Finance (No. 2) Act 2010

Part 1 — Rates etc

Corporation tax

Main rate of corporation tax for financial year 2011

1

In section 2(2)(a) of FA 2010 (main corporation tax rate for financial year 2011 on profits other than ring fence profits), for “28%” substitute “ 27% ”.

Capital gains tax

Rates of capital gains tax

2

Schedule 1 contains provision in relation to the rates at which capital gains tax is charged.

Value added tax

Rate of value added tax

3

• (1) In section 2(1) of VATA 1994 (rate of VAT), for “17.5 per cent” substitute “ 20 per cent ”.

• (2) In section 21(4) of that Act (restriction on value of imported goods), for “28.58 per cent” substitute “ 25 per cent ”.

• (3) The amendment made by subsection (1) has effect in relation to any supply made on or after 4 January 2011 and any acquisition or importation taking place on or after that date.

• (4) The amendment made by subsection (2) has effect in relation to goods imported on or after 4 January 2011.

• (5) Schedule 2 contains provision for a supplementary charge to value added tax on supplies spanning the date of the VAT change.

Insurance premium tax

Rates of insurance premium tax

4

• (1) In section 51(2) of FA 1994 (rates of insurance premium tax)—

• (a) in paragraph (a) (higher rate), for “17.5 per cent” substitute “ 20 per cent ”, and

• (b) in paragraph (b) (standard rate), for “5 per cent” substitute “ 6 per cent ”.

• (2) The amendments made by subsection (1) have effect in relation to a premium falling to be regarded for the purposes of Part 3 of FA 1994 as received under a taxable insurance contract by an insurer on or after 4 January 2011.

• (3) In the application of sections 67A and 67C of FA 1994 (announced increase in rate) in relation to the increases made by this section—

• (a) the announcement for the purposes of section 67A(1) is to be taken to have been made on 22 June 2010, and

• (b) the date of the change is 4 January 2011.

• (4) In FA 1999, omit section 125; and the repeal of that section comes into force in accordance with the provision made by this section for the coming into force of the amendments made by subsection (1).

Part 2 — Other provisions

Pensions

Power to repeal high income excess relief charge

5

• (1) The Treasury may by order made by statutory instrument repeal section 23 of, and Schedule 2 to, FA 2010 (high income excess relief charge).

• (2) No order may be made under subsection (1) after 31 December 2010.

• (3) Section 1014 of ITA 2007 (orders and regulations under Income Tax Acts) does not apply to the power under subsection (1).

Treatment of persons at age 75

6

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Income tax

Expenses paid to MPs etc

7

Schedule 4 contains provision about expenses and allowances paid to members of the House of Commons and other representatives.

Corporation tax

Amounts not fully recognised for accounting purposes

8

Schedule 5 contains amendments of sections 311, 312 and 599A of CTA 2009 (loan relationships and derivative contracts: treatment of amounts not fully recognised for accounting purposes).

Insurance companies: business transfers involving excess assets

9

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Final provisions

Interpretation

10

• (1) In this Act—

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

• “CTA 2010” means the Corporation Tax Act 2010;

• “ICTA” means the Income and Corporation Taxes Act 1988;

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

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

• “TCGA 1992” means the Taxation of Chargeable Gains Act 1992;

• “VATA 1994” means the Value Added Tax Act 1994.

• (2) In this Act “FA”, followed by a year, means the Finance Act of that year.

Short title

11

This Act may be cited as the Finance (No.2) Act 2010.

SCHEDULE 1

Amendments of TCGA 1992

1

TCGA 1992 is amended as follows.

2

For section 4 (rate of capital gains tax) substitute—

(4) (1) This section makes provision about the rates at which capital gains tax is charged, but is subject to section 169N (rate in case of claim for entrepreneurs' relief). (2) Subject to the following provisions of this section, the rate of capital gains tax in respect of gains accruing to a person in a tax year is 18%. (3) The rate of capital gains tax in respect of gains accruing to— (a) the trustees of a settlement, or (b) the personal representatives of a deceased person, in a tax year is 28%. (4) If income tax is chargeable at the higher rate or the dividend upper rate in respect of any part of the income of an individual for a tax year, the rate of capital gains tax in respect of gains accruing to the individual in the year is 28%. (5) If no income tax is chargeable at the higher rate or the dividend upper rate in respect of the income of an individual for a tax year, but the amount on which the individual is chargeable to capital gains tax exceeds the unused part of the individual's basic rate band, the rate of capital gains tax on the excess is 28%. (6) For the purposes of subsection (5), gains which are chargeable to capital gains tax at the rate in section 169N(3) are to be treated as forming the lowest part of the amount on which an individual is chargeable to capital gains tax. (7) The reference in subsection (5) to the unused part of an individual's basic rate band is a reference to the amount by which the basic rate limit exceeds the individual's Step 3 income. (8) For the purposes of this section, “the Step 3 income” of an individual means the individual's net income less allowances deducted at Step 3 of the calculation in section 23 of ITA 2007 for the purpose of calculating the individual's income tax liability. (9) Section 989 of ITA 2007 (the definitions) applies for the purposes of this section as it applies for income tax purposes. (4A) (1) Subsection (2) applies if for a tax year— (a) a person is entitled, by virtue of section 539 of ITTOIA 2005 (gains from contracts for life insurance etc), to relief by reference to the amount of a deficiency, or (b) the residuary income of an estate is treated, by virtue of section 669(1) and (2) of that Act (reduction in residuary income: inheritance tax on accrued income), as reduced so as to reduce a person's income by any amount for the purposes of extra liability. (2) Section 4(7) is to have effect as if the person's Step 3 income for the year were reduced by the amount of the deficiency mentioned in subsection (1)(a) or the amount mentioned in subsection (1)(b) (as the case may be). (3) Subsections (4) and (5) apply if, by virtue of section 465 of ITTOIA 2005 (gains from contracts for life insurance etc), a person's total income for a tax year is deemed to include any amount or amounts. (4) Section 4(7) is to have effect as if the person's Step 3 income for the year included not the whole of the amount or amounts concerned but only the annual equivalent within the meaning of section 536(1) of that Act or the total annual equivalent within the meaning of section 537 of that Act (as the case may be). (5) If— (a) relief is given under section 535 of that Act, and (b) the calculation under section 536(1) or 537 of that Act (as the case may be) does not involve the higher rate of income tax, section 4(4) and (5) are to have effect as if no income tax were chargeable at the higher rate or the dividend upper rate in respect of the person's income.

3

After section 4A (as substituted by paragraph 2) insert—

(4B) (1) This section applies if the gains accruing to a person in a tax year are (apart from this section) chargeable to capital gains tax at different rates. (2) Allowable losses may be deducted from those gains, and the exempt amount under section 3 may be used in respect of those gains, in such way as is most beneficial to that person. (3) Subsection (2) is subject to any enactment which contains a limitation on the gains from which allowable losses may be deducted.

4

In section 169H (introduction to entrepreneurs' relief), in subsection (1), for “relief from capital gains tax” substitute “ for a lower rate of capital gains tax ”.

5

• (1) Section 169N (amount of relief: general) is amended as follows.

• (2) For subsections (2) to (4) substitute—

(2) The resulting amount is to be treated for the purposes of this Act as a chargeable gain accruing at the time of the disposal to the individual or trustees by whom the claim is made. (3) The rate of capital gains tax in respect of that gain is 10%, but this is subject to subsections (4) to (4B). (4) Subsections (4A) and (4B) apply if the aggregate of— (a) the gain mentioned in subsection (2), and (b) the total of so much of each amount resulting under subsection (1) by virtue of its operation in relation to earlier relevant qualifying business disposals (if any) as was— (i) charged at the rate in subsection (3), or (ii) subject to reduction under subsection (2) of this section as originally enacted, exceeds £5 million. (4A) The rate in subsection (3) is to apply only to so much (if any) of the gain mentioned in subsection (2) as (when added to the total mentioned in subsection (4)(b)) does not exceed £5 million. (4B) Section 4 (rates of capital gains tax) is to apply to so much of the gain mentioned in subsection (2) as is not subject to the rate in subsection (3).

• (3) In subsection (7), for “subsection (3)” substitute “ subsection (4) ”.

6

In section 169O (amount of relief: special provision for certain trust disposals), in subsection (3), omit “with no reduction under subsection (2) of that section”.

7

In section 169P (amount of relief: special provision for certain associated disposals), in subsection (3), omit “with no reduction under subsection (2) of that section”.

8

For section 169R (reorganisations involving acquisition of qualifying corporate bonds) substitute—

(169R) (1) This section applies where the calculation under section 116(10)(a) would (apart from this section) have effect to produce a chargeable gain for an individual by reason of a relevant transaction. (2) If an election is made under this section, a claim for entrepreneurs' relief may be made as if the relevant transaction involved a disposal of the old asset; and if such a claim is made section 116(10) does not apply. (3) An election under this section must be made— (a) if the relevant transaction, so far as it relates to the old asset, would (apart from section 116(10)) involve a disposal of trust business assets, jointly by the trustees and the qualifying beneficiary, and (b) otherwise, by the individual. (4) An election under this section must be made on or before the first anniversary of the 31 January following the tax year in which the relevant transaction takes place. (5) In this section, “old asset” and “relevant transaction” have the meaning given by section 116.

9

• (1) Paragraph 1 of Schedule 5B (enterprise investment scheme: re-investment) is amended as follows.

• (2) After sub-paragraph (5) insert—

(5A) The reference in sub-paragraph (1)(b) to a gain accruing in accordance with section 169N does not include such a gain so far as it is chargeable to capital gains tax at the rate in section 169N(3).

Amendments of FA 2008

10

In Schedule 3 to FA 2008 (entrepreneurs' relief), in paragraph 7 (transitionals: reorganisations)—

• (a) in sub-paragraph (5), for “section 169N(1) to (3)” substitute “ section 169N(1) and (2) ”;

• (b) after sub-paragraph (7) insert—

(7A) Section 169N(3) to (4B) is to apply to the deemed chargeable gain found in accordance with sub-paragraphs (5) to (7).

11

In paragraph 8 of that Schedule (transitionals: EIS and VCT)—

• (a) in sub-paragraph (7), for “section 169N(1) to (3)” substitute “ section 169N(1) and (2) ”;

• (b) after sub-paragraph (9) insert—

(9A) Section 169N(3) to (4B) is to apply to the amount treated as accruing in accordance with sub-paragraphs (7) to (9).

Commencement

12

The amendment made by paragraph 2 has effect in relation to gains accruing on or after 23 June 2010.

13

The amendment made by paragraph 3 has effect in relation to the tax year 2010-11 and subsequent tax years.

14

The amendments made by paragraphs 4 to 7 and 9 have effect in relation to qualifying business disposals occurring on or after 23 June 2010.

15

The amendment made by paragraph 8 has effect in relation to relevant transactions occurring on or after 23 June 2010.

16

The amendment made by paragraph 10 has effect if the first relevant disposal occurs on or after 23 June 2010.

17

The amendment made by paragraph 11 has effect if the first relevant chargeable event occurs on or after 23 June 2010.

Transitionals

18

In relation to the tax year 2010-11—

• (a) the reference in section 4(2), (3) and (4) of TCGA 1992 (as substituted by paragraph 2) to gains accruing in a tax year, and

• (b) the reference in section 4(5) of that Act (as so substituted) to the amount on which the individual is chargeable to capital gains tax,

do not include gains accruing before 23 June 2010.

19

Gains treated as accruing to an individual under section 10A of TCGA 1992 (temporary non-residents) in the tax year 2010-11 are to be treated for the purposes of this Schedule as accruing before 23 June 2010.

20

• (1) Chargeable gains treated as accruing to an individual under section 12(2) of TCGA 1992 (non-UK domiciled individuals to whom remittance basis applies) in the tax year 2010-11 are to be treated for the purposes of this Schedule as accruing on the day the related foreign chargeable gains are remitted.

• (2) For the purposes of sub-paragraph (1), foreign chargeable gains under section 809J of ITA 2007 (section 809I: order of remittances) in the tax year 2010-11 are to be treated as remitted before 23 June 2010.

21

Chargeable gains treated as accruing to a settlor under section 86(4)(a) of TCGA 1992 (attribution of gains to settlors with interest in non-resident or dual resident settlements) in the tax year 2010-11 are to be treated for the purposes of this Schedule as accruing before 23 June 2010.

22

• (1) This paragraph makes provision, for the purposes of this Schedule, in relation to—

• (a) chargeable gains treated as accruing to a beneficiary of a settlement under section 87(2) of TCGA 1992 (non-UK resident settlements: attribution of gains to beneficiaries) in the tax year 2010-11,

• (b) chargeable gains treated as accruing to a beneficiary of a settlement under section 89(2) of that Act (migrant settlements etc) in that tax year, and

• (c) chargeable gains treated as accruing to a beneficiary of a relevant settlement under paragraph 8(1) of Schedule 4C to that Act (attribution of Schedule 4C gains to beneficiaries) in that tax year.

• (2) Such of the chargeable gains within sub-paragraph (1)(a), (b) or (c) as result from the matching of capital payments received before 23 June 2010 are to be treated as accruing before that date.

• (3) Such of the chargeable gains within sub-paragraph (1)(a), (b) or (c) as result from the matching of capital payments received on or after that date are to be treated as accruing on or after that date.

• (4) The reference in sub-paragraph (1)(b) to section 89(2) of TCGA 1992 is to be read as including a reference to that section as applied by section 90(6)(a) of that Act (transfers between settlements).

SCHEDULE 2

Part 1 — Supplementary charge to VAT

The charge

1

• (1) There is a supplementary charge to value added tax on a supply of goods or services that is treated as taking place on or after 22 June 2010 if—

• (a) the supply spans the date of the VAT change,

• (b) it is subject to VAT at the rate in force under section 2 of VATA 1994,

• (c) the person to whom the supply is made is not entitled under VATA 1994 to credit for, or the repayment or refund of, all of the VAT on the supply, and

• (d) a relevant condition is met.

• (2) In this Schedule “the date of the VAT change” means 4 January 2011.

• (3) For the cases in which a supply, other than the grant of a right to goods or services, spans the date of the VAT change and the relevant conditions in relation to such a supply, see paragraph 2.

• (4) For the cases in which a supply consisting of the grant of a right to goods or services spans the date of the VAT change and the relevant conditions in relation to such a supply, see paragraph 3.

• (5) Sub-paragraph (1) has effect subject to the exceptions made by or under Part 2 of this Schedule.

• (6) In this Schedule—

• Part 3 contains provision about liability for, and the amount of, a supplementary charge under this Schedule,

• Part 4 contains special provision about listed supplies, and

• Part 5 contains provision about administration and interpretation.

• (7) A supplementary charge to value added tax under this Schedule is to be treated for all purposes as if it were value added tax charged in accordance with VATA 1994.

Supply spanning the date of the VAT change

2

• (1) For the purposes of this Schedule, a supply of goods or services spans the date of the VAT change where—

• (a) by virtue of the issue of a VAT invoice or the receipt of a payment by the person making the supply (“the supplier”), the supply is treated as taking place before the date of the VAT change, but

• (b) the basic time of supply (see paragraph 4) is on or after the date of the VAT change.

• (2) The relevant conditions are—

• (a) in relation to a supply that is within sub-paragraph (1)(a) by virtue of the issue of a VAT invoice, conditions A to D, and

• (b) in relation to a supply that is within sub-paragraph (1)(a) by virtue of the receipt of a payment, conditions A to C.

• (3) Condition A is that the supplier and the person to whom the supply is made are connected with each other at any time in the period—

• (a) beginning with the day on which the supply is treated as taking place, and