Section 104
Part 1 General provisions
Partnerships
1 In this Part of this Act a “partnership” means—
(a) a partnership within the Partnership Act 1890 (c. 39),
(b) a limited partnership registered under the Limited Partnerships Act 1907 (c. 24), or
(c) a limited liability partnership formed under the Limited Liability Partnerships Act 2000 (c. 12) or the Limited Liability Partnerships Act (Northern Ireland) 2002 (c. 12 (N. I.)),
or a firm or entity of a similar character to any of those mentioned above formed under the law of a country or territory outside the United Kingdom.
Legal personality of partnership disregarded
2 (1) For the purposes of this Part of this Act—
(a) a chargeable interest held by or on behalf of a partnership is treated as held by or on behalf of the partners, and
(b) a land transaction entered into for the purposes of a partnership is treated as entered into by or on behalf of the partners,
and not by or on behalf of the partnership as such.
(2) Sub-paragraph (1) applies notwithstanding that the partnership is regarded as a legal person, or as a body corporate, under the law of the country or territory under which it is formed.
Continuity of partnership
3 For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.
Partnership not to be regarded as unit trust scheme etc
4 A partnership is not to be regarded for the purposes of this Part of this Act as a unit trust scheme or an open ended investment company.
Part 2 Ordinary partnership transactions
Introduction
5 (1) This Part of this Schedule applies to transactions entered into as purchaser by or on behalf of the members of a partnership, other than transactions within Part 3 of this Schedule (transactions to which special provisions apply).
Responsibility of partners
6 (1) Anything required or authorised to be done under this Part of this Act by or in relation to the purchaser under the transaction is required or authorised to be done by or in relation to all the responsible partners.
(2) The responsible partners in relation to a transaction are—
(a) the persons who are partners at the effective date of the transaction, and
(b) any person who becomes a member of the partnership after the effective date of the transaction.
(3) This paragraph has effect subject to paragraph 8 (representative partners).
Joint and several liability of responsible partners
7 (1) Where the responsible partners are liable—
(a) to make a payment of tax or to interest on unpaid tax,
(b) to make a payment in accordance with an assessment under paragraph 29 of Schedule 10 (recovery of excessive repayment), or
(c) to a penalty under this Part of this Act or to interest on such a penalty,
the liability is a joint and several liability of those partners.
(1A) No amount may be recovered by virtue of sub-paragraph (1)(a) or (b) from a person who did not become a responsible partner until after the effective date of the transaction in respect of which the tax is payable.
(2) No amount may be recovered by virtue of sub-paragraph (1)(c) from a person who did not become a responsible partner until after the relevant time.
(3) The relevant time for this purpose is—
(a) in relation to so much of a penalty as is payable in respect of any day, or to interest on so much of a penalty as is so payable, the beginning of that day;
(b) in relation to any other penalty, or interest on such a penalty, the time when the act or omission occurred that caused the penalty to become payable.
Representative partners
8 (1) Anything required or authorised to be done by or in relation to the responsible partners may instead be done by or in relation to any representative partner or partners.
(2) This includes making the declaration required by paragraph 1(1)(c) of Schedule 10 ... (declaration that return ... is complete and correct).
(3) A representative partner means a partner nominated by a majority of the partners to act as the representative of the partnership for the purposes of this Part of this Act.
(4) Any such nomination, or the revocation of such a nomination, has effect only after notice of the nomination, or revocation, has been given to the Inland Revenue.
Part 3 Transactions to which special provisions apply
Introduction
9 (1) This Part of this Schedule applies to certain transactions involving—
(a) the transfer of a chargeable interest to a partnership (paragraph 10),
(b) the transfer of an interest in a partnership (paragraphs 14, 17, 31 and 32), or
(c) the transfer of a chargeable interest from a partnership (paragraph 18).
(2) References in this Part of this Schedule to the transfer of a chargeable interest include—
(a) the grant or creation of a chargeable interest,
(b) the variation of a chargeable interest, and
(c) the surrender, release or renunciation of a chargeable interest.
Transfer of chargeable interest to a partnership: general
10 (1) This paragraph applies where—
(a) a partner transfers a chargeable interest to the partnership, or
(b) a person transfers a chargeable interest to a partnership in return for an interest in the partnership, or
(c) a person connected with—
(i) a partner, or
(ii) a person who becomes a partner as a result of or in connection with the transfer,
transfers a chargeable interest to the partnership.
It applies whether the transfer is in connection with the formation of the partnership or is a transfer to an existing partnership.
(2) The chargeable consideration for the transaction shall (subject to paragraph 13) be taken to be equal to—
MV×(100-SLP)%
where—
MV is the market value of the interest transferred, and
SLP is the sum of the lower proportions.
(5) Paragraph 12 provides for determining the sum of the lower proportions.
(6) Paragraph 11 applies ... if the whole or part of the chargeable consideration for the transaction is rent.
(7) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to a transaction to which this paragraph applies, but the responsible partners are—
(a) those who were partners immediately before the transfer and who remain partners after the transfer, and
(b) any person becoming a partner as a result of, or in connection with, the transfer.
(8) This paragraph has effect subject to any election under paragraph 12A.
Transfer of chargeable interest to a partnership: chargeable consideration including rent
11 (1) This paragraph applies in relation to a transaction to which paragraph 10 applies where the whole or part of the chargeable consideration for the transaction is rent.
(2) Schedule 5 (amount of tax chargeable: rent) has effect with the modifications set out in sub-paragraphs (2A) to (2C).
(2A) In paragraph 2—
(a) for “the net present value of the rent payable over the term of the lease” substitute “ the relevant chargeable proportion of the net present value of the rent payable over the term of the lease ”, and
(b) for “the net present values of the rent payable over the terms of all the leases” substitute “ the relevant chargeable proportions of the net present values of the rent payable over the terms of all the leases ”.
(2B) In paragraph 9A(6) —
(a) for “the annual rent” substitute “ the relevant chargeable proportion of the annual rent ”, and
(b) for “the total of the annual rents” substitute “ the relevant chargeable proportion of the total of the annual rents ”.
(2C) For paragraph 9(4) substitute—
(4) Tax chargeable under this Schedule is in addition to any tax chargeable under section 55 or 74(1A) or Schedule 4A ... as they have effect by virtue of paragraph 10 of Schedule 15.
.
(2D) For the purposes of sub-paragraphs (2A) and (2B) the relevant chargeable proportion is—
(100-SLP)%
where SLP is the sum of the lower proportions.
(8) Paragraph 12 provides for determining the sum of the lower proportions.
(9) This paragraph is subject to paragraph 13.
Transfer of chargeable interest to a partnership: sum of the lower proportions
12 (1) The sum of the lower proportions in relation to a transaction to which paragraph 10 applies is determined as follows:—
Step One
Identify the relevant owner or owners.
A person is a relevant owner if—
immediately before the transaction, he was entitled to a proportion of the chargeable interest, and
immediately after the transaction, he is a partner or connected with a partner.
Step Two
For each relevant owner, identify the corresponding partner or partners.
A person is a corresponding partner in relation to a relevant owner if, immediately after the transaction—
he is a partner, and
he is the relevant owner or is an individual connected with the relevant owner.
(If there is no relevant owner with a corresponding partner, the sum of the lower proportions is nil.)
Step Three
For each relevant owner, find the proportion of the chargeable interest to which he was entitled immediately before the transaction.
Apportion that proportion between any one or more of the relevant owner’s corresponding partners.
Step Four
Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
The lower proportion is—
the proportion of the chargeable interest attributable to the partner, or
if lower, the partner’s partnership share immediately after the transaction.
The proportion of the chargeable interest attributable to the partner is—
if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;
if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.
Step Five
Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
The result is the sum of the lower proportions.
(2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants ... shall be taken to be entitled to the chargeable interest as beneficial tenants in common ... in equal shares.
(3) For the purpose of paragraph (b) of Step 2 a company is to be treated as an individual connected with the relevant owner in so far as it—
(a) holds property as trustee, and
(b) is connected with the relevant owner only because of section 1122(6) of the Corporation Tax Act 2010.
Election by property-investment partnership to disapply paragraph 10
12A (1) Paragraph 10 does not apply to a transfer of a chargeable interest to a property-investment partnership if the purchaser in relation to the transaction elects for that paragraph not to apply.
(2) Where an election under this paragraph is made in respect of a transaction—
(a) paragraph 18 (if relevant) is also disapplied,
(b) the chargeable consideration for the transaction shall be taken to be the market value of the chargeable interest transferred, and
(c) the transaction falls within Part 2 of this Schedule.
(3) An election under this paragraph must be included in the land transaction return made in respect of the transaction or in an amendment of that return.
(4) Such an election is irrevocable and a land transaction return may not be amended so as to withdraw the election.
(5) Where an election under this paragraph in respect of a transaction (the “main transaction”) is made in an amendment of a land transaction return—
(a) the election has effect as if it had been made on the date on which the land transaction return was made, and
(b) any land transaction return in respect of an affected transaction may be amended (within the period allowed for amendment of that return) to take account of that election.
(6) In sub-paragraph (5) “affected transaction”, in relation to the main transaction, means a transaction—
(a) to which paragraph 14 applied, and
(b) with an effective date on or after the effective date of the main transaction.
(7) In this paragraph “property-investment partnership” has the meaning given in paragraph 14(8).
Transfer of chargeable interest to a partnership consisting wholly of bodies corporate
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer ... of interest in property-investment partnership
14 (1) This paragraph applies where—
(a) there is a transfer of an interest in a property-investment partnership,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) the relevant partnership property includes a chargeable interest.
(2) The transfer—
(a) shall be taken for the purposes of this Part to be a land transaction;
(b) is a chargeable transaction.
(3) The purchaser under the transaction is the person who acquires an increased partnership share or, as the case may be, becomes a partner in consequence of the transfer.
(3A) A transfer to which this paragraph applies is a Type A transfer if it takes the form of arrangements entered into under which—
(a) the whole or part of a partner's interest as partner is acquired by another person (who may be an existing partner), and
(b) consideration in money or money's worth is given by or on behalf of the person acquiring the interest.
(3B) A transfer to which this paragraph applies is also a Type A transfer if it takes the form of arrangements entered into under which—
(a) a person becomes a partner,
(b) the interest of an existing partner in the partnership is reduced or an existing partner ceases to be a partner, and
(c) there is a withdrawal of money or money's worth from the partnership by the existing partner mentioned in paragraph (b) (other than money or money's worth paid from the resources available to the partnership prior to the transfer).
(3C) Any other transfer to which this paragraph applies is a Type B transfer.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) The “relevant partnership property”, in relation to a Type A transfer of an interest in a partnership, is every chargeable interest held as partnership property immediately after the transfer, other than—
(a) any chargeable interest that was transferred to the partnership in connection with the transfer;
(b) a lease to which paragraph 15 (exclusion of market rent leases) applies , and
(c) any chargeable interest that is not attributable economically to the interest in the partnership that is transferred.
(5A) The “relevant partnership property”, in relation to a Type B transfer of an interest in a partnership, is every chargeable interest held as partnership property immediately after the transfer, other than—
(a) any chargeable interest that was transferred to the partnership in connection with the transfer,
(b) a lease to which paragraph 15 (exclusion of market rent leases) applies,
(c) any chargeable interest that is not attributable economically to the interest in the partnership that is transferred,
(d) any chargeable interest that was transferred to the partnership on or before 22 July 2004,
(e) any chargeable interest in respect of whose transfer to the partnership an election has been made under paragraph 12A, and
(f) any other chargeable interest whose transfer to the partnership did not fall within paragraph 10(1)(a), (b) or (c).
(6) The chargeable consideration for the transaction shall be taken to be equal to a proportion of the market value of the relevant partnership property.
(7) That proportion is—
(a) if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;
(b) if he was a partner before the transfer, the difference between his partnership share before and after the transfer.
(8) In this paragraph—
“property-investment partnership” means a partnership whose sole or main activity is investing or dealing in chargeable interests (whether or not that activity involves the carrying out of construction operations on the land in question);
“construction operations” has the same meaning as in Chapter 3 of Part 3 of the Finance Act 2004 (see section 74 of that Act).
(9) An interest in respect of the transfer of which this paragraph applies shall be treated as a chargeable interest for the purposes of paragraph 3(1) of Schedule 7 to the extent that the relevant partnership property consists of a chargeable interest.
Exclusion of market rent leases
15 (1) A lease held as partnership property immediately after a transfer of an interest in the partnership is not relevant partnership property for the purposes of paragraph 14(5) or (5A) if the following four conditions are met.
(2) The first condition is that—
(a) no chargeable consideration other than rent has been given in respect of the grant of the lease, and
(b) no arrangements are in place at the time of the transfer for any chargeable consideration other than rent to be given in respect of the grant of the lease.
(3) The second condition is that the rent payable under the lease as granted was a market rent at the time of the grant.
(4) The third condition is that—
(a) the term of the lease is 5 years or less, or
(b) if the term of the lease is more than 5 years—
(i) the lease provides for the rent payable under it to be reviewed at least once in every 5 years of the term, and
(ii) the rent payable under the lease as a result of a review is required to be a market rent at the review date.
(5) The fourth condition is that there has been no change to the lease since it was granted which is such that, immediately after the change has effect, the rent payable under the lease is less than a market rent.
(6) The market rent of a lease at any time is the rent which the lease might reasonably be expected to fetch at that time in the open market.
(7) A review date is a date from which the rent determined as a result of a rent review is payable.
Partnership interests: application of provisions about exchanges etc.
16 (1) Where paragraph 5 of Schedule 4 (exchanges) applies to the acquisition of an interest in a partnership in consideration of entering into a land transaction with an existing partner, the interest in the partnership shall be treated as a major interest in land for the purposes of that paragraph if the relevant partnership property includes a major interest in land.
(2) In sub-paragraph (1) “relevant partnership property” has the meaning given by paragraph 14(5) or (5A) (as appropriate).
(3) The provisions of paragraph 6 of Schedule 4 (partition etc: disregard of existing interest) do not apply where this paragraph applies.
Transfer of partnership interest pursuant to earlier arrangements
17 (1) This paragraph applies where—
(a) there is a transfer of a chargeable interest to a partnership (“the land transfer”);
(b) the land transfer falls within paragraph (a), (b) or (c) of paragraph 10(1);
(c) there is subsequently a transfer of an interest in the partnership (“the partnership transfer”);
(d) the partnership transfer is made—
(i) if the land transfer falls within paragraph 10(1)(a) or (b), by the person who makes the land transfer;
(ii) if the land transfer falls within paragraph 10(1)(c), by the partner concerned;
(e) the partnership transfer is made pursuant to arrangements that were in place at the time of the land transfer;
(f) the partnership transfer is not (apart from this paragraph) a chargeable transaction.
(2) The partnership transfer—
(a) shall be taken for the purposes of this Part to be a land transaction;
(b) is a chargeable transaction.
(3) The partners shall be taken to be the purchasers under the transaction.
(4) The chargeable consideration for the transaction shall be taken to be equal to a proportion of the market value, as at the date of the transaction, of the interest transferred by the land transfer.
(5) That proportion is—
(a) if the person making the partnership transfer is not a partner immediately after the transfer, his partnership share immediately before the transfer;
(b) if he is a partner immediately after the transfer, the difference between his partnership share before and after the transfer.
(6) The partnership transfer and the land transfer shall be taken to be linked transactions.
(7) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to the partnership transfer, but the responsible partners are—
(a) those who were partners immediately before the transfer and who remain partners after the transfer, and
(b) any person becoming a partner as a result of, or in connection with, the transfer.
Withdrawal of money etc from partnership after transfer of chargeable interest
17A (1) This paragraph applies where—
(a) there is a transfer of a chargeable interest to a partnership (“the land transfer”);
(b) the land transfer falls within paragraph (a), (b) or (c) of paragraph 10(1);
(c) during the period of three years beginning with the date of the land transfer, a qualifying event occurs.
(d) at the time of the qualifying event, an election has not been made in respect of the land transfer under paragraph 12A.
(2) A qualifying event is—
(a) a withdrawal from the partnership of money or money's worth which does not represent income profit by the relevant person—
(i) withdrawing capital from his capital account,
(ii) reducing his interest, or
(iii) ceasing to be a partner, or
(b) in a case where the relevant person has made a loan to the partnership—
(i) the repayment (to any extent) by the partnership of the loan, or
(ii) a withdrawal by the relevant person from the partnership of money or money's worth which does not represent income profit.
(3) For this purpose the relevant person is—
(a) where the land transfer falls within paragraph 10(1)(a) or (b), the person who makes the land transfer, and
(b) where the land transfer falls within paragraph 10(1)(c), the partner concerned or a person connected with him.
(4) The qualifying event—
(a) shall be taken to be a land transaction, and
(b) is a chargeable transaction.
(5) The partners shall be taken to be the purchasers under the transaction.
(6) Paragraphs 6 to 8 (responsibility of partners) have effect in relation to the transaction.
(7) The chargeable consideration for the transaction shall be taken to be—
(a) in a case falling within sub-paragraph (2)(a), equal to the value of the money or money's worth withdrawn from the partnership,
(b) in a case falling within sub-paragraph (2)(b)(i), equal to the amount repaid, and
(c) in a case falling within sub-paragraph (2)(b)(ii), equal to so much of the value of the money or money's worth withdrawn from the partnership as does not exceed the amount of the loan,
but (in any case) shall not exceed the market value, as at the effective date of the land transfer, of the chargeable interest transferred by the land transfer, reduced by any amount previously chargeable to tax.
(8) Where—
(a) a qualifying event gives rise to a charge under this paragraph, and
(b) the same event gives rise to a charge under paragraph 14 (transfer for consideration of interest in property-investment partnership),
the amount of the charge under this paragraph is reduced (but not below nil) by the amount of the charge under that paragraph.
Transfer of chargeable interest from a partnership: general
18 (1) This paragraph applies where a chargeable interest is transferred—
(a) from a partnership to a person who is or has been one of the partners, or
(b) from a partnership to a person connected with a person who is or has been one of the partners.
(2) The chargeable consideration for the transaction shall (subject to paragraph 24) be taken to be equal to—
MV×(100-SLP)%
where—
MV is the market value of the interest transferred, and
SLP is the sum of the lower proportions.
(5) Paragraph 20 provides for determining the sum of the lower proportions.
(6) Paragraph 19 applies ... if the whole or part of the chargeable consideration for the transaction is rent.
(7) For the purposes of this paragraph property that was partnership property before the partnership was dissolved or otherwise ceased to exist shall be treated as remaining partnership property until it is distributed.
(8) This paragraph has effect subject to any election under paragraph 12A.
Transfer of chargeable interest from a partnership: chargeable consideration including rent
19 (1) This paragraph applies in relation to a transaction to which paragraph 18 applies where the whole or part of the chargeable consideration for the transaction is rent.
(2) Schedule 5 (amount of tax chargeable: rent) has effect with the modifications set out in sub-paragraphs (2A) to (2C).
(2A) In paragraph 2—
(a) for “the net present value of the rent payable over the term of the lease” substitute “ the relevant chargeable proportion of the net present value of the rent payable over the term of the lease ”, and
(b) for “the net present values of the rent payable over the terms of all the leases” substitute “ the relevant chargeable proportions of the net present values of the rent payable over the terms of all the leases ”.
(2B) In paragraph 9A(6) —
(a) for “the annual rent” substitute “ the relevant chargeable proportion of the annual rent ”, and
(b) for “the total of the annual rents” substitute “ the relevant chargeable proportion of the total of the annual rents ”.
(2C) For paragraph 9(4) substitute—
(4) Tax chargeable under this Schedule is in addition to any tax chargeable under section 55 or 74(1A) or Schedule 4A ... as they have effect by virtue of paragraph 18 of Schedule 15.
.
(2D) For the purposes of sub-paragraphs (2A) and (2B) the relevant chargeable proportion is—
(100-SLP)%
where SLP is the sum of the lower proportions.
(8) Paragraph 20 provides for determining the sum of the lower proportions.
(9) This paragraph is subject to paragraph 24.
Transfer of chargeable interest from a partnership: sum of the lower proportions
20 (1) The sum of the lower proportions in relation to a transaction to which paragraph 18 applies is determined as follows:—
Step One
Identify the relevant owner or owners.
A person is a relevant owner if—
immediately after the transaction, he is entitled to a proportion of the chargeable interest, and
immediately before the transaction, he was a partner or connected with a partner.
Step Two
For each relevant owner, identify the corresponding partner or partners.
A person is a corresponding partner in relation to a relevant owner if, immediately before the transaction—
he was a partner, and
he was the relevant owner or was an individual connected with the relevant owner.
(If there is no relevant owner with a corresponding partner, the sum of the lower proportions is nil.)
Step Three
For each relevant owner, find the proportion of the chargeable interest to which he is entitled immediately after the transaction.
Apportion that proportion between any one or more of the relevant owner’s corresponding partners.
Step Four
Find the lower proportion for each person who is a corresponding partner in relation to one or more relevant owners.
The lower proportion is—
the proportion of the chargeable interest attributable to the partner, or
if lower, the partnership share attributable to the partner.
The proportion of the chargeable interest attributable to the partner is—
if he is a corresponding partner in relation to only one relevant owner, the proportion (if any) of the chargeable interest apportioned to him (at Step Three) in respect of that owner;
if he is a corresponding partner in relation to more than one relevant owner, the sum of the proportions (if any) of the chargeable interest apportioned to him (at Step Three) in respect of each of those owners.
Paragraph 21 provides for determining the partnership share attributable to the partner.
Step Five
Add together the lower proportions of each person who is a corresponding partner in relation to one or more relevant owners.
The result is the sum of the lower proportions.
(2) For the purposes of this paragraph persons who are entitled to a chargeable interest as beneficial joint tenants ... shall be taken to be entitled to the chargeable interest as beneficial tenants in common ... in equal shares.
(3) For the purpose of paragraph (b) of Step 2 a company is to be treated as an individual connected with the relevant owner in so far as it—
(a) holds property as trustee, and
(b) is connected with the relevant owner only because of section 1122(6) of the Corporation Tax Act 2010.
Transfer of chargeable interest from a partnership: partnership share attributable to partner
21 (1) This paragraph provides for determining the partnership share attributable to a partner for the purposes of paragraph 20 (1) (see Step Four).
(2) Paragraph 22 applies for determining the partnership share attributable to a partner where—
(a) the effective date of the transfer of the relevant chargeable interest to the partnership was before 20th October 2003, or
(b) the effective date of the transfer of the relevant chargeable interest to the partnership was on or after that date and—
(i) the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty, or
(ii) any tax payable in respect of the transfer has been duly paid under this Part.
(3) Where the effective date of the transfer of the relevant chargeable interest to the partnership was on or after 20th October 2003 but neither of the conditions in sub-paragraphs (i) and (ii) of sub-paragraph (2)(b) is met, the partnership share attributable to the partner is zero.
(4) The relevant chargeable interest is—
(a) the chargeable interest which ceases to be partnership property as a result of the transaction to which paragraph 18 applies, or
(b) where the transaction to which paragraph 18 applies is the grant or creation of a chargeable interest, the chargeable interest out of which that interest is granted or created.
22 (1) Where this paragraph applies, the partnership share attributable to the partner is determined as follows:—
Step One
Find the partner’s actual partnership share on the relevant date.
In a case falling within paragraph 21(2)(a), the relevant date—
(a) if the partner was a partner on 19th October 2003, is that date;
(b) if the partner became a partner after that date, is the date on which he became a partner.
In a case falling within paragraph 21(2)(b), the relevant date—
(a) if the partner was a partner on the effective date of the transfer of the relevant chargeable interest to the partnership, is that date;
(b) if the partner became a partner after that date, is the date on which he became a partner.
Step Two
Add to that partnership share any increases in the partner’s partnership share which—
(a) occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 18 applies, and
(b) count for this purpose.
The result is the increased partnership share.
An increase counts for the purpose of paragraph (b) only if—
(i) where the transfer which resulted in the increase took place on or before the date on which the Finance Act 2004 was passed, the instrument by which the transfer was effected has been duly stamped with ad valorem stamp duty under the enactments relating to stamp duty;
(ii) where the transfer which resulted in the increase took place after that date, any tax payable in respect of the transfer has been duly paid under this Part.
Step Three
Deduct from the increased partnership share any decreases in the partner’s partnership share which occur in the period starting on the day after the relevant date and ending immediately before the transaction to which paragraph 18 applies.
The result is the partnership share attributable to the partner.
(2) If the effect of applying Step Three would be to reduce the partnership share attributable to the partner below zero, the partnership share attributable to the partner is zero.
(3) In a case falling within paragraph 21(2)(a), if the partner ceased to be a partner before 19th October 2003, the partnership share attributable to the partner is zero.
(4) In a case falling within paragraph 21(2)(b), if the partner ceased to be a partner before the effective date of the transfer of the relevant chargeable interest to the partnership, the partnership share attributable to the partner is zero.
(5) Paragraph 21(4) (relevant chargeable interest) applies for the purposes of this paragraph.
Transfer of chargeable interest from a partnership to a partnership
23 (1) This paragraph applies where—
(a) there is a transfer of a chargeable interest from a partnership to a partnership, and
(b) the transfer is both—
(i) a transaction to which paragraph 10 applies, and
(ii) a transaction to which paragraph 18 applies.
(2) Paragraphs 10(2) and 18(2) do not apply.
(2A) The chargeable consideration for the transaction shall be taken to be what it would have been if paragraph 10(2) had applied or, if greater, what it would have been if paragraph 18(2) had applied.
(3) Where the whole or part of the chargeable consideration for the transaction is rent—
(a) paragraphs 11 and 19 do not apply;
(b) the tax chargeable in respect of so much of the chargeable consideration as consists of rent shall be taken to be what it would have been if paragraph 11 had applied or, if greater, what it would have been if paragraph 19 had applied;
(c) the disapplication of the 0% band provided for by paragraph 9A of Schedule 5 has effect if—
(i) it would have had effect if paragraph 11(2B) of this Schedule had applied, or
(ii) it would have had effect if paragraph 19(2B) of this Schedule had applied.
Transfer of chargeable interest from a partnership consisting wholly of bodies corporate
24 (1) This paragraph applies where—
(a) there is a transaction to which paragraph 18 applies;
(b) immediately before the transaction all the partners are bodies corporate;
(c) the sum of the lower proportions is 75 or more.
(2) Paragraphs 18, 19 and 23 have effect with these modifications.
(3) In paragraph 18, for sub-paragraphs (2) and (5) substitute—
(2) The chargeable consideration for the transaction shall be taken to be equal to the market value of the interest transferred.
.
(4A) In paragraph 19(2), for “sub-paragraphs (2A) to (2C)” substitute “ sub-paragraph (2C) ”.
(5) In paragraph 19, omit sub-paragraphs (2A), (2B), (2D) and (8).
(9) Paragraph 20 provides for determining the sum of the lower proportions.
Application of exemptions and reliefs
25 (1) Where paragraph 10, 14, 17 or 18 applies, paragraph 1 of Schedule 3 (exemption of transactions for which there is no chargeable consideration) does not apply.
(2) But (subject to paragraphs 27 and 28 ) this Part of this Schedule has effect subject to any other provision affording exemption or relief from stamp duty land tax.
Application of disadvantaged areas relief
26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application of group relief
27 (1) Part 1 of Schedule 7 (group relief) applies to—
(a) a transaction to which paragraph 10 applies, and
(b) a transaction that is a chargeable transaction by virtue of paragraph 17,
with these modifications.
(2) In paragraph 3(1)(a), for “the purchaser” substitute “ a partner who was a partner at the effective date of the relevant transaction (“the relevant partner”) ”.
(3) In paragraph 3(1), for paragraph (b) substitute—
(b) at the time the relevant partner ceases to be a member of the same group as the vendor (“the relevant time”), a chargeable interest is held by or on behalf of the members of the partnership and that chargeable interest—
(i) was acquired by or on behalf of the partnership under the relevant transaction, or
(ii) is derived from a chargeable interest so acquired,
and has not subsequently been acquired at market value under a chargeable transaction for which group relief was available but was not claimed,
.
(4) In paragraph 3(3), for the words from “the transferee company” to the end substitute “ or on behalf of the partnership and to the proportion in which the relevant partner is entitled at the relevant time to share in the income profits of the partnership. ”.
(5) In paragraph 3(4), omit the definition of “relevant associated company”.
(6) In paragraphs 4 to 6, for “the purchaser” (wherever appearing) substitute “ the relevant partner ”.
27A (1) This paragraph applies where in calculating the sum of the lower proportions in relation to a transaction (in accordance with paragraph 12)—
(a) a company (“the connected company”) would have been a corresponding partner of a relevant owner (“the original owner”) but for the fact that paragraph (b) of Step Two includes connected persons only if they are individuals, and
(b) the connected company and the original owner are members of the same group.
(2) The charge in respect of the transaction shall be reduced to the amount that would have been payable had the connected company been a corresponding partner of the original owner for the purposes of calculating the sum of the lower proportions.
(3) The provisions of Part 1 of Schedule 7 apply to group relief under sub-paragraph (2) above as to group relief under paragraph 1(1) of Schedule 7, but—
(a) with the omission of paragraph 2(2)(a),
(b) with the substitution for “the purchaser” in paragraph 3(1)(a) of “a partner who was, at the effective date of the transaction, a partner and a member of the same group as the transferor (“the relevant partner”)”, and
(c) with the other modifications specified in paragraph 27(3) to (6) above.
Application of charities relief
28 (1) Schedule 8 (charities relief) applies to the transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 14 or 17 with these modifications.
(2) In paragraph 1(1), for “A land transaction is exempt from charge if the purchaser is a charity” substitute “ A transfer of an interest in a partnership that is a chargeable transaction by virtue of paragraph 14 or 17 of Schedule 15 is exempt from charge if the transferee is a charity ”.
(3) In paragraph 1(2)—
(a) for “the purchaser must intend to hold the subject-matter of the transaction” substitute “ every chargeable interest held as partnership property immediately after the transfer must be held ”;
(b) in paragraphs (a) and (b) for “the purchaser” substitute “ the transferee ”.
(4) In paragraph 1(3) for “the purchaser” substitute “ the transferee ”.
(5) In paragraph 2(1), for paragraph (b) substitute—
(b) at the time of the disqualifying event the partnership property includes a chargeable interest—
(i) that was held as partnership property immediately after the relevant transaction, or
(ii) that is derived from an interest held as partnership property at that time,
.
(6) In paragraph 2(3)(a), for “the purchaser” substitute “ the transferee ”.
(7) In paragraph 2(3), for paragraph (b) substitute—
(b) any chargeable interest held as partnership property immediately after the relevant transaction, or any interest or right derived from it, being used or held otherwise than for qualifying charitable purposes.
.
(8) For paragraph 2(4) substitute—
(4) In sub-paragraphs (1) and (2) an “appropriate proportion” means an appropriate proportion having regard to—
(a) the chargeable interests held as partnership property immediately after the relevant transaction and the chargeable interests held as partnership property at the time of the disqualifying event, and
(b) the extent to which any chargeable interest held as partnership property at that time becomes used or held for purposes other than qualifying charitable purposes.
.
(9) After paragraph 2 insert—
Interpretation
3 (1) There is a transfer of an interest in a partnership for the purposes of this Schedule if there is such a transfer for the purposes of Part 3 of Schedule 15 (see paragraph 36 of that Schedule).
(2) Paragraph 34 (1) of Schedule 15 (meaning of references to partnership property) applies for the purposes of this Schedule as it applies for the purposes of Part 3 of that Schedule.
.
Acquisition of interest in partnership not chargeable except as specially provided
29 Except as provided by—
(a) paragraph 10 (transfer of chargeable interest to a partnership), or
(b) paragraph 14 (transfer of partnership interest: consideration given and chargeable interest held), or
(c) paragraph 17 (transfer of partnership interest pursuant to earlier arrangements),
the acquisition of an interest in a partnership is not a chargeable transaction, notwithstanding that the partnership property includes land.
Transactions that are not notifiable
30 (1) A transaction which is a chargeable transaction by virtue of paragraph 14 or 17 (transfer of partnership interest) is a notifiable transaction if (but only if) the consideration for the transaction exceeds the zero rate threshold.
(2) The consideration for a transaction exceeds the zero rate threshold if one or more of the following conditions are met—
(a) the relevant consideration for the purposes of section 55 (amount of tax chargeable: general) is such that the amount of tax chargeable under that section is not zero;
(aa) paragraph 3 of Schedule 4A applies to the transaction;
(b) the relevant rental value for the purposes of Schedule 5 (amount of tax chargeable: rent) is such that the rate of tax chargeable under that Schedule is 1% or higher.
Stamp duty on transfers of partnership interests: continued application
31 (1) Nothing in section 125 (abolition of stamp duty except in relation to stock or marketable securities), or in Part 2 of Schedule 20 (amendments and repeals consequential on that section) or in Schedule 24 to the Finance Act 2014 (abolition of stamp duty in relation to certain securities), affects the application of the enactments relating to stamp duty in relation to an instrument by which a transfer of an interest in a partnership is effected.
(2) In Part 1 of Schedule 20 (provisions supplementing section 125) references to stock or marketable securities shall be read as including any property that is the subject-matter of a transaction by which an interest in a partnership is transferred.
(3) In their application in relation to an instrument by which a transfer of an interest in a partnership is effected, the enactments relating to stamp duty have effect subject to paragraphs 32 and 33.
Stamp duty on transfers of partnership interests: modification
32 (1) This paragraph applies where—
(a) stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (transfer on sale) is chargeable on an instrument effecting a transfer of an interest in a partnership, and
(b) the relevant partnership property includes a chargeable interest.
(2) The “relevant partnership property”, in relation to a transfer of an interest in a partnership, is every chargeable interest held as partnership property immediately after the transfer, other than any interest that was transferred to the partnership in connection with the transfer.
(3) The consideration for the transaction shall (subject to sub-paragraph (8)) be taken to be equal to the actual consideration for the transaction less the excluded amount.
(4) The excluded amount is a proportion of the net market value of the relevant partnership property immediately after the transfer.
(5) That proportion is—
(a) if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;
(b) if he was a partner before the transfer, the difference between his partnership share before and after the transfer.
(6) The net market value of a chargeable interest at a particular date is—
MV-SL
where—
MV is the market value of the chargeable interest at that date, and
SL is the amount outstanding at that date on any loan secured solely on the chargeable interest.
(7) If, in relation to a chargeable interest, SL is greater than MV, the net market value of the chargeable interest shall be taken to be nil.
(8) If the excluded amount is greater than the actual consideration for the transaction, the consideration for the transaction shall be taken to be nil.
(9) Where this paragraph applies in relation to an instrument, the instrument shall not be regarded as duly stamped unless it has been stamped in accordance with section 12 of the Stamp Act 1891.
33 (1) This paragraph applies where stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (transfer on sale) is, apart from this paragraph, chargeable on an instrument effecting a transfer of an interest in a partnership.
(1A) If the relevant partnership property does not include any relevant securities, no stamp duty shall (subject to sub-paragraph (8)) be chargeable on the instrument.
(3) If the relevant partnership property includes relevant securities, the stamp duty chargeable on the instrument shall not exceed the stamp duty that would be chargeable if—
(a) the instrument were an instrument effecting a transfer of ... those securities, and
(b) the consideration for the transfer were equal to the appropriate proportion of the net market value of ... those securities immediately after the transfer.
(3A) The “relevant partnership property”, in relation to a transfer of an interest in a partnership, is the partnership property immediately after the transfer, other than any partnership property that was transferred to the partnership in connection with the transfer.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) The appropriate proportion is—
(a) if the person acquiring the interest in the partnership was not a partner before the transfer, his partnership share immediately after the transfer;
(b) if he was a partner before the transfer, the difference between his partnership share before and after the transfer.
(6) The net market value of relevant securities at a particular date is—
MV-SL
where—
MV is the market value of the relevant securities at that date, and
SL is the amount outstanding at that date on any loan secured solely on the relevant securities.
(7) If, in relation to any relevant securities, SL is greater than MV, the net market value of the relevant securities shall be taken to be nil.
(8) Where this paragraph applies in relation to an instrument, the instrument shall not be regarded as duly stamped unless it has been stamped in accordance with section 12 of the Stamp Act 1891.
(8A) In this paragraph “relevant securities” means stock or marketable securities other than any stock or marketable securities admitted to trading on a recognised growth market but not listed on any market.
(9) This paragraph shall be construed as one with the Stamp Act 1891.
Interpretation: partnership property and partnership share
34 (1) Any reference in this Part of this Schedule to partnership property is to an interest or right held by or on behalf of a partnership, or the members of a partnership, for the purposes of the partnership business.
(2) Any reference in this Part of this Schedule to a person’s partnership share at any time is to the proportion in which he is entitled at that time to share in the income profits of the partnership.
Interpretation: transfer of chargeable interest to a partnership
35 For the purposes of this Part of this Schedule, there is a transfer of a chargeable interest to a partnership in any case where a chargeable interest becomes partnership property.
Interpretation: transfer of interest in a partnership
36 For the purposes of this Part of this Schedule, where a person acquires or increases a partnership share there is a transfer of an interest in the partnership (to that partner and from the other partners).
Interpretation: transfer of chargeable interest from a partnership
37 For the purposes of this Part of this Schedule, there is a transfer of a chargeable interest from a partnership in any case where—
(a) a chargeable interest that was partnership property ceases to be partnership property, or
(b) a chargeable interest is granted or created out of partnership property and the interest is not partnership property.
Interpretation: market value of leases
38 (1) This paragraph applies in relation to a lease for the purposes of this Part of this Schedule if—
(a) the grant of the lease is or was a transaction to which paragraph 10 applies or applied (or a transaction to which paragraph 10 would have applied if that paragraph had been in force at the time of the grant), or
(b) the grant of the lease is a transaction to which paragraph 18 applies.
(2) In determining the market value of the lease, an obligation of the tenant under the lease is to be taken into account if (but only if)—
(a) it is an obligation such as is mentioned in paragraph 10 (1) of Schedule 17A, or
(b) it is an obligation to make a payment to a person.
Interpretation: connected persons
39 (1) Section 1122 of the Corporation Tax Act 2010 (connected persons) has effect for the purposes of this Part of this Schedule.
(2) As applied by sub-paragraph (1), that section has effect with the omission of subsection (7) (partners connected with each other).
(3) As applied by sub-paragraph (1) for the purposes of paragraph 12 or 20, that section has effect with the omission of subsection (6)(c) to (e) (trustee connected with settlement).
Interpretation: arrangements
40 In this Part of this Schedule “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
SCHEDULE 16 Stamp duty land tax: trusts and powers
Section 105
Meaning of “settlement” and “bare trust”
1 (1) In this Part “settlement” means a trust that is not a bare trust.
(2) In this Part a “bare trust” means a trust under which property is held by a person as trustee—
(a) for a person who is absolutely entitled as against the trustee, or who would be so entitled but for being a minor or other person under a disability, or
(b) for two or more persons who are or would be jointly so entitled,
and includes a case in which a person holds property as nominee for another.
(3) In sub-paragraph (2)(a) and (b) the references to a person being absolutely entitled to property as against the trustee are references to a case where the person has the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustee, to resort to the property for payment of duty, taxes, costs or other outgoings or to direct how the property is to be dealt with.
(4) In sub-paragraph (2) “minor”, in relation to Scotland, means a person under legal disability by reason of nonage.
Interests of beneficiaries under certain trusts
2 Where property is held in trust under the law of Scotland, or of a country or territory outside the United Kingdom, on terms such that, if the trust had effect under the law of England and Wales, a beneficiary would be regarded as having an equitable interest in the trust property—
(a) that beneficiary shall be treated for the purposes of this Part as having such an interest notwithstanding that no such interest is recognised by the law of Scotland or, as the case may be, the country or territory outside the United Kingdom, and
(b) an acquisition of the interest of a beneficiary under the trust shall accordingly be treated as involving the acquisition of an interest in the trust property.
Bare trustee
3 (1) Subject to sub-paragraph (2), where a person acquires a chargeable interest or an interest in a partnership as bare trustee, this Part applies as if the interest were vested in, and the acts of the trustee in relation to it were the acts of, the person or persons for whom he is trustee.
(2) Sub-paragraph (1) does not apply in relation to the grant of a lease.
(3) Where a lease is granted to a person as bare trustee, he is treated for the purposes of this Part, as it applies in relation to the grant of the lease, as purchaser of the whole of the interest acquired.
(4) Where a lease is granted by a person as bare trustee, he is to be treated for the purposes of this Part, as it applies in relation to the grant of the lease, as vendor of the whole of the interest disposed of.
Acquisition by trustees of settlement
4 Where persons acquire a chargeable interest as trustees of a settlement, they are treated for the purposes of this Part, as it applies in relation to that acquisition, as purchasers of the whole of the interest acquired (including the beneficial interest).
Responsibility of trustees of settlement
5 (1) Where the trustees of a settlement are liable—
(a) to make a payment of tax or interest on unpaid tax,
(b) to make a payment in accordance with an assessment under paragraph 29 of Schedule 10 (recovery of excessive repayment), or
(c) to a penalty under this Part or to interest on such a penalty,
the payment, penalty or interest may be recovered (but only once) from any one or more of the responsible trustees.
(2) No amount may be recovered by virtue of sub-paragraph (1)(c) from a person who did not become a responsible trustee until after the relevant time.
(3) The responsible trustees, in relation to a land transaction, are the persons who are trustees at the effective date of the transaction and any person who subsequently becomes a trustee.
(4) The relevant time for this purpose is—
(a) in relation to so much of a penalty as is payable in respect of any day, or to interest on so much of a penalty as is so payable, the beginning of that day;
(b) in relation to any other penalty, or interest on such a penalty, the time when the act or omission occurred that caused the penalty to become payable.
Relevant trustees for purposes of return etc
6 (1) A return ... in relation to a land transaction may be made or given by any one or more of the trustees who are the responsible trustees in relation to the transaction.
The trustees by whom such a return ... is made are referred to below as “the relevant trustees”.
(2) The declaration required by paragraph 1(1)(c) of Schedule 10 ... (declaration that return ... is complete and correct) must be made by all the relevant trustees.
(3) If the Inland Revenue give notice of an enquiry into the return ...—
(a) the notice must be given to each of the relevant trustees,
(b) the powers of the Inland Revenue as to the production of documents and provision of information for the purposes of the enquiry are exercisable separately (and differently) in relation to each of the relevant trustees,
(c) any of the relevant trustees may apply for a direction that a closure notice be given (and all of them are entitled to appear and be heard on the application), and
(d) the closure notice must be given to each of the relevant trustees.
Provided that a notice is not invalidated by virtue of paragraph (a) or (d) if it is given to each of the relevant trustees whose identity is known to the Inland Revenue.
(4) A Revenue determination or discovery assessment relating to the transaction must be made against all of the relevant trustees and is not effective against any of them unless notice of it is given to each of them whose identity is known to the Inland Revenue.
(5) In the case of an appeal arising from proceedings under this Part relating to the transaction—
(a) the appeal may be brought by any of the relevant trustees,
(b) notice of the appeal must be given to any of them by whom it is not brought,
(c) the agreement of all the relevant trustees is required if the appeal is to be settled by agreement,
(d) if it is not settled, any of them are entitled to appear and be heard, and
(e) the decision on the appeal binds all of them.
Consideration for exercise of power of appointment or discretion
7 Where a chargeable interest is acquired by virtue of—
(a) the exercise of a power of appointment, or
(b) the exercise of a discretion vested in trustees of a settlement,
there shall be treated as consideration for the acquisition of the interest or right by virtue of the exercise of the power or discretion any consideration given for the person in whose favour the appointment was made or the discretion was exercised becoming an object of the power or discretion.
Reallocation of trust property as between beneficiaries
8 Where—
(a) the trustees of a settlement reallocate trust property in such a way that a beneficiary acquires an interest in certain trust property and ceases to have an interest in other trust property, and
(b) the beneficiary consents to ceasing to have an interest in that other property,
the fact that he gives consent does not mean that there is chargeable consideration for the acquisition.
SCHEDULE 17A Further provisions relating to leases
Section 120
Meaning of “lease”
1 In this Part “lease” means—
(a) an interest or right in or over land for a term of years (whether fixed or periodic), or
(b) a tenancy at will or other interest or right in or over land terminable by notice at any time.
Leases for a fixed term
2 In the application of the provisions of this Part to a lease for a fixed term, no account shall be taken of—
(a) any contingency as a result of which the lease may determine before the end of the fixed term, or
(b) any right of either party to determine the lease or renew it.
Leases that continue after a fixed term
3 (1) This paragraph applies to—
(a) a lease for a fixed term and thereafter until determined, or
(b) a lease for a fixed term that may continue beyond the fixed term by operation of law.
(2) For the purposes of this Part (except sections 77 and 77A (notifiable transactions)), a lease to which this paragraph applies is treated—
(a) in the first instance as if it were a lease for the original fixed term and no longer,
(b) if the lease continues after the end of that term, as if it were a lease for a fixed term one year longer than the original fixed term,
(c) if the lease continues after the end of the term resulting from the application of paragraph (b), as if it were a lease for a fixed term two years longer than the original fixed term,
and so on.
(3) Where the effect of sub-paragraph (2) in relation to the continuation of the lease for a period (or further period) of one year after the end of a fixed term is that a transaction becomes notifiable, the purchaser must deliver a return in respect of that transaction before the end of the period of 14 days after the end of that one year period.
(3ZA) Where the effect of sub-paragraph (2) in relation to the continuation of the lease for a period (or further period) of one year after the end of a fixed term is that—
(a) tax is payable in respect of a transaction where none was payable before and sub-paragraph (3) does not apply, or
(b) additional tax is payable in respect of a transaction,
the purchaser must deliver a further return in respect of that transaction before the end of the period of 30 days after the end of that one year period.
(3ZB) For the purposes of sub-paragraphs (3) and (3ZA), any tax or additional tax payable is calculated according to the effective date of the transaction.
(3ZC) Where a purchaser is required to deliver a return under sub-paragraph (3) or a further return under sub-paragraph (3ZA)—
(a) that return must include a self-assessment of the amount of tax chargeable in respect of the transaction on the basis of the information contained in the return, and
(b) the tax or additional tax payable must be paid not later than the filing date for that return.
(3A) But no tax or additional tax is payable in respect of a transaction as a result of the continuation of a lease for a period (or further period) of one year under sub-paragraph (2) if, during that one year period, the tenant under the lease is granted a new lease of the same or substantially the same premises in circumstances where paragraph 9A applies.
(3B) Sub-paragraph (2) is subject to paragraph 3A.
(4) The provisions of Schedule 10 (returns, enquiries, assessments and other matters) apply to a return under this paragraph as they apply to a return under section 76 (general requirement to deliver land transaction return), with the adaptation that references to the effective date of the transaction shall be read as references to the last day of the one year period for which the lease is continued or (as the case may be) further continued.
(5) For the purposes of sections 77 and 77A (notifiable transactions) a lease to which this paragraph applies is a lease for whatever is its fixed term.
(6) Where—
(a) a lease would be treated as continuing for a period (or further period) of one year under sub-paragraph (2), but
(b) (ignoring that sub-paragraph) the lease actually terminates at a time during that period,
the lease is to be treated as continuing under sub-paragraph (2) only until that time; and the references in sub-paragraphs (3) and (4) to that one year period are accordingly to be read as references to so much of that year as ends with that time.
3A (1) This paragraph applies where—
(a) (ignoring this paragraph) paragraph 3 would apply to treat a lease (“the original lease”) as if it were a lease for a fixed term one year longer than the original term,
(b) during that one year period the tenant under that lease is granted a new lease of the same or substantially the same premises,
(c) the term of the new lease begins during that one year period, and
(d) paragraph 9A (backdated lease granted to tenant holding over) does not apply.
(2) Paragraph 3 does not apply to treat the lease as continuing after the original term.
(3) The term of the new lease is treated for the purposes of this Part as beginning immediately after the original term.
(4) Any rent which, in the absence of this paragraph, would be payable under the original lease in respect of that one year period is to be treated as payable under the new lease (and paragraph 1A of Schedule 5 does not apply to it).
(5) Where the fixed term of a lease has previously been extended (on one or more occasions) under paragraph 3, this paragraph applies as if references to the original term were references to the fixed term as previously so extended.
Treatment of leases for indefinite term
4 (1) For the purposes of this Part (except sections 77 and 77A (notifiable transactions))—
(a) a lease for an indefinite term is treated in the first instance as if it were a lease for a fixed term of a year,
(b) if the lease continues after the end of the term resulting from the application of paragraph (a), it is treated as if it were a lease for a fixed term of two years,
(c) if the lease continues after the end of the term resulting from the application of paragraph (b), it is treated as if it were a lease for a fixed term of three years,
and so on.
(2) No account shall be taken for the purposes of this Part of any other statutory provision in England and Wales or Northern Ireland deeming a lease for an indefinite period to be a lease for a different term.
(3) Where the effect of sub-paragraph (1) in relation to the continuation of the lease after the end of a deemed fixed term is that a transaction becomes notifiable, the purchaser must deliver a return in respect of that transaction before the end of the period of 14 days after the end of that term.
(3A) Where the effect of sub-paragraph (1) in relation to the continuation of the lease after the end of a deemed fixed term is that—
(a) tax is payable in respect of a transaction where none was payable before and sub-paragraph (3) does not apply, or
(b) additional tax is payable in respect of a transaction,
the purchaser must deliver a further return in respect of that transaction before the end of the period of 30 days after the end of that term.
(3B) For the purposes of sub-paragraphs (3) and (3A), any tax or additional tax payable is calculated according to the effective date of the transaction.
(3C) Where a purchaser is required to deliver a return under sub-paragraph (3) or a further return under sub-paragraph (3A)—
(a) that return must include a self-assessment of the amount of tax chargeable in respect of the transaction on the basis of the information contained in the return, and
(b) the tax or additional tax payable must be paid not later than the filing date for that return.
(4) The provisions of Schedule 10 (returns, enquiries, assessments and other matters) apply to a return under this paragraph as they apply to a return under section 76 (general requirement to deliver land transaction return), with the adaptation that references to the effective date of the transaction shall be read as references to the day on which the lease becomes treated as being for a longer fixed term.
(4A) For the purposes of sections 77 and 77A (notifiable transactions) a lease for an indefinite term is a lease for a term of less then seven years.
(5) References in this paragraph to a lease for an indefinite period include—
(a) a periodic tenancy or other interest or right terminable by a period of notice,
(b) a tenancy at will ..., or
(c) any other interest or right terminable by notice at any time.
Treatment of successive linked leases
5 (1) This paragraph applies where—
(a) successive leases are granted or treated as granted (whether at the same time or at different times) of the same or substantially the same premises, and
(b) those grants are linked transactions.
(2) This Part applies as if the series of leases were a single lease—
(a) granted at the time of the grant of the first lease in the series,
(b) for a term equal to the aggregate of the terms of all the leases, and
(c) in consideration of the rent payable under all of the leases.
(3) The grant of later leases in the series is accordingly disregarded for the purposes of this Part except section 81A (return or further return in consequence of later linked transaction).
Rent
6 (1) For the purposes of this Part a single sum expressed to be payable in respect of rent, or expressed to be payable in respect of rent and other matters but not apportioned, shall be treated as entirely rent.
(2) Sub-paragraph (1) is without prejudice to the application of paragraph 4 of Schedule 4 (chargeable consideration: just and reasonable apportionment) where separate sums are expressed to be payable in respect of rent and other matters.
Variable or uncertain rent
7 (1) This paragraph applies to determine the amount of rent payable under a lease where that amount—
(a) varies in accordance with provision in the lease, or
(b) is contingent, uncertain or unascertained.
(2) As regards rent payable in respect of any period before the end of the fifth year of the term of the lease—
(a) the provisions of this Part apply as in relation to other chargeable consideration, and
(b) the provisions of section 51 (1) and (2) accordingly apply if the amount is contingent, uncertain or unascertained.
(3) As regards rent payable in respect of any period after the end of the fifth year of the term of the lease, the annual amount is assumed for the purposes of this Part to be, in every case, equal to the highest amount of rent payable in respect of any consecutive twelve month period in the first five years of the term.
In determining that amount take into account (if necessary) any amounts determined as mentioned in sub-paragraph (2)(b), but disregard paragraphs 9(2) and 9A(3) (deemed reduction of rent, where further lease granted, for period during which rents overlap).
(4) This paragraph has effect subject to paragraph 8 (adjustment where rent payable ceases to be uncertain).
(4A) For the purposes of this paragraph and paragraph 8, the cases where the amount of rent payable under a lease is uncertain or unascertained include cases where there is a possibility of that amount being varied under—
(a) section 12, 13 or 33 of the Agricultural Holdings Act 1986,
(b) Part 2 of the Agricultural Tenancies Act 1995,
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) No account shall be taken for the purposes of this Part of any provision for rent to be adjusted in line with the retail prices index.
First rent review in final quarter of fifth year
7A Where—
(a) a lease contains provision under which the rent may be adjusted,
(b) under that provision the first (or only) such adjustment—
(i) is to an amount that (before the adjustment) is uncertain, and
(ii) has effect from a date (the “review date”) that is expressed as falling five years after a specified date,
and
(c) the specified date falls within the three months before the beginning of the term of the lease,
this Schedule has effect as if references to the first five years of the term of the lease were to the period beginning with the start of the term of the lease and ending with the review date. References to the fifth year of the term of the lease shall be read accordingly.
Adjustment where rent ceases to be uncertain
8 (1) Where the provisions of section 51 (1) and (2) (contingent, uncertain or unascertained consideration) apply in relation to a transaction by virtue of paragraph 7 (uncertain rent) and—
(a) the end of the fifth year of the term of the lease is reached, or
(b) the amount of rent payable in respect of the first five years of the term of the lease ceases to be uncertain at an earlier date,
the following provisions have effect to require or permit reconsideration of how this Part applies to the transaction (and to any transaction in relation to which it is a linked transaction).
(2) For the purposes of this paragraph the amount of rent payable ceases to be uncertain when—
(a) in the case of contingent rent, the contingency occurs or it becomes clear that it will not occur, and
(b) in the case of uncertain or unascertained rent, the amount becomes ascertained.
(3) If the result as regards the rent paid or payable in respect of the first five years of the term of the lease is that a transaction becomes notifiable, the purchaser must make a return to HMRC within 14 days of the date referred to in sub-paragraph (1)(a) or (b).
(3A) If the result as regards the rent paid or payable in respect of the first five years of the term of the lease is that—
(a) tax is payable in respect of a transaction where none was payable before and sub-paragraph (3) does not apply, or
(b) additional tax is payable in respect of a transaction,
the purchaser must make a further return to HMRC within 30 days of the date referred to in sub-paragraph (1)(a) or (b).
(3B) If a purchaser is required to make a return under sub-paragraph (3) or a further return under sub-paragraph (3A)—
(a) that return must contain a self-assessment of the tax chargeable in respect of the transaction on the basis of the information contained in the return,
(b) the tax so chargeable is to be calculated by reference to the rates in force at the effective date of the transaction, and
(c) the tax or additional tax payable must be paid not later than the filing date for that return.
(4) The provisions of Schedule 10 (returns, enquiries, assessment and other matters) apply to a return under this paragraph as they apply to a return under section 76 (general requirement to make land transaction return), subject to the adaptation that references to the effective date of the transaction shall be read as references to the date referred to in sub-paragraph (1)(a) or (b).
(5) If the result as regards the rent paid or payable in respect of the first five years of the term of the lease is that less tax is payable in respect of the transaction than has already been paid—
(a) the purchaser may, within the period allowed for amendment of the land transaction return, amend the return accordingly;
(b) after the end of that period he may (if the land transaction return is not so amended) make a claim to the Inland Revenue for repayment of the amount overpaid.
Rent for overlap period in case of grant of further lease
9 (1) This paragraph applies where—
(a) A surrenders an existing lease to B (“the old lease”) and in consideration of that surrender B grants a lease to A of the same or substantially the same premises (“the new lease”),
(b) the tenant under a lease (“the old lease”) of premises to which Part 2 of the Landlord and Tenant Act 1954 or the Business Tenancies (Northern Ireland) Order 1996 applies makes a request for a new tenancy (“the new lease”) which is duly executed,
(c) on termination of a lease (“the head lease”) a sub-tenant is granted a lease (“the new lease”) of the same or substantially the same premises as those comprised in his original lease (“the old lease”)—
(i) in pursuance of an order of a court on a claim for relief against re-entry or forfeiture, or
(ii) in pursuance of a contractual entitlement arising in the event of the head lease being terminated,
or
(d) a person who has guaranteed the obligations of a lessee under a lease that has been terminated (“the old lease”) is granted a lease of the same or substantially the same premises (“the new lease”) in pursuance of the guarantee.
(2) For the purposes of this Part the rent payable under the new lease in respect of any period falling within the overlap period is treated as reduced by the amount of the rent that would have been payable in respect of that period under the old lease.
(3) The overlap period is the period between the date of grant of the new lease and what would have been the end of the term of the old lease had it not been terminated.
(4) The rent that would have been payable under the old lease shall be taken to be the amount taken into account in determining the stamp duty land tax chargeable in respect of the acquisition of the old lease.
(5) This paragraph does not have effect so as to require the rent payable under the new lease to be treated as a negative amount.
Backdated lease granted to tenant holding over
9A (1) This paragraph applies where—
(a) the tenant under a lease continues in occupation after the date on which, under its terms, the lease terminates (“the contractual termination date”),
(b) he is granted a new lease of the same or substantially the same premises, and
(c) the term of the new lease is expressed to begin on or immediately after the contractual termination date.
(2) The term of the new lease is treated for the purposes of this Part as beginning on the date on which it is expressed to begin.
(3) The rent payable under the new lease in respect of any period falling—
(a) after the contractual termination date, and
(b) before the date on which the new lease is granted,
is treated for the purposes of this Part as reduced by the amount of taxable rent that is payable in respect of that period otherwise than under the new lease.
(4) For the purposes of sub-paragraph (3) rent is “taxable” if or to the extent that it is taken into account in determining liability to stamp duty land tax.
(5) Sub-paragraph (3) does not have effect so as to require the rent payable under the new lease to be treated as a negative amount.
Tenants' obligations etc that do not count as chargeable consideration
10 (1) In the case of the grant of a lease none of the following counts as chargeable consideration—
(a) any undertaking by the tenant to repair, maintain or insure the demised premises ...;
(b) any undertaking by the tenant to pay any amount in respect of services, repairs, maintenance or insurance or the landlord’s costs of management;
(c) any other obligation undertaken by the tenant that is not such as to affect the rent that a tenant would be prepared to pay in the open market;
(d) any guarantee of the payment of rent or the performance of any other obligation of the tenant under the lease;
(e) any penal rent, or increased rent in the nature of a penal rent, payable in respect of the breach of any obligation of the tenant under the lease.
(f) any liability of the tenant for costs under section 14(2) of the Leasehold Reform Act 1967 or section 60 of the Leasehold Reform, Housing and Urban Development Act 1993 (costs to be borne by person exercising statutory right to be granted lease);
(g) any other obligation of the tenant to bear the landlord’s reasonable costs or expenses of or incidental to the grant of a lease;
(h) any obligation under the lease to transfer to the landlord, on the termination of the lease, payment entitlements granted to the tenant under the single payment scheme (that is, the scheme of income support for farmers in pursuance of Title III of Council Regulation (EC) No 73/2009 ) in respect of land subject to thelease.
(2) Where sub-paragraph (1) applies in relation to an obligation, a payment made in discharge of the obligation does not count as chargeable consideration.
(3) The release of any such obligation as is mentioned in sub-paragraph (1) does not count as chargeable consideration in relation to the surrender of the lease.
Cases where assignment of lease treated as grant of lease
11 (1) This paragraph applies where the grant of a lease is exempt from charge by virtue of any of the provisions specified in sub-paragraph (3).
(2) The first assignment of the lease that is not exempt from charge by virtue of any of the provisions specified in sub-paragraph (3), and in relation to which the assignee does not acquire the lease as a bare trustee of the assignor, is treated for the purposes of this Part as if it were the grant of a lease by the assignor—
(a) for a term equal to the unexpired term of the lease referred to in sub-paragraph (1), and
(b) on the same terms as those on which the assignee holds that lease after the assignment.
(3) The provisions are—
(a) section 57A (sale and leaseback arrangements);
(b) Part 1 or 2 of Schedule 7 (group relief or reconstruction or acquisition relief);
(ba) Part 1 or 2 of Schedule 7A (PAIF seeding relief and co-ownership scheme seeding relief);
(c) section 66 (transfers involving public bodies);
(d) Schedule 8 (charities relief);
(e) any such regulations as are mentioned in section 123(3) (regulations reproducing in relation to stamp duty land tax the effect of enactments providing for exemption from stamp duty).
(4) This paragraph does not apply where the relief in question is group relief, reconstruction or acquisition relief , PAIF seeding relief, co-ownership scheme seeding relief or charities relief and is withdrawn as a result of a disqualifying event occurring before the effective date of the assignment.
(5) For the purposes of sub-paragraph (4) “disqualifying event” means—
(a) in relation to the withdrawal of group relief, the event falling within paragraph 3(1)(a) of Schedule 7 (purchaser ceasing to be a member of the same group as the vendor), as read with paragraph 4A of that Schedule;
(b) in relation to the withdrawal of reconstruction or acquisition relief, the change of control of the acquiring company mentioned in paragraph 9(1)(a) of that Schedule or, as the case may be, the event mentioned in paragraph 11(1)(a) or (2)(a) of that Schedule;
(ba) in relation to the withdrawal of PAIF seeding relief—
(i) the purchaser ceasing to be a property AIF as mentioned in paragraph 5 of Schedule 7A,
(ii) a person making a relevant disposal of units as mentioned in paragraph 7 of that Schedule, or
(iii) the grant of permission to a non-qualifying individual to occupy a dwelling as mentioned in paragraph 8 of that Schedule;
(bb) in relation to the withdrawal of co-ownership scheme seeding relief—
(i) the purchaser ceasing to be a co-ownership ... contractual scheme as mentioned in paragraph 13 of Schedule 7A,
(ii) a person making a relevant disposal of units as mentioned in paragraph 17 of that Schedule, or
(iii) the grant of permission to a non-qualifying individual to occupy a dwelling as mentioned in paragraph 18 of that Schedule;
(c) in relation to the withdrawal of charities relief, a disqualifying event as defined in paragraphs 2(3) or 3(2) of Schedule 8.
(6) This paragraph also does not apply where the relief in question is PAIF seeding relief or co-ownership scheme seeding relief and is withdrawn as a result of a requirement not being met at a time which is before the effective date of the assignment of the lease.
(7) For the purposes of sub-paragraph (6), the reference to a requirement not being met is a reference to—
(a) in relation to the withdrawal of PAIF seeding relief under paragraph 6 of Schedule 7A, the portfolio test not being met (see paragraph 6(7));
(b) in relation to the withdrawal of co-ownership scheme seeding relief under paragraph 14 of Schedule 7A, the genuine diversity of ownership condition not being met (see paragraph 15);
(c) in relation to the withdrawal of co-ownership scheme seeding relief under paragraph 16 of Schedule 7A, the portfolio test not being met (see paragraph 16(7)).
Assignment of lease: responsibility of assignee for returns etc
12 (1) Where a lease is assigned, anything that but for the assignment would be required or authorised to be done by or in relation to the assignor under or by virtue of—
(a) section 80 (adjustment where contingency ceases or consideration is ascertained),
(b) section 81A (return or further return in consequence of later linked transaction),
(c) paragraph 3 or 4 of this Schedule (return or further return required where lease for indefinite period continues), or
(d) paragraph 8 of this Schedule (adjustment where rent ceases to be uncertain),
shall, if the event giving rise to the adjustment or return occurs after the effective date of the assignment, be done instead by or in relation to the assignee.
(2) So far as necessary for giving effect to sub-paragraph (1) anything previously done by or in relation to the assignor shall be treated as if it had been done by or in relation to the assignee.
(3) This paragraph does not apply if the assignment falls to be treated as the grant of a lease by the assignor (see paragraph 11).
Agreement for lease
12A (1) This paragraph applies where ...—
(a) an agreement for a lease is entered into, and
(b) the agreement is substantially performed without having been completed.
(2) The agreement is treated as if it were the grant of a lease in accordance with the agreement (“the notional lease”), beginning with the date of substantial performance.
The effective date of the transaction is that date.
(3) Where a lease (“the actual lease”) is subsequently granted in pursuance of the agreement, the notional lease is to be treated for the purposes of this Part as if it were a lease granted—
(a) on the date the agreement was substantially performed,
(b) for a term which begins with that date and ends at the end of the term of the actual lease, and
(c) in consideration of the total rent payable over that term and any other consideration given for the notional lease or the actual lease.
(3A) Where sub-paragraph (3) applies the grant of the actual lease is disregarded for the purposes of this Part except section 81A (return or further return in consequence of later linked transaction).
(3B) For the purposes of section 81A—
(a) the grant of the notional lease and the grant of the actual lease are linked (whether or not they would be linked by virtue of section 108),
(b) the lessee under the actual lease (rather than the lessee under the notional lease) is liable for any tax or additional tax payable in respect of the notional lease as a result of sub-paragraph (3), and
(c) the reference in section 81A(1)(a) to “the purchaser under the earlier transaction” is to be read, in relation to the notional lease, as a reference to the lessee under the actual lease.
(4) Where sub-paragraph (1) applies and the agreement is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect, the tax paid by virtue of that sub-paragraph shall (to that extent) be repaid by the Inland Revenue.
Repayment must be claimed by amendment of the land transaction return made in respect of the agreement.
(5) In this paragraph “substantially performed” and “completed” have the same meanings as in section 44 (contract and conveyance).
Assignment of agreement for lease
12B (1) This paragraph applies, in place of Schedule 2A (transactions entered into before completion of contract), where ... a person assigns his interest as lessee under an agreement for a lease.
(2) If the assignment occurs without the agreement having been substantially performed, section 44 (contract and conveyance) has effect as if—
(a) the contract were with the assignee and not the assignor, and
(b) the consideration given by the assignee for entering into the contract included any consideration given by him for the assignment.
(3) If the assignment occurs after the agreement has been substantially performed—
(a) the assignment is a separate land transaction, and
(b) the effective date of that transaction is the date of the assignment.
(4) Where there are successive assignments, this paragraph has effect in relation to each of them.
Increase of rent treated as grant of new lease: variation of lease in first five years
13 (1) Where a lease is varied so as to increase the amount of the rent as from a date before the end of the fifth year of the term of the lease, the variation is treated for the purposes of this Part as if it were the grant of a lease in consideration of the additional rent made payable by it.
(2) Sub-paragraph (1) does not apply to an increase of rent in pursuance of—
(a) a provision contained in the lease, or
(b) a provision mentioned in paragraph (a) or (b) of paragraph 7(4A).
Increase of rent treated as grant of new lease: abnormal increase after fifth year
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase of rent after fifth year: whether regarded as abnormal
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction of rent or term or other variation of lease
15A (1) Where a lease is varied so as to reduce the amount of the rent, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessee.
(1A) Where any consideration in money or money's worth (other than an increase in rent) is given by the lessee for any variation of a lease, other than a variation of the amount of the rent or of the term of the lease, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessee.
(2) Where a lease is varied so as to reduce the term, the variation is treated for the purposes of this Part as an acquisition of a chargeable interest by the lessor.
Surrender of existing lease in return for new lease
16 Where a lease is granted in consideration of the surrender of an existing lease between the same parties—
(a) the grant of the new lease does not count as chargeable consideration for the surrender, and
(b) the surrender does not count as chargeable consideration for the grant of the new lease.
Paragraph 5 (exchanges) of Schedule 4 (chargeable consideration) does not apply in such a case.
Assignment of lease: assumption of obligations by assignee
17 In the case of an assignment of a lease the assumption by the assignee of the obligation—
(a) to pay rent, or
(b) to perform or observe any other undertaking of the tenant under the lease,
does not count as chargeable consideration for the assignment.
Reverse premium
18 (1) In the case of the grant, assignment or surrender of a lease a reverse premium does not count as chargeable consideration.
(2) A “reverse premium” means—
(a) in relation to the grant of a lease, a premium moving from the landlord to the tenant;
(b) in relation to the assignment of a lease, a premium moving from the assignor to the assignee;
(c) in relation to the surrender of a lease, a premium moving from the tenant to the landlord.
Loan or deposit in connection with grant or assignment of lease
18A (1) Where, under arrangements made in connection with the grant of a lease—
(a) the lessee, or any person connected with him or acting on his behalf, pays a deposit, or makes a loan, to any person, and
(b) the repayment of all or part of the deposit or loan is contingent on anything done or omitted to be done by the lessee or on the death of the lessee,
the amount of the deposit or loan (disregarding any repayment) is to be taken for the purposes of this Part to be consideration other than rent given for the grant of the lease.
(2) Where, under arrangements made in connection with the assignment of a lease—
(a) the assignee, or any person connected with him or acting on his behalf, pays a deposit, or makes a loan, to any person, and
(b) the repayment of all or part of the deposit or loan is contingent on anything done or omitted to be done by the assignee or on the death of the assignee,
the amount of the deposit or loan (disregarding any repayment) is to be taken for the purposes of this Part to be consideration other than rent given for the assignment of the lease.
(3) Sub-paragraph (1) or (2) does not apply in relation to a deposit if the amount that would otherwise fall within the sub-paragraph in question in relation to the grant or (as the case requires) assignment of the lease is not more than twice the relevant maximum rent.
(4) The relevant maximum rent is—
(a) in relation to the grant of a lease, the highest amount of rent payable in respect of any consecutive twelve month period in the first five years of the term;
(b) in relation to the assignment of a lease, the highest amount of rent payable in respect of any consecutive twelve month period in the first five years of the term remaining outstanding as at the date of the assignment,
the highest amount of rent being determined (in either case) in the same way as the highest amount of rent mentioned in paragraph 7(3).
(5) Tax is not chargeable by virtue of this paragraph—
(a) merely because of paragraph 9A of Schedule 5 (which excludes the 0% band in Table B in section 55(2) in cases where the relevant rent attributable to non-residential property is not less than £1,000 a year), or
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Section 1122 of the Corporation Tax Act 2010 (connected persons) has effect for the purposes of this paragraph.
Provisions relating to leases in Scotland
19 (1) In the application of this Part to Scotland—
(a) any reference to the term of a lease is to the period of the lease, and
(b) any reference to the reversion on a lease is to the interest of the landlord in the property subject to the lease.
(2) Where in Scotland there is a lease constituted by concluded missives of let (“the first lease”) and at some later time a lease is executed (“the second lease”), the first lease is to be treated for the purposes of this Part as if it were a lease granted—
(a) on the date the missives of let were concluded,
(b) for a period which begins with that date and ends at the end of the period of the second lease, and
(c) in consideration of the total rent payable over that period and any other consideration given for the first lease or the second lease.
(2A) Where sub-paragraph (2) applies the grant of the second lease is disregarded for the purposes of this Part except section 81A (return or further return in consequence of later linked transaction).
(2B) For the purposes of section 81A—
(a) the grant of the first lease and the grant of the second lease are linked (whether or not they would be linked by virtue of section 108),
(b) the lessee under the second lease (rather than the lessee under the first lease) is liable for any tax or additional tax payable in respect of the first lease lease as a result of sub-paragraph (2), and
(c) the reference in section 81A(1)(a) to “the purchaser under the earlier transaction” is to be read, in relation to the first lease, as a reference to the lessee under the second lease.
(3) Where in Scotland—
(a) there is an agreement (including missives of let not constituting a lease) under which a lease is to be executed, and
(b) the agreement is substantially performed without a lease having been executed,
the agreement is treated as if it were the grant of a lease in accordance with the agreement (“the notional lease”), beginning with the date of substantial performance.
The effective date of the transaction is when the agreement is substantially performed.
(4) Where sub-paragraph (3) applies and at some later time a lease (“the actual lease”) is executed, this Part applies as if the notional lease were a lease granted—
(a) on the date the agreement was substantially performed,
(b) for a period which begins with that date and ends at the end of the period of the actual lease, and
(c) in consideration of the total rent payable over that period and any other consideration given for the agreement or the actual lease.
(4A) Where sub-paragraph (4) applies the grant of the second lease is disregarded for the purposes of this Part except section 81A (return or further return in consequence of later linked transaction).”
(4B) For the purposes of section 81A—
(a) the grant of the notional lease and the grant of the actual lease are linked (whether or not they would be linked by virtue of section 108),
(b) the lessee under the actual lease (rather than the lessee under the notional lease) is liable for any tax or additional tax payable in respect of the notional lease as a result of sub-paragraph (4), and
(c) the reference in section 81A(1)(a) to “the purchaser under the earlier transaction” is to be read, in relation to the notional lease, as a reference to the lessee under the actual lease.
(5) References in sub-paragraphs (2) to (4) to the execution of a lease are to the execution of a lease that either is in conformity with, or relates to substantially the same property and period as, the missives of let or other agreement.
(6) Where sub-paragraph (3) applies and the agreement is (to any extent) afterwards rescinded or annulled, or is for any other reason not carried into effect, the tax paid by virtue of that sub-paragraph shall (to that extent) be repaid by the Inland Revenue.
Repayment must be claimed by amendment of the land transaction return made in respect of the agreement.
SCHEDULE 18 Stamp duty land tax: consequential amendments
Section 123
Provisional Collection of Taxes Act 1968
1 In section 1(1) of the Provisional Collection of Taxes Act 1968 (c. 2), after “stamp duty reserve tax,” insert “ stamp duty land tax, ”.
Inheritance Tax Act 1984
2 In section 190(4) of the Inheritance Tax Act 1984 (c. 51) (sale of land from deceased’s estate: determination of price), after “stamp duty” insert “ or stamp duty land tax ”.
Income and Corporation Taxes Act 1988
3 (1) The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) In section 827 (penalties and interest not allowed as deductions for tax purposes), after subsection (1F) insert—
(1G) Where a person is liable to make a payment by way of—
(a) any penalty under Part 4 of the Finance Act 2003 (stamp duty land tax), or
(b) interest under any provision of that Part,
the payment shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.
.
Finance Act 1989
4 In section 178(2) of the Finance Act 1989 (c. 26) (power of Treasury to set rates of interest: enactments to which the section applies), after paragraph (s) add—
(t) sections 87, 88 and 89 of the Finance Act 2003.
.
Taxation of Chargeable Gains Act 1992
5 In section 38(2) of the Taxation of Chargeable Gains Act 1992 (c. 12) (incidental costs of acquisition or disposal), after “stamp duty” insert “ or stamp duty land tax ”.
Income Tax (Earnings and Pensions) Act 2003
6 In section 277 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (removal benefits and expenses: acquisition of property), in subsection (3)(e) after “stamp duty” insert “ or stamp duty land tax ”.
SCHEDULE 19 Stamp duty land tax: commencement and transitional provisions
Section 124
Introduction
1 (1) Subject to the provisions of this Schedule, the provisions of this Part come into force on the passing of this Act.
(2) The following provisions have effect as regards what transactions are SDLT transactions, that is, are chargeable or notifiable or are transactions in relation to which section 79 (registration etc) applies.
(3) Nothing in this Schedule shall be read as meaning that other transactions, whether effected before or after the passing of this Act, are to be disregarded in applying the provisions of this Part.
The implementation date
2 (1) A transaction is not an SDLT transaction unless the effective date of the transaction is on or after the implementation date.
(2) In this Part “the implementation date” means the date appointed by Treasury order as the implementation date for the purposes of stamp duty land tax.
Contract entered into before first relevant date
3 (1) Subject to the following provisions of this paragraph, a transaction is not an SDLT transaction if it is effected in pursuance of a contract entered into before the first relevant date.
(2) The “first relevant date” is the day after the passing of this Act.
(3) The exclusion of transactions effected in pursuance of contracts entered into before the first relevant date does not apply—
(a) if there is any variation of the contract or assignment of rights under the contract on or after that date;
(b) if the transaction is effected in consequence of the exercise after that date of any option, right of pre-emption or similar right;
(c) if on or after that date there is an assignment, subsale or other transaction (relating to the whole or part of the subject-matter of the contract) as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him.
Contract substantially performed before implementation date
4 (1) This paragraph applies where a transaction—
(a) is completed on or after the implementation date,
(b) is effected in pursuance of a contract entered into and substantially performed before that date, and
(c) is not excluded from being an SDLT transaction by paragraph 3.
(2) The transaction is not an SDLT transaction if the contract was substantially performed before the first relevant date.
(3) In any other case, the fact that the contract was substantially performed before the implementation date does not affect the matter.
Accordingly, the effective date of the transaction is the date of completion.
Contracts substantially performed after implementation date
4A Where—
(a) a transaction is effected in pursuance of a contract entered into before the first relevant date,
(b) the contract is substantially performed, without having been completed, after the implementation date, and
(c) there is subsequently an event within paragraph 3(3) by virtue of which the transaction is an SDLT transaction,
the effective date of the transaction shall be taken to be the date of the event referred to in paragraph (c) (and not the date of substantial performance).
Application of provisions in case of transfer of rights
4B (1) This paragraph applies where section 44 (contract and conveyance) has effect in accordance with section 45 (effect of transfer of rights).
(2) Any reference in paragraph 3, 4 or 4A to the date when a contract was entered into (or made) shall be read, in relation to a contract deemed to exist by virtue of section 45(3) (deemed secondary contract with transferee), as a reference to the date of the assignment, subsale or other transaction in question.
Credit for ad valorem stamp duty paid
5 (1) Where a transaction chargeable to stamp duty land tax is effected in pursuance of a contract entered into before the implementation date, any ad valorem stamp duty paid on the contract shall go to reduce the amount of tax payable (but not so as to give rise to any repayment).
(2) Where the application or operation of any exemption or relief from stamp duty land tax turns on whether tax was paid or payable in respect of an earlier transaction, that requirement is treated as met if ad valorem stamp duty was paid or (as the case may be) payable in respect of the instrument by which that transaction was effected.
Effect for stamp duty purposes of stamp duty land tax being paid or chargeable
6 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) The references in section 111(1)(c) of, and paragraph 4(3) of Schedule 34 to, the Finance Act 2002 (c. 23) (which relate to the circumstances in which stamp duty group relief is withdrawn) to a transfer at market value by a duly stamped instrument on which ad valorem duty was paid and in respect of which group relief was not claimed shall be read, on or after the implementation date, as including a reference to a transfer at market value by a chargeable transaction in respect of which relief under Part 1 of Schedule 7 to this Act was available but was not claimed.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earlier related transactions under stamp duty
7 (1) In relation to a transaction that is not an SDLT transaction but which is linked to an SDLT transaction and accordingly falls to be taken into account in determining the amount of stamp duty land tax chargeable on the latter transaction, any reference in this Part to the chargeable consideration for the first-mentioned transaction shall be read as a reference to the consideration by reference to which ad valorem stamp duty was payable in respect of the instrument by which that transaction was effected.
(2) In paragraph 3 of Schedule 9 (relief for transfer of reversion under shared ownership lease where election made for market value treatment) and paragraph 4A of that Schedule (shared ownership lease: treatment of staircasing transaction) as they apply in a case where the original lease was granted before the implementation date—
(a) a reference to a lease to which paragraph 2 of that Schedule applies shall be read as a reference to a lease to which section 97 of the Finance Act 1980 applied (which made provision for stamp duty corresponding to that paragraph), and
(b) a reference to an election having been made for tax to be charged in accordance with paragraph 2 or 4 of that Schedule shall be read as a reference to the lease having contained a statement of the parties' intention such as is mentioned in section 97(2)(d) of the Finance Act 1980 or, as the case may be, paragraph (d) of section 108(5) of the Finance Act 1981 (which made provision for stamp duty corresponding to paragraph 4).
(3) In section 54 (exceptions from deemed market value rule for transactions with connected company) the reference in subsection (4)(b) to group relief having been claimed in respect of a transaction shall be read in relation to a transaction carried out before the implementation date as a reference to relief having been claimed under section 42 of the Finance Act 1930 (c. 28), section 11 of the Finance Act (Northern Ireland) 1954 (c. 23 (N. I.)) or section 151 of the Finance Act 1995 (c. 4) in respect of stamp duty on the instrument by which the transaction was effected.
(4) For the purposes of paragraph 5 of Schedule 17A (treatment of successive linked leases) no account shall be taken of any transaction that is not an SDLT transaction.
Stamping of contract where transaction on completion subject to stamp duty land tax
7A (1) This paragraph applies where—
(a) a contract that apart from paragraph 7 of Schedule 13 to the Finance Act 1999 (contracts chargeable as conveyances on sale) would not be chargeable with stamp duty is entered into before the implementation date,
(b) a conveyance made in conformity with the contract is effected on or after the implementation date, and
(c) the transaction effected on completion is an SDLT transaction or would be but for an exemption or relief from stamp duty land tax.
(2) If in those circumstances the contract is presented for stamping together with a Revenue certificate as to compliance with the provisions of this Part of this Act in relation to the transaction effected on completion—
(a) the payment of stamp duty land tax on that transaction or, as the case may be, the fact that no such tax was payable shall be denoted on the contract by a particular stamp, and
(b) the contract shall be deemed thereupon to be duly stamped.
(3) In this paragraph “conveyance” includes any instrument.
Stamping of agreement for lease where grant of lease subject to stamp duty land tax
8 (1) This paragraph applies where—
(a) an agreement for a lease is entered into before the implementation date,
(b) a lease giving effect to the agreement is executed on or after that date, and
(c) the transaction effected on completion is an SDLT transaction or would be but for an exemption or relief from stamp duty land tax.
(2) If in those circumstances the agreement is presented for stamping together with a Revenue certificate as to compliance with the provisions of this Part of this Act in relation to the grant of the lease—
(a) the payment of stamp duty land tax in respect of the grant of the lease or, as the case may be, the fact that no such tax was payable shall be denoted on the agreement by a particular stamp, and
(b) the agreement shall be deemed thereupon to be duly stamped.
(3) For the purposes of this paragraph a lease gives effect to an agreement if the lease either is in conformity with the agreement or relates to substantially the same property and term as the agreement.
(4) References in this paragraph to an agreement for a lease include missives of let in Scotland.
Exercise of option or right of pre-emption acquired before implementation date
9 (1) This paragraph applies where—
(a) an option binding the grantor to enter into a land transaction, or
(b) a right of pre-emption preventing the grantor from entering into, or restricting the right of the grantor to enter into, a land transaction,
is acquired before the implementation date and exercised on or after that date.
(2) Where the option or right was acquired on or after 17th April 2003, any consideration for the acquisition is treated as part of the chargeable consideration for the transaction resulting from the exercise of the option or right.
(3) Where the option or right was varied on or after 17th April 2003 and before the implementation date, any consideration for the variation is treated as part of the chargeable consideration for the transaction resulting from the exercise of the option or right.
(4) Whether or not sub-paragraph (2) or (3) applies, the acquisition of the option or right and any variation of the option or right is treated as linked with the land transaction resulting from the exercise of the option or right.
But not so as to require the consideration for the acquisition or variation to be counted twice in determining the amount of tax chargeable on the land transaction resulting from the exercise of the option or right.
(5) Where this paragraph applies any ad valorem stamp duty paid on the acquisition or variation of the option or right shall go to reduce the amount of tax payable on the transaction resulting from the exercise of the option or right (but not so as to give rise to any repayment).
Supplementary
10 In this Schedule “contract” includes any agreement.
SCHEDULE 20 Stamp duty: restriction to instruments relating to stock or marketable securities
Section 125
Part 1 Supplementary provisions
Reduction of stamp duty where instrument partly relating to stock or marketable securities
1 (1) This paragraph applies where stamp duty under Part 1 of Schedule 13 to the Finance Act 1999 (c. 16) (transfer on sale) is chargeable on an instrument that relates partly to stock or marketable securities and partly to property other than stock or marketable securities.
(2) In such a case—
(a) the consideration in respect of which duty would otherwise be charged shall be apportioned, on a just and reasonable basis, as between the stock or marketable securities and the other property, and
(b) the instrument shall be charged only in respect of the consideration attributed to the stock or marketable securities.
Apportionment of consideration for stamp duty purposes
2 (1) Where part of the property referred to in section 58(1) of the Stamp Act 1891 (c. 39) (consideration to be apportioned between different instruments as parties think fit) consists of stock or marketable securities, that provision shall have effect as if “the parties think fit” read “ is just and reasonable ”.
(2) Where—
(a) part of the property referred to in section 58(2) of the Stamp Act 1891 (property contracted to be purchased by two or more persons etc) consists of stock or marketable securities, and
(b) both or (as the case may be) all the relevant persons are connected with one another,
that provision shall have effect as if the words from “for distinct parts of the consideration” to the end of the subsection read “ , the consideration shall be apportioned in such manner as is just and reasonable, so that a distinct consideration for each part of the property transferred is set forth in the transfer relating to that part, and the transfer shall be charged with ad valorem duty in respect of that consideration. ”.
(3) If in a case where sub-paragraph (1) or (2) applies the consideration is apportioned in a manner that is not just and reasonable, the enactments relating to stamp duty shall have effect as if—
(a) the consideration had been apportioned in a manner that is just and reasonable, and
(b) the amount of any distinct consideration set forth in any transfer relating to a part of the property transferred were such amount as is found by a just and reasonable apportionment (and not the amount actually set forth).
(4) For the purposes of sub-paragraph (2)—
(a) a person is a relevant person if he is a person by or for whom the property is contracted to be purchased;
(b) the question whether persons are connected with one another shall be determined in accordance with section 1122 of the Corporation Tax Act 2010.
Part 2 Consequential amendments and repeals
Removal of unnecessary references to “conveyance”
3 In the enactments relating to stamp duty for “conveyance or transfer”, wherever occurring, substitute “ transfer ”.
Finance Act 1895
4 In section 12 of the Finance Act 1895 (c. 16) (collection of stamp duty in cases of property vested by Act or purchased under statutory powers)—
(a) in paragraph (a) for “property is” substitute “ stock or marketable securities are ”;
(b) in paragraph (b) for “property” substitute “ stock or marketable securities ”;
(c) in the closing words for “conveyance”, in both places where that word occurs, substitute “ transfer ”.
Finance Act 1990
5 In section 108 of the Finance Act 1990 (c. 29) (transfer of securities: abolition of stamp duty), for subsections (1) to (6) substitute—
(1) Stamp duty shall not be chargeable under Schedule 13 to the Finance Act 1999 (transfer of securities).
.
Finance Act 1999
6 In paragraph 1(2) of Schedule 13 to the Finance Act 1999 (c. 16) for “conveyance on sale” substitute “ transfer on sale ”.
Power to make further consequential amendments or repeals
7 (1) The Treasury may by regulations make such other amendments or repeals of enactments relating to stamp duty or stamp duty reserve tax as appear to them appropriate in consequence of the abolition of stamp duty except on instruments relating to stock or marketable securities.
(2) The regulations may include such transitional provisions and savings as appear to the Treasury to be appropriate.
(3) Regulations under this paragraph shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the House of Commons.
Section 139
Part 1 Share incentive plans
Introductory
1 Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (approved share incentive plans) is amended as follows.
Participation in more than one connected plan in a tax year
2 After paragraph 18 insert—
Participation in more than one connected SIP in a tax year
18A (1) The plan must provide that, if an individual participates in an award of shares under the plan in a tax year in which he has already participated in an award of shares under one or more other approved SIPs established by the company or a connected company—
(a) paragraph 35 (maximum annual award of free shares),
(b) paragraph 46 (maximum amount of partnership share money deductions), and
(c) paragraph 64 (limit on amount reinvested),
apply as if the plan and the other plan or plans were a single plan.
(2) In this paragraph “connected company” has the same meaning as in paragraph 18.
.
3 In paragraph 13 (eligibility of individuals: introduction), for the entry relating to paragraph 18 substitute—
paragraph 18 (requirement not to participate simultaneously in connected SIPs), paragraph 18A (successive participation in connected SIPs), and
.
4 In paragraph 14(7) (eligibility to participate dependent on certain requirements of plan being met), for paragraph (b) substitute—
(b) not participating simultaneously in connected SIPs (see paragraph 18),
(ba) successive participation in connected SIPs (see paragraph 18A), and
.
5 In paragraph 18 (requirement not to participate in connected SIPs), omit sub-paragraph (1)(a) (successive participation in connected SIPs).
6 After paragraph 71 insert—
Duty to monitor participants in connected schemes
71A The trust instrument must require the trustees to maintain records of participants who have participated in one or more other approved SIPs established by the company or a connected company.
.
Partnership shares
7 (1) Paragraph 46 (maximum amount of partnership share money deductions) is amended as follows.
(2) In sub-paragraph (1), for the words after “must not exceed” substitute “ £1,500 in any tax year. ”.
(3) In sub-paragraph (2), for the words after “an employee’s salary” substitute “ for any tax year must not exceed 10% of the employee’s salary for the tax year. ”.
(4) After that sub-paragraph insert—
(4A) A limit lower than that specified in sub-paragraph (2) may be framed—
(a) as a proposition substituting a percentage lower than that so specified, or
(b) as a proposition that a particular description of earnings is not to be regarded as forming part of an employee’s salary for the purposes of that sub-paragraph.
.
(5) Sub-paragraphs (2) and (3) have effect for the year 2003-04 and subsequent years of assessment.
8 In paragraph 47 (minimum amount of deductions)—
(a) for “in any month” substitute “ on any occasion ”, and
(b) omit sub-paragraph (3).
Part 2 SAYE option schemes
Introductory
9 Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (approved SAYE option schemes) is amended as follows.
Minor correction
10 In paragraph 25(3)(a) (limit on contributions under CCS schemes linked to approved SAYE schemes), after “SAYE” insert “ option ”.
Exercise of options: scheme-related employment ends because of change of control or transfer
11 (1) Paragraph 34 (exercise of options: scheme-related employment ends) is amended as follows.
(2) In sub-paragraph (2)(a), after “1996” insert “ or ER(NI)O 1996 ”.
(3) In sub-paragraph (5)—
(a) for “provide that,” substitute “ make provision about the time when the options may be exercised ”, and
(b) omit the words following paragraph (b).
(4) After that sub-paragraph insert—
(5A) If the scheme makes provision by virtue of sub-paragraph (5), the provision must be either—
(a) that the options may be exercised within 6 months after the termination date, or
(b) that the options may be exercised within 6 months after the date (if any) when P ceases to hold the employment which (before the termination date) was the scheme-related employment for a reason within sub-paragraph (2)(a) or (b).
.
Alteration of schemes
12 (1) Paragraph 42 (withdrawal of approval) is amended as follows.
(2) In sub-paragraph (2), after “to be met;” insert—
(aa) an alteration is made in a key feature of the scheme without the approval of the Inland Revenue;
.
(3) After that sub-paragraph insert—
(2A) For the purposes of sub-paragraph (2)(aa) the Inland Revenue may not withhold their approval unless it appears to them at the time in question that the scheme as proposed to be altered would not then be approved on an application under paragraph 40.
(2B) For the purposes of that sub-paragraph a “key feature” of a scheme is a provision of the scheme which is necessary in order to meet the requirements of this Schedule.
.
(4) For paragraph 43 (approval ineffective after unapproved alteration and notice of decisions) and the heading before it substitute—
Notice of decision about alteration
43 Where the Inland Revenue—
(a) have been requested to approve any alteration in a SAYE option scheme that has been approved, and
(b) have decided whether or not to approve the alteration,
they must give notice of their decision to the scheme organiser.
.
(5) For paragraph 44(1)(b) (appeal against decision not to approve alteration) substitute—
(b) decide to refuse approval under paragraph 42(2)(aa).
.
Part 3 CSOP schemes
Introductory
13 The Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as follows.
Exercise of options: exclusion of income tax liability
14 (1) Section 524 (no charge in respect of exercise of option under CSOP scheme) is amended as follows.
(2) For subsection (1)(b) substitute—
(b) Condition A or B is met.
.
(3) For subsections (2) and (3) substitute—
(2) Condition A is that the option is exercised—
(a) on or after the third anniversary of the date on which it was granted, but
(b) not later than the tenth anniversary of that date.
(2A) Condition B is that the option—
(a) is exercised before the third anniversary of the date on which it was granted, and
(b) is so exercised by virtue of a provision included in the scheme under paragraph 24 of Schedule 4 (exercise of options after ceasing to be director or employee) in circumstances in which subsection (2B) applies.
(2B) This subsection applies if the individual exercising the option—
(a) has ceased to be a full-time director or qualifying employee of the scheme organiser (or, in the case of a group scheme, a constituent company) because of injury, disability, redundancy or retirement, and
(b) exercises the option within 6 months of the day on which he ceases to be such a director or employee.
(2C) In subsection (2B)—
“redundancy” means redundancy within the meaning of ERA 1996 or ER(NI)O 1996, and
“retirement” means retirement on or after reaching a retirement age specified in the scheme.
.
(4) For section 525(1)(b) (no charge in respect of post-acquisition benefits) substitute—
(b) Condition A or B (as set out in section 524(2) or (2A)) is met.
.
(5) This paragraph has effect in relation to any exercise of an option on or after 9th April 2003.
15 (1) Schedule 4 (approved CSOP schemes) is amended as follows.
(2) After paragraph 35 insert—
Retirement age
35A A retirement age specified in a CSOP scheme—
(a) must be the same for men and women, and
(b) must not be less than 55.
.
Meaning of “material interest”
16 (1) In paragraphs 10(2) and (3), 11(3) and (4) and 13(2) (material interest), for “10%” substitute “ 25% ”.
(2) This paragraph has effect for the purpose of determining whether a person is eligible to participate in a scheme on the date on which this Act is passed or any later date (by altering what constitutes a material interest on that date and within the 12 months preceding that date).
Alteration of schemes
17 (1) Paragraph 30 (withdrawal of approval) is amended as follows.
(2) In sub-paragraph (2), after “to be met;” insert—
(aa) an alteration is made in a key feature of the scheme without the approval of the Inland Revenue;
.
(3) After that sub-paragraph insert—
(3) For the purposes of sub-paragraph (2)(aa) the Inland Revenue may not withhold their approval unless it appears to them at the time in question that the scheme as proposed to be altered would not then be approved on an application under paragraph 28.
(4) For the purposes of that sub-paragraph a “key feature” of a scheme is a provision of the scheme which is necessary in order to meet the requirements of this Schedule.
.
(4) For paragraph 31 (approval ineffective after unapproved alteration and notice of decisions) and the heading before it substitute—
Notice of decision about alteration
31 Where the Inland Revenue—
(a) have been requested to approve any alteration in a CSOP scheme that has been approved, and
(b) have decided whether or not to approve the alteration,
they must give notice of their decision to the scheme organiser.
.
(5) For paragraph 32(1)(b) (appeal against decision not to approve alteration) substitute—
(b) decide to refuse approval under paragraph 30(2)(aa).
.
PAYE
18 (1) Section 701(2)(c) (PAYE: exclusions from meaning of “asset”) is amended as follows.
(2) In sub-paragraph (i), omit “or 4 (approved CSOP schemes)”.
(3) After that sub-paragraph insert—
(ia) any shares acquired by the employee (whether or not as a result of the exercise of a right to acquire shares) under a scheme approved under Schedule 4 (approved CSOP schemes), other than shares acquired as a result of the exercise of the right before the third anniversary of the date on which it was granted or later than the tenth anniversary of that date;
.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) This paragraph has effect in relation to shares acquired on or after 9th April 2003.
Section 140
Introductory
1 The Income Tax (Earnings and Pensions) Act 2003 (c. 1) is amended as follows.
Main provisions
2 (1) For Chapter 1 of Part 7 (and the heading of that Part) substitute—
Employment income: income and exemptions relating to securities
Chapter 1 Introduction
General
Scope of Part 7
417 (1) This Part contains special rules about cases where securities, interests in securities or securities options are acquired in connection with an employment.
(2) The rules are contained in—
Chapter 2 (restricted securities),
Chapter 3 (convertible securities),
Chapter 3A (securities with artificially depressed market value),
Chapter 3B (securities with artificially enhanced market value),
Chapter 3C (securities acquired for less than market value),
Chapter 3D (securities disposed of for more than market value),
Chapter 4 (post-acquisition benefits from securities),
Chapter 5 (securities options),
Chapter 6 (approved share incentive plans),
Chapter 7 (approved SAYE option schemes),
Chapter 8 (approved CSOP schemes),
Chapter 9 (enterprise management incentives), and
Chapter 10 (priority share allocations).
(3) The following make provision for amounts to count as employment income—
Chapters 2 to 6, and
Chapter 8.
(4) The following make provision for exemptions and reliefs from income tax—
Chapters 2 and 3, and
Chapters 5 to 10.
(5) Chapter 11 contains supplementary provisions relating to employee benefit trusts.
(6) Section 5(1) (application of employment income Parts to office-holders generally) does not apply to Chapters 6 to 10; and section 549(5) makes provision about its application to Chapter 11.
Other related provisions
418 (1) In Part 3—
Chapter 1 (earnings), and
Chapter 10 (taxable benefits: residual liability to charge),
may also have effect in relation to securities and interests in securities (but not securities options).
(2) Part 7 of Schedule 7 (transitional provisions relating to securities and securities options) may also be relevant.
(3) In view of section 49 of FA 2000 (phasing out of APS schemes) the following are not rewritten in this Act and continue in force unaffected by the repeals made by this Act—
section 186 of ICTA (APS schemes) and section 187 of that Act (interpretation) so far as relating to APS schemes, and
Schedule 9 to ICTA (approval of share schemes) so far as relating to APS schemes and Schedule 10 to that Act (further provisions about APS schemes).
“APS schemes” means profit sharing schemes approved under Schedule 9 to ICTA.
(4) Sections 138 to 140 of ICTA (share acquisitions by directors and employees) continue to apply in relation to shares or interests in shares acquired before 26th October 1987 (see paragraph 57 of Schedule 7).
Negative amounts treated as nil
419 If the result given by any formula under any provision of this Part would otherwise be a negative amount, the result is to be taken to be nil instead.
Interpretation of Chapters 1 to 5
Meaning of “securities” etc
420 (1) Subject to subsections (5) and (6), for the purposes of this Chapter and Chapters 2 to 5 the following are “securities”—
(a) shares in any body corporate (wherever incorporated) or in any unincorporated body constituted under the law of a country or territory outside the United Kingdom,
(b) debentures, debenture stock, loan stock, bonds, certificates of deposit and other instruments creating or acknowledging indebtedness,
(c) warrants and other instruments entitling their holders to subscribe for securities (whether or not in existence or identifiable),
(d) certificates and other instruments conferring rights in respect of securities held by persons other than the persons on whom the rights are conferred and the transfer of which may be effected without the consent of those persons,
(e) units in a collective investment scheme,
(f) futures, and
(g) rights under contracts for differences or contracts similar to contracts for differences.
(2) In subsection (1)(e) “collective investment scheme” means arrangements—
(a) which are made with respect to property of any description, including money, and
(b) the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
(3) In subsection (1)(f) “futures” means rights under a contract for the sale of a commodity or other property under which delivery is to be made at a future date at a price agreed when the contract is made; and for this purpose a price is to be taken to be agreed when the contract is made—
(a) if it is left to be determined by reference to the price at which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract, and
(b) in a case where the contract is expressed to be by reference to a standard lot and quality, even if provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.
(4) For the purposes of subsection (1)(g) a contract similar to a contract for differences is a contract—
(a) which is not a contract for differences, but
(b) the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price of property or an index or other factor designated in the contract.
(5) The following are not “securities” for the purposes of this Chapter or Chapters 2 to 5—
(a) cheques and other bills of exchange, bankers' drafts and letters of credit (other than bills of exchange accepted by a banker),
(b) money and statements showing balances on a current, deposit or savings account,
(c) leases and other dispositions of property and heritable securities,
(d) rights under contracts of insurance (within the meaning of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001), and
(e) options.
(6) The Treasury may by order amend subsections (1) to (5).
(7) An order under subsection (6) may include any appropriate consequential provision (including provision amending any enactment).
(8) In this Chapter and Chapters 2 to 5—
“interest”, in relation to securities (or shares), means an interest in them less than full beneficial ownership and includes an interest in proceeds of their sale, but does not include a right to acquire them,
“securities option” means a right to acquire securities, and
“shares” includes stock.
Meaning of “market value” etc
421 (1) In this Chapter and Chapters 2 to 5 “market value” has the same meaning as it has for the purposes of TCGA 1992 by virtue of Part 8 of that Act.
(2) Where consideration for anything is given in the form of an asset (as opposed to a payment), any reference in this Chapter or any of Chapters 2 to 5 to the amount of the consideration is to the market value of the asset.
Meaning of “consideration”
421A (1) This section applies for determining for the purposes of Chapters 2 to 5 the amount of the consideration given for anything.
(2) If any consideration is given partly in respect of one thing and partly in respect of another, the amount given in respect of the different things is to determined on a just and reasonable apportionment.
(3) The consideration which is taken to be given wholly or partly for anything does not include the performance of any duties of, or in connection with, an employment.
(4) No amount is to be counted more than once in calculating the amount of any consideration.
Application of Chapters 2 to 4
Application of Chapters 2 to 4
421B (1) Subject as follows (and to any provision contained in Chapters 2 to 4) those Chapters apply to securities, or an interest in securities, acquired by a person where the right or opportunity to acquire the securities or interest is available by reason of an employment of that person or any other person.
(2) For the purposes of subsection (1)—
(a) securities are, or an interest in securities is, acquired at the time when the person acquiring the securities or interest becomes beneficially entitled to those securities or that interest (and not, if different, the time when the securities are, or interest is, conveyed or transferred), and
(b) “employment” includes a former or prospective employment.
(3) A right or opportunity to acquire securities or an interest in securities made available by a person’s employer, or by a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless—
(a) the person by whom the right or opportunity is made available is an individual, and
(b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.
(4) Chapters 2 to 4 cease to apply to securities, or an interest in securities, when subsection (5), (6) or (7) is satisfied.
(5) This subsection is satisfied immediately after the securities are, or the interest in securities is, disposed of otherwise than to an associated person.
(6) This subsection is satisfied immediately before the death of the employee.
(7) This subsection is satisfied 7 years after the first date after the acquisition on which the employee is an employee of none of the following—
(a) the employer,
(b) (if the securities are, or the interest in securities is an interest in, securities issued by a company) the company by which they are issued, or
(c) a person connected with a person within paragraph (a) or (b).
(8) In this Chapter and Chapters 2 to 4—
“the acquisition”, in relation to employment-related securities, means the acquisition of the employment-related securities pursuant to the right or opportunity available by reason of the employment,
“the employment”, in relation to employment-related securities, means the employment by reason of which the right or opportunity to acquire the employment-related securities is available (“the employee” and “the employer” being construed accordingly unless otherwise indicated), and
“employment-related securities” means securities or an interest in securities to which Chapters 2 to 4 apply (ignoring any provision of any of those Chapters which limits the application of the Chapter to a particular description or descriptions of employment-related securities).
Associated persons
421C (1) For the purposes of this Chapter and Chapters 2 to 4 the following are “associated persons” in relation to employment-related securities—
(a) the person who acquired the employment-related securities on the acquisition,
(b) (if different) the employee, and
(c) any relevant linked person.
(2) A person is a relevant linked person if—
(a) that person (on the one hand), and
(b) either the person who acquired the employment-related securities on the acquisition or the employee (on the other),
are connected or, although not connected, are members of the same household.
(3) But a company which would otherwise be a relevant linked person is not if it is—
(a) the employer,
(b) the person from whom the employment-related securities were acquired,
(c) the person by whom the right or opportunity to acquire the employment-related securities was made available, or
(d) the person by whom the employment-related securities (or the securities in which they are an interest) were issued.
Replacement and additional securities and changes in interests
421D (1) Subsections (2) and (3) apply where an associated person is entitled to employment-related securities (the “original securities”) and either—
(a) as a result of the conversion of the original securities (or the securities in which they are an interest), or of any other transaction or series of transactions, that person ceases to be entitled to the original securities but that person or another associated person acquires securities or an interest in securities (the “replacement securities”), or
(b) by virtue of that person being entitled to the original securities, that person or another associated person acquires other securities or an interest in other securities (the “additional securities”).
(2) The replacement securities or the additional securities are to be regarded for the purposes of section 421B(1) (securities acquired pursuant to a right or opportunity available by reason of an employment) as acquired pursuant to the same right or opportunity as the original securities.
(3) Where the market value of the original securities is reduced by reason of the issue of, or of securities including, the replacement securities or the additional securities (or the securities in which they are an interest), the amount of that reduction is to be treated for the purposes of Chapters 2 and 3 as consideration or additional consideration given for the acquisition of the replacement securities or the additional securities.
(4) Subsections (2) and (3) apply whether or not the replacement securities, or the additional securities, were acquired for consideration.
(5) Where Chapters 2 to 4 apply to an interest in securities, an increase of that interest is to be treated for the purposes of section 421B(1) (securities acquired pursuant to a right or opportunity available by reason of an employment) as a separate interest acquired pursuant to the same right or opportunity as the original interest.
(6) Where Chapters 2 to 4 apply to an interest in securities, a reduction of that interest (otherwise than by a disposal to an associated person) is to be treated for the purposes of those Chapters as the disposal otherwise than to an associated person of a separate interest proportionate to the reduction.
Exclusions: residence etc
421E (1) Chapters 2, 3 and 4 do not apply in relation to employment-related securities if, at the time of the acquisition, the earnings from the employment were not (or would not have been if there had been any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the UK).
(2) Chapters 3A to 3D do not apply in relation to employment-related securities if, at the time of the acquisition, the earnings from the employment were not (or would not have been if there had been any) general earnings to which any of the charging provisions of Chapter 4 or 5 of Part 2 apply.
(3) Chapters 2 to 4 do not apply in the case of a former employment if they would not apply if the acquisition had taken place in the last tax year in which the employment was held.
(4) Chapters 2 to 4 do not apply in the case of a prospective employment if they would not apply if the acquisition had taken place in the first tax year in which the employment is held.
(5) Where the employment-related securities are replacement securities or additional securities (within the meaning of section 421D), the references in this section to the acquisition are to the acquisition of the original securities (within the meaning of that section).
Exclusions: public offers
421F (1) Chapters 2 to 4 do not apply in relation to employment-related securities that are shares acquired under the terms of an offer to the public or an interest in shares so acquired.
(2) In a case within subsection (1) of section 544 (exemption for priority share allocations where offer to employees separate from public offer), any acquisition made under the terms of either the public offer or the employee offer within the meaning of that subsection is to be treated for the purposes of this section as made under the terms of an offer to the public.
(3) Subsection (2) applies whether or not there is any benefit within section 544(2) (benefit derived from entitlement to priority allocation exempt from income tax).
Exclusions: approved plan or scheme securities
421G Chapters 2 to 4 do not apply to—
(a) shares awarded or acquired under an approved share incentive plan (within the meaning of Chapter 6 of this Part),
(b) shares acquired by the exercise of a share option granted under an approved SAYE option scheme (within the meaning of Chapter 7 of this Part), or
(c) shares acquired by the exercise of a share option granted under an approved CSOP scheme (within the meaning of Chapter 8 of this Part).
Meaning of “employee-controlled” etc
421H (1) For the purposes of Chapters 2 to 4 a company is “employee-controlled” by virtue of shares of a class if—
(a) the majority of the company’s shares of that class (other than any held by or for the benefit of an associated company) are held by or for the benefit of employees of the company or a company controlled by the company, and
(b) those employees are together able as holders of the shares to control the company.
In this subsection “employee” includes a person who is to be or has been an employee.
(2) In this section and Chapters 2 to 4 “associated company” has the same meaning as, by virtue of section 416 of ICTA, it has for the purposes of Part 11 of ICTA.
Consideration for acquisition of employment-related securities
421I (1) This section applies for determining for the purposes of Chapters 2 to 3A the amount of the consideration given for the acquisition of employment-related securities.
(2) References to consideration given for the acquisition of the employment-related securities are to consideration given by—
(a) the employee, or
(b) (if not the employee) the person by whom the employment-related securities were acquired.
(3) The amount of the consideration given by a person for the acquisition of the employment-related securities includes the amount of any consideration given for a right to acquire the employment-related securities.
(4) If the right to acquire the employment-related securities (“the new option”) is the whole or part of the consideration for the assignment or release of another right to acquire them (“the old option”), the amount of the consideration given for the new option is to be treated as being the sum of—
(a) the amount by which the amount of the consideration given for the old option exceeds the amount of any consideration for the assignment or release of the old option, apart from the new option, and
(b) any valuable consideration given for the new option, apart from the old option.
(5) Two or more transactions are to be treated for the purposes of subsection (4) as a single transaction by which a right to acquire the employment-related securities is assigned for a consideration which consists of or includes another right to acquire the employment-related securities if—
(a) the transactions result in a person ceasing to hold a right to acquire the employment-related securities and that person or a connected person coming to hold another right to acquire them, and
(b) one or more of the transactions is effected under arrangements to which two or more persons who hold rights to acquire the employment-related securities, in respect of which there may be a liability to tax under Chapter 5 of this Part (securities options), are parties.
(6) Subsection (5) applies regardless of the order in which the assignment and the acquisition occur.
(7) In this section “release”, in relation to a right to acquire the employment-related securities, includes agreeing to the restriction of the exercise of the right.
Information
Duty to provide information
421J (1) This section applies in relation to reportable events.
(2) Section 421K explains what are reportable events for the purposes of this section.
(3) Each person who is a responsible person in relation to a reportable event must provide the Inland Revenue with particulars in writing of the reportable event before 7th July in the tax year following that in which the reportable event takes place.
(4) The Inland Revenue may by notice require any person to provide them with such particulars of any reportable events—
(a) which take place in a period specified in the notice, and
(b) in relation to which that person is a responsible person,
as are required by the notice or, if no reportable event in relation to which that person is a responsible person has taken place in that period, to state that fact.
(5) A notice under subsection (4) must specify a date by which it must be complied with.
(6) That date must not be less than 30 days after the date when the notice is given.
(7) Once one person complies with the duty imposed by subsection (3) in relation to a reportable event, that subsection ceases to impose a duty on any other person in relation to the reportable event.
(8) Once a person complies with the duty imposed by a notice under subsection (4) by providing the required particulars of a reportable event, subsection (3) ceases to impose a duty on that person or any other person in relation to that reportable event.
(9) Section 421L explains who are the responsible persons in relation to a reportable event.
(10) The particulars required by, or by a notice under, this section must be provided in a form specified by the Board of Inland Revenue.
(11) A person need not provide particulars required by, or by a notice under, this section if they have been given in a notice under paragraph 44 of Schedule 5 (enterprise management incentives: notice of option to be given to Inland Revenue).
In other respects the obligations imposed by, or by a notice under, this section and by that paragraph are independent of each other.
(12) Paragraph 52 of that Schedule contains a duty to deliver annual returns where a company’s shares are subject to a qualifying option within the meaning of that Schedule.
Reportable events
421K (1) This section applies for the purposes of section 421J (duty to provide information).
(2) Each of the events mentioned in subsection (3) is a reportable event.
(3) The events are—
(a) an acquisition (or an event treated as an acquisition) of securities, an interest in securities or a securities option pursuant to a right or opportunity available by reason of the employment of the person who acquires the securities, interest in securities or securities option or of any other person,
(b) an event which is a chargeable event in relation to securities, or an interest in securities, for the purposes of section 426 (chargeable events in relation to restricted securities and restricted interests in securities),
(c) an event which is a chargeable event in relation to securities, or an interest in securities, for the purposes of section 438 (chargeable events in relation to convertible securities and interests in convertible securities),
(d) the doing of anything which gives rise to a taxable amount counting as employment income under section 446L (artificial enhancement of market value of securities),
(e) an event which discharges a notional loan relating to securities, or an interest in securities, under section 446U (securities and interests in securities acquired for less than market value),
(f) a disposal of securities, or an interest in securities, by virtue of which Chapter 3D of this Part applies (securities and interests in securities disposed of for more than market value),
(g) the receipt of a benefit which gives rise to a taxable amount counting as employment income under section 447 (charge on benefit from securities or interest in securities),
(h) the assignment or release of a securities option acquired pursuant to a right or opportunity available by reason of the employment of the person who acquires the securities option or any other person, and
(i) the receipt of a benefit in money or money’s worth which is (or by virtue of section 477(6) is to be regarded as being) received in connection with such a securities option.
Persons to whom section 421J applies
421L (1) This section applies for the purposes of section 421J (duty to provide information).
(2) Each of the following persons is a responsible person in relation to a reportable event.
(3) The persons are—
(a) the employer in question,
(b) any host employer of the employee in question,
(c) the person from whom the securities in question were, or interest or option in question was, acquired, and
(d) in relation to a reportable event concerning securities or an interest in securities which are not excluded securities, the person by whom the securities were issued.
(4) In subsection (3)(b) “host employer” means a person other than the employer in question—
(a) for whom the employee in question works at the time of the reportable event, and
(b) who would, by virtue of subsection (2) of section 689 (employees of non-UK employers working for a person other than the employer), be treated for the purposes of PAYE regulations as making a payment of PAYE income of the employee in question if a payment to which subsection (5) would apply were made by the employer in question in respect of the period during which the employee works for the other person.
(5) For the purposes of subsection (4)(b) this subsection would apply to a payment if—
(a) it were a payment of PAYE income of the employee, and
(b) the conditions in subsection (1)(c) and (d) of section 689 were satisfied in relation to the payment.
(6) For the purposes of subsection (3)(d) securities are excluded securities in relation to a reportable event if they are—
(a) loan stock, bonds or other instruments creating or acknowledging indebtedness issued by or on behalf of any national or regional government or local authority (in the United Kingdom or elsewhere) or any body whose members consists of states, national or regional governments or local authorities, or
(b) securities which are issued by a person who, at the time of the reportable event, is not connected with the employer in question and which are listed or dealt in on a recognised stock exchange.
.
(2) So far as relating to—
(a) each of the new Chapters substituted or inserted in Part 7 by the following paragraphs, and
(b) each of the Chapters of that Part as originally enacted for which new Chapters are substituted by the following paragraphs,
sub-paragraph (1) has effect in accordance with the provision made by the following paragraphs for the taking effect of the substitution or insertion.
3 (1) For Chapter 2 of Part 7 substitute—
Chapter 2 Restricted securities
Introduction
Application of this Chapter
422 This Chapter applies to employment-related securities if they are—
(a) restricted securities, or
(b) a restricted interest in securities,
at the time of the acquisition.
“Restricted securities” and “restricted interest in securities”
423 (1) For the purposes of this Chapter employment-related securities are restricted securities or a restricted interest in securities if—
(a) there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) applies, and
(b) the market value of the employment-related securities is less than it would be but for that provision.
(2) This subsection applies to provision under which—
(a) there will be a transfer, reversion or forfeiture of the employment-related securities, or (if the employment-related securities are an interest in securities) of the interest or the securities, if certain circumstances arise or do not arise,
(b) as a result of the transfer, reversion or forfeiture the person by whom the employment-related securities are held will cease to be beneficially entitled to the employment-related securities, and
(c) that person will not be entitled on the transfer, reversion or forfeiture to receive in respect of the employment-related securities an amount of at least their market value (determined as if there were no provision for transfer, reversion or forfeiture) at the time of the transfer, reversion or forfeiture.
(3) This subsection applies to provision under which there is a restriction on—
(a) the freedom of the person by whom the employment-related securities are held to dispose of the employment-related securities or proceeds of their sale,
(b) the right of that person to retain the employment-related securities or proceeds of their sale, or
(c) any other right conferred by the employment-related securities,
(not being provision to which subsection (2) applies).
(4) This subsection applies to provision under which the disposal or retention of the employment-related securities, or the exercise of a right conferred by the employment-related securities, may result in a disadvantage to—
(a) the person by whom the employment-related securities are held,
(b) the employee (if not the person by whom they are held), or
(c) any person connected with the person by whom they are held or with the employee,
(not being provision to which subsection (2) or (3) applies).
Exceptions
424 Employment-related securities are not restricted securities or a restricted interest in securities by reason only that any one or more of the following is the case—
(a) the employment-related securities (or the securities in which they are an interest) are unpaid or partly paid shares which may be forfeited for non-payment of calls and there is no restriction on the meeting of calls by the person by whom they are held,
(b) that person may be required to offer for sale or transfer the employment-related securities on the employee ceasing, as a result of misconduct, to be employed by the employer or a person connected with the employer, or
(c) the employment-related securities (or the securities in which they are an interest) may be redeemed on payment of any amount.
Tax exemption on acquisition
No charge in respect of acquisition in certain cases
425 (1) Subsection (2) applies if the employment-related securities—
(a) are restricted securities, or a restricted interest in securities, by virtue of subsection (2) of section 423 (provision for transfer, reversion or forfeiture) at the time of the acquisition, and
(b) will cease to be restricted securities, or a restricted interest in securities, by virtue of that subsection within 5 years after the acquisition (whether or not they may remain restricted securities or a restricted interest in securities by virtue of the application of subsection (3) or (4) of that section).
(2) No liability to income tax arises in respect of the acquisition, except as provided by—
(a) Chapter 3 of this Part (acquisition by conversion),
(b) Chapter 3C of this Part (acquisition for less than market value), or
(c) Chapter 5 of this Part (acquisition pursuant to securities option).
(3) But the employer and the employee may elect that subsection (2) is not to apply to the employment-related securities.
(4) An election under subsection (3)—
(a) is to be made by agreement by the employer and the employee, and
(b) is irrevocable.
(5) Such an agreement—
(a) must be made in a form approved by the Board of Inland Revenue, and
(b) may not be made more than 14 days after the acquisition.
Tax charge on post-acquisition chargeable events
Charge on occurrence of chargeable event
426 (1) This section applies if a chargeable event occurs in relation to the employment-related securities.
(2) The taxable amount determined under section 428 counts as employment income of the employee for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the chargeable event occurs.
(4) Section 427 explains what are chargeable events for the purposes of this section.
(5) This section is subject to section 429 (case outside charge under this section).
Chargeable events
427 (1) This section applies for the purposes of section 426 (charge on occurrence of chargeable event).
(2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities.
(3) The events are—
(a) the employment-related securities ceasing to be restricted securities, or a restricted interest in securities, in circumstances in which an associated person is beneficially entitled to the employment-related securities after the event,
(b) the variation of any restriction relating to the employment-related securities in such circumstances (without the employment-related securities ceasing to be restricted securities or a restricted interest in securities), and
(c) the disposal for consideration of the employment-related securities, or any interest in them, by an associated person otherwise than to another associated person (at a time when they are still restricted securities or a restricted interest in securities).
(4) For the purposes of this Chapter there is a variation of a restriction relating to the employment-related securities if any restriction in relation to them is removed or varied.
Amount of charge
428 (1) The taxable amount for the purposes of section 426 (charge on occurrence of chargeable event) is—
UMV
×
(
IUP
-
PCP
-
OP
)
-
CE
(2) UMV is what would be the market value of the employment-related securities immediately after the chargeable event but for any restrictions.
(3) IUP is—
IUMV
-
DA
IUMV
where—
IUMV is what would have been the market value of the employment-related securities at the time of the acquisition but for any restrictions, and
DA is the total of any deductible amounts.
(4) PCP is the aggregate of the result of the application of the formula—
IUP
-
PCP
-
OP
on each previous event (if any) occurring since the acquisition that was a chargeable event for the purposes of section 426 in relation to the employment-related securities (and so is nil if there has not been such a previous event).
(5) OP is—
UMV
-
AMV
UMV
where AMV is the actual market value of the employment-related securities immediately after the chargeable event.
(6) CE is any expenses incurred by the holder of the employment-related securities in connection with—
(a) the employment-related securities ceasing to be restricted securities or a restricted interest in securities,
(b) the variation of a restriction relating to the employment-related securities, or
(c) the disposal of the employment-related securities,
together (if the chargeable event is one within section 427(3)(a) or (b) (lifting of restrictions and variation of restriction)) with any consideration given for the employment-related securities ceasing to be restricted securities or a restricted interest in securities or the variation of a restriction relating to the employment-related securities.
(7) For the purposes of this section each of the following is a “deductible amount”—
(a) the amount of any consideration given for the acquisition of the employment-related securities,
(b) any amount that constituted earnings from the employee’s employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities,
(c) any amount that counted as employment income in relation to the employment-related securities under Chapter 2 or 4 of this Part as originally enacted,
(d) if the employment-related securities were acquired on a conversion of other employment-related securities, any amount that counted as employment income of the employee under Chapter 3 of this Part (including that Chapter as originally enacted) (convertible securities) by reason of the conversion, and
(e) if the acquisition of the employment-related securities was pursuant to a securities option, any amount that counted as employment income of the employee under section 476 (or section 476 or 477 as originally enacted) (acquisition of securities pursuant to securities option) by reason of the acquisition.
(8) If the employment-related securities are convertible securities, or an interest in convertible securities, their market value is to be determined for the purposes of this section as if they were not.
(9) Where the chargeable event is one within section 427(3)(c) (disposal) and CD is less than AMV, the taxable amount for the purposes of section 426 is the amount determined under subsection (1) multiplied by—
CD
AMV
where—
CD is the consideration given for the employment-related securities, and
AMV is the actual market value of the employment-related securities immediately after the chargeable event.
Case outside charge under section 426
429 (1) Section 426 (charge on occurrence of chargeable event) does not apply if—
(a) the employment-related securities are shares (or an interest in shares) in a company of a class,
(b) the provision by virtue of which the employment-related securities are restricted securities, or a restricted interest in securities, applies to all the company’s shares of the class,
(c) all the company’s shares of the class (other than the employment-related securities) are affected by an event similar to that which is a chargeable event in relation to the employment-related securities, and
(d) subsection (3) or (4) is satisfied.
(2) For the purposes of subsection (1)(c) shares are affected by an event similar to that which is a chargeable event in relation to the employment-related securities—
(a) in the case of a chargeable event within section 427(3)(a) (lifting of restrictions), if the provision mentioned in subsection (1)(b) ceases to apply to them,
(b) in the case of a chargeable event within section 427(3)(b) (variation of restriction), if that provision is varied in relation to them in the same way as in relation to the employment-related securities, or
(c) in the case of a chargeable event within section 427(3)(c) (disposal), if they are disposed of.
(3) This subsection is satisfied if, immediately before the event that would be a chargeable event, the company is employee-controlled by virtue of holdings of shares of the class.
(4) This subsection is satisfied if, immediately before that event, the majority of the company’s shares of the class are not held by or for the benefit of any of the following—
(a) employees of the company,
(b) persons who are related to an employee of the company,
(c) associated companies of the company,
(d) employees of any associated company of the company, or
(e) persons who are related to an employee of any such associated company.
(5) For the purposes of subsection (4) a person is related to an employee if—
(a) the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
(b) the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.
Election for outstanding restrictions to be ignored
430 (1) The employer and the employee may elect that—
(a) on a chargeable event the taxable amount for the purposes of section 426 is to be determined by applying section 428(1) as if it did not include a reference to OP, and
(b) sections 426 to 429 are not to apply to the employment-related securities after that chargeable event.
(2) An election under this section—
(a) is to be made by agreement by the employer and the employee, and
(b) is irrevocable.
(3) Such an agreement—
(a) must be made in a form approved by the Board of Inland Revenue, and
(b) may not be made more than 14 days after the chargeable event.
Election for full or partial disapplication of this Chapter
431 (1) The employer and the employee may elect in relation to employment-related securities which are restricted securities or a restricted interest in securities that—
(a) for the relevant tax purposes their market value at the time of the acquisition is to be calculated as if they were not, and
(b) sections 425 to 430 are not to apply to the employment-related securities.
(2) Or the employer and the employee may elect in relation to employment-related securities which are restricted securities or a restricted interest in securities that—
(a) for the relevant tax purposes their market value at the time of the acquisition is to be calculated, and
(b) sections 425 to 430 are to apply to the employment-related securities,
as if any specified restriction did not apply to the employment-related securities.
(3) For the purposes of subsections (1) and (2) “the relevant tax purposes” are—
(a) determining any amount that is to constitute earnings from the employment under Chapter 1 of Part 3 (earnings),
(b) determining the amount of any gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(a) (conversion),
(c) operating Chapter 3C of this Part (acquisition of securities for less than market value), and
(d) determining any amount that counts as employment income of the employee under Chapter 5 of this Part (securities acquired pursuant to securities option).
(4) An election under this section—
(a) is to be made by agreement by the employer and the employee, and
(b) is irrevocable.
(5) Such an agreement—
(a) must be made in a form approved by the Board of Inland Revenue, and
(b) may not be made more than 14 days after the acquisition.
Definitions
432 (1) In this Chapter—
“interest”, in relation to securities,
“securities”,
“securities option”, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything and section 421I applies for determining the amount of the consideration given for the acquisition of employment-related securities.
(4) In this Chapter—
“the acquisition”,
“the employee” (except in section 429),
“the employer”,
“the employment”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5) In this Chapter “associated person” has the meaning indicated in section 421C.
(6) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7) In this Chapter—
“restricted interest in securities”, and
“restricted securities”,
have the meaning indicated in sections 423 and 424.
(8) In this Chapter “restriction”, in relation to securities or an interest in securities, means provision relating to the securities or interest which is made by any contract, agreement, arrangement or condition and to which any of subsections (2) to (4) of section 423 applies.
(9) In this Chapter “variation”, in relation to a restriction, has the meaning indicated in section 427(4).
(10) In this Chapter “convertible securities” has the same meaning as in Chapter 3 of this Part (see section 436).
.
(2) Sub-paragraph (1) has effect on and after such day as the Treasury may by order made by statutory instrument appoint but does not affect any securities, or interests in securities, acquired before 16th April 2003.
(3) Section 431 has effect in relation to securities, or interests in securities, acquired before the day appointed under sub-paragraph (2)—
(a) with the substitution in subsections (1)(b) and (2)(b) for “sections 425 to 430” of “ section 426 as originally enacted and sections 426 to 430 as substituted by paragraph 3(1) of Schedule 22 to the Finance Act 2003 ”, and
(b) with the substitution in subsection (5)(b) for “the acquisition” of “ the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003 ”.
(4) But sub-paragraph (3) does not apply where in relation to the securities or interest in securities an amount counts as employment income of the employee under section 427 or 449 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) as originally enacted.
4 (1) For Chapter 3 of Part 7 substitute—
Chapter 3 Convertible securities
Introduction
Application of this Chapter
435 This Chapter applies to employment-related securities if they are—
(a) convertible securities, or
(b) an interest in convertible securities,
at the time of the acquisition.
“Convertible securities”
436 For the purposes of this Chapter securities are convertible securities if—
(a) they confer on the holder an immediate or conditional entitlement to convert them into securities of a different description,
(b) a contract, agreement, arrangement or condition authorises or requires the grant of such an entitlement to the holder if certain circumstances arise, or do not arise, or
(c) a contract, agreement, arrangement or condition makes provision for the conversion of the securities (otherwise than by the holder) into securities of a different description.
Tax relief on acquisition
Adjustment of charge
437 For the purposes of—
(a) any liability to tax under Chapter 1 of Part 3 (earnings), Chapter 10 of Part 3 (taxable benefits: residual liability to charge) or Chapter 5 of this Part (acquisition of securities pursuant to securities option), and
(b) the operation of Chapter 3C of this Part (acquisition of securities for less than market value),
the market value of the employment-related securities is to be determined as if they were not convertible securities or an interest in convertible securities.
Tax charge on post-acquisition chargeable events
Charge on occurrence of chargeable event
438 (1) This section applies if a chargeable event occurs in relation to the employment-related securities.
(2) The taxable amount determined under section 440 counts as employment income of the employee for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the chargeable event occurs.
(4) Section 439 explains what are chargeable events for the purposes of this section.
(5) This section is subject to section 443 (case outside charge under this section).
Chargeable events
439 (1) This section applies for the purposes of section 438 (charge on occurrence of chargeable event).
(2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities.
(3) The events are—
(a) the conversion of the employment-related securities (or the securities in which they are an interest) into securities of a different description in circumstances in which an associated person is beneficially entitled to the securities into which the employment-related securities are converted,
(b) the disposal for consideration of the employment-related securities, or any interest in them, by an associated person otherwise than to another associated person (at a time when they are still convertible securities or an interest in convertible securities),
(c) the release for consideration of the entitlement to convert the employment-related securities (or the securities in which they are an interest) into securities of a different description, and
(d) the receipt by an associated person of a benefit in money or money’s worth in connection with the entitlement to convert (other than securities acquired on the conversion of the employment-related securities or consideration such as is mentioned in paragraph (b) or (c)).
(4) A benefit received on account of any disability (within the meaning of the Disability Discrimination Act 1995) of the employee is to be disregarded for the purposes of subsection (3)(d).
Amount of charge
440 (1) The taxable amount for the purposes of section 438 (charge on occurrence of chargeable event) is—
AG
-
CE
(2) AG is the amount of any gain realised on the occurrence of the chargeable event.
(3) CE is the amount of any consideration given for the entitlement to convert the employment-related securities or the securities in which they are an interest together with the amount of any expenses incurred by the holder of the employment-related securities in connection with the conversion, disposal, release or receipt.
(4) Section 441 explains what is the amount of any gain realised on the occurrence of a chargeable event.
(5) Section 442 explains whether consideration is given for the entitlement to convert the employment-related securities or the securities in which they are an interest and, if it is, what is its amount.
Amount of gain realised on occurrence of chargeable event
441 (1) This section applies for the purposes of section 440 (amount of charge on occurrence of chargeable event).
(2) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(a) (conversion) is—
CMVCS
-
(
CMVERS
+
CC
)
(3) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(b) (disposal) is—
DC
-
CMVERS
(4) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(c) (release of entitlement to convert) is the amount of the consideration received by an associated person in respect of the release.
(5) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 439(3)(d) (receipt of benefit) is the amount or market value of the benefit.
(6) CMVCS—
(a) if the employment-related securities are securities, is the market value at the time of the chargeable event of the securities into which they are converted (determined, where those securities are themselves convertible securities, as if they were not), or
(b) if the employment-related securities are an interest in securities, is the same proportion of that market value as the market value of the interest in the securities in which the employment-related securities are an interest bears to the market value of those securities.
(7) CMVERS is the market value of the employment-related securities at the time of the chargeable event determined as if they were not convertible securities or an interest in convertible securities.
(8) CC is the amount of any consideration given for the conversion of the employment-related securities.
(9) DC is the amount of the consideration given on the disposal.
Amount of consideration given for entitlement to convert
442 (1) This section applies for the purposes of section 440 (amount of charge on occurrence of chargeable event).
(2) Consideration is to be regarded as given for the entitlement to convert the employment-related securities (or the securities in which they are an interest) if (and only if) ACS exceeds NCMV.
(3) The amount of the consideration to be regarded as so given is the amount of the excess.
(4) ACS is the amount of the consideration given for the acquisition of the employment-related securities.
(5) NCMV is the market value of the employment-related securities at the time of the acquisition, determined as if they were not convertible securities or an interest in convertible securities.
Case outside charge under section 438
443 (1) Section 438 (charge on occurrence of chargeable event) does not apply if—
(a) the employment-related securities are shares (or an interest in shares) in a company of a class,
(b) all the company’s shares of the class are convertible securities,
(c) all the company’s shares of the class (other than the employment-related securities) are affected by an event similar to that which is a chargeable event in relation to the employment-related securities, and
(d) subsection (3) or (4) is satisfied.
(2) For the purposes of subsection (1)(c) shares are affected by an event similar to that which is a chargeable event in relation to the employment-related securities—
(a) in the case of a chargeable event within section 439(3)(a) (conversion), if they are converted into securities of a different description,
(b) in the case of a chargeable event within section 439(3)(b) (disposal), if they are disposed of,
(c) in the case of a chargeable event within section 439(3)(c) (release of entitlement to convert), if the entitlement to convert them into securities of a different description is released, or
(d) in the case of a chargeable event within section 439(3)(d) (receipt of benefit), if a similar benefit is received in respect of the entitlement to convert them.
(3) This subsection is satisfied if, immediately before the event that would be a chargeable event, the company is employee-controlled by virtue of holdings of shares of the class.
(4) This subsection is satisfied if, immediately before that event, the majority of the company’s shares of the class are not held by or for the benefit of any of the following—
(a) employees of the company,
(b) persons who are related to an employee of the company,
(c) associated companies of the company,
(d) employees of any associated company of the company, or
(e) persons who are related to an employee of any such associated company.
(5) For the purposes of subsection (4) a person is related to an employee if—
(a) the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
(b) the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.
Supplementary
Definitions
444 (1) In this Chapter—
“interest”, in relation to securities,
“securities”, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything and section 421I applies for determining the amount of the consideration given for the acquisition of employment-related securities.
(4) In this Chapter—
“the acquisition”,
“the employee” (except in section 443), and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5) In this Chapter “associated person” has the meaning indicated in section 421C.
(6) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7) In this Chapter “convertible securities” has the meaning indicated in section 436.
.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) (so that, apart from section 437, the provisions of Chapter 3 of Part 7 as substituted by that sub-paragraph apply on and after that day in relation to employment-related securities irrespective of the date of the acquisition).
5 (1) After Chapter 3 of Part 7 insert—
Chapter 3A Securities with articifically depressed market value
Introduction
Application of this Chapter
446A (1) This Chapter applies in certain cases where the market value of employment-related securities (or other relevant securities or interests in securities) is reduced by things done otherwise than for genuine commercial purposes.
(2) The following are among the things that are, for the purposes of this Chapter, done otherwise than for genuine commercial purposes—
(a) anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and
(b) any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief).
(3) In subsection (2)(b)—
(a) “group” means a company and its 51% subsidiaries, and
(b) “group relief” has the same meaning as in section 402(6) of ICTA.
Tax charge on acquisition
Charge on acquisition
446B (1) This section applies where the market value of employment-related securities at the time of the acquisition has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the acquisition.
(2) The taxable amount determined under section 446C counts as employment income of the employee for the tax year in which the acquisition occurs.
(3) But this section does not apply if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities.
(4) This section does not affect any liability to income tax arising in respect of the acquisition of the employment-related securities under—
(a) Chapter 1 of Part 3 (earnings),
(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge),
(c) Chapter 3 of this Part (acquisition by conversion),
(d) Chapter 3C of this Part (acquisition for less than market value), or
(e) Chapter 5 of this Part (acquisition pursuant to securities option).
Amount of charge
446C (1) The taxable amount for the purposes of section 446B (charge on acquisition) is—
FMV
-
MV
(2) FMV is what would be the market value of the employment-related securities at the time of the acquisition if the things mentioned in section 446B(1) had not been done.
(3) MV is the actual market value of the employment-related securities at the time of the acquisition.
(4) But where what would be MV is less than the amount of any consideration given for the acquisition of the employment-related securities, MV is the amount of that consideration.
(5) This section is subject to section 446D (restricted securities and convertible securities).
Restricted securities and convertible securities
446D (1) Where the employment-related securities are restricted securities or a restricted interest in securities, FMV (but not MV) is to be determined as if the employment-related securities were not restricted securities or a restricted interest in securities; and, accordingly, sections 426 to 431 (post-acquisition charges on restricted securities) do not apply to the employment-related securities.
(2) Where the employment-related securities are convertible securities or an interest in convertible securities, FMV and MV are to be determined as if they were not.
Other tax charges
Charge on restricted securities
446E (1) This section applies where the market value of employment-related securities which are restricted securities or a restricted interest in securities is artificially low—
(a) immediately after an event which is a chargeable event in relation to the employment-related securities for the purposes of section 426 (charge on restricted securities), or
(b) on 5th April in any year.
(2) The market value of the employment-related securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the relevant period.
(3) The reference in subsection (2) of section 428 (amount of charge on restricted securities) to what would be the market value of the employment-related securities is, so far as it relates to subsection (1) of that section, a reference to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2) (and but for any restrictions).
(4) In a case within subsection (1)(b), there shall be treated as occurring on the 5th April concerned a chargeable event within section 427(3)(a) (lifting of restrictions) in relation to the employment-related securities.
(5) “The relevant period” is the period of 7 years ending with—
(a) in a case within subsection (1)(a), the chargeable event concerned, or
(b) in a case within subsection (1)(b), the 5th April concerned.
(6) But if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applied in relation to the employment-related securities, the relevant period is the period beginning 7 years before the acquisition.
Adjustment of market value: conditional interests
446F (1) This section applies where the market value of an employee’s interest in shares which is only conditional is artificially low immediately after a chargeable event relating to the shares under section 427 as originally enacted.
(2) The market value of the shares is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period beginning—
(a) 7 years before the chargeable event, or
(b) with 16th April 2003,
whichever is later.
(3) There is a chargeable event in relation to shares if section 427 (as originally enacted) applies in relation to them.
(4) The reference in the definition of MV in section 428(1) (as originally enacted) to the market value of the employee’s interest is to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2).
(5) Expressions used in this section and in Chapter 2 of this Part as originally enacted have the same meaning in this section as in that Chapter.
Adjustment of market value: consideration for entitlement to convert
446G (1) This section applies where the market value of employment-related securities which are convertible securities or an interest in convertible securities (determined as if they were not) has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the acquisition.
(2) The reference to the market value of the employment-related securities in the definition of NCMV in section 442(5) (value of convertible securities at time of acquisition) is to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (1) (and but for the fact that they are convertible securities or an interest in convertible securities).
Adjustment of market value: charge on conversion
446H (1) This section applies where the market value of securities (“the converted securities”) into which employment-related securities (or securities in which employment-related securities are an interest) are converted is artificially low at the time of an event which is a chargeable event in relation to the employment-related securities by virtue of section 439(3)(a) (conversion).
(2) The market value of the converted securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the chargeable event.
(3) The references to the market value of the converted securities in the definition of CMVCS in section 441(6) (amount of gain realised by conversion) are to what would be the market value but for the reduction as a result of the things done as mentioned in subsection (2).
Adjustment of consideration or benefit received
446I (1) This section applies where any consideration or benefit mentioned in—
(a) section 428(9) (consideration on disposal of restricted securities),
(b) section 441(4), (5) or (9) (consideration for disposal of convertible securities or release of entitlement to convert or benefit received in respect of entitlement to convert),
(c) section 446C(4) (securities with artificially depressed market value: MV to be amount of consideration),
(d) sections 446X and 446Y(3) (consideration for disposal of securities exceeding market value), or
(e) section 448 (securities benefit not otherwise subject to tax),
consists (in whole or in part) in the provision of securities or an interest in securities the market value of which is artificially low.
(2) The market value of any securities or interest in securities is artificially low where it has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit.
(3) The market value of the consideration or benefit consisting in the provision of the securities or interest in securities is for the purposes of the provision or provisions concerned to be taken to be what it would be but for the reduction as a result of the things done as mentioned in subsection (2).
Supplementary
Definitions
446J (1) In this Chapter—
“interest”, in relation to securities, and
“securities”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything and section 421I applies for determining the amount of the consideration given for the acquisition of employment-related securities.
(4) In this Chapter—
“the acquisition”,
“the employee”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5) In this Chapter—
“restricted interest in securities”, and
“restricted securities”,
have the same meaning as in Chapter 2 of this Part (see sections 423 and 424).
(6) In this Chapter “restriction” has the same meaning as in Chapter 2 of this Part (see section 432(8)).
(7) In this Chapter “convertible securities” has the same meaning as in Chapter 3 of this Part (see section 436).
.
(2) Sub-paragraph (1) has effect on and after 16th April 2003 (so that sections 446A, 446F to 446H, 446I(1)(b) to (e), (2) and (3) and 446J apply on and after that date in relation to employment-related securities irrespective of the date of the acquisition).
(3) Sections 446E and 446I(1)(a) do not affect any securities, or interests in securities, acquired before 16th April 2003; and, in relation to any securities or interests in securities acquired on or after that date but before the day appointed under paragraph 3(2), those provisions apply only on or after that appointed day.
(4) Section 446F—
(a) applies in relation to conditional interests in shares acquired before 16th April 2003, and
(b) applies during the period beginning with that date and ending with the day preceding that appointed day in relation to conditional interests in shares acquired during that period.
6 (1) After Chapter 3A of Part 7 (inserted by paragraph 5(1)) insert—
Chapter 3B Securities with articifically enhanced market value
Introduction
Application of this Chapter
446K (1) This Chapter applies in certain cases where the market value of employment-related securities is increased by things done otherwise than for genuine commercial purposes.
(2) The following are among the things that are, for the purposes of this Chapter, done otherwise than for genuine commercial purposes—
(a) anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and
(b) any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief).
(3) In subsection (2)(b)—
(a) “group” means a company and its 51% subsidiaries, and
(b) “group relief” has the same meaning as in section 402(6) of ICTA.
(4) In this Chapter, in relation to the market value of the employment-related securities—
“non-commercial increase” means an increase in the market value as a result of anything done otherwise than for genuine commercial purposes, and
“non-commercial reduction” means a reduction in the market value as a result of anything done otherwise than for genuine commercial purposes.
Charge on non-commercial increases
Charge on non-commercial increases
446L (1) This section applies in relation to employment-related securities where on a date that is the valuation date in relation to a relevant period IMV is at least 10% greater than MV.
(2) The taxable amount determined under subsection (4) counts as employment income of the employee for the relevant tax year (but subject to sections 446M and 446N).
(3) The “relevant tax year” is the tax year in which the valuation date falls.
(4) The taxable amount is—
IMV
-
MV
(5) IMV is the market value of the employment-related securities on the valuation date.
(6) MV is the amount that would be the market value of the employment-related securities on the valuation date if any non-commercial increases during the relevant period were disregarded.
(7) For the purposes of subsections (5) and (6)—
(a) any restrictions having effect in relation to the employment-related securities on the valuation date, and
(b) any non-commercial reductions during the relevant period,
are to be disregarded.
Securities subject to restriction on valuation date
446M (1) This section applies where on the valuation date the employment-related securities are relevant restricted securities.
(2) The amount determined under section 446L(4) is to be multiplied by CP.
(3) CP is—
1
-
OP
where OP is the amount that would be determined under section 428(5) (amount of charge on chargeable event in relation to restricted securities) on the valuation date if there were on that date a chargeable event (resulting in no tax charge).
(4) For the purposes of this section the employment-related securities are relevant restricted securities if they are restricted securities or a restricted interest in securities but are not subject to—
(a) an election under section 430 (election to ignore outstanding restrictions) in relation to a chargeable event which occurred before the valuation date, or
(b) an election under section 431(1) (election to treat securities as not subject to restrictions).
(5) If sections 425 to 430 apply to the employment-related securities in accordance with section 431(2) (election to treat securities as not subject to specified restrictions), the reference in subsection (3) to the amount that would be determined under section 428(5) is to the amount that would be so determined in accordance with section 431(2).
Securities subject to restriction during relevant period
446N (1) This section applies where the employment-related securities have been restricted securities or a restricted interest in securities at any time during the relevant period.
(2) DA is to be deducted from the amount determined under section 446L(4) (or, where section 446M applies, the amount determined under sections 446L(4) and 446M).
(3) DA is the aggregate of the amounts arrived at under subsection (4) in relation to each event occurring during the relevant period that is a chargeable event in relation to the employment-related securities.
(4) The amount is—
TA
-
ARTA
(5) TA is the taxable amount actually determined under section 428 in relation to the chargeable event.
(6) ARTA is the taxable amount which would have been determined under section 428 in relation to the chargeable event if any non-commercial increases during the period—
(a) beginning at the same time as the relevant period, and
(b) ending immediately before the chargeable event,
had been disregarded.
Supplementary
“Relevant period” and “valuation date”
446O (1) This section explains what is meant by “relevant period” and “valuation date” in this Chapter.
(2) The first relevant period in relation to employment-related securities is the period beginning with the date of the acquisition and ending with the following 5th April.
(3) After the first relevant period, each period beginning with 6th April and ending with the following 5th April is a relevant period in relation to the employment-related securities.
(4) But if this Chapter ceases to apply to the employment-related securities during a relevant period, the relevant period ends with the date on which this Chapter ceases to apply to them.
(5) And if this Chapter ceases to apply to an interest in the employment-related securities during a relevant period, the relevant period ends in relation to that interest with the date on which this Chapter ceases to apply to that interest.
(6) In a case where subsection (5) applies, this Chapter has effect separately in relation to that interest and the remainder of the employment-related securities.
(7) In this Chapter “valuation date”, in relation to a relevant period, means the date with which the relevant period ends.
Definitions
446P (1) In this Chapter “interest”, in relation to securities, has the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter—
“the acquisition”,
“the employee”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(4) In this Chapter—
“restricted interest in securities”, and
“restricted securities”,
have the same meaning as in Chapter 2 of this Part (see sections 423 and 424).
(5) In this Chapter “chargeable event” means an event which is a chargeable event for the purposes of section 426.
(6) In this Chapter “restriction” has the same meaning as in Chapter 2 of this Part (see section 432(8)).
(7) In this Chapter—
“non-commercial increase”, and
“non-commercial reduction”,
have the meaning indicated in section 446K(4).
(8) In this Chapter—
“relevant period”, and
“valuation date”,
have the meaning indicated in section 446O.
.
(2) Subject as follows, sub-paragraph (1) has effect on and after 16th April 2003 (so that it applies on and after that date in relation to employment-related securities irrespective of the date of the acquisition).
(3) Sections 446M and 446N do not affect any securities, or interests in securities, acquired before 16th April 2003; and, in relation to any securities or interests in securities acquired on or after that date but before the day appointed under paragraph 3(2), those sections apply only on and after that appointed day.
(4) For the purposes of section 446O employment-related securities acquired before 16th April 2003 are to be treated as acquired on that date.
7 (1) After Chapter 3B of Part 7 (inserted by paragraph 6(1)) insert—
Chapter 3C Securities acquired for less than market value
Application of this Chapter
446Q (1) This Chapter applies if—
(a) no payment is made for employment-related securities at or before the time of the acquisition, or
(b) the payment made for employment-related securities at or before that time is less than their market value.
(2) For the purposes of subsection (1) any obligation to make a payment or further payment after the time of the acquisition is to be disregarded.
(3) Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.
(4) If section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, this Chapter has effect as if the employment-related securities were not acquired until the occurrence of the first event which is a chargeable event for the purposes of section 426 in relation to the employment-related securities.
(5) This section is subject to section 446R (case outside this Chapter).
Case outside this Chapter
446R (1) This Chapter does not apply if—
(a) the employment-related securities are shares (or an interest in shares) in a company of a class,
(b) all the company’s shares of the class are acquired either for no payment or for a payment less than their market value, and
(c) subsection (3) or (4) is satisfied.
(2) Where the company’s shares of the class are not fully paid up, the reference in subsection (1) to their market value is to what it would be if they were fully paid up.
(3) This subsection is satisfied if, at the time of the acquisition of the employment-related securities, the company is employee-controlled by virtue of holdings of shares of the class.
(4) This subsection is satisfied if, at that time, the majority of the company’s shares of the class are not held by or for the benefit of any of the following—
(a) employees of the company,
(b) persons who are related to an employee of the company,
(c) associated companies of the company,
(d) employees of any associated company of the company, or
(e) persons who are related to an employee of any such associated company.
(5) For the purposes of subsection (4) a person is related to an employee if—
(a) the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
(b) the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.
Notional loan
446S (1) Where this Chapter applies an interest-free loan (“the notional loan”) is to be treated as having been made to the employee by the employer at the time of the acquisition.
(2) The provisions listed in subsection (3) apply as though the notional loan were an employment-related loan as defined in section 174 if and for so long as the employment has not terminated.
(3) The provisions are—
section 175 (benefit of taxable cheap loan treated as earnings),
section 178 (exception for loans where interest qualifies for tax relief),
section 180 (threshold for benefit of loan to be treated as earnings),
section 182 (normal method of calculation: averaging),
section 183 (alternative method of calculation),
section 184 (interest treated as paid),
section 185 (apportionment of cash equivalent in case of joint loan etc), and
section 187 (aggregation of loans by close company to director).
Amount of notional loan
446T (1) The amount of the notional loan initially outstanding is—
MV
-
DA
where—
MV is the market value of the employment-related securities at the time of the acquisition, and
DA is the total of any deductible amounts.
(2) Where the employment-related securities are, or are an interest in, securities which are not fully paid up, the reference in subsection (1) to the market value of the employment-related securities is to what it would be if the securities were fully paid up.
(3) For the purposes of subsection (1) each of the following is a “deductible amount”—
(a) any payment made for the employment-related securities by the employee, and any payment so made by the person by whom they were acquired (if not the employee), at or before the time of the acquisition,
(b) any amount that constitutes earnings from the employee’s employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities,
(c) if section 425(2) (no charge on acquisition of certain restricted securities or restricted interests in securities) applies in relation to the employment-related securities, any amount that counts as employment income of the employee under section 426 by reason of the first event which is a chargeable event for the purposes of that section in relation to the employment-related securities,
(d) if the employment-related securities were acquired on a conversion of other employment-related securities, any amount that counts as employment income of the employee under section 438 (charge on conversion) by reason of the conversion, and
(e) if the acquisition is pursuant to a securities option, any amount that counted as employment income of the employee under section 476 (acquisition of securities pursuant to securities option) in respect of the acquisition.
(4) The amount of the notional loan outstanding at any subsequent time is the difference between—
(a) the amount initially outstanding, and
(b) the amount of any payments or further payments made for the employment-related securities after the acquisition but before that time.
Discharge of notional loan
446U (1) The notional loan is treated as discharged when—
(a) the employment-related securities are disposed of otherwise than to an associated person, or
(b) if the employment-related securities were securities, or an interest in securities, not fully paid up at the time of the acquisition, the outstanding or contingent liability to pay for them is released, transferred or adjusted so as no longer to bind any associated person.
(2) If the notional loan is discharged as the result of an event specified in subsection (1), the amount of the notional loan outstanding immediately before the occurrence of the event counts as employment income of the employee for the relevant tax year (whether or not the employment has terminated before or since the acquisition).
(3) The “relevant tax year” is the tax year in which the notional loan is treated as discharged.
(4) The notional loan is also treated as discharged when—
(a) payments or further payments for the employment-related securities equal to the amount initially outstanding in relation to them have been made by an associated person, or
(b) the employee dies.
Chapter to be additional to other income tax charges
446V This Chapter does not affect any liability to income tax arising in respect of the acquisition under—
(a) Chapter 1 of Part 3 (earnings),
(b) Chapter 10 of Part 3 (taxable benefits: residual liability to charge),
(c) Chapter 3 of this Part (acquisition by conversion),
(d) Chapter 3A of this Part (securities with artificially depressed market value), or
(e) Chapter 5 of this Part (acquisition of securities pursuant to securities option).
Definitions
446W (1) In this Chapter—
“interest”, in relation to securities,
“securities”,
“securities option”, and
“shares”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter “the acquisition” has the meaning indicated in section 421B(8) (but subject to section 446Q(4)).
(4) In this Chapter—
“the employment”,
“the employee” (except in section 446R),
“the employer”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(5) In this Chapter “associated person” has the meaning indicated in section 421C.
(6) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
(7) In this Chapter “the notional loan” has the meaning indicated in section 446S(1).
.
(2) Sub-paragraph (1) has effect in relation to securities, and interests in securities, acquired on or after 16th April 2003.
8 (1) After Chapter 3C of Part 7 (inserted by paragraph 7(1)) insert—
Chapter 3D Securities disposed of for more than market value
Application of this Chapter
446X This Chapter applies if—
(a) employment-related securities are disposed of by an associated person so that no associated person is any longer beneficially entitled to them, and
(b) the disposal is for a consideration which exceeds the market value of the employment-related securities at the time of the disposal.
Amount treated as income
446Y (1) Where this Chapter applies the amount determined under subsection (3) counts as employment income of the employee for the relevant tax year.
(2) The “relevant tax year” is the tax year in which the disposal occurs.
(3) The amount is—
CD
-
MV
-
DA
where—
CD is the amount of the consideration given on the disposal,
MV is the market value of the employment-related securities at the time of the disposal, and
DA is the amount of any expenses incurred in connection with the disposal.
Definitions
446Z (1) In this Chapter “market value” has the meaning indicated in section 421(1).
(2) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of the consideration given for anything.
(3) In this Chapter—
“the employee”, and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(4) In this Chapter “associated person” has the meaning indicated in section 421C.
.
(2) Sub-paragraph (1) has effect in relation to securities, and interests in securities, disposed of on or after 16th April 2003.
9 (1) For Chapter 4 of Part 7 substitute—
Chapter 4 Post-acquisition benefits from securities
Charge on other chargeable benefits from securities
447 (1) This Chapter applies if an associated person receives a benefit by virtue of the ownership of employment-related securities by that person or another associated person.
(2) The taxable amount determined under section 448 counts as employment income of the employee for the relevant tax year.
(3) The “relevant tax year” is the tax year in which the benefit is received.
(4) This section does not apply if the benefit is otherwise chargeable to income tax.
(5) This section is subject to section 449 (case outside this Chapter).
Amount of charge
448 The taxable amount for the purposes of section 447 (charge on other chargeable benefits) is the amount or market value of the benefit.
Case outside this Chapter
449 (1) This Chapter does not apply if—
(a) the employment-related securities are shares (or an interest in shares) in a company of a class,
(b) a similar benefit is received by the owners of all the company’s shares of the class, and
(c) subsection (2) or (3) is satisfied.
(2) This subsection is satisfied if, immediately before the receipt of the benefit, the company is employee-controlled by virtue of holdings of shares of the class.
(3) This subsection is satisfied if, immediately before the receipt of the benefit, the majority of the company’s shares of the class are not held by or for the benefit of any of the following—
(a) employees of the company,
(b) persons who are related to an employee of the company,
(c) associated companies of the company,
(d) employees of any associated company of the company, or
(e) persons who are related to an employee of any such associated company.
(4) For the purposes of subsection (3) a person is related to an employee if—
(a) the person acquired the shares pursuant to a right or opportunity available by reason of the employee’s employment, or
(b) the person is connected with a person who so acquired the shares or with the employee and acquired the shares otherwise than by or under a disposal made by way of a bargain at arm’s length from the employee or another person who is related to the employee.
Definitions
450 (1) In this Chapter—
“interest”, in relation to shares, and
“shares”,
have the meaning indicated in section 420(8).
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) In this Chapter—
“the employee” (except in section 449), and
“employment-related securities”,
have the meaning indicated in section 421B(8).
(4) In this Chapter “associated person” has the meaning indicated in section 421C.
(5) In this Chapter—
“associated company”, and
“employee-controlled”,
have the meaning indicated in section 421H.
.
(2) Subject to sub-paragraph (3), sub-paragraph (1) has effect on and after 16th April 2003 (so that it applies on and after that date in relation to employment-related securities irrespective of the date of the acquisition).
(3) The provisions of Chapter 4 as originally enacted which are mentioned in sub-paragraph (4)—
(a) continue to apply in relation to shares, and interests in shares, acquired before 16th April 2003, and
(b) apply in relation to shares, and interests in shares, acquired on or after that date until the day appointed under paragraph 3(2).
In this sub-paragraph “shares” means shares in a company or securities as defined in section 254(1) of the Taxes Act 1988 issued by a company.
(4) The provisions are—
section 450(1), (2), (3)(a), (4), (5) and (6)(a), and
sections 447 to 449, section 451, section 452(1) to (3), section 461(1) and (2), section 462, sections 464 to 466 and sections 468 to 470, so far as relevant for the purposes of those provisions of section 450 (or the other provisions mentioned in this subsection so far as so relevant).
10 (1) For Chapter 5 of Part 7 substitute—
Chapter 5 Securities options
Introduction
Options to which this Chapter applies
471 (1) This Chapter applies to a securities option acquired by a person where the right or opportunity to acquire the securities option is available by reason of an employment of that person or any other person.
(2) For the purposes of subsection (1) “employment” includes a former or prospective employment.
(3) A right or opportunity to acquire a securities option made available by a person’s employer, or a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless—
(a) the person by whom the right or opportunity is made available is an individual, and
(b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.
(4) A right or opportunity to acquire a securities option available by reason of holding employment-related securities is to be regarded for the purposes of subsection (1) as available by reason of the same employment as that by reason of which the right or opportunity to acquire the employment-related securities was available.
(5) In this Chapter—
“the acquisition”, in relation to an employment-related securities option, means the acquisition of the employment-related securities option pursuant to the right or opportunity available by reason of the employment,
“the employment” means the employment by reason of which the right or opportunity to acquire the employment-related securities option is available (“the employee” and “the employer” being construed accordingly), and
“employment-related securities option” means a securities option to which this Chapter applies.
Associated persons
472 (1) For the purposes of this Chapter the following are “associated persons” in relation to an employment-related securities option—
(a) the person who acquired the employment-related securities option on the acquisition,
(b) (if different) the employee, and
(c) any relevant linked person.
(2) A person is a relevant linked person if—
(a) that person (on the one hand), and
(b) either the person who acquired the employment-related securities option on the acquisition or the employee (on the other),
are connected or, although not connected, are members of the same household.
(3) But a company which would otherwise be a relevant linked person is not if it is—
(a) the employer,
(b) the person from whom the employment-related securities option was acquired, or
(c) the person by whom the right or opportunity to acquire the employment-related securities option was made available.
Introduction to taxation of securities options
473 (1) The starting-point is that section 475 contains an exemption from the liability to tax that might otherwise arise under—
(a) Chapter 1 of Part 3 (earnings), or
(b) Chapter 10 of that Part (taxable benefits: residual liability to charge),
when an employment-related securities option is acquired.
(2) Liability to tax may arise, when securities are acquired pursuant to the employment-related securities option, under—
(a) section 446B (charge on acquisition where market value of securities or interest artificially depressed),
(b) Chapter 3C of this Part (acquisition of securities for less than market value), or
(c) section 476 (acquisition of securities pursuant to securities option).
(3) Liability to tax may also arise by virtue of section 476 when—
(a) the employment-related securities option is assigned or released, or
(b) a benefit is received in connection with the employment-related securities option.
(4) There are special rules relating to share options acquired under—
(a) approved SAYE option schemes (see Chapter 7 of this Part),
(b) approved CSOP schemes (see Chapter 8 of this Part), or
(c) enterprise management incentives (see Chapter 9 of this Part).
Cases where this Chapter does not apply
474 (1) This Chapter (apart from sections 473 and 483) does not apply in relation to an employment-related securities option if, at the time of the acquisition, the earnings from the employment were not (or would not have been if there had been any) general earnings to which section 15 or 21 applies (earnings for year when employee resident and ordinarily resident in the UK).
(2) This Chapter (apart from sections 473 and 483) does not apply in the case of a former employment if it would not apply if the acquisition had taken place in the last tax year in which the employment was held.
(3) This Chapter (apart from sections 473 and 483) does not apply in the case of a prospective employment if it would not apply if the acquisition had taken place in the first tax year in which the employment is held.
(4) Where the employment-related securities option is a new option (within the meaning of section 483), the references in this section to the acquisition are to the acquisition of the old option (within the meaning of that section).
Tax relief on acquisition of option
No charge in respect of acquisition of option
475 (1) No liability to income tax arises in respect of the acquisition of an employment-related securities option.
(2) Subsection (1) is subject to section 526 (approved CSOP schemes: charge where share option granted at a discount).
Tax charge on post-acquisition chargeable events
Charge on occurrence of chargeable event
476 (1) This section applies if a chargeable event occurs in relation to an employment-related securities option.
(2) The taxable amount determined under section 478 counts as employment income of the employee for the relevant tax year (but subject to subsection (5)).
(3) The “relevant tax year” is the tax year in which the chargeable event occurs.
(4) Section 477 explains what are chargeable events for the purposes of this section.
(5) If the employee has been divested of the employment-related securities option by operation of law, the person who is the relevant person in relation to the chargeable event (see section 477(7)) is chargeable to tax under Case VI of Schedule D on the amount determined under section 478.
(6) This section is subject to—
section 519 (approved SAYE option schemes: no charge in respect of exercise of share option by employee),
section 524 (approved CSOP schemes: no charge in respect of exercise of share option by employee), and
section 530 (enterprise management incentives: no charge on exercise by employee of option to acquire shares at market value).
Chargeable events
477 (1) This section applies for the purposes of section 476 (charge on occurrence of chargeable event).
(2) Any of the events mentioned in subsection (3) is a “chargeable event” in relation to the employment-related securities option unless it occurs on or after the death of the employee.
(3) The events are—
(a) the acquisition of securities pursuant to the employment-related securities option by an associated person,
(b) the assignment for consideration of the employment-related securities option by an associated person otherwise than to another associated person or the release for consideration of the employment-related securities option by an associated person, or
(c) the receipt by an associated person of a benefit in money or money’s worth in connection with the employment-related securities option (other than securities acquired pursuant to the employment-related securities option or consideration for its assignment or release).
(4) For the purposes of subsection (3)(a) securities are acquired at the time when a beneficial interest is acquired (and not, if different, the time when the securities are conveyed or transferred).
(5) A benefit received on account of any disability (within the meaning of the Disability Discrimination Act 1995) of the employee is to be disregarded for the purposes of subsection (3)(c).
(6) A benefit in money or money’s worth received in consideration for or otherwise in connection with—
(a) failing or undertaking not to acquire securities pursuant to the employment-related securities option, or
(b) granting or undertaking to grant to another person a right to acquire securities which are subject to the employment-related securities option or any interest in them,
is to be regarded for the purposes of subsection (3)(c) as received in connection with the employment-related securities option.
(7) For the purposes of section 476(5) (charge under Case VI of Schedule D) the relevant person in relation to a chargeable event is—
(a) in the case of an event that is a chargeable event by virtue of subsection (3)(a), the person by whom the securities are acquired, and
(b) in the case of an event that is a chargeable event by virtue of subsection (3)(b) or (c), the person by whom the consideration or benefit is received.
Amount of charge
478 (1) The taxable amount for the purposes of section 476 (charge on occurrence of chargeable event) is—
AG
-
DA
where—
AG is the amount of any gain realised on the occurrence of the chargeable event, and
DA is the total of any deductible amounts.
(2) Section 479 explains what is the amount of any gain realised on the occurrence of a chargeable event.
(3) Section 480 specifies what are deductible amounts.
Amount of gain realised on occurrence of chargeable event
479 (1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).
(2) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is (subject to subsection (4))—
MV
-
C
(3) In subsection (2)—
MV is the market value of the securities that are acquired at the time when they are acquired, and
C is the amount of any consideration given for the securities that are acquired.
(4) But the amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(a) (acquisition of securities) is calculated—
(a) if section 531 (enterprise management incentives: limitation of charge on exercise of option to acquire shares below market value) applies, in accordance with that section, and
(b) if section 532 (enterprise management incentives: modified tax consequences following disqualifying events) applies, in accordance with that section.
(5) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(b) (assignment or release of option) is the amount of the consideration given for the assignment or release.
(6) The amount of the gain realised on the occurrence of an event that is a chargeable event by virtue of section 477(3)(c) (receipt of benefit in connection with option) is the amount or market value of the benefit.
(7) But if—
(a) the consideration mentioned in subsection (5), or
(b) the benefit mentioned in subsection (6),
consists (in whole or in part) in the provision of securities or an interest in securities the market value of which has been reduced by at least 10% as a result of things done otherwise than for genuine commercial purposes within the period of 7 years ending with the receipt of the consideration or benefit, its market value is to be taken to be what it would be but for the reduction.
(8) The following are among the things that are, for the purposes of subsection (7), done otherwise than for genuine commercial purposes—
(a) anything done as part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax or national insurance contributions, and
(b) any transaction between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than a payment for group relief).
(9) In subsection (8)(b)—
(a) “group” means a company and its 51% subsidiaries, and
(b) “group relief” has the same meaning as in section 402(6) of ICTA.
Deductible amounts
480 (1) This section applies for the purposes of section 478 (amount of charge on occurrence of chargeable event).
(2) The amount of—
(a) any consideration given for the acquisition of the employment-related securities option, and
(b) the amount of any expenses incurred in connection with the acquisition of securities, assignment, release or receipt which constitutes the chargeable event,
is a deductible amount.
(3) Where in consequence of—
(a) the acquisition of the employment-related securities option,
(b) the acquisition of securities pursuant to the employment-related securities option, or
(c) a transaction of which the acquisition of the employment-related securities option or the acquisition of securities pursuant to the employment-related securities option forms part,
there is a reduction in the market value of any employment-related securities to which an associated person is beneficially entitled, the amount of the reduction is to be treated for the purposes of subsection (2) as consideration (or additional consideration) given for the acquisition of the employment-related securities option.
(4) If an amount counts as employment income of the employee under section 526 (approved CSOP schemes: charge where option granted at a discount) in respect of the employment-related securities option, so much of that amount as is attributable to the shares in question is a deductible amount.
(5) The following are also deductible amounts—
(a) any amount that constituted earnings from the employment under Chapter 1 of Part 3 (earnings) in respect of the acquisition of the employment-related securities option,
(b) any amount that was treated as earnings from the employment under Chapter 10 of that Part (taxable benefits: residual liability to charge) in respect of the acquisition of the employment-related securities option, and
(c) the amount of any gain by a previous holder on an assignment of the employment-related securities option which would have been a deductible cost by virtue of subsection (2)(c) of section 479 (as originally enacted) on an exercise of the option at a time when that section was in force.
(6) If there has been a previous chargeable event in relation to the employment-related securities option (or if section 476 or 477 as originally enacted applied to the option by virtue of an earlier event), so much of any deductible amount as was deducted in calculating the taxable amount on the occasion of that event is to be regarded as not being a deductible amount.
(7) Sections 481 and 482 (deductible amounts in respect of secondary Class 1 contributions or special contribution met by the employee) specify further deductible amounts.
Deductible amount in respect of secondary Class 1 contributions met by employee
481 (1) The amount calculated under subsection (2) is a deductible amount if—
(a) an agreement having effect under paragraph 3A of Schedule 1 to the Contributions and Benefits Act has been entered into allowing the secondary contributor to recover from the employee the whole or part of any secondary Class 1 contributions in respect of the gain, or
(b) an election having effect under paragraph 3B of Schedule 1 to that Act is in force which has the effect of transferring to the employee the whole or part of the liability to pay secondary Class 1 contributions in respect of the gain.
(2) The amount is the sum of—
(a) any amount that under the agreement referred to in subsection (1)(a) is recovered in respect of the gain by the secondary contributor before 5th June in the tax year following that in which the gain is realised, and
(b) the amount of any liability in respect of the gain that, by virtue of the election referred to in subsection (1)(b), has become the employee’s liability.
(3) If notice of withdrawal of approval of the election is given, the amount of any liability in respect of the gain for the purposes of subsection (2)(b) is limited to the amount of the liability met before 5th June in the tax year following that in which the gain is realised.
(4) Subsection (1) does not apply in respect of a liability to pay Class 1 contributions which is prevented from arising by virtue of section 2(1)(a) of the Social Security Contributions (Share Options) Act 2001 (liability to pay Class 1 contributions in respect of gains replaced by liability to pay special contribution).
(5) In this section—
“approval”, in relation to an election, means approval by the Board of Inland Revenue under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, and
“secondary contributor” has the same meaning as in that Act (see section 7).
Deductible amount in respect of special contribution met by employee
482 (1) The amount of the liability referred to in subsection (4) is a deductible amount if conditions A to D are met.
(2) Condition A is that a notice in respect the employment-related securities option was given to the Board of Inland Revenue in accordance with section 1 of the Social Security Contributions (Share Options) Act 2001 before 11th August 2001.
(3) Condition B is that the person, or one of the persons, who gave that notice is a person who (apart from that Act) was liable, or would have become liable, by virtue of an election under paragraph 3B of Schedule 1 to the Contributions and Benefits Act, to pay secondary Class 1 contributions in respect of an event which is a chargeable event for the purposes of section 476.
(4) Condition C is that that person became liable to pay a special contribution under section 2 of the Social Security Contributions (Share Options) Act 2001 in respect of the employment-related securities option.
(5) Condition D is that that person met that liability before 11th August 2001 or before the end of such further period as the Board of Inland Revenue directed under section 2(5) of that Act.
Supplementary provisions
Application of this Chapter where option exchanged for another
483 (1) This section applies if—
(a) the employment-related securities option (the “old option”) is assigned or released, and
(b) the whole or part of the consideration for the assignment or release consists of or includes another securities option (the “new option”).
(2) For the purposes of section 479(5) (amount of gain realised by assigning or releasing option) the new option is not to be treated as consideration given for the assignment or release of the old option.
(3) This Chapter applies to the new option as it applies to the old option.
(4) For the purposes of section 480(2) (consideration for acquisition of option) the amount of the consideration given for the acquisition of the new option is to be treated as being the sum of—
(a) the amount by which the amount of the consideration given for the acquisition of the old option exceeds the amount of any consideration given for the assignment or release of the old option, apart from the new option, and
(b) any valuable consideration given for the acquisition of the new option, apart from the old option.
(5) Two or more transactions are to be treated for the purposes of subsection (1) as a single transaction by which one option is assigned for a consideration which consists of or includes another option if—
(a) the transactions result in—
(i) a person ceasing to hold an option, and
(ii) that person or a connected person coming to hold another option, and
(b) one or more of the transactions is effected under arrangements to which two or more persons holding options, in respect of which there may be liability to tax under this Chapter, are parties.
(6) Subsection (5) applies regardless of the order in which the assignments and the acquisition occur.
Definitions
484 (1) In this Chapter—
“securities”, and
“securities option”,
have the meaning indicated in section 420.
(2) In this Chapter “market value” has the meaning indicated in section 421(1).
(3) For the purposes of this Chapter sections 421(2) and 421A apply for determining the amount of consideration given for anything.
(4) In this Chapter “employment-related securities” has the same meaning as in Chapter 1 of this Part (see section 421B(8)).
(5) In this Chapter—
“the acquisition”,
“the employee”,
“the employer”,
“the employment”, and
“employment-related securities option”,
have the meaning indicated in section 471(5).
(6) In this Chapter “associated person” has the meaning indicated in section 472.
(7) In this Chapter—
“secondary Class 1 contributions” has the same meaning as in the Contributions and Benefits Act (see section 1 of that Act), and
“the Contributions and Benefits Act” means SSCBA 1992 or SSCB(NI)A 1992.
.
(2) Sub-paragraph (1) has effect—
(a) on and after 16th April 2003 in relation to employment-related securities options which are not share options, and
(b) on and after the day appointed under paragraph 3(2) in relation to employment-related securities options which are share options;
and for this purpose “share options” means rights to acquire shares in a company or securities as defined in section 254(1) of the Taxes Act 1988 issued by a company.
PAYE
11 (1) Section 509 (modification of section 696 where charge on shares ceasing to be subject to plan) is amended as follows.
(2) In subsection (4), for “subsection (5)” substitute “ subsections (5) and (6) ”.
(3) After subsection (5) insert—
(6) In determining for the purposes of this section (and of section 696 in its application in accordance with this section) whether the shares are readily convertible assets, section 702 has effect with the omission of subsections (5A) to (5D).
.
12 (1) For sections 698 and 699 (PAYE: conditional interests in shares and convertible shares) substitute—
PAYE: special charges on employment-related securities
698 (1) This section applies where by reason of the operation of—
(a) section 426 (chargeable events in relation to restricted securities and restricted interests in securities),
(b) section 438 (chargeable events in relation to convertible securities and interests in convertible securities),
(c) section 446B (charge on acquisition where market value of securities or interest artificially depressed),
(d) section 446L (charge where market value of securities artificially enhanced),
(e) section 446U (securities or interest acquired for less than market value: charge on discharge of notional loan),
(f) section 446Y (charge where securities or interest disposed of for more than market value), or
(g) section 447 (chargeable benefit from securities or interest),
in relation to employment-related securities, an amount counts as employment income of an employee.
(2) Sections 684 to 691 and 696 have effect as if—
(a) the employee were provided with PAYE income in the form of the employment-related securities by the employer on the relevant date, and
(b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income.
(3) In a case in which the employment-related securities are not readily convertible assets, if—
(a) the amount counts as income by virtue of section 427(3)(c), 439(3)(b), (c) or (d), 446Y or 447, and
(b) the whole or any part of the consideration or benefit concerned takes the form of a payment or consists in the provision of an asset,
subsection (4) applies.
(4) Sections 684 to 691 and 696 have effect —
(a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and
(b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date.
(5) Section 696 as applied by subsection (4)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit.
(6) In this section “the relevant date” means—
(a) in relation to an amount counting as employment income under section 426 or 438, the date on which the chargeable event in question occurs,
(b) in relation to an amount counting as employment income under section 446B, the date of the acquisition of the securities or interest in securities in question,
(c) in relation to an amount counting as employment income under section 446L, the valuation date in question,
(d) in relation to an amount counting as employment income under section 446U, the date on which the notional loan in question is treated as discharged,
(e) in relation to an amount counting as employment income under section 446Y, the date of the disposal of the securities or interest in securities in question, and
(f) in relation to an amount counting as employment income under section 447, the date on which the benefit in question is received.
(7) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7.
.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2) but does not affect the operation of section 698 as originally enacted in relation to any securities, or interests in securities, acquired before 16th April 2003.
13 (1) For section 700 (PAYE: gains from share options) substitute—
PAYE: gains from securities options
700 (1) This section applies where by reason of the operation of section 476 (acquisition of securities pursuant to securities option etc) in relation to an employment-related securities option an amount counts as employment income of an employee.
(2) In a case where the amount counts as employment income by virtue of section 477(3)(a) (acquisition of securities), sections 684 to 691 and 696 have effect as if—
(a) the employee were provided with PAYE income in the form of the securities by the employer on the relevant date, and
(b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income.
(3) In a case where the amount counts as income by virtue of section 477(3)(b) or (c) (assignment or release for consideration or receipt of benefit), sections 684 to 691 and 696 have effect —
(a) to the extent that the consideration or benefit takes the form of a payment, as if it were a payment of PAYE income of the employee by the employer, and
(b) to the extent that the consideration or benefit consists in the provision of an asset, as if the provision of the asset were the provision of PAYE income in the form of the asset by the employer on the relevant date.
(4) Section 696 as applied by subsection (3)(b) has effect as if the reference in subsection (2) of that section to the amount of income likely to be PAYE income were to the same proportion of the amount likely to count as employment income as so much of the consideration or benefit as consists in the provision of the asset bears to the whole of the consideration or benefit.
(5) In this section “the relevant date” means the date on which the chargeable event in question occurs.
(6) In this section—
“employment-related securities option”, and
“securities”,
have the same meaning as in Chapter 5 of Part 7.
.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
14 (1) In section 701(2)(b) (“asset” not to include vouchers or credit-tokens), omit “subject to section 700(6),”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
15 (1) Section 702 (meaning of “readily convertible asset”) is amended as follows.
(2) After subsection (5) insert—
(5A) An asset consisting in securities which is not a readily convertible asset apart from this subsection is to be treated as a readily convertible asset unless the securities are shares that are corporation tax deductible.
(5B) For the purposes of subsection (5A) shares are corporation tax deductible if they are acquired by a person—
(a) by reason of that, or another person's, employment with a company, or
(b) pursuant to an option granted by reason of that, or another person's, employment with a company,
and the company is entitled to corporation tax relief in respect of the shares under Schedule 23 to the Finance Act 2003 (corporation tax relief for employee share acquisition).
(5C) If a person acquires additional shares by virtue of holding shares that are corporation tax deductible, the additional shares are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible.
(5D) If—
(a) on a person ceasing to be beneficially entitled to shares that are corporation tax deductible, that person acquires other shares, and
(b) the circumstances are such that the shares to which the person ceases to be beneficially entitled constitute “original shares” and the other shares constitute a “new holding” for the purposes of sections 127 to 130 of TCGA 1992,
the shares that constitute the new holding are to be treated for the purposes of subsection (5A) as if they were corporation tax deductible.
.
(3) In subsection (6), after the definition of “money debt” insert—
“securities” has the same meaning as in Chapters 1 to 5 of Part 7 (employment income from securities) (see section 420),
“shares” includes—
(a) an interest in shares, and
(b) stock or an interest in stock,
.
(4) For the purposes of section 702, shares are to be treated as corporation tax deductible during an accounting period which began before 1st January 2003 if they would have been corporation tax deductible had the accounting period begun on or after that date.
Consequential amendments
16 (1) In section 3(1) (structure of employment income Parts), in the entry relating to Part 7, for “share-related income and exemptions” substitute “ income and exemptions relating to securities and securities options acquired in connection with an employment ”.
(2) Sub-paragraph (1) has effect on and after 16th April 2003.
17 (1) In section 7(6)(b) (employment income), for “(share-related income and exemptions)” substitute “ (income and exemptions relating to securities and securities options) ”.
(2) Sub-paragraph (1) has effect on and after 16th April 2003.
18 (1) In section 19(2) (year in which earnings treated as received), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
19 (1) In section 32(2) (receipt of non-money earnings), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
20 (1) In section 63(1) (the benefits code), omit the entries relating to Chapters 8 and 9 of Part 3.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
21 (1) In section 64 (relationship between earnings and benefits code), omit subsections (5) and (6).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
22 (1) Omit Chapter 8 of Part 3.
(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, acquired on or after 16th April 2003.
23 (1) Omit Chapter 9 of Part 3.
(2) Sub-paragraph (1) has effect in relation to shares, and interests in shares, disposed of on or after 16th April 2003.
24 (1) Section 216 (provisions not applicable to lower-paid employments) is amended as follows.
(2) In subsection (4), omit the entries relating to Chapters 8 and 9 of Part 3.
(3) In subsection (6), omit the entries relating to section 195(3) and section 199(4).
(4) Sub-paragraphs (1) to (3) have effect—
(a) so far as relating to Chapter 8 of Part 3, in accordance with the provision made for the repeal of that Chapter, and
(b) so far as relating to Chapter 9 of Part 3, in accordance with the provision made for the repeal of that Chapter.
25 (1) Section 227(4) (employment income: exemptions) is amended as follows.
(2) For paragraphs (a) and (b) substitute—
(a) section 425 (restricted securities: no charge in respect of acquisition in certain circumstances),
(b) section 475 (no charge in respect of acquisition of securities option),
.
(3) Omit paragraphs (d), (f) and (h).
(4) This paragraph has effect—
(a) so far as relating to section 425, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and
(b) otherwise, in accordance with the provision made for the substitution of Chapter 5 of Part 7.
26 (1) Omit section 491 (no charge under Chapter 8 of Part 3 in respect of acquisition of approved share incentive plan shares).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
27 (1) Omit section 494 (no charge on removal of restrictions applying to approved share incentive plan shares).
(2) Sub-paragraph (1) has effect—
(a) so far as relating to section 427, in accordance with the provision made for the substitution of Chapter 2 of Part 7, and
(b) so far as relating to section 449, in accordance with the provision made for the substitution of Chapter 4 of Part 7.
28 (1) Omit section 495 (approved share incentive plan shares: value of shares in dependent subsidiary).
(2) Sub-paragraph (1) has effect on 16th April 2003.
29 (1) Omit section 518 (no charge in respect of acquisition of approved SAYE share scheme option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
30 (1) In section 519 (no charge in respect of exercise of approved SAYE share scheme option), omit subsection (4).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
31 (1) Omit section 520 (approved SAYE option schemes: no charge in respect of post-acquisition benefits).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.
32 (1) Omit section 523 (no charge in respect of acquisition of approved CSOP scheme option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
33 (1) In section 524 (no charge in respect of exercise of approved CSOP scheme option), omit subsection (4).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
34 (1) Omit section 525 (approved CSOP schemes: no charge in respect of post-acquisition benefits).
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.
35 (1) In section 526(4) (charge where approved CSOP scheme option granted at a discount: deductions of charge from amount chargeable under other provisions), for the words from the beginning to “deductions” substitute “ Section 480(4) (gain realised on acquisition of securities pursuant to option etc) provides for a deduction ”.
(2) Sub-paragraph (1) has effect—
(a) so far as relating to section 194, in accordance with the provision made for the repeal of Chapter 8 of Part 3, and
(b) otherwise, on and after the day appointed under paragraph 3(2).
36 (1) Omit section 528 (enterprise management incentives: no charge in respect of acquisition of qualifying option).
(2) Sub-paragraph (1) has effect on the day appointed under paragraph 3(2).
37 (1) In section 531(4) (enterprise management incentives: limitation of charge on exercise of qualifying option to acquire shares below market value), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
38 (1) In section 532(5) (enterprise management incentives: modified tax consequences following disqualifying events), for the words after “which” substitute “ under section 478 (amount of charge under section 476) is to be regarded as the taxable amount for the purposes of section 476 in respect of the acquisition of the shares pursuant to the option. ”.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
39 (1) In section 538 (share conversions excluded for purposes of section 536), for subsection (4) substitute—
(4) In this section—
“associated company” has the same meaning as, by virtue of section 416 of ICTA, it has for the purposes of Part 11 of ICTA,
“director” has the same meaning as in the benefits code (see section 67) but also includes a person who is to be or has been a director,
“employee” includes a person who is to be or has been an employee, and
“employee-controlled” has the same meaning as in Chapters 1 to 4 of this Part (see section 421H(1)).
.
(2) Sub-paragraph (1) has effect on and after the day appointed under paragraph 3(2).
40 (1) In section 540(1) (enterprise management incentives: notional loan provisions not to apply in relation to acquisition of shares by exercise of qualifying option), for “Chapter 8 of Part 3” substitute “ Chapter 3C of this Part ”.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the repeal of Chapter 8 of Part 3.
41 (1) In section 541 (enterprise management incentives: effect on other income tax charges), for subsections (1) and (2) substitute—
(1) Nothing in the EMI code affects—
(a) the operation of Chapters 2 to 4 of this Part in relation to shares acquired under a qualifying option, or
(b) the operation of Chapter 5 of this Part otherwise than in relation to the acquisition of shares under a qualifying option.
(2) But in calculating the taxable amount for the purposes of section 426 (post-acquisition charge on restricted securities) in respect of shares acquired under a qualifying option, the amount of relief on the exercise of the option is to be regarded as a deductible amount for the purposes of section 428 (amount of charge).
.
(2) So far as relating to—
(a) Chapter 9 of Part 3 (which is repealed and replaced by provisions inserted in Part 7),
(b) any of the new Chapters substituted or inserted in Part 7 by this Schedule, and
(c) each of the Chapters of that Part as originally enacted for which new Chapters are substituted by this Schedule,
sub-paragraph (1) has effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.
42 (1) Part 2 of Schedule 1 (index of defined expressions) is amended as follows.
(2) Omit the entries relating to—
“acquisition (in Chapter 8 of Part 3)”,
“the acquisition (in Chapter 8 of Part 3)”,
“acquisition (in Chapter 9 of Part 3)”,
“the acquisition (in Chapter 4 of Part 7)”,
“as a director or employee, in relation to the acquisition of an interest in shares (in Chapter 2 of Part 7)”,
“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 3 of Part 7)”,
“as a director or employee, in relation to the acquisition of shares or an interest in shares (in Chapter 4 of Part 7)”,
“assign, in relation to a share option (in Chapter 5 of Part 7)”,
“associated company (in Chapter 4 of Part 7)”,
“company (in Chapter 5 of Part 7)”,
“the Contributions and Benefits Act (in Chapter 5 of Part 7)”,
“convertible, in relation to shares (in Chapter 3 of Part 7)”,
“dependent subsidiary (in Chapter 4 of Part 7)”,
“director (in Chapter 2 of Part 7)”,
“director (in Chapter 3 of Part 7)”,
“director (in Chapter 4 of Part 7)”,
“director (in Chapter 5 of Part 7)”,
“employee (in Chapter 8 of Part 3)”,
“employee (in Chapter 9 of Part 3)”,
“employee (in Chapter 2 of Part 7)”,
“the employee (in Chapter 2 of Part 7)”,
“employee (in Chapter 3 of Part 7)”,
“the employee (in Chapter 3 of Part 7)”,
“employee (in Chapter 4 of Part 7)”,
“the employee (in Chapter 4 of Part 7)”,
“employee (in Chapter 5 of Part 7)”,
“the employee (in Chapter 5 of Part 7)”,
“employee-controlled (in relation to a company) (in Chapter 4 of Part 7)”,
“the employee’s interest (in Chapter 2 of Part 7)”,
“the employer company (in Chapter 2 of Part 7)”,
“the employer company (in Chapter 3 of Part 7)”,
“the employer company (in Chapter 4 of Part 7)”,
“employment-related shares (in Chapter 9 of Part 3)”,
“the employment-related shares (in Chapter 8 of Part 3)”,
“held by outside shareholders (in Chapter 4 of Part 7)”,
“interest in shares (in Chapter 8 of Part 3)”,
“interest in shares (in Chapter 9 of Part 3)”,
“interest in shares (in Chapter 4 of Part 7)”,
“market value (in Chapter 8 of Part 3)”,
“market value (in Chapter 9 of Part 3)”,
“market value (in Chapter 2 of Part 7)”,
“only conditional (interest in shares) (in Chapter 2 of Part 7)”,
“payment for the employment-related shares (in Chapter 8 of Part 3)”,
“release, in relation to a share option (in Chapter 5 of Part 7)”,
“secondary Class 1 contributions (in Chapter 5 of Part 7)”,
“share option (in Chapter 5 of Part 7)”,
“the share option (in Chapter 5 of Part 7)”,
“shares (in Chapter 8 of Part 3)”,
“shares (in Chapter 9 of Part 3)”,
“shares (in Chapter 2 of Part 7)”,
“the shares (in Chapter 2 of Part 7)”,
“shares (in Chapter 3 of Part 7)”,
“the shares (in Chapter 3 of Part 7)”,
“shares (in Chapter 4 of Part 7)”,
“the shares (in Chapter 4 of Part 7)”,
“shares (in Chapter 5 of Part 7)”,
“terms (in Chapter 2 of Part 7)”,
“terms (in Chapter 3 of Part 7)”, and
“value (in relation to shares) (in Chapter 4 of Part 7)”.
(3) At the appropriate places insert—
the acquisition (in Chapters 1 to 4 of Part 7) | section 421B(8) (see also section 446Q(4))
,
the acquisition (in Chapter 5 of Part 7) | section 471(5)
,
associated company (in section 421H(1) and Chapters 2 to 4 of Part 7) | section 421H(2)
,
associated person (in Chapters 1 to 4 of Part 7) | section 421C
,
associated person (in Chapter 5 of Part 7) | section 472
,
chargeable event (in Chapter 3B of Part 7) | section 446P(5)
,
the Contributions and Benefits Act (in Chapter 5 of Part 7) | section 484(7)
,
consideration (in Chapters 2 to 5 of Part 7) | sections 421(2) and 421A
,
consideration given for the acquisition of employment-related securities (in Chapters 2 to 3A of Part 7) | section 421I
,
convertible securities (in Chapters 2 to 3A of Part 7) | section 436
,
the employee (in Chapters 1 to 4 of Part 7) | section 421B(8)
,
the employee (in Chapter 5 of Part 7) | section 471(5)
,
employee-controlled (in Chapters 2 to 4 of Part 7) | section 421H(1)
,
the employer (in Chapters 1 to 4 of Part 7) | section 421B(8)
,
the employer (in Chapter 5 of Part 7) | section 471(5)
,
the employment (in Chapters 1 to 4 of Part 7) | section 421B(8)
,
the employment (in Chapter 5 of Part 7) | section 471(5)
,
employment-related securities (in Chapters 1 to 5 of Part 7) | section 421B(8) (see also section 484(4))
,
employment-related securities option (in Chapter 5 of Part 7) | section 471(5)
,
interest, in relation to securities (or shares) (in Chapters 1 to 5 of Part 7) | section 420(8)
,
market value (in Chapters 1 to 5 of Part 7) | section 421(1)
,
non-commercial increase (in Chapter 3B of Part 7) | section 446K(4)
,
non-commercial reduction (in Chapter 3B of Part 7) | section 446K(4)
,
the notional loan (in Chapter 3C of Part 7) | section 446S(1)
,
recognised stock exchange | section 841 of ICTA
,
relevant period (in Chapter 3B of Part 7) | section 446O
,
restricted securities and restricted interest in securities (in Chapters 2, 3A and 3B of Part 7) | sections 423 and 424
,
restriction (in Chapters 2, 3A and 3B of Part 7) | section 432(8)
,
secondary Class 1 contributions (in Chapter 5 of Part 7) | section 484(7)
,
securities (in Chapters 1 to 5 of Part 7) | section 420
,
securities option (in Chapters 1 to 5 of Part 7) | section 420(8)
,
shares (in Chapters 1 to 5 of Part 7) | section 420(8)
,
valuation date (in Chapter 3B of Part 7) | section 446O
, and
variation, in relation to a restriction (in Chapter 2 of Part 7) | section 427(4)
.
(4) So far as relating to—
(a) Chapters 8 and 9 of Part 3 (which are repealed and replaced by provisions inserted in Part 7),
(b) each of the new Chapters substituted or inserted in Part 7, and
(c) each of the Chapters of that Part as originally enacted for which new provisions are substituted,
sub-paragraphs (1) to (3) have effect in accordance with the provision made for the taking effect of the repeal, substitution or insertion.
43 (1) In paragraph 35 of Schedule 2 (approved share incentive plans: maximum annual award), for sub-paragraphs (3) and (4) substitute—
(3) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not.
(4) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.
.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.
44 (1) In paragraph 42(3) of Schedule 3 (approved SAYE option schemes: withdrawal of approval), for paragraph (b) substitute—
(b) section 421G(b) (exemption from Chapters 2 to 4 of Part 7),
.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 4 of Part 7.
45 (1) Schedule 5 (enterprise management incentives) is amended as follows.
(2) In paragraph 5, for sub-paragraphs (7) and (8) substitute—
(7) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not.
(8) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.
.
(3) In paragraph 37, for sub-paragraphs (4) to (6) substitute—
(4) Where the shares that may be acquired by the employee are restricted shares, the agreement must contain details of the restrictions.
(5) For the purposes of sub-paragraph (4)—
(a) shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares, and
(b) “restrictions” means that provision.
.
(4) Sub-paragraphs (1) to (3) have effect in accordance with the provision made for the substitution of Chapter 2 of Part 7.
46 (1) Schedule 7 (transitionals and savings) is amended as follows.
(2) Omit paragraphs 30 and 31.
(3) In the heading of Part 6, for “share-related” substitute “ related to securities ”.
(4) In the heading of Part 7, for “share-related income” substitute “ income related to securities ”.
(5) Before paragraph 44 insert—
Pre-6th April 2003 acquisitions
43A (1) This paragraph relates to the operation of section 421E (exclusions from Chapters 2 to 4 of Part 7: residence) in relation to an acquisition made before 6th April 2003.
(2) Section 421E(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”.
(3) Section 421E(2) has effect with the substitution of “ the emoluments of the employment did not fall to be charged to income tax under Schedule E ” for the words from “the earnings”.
.
(6) In paragraph 44, after “Part 7” insert “ , as originally enacted, ”.
(7) In paragraph 45(1), at end insert “ , as originally enacted. ”.
(8) In paragraph 46(1), after “disposal)” insert “ , as originally enacted, ”.
(9) Omit paragraphs 47 and 48.
(10) In paragraph 49, for “shares” substitute “ securities ”.
(11) Omit paragraphs 50 to 52.
(12) Omit paragraph 53.
(13) In paragraph 54, after “Part 7” insert “ , both as originally enacted and as substituted by the Finance Act 2003, ”.
(14) In paragraph 55—
(a) after “Part 7” insert “ , as originally enacted, ”, and
(b) omit sub-paragraph (2)(a).
(15) In paragraph 56, after “section 449” insert “ , as originally enacted, ”.
(16) In paragraph 58(1), at end insert “ , as originally enacted. ”
(17) Omit paragraph 59.
(18) Omit paragraphs 60 and 61.
(19) After paragraph 61 insert—
Securities disposed of for more than market value
61A Chapter 3D of Part 7 does not apply in relation to securities, or an interest in securities, acquired on or before 6th April 1976.
.
(20) Omit paragraph 62.
(21) For paragraph 63 substitute—
63 (1) This paragraph relates to the operation of section 474 (exclusions from Chapter 5 of Part 7: residence) in relation to an acquisition made before 6th April 2003.
(2) Section 474(1) has effect with the substitution of “ the employee was not chargeable under Case I of Schedule E in respect of the employment ” for the words from “the earnings”.
.
(22) In paragraph 64—
(a) for “share” (in both places) substitute “ securities ”,
(b) for “obtained” substitute “ acquired ”, and
(c) for “receipt” substitute “ acquisition ”.
(23) In paragraph 65—
(a) in sub-paragraph (1), for “479 (amount of gain realised by exercising option) in relation to a share option obtained” substitute “ 478 in relation to an event that is a chargeable event by virtue of section 477(3)(a) or (b) (acquisition of securities pursuant to an option and assignment and release of option) in the case of a share option acquired ”, and
(b) in sub-paragraph (2), for “479(1)” substitute “ 478(1) ” and for “cost” substitute “ amount ”.
(24) Omit paragraph 66.
(25) Omit paragraph 67.
(26) In this paragraph—
(a) sub-paragraphs (2) and (19) have effect in relation to securities, and interests in securities, disposed of on or after 16th April 2003,
(b) sub-paragraphs (5) and (13) to (17) have effect on and after 16th April 2003,
(c) sub-paragraphs (6) to (8), (10), (11), (20), (23) and (24) have effect on the day appointed under paragraph 3(2), and
(d) sub-paragraphs (21) and (22) have effect in accordance with the provision made for the substitution of Chapter 5 of Part 7.
Consequential amendments of other enactments
47 (1) In section 98 of the Taxes Management Act 1970 (c. 9) (penalties for failure to furnish information etc)—
(a) in the first column of the Table, at the appropriate place insert “ Section 421J(4) of ITEPA 2003. ”, and
(b) in the second column of the Table, for the entries relating to sections 432, 433, 445, 465, 466 and 486 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) substitute “ Section 421J(3) of ITEPA 2003. ”.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 1 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.
48 (1) In section 4(4)(a) of—
(a) the Social Security Contributions and Benefits Act 1992 (c. 4) (payments treated as earnings), and
(b) the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (corresponding provision for Northern Ireland),
for the words after “479” substitute “ of ITEPA 2003 in respect of which an amount counts as employment income of the earner under section 476 of that Act (charge on acquisition of securities pursuant to option etc), reduced by any amounts deducted under section 480(1) to (6) of that Act in arriving at the amount counting as such employment income; ”.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003.
49 The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.
50 (1) After section 119 insert—
Increase in expenditure by reference to tax charged in relation to employment-related securities
119A (1) This section applies to a disposal of an asset consisting of employment-related securities if the disposal—
(a) is an event giving rise to a relevant income tax charge, or
(b) is the first disposal after an event, other than a disposal, giving rise to a relevant income tax charge.
(2) Section 38(1)(a) applies as if the relevant amount had formed part of the consideration given by the person making the disposal for his acquisition of the employment-related securities.
(3) For the purposes of this section an event gives rise to a relevant income tax charge if it results in an amount counting as employment income—
(a) under section 426 of ITEPA 2003 (restricted securities),
(b) under section 438 of ITEPA 2003 by virtue of section 439(3)(a) of that Act (conversion of convertible securities),
(c) under section 446U of ITEPA 2003 (securities acquired for less than market value: discharge of notional loan), or
(d) under section 476 of ITEPA 2003 by virtue of section 477(3)(a) of that Act (acquisition of securities pursuant to employment-related securities option),
in respect of the employment-related securities.
(4) For the purposes of this section “the relevant amount” is the aggregate of the amounts counting as employment income as mentioned in subsection (3) above by reason of events occurring—
(a) not later than the disposal, and
(b) where this section has applied to an earlier disposal of the employment-related securities, after the last disposal to which this section applied.
(5) But where the relevant amount consists of or includes an amount counting as employment income under section 476 of ITEPA 2003, it is to be increased by the aggregate of any amounts deducted under section 480(5)(a) or (b), 481 or 482 of that Act in arriving at the amount of that employment income.
(6) Where securities or interests in securities cease to be employment-related securities—
(a) by reason of subsection (6) of section 421B of ITEPA 2003 in circumstances in which, immediately before the employee’s death, the employment-related securities are held otherwise than by the employee, or
(b) by reason of subsection (7) of that section,
they are to be regarded for the purposes of this section as remaining employment-related securities until the next occasion on which they are disposed of.
(7) In this section—
“employment-related securities”, and
“employee”, in relation to employment-related securities,
have the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003.
(8) References in this section to ITEPA 2003 are to that Act as amended by Schedule 22 to the Finance Act 2003.
.
(2) Sub-paragraph (1) has effect in relation to disposals on or after 16th April 2003.
51 In section 120 (increase in expenditure by reference to tax charged in relation to shares etc), after subsection (8) insert—
(9) References in this section to ITEPA 2003 are to that Act as originally enacted.
.
52 (1) After section 149A insert—
Restricted and convertible employment-related securities
149AA (1) Where an individual has acquired an asset consisting of employment-related securities which are—
(a) restricted securities or a restricted interest in securities, or
(b) convertible securities or an interest in convertible securities,
the consideration for the acquisition shall (subject to section 119A) be taken to be equal to the aggregate of the actual amount or value given for the employment-related securities and any amount that constituted earnings under Chapter 1 of Part 3 of ITEPA 2003 (earnings) in respect of the acquisition.
(2) Subsection (1) above applies only to the individual making the acquisition and, accordingly, is to be disregarded in calculating the consideration received by the person from whom the employment-related securities are acquired.
(3) This section has effect in relation to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003.
(4) In this section “employment-related securities” has the same meaning as in Chapters 1 to 4 of Part 7 of ITEPA 2003 (as substituted by Schedule 22 to the Finance Act 2003).
(5) In this section—
“restricted interest in securities”, and
“restricted securities”,
have the same meaning as in Chapter 2 of that Part of ITEPA 2003 (as so substituted).
(6) In this section “convertible securities” has the same meaning as in Chapter 3 of that Part of ITEPA 2003 (as so substituted).
.
53 In section 149B (employee incentive schemes: conditional interests in shares), after subsection (4) insert—
(5) This section does not apply to acquisitions on or after the day appointed under paragraph 3(2) of Schedule 22 to the Finance Act 2003.
(6) References in this section to ITEPA 2003 are to that Act as originally enacted.
.
54 (1) In section 288 (interpretation), after subsection (1) insert—
(1A) If any employment-related securities option would not otherwise be regarded as an option for the purposes of this Act, it shall be so regarded; and the acquisition of securities by an associated person pursuant to an employment-related securities option is to be treated for the purposes of this Act as the exercise of the option.
Expressions used in this subsection and Chapter 5 of Part 7 of ITEPA 2003 have the same meaning in this subsection as in that Chapter.
.
(2) Sub-paragraph (1) has effect in accordance with the provision made for the substitution of Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (c. 1).
55 (1) The Social Security Contributions (Share Options) Act 2001 (c. 20) is amended as follows.
(2) The amendments of that Act have effect on and after the day appointed under paragraph 3(2).
56 In section 2(3)(b) (effect of notice under section 1), insert at the end “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.
57 (1) Section 3 (special provision for roll-overs) is amended as follows.
(2) In subsection (4)—
(a) in paragraph (a), for “section 485(1) to (4)” substitute “ section 483(1) to (4) ”, and
(b) insert at the end of paragraph (b)(i) “ (less any deductible amounts under section 480(1) to (6) of that Act). ”.
(3) In subsection (6), for “485(1) to (3)” substitute “ 483(1) to (3) ”.
(4) In subsection (11)(a), insert at the end “ (less any deductible amounts under section 480(1) to (6)); ”.
58 In section 5(2)(c) (interpretation), for “483(1)” substitute “ 477(6) ”.
SCHEDULE 28 Capital gains tax: reporting limits and annual exempt amount
Section 159
Part 1 Reporting limits
1 After section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—
Reporting limits
3A (1) Where in the case of an individual—
(a) the amount of chargeable gains accruing to him in any year of assessment does not exceed the exempt amount for that year, and
(b) the aggregate amount or value of the consideration for all chargeable disposals of assets made by him in that year does not exceed four times the exempt amount for that year,
a statement to that effect is sufficient compliance with so much of any notice under section 8 of the Management Act as requires information for the purposes of establishing the amount in which he is chargeable to capital gains tax for that year.
(2) For the purposes of subsection (1)(a) above—
(a) the amount of chargeable gains accruing to an individual in a year of assessment for which no deduction falls to be made in respect of allowable losses is the amount after any reduction for taper relief;
(b) the amount of chargeable gains accruing to an individual in a year of assessment for which such a deduction does fall to be made is the amount before deduction of losses or any reduction for taper relief.
(3) For the purposes of subsection (1)(b) above a “chargeable disposal” is any disposal other than—
(a) a disposal on which any gain accruing is not a chargeable gain, or
(b) a disposal the consideration for which is treated by virtue of section 58 (husband and wife) as being such that neither a gain nor a loss would accrue.
(4) Subsection (1) above applies to personal representatives (for the year of assessment in which the individual in question dies and for the next 2 following years) as it applies to an individual.
(5) Subsection (1) above applies to the trustees of a settlement in accordance with Schedule 1.
(6) In this section “exempt amount” has the meaning given by section 3 (read, where appropriate, with Schedule 1).
.
2 (1) In the heading to Schedule 1 to that Act (application of exempt amount in cases involving settled property) after “Exempt Amount” insert “ And Reporting Limits ”.
(2) In paragraph 1 of that Schedule (trustees for person with a disability) after sub-paragraph (5) insert—
(5A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.
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(3) In paragraph 2 of that Schedule (other trustees) after sub-paragraph (6) insert—
(6A) In its application to the trustees of a settlement, section 3A(1) has effect with the substitution for the reference to section 8 of the Management Act of a reference to section 8A of that Act.
.
Part 2 Annual exempt amount
3 (1) Section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.
(2) Omit subsection (6).
(3) In subsection (7) for “subsections (1) to (6)” substitute “ subsections (1) to (5C) ”.
(4) After that subsection insert—
(7A) As they apply by virtue of subsection (7) above—
(a) subsection (5A) has effect with the omission of paragraph (b), and
(b) subsection (5B) has effect with the omission of the words “or (b)”.
.
4 (1) Paragraph 1 of Schedule 1 to that Act is amended as follows.
(2) In sub-paragraph (1), in the words following paragraph (b)—
(a) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”;
(b) at the end insert “ , but with the modifications specified in this paragraph ”.
(3) After sub-paragraph (2) insert—
(2A) As they apply by virtue of sub-paragraph (1) above—
(a) section 3(5A) has effect with the omission of paragraph (b), and
(b) section 3(5B) has effect with the omission of the words “or (b)”.
.
(4) In sub-paragraph (3)—
(a) for “section 3” substitute “ sections 3 and 3A(1)(a) ”;
(b) after “the exempt amount for the year”, where it first occurs, insert “ (except the one in section 3(2)) ”.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 (1) Paragraph 2 of that Schedule is amended as follows.
(2) In sub-paragraph (1) for “section 3(1) to (6)” substitute “ sections 3(1) to (5C) and 3A ”.
(3) In sub-paragraph (2)—
(a) for “subsections (1) and (5)” substitute “ section 3(1), (5A), (5B) and (5C) ”;
(b) after “section 3(1), (5A), (5B) and (5C)” insert “ and section 3A(1)(a) ”.
(4) After sub-paragraph (2) insert—
(2A) As they apply by virtue of sub-paragraph (1) above—
(a) section 3(5A) has effect with the omission of paragraph (b), and
(b) section 3(5B) has effect with the omission of the words “or (b)”.
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(5) Omit sub-paragraph (3).
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 In the first column of the Table in section 98 of the Taxes Management Act 1970 (c. 9) (penalty for failure to furnish particulars etc), at the appropriate place insert— “ Paragraph 1(7) of Schedule 1 to the 1992 Act. ”.
Part 3 Commencement
7 The amendments in paragraphs 1, 2, 3(2) and (3), 4(2)(a) and (4)(a) and 5(2), (3)(b) and (5) of this Schedule apply in relation to any notice under section 8 or, as the case may be, section 8A of the Taxes Management Act 1970 given in relation to the year 2003-04 or any subsequent year of assessment.
8 The amendments in paragraphs 3(4), 4(2)(b), (3) and (4)(b) and 5(3)(a) and (4) of this Schedule shall be deemed always to have had effect.
9 The amendments in paragraphs 4(5), 5(6) and 6 of this Schedule have effect in relation to any notice given in respect of the year 2002-03 or any subsequent year of assessment, except that the amendment in paragraph 6 has effect only in relation to such a notice given after the passing of this Act.
SCHEDULE 29 Transfers of value: attribution of gains to beneficiaries
Section 163(2)
Introduction
1 Schedule 4C to the Taxation of Chargeable Gains Act 1992 (c. 12) (transfers of value: attribution of gains to beneficiaries) is amended as follows.
Scope and scheme of Schedule
2 For paragraphs 1 and 2 (introduction and general scheme of Schedule) substitute—
Introduction
1 (1) This Schedule applies where the trustees of a settlement (“the transferor settlement”) make a transfer of value to which Schedule 4B applies (“the original transfer”).
(2) Where this Schedule applies, the following gains—
(a) any Schedule 4B trust gains accruing by virtue of the transfer (see paragraphs 3 to 7), and
(b) any outstanding section 87/89 gains of the transferor settlement at the end of the year of assessment in which the transfer is made (see paragraph 7A),
are pooled for the purpose of attributing them, in accordance with this Schedule, to beneficiaries who receive capital payments. Paragraph 7B provides for further gains to be brought into the pool in the case of a further transfer of value.
(3) The gains mentioned in sub-paragraph (2) are referred to in this Schedule as “Schedule 4C gains” and the pool is referred to as the transferor settlement’s “Schedule 4C pool”.
(4) Paragraphs 8 to 9 provide for the attribution of gains in a settlement’s Schedule 4C pool.
(5) References in this Schedule to a transfer to which Schedule 4B applies include any such transfer, whether or not any chargeable gain or allowable loss accrues under that Schedule by virtue of the transfer.
Other gains to be brought into Schedule 4C pool
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Attribution of gains to beneficiaries
4 (1) For paragraphs 8 and 9 (attribution of gains to beneficiaries) substitute—
Attribution of Schedule 4C gains to beneficiaries
8 (1) The gains in a settlement’s Schedule 4C pool at the end of any year of assessment are treated as chargeable gains accruing in that year to beneficiaries who receive in that year, or have received in an earlier year, capital payments from the trustees of any settlement that is a relevant settlement in relation to the pool.
Paragraph 8A defines “relevant settlement” for this purpose.
(2) The attribution of chargeable gains to beneficiaries under this paragraph shall be made in proportion to, but shall not exceed, the amounts of the capital payments made to them.
Paragraphs 8B and 8C provide for the matching of gains with available capital payments.
(3) A chargeable gain shall not be treated as accruing to a beneficiary under this Schedule unless he is chargeable to tax for that year of assessment.
(4) For the purposes of this Schedule a beneficiary is “chargeable to tax” for a year of assessment if, and only if—
(a) he is resident in the United Kingdom for any part of that year or is ordinarily resident in the United Kingdom for that year, and
(b) he is domiciled in the United Kingdom for any part of that year.
(5) Any gains in a settlement’s Schedule 4C pool that are not attributed to beneficiaries in a year of assessment are carried forward to the following year of assessment, when this paragraph applies again.
Relevant settlements
8A (1) This paragraph specifies what settlements are relevant settlements in relation to a Schedule 4C pool.
(2) The transferor and transferee settlements in relation to the original transfer of value are relevant settlements.
(3) If the trustees of any settlement that is a relevant settlement in relation to a Schedule 4C pool—
(a) make a transfer of value to which Schedule 4B applies, or
(b) make a transfer of settled property to which section 90 applies,
any settlement that is a transferee settlement in relation to that transfer is also a relevant settlement in relation to that pool.
(4) If the trustees of a settlement that is a relevant settlement in relation to a Schedule 4C pool make a transfer of value to which Schedule 4B applies, any other settlement that is a relevant settlement in relation to that pool is also a relevant settlement in relation to the Schedule 4C pool arising from the further transfer.
Attribution of gains in Schedule 4C pool
8B (1) The following rules apply as regards the attribution of the gains in a settlement’s Schedule 4C pool to beneficiaries of relevant settlements.
This paragraph has effect subject to paragraph 8C (order of attribution as between gains in Schedule 4C pool and other trust gains).
(2) Gains of earlier years are attributed to beneficiaries before gains of later years.
(3) For the purposes of this Schedule the year of a gain is determined as follows—
(a) a Schedule 4B trust gain is a gain of the year of assessment in which the transfer of value in question takes place;
(b) a section 87/89 gain is a gain of the year of assessment in which it first forms part of a settlement’s trust gains in accordance with section 87(2).
(4) Gains of the same year are matched with available capital payments made at any time by trustees of any relevant settlement.
(5) If gains of one year are wholly matched, gains of the next year are then matched, and so on.
(6) The gains are attributed to beneficiaries in proportion to, but not so as to exceed, the amount of available capital payments received by them.
Attribution of gains: Schedule 4C pool gains and other gains
8C (1) Where in a year of assessment—
(a) gains in a settlement’s Schedule 4C pool fall to be attributed to beneficiaries of relevant settlements, and
(b) one or more of those settlements also have gains that fall to be attributed to beneficiaries under section 87(4) or 89(2),
the provisions of paragraph 8B have effect as follows.
(2) The rules in that paragraph apply in relation to all the gains falling to be so attributed.
(3) As between gains of the same year, Schedule 4C gains are attributed to beneficiaries before other gains.
Attribution of gains: available capital payments
9 (1) In any year of assessment capital payments made to a beneficiary by the trustees of a relevant settlement, in that year or any earlier year, are available for the purposes of paragraphs 8 to 8C subject to the following provisions.
(2) A capital payment is no longer available to the extent that chargeable gains have, by reason of it, been treated as accruing to the recipient in an earlier year of assessment—
(a) under this Schedule, or
(b) under section 87(4) or 89(2).
(3) Capital payments received—
(a) before 21st March 2000, or
(b) before the year of assessment preceding the year of assessment in which the original transfer of value was made,
shall be disregarded.
.
(2) After paragraph 12 insert—
Attribution of gains to beneficiaries in section 10A cases
12A (1) This paragraph applies where by virtue of section 10A an amount of gains would (apart from this Schedule) be treated under section 87 as accruing to a person (“the beneficiary”) in the year of return by virtue of a capital payment made to him in an intervening year.
(2) Where this paragraph applies, a capital payment equal to so much of that capital payment as exceeds the amount otherwise charged shall be deemed for the purposes of this Schedule to be made to the beneficiary in the year of return.
(3) The “amount otherwise charged” means the total of any chargeable gains attributed to the beneficiary under section 87(4) or 89(2) by virtue of the capital payment.
(4) For the purposes of paragraph 13(5)(b) a deemed capital payment under this paragraph shall be treated as made when the actual capital payment mentioned in sub-paragraph (1) above was made.
(5) Expressions used in this paragraph and section 10A have the same meanings in this paragraph as in that section
.
Gains attributed to settlor
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Minor and consequential amendments
6 (1) In paragraph 10(1) for “of the transferor settlement, or of any transferee settlement,” substitute “ of any relevant settlement ”.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) After paragraph 13 insert—
Effect of settlement ceasing to exist after transfer of value
13A Where a settlement ceases to exist after the trustees have made a transfer of value to which Schedule 4B applies, this Schedule has effect as if a year of assessment had ended immediately before the settlement ceased to exist.
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SCHEDULE 32 Tonnage tax: restrictions on capital allowances for lessors of ships
Section 169
The ring fence: amendments to the provisions about capital allowances and ship leasing
1 (1) In Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax), Part 10 (the ring fence: capital allowances: ship leasing) is amended as follows.
(2) Omit the word “finance” from the expression “finance lease” in paragraphs 89(1), 90(1), 92(1), 93(1), 94(1), 98(1)(a) and 99(1)(a).
(3) At the end of sub-paragraph (1) of paragraph 89 (introduction to Part 10) insert—
“ This is subject to paragraph 89A (exception for ordinary charters). ”.
(4) For sub-paragraph (2) of that paragraph substitute—
(2) In this Part of this Schedule “lease” means any arrangements that provide for a ship to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”).
.
(5) After that paragraph insert—
Quantitative restrictions not to apply to ordinary charters
89A (1) Paragraphs 94 to 102, and paragraph 89(1) so far as relating to those paragraphs, do not apply in the following cases.
(2) The first case is where the ship is chartered out by a person who is responsible—
(a) for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, throughout the period of the charter, and
(b) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during that period.
For the purposes of this sub-paragraph a person is “responsible” if he is responsible as principal or if he appoints another person, other than the lessee or a person connected with the lessee, to be responsible in his place.
(3) The second case is where—
(a) the ship is chartered out by a person acting in the course of a trade that consists of, or to a significant extent includes, operating ships, and
(b) the conditions in sub-paragraph (4) are met.
(4) Those conditions are—
(a) that the period of the charter does not exceed seven years, and there is no provision or agreement under which it could be extended beyond seven years;
(b) that the period of the charter, together with any other periods in the same ten years during which the ship is chartered out to the lessee or a person connected with him, does not exceed seven years in total;
(c) that there are no arrangements under which the lessee or a person connected with him may acquire the ship, whether directly or indirectly, from the lessor.
In paragraph (b) “the same ten years” means any period of ten years that includes the period of the charter mentioned in that paragraph.
(5) References in this paragraph to the period of a charter are to the term specified in the lease or, if longer, the actual period during which the ship is chartered.
(6) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.
.
Consequential amendments
2 (1) In paragraph 41(4) of that Schedule (the requirement not to enter into tax avoidance arrangements: exemption for finance leases)—
(a) in the first sentence omit “finance”;
(b) for the second sentence substitute— “ In this sub-paragraph “lease”, and “lessor” in relation to a lease, have the meaning given by paragraph 89(2). ”.
(2) In paragraph 147 (index of defined expressions)—
(a) omit the entry for “finance lease (and lessor and lessee) (in Part X)”;
(b) insert at the appropriate place—
lease (and lessor and lessee) (in Part X) | paragraph 89(2)
.
Commencement and temporary provision
3 (1) Subject to paragraph 4(2), the amendments made by paragraphs 1 and 2 apply in relation to any lease entered into on or after 19th December 2002.
(2) In sub-paragraph (4)(b) of the paragraph 89A inserted by paragraph 1(5) above, the reference to any other periods during which the ship is chartered out does not include any period during which it is chartered out under a lease entered into before 19th December 2002.
4 (1) This paragraph applies in relation to any lease entered into on or after 19th December 2002 and before 16 April 2003.
(2) Part 10 of the Schedule 22 to the Finance Act 2000 (c. 17) has effect as if, instead of the paragraph inserted after paragraph 89 by paragraph 1(5) above, the following paragraph were inserted—
Exception for ordinary charters
89A (1) Paragraph 89(1), and the provisions of this Part of this Schedule listed there, do not apply in the following cases.
(2) The first case is where the ship is chartered out by a person who is responsible—
(a) for the operation of the ship, including the appointment of the master and those members of the crew engaged in navigation, throughout the period of the charter, and
(b) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses other than those directly incidental to a particular voyage or to the employment of the ship during that period.
For the purposes of this sub-paragraph a person is “responsible” if he is responsible as principal or if he appoints another person, other than the lessee or a person connected with the lessee, to be responsible in his place.
(3) The second case is where—
(a) the ship is chartered out to another person (“the charterer”) because of short-term over-capacity,
(b) the person chartering out the ship does so in the course of a trade that consists of or includes operating ships, and
(c) the conditions in sub-paragraph (4) are met.
(4) Those conditions are—
(a) that the period of the charter does not exceed three years, and there is no provision or agreement under which it could be extended beyond three years;
(b) that the period of the charter, together with any other periods in the same five years during which the ship is chartered out to the charterer or a person connected with him, does not exceed three years in total;
(c) that neither the charterer nor any person connected with him has an option to purchase the ship.
(5) In sub-paragraph (4)(b)—
(a) the reference to any other periods during which the ship is chartered out does not include any period during which it is chartered out under a lease entered into before 19th December 2002;
(b) “the same five years” means any period of five years that includes the period of the charter mentioned in that sub-paragraph.
(6) References in this paragraph to the period of a charter are to the term specified in the lease or, if longer, the actual period during which the ship is chartered.
(7) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this paragraph.
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(3) Paragraph 93(1) of that Schedule (certificates required to support claim by lessor) has effect as if after paragraph (a) there were inserted—
(aa) that the lease is such that, by virtue of paragraph 89A (exception for ordinary charters), paragraph 89(1) does not apply, or
.
5 In paragraphs 3 and 4 “lease” means any arrangements that provide for a ship to be leased or otherwise made available by one person to another.
Section 170
Case I profits
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4 (1) In section 83AA of the Finance Act 1989 (c. 26) (amounts added to long-term insurance fund of a company in excess of company’s loss), omit—
(a) subsections (3) to (5),
(b) subsection (6)(a),
(c) subsection (7)(b) and the word “and” before it, and
(d) in subsection (10), the definitions of “the relevant accounting period” and “the transferor company”.
(2) Sub-paragraph (1) has effect for periods of account beginning on or after 1st January 2003.
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(2) Section 89 of that Act (meaning of policy holders' share of profits) is amended as follows.
(3) In subsection (1), for the words after “references to” substitute—
(a) in a case where there are no Case I profits of the company for the period in respect of its life assurance business, the amount of the relevant profits, and
(b) in any other case, the amount arrived at in accordance with subsection (1A) below.
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(4) After that subsection insert—
(1A) An amount is arrived at in accordance with this subsection by—
(a) deducting from any profits of the company for the period chargeable under Case VI of Schedule D under sections 436, 439B and 441 of the Taxes Act 1988 (as reduced by any losses under those sections and any charges on income referable to any category of business other than basic life assurance and general annuity business) so much of the Case I profits of the company for the period in respect of its life assurance business as does not exceed the amount of any profits of the company for the period so chargeable, and
(b) deducting any remaining Case I profits of the company for the period in respect of its life assurance business from any BLAGAB profits of the company for the period.
(1B) For the purposes of this section, the BLAGAB profits of a company for an accounting period are the income and chargeable gains referable to the company’s basic life assurance and general annuity business reduced by the aggregate amount of—
(a) any non-trading deficit on the company’s loan relationships,
(b) expenses of management falling to be deducted under section 76 of the Taxes Act 1988, and
(c) charges on income,
so far as referable to the company’s basic life assurance and general annuity business.
.
(5) In subsection (2), for “subsection (1)” substitute “ subsections (1) and (1A) ”.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) In—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) the second sentence of section 434A(3) of that Act (computation of losses and limitation on relief),
for “88” substitute “ 89 ”.
(8) In section 434A(2)(a)(i) of the Taxes Act 1988 (computation of losses and limitation on relief), for “for the period, otherwise than in accordance with those provisions, the profits or losses of the company’s life assurance business” substitute “ , otherwise than in accordance with those provisions, the relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of the company for the period ”.
(9) In section 437(1A) of the Taxes Act 1988 (general annuity business), for “profits for any accounting period of a company’s life assurance business” substitute “ relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of an insurance company for any accounting period ”.
(10) In paragraph 16(1) of Schedule 7 to the Finance Act 1991 (c. 31) (transitional relief for old general annuity contracts), for “profits for any accounting period of an insurance company’s life assurance business” substitute “ relevant profits (within the meaning of section 88(1) of the Finance Act 1989) of an insurance company for any accounting period ”.
(11) Section 89(1B) of the Finance Act 1989 (c. 26) (inserted by sub-paragraph (4)) has effect for the purposes of section 210A of the Taxation of Chargeable Gains Act 1992 (c. 12) (inserted by paragraph 14(1)) in relation to any accounting period of a company if it is necessary under that section to determine the company’s BLAGAB profits for the period.
(12) But, subject to that, this paragraph has effect for accounting periods ending on or after 9th April 2003.
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Rate of tax on policy holders' share of life assurance profits
13 (1) The Finance Act 1989 is amended as follows.
(2) In section 88(1) (corporation tax rate on policy holders' share of relevant profits of companies carrying on life assurance business to be basic rate of income tax)—
(a) omit “and section 88A”, and
(b) for “basic” substitute “ lower ”.
(3) Omit section 88A (cases where tax rate already is lower rate).
(4) In section 89(1) (meaning of “policy holders' share of profits”)—
(a) for “sections 88 and 88A” substitute “ section 88 ”, and
(b) omit “or, as the case may be, basic life assurance and general annuity business”.
(5) The Taxes Act 1988 is amended as follows.
(6) In section 438B(5) (income or gains arising from property investment LLP)—
(a) omit paragraph (b) and the word “and” before it, and
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Section 755A (controlled foreign companies: chargeable profits and creditable tax apportioned to company carrying on life assurance business) is amended as follows.
(8) In subsection (3), for “88A(1)” substitute “ 88(1) ”.
(9) For subsection (11) substitute—
(11) For the purposes of this section the policy holders' part of any BLAGAB apportioned profit is—
(a) where subsection (11A) below applies, the whole of that profit, and
(b) in any other case, the relevant fraction (within the meaning of subsection (11B) below) of that profit.
(11A) This subsection applies if—
(a) the UK company’s life assurance business is mutual business,
(b) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is equal to all those profits, or
(c) the policy holders' share of the UK company’s relevant profits for the relevant accounting period is more than its BLAGAB profits for that period.
(11B) The relevant fraction for the purposes of subsection (11)(b) above is the fraction arrived at by dividing—
(a) the policy holders' share of the UK company’s relevant profits for the relevant accounting period, by
(b) the UK company’s BLAGAB profits for that period.
(11C) In subsections (11A) and (11B) above—
(a) references to the policy holders' share of the UK company’s share of the relevant profits are to be construed in accordance with sections 88(3) and 89 of the Finance Act 1989, and
(b) references to the UK company’s BLAGAB profits are to be construed in accordance with section 89(1B) of that Act.
.
(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11) This paragraph has effect for the financial year 2003 and subsequent financial years.
Chargeable gains
14 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210 insert—
Ring-fencing of losses
210A (1) Section 8(1) has effect in relation to insurance companies subject to the provisions of this section.
(2) Non-BLAGAB allowable losses accruing to an insurance company are not allowable as a deduction from the policy holders' share of the BLAGAB chargeable gains accruing to the company.
(3) BLAGAB allowable losses accruing to an insurance company are allowable as a deduction from non-BLAGAB chargeable gains accruing to the company as permitted by the following provisions of this section (and not otherwise).
(4) They are allowable as a deduction from only so much of non-BLAGAB chargeable gains accruing to the company in an accounting period as exceeds the aggregate of—
(a) non-BLAGAB allowable losses accruing to the company in the accounting period, and
(b) non-BLAGAB allowable losses previously accruing to the company which have not been allowed as a deduction from chargeable gains accruing in any previous accounting period.
(5) And they are allowable as a deduction from non-BLAGAB chargeable gains accruing to the company in an accounting period only to the extent that they do not exceed the permitted amount for the accounting period.
(6) The permitted amount for the first accounting period of an insurance company in relation to which this section has effect is the aggregate of—
(a) the amount by which shareholders' share for that accounting period of BLAGAB allowable losses accruing to the company in the accounting period exceeds the shareholders' share of BLAGAB chargeable gains so accruing, and
(b) the shareholder’s share for the immediately preceding accounting period of BLAGAB allowable losses previously accruing to the company which have not been allowed as a deduction from chargeable gains accruing in that immediately preceding accounting period or any earlier accounting period.
(7) The permitted amount for any subsequent accounting period of the company is arrived at by—
(a) deducting from the permitted amount for the immediately preceding accounting period the amount of any BLAGAB allowable losses allowed as a deduction from non-BLAGAB chargeable gains accruing to the company in the immediately preceding accounting period, and
(b) adjusting the result in accordance with subsection (8) or (9) below.
(8) If the BLAGAB chargeable gains accruing to the company in the subsequent accounting period exceed the BLAGAB allowable losses so accruing, the amount arrived at under subsection (7)(a) above is reduced by a fraction of which—
(a) the denominator is the BLAGAB allowable losses accruing to the company in any previous accounting period which have not been allowed as a deduction from chargeable gains accruing to the company in any previous accounting period, and
(b) the numerator is so many of those allowable losses as are allowed as a deduction from BLAGAB chargeable gains accruing to the company in the accounting period.
(9) If the BLAGAB allowable losses accruing to the company in the subsequent accounting period exceed the BLAGAB chargeable gains so accruing, the amount arrived at under subsection (7)(a) above is increased by the shareholders' share of the amount by which those allowable losses exceed those chargeable gains.
(10) For the purposes of this section the policy holders' share of chargeable gains or allowable losses accruing to an insurance company in an accounting period—
(a) if the policy holders' share of the relevant profits for the accounting period exceeds the BLAGAB profits of the company for the period (within the meaning of section 89(1B) of the Finance Act 1989), is the whole amount of the chargeable gains or allowable losses, and
(b) otherwise, is the same proportion of that whole amount as the policy holders' share of the relevant profits of the company for the accounting period bears to those relevant profits.
(11) In arriving at the policy holders' share of chargeable gains accruing to an insurance company under subsection (10) above there is to be ignored—
(a) any deduction under section 202(9) (mineral leases: capital losses),
(b) any reduction under section 213(3) (spreading of losses from deemed disposal of holdings of unit trust etc), and
(c) any amount carried back under paragraph 4(3) of Schedule 11 to the Finance Act 1996 (non-trading deficit on loan relationships).
(12) For the purposes of this section the shareholders' share of chargeable gains or allowable losses in relation to an accounting period of an insurance company is the proportion of the whole which is not represented by the policy holders' share of them in relation to the accounting period.
(13) In this section—
“BLAGAB allowable losses”, in relation to an insurance company, means allowable losses referable to the company’s basic life assurance and general annuity business,
“BLAGAB chargeable gains”, in relation to an insurance company, means chargeable gains referable to the company’s basic life assurance and general annuity business,
“non-BLAGAB allowable losses”, in relation to an insurance company, means allowable losses of the company which are not BLAGAB allowable losses,
“non-BLAGAB chargeable gains”, in relation to an insurance company, means chargeable gains of the company which are not BLAGAB chargeable gains, and
“the relevant profits” and “the policy holders' share of the relevant profits” have the same meaning as they have for the purposes of subsection (1) of section 88 of the Finance Act 1989 by virtue of subsection (3) of that section and section 89 of that Act.
.
(2) Sub-paragraph (1) has effect to limit the deductions which may be made from chargeable gains accruing in—
(a) any accounting period of an insurance company beginning on or after 23rd December 2002, and
(b) any accounting period of an insurance company beginning before that date but ending on or after it,
in respect of allowable losses accruing in any accounting period (whenever beginning or ending).
(3) In relation to an accounting period within sub-paragraph (2)(b) the limitations imposed by virtue of sub-paragraph (1) apply only as respects chargeable gains accruing on or after 23rd December 2002.
15 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 210A (inserted by paragraph 14(1)) insert—
Disposal and acquisition of section 440A securities
210B (1) Subsections (2) to (4) below apply in a case where, within a period of 10 days, an insurance company disposes of a number of section 440A securities and (whether subsequently or previously) acquires a number of section 440A securities if—
(a) the securities disposed of decrease the size of a chargeable section 440A holding,
(b) the securities acquired increase the size of the same chargeable section 440A holding, and
(c) (apart from this section) an allowable loss would accrue on the disposal.
(2) The securities disposed of shall be identified with the securities acquired.
(3) The securities disposed of shall be identified with securities acquired before the disposal rather than securities acquired after the disposal and—
(a) in the case of securities acquired before the disposal, with those acquired later rather than those acquired earlier, and
(b) in the case of securities acquired after the disposal, with those acquired earlier rather than those acquired later.
(4) Where securities acquired could be identified with securities disposed of either at an earlier or at a later date, they shall be identified with the former rather than the latter; and the identification of securities acquired with securities disposed of on any occasion shall preclude their identification with securities comprised in a later disposal.
(5) Subsections (2) to (4) above have effect subject to section 105(1).
(6) Subsections (2) to (4) above do not apply to—
(a) securities which are section 212 assets within the meaning of section 214(1) (rights under authorised unit trusts and interests in offshore funds), or
(b) securities deemed by section 440 of the Taxes Act to be disposed of and immediately re-acquired by virtue of paragraph 3 of Schedule 19AA to the Taxes Act (assets becoming or ceasing to be assets of overseas life assurance fund).
(7) Subsections (2) to (4) above do not apply if—
(a) the securities disposed of are linked assets appropriated to a BLAGAB internal linked fund,
(b) the securities acquired are, on acquisition, appropriated to that or another internal linked fund, and
(c) the disposal and acquisition are made with a view to adjusting the value of the assets of that fund, or of those funds, in order to match its or their liabilities.
(8) In this section—
“BLAGAB internal linked fund” means an internal linked fund all the assets appropriated to which are linked solely to basic life assurance and general annuity business,
“chargeable section 440A holding” means a holding which is a separate holding by virtue of subsection (2)(a)(iii) or (d) of section 440A of the Taxes Act (and subsections (3) and (4) of that section),
“internal linked fund” has the same meaning as in section 432ZA of the Taxes Act, and
“section 440A securities” means securities within the meaning of section 440A of the Taxes Act.
.
(2) Sub-paragraph (1) has effect in relation to disposals on or after 23rd December 2002.
(3) But sub-paragraph (1) has effect in relation to disposals made by an insurance company during the period—
(a) beginning with 23rd December 2002, and
(b) ending with 31st December 2002,
only if the amount of the allowable losses referable to the company’s life assurance business which would have accrued to the company on the disposals (but for that sub-paragraph) would have been at least £10 million.
16 (1) Section 213 of the Taxation of Chargeable Gains Act 1992 (c. 12) (spreading of gains and losses under section 212) is amended as follows.
(2) In subsection (3)—
(a) for “subsection (3A)” substitute “ subsection (8H) ”,
(b) in paragraph (b), for “one of the next 6” substitute “ either of the next 2 ” and for “subsection” substitute “ section ”,
(c) in paragraph (c), for “any intervening accounting period” substitute “ the intervening accounting period (if there is one) ”, and
(d) in paragraph (ca), for “none of the intervening accounting periods is” substitute “ the intervening accounting period (if there is one) is not ”.
(3) Omit subsections (3A) and (3B).
(4) For subsection (5) substitute—
(4A) The following provisions apply where an insurance business transfer scheme has effect to transfer business which consists of the effecting or carrying out of contracts of long-term insurance from one person (“the transferor”) to another (“the transferee”).
(5) Subject to subsections (5A) to (7) below, any chargeable gain or allowable loss which (assuming that the transferor had continued to carry on the business transferred) would have accrued to the transferor by virtue of subsection (1) above after the transfer shall instead be deemed to accrue to the transferee.
.
(5) After subsection (8) insert—
(8A) Subsection (8B) below applies where—
(a) immediately before the transfer the transferee did not carry on business consisting of the effecting or carrying out of contracts of long-term insurance,
(b) the transferor and the transferee are, at the time of the transfer, members of the same group,
(c) the net amount for the accounting period of the transferor ending with the day of the transfer, or for the immediately preceding accounting period of the transferor, (“the relevant pre-transfer period of the transferor”) represents an excess of gains over losses,
(d) the net amount for the accounting period of the transferee in which the transfer takes place, or for the immediately following accounting period of the transferee, (“the relevant post-transfer period of the transferee”) represents an excess of losses over gains (after taking account of any reductions made by virtue of this section), and
(e) within 2 years after the end of the relevant post-transfer period of the transferee, the transferor and the transferee make a joint election in respect of the whole or part of the net amount for that period by notice to an officer of the Board.
(8B) Subject to subsections (8C) to (8E) and (8H) below, the net amounts for both the relevant pre-transfer period of the transferor and the relevant post-transfer period of the transferee shall be reduced by the amount in respect of which the election is made.
(8C) Subsection (8B) above does not apply if—
(a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer.
(8D) If—
(a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period ending with the day of the transfer,
subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferee in which the transfer takes place.
(8E) If—
(a) the relevant post-transfer period of the transferee is the accounting period in which the transfer takes place, and
(b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer,
subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferor ending with the day of the transfer.
(8F) The conditions referred to in subsections (8D) and (8E) above are that—
(a) there is (after taking account of any reductions made by virtue of this section) no net amount for the accounting period, and
(b) the company whose accounting period it is did not join a group of companies in the accounting period.
(8G) A copy of the notice containing an election under subsection (8A)(e) above must accompany the tax return for the relevant post-transfer period of the transferee; and paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.
(8H) Subsections (3) and (8A) and (8B) above have effect where the company, or the transferee, in question joins a group of companies in the accounting period for which the net amount represents an excess of losses over gains as if a claim or election could not be made in respect of that net amount except to the extent (if any) that the net amount is an amount which, assuming there to be gains accruing to the company or transferee immediately after the beginning of that period, would fall to be treated under paragraph 4 of Schedule 7AA as a qualifying loss in relation to those gains.
((8I)) References in this section to a company joining a group of companies are to be construed in accordance with paragraph 1 of Schedule 7AA as if those references were contained in that Schedule; and in subsection (8A)(b) above “group” has the same meaning as in that Schedule.
.
(6) This paragraph has effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period beginning on or after 1st January 2003.
17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers of business
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 (1) In the Taxation of Chargeable Gains Act 1992 (c. 12), after section 211 insert—
Transfers of business: transfer of unused losses
211ZA (1) This section applies where—
(a) an insurance business transfer scheme has effect to transfer business consisting of or including basic life assurance and general annuity business from one person (“the transferor”) to another (“the transferee”) or more than one others (“the transferees”), and
(b) the transferor has relevant unused losses.
(2) For the purposes of subsection (1)(b) above the transferor has relevant unused losses if—
(a) BLAGAB allowable losses accrue to the transferor in the accounting period ending with the day of the transfer or have so accrued in any earlier accounting period, and
(b) they are not deducted from chargeable gains accruing to the transferor in that accounting period and have not been deducted from chargeable gains so accruing in any previous accounting period.
(3) Subject as follows—
(a) for the purposes of ascertaining the transferor’s total profits for any accounting period after that in which the transfer takes place, the relevant unused losses are deemed not to have accrued to the transferor, but
(b) (instead) they are treated as accruing to the transferee (in accordance with subsection (4) below).
(4) The losses treated as accruing to the transferee under subsection (3)(b) above shall be deemed to be BLAGAB allowable losses accruing to the transferee in the accounting period of the transferee in which the transfer takes place.
(5) But those losses are not allowable as a deduction from chargeable gains accruing before the transfer takes place.
(6) For the purposes of section 210A (ring-fencing of losses), the shareholders' share of those losses is to be taken to be the same proportion as would be the shareholders' share of them if they had remained losses of the transferor.
(7) If only part of the transferor’s basic life assurance and general annuity business is transferred, subsection (3) above applies as if the references to the relevant unused losses were to such part of the relevant unused losses as is appropriate.
(8) If the transfer is to more than one others, subsection (3)(b) above applies as if the reference to the relevant unused losses being treated as accruing to the transferee were to such part of the relevant unused losses as is appropriate being treated as accruing to each of the transferees.
(9) Any question arising as to the operation of subsection (7) or (8) above shall be determined by the Special Commissioners who shall determine the question in the same manner as they determine appeals; but both the transferor and the transferee (or the one of the transferees concerned) shall be entitled to appear and be heard or to make representations in writing.
(10) In this section “BLAGAB allowable losses” means allowable losses referable to the transferor’s basic life assurance and general annuity business.
.
(2) Sub-paragraph (1) has effect in relation to insurance business transfer schemes taking place on or after 1st January 2003.
Meaning of “investment reserve” etc
25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 In paragraph 4(5) of Schedule 19AA to the Taxes Act 1988 (overseas life assurance fund), in the definition of “investment reserve”, for paragraphs (a) and (b) substitute—
(a) the value of the liabilities of that business, and
(b) any money debts of the company not within paragraph (a) above which are owed in respect of that business;
.
28 Paragraphs 25 to 27 have effect in relation to periods of account beginning on or after 1st January 2003.
Meaning of “period of account”
29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rationalisation of interpretation provisions
30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 40 Acquisition by company of its own shares
Section 195
Venture capital trusts
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stamp duty and stamp duty reserve tax
2 In section 66 of the Finance Act 1986 (c. 41) (stamp duty: company’s purchase of own shares)—
(a) in subsection (2)—
(i) for “The return which relates to the shares” substitute “ Any return which relates to any of the shares ”,
(ii) after “169” insert “ (1) or (1B) ”, and
(iii) after “transferring the shares” insert “ to which it relates ”,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) in subsection (3), after “169” insert “ (1) or (1B) ”.
3 In section 90 of that Act (exemptions from stamp duty reserve tax), after subsection (7) insert—
(7A) Section 87 above does not apply as regards an agreement to transfer any shares in a company which are held by the company (whether in accordance with section 162A of the Companies Act 1985 (treasury shares) or otherwise).
.
4 (1) Section 92 of that Act (stamp duty reserve tax: repayment or cancellation of tax) is amended as follows.
(2) After subsection (1B) insert—
(1C) If, as regards an agreement to transfer shares in a company to that company (“the own-shares agreement”)—
(a) tax is charged under section 87 above, and
(b) it is proved to the Board’s satisfaction that at a time in the period of six years beginning on the relevant day (as defined in section 87(3)) the conditions mentioned in subsection (1D) have been fulfilled in respect of those shares,
subsections (2) to (4A) apply.
(1D) The conditions referred to in subsection (1C) are—
(a) that, in relation to the transfer made in pursuance of the own-shares agreement, a return has been made in respect of each of those shares in accordance with section 169(1) or (1B) of the Companies Act 1985 (disclosure by company of purchase of own shares), and
(b) that any such return has been duly stamped in accordance with section 66.
.
(3) In subsection (2), after “subsection (1)” insert “ or, as the case may be, (1C) ”.
5 In Schedule 13 to the Finance Act 1999 (c. 16) (stamp duty: instruments chargeable and rates of duty), in Part 1 (conveyance or transfer on sale), in paragraph 1 (stamp duty charge), after sub-paragraph (2) insert—
(3) Sub-paragraph (1) is subject to sub-paragraphs (4) to (6).
(4) Where a company acquires any shares in itself by virtue of section 162 of the Companies Act 1985 (power of company to purchase own shares) or otherwise, sub-paragraph (1) does not apply to any instrument by which the shares are transferred to the company.
(5) Where a company holds any shares in itself by virtue of section 162A of that Act (treasury shares) or otherwise, any instrument to which sub-paragraph (6) applies is to be treated for the purposes of this Schedule as a conveyance otherwise than on sale, and paragraph 16 applies accordingly.
(6) This sub-paragraph applies to any instrument for the sale or transfer of any of the shares by the company, other than an instrument which, in the absence of sub-paragraph (5), would be an instrument in relation to which—
(a) section 67(2) of the Finance Act 1986 (transfer to person whose business is issuing depositary receipts etc), or
(b) section 70(2) of that Act (transfer to person who provides clearance services etc),
applied.
.
Section 196
Accounting period for company in administration
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Responsibility of officers of company in administration
2 (1) Section 108 of the Taxes Management Act 1970 (c. 9) (responsibility of company officers) is amended as follows.
(2) In subsection (3)(a)—
(a) after first “liquidator” insert “ or administrator ”, and
(b) after second “liquidator” insert “ or, as the case may be, administrator ”.
(3) After subsection (3) insert—
(4) For the purposes of subsection (3)(a), where two or more persons are appointed to act jointly or concurrently as the administrator of a company, the proper officer is—
(a) such one of them as is specified in a notice given to the Board by those persons for the purposes of this section, or
(b) where the Board is not so notified, such one or more of those persons as the Board may designate as the proper officer for those purposes.
.
Tax on companies in administration
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit for bad debt where parties connected and creditor insolvent
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commencement
5 (1) Subject to sub-paragraph (2), this Schedule has effect in relation to companies which enter administration (whether under the Insolvency Act 1986 (c. 45) or otherwise) on or after the commencement of section 248 of the Enterprise Act 2002 (c. 40) (which substitutes Part 2 of the Insolvency Act 1986 (administration)).
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 200
Introductory
1 Part 2 of Schedule 25 to the Taxes Act 1988 (controlled foreign companies: exempt activities) is amended as follows.
Companies engaged in wholesale, distributive, financial or service business
2 (1) Paragraph 6 (meaning of “engaged in exempt activities”) is amended as follows.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) In sub-paragraph (2A) (persons from whom less than 50% of the gross trading receipts of a wholesale etc business of the controlled foreign company must be derived) omit the word “and” immediately preceding paragraph (c) and at the end of that paragraph add
;
(d) persons not falling within paragraphs (a) to (c) above which are companies resident in the United Kingdom;
(e) persons not falling within paragraphs (a) to (c) above which are companies not resident in the United Kingdom which carry on business through a branch or agency in the United Kingdom;
(f) persons not falling within paragraphs (a) to (c) above who are individuals habitually resident in the United Kingdom;
but where the company is a controlled foreign company falling within sub-paragraph (2B) below, paragraphs (d) to (f) above shall be disregarded.
.
(4) After sub-paragraph (2A) insert—
(2B) A controlled foreign company falls within this sub-paragraph if either—
(a) its main business is the effecting or carrying out of contracts of long-term insurance, other than protection business; or
(b) it is a member of an insurance group and its main business is insuring or reinsuring large risks.
Paragraph 11A below has effect for the interpretation of this sub-paragraph.
(2C) For the purposes of sub-paragraph (2)(b) above, a company’s gross trading receipts from a business shall be regarded as directly or indirectly derived from a person falling within sub-paragraph (2A)(e) above only to the extent that they are derived directly or indirectly from contracts or other arrangements relating to that person’s branch or agency in the United Kingdom.
.
(5) In sub-paragraph (4C) (which defines for the purposes of sub-paragraph (2)(b) a “25 per cent assessable interest”, an expression not used in sub-paragraph (2)(b) but used in sub-paragraph (2A)(b)) for “(2)(b)” substitute “ (2A)(b) ”.
Companies engaged in business of banking etc
3 (1) Paragraph 11 (provisions relating to wholesale, distributive, financial or service business) is amended as follows.
(2) In sub-paragraph (3) (controlled foreign company engaged in business of banking etc) for paragraph (a) (interest from UK company not to be regarded as receipt derived from connected or associated persons) substitute—
(a) no payment of interest received from a company resident in the United Kingdom which is connected or associated with the controlled foreign company shall be regarded for the purposes of paragraph 6(2)(b) above as a receipt derived directly or indirectly from a person falling within paragraph 6(2A) above, but
.
(3) At the end of paragraph (b) of that sub-paragraph (the capitalisation test) add
, and
(c) it shall also be conclusively presumed that the condition in paragraph 6(2)(b) is not fulfilled if 10% or more of the company’s gross trading receipts from all businesses carried on by it in the accounting period in question, taken together, are receipts other than interest and are directly or indirectly derived from persons—
(i) which are companies resident in the United Kingdom,
(ii) which are companies not resident in the United Kingdom but which carry on business through a branch or agency in the United Kingdom, or
(iii) who are individuals habitually resident in the United Kingdom,
but for this purpose a company’s gross trading receipts shall be regarded as directly or indirectly derived from a person falling within sub-paragraph (ii) above only to the extent that they are derived directly or indirectly from contracts or other arrangements relating to that person’s branch or agency in the United Kingdom.
.
Interpretation of paragraph 6(2B)
4 After paragraph 11 insert—
11A (1) This paragraph has effect for the interpretation of paragraph 6(2B) above.
(2) “Contract of long-term insurance” means any contract falling within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
(3) “Protection business” means contracts of long-term insurance where—
(a) either—
(i) the contract has no surrender value; or
(ii) the consideration consists of a single premium and the surrender value does not exceed the amount of that premium; and
(b) the contract makes no provision for its conversion or extension in a manner which would result in its ceasing to fall within paragraph (a) above;
and references to protection business include a reference to reinsurance of protection business.
(4) “Insurance group” shall be construed in accordance with section 255A(5) of the Companies Act 1985 (meaning of “insurance group” in Part 7) but reading Part 7 of that Act—
(a) as if it extended to Northern Ireland, and
(b) as if any reference to a company (within the meaning of that Act) included a reference to a company as defined in Article 3 of the Companies (Northern Ireland) Order 1986,
but does not include such an insurance group if it falls within sub-paragraph (5) below.
(5) Such an insurance group falls within this sub-paragraph if (within the meaning of that Part as so read) the parent company is a subsidiary undertaking of a parent company which is neither—
(a) the parent company of an insurance group; nor
(b) a subsidiary undertaking of the parent company of an insurance group.
(6) A controlled foreign company is, in accordance with sub-paragraphs (4) and (5) above, a “member of an insurance group” if (within the meaning of that Part as so read) it is the parent company, or a subsidiary undertaking of the parent company, of an insurance group which is by virtue of sub-paragraph (4) above an insurance group for the purposes of paragraph 6(2B) above.
(7) A company’s main business is “insuring or reinsuring large risks” if (and only if)—
(a) the company’s main business is the effecting or carrying out of contracts of insurance; and
(b) 50% or more of its gross trading receipts from that business are derived from insuring or reinsuring large risks.
“Large risks” is defined in paragraph 11B below.
(8) In this paragraph—
“contract of insurance” has the meaning given by article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“contract of long-term insurance” has the meaning given by sub-paragraph (2) above.
11B (1) In paragraph 11A above “large risks” means—
(a) risks falling within classes 4, 5, 6, 7, 11 and 12 of Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
(b) risks falling within classes 14 and 15 of that Part which relate to a business carried on by the policy holder;
(c) risks falling within classes 3, 8, 9, 10, 13 and 16 of that Part where the policy holder carries on a business in respect of which the condition specified in sub-paragraph (2) below is satisfied.
(2) The condition referred to in sub-paragraph (1)(c) above is that, in the case of that business of the policy holder, at least two of the three following criteria were exceeded in the most recent financial year beginning on or after 1st January 1999 for which the information is available—
(a) balance sheet total: 6.2 million euros;
(b) net turnover: 12.8 million euros;
(c) number of employees: 250.
(3) For the purposes of sub-paragraph (2) above as it applies where the policy holder is a company, within the meaning of section 735(1) of the Companies Act 1985 or Article 3 of the Companies (Northern Ireland) Order 1986,—
(a) “balance sheet total” has the meaning given by section 247(5) of that Act or Article 255(5) of that Order;
(b) “net turnover” has the meaning given to “turnover” by section 262(1) of that Act or Article 270(1) of that Order; and
(c) “number of employees” has the meaning given by section 247(6) of that Act or Article 255(6) of that Order;
and for a financial year which is a company’s financial year but not in fact a year, the net turnover of the company shall be proportionately reduced.
(4) Where the policy holder is a member of a group for which consolidated accounts (within the meaning of Directive 83/349/EEC) are drawn up, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to those accounts.
(5) For the purposes of sub-paragraph (1)(c) above as it applies where the policy holder is a professional association, joint venture or temporary grouping, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to the aggregate of the figures of the description in question for all the members of the professional association, joint venture or temporary grouping.
(6) In sub-paragraphs (1) to (5) above “business” includes a trade or profession and, for the purposes of sub-paragraph (1)(c) above, any activity of a professional association, joint venture or temporary grouping.
(7) For the purposes of this paragraph, where an amount is denominated in any accounts in a currency other than the euro, it shall be converted into its equivalent in euros using the London closing exchange rate for that currency and the euro for the last day of the period to which the accounts relate.
(8) In this paragraph—
“euro” means the single currency adopted or proposed to be adopted as its currency by a member State in accordance with the Treaty establishing the European Community;
“financial year”, in relation to any person, means the period (not exceeding 12 months) for which that person makes up accounts.
.
Section 216
Part 1 Excise duties
(1) General betting duty
Short title and chapter | Extent of repeal
Betting and Gaming Duties Act 1981 (c. 63) | Section 5A. In section 5C, subsections (2) and (3) and, in subsection (4), the words “In the case of a bet which is excluded from subsection (2) by virtue of subsection (3),”.
1 The repeal of section 5A has effect in accordance with section 6(6) of this Act.
2 The repeals in section 5C have effect in accordance with section 7(5) and (6) of this Act.
(2) Bingo duty
Short title and chapter | Extent of repeal
Betting and Gaming Duties Act 1981 (c. 63) | In Schedule 3— paragraphs 11, 12 and 15; paragraph 16(2)(b) and the word “or” preceding it.
These repeals have effect in accordance with section 9 of this Act.
(3) Amusement machine licence duty
Short title and chapter | Extent of repeal
Betting and Gaming Duties Act 1981 (c. 63) | In section 26— the definition of “coin” in subsection (2); subsection (4).
These repeals have effect in accordance with section 11(3) of this Act.
(4) Vehicle excise duty
Short title and chapter | Extent of repeal
Vehicle Excise and Registration Act 1994 (c. 22) | Section 16.
This repeal has effect in accordance with section 16 of this Act.
Part 2 Value added tax
Face-value vouchers
Short title and chapter | Extent of repeal
Value Added Tax Act 1994 (c. 23) | In Schedule 6, paragraph 5.
This repeal has effect in accordance with paragraph 4 of Schedule 1 to this Act.
Part 3 Income tax, corporation tax and capital gains tax
(1) Provision of services through intermediary
Short title and chapter | Extent of repeal
Income Tax (Earnings and Pensions) Act 2003 (c. 1) | Section 49(2). In section 56(7), paragraph (c) and the word “and” preceding it.
These repeals have effect in accordance with section 136(4) of this Act.
(2) Taxable benefits: cars: CO2 emissions
Short title and chapter | Extent of repeal
Income Tax (Earnings and Pensions) Act 2003 (c. 1) | In the table in section 139(4), in the entry for 2004-05 and subsequent tax years, the words “and subsequent tax years”.
(3) Approved share plans and schemes
Short title and chapter | Extent of repeal
Income Tax (Earnings and Pensions) Act 2003 (c. 1) | In section 701(2)(c)(i), the words “or 4 (approved CSOP schemes)”. In Schedule 2, paragraphs 18(1)(a) and 47(3). In Schedule 3, in paragraph 34(5), the words following paragraph (b).
(4) Employee securities and options
Short title and chapter | Extent of repeal
Income Tax (Earnings and Pensions) Act 2003 (c. 1) | In section 19(2), the entries relating to Chapters 8 and 9 of Part 3. In section 32(2), the entries relating to Chapters 8 and 9 of Part 3. In section 63(1), the entries relating to Chapters 8 and 9 of Part 3. Section 64(5) and (6). Chapters 8 and 9 of Part 3. In section 216— in subsection (4), the entries relating to Chapters 8 and 9 of Part 3; in subsection (6), the entries relating to sections 195(3) and 199(4). Section 227(4)(d), (f) and (h). Section 491. Sections 494 and 495. Section 518. Section 519(4). Section 520. Section 523. Section 524(4). Section 525. Section 528. In section 701(2)(b), the words “subject to section 700(6),”. In Part 2 of Schedule 1, the entries listed in paragraph 42(2) of Schedule 22 to this Act. In Schedule 7, paragraphs 30, 31, 47, 48, 50 to 53, 55(2)(a), 59 to 62, 66 and 67.
Finance Act 2003 | In Schedule 23, in paragraph 31, the entry relating to “subject to forfeiture”.
These repeals have effect in accordance with Schedule 22 to this Act.
(5) Deductions for employee benefit contributions
Short title and chapter | Extent of repeal
Finance Act 2002 (c. 23) | In Schedule 29, in paragraph 113(3)(a) the words “or benefits” and “, or held by an intermediary,”.
These repeals have effect in accordance with paragraph 11(1) of Schedule 24 to this Act.
(6) References to branch or agency
Short title and chapter | Extent of repeal
Taxes Management Act 1970 (c. 9) | In section 118(1), the definitions of “branch or agency” and “branch or agent”.
Income and Corporation Taxes Act 1988 (c. 1) | Section 95(1A)(e).
Taxation of Chargeable Gains Act 1992 (c. 12) | In section 10— subsection (3); in subsection (4), the words “or corporation tax”.
Finance Act 1994 (c. 9) | In section 219(4A), the words “11(2)(a) or”.
Finance Act 1995 (c. 4) | In section 126— in subsection (1), the words “, corporation tax”; in subsection (2)(c), the words from “or fall” to “non-resident”; in subsection (2), paragraph (d) and the word “and” preceding it; in subsection (9), paragraph (b) and the word “and” preceding it. In section 127— in subsection (5)(b), the words “or 129”; in subsection (19), paragraph (b) and the word “and” preceding it. Section 129.
Finance (No. 2) Act 1997 (c. 58) | Section 24(3)(e).
These repeals have effect in relation to accounting periods beginning on or after 1st January 2003.
(7) Capital gains tax: reporting limits and annual exempt amount
Short title and chapter | Extent of repeal
Taxation of Chargeable Gains Act 1992 (c. 12) | Section 3(6). In Schedule 1, paragraph 2(3).
These repeals have effect in accordance with paragraph 7 of Schedule 28 to this Act.
(8) Chargeable gains: earn-out rights
Short title and chapter | Extent of repeal
Taxation of Chargeable Gains Act 1992 (c. 12) | In section 138A— in subsection (2), paragraph (c) and the word “and” preceding it; in subsection (4), paragraph (e) and the word “and” preceding it.
These repeals have effect in accordance with section 161 of this Act.
(9) First-year allowances for expenditure on eco-friendly plant or machinery
Short title and chapter | Extent of repeal
Capital Allowances Act 2001 (c. 2) | In section 39, the word “or” at the end of the entry relating to section 45E. In section 46(1), the word “or” at the end of the entry relating to section 45E. In Part 2 of Schedule 1, in the first column of the entry relating to the expression “long life asset expenditure”, the words “Chapter 10 of”.
These repeals have effect in accordance with section 167 of this Act.
(10) Relief for research and development
Short title and chapter | Extent of repeal
Finance Act 2000 (c. 17) | In Schedule 20, in paragraph 5(3)— the words “the following rules apply”; paragraphs (a) and (b); in paragraph (c), the words “in any other case,”.
Finance Act 2002 (c. 23) | In Schedule 12— in paragraph 7(2), the word “and” preceding paragraph (b); in paragraph 11(3), the word “and” preceding paragraph (b); in paragraph 15(1), the word “or” preceding paragraph (c); in paragraph 17, the word “and” preceding paragraph (c). In Schedule 13, in paragraph 5(3), the word “and” preceding paragraph (d).
These repeals have effect in accordance with section 168 of this Act.
(11) Tonnage tax: capital allowances for lessors
Short title and chapter | Extent of repeal
Finance Act 2000 (c. 17) | In Schedule 22— the word “finance” in the first sentence of paragraph 41(4), in paragraphs 89(1), 90(1), 92(1), 94(1), 98(1)(a) and 99(1)(a) and in the heading to paragraph 93; in paragraph 93(1), the words “finance” and “either”; in paragraph 147, the entry for “finance lease (and lessor and lessee) (in Part X)”.
These repeals have effect in relation to any lease (within the meaning given by paragraph 5 of Schedule 32 to this Act) entered into on or after 19th December 2002.
(12) Insurance companies
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | Section 432A(9B). In section 432E(2), paragraph (a) and, in paragraph (b), the words “in any other case,”. In section 436(3)(a), the words after “modifications”. In section 438B(5), paragraph (b) and the word “and” before it. In section 439B(3)(a), the words “and in particular with the omission of the words “and any amounts of tax which are expended on behalf of” in section 82(1)(a)”. In section 441— in subsections (1) and (2), the words “and section 441A”; in subsection (4)(a), the words “and in particular with the omission of the words “and any amounts of tax which are expended on behalf of” in section 82(1)(a)”. In section 442A(4), the words “to the company”. In Schedule 28AA, in paragraph 5(6)(b), the words “or 88A”.
Finance Act 1989 (c. 26) | In section 83— in subsection (5), paragraph (b) and the word “but” before it; subsection (6A); in subsection (8), in the definition of “total reinsurance”, the words “before the making of the contract of reinsurance (or, in a case where there are two or more contracts of reinsurance, the last of them)”. In section 83AA— subsections (3) to (5) and (6)(a); in subsection (7), paragraph (b) and the word “and” before it; in subsection (10), the definitions of “the relevant accounting period” and “the transferor company”. Section 83AB(1)(c)(i). In section 83A(2), the second sentence. Section 84(1). In section 87(6)(b), the words “, disregarding section 76(1)(e) of that Act (as set out in subsection (2) above),”. In section 88(1), the words “and section 88A”. Section 88A. In section 89— in subsection (1), the words “or, as the case may be, basic life assurance and general annuity business”; in subsection (7), the definition of “the Prudential Sourcebook (Insurers)”.
Finance Act 1990 (c. 29) | Section 43. Section 45(5).
Finance Act 1991 (c. 31) | In Schedule 7— in paragraph 1(a), the words “and (e)”; paragraph 11.
Taxation of Chargeable Gains Act 1992 (c. 12) | In section 204(4), the words from “and in subsection (3)” onwards. Section 211(1A). In section 212(7), the words following paragraph (b). Section 213(3A) and (3B). In Schedule 7AD, in paragraph 10(1), the definitions of “insurance company”, “long-term business” and “long-term insurance fund”. In Schedule 7B, in paragraph 1, the words “(as defined in section 431(2) of the Taxes Act)”.
Finance Act 1996 (c. 8) | In Schedule 6, paragraph 26. In Schedule 11, in paragraph 4— in sub-paragraph (2), the word “net” (in both places); in sub-paragraph (16), the definition of “net income and gains”.
Finance Act 1998 (c. 36) | Section 137(4) and (7).
Finance Act 2000 (c. 17) | In Schedule 30, paragraph 18(3).
Finance Act 2002 (c. 23) | In Schedule 25, paragraph 46.
1 The repeals in sections 432A, 436, 439B and 441(4)(a) of the Taxes Act 1988, the repeals in sections 83(5), 83AA and 83AB of the Finance Act 1989, the repeal of section 43 of the Finance Act 1990 and the repeals in the Finance Act 2000 and the Finance Act 2002 have effect for periods of account beginning on or after 1st January 2003.
2 The repeals in section 432E of the Taxes Act 1988 have effect in accordance with paragraph 10(5) of Schedule 33 to this Act.
3 The repeals in section 438B of, and in Schedule 28AA to, the Taxes Act 1988, the repeal in section 88 of the Finance Act 1989, the repeal of section 88A of that Act, the repeal in section 89(1) of that Act and the repeal in Schedule 6 to the Finance Act 1996 have effect for the financial year 2003 and subsequent financial years.
4 The repeal in section 442A of the Taxes Act 1988 has effect in accordance with paragraph 23(5) of Schedule 33 to this Act.
5 The repeal in section 83(8) of the Finance Act 1989 has effect in accordance with paragraph 2(11) of that Schedule.
6 The repeals in section 87 of the Finance Act 1989, paragraph 1(a) of Schedule 7 to the Finance Act 1991 and Schedule 11 to the Finance Act 1996 have effect in accordance with paragraph 8(4) of that Schedule.
7 The repeal of section 45(5) of the Finance Act 1990 has effect in relation to distributions on or after 9th April 2003.
8 The repeals in section 213 of the Taxation of Chargeable Gains Act 1992 and the Finance Act 1998 have effect in accordance with paragraph 16(6) of Schedule 33 to this Act.
(13) Life insurance policies etc
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | In section 1A(2), the word “and” at the end of paragraph (b). Section 540(2). In Schedule 15, in paragraph 3(8), the words from “and” preceding paragraph (b)(iii) to the end of paragraph (c).
1 The repeal in section 1A of the Taxes Act 1988 has effect in accordance with section 173 of this Act.
2 The repeal of section 540(2) of that Act has effect in accordance with section 171 of, and Part 4 of Schedule 34 to, this Act.
3 The repeal in Schedule 15 to that Act has effect in accordance with section 172(6) of this Act.
(14) Loan relationships: late interest
Short title and chapter | Extent of repeal
Finance Act 1996 (c. 8) | In Schedule 9, in paragraph 2(6), in the definition of “participator”, the word “close”.
This repeal has effect in accordance with paragraph 2(4) of Schedule 37 to this Act.
(15) Repos etc
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | In section 737C— in subsection (3)(b), the word “gross”; subsection (4).
Finance Act 1996 (c. 8) | In Schedule 9, in paragraph 15(3)(b), the words “, or a person connected with him,”.
1 The repeals in the Taxes Act 1988 have effect in accordance with sub-paragraph (1) of paragraph 21 of Schedule 38 to this Act.
2 The repeal in the Finance Act 1996 has effect in accordance with sub-paragraph (2) of that paragraph.
(16) Relevant discounted securities
Short title and chapter | Extent of repeal
Finance Act 1996 (c. 8) | In Schedule 13— in paragraph 1(3)(a), the words “reduced by the amount of any relevant costs”; paragraph 1(4); paragraph 2; paragraph 6(4) to (6); paragraphs 7, 9A and 11; in paragraph 14(2) and (3), the words “gilt-edged”; in paragraph 14(4), the words after paragraph (c).
Finance Act 2002 (c. 23) | Section 104(3).
These repeals have effect in accordance with paragraph 6 of Schedule 39 to this Act.
(17) Court common investment funds
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | In section 469A— in subsection (2), the words “(subject to subsection (3) below)”; subsection (3).
These repeals have effect in relation to income arising to a common investment fund (within the meaning of section 183 of this Act) on or after 6th April 2003.
Part 4 Other taxes
(1) Inheritance tax: authorised unit trusts
Short title and chapter | Extent of repeal
Inheritance Tax Act 1984 (c. 51) | In section 178(1), in the definition of “qualifying investments”, the words “(as defined in section 468 of the Taxes Act 1988)”.
Income and Corporation Taxes Act 1988 (c. 1) | In Schedule 29, in the table in paragraph 32, the entry relating to section 178(1) of the Inheritance Tax Act 1984.
These repeals have effect in relation to transfers of value and other events occurring on or after 16th October 2002.
(2) Climate change levy
Short title and chapter | Extent of repeal
Finance Act 2000 (c. 17) | In Schedule 6— paragraph 15(5); in paragraph 41(1)(c), the words “for any period”; in paragraph 100(1), the words “for an accounting period”; paragraph 148(6); in paragraph 149(1), the words “the percentage that is to be stated in a certificate under paragraph 148 as”.
These repeals, except the ones in paragraphs 41(1)(c) and 100(1), have effect in accordance with section 189(5) of this Act.
Part 5 Miscellaneous
(1) Exchange of information between tax authorities of member States
Short title and chapter | Extent of repeal
Finance Act 1978 (c. 42) | Section 77.
Finance Act 1980 (c. 48) | Section 17.
Finance Act 1990 (c. 29) | In section 125, subsection (5) and the words after “appoint” in subsection (6).
Finance Act 1993 (c. 34) | Section 22.
(2) Controlled foreign companies: exempt activities
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | In Part 2 of Schedule 25, in paragraph 6(2A), the word “and” preceding paragraph (c).
This repeal has effect in accordance with section 200 of this Act.
(3) Authorised unit trusts: interest distributions
Short title and chapter | Extent of repeal
Income and Corporation Taxes Act 1988 (c. 1) | Section 468O(2) to (4). In section 468P— subsection (4); in subsection (5), the words “or (4)” and the words “or, as the case may be, resident” (in both places); subsections (8) and (9).
Finance Act 1996 (c. 8) | In Schedule 7, paragraph 17.
Finance Act 2002 (c. 23) | Section 96(3)(a).
These repeals have effect in relation to interest distributions made on or after 16th October 2002.
(4) National savings
Short title and chapter | Extent of repeal
Finance Act 1980 (c. 48) | In section 120, subsections (4), (5) and (8) and, in subsection (9), the words “and subsection (8) above from the passing of this Act”.
Finance Act 1998 (c. 36) | In section 162, subsection (1)(a), and the word “and” before it, and subsections (2) and (5).
(5) Other financial matters
Short title and chapter | Extent of repeal
National Loans Act 1968 (c. 13) | Section 15(3). Section 19(3). Section 21(3). In Schedule 5A— paragraph 8 (and the heading before it); paragraph 13(2).
Finance Act 1982 (c. 39) | Section 152(3).
The repeal of section 21(3) of the National Loans Act 1968 has effect in accordance with section 212(5) of this Act.