Finance Act 2018

PART 1 — Direct taxes

Income tax and corporation tax: charge

Intangible fixed assets: realisation involving non-monetary receipt

1

Income tax is charged for the tax year 2018-19.

Corporation tax charge for financial year 2019

2

Corporation tax is charged for the financial year 2019.

Income tax: rates and allowances

Debt traded on a multilateral trading facility

3

For the tax year 2018-19 the main rates of income tax are as follows—

• (a) the basic rate is 20%;

• (b) the higher rate is 40%;

• (c) the additional rate is 45%.

Default and savings rates of income tax for tax year 2018-19

4

• (1) For the tax year 2018-19 the default rates of income tax are as follows—

• (a) the default basic rate is 20%;

• (b) the default higher rate is 40%;

• (c) the default additional rate is 45%.

• (2) For the tax year 2018-19 the savings rates of income tax are as follows—

• (a) the savings basic rate is 20%;

• (b) the savings higher rate is 40%;

• (c) the savings additional rate is 45%.

Starting rate limit for savings for tax year 2018-19

5

Section 21 of ITA 2007 (indexation) does not apply in relation to the starting rate limit for savings for the tax year 2018-19 (so that, under section 12(3) of ITA 2007 as amended by section 4 of FA 2017, that limit remains at £5000 for that tax year).

Transfer of tax allowance after death of spouse or civil partner

6

• (1) Chapter 3A of Part 3 of ITA 2007 (transferable tax allowance) is amended as follows.

• (2) Section 55B (tax reduction: entitlement) is amended in accordance with subsections (3) to (5).

• (3) In subsection (2) (conditions for entitlement to tax reduction)—

• (a) for paragraph (a) (individual is spouse or civil partner of maker of election in force under section 55C) substitute—

(a) the individual is the gaining party (see section 55C(1)(a)) in the case of an election under section 55C which is in force for the tax year,

, and

• (b) in paragraph (d), for “individual's” substitute “ relinquishing ”.

• (4) After subsection (5) insert—

(5A) In this section “the relinquishing spouse or civil partner”, in relation to an election under section 55C, means the individual mentioned in section 55C(1)(a) by whom, or by whose personal representatives, the election is made.

• (5) In subsection (6) (reduced personal allowance for transferor)—

• (a) after “under subsection (1)” insert “ by reference to an election under section 55C ”, and

• (b) for “individual's” substitute “ relinquishing ”.

• (6) Section 55C (elections to reduce personal allowance) is amended in accordance with subsections (7) and (8).

• (7) In subsection (1)(a) (individual may make election if married or in civil partnership)—

• (a) after “the same person” insert “ (“the gaining party”) ”, and

• (b) in sub-paragraph (ii), after “when the election is made” insert “ or, where the election is made after the death of one or each of them, when they were last both living ”.

• (8) After subsection (4) insert—

(5) The personal representatives of an individual may make any election for the purposes of section 55B that the individual (if living) might make in relation to— (a) the tax year in which the individual dies, or (b) an earlier tax year.

• (9) Section 55D (procedure for elections under section 55C) is amended in accordance with subsections (10) and (11).

• (10) In subsection (3) (elections which are not automatically continued in force for subsequent years), after “is made after the end of the tax year to which it relates” insert “ or is made after the death of either of the spouses or civil partners ”.

• (11) In subsection (4) (election may be withdrawn only by individual who made it), after “by whom the election was made” insert “ ; an election made by an individual's personal representatives may not be withdrawn ”.

• (12) The amendments made by this section—

• (a) are to be treated as having come into force on 29 November 2017,

• (b) have effect in relation to elections made on or after that day, and

• (c) so have effect even where a relevant death occurred on or before that day.

Employment

Deductions from seafarers’ earnings

7

In section 384 of ITEPA 2003 (which provides that Crown employees cannot be seafarers for the purposes of Chapter 6 of Part 5), in subsection (2) (meaning of Crown employment), before the “and” at the end of paragraph (a) insert—

(aa) which is not employment in the Royal Fleet Auxiliary Service,

.

Exemption for armed forces’ accommodation allowances

8

• (1) In Chapter 8 of Part 4 of ITEPA 2003 (exemptions: special kinds of employees), after section 297C insert—

(297D) (1) No liability to income tax arises in respect of payments of accommodation allowances to, or in respect of, a member of the armed forces of the Crown. (2) An “accommodation allowance” is an allowance— (a) payable out of the public revenue, (b) for, or towards, costs of accommodation, and (c) in respect of which any conditions specified in regulations made by the Treasury are met. (3) The provision that may be made by regulations under subsection (2)(c) includes provision framed by reference to a scheme (by whatever name called), or document, as it has effect from time to time. (4) Regulations under this section may make— (a) different provision for different cases, and (b) different provision for different areas. (5) Regulations under this section that do not increase any person's liability to income tax may have effect in relation to times before they are made.

• (2) The amendment made by subsection (1) has effect in relation to payments on or after such date as may be specified in regulations made by the Treasury.

Benefits in kind: diesel cars

9

• (1) Section 141 of ITEPA 2003 (benefits in kind: appropriate percentage for diesel cars) is amended as follows.

• (2) For subsection (1) substitute—

(1) This section applies to a diesel car first registered on or after 1 January 1998 but before 1 September 2017. (1A) This section applies to a diesel car first registered on or after 1 September 2017 if it does not meet the Euro 6d emissions standard.

• (3) In subsection (2)—

• (a) in the words before step 1, for “such a” substitute “ the ”;

• (b) in paragraph (a) of step 3, for “3 percentage points” substitute “ 4 percentage points ”.

• (4) After subsection (2) insert—

(2A) A vehicle meets the Euro 6d emissions standard only if it is first registered on the basis of an EC certificate of conformity which indicates that the exhaust emission level is Euro 6d (and it does not meet that standard if it is first registered on the basis of an EC certificate of conformity which indicates that that level is Euro 6d-TEMP).

• (5) In sections 139(7)(a) and 140(5)(a) of ITEPA 2003 (appropriate percentage), before “diesel” insert “ certain ”.

• (6) The amendments made by this section have effect in relation to the tax year 2018-19 and subsequent tax years.

Termination payments: foreign service

10

• (1) Chapter 3 of Part 6 of ITEPA 2003 (payments, and other benefits, on termination of employment etc) is amended as follows.

• (2) In section 413 (exception from charge on termination etc payment where employee's work history includes sufficient foreign service), before subsection (1) insert—

(A1) This section applies to a payment or other benefit if— (a) the payment or other benefit is within section 401(1)(a), and the employee or former employee is non-UK resident for the tax year in which the employment terminates, or (b) the payment or other benefit is within section 401(1)(b) or (c).

• (3) In section 414(1) (reduction of termination etc payment where foreign service insufficient for section 413 exception)—

• (a) before paragraph (a) insert—

(za) either— (i) the payment or other benefit is within section 401(1)(a), and the employee or former employee is non-UK resident for the tax year in which the employment terminates, or (ii) the payment or other benefit is within section 401(1)(b) or (c),

, and

• (b) for paragraph (b) substitute—

(b) section 413(1) does not except the payment or other benefit from the application of this Chapter.

• (4) After section 414A insert—

(414B) (1) This section applies to a payment or other benefit if— (a) the payment or other benefit is within section 401(1)(a), and (b) the employee or former employee is UK resident for the tax year in which the employment terminates. (2) This Chapter does not apply if the service of the employee or former employee in the employment in respect of which the payment or other benefit is received included foreign seafaring service comprising— (a) three-quarters or more of the whole period of service ending with the date of the termination in question, or (b) if the period of service ending with that date exceeded 10 years, the whole of the last 10 years, or (c) if the period of service ending with that date exceeded 20 years, one-half or more of that period, including any 10 of the last 20 years. (3) In subsection (2) “foreign seafaring service” means service to which subsection (4), (5) or (7) applies. (4) This subsection applies to service in or after the tax year 2003-04 such that a deduction equal to the whole amount of the earnings from the employment was or would have been allowable under Chapter 6 of Part 5 (deductions from seafarers' earnings). (5) This subsection applies to service before the tax year 2003-04 and after the tax year 1973-74 such that a deduction equal to the whole amount of the emoluments from the employment was or would have been allowable under a seafarers' earnings deduction provision. (6) In subsection (5) “seafarers' earnings deduction provision” means— (a) paragraph 1 of Schedule 2 to FA 1974 so far as relating to employment as a seafarer, (b) paragraph 1 of Schedule 7 to FA 1977 so far as relating to employment as a seafarer, (c) section 192A of ICTA, or (d) section 193(1) of ICTA so far as relating to employment as a seafarer. (7) This subsection applies to service before the tax year 1974-75 in an employment as a seafarer such that tax was not chargeable in respect of the emoluments of the employment— (a) in the tax year 1956-57 or later, under Case I of Schedule E, or (b) in earlier tax years, under Schedule E, or it would not have been so chargeable had there been any such emoluments. (8) In this section “employment as a seafarer” is to be read in accordance with section 384. (414C) (1) This section applies if— (a) the payment or other benefit is within section 401(1)(a), (b) the employee or former employee is UK resident for the tax year in which the employment terminates, (c) the service of the employee or former employee in the employment in respect of which the payment or other benefit is received includes foreign service, and (d) section 414B(2) does not except the payment or other benefit from the application of this Chapter. (2) The taxable person may claim relief in the form of a proportionate reduction of the amount that would otherwise— (a) be treated as earnings by section 402B(1), or (b) count as employment income as a result of section 403. (3) The proportion is that which the length of the foreign seafaring service bears to the whole length of service in the employment before the date of the termination in question. (4) A person's entitlement to relief under this section is limited as mentioned in subsection (5) if the person is entitled— (a) to deduct, retain or satisfy income tax out of a payment which the person is liable to make, or (b) to charge any income tax against another person. (5) The relief must not reduce the amount of income tax for which the person is liable below the amount the person is entitled so to deduct, retain, satisfy or charge. (6) In this section “foreign seafaring service” has the same meaning as in section 414B(2).

• (5) The amendments made by this section have effect—

• (a) where the date of the termination or change in question is, or is after, 6 April 2018, and

• (b) the payment, or other benefit, is received after 13 September 2017.

Disguised remuneration

Employment income provided through third parties

11

Schedule 1 contains provision about employment income provided through third parties.

Trading income provided through third parties

12

Schedule 2 contains provision amending Schedule 12 to F(No.2)A 2017 (trading income provided through third parties: loans etc outstanding on 5 April 2019).

Pensions

Pension schemes

13

Schedule 3 contains provision about pension schemes.

Investments

EIS, SEIS and VCT reliefs: risk to capital

14

• (1) In Part 5 of ITA 2007 (enterprise investment scheme)—

• (a) in section 157 (eligibility for EIS relief), in subsection (1), before paragraph (a) insert—

(za) the risk-to-capital condition is met (see section 157A),

, and

• (b) after that section insert—

(157A) (1) The risk-to-capital condition is met if, having regard to all the circumstances existing at the time of the issue of the shares, it would be reasonable to conclude that— (a) the issuing company has objectives to grow and develop its trade in the long-term, and (b) there is a significant risk that there will be a loss of capital of an amount greater than the net investment return. (2) For the purposes of subsection (1)(b)— (a) the risk is to be determined by reference to a loss of capital, and the net investment return, for the investors generally, (b) the reference to a loss of capital is to a loss of some or all of the amounts subscribed for the shares by the investors, and (c) the reference to the net investment return is to the net investment return to the investors (whether by way of income or capital growth) taking into account the value of EIS relief. (3) For the purposes of subsection (1) the circumstances to which regard may be had include— (a) the extent to which the company's objectives include increasing the number of its employees or the turnover of its trade, (b) the nature of the company's sources of income, including the extent to which there is a significant risk of the company not receiving some or all of the income, (c) the extent to which the company has or is likely to have assets, or is or could become a party to arrangements for acquiring assets, that could be used to secure financing from any person, (d) the extent to which the activities of the company are sub-contracted to persons who are not connected with it, (e) the nature of the company's ownership structure or management structure, including the extent to which others participate in or devise the structure, (f) how any opportunity for investment in the company is marketed, and (g) the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities. (4) If the issuing company is a parent company— (a) any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and (b) any reference in subsection (3)(a) to (e) to the company is to any group company.

• (2) In Part 5A of ITA 2007 (seed enterprise investment scheme)—

• (a) in section 257AA (eligibility for SEIS relief), before paragraph (a) insert—

(za) the risk-to-capital condition is met (see section 257AAA),

, and

• (b) after that section insert—

(257AAA) (1) The risk-to-capital condition is met if, having regard to all the circumstances existing at the time of the issue of the shares, it would be reasonable to conclude that— (a) the issuing company has objectives to grow and develop its trade in the long-term, and (b) there is a significant risk that there will be a loss of capital of an amount greater than the net investment return. (2) For the purposes of subsection (1)(b)— (a) the risk is to be determined by reference to a loss of capital, and the net investment return, for the investors generally, (b) the reference to a loss of capital is to a loss of some or all of the amounts subscribed for the shares by the investors, and (c) the reference to the net investment return is to the net investment return to the investors (whether by way of income or capital growth) taking into account the value of SEIS relief. (3) For the purposes of subsection (1) the circumstances to which regard may be had include— (a) the extent to which the company's objectives include increasing the number of its employees or the turnover of its trade, (b) the nature of the company's sources of income, including the extent to which there is a significant risk of the company not receiving some or all of the income, (c) the extent to which the company has or is likely to have assets, or is or could become a party to arrangements for acquiring assets, that could be used to secure financing from any person, (d) the extent to which the activities of the company are sub-contracted to persons who are not connected with it, (e) the nature of the company's ownership structure or management structure, including the extent to which others participate in or devise the structure, (f) how any opportunity for investment in the company is marketed, and (g) the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities. (4) If the issuing company is a parent company— (a) any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and (b) any reference in subsection (3)(a) to (e) to the company is to any group company.

• (3) In Part 6 of ITA 2007 (venture capital trusts)—

• (a) in section 286 (qualifying holdings), in subsection (3), before paragraph (za) insert—