Finance Act 2016

(274A) (1) If for a tax year an individual has— (a) a relievable amount in respect of a property business, or (b) two or more relievable amounts each in respect of a different property business, the individual is entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts. (2) An individual has a relievable amount for a tax year in respect of a property business if for that year the individual has any one or more of the following in respect of that business— (a) a current-year amount; (b) a current-year estate amount; (c) a brought-forward amount. (3) An individual's relievable amount for a tax year in respect of a property business is the total of— (a) the individual's current-year amount (if any) for that year in respect of that business, (b) the individual's current-year estate amounts (if any) for that year in respect of that business, and (c) the individual's brought-forward amount (if any) for that year in respect of that business. (4) An individual has a current-year amount for a tax year in respect of a property business if— (a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A, (b) the individual is liable for income tax on N% of those profits, where N is a number— (i) greater than 0, and (ii) less than or equal to 100, and (c) that liability is not under Chapter 6 of Part 5 (estate income), in which event the individual's current-year amount for that tax year in respect of that business is equal to N% of A. (5) An individual has a current-year estate amount for a tax year (“the current year”), in respect of a property business and a particular deceased person's estate, if— (a) an amount (“A”) would, but for section 272A, be deductible in calculating the profits for income tax purposes of that business for a particular tax year (“the profits year”), whether that year is the current year or an earlier tax year, (b) the personal representatives of the deceased person are liable for income tax on N% of those profits, where N is a number— (i) greater than 0, and (ii) less than or equal to 100, (c) the individual is liable for income tax on estate income treated under Chapter 6 of Part 5 as arising in the current year from an interest in the estate, and (d) the basic amount of that estate income consists of, or includes, an amount representative of E% of the personal representatives' N% of the profits of the business for the profits year, where E is a number— (i) greater than 0, and (ii) less than or equal to 100, in which event the individual's current-year estate amount for the current tax year, in respect of that business and estate and the profits year, is equal to E% of N% of A. (6) As to whether an individual has a brought-forward amount for a tax year in respect of a property business, see section 274AA(4). (7) In this section and section 274AA— - “estate income”, and - “basic amount” in relation to any estate income, have the same meaning as in Chapter 6 of Part 5 (see sections 649 and 656(4)). (274AA) (1) This section applies if for a tax year an individual is entitled to relief under section 274A in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts. (2) In respect of a relievable amount, the actual amount on which relief for the year is to be given is (subject to subsection (3)) the amount (“L”) that is the lower of— (a) the relievable amount, and (b) the total of— (i) the profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share (if any) of the adjusted profits on which the individual is liable to income tax otherwise than under Chapter 6 of Part 5, and (ii) so much (if any) of the relievable amount as consists of current-year estate amounts. (3) If S is greater than the individual's adjusted total income for the year (“ATI”), the actual amount on which relief for the year is to be given in respect of a relievable amount is given by— $$ATI S × L$where—S is the total obtained by identifying the amount that is L for each relievable amount and then finding the total of the amounts identified, andL has the same meaning as in subsection (2).$ (4) Where— (a) a relievable amount, is greater than— (b) the actual amount on which relief for the year is to be given in respect of the relievable amount, the difference is the individual's brought-forward amount for the following tax year in respect of the property business concerned. (5) The amount of the relief for the year in respect of a relievable amount is given by— $$AA × BR$where—AA is the actual amount on which relief for the year is to be given in respect of the relievable amount, andBR is the basic rate of income tax for the year,$ (6) For the purposes of this section, an individual's adjusted total income for a tax year is identified as follows— - Step 1 Identify the individual's net income for the year (see Step 2 of the calculation in section 23 of ITA 2007). - Step 2 Exclude from that net income— 1. so much of it as is within section 18(3) or (4) of ITA 2007 (income from savings), and 2. so much of it as is dividend income. - Step 3 Reduce what is left after Step 2 of this calculation by the amount of any allowances deducted for the year in the individual's case at Step 3 of the calculation in section 23 of ITA 2007. The result is the individual's adjusted total income for the year. (274B) (1) If for a tax year the trustees of a settlement have— (a) a relievable amount in respect of a property business, or (b) two or more relievable amounts each in respect of a different property business, the trustees of the settlement are entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts. (2) The trustees of a settlement have a relievable amount for a tax year in respect of a property business if for that year the trustees of the settlement have a current-year amount, or brought-forward amount, in respect of that business (or have both). (3) In the case of trustees of a settlement, their relievable amount for a tax year in respect of a property business is the total of— (a) their current-year amount (if any) for that year in respect of that business, and (b) their brought-forward amount (if any) for that year in respect of that business. (4) The trustees of a settlement have a current-year amount for a tax year in respect of a property business if— (a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A, (b) the trustees of the settlement are liable for income tax on N% of those profits, where N is a number— (i) greater than 0, and (ii) less than or equal to 100, and (c) in relation to the trustees of the settlement, that N% of those profits is accumulated or discretionary income, in which event the current-year amount of the trustees of the settlement for that tax year in respect of that business is equal to N% of A. (5) As to whether the trustees of a settlement have a brought-forward amount for a tax year in respect of a property business, see section 274C(3). (6) In this section and section 274C “accumulated or discretionary income” has the meaning given by section 480 of ITA 2007. (274C) (1) This section applies if for a tax year the trustees of a settlement are entitled to relief under section 274B in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts. (2) The amount of the relief in respect of a relievable amount is given by— $$L × BR$where—BR is the basic rate of income tax for the year, andL is the lower of—the relievable amount, andthe profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share of the adjusted profits—on which the trustees of the settlement are liable for income tax, andwhich, in relation to the trustees of the settlement, is accumulated or discretionary income.$ (3) Where L in the case of a relievable amount is less than the relievable amount, the difference between them is the brought-forward amount of the trustees of the settlement for the following tax year in respect of the property business concerned.

• (2) In consequence of the amendment made by subsection (1), in F(No.2)A 2015 omit section 24(5).

Individual investment plans of deceased investors

27

• (1) In Chapter 3 of Part 6 of ITTOIA 2005 (power to exempt income from individual investment plans from income tax), after section 694 insert—

(694A) (1) In section 694(1) “income of an individual from investments under a plan” includes— (a) income (of any person) from administration-period investments under a plan, and (b) income (of any person) from the estate of a deceased person (“D”) where the whole or any part of the income of D's personal representatives is income from administration-period investments under a plan. (2) For the purposes of sections 694(3)(a) and (4) and 695(1) “individual”, in relation to investments that are administration-period investments, includes— (a) the personal representatives of the deceased individual concerned, and (b) any other person on whose directions plan managers agree to act in relation to the investments. (3) In sections 699 and 701 “investor” includes a person entitled to an exemption given by investment plan regulations by virtue of subsection (1) of this section. (4) Investments are “administration-period investments” if— (a) an individual dies, and (b) immediately before the individual's death— (i) the investments were held under a plan, (ii) the individual was entitled to the income from the investments, and (iii) as a result of investment plan regulations, the individual's income from investments under the plan was exempt from income tax (either wholly or to an extent specified in the regulations). (5) Investments are also “administration-period investments” if (directly or indirectly) they represent investments that are administration-period investments as a result of subsection (4). (6) Investment plan regulations may provide that investments are administration-period investments as a result of subsection (4) or (5) only at times specified in, or ascertained in accordance with, the regulations. (7) Provision under subsection (6) may (in particular) be framed by reference to the completion of the administration of a deceased individual's estate. (8) In the application of subsection (7) in relation to Scotland, the reference to the completion of the administration is to be read in accordance with section 653(2).

• (2) In section 151(2) of TCGA 1992 (Chapter 3 of Part 6 of ITTOIA 2005 applies with modifications in relation to regulations giving relief from capital gains tax in respect of investments under plans)—

• (a) in the words before paragraph (a), for “section 694(1) to (2)” substitute “ sections 694(1) to (2) and 694A(1) ”, and

• (b) after paragraph (a) insert—

(aa) section 694A(2) applies also for the purposes of subsection (1) of this section, (ab) the reference in section 694A(3) to section 694A(1) is to be read as a reference to paragraph (aa) of this subsection, (ac) the reference in section 694A(4)(b)(iii) to the individual's income from investments under the plan being exempt from income tax is to be read as a reference to the individual being entitled to relief from capital gains tax in respect of the investments,

.

• (3) In section 62 of TCGA 1992 (death: general provisions), after subsection (4) (acquisition of asset as legatee) insert—

(4A) The Treasury may by regulations make provision having effect in place of subsection (4)(b) above in a case where there has been a time when the personal representatives— (a) held the asset acquired by the legatee, and (b) would, if they had disposed of the asset at that time— (i) by way of a bargain at arm's length, and (ii) otherwise than to a legatee, have been entitled as a result of regulations under section 151 (investments under plans) to relief from capital gains tax in respect of any chargeable gain accruing on the disposal. (4B) Provision made by regulations under subsection (4A) above may (in particular) treat a person who acquires an asset as legatee as doing so at a time or for a consideration, or at a time and for a consideration, ascertained as specified by the regulations.

• (4) In consequence of subsection (2)(a), in FA 2011 omit section 40(6)(a).

Reliefs: enterprise investment scheme, venture capital trusts etc

EIS, SEIS and VCTs: exclusion of energy generation

28

• (1) In section 192(1) of ITA 2007 (meaning of “excluded activities”: EIS and SEIS), for paragraphs (ka) to (kc) substitute—

(ka) generating or exporting electricity or making electricity generating capacity available, (kb) generating heat, (kc) generating any form of energy not within paragraph (ka) or (kb), (kd) producing gas or fuel, and

.

• (2) In section 303(1) of ITA 2007 (meaning of “excluded activities”: VCTs), for paragraphs (ka) to (kc) substitute—

(ka) generating or exporting electricity or making electricity generating capacity available, (kb) generating heat, (kc) generating any form of energy not within paragraph (ka) or (kb), (kd) producing gas or fuel, and

.

• (3) In consequence of subsection (1), ITA 2007 is amended as follows—

• (a) in section 192(2)—

• (i) for paragraph (g) substitute

and (g) section 198A (export of electricity).

;

• (ii) omit paragraph (h);

• (b) in section 198A—

• (i) in the heading, omit “subsidised generation or”;

• (ii) omit subsections (3) to (9);

• (c) omit section 198B.

• (4) In consequence of subsection (2), ITA 2007 is amended as follows—

• (a) in section 303(2)—

• (i) for paragraph (g) substitute

and (g) section 309A (export of electricity).

;

• (ii) omit paragraph (h);

• (b) in section 309A—

• (i) in the heading, omit “subsidised generation or”;

• (ii) omit subsections (3) to (9);

• (c) omit section 309B.

• (5) The amendments made by subsections (1) and (3) have effect in relation to shares issued on or after 6 April 2016.

• (6) The amendments made by subsections (2) and (4) have effect in relation to relevant holdings issued on or after 6 April 2016.

EIS and VCTs: definition of certain periods

29

• (1) In section 175A of ITA 2007 (EIS: the permitted maximum age requirement)—

• (a) in subsection (7) for the words from “five” to the end substitute “ relevant five year period. ”;

• (b) after that subsection insert—

(7A) Subject to subsection (7B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period. (7B) If the last accounts filing period ends more than 12 months before the issue date, the relevant five year period is the five year period which ends 12 months before the issue date.

• (2) In section 252A of ITA 2007 (EIS: meaning of “knowledge-intensive company”)—

• (a) in subsection (4), in the definition of “the relevant three preceding years”, for the words from “means” to the end substitute “ means, subject to subsection (4A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period. ”;

• (b) after that subsection insert—

(4A) If the last accounts filing period ends more than 12 months before the date on which the relevant shares are issued, the relevant three preceding years are the three consecutive years the last of which ends 12 months before the date on which the relevant shares are issued.

• (3) In section 280C of ITA 2007 (VCTs: the permitted maximum age condition)—

• (a) in subsection (8) for the words from “five” to the end substitute “ relevant five year period. ”;

• (b) after that subsection insert—

(8A) Subject to subsection (8B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period. (8B) If the last accounts filing period ends more than 12 months before the investment date, the relevant five year period is the five year period which ends 12 months before the investment date.

• (4) In section 294A of ITA 2007 (VCTs: the permitted company age requirement)—

• (a) in subsection (7) for the words from “five” to the end substitute “ relevant five year period. ”;

• (b) after that subsection insert—

(7A) Subject to subsection (7B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period. (7B) If the last accounts filing period ends more than 12 months before the investment date, the relevant five year period is the five year period which ends 12 months before the investment date.

• (5) In section 331A of ITA 2007 (VCTs: meaning of “knowledge-intensive company”)—

• (a) in subsection (5), in the definition of “the relevant three preceding years”, for the words from “means” to the end substitute “ means, subject to subsection (5A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period. ”;

• (b) after that subsection insert—

(5A) If the last accounts filing period ends more than 12 months before the applicable time, the relevant three preceding years are the three consecutive years the last of which ends 12 months before the applicable time.

• (6) The amendments made by this section are to be treated as always having had effect; but this is subject to section 30.

EIS and VCTs: election

30

• (1) If a company (“the relevant company”) makes an election for this section to apply, then—

• (a) the amendments made by subsection (1) of section 29 do not apply in relation to shares issued by the relevant company in the material period,

• (b) the amendments made by subsection (2) of that section do not apply for the purposes of determining whether, at the date of issue of any shares issued by the company in the material period, the company is a knowledge-intensive company for the purposes of Part 5 of ITA 2007,

• (c) the amendments made by subsection (3) of that section do not apply in relation to investments made in the relevant company in the material period,

• (d) the amendments made by subsection (4) of that section do not apply for the purposes of determining whether the requirement of section 294A of ITA 2007 is met in relation to any holding of shares or securities issued by the relevant company in the material period, and

• (e) the amendments made by subsection (5) of that section do not apply for the purposes of determining whether, at any time in the material period which is the applicable time within the meaning given by section 331A of ITA 2007, the relevant company is a knowledge-intensive company for the purposes of Part 6 of ITA 2007.

• (2) Amendments that by reason of an election under this section do not apply in relation to particular shares or investments or for particular purposes are also to be treated as never having applied in relation to those shares or investments or for those purposes.

• (3) Any election under this section must be made in writing and signed by a director of the relevant company.

• (4) Where a company has made an election under this section—

• (a) it must include a statement that the election has been made in any compliance statement subsequently provided by it under section 204(2) of ITA 2007 in respect of an issue of shares made by it in the material period, and

• (b) it must provide a copy of the election to each company to which it has issued shares or securities in the material period.

• (5) An election under this section is irrevocable.

• (6) In this section “the material period” means the period beginning with 18 November 2015 (the date when F(No. 2)A 2015 was passed) and ending with 5 April 2016.

VCTs: requirements for giving approval

31

• (1) Section 274 of ITA 2007 (requirements for the giving of approval) is amended as follows.

• (2) In the table in subsection (2), after the entry beginning “The 70% eligible shares condition” insert—

The non-qualifying investments condition	The company has not made and will not make, in the relevant period, an investment which is neither of the following—an investment that on the date it is made is included in the company's qualifying holdings;an investment falling within subsection (3A).

• (3) In subsection (3), in each of paragraphs (f), (g) and (h), for “(3A)” substitute “ (3ZA) ”.

• (4) After subsection (3) insert—

(3ZA) In the second column of the table in subsection (2), in the entries for the investment limits condition, the permitted maximum age condition and the no business acquisition condition, any reference to an investment made by the company in a company does not include an investment falling within subsection (3A).

• (5) In subsection (3A)—

• (a) for the words from “In the second” to “does not include” substitute “ An investment made by a company (“the investor”) falls within this subsection if it is ”;

• (b) in paragraph (c) for “the company” substitute “ the investor ”;

• (c) after paragraph (c) insert—

(d) money in the investor's possession; (e) a sum owed to the investor which— (i) under section 285(4)(b) (read with section 285(5) and (6)) is to be regarded as an investment of the investor, and (ii) is such that the investor's right mentioned in section 285(5)(a) may be exercised on 7 days' notice given by the investor.

• (6) After subsection (3A) insert—

(3B) In subsection (3A), any reference to a thing which may be done on 7 days' notice includes a case where that thing may be done— (a) on less than 7 days' notice, or (b) without notice.

• (7) In subsection (5)—

• (a) after paragraph (b) insert—

(ba) amend or repeal subsection (3B) in consequence of any provision made under paragraph (b),

;

• (b) in paragraph (c) for the words from “made by” to “(3A)” substitute “ falling within subsection (3A) may be held by the company ”.

• (8) The amendments made by this section have effect in relation to investments made on or after 6 April 2016.

Reliefs: peer-to-peer lending

Income tax relief for irrecoverable peer-to-peer loans

32

• (1) ITA 2007 is amended as follows.

• (2) After section 412 insert—

(412A) (1) A person (“L”) is entitled to relief under this section if— (a) L has made a peer-to-peer loan (“the relevant loan”), (b) the loan was made through an operator, (c) L has not assigned the right to recover the principal of the loan, and (d) any outstanding amount of the principal of the loan has, on or after 6 April 2015, become irrecoverable. (2) But if the outstanding amount became irrecoverable before 6 April 2016 L is entitled to relief under this section only on the making of a claim. (3) The relief is given by deducting the outstanding amount in calculating L's net income for the tax year in which the amount became irrecoverable (see Step 2 of the calculation in section 23). (4) The deduction under this section is to be made only from income arising from the payment to L of interest on— (a) the relevant loan, and (b) any other loan within subsection (5) or (6). (5) A loan is within this subsection if— (a) it is a peer-to-peer loan made by L, and (b) it was made through the operator through whom the relevant loan was made. (6) A loan is within this subsection if— (a) the loan was made by someone other than L, (b) the right to receive interest on the loan has been assigned to L, (c) the right was assigned through the operator through whom the relevant loan was made, and (d) either— (i) L is a person within paragraph (a), (b) or (c) of section 412I(4), or (ii) the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan. (7) The amount deducted under this section is limited in accordance with section 25(4) and (5). (8) In this section “irrecoverable” means irrecoverable other than by legal proceedings or by the exercise of any right granted by way of security for the loan. (412B) (1) A person (“L”) may make a claim for relief under this section if— (a) L is entitled to relief under section 412A in respect of any outstanding amount of the principal of a loan (“the relevant loan”), but (b) in the tax year in relation to which L is entitled to that relief (“the relevant year”)— (i) L has no income of the kind mentioned in section 412A(4) from which to deduct the outstanding amount, or (ii) L has insufficient income of that kind to enable the outstanding amount to be deducted in full under that section. (2) The claim is for the outstanding amount or (in a case within subsection (1)(b)(ii)) the part of the outstanding amount not capable of being deducted under section 412A to be deducted under this section in calculating L's net income for the relevant year. (3) The deduction under this section is to be made only from income arising from the payment to L of interest on loans within subsection (4) or (5). (4) A loan is within this subsection if— (a) it is a peer-to-peer loan made by L, and (b) it was made through an operator who is not the operator through whom the relevant loan was made. (5) A loan is within this subsection if— (a) the loan was made by someone other than L, (b) the right to receive interest on the loan has been assigned to L, (c) that right was assigned through an operator who is not the operator through whom the relevant loan was made, and (d) either— (i) L is a person within paragraph (a), (b) or (c) of section 412I(4), or (ii) the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan. (6) The amount deducted under this section is limited in accordance with section 25(4) and (5). (412C) (1) A person (“L”) may make a claim for relief under this section if— (a) L is entitled to relief under section 412A in respect of any outstanding amount of the principal of a loan (“the relevant loan”), but (b) in the tax year in relation to which L is entitled to that relief (“the relevant year”)— (i) L has no income of the kind mentioned in section 412A(4) or section 412B(3) from which to deduct the outstanding amount, or (ii) L has insufficient income of that kind to enable the outstanding amount to be deducted in full under those sections. (2) The claim is for the outstanding amount or (in a case within subsection (1)(b)(ii)) the part of the outstanding amount not capable of being deducted under sections 412A and 412B to be deducted under this section in calculating L's net income for the four tax years following the relevant year. (3) The deduction under this section is to be made only from income arising from the payment to L of interest on— (a) the relevant loan, and (b) any other loan within subsection (4) or (5). (4) A loan is within this subsection if— (a) it is a peer-to-peer loan made by L, and (b) it was made through an operator (whether or not that operator is the operator through whom the relevant loan was made). (5) A loan is within this subsection if— (a) the loan was made by someone other than L, (b) the right to receive interest on the loan has been assigned to L, (c) that right was assigned through an operator (whether or not that operator is the operator through whom the relevant loan was made), and (d) either— (i) L is a person within paragraph (a), (b) or (c) of section 412I(4), or (ii) the recipient of the loan is a person within one of those paragraphs and the loan is a personal or small loan. (6) This section needs to be read with section 412D (how relief works). (412D) (1) This subsection explains how deductions are to be made under section 412C. The amount to be deducted at any step is limited in accordance with section 25(4) and (5). - Step 1 Deduct the outstanding amount or (in a case within section 412C(1)(b)(ii)) the part of the outstanding amount not capable of being deducted under sections 412A and 412B from the lending income for the first tax year following the relevant year. - Step 2 Deduct from the lending income for the second tax year following the relevant year any part of the outstanding amount not previously deducted. - Step 3 Apply Step 2 in relation to the lending income for the third and fourth tax years following the relevant year, stopping if all of the outstanding amount is deducted. (2) In this section— - “lending income” means income of a kind mentioned in section 412C(3); - “relevant year” has the meaning given by section 412C(1)(b). (412E) (1) This section applies where— (a) any amount of the principal of a loan has been deducted under this Chapter in calculating a person's net income for a tax year, and (b) the person subsequently recovers that amount or any part of it. (2) The amount recovered is to be treated for the purposes of this Act as if it were interest on the loan paid to the person at the time it was recovered. (3) For the purposes of this section, a person is to be treated as recovering an amount if the person (or any other person at his or her direction) receives any money or money's worth— (a) in satisfaction of the person's right to recover that amount, or (b) in consideration of the person's assignment of the right to recover it; and where a person assigns such a right otherwise than by way of a bargain made at arm's length the person shall be treated as receiving money or money's worth equal to the market value of the right at the time of the assignment. (412F) (1) This section applies where— (a) a person (“A”) is assigned the right to recover the principal of a loan, (b) the right is assigned through an operator (“O”), (c) A makes a payment in consideration of the assignment, and (d) A does not further assign the right. (2) The loan is to be treated for the purposes of section 412A(1) as— (a) having been made by A, and (b) having been made through O. (3) The amount (if any) of the principal of the loan which is treated as irrecoverable may not exceed the amount which is arrived at by— (a) taking the amount of the payment mentioned in subsection (1)(c), and (b) deducting any amount of the principal of the loan previously recovered by A. (412G) For the purposes of this Chapter— (a) a loan or a payment made by or to a nominee or bare trustee for a person is treated as made by or to that person, and (b) a right assigned by or to a nominee or bare trustee for a person is treated as assigned by or to that person. (412H) (1) Subsection (2) applies in relation to a loan if any person has obtained income tax relief (other than under this Chapter) which is properly attributable to the loan. (2) The amount (if any) of the principal of the loan which is treated as irrecoverable may not exceed the amount which is arrived at by— (a) taking the amount of the principal of the loan, and (b) deducting the amount of the relief mentioned in subsection (1). (412I) (1) This section applies for the purposes of this Chapter. (2) “Loan” means a loan of money which— (a) is made on genuine commercial terms, and (b) is not part of a scheme or arrangement the main purpose or one of the main purposes of which is to obtain a tax advantage (within the meaning given by section 208 of the FA 2013). (3) A loan is a “peer-to-peer loan” only if it meets— (a) Condition A or B, and (b) Condition C. (4) Condition A is that the person who made the loan is— (a) an individual, (b) a partnership which consists of— (i) two or three persons, and (ii) at least one person who is not a body corporate, or (c) an unincorporated body of persons which— (i) is not a partnership, and (ii) consists of at least one person who is not a body corporate. (5) Condition B is that— (a) the recipient of the loan is a person within paragraph (a), (b) or (c) of subsection (4), and (b) the loan is a personal or small loan. (6) Condition C is that, assuming interest were paid on the loan, the person who made the loan would (except for this Chapter) be liable for income tax charged on the interest. (7) “Personal loan” means a loan which is not used wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the recipient of the loan. (8) “Small loan” means a loan of £25,000 or less. (412J) (1) This section applies for the purposes of this Chapter. (2) “Operator” means a person who— (a) has permission under Part 4A of FISMA 2000 to carry on a regulated activity specified in Article 36H of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending), or (b) has been granted equivalent permission under the law of a territory outside the United Kingdom that is within the European Economic Area. (3) A loan is “made through” an operator if the person who makes the loan and the recipient of the loan enter the agreement under which the loan is made at the invitation of the operator. (4) A right is “assigned through” an operator if the person who assigns the right and the person to whom the right is assigned enter the agreement under which the assignment takes effect at the invitation of the operator. (5) A person is not to be treated as having entered an agreement at the invitation of an operator if the operator made the invitation otherwise than in the course of carrying on the activity to which the permission mentioned in subsection (2)(a) or (b) relates.

• (3) In section 24(1) (list of reliefs deductible at Step 2 of the calculation of income tax liability), in paragraph (b), at the appropriate place insert— “ Chapter 1A of Part 8 (irrecoverable peer-to-peer loans), ”.

• (4) In section 25(3) (list of provisions requiring reliefs to be deducted from particular components of income etc) at the appropriate place insert— “ sections 412A(4), 412B(3) and 412C(3) (relief for irrecoverable peer-to-peer loans only against interest on certain loans), ”.

Transactions in securities

Transactions in securities: company distributions

33

• (1) Chapter 1 of Part 13 of ITA 2007 (transactions in securities) is amended as follows.

• (2) In section 684 (person liable to counteraction), in subsection (1)—

• (a) in the opening words, after “a person” insert “ (“the party”) ”;

• (b) in paragraph (c), omit “the person in being a party to”;

• (c) in paragraph (d), for “the person” substitute “ the party or any other person ”.

• (3) In that section, in subsection (2)—

• (a) in paragraph (c), omit the final “and”;

• (b) after paragraph (d) insert—

(e) a repayment of share capital or share premium, and (f) a distribution in respect of securities in a winding up.

• (4) In section 685 (receipt of consideration in connection with distribution by or assets of close company)—

• (a) in subsection (2)—

• (i) in the opening words, for “the person” substitute “ a relevant person ”;

• (ii) in the words after paragraph (c), after “and” insert “ the relevant person ”;

• (b) in subsection (3)—

• (i) in paragraph (a), for “the person” substitute “ a relevant person ”;

• (ii) in paragraph (c), for “the person” substitute “ the relevant person ”;

• (c) after subsection (3) insert—

(3A) In subsections (2) and (3) “relevant person” means— (a) the party, or (b) any person other than the party in relation to whom the condition in section 684(1)(d) is met.

• (d) omit subsection (6);

• (e) after subsection (7) insert—

(7A) The references in subsection (4)(a)(i) and (ii) to assets do not include assets shown to represent return of sums paid by subscribers on the issue of securities merely because the law of the country in which the company is incorporated allows assets of that description to be available for distribution by way of dividend. (7B) The references in subsections (4)(a)(i) and (5)(a) to assets which are available for distribution by way of dividend by the company include assets which are available for distribution to the company by way of dividend by any other company it controls.

• (5) In section 686 (excluded circumstances: fundamental change of ownership)—

• (a) in subsection (1)(a), for the words from “the person” to “party”)” substitute “ the party ”;

• (b) for subsections (2) to (5) substitute—

(2) There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met. (3) The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates— (a) do not directly or indirectly hold more than 25% of the ordinary share capital of the close company, (b) do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and (c) do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company. (4) In this section “original shareholder” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company. (5) For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.

• (6) In section 687 (income tax advantage)—

• (a) in subsection (1), in the opening words, for “the person” substitute “ a person ”;

• (b) in subsection (2)—

• (i) after “to the person” insert “ or an associate of the person ”;

• (ii) for “the relevant consideration is received” substitute “ Condition A or B in section 685 is met ”.

• (7) In section 713 (interpretation), at the appropriate place insert—

“associate” is to be construed in accordance with section 681DL, but as if subsection (4) of that section also included, as persons associated with each other, a person as trustee of a settlement and an individual, where one or more beneficiaries of the settlement are connected or associated with the individual;

.

• (8) The amendments made by this section have effect in relation to—

• (a) a transaction occurring on or after 6 April 2016, or

• (b) a series of transactions any one or more of which occurs on or after that date.

• (9) Accordingly, Chapter 1 of Part 13 of ITA 2007 has effect without the amendments made by this section in relation to a tax advantage obtained on or after 6 April 2016 in consequence of—

• (a) a transaction occurring before that date, or

• (b) a series of transactions all of which occur before that date.

• (10) Where—

• (a) before 6 April 2016 a person provides particulars to the Commissioners for Her Majesty's Revenue and Customs under section 701 of ITA 2007 in respect of a transaction or transactions,

• (b) on the basis of Chapter 1 of Part 13 of ITA 2007 as it has effect apart from this section, notification is given under section 701 of that Act that no counteraction notice ought to be served about the transaction or transactions,

• (c) the transaction, or any one or more of the transactions, occurs on or after 6 April 2016, and

• (d) the person would, but for the notification, be liable for counteraction of an income tax advantage from the transaction or transactions under Chapter 1 of Part 13 of ITA 2007 as amended by this section,

the notification is void and section 702(2) of ITA 2007 does not apply in relation to the transaction or transactions.

Transactions in securities: procedure for counteraction of advantage

34

• (1) Chapter 1 of Part 13 of ITA 2007 (transactions in securities) is amended as follows.

• (2) For section 695 (preliminary notification) substitute—

(695) (1) An officer of Revenue and Customs may enquire into a transaction or transactions if— (a) the officer has reason to believe that section 684 (person liable to counteraction of income tax advantage) may apply to a person (“the taxpayer”) in respect of the transaction or transactions, and (b) the officer notifies the taxpayer of his intention to do so. (2) The notification may be given at any time not more than 6 years after the end of the tax year to which the income tax advantage in question relates.

• (3) Omit sections 696 and 697 (opposed notifications).

• (4) In section 698 (counteraction notices), for subsection (1) substitute—

(1) If on an enquiry under section 695 an officer of Revenue and Customs determines that section 684 applies to the taxpayer, the income tax advantage in question is to be counteracted by adjustments, unless the officer is of the opinion that no counteraction is required.

• (5) In that section, for subsection (5) substitute—

(5) An assessment may be made in accordance with a counteraction notice at any time (without regard to any time limit on making the assessment that would otherwise apply).

• (6) After that section insert—

(698A) (1) If on an enquiry under section 695 an officer of Revenue and Customs is of the opinion that no counteraction is required, the officer must serve notice on the person (a “no-counteraction notice”) stating that no counteraction is required and why. (2) The taxpayer may apply to the tribunal for a direction requiring an officer of Revenue and Customs to issue one of the following within a specified period— (a) a counteraction notice; (b) a no-counteraction notice. (3) Any such application is to be subject to the relevant provisions of Part 5 of TMA 1970 (see, in particular, section 48(2)(b) of that Act). (4) The tribunal must give the direction applied for unless satisfied that there are reasonable grounds for not serving either a counteraction notice or a no-counteraction notice within a specified period.

• (7) In section 684 (person liable to counteraction), for subsection (4) substitute—

(4) This section is subject to no-counteraction notices issued under section 698A.

• (8) The amendments made by this section have effect in relation to—

• (a) a transaction occurring on or after 6 April 2016, or

• (b) a series of transactions any one or more of which occurs on or after that date.

• (9) Accordingly, Chapter 1 of Part 13 of ITA 2007 has effect without the amendments made by this section in relation to a tax advantage obtained on or after 6 April 2016 in consequence of—

• (a) a transaction occurring before that date, or

• (b) a series of transactions all of which occur before that date.

Distributions in a winding up

35

• (1) In Chapter 3 of Part 4 of ITTOIA 2005 (dividends and other distributions from UK resident companies), after section 396A insert—

(396B) (1) For the purposes of this Chapter, a distribution made to an individual in respect of share capital in the winding up of a UK resident company is a distribution of the company if— (a) Conditions A to D are met, and (b) the distribution is not excluded (see subsection (7)). (2) Condition A is that, immediately before the winding up, the individual has at least a 5% interest in the company. (3) Condition B is that the company— (a) is a close company when it is wound up, or (b) was a close company at any time in the period of two years ending with the start of the winding up. (4) Condition C is that, at any time within the period of two years beginning with the date on which the distribution is made— (a) the individual carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company, (b) the individual is a partner in a partnership which carries on such a trade or activity, (c) the individual, or a person connected with him or her, is a participator in a company in which he or she has at least a 5% interest and which at that time— (i) carries on such a trade or activity, or (ii) is connected with a company which carries on such a trade or activity, or (d) the individual is involved with the carrying on of such a trade or activity by a person connected with the individual. (5) Condition D is that it is reasonable to assume, having regard to all the circumstances, that— (a) the main purpose or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or (b) the winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax. (6) The circumstances referred to in subsection (5) include in particular the fact that Condition C is met. (7) A distribution to an individual is excluded if or to the extent that— (a) the amount of the distribution does not exceed the amount that would result in no gain accruing for the purposes of capital gains tax, or (b) the distribution is a distribution of irredeemable shares. (8) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable; - “effective 51% subsidiary” has the meaning given by section 170(7) of TCGA 1992; - “participator” has the meaning given by section 454 of CTA 2010. (9) For the purposes of this section, an individual has at least a 5% interest in a company if— (a) at least 5% of the ordinary share capital of the company is held by the individual, and (b) at least 5% of the voting rights in the company are exercisable by the individual by virtue of that holding. (10) For the purposes of subsection (9) if an individual holds any shares in a company jointly or in common with one or more other persons, he or she is to be treated as sole holder of so many of them as is proportionate to the value of his or her share (and as able to exercise voting rights by virtue of that holding).

• (2) In Chapter 4 of Part 4 of ITTOIA 2005 (dividends from non-UK resident companies), after section 404 insert—

(404A) (1) For the purposes of this Chapter, a distribution made to an individual in respect of share capital in a winding up of a non-UK resident company is a dividend of the company if— (a) Conditions A to D are met, and (b) the distribution is not excluded (see subsection (7)). (2) Condition A is that, immediately before the winding up, the individual has at least a 5% interest in the company. (3) Condition B is that the company— (a) is a close company when it is wound up, or (b) was a close company at any time in the period of two years ending with the start of the winding up. (4) Condition C is that, at any time within the period of two years beginning with the date on which the distribution is made— (a) the individual carries on a trade or activity which is the same as, or similar to, that carried on by the company or an effective 51% subsidiary of the company, (b) the individual is a partner in a partnership which carries on such a trade or activity, (c) the individual, or a person connected with him or her, is a participator in a company in which he or she has at least a 5% interest and which at that time— (i) carries on such a trade or activity, or (ii) is connected with a company which carries on such a trade or activity, or (d) the individual is involved with the carrying on of such a trade or activity by a person connected with the individual. (5) Condition D is that it is reasonable to assume, having regard to all the circumstances, that— (a) the main purpose or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or (b) the winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax. (6) The circumstances referred to in subsection (5) include in particular the fact that Condition C is met. (7) A distribution to an individual is excluded if or to the extent that— (a) the amount of the distribution does not exceed the amount that would result in no gain accruing for the purposes of capital gains tax, or (b) the distribution is a distribution of irredeemable shares. (8) In this section— - “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable; - “close company” includes a company which would be a close company if it were a UK resident company; - “effective 51% subsidiary” has the meaning given by section 170(7) of TCGA 1992; - “participator” has the meaning given by section 454 of CTA 2010. (9) For the purposes of this section, a person has at least a 5% interest in a company if— (a) at least 5% of the ordinary share capital of the company is held by the individual, and (b) at least 5% of the voting rights in the company are exercisable by the individual by virtue of that holding. (10) For the purposes of subsection (9) if an individual holds any shares in a company jointly or in common with one or more other persons, he or she is to be treated as sole holder of so many of them as is proportionate to the value of his or her share (and as able to exercise voting rights by virtue of that holding).

• (3) The amendments made by this section have effect in relation to distributions made on or after 6 April 2016.

Disguised fees and carried interest

Disguised investment management fees

36

• (1) Section 809EZA of ITA 2007 (disguised investment management fees: charge to income tax) is amended as specified in subsections (2) and (3).

• (2) In subsection (3)—

• (a) in paragraph (a), for “performs” substitute “ at any time performs or is to perform ”;

• (b) omit paragraph (b);

• (c) in paragraph (c), for “the scheme” substitute “ an investment scheme ”.

• (3) After subsection (6) insert—

(7) The reference in subsection (6)(a) to a collective investment scheme includes— (a) arrangements which permit an external investor to participate in investments acquired by the collective investment scheme without participating in the scheme itself, and (b) arrangements under which sums arise to an individual performing investment management services in respect of the collective investment scheme without those sums arising from the scheme itself.

• (4) In section 809EZE of that Act (interpretation), in subsection (1), in paragraph (a) of the definition of “external investor”, for “performs” substitute “ at any time performs or is to perform ”.

• (5) The amendments made by this section have effect in relation to sums arising on or after 6 April 2016 (whenever the arrangements under which the sums arise were made).

Income-based carried interest

37

• (1) In Chapter 5E of Part 13 of ITA 2007 (tax avoidance: disguised investment management fees), in section 809EZB(1) (meaning of “management fee”), for paragraph (c) substitute—

(c) carried interest which is not income-based carried interest (see sections 809EZC and 809EZD for carried interest, and Chapter 5F for income-based carried interest).

• (2) After Chapter 5E of Part 13 of ITA 2007 insert—

(809FZA) (1) This Chapter determines when carried interest arising to an individual from an investment scheme is “income-based carried interest” for the purposes of Chapter 5E (and, in particular, section 809EZB(1)(c)). (2) Section 809FZB contains the general rule, under which the extent to which carried interest is income-based carried interest depends on the average holding period of the investment scheme. (3) Sections 809FZC to 809FZP contain further provision relating to average holding periods. (4) Sections 809FZQ and 809FZR contain a particular rule for direct lending funds. (5) Sections 809FZS and 809FZT contain an exception to the general rule for carried interest which is conditionally exempt from income tax. (6) Sections 809FZU to 809FZZ contain supplementary and interpretative provision. (7) Nothing in this Chapter affects the liability to any tax of— (a) the investment scheme, or (b) external investors in the investment scheme. (809FZB) (1) “Income-based carried interest” is the relevant proportion of a sum of carried interest arising to an individual from an investment scheme. (2) The relevant proportion is determined by reference to the investment scheme's average holding period as follows.

Average holding period	Relevant proportion
Less than 36 months	100%
At least 36 months but less than 37 months	80%
At least 37 months but less than 38 months	60%
At least 38 months but less than 39 months	40%
At least 39 months but less than 40 months	20%
40 months or more	0%