragraph 140). (3) For the purposes of sub-paragraphs (1) and (2) an asset is a qualifying transferred asset if— (a) it is transferred as part of the process of the merger, (b) it is a chargeable intangible asset in relation to the transferor immediately before the transfer, and (c) it is a chargeable intangible asset in relation to the transferee immediately after the transfer. (4) Sub-paragraph (2) shall apply in relation to the formation of an SE by merger only if— (a) it is effected for bona fide commercial reasons, and (b) it does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax. (5) Paragraph 84(6) (and therefore paragraph 88) shall apply, with any necessary modifications, in relation to sub-paragraph (4) above as in relation to paragraph 84(5). (6) For the purposes of this paragraph a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purposes of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

• (2) Subsection (1) shall have effect in relation to the formation of an SE which occurs on or after 1st April 2005.

Intangible fixed assets: permanent establishment in another member State

53

• (1) After paragraph 87 of Schedule 29 to FA 2002 (intangible fixed assets: gains and losses: transfer of non-UK trade) insert—

(87A) (1) This paragraph applies where— (a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea), (b) each merging company is resident in a member State, (c) the merging companies are not all resident in the same State, (d) in the course of the merger a company resident in the United Kingdom (“the transferor”) transfers to a company resident in another member State (“the transferee”) the whole or part of a trade that, immediately before the transfer, the transferor carried on in a member State other than the United Kingdom through a permanent establishment, (e) the transfer includes the whole of the assets of the transferor used for the purposes of the trade or part, (f) the transfer includes intangible fixed assets— (i) that are chargeable intangible assets in relation to the transferor immediately before the transfer, and (ii) in the case of one or more of which the proceeds of realisation exceed the cost recognised for tax purposes, and (g) no claim is made under paragraph 86 above in relation to those assets. (2) Where tax would, but for the Mergers Directive, have been chargeable in the member State in which the permanent establishment is located, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 (double taxation agreements), shall have effect as if the amount of tax that would, but for the Mergers Directive, have been charged in respect of the transfer of the chargeable intangible assets, had actually been charged. (3) In this paragraph “the Mergers Directive” has the same meaning as in paragraph 87. (4) For the purposes of this paragraph a company is resident in a member State if— (a) it is within a charge to tax under the law of the State as being resident for that purpose, and (b) it is not regarded, for the purposes of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State. (5) This paragraph does not apply to the formation of an SE by merger if— (a) it is not effected for bona fide commercial reasons, or (b) it forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax. (6) Sub-paragraph (5) shall not affect the operation of this paragraph in any case where, before the transfer, Her Majesty's Revenue and Customs have, on the application of the transferor, notified the transferor that they are satisfied that the merger will be effected for bona fide commercial reasons and will not form part of any such scheme or arrangements as are mentioned in sub-paragraph (5)(b). (7) An application under sub-paragraph (6) must be made in accordance with paragraph 88.

• (2) Subsection (1) shall have effect in relation to the formation of an SE which occurs on or after 1st April 2005.

Loan relationships

54

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

• (2) Subsection (1) shall have effect in relation to the formation of an SE which occurs on or after 1st April 2005.

Derivative contracts

55

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Capital allowances

56

• (1) After section 561 of CAA 2001 (transfer of UK trade to company in another member State) insert—

(561A) (1) This section applies to the transfer of a qualifying asset as part of the process of a merger to which section 140E of TCGA 1992 (formation of SE by merger) applies (or would apply but for section 140E(1)(d)). (2) Where this section applies to a transfer— (a) the transfer does not give rise to any allowance or charge under this Act, (b) anything done to or by the transferor in relation to assets transferred is to be treated after the transfer as having been done to or by the transferee (with any necessary apportionment of expenditure being made in a reasonable manner), and (c) section 343 of ICTA (company reconstruction without change of ownership) shall not apply. (3) For the purposes of subsection (1) an asset is a “qualifying asset” if— (a) it is transferred to the SE as part of the merger forming it, and (b) subsections (4) and (5) are satisfied in respect of it. (4) This subsection is satisfied in respect of an asset if— (a) the transferor is resident in the United Kingdom at the time of the transfer, or (b) the asset is an asset of a permanent establishment in the United Kingdom of the transferor. (5) This subsection is satisfied in respect of an asset if— (a) the transferee SE is resident in the United Kingdom on formation, or (b) the asset is an asset of a permanent establishment in the United Kingdom of the transferee SE on its formation.

• (2) Subsection (1) shall have effect in relation to a transfer made on or after 1st April 2005.

Stamp duty reserve tax

57

• (1) At the end of section 99(4) of FA 1986 (stamp duty reserve tax: interpretation: chargeable securities) add—

, or (d) they are issued or raised by an SE (whether or not in the course of its formation in accordance with Article 2 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)) and, at the time when it falls to be determined whether the securities are chargeable securities, the SE has its registered office in the United Kingdom. (4A) “Chargeable securities” does not include securities falling within paragraph (a), (b) or (c) of subsection (3) above if— (a) they are securities issued or raised by an SE (whether or not in the course of its formation in accordance with Article 2 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)), and (b) at the time when it falls to be determined whether the securities are chargeable securities, the SE has its registered office outside the United Kingdom.

• (2) Subsection (1) shall have effect for the purposes of determining, in relation to anything occurring on or after 1st April 2005, whether securities (whenever issued or raised) are chargeable securities for the purposes of Part 4 of FA 1986.

Bearer instruments: stamp duty and stamp duty reserve tax

58

• (1) In section 90(3C)(a) of FA 1986 (stamp duty reserve tax: bearer instruments) after “United Kingdom” insert “ (other than an SE which has its registered office outside the United Kingdom following a transfer in accordance with Article 8 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)) ”.

• (2) In section 90(3E)(a) of FA 1986 (stamp duty reserve tax: bearer instruments) after “United Kingdom” insert “ (other than an SE which has its registered office outside the United Kingdom following a transfer in accordance with Article 8 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)) ”.

• (3) In paragraph 11 of Schedule 15 to FA 1999 (bearer instruments) for the definition of “UK company” substitute—

“UK company” means— (a) a company that is formed or established in the United Kingdom (other than an SE which has its registered office outside the United Kingdom following a transfer in accordance with Article 8 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)), or (b) an SE which has its registered office in the United Kingdom following a transfer in accordance with Article 8 of that Regulation;

.

• (4) This section shall have effect for the purposes of determining whether or not stamp duty or stamp duty reserve tax is chargeable in respect of anything done on or after 1st April 2005.

Consequential amendments

59

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

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

• (3) In section 140A of TCGA 1992 (transfer of UK trade)—

• (a) in subsection (1)(b) for “securities” substitute “ shares or debentures ”, and

• (b) in subsection (7) omit the definition of “securities”.

• (4) In section 140C of TCGA 1992 (transfer of non-UK trade)—

• (a) in subsection (1)(c) for “securities” substitute “ shares or debentures ”, and

• (b) in subsection (9) omit the definition of “securities”.

• (5) In paragraph 88(1) and (5) of Schedule 29 to FA 2002 (intangible fixed assets: gains and losses: transferred assets: application for clearance) after “85(5),” insert “ 85A(5), 87A(6), ”.

• (6) In paragraph 127 of that Schedule (acquired assets to be treated as existing assets) after sub-paragraph (1)(b)(ii) insert—

, or (iii) section 140E of that Act (transfer on formation of SE by merger),

.

• (7) Subsections (3) and (4) shall have effect in relation to an issue effected on or after 1st April 2005.

Residence

60

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

Continuity for transitional purposes

61

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

Groups

62

• (1) After section 170(10) of TCGA 1992 (groups: merger, etc) insert—

(10A) Where the principal company of a group (Group 1)— (a) becomes an SE by reason of being the acquiring company in the formation of an SE by merger by acquisition (in accordance with Articles 2(1), 17(2)(a) and 29(1) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)), (b) becomes a subsidiary of a holding SE (formed in accordance with Article 2(2) of that Regulation), or (c) is transformed into an SE (in accordance with Article 2(4) of that Regulation), Group 1 and any group of which the SE is a member on formation shall be regarded as the same; and the question whether or not a company has ceased to be a member of a group shall be determined accordingly.

• (2) Subsection (1) shall have effect in relation to the formation of an SE (including its formation by transformation) which occurs on or after 1st April 2005.

Groups: intangible fixed assets

63

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

Held-over gains

64

• (1) In section 116(11) of TCGA 1992 (shares: reorganisation, etc) after “140A,” insert “ 140E, ”.

• (2) After section 140(6A) of that Act (postponement of charge on transfer of assets to foreign company) insert—

(6B) If, as part of the process of a merger forming an SE in circumstances in which section 140E applies, securities are transferred to the SE by a transferor company— (a) the transfer to the SE shall be disregarded for the purposes of subsection (4), and (b) the SE shall be treated as if it were the transferor company in relation to— (i) any subsequent disposal of the securities, and (ii) any subsequent disposal by the transferee company of assets to which subsection (5) applies.

• (3) After section 154(2) of that Act (held over gains: depreciating assets) insert—

(2A) If, as part of the process of a merger forming an SE in circumstances in which section 140E applies, asset No 2 or shares in a company which holds asset No 2 are transferred to the SE, the transfer to the SE shall be disregarded for the purposes of subsection (2), and— (a) if the SE holds asset No 2, it shall be treated for the purposes of subsection (2), in relation to asset No 2, as if it were the claimant, or (b) if the SE holds shares in the company which holds asset No 2, section 175 shall apply in relation to the group of which the SE is a member as if it were the same group as any group of which the claimant was a member before the formation of the SE. (2B) If, as part of the process of a merger forming an SE in circumstances in which section 140E applies, the SE becomes a member (whether or not as the principal company) of a group of which the claimant is also a member, for the purposes of subsection (2) section 175 shall apply in relation to the trade carried on by the claimant as if the group of which the SE is a member were the same group as the group of which the claimant was a member before the formation of the SE.

• (4) After section 179(1A) of that Act (company ceasing to be member of group) insert—

(1B) Where, as part of the process of a merger to form an SE in circumstances in which section 140E applies, a company which is a member of a group (“Group 1”) ceases to exist and in consequence of that cessation— (a) assets are transferred to the SE, or (b) shares in one or more companies which were also members of the group are transferred to the SE, a company which has ceased to exist, or the shares in which have been transferred to the SE, shall not be treated for the purposes of this section as having left Group 1. (1C) If subsection (1B) applies in relation to a company then for the purposes of this section— (a) the SE and a company which has ceased to exist in consequence of the merger to form the SE shall be treated as the same entity, and (b) if the SE is a member of a group (“Group 2”) following its formation (whether or not as the principal company of the group) a company which was a member of Group 1 and became a member of Group 2 in consequence of the formation of the SE shall be treated, for the purposes of this section, as if Group 1 and Group 2 were the same.

• (5) This section shall have effect in relation to the formation of an SE in accordance with Article 2 of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea) which occurs on or after 1st April 2005.

Restrictions on set-off of pre-entry losses

65

• (1) Schedule 7A to TCGA 1992 (restrictions on set-off of pre-entry losses) shall be amended as follows.

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

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

• (4) In paragraph 1(6)(a) after “subsection (10)” insert “ or (10A) ”.

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

• (6) This section shall have effect in relation to the formation of an SE which occurs on or after 1st April 2005.

Part 5 — Miscellaneous matters

Vehicle excise duty: late renewal supplements

66

• (1) VERA 1994 is amended as follows.

• (2) Section 7A (supplement payable on late renewal of vehicle licence) is amended as follows.

• (3) In subsection (1) (cases in which regulations may provide for supplement to be payable), for the words from “in prescribed cases” to the end substitute

where— (a) a vehicle has ceased to be appropriately covered, (b) the vehicle is not, before the end of the relevant prescribed period, appropriately covered as mentioned in paragraph (a) or (b) of subsection (1A) below with effect from the time immediately after it so ceased or appropriately covered as mentioned in paragraph (d) of that subsection, and (c) the circumstances are not such as may be prescribed.

• (4) After that subsection insert—

(1A) For the purposes of this section and section 7B a vehicle is appropriately covered if (and only if)— (a) a vehicle licence or trade licence is in force for or in respect of the vehicle, (b) the vehicle is an exempt vehicle in respect of which regulations under this Act require a nil licence to be in force and a nil licence is in force in respect of it, (c) the vehicle is an exempt vehicle that is not one in respect of which regulations under this Act require a nil licence to be in force, or (d) the vehicle is neither kept nor used on a public road and the declarations and particulars required to be delivered by regulations under section 22(1D) have been delivered in relation to it in accordance with the regulations within the immediately preceding period of 12 months. (1B) Where a vehicle for or in respect of which a vehicle licence is in force is transferred by the holder of the vehicle licence to another person, the vehicle licence is to be treated for the purposes of subsection (1A) as no longer in force unless it is delivered to the other person with the vehicle. (1C) Where— (a) an application is made for a vehicle licence for any period, and (b) a temporary licence is issued pursuant to the application, subsection (1B) does not apply to the licence applied for if, on a transfer of the vehicle during the currency of the temporary licence, the temporary licence is delivered with the vehicle to the transferee. (1D) In subsection (1)(b) “the relevant prescribed period” means such period beginning with the date on which the vehicle ceased to be appropriately covered as is prescribed.

• (5) In subsection (2)(c) (amount of supplement variable according to length of period between expiry of licence and payment of supplement or renewal of licence), for sub-paragraphs (i) and (ii) substitute—

(i) the time of a notification (in accordance with regulations under section 7B(1)) to, or in relation to, a person by whom it is payable, and (ii) the time at which it is paid.

• (6) In subsection (3)(b) (supplement not to cease to be payable by reason of taking out of vehicle licence), for “a vehicle licence being taken out for the vehicle” substitute “ the vehicle being again appropriately covered ”.

• (7) Omit subsection (4)(a)(definition of “expiry of a vehicle licence”).

• (8) In the heading, for “late renewal of vehicle licence” substitute “ vehicle ceasing to be appropriately covered ”.

• (9) Section 7B (late-renewal supplements: further provisions) is amended as follows.

• (10) In subsection (1) (notification of person in whose name vehicle is registered)—

• (a) for “on non-renewal of a vehicle licence for” substitute “ in relation to ”, and

• (b) for “failure to renew a vehicle licence” substitute “ the vehicle ceasing to be appropriately covered ”.

• (11) In the heading, for “Late-renewal” substitute “ Section 7A ”.

Reorganisation of water and sewerage services in Northern Ireland

67

• (1) In this section “relevant transfer” means a transfer of property, rights or liabilities where—

• (a) the transfer is of property, rights or liabilities which—

• (i) are specified or described in or determined in accordance with a scheme, and

• (ii) consist of or include relevant property, rights or liabilities,

• (b) the transfer is from a Northern Ireland department or persons which include a Northern Ireland department to a company or companies specified in the scheme (“transferee company”), and

• (c) the transfer is effected by or under an enactment which—

• (i) is made after the coming into force of this section, and

• (ii) relates to the provision of water or sewerage services in Northern Ireland.

• (2) In this section “relevant property, rights or liabilities” means property, rights or liabilities connected with the provision of any water or sewerage services.

• (3) The Treasury may by regulations make provision for or in connection with varying the way in which a relevant tax or duty would, apart from the regulations, have effect in relation to, or in connection with, any of the following—

• (a) anything done for the purpose of, or under or in consequence of, a relevant transfer of relevant property, rights or liabilities from a Northern Ireland department to a transferee company;

• (b) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company;

• (c) any relevant property, rights or liabilities of a transferee company.

• (4) The provision that may be made by the regulations includes provision for or in connection with any of the following—

• (a) a tax provision not to apply or to apply with modifications in prescribed cases or circumstances;

• (b) anything done to have or not to have a specified consequence for the purposes of a tax provision in prescribed cases or circumstances;

• (c) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company to be treated in a specified way for the purposes of a tax provision in prescribed cases or circumstances;

• (d) the withdrawal of relief (whether or not granted by virtue of the regulations), and the charging of tax, in prescribed cases or circumstances;

• (e) requiring or enabling the Secretary of State, with the consent of the Treasury, to determine or to specify the method to be used for determining anything (including amounts or values, or times or periods of time) which needs to be determined for the purposes of any tax provision (whether or not modified by the regulations) as it applies in relation to, or in connection with,—

• (i) anything done for the purpose of, or under or in consequence of, a relevant transfer of relevant property, rights or liabilities from a Northern Ireland department to a transferee company, or

• (ii) any relevant property, rights or liabilities which are the subject of a relevant transfer from a Northern Ireland department to a transferee company.

• (5) A provision of regulations made by virtue only of subsection (3)(c) (“a subsection (3)(c) provision”) (whether or not also by virtue of subsection (4)) shall not have effect for an accounting period of a transferee company unless the company is wholly owned by the Crown during the whole of that accounting period.

• (6) Regulations under this section may provide that, for the purposes of a subsection (3)(c) provision, an accounting period of a transferee company shall be taken to have ended on the company ceasing to be wholly owned by the Crown.

• (7) For the purposes of this section, a company shall be regarded as wholly owned by the Crown at any time when each of the issued shares in the company is held by, or by a nominee of,—

• (a) the Treasury,

• (b) the Secretary of State,

• (c) a Northern Ireland department, or

• (d) another company which is wholly owned by the Crown.

• (8) In this section—

• “enactment” includes a provision comprised in—Northern Ireland legislation, oran instrument made under an enactment;

• “prescribed” means prescribed by or determined in accordance with regulations under this section;

• “relevant tax or duty” means income tax, corporation tax, capital gains tax, stamp duty or stamp duty reserve tax;

• “tax provision” means a provision of an enactment about a relevant tax or duty.

• (9) Any power to make regulations under this section is exercisable by statutory instrument.

• (10) A statutory instrument containing regulations under this section shall be subject to annulment in pursuance of a resolution of the House of Commons.

• (11) Any power to make regulations under this section includes power—

• (a) to make different provision for different cases or circumstances;

• (b) to make incidental, supplemental, consequential or transitional provision or savings.

EU Mutual Assistance Directive: notifications

68

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Abolition of statutory adjudicator for National Savings and Investments

69

• (1) After the coming into force of this section, no further disputes shall be referred to a person appointed under section 84 of the Friendly Societies Act 1992 (c. 40) (adjudicator for disputes under the National Savings Bank Act 1971 and the National Debt Act 1972).

• (2) This section comes into force on 1st September 2005.

Part 6 — Supplementary provisions

Repeals

70

• (1) The enactments mentioned in Schedule 11 (which include provisions that are spent or of no practical utility) are repealed to the extent specified.

• (2) The repeals specified in that Schedule have effect subject to the commencement provisions and savings contained or referred to in the notes set out in that Schedule.

Interpretation

71

In this Act—

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

• “CTA 2009” means the Corporation Tax Act 2009;

• “FA”, followed by a year, means the Finance Act of that year;

• “ICTA” means the Income and Corporation Taxes Act 1988 (c. 1);

• “ ITA 2007 ” means the Income Tax Act 2007;

• “ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003 (c. 1);

• “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 (c. 5);

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

• “VATA 1994” means the Value Added Tax Act 1994 (c. 23);

• “VERA 1994” means the Vehicle Excise and Registration Act 1994 (c. 22).

Short title

72

This Act may be cited as the Finance (No. 2) Act 2005.

SCHEDULE 1

Introduction

1

Schedule 11A to VATA 1994 (disclosure of avoidance schemes) is amended in accordance with this Schedule.

Interpretative provisions

2

In paragraph 1 (interpretation), after the definition of “designated scheme” insert—

“non-deductible tax”, in relation to a taxable person, has the meaning given by paragraph 2A;

.

3

For paragraph 2 substitute—

(2) (1) For the purposes of this Schedule, a taxable person obtains a tax advantage if— (a) in any prescribed accounting period, the amount by which the output tax accounted for by him exceeds the input tax deducted by him is less than it would otherwise be, (b) he obtains a VAT credit when he would not otherwise do so, or obtains a larger VAT credit or obtains a VAT credit earlier than would otherwise be the case, (c) in a case where he recovers input tax as a recipient of a supply before the supplier accounts for the output tax, the period between the time when the input tax is recovered and the time when the output tax is accounted for is greater than would otherwise be the case, or (d) in any prescribed accounting period, the amount of his non-deductible tax is less than it would otherwise be. (2) For the purposes of this Schedule, a person who is not a taxable person obtains a tax advantage if his non-refundable tax is less than it would otherwise be. (3) In sub-paragraph (2), “non-refundable tax”, in relation to a person who is not a taxable person, means— (a) VAT on the supply to him of any goods or services, (b) VAT on the acquisition by him from another member State of any goods, and (c) VAT paid or payable by him on the importation of any goods from a place outside the member States, but excluding (in each case) any VAT in respect of which he is entitled to a refund from the Commissioners by virtue of any provision of this Act.

4

After paragraph 2 insert—

(2A) (1) In this Schedule “non-deductible tax”, in relation to a taxable person, means— (a) input tax for which he is not entitled to credit under section 25, and (b) any VAT incurred by him which is not input tax and in respect of which he is not entitled to a refund from the Commissioners by virtue of any provision of this Act. (2) For the purposes of sub-paragraph (1)(b), the VAT “incurred” by a taxable person is— (a) VAT on the supply to him of any goods or services, (b) VAT on the acquisition by him from another member State of any goods, and (c) VAT paid or payable by him on the importation of any goods from a place outside the member States.

Duty to notify Commissioners

5

• (1) Paragraph 6 (duty to notify Commissioners) is amended as follows.

• (2) In sub-paragraph (1)—

• (a) omit the word “or” at the end of paragraph (a), and

• (b) after paragraph (b) insert

, or (c) the amount of his non-deductible tax in respect of any prescribed accounting period is less than it would be but for such a scheme.

• (3) After sub-paragraph (2) insert—

(2A) Sub-paragraph (2) does not apply to a taxable person in relation to any scheme if he has on a previous occasion— (a) notified the Commissioners under that sub-paragraph in relation to the scheme, or (b) provided the Commissioners with prescribed information under sub-paragraph (3) (as it applied before the scheme became a designated scheme) in relation to the scheme.

• (4) For sub-paragraph (5) substitute—

(5) Sub-paragraph (3) also does not apply where the scheme is one in respect of which the taxable person has on a previous occasion provided the Commissioners with prescribed information under that sub-paragraph.

6

In paragraph 7 (exemptions from duty to notify) in the definition of “relevant period” in sub-paragraph (9) for “6(1)(a) or (b)” substitute “ 6(1)(a), (b) or (c) ”.

Amount of penalty

7

• (1) Paragraph 11 (amount of penalty) is amended as follows.

• (2) In sub-paragraph (3)—

• (a) omit the word “and” at the end of paragraph (a), and

• (b) after paragraph (b) insert

, and (c) to the extent that— (i) the case falls within paragraph 6(1)(c), and (ii) the excess of the notional non-deductible tax of the taxable person for the relevant periods over his non-deductible tax for those periods is not represented by a corresponding amount which by virtue of paragraph (a) or (b) is part of the VAT saving, the amount of the excess.

• (3) In sub-paragraph (4), after “(3)(a)” insert “ and (c) ”.

• (4) After sub-paragraph (4) insert—

(5) In sub-paragraph (3)(c), “notional non-deductible tax”, in relation to a taxable person, means the amount that would, but for the scheme, have been the amount of his non-deductible tax.

Penalty assessments

8

In paragraph 12 (penalty assessments) for sub-paragraph (3) substitute—

(3) In a case where— (a) the penalty falls to be calculated by reference to the VAT saving as determined under paragraph 11(3), and (b) the notional tax cannot readily be attributed to any one or more prescribed accounting periods, the notional tax shall be treated for the purposes of this Schedule as attributable to such period or periods as the Commissioners may determine to the best of their judgment and notify to the person liable for the penalty. (3A) In sub-paragraph (3) “the notional tax” means— (a) the VAT that would, but for the scheme, have been shown in returns as payable by or to the taxable person, or (b) any amount that would, but for the scheme, have been the amount of the non-deductible tax of the taxable person.

SCHEDULE 2

Introductory

1

ITEPA 2003 is amended as follows.

Rights under certain insurance contracts to be securities

2

• (1) Section 420 (income and exemptions relating to securities: meaning of “securities” etc.) is amended as follows.

• (2) In subsection (1), after paragraph (a) insert—

(aa) rights under contracts of insurance other than excluded contracts of insurance,

.

• (3) In paragraph (b) of that subsection, insert at the end “ (other than contracts of insurance) ”.

• (4) In paragraph (g) of that subsection, insert at the end “ (other than contracts of insurance) ”.

• (5) After that subsection insert—

(1A) For the purposes of subsection (1)(aa) a contract of insurance is an excluded contract of insurance if it is— (a) a contract for an annuity which is (or will be) pension income (see Part 9), (b) a contract of long-term insurance, other than an annuity contract, which does not have a surrender value and is not capable of acquiring one (whether on conversion or in any other circumstances), or (c) a contract of general insurance other than one which falls, in accordance with generally accepted accounting practice, to be accounted for as a financial asset or liability. (1B) In this section— - “contract of insurance”, - “contract of long-term insurance”, and - “contract of general insurance”, have the same meaning as in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

• (6) In subsection (5)—

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

• (b) omit paragraph (d) (exclusion of insurance contracts).

• (7) In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate place—

generally accepted accounting practice	Section 832(1) of ICTA

• (8) This paragraph has effect on and after 2nd December 2004 and applies in relation to rights under contracts of insurance acquired before that date, as well as those acquired on or after that date; and—

• (a) for the purposes of the application of Chapter 3B of Part 7 of ITEPA 2003 (securities with artificially enhanced market value) by reason of this paragraph in relation to rights under contracts of insurance acquired before that date, section 446O of that Act (meaning of “relevant period”) has effect as if they were acquired on that date, and

• (b) for the purposes of section 420(1A)(c) of ITEPA 2003, section 50 of FA 2004 (meaning of “generally accepted accounting practice”) has effect on and after that date, in spite of subsection (6) of that section.

Restricted securities

3

Chapter 2 of Part 7 (restricted securities) is amended as follows.

4

• (1) Section 424 (employment-related securities which are not restricted securities or restricted interest in securities) is renumbered as subsection (1) of that section.

• (2) In that subsection—

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

• (b) omit paragraph (c) (employment-related securities which are, or are an interest in, redeemable securities) and the word “or” before it.

• (3) After that subsection insert—

(2) Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions.

• (4) This paragraph has effect on and after 2nd December 2004 and applies in relation to employment-related securities acquired before that date, as well as those acquired on or after that date; and section 422 of ITEPA 2003 (application of Chapter 2 of Part 7) applies to employment-related securities in relation to which this paragraph has effect and which were acquired before that date with the omission of the words “at the time of the acquisition”.

5

• (1) In section 428 (amount of charge under section 426), after subsection (9) insert—

(10) But subsection (9) does not apply if something which affects the employment-related securities has been done (at or before the time of the chargeable event) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 428(10) of ITEPA 2003 has been done on or after 2nd December 2004.

6

• (1) In section 429 (exception from charge under section 426 for certain company shares), for subsection (1A) substitute—

(1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time when section 426 would apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 429(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

7

• (1) After section 431A insert—

(431B) Where employment-related securities are restricted securities or a restricted interest in securities, the employer and the employee are to be treated as making an election under section 431(1) in relation to the employment-related securities if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect in relation to employment-related securities acquired on or after 2nd December 2004.

Convertible securities

8

Chapter 3 of Part 7 (convertible securities) is amended as follows.

9

• (1) In section 436(a) (meaning of “convertible securities”), for “immediate or conditional entitlement” substitute “ entitlement (whether immediate or deferred and whether conditional or unconditional) ”.

• (2) Section 437 (adjustment of acquisition charge) is renumbered as subsection (1) of that section.

• (3) After that subsection insert—

(2) Subsection (1) does not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions unless the market value of the employment-related securities determined under subsection (1) would be greater than that determined under subsection (3). (3) Where subsection (1) does not apply by virtue of subsection (2) the market value of the employment-related securities is to be determined— (a) where the securities which are (or an interest in which is) the employment-related securities fall within paragraph (a) of section 436 and the entitlement to convert is not both immediate and unconditional, as if it were, (b) where they fall within paragraph (b) of that section, as if the circumstances are such that an entitlement to convert arises immediately, and (c) where they fall within paragraph (c) of that section, as if provision were made for their immediate conversion; and in each case is to be determined as if they were immediately and fully convertible. (4) In subsection (3) “immediately and fully convertible” means convertible immediately after the acquisition of the employment-related securities so as to obtain the maximum gain that would be possible on a conversion at that time (assuming, where the securities into which the securities may be converted were not in existence at that time and it is appropriate to do so, that they were) without giving any consideration for the conversion or incurring any expenses in connection with it.

• (4) This paragraph has effect in relation to acquisitions on or after 2nd December 2004.

10

• (1) In section 440 (amount of charge under section 438), after subsection (3) insert—

(3A) If (because of subsection (2) of section 437) subsection (1) of that section did not apply in relation to the employment-related securities, the taxable amount is to be reduced by the amount by which— (a) the market value of the employment-related securities for the purposes specified in that subsection, exceeded (b) what it would have been had that subsection applied, (less the aggregate of any amount by which the taxable amount on any previous chargeable event relating to the employment-related securities has been reduced under this subsection).

• (2) This paragraph has effect on and after 2nd December 2004.

11

• (1) In section 443 (exception from charge under section 438 for certain company shares), for subsection (1A) substitute—

(1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time when section 438 would apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 443(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

Securities acquired for less than market value

12

Chapter 3C of Part 7 (securities acquired for less than market value) is amended as follows.

13

• (1) In section 446R (exception from Chapter for certain company shares), for subsection (1A) substitute—

(1A) This subsection is satisfied unless something which affects the employment-related securities has been done (at or before the time of the acquisition) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 446R(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

14

• (1) In section 446U(1) (discharge of notional loan), insert at the end

or (c) something which affects the employment-related securities is done as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 443U(1)(c) of ITEPA 2003 has been done on or after 2nd December 2004.

15

• (1) After section 446U insert—

(446UA) (1) Sections 446S to 446U do not apply if the main purpose (or one of the main purposes) of the arrangements under which the right or opportunity to acquire the employment-related securities is made available is the avoidance of tax or national insurance contributions. (2) But instead an amount equal to what would (apart from this section) be the amount of the notional loan initially outstanding by virtue of sections 446S and 446T counts as employment income of the employee for the tax year in which the acquisition takes place.

• (2) This paragraph has effect in relation to acquisitions on or after 2nd December 2004.

16

• (1) Section 698 (PAYE: special charges on employment-related securities) is amended as follows.

• (2) In subsection (1), after paragraph (e) insert—

(ea) section 446UA (securities or interest acquired for less than market value: charge in avoidance cases),

.

• (3) In subsection (6), after paragraph (d) insert—

(da) in relation to an amount counting as employment income under section 446UA, the date of the acquisition of the securities or interest in securities in question,

.

• (4) This paragraph has effect on and after the day on which this Act is passed.

Post-acquisition benefits from securities

17

Chapter 4 of Part 7 (post-acquisition benefits from securities) is amended as follows.

18

• (1) Section 447 (charge on other chargeable benefits from securities) is amended as follows.

• (2) In subsection (1), for “by virtue of the ownership of employment-related securities by that person or another associated person” substitute “ in connection with employment-related securities ”.

• (3) For subsection (4) substitute—

(4) If the benefit is otherwise chargeable to income tax this section does not apply unless something has been done which affects the employment-related securities as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (4) Sub-paragraph (2) has effect on and after 2nd December 2004 and sub-paragraph (3) has effect where something such as is mentioned in section 447(4) of ITEPA 2003 has been done on or after that date.

19

• (1) In section 449 (exception from charge under section 447 for certain company shares), for subsection (1A) substitute—

(1A) This subsection is satisfied unless something which affects the employment-related securities has been done as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

• (2) This paragraph has effect where something such as is mentioned in section 449(1A) of ITEPA 2003 has been done on or after 2nd December 2004.

Corporation tax relief: minor and consequential amendments

20

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

SCHEDULE 3

Part 1 — Introductory

1

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

Part 2 — Schemes involving hybrid entities

2

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

3

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

Part 3 — Schemes involving hybrid effect

Schemes involving hybrid effect

4

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

Instruments of alterable character

5

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

Shares subject to conversion

6

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

Securities subject to conversion

7

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

Debt instruments treated as equity

8

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

Part 4 — Schemes involving hybrid effect and connected persons

Schemes involving hybrid effect and connected persons

9

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

Scheme including issue of shares not conferring a qualifying beneficial entitlement

10

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

Scheme including transfer of rights under a security

11

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

Interpretation

12

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

SCHEDULE 4

Part 1 — Location of assets

Exceptions from sections 713 and 714 of ICTA

1

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

Foreign securities: delayed remittances

2

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

Designated international organisations

3

• (1) Section 265 of TCGA 1992 is amended as follows.

• (2) In subsection (3) (securities issued by designated international organisations to be taken to be situated outside UK for the purposes of capital gains tax) for “capital gains tax” substitute “ this Act ”.

Location of assets: general

4

• (1) Section 275 of TCGA 1992 is amended as follows.

• (2) Re-number that section as subsection (1) of that section.

• (3) In that subsection, in paragraph (d) (location of shares or securities issued by municipal or governmental authority etc) for “securities” substitute “ debentures ”.

• (4) In that subsection, after that paragraph insert—

(da) subject to paragraph (d) above, shares in or debentures of a company incorporated in any part of the United Kingdom are situated in the United Kingdom,

.

• (5) In that subsection, in paragraph (e) (location of registered shares or securities)—

• (a) for “subject to paragraph (d)” substitute “ subject to paragraphs (d) and (da) ”;

• (b) for “securities” substitute “ debentures ”.

• (6) In that subsection, for paragraph (h) (location of patents, trade marks and registered designs) substitute—

(h) patents, trade marks, registered designs and corresponding rights are situated where they are registered, and if registered in more than one register, where each register is situated, and licences or other rights in respect of any such rights are situated in the United Kingdom if they or any right derived from them are exercisable in the United Kingdom,

.

• (7) In that subsection, for paragraph (j) (location of copyright, design right and franchises) substitute—

(j) copyright, design right, franchises and corresponding rights, and licences or other rights in respect of any such rights, are situated in the United Kingdom if they or any right derived from them are exercisable in the United Kingdom,

.

• (8) After that subsection insert—

(2) In subsection (1) above— (a) in paragraphs (d), (da) and (e), the references to shares or debentures, in relation to a company that has no share capital, include any interests in the company possessed by members of the company, and (b) in paragraphs (d) and (e), the references to debentures, in relation to a person other than a company, include securities. (3) In subsection (1) above, in each of paragraphs (h) and (j), “corresponding rights” means any rights under the law of a country or territory outside the United Kingdom that correspond or are similar to those within that paragraph. (4) Subsection (1) above is subject to— - section 265(3) (securities issued by designated international organisations to be taken to be situated outside UK), - section 266 (securities issued by Inter-American Development Bank to be taken to be situated outside UK), and - section 275C (location of assets: interests of co-owners).

.

Location of certain intangible assets

5

After section 275 of TCGA 1992 insert—

(275A) (1) This section applies for the purpose of determining whether the situation of an intangible asset (“asset A”) is in the United Kingdom if the situation of asset A is not otherwise determined (see section 275B(1)). (2) In this section “intangible asset” means— (a) intangible or incorporeal property and includes a thing in action, or (b) anything that under the law of a country or territory outside the United Kingdom corresponds or is similar to intangible or incorporeal property or a thing in action. (3) If asset A is subject to UK law (see section 275B(2)) at the time it is created, it shall be taken for the purposes of this Act to be situated in the United Kingdom at all times. (4) Subsections (5) to (9) below have effect if asset A— (a) is a future or option (see section 275B(3)), and (b) is not subject to UK law at the time it is created. (5) If, as a result of the application of the rule in subsection (6) below in relation to asset A or any other asset or assets, asset A falls to be treated as being subject to UK law at the time it is created, it shall be taken for the purposes of this Act to be situated in the United Kingdom at all times. (6) That rule is that where, in the case of any intangible asset,— (a) the asset is a future or option, (b) the underlying subject matter (see section 275B(4)) of the asset consists of or includes an asset which is an intangible asset, and (c) either— (i) that intangible asset is subject to UK law at the time it is created and, on the assumption that there were no rights or interests in or over that asset, the situation of that asset would not be otherwise determined, or (ii) that intangible asset is treated by this subsection as being so subject at that time, the intangible asset mentioned in paragraph (a) above is to be treated for the purposes of subsection (5) above and this subsection as being so subject at the time it is created. (7) If— (a) asset A is not taken to be situated in the United Kingdom by virtue of subsection (5) above, and (b) as a result of the application of the rule in subsection (8) below in relation to asset A or any other asset or assets, asset A falls to be treated as being situated in the United Kingdom at any time, it shall be taken for the purposes of this Act to be situated in the United Kingdom at that time. (8) That rule is that where, in the case of any intangible asset,— (a) the asset is a future or option, and (b) the underlying subject matter of the asset consists of or includes an asset— (i) which is, by virtue of subsection (9) below or of any provision of this Act apart from this section, situated in the United Kingdom at any time, or (ii) which is treated by this subsection as being so situated at any time, the intangible asset mentioned in paragraph (a) above is to be treated for the purposes of subsection (7) above and this subsection as being so situated at that time. (9) Where— (a) the underlying subject matter of a future or option consists of or includes shares or debentures issued by a company incorporated in any part of the United Kingdom, but (b) at the time the future or option is created, those shares or debentures have not been issued, the underlying subject matter of the future or option, so far as consisting of or including those shares or debentures, is to be taken, for the purposes of subsection (8) above, to consist of or include an asset which is situated in the United Kingdom at all times. (275B) (1) For the purposes of section 275A, the situation of an asset is not otherwise determined if, apart from that section, this Act does not make any provision for determining— (a) the situation of the asset, or (b) whether the situation of the asset is in the United Kingdom. (2) For the purposes of section 275A, an intangible asset is subject to UK law at a particular time if any right or interest which comprises or forms part of the asset is, at that time,— (a) governed by, or otherwise subject to, or (b) enforceable under, the law of any part of the United Kingdom. (3) Sub-paragraphs (6) to (10) of paragraph 12 of Schedule 26 to the Finance Act 2002 (meaning of “future” and “option”) apply for the purposes of section 275A as they apply for the purposes of Part 2 of that Schedule. (4) For the purposes of section 275A— (a) the underlying subject matter of a future is the property which, if the future were to run to delivery, would fall to be delivered at the date and price agreed when the contract is made, and (b) the underlying subject matter of an option is the property which would fall to be delivered if the option were exercised. (5) Section 275A is subject to section 275C (location of assets: interests of co-owners). (6) This section is to be construed as one with section 275A.

.

Location of assets: interests of co-owners

6

After section 275B of TCGA 1992 (as inserted by paragraph 5) insert—

(275C) (1) This section applies for determining for the purposes of this Act— (a) the situation of an interest (see subsection (4)) in an asset, or (b) whether the situation of an interest in an asset is in the United Kingdom. (2) The situation of the interest in the asset shall be taken to be the same as the situation of the asset, as determined in accordance with subsection (3) below. (3) The situation of the asset for the purposes of subsection (2) above shall be determined on the assumption that the asset is wholly-owned by the person holding the interest in the asset. (4) In this section “interest”, in relation to an asset, means an interest as a co-owner of the asset (whether the asset is owned jointly or in common and whether or not the interests of the co-owners are equal).

.

Part 2 — Minor amendments: non-resident company with UK permanent establishment

Computation of losses

7

• (1) Section 16 of TCGA 1992 is amended as follows.

• (2) In subsection (3) (loss accruing to person in year of assessment during which he is not resident or ordinarily resident in UK not to be allowable loss unless, under section 10, he would be chargeable to tax in respect of chargeable gain if the loss had been a gain) after “section 10” insert “ or 10B ”.

Reallocation within group of gain or loss accruing under section 179

8

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

Exemptions for disposals by companies with substantial shareholding

9

• (1) Schedule 7AC to TCGA 1992 is amended as follows.

• (2) In paragraph 3(2)(c)(ii) (one of conditions for exemption that chargeable gain accruing to company on disposal would by virtue of section 10(3) form part of company's chargeable profits for corporation tax) for “section 10(3)” substitute “ section 10B ”.

Part 3 — Commencement

Commencement

10

• (1) The amendments made by Part 1 of this Schedule have effect for determining for the purposes of TCGA 1992—

• (a) the situation of any asset, or

• (b) whether the situation of any asset is in the United Kingdom,

at any time on or after 16th March 2005 (irrespective of when the asset was acquired by the person holding it).

• (2) The amendment made by paragraph 7 has effect in relation to any loss accruing to a company in an accounting period ending on or after 16th March 2005.

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

• (4) The amendment made by paragraph 9 has effect in relation to disposals on or after 16th March 2005.

SCHEDULE 5

Part 1 — Application of market value rule in case of exercise of option

Application of market value rule in case of exercise of option

1

• (1) Section 144ZA of TCGA 1992 is amended as follows.

• (2) In subsection (1) (cases in which the section applies) at the beginning insert “ Subject to section 144ZB, ”.

• (3) In subsection (4) (where market value rule is set aside by the section, amount or value to be taken into account is, subject to section 120, to be actual amount or value) for “(subject to section 120) the actual amount or value” substitute “ (subject to section 119A) the exercise price ”.

• (4) After that subsection insert—

(4A) In subsection (4) above “exercise price”, in relation to an option, means the amount or value of the consideration which, under the terms of the option, is— (a) receivable (if the option binds the grantor to buy), or (b) payable (if the option binds the grantor to sell), as a result of the exercise of the option (and does not include the amount or value of any consideration for the acquisition of the option (whether directly from the grantor or not)).

.

• (5) For subsection (5) substitute—

(5) Subsections (5) and (6) of section 144 shall apply for the purposes of this section and sections 144ZB to 144ZD as they apply for the purposes of that section.

.

Application of market value rule in case of exercise of option: exception

2

After section 144ZA of TCGA 1992 insert—

(144ZB) (1) This section applies where— (a) section 144ZA would apply but for this section in relation to an option, and (b) the exercise of the option is non-commercial (see section 144ZC). (2) But this section does not apply if— (a) the option is a securities option within the meaning of Chapter 5 of Part 7 of ITEPA 2003 (see section 420(8) of that Act) to which that Chapter applies or would, apart from section 474 of that Act, apply (see section 471 of that Act), or (b) section 144ZD of this Act (value of underlying subject matter of option altered with a view to obtaining a tax advantage) applies in relation to the option. (3) Where this section applies, neither section 144ZA nor the following provisions of section 144 shall apply in relation to the option— (a) in subsection (2), the words from “and accordingly” to the end of that subsection, and (b) in subsection (3), the words from “and accordingly” to the end of that subsection; but subsection (4) or (5) below shall instead have effect (subject to subsection (6) below). (4) If the option binds the grantor to buy— (a) the cost of acquisition incurred by the grantor in buying in pursuance of his obligations under the option, and (b) the consideration for the disposal of what is bought by the grantor, shall be deemed for the purposes of tax in respect of chargeable gains to be the market value, at the time the option is exercised, of what is bought. (5) If the option binds the grantor to sell— (a) the consideration for the sale, and (b) the cost to the person exercising the option of acquiring what is sold, shall be deemed for the purposes of tax in respect of chargeable gains to be the market value, at the time the option is exercised, of what is sold. (6) But if the whole or any part of the underlying subject matter of the option (see subsection (7)) is subject to any right or restriction which is enforceable by the person disposing of the underlying subject matter or a person connected with him— (a) the market value of the underlying subject matter shall be determined for the purposes of subsection (4) or (5) above as if the right or restriction did not exist, and (b) to the extent that subsection (6) or (7) of section 18 would apply apart from this paragraph, it shall be disregarded. (7) In this section “underlying subject matter”, in relation to an option, means— (a) if the option binds the grantor to sell, what falls to be sold on exercise of the option; (b) if the option binds the grantor to buy, what falls to be bought on exercise of the option. (144ZC) (1) For the purposes of section 144ZB, the exercise of an option which binds the grantor to buy is non-commercial if the exercise price for the option (see subsection (3)) is less than the open market price (see subsection (4)) of what is bought. (2) For the purposes of section 144ZB, the exercise of an option which binds the grantor to sell is non-commercial if the exercise price for the option is greater than the open market price of what is sold. (3) In this section “exercise price”, in relation to an option, means the amount or value of the consideration which, under the terms of the option, is— (a) receivable (if the option binds the grantor to buy), or (b) payable (if the option binds the grantor to sell), as a result of the exercise of the option (and does not include the amount or value of any consideration for the acquisition of the option (whether directly from the grantor or not)). (4) In this section “open market price”, in relation to the underlying subject matter of an option (see section 144ZB(7)), means the price which the underlying subject matter might reasonably be expected to fetch on a sale in the open market at the time the option is exercised; and subsections (5) to (7) below apply for the purposes of this subsection. (5) If the whole or any part of the underlying subject matter of the option is subject to any right or restriction which is enforceable by— (a) the person disposing of the underlying subject matter, or (b) a person connected with him, the open market price of the underlying subject matter shall be determined as if the right or restriction did not exist. (6) Section 272(2) (no reduction in estimated market value on account of assumption that whole of assets are placed on market at one time) shall apply in estimating the open market price of the underlying subject matter of an option as it applies in estimating the market value of any assets. (7) Where the underlying subject matter of an option comprises or includes assets to which section 273 applies (unquoted shares and securities), subsection (3) of that section (assumption that relevant information is available) shall apply in determining the open market price of those assets as it applies for the purposes of a determination falling within subsection (1) of that section. (8) This section is to be construed as one with section 144ZB. (144ZD) (1) This section applies in relation to an option if each of the following conditions is satisfied (as to the effect of this section applying, see section 144ZB(2)(b)). (2) Condition 1 is that section 144ZB would, apart from subsection (2)(b) of that section, apply in relation to the option. (3) Condition 2 is that, at the time the option is exercised, the open market price (see section 144ZC(4)) of the underlying subject matter of the option (see section 144ZB(7)) differs from the open market price of the underlying subject matter of the option at the time the option was granted. (4) Condition 3 is that some or all of that change in the open market price of the underlying subject matter of the option results to any extent, directly or indirectly, from arrangements (see subsection (8)) (“the relevant arrangements”)— (a) to which a relevant person is or has been a party, or (b) which include one or more transactions to which a relevant person is or has been a party. (5) In subsection (4) above “relevant person” means any of the following— (a) the grantor of the option; (b) any person who at any time holds the option; (c) a person connected with one or more of the persons mentioned in paragraph (a) or (b) above. (6) Condition 4 is that, if there were to be disregarded so much of that change in the open market price of the underlying subject matter of the option as results to any extent, directly or indirectly, from the relevant arrangements, the exercise of the option would not be non-commercial (see section 144ZC). (7) Condition 5 is that (apart from this section) as a result, directly or indirectly, of the relevant arrangements— (a) the grantor of the option, or (b) the person exercising the option, would obtain or might be expected to obtain an advantage (see subsection (9)) in relation to capital gains tax or corporation tax in respect of chargeable gains directly or indirectly in consequence of, or otherwise in connection with, the exercise of the option. (8) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (9) In this section “advantage”, in relation to capital gains tax or corporation tax in respect of chargeable gains, means— (a) relief or increased relief from, or repayment or increased repayment of, that tax, or the avoidance or reduction of a charge to that tax or an assessment to that tax or the avoidance of a possible assessment to that tax, or (b) the deferral of any payment of that tax or the advancement of any repayment of that tax. (10) This section is to be construed as one with sections 144ZB and 144ZC.

Part 2 — Miscellaneous amendments relating to share options etc

Shares acquired on same day: election for alternative treatment

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• (1) Section 105A of TCGA 1992 is amended as follows.

• (2) In subsection (1) (cases in which subsection (2) applies) in paragraph (b) (some of the acquired shares to be approved-scheme shares) for sub-paragraphs (i) and (ii) substitute—

(i) the exercise of a qualifying option within the meaning given by section 527(4) of ITEPA 2003 (enterprise management incentives) in circumstances where section 530 or 531 of that Act (exercise of option to acquire shares) applies, or (ii) the exercise of an option to which Chapter 7 or 8 of Part 7 of that Act (approved share option schemes) applies in circumstances where section 519(1) or 524(1) of that Act applies.

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Employment-related securities options

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• (1) Section 149A of TCGA 1992 is amended as follows.

• (2) In subsection (1) (cases in which the section applies) for paragraph (b) (option to consist of right to acquire shares in body corporate and to be obtained by individual by reason of his office or employment) substitute—

(b) the option is a securities option within the meaning of Chapter 5 of Part 7 of ITEPA 2003 (see section 420(8) of that Act) to which that Chapter applies or would, apart from section 474 of that Act, apply (see section 471 of that Act), and

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• (3) In that subsection, in paragraph (c) (section 17(1) to apply for calculating consideration for grant of option) after “section 17(1)” insert “ of this Act ”.

• (4) The heading of the section accordingly becomes “ Employment-related securities options ”.

Interpretation of TCGA 1992

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• (1) Section 288 of TCGA 1992 is amended as follows.