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Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(2) Chapter 11 of Part 4 (transactions in deposits) applies with the omission of section 552(1)(c) and (d)(i).

Disposals of futures and options involving guaranteed returns: certain pre-6th February 1998 transactions

94

(1) A transaction consisting in the running of a future to delivery or the exercise of an option is not treated as a disposal for the purposes of Chapter 12 of Part 4 if it took place before 6th February 1998.

(2) Sub-paragraph (1) is to be read as if it were part of section 564 (deemed disposal where futures run to delivery or options are exercised) (see, in particular, section 565).

Disposals of futures and options involving guaranteed returns: rates of tax for pension trustees

95

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Part 6 — Savings and investment income: insurance contracts and policies made before certain dates

Pre-20th March 1968 policies and contracts excluded from Chapter 9 of Part 4

96

(1) Chapter 9 of Part 4 does not apply to—

(a) a policy of life insurance issued in respect of an insurance made before 20th March 1968,

(b) a contract for a life annuity made before that date, or

(2) For this purpose a policy of life insurance is treated as issued in respect of an insurance made on or after 20th March 1968 if it is varied on or after that date so as to extend its term or increase the benefits secured.

(3) A variation is ignored for the purposes of sub-paragraph (2) if—

(a) before the variation the policy complied with paragraph 2 of Schedule 9 to FA 1968 (general requirements for qualifying endowment policies) except for the amount guaranteed on death,

(b) the variation's only effect was to make the policy comply with that paragraph,

(d) the variation did not increase the premiums payable under the policy.

Pre-27th March 1974 policies and contracts: disapplication of section 500(c)

97

Section 500(c) (events treated as part surrenders: loan by insurer) does not apply to a policy issued in respect of an insurance made before 27th March 1974 or a contract made before that date.

Pre-27th March 1974 contracts: disapplication of section 531(3)(c)

98

Section 531(3)(c) (certain contracts for life annuities excluded from section 530) does not apply to a contract made before 27th March 1974.

Pre-10th December 1974 contracts for a life annuity: disapplication of section 484(1)(d)

99

Section 484(1)(d) (chargeable events: death in case of contract for a life annuity which provides for payment of a capital sum on death) does not apply if the contract was made before 10th December 1974.

Pre-14th March 1975 policies and contracts: calculation of gains under section 507

100

(1) This paragraph applies to—

(a) a policy in respect of an insurance made before 14th March 1975, and

(b) a contract made before that date.

(2) Section 507 (method for making periodic calculations under section 498) applies to a policy or contract to which this paragraph applies with the following modifications.

(3) In subsection (4) (calculation of net total value of rights assigned and surrendered)—

(a) in paragraph (a) of step 1 after “at any time”, in both places where it occurs, and

(b) in paragraph (b) of step 1 after “assigned”,

insert “ during the reference period ”.

(4) In subsection (5) (calculation of net total allowable payments), for step 1 substitute—

Step 1 Find the allowable element in each allowable payment made during the reference period by multiplying the amount of the payment by— $$X20$where X is the number of insurance years in the period beginning with the year in which the payment is made and ending with the reference period or, if it is less, 20.$

(5) After that step insert—

Step 1A Find any allowable element in any allowable payment made before the reference period by multiplying the amount of the payment by— $$20-Y20$where Y is the number of insurance years in the period beginning with the year in which the payment is made and ending with the last insurance year before the reference period or, if it is less, 20.$

(6) In subsection (6) insert the following definition in the appropriate place—

“the reference period” means the period beginning with the first insurance year which falls wholly after 13th March 1975 and ending with the insurance year as at the end of which the calculation under this section is required to be made,

Pre-25th March 1982 replacement policies: disapplication of section 542

101

Section 542 (replacement of qualifying policies) does not apply if the replacement policy comes into existence before 25th March 1982.

Certain pre-26th June 1982 policies and contracts excluded from Chapter 9 of Part 4

102

(1) Chapter 9 of Part 4 does not apply to a pre-1982 assigned policy or contract unless on a date after 23rd August 1982 it has met condition A, B or C.

(2) In sub-paragraph (1) “pre-1982 assigned policy or contract” means—

(a) a policy of life insurance issued in respect of an insurance made before 26th June 1982, or

(b) a contract for a life annuity made before that date,

the rights under which were assigned for money or money's worth before that date and are not held by the original beneficial owner.

(3) Condition A is that the rights under the policy or contract are again assigned for money or money's worth.

(4) Condition B is that a payment is made under the policy or contract by way of premium.

(5) Condition C is that a sum is lent—

(a) by, or by arrangement with, the body issuing the policy or the body with which the contract was made, and

(b) to or at the direction of an individual falling within sub-paragraph (6).

(6) An individual falls within this sub-paragraph at any time if—

(a) were a gain to arise in respect of the policy or contract at that time the individual—

(i) would be liable for tax in respect of it as a result of section 465 (person liable: individuals), or

(ii) would be so liable apart from the requirement in section 465(1) that the individual must be UK resident in the tax year in which the gain arises, or

(b) at that time the rights under the policy or contract are held on charitable trusts created by the individual.

(7) In the case of a qualifying policy, condition C is not met if—

(a) interest is payable on the loan at a commercial rate, or

(b) the loan is to a full-time employee of the body to assist the employee in purchasing or improving a dwelling to be used as the employee's only or main residence.

(8) In the case of a policy issued in respect of an insurance made before 27th March 1974 or a contract made before that date, this paragraph applies as if sub-paragraph (1) did not refer to condition C.

(9) A loan which causes condition C to be met is treated for the purposes of sections 500(c) and 501 (loans treated as part surrenders) as having been made at a time when Chapter 9 of Part 4 does apply to gains on the policy or contract.

Certain pre-18th November 1983 policies not foreign policies of life insurance

103

(1) A policy of life insurance is not a “foreign policy of life insurance” for the purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it is issued in respect of an insurance made before 18th November 1983.

(2) For the purposes of sub-paragraph (1), a policy issued in respect of an insurance made before 18th November 1983 is treated as issued in respect of one made on or after that date if it is varied on or after that date so as—

(a) to increase the benefits secured, or

(b) to extend the term of the insurance.

(3) A change in the terms of a policy counts as its variation for the purposes of sub-paragraph (2) if it results from the exercise of an option conferred by the policy to have another policy substituted for it or to have any of its terms changed.

Certain pre-23rd February 1984 policies not foreign capital redemption policies

104

A capital redemption policy is not a “foreign capital redemption policy” for the purposes of Chapter 9 of Part 4 (see the definition in section 476(3)) if it is issued in respect of a contract made before 23rd February 1984.

Pre-14th March 1984 policies: disregard of amounts deducted and repaid after tax relief by deduction from premiums abolished

105

In the case of a policy issued in respect of an insurance made before 14th March 1984, any amount treated under section 72(9) of FA 1984 as an additional premium is to be ignored for the purposes of—

(a) calculating the total allowable deductions for the policy under section 494(1), and

(b) the definition of “allowable payment” in section 507(6).

Certain pre-20th March 1985 policies: application of section 529(1)

106

(1) This paragraph makes provision for the application of section 529(1) (exceptions to section 528) in relation to—

(a) a foreign policy of life insurance issued in respect of an insurance made on or before 19th March 1985, and

(b) a foreign capital redemption policy issued in respect of a contract made on or before that date.

(2) Section 529(1)(a) (which disapplies section 528 if when the chargeable event occurs or at any time during the policy period the policy is or was held by a non-UK resident trustee) does not apply if the policy was held by a non-UK resident trustee on 19th March 1985.

(3) Section 529(1)(b) (which disapplies section 528 if when the chargeable event occurs or at any time during the policy period the policy is or was held by non-UK resident trustees) does not apply if on 19th March 1985 the policy was held by a non-UK resident trustee or by two or more trustees any of whom was non-UK resident.

Pre-14th March 1989 qualifying policies: application of section 485(2)(b) and (3)(b)

107

(1) In the case of a policy issued in respect of an insurance made before 14th March 1989, section 485(2) and (3) (by virtue of which certain events are only chargeable events if the condition in paragraph (a) or (b) is met) have effect with the omission of paragraph (b) (company interest in the rights under the policy) and the word “or” preceding that paragraph.

(2) For this purpose a policy is treated as issued in respect of an insurance made on or after 14th March 1989 if it is varied on or after that date so as—

(a) to increase the benefits secured, or

(b) to extend the term of the insurance.

(3) Any exercise of rights conferred by a policy counts as its variation for the purposes of sub-paragraph (2).

Pre-14th March 1989 policies and contracts: application of section 501

108

(1) In the case of a policy issued in respect of an insurance made before 14th March 1989 or a contract made before that date, section 501 (part surrenders: loans) does not apply if—

(a) a company beneficially owns the rights under the policy,

(b) they are held on trusts which a company created, or

(2) For the purposes of this paragraph, a policy is treated as issued in respect of an insurance made on or after 14th March 1989 if it is varied on or after that date so as—

(a) to increase the benefits secured, or

(b) to extend the term of the insurance.

(3) Any exercise of rights conferred by a policy counts as its variation for the purposes of sub-paragraph (2).

Contracts in accounting periods beginning before 1st January 1992: disapplication of sections 530 and 539(3)

109

(1) This paragraph applies to a contract for a life annuity made—

(a) after 26th March 1974, but

(b) in an accounting period of the insurance company or friendly society beginning before 1st January 1992.

(2) Section 530 (income tax treated as paid etc.) does not apply to gains from such a contract, except for the purposes of calculating relief under section 535 (top slicing relief).

(3) Sub-paragraph (2) is subject to—

(a) section 532 (relief for policies and contracts with European Economic Area insurers), and

(b) section 534 (regulations providing for relief in other cases where foreign tax chargeable).

(4) Section 539 (relief for deficiencies) has effect as if for subsections (1) to (6) there were substituted—

(1) A deficiency from a policy or contract arising on a chargeable event is allowable as a deduction in calculating an individual's net income for a tax year if, had a gain arisen instead on the chargeable event— (a) the individual would have been liable to income tax on the gain for that year, or (b) the individual would have been so liable apart from the requirement in section 465(1) that the individual must be UK resident in the tax year in which the gain arises. (2) See section 540 for the cases in which a deficiency is treated as arising from a policy or contract on a chargeable event, section 541 for how the deficiency is calculated and section 469(5) for the apportionment of deficiencies in cases where two or more persons are interested in a policy or contract.

(5) In sub-paragraph (1) “accounting period” is to be read in accordance with Chapter 2 of Part 2 of CTA 2009.

Certain pre-17th March 1998 policies: application of section 529(1)

110

(1) This paragraph makes provision for the application of section 529(1) (exceptions to section 528) in relation to—

(a) a foreign policy of life insurance issued in respect of an insurance made before 17th March 1998, and

(b) a foreign capital redemption policy issued in respect of a contract made before that date.

(2) Section 529(1)(c) (which disapplies section 528 if when the chargeable event occurs or at any time during the policy period the policy is or was held by a foreign institution) does not apply if the policy was held by a foreign institution on 16th March 1998.

Certain pre-17th March 1998 policies not foreign policies of life insurance

111

(1) A policy of life insurance issued in respect of an insurance made before 17th March 1998 is only a “foreign policy of life insurance” for the purposes of Chapter 9 of Part 4 if—

(a) it falls within paragraph (a) of the definition of that expression in section 476(3), and

(b) it is not excluded by paragraph 103 (certain pre-18th November 1983 policies not foreign policies of life insurance).

(2) For the purposes of sub-paragraph (1), a policy issued in respect of an insurance made before 17th March 1998 is treated as issued in respect of one made on or after that date if it is varied on or after that date so as—

(a) to increase the benefits secured, or

(b) to extend the term of the insurance.

(3) Any exercise of rights conferred by a policy counts as its variation for the purposes of sub-paragraph (2).

Pre-17th March 1998 policy or contract: UK resident trustees

112

(1) In the case of a 1998 Act excluded policy or contract, section 467 (person liable: UK resident trustees) does not apply if—

(a) the trusts were created before 17th March 1998, and

(b) the person or at least one of the persons who created them was an individual who died before that date.

(2) For the purposes of sub-paragraph (1)(b), section 472(1) is ignored.

(3) In this paragraph “a 1998 Act excluded policy or contract” means—

(a) a policy of life insurance issued in respect of an insurance made before 17th March 1998,

(b) a contract for a life annuity made before that date, or

but excluding a policy or contract within sub-paragraph (4).

(4) A policy or contract is within this sub-paragraph if it has been varied on or after 17th March 1998 so as—

(a) to increase the benefits secured, or

(b) to extend the term of the insurance, annuity or capital redemption policy.

(5) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of sub-paragraph (4).

Certain pre-23rd March 1999 policies not foreign capital redemption policies

113

A capital redemption policy where the contract was made before 23rd March 1999 is only a “foreign capital redemption policy” for the purposes of Chapter 9 of Part 4 if—

(a) it falls within paragraph (a) of the definition of that expression in section 476(3), and

(b) it is not excluded by paragraph 104 (certain pre-23rd February 1984 policies not foreign capital redemption policies).

Pre-9th April 2003 policy or contract: UK resident trustees

114

(1) In the case of a 2003 Act excluded policy or contract, section 467(1) (person liable: UK resident trustees) has effect with the omission of the reference to condition C (the effect of which is to extend the circumstances in which trustees holding rights under a policy or contract on non-charitable trusts may be liable for tax).

(2) In this paragraph “a 2003 Act excluded policy or contract” means—

(a) a policy of life insurance issued in respect of an insurance made before 9th April 2003,

(b) a contract for a life annuity made before that date, or

but excluding a policy or contract within sub-paragraph (3).

(3) A policy or contract is within this sub-paragraph if—

(a) it has been varied on or after that date (but before the chargeable event on which the gain arises) so as to increase the benefits secured or extend the term of the insurance, annuity or capital redemption policy, or

(b) there has been an assignment of the rights, or a share in the rights, conferred by the policy or contract to trustees of a non-charitable trust.

(4) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of sub-paragraph (3)(a).

Pre-9th April 2003 policy or contract: loans to trustees

115

(1) This paragraph makes provision for the application of section 501 (part surrenders: loans) in relation to—

(a) a policy of life insurance issued in respect of an insurance made before 9th April 2003,

(b) a contract for a life annuity made before that date, or

(2) In the case of a loan made before that date that section applies with the omission—

(a) of subsections (1)(b) and (3) (by virtue of which the section applies to loans to trustees), and

(b) in subsection (5)(b) of the words “, trustees” and “, trustees'”.

Pre-9th April 2003 policy: excepted group life policies

116

(1) Sub-paragraph (2) applies to a policy if—

(a) it was issued in respect of an insurance made before 9th April 2003, and

(b) immediately before 6th April 2005, paragraph 4(1) (excepted group life policies: time for compliance with conditions in section 539A of ICTA) of Schedule 34 to FA 2003 applied to it.

(2) The policy is to be taken to have met the conditions referred to in section 480(3) (conditions to be met by an excepted group life policy) throughout the period mentioned in that paragraph.

(3) Sub-paragraphs (3) and (4) apply where immediately before 6th April 2005 paragraph 4(3) of Schedule 34 to FA 2003 applied to treat two policies as a single policy issued in respect of an insurance made at the time of the making of the insurance in respect of which the earlier of those policies was issued.

(4) Those policies are to be treated as a single policy so issued for the purposes of—

(a) Chapter 9 of Part 4,

(b) paragraph 90 of this Schedule, and

(5) Sub-paragraph (2) applies to that single policy taking the reference to the period mentioned in paragraph 4(1) of Schedule 34 to FA 2003 as a reference to the period so mentioned as a result of the application of paragraph 4(3)(b) of that Schedule.

Pre-3rd March 2004 policy or contract: calculation of deficiencies

117

(1) In the case of a 2004 Act excluded policy or contract, section 541(4) (calculation of deficiencies) applies with the omission of paragraph (b) and the word “and” immediately preceding it.

(2) In this paragraph “a 2004 Act excluded policy or contract” means—

(a) a policy of life insurance issued in respect of an insurance made before 3rd March 2004,

(b) a contract for a life annuity made before that date, or

but excluding a policy or contract within sub-paragraph (3).

(3) A policy or contract is within this sub-paragraph if on or after 3rd March 2004—

(a) it is varied so as to increase the benefits secured,

(b) there is an assignment of the rights, or a share of the rights, conferred by it, or

(4) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of sub-paragraph (3)(a).

Pre-1st January 2005 contracts for immediate needs annuities: income tax treated as paid

118

(1) A contract for a life annuity made before 1st January 2005 is not to be treated for the purposes of paragraph (c) of section 531(3) (policies and contracts excluded from section 530) as having not formed part of any insurance company's or friendly society's basic life assurance and general annuity business the income and gains of which are subject to corporation tax by reason only of the immediate needs annuities exclusion.

(2) In sub-paragraph (1) “the immediate needs annuities exclusion” means the application of section 57(2)(d) of FA 2012 .

Part 7 — Savings and investment income: gains from contracts for life insurance etc. (personal portfolio bonds)

Pre-17th March 1998 contract or policy: conditions to be met for contract or policy not to be a personal portfolio bond

119

For the purposes of Chapter 9 of Part 4, a policy or contract is not a personal portfolio bond if—

(a) it meets the date condition (see paragraph 120),

(b) it meets the non-variation condition (see paragraph 121), and

(c) it meets either the first selection condition (see paragraph 122) or the second selection condition (see paragraph 123).

The date condition

120

(1) A policy meets the date condition if it is a policy issued in respect of an insurance made before 17th March 1998.

(2) A contract meets the date condition if it was made before that date.

The non-variation condition

121

(1) A policy or contract meets the non-variation condition if it has not been varied on or after 16th July 1998 so as—

(a) to increase the benefits secured, or

(b) to extend the term of the policy or contract.

(2) Any exercise of rights conferred by a policy or contract counts as its variation for the purposes of this paragraph.

The first selection condition

122

A policy or contract meets the first selection condition at any time if for the whole of the period beginning with 6th April 1994 and ending with that time it has not been possible to determine the whole or any part of the benefits under the policy or contract by reference to—

(a) an index other than a permitted index (see paragraph 126), or

(b) property other than permitted property (see paragraph 127).

The second selection condition

123

(1) A policy or contract meets the second selection condition at any time if it meets conditions A to C.

(2) Condition A is that for some or all of the period beginning with 6th April 1994 and ending with that time it has been possible to determine the whole or any part of the benefits under the policy or contract by reference to—

(a) an index other than a permitted index, or

(b) property other than permitted property.

(3) Condition B is that at no time during that period have the benefits under the policy or contract actually been determined by reference to such property or such an index.

(4) Condition C is that the terms of the policy or contract were varied before the end of the first insurance year in relation to the policy or contract which began on or after 6th April 1999 so that, since that variation,—

(a) the only index which it has been possible to select as mentioned in section 516(4) is a permitted index, and

(b) the only property which it has been possible to select as mentioned in section 516(4) is permitted property.

(5) Condition C is subject to paragraphs 124 and 125 (which modify it in cases where any holder of the policy or contract was not UK resident on 17th March 1998 and has become UK resident since that date).

Policy holders becoming UK resident after 17th March 1998

124

(1) This paragraph applies to a policy or contract if—

(a) any holder of the policy or contract on 17th March 1998 was not UK resident on that date,

(b) such a holder has become UK resident since that date, and

(c) the holder did not intend, on the date of the holder's arrival in the United Kingdom by virtue of which the holder became UK resident—

(i) to become permanently UK resident, or

(ii) to stay in the United Kingdom for at least two years.

(2) The policy or contract meets condition C in the second selection condition if it has been varied as described in that condition before the later of—

(a) the end of the first insurance year in relation to the policy or contract beginning on or after 6th April 1999, and

(b) the end of the first insurance year in relation to the policy or contract beginning after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident.

(3) No gain is treated as arising from the policy or contract under section 525 (chargeable events where annual personal portfolio calculations show gains) in relation to any insurance year which ends—

(a) on or after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident, and

(b) before the insurance year in which the variation was made.

Policy holders becoming permanently UK resident after 17th March 1998

125

(1) This paragraph applies to a policy or contract if—

(a) any holder of the policy or contract on 17th March 1998 was a non-UK resident individual on that date,

(b) such a holder has become UK resident since that date, and

(c) the holder intended, on the date of the holder's arrival in the United Kingdom by virtue of which the holder became UK resident,—

(i) to become permanently UK resident, or

(ii) to stay in the United Kingdom for at least two years.

(2) The policy or contract meets condition C in the second selection condition if it has been varied as described in that condition before the later of—

(a) the end of the first insurance year in relation to the policy or contract beginning on or after 6th April 1999, and

(b) the end of the first insurance year in relation to the policy or contract beginning on or after the date mentioned in sub-paragraph (1)(c).

(3) No gain is treated as arising from the policy or contract under section 525 in relation to any insurance year which ends—

(a) on or after the date since 17th March 1998 on which the holder of the policy or contract first became UK resident, and

(b) before the insurance year in which the variation was made.

Meaning of “permitted index”

126

In this Part of this Schedule “permitted index” means an index falling within a category listed in section 518.

Meaning of “permitted property”

127

(1) In this Part of this Schedule “permitted property”, in relation to a policy or contract, means any of the following—

(a) property falling within any of the categories listed in the table in section 520(2),

(b) shares or securities listed on a recognised stock exchange, and

(c) subject to sub-paragraph (2), shares or securities of a company which are dealt in on the Unlisted Securities Market or the Alternative Investment Market.

(2) Shares or securities of a company which fall within sub-paragraph (1)(c) are not permitted property at any time at which—

(a) the whole or any part of the benefits under the policy or contract may be determined by reference to shares or securities of the company which represent more than 10% of its issued share capital, or

(b) the amount invested in shares or securities of the company under the policy or contract exceeds 10% of the total amount of premiums paid up to that time under the policy or contract.

Other definitions

128

(1) In this Part of this Schedule “security” has the same meaning as in section 132(3)(b) of TCGA 1992.

(2) Any references in this Part of this Schedule to shares or securities include a reference to any option, warrant or other right to acquire shares or securities.

(3) In sub-paragraph (3) “warrant” has the same meaning as in paragraph 14 of Schedule 2 to FISMA 2000.

Part 8 — Miscellaneous income

Intellectual property: contributions to expenditure not made by public bodies nor eligible for tax relief

129

Section 604 applies with the omission of subsection (3)(b) in relation to contributions made before 27th July 1989.

Certain telecommunication rights

130

Chapter 4 of Part 5 does not apply to an indefeasible right to use a telecommunications cable system (“IRU”) acquired before 21st March 2000.

131

(1) That Chapter also does not apply to an IRU acquired by a person on or after that date (directly or indirectly) from an associate or an associated company if the associate or associated company acquired the IRU before that date.

(2) In sub-paragraph (1)—

“associate” has the meaning given by section 448 of CTA 2010, and

“associated company”—in relation to another company, has the meaning given by section 449 of that Act, andin relation to any other person, means a company of which that person has control within the meaning of sections 450 and 451 of that Act.

Income treated as income of settlor: exception for pension income

132

(1) Subject to sub-paragraph (4), section 627 applies before 6th April 2006 with the following amendments.

(2) In subsection (2)(c) for “a relevant pension scheme” substitute “ an approved pension arrangement ”.

(3) For subsection (3) substitute—

(3) In subsection (2) an “approved pension arrangement” means— (a) an approved scheme or exempt approved scheme, (b) a relevant statutory scheme, (c) a retirement benefits scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit, of its employees, (d) a contract or scheme which is approved under Chapter 3 of Part 14 of ICTA (retirement annuities), (e) a personal pension scheme which is approved under Chapter 4 of that Part, (f) an annuity purchased for the purpose of giving effect to rights under a scheme falling within any of paragraphs (a) to (c) and (e), or (g) any pension arrangements of any description prescribed by regulations made under section 11(2)(h) of the Welfare Reform and Pensions Act 1999 (c. 30) or Article 12(2)(h) of the Welfare Reform and Pensions (Northern Ireland) Order 1999 (S.I. 1999/3147 (N.I. 11)). (4) In subsection (3) “approved scheme”, “exempt approved scheme”, “relevant statutory scheme” and “retirement benefits scheme” have the same meaning as in Chapter 1 of Part 14 of ICTA (retirement benefit schemes).

(4) The power of the Treasury to make an order under section 281 or 283 of FA 2004 has effect as if Schedule 35 to that Act contained an amendment substituting section 627 of this Act for that section as amended by sub-paragraphs (2) and (3) above.

Amounts treated as income of settlor: income paid to unmarried minor children of settlor

133

(1) In relation to income which—

(a) arises under a settlement made or entered into before 9th March 1999, and

(b) does not arise directly or indirectly from funds provided on or after that date,

section 629 applies with the omission from subsection (1) of paragraph (b) and the word “or” before that paragraph.

(2) Where subsection (1) of section 629 applies for a tax year only in relation to such income as is mentioned in sub-paragraph (1), that section applies with the substitution for subsections (3) and (4) of—

(3) Income paid to or for the benefit of a child of a settlor is not treated as provided in subsection (1) for a tax year in which the total amount paid to or for the benefit of that child which but for this subsection would be so treated does not exceed £100.

(3) Where subsection (1) of section 629 applies for a tax year in relation to such income as is mentioned in sub-paragraph (1) above and other income, that section applies with the substitution for subsection (4) of—

(4) In subsection (3) a child's “relevant settlement income” means income which (apart from that subsection) would be treated as income of the settlor under subsection (1) and which— (a) so far as consisting of such income as is mentioned in paragraph 133 of Schedule 2, is income paid to or for the benefit of the child, and (b) so far as consisting of other income, is income paid to or for the benefit of, or otherwise treated as income of, the child.

(4) Any apportionment required for the purposes of sub-paragraph (1)(b) is to be made on a just and reasonable basis.

Amounts treated as income of settlor: capital sums paid to settlor by trustees of settlement

134

(1) In relation to any case which involves any previous tax years before 1995-96, subsection (3) of section 635 applies in accordance with sub-paragraphs (2) and (3) below.

(2) So far as that subsection applies in relation to those previous tax years, for paragraph (c) substitute—

(c) so much of any income arising under the settlement in any previous year which has not been distributed as is shown to consist of income which has been treated as income of the settlor by virtue of section 671, 672, 674, 674A or 683 of ICTA, (d) any income arising under the settlement in any previous year which has been treated as the income of the settlor by virtue of section 673 of ICTA, (e) any sums paid by virtue or in consequence of the settlement, to the extent that they are not allowable, by virtue of section 676 of ICTA, as deductions in computing the settlor's income for any previous year, (f) any sums paid by virtue or in consequence of the settlement in any previous year which have been treated as the income of the settlor by virtue of section 664(2)(b) of ICTA, (g) any sums included in the income arising under the settlement as amounts which have been or could have been apportioned to a beneficiary as mentioned in section 681(1)(b) of ICTA, and

(3) For paragraph (d) of that subsection substitute—

(h) an amount equal to the sum of tax at the rate applicable to trusts on— (i) the total amount of income arising under the settlement in that year and any previous year which has not been distributed, less (ii) the total amount of the income and sums referred to in paragraph (c) (in relation to tax years 1995-96 onwards) and paragraphs (c), (d), (e), (f) and (g) as substituted by paragraph 134 of Schedule 2 (in relation to tax years before 1995-96).

(4) In relation to any sum paid before 6th April 1995, subsection (3) of section 634 applies with the substitution of “ in one of the events specified in section 673(3) of ICTA ” for paragraphs (a) and (b).

(5) Subsection (5)(a) of section 634 does not apply if the direction or assignment was given or made before 6th April 1981.

Amounts treated as income of settlor: capital sums paid to settlor by body connected with settlement

135

In relation to any capital sum paid to the settlor before tax year 1995-96, section 641 applies with the insertion after subsection (6) of—

(6A) Where a capital sum is paid to the settlor in a tax year by a body corporate connected with the settlement in that year it is to be assumed until the contrary is shown that an associated payment of an amount not less than that of the capital sum has been made to that body by the trustees of the settlement.

Beneficiaries' income from estates in administration: basic amounts

136

(1) Sub-paragraph (2) applies if any previous tax year to which regard is to be had for the purposes of section 665 (assumed income entitlement) is a tax year before 2005-06 (an “old tax year”).

(2) In relation to the old tax year, the reference in step 4 in subsection (1) of that section to basic amounts relating to the person's absolute interest in respect of which the person is liable to income tax for that year is to be taken as a reference to the amount deemed to have been paid to that person as income for that year in respect of that interest by virtue of section 696 of ICTA.

(3) Sub-paragraph (4) applies if one or more of the absolute interests referred to in section 671(1) (successive absolute interests) was held in one or more old tax years.

(4) The reference in section 671(2)(b) to the basic amounts relating to any previous such interest includes a reference to the amounts deemed to have been paid to the previous holder as income for the old tax years in respect of that interest by virtue of section 696 of ICTA.

(5) Sub-paragraph (6) applies if any of the limited interests referred to in section 672(1)(d) (successive interests: assumed income entitlement of holder of absolute interest following limited interest) was held in one or more old tax years.

(6) The reference in section 672(4) to the basic amounts relating to any previous such interest includes a reference to the amounts deemed to have been paid to the holders of any such interests as income for the old tax years in respect of those interests by virtue of section 695 of ICTA.

(7) In the case of a UK estate, references in this paragraph to the amounts deemed to have been paid are references to the amounts that would be deemed to have been paid apart from sections 695(4)(a) and 696(4) of ICTA (grossing up).

Beneficiaries' income from estates in administration: income treated as bearing income tax

137

A sum treated as part of the aggregate income of an estate by virtue of section 547(1)(c) of ICTA (gains from life insurance contracts etc.) as the result of an event that occurred before 6th April 2004 is treated for the purposes mentioned in section 680 of this Act as bearing income tax at the basic rate.

Part 9 — Exempt income

Ulster savings certificates

138

In the case of certificates acquired before 27th July 1981, section 693(5) applies with the substitution for “the Department of Finance and Personnel” of “ the Treasury ”.

SAYE interest

139

Any scheme which was certified as mentioned in section 326(2)(c), (3)(b) or (4)(b) of ICTA before 1st December 1994 is treated as a certified SAYE savings arrangement for the purposes of Chapter 4 of Part 6 of this Act.

140

A European authorised institution arrangement is not an institutional arrangement for the purposes of Chapter 4 of Part 6 if the arrangement was established before 2nd May 1995.

141

(1) Neither—

(a) the Treasury specification rules, nor

(b) the Treasury authorisation rules,

apply to any scheme which was certified as mentioned in section 326(3)(b), (4)(b) or (5)(b) of ICTA before 31st July 1995.

(2) In sub-paragraph (1)—

“the Treasury specification rules” means sections 705(1)(b) and (2) to (4) and 706 of this Act, and

“the Treasury authorisation rules” means sections 707 and 708 of this Act.

Venture capital trust dividends: shares acquired before the tax year 2004-05

142

In the case of dividends paid in respect of shares acquired before the tax year 2004-05, Chapter 5 of Part 6 (venture capital trust dividends) applies as if the references in section 709(4) (annual acquisition limit) to £200,000 were references to £100,000.

Purchased life annuity payments: old determinations concerning capital elements

143

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

Purchased life annuity payments: carry forward of excess capital elements

144

(1) This paragraph applies if, in the case of an annuity to which section 656(2) of ICTA applied immediately before 6th April 2005, the total of the amounts determined in accordance with that section to be capital elements in respect of the annuity payments that arose before that date (and accordingly not to be annual payments for income tax purposes) exceeded the total of those annuity payments.

(2) The amount of the excess is to be added to the fixed sum mentioned in section 719(4) for the first payment that arises after 5th April 2005.

Purchased life annuity payments: penalty for false statements

145

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

Certain annual payments by individuals

146

(1) Sections 727 (exemption for certain annual payments by individuals) and 730 (exemption for foreign maintenance payments) do not apply to—

(a) any payment falling due before 16th March 1988, or

(b) any payment falling due on or after that date but before 6th April 2000 to which this paragraph applies.

(2) Paragraph (b) of sub-paragraph (1) applies to a payment made in pursuance of an existing obligation (within the meaning of section 36(3) of FA 1988) unless it meets any of conditions A to E.

(3) Condition A is that the payment is treated as income of the payer under Chapter 5 of Part 5 as a result of section 624 or 629.

(4) Condition B is that the payment fell due from a husband to a wife or a wife to a husband at a time after 5th April 1990 when they were living together.

(5) Condition C is that an election is duly made under section 39 of FA 1988 in respect of the payment.

(6) Condition D is that the payment fell due on or after 6th April 1994 and is made—

(a) in pursuance of an obligation within section 36(4)(a) to (c) of FA 1988 that is an obligation under—

(i) an order made by a court,

(ii) a written or oral agreement, or

(iii) a deed executed for giving effect to an agreement, and

(b) for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 on or before the day on which the payment fell due but after 5th April 1994.

(7) Condition E is that—

(a) the payment is made in pursuance of an obligation within section 36(4)(a) of FA 1988 (existing obligations under certain court orders),

(b) the payment is made for the benefit, maintenance or education of a person (whether or not the person to whom the payment is made) who attained the age of 21 before 6th April 1994, and

(c) section 38 of FA 1988 (treatment of certain maintenance payments under existing obligations) does not apply to the payment.

Annual payments for non-taxable consideration

147

Section 729 (exemption for payments for non-taxable consideration) applies in the case of an annuity granted before 30th March 1977—

(a) with the substitution in subsection (1) of “ condition B, C or D ” for “condition B or C”, and

(b) with the substitution of the following subsections for subsection (5)—

(5) Condition D is that the payment is a payment under an annuity charged on an interest in settled property and granted by an individual to a company— (a) whose business then consisted wholly or mainly in the acquisition of interests in settled property, or (b) which was then carrying on life assurance business in the United Kingdom. (6) In the application of subsections (4) and (5) to Scotland, the references in those subsections to settled property are to be read as references to property held in trust.

Periodical payments of personal injury damages etc.

148

(1) Subject to sub-paragraphs (4) and (5), sections 731, 733 and 734 apply with the modifications in sub-paragraphs (2) and (3).

(2) In section 731 (periodical payments of personal injury damages)—

(a) for subsection (2) substitute—

(2) This subsection applies to periodical payments made in pursuance of— (a) a court order making a final or interim award of damages in respect of personal injury, (b) an agreement settling a claim or action for such damages, or (c) an agreement for a payment on account of the damages that may be awarded in such an action.

(b) in subsection (3)(b) for the words from “agreement” to the end of the paragraph substitute “ or agreement as is mentioned in subsection (2) or a subsequent agreement ”, and

(3) In sections 733(a) and 734(1)(a)(i) for “agreement, undertaking” substitute “ or agreement ”.

(4) The modifications in sub-paragraphs (2) and (3) do not apply if an order has been made under section 110(1) of the Courts Act 2003 (c. 39) (commencement) making provision for section 100(2) and (3) of that Act to come into force on a day earlier than 6th April 2005.

(5) The power in section 110(1) of that Act includes power to make provision in accordance with which the modifications in sub-paragraphs (2) and (3) do not apply on or after a day appointed by the order that is later than 5th April 2005.

Part 10 — Foster-care relief

149

(1) This paragraph applies if—

(a) a disposal event is treated as occurring in relation to an individual under paragraph 17(2) of Schedule 36 to FA 2003 (foster-care relief: capital allowances),

(b) the individual is a relevant individual for the tax year 2004-05,

(c) the individual has a chargeable period which corresponds to the income period for the individual's foster-care receipts in that tax year (and therefore the chargeable period is a relevant chargeable period), and

(d) the next chargeable period of the individual is not a relevant chargeable period.

(2) Subsection (4) of section 825 applies (despite anything in subsection (1) of that section to the contrary) as if the reference to the first subsequent chargeable period which is not a relevant chargeable period were to the period mentioned in sub-paragraph (1)(d).

Part 11 — Foreign income: special rules

Relevant foreign income charged on remittance basis: income arising before the tax year 2005-06

150

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

Relevant foreign income charged on remittance basis: delayed remittances

151

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

Relief for backdated pensions charged on arising basis

152

The fact that the earlier year referred to in subsections (1)(b) and (2) of section 840 (relief for backdated pensions charged on the arising basis) is a tax year before 2005-06 does not prevent—

(a) a claim being made under that section, or

(b) such adjustments (by way of repayment of tax, assessment or otherwise) as are necessary to give effect to that section being made as respects such a tax year.

Unremittable income that arose before the tax year 2005-06

153

(1) A claim may be made under section 842 (claim for relief on unremittable income) for the tax year 2005-06 or any later tax year, despite the income having arisen in a tax year before 2005-06.

(2) Without prejudice to paragraph 4 of this Schedule, section 843 (withdrawal of relief) applies for the tax year 2005-06 or any later tax year, despite the income having arisen originally in a tax year before the tax year 2005-06 (whether the claim in respect of it was made under section 584 of ICTA (relief for unremittable overseas income) or section 842 of this Act).

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

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

Part 12 — Other provisions

Unpaid remuneration: non-trades and non-property businesses

154

(1) This paragraph applies for the purposes of section 865.

(2) In relation to a period of account ending before 27th November 2002, an amount charged in the accounts in respect of employees' remuneration includes an amount which is held by an intermediary with a view to its becoming employees' remuneration.

(3) In relation to a period of account ending on or after 27th November 2002, an amount charged in the accounts in respect of employees' remuneration includes an amount—

(a) in respect of employee benefit contributions (within the meaning of sections 38 to 44) made before that date, and

(b) which is held by an intermediary,

with a view to its becoming employees' remuneration.

Employee benefit contributions: non-trades and non-property businesses

155

Section 866 does not apply to deductions that would otherwise be allowed—

(a) for a period ending before 27th November 2002, or

(b) in respect of employee benefit contributions made before that date.

156

(1) Subject to sub-paragraph (3), section 866 applies before 6th April 2006 with the following amendment.

(2) In subsection (5)—

(a) for paragraphs (b) and (c) and the word “or” at the end of paragraph (c) substitute—

(b) contributions under a retirement benefits scheme within the meaning of Chapter 1 of Part 14 of ICTA (see section 611 of that Act), (c) contributions under a personal pension scheme approved under Chapter 4 of that Part (see section 630 of that Act), or

, and

(b) omit “For the purposes of paragraph (c)” to the end.

(3) The power of the Treasury to make an order under section 281 or 283 of FA 2004 has effect as if Schedule 35 to that Act contained an amendment substituting section 866(5) of this Act for that subsection as amended by sub-paragraph (2) above.

157

Section 870(2)(b) does not apply to expenditure which was incurred before 1st April 2002.

Apportionment of miscellaneous profits or losses to tax years before tax year 2005-06

158

(1) This paragraph applies if—

(a) a relevant period of account begins before 6th April 2005 and ends on or after that date, and

(b) in order to arrive at the profits or losses of a tax year before the tax year 2005-06 it is necessary to apportion the profits or losses of the relevant period of account to any part of that period falling in a tax year before the tax year 2005-06.

(2) A period of account is a “relevant period of account” if—

(a) section 871 applies to the period of account, and

(b) the profits or losses of the part of the period of account falling in the tax year 2005-06 are calculated in accordance with this Act.

(3) The profits or losses of the relevant period of account—

(a) are calculated in accordance with this Act (and therefore, to that extent, this Act has effect for tax years before the tax year 2005-06), and

(b) may be apportioned in accordance with section 871 to any part of the period of account falling in a tax year before the tax year 2005-06.

General deduction rules

159

Neither—

(a) the inclusion of rules in section 582 for calculating income chargeable to tax under section 579, nor

(b) the inclusion of rules in sections 612 and 617(3) to (6) for calculating income chargeable to tax under Chapter 3 or 4 of Part 5,

prevents the continued operation of similar rules of law in relation to the calculation of other income (including profits) chargeable to tax under other provisions of this Act.

Section 820 of ICTA

160

Section 820 of ICTA (application of Income Tax Acts from year to year) applies to this Act as if this Act were in force on the day before 6th April 2005.

Amendments of Part 4 of FA 2004 (pension schemes etc.)

161

The amendments made by paragraphs 644 to 651 and 655 of Schedule 1 come into force at the same time as the enactments which they amend.

SCHEDULE 3

SCHEDULE 4

Part 1 — Abbreviations of Acts

Part 2 — Index of expressions defined in this Act etc.

Overview of priority rules

Overview of rest of Part 2 as it applies to cash basis

Hiring cars (but not motor cycles) with low carbon dioxide emissions

138A

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

Interpretation of sections 138 to 140

140A

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

Deferred income agreements

142A

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

Costs of setting up SAYE option scheme or CSOP scheme

142B

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

142C

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

142D

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

Tenants occupying land for purposes of trade treated as incurring expenses

142E

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

Chapter 10A — Leases of plant or machinery: special rules for long funding leases

Lessors under long funding finance leases

148A

(1) This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account in which he is the lessor of any plant or machinery under a long funding finance lease.

(2) The amount to be brought into account as the lessor's taxable income from the lease for the period of account is the amount of the rental earnings in respect of the lease for the period of account.

(3) The “rental earnings” for any period is the amount which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment for that period in respect of the long funding lease where it meets the finance lease test.

(4) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan in the accounts in question, so much of the rentals under the lease as fall (or would fall) to be treated as interest are to be treated for the purposes of this section as rental earnings.

148B

(1) This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account if he is or has been the lessor under a long funding finance lease.

(2) This section has effect where a profit or loss (whether of an income or capital nature)—

(a) arises to the person in connection with the lease, and

(b) in accordance with generally accepted accounting practice falls to be recognised for accounting purposes in a period of account, but

(3) The profit or loss is to be treated—

(a) in the case of a profit, as income of the person that is attributable to the lease,

(b) in the case of a loss, as a revenue expense incurred by the person in connection with the lease.

(4) Any reference in this section to an amount falling to be recognised for accounting purposes in a period of account is a reference to an amount falling to be recognised for accounting purposes—

(a) in the person's profit and loss account or income statement,

(b) in the person's statement of recognised gains and losses or statement of changes in equity, or

148C

(1) This section applies for the purpose of calculating the profits of a person carrying on a trade for a period of account if he is or has been the lessor under a long funding finance lease.

(2) Where—

(a) the lease terminates, and

(b) a sum calculated by reference to the termination value is paid to the lessee,

no deduction in respect of the sum paid to the lessee is allowed in calculating the profits of the person.

(3) This section does not prevent a deduction in respect of a sum to the extent that the sum is brought into account in determining the person's rental earnings.

Lessors under long funding operating leases

148D

(1) This section applies if a person carrying on a trade is the lessor of any plant or machinery under a long funding operating lease for the whole or part of a period of account.

(2) A deduction is allowed in calculating the profits of the person for the period of account for income tax purposes.

(3) The amount of the deduction is so much of the expected gross reduction in value over the term of the lease as is attributable to the period of account.

(4) The expected gross reduction in value over the term of the lease is—

(a) the starting value of the plant or machinery, less

(b) the amount which at the commencement of the term of the lease is expected to be its residual value (or, if section 148DB applies, would have been expected to be that value had that value been estimated at that time).

(5) The expected gross reduction in value over the term of the lease that is attributable to the period of account is found by apportioning that reduction on a time basis according to the proportion of the term of the lease that falls in the period of account.

(6) For the meaning of “starting value”, see—

(a) section 148DA (“starting value”: general), and

(b) section 148DB (“starting value” where plant or machinery originally unqualifying).

(7) For the meaning of “residual value”, see section 148J(2).

148E

(1) This section applies if in any period of account—

(a) a person carrying on a trade is the lessor of any plant or machinery under a long funding operating lease,

(b) the person incurs capital expenditure in relation to the plant or machinery (the “additional expenditure”), and

(c) the additional expenditure is not reflected in the market value of the plant or machinery at the commencement time (see subsection (7)).

(2) An additional deduction is allowed in calculating the profits of the person for income tax purposes for each period of account—

(a) which ends after the incurring of the additional expenditure, and

(b) in which the person is the lessor of the plant or machinery under the lease.

(3) The amount of the deduction is so much of the expected reduction in value of the additional expenditure (“the expected reduction”) as is attributable to the period of account.

(4) The expected reduction is the amount of the additional expenditure, less the remaining residual value of the plant or machinery resulting from that expenditure.

(5) For how to determine that remaining residual value, see—

(a) section 148EA (determination of remaining residual value resulting from lessor's first additional expenditure), and

(b) section 148EB (determination of remaining residual value resulting from lessor's further additional expenditure).

(6) The amount of the expected reduction attributable to the period of account is found by apportioning that reduction on a time basis according to the proportion of the term of the lease that falls in the period of account.

(7) In this section “the commencement time” means—

(a) except where section 148DB applies, the commencement of the term of the lease, and

(b) if that section applies, the time when the plant or machinery is first brought into use by the lessor for the purposes of the qualifying activity.

148F

(1) This section applies in calculating for income tax purposes the profits of a person carrying on a trade if the person is the lessor immediately before the termination of a long funding operating lease.

(2) If the termination amount exceeds the sum of the amounts in subsection (3), an amount equal to the excess is treated as income of the person attributable to the lease arising in the period of account in which it terminates.

(3) The amounts referred to in subsection (2) are—

(a) the total amounts paid to the lessee that are calculated by reference to the termination value,

(b) the excess relevant value for section 148D (see subsection (6)), and

(4) If the sum of the amounts in subsection (3) exceeds the termination amount, the excess is treated as a revenue expense incurred by the person in connection with the lease in the period of account in which it terminates.

(5) No deduction is allowed in respect of any sums within subsection (3)(a).

(6) “The excess relevant value for section 148D” is the amount (if any) by which—

(a) the starting value of the plant or machinery for the purposes of section 148D(4) (lessor under long funding operating lease: periodic deduction), exceeds

(b) the total of the deductions allowable under section 148D for periods of account for the whole or part of which the person was the lessor.

(7) “The excess expenditure for section 148E” is the amount (if any) by which—

(a) the total of any amounts of capital expenditure incurred by the person which constitute additional expenditure in the case of the lease for the purposes of section 148E (long funding operating lease: lessor's additional expenditure), exceeds

(b) the total of any deductions allowable under section 148E for periods of account for the whole or part of which the person was the lessor.

(8) For the meaning of “termination amount” and “termination value”, see sections 70YG and 70YH of CAA 2001 (as applied by section 148J(4)).

Lessees under long funding finance leases

Professions and vocations

148G

(1) This section applies for the purpose of calculating the profits of a person carrying on a trade, profession or vocation for a period of account in which the person is the lessee of any plant or machinery under a long funding finance lease.

(2) In calculating the person's profits for the period of account,—

(a) the amount deducted in respect of amounts payable under the lease,

must not exceed

(b) the amounts which, in accordance with generally accepted accounting practice, fall (or would fall) to be shown in the person's accounts as finance charges , or interest expenses, in respect of the lease.

(3) If the lease is one which, under generally accepted accounting practice, falls (or would fall) to be treated as a loan, subsection (2) applies as if the lease were one which, under generally accepted accounting practice, fell to be treated as a finance lease.

148H

(1) This section applies where—

(a) a person carrying on a trade, profession or vocation is or has been the lessee under a long funding finance lease, and

(b) in connection with the termination of the lease, a payment calculated by reference to the termination value falls to be made to the person.

(2) The payment is not to be brought into account in calculating the profits of the person for any period of account.

(3) Subsection (2) does not affect the amount of any disposal value that falls to be brought into account by the person under CAA 2001.

Lessees under long funding operating leases

148I

(1) This section applies for the purpose of calculating the profits of a person carrying on a trade, profession or vocation for a period of account in which the person is the lessee of any plant or machinery under a long funding operating lease.

(2) The deductions that may be allowed in calculating the profits of the person for the period of account are to be reduced in accordance with the following provisions of this section.

(3) The amount of the reduction for any period of account is to be determined as follows.

(4) First, find the “relevant value” for the purposes of subsection (6)(a), which is—

(a) the market value of the plant or machinery at the commencement of the term of the lease, unless paragraph (b) applies;

(b) if the lessee—

(i) owns the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity, but

(ii) brings the plant or machinery into use for the purposes of a qualifying activity on or after 1st April 2006,

the lower of first use market value and first use amortised market value.

(5) In subsection (4)—

“first use amortised market value” means the value that the plant or machinery would have—at the time when it is first brought into use for the purposes of the qualifying activity, buton the assumption that the market value of the plant or machinery at the commencement of the term of the lease had been written off on a straight line basis over the remaining useful economic life of the plant or machinery;

“first use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity.

(6) From—

(a) the relevant value determined in accordance with subsection (4),

subtract

(b) the amount which, at the commencement of the term of the lease, is (or, in a case falling within subsection (4)(b), would have been) expected to be the market value of the plant or machinery at the end of the term of the lease,

to find the expected gross reduction over the term of the lease.

(7) Apportion the amount of that expected gross reduction to each period of account in which any part of the term of the lease falls.

(8) The apportionment must be on a time basis according to the proportion of the term of the lease that falls in each period of account.

(9) The amount of the reduction for any period of account is the amount so apportioned to that period.

Interpretation of this Chapter

148J

(1) This section has effect for the interpretation of this Chapter.

(2) In this Chapter—

“qualifying activity” has the same meaning as in Part 2 of CAA 2001;

“residual value”, in relation to any plant or machinery leased under a long funding operating lease, means—the estimated market value of the plant or machinery on a disposal at the end of the term of the lease,lessthe estimated costs of that disposal.

(3) Any reference in this Chapter to a sum being written off on a straight line basis over a period of time (the “writing-off period”) is a reference to—

(a) the sum being apportioned between each of the periods of account in which any part of the writing-off period falls,

(b) that apportionment being made on a time basis, according to the proportion of the writing-off period that falls in each of the periods of account, and

(4) Chapter 6A of Part 2 of CAA 2001 (interpretation of that Part so far as relating to long funding leases) also applies for the purposes of this Chapter.

Managed service companies

164A

(1) This section applies for the purpose of calculating the profits of a trade, profession or vocation carried on by a managed service company (“the MSC”) which is treated as making a deemed employment payment in connection with the trade, profession or vocation.

(2) A deduction is allowed for—

(a) the amount of the deemed employment payment, and

(b) the amount of any employer's national insurance contributions paid by the MSC in respect of it.

(3) The deduction is allowed for the period of account in which the deemed employment payment is treated as made.

(4) The amount of the deduction allowed under subsection (2) is limited to the amount that reduces the profits of the firm for the tax year to nil.

(5) No deduction in respect of—

(a) the deemed employment payment, or

(b) any employer's national insurance contributions paid by the MSC in respect of it,

may be made except in accordance with this section.

(6) In this section “deemed employment payment”, “employer's national insurance contributions” and “managed service company” have the same meaning as in Chapter 9 of Part 2 of ITEPA 2003.

Costs of setting up SAYE option scheme or CSOP scheme

Professions and vocations

Determination of remaining residual value resulting from lessor's further additional expenditure

Application of Chapter to the cash basis

Cases where ss. 148A to 148F do not apply: plant or machinery held as trading stock

When a change of accounting date occurs

Deduction for capital expenditure

Levies and repayments under FISMA 2000

Meaning of “accounting date”

Cash basis treatment: full relief under Chapter 1 of Part 6A (trading allowance)

Income charged

When a change of accounting date occurs

Receipts relating to post-cessation expenditure

Professions and vocations

Special rules for corporate strips

452A

(1) All corporate strips are treated as deeply discounted securities for the purposes of this Chapter, whether or not they would otherwise be so.

(2) This Chapter applies to corporate strips subject to the rules in—

(a) section 452F (corporate strips: acquisitions and disposals), and

(b) section 452G (corporate strips: manipulation of acquisition, transfer or redemption payments).

452B

(1) In this Chapter “interest-bearing corporate security” means any interest-bearing security other than—

(a) a security issued by the government of a territory, or

(b) a share in a company.

(2) In this section “interest-bearing security” includes any loan stock or similar security.

(3) Section 452D(4)(a) gives an extended meaning to references to converting an interest-bearing corporate security into corporate strips (and related expressions).

452C

(1) For the purposes of this Chapter a person converts an interest-bearing corporate security into corporate strips of the security if he has an interest-bearing corporate security (“the converted corporate security”) but—

(a) as a result of any scheme or arrangements, he acquires two or more separate assets in place of the converted corporate security,

(b) each of those separate assets satisfies condition A,

(d) at least one of those separate assets is not prevented from being a corporate strip by section 452E(2) or (3),

and related expressions shall be construed accordingly.

(2) Condition A is that the asset—

(a) represents the right to, or

(b) secures,

one or more stripped payments.

(3) For the purposes of this section, a “stripped payment” is—

(a) the payment of, or

(b) a payment corresponding to,

the whole or a part of one or more payments (whether of interest or principal) remaining to be made under the converted corporate security.

(4) Condition B is that the assets, taken together,—

(a) represent the right to, or

(b) secure,

every payment (whether of interest or principal) remaining to be made under the converted corporate security (or payments corresponding to every such payment).

(5) Where a person—

(a) has an interest-bearing corporate security, but

(b) sells or transfers the right to one or more payments remaining to be made under it (so that, as a result, there are two or more separate assets which, taken together, satisfy condition B),

this Chapter has effect as if, as a result of a scheme or arrangements, the person had acquired the separate assets in place of the security immediately before the sale or transfer.

(6) After a balance has been struck for a dividend on an interest-bearing corporate security, any payment to be made in respect of that dividend shall, at times falling after that balance has been struck, be treated for the purposes of this paragraph as not being a payment remaining to be made under the security.

452D

(1) For the purposes of this Chapter, section 452C also has effect in relation to each of the separate assets mentioned in subsection (1) of that section as if that separate asset were itself an interest-bearing corporate security (if that is not in fact the case).

(2) In subsection (1), the reference to section 452C includes a reference to that section as it has effect by virtue of this section.

(3) In the application of section 452C by virtue of this section, references to payments the right to which a separate asset represents or secures shall be construed in accordance with subsection (6) of that section.

(4) Where section 452C has effect by virtue of subsection (1)—

(a) any reference in this Chapter to converting an interest-bearing corporate security into corporate strips of the security shall be construed accordingly, and

(b) section 452E (meaning of “corporate strip”) has effect accordingly.

452E

(1) In this Chapter “corporate strip” means any asset—

(a) which is, or has at any time been, one of the separate assets mentioned in section 452C(1), and

(b) which is not prevented from being a corporate strip by subsection (2) or (3).

(2) An asset is not a corporate strip if it—

(a) represents the right to, or

(b) secures,

payments of, or corresponding to, a part of every payment remaining to be made under an interest-bearing corporate security or a corporate strip.

(3) An asset is a corporate strip in the case of any person only if he acquired it—

(a) on or after 2nd December 2004, and

(b) otherwise than in pursuance of an agreement entered into before that date.

452F

(1) A person who converts an interest-bearing corporate security into corporate strips of the security is treated as having acquired each corporate strip by the payment of an amount equal to—

$$A×BC$where—A is the acquisition cost of the converted corporate security;B is the market value of the corporate strip;C is the total of the market values of all the separate assets resulting from the conversion.$

(2) If the converted corporate security is a deeply discounted security—

(a) its conversion into corporate strips is to be treated for the purposes of this Chapter as a transfer of the security, but

(b) the amount payable on the transfer is taken to be an amount equal to the acquisition cost of the converted corporate security.

(3) For the purposes of this Chapter—

(a) the consolidation of a corporate strip with other corporate strips into a single security is a disposal of the corporate strip by the person consolidating it (whether or not it would be apart from this subsection), and

(b) an amount equal to the market value of the corporate strip at the consolidation is treated as payable on the disposal.

(4) Section 438 (timing of transfers and acquisitions) does not apply to a conversion within subsection (1) or a consolidation within subsection (3).

(5) Subsections (1) to (3) apply instead of sections 440(4) (market value on general conversions of deeply discounted securities) and 441 (market value acquisitions).

(6) For the purposes of this section, the acquisition cost of the converted corporate security is the amount paid in respect of his acquisition of the security by the person who has it immediately before the conversion (no account being taken of any costs incurred in connection with that acquisition).

(7) References in this section to the market value of a security given or received in exchange for, or otherwise converted into, another are references to its market value at the time of the exchange or conversion.

Receipts relating to post-cessation expenditure

452G

(1) This section applies if—

(a) as a result of any scheme or arrangement, an amount referred to in subsection (2)(a), (b) or (c) differs from the market value of the corporate strip in a way specified in that subsection, and

(b) the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement.

(2) The ways are that—

(a) the amount paid by a person in respect of the acquisition of the corporate strip is or was more than the market value of the corporate strip at the time of that acquisition,

(b) the amount payable to a person on transferring the corporate strip is less than the market value at the time of the transfer, or

(c) on redemption of the corporate strip the amount payable to a person, as the person holding the corporate strip, is less than the market value on the day before redemption.

(3) In a case within subsection (2)(a), for the purposes of section 439(1) on transferring the corporate strip the person is treated as if the person had paid to acquire the corporate strip an amount equal to the market value of the corporate strip at the time of the acquisition.

(4) In a case falling within subsection (2)(b), for those purposes the person is treated as if the amount payable to the person on the transfer were an amount equal to the market value of the corporate strip at the time of the transfer.

(5) In a case falling within subsection (2)(c), for those purposes the person is treated as if the amount payable to the person on redemption were an amount equal to the market value of the corporate strip on the day before redemption.

(6) The market value of a corporate strip at any time is to be determined for the purposes of this section without regard to any increase or diminution in the value of the corporate strip as a result of the scheme or arrangement mentioned in subsection (1).

(7) For the purposes of this section, no account is to be taken of any incidental expenses incurred in connection with any disposal or acquisition of a corporate strip.

465A

(1) This section applies if—

(a) an individual is liable for tax under this Chapter in respect of an amount, and

(b) the individual is treated by section 530 as having paid income tax at the basic rate on the amount.

(2) The amount is treated as the highest part of the individual's total income.

(3) Subsection (2) has effect for all income tax purposes except the purposes of sections 535 to 537 (gains from contracts for life insurance etc: top slicing relief).

(4) See section 1012 of ITA 2007 (relationship between highest part rules) for the relationship between—

(a) the rule in subsection (2), and

(b) other rules requiring particular income to be treated as the highest part of a person's total income.

Debts released after cessation

Relevant UK earnings for pension purposes: overseas property business

Meaning of “commercial letting of furnished holiday accommodation”

Rebated or reinvested commission

541A

(1) This section applies if—

(a) a chargeable event within section 484(1)(a)(i) to (iii), (c) or (e) occurs in respect of a policy or contract,

(b) commission in respect of the policy or contract has at any time been rebated or reinvested, and

(2) For the purposes of performing the calculation in section 494 (total allowable deductions) for the chargeable event, the total amount of premiums under the policy or contract paid in the period mentioned in section 494(1) or (2)(b) is to be reduced by the total amount of commission attributable to those premiums that has been rebated or reinvested.

(3) Condition A is that the total amount of premiums under the policy or contract paid in a relevant period exceeds £100,000.

(4) Condition B is that—

(a) at a time when the policy or contract was the taxable person's, the taxable person's policies and contracts exceeded the relevant threshold as respects a relevant period, and

(b) premiums under the policy or contract were paid in that relevant period.

(5) In subsection (4)(a) “taxable person” means the person whose policy or contract the policy or contract is, immediately before the chargeable event.

(6) For the purposes of subsection (4)(a) a person's policies and contracts “exceed the relevant threshold” as respects a relevant period if the total amount of premiums under them paid in that relevant period exceeds the sum specified in subsection (3).

(7) In this section “relevant period” means—

(a) the period beginning with the beginning of the tax year in which the chargeable event occurs and ending with the chargeable event, or

(b) any of the 3 preceding tax years.

(8) The Treasury may by order—

(a) substitute another sum for the sum for the time being specified in subsection (3);

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